Privatization as Money Laundering, Part 2

Yesterday I addressed a specific example of how “privatizing” a public resource can be compared to money laundering. Today I’ll try to address the more general case. First, I’ll offer another crime-oriented analogy. Searching for “faux privatization” rapidly led me to some old friends over at Mutualist Blog, who in turn pointed me toward Brad Spangler. I’m sure there are areas where we’d all disagree, but I do think this comparison is apt.

Let’s postulate two sorts of robbery scenarios.

In one, a lone robber points a gun at you and takes your cash. All libertarians would recognize this as a micro-example of any kind of government at work, resembling most closely State Socialism.

In the second, depicting State Capitalism, one robber (the literal apparatus of government) keeps you covered with a pistol while the second (representing State-allied corporations) just holds the bag that you have to drop your wristwatch, wallet and car keys in. To say that your interaction with the bagman was a “voluntary transaction” is an absurdity. Such nonsense should be condemned by all libertarians. Both gunman and bagman together are the true State.

Both gunman and bagman together are the true State. Keep that in mind as we consider the general case of taking some function that the government provides directly and outsourcing it to the so-called private sector. The first thing we might notice is that the potential for fraud remains unchanged. Either way, someone might take the government’s – actually the taxpayers’ – money and use it for something besides its intended purpose. Let’s take fraud out of the equation, then, and consider what might be different when something’s privatized. This time, Exhibit A is corruption. The recipients of small individual grants from the government cannot use them to make a bribe that matters; the per-person amount is too small, and collusion might be anywhere from difficult to impossible. However, the recipient of a multi-million-dollar contract to provide that service darn sure can turn a fraction into a bribe that will turn even a legislator’s or cabinet member’s head – let alone that of some flunky in a procurement agency. This leads to the spectre of competition – supposedly the raison d’etre for privatization – being notably absent from the privatization process. Even if the competition isn’t effectively bought instead of being awarded on merit, all competition effectively stops the moment the contract is awarded . . . but wait, that’s my next point.

My next point is that the incentives are all different, and not in a good way. With individual grants or provision of service directly from the government, e.g. for healthcare or education, the administrators have a very strong incentive to root out fraud and inefficiency. It’s often how their job performance is measured, and how their prospects for promotion are determined. Once the service is privatized, though, that picture changes. Now there’s an incentive for the government administrators to vindicate both the choice to privatize and the choice of contractor. That means sweeping fraud and inefficiency under the rug. Meanwhile, the contractor has a strong incentive to deny services to those who need them. Now every such denial translates not into some unmeasurable improvement in a performance review but into cold hard cash. This is usually portrayed as an improvement in efficiency, but it’s not true efficiency. Efficiency is outputs over inputs, and decreasing outputs does not increase efficiency. This is a purely financial kind of efficiency, and more efficient transport of taxpayer dollars into contractor pockets is not a good thing. The last perverse incentive involved here is the political one. At the political level, i.e. the level of the people writing the procurers’ performance reviews and potentially offering them patronage jobs at the World Bank or some such, the appearance – not the reality – of smaller government is important. Size of government is often measured by comparing the relevant government’s budget to national GDP, so what happens when government functions are outsourced? The government budget remains unchanged; they’re still paying for this out of citizens’ taxes. However, now the same money is counted again as income for the contractor and thus as part of GDP. That’s right, GDP went up even though no new value was created, because of the double-counting. (I think it’s sick that GDP counts non-value-creating transactions, including many other kinds besides this one, but that’s a whole other post in the making.) More importantly, as GDP goes up, federal budget as a percentage of GDP goes down. That’s insignificant for a single program, but add it up over many programs ranging from millions to billions and you get something that the WSJ editorial page will compliantly point to as evidence of shrinking government and a correspondingly improved economy.

So, are taxpayers better off? No; they’re paying the same as ever. Are the recipients of benefits better off? No again; the privatized “service provider” (really a denial-of-service provider) is probably trying even harder than the government agency ever did to find excuses for providing an absolute minimum of service, or no service at all, in the name of efficiency. Who is better off? The contractors, of course, and their in-government cronies in the procurement agencies (especially the military ones), and the political class who get to bray about how “fiscally responsible” and “pro-market” they are. Do you remember what Brad Spangler said, back at the beginning? Don’t be fooled; the feeders at the public trough, though they portray themselves and are portrayed by politicians as part of the private sector, are really part of the state. The true private sector, consisting of those who might provide the same service (or find alternatives) directly to consumers without involving the government in any way, is still excluded.

