Public Policy and Governance – Page 157

Regulatory Capture

Those of us who teach classes in public administration routinely include lessons on what is called “regulatory capture.” That’s jargon for the “coziness” that often develops between regulators and those whom they regulate.

The more technical and “exclusive” the area being regulated, the easier it is for employees of the government agency charged with oversight, and the representatives of enterprises they are overseeing to become comfortable with each other, and to develop a trusting relationship.

The concern, of course, is that it gets too trusting, and that the oversight intended to protect the public becomes too lax.

Regulatory capture is generally not intentional–familiarity leads to comfort, and things slip between the cracks. But of course, there are also situations in which lax enforcement is, shall we say, more calculated. The question being asked in the wake of two Boeing aircraft crashes, and reports that the FAA allowed Boeing to “self-certify” the safety of its aircraft, is: which kind are we dealing with?

According to the Washington Post, Boeing and the government have long had a “special relationship.”

As a top economic adviser to President Bill Clinton, Dorothy Robyn was charged with advancing America’s aerospace industry.

Part of the job was not choosing sides between companies. But there was one exception: Boeing.

“It was the one company for which I could be an out-and-out advocate,” Robyn said Thursday. In competitions between American companies, the administration as a rule remained neutral. But Boeing’s commercial airplane division employed tens of thousands of Americans and its prime competition, Airbus, was in Europe.

“In the engines business, you can’t choose between GE and Pratt & Whitney. With Boeing, that’s it. They’re ours. It is the only sector where we have a de facto national champion and you can be an out-and-out advocate for it.”

That “special relationship” has existed for decades. Boeing makes the planes that fly as Air Force One. A former Boeing executive, Patrick M. Shanahan, was tapped by Trump to be acting defense secretary after the resignation of Jim Mattis, despite the fact that he had no prior government experience. Boeing’s business is so dependent on federal government policies that the company spent $15.1 million last year on approximately 100 Washington lobbyists.

Boeing booked a record $101.1 billion in 2018 revenue, up 13 percent from the year before, and analysts say about a quarter of that was from government contracts. In 2017, Boeing received an estimated $23.3 billion in taxpayer-funded contract awards, not including classified military funding. And its joint ventures with Lockheed Martin and Bell Helicopter Textron received $2.2 billion and $2.5 billion, respectively, in federal contract funding in 2017….

Daniel Auble, a senior researcher at the Center for Responsive Politics, called Boeing “an excellent illustration” of the “the undue influence of money in our political system.”

In the wake of the two crashes, Congress has demanded answers about FAA oversight of Boeing, including why the FAA didn’t ground the company’s planes until regulators in Europe, China, Australia and elsewhere had done so.

Some FAA personnel have complained that the agency has given Boeing too much responsibility for its own safety checks. Concerns about a lack of rigorous oversight–especially as reports have emerged about Boeing’s “rush” to beat a rival and deliver these aircraft–is only the most recent evidence that warnings about the company’s “cozy” relationship with the government are not misplaced.

The close relationship between the Pentagon and Boeing is part of a long-standing revolving-door culture in which senior defense officials move back and forth between jobs in government and with defense contractors.

In 2004, Darleen Druyun, a high-ranking Air Force procurement official, was sentenced to prison after she admitted that she approved a purchase of 100 refueling airplanes from Boeing at an inflated price of about $20 billion to enhance her job prospects with the company. She also leaked proprietary pricing information from a competitor and helped Boeing secure a separate $4 billion as a thank you for hiring her daughter and future son-in-law.

According to Bloomberg (link unavailable)

In one previously unreported case involving a separate aircraft program, a Boeing engineer sued three years ago, claiming he was fired for flagging safety problems that might have slowed development. Boeing has denied the claims.

If the investigations now underway find evidence that regulatory oversight was lax–whether due to an excess of trust or something worse–it will be yet another item on the growing list of reasons other countries no longer feel they can trust us.

As airlines cancel several billion dollars of orders for Boeing airplanes, and the company’s stock tanks, the livelihoods of Boeing’s 153,027 employees are at risk. The economic consequences for the whole country could be very ugly.

America is about to get a lesson that our anti-government Republicans won’t like: effective regulation and oversight are essential to economic stability and growth, and only government can provide it.

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Penny Wise…

Investigators looking into those raging, destructive fires in California a couple of months ago have determined that the fires were caused by power lines that came into contact with each other during high winds.

According to Engineering News Record (I know–you have a copy on your coffee table, don’t you?),

The resulting arc ignited dry brush on Dec. 4, 2017 , starting the blaze in Ventura and Santa Barbara counties that resulted in two deaths and blackened more than 440 square miles (1,139 square kilometers), according to the investigation headed by the Ventura County Fire Department .

