Tuesday, October 30, 2012

Tenure for Teachers

Should (k-12) teachers receive tenure?  I suppose a better question to ask is what aspect makes the teaching profession so sacred that state governments should erect these guarantees? 
According to some, in the absence of tenure morale would suffer.  Two thoughts here: First, nearly all private sector employees work without such protections, and they seem fine.  Second, without the incentive to perform well, a school could become a catch basin for slackers and in turn foster a negative work environment.

Another question is how would tenure hamper free choice in education?  Suppose that tomorrow parents are given free school choice.  I can take my tax dollars and my kid and shop for the best school in town.  Schools must now compete for my tax dollars.  Well performing schools win and poorly performing ones lose.  However, if principals can’t effectively manage their labor force, that is fire bad performing teachers and replace them with better ones, turning a bad school into a better one could prove challenging.
Our education system is broken, and tenure is just one aspect that needs reforming.

Monday, October 29, 2012

On Regulation

Regulation is government’s default (and blunt) instrument to bring about (or stop) certain behavior in response to a perceived market failure.  And there are some instances when regulation is needed, such as when dealing with certain types of pollution.  I know of no market for dealing with air pollution, so the government steps in to correct the externality.  However, we’ve completely neglected free market ideas and relied too much on government intrusion into the free market.

There are some that say “markets fail, use government.”  After all, this used to be very reason for regulation.  However, as Don Boudreaux explains in the latest edition of the Freeman, the lack of market perfectionism isn’t reason enough to abandon markets.   One should not assume that benevolent government bureaucrats can write perfect rules, completely devoid of unintended consequences, with zero social costs.  On the contrary, the blunt instrument that is regulation can rarely achieves the high minded effects its proliferators desire. Instead of “markets fail, use government”, think “markets fail, use markets”! 

The Competitive Enterprise Institute goes on to demonstrate that how regulation is practiced differs greatly than how it should work.  They quote from Litan and Nordhaus’s Reforming Federal Regulation

In theory, regulation should arise as a response to market failures. In practice, regulation is more accurately characterized as a government tool for redistributing society’s resources toward those groups that have successfully enlisted the support of the government on their behalf.

Many firms have abandoned traditional pursuits of increasing profits by conforming to consumers’ wants, and instead lobby the legislature.  But here’s a question: can you blame those that rent-seek?  As federal agencies churn out more and more regulation, firms in some markets are essentially coerced into this despicable behavior as a last resort.  Greasing the federal skids is often the only avenue left on the road to survival.  

Lastly, Dan Mitchell over at Cato argues that free markets can and do a good job at self-regulation.  I think his argument centers around the firm’s reputation as the primary tool to regulate behavior.  He uses the airline industry as an example.  In the absence of the FAA, would airlines suddenly curtail aircraft maintenance to save a buck?  Probably not.  An airline with a crashed jet on its hands due to botched maintenance would soon find itself out of business.  Reputation goes a long way in self-regulation, especially in our highly-connected world today.  Twitter, Facebook, and YouTube have transformed how quickly information is disseminated.  Bad firms can run, but not hide.

My closing thought on regulation is that it should be avoided because of its enduring nature.  Regulations are almost never rescinded.  When was the last time Congress passed a law to undo a previous law or the EPA revoked a rule?  Hence, this explains why the code of federal regulations has ballooned to 169,000 pages in length.  The permanence of federal regulation is reason enough to use it sparingly.  Changes occur rapidly in modern economies and federal rules serve only to hinder progress.   Eliminating outdated rules takes enormous effort and often bears little fruit.  We should instead rely on markets.  While not perfect, perfection isn’t the goal.

Markets fail, use markets.

Sunday, October 28, 2012

Do we Need More Infrastructure Spending?

I was having a debate with a friend about a post my wife made on Facebook.  In response to the wild claims about “creating X number of jobs” by both presidential candidates, she posted: “Entrepreneurs and innovators create jobs, not presidents.”  In response to her post, my friend commented that FDR’s New Deal and Eisenhower’s highway jobs programs created many jobs, which in turn benefited entrepreneurs and innovators.  After a little back and forth between us, he then posted this:

“Anyway the American Society of Civil Engineers claim America needs to invest between 1&2 trillion on infrastructure in the next 10 years just to replace the outdated roads, potable water, sanitary sewer, electrical grid, etc., such investment would save and create many jobs and better our society. As far as Japan I'm not sure but I'll guarantee that in the 90s money was not as cheap as today's historical rates at which the gov. can borrow today. I pay no attention to any evidence provided by the Cato Inst., Heritage Foundation, Tea Party or any other think tank funded by the Koch brothers and their agenda based opinions. Thom Hartmann has debated top officers of the Cato Inst.several times about the theory of FDRs' policies and lengthening the recovery of the first Republican Depression and clearly showed their attempt to rewrite history. "

Here are my thoughts on the matter:

1.       It should come as no surprise that a group like the American Society of Civil Engineers claim we need to spend up to $2 trillion on infrastructure.  Who would benefit more from such a spending spree than the ASCE?  I don’t want to call into doubt their objectivity, but I’m somewhat skeptical about following the advice of a group that would richly benefit from spending more tax money on roads.  It would be like Boeing saying America’s military needs 500 new aerial tankers.  I suspect some rent-seeking here.
2.       We have a process for repairing roads and infrastructure already.  If our infrastructure is in tatters, why aren’t funding requests being submitted in the regular process?  I fail to see why $1 - 2 trillion in additional spending is immediately necessary. 
3.       The “Japan reference”.  I mentioned Japan spent about $1 trillion on infrastructure spending during the 1990s to alleviate their economic quagmire to no avail (Frank & Bernanke, 2009, p. 325).  My friend suggests that current low interest rates, at least in part, are reason enough to undertake additional spending.  I’m skeptical.  Much of Japan’s spending was later thought to be wasteful (i.e. building new roads that paralleled existing ones, etc.)
4.       My friend’s bias leads him to completely ignore the likes of Cato and Heritage.  Fine, but do so at your own peril.  Both of these organizations are full of experts who regularly publish on matters such as infrastructure spending, and ignoring their work doesn’t invalidate their findings.  I would encourage my friend to resist his confirmation bias and read published works by other organizations.  Then, refute their findings.  Choosing to completely discount entire think tanks because of their funding source doesn’t nullify their findings.