Coyote Blog

Someone from the National Council of Mayors or Cities or some such group called me wanting to meet.  I asked him what he wanted.  Blah blah blah.  I asked him after a bunch of doublespeak about learning about how my great business operates what he really wanted.  He said he wanted to share with me Federal and State and City programs to help my business.  The conversation then went approximately this way:

Me:  I don't want any of that stuff.  I don't want other people to be forced to pay for my business

Caller:  So you are a Republican?

I would love it if Republican's narrowly branded themselves as folks who don't take money by force from others.  I would call myself one.  But unfortunately Republicans and Chamber of Commerce type CEO's who nominally call themselves Republicans wallow all the time in such corporate cronyism.

Further, Republicans spend a lot of time on social crusades that drive me crazy.  The other day at a party, I was talking to a number of entrepreneurs who all should have found a natural home in the Republican party given their economic views.  But they were all Democrats, most of them for the simple reason that they did not want to be associated with Republican social crusades.  I talked to a guy for hours who despised Obamacare but voted for Obama twice because he did not want to be associated, for example, with Republican's anti-gay position (e.g. Rick Perry).

Of course, this is a double edged sword.  There are likely many Republican voters who are fiscally liberal but vote Republican for its commitment to opposing gay marriage and abortion and the like.

PS-  The call actually went on for a while.  He asked me what he could help me with.  What is my number one problem?  I told him, honestly, we have put everything else on hold, all our growth plans have been frozen, until we figure out how to minimize the costs of the PPACA on us.   This was not something he seemed to want to discuss.

Last year I said that the biggest economic story of 2013 would be the conversion of the American service worker to part-time from full-time in order to manage the new costs imposed by the PPACA.  This has already been going on in restaurants and hotels for months, but no one seems to notice.  Ironically, it is only starting to become news when it hits university professors.

So this is how I read the PPACA/Obamacare decision today

• The mandate is not allowed under the commerce clause powers
• However, Congress is allowed to use its taxing power to issue financial threats to coerce individual activity it can't mandate
• However, Congress is not allowed to use financial threats to coerce state government activity that it can't mandate

No, not the Affordable Care Act, though we need to get rid of that, too.  In this case I am talking about the Arizona Commerce Authority.  This is one of those ubiquitous local / state "development" efforts that mainly consists of handing out corporate welfare to a few well-connected companies who threaten to leave or build their new plant somewhere else.

Dru Stevenson at the Privatization blog has been nice enough to invite me to blog from time to time over at his place, despite the fact that we do not always agree.  But we are in total agreement on this effort:

Even from a conservative, free-market perspective, government subsidies for businesses distort markets, foster monopolies, undermine competition, and reduce efficiency.  The same complaints that business advocates make about the welfare system apply to government programs to help businesses - the vicious cycle of dependence, the lack of incentive to work hard or face difficult choices, the inevitable favoritism (some businesses get taxpayer subsidies, others miss out, and those that do have an unfair advantage over competitors who might otherwise win in a free marketplace).  It has a chilling effect on market-driven innovation, improvements in efficiency, or "creative destruction." The subsidies can cause inflation as the local market prices correct for the infusion of unearned money. The inherent risks in entrepreneurship get externalized onto taxpayers rather than internalized by those who hope to reap the profits if they get lucky.  The conflict-of-interest problem is not just that the businessmen will engage in whitewashed embezzlement, diverting funds to their own businesses or friend's businesses (or to their suppliers, in hopes of getting discounted inputs).

The problem is also that other firms - firms that might be more efficient, providing better goods and services at lower cost - face higher entry barriers when the existing holders of market share are bolstered by government handouts.  In other words, I see little difference in the morality of handouts for poor individuals/families and handouts for businesses.  There is a spiritual virtue in helping the poor, of course, but also a virtue in helping those who are hard-working and who have made sacrifices to become successful.  The problem for me is the unintended consequences of government subsidies for entities that are supposed to compete and succeed in a free market.

