Government As A Business

It seems to me that the fundamental interaction to business is that I need other people to do stuff for me so what can I do in return for them. This interaction does not need to be cutthroat capitalism, it is better for all if it is not. Nearly all such trades are going to be positive sum, both parties are better off, so it can be perfectly friendly. There need be nothing brutal about business. And yet what do we see around us.

The thing with seeing government as a business, is what does it do for which it can charge money. It seems to me that government provides a host of really valuable services for which it ought to be charging money. Copyright protection is, according to the content industry, really valuable. Incorporation is a form of insurance against investment loss and is, as such, really valuable. The broadcast and telecommunications industries depend upon the federal government licensing the radio spectrum. I could go on. The problem I see is that we are charging way to little for these services. It is not that we need to tax the rich per se, it should not be punishment for being rich. Rather we should be charging for the services we provide. And that amounts to running it like a business. If government were charging for these services, rather than giving them away, it would seriously curtail the degree of corporate entitlement, the excess money into lobbying and other such stresses on our society.

What to do with the money? I would suggest, given the things that the government does, that we would want to spend it on having a well educated, generally healthy, stable, secure and prosperous population and an infrastructure of transportation, communication and power distributions.

Who owns this business? I’d say the citizens of the US own it jointly. Essentially it is itself a corporation in which each citizen has a share, all shares are voting shares and the shares are not trade-able nor transferable. You can’t accumulate them. So we the people ought to be charging more for the services we provide (at least those services which are used to generate revenue) and spending it on the things I mention. In this view most of the things you would refer to as public goods, can also be seen as the things needed to run the business. My point is definitely not to disparage the concept of the public good but to suggest that thinking of the government as a business need not decrease the value of those things.

Basically, if viewed sensibly I believe that consistent and coherent view of the government as business can only lead to liberal policies.

Human Rights and the Right Wing

Glenn Greenwald has, as usual, a great post on the ten American Baptists who were arrested in Haiti on charges of child trafficking.  I have to disagree with one thing he writes, because he does not go far enough:

Why would National Review -- which endorses far worse abuses when perpetrated on Muslims convicted of nothing -- take up the cause of an accused child smuggler and possible child trafficker, and suddenly find such grave concern over detainee conditions?  Or, to use their warped vernacular, which equates unproven accusations with guilt, why would National Review be advocating for the rights of child kidnappers and child traffickers?  Because, as a Christian, Allen is deemed by National Review to deserve basic human rights, unlike the Muslim detainees whose (far worse) abuse they have long supported

The distinction made by the National Review is much more start, I believe, than what Glenn indicates in the last sentence.  To the right wing Allen, as a Christian, belongs to a privileged and special class of people who should not be accused of any crime unless extraordinary evidence is presented against them.  In other words this goes beyond ordinary human rights.  A conservative Christian should be deemed, in the opinion of the National Review, to be innocent, unless perhaps charged of some act against another conservative Christian.  Other people, such as Muslims, are never of any account.  If a conservative Christian is the least bit uncomfortable, then then the most monstrous of acts is fully acceptable if it will, to the tiniest degree, relieve anxiety in a conservative Christian.  The slightest concern on the part of a conservative Christian should be held of the greatest possible importance, while the very lives of other people are of no account whatsoever.  That is the distinction made by the National Review.

Government, part I

In the course of our public discourse on government and the economy, I have been increasingly struck by what seems to be the universally accepted view on the relationship between these two.  I’m struck by this accepted relationship because it seems to me to be completely wrong.

Whenever I read of anyone writing about the economy, it always comes across that the author views the economy as this perhaps ideal market (if he is a conservative) or otherwise a market troubled by failures of one sort or another (if he is a liberal) and that government is this outside agency that in various ways reaches down to the otherwise isolated market and “interferes” with it.  The conservative sees this interference as always damaging to the welfare of the world, and the liberal see it as necessary to fix failures in the market.

I think both are nonsense.  The government is no more some outside agency that reaches in to interfere with the economy than the sun is some kind of outside agency that reaches in to interfere with the environment.  The sun is part of the environment , the government is part of the market. 

Consider as an example: The goods we produce and the labor we provide are more valuable when there are people available to transport those goods to distant places where they can be traded more broadly and can command other goods not found nearby.  Those of us who produce the goods here pay to those who transport them a portion of the resultant increase in value.  This is trade, this is commerce and it is the basic operation of a market.

