A Critical Appraisal of Network Unbundling

High-speed broadband networks are key to the growth of digital markets as well as most modern forms of communication, and have been subject to far-reaching regulation in many countries. In this piece, we’ll review the rationale behind a cornerstone of the prevailing regulatory paradigm: forced access to incumbent operators’ network infrastructure by alternative operators on regulated terms, so-called “unbundling”.

Calculating the police against citizen homicide rate

by Edward Stringham

We hear of high profile cases of police killings, but few look at the larger picture of how often American citizens are killed by police. What is the rate at which police kill citizens and how does that compare to other homicide rates? Although official statistics have historically been scant, we now know that police killed 1,100 Americans in 2014 and 476 Americans in the first five months of 2015. Given that America has roughly 765,000 sworn police officers, that means the police-against-citizen kill rate is more than 145 per 100,000.

Let us put that into perspective. In most countries in Europe the national homicide rate is 1 per 100,000, so that means American police kill at 145 times the rate of the average European citizen. The two most violent countries in the world are Venezuela and Honduras with national homicide rates of 54 and 90 per 100,000. The U.S. government issues travel warnings stating: “The Department of State continues to warn U.S. citizens that the level of crime and violence in Honduras remains critically high” and “violent crime in Venezuela is pervasive.” If you are not comfortable vacationing in those countries, it is little wonder why so many Americans are uncomfortable with police who kill at more than 1.5 and 2.5 times the homicide rates of the two most violent countries.

Continue reading in my latest OpEd in the New York Daily News here.

An Appreciation: James M. Buchanan (1919-2013)

by Shruti Rajagopalan* 

James M Buchanan, who died last week at age 93, was one of the most profound thinkers of our age. Few Indians would be familiar with his academic contributions or even recognize his name. Yet, the insights from his research would strike a chord with every Indian navigating the inefficiencies and excesses of government on a daily basis.

Buchanan, professor emeritus at George Mason University in Fairfax, Virginia, won the Nobel Prize in Economic Sciences in 1986 for his contributions to the economic analysis of political decision-making. By bringing politics back into economics, Buchanan made economics more humane, realistic, interesting, and relevant. He challenged the economics orthodoxy, dared to be different, inspired his students and colleagues, and developed one of the most unique and creative research programs in economics at the Center for the Study of Public Choice at George Mason University. 

James M. Buchanan: A Preliminary Appreciation

by Mario Rizzo

The great economist James M. Buchanan died today at 93. I am still too stunned to write a proper appreciation of his tremendous contributions to economics and, indeed, to moral philosophy.

Buchanan won the Nobel prize in Economics in 1986. But even this does not capture his greatness. There have been many Nobel prizes in Economics since 1969, the year they were initiated. (In my view there have been too many.) Many of these prize winners will be long forgotten and even viewed with puzzlement by future generations, but this prize will stand out.

In Favor of Across-the-Board Cuts in Government Spending

by Mario Rizzo

I am not sure which is worse: superstitions based on science or superstitions pure and simple.

Many people would react to across the board cuts in government spending by saying something like: “This is crazy; some things are more important than others. We should cut the less important things first.” And, indeed, economists would seem to agree. After all, the equi-marginal principle was one of the first “discoveries” of the marginal revolution. No sense cutting programs in such a way that some will have very high returns, however measured, at the margin while others will have very low returns. Irrational!

However, what is rational for a household or an individual need not be rational policy for the government. Why is that?

After the Fiscal Imbalance is Resolved: What Then?

by Mario Rizzo

Let us suppose that not only the immediate fiscal cliff problem is solved but also the long-run fiscal imbalance is corrected. What then? Presumably federal spending will then be on a sustainable trajectory which is able to cope with cost-of-living increases. Ordinary trend economic growth will already have been figured into the sustainability of the spending trajectory.

So what room is there for more spending without derailing the whole “solution?”  Consider that the contemporary federal government – executive and legislature – exists for the purpose of giving favors to various groups in exchange for electoral support.  Thus, even assuming the unlikely event that the long-term imbalance is resolved, how do we stay within the solution range?  After all, we did not get where we are by accident.

