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June 30, 2006

Comments

Mike Huben

Gack! It's a festival of the worst of Miron! And he had to descend to the ludicrous TCS to do it: I can't imagine any place else that would host such a barrage of ill-considered positions.

Lot's of bald assertions, and some of them howlers.

"Air and water pollution affect residents who live near the pollution source." Professor Miron, allow me to introduce you to rivers and wind.

"This [redistribution] generates huge distortions." Watch out for the distortion monster! Never mind that corporations all centrally plan redistribution for their entire budget: think of the distortions! Won't somebody do something about the distortions? Miron's paycheck is a product of redistribution. Plainly he should live on the revenues of his writings and bill his students directly.

"... federal control over the production and dissemination of ideas is the road to thought control." Harvard must follow federal laws, and receives money from the government. Perhaps that's why Miron sounds like a zombie, endlessly reciting vapid propaganda. It's gotta be the thought control.

And finally, Miron criticizes the US for Rove v. Wade because deciding when life begins is impossible, saying it should be left to the states so that there can be heterogeneous answers. This is extremely stupid from a logical standpoint. What makes a state any better able to make the impossible judgement of when life begins than the federal government? And if you are trying to serve people's ideas of when life begins, let them decide for themselves, unencumbered by regulations at state or federal level. Roe v. Wade does just that: it frees women to decide for themselves.

Tito

Regarding the pollution issue, it isn't localized to the area.

To get more detailed (and less personal) than Mike, imagine dumping into the Mississippi River or one of it's tributaries. That is going to have an effect all the way down the river.

Before nationalized polution controls, factories in the Midwest were responsible for acid rain in New England.

Pollution is possibly the perfect example of an externality. It imposes vastly higher costs on society than on the producer, and it affects large areas of land, spilling over any sort of property line.

James

Huben,

Do you not see any important difference between how government redistribution programs operate and how a firm's budgeting decisions work? Try reading Miron's first paragraph under the bold heading "Redistribution," any you'll see that he isn't even arguing against all redistribution so your attempt at a reductio doesn't really work.

What would be a good rebuttal is an argument showing that redistribution at the federal level is somehow better than redistribution at lower levels. As one example, has redistribution for medical expenses been more effective in countries with larger populations or smaller ones?

Mike Huben

James: Miron's point was distortions. If you think corporate budgets are free from distortions, let me know how.

Matt Rognlie

The notion that "most environmental problems are local" ignores the reality that many of our most pressing environmental problems are in fact national or global in scale. Can you imagine what would have happened if CFC regulation had to proceed individually in each state two decades ago?

"Federal policies do not readily address this heterogeneity. As with redistribution, moreover, the potential for excess regulation is clear, so leaving things to the states promises a better balance. And a race to the bottom is again not obvious; many states, sensibly or not, adopt more stringent regulation than anything required by the federal government."

Let's have a review of simple and non-technical game theory. State X's pollution causes $5 billion in local damage and $30 billion in national damage. The cost to the state to alleviate the problem is $15 billion - there is an enormous nationwide externality that overwhelmingly justifies action on an economic basis, but if the state is a rational actor it will not do so without a broader agreement (which is necessarily federal).

Yes, obviously, you must know all this already, but the point isn't that you don't know it: it's that you know but choose to ignore it.

Yes, as you say, some states take action and avoid the "race to the bottom" that we might expect. But this is a questionable generalization based on the conduct of a few decidedly liberal states. Should we really premise environmental policy upon the assumption that states will take measures that are typically not in their rational interests? (when spelled out like that, the notion seems almost absurd)

And when some states implement proper environmental regulation against their self-interest and others don't, the result is an additional deadweight loss (as you also should know). This strikes me as a very bad place to make the case for federalism.

James

Huben,

I never claimed that corporate budgets were free of distortions, nor did Miron. Further, your claim about corporate budgets isn't even all that relevant. Even if corporate budgets are full of distortions, that doesn't mean that the distortive effects of redistribution programs are not a reason to change them.

If you would spend more time thinking through the logic of your comments rather than tossing around words like "vapid" and "propaganda" you probably wouldn't make these sorts of errors.

As it happens, I suspect that you will find distortions in every corporate budget and in every government program. I'm less concerned about the former because the people who do business with corporations can change who they do business with at a switching cost much lower than the cost of switching away from any of the federal government's redistribution schemes.

