Pork is Not the Problem

It’s that time of year: Citizens Against Government Waste just released its annual “Pig Book,” a compendium and analysis of pork barrel spending, aka earmarks, by the US Congress in 2019.

Summary: Congressional appropriations for 2019 include 282 earmarks, up from 232 last year. The cost comes to $15.3 billion, up from $14.7 billion.

That sounds like a lot of money, and it is. But not nearly as much as one might think, in the scheme of things.

The federal government plans to spend more than $4.5 trillion in 2019. Those earmarks constitute a whopping one third of one percent of that total.

Critics of earmarks point out, correctly, that they’re used by members of Congress to direct federal spending to their own districts, not always with much “public good” justification (cue complaints about $500,000 for the Sparta Teapot Museum, $7.5 million for golf education, etc.)

True, all of it — but it’s baked into any political process. Whether formal earmarks exist or not, politicians will support bills that spend money in their districts, oppose bills that don’t, shill for their favored projects, and make deals to bring home the bacon.

And, it should be mentioned, earmarks do not directly increase total spending. They simply require that if Congress appropriates $10 billion for Purpose X, $1 million of that $10 billion be spent on Project Y.

The problem in that hypothetical isn’t the $1 million earmark, it’s the $10 billion appropriation.

The problem with the real numbers isn’t $15 billion in earmarks, it’s $4.5 trillion in federal spending.

If Congress has $9 million to spend on a fruit fly quarantine program and $3 million to blow on bad loans to ship buyers (among 2019 earmarks), Congress has too much money to spend on, respectively, Agriculture and THUD (Transportation, Housing, and Urban Development).

Congress DOES have too much money — money it takes from all of us via various tax schemes, and money it borrows in our names on the promise to bond-holders that it will beat us out of it, with interest, later.

Earmarks could be part of the answer to that problem.

If Congress specified in greater detail where and how EVERY dollar of EVERY appropriation must be spent, instead of just handing the dough over the executive branch under broad categories, we’d have a much better idea of where it was going — and be better prepared to protest, and bring pressure to bear against, wasteful spending.

It would also clarify “separation of powers” violations, such as President Donald Trump’s illegal and unconstitutional “emergency” misappropriation of  Treasury and Defense Department funds for his pet “border wall” project, making it easier to rein in presidential misbehavior.

Silly earmarks are fun to point out, but concern over them comes at the expense of addressing the bigger problem: The spending is too damn high.

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See What You Can Build on Your Own

There’s a sense of personal accomplishment, of self-worth, when you make something with your own hands through your own efforts. Even if you seek guidance from someone with experience, you’ve learned more than you knew before. You’ll probably value the results more than if you had no part in making it.

If, after you do the work yourself, you decide you’d rather pay someone to do it for you next time, at least you now know what’s involved. You will probably have a better sense of whether someone is doing a good job or not. You might be able to tell if they are trying to scam you or overcharge for their services.

To prevent someone from making things on their own is bad in two ways. You show you don’t trust them to be competent, and you keep them from becoming competent; from learning how to do things they’ll value. If you never allow someone to succeed or fail on their own, always doing everything for them, they’ll never really grow up. They’ll never learn responsibility.

Self-government is the same way. Until you try to govern yourself, without any laws or representatives to fall back on, you’re not a fully competent human being. You may even surprise yourself when you discover you don’t need those things, nor do you want them imposed on others. I have more respect for myself than to look for someone to govern others — even my enemies — on my behalf.

To me, insisting that others must be governed for my benefit is a sign of weakness and immaturity.

People tend to live up or down to your expectations.

So how do you govern yourself with your own two hands? Be responsible. Don’t pawn your responsibilities onto others. Don’t expect others to take care of you, or to protect you from threats you should be dealing with on your own. Mind your own business and expect others to mind theirs. If someone violates you, deal with it yourself. Only seek help if absolutely unavoidable, and then only from truly voluntary sources. You aren’t entitled to other people’s time or money, so don’t act as though you are. Governing yourself isn’t achieved through voting or expecting representatives to fix anything. If you want to do that anyway, don’t stop there and think you’ve accomplished something.

See what you can build with the effort of your own mind and hands. I think you’ll be pleasantly surprised.

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In Sync: How Business Responds to Gratis Government

Whenever people criticize government provision of a product, clever analysts often demur that private suppliers who compete with government have exactly the same problems.  Part of Helland and Tabarrok‘s case for the Baumol effect in education, for example, is that prices have risen at the same rate in both the public and private sectors:

Prices are much lower at public than at private institutions. The vertical scale is a ratio scale, so equal slopes mean equal rates of growth. Thus, although prices are lower at public institutions, the rate of growth in prices has been similar at private and public institutions. Between 1980 and 2015, real prices more than doubled.