Only a real change in the philosophy (ideology) of government will work. The pragmatic solutions of those who do not challenge the welfare-warfare state, root and branch, are not enough. They are not “pragmatic” enough!

European Austerity in Perspective

by Chidem Kurdas

Attempts to rein in government spending necessarily have unpleasant side effects.  Thus the Dutch government collapsed amid budget talks to control the deficit.   And British national output appears to be shrinking.

Keynesians and advocates of the Obama administration’s colossal budget see this as vindication for unrestrained government spending. But in fact what we see in Europe is a very unfortunate consequence of past unrestrained spending.

Bo as Emblem of State Capitalism

by Chidem Kurdas

The fallen Chinese political chieftain Bo Xilai and his wife are starting to sound like a bizarre combination of Macbeth and his Lady, the US Department of Housing and Urban Development and Fannie Mae—yes, the government created and backed housing finance entity.

Under the leadership of the Mao-admiring “new left” Mr. Bo, the fast-growing city of Chongqing built extensive public housing. Apparently the local government  created investment vehicles to finance its various projects, issuing bonds with land as collateral. The WSJ reports that analysts regard this debt as increasingly risky. 

Taxpayers’ Future in Wisconsin Vote

by Chidem Kurdas

Wisconsin governor Scott Walker is in the extremely unusual position of facing a recall vote less than two years after he was elected in 2010. The recall is orchestrated by unions that have gone all out to reverse his valiant effort to contain the growth in state and local spending. This vote has wide implications beyond the state of Wisconsin, implications for all government budget making and the question of  whether taxpayers can be protected at all against predatory interests.

Mr. Walker’s supposed crime is to be on the taxpayers’ side.

Oil Price Politics Implication

by Chidem Kurdas

My previous post about government restrictions on oil and gasoline transportation drew comments saying prices are set in a world  market and the effect of United States policy is negligible. Numerous economic and geopolitical forces influence the price of oil, no question. That does not

Politics of Oil Prices

by Chidem Kurdas

Oil from North Dakota is selling at a record discount, according to a March 1^st news item in the local paper, the Bismarck Tribune.   By contrast, here in New York gasoline prices are near record highs. Between North Dakota and New York are thousands of miles but more crucially standing between us is a gigantic entity, the federal government.

With North Dakota’s Bakken and Three Forks shale formations producing at a rip roaring rate, the issue is getting the oil to refineries and from refineries to population centers. The Bismarck Tribune article quotes the State Mineral Resources Director, who said: “prices for North Dakota sweet crude generally mirrored West Texas Intermediate prices last year but began widening in January when President Barack Obama temporarily halted the $7 billion Canada-to-Texas Keystone XL pipeline, which would have carried 100,000 barrels of crude daily from North Dakota and Montana.”

Presidential obstruction of Keystone XL is one factor. The producers are getting around the lack of pipeline by transporting some of the crude to Louisiana via rail. But that doesn’t much help northeasters like me. There’s this federal law called the Jones Act, which was in the news in 2010 after the BP oil rig disaster in the Gulf of Mexico. 

Russian Lesson on Term Limits

by Chidem Kurdas

The point of term limits is to prevent the buildup of political power by one person or group. In Russia’s ersatz version, Vladimir Putin merrily plays revolving door with his protégé Dmitry Medvedev. Mr. Putin may win the election on March 4th despite the persistent protests sparked by his latest round of musical chairs with Mr. Medvedev.

That means Mr.Putin could potentially be Russia’s president again for two terms lasting through 2024, bringing his overall reign at the top as either prime minister or president to almost 25 years.