Real privatization exists too, and is often beneficial, but it means getting the government out of something entirely. Merely having a “private” company do something, still at taxpayer expense, is not privatization. If the government has to be involved at all in providing a service, it should provide that service directly. Adding middlemen just turns public money into private profit. Most privatization of this form is designed to change the apparent status of some money from “government handout” to “private-sector stimulus” without actually having any other effect. It therefore fits our definition of money laundering as a transaction intended solely for such effect. Our so-called public servants are trying to pull the same trick as drug dealers and common thieves, only on a much grander scale, and it’s unfortunate that so many “smaller is better” pundits let them get away with it.

Privatization as Money Laundering, Part 1

Here’s a little fable for you.

Once upon a time, there was a king who granted all of the land in his kingdom to his friends the nobles. Then the kingdom expanded, and the new land was auctioned off but the only people whose bids had any chance of winning were the nobles or those courtiers who had become favored by the nobles. Then some mines were found, and the rights to those were auctioned off but again the only people who could win the auction for these new sources of wealth were the already-wealthy nobles and courtiers. This same pattern repeated many times, with some small turnover among the nobility but always with a noble class controlling all capital and a much larger non-noble class providing the labor. The nobles and their favorite lackeys called it a free market, not because it was but because it suited them to do so. The peasants, merchants and artisans were not fooled.

One hot issue nowadys is the potential return of the FCC’s Fairness Doctrine, which used to require that radio and TV stations provide equal time for opposing viewpoints on matters of public interest. The theory was that stations were trustees for a certain slice of the electromagnetic spectrum that had been set aside for their use, and that as trustees for a public resource they were required to serve the public in this way (among others). In 1987, for a variety of reasons that are not particularly important here, the doctrine was abandoned. Now that conservative talking heads dominate the airwaves and the Democratic Party controls (at least nominally) both houses of Congress, some liberals have expressed an interest in reviving the Fairness Doctrine as a way to get more exposure for liberal viewpoints. Never mind that reinstituting the Fairness Doctrine would probably result in creationists and global warming deniers demanding equal time under it, or that both the internet and advances in radio technology have seriously undermined the “public trustee” theory. Some people are pushing for a revival anyway. Some other people, instead of making reasonable arguments against it, have chosen to take the approach of saying that spectrum licenseholders had paid for their slice of the airwaves fair and square and should be allowed to do whatever they want with it. One example of this is serial liar and plagiarist Jeff Jacoby, writing in today’s Boston Globe.

Well, the supply of land is finite, too. Yet no one argues that real estate should be nationalized and licensed by the feds. It is obvious that land can be bought and sold in a free market without resulting in anarchy. Why should the broadcast spectrum be any different?

Besides the grammatical sloppiness of splitting what should have been the first sentence into two and then starting the second with a conjunction, and besides the noxious assumption that “bought and sold” means “subject to no regulation whatsoever”, there’s a lot wrong with that short passage. Many people do in fact believe that the finite nature of land makes it special and that land ownership should therefore be subject to special conditions. I do, as do the Georgists and Geolibertarians that I’ve written about. In that, we follow in some pretty hallowed footsteps such as those of John Locke and Adam Smith. I think those guys knew a thing or two about liberty, capitalism, etc. and it’s amazing to think that a paid professional commentator on such issues could be unaware of this line of thought. To be fairer to JJ than he ever is to those he bashes, though, such beliefs do not usually lead to a belief that real estate should actually be owned (what one might assume is meant by “nationalized”) by the state. That seems like correctness by accident, though, because it’s unlikely that someone who casually makes the “ownership = no regulation” assumption would appreciate or accept the distinction between state ownership of land and the state collecting rent on land – what the aforementioned groups actually propose.

