On this week’s edition of “Sunday Funday,” we have the cold open from last nights’s Saturday Night Live featuring a skit about the government shutdown. Now in the 13th day of the government shut down and the debt ceiling fast approaching, the skit brings a bit of comic relief to an otherwise abysmal economic situation.
Month: October 2013
In Memoriam: Ronald Coase
Nobel Laureate Ronald Coase died last month at the age of 102. I’m sure that most readers of this blog have never heard of Ronald Coase, and I’m equally sure that most of the few who have heard of him likely forgot his name less than an hour after completing their microeconomics exam. Coase was one of the founders of the Law and Economics movement, the goal of which is to encourage more economic analysis when crafting legal rules. As a law student whose pre-law graduate work was primarily in economics, I have a lot of respect for Coase and feel the need to spread his legacy to a wider audience.
Coase’s most notable contribution to economic theory was in the analysis of externalities, an economic concept I will attempt to briefly explain. Markets are essentially social price-setting mechanisms, and when everything is working well, a market will set a price that balances the costs of producing a good with the benefits of consuming that good. This, in turn, ensures an economically efficient distribution of resources. However, markets can only do that when all the costs and benefits are factored into the transaction. Sometimes, costs and benefits of the transaction are external to market participants. The classic example of a negative externality is pollution. If a factory can dump its waste in a nearby stream for free, the management doesn’t account for the effects of this water pollution when deciding its prices. Thus, because the market price of the factory’s goods does not factor in the very real social cost of production, there will be inefficient overproduction by the factory, while the public who bears the cost of the water pollution go uncompensated.
Before Coase, the standard economic solution to this problem was to impose a suitably high tax so that the producer would internalize the external costs. Either the producer would modify its behavior to account for the true cost of production, or it would provide a revenue stream to compensate the victims of the negative externality. Coase, however, turned the traditional analysis on its head by noting that the real problem here is that the different parties both want to use the same resource for different purposes.
Coase gave the example of a doctor and a confectioner who have adjacent offices. During the day when the doctor is trying to see patients, the confectioner uses machinery that makes loud noises and causes vibrations sufficient to disturb the doctor next door. Coase said the problem is not that there is a social cost imposed by the confectioner that must be taxed away, but rather that both the doctor and the confectioner want to use the same space for their two businesses in ways that are incompatible. It is true that the confectioner is disturbing the doctor’s practice with his noise. However, it is equally true that the doctor’s practice is disturbed by the noise only because it’s located next to the confectioner.
Coase’s real genius was in his solution to this problem. Under Coase’s analysis, the parties themselves can negotiate an economically efficient solution without any outside help. Let’s say that, in our example, the doctor has the right to force the confectioner to stop running the machinery and making the noise. The confectioner can instead offer to pay the doctor to move to a new office. If the confectioner derives greater economic value from the location than the doctor does, they should be able to come to a mutually agreeable price that will get the doctor to agree to move. If, however, the doctor derives greater economic value from the location, no price the confectioner is willing to pay will be enough to convince the doctor to leave, so the confectioner will have to find a new place to ply his trade. In either case, the solution is economically efficient because the externality is resolved while the party who derives the greater economic value gets to stay. The exact same analysis would apply, only in reverse, if the confectioner had the right to make as much noise as he wanted and the doctor attempted to pay the confectioner to move.
Unfortunately, Coase’s elegant solution, which is called the Coase theorem, only works if there are well defined property rights (e.g., either the doctor has a clear right to stop the confectioner’s noise or the confection has a clear right to make noise) and if there are relatively low transaction costs (e.g., there are only a few parties, all of whom are willing to negotiate in good faith). This doesn’t happen as often with real life externalities as we would like. Nonetheless, it’s a great example of how a simple change in perspective can suggest a new solution to an old problem that is revolutionary in its time, only to become common sense a generation or two later. In my book, that is a legacy worth remembering.
Obama Interrogates Terror Suspects on Boats, Not at Guantanamo: Does It Matter?
Obama Administration Questioning Suspected Terrorists On Ships Rather Than CIA ‘Black’ Sites
This article discusses the Obama Administration’s emerging trend of detaining and questioning suspected terrorists aboard United States vessels at sea. This approach is the current administration’s response to George W. Bush’s reliance on Guantanamo and other “black sites” as locations for prolonged detention.
