Government “Planning” A High-Density Housing Crash

29 Tuesday Sep 2015

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central planning, Chinese malinvestment, Densification, Detached Housing, Fannie Mae, Freddie Mac, High-density housing, Housing, Housing inflation, Joel Kotkin, New Geography, Oversupply, Regionalism, Too big to fail, Urban planning

How will the next housing bust play out? Joel Kotkin believes that it will be an unavoidable consequence of “high-density” policies imposed by central planners. That is Kotkin’s major theme in “China’s Planned City Bubble Is About To Pop—And Even You’ll Feel It“, an essay in New Geography.

Central planning generally achieves undesirable results because it is incapable of solving the “knowledge problem”. That is, planners lack the detailed and dynamic information needed to align production with preferences. Freely-operating markets do not face this problem because voluntary trade between individuals establishes prices that balance preferences with resource availability. There are severe frictions in the case of housing that slow the process, but it is almost as if central planners willfully ignore strong signals about preferences, instead promoting measures such as “containment policies” and “regionalism” that restrict choice and inflate home prices. Of course, the technocratic elite think they know what’s good for you!

Kotkin begins by drawing a contrast between policies that led to the last housing crisis and the short-sighted policies now in place that could lead to another:

“If the last real estate collapse was created due to insanely easy lending policies aimed at the middle and working classes, the current one has its roots largely in a regime of cheap money married to policies of planners who believe that they can shape the urban future from above.“

The list of bad government policies precipitating the last housing bust is long, and I have discussed them before here on Sacred Cow Chips. They included federal encouragement of loose lending standards, a strong bias favoring mortgage assets embedded in bank capital standards, the implicit federal guarantee of Fannie Mae and Freddie Mac against losses, the mortgage-interest income tax deduction, and an easy-money policy by the Federal Reserve. These all represent market distortions that led to a malinvestment of excess housing. Several of those policies are still in place, and today the presumption of “too-big-too-fail” financial guarantees by the federal government is as strong as ever, so risk is not adequately managed.

But the tale of today’s housing market woes told by Kotkin really begins in China, where the government has been on a high-density housing binge for a number of years:

“As a highpoint in social engineering, a whole new dense city (Kangbashi) has been constructed by the Ordos, Inner Mongolia city government, in the middle of nowhere, growing, but still apparently mainly vacant. … The key here is not so much planning, per se, but planning in a manner that ignores the aspirations of people. Americans no more want to live stacked in boxes in the middle of nowhere than do their Chinese counterparts.“

Kotkin is too generous to central planning, and he is sloppy about the distinction between public and private planning efforts: while China’s current real estate difficulties may be a case of extreme negligence, central government planning always has and always will suffer from a mismatch between preferences and supplies that is strongly resistant to self-correction. Ultimately, resources are wasted. In any case, China’s easy monetary policy and efforts to “densify” led to an inflation of urban housing prices. The situation is unsustainable and the market is now extremely weak.

Can the U.S. “catch China’s cold”, as Kotkin suggests? That’s likely for several reasons. First, as noted by Kotkin, the Chinese government’s efforts to stabilize domestic asset prices and maintain economic growth have led to restrictions on foreign investment, which will undercut asset values in the U.S. (and even more in Australia). More importantly, governments in the U.S. have caught an extreme case of the “planning bug” with the same bias in favor of high density as the Chinese central planners:

“… increasingly, particularly during the Obama years, state planning agencies, notably in California, and the federal Department of Housing and Urban Development (HUD) have embraced a largely anti-suburban, pro-density agenda.“

Kotkin cites evidence of a strong preference among U.S. households for detached housing, but government authorities prefer to dictate their own vision of residential life:

“… like Soviet planners and their Chinese counterparts, our political elite and the planning apparat seem to care little about preferences, and have sought to limit single-family homes through regulations. This is most evident in California, notably its coastal areas, where house prices and rents have risen to hitherto stratospheric levels.

The losers here include younger middle and working class families. Given the regulatory cost, developers have a strong incentive to build homes predominately for the affluent; the era of the Levittown-style ‘starter home’, which would particularly benefit younger families, is all but defunct. Spurred by the current, highly unequal recovery, these patterns can be seen elsewhere, with a sharp drop in middle income housing affordability while the market shifts towards luxury houses.“

In an interesting aside, Kotkin emphasizes that high-density housing is often more expensive to construct than single-family homes, so it does not advance the cause of affordability, as is often claimed.