Mike Huben

James, I'll explain it to you very slowly.

If we're to be concerned by the distortions boogeyman, why should we be more concerned about government distortions than private distortions?

If, as you think, all corporations and government programs produce distortions, innumerate wailing about distortions from government alone shows bias, not rationality.

And if all corporations produce distortions, then you cannot escape them any more than you can escape government distortions.

James

Huben,

"James, I'll explain it to you very slowly."

Type at whatever speed is comfortable for you.

"If we're to be concerned by the distortions boogeyman, why should we be more concerned about government distortions than private distortions?"

Maybe instead of thinking up pejoratives to throw around, you could read more carefully. Then you'd notice that I already answered your question, "I'm less concerned about [distortions caused by firms] because the people who do business with corporations can change who they do business with at a switching cost much lower than the cost of switching away from any of the federal government's redistribution schemes."

"If, as you think, all corporations and government programs produce distortions, innumerate wailing about distortions from government alone shows bias, not rationality."

There is nothing irrational or biased with failing to address the topics you find interesting. I have no idea why you toss around pejoratives like "wailing." If the better arguments are on your side, this is totally superfluous and just makes you look like a person motivated by bias, not rationality. As regards "innumerate," it's always nice to have some numbers to look at, but I'm confused. When I asked you for evidence on your recent claim that campaign finance reform would reduce pork, you called me lazy for not looking for evidence for your claims. Would you think it fair for me to call you lazy for not loking for evidence of Miron's claims?

"And if all corporations produce distortions, then you cannot escape them any more than you can escape government distortions."

And if all distortions were equal in their costs, this would be a great point. I gave you the starting point in my last post and you would have been able to work this out with a little bit of game theory or marginalist analysis had you tried, but I'll clarify.

If any entity, government or firm, produces some distortion, the result will be a cost that someone has to bear unless they switch away. In either case this places a fairly effective upper bound on the magnitude of the distortions; the costs of the distortion cannot exceed the costs of switching. If they are, the party generating the distortion would be penalized by the loss of clients.

Since the cost of switching firms is orders of magnitude lower than the cost of switching governments, firms are forced to operate in ways which are much less distortive than governments.

The same analysis applies for levels of government. Switching counties is very cheap compared to switching states and switching states is cheap compared to switching nations.

Mike Huben

Ah, James, you are caught in the trap of frictionless microeconomic thinking.

Corporate distortions are not bounded by switching costs if there is oligopoly, monopoly, product differentiation, non-profit status, patents, copyrights, or a host of other commonplace violations of free-market assumptions.

In the example of Miron, he's employed by Harvard, a non-profit corporation that enjoys enormous product differentiation.

Your assertion that "the cost of switching firms is orders of magnitude lower than the cost of switching governments" is besides the point: it says nothing about the total magnitude of private distortions versus government distortions.

However, if you think it is important, then you have an opportunity to do some first class research: since you claim it costs less to move between counties than between states than between nations, you should be able to find a similar pattern of distortions. Go right ahead! And while you're at it, please tell me how you'll measure those distortions.

James

Mike,

Seeing as how I've been mentioning switching costs, you might rethink your claim that I'm caught in a trap of frictionless microeconomic thinking.

Switching costs absolutely matter. If anyone imposes a cost on me, I can minimize my personal costs by choosing whichever is less, the costs they impose or the costs of switching. For the other party, then, the greatest burden the can impose is just less than my cost of switching.

"However, if you think it is important, then you have an opportunity to do some first class research: since you claim it costs less to move between counties than between states than between nations, you should be able to find a similar pattern of distortions. Go right ahead! And while you're at it, please tell me how you'll measure those distortions."

My claim was regarding the differences in switching costs. Since we can measure those directly, we don't need to measure a proxy like distortions. It would be a poor proxy anyway, since switching costs only determine the upper bound of distortions.

Regarding switching costs, no empirical evidence is necessary for my claim that they are greater at higher levels as long as they are greater than zero at all levels. I'll let you figure out why. Hint: can you switch states without switching cities?

I'm a little puzzled that you'd find my claims on this doubtful at all, since this is one of the areas where most economists are basically agreed. Any urban economics text should have a section on Tiebout sorting which explains the role of migration (i.e. switching) costs. If you don't want to fork out the money, the Wikipedia entry on Tiebout sorting is good enough.

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