In much the same way, our goods and labor are more valuable in a region of general peace and security than they would be where security is absent.  Like the porters in the previous paragraph, the government provides that security, and therefore for exactly the same reasons as any other actor in the market, it charges upon the beneficiaries of the service a portion of that increase in value.  This charge, particularly for security (which is certainly the primary, but not the only service provided by government) goes by the name of taxes, and can certainly be imposed in a manner that is either just or unjust, fair or unfair, but is, in principal, no different from any other charge imposed by any other actor.

The government then, in my view, is just another actor in the economy, in the market, providing services, charging for those services and spending the revenue on being able to continue those services and/or providing benefits to the nation as a whole (its owner’s and operator’s).  One might note that I list the government as providing services only, not goods and/or services as other actors do.  It is the case that government provides only services, not goods, however, that is a superficial difference.  Other actors are in the same situation and the role of goods is substantially the same as services in the market.

Government does have some unique characteristics, but they are few.  The most significant and substantive way in which government is a unique actor will have a powerful impact on how the government should be organized, but does not have any significance for government’s role in the economy.  Government is granted the unique power to declare certain acts to be criminal and to therefore impose enormous additional costs (fines, imprisonment, death) upon those who engage in them.  People recognize that this is necessary is we are to have a peaceful and secure society.  No other entity is allowed to do this. Related to this unique power is the requirement that government be a monopoly.  If each citizen is free to choose his own government, and therefore the laws he must obey and the punishments for transgression, then we have no government at all.  That is the perfect definition of anarchy.

Beyond this characteristic, government has some unique powers, but all can still be characterized as providing services and charging money for them.  The services it provides may be wise or foolish, and the charges it imposes might be fair or unfair, but the idea that government is “interfering” in the market is generally nonsense. 

Conservative Law Enforcement

Matthew Yglesias  is noticing and commenting on the conservative view of law enforcement being revealed by the Underpants Bomber case. He notes

The underlying issue here, as I’ve been saying, is that conservatives think that any constraint on the state security apparatus is too much. They believe, contrary to all of the evidence, that the rule-bound criminal justice system can’t or doesn’t function and that things would be better if we scrapped all the rules.

Matt's observation is true as far as it goes, but this admiration of state police power, as Atrios notes, is narrowly confined. Specifically:

Conservative hatred of a civilized system of justice is based on their "othering" of criminals. The instant they feel the jack-booted thugs of the state of[sic] treated them or someone like them unfairly the squealing is deafening.

Indeed, the mere possibility that one of them could be the subject of prosecution is evidence of overreaching by the state. Or consider the case of James O'Keefe (or Scooter Libbey for that matter) and the conservative response. One can see outrage at the fact that one of there's could be arrested.  I don't think there is any mystery to this response at all.  This is exactly in keeping with the conservative dream of a Servile Society as I've discussed here and here.

What I mean by the Servile Society can be summarized by looking at the conservative dream world for taxation and spending.  On taxes they would have us eliminate all taxes on interest, dividends and capital gains and draw all government revenue from a flat tax on income.  Spending would be limited to military and police protection, which amounts to just the protection of property.  So there would be no government expeditures on the middle class wage earners.  In this world then a person who owned extensive property could cover all his yearly expenses from interest, dividends and capital gains and thus pay no taxes.  This in spite of the fact that the ability to have these expenditures is completely dependent upon the security of the property that is being provided by the government.  In short such a person would enjoy all the service that government provides, service essential to his prosperity, at no cost to the recipient.  A perfect hand-out.  The costs of providing this service then would be born entirely by those who labor for wages, and in turn they would receive no direct benefit to themselves from the government who's although they supply the governments revenue.  A privileged class of property owners and a servile class of wage earners.  This is the conservative ideal. 

First I would note that not only is this a thouroughly unjust and unfair system, but it is also the system used throughout the world for most of history and has been universally really awful. 

With regard to the points made by Matt and Atrios, the attitude toward law enforcement is perfectly in keeping with their belief in a Servile society.  Law enforcement needs to be as brutal and unforgiving toward the servile class as is needed to keep the privileged class from being afraid.  Servile insurrection is quite scary to the privileged and they need to be keep perfectly at ease.  It is part of the privilege.  But of course the purpose of law enforcement is to maintain the security of the privileged class, so it is a gross failure if it ever threatens them.  This is a view that is utterly incompatible with equality and liberty.

As a final point observation there are a couple of points that should be noted by progressives.  The distinction between serevile and privileged is not purely one of wealth. Yes generally the wealthy would be more likely to be in the privileged class, but there is no strict dividing line. The breakdown is more like an aristocracy, in which poorer titled nobles might well be looking down upon commoners who vastly surpass them in wealth.