The close of Kotkin’s essay summarizes misguided policies now in place and the ominous conditions they have created in some of the nation’s most expensive housing markets:

“Today’s emerging potential bubble is driven in large part by low interest rates and a new post—TARP financial structure, anchored by ultra-low interest rates, which favor wealthy investors…. This, plus planning policies, has accelerated a boom in multi-family construction, much of it directed at high-end consumers. In New York and London, wealthy foreigners as well as the indigenous rich have invested heavily in high-rise apartments, many of which remain empty for much of the year. In San Francisco, for example, roughly half of all new condos are owned by non-residents, including both Chinese investors and Silicon Valley executives. … Since the vast majority of people cannot afford to buy these apartments, even if they want them, this kind of construction does little to address the country’s housing shortage.“

Housing policy has long been dominated by subsidies that encourage over-investment in housing. At the same time, restrictions increasingly limit the development of detached homes, which is what most people prefer. Local control over decisions about housing development is being compromised by intrusive federal policies of “regionalism” that demand more high-density housing in costly areas. These policies are unlikely to benefit low- and middle-income households, who are increasingly unable to afford the high cost of quality urban housing as either renters or buyers. Either prices must adjust downward, as Kotkin suggests, or more subsidies will be required to keep the bubble inflated. Like China, we will be unable to stave off a correction indefinitely.

Statists and Stasis: The Dismal Solutions of Anti-Capitalists

26 Wednesday Aug 2015

Posted by Nuetzel in Capitalism, Markets, Socialism, Tyranny

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A. Barton Hinkle, Administered Prices, Anti-Capitalism, Asymmetric Information, Bernie Sanders, central planning, Chris Edwards, Coercive Power, Coyote Blog, Dead Weight Loss, External Effects, Foundation for Economic Education, Fred Foldvary, Jonathan Newman, Mercatus Center, Progressivism, Reason, Robert P. Murphy, Socially useless, Statism and Stasis, The Freeman, Warren Meyer

The anti-capitalist Left is quick to condemn private businesses of unfair practices and even unethical behavior. In their estimation, certain prices are not just and profits are somehow undeserved rewards to private property, risk-taking and entrepreneurial sweat. They somehow imagine that meeting market demands is an easy matter, or worse, that market demands are not “socially useful”. Few have ever attempted to run a business, or if they have, they were unsuccessful and resent it. They also cannot grasp the social function served by private markets, to which we owe our standard of living and much of our culture.

What alternatives do these deep thinkers suggest? A socialist utopia? Jonathan Newman discusses the many practical problems presented by socialism and why it always fails to achieve success comparable to societies that rely on free markets. Newman’s treatment covers the inability of administered pricing to convey accurate information and effective incentives, the waste induced by queuing, neglect of comparative advantage, waste induced by production quotas, retarded innovation and technological development, and a deeply embedded stasis in the face of changing conditions. Little wonder that poverty is a consequence.

Warren Meyer at Coyote Blog has written of the stasis seemingly promoted by the progressives. They are quite protective of the status quo. Ironically, and quite rightly, Meyer calls them “deeply conservative”, too conservative to accept the dynamism of a capitalistic society. From Meyer:

“Progressives want comfort and certainty. They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount. Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns. Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry. They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.“

Freezing the diffusion of technology and often the state of technology itself is a consequence of socialist policy. And technology may well be the enemy of the Left in another sense: An interesting twist is provided by Fred Foldvary of the Mercatus Center in “Government Intervention Is Becoming Obsolete“. He writes that technology is undermining all of the usual economic rationales for intervention: asymmetric information, external effects, public goods, and monopoly. The article is brief, but he refers the reader to more extensive treatments.

A good example of socialism’s perverse appeal is the rhetoric of Senator Bernie Sanders, now a candidate for the Democrat Presidential nomination. Sanders has criticized the “the dizzying (and socially useless) number of products in the deodorant category….” At Reason.com, A. Barton Hinkle wondered what Sanders might consider the appropriate number of deodorant choices in our society. Would he wish to dictate a limited number as a matter of policy? And what other “socially useless” choices might he choose to limit in his failure to grasp that these choices reflect the incredible health and vibrancy of a market economy. Here’s Hinkle:

“… central planners think they can allocate economic resources better than the unguided hand of individual free choice. Like any good scientific experiment, this one is easily replicated, and has been time and again. See, for example, Venezuela, which has now run out of toilet paper, tampons, and other basic necessities because some people there think they should make all the choices for other people. And yet for many, the repeated lesson still has not sunk in. In an unintentionally hilarious essay about Cuba not so long ago, one writer noted that “the people are hungry here. There are severe food shortages. I do not understand why a tropical island would lack fruits and vegetables . . . and my only assumption is that maybe they have to export it all.”

Never forget that government can only pursue policy objectives via coercive power. I don’t think socialists have forgotten at all. Without the power to coerce, nothing proposed or done by the state can be accomplished and enforced. This is the course that progressive, anti-capitalists must follow to achieve their collectivist vision. But Chris Edwards reminds us that “Coercion Is Bad Economics” with the following points about government:

When it “uses coercion, its actions are based on guesswork.“
Its “actions often destroy value because they [arbitrarily] create winners and losers.“
Its “activities fail to create value because the funding comes from a compulsory source: taxes.”
Its “programs often fail to generate value because the taxes to support them create “deadweight losses” or economic damage.“

By arranging voluntary, mutually beneficial trades, market forces avoid all of these problems. As Robert P Murphy explains in The Freeman, “Capitalists Have a Better Plan“.

