Friday, October 30, 2009

Energy Solutions

The other day Mercedes and I had the opportunity to visit Energy Solution's low level nuclear waste facility in Tooele County. I have no other connection to this company, but I feel obligated to give you my honest impressions:

Low level nuclear waste, stored in the way it is at the facility we visited, is not dangerous to Utahns. There may be some remote risk, but that risk is not even on the same scale as the risks we accept from daily activities such as driving, swimming, watching tv, walking across the street, or eating food with artificial ingredients. We accept nominal risks in life because otherwise we would be so restricted that life would not be worth living.

People are afraid of the word "nuclear." Activist groups such as Heal Utah have vowed to prevent the state from becoming a national or international "nuclear dumping ground." They play on the lack of information that people have about nuclear physics, and the fears that people have based on cataclysmic events such as the disaster at Chernobyl, to pursue a selfish and misguided agenda. They don't tell you that responsible companies such as Energy Solutions pose no significant risk, and that allowing them the freedom to conduct their business could be a great benefit to the state.

I also do not believe it is principled to single out a company and play on the irrational fears of the public in order to impose additional taxes and fees in order to support unrelated public projects. Just imagine if people began to blow the risks of eating meat out of all proportion. Would that make it right for the government to impose additional onerous taxes on the meat industry, knowing that the fears were unfounded? Legislators have the responsibility to inform themselves about the real magnitude of the risks associated with storing low level nuclear waste and cease playing on the fears of the public to solve their budgetary problems.

Even if these taxes are funding our most beloved projects, they are not right. It is even less right to prevent responsible companies from doing business in the state at all. We in Utah have been guilty of giving in to our prejudices and ignoring the facts when it comes to the storage of low level nuclear waste. Please inform yourself.

One place to start is this brochure published by the Nuclear Regulatory Commission. Low level Nuclear waste can be harmful if precautions are not taken, or if it is ingested. But we should not expect to benefit from the many uses of nuclear technology and nuclear active materials if we refuse to address the risks in a rational manner.

Tuesday, October 27, 2009

Transparency, Economy, Education

After speaking with a number of people in the district, I have concluded that there are three issues that that will be at the center of my campaign focus: Transparency, Economy, and Education.

The issue that drove me to consider running for office was a desire to make government more transparent. I believe that when a legislator sponsors a bill there should be an expectation that they make a public explanation of how they understand the purpose of the bill and what they believe the consequences will be. Furthermore, each legislator who votes on a bill should either sign on to this opinion or write their own. This will serve two purposes. First, it will make the legislative process more accessible to those who want to learn what their representatives are doing. Second, it would constrain judges in how they interpret the law if a majority interpretation were made legally binding.

The second focus of my campaign is the economy. I believe that a competitive free market economy is the only way of achieving efficient economic growth. When government attempts to restrict our economic choices, burden us with unnecessary taxes, or establish prices the results are almost always negative. Simply put, no individual or bureaucracy is capable of commanding the economy without undermining our incentives and opportunities. One of my commitments as a candidate is that I will seek to understand the economic impact of every law that I consider, and work to develop creative solutions to the challenges that confront our state that utilize the efficiency of a free market.

Ensuring that our children receive a proper education is one of the most important roles of state and local governments. I believe that Utah should do three things to make cost-effective improvements to our public education system. First, I believe we need to extend the length of the school year to 200 days. The factors that led schools to limit their year to 180 days are no longer present, and if we want our children to have the skills they need there is no substitute for time in the classroom. Second, we need to invest in education technology. Electronic resources will enable us to better cater to the needs of each student, allow children to advance at a pace more appropriate for them, reduce the need for additional physical infrastructure, and experiment with bold new learning techniques. Finally, I believe that we need to pay teachers according to how well they perform. Measuring performance is a difficult proposition, but the current factors that determine how much teachers are paid provide a safe haven for mediocrity.

If you have ideas about how to improve the management of this state with regard to these or any other issues I would love to hear them.

Monday, October 19, 2009

The Myth of Green Jobs

One often hears politicians claim that their latest reform will create "green jobs". Unfortunately, these green jobs almost always come at the expense of old fashioned white and blue collar ones. This recent study from Spain concludes that for every green job created in that country, 2.2 other jobs were lost. That isn't even counting those jobs that could have been created had the money invested in green infrastructure been spent elsewhere. (I should disclose that some of the methods of this study have been disputed, but that is true for just about every paper and I haven't seen any competing studies that come to a different conclusion.)

So why is it that creating green jobs comes at such high cost? Because "green" energy sources such as wind and solar are expensive. It takes more money and labor to create the same amount of energy. The fallacy of green jobs is that when something takes more labor to produce it will create more jobs. In fact, when we make energy more expensive the whole economy suffers and jobs in other industries are lost.