Nor is it, in fact, entirely one of race.  Now race has obviously played a huge role in the imposition of a servile society historically and will continue to do so if the conservative tide continues to grow.  I do not pretend that race is not an issue. What I'm suggesting is that for most of the chapions of this system the master/servant relationship.  comes first, whoever is going to be the servents. As long as they get to be masters, they are not on the whole overly concerned with how the servents are defined.  Or to put it another way, most don't actually have much problem with Condelezza Rice being included in the privileged class.  The larger point here is that this servile society is more of a threat to most white folks than is often admitted.  This organization of society is very bad for everybody, except, perhaps, the privileged. 

Raising Taxes

The general consensus among economists, left and right, is that raising taxes in an economic downturn is always a bad idea. From Paul Krugman to Milton Friedman, all agree that raising taxes, on anyone, would hurt the recovery. Krugman ranks it as being just as bad as cutting spending. Now I perfectly well understand this with regard to business in a ideally competitive environment. In an ideally competitive environment any increase in costs, taxes or otherwise, can only be made up by producing less stuff. That would entail, in general, laying people off and thus reducing aggregate demand. The taxes collected would be spent on something, but the result would be unlikely to be better than what was being purchased prior to the tax increase, and is quite likely to be worse. That, as I understand it, is the view consistent with standard economic theory.

However, I am puzzled about what happens in a certain non-ideal environment, particularly because I believe that that non-ideal environment applies the the US economy. Let us suppose that John Smith is the proprietor of a gas station under franchise to XYZ Oil, Inc. (fill in the name with your favorite, or most despised, oil company as you please) Among his costs are a franchise fee paid to XYZ Oil. If this fee is at the highest rate the market will support, then everything above applies and any increase in his costs, taxes or otherwise, are likely to force John to contract the amount of work he does, possibly cause him to leave the business. In any case aggregate demand would go down.

I want to consider a situation where the John’s costs are different from the ideal of competition and I’d like to put some numbers on the problem to make it more concrete. So let us suppose that the market price for the franchise fee is $50,000 and that after all other expenses are paid, John can expect to be taking home $60,000 for himself, assuming that he puts in about 60 hours of work each week. Let us further stipulate that this arrangement would be quite satisfactory for John, considering the range of opportunities for work available to him. This then is the state of affairs in an ideally competitive market. Consider then what the situation would be if XYZ Oil, for some reason, were charging him much less than the market value for the franchise fee. The reason is not important, but for some reason it is charging him $25,000 a year, half what the market would support. But given that he can expect to take home now $25,000 more than the market would typically support, I would expect him to work fewer hours. With the reduced franchise fee working 60 hours in a week would bring in $85,000. In this case he could perhaps work only 50 hours in the week and still have $75,000 to spend, more that he would have in the ideal market. Surely, he would rather have the 10 hours in leisure time and use it to spend the extra $15,000 rather than do the full 60 hours of work.

So what happens then if XYZ Oil discovers that its fee is too low. Let us suppose that it raises the fee up to be somewhat closer to the market (it chooses not to correct the error in one sudden jump) and raises the fee from the very low $25,000 up to $35,000. Now if John continues his 50 hours a week his disposable income will be reduced to $65,000 per year. He might keep that level and have 10 hours free time per week now to spend the $5,000 per year, but he is also very likely to choose to work a few more hours each week and increase the amount of stuff done by the station (increasing also the number of people employed and the number of hours these employees work as well as the incidentals purchased by the station) by 5 hours per week. Now he is producing more, working 55 hours per week (still fewer than the market would demand) and earning $70,000 a year. He isn’t as well off as before the price rise, he is working more, but he still has more free time (5 hours per week) and more money to spend ($10,000 per year) than the market would support. The point here is that in this non-ideal situation, raising his costs will not decrease his output and productivity but rather increase it. Contrary to the standard economic theory of an ideal market raising his costs will raise the aggregate demand. Similar arguments could be assembled to show that should XYZ Oil, for some really bazaar reason choose to lower the franchise fee from $25,000 to $15,000 the effect could only serve to encourage him to take even more time off, produce less and reduce overall demand. Note too that this argument has been developed in terms of franchise fees for a gas station and has nothing specifically to do with government and taxes. I maintain that the arguments apply as well to any costs that a business incurs.