The arc “deposited hot, burning or molten material onto the ground, in a receptive fuel bed, causing the fire,” said a statement accompanying the investigative report.

Investigators said the Thomas fire first began as two separate blazes started about 15 minutes apart that joined together. They determined Southern California Edison was responsible for both ignitions…

The fire destroyed more than 1,000 structures before it was contained 40 days after it began near the city of Santa Paula . A firefighter and a civilian were killed.

If the damage from the fire itself wasn’t destructive enough,

A month after the blaze started, a downpour on the burn scar unleashed a massive debris flow that killed 21 people and destroyed or damaged hundreds of homes in the seaside community of Montecito . Two people have not been found.

Here’s my complaint. (Okay, my diatribe.) The ravages of the fire–the destruction of homes, the deaths, the dislocations– could have been avoided had the power lines been buried. And it isn’t just California, and it isn’t just the enormous amount of damage done every year by downed or otherwise unsafe power lines–there’s also an aesthetic issue, at least in cities, where poles and lines clutter the sky.

The immediate response to this complaint is always the same: burying power lines is too expensive. That response is typical of America’s approach to infrastructure generally, which can be perfectly summed up by the old adage “penny wise and pound foolish.”

Over the long term, buried power lines will require less maintenance and will cause far less damage. (Southern California Edison is now in bankruptcy, thanks to the fires.)

It’s the same story with other infrastructure. Streets that are properly paved and repaired last longer and require less annual attention. (Indianapolis’ third-world streets are the result of many years of “fixing” recurring potholes with haphazard and ungainly patches and the application of paper-thin asphalt coatings to untouched, steadily deteriorating street beds.)

There’s an old saying that “long term” to a politician means “until the next election.” The political system’s incentives are all perverse: spend as little as you can (pretend it’s the result of “efficiency”); whatever you do, don’t raise taxes; do the repairs that you absolutely must as cheaply as you possibly can, and let the next guy worry about it.

The problem is, when we don’t do it right–we have to do it over. And over.

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The President’s Stupid Trade War

Remember Trump’s declaration that “trade wars are good, and easy to win”? How about “I am a Tariff Man,” or his repeated (inaccurate) claim that foreigners pay tariffs.

Have we ever had a less-informed President? (That’s a rhetorical question. Obviously, being ignorant is one contest Trump wins in a walk.)

Let Paul Krugman explain Trump’s fallacies.

Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports, and many of those tariffs have been in effect long enough that we can get a first read on their consequences.

On Saturday economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. (The paper, by the way, is a beautiful piece of work.) The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.

Krugman explains the essential findings of the cited paper, with graphs–you should click through for the details–and then gives examples.

Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.

Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole….

Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer.

Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t.

NPR and other media outlets have reported on the far worse effects of Trump’s tariffs on farmers–especially soybean farmers.

Stubbornly low crop prices have been exacerbated by the trade war that decimated the once-lucrative Chinese market for soybeans. China used to be the biggest buyer of U.S.-grown soybeans. But this year, in retaliation for similar U.S. tariffs on Chinese imports, China imposed a 25 percent tariff on imports of U.S. soybeans, resulting in a dramatic drop in shipments.

The American Soybean Association has elaborated on the problems. According to the organization, Trump’s actions have “rocked the foundation of a decades-old trade relationship” between U.S. soybean farmers and China, which has been the largest market for American beans. It has resulted in halted sales, plummeting crop prices, and a lack of security for farmers seeking funding for the 2019 season.

The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. China imported 31 percent of U.S. production in 2017, equal to 60 percent of total U.S exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, making it a prime market for the U.S. and other countries.

U.S. soybean growers have realized a nearly 20 percent drop in soy prices since the threat of tariffs began last summer, and the future of soy growers’ relationship with China continues to be in jeopardy. China has pursued new means to procure soybeans and other protein crops, including maximizing soybean imports from other exporting countries, particularly Brazil.

Growers have taken to Twitter and other social platforms today with the hashtag #185DaysStillNeedTrade, along with the popular #RescindtheTariffs hashtag to continue demanding that the Administration bring an end to its lingering trade war with China and help restore certainty and stability to the soy industry.

Certainty and stability aren’t Trump’s strong suits, to put it mildly. Thanks a lot, “Tariff man.”

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Measles, Lies And Politics

In our politically polarized country, it’s tempting to see arguments about the efficacy of medical interventions like vaccines as examples of “non-political arguments.” True, the less-kind among us (I plead guilty) tend to view “anti-vax” parents as deranged left-wing versions of rightwing conspiracy theorists, or less judgmentally, arguably sane but credulous people who haven’t had access to accurate information. We don’t, however, see this particular controversy as a particularly political argument.

A recent, very thoughtful article in The New Yorker disagrees, calling the measles vaccine a “quintessentially political issue.”