The French philosopher Bastiat lampooned the politicians of his day for protectionist policies that relied on the idea that we should create (or protect) jobs in certain industries even if there are cheaper alternatives available. Check out his satirical petition to the chamber of deputies, arguing that they should make it illegal to use sunlight because native candle makers can't compete.

There are advantages to "green energy". We can become more energy independent, be more prepared for the day when fossil fuels begin to run out, and reduce pollution. But job creation is not on the list. It is a cost that must be balanced against those other benefits. Anyone who implies differently is either misguided or dishonest.

Sunday, October 18, 2009

A Moral Dilema: Justifying Limited Government and Local Government

Limited government is one of my core political principles. I have two basic reasons for this. First, I believe that no single person or committee is competent to deal with the complex challenge of distributing resources throughout society. Luckily, we don't need government to micromanage the economy. People can pursue the own ends independently and things will take care of themselves.

My second reason for believing in limited government is that I think people are better off when we don't try to project and impose our values on each other. It is a fundamental aspect of human nature that each person can and does have their own personal way of determining what they value and how they will go about achieving their objectives. But it is not uncommon for our goals to conflict. When they do, there must be some method of determining who gets their way without resorting to physical violence. That is, we need to establish who has what "rights".

Two important kinds of rights are the right of protection and property rights. The right to be protected from physical assault is perhaps the most important one of all. Almost any other right is trumped by ones right not to be harmed physically by the actions of others. This is the part of the social contract that saves us from a brutish state of nature. After the right of protection, property rights are among the most fundamental. History has shown that if people do not have the right to use or trade their property as they see fit, they quickly lose motivation to create new goods or exchange their services.

There are other kinds of values aside from life and property that are often the cause of conflict. I would like to consider two of them. First is the desire to protect others beside ourselves, and the other is the desire to see other people behave "correctly."

Why is it that we make it illegal for parents to abandon their children, or for people to treat animals cruelly? Young children and animals are not part of the social contract. They are not citizens; they don't vote or pay taxes. We protect them not because we have a reciprocal agreement with them, but because we have sympathy for them (or perhaps because we think harming violates some moral boundary, but I will consider that in a moment). Is protecting those outside the "contract" a proper role of government?

The desire to see others behave correctly is similar but distinct from the desire to protect others from harm. I do not think that laws prohibiting sodomy, for example, are based in sympathy for some "victim". But the actions of others sometimes violate our concept of how the world ought to be, and this can cause a conflict of interests. Is it a proper role of government to ensure that the majority's view of proper behavior is enforced?

My answer to the latter question is no. I believe that people generally have a stronger interest in determining their own behavior than they do in regulating others. Thus, if people are allowed to control the behavior of others without any physical or property interest at stake, society is likely going to be worse off. Thus, even if the vast majority of society belong to one religion I think it is important that the minority (and the majority) are free to follow their own conscience. I also think that people should be free to engage in homosexual activity and other sexual acts that are considered perverse by the majority as long as the participants are consenting adults.

But the question of whether government should protect innocent others is a more difficult one. Is it conceivable that sometimes one group of people has a greater interest in harming children, foreigners, or animals than I have in protecting them? In some cases the interest we have in harming others is quite great. Some examples include when we go to war to protect national interests, when we use stem cells to advance medical technology, or when we subject animals to pain and discomfort in order to feed ourselves or test our products.

It strikes me as obvious that in at least some of these cases the interest we have in harming others outweighs our interest in protecting them. Otherwise we would conclude that we ought to criminalize the tradition of raising (and eventually killing) animals for food. But the questions concerning when we ought to go to war, how we should go about studying stem cells, and whether we should test products on animals are difficult and disputed moral questions. And at least in the case of when we should go to war, the government cannot really leave the issue to individual citizens.

Because I believe that government should be limited by principle, it is troubling to me that I can't come to a simple solution to the question of when our sympathy for non-citizens should outweigh the right of others to pursue personal interests at their expense.

One way to address the issue is to live by the principle that if there is a difficult balance of interests that the government must moderate that the power to enforce the resolution should be left to the most local government practical. So, although the question of when to go to war ought to be made at a national level (if we have any hope of defending ourselves and protecting our common interests against international threats) I think other questions should generally be left to state and local governments. That way there is a much smaller risk that a distant interest that the majority has in dictating behavior will harm the immediate interests of the minority. People can move from one community to another much more easily than they can leave the country, or abandon civilized society altogether.

To conclude, just as no single person or committee is capable of managing the economic life of a nation, I don't think that any person or group in government (including the supreme court) is capable of finding the proper balance between important freedoms and moral issues for all circumstances.