Now the reason I discuss this in a post on raising taxes is that I maintain that exactly this kind of deviation from market value applies to the US government and the prices it charges for services such as general security, copyright protection, the guaranteed sole use of radio spectrum, incorporation, etc. If, as I maintain, our prices are too low, we charge far less than what the market will support, then raising prices will not reduce aggregate demand but rather increase it. Raising taxes on those who use these services to generate their income will not discourage production and hiring but rather encourage it.

Consider, for example, the issue of the relative poor state of broadband service in the US compared to other countries in the world. The reasons for this state of affairs is debated, but I propose that at least one cause is that given the low prices we charge for our services the operators of the companies providing these services have little reason to do the extra work needed to provide the better services. Yes they would make more money by providing better services, but the managers would have to do more work and given the pay scales they would rather take the leisure time. Particularly during the past 8 years when a pay raise (via lowered prices charged by the government for services it provided) was guaranteed whether service improved or not. If we would like to see improvements in these services we need only raise our prices. Furthermore this would only be a boost to the economy.

Three Options

On several occasions now (see here, here and here) I’ve gone on about how the government relates to the economy and what services of what value they are.  To summarize, the following things, among others, are services provided by the U.S. government, for example, and are valuable:

• Security of financial assets
• Copyright protection
• Guarantee sole use of the Radio spectrum
• Incorporation

These are a few among many that I could list.  Now it seems to me that there are three ways, broadly speaking, that we, as citizens of the United States, and deal with the fact that our government provides these services.

I.  Trade Them

This is the liberal option, and the one I prefer.  We can trade these services for things that are valuable to we the citizens.  Those that can use, and who need, these services to generate revenue could return a portion of said revenue to those who supply the services (the government) which then would spend the revenue on A) the kinds of things needed to continue supplying these services and B) stuff we the citizens could use.  We could have more extensive, and less expensive, mass transit, fully funded social security, education, health care and the like.  I also argue that there is a great deal of overlap between A and B above.  To supply the highest quality of the services listed above, as the U.S. does, requires having a well educated, secure, stable, generally healthy and prosperous  population.  These things are both needed by the government to supply the services and of general value to the population, so the two categories are not totally distinct.

Now if we do trade the services, we do not need to squeeze our customers to death.  We can certainly set the prices such that both we, and our customers do well by the deal.  That is the liberal proposal.  For all the whining and complaining of our conservative friends, even the highest tax proposals leave those who rely upon these services making quite a good living.

II Eliminate Them

This is essentially the Jeffersonian, and it would be a coherent libertarian, position.  While this is not the position I would advocate, it is one that can be respected.  This would be the position of a truly “small government”.  Instead of the government providing these services we citizens would either do without them or they would be provided by the private sector.   With no incorporation, no licensing of the radio spectrum and the rest, this would indeed have the government “out of the marketplace”.  This is also a position that no significant political faction is calling for. 

Now a variation on this policy would be to provide these services, but only to a limited extent.  This could be only be accomplished, however, by making them very expensive.  If the cost of incorporation or sole use of radio waves were very high, these services would be used rarely, and some private sector solution would be used instead.  Now there is no guarantee that the value obtained from these services as provided by the government can be supplied by the private sector.  If it takes a government to supply such things, and I think experience indicates that it does, then the loss would be a deep cost to we citizens. 

III Provide them for Free

This is currently the policy of the Republican party and the modern conservative movement and it is completely without justification.  Currently, the government provides these services and is therefore deeply involved in the economy.  But we charge nothing for them, rather provide them for free to a privileged class of select individuals.  Thus we in no way reduce the extent or intrusion of government we are simply removing the only things that protect us from the dangers of a large intrusive government, namely oversight, review, accountability and transparency.

There are businesses in which all the costs of all the inputs must be paid for out of the revenue that can be derived from the business.  Under these circumstances the business must be run in a manner that maximizes its efficiency if any substantial profit is to be made.  However, if the inputs of the business include copyright protection or a guaranteed sole use of radio spectrum, and as in our current arrangement these are provided at nearly no cost, then large profits are guaranteed even if work is done or the business is run poorly.   This also results in a disproportionate share of the nation’s capital gets drawn into such businesses, as they are more profitable than businesses that must cover all their costs without government assistance.  So this option can only result in growth of government control and influence in the economy.     

One Way Ticket

Much of what was reported about the underpants bomber was wrong.  The errors do not alter the story much, but many of the serious ‘red flags’ that should have been caught were, in fact, errors of reporting.  One of these was the “fact” that he had purchased a one-way ticket.  As TPM has clearly shown, this is just not the case.