Where JJ really goes astray, though, is in pretending that free markets have anything to do with this. Yes, both real estate and broadcast spectrum could be bought and sold in a free market without that resulting in anarchy, but that is not what has happened. Auctions do not automatically make a market free. The ease with which any auction might be rigged, in myriad ways, makes that an absurd belief. What has actually happened with both real estate and broadcast spectrum is very much like the kingdom in my opening quote, and the two-century absence of an actual monarch hardly changes the dynamics of the situation . . . which brings us at last to the thread title. Money laundering is a matter of performing transactions solely to remove the “taint” (usually of crime) from money, without actually creating any value or having any other effect. Spectrum auctions are exactly like that. They’re just a way of putting a “free market” blessing on a government-supported monopoly, and confer on the purchaser no special exemption from the normal rules of the market. In a true free market, exclusive use of a public resource would be considered a crime, and the government would not auction off licenses to commit crimes.

Leisure Time

Here’s something I wrote recently on DiscussAnything, in response to someone complaining about being a workaholic. Amusingly, it might actually reach more people here (DA has a lot more readers overall, but any particular thread might not) and I think it’s worth sharing – or even just reminding myself.

If you can’t change it, channel it. I’m a workaholic too. I’ve been working for startups for most of my career, often working 70-hour weeks for months on end. I could retreat into a less demanding job and have more leisure time, but instead I’m basically saving up time for later. By working hard and aggressively developing new skills long after most people would have consider themselves experts, I can command a much higher salary than I would otherwise. It also allows me entry to opportunities at companies that have genuine prospects for large-scale success, who won’t even hire anyone who’s inclined to sit back and rest on their laurels. I’ve already had one hit that way, though it was more of a ground-rule double than a home run. Even without that mythical home run that makes me instantly rich, though, I’ll still be able to retire way before most of my more lackadaisical peers, while I’m still young enough to enjoy it (to which end my intense fitness program is also directed). Then I’ll be sitting back and taking it easy, pursuing projects or hobbies as I want instead of as the market wants, for the entire second half of my life. I’m willing to give up a little of my lower-quality leisure time (not the high-quality time with my family, of course, which is sacred) for that.

As I said, I can’t change that about myself but I can channel it so that it works for me instead of against me. Somewhere I read once about a distinction between high-reward and low-reward activities, and how they relate to people’s actual satisfaction with their lives. Jobs, sports, and hobbies tend to be high-reward. They’re often demanding of your time and energy, but you’re gladder for having done them. Watching TV or playing video games are low-reward. They require little or no effort or motivation to get going, but the hours turn into days and the days turn into years and you look back and feel dissatisfied at how little was actually accomplished. It’s a trap. It’s junk food for the soul. In the end people are happier if they forego the low-reward activities and push themselves to make high-reward things happen, even if that’s not their natural inclination. Lives can and should be planned to maximize long-term satisfaction, not short-term ease. Unfortunately, too few people realize that and too few resources exist to help them. What we get instead is bookshelves filled with extended rationalizations for sloth. Just remember, nobody ever went to their deathbed wishing they’d spent more time watching TV or playing games.

Funny Cakes

Yesterday I found a link to Charm City Cakes, which has pictures of many very non-traditional cakes. For some reason I find the idea of one food masquerading as another particularly amusing (I’m sure a therapist could concoct some really silly theories about that), so I kind of like the Bacon and Beer or BLT cakes. Either might have been beaten by the Chessboard cake, though, if they had only set up the pieces correctly. Sigh.

Everyone, in the City, with the Lead Pipe

There’s an interesting article in the Washington Post about a very strong correlation between lead exposure and crime rates.

The theory offered by the economist, Rick Nevin, is that lead poisoning accounts for much of the variation in violent crime in the United States. It offers a unifying new neurochemical theory for fluctuations in the crime rate, and it is based on studies linking children’s exposure to lead with violent behavior later in their lives.

What makes Nevin’s work persuasive is that he has shown an identical, decades-long association between lead poisoning and crime rates in nine countries.

“It is stunning how strong the association is,” Nevin said in an interview. “Sixty-five to ninety percent or more of the substantial variation in violent crime in all these countries was explained by lead.”

How can that be? I’ll let hilzoy explain, since she’s a better writer than I’ll ever be.

If a chemical alters your brain in such a way as to make it less likely that you will stop and think about what you’re doing, it increases the odds that you will do something stupid, like, say, committing a crime. This is why I would expect that people are more likely to commit impulsive crimes (as opposed to, say, a very carefully planned bank robbery) when they’ve been drinking. If there were a chemical that heightened impulsivity permanently, not just for several hours after you drink a beer, then it makes total sense that it would be associated with increases in the crime rate.

For consideration of the social/policy implications, I direct readers to the rest of hilzoy’s post.