The anti-capitalists do not hesitate to saddle private businesses with confiscatory tax and regulatory burdens in the name of their own vision of society. Want to live in a bleak world of decline? Then here’s your prescription, courtesy of the anti-capitalist Left: regulate heavily, monitor transactions, impose wage and price controls, dismantle markets, tax at punitive levels, confiscate property, censor “offensive” speech, extend dependence on the state, absorb private savings and crowd out private investment with government borrowing, and inflate the money stock. Smells like a crappy “utopia”.

Will ET Be a Socialist?

19 Wednesday Aug 2015

Posted by Nuetzel in Capitalism, Socialism, Space Travel

≈ 1 Comment

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B.K. Marcus, Capitalism, Carl Sagan, central planning, Colonizing Mars, Elon Musk, Enrico Fermi, Extraterrestrials, F.A. Hayek, Fermi Paradox, Huffington Post, Interstellar Travel, io9, Large Hadron Collider, NASA, Neil deGrasse Tyson, Planned Society, Private Space Exploration, Public goods, Self-Replicating Machines, SETI, Socialism, SpaceX, The Freeman, The Great Filter, Tim Urban

If we are ever visited or contacted by agents from an extraterrestrial civilization, what kind of society will they come from? The issue is given scant attention, if any, in discussions of extraterrestrial life, at least according to this interesting piece in The Freeman by B.K. Marcus. The popular view, and that of many scientists, seems to be that the alien society will be dominated by an authoritarian central government. Must that be the case? Marcus notes the negative views taken by such scientific authorities as Neil deGrasse Tyson toward laissez faire capitalism, and even Carl Sagan “… could only imagine science funded by government.” Of course, Tyson and Sagan cannot be regarded as authorities on economic affairs. However, I admit that I have fallen into the same trap regarding extraterrestrial visitors: that they will come from a socialist society with strong central command. On reflection, like Marcus, I do not think this view is justified.

One explanation for the default view that extraterrestrial visitors will be socialists is that people uncritically accept the notion that an advanced society is a planned society. This runs counter to mankind’s experience over the past few centuries: individual freedom, unfettered trade, capitalism and a spontaneous social order have created wealth and advancement beyond the wildest dreams of earlier monarchs. Anyone with a passing familiarity with data on world economic growth, or with F.A. Hayek, should know this, but it Is often overlooked. Central planners cannot know the infinitely detailed and dynamic information on technologies, resource availability, costs and preferences needed to plan a society with anything close to the success of one arranged through the voluntary cooperation of individual actors.

Many of us have a strong memory of government domination of space exploration, so we tend to think of such efforts as the natural province of government. Private contractors were heavily involved in those efforts, but the funding and high-level management of space missions (NASA in the U.S.) was dominated by government. Today, private space exploration is a growth industry, and it is likely that some of the greatest innovations and future space endeavors will originate in the private sector.

Another explanation for the popular view is the daunting social challenges that would be faced by crews in interstellar travel (IST). Given a relatively short life span, a colonizing mission would have to involve families and perhaps take multiple generations to reach its destination. There is a view that the mini-society on such a ship would require a command and control structure. Perhaps, but private property rights and a certain level of democratization would be advantageous. In any case, that carries no implication about the society on the home planet nor the eventual structure of a colony.

A better rationale for the default view of socialist ETs involves a public goods argument. The earth and mankind face infrequent but potentially catastrophic hazards, such as rogue asteroids and regions of strong radiation as the sun orbits the center of the Milky Way galaxy. These risks are shared, which implies that technological efforts to avert such hazards, or to perpetuate mankind by colonizing other worlds, are pure public goods. That means government has a classic role in providing for such efforts, as long as the expected benefits outweigh the costs. The standard production tradeoff discussed in introductory economics classes is “guns versus butter”, or national defense (a pure public good) versus private consumption. IST by an alien civilization could well require such a massive diversion of resources to the public sector that only an economically dominant central government could manage it. Or so it might seem.

As already noted, private entrepreneurs have debunked the presumed necessity that government must dominate space exploration. In fact, Elon Musk and his company SpaceX hope to colonize Mars. His motives sound altruistic, and in some sense the project sounds like the private provision of a public good. Here is an interpretation by Tim Urban quoted at the link (where I have inserted a substitute for the small time-scale analog used by the author):

“Now—if you owned a hard drive with an extraordinarily important Excel doc on it, and you knew that the hard drive pretty reliably tended to crash [from time to time] … what’s the very obvious thing you’d do?
You’d copy the document onto a second hard drive.
That’s why Elon Musk wants to put a million people on Mars.”

Musk has other incentives, however. The technology needed to colonize Mars will also pay handsome dividends in space mining applications. Moreover, if they are successful, there will come a time when Mars is a destination commanding a fare. Granted, this is not IST, but as technology advances through inter-planetary travel and colonization, there is a strong likelihood that future Elon Musks will be involved in the first steps outside of our solar system.