Bush’s policy engendered a great deal of controversy on political, legal and moral grounds, as United States citizens dealt with the reality that the federal government was detaining individuals far outside the reach of constitutional due process and typical criminal law procedures.
As part of his campaign platform, Obama insisted that Guantanamo Bay would be closed down, and that his administration was committed to prosecuting suspected terrorists within the currently established boundaries of criminal law and procedure.
While this is clearly a laudable goal from a civil liberties perspective, Obama’s administration has run into difficulty because their civil liberties approach is not the most efficient method of waging the War on Terror and protecting national security interests.
The United States population is generally familiar with the concept of Miranda Rights: “You have the right to remain silent. Anything you say can and will be used against you in a court of law. You have the right to an attorney, if you cannot afford an attorney, one will be appointed for you…” and so on. The reality of the situation is that a suspected terrorist who is “Mirandized” is less likely to talk in order to minimize the government’s criminal case. Inevitably, this lack of information hurts the operators in the national security arena because they must protect national interests with less intelligence than if suspected terrorists were forced or encouraged to give up their information.
The administration’s solution to resolving the tension between these two objectives has been to detain suspects on at-sea vessels, classifying them as enemy combatants under the laws of war and the Laws of Armed Conflict while subjecting them to interrogation for valuable intelligence. Once this phase is completed, these suspected terrorists are re-questioned in accordance with constitutional criminal procedure so that the government can build a case against them for civil prosecution; any information given by the suspect before being read their rights is inadmissible in a court of law.
While the Obama Administration’s position is understandable, their solution is not all that distinguishable from the Bush Administration’s approach. Under both approaches, individuals suspected of terrorist activities are detained in an adversarial location and subjected to various “interview” techniques in the hope of gathering national security information.
It is easy to consider that the Obama approach might be more about satisfying the popular conscience than providing meaningful civil liberty protection.
Does the Obama Administration’s approach do a meaningful job of protecting the civil liberties of individuals suspected of terrorist activity? Is the population concerned with the civil rights of non-American citizens accused of suspected terrorist activity? Is there are more effective or efficient way of resolving the tensions between civil rights and the need for the best intelligence for the national security establishment?
http://www.huffingtonpost.com/2013/10/08/obama-terrorists-ships_n_4063003.html?ir=World&ref=topbar
Life After the Government Shutdown and “The Story of Solutions”
October 1 2013 was an eventful day, to say the least: the government shut down leaving thousands of government workers furloughed, and the American (and global) public were left to wonder about the state of affairs of the richest country in the world. After listening to several NPR radio talk shows addressing the issue, I was not only worried about the government shutdown, but also about the looming deadline to increase the government debt ceiling in the next weeks in order to continue “business as usual” for the U.S. Where would we even start taking care of the multitude of problems that just manifested themselves as a government shutdown? Coincidentally(?), later that evening I stumbled across a video released that same day, the “Story of Solutions”, from the same makers of the “Story of Stuff”.
A short story made shorter, the video critiques the American society’s goal of accumulating more stuff. Our goal should not be to acquire more stuff, but rather to build and have better stuff: better education, better health and a better chance of surviving in this planet. This mentality of acquiring more stuff (fueled by cheap energy derived from hydrocarbons) is what has translated into many of the mess we have created today. These include, but are not limited to: a stagnant economy, polluted air and watersheds, depleted natural resources, poverty and deep social inequalities. Our society’s efforts should focus on issues of health, safety and equity, not on figuring how to make people buy more iPhones, the latest car or buy bigger homes. The next generation of solutions to be proposed in America should deviate from the old model of economic growth. To quote Annie Leonard, the maker of the video, each contributing solution should pursue the following G.O.A.L.:
1) It GIVES people more power, allowing them to “flex” their citizens muscles,
2) It OPENS peoples’ eyes about to the truth about happiness ( which is found in communities, health, and a sense of purpose),
3) It ACCOUNTS for all the costs by internalizing instead of externalizing them, and
4) It LESSENS the wealth gap between those who consume more than their fair share, and those who have barely enough to fulfill their basic needs.