Wednesday, October 14, 2009

Ethics Reform

I have been thinking about the recent effort that Utahns for Ethical Government has made to bring a referendum on legislative ethics before the voters next year. Although the initiative is fairly complex, some of the main points include:
  • Creation of a five member ethics committee that trains legislators on ethical matters, and hears complaints brought by "any three persons"
  • Prohibition of gifts from lobbyists, including meals, event tickets, etc.
  • Prohibition of campaign donations from corporations, unions, and other political campaigns.
I am not sure I agree with the method of putting such a complex reform effort in the form of a public referendum. What should a person do if they agree with several points of the initiative and disagree with others? There is no way for a voter to amend the initiative, like legislators can with bills that follow the usual legislative process. But let me focus on the main elements of the reform.

First, the commission. I see no problem with having an ethics commission that can hear complaints lodged by three people as long as they have the power and the common sense to dismiss frivolous complaints. But what happens if the commission gets carried away? Who are they accountable to? I also read in the Daily Herald that if the legislative leaders from both parties can't unanimously agree on who to put on the commission then the sponsors of the initiative would get to fill the vacant spots. That seems a bit suspect.

Second, the restriction on gifts from lobbyists. I tend to prefer strong disclosure requirements over a flat prohibition on accepting meals from lobbyists, but I doubt this part of the initiative will have much negative impact other than creating more headaches for legislators. I also doubt that the influence lobbyists have on the law has much to do with how much they spend on free meals. I see this part of the initiative as like a rabbinical "fence around the law".

Finally, the ban on corporate donations. To me this is the most interesting part of the initiative. Why exactly are we worried about corporate donations? In theory a corporation represents the economic interests of a large number of people, and a corporation's leaders are in a better position to understand how to further those interests than the average stockholder. Yet I remember in law school reading about cases where corporate leaders were sued by stockholders for donating money to charities and other causes that had nothing to do with the business interests of the company.

So are we worried that a corporate board will make donations that aren't really in the interest of the stockholders? If the donations really are in the interests of the stockholders, why should we ban them while allowing the stockholders themselves to donate? Perhaps the concern is that individuals will be able to bypass contribution limits by giving through the corporations that they own stock in. But they could easily do the same thing by contributing to various Political Action Committess (PAC's). In fact, corporations can bypass the law in the same manner.

Although it is interesting philosophically to consider whether corporations should be allowed to participate in the political process, I am not sure that a law attempting to keep them out can ever really be effective. Like it or not, corporations represent the combined economic interests of a lot of people and they will find ways to represent themselves, through direct contributions or indirectly through PAC's.

All in all I am not convinced that this initiative is the best way to promote ethical conduct in the legislature. I believe that the best way is to expect legislators to explain why they vote how they do. If a representative can convince me that his vote is in the best interest of the community I don't care where he got his money from. If he can't defend his vote, then he should be replaced.

Friday, October 9, 2009

Performance Pay for Teachers

The other day I was chatting with a resident of my district, and the fellow I was talking to asked me about my ideas on education. I told him that my first priority would be to increase the number of school days. Then he brought up performance pay for teachers, proposing that they ought to be paid based on some measure of how effective they are. My inclination was to agree, but I decided to look into the question more deeply.

The theoretical basis for believing that pay based on performance will improve outcomes is pretty simple. People react to incentives. But what are the arguments against it? Some of the criticisms I have come across include:

  1. Teacher performance is hard to measure. If you have an imperfect method of measuring performance it will distort the way teachers teach. For example, if you pay teachers based on student improvement in standardized tests you might incentivize "teaching to the test" and discourage critical thinking.
  2. Effective teaching requires a team effort, and if you make teachers compete against one another for pay they may not cooperate as effectively.
  3. If you have a subjective measure of performance it might lead to discrimination against disadvantaged groups.
One way to minimize the impact of the first problem is to have a measure of performance that includes numerous variables. For example, teachers could be rated according to testing gains, ratings by superiors, ratings by students, and even peer rating. If the measure includes more than one or two variables, most teachers will probably not bother trying to game the system by teaching to the test. Also, if peer ratings are part of the formula cooperation might actually be improved.

It is obvious that in order for performance pay to be effective it must be based on a reasonable measure of performance. But it must also be significant enough to both persuade effective teachers to enter the career field and to motivate existing teachers to continually improve their methods. I support performance pay, but as with most reform the devil is in the details. An ill designed system of incentives could potentially do more harm than good.

Wednesday, October 7, 2009

Paralysis in the Debt Market

That is the title of a recent NYT article about the market for mortgage backed securities. One of the reasons the economy is recovering so slowly is that it is very hard to borrow money from banks. Banks don't want to lend out their money because once they make a loan they can't sell it to other investors.

Mortgage backed securities (MBS) are known as one of the primary villains of the financial crisis. Greedy mortgage brokers would give loans to people with bad credit, no down payment, and no way of paying the money back. Then the government would buy the mortgages, repackage them in a way that made them seem safe, and thereby create huge incentives for investors to buy them. (Many investors need to purchase products with AAA ratings from credit agencies, so by making such a product out of risky loans it induced a lot of people seeking safe investments to put money into the housing industry).