While SpaceX has raised its capital from private sources, it receives significant revenue from government contracts, so there is a level of dependence on public space initiatives. However, the argument made by Marcus at the first link above, that IST by ETs is less likely (or impossible) if they live under a socialist regime, is not based primarily on recent experience with private entrepreneurial efforts like Musk’s. Instead, it has to do with the inability of socialist regimes to generate wealth, especially the massive wealth necessary to accomplish IST.

Discussions of ETs (or the lack thereof) often center around a question known as the Fermi Paradox, after the physicist Enrico Fermi. He basically asked: if the billions and billions of star systems, even in our own galaxy, are likely to harbor a respectable number of advanced civilizations, where are they? Why haven’t we heard from them? My friend John Crawford objects that this is no paradox at all, given the vastness of space and the difficulty and likely expense of IST. There may be advanced civilizations in the cosmos that simply have not been able to tackle the problem, at least beyond their own stellar neighborhood. No doubt about it, IST is hard!

I have argued to Crawford that there should be civilizations covering a wide range of development at any point in time. In only the past hundred years, humans have increased the speed at which they travel from less than 50 miles per hour (mph) to at least 9,600 mph. The speed of light is approximately 270,000 times faster that that! At our current top speed, it would take almost 50% longer to reach our nearest neighboring star, Alpha Centauri, than the entire span of human existence to-date. With that kind of limitation, there is no paradox at all! But I would not be surprised if, over the next 1,000 years, advances in propulsion technology bring our top speed to within one-tenth of the speed of light, and perhaps much more, making IST a more reasonable proposition, at least in our “neighborhood”. There may be civilizations that have already done so.

Answers to the Fermi Paradox often involve a concept called the Great Filter. This excellent HuffPo article by Tim Urban on the Fermi Paradox provides a good survey of theories on the Great Filter. The idea is that there are significant factors that prevent civilizations from advancing beyond certain points. Some of these are of natural origin, such as asteroids and radiation exposure. Others might be self-inflicted, such as a thermonuclear catastrophe or some other kind of technology gone bad. Some have suggested that the Large Hadron Collider in Switzerland could be a major hazard to our existence, though physicists insist otherwise. Another example is the singularity, when artificial intelligence overtakes human intelligence, creating a possibility that evil machines will do us in. The point of these examples is that some sudden or gradual development could prevent a civilization from surviving indefinitely. These kinds of filters provide an explanation for the Fermi Paradox.

More broadly, there could be less cataclysmic impediments to development that prevent a society from ever reaching an advanced stage. These would also qualify as filters of a sort. Perhaps the smart ETs lack, or failed to evolve, certain physical characteristics that are crucial for advancement or IST. Or their home planet might be light on certain kinds of resources. Or perhaps an inferior form of social organization has limited development, with inadequate wealth creation and technologies to transcend the physical limitations imposed by their world. On a smaller than planetary scale, we have witnessed such an impediment in action many times over: socialism. The inefficiencies of central planning place limits on economic growth, and while high authorities might dictate a massive dedication of resources toward science, technology and capital-intensive space initiatives, the shift away from personal consumption would come at a greater and greater cost. The end game may involve a collapse of production and a primitive existence. So the effort may be unsustainable and could lead to social upheaval; a more enlightened regime would attempt to move the society toward a more benign allocation of resources. Whether they can ever accomplish IST is at least contingent on their ability to create wealth.

Socialism is a filter on the advancement of societies. ETs capable of interstellar travel could not be spawned by a society dominated by socialism and central planning. While government might play a significant role in a successful ET civilization, one capable of IST, only a heavy reliance on free-market capitalism can improve the odds of advancing beyond a certain primitive state. Capitalism is a relatively easy ticket to the wealth required for an advanced and durable civilization, and conceivably to the reaches of the firmament.

Unfortunately, there is absolutely no guarantee that capitalistic ETs will be friendly toward competing species, or that they will respect our property rights. They might be big, smart cats and find us mouse-like and quite tasty. Their children might make us perform circuses, like fleas. In any case, if ETs get this far, it’s probably because they want our world and our resources. My friend Crawford says that they won’t get here in any case. He believes that the difficulty of IST will force them to focus on their own neighborhood. Maybe, but on long enough time scales, who knows?

I would add a caveat to conclusions about the strength of the filters discussed above. A capitalistic society might reach a point at which it could send artificially intelligent, self-replicating machines into space to harvest resources. Those machines might well survive beyond the end of the civilization that created them. Conceivably, those machines could act autonomously or they could take coordinated action. But we haven’t heard from them either!

For a little more reading, here is SETI‘s description of the Fermi Paradox, and here is a post from io9 on the Great Filter.

Hillary’s Got Some Promises and a Rat’s Nest

03 Monday Aug 2015

Posted by Nuetzel in Big Government, Central Planning

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Andrew Napolitano, Capital Gains Tax, central planning, Clinton renewable energy plan, Friedrich Hayek, Half a billion solar panels, Hillary Clinton, Hillarycare, Ira Stoll, Jeffrey Tucker, Larry Kudlow, Obamacare employer mandate

Hillary Clinton is an advocate for governmentalizing the social order, and asks America to trust that central control, under her command, will accomplish great things such as upward mobility for the middle class, a rising standard of living, green energy for all, a “fix” for Obamacare, and much else. Jeffrey Tucker writes of Hillary’s delusions in “Hillary Clinton’s Ideological Vortex of Power and Planning” and her assurances that she’ll take measures with predictable impacts on the global climate, measures that will direct all details of energy production and use.