OK, let’s step back.  Picture a typical government service.  The price: gratis.  The quality: mediocre.  Private competition, however, remains legal.  Should we expect the private part of the market to look just as it would under laissez-faire?

No way.  Unless the government rations the free mediocre product, consumers have virtually no reason to ever pay for products of mediocre or lower quality out of their own pockets.   At minimum, then, government’s gratis products kill private production of all products of equal or lower quality – a textbook case of predatory pricing.

That’s not all.  Gratis production also effectively kills private provision of products of moderately higher-than-mediocre quality.  After all, if you can get a C+ product for free, who wants to pay full price for a B- alternative?  With gratis public provision, private providers must convince consumers that the marginal quality improvement is worth the total price of the product.  A tall order.

What does this mean?  Well, if public schools add more low-value services, private schools must keep pace in order to compete.  If public schools add more sports, more specialized teachers, or more courses, private schools that fail to keep up will lose their customers.  The first rule of private competition against gratis government is: Always keep your product quality well above the government’s.  This remains true even if the government adds services that consumers value well below cost.  If you can get them for free from the government, why pay extra for a private school that refuses to offer them?

The lesson: When government supplies free (or highly subsidized) products, we should expect private suppliers to supply gold-plated versions of the standard government-issue.  As a result, their prices and costs will be closely synced.

There are admittedly some exceptions: If government is spending money for no gain at all, private competitors needn’t bother.  If government supplies numerous expensive low-value services, private competitors might decide to just outshine the government on other dimensions.  Most realistically, if government refuses to provide some cheap, highly-valued options (such as religious education), then private competitors can win customers by filling the gap.

Yet overall, when there is a dominant public sector with a private fringe, we should expect the Helland-Tabarrok pattern – without or without a Baumol effect.  Given the pathologies of the public sector, it’s nice to have a private option, but don’t get too excited.  The private options will generally be extravagant, because gratis government strangles budget-friendly alternatives.  Tragically, this in turn sustains the illusion that in the absence of government, only the rich would be able to afford whatever the government now provides.

P.S. Another reason to expect public and private education to closely resemble each other is that both are almost always non-profit.  Morally, yes, there is a major difference between public and private non-profits.  Economically, however, they’re very much alike, because both give managers flimsy incentives to raise value or cut costs.

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More Charter Schools Translates to Fewer Homeschoolers, Study Says

It’s hard to compete with free. More charter schools in a given area could reduce the number of homeschoolers, new research finds. In their study published this month in the Peabody Journal of Education, scholars Corey DeAngelis and Angela Dills looked at the impact of school choice options on parents’ homeschooling decisions. They found that homeschooling rates decline after charter school laws are passed in a given state, particularly the longer those laws are in place.

Opportunity Cost in Action

Parents want more education choice, and mechanisms that lower the cost of alternatives to one’s assigned district school are sought-after. Even though many families homeschool on a budget and more parents work and homeschool, there can be both real costs and opportunity costs to homeschooling. DeAngelis told me in a recent interview:

These are the first empirical findings on the subject, so we definitely need to research the topic further. However, our results tend to suggest that expansion of charter schools decreases homeschool market share by enticing homeschool families to switch to the “free” option.

It makes sense that the prevalence of free public charter school options may encourage families to choose a charter school over homeschool. The top motivator for today’s homeschooling families is “concern about the school environment, such as safety, drugs, or negative peer pressure.” A nearby charter school gives parents the choice of a different school environment at no additional cost, with homeschooling taking a back seat.

DeAngelis and Dills also explored the impact of voucher programs on homeschooling rates. Could voucher programs lead to more homeschoolers if vouchers were available to homeschooling families, thereby reducing homeschooling costs? Or would voucher programs decrease the cost of private schools and prompt more homeschooling families to enroll their children in a private school? Additionally, might a voucher program act as “Trojan Horse,” inviting more government regulation of private schools that accept voucher money and therefore leading more families toward the freedom of homeschooling?

Choice Is Choice

The researchers found that unlike charter schools that can lower homeschooling rates, the results from vouchers are less clear. Their analysis revealed either statistically insignificant outcomes of vouchers on homeschooling prevalence or slight decreases in homeschooling once the voucher program was in place for a while. According to DeAngelis and Dills, Liberating more parents and children from a mandatory district school assignment is a positive step toward educational freedom for all.“The mixed results for vouchers may be a result of private schools moving away from supporting homeschooling in the wake of the adoption of a voucher program.”