I bring this up, because I think this error highlights the sorry state of journalism today.  You see, one of the odd truths about airline travel is that, for some reason I don’t understand, and in spite of common sense, one-way tickets are more expensive than round trip tickets, at least for international flights.  As I say, it is common sense that a one-way ticket would cost about half of a round-trip ticket and so one might expect that a suicidal terrorist would save the organization some money and get the one-way ticket.  Except that supposition is wrong. 

Don’t believe me?  Go to travelocity, or some other flight reservation system and give it a try.  Here are a few examples I tried, All are the cheapest ticket I could find for the given flight and all depart on Feb 26, 2010, the round trip tickets return on April 30, 2010.  The choices I made here were essentially random.

Flight	Round Trip	One Way
BWI to FCO	$875	$1435
Boston to Madrid	$590	$917
Miami to Cairo	$1135	$2420

 

I first came across this in the mid ‘80s and again in the ‘90s.  It has been pretty consistent.  I have no idea why, or how the airlines can get this to work, but it is pretty consistent. 

So the striking thing is that among all of our top notch journalists no one is apparently aware of this, nor could any discover it in the course of reporting on this story.  After all, I got the table above in about 15 minutes on travelocity. 

Civil Matremony

I basically agree with Mark Kleiman here on the question of gay marriage and Obama's stance on the same. Mark's short summary of Obama's position is

since gay marriage is bitterly controversial among various religious groups, and the state doesn’t need to take a position with respect to that controversy, it shouldn’t.

Which works well enough as a summary, although I would say that there are a few more wrinkles to the issue. And, as the commenters noted (go check the link) there are important issues of language, which are not easy to resolve.
Basically, there are, potentially, two aspects to "marriage". One is the legal status, defined by the state, the other is the religious sacrament of Holy Matrimony. The state should have virtually nothing to say about the later. If a group of poeple choose to form a social network in which they will perform ceremonies for one another only under certain conditions, that should be their business, the state should not intervene. The legal status, however, the status defined by the state, should be inclusive, people should be able to enjoy that status without discrimination. I believe Obama's position does no more than recognize that this is the case.
Now that does still leave one problem, which is somewhat thorny. Having read the comments to Mark's piece I see reasons for both sides. Namely, which of these two conditions gets the term "marriage". I'm inclined to leave "marriage" with the religious ceremony and have civil union work for the legal status. But, as I said, read the comments to see the opposite view.
I think ultimately this conflict is resolvable and either choice will work.

How to Respond

Fareed Zakaria has an excellent article in the Washington Post. He summarized very well my outlook on how we ought to respond to terrorist attacks, as opposed to the way we have responded.
As he says, the consensus view in Washington seems to be that we'd rather overreact to an attack, such as the one on Christmas day, than underreact. But, as he says, this is quite wrong

The purpose of terrorism is to provoke an overreaction. Its real aim is not to kill the hundreds of people directly targeted but to sow fear in the rest of the population. Terrorism is an unusual military tactic in that it depends on the response of the onlookers. If we are not terrorized, then the attack didn't work. Alas, this one worked very well.

This is an important observation. The ability of al Qaeda, or any such group, to succeed at their objectives is almost entirely up to us. If we respond calmly and methodically, they fail.
Now this is not to say that we should ignore terrorist attacks. That would be absurd. It is, however, possible to respond, even to violent events, with calm determination, rather than panic. Consider our national response if the cause of an airline crash, with even massive loss of life, is due to mechanical failure.

When an airliner suffers an accident, major or minor, the National Transportation Safety Board

convenes a group of nonpartisan experts who methodically examine what went wrong and then issue recommendations to improve the situation.Currently we are in the perverse situation where a significant minority of the population seem to believe that if the crash is due instead to an organization which is trying to instill terror in the general population, that we need to accommodate them. Instead of going along with al Qaeda in their efforts to terrorize us, it would be preferable if we followed up on a terrorist attack in much the same way as we do for a non-terrorist attack.
A final note by Fareed is, I think, really valuable.

As for the calls to treat the would-be bomber as an enemy combatant, torture him and toss him into Guantanamo, God knows he deserves it. But keep in mind that the crucial intelligence we received was from the boy's father. If that father had believed that the United States was a rogue superpower that would torture and abuse his child without any sense of decency, would he have turned him in? To keep this country safe, we need many more fathers, uncles, friends and colleagues to have enough trust in America that they, too, would turn in the terrorist next door.