Tucker throws cold water on Hillary’s promises by viewing them in the context of F.A. Hayek warnings about the ruinous effects of central planning and control:

“That brilliant economist spent 50 years explaining, in book after book, that the greatest danger humanity faced, now and always, was a presumption on the part of intellectuals, politicians, and bureaucrats that they know better than the emergent and evolving wisdom of social forces.

This presumption might seem like science but it is really pretense. Civilization arises from, is protected by, and advances through the dispersed knowledge of billions of individual decision makers and the institutions that arise from them.

Hayek called the issue he was investigating the knowledge problem. Society needs to know how to use scarce resources, how to navigate a world of uncertainty, how to form rules that turn struggle into peace. It is a problem solved through freedom alone. No ruler, no scientist, no intellectual can substitute for the evolving process of decentralized decision making and trial and error.“

I discussed the fatuous presumptions of the left in an earlier SCC post entitled: “Conscious Design, the Collective Mind and Social Decline“. In that post, I used the wonderful Hayek quote:

“We flatter ourselves undeservedly if we represent human civilization as entirely the product of conscious reason or as the product of human design, or when we assume that it is necessarily in our power deliberately to re-create or to maintain what we have built without knowing what we were doing.“

More specifically, on energy policy, Clinton says she will set an agenda for the country to produce enough renewable energy within 10 years to power every American home, and to install half a billion solar panels across the country by the end of her first term. As Ira Stoll says at Reason.com, this is “central planning at its worst“.

“Clinton assumes that man-made climate change is a risk serious enough to try to mitigate, and that America should try to mitigate it by reducing its carbon emissions. These are big ‘ifs,’ but ones I will grant for argument’s sake. Even granting those assumptions, there is a humongous logical leap to the conclusion that the appropriate policy response is setting a national target for the number of solar panels installed.

For one thing, it’s a classic error of measuring inputs rather than outputs. If the goal is the reduction of dangerous emissions, why not set a goal for that, and support any energy method—solar, wind, algae, hydroelectric, nuclear, hydrofracturing—that gets America closer to that goal? Why privilege solar over all the other technologies, including some that may not even be invented yet?“

Certainly, proposals like this create tremendous opportunities for rewarding cronies. Stoll also notes that solar technology will improve over time, but rushing to install millions of panels, undoubtedly encouraged by heavy subsidies, would saddle users in the long-term with less efficient versions. With future improvements in efficiency and cost, the technology will gradually draw users in without the need for subsidies. That’s what rational economic decision-making looks like!

A specific economic proposal from the Clinton camp would increase the capital gains tax rate on asset sales held from 364 days up to six years. The rate would double if the asset was held up to two years. The increases become gradually smaller for two-to-six year holding periods. Hillary’s is somehow unaware that the government has already made it incredibly difficult for businesses to raise capital to invest in new buildings, equipment, and technology. Capital gains taxes are punitive: they represent double taxation of income to investors and they further distort rates of return by taxing assets on inflationary increases in value, which diminish their real value. Larry Kudlow wrote a good opinion piece on this proposal, called “Hillary’s Inconceivably Stupid Capital-Gains Tax Scheme“. He focuses on Hillary’s attack on the alleged “short-termism” in the economy, but this is a little odd, because her plan essentially discourages saving.

On health care, Clinton has pledged to “improve” Obamacare, but not repeal it. Too bad. It is similar to the plan she put forward as a Senator, including the individual mandate. The only piece of good news here is that she has discussed eliminating the employer mandate, which has been deferred by the Obama Administration twice already. However, some effects of the employer mandate have been felt, as it has tended to discourage employers from taking on full-time employees.

On foreign policy, Clinton is probably more hawkish than President Obama. Her stint as Obama’s Secretary of State was not marked by any noteworthy accomplishment.

Then there is the question of Clinton’s integrity. She’s been tainted by scandals before (e.g., Whitewater). She told a Brian Williams-like lie about being fired upon in Bosnia. The role of the Clinton Foundation, and whether it served as a mechanism for influence-buying, has also been in question, not to mention its seeming role as a personal slush fund for the Clintons. Her ties to Wall Street probably exceed Obama’s. And she maintained a private email server while Secretary of State, which was imprudent at best, and depending on the the classification of what went through that server, criminal at worst. Finally, her involvement in the Benghazi tragedy has been in question from the beginning. On some events related to Benghazi, including Hillary’s potential involvement in suspicious arms trading activity, Andrew Napolitano insists that “Hillary Keeps Lying“.