While homeschooling proponents might lament the potential decline in homeschooling rates when charter schools become more abundant or when voucher programs are around for a few years, the overall trend toward more parental choice in education is something to celebrate.

Liberating more parents and children from a mandatory district school assignment is a positive step toward educational freedom for all. Still, DeAngelis adds that “homeschool families should consider the loss of educational freedom when switching to public charter schools,” and they should generally support Education Savings Accounts (ESAs) over charter school expansion.

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Los Angeles: Homelessness Meets Economics 101

“We can’t arrest our way out of this. We can’t shelter our way out of this. We have to house our way out of this,” Los Angeles Mayor Eric Garcetti said last year while campaigning for a measure to spend $1.2 billion in taxpayer money over ten years on housing for his city’s homeless population.

Los Angeles County Supervisor Mark Ridley-Thomas, who backed a $355 million county sales tax initiative to provide services to the homeless in the county, calls it “the height of contradiction” that homelessness is growing in a prosperous state.

The results? “The stunning increase in homelessness announced in Los Angeles this week — up 16% over last year citywide,” reports CNN, “was an almost incomprehensible conundrum given the nation’s booming economy and the hundreds of millions of dollars that city, county and state officials have directed toward the problem.”

There’s nothing “stunning” or “incomprehensible” about it.

Eric Garcetti, Mark Ridley-Thomas, meet Ronald Reagan: “If you want more of something, subsidize it.”

Los Angeles is already an inherently attractive destination for the homeless for several reasons ranging from climate (homelessness in, say, the midwest can mean freezing to death if you can’t find a shelter bed) to jobs (large metro with lots of employers) to transportation (mass transit for those without cars) to an already larger concentration than rural areas of both private charities and government services aimed at their problems.

What did Ridley-Thomas and Garcetti EXPECT to happen when they announced their plans to stack hundreds of millions of dollars in new government assistance on top of those inherent attractions?

If I was homeless in the western United States, I’d make a beeline for LA. You probably would too.

Garcetti is correct that housing is key to reducing homelessness. But  “free” or subsidized housing attracts people who want to live in it faster than it can be built.

If Garcetti and Ridley-Thomas want to address homelessness with housing, they should get to work reducing tax and regulatory burdens — everything from zoning regulations to permit requirements to rent control ordinances  —  that make it more expensive, difficult, and time-consuming, and less profitable, to build new housing in Los Angeles than it should be.

Unfortunately, however good their intentions, politicians hate giving up any amount of power and control over any activity. LA’s politicians will probably just continue pouring gasoline on the fire and wondering why it gets hotter instead of burning out.

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If You Hate it, You’re Not the Audience

A lot of people who work in venture capital hate the show Shark Tank.

They feel it portrays an unrealistic image of investing; one that will spread and cause viewers to misunderstand the business and then go on to make terrible choices because of it.

There’s definitely a bit of the Theoretical Man argument going on here, but it’s more than that. The investors who hate the show aren’t the show’s audience. They misunderstand the show’s purpose (besides to entertain).

They compare the show against what they would put in a TV show about investing, which is all the stuff they think is important. But they’re so deep in the business, they don’t realize how many steps a total noob must take to even understand what they consider basics.

I love Shark Tank. I used to watch it with my kids. It exposed them to tons of new concepts. The idea of building a business with someone else’s money was novel. The realization that you’ve got to have a story that’s compelling enough to convince the holders of that money to join. The concept of a “pitch”. The understanding that a good pitch and a good company aren’t always the same thing. The realization that investors can be wrong and can be jerks. And founders can be nice or idiots. The knowledge that investors might collaborate or compete with each other on deals while remaining friends.

It doesn’t even matter if the stories are real or realistic. Uninitiated viewers take away the basic insights. These are so basic that VCs forgot everyone doesn’t know them. But if someone doesn’t know it yet, there’s no way they’ll understand a Medium article about power laws and term sheets.

When you hate something popular, it’s prudent to pause and consider there’s probably something in it that is doing something for those who love it. You don’t have to love it, but it’s probably not supposed to serve your ends anyway. If you can discover the reason it brings value to others, you might navigate the world more effectively and enjoy it more.

(Still trying to understand this when it comes to Old Town Road. I’m not ready to give up yet…there must be something valuable in this song to those who like it).

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