I would like to know what Mikhail Khodorkovsky, one-time-Putin-crony-turned-arch-critic, thinks about this. But the Siberian prison camp where he is held is not welcoming visitors.  A documentary about him, starting to make the rounds of some US cities, is as close as we get to understanding what’s happened to Mr. Khodorkovsky,

M. Friedman Goes to Washington

by Chidem Kurdas

Early in his career, long before he became a Nobel prizewinner and the household name for free market economist, Milton Friedman worked for the US Treasury. The following anecdote is from his 1998 memoir with his wife Rose, Two Lucky People.  This revealing example of how public officials operate illustrates, in Friedman’s words, “the interaction between bureaucratic self-seeking and supposedly objective analysis.”  It complements my previous post on whether politicians pursue the public good.

World War II had started. For Friedman and others at the Treasury, the main mission was to figure out how to finance the war effort while avoiding inflation. 

Primaries, Public Interest and Angels

by Chidem Kurdas

The Republican primaries have been all-out fights, with a series of contenders showing strength in polls and challenging the establishment favorite Mitt Romney, only to fall back after the initial success. Newt Gingrich is the latest to rise and, after his loss in the Florida primary, presumably to fall. It is not a nice process, causing complaints of mudslinging that will continue in the coming presidential election. Pundits eager to display their wisdom call on politicians to set aside the differences and do what’s best for America.

Public choice theory tells us that politicians, like most people most of the time, tend to focus on their self interest. This view has been challenged—the recent Critical Review has several articles on the topic. 

Why Public Policy Is Inconsistent

by Chidem Kurdas

Jamie Dimon, the chief executive of JP Morgan Chase, says regulatory policy is working against economic recovery and as such is contradictory. His complaint is about the new bank rules, but in fact government actions in myriad areas are at odds with each other.

Consistency does not appear to be an object in policymaking. For many years subsidies for tobacco growers co-existed with anti-smoking measures. A couple of months ago NYU law professor Richard  Epstein wrote about regulatory and legal over-reach in the anti-smoking fight. 

Keynes, the Future and Present Austerity

by Chidem Kurdas

In 1930, John Maynard Keynes dashed off an amazing prophecy. Extrapolating from the productivity gains of the past centuries, he came to the bold conclusion that the fundamental economic problem of scarcity would fade away in 100 years or so. Thanks to technological innovation and the accumulation of capital, the ancient condition of limited resources to satisfy competing wants would give way to a new age of plenty. Human beings would then face a very different quandary, namely what to do with themselves once they no longer have to work in order to survive.

Eighty-one years into the timeline Keynes suggested in his article, “Economic Possibilities for Our Grandchildren,” scarcity shows no sign of disappearing. Where did he go wrong?

Fannie, Dodd-Frank and Barney Frank

by Chidem Kurdas

Barney Frank  won’t run for Congress after his present term expires.  This May there were news stories about his  ex-lover getting a high-paying job at mortgage finance giant Fannie Mae while he sat on the Congressional committee that oversaw the government-sponsored entity. 

Is USPS as American as Pumpkin Pie?

Chidem Kurdas

The United States Postal Service is in a deep financial hole that looks to get deeper unless the institution undergoes a major revamp.  Postmaster General Patrick Donahoe says current bills in Congress do not provide enough savings to get out of the hole.

US Mail has historical roots. What would Benjamin Franklin, who was appointed the first American Postmaster General in 1775 by the Continental Congress, do in this situation? Given the flexibility that existed in his time, he could no doubt make the changes to adapt the organization to the 21^st century.  That flexibility, however, is gone. 

Energy Policy vs. Market

by Chidem Kurdas

No matter how thoroughly public policy fails, there is no end to efforts in the same area.  Energy is a case in point. Reviewing the history of US energy policy in his new book, Columbia University legal scholar Michael Graetz writes: “The book  is, then, in one sense a story of failure…” 

Politics of Healthcare Rationing

by Chidem Kurdas

The Obama administration’s remake of the US healthcare system stands on three legs. It makes the purchase of insurance compulsory. It doles out new entitlements via expanded Medicaid, subsidies and certain benefit mandates. And it promises to control the growth of medical costs. The title of the 2010 law, the Affordable Care Act, highlights the cost containment feature and Paul Krugman, for instance, has repeatedly cited a Congressional Budget Office prediction that the changes would reduce the federal budget deficit by keeping down costs.