And here is Jeffrey Tucker waxing sarcastic about Hillary in another context: “Just trust her. Truly, just trust her …”

Code Word: Sustainability

16 Thursday Apr 2015

Posted by Nuetzel in Uncategorized

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central planning, George Leef, Locavorism, Markets, National Association of Scholars, Progressive dialectic, Sustainability, Technocratic elite

Sustainability is a meaningful concept that has been bastardized as a code word for virtually anything that suits the progressive narrative. It is used as a catch-all for presumed goodness, while “unsustainable” is a catch-all for anything deserving of condemnation. Strictly speaking, a sustainable activity, or level of activity, is one that can be maintained indefinitely. That does not mean that the activity itself or its level is optimal; as any economist or engineer can demonstrate, “sustainable” in that sense does not necessarily imply that something is “too fast” or “too much”. In fact, a thing or an activity can occur at a rate that is unsustainably slow, or too little.

Progressives seem to have stumbled into the use of “sustainable” in another sense: that a thing or idea can be defended in argument as part of their dialectic. The broad array of things deemed to be sustainable, and those deemed unsustainable, map nicely to the progressive policy agenda. This is brought forward in “Sustainability: A new college fad with fangs“, by Geaorge Leef, a review of a paper published by the National Association of Scholars. Some colleges have established “sustainability” programs offering such challenging courses as “Ethics of Eating”, “Trash Studies”, “Environmental Poetry,” and Small Spaces Studio”:

“Frequently, courses link some ‘identity’ belief with sustainability, such as that ‘patriarchy’ is the enemy of sustainable life and therefore must be ended. … Most often, however, courses involve the supposedly unquestionable science of global warming and impending catastrophe.“

And here is a critical assessment of “sustainability” as an academic discipline:

“It’s just a farrago of beliefs, attitudes, and grievances centering around the general notion that most humans aren’t living the right way and unless we make drastic changes, we’re doomed. … [The authors] argue that sustainability is not really an academic discipline; rather, it’s an ‘ideology that unites environmental activism, anti-capitalism, and a progressive vision of social justice.’ Like a religion (hence the reference to fundamentalism), sustainability never questions its tenets. It posits them and even has ‘pledges’ for students and school officials to adhere to.“

It’s fascinating for me to read hysterical claims that capitalism is “unsustainable”. I suppose that means that market prices are simply useless at conveying information about scarcity, and that elite technocrats from the progressive tribe can make better decisions about what the rest of us can do and have. All that in the absence of incentives and information needed to align benefits with costs. I suppose it also means that strong property rights are useless for encouraging individuals to husband resources, and that the tragedy of the commons is a wicked fiction. I suppose it also means that resources should not be directed to their most valued uses, but instead to those uses most valued by the subjective judgement of the technocratic elite.

There are many other logical contradictions in the progressive sustainability mantra. This Scared Cow Chips post from several months ago, “Locavoracious Rent Seeking“, covered the uncritical acceptance of locavorism as “sustainable”.

“The reactionary mindset of today’s locavores prevents them from understanding the true nature of “sustainability,” which is best promoted by markets and a willingness to engage in trades that are mutually beneficial.“

America’s academic institutions should keep progressive sustainability doctrine at arms length. It is fine as a campus movement, but it is not worthy or appropriate as a set of governing rules for a community of higher learning. Ultimately, it has nothing to do real learning and the process of inquiry.

Obamacare’s Medical Road To Serfdom

03 Tuesday Feb 2015

Posted by Nuetzel in Government, Obamacare, Regulation, The Road To Serfdom

≈ 1 Comment

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ACA, central planning, health care law, Kristen Held MD, Obamacare, Price Controls, regulation, Relative Value Units, The Road To Serfdom

The arrogance and shortsightedness of regulators and central planners is often astonishing and sometimes worthy of disgust. Here is a case of the latter, and it is one of the most damning things I have read about Obamacare, and that takes some doing.

Dr. Kristin Held is a physician who gained some notoriety last year when she live-tweeted a professional conference as ophthalmologists walked-out on a presentation about implementing and complying with Obamacare. More recently, she has written about the health care law’s perverse incentives for physicians. It is an excellent piece about a sickening effort at medical central planning by the government. Please read it!

What good can be said of a law that discourages physicians from performing procedures that would be of great benefit to most patients with a particular health issue; discourages physicians from tackling the more complex cases; encourages them to prolong an operation, having made the decision to operate. The standards by which outcomes are judged successful under Obamacare, and other rules governing remuneration to providers (Relative Value Units), represent crippling impediments to effective care and innovation in many areas of specialization. Here is part of Dr. Held’s summary:

“Consider again the perverse incentives created by government medicine. If I take a really long time operating — even though it subjects the patient to greater risk — and if I pick and choose who I will operate on, refusing the sickest, neediest patients, I am rated more highly by the government’s published “physician feedback” reports and hospital “performance scores” — and paid commensurately. If, on the other hand, I am skilled and quick and tackle the sickest, most challenging cases, subjecting me and my family to great risk, I am paid less or nothing and potentially punished. ”

HT: Dr. John Probst

Fifty Ways To Wreck Your Health Care

29 Thursday Jan 2015

Posted by Nuetzel in Obamacare

≈ 1 Comment

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ACA, central planning, EHR mandate, Electronic Health Records, health care rationing, John Boehner, Matt Battaglioni, Medicare payments, Mises Daily, Obamacare, Obamacare exchange subsidies, Politico

It’s getting to be a challenge to keep track of the myriad ways in which Obamacare is screwing up the medical insurance and health care markets. This is a government initiative, after all, but was there ever a law so rife with unintended consequences, or a law implemented with such stunning incompetence? I’ve posted on the fallout from the so-called Affordable Care Act (ACA) a number of times in the past, but there’s always some new revelation at which to marvel. Here’s one you might not have heard, but it actually contains a bit of good news: some people are refusing Obamacare exchange subsidies, despite the sometimes strange fact that they qualify at all, which of course is the bad news.

