On rights and regulation

1. On rights and regulation Open Classroom Jim Stergios October 12, 2011

2. Sneak Peek • Thoughts on Arthur Okun’s Equality and Efficiency • Rights and regulation • Impacts • On the size of government • On the economy • On culture • Some takeaways

3. Okun on rights • Free of charge • Universally distributed • Not to be used as incentives or rewards • I agree with the definition as applied to rights in the Bill of Rights. The use of the term rights is problematic if applied to “soft” (economic) rights” as regards the first and last bullets.

4. Wrong about rights • Core difference between the Bill of Rights and “soft” (economic) rights that we might consider. • Okun is wrong in asserting that advocates of the laissez-faire view want simply to “protect the individual citizen against the encroachment of the state.” • The Bill of Rights secures individual rights, but more importantly the ability to create voluntary associations. • Right to bear arms, freedom of assembly, speech and religion • Later: Okundoes not recognize the displacement that can occur through government intervention.

5. Oblivious about “capture” • As the government has grown in reach, does it not first bail out banks? • In various tax reforms, 1000s of tax breaks were eliminated. Why are they back again? • No recognition by Okun that government involvement/influence can be captured.

6. Oblivious about capture, 2 • Okun: There are some things (like votes) that money can’t buy. True. • But: “If votes were traded at the same price as toasters, they would be worth no more than toasters.” • In an age when a large segment of the population does not pay for many of its services, is there not capture of votes as well? • In an age of debate about public unions, is there not capture of votes as well?

7. Is “rights” the right word? • I think it is regulation: Economic goods—regulation-- are the central debates of the American experiment • James Madison, Federalist #10: “Those who are creditors and debtors fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.”

8. Rights and regulations • What are rights? And what are regulations? • Are slowly acquired “rights” such as social security truly a right? • Ask yourself if that is a right akin to the right to free speech, the right of assembly, or the right to bear arms

9. Regulations are critical • What’s the level of regulation and transparency for public sector? • What’s the level of regulation and transparency for the private sector?

10. Role of government as regulator • Government should be rule-maker. Defining the notion and parameters around property. Think about intellectual property rights. Bankruptcy law. Monetary system. • Public monopolies. Natural monopolies. But these should not be treated as universal across time. Post office. • On paternalistic grounds? Freedom is a tenable objective only for responsible individuals (we do not grant freedom to children)

11. Back to Madison • Do additional regulations (and “soft” rights) belong to the domain of states or the domain of the federal government? • What’s the level of government where growth is more justified?

12. States’ rights • States have set as rights such things as education • Mass. Constitution of 1780, Chapter 5, Section 2: “Wisdom and knowledge, as well as virtue, diffused generally among the body of the people, being necessary for the preservation of their rights and liberties; and as these depend on spreading the opportunities and advantages of education in the various parts of the country, and among the different orders of the people, it shall be the duty of legislatures and magistrates, in all future periods of this commonwealth, to cherish the interests of literature and the sciences, and all seminaries of them; especially the university at Cambridge, public schools and grammar schools in the towns; to encourage private societies and public institutions, rewards and immunities, for the promotion of agriculture, arts, sciences, commerce, trades, manufactures, and a natural history of the country; to countenance and inculcate the principles of humanity and general benevolence, public and private charity, industry and frugality, honesty and punctuality in their dealings; sincerity, good humor, and all social affections, and generous sentiments, among the people.”

13. Home-spun examples • Pioneer has been a great supporter of regulation at the state level – on charter schools • These are public services where the fiduciary responsibility and the public trust are essential • The other alternative is: Big Dig Culture

14. 1: Impact on size of Government: Canada vs. the US, 1965-1985 Government Spending: All levels (% of GDP) 48% CAN 38% 30% US 28%

15. Canada vs. the US, 1965-1985 The Redemptive Decade (1987-1997) Canada vs. the US, 1988-1997 Government Spending: All levels (% of GDP) 53% CAN 44% US 39% US 39% 35%

16. Canada vs. the US, 1998-2007 Government Spending: All levels (% of GDP) 45% CAN 39% US

17. Canada vs. the US, 2007-2010 Government Spending: All levels (% of GDP) 43% CAN 42% US

18. Impact on the size of governments US all government as a % of GDP

19. Who’s centralized?

20. 2: Impact on economic recovery • Is economic growth really reined in by “maturing” economy status? • Tautology: Maturing economy = more regulated economy

21. Gravel in our wheels: Slowing US recoveries Depth/Duration of Recessions: U.S takes longer and longer to recover jobs from recessions.

22. Recession Depth/Duration: MA preceded US Source: US Bureau of Labor Statistics, Local Area Unemployment Statistics

23. Duration of US unemployment: Record levels Source: based on US Bureau of Labor Statistics data

24. Underemployment rate has spiked Spread vs traditional unemploy rate widened Source: chart created by “Autopilot” based on Bureau of Labor Statistics data

25. What does this mean? • What does this mean for a nation of immigrants? • Look at the example of Massachusetts—a state with two economies

26. The Choice: Is that what we want for the nation as well? ?

27. 3: Impact on culture • Culture is what makes life worth living • Not only values, but sensations, what is joyful and exuberant, and social interactions and associations •  State and federal monopolies displace voluntary associations • In the short run, they may be beneficial (welfare, unemployment insurance) in trying to achieve social goals…

28. Impact on culture (cont.) • … In the long run, they can be poisonous to social structures, values and broader culture • Welfare until 1996

29. Democracy in America • American history is different: No Academie Francaise, no government sponsored dictionary, no imposition of official language, no national curriculum for schools. • No nation-building based on cultural unity, or class prerogatives, but rather on ideals

30. Tocqueville “Americans of all ages, all conditions, and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds, religious, moral, serious, futile, general or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons, and schools. If it is proposed to inculcate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association. (Democracy in America)

31. Tocqueville “The English often perform great things singly, whereas the Americans form associations for the smallest undertakings... Is this the result of accident, or is there in reality any necessary connection between the principle of association and that of equality?”

32. Takeaways • The language of “rights” in regard to economic benefits and regulation is leading language at best. • The increase in government spending and the size of government is unsustainable. • If there is a democratic decision to increase such regulation and public programming, it should be at the state and local level. • Economically, the impact of the growth in government regulation and programming is clearly unhelpful to job seekers. • The impact on American (and I don’t mean “traditional American”) culture is mixed.

33. Why insist on monopolistic delivery of public services? • Even if there are public goods, does common need require the monopoly state to provide the good? • If public services are added, we should do so through private delivery mechanisms. • Charter schools vs. district schools • Jerry Grossman, former head of NEMC/Tufts, often talked about charter medicine (which is what a reasonable version of ACOs and global payments might look like)