One advantage that such securities had over bank lending is that a bank must keep 10% of its deposits on reserve while investors in an MBS can put all of their money to work. Now that everyone is skeptical of these instruments, banks are the only source of money for many lending activities, but banks are more concerned about building up their reserves than lending out money. As long as this remains the case, the economy will never fully recover.

I am amazed at some of the naive assumptions, and the lack of in depth research that many financial institutions must have conducted before buying into mortgage backed securities (or similar products). For example, many of the most sophisticated investors assumed that in their models that the housing markets across the nation were independent of each other. Mortgage backed securities were designed so that if the market took a downturn in one area, holders of the safest securities would be insulated. But how did they not realize that the whole market was in a bubble induced by the proliferation of those very investments? Plus, it would not have been an impossible task to simply look up some of the underlying mortgages and realize that they were often based on false or incomplete paperwork. Even if a complicated instrument is based on thousands of mortgages, looking into a few dozen would have given them a clear enough picture about what was going on. But instead they simply relied on the overoptimistic models of ratings agencies.

A robust market in mortgage backed securities (and securities backed by other kinds of loans) is a good thing. It is a good way to manage risk and free up money for investment into the housing and other industries without the inefficiencies of relying on banks. The economy will be much more robust if the market is allowed to recover without crippling regulations. Hopefully institutional investors like the ones that required massive government bailouts to survive have learned a lesson. If not, we are doomed to repeat our recent mistakes.

Tuesday, October 6, 2009

Is Enforcing Morality Uncivilized?

As many of you know, last weekend was the 179th Semiannual General Conference of the LDS church. One of the speakers, D. Todd Christofferson, commented about laws that attempt to enforce morality.

Here is an excerpt from his speech: "Policemen and laws can never replace customs, traditions, and moral values as a means for regulating human behavior. At best, the police and criminal justice system are the last desperate line of defense for a civilized society. Our increased reliance on laws to regulate behavior is a measure of how uncivilized we’ve become. In most of the world, we’ve been experiencing an extended and devastating economic recession. It was brought on by multiple causes, but one of the major causes was wide-spread dishonest and unethical conduct, particularly in the U.S. housing and financial markets. Reactions have focused on enacting more and stronger regulation. Perhaps that may dissuade some from unprincipled conduct, but others will simply get more creative in their circumvention. There could never be enough rules, so finely crafted, as to anticipate and cover every situation. And, even if there were, enforcement would be impossibly expensive and burdensome. This approach leads to diminished freedom for everyone."

I have argued that it is not the role of government to regulate morality, and that each person should be free to follow their own "internal compass." Elder Christofferson agrees, adding that government is simply not up to the task of making people behave well towards one another. I wish that this view on the relationship between morality and law were more widespread. Many people think that having moral principles necessarily implies a desire to enforce them by law. But as Elder Christofferson has shown, it is possible to have strong beliefs about what is right and wrong and still desire a limited role for government. Let each of us encourage our neighbor to act morally through persuasion, but in our zeal we must not limit our neighbor's freedom.

Saturday, October 3, 2009

Fiscal Multipliers

When the Obama administration embarked on its massive stimulus program, you may have heard talk of something called a "multiplier." What is it, and why is it important for policy?

A multiplier in this context refers to how much economic activity is generated by government spending. Imagine that prior to a government program, GDP is projected to be $100. Then the government decides to spend $10 on a road building project to stimulate the economy. How will it effect GDP? Well, when the government pays $10 to the contractor, the contractor pays most of the money to laborers and suppliers, who go out and buy food, cars and other goods. Once it is injected into the economy, the same dollars could be spent over and over as it passes from one person to another. Thus, the effect of the additional $10 in government spending could increase GDP by much than $10.

However, government spending might also "crowd out" private investment by purchasing things that would have been bought anyway, increasing interest rates, or leading people to save money in order to pay higher taxes that they expect they will need to pay additional taxes to fund the government expenditure. If the overall all effect of spending $10 is to increase GDP from $100 to $120, then the multiplier is 2. If GDP falls to $90, the multiplier is -1.

When the Obama administration adopted their stimulus package, they assumed that the multiplier was about 1.5. But it turns out that this estimate is pretty optimistic. Recent commentators ( such as Robert Barro and others) have argued that the actual number is probably less than 1, and likely closer to 0.5.

So if the Obama administrations estimates are wrong, what does that mean? It means that the stimulus won't do nearly as much good as they expected. In fact, with a multiplier of less than 1the stimulus will probably do more harm than good, since it will increase the deficit and create more of a burden in the future. In short, it means that increased government spending doesn't stimulate the economy very much and the "stimulus package" was inaptly named. The economy appears to be recovering, but we shouldn't really be thanking Obama.