“… some people who qualify for subsidies based on their income could afford to pay their own way. ‘There is no question that we are enrolling people through these programs who would otherwise be considered middle-class or even affluent,’ says Ed Haislmaier, a senior research fellow for health policy studies at the right-leaning Heritage Foundation think tank. ‘We are seeing people with enrollment in these programs that have significant assets, but for whatever reason – usually a temporary reason – fall below the income line.’ Those reasons could range from early retirement to a midcareer job change. But whatever the case, some of those who are turning down subsidies are aware others are gaming the system, and they think it’s wrong.”

Well, apparently there is still some honor in the world, even in the face of seduction by the welfare state.

Obamacare contained provisions on electronic health records (EHRs) and was expected to leverage a separate federal initiative on EHRs in the 2009 economic stimulus bill. This too is proving disastrous. Beyond the privacy implications of making medical records accessible to the prying eyes of government bureaucrats and potential hackers, the mandate faced by providers to convert to the EHR system necessitates an extremely time-consuming and costly effort. And the penalty for failing to meet deadlines is a cut in Medicare payments to the provider. No one seems to have considered the supply-side incentive this might create:

“It would thus appear that one method for avoiding the fine would be to stop serving Medicare patients altogether. Well, that’s one way to ration care for the elderly.”

So, in the fashion typical of central planners, the bureaucrats have failed to consider the effects of their policies on real market conditions. The author quotes a recent piece in Politico on the EHR mandate:

“Rather than saving physicians and health care money, the program in effect has created a new industry — the medical scribe. About 100,000 of these glorified typists are expected to be working for doctors by 2020. ‘After five years I can’t really do anything I couldn’t do before the program started,’ says Martin O’Hara, a cardiologist who practices in northern Virginia. Computers make everything more legible, O’Hara says, but otherwise the payoff has been slim. At one hospital in the D.C. area, administrators were pulling their hair out over the huge fees charged to transmit data including routine lab and radiology tests. ‘I talk to EHR vendors all day long and many of them have these criminal-like practices of setting whatever price tag they want because they can,’ said a medical informatics officer who spoke on condition he not be named. … The slow progress of health IT has also put a drag on research.”

Finally, in a post on some basics of good (and bad) health care reform appearing in Mises Daily, Matt Battaglioli discusses the unavoidable reliance on arbitrary methods of rationing in centrally-planned health care systems. (I like that cartoon above, but it’s no joke.) That need is created by a mis-pricing of services. Subsidies prevent consumers from seeing the real cost of routine and non-catastrophic medical services as well as the ex ante, actuarial cost of catastrophic services. Then, unfortunately, the resultant excess demand tends to push costs upward without the natural restraint of a well-functioning market price mechanism. Battaglioli also bemoans the obstacles to competition in the medical field due to licensing requirements and their impact on the supply of care.

Obamacare is under threat on several fronts, including Congress, the courts, consumers, providers, and it’s own clumsy architecture. Apparently congressional Republicans will soon reveal their “one plan” (as described by John Boehner) for health care reform to replace Obamacare. We’ll see if they can do much better.

Big Daddy Wants To Neutralize Your Net

09 Friday Jan 2015

Posted by Nuetzel in Uncategorized

≈ 4 Comments

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AEI, Bureaucracy, central planning, Common Carrier, Cronyism, Don Boudreaux, FCC, Google, Internet REgulation, ISPs, Jeffrey Eisenach, Market Solutions, Net Neutrality, Netflix, Peter Suderman, Reason, Ronald Coase, Tom Wheeler, Wired

Once again, President Obama is trying his hand as populist candyman, now pressing the FCC to adopt “net neutrality” rules for regulating internet service providers (ISPs) as common carriers. Net neutrality refers to regulations on ISPs that would prohibit different treatment of different types of internet content, matters that are better left to market participants. Obama has no idea what he’s doing or who he’ll be hurting (hint: internet users of all stripes). The candy is an illusion. Peter Suderman’ has an aptly titled article on this topic at Reason: “Will 2015 Be the Year the FCC Regulates the Internet Back to 1934?” He offers some background on the history of U.S. telecommunications regulation and explains the context within which FCC Chairman Tom Wheeler and the Commission will deal with the issue. Suderman closes with this thought:

“If Wheeler does take this route (reclassification of ISPs as common carriers], as he now seems to determined (sic), we’ll end up with an Internet that is more regulated, more subject to regulatory uncertainty in the near-term, and more like a public utility from another era than an information delivery service for the modern age. It’ll be 2015—but for the Internet, it’ll be 1934 all over again.”

