Breaking the law to do good?

Policy Debate for the Day

Shakil Afridi broke a real law in the real Pakistani law code when he helped the CIA find Bin Laden.  We consider this a worthy cause, but is it irrelevant that he broke a law?

 

Is the following a legitimate analogy?  What if Afridi robbed a bank to fund his research into Osama Bin Laden’s whereabouts?  

If your gut tells you that it is not the same, justify your decision with a logical argument.  Play Devil’s Advocate with your argument and see how it holds up to scrutiny.

Cycles of Power

Poverty demographics show us the virtuous cycle of power.

At the turn of the 20^th Century, the poorest demographic was the elderly. The elderly did not vote in large numbers at that time.  It is a common truth that people who are so busy dealing with their poverty that they don’t have time for political action.  They don’t have time to become a voting bloc, and so they don’t demand public benefits.  Without the demand, they don’t get any.  They stay in poverty. Politicians had no need to pander to them. 

Social Security was an exception because it was a Keynesian stimulus program to fight the Depression as much as it was to help the elderly themselves.  But one side effect is that the elderly now had some time and attention to focus on politics.  They started voting in greater numbers.  They started demanding public benefits.  Politicians realized they needed to provide the elderly with benefits or they would not get elected/re-elected. 

The automatic cost of living adjustment (with no downgrade for deflation allowed) was born.  Because of the way the COLA was designed, it has become a greater and greater piece of the GDP every year.  It became more and more valuable and therefore more and more worth protecting.  The elderly became a stronger voting bloc and more focused on protecting Social Security benefits from any deficit reduction or fairness initiatives.  Single-issue voting blocs of this size get very powerful in DC. 

This cycle can be exploited by any group if they know about it.  First, you have to vote often and publicly.  You need to focus on a single issue, or at least a limited and focused set of issues.  You need to make these issues public and your passion clear.  Hire a professional organization or lobbyist to facilitate your demands in DC (or state houses). Then just sit back and watch the benefits roll in. 

But there is also the law of unintended consequences.  The poorest demographic is now children.  They don’t vote, so they are not eligible for this virtuous cycle of power.  The one demographic that is kept out of the circles of power is perhaps the group that needs it the most. 

human factors in political ads

I heard a joking comment today but it got me thinking that the opposite of his joke was actually the truth.  A radio news host and a guest were talking about Republican consultant Fred Davis' proposal to launch a Super Pac that would bring back up Reverend Jeremiah Wright from the 2008 campaign.  As you may recall, he is an extremist pastor on a few race related topics and had been associated with Obama from years before.   At that time, Obama was forced to renounce Rev Wright’s comments, reject the relationship, and make sure everyone knew that he never agreed with his controversial opinions.  Once the New York Times found out about the Super Pac plan, Romney was forced to do the with  Davis.  The radio host's joke was basically that political ads usually say “I am candidate X and I approve this message.”  Now, the ads are going to say “I am candidate X and I repudiate this message.”  Hah hah.   Thank you Citizens United.

But then I started thinking about the way the brain processes information and how we can’t unring the bell.  People on the left (right) who are solidly behind Obama (Romney) would not be affected by the whole thing, no matter how it is handled.  But what happens to the people who are undecided or unaware of the past?  What would likely happen is a two step process.

First, they would hear the controversial message, develop negative opinions about the targeted candidate (in this case Obama), but also negative opinions about the candidate who is seemingly behind it (Romney).  During the time when they think it is an official campaign message, they wouldn’t necessarily doubt it too strongly.

Then when they hear the repudiation and realize that the message was sponsored by a hyperpartisan group, overwhelmingly exaggerated, and largely deceptive, they would try to erase the memory.  But they can’t help but be influenced by it because it has been sitting there in their heads for a few days, maybe even repeated several times before they see the repudiation.  You can’t erase a memory just because you want to.  Even if you know it is false.

Third, they get the message that the candidate who repudiated the ad was not involved and is really an honorable guy.  Again, you can’t erase a memory, but this is just a sense of like/dislike.  The original negative impression is not completely erased, but it also isn’t strongly ingrained.  

Net-net, the result is still good for the attacking Pac

When campaigns realize how great a trick this is, I suspect they will "encourage" SuperPacs to “independently” run ads like this and then the candidate can proudly walk up to the nearest podium (a few days later) and repudiate it.  Again, thanks Citizen’s United.

Should we support manufacturing as government industrial policy?

Earlier this year, Gene Sperling gave a speech about why subsidizing manufacturing is good policy, not a market distortion that is more likely to do harm than good net net.  His main point was about positive externalities.  Since externalities are a subject that is near and dear to me and a frequent topic of this blog, I put some serious thought in to his message.

Quick basic background.  There are two reasons for sticking to free market principles and two reasons to violate them.  If you are a libertarian by religion, then there is never a reason to deviate even a little.  When it is a religion – well, ‘nuf said.  On the other side, we look for externalities.  When a person or organization is able to get the benefits of an operation but pass off the costs onto someone else, they gain an unfair advantage.  In these cases it makes economic sense for society to add those costs back on through regulation, taxes, or other mechanism.  This is where environment regulations, labor laws, disclosure rules, accounting standards, etc come in. 

And when a person or organization’s acts create positive results for society, it makes economic sense for society to encourage it through subsidies, tax credits, and regulations.  This is where the earned income tax credit and charitable contribution tax deduction come in.

The problem is that when government intervenes, they often screw it up.  For decades, government thought the mortgage deduction had positive externalities because homeowners were more likely to keep up the house and the neighborhood.  But they didn't see the negative externalities and unintended consequences which magnified the real estate bubble and subsequent burst.  Government industrial policy often picks specific winners and losers, which skews the market.  Corn subsidies and oil exploration tax credits come to mind.  It is better to create more general interventions like an R&D tax credit that is open to every business in any industry and any domain. 

So where does manufacturing come in?  If the government supports manufacturing over other kinds of business (service, agriculture, natural resources, science), will that create a distorted market and/or are there positive externalities that justify the distortion?  Gene Sperling suggested that there are.  Manufacturing creates positive externalities in the form of innovation, spin-off jobs, supplier jobs, new technology expertise, and more.  This happens in greater degree than in other sectors and therefore justifies the distorting nature of a targeted subsidy.

The problem is when lobbyists get their hands on the final regulations and skew the benefits towards one manufacturing sector over another.  Cars over trains.  Tablets over ultrabooks.  OLED lights over fluorescents.  Or whatever. This often skews the market to the point where the negatives outweigh the positives.

My thoughts on this won’t surprise any of my regular followers.  The idealist in me knows that Sperling is correct in theory and that supporting manufacturing could lead to these positive externalities.  But the realist in me knows that it not going to happen quite as purely as it should.  And the result might not be net net positive.  Shame too, because we could use a good boost to jobs right now.