Archives For political economy

On Debating Imaginary Felds

Gus Hurwitz —  18 September 2013

Harold Feld, in response to a recent Washington Post interview with AEI’s Jeff Eisenach about AEI’s new Center for Internet, Communications, and Technology Policy, accused “neo-conservative economists (or, as [Feld] might generalize, the ‘Right’)” of having “stopped listening to people who disagree with them. As a result, they keep saying the same thing over and over again.”

(Full disclosure: The Center for Internet, Communications, and Technology Policy includes, to which I am a contributor.)

Perhaps to the surprise of many, I’m going to agree with Feld. But in so doing, I’m going to expand upon his point: The problem with anti-economics social activists (or, as we might generalize, the ‘Left’)[*] is that they have stopped listening to people who disagree with them. As a result, they keep saying the same thing over and over again.

I don’t mean this to be snarky. Rather, it is a very real problem throughout modern political discourse, and one that we participants in telecom and media debates frequently contribute to. One of the reasons that I love – and sometimes hate – researching and teaching in this area is that fundamental tensions between government and market regulation lie at its core. These tensions present challenging and engaging questions, making work in this field exciting, but are sometimes intractable and often evoke passion instead of analysis, making work in this field seem Sisyphean.

One of these tensions is how to secure for consumers those things which the market does not (appear to) do a good job of providing. For instance, those of us on both the left and right are almost universally agreed that universal service is a desirable goal. The question – for both sides – is how to provide it. Feld reminds us that “real world economics is painfully complicated.” I would respond to him that “real world regulation is painfully complicated.”

I would point at Feld, while jumping up and down shouting “J’accuse! Nirvana Fallacy!” – but I’m certain that Feld is aware of this fallacy, just as I hope he’s aware that those of us who have spent much of our lives studying economics are bitterly aware that economics and markets are complicated things. Indeed, I think those of us who study economics are even more aware of this than is Feld – it is, after all, one of our mantras that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” This mantra is particularly apt in telecommunications, where one of the most consistent and important lessons of the past century has been that the market tends to outperform regulation.

This isn’t because the market is perfect; it’s because regulation is less perfect. Geoff recently posted a salient excerpt from Tom Hazlett’s 1997 Reason interview of Ronald Coase, in which Coase recounted that “When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies – perhaps all the studies – suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been.”

I don’t want to get into a tit-for-tat over individual points that Feld makes. But I will look at one as an example: his citation to The Market for Lemons. This is a classic paper, in which Akerlof shows that information asymmetries can cause rational markets to unravel. But does it, as Feld says, show “market failure in the presence of robust competition?” That is a hotly debated point in the economics literature. One view – the dominant view, I believe – is that it does not. See, e.g., the EconLib discussion (“Akerlof did not conclude that the lemon problem necessarily implies a role for government”). Rather, the market has responded through the formation of firms that service and certify used cars, document car maintenance, repairs and accidents, warranty cars, and suffer reputational harms for selling lemons. Of course, folks argue, and have long argued, both sides. As Feld says, economics is painfully complicated – it’s a shame he draws a simple and reductionist conclusion from one of the seminal articles is modern economics, and a further shame he uses that conclusion to buttress his policy position. J’accuse!

I hope that this is in no way taken as an attack on Feld – and I wish his piece was less of an attack on Jeff. Fundamentally, he raises a very important point, that there is a real disconnect between the arguments used by the “left” and “right” and how those arguments are understood by the other. Indeed, some of my current work is exploring this very disconnect and how it affects telecom debates. I’m really quite thankful to Feld for highlighting his concern that at least one side is blind to the views of the other – I hope that he’ll be receptive to the idea that his side is subject to the same criticism.

[*] I do want to respond specifically to what I think is an important confusion in Feld piece, which motivated my admittedly snarky labelling of the “left.” I think that he means “neoclassical economics,” not “neo-conservative economics” (which he goes on to dub “Neocon economics”). Neoconservativism is a political and intellectual movement, focused primarily on US foreign policy – it is rarely thought of as a particular branch of economics. To the extent that it does hold to a view of economics, it is actually somewhat skeptical of free markets, especially of lack of moral grounding and propensity to forgo traditional values in favor of short-run, hedonistic, gains.

Yet another loss of a giant in the world of law and economics.  On December 19, it was Robert Bork.  Today, we lost economist James M. Buchanan, Nobel laureate, George Mason professor, and one of the fathers of Public Choice economics.  Regular readers of TOTM will know that several of us–including yours truly–have been heavily influenced by the insights of Public Choice (see, e.g., here and here).