Let me be clear here, this is by no means unheard of, and for the most part, you might already be familiar with similar discourses. I don’t claim Annie Leonard’s position to be revolutionary or even perfect. Politicizing our society’s problems does not make for easy or quick fixes; In fact, these solutions are bound to be slow and messy, as we take into account the many factors that have been disregarded by techno-fixes we are used to. And although today is reserved to talk about energy and environmental policy, I have taken the liberty to step back, and look a the bigger picture. Energy and environmental policy (or really, any kind of policy) will not yield the results we as a society and species need for survival if we keep operating on the wrong principles, and aiming for the wrong goals.
A transition to a system where our efforts do not revolve around economic growth and accumulation is bound to be rough, and definitely not pleasant for most of us. Even thinking about it can be overwhelming and paralyzing. However, challenges are also opportunities. Bringing out the optimist inside me (for a change), I would like to say that the government shutdown, and the upcoming debt ceiling negotiations, are prime opportunities to focus our attention on the bigger problems facing us today, and, as Ms. Leonard would say, “game-changing solutions ” to overcome them.
Our Heroes Deserve Better than a “lapse in appropriations”
For this weeks addition of the veteran’s blog I thought it only fitting to discuss the federal government shutdown and the effect it will have on vets around the country. Many Americans who served our country have become dependent on the government for a variety of services. These services range from counseling services to healthcare to education benefits. Fortunately, the Veteran’s Administration has provided us with a two page cheat sheet to guide through what services will be available and what will be impacted by the shutdown, or as they refer to it, “a lapse in appropriations.”
The good news is all medical facilities will be fully operational. Also, not impacted are counseling services, and centers that process home loans and insurance. Nearly everything else that the VA does is either delayed or completely halted. The primary service that will see an impact is payments and processing for education benefits. The official position of the VA is that funding for education is sufficient to last until late October, after that my guess is that it will get suspended. This of course is only relevant in the event of a prolonged shutdown, but given today’s political climate a long shutdown is a possibility and will affect a fairly large number of veterans including myself.
In order to understand how a shutdown impacts those veterans using education benefits it is necessary to briefly explain how the GI Bill works. Several years ago a new GI Bill was put into place referred to as the Post 9/11 GI Bill. This essentially replaced the old education plan that was established decades ago. Essentially, how it works it that any enterprising veteran that wants to go to school can apply for educational benefits so long as you have served at least 36 months of service and have a favorable discharge (this is in order to get 100% of the benefits). Once accepted to a college, university or vocational program the VA issues a check to the school to cover the full cost of the highest public institution in the state. If you are attending graduate school, or a private school, the Yellow Ribbon Program can cover the balance.(This is an agreement between the institution and the government to cover the cost of expensive schools). On top of covering the cost of tuition each veteran receives a housing allowance based on the geographic location of the chosen institution. For example, in the Washington DC area the monthly allowance is around $1800 and in Syracuse area is approximately $1100. For someone like me who lives alone, these amounts generally cover what it cost for me to pay rent, bills and maybe a few other things, but not much on top of basic living. These allowance payments are disbursed at the end of the month to compensate for the previous month. I never understood why it was this way, but have just assumed its to make sure that people are still in school, however, there really isn’t a mechanism for them to know what you are doing unless the school reports failing grades.
In a nutshell that outlines what most veterans are using to pay for their education. The problem with a shutdown is that come October 30th if there is not a resolution many of us will not be able to pay our rent for November. Someone like me, for example, can probably pay my rent because I have money saved, but I’m not sure if I could pay my other monthly expenses. Then there are those veterans who have not had the opportunity to save much money, and will be faced with financial problems. What exactly are they supposed to do? While congress debates, many veterans will be faced with compiling late fees for bills owed. To be fair, some creditors may be sympathetic, but some will not be. When the government finally decides to get everything together some folks could already be on the road to serious financial problems that can be difficult to recover from. I am not going to pretend to have a good solution, in fact I’m not even sure there is one, just the hope that those responsible for leading this country will find a way to take care of those who have sacrificed for it. For more information, you can check out the VA website. www.va.gov