Now we have more information as to how this supposed cost containment works.

Revolution on Wall Street?

by Chidem Kurdas

Protestors have “occupied” a square near Wall Street for weeks. Hundreds of them were arrested, some 700 while blocking the Brooklyn Bridge. The movement may be spreading to other American cities. At least one demonstrator says: “This is a revolution.”

They complain of joblessness and the inequities of global capitalism, though the sources of their distress vary widely, from having to pay back student loans to the depredations of the internal combustion engine. At this point their immediate, tangible adversary appears to be the New York Police Department. It is easy to make fun of disaffected middle-class kids with Apple computers camping out in Downtown Manhattan. They bask in media limelight while taunting working-class cops. Still, we should try to understand the matter.

Dodd-Frank Starves Congo; Advocates Win

by Chidem Kurdas

While I decided the financial regulation act Dodd-Frank is a gigantic dud after scanning its thousands of pages, I missed the bit on Congo that David Aronson brought to light in a NYT op-ed column this Monday.

Activist-lobbyists apparently inserted into the act a requirement that public companies buying minerals from Congo show how they prevent their purchases from benefiting warlords. Predictably, the companies did not want to risk being accused of financing bloodshed and simply switched to alternative mineral sources. Congolese who worked in mining lost that income and are now starting to go hungry.

Spending Cuts and Politics of Bureaucracy

by Chidem Kurdas

I just read The Politics of Bureaucracy by Gordon Tullock, one of the best books written on the behavior of bureaucrats. Although originally published in 1965, it remains very much relevant today, especially as the debt deal currently in Congress could bring spending caps on programs administered by numerous bureaucracies. These entities implement policy changes, yet efforts to rein in government spending or impose new regulation typically pay little or no attention to their behavior.

Professor Tullock derives his insights from the basic observation that when embedded in an administrative hierarchy that is supposed to serve some – typically vague – public interest, people remain individuals; they still have their own preferences and interests. This is nicely expressed in the foreword by James Buchanan, who paraphrases Adam Smith’s well-known dictum about the butcher, the brewer or the baker. I will further paraphrase his take on Smith: “It is not from the benevolence of the bureaucrats that we expect our budget savings and better rules, but from their regard to their own interest.”

Japan Reveals Regulatory Trap

by Chidem Kurdas

Once upon a time, people tried to explain the post-war “Japanese Miracle” of rapid growth. Then in the current century, the puzzle shifted to Japanese stagnation since 1990. The lesson from these two distinct phases of Japanese history is germane for current American policy.

Chalmers Johnson’s influential book, MITI and the Japanese Miracle (1982), examined how the powerful Ministry of International Trade and Industry had guided and regulated the economy.  MITI implemented industrial policy in what Mr. Johnson called a defining characteristic ofJapan, namely close collaboration between politicians, economic bureaucrats and big business.

MITI’s successor, the Ministry of Economy, Trade and Industry, promoted the use of nuclear power. The ongoing problems at Fukushima Daiichi nuclear plant threw new light on METI. The plant’s operator, Tokyo Electric Power Co., is a monopoly fostered by regulators. The government announced that the Nuclear and Industrial Safety Agency will now be separated from the Ministry, to give it greater independence. 

Why Dodd-Frank is Dud-Blarney

by Chidem Kurdas

It is a shame that Christopher Dodd  did not become a lobbyist earlier, before he teamed up with Barney Frank to sponsor the Dodd-Frank Act. Mr. Dodd first helped set into motion a fast-expanding web of obscure bureaucratic dicta for almost all financial activity, then took a lucrative job as Hollywood lobbyist.

As Richard Epstein writes in National Affairs, the new financial law is notably vague and broad, granting vast discretion to government bureaucracies, giving them the wherewithal to waive or soften requirements for some parties while riding hard on others.