I encourage you to check it all out.

The reason this made his privatization blog is that Arizona has actually privatized this function to an independent business group.  Though an advocate of privatization in many realms, this makes me queasy for a couple of reasons:

• I can't get excited about privatizing an activity that should not be occurring, or is, as Stevenson so ably explains, actually detrimental
• I am comfortable privatizing operational things -- landscaping, running buildings, cleaning bathrooms, etc -- but privatizing the handing out of political patronage is an odd one for me and I don't really know how to think about it.  On the one hand, this is essentially what the PPACA (Obamacare, the other ACA) is doing with difficult decisions like determining which procedures should be on the must-cover list for insurers by putting them in the hands of independent groups.  But I have criticized those provisions of the PPACA for lack of accountability, and I believe the same arguments apply here

The only quibble I have with the criticism of the Arizona group is that, like many criticisms of privatization, it does not actually make a comparison to government-run efforts.  Sometimes even mistake-riddled private efforts can be better than disasterous public management.  For example this criticism:

According to Arizona PIRG's report, only two of the 13 incentive programs even track how many jobs or other benefits they generate -- and none disclose that information publicly. For all its business-savvy rhetoric, the ACA can't demonstrate performance if it doesn't track results. Only one program publicly discloses what companies promise to deliver for their subsidies. Worse still, only 4 of the 13 programs even disclose which companies received subsidies or how much. And when companies that receive subsidies fail to deliver on promised economic development benefits, the ACA can reclaim taxpayer subsidies for only one program, and there is no way for the public to see if this ever happens.

None of this is good, but note that for most similar state-run development programs, the number of programs that track their results is usually less than 2 in 13, the number is usually none.  And the fact that there is some sort of clawback provision on funds is better than exists in most state relocation and other subsidy programs.  In fact, most third-party reviews of state-run corporate relocation and plant location subsidy awards show that they universally fall well short of their pr0mised benefits, though this analysis is really hard to do because there is so little transparency in state activities of this sort.

My quibble, then, is that I am not sure the bad results here are a function of privatization or just the activity itself, as state-run efforts seem to do no better.

Update:  I have written before about government corporate subsidies and attempts at venture capital investment in the context of the "big shot" effect.  Many times I have come to suspect the biggest beneficiary of these programs is to the administrators themselves, who have no money of their own and wouldn't ever be trusted to manage a private portfolio but get to act as "big shots" with other peoples' money.  They get the psychic benefit of being little junior Donald Trumps.  This seems especially evident to me with Glendale, AZ, but seems to be an element of all these schemes.

There is an argument going around, mainly on the Left, that the Supreme Court cannot overturn the PPACA (aka Obamacare) because it is just too major and significant.  It's sort of OK to overturn minor legislation at the margins, but if Congress does something really big, it deserved the Court's respect and acquiescence.

But it strikes me that the larger and more comprehensive a piece of legislation is, the more likely it is to run afoul of Constitutional restrictions.  And this is the case no matter what theory one holds about the Constitution.

I am not a Constitutional scholar nor a lawyer, but I would describe two schools of thought on the Constitution.  The first is that the Constitution gives the Federal government certain enumerated, defined powers beyond which it may not stray.  The second is that the Constitution gives citizens a number of enumerated, defined rights (e.g.  First Amendment freedom of speech) such that the Federal government can do most anything it wants as long as it does not trample on these defined rights.   (I would argue that the first interpretation was the clear meaning of its authors, and the second interpretation is probably the majority view today of average Americans today).

But under either interpretation, larger, more sweeping legislation is more rather than less likely to cross a boundary that circumscribes Federal power.  Whether such a boundary has been crossed by this legislation is another matter, but the argument that large legislation per se should be exempt from the possibility of being overturned on Constitutional grounds does not hold water.

I spend my business life taking over operations from bloated public agencies, so I suppose I should not be surprised at this picture (via Carpe Diem)

The PPACA has a provision that private insurance companies cannot spend less than 80% of premium on care (vs. administration) or money has to be rebated.  I am not a big fan of this provision, believing a free market is a better mechanism for enforcing price and cost discipline than some arbitrary metric like this.