Wired also gives its perspective but implies that Wheeler is seeking ways to reclassify the ISPs, impose neutrality rules, while also creating sufficient exceptions to mollify the ISPs, avoiding litigation as well as market disruption. That would be nice as far as it goes.

Net neutrality is a misnomer, as Sacred Cow Chips has discussed on two previous occasions in “The Non-Neutrality of Network Hogs“, and “Net Neutrality: A Tangled Web“. A lowlight is the corporate cronyism inherent in calls for net neutrality. The biggest beneficiaries are not consumers, but large content providers such as Netflix and Google, though the latter has altered its position on neutrality now that it is entering the market as an ISP. Another lowlight is the disincentive for network expansion created by forced subsidies to the large content providers, who are extremely heavy users of internet capacity.

Jeffrey Eisenach at AEI picks apart the arguments in favor of internet regulation. He also counters assertions that consumers are likely to benefit from internet regulation. Here are two choice quotes:

“And while much is made of consumers’ limited choices, the broadband market is actually less concentrated than the markets for search engines, social networks, and over-the-top video services: discriminatory regulation of ISPs cannot be justified on the basis of market power.”

“Finally, there’s the argument about fast lanes and slow lanes, or, in regulatory jargon, “paid prioritization.” The simple reality is that edge providers like Netflix require prioritization for their services to work. It’s just the “paid” part they don’t like.”

Finally, Don Boudreaux provides two relevant quotes on regulation, one from the great Ronald Coase, along with some of his own thoughts. I close with Boudreaux’s summation:

“Government imposition of “net neutrality” will substitute bureaucrats’ politically poisoned judgments on what are and what are not appropriate business practices for the market-tested judgments of legions of suppliers competing for the patronage of hundreds of millions – indeed, often billions – of consumers.“

A Nudge Is Just a Mini-Shove

25 Thursday Sep 2014

Posted by Nuetzel in Uncategorized

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aeon, Behavioral Economics, Cass Sunstein, central planning, Cognitive Bias, nudge, Rationality, Steven Poole

Are we more rational than those who wish to “nudge” us? That is the premise of this interesting essay by Steven Poole. He discusses the “cognitive biases” revealed by behavioral economic research, but questions the context within which certain behaviors are deemed irrational. In a broader sense, he demonstrates that the human quirks regarded by behavioral researchers as “biased” can usually be construed as rational.

Advocates of nudging individuals toward certain choices must first determine the best option (in their own estimation, of course) and how to present the information to subjects. In other words, they believe in their ability to practice the art of manipulation. Some of these would-be nudgers, such as Cass Sunstein, deign to call this practice “libertarian paternalism.” Sorry, no… it’s just paternalism. Widespread use of nudging is really an elitist vision, and one which itself attempts to nudge individuals into a dangerous acceptance of social control, in small and potentially large form. From Poole, with reference to presumed human irrationality:

“This is a scientised version of original sin. And its eager adoption by today’s governments threatens social consequences that many might find troubling. A culture that believes its citizens are not reliably competent thinkers will treat those citizens differently to one that respects their reflective autonomy.”

The “manipulative arts” are nothing new, of course, and I am willing to admit that they can be used with good intent. After all, any law represents an attempt to manage behavior, and successful laws tend to be those over which there is an overwhelming consensus. However, I believe that “nudging” by government in an attempt to manage otherwise voluntary behavior is a red flag. It probably signals that the government is involved in an activity in which it has no appropriate role.

Collectivists Need Police Power To Tread On You

26 Saturday Jul 2014

Posted by Nuetzel in Uncategorized

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central planning, Collectivism, Dissent, Hayek, Police Power, Socialism, statism

Most people have no trouble understanding that increasing government control imperils individual freedoms, including freedom of expression. Sandy Ikeda discusses this linkage in “Dissent Under Socialism,” which inevitably means suppression and oppression.

First, to the degree that the State undertakes central planning of the resources it controls it can’t allow any person to interfere with or oppose the plan. Or, as Hayek puts it, “If the state is precisely to foresee the incidence of its actions, it means that it can leave those affected no choice.”

Second, the more resources the State controls, the wider the scope and more detailed its planning necessarily becomes so that delay in any part of the system becomes intolerable. There is little room for unresponsiveness, let alone dissent.

Statists and radical egalitarians harbor a naive belief that their goals for society, and for “social justice,” can be achieved by collective action. That belief is naive on several levels. In practical terms, government is incapable of achieving complex social goals, and it will botch the effort. Even more ominous is that police power must always stand behind the effort. That police power will be brought to bear on a wider range of issues seems to surprise collectivists, as illustrated by the following quote used by Ikeda:

“Fascist states stop people demonstrating against wars—it is beyond belief that French Socialists are following their example.”

Really not too surprising.