I was alerted to Buchanan’s passing by my friend and collaborator, Virginia Law’s Charles Goetz, co-author of the Goetz & McChesney (now Goetz, McChesney & Lambert) antitrust casebook.  I asked Charlie if he’d pen a few words in honor of Buchanan, his dissertation director and mentor, and he heartily agreed to do so.  Here they are:

Nobel Laureate James McGill Buchanan has passed away and one less giant now walks the pathways of Economics, pathways that he extended and widened.  Jim was my dissertation director, my mentor, my sometime colleague and coauthor—and my friend. There is an old compliment that denotes a man “a gentleman and a scholar.”  Jim was certainly both, to the quintessential degree.

I often reflect on how fortunate I’ve been with many things, but certainly among the luckiest of things was to be an Economics graduate student at the University of Virginia in the early 1960’s.  It was a golden time when Jim and a handful of others were midwifing the birth of what came to be known as Public Choice economics.  I got to watch and listen as great men did great things.

I remember what an eye-opening experience it was for me to take Buchanan’s year-long course in Public Finance.  He was an incredibly effective teacher.  He was far from a classroom showman, but had the genius of asking such devilishly interesting and revelatory questions.  I have acknowledged publicly on a number of occasions that, if he could charge me for the intellectual value-added that he created in me, he would be owed a very large sum indeed.  But I am profoundly in his debt, even if not in a pecuniary sense.

In the days and weeks to come, others will write many highly complimentary things about James M. Buchanan as a scholar. Deservedly so.  I would have little new to add to that outpouring.  Still, there is a revealing anecdote about Jim as a man that can come only from me, the sole witness and participant.

Buchanan generally had a very formal relationship with students and I understandably regarded him with awe and no little bit of fear.  But, one day, he gave me a great big smile and told me a story that made me appreciate, for the first time, the lurking, devilish sense of humor that went with this proper Tennessee Gentleman.

“Goetz,” he said, “you’re a New Yorker, aren’t you?  But, . . . you’re a pretty good fellow anyway.”

“I often dislike New Yorkers because they act like obnoxious know-it-alls.  There was a New Yorker like that in my class at Navy Officer Candidate school during World War II.  This fellow didn’t have much use for a simple Tennessee boy like me and tried to lord it over us country boys.  But I fixed him.”

“At the end of our OCS course, the Navy gave us a battery of tests that it used in allocating new ensigns to their first duty assignment.  I started a rumor that this NY fellow had come out second in the whole class.  At first, he denied it since, of course, he had no basis to believe it.  Gradually, though, he began to accept congratulations and to puff up more and more about the compliments.”

“Then I started the second rumor, about our further training to battle the Japanese: the first three men in the class were being sent to One-man Submarine School.”

Somehow, I saw Jim with different eyes after that story.  Maybe you will as well.

Requiescat in pace, J. M. Buchanan, the little-known joker and man of honed wit, wit in more ways than the scholarly.  In the midst of our sadness, maybe a chuckle is good medicine.

Well-said, Charlie.

Who’s Flying The Plane?

Michael Sykuta —  12 November 2012

It’s an appropriate question, both figuratively and literally. Today’s news headlines are now warning of a looming pilot shortage. A combination of new qualification standards for new pilots and a large percentage of pilots reaching the mandatory retirement age of 65 is creating the prospect of having too few pilots for the US airline industry.

But it still begs the question of “Why?” According to the WSJ article linked above, the new regulations require newly hired pilots to have at least 1,500 hours of prior flight experience. What’s striking about that number is that it is six times the current requirement, significantly increasing the cost (and time) of training to be a pilot.

Why such a huge increase in training requirements? I don’t fly as often as some of my colleagues, but do fly often enough to be concerned that the person in the front of the plane knows what they’re doing. I appreciate the public safety concerns that must have been at the forefront of the regulatory debate. But the facts don’t support an argument that public safety is endangered by the current level of experience pilots are required to attain. Quite the contrary, the past decade has been among the safest ever for airline passengers. In fact, the WSJ reports that:

Congress’s 2010 vote to require 1,500 hours of experience in August 2013 came in the wake of several regional-airline accidents, although none had been due to pilots having fewer than 1,500 hours.

Indeed, to the extent human error has been involved in airline accidents and near misses over the past decade, federally employed air traffic controllers, not privately employed pilots, have been more to blame.

The coincidence of such a staggering increase in training requirements for new pilots and the impending mandatory retirement of a large percentage of current pilots suggests that perhaps other forces were at work behind the scenes when Congress passed the rules in 2010. Legislative proposals are often written by special interests just waiting in the wings (no pun intended) for an opportune moment. Given the downsizing and cost-reduction focus of the US airline industry over the past many years, no group has been more disadvantaged and no group stands more to gain from the new rules than current pilots and the pilots unions.

And so the question, as we face this looming shortage of newly qualified pilots: Who’s flying the plane?