But, since Congress and this Administration thinks this is such a good idea, here is my modest proposal:  Public universities may not spend less than 80% of tuition directly on teaching of students, or else they must rebate excess tuition back to their students.

The PPACA instituted a cap on health insurance spending such that at least 80% of health insurance premiums must be spent on care. Academics like Elizabeth Warren love this idea.  So here is my modest proposal -- let's require that public universities spend at least 80% of tuition on classroom instruction.  If they spend more than 20% on administration and overhead, it gets rebated back to students.  Having nearly universally supported such a provision in the PPACA, academics surely can't oppose this, can they?

The administration claims that the country really loves the new health care law and will be even more thrilled with it once it fully takes effect.  If this is the case, why are they twisting the law to the breaking point trying to avoid implementation of the PPACA this year?  If the administration truly believed the PPACA would be well received by the majority of Americans, they would be bending over backwards to see it put into effect before the election.  Instead, they are doing the opposite.

Clearly, Obama would consider the PPACA his largest legislative accomplishment.  I am trying to remember a President who was so reluctant to run on his largest legislative achievement.  Maybe Adams with the Alien and Sedition acts?

I missed this from Volokh a while back, but since our Con-law-professor-in-chief has done so poorly defending the Constitutionality of the PPACA, someone gave Congress a crack at the job:

Most of us know that when then-Speaker Pelosi was asked where the Constitution gives Congress the power to enact an “individual mandate,” she replied with a mocking “are you serious? Are you serious?”

Here are a few more pearls of constitutional wisdom from our elected representatives.

Rep. Conyers cited the “Good and Welfare Clause” as the source of Congress’s authority [there is no such clause].

Rep. Stark responded, “the federal government can do most anything in this country.”

Rep. Clyburn  replied, “There’s nothing in the Constitution that says the federal government has anything to do with most of the stuff we do. How about [you] show me where in the Constitution it prohibits the federal government from doing this?”

Rep. Hare said “I don’t worry about the Constitution on this, to be honest [...] It doesn’t matter to me.” When asked, “Where in the Constitution does it give you the authority …?” He replied, “I don’t know.”

Sen. Akaka said he “not aware” of which Constitutional provision authorizes the healthcare bill.

Sen. Leahy added, “We have plenty of authority. Are you saying there’s no authority?”

Sen. Landrieu told a questioner, “I’ll leave that up to the constitutional lawyers on our staff.”

Neither Medicare nor Social Security should be government programs.  The government essentially takes on two roles in these two insurance programs:  1) To subsidize the premiums of low income Americans; and 2) To use its power of coercion to force everyone to participate.  I have no stomach for the latter role and the former could be much more cheaply achieved with some sort of voucher or credit program.

But these programs are not going away.  While both need reform, it may turn out to be politically impossible to even reform them.

But if we take off the table for a moment their existence and their basic structure, there is still an enormous problem we might fix:  pricing.  There is absolutely nothing more deadly to an economy than a false or corrupted pricing signal.  But that is clearly what we have with these two programs.  The Medicare "premium" (tax) taken out of every paycheck is clearly way too small to cover true actuarial costs of this program.  And while Social Security rates may have been set right if the premiums were really being kept in escrow for the future, the fact is that the so-called trust fund has been raided into oblivion by past government spending programs  -- Social Security taxes need to be reset to reflect that fact.

The result, of course, will be a substantial increase in both payroll taxes.  I am not a big fan of tax increases, and find taxes on labor to be among the worst.  But as long as we hold on to the collective notion that these are insurance programs and the taxes we pay are premiums, its time to stop fooling Americans into thinking that the premiums they are paying are truly sufficient to fund their benefits.  Maybe after we reprice the "premiums" to their true actuarial value, we can then have a real debate about the structure and existence of these programs.