Vaccination is a basic political issue, because it is the subject of community agreement. When a high-enough percentage of community members are immunized, a disease can be effectively vanquished. In epidemiological terms, this is known as “herd immunity,” which cannot be maintained below a certain threshold. When enough people reject the community agreement, they endanger the rest. Willfully unvaccinated adults and children can spread diseases to those who cannot be vaccinated or haven’t been vaccinated, such as infants and people with a compromised immune system; these vulnerable populations would probably be safe in conditions of herd immunity. Vaccination and the refusal to vaccinate are political acts: individual decisions that affect others and the very ability of people to inhabit common spaces.

The author cites evidence that a majority of anti-vaxxers are educated white people who have ample access to credible public-health information and scientific studies about vaccination. Much like those who refuse to believe that climate change is real, they simply choose to reject the science; they choose not to believe the medical consensus. As Frank Bruni recently wrote in the New York Times,

Their recklessness and the attendant re-emergence of measles aren’t just a public health crisis. They’re a public sanity one, emblematic of too many people’s willful disregard of evidence, proud suspicion of expertise and estrangement from reason.

The irrationality triggered by anti-vaccination propaganda is yet another example of the current raging conflict between facts and lies in America–a conflict exacerbated by social media. According to the author of the article in The New Yorker, there are even some reports that Russian trolls have been exploiting anti-vax fears as part of the Russian effort to use disinformation to splinter American public opinion.

What would cause well-educated parents to believe that the entire scientific and medical community is lying to them about the risks of vaccination?

The article attributes this reaction to current levels of public distrust–distrust of authority, of government, and especially of a complex, overly-expensive, profit-driven medical system that has few incentives for robust public-health interventions.

The solution to under-vaccination lies not in getting the right kind of information and messaging to the “vaccine-hesitant” but in changing the politics of health care. Political agreement is unlikely among partners who do not trust each other, and near impossible when one side is explicitly profiting from the other. The American health-care system is ill-suited to protect public health, because a profit-driven industry cannot serve as the guardian of public good.

It’s hard for people to trust the credibility of pharmaceutical companies when those companies are jacking up the price of insulin and other life-saving drugs.

The role of trust is something to consider as lawmakers debate the pros and cons of “Medicare-for-All” and universal systems like those in place in most other modern countries.

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The Great Gatsby Curve

There’s nothing like being lectured about work by a “princess.”

Recently, Ivanka Trump responded to the introduction of the Green New Deal’s provision for a government jobs guarantee with a dismissive remark to the effect that Americans prefer to work for what they get, and want to live in a country with the potential for social mobility.

Paul Krugman was on the case.

O.K., this was world-class lack of self-awareness: It doesn’t get much better than being lectured on self-reliance by an heiress whose business strategy involves trading on her father’s name. But let’s go beyond the personal here. We know a lot about upward mobility in different countries, and the facts are not what Republicans want to hear.

The key observation, based on a growing body of research, is that when it comes to upward social mobility, the U.S. is truly exceptional — that is, it performs exceptionally badly. Americans whose parents have low incomes are more likely to have low incomes themselves, and less likely to make it into the middle or upper class, than their counterparts in other advanced countries. And those who are born affluent are, correspondingly, more likely to keep their status.

As Krugman notes, Americans like to believe that we “made it on our own,” that we “pulled ourselves up by our bootstraps” (a phrase that tends to infuriate me, since it entirely ignores the fact that large portions of the American public don’t have anything that could remotely be considered “bootstraps.”)

Then he provides the data.

Among advanced countries, there is a strong negative correlation between inequality and mobility, sometimes referred to as the “Great Gatsby curve.” This makes sense. After all, huge disparities in parents’ income tend to translate into large disparities in children’s opportunities.

And people do, by the way, seem to understand this point. Many Americans don’t realize how unequal our society really is; when given facts about income inequality, they become more likely to believe that coming from a wealthy family plays a big role in personal success.

I had never run across the “Great Gatsby curve,” but it makes sense. Everyone who raises children implicitly understands that those children’s prospects are tied to the quality of the education we provide for them, very much including the enrichment that comes with their extra-curricular experiences. That’s why homes in districts with good schools sell at a premium, why parents shell out eye-popping amounts for summer camps, music lessons and sports equipment.

The “princess” may be unaware that large numbers of Americans simply cannot afford those things–and when they can’t, social mobility suffers accordingly.

Back to the “potential for upward mobility”: Where do people from poor or modest backgrounds have the best chance of getting ahead? The answer is that Scandinavia leads the rankings, although Canada also does well. And here’s the thing: The Nordic countries don’t just have low inequality, they also have much bigger governments, much more extensive social safety nets, than we do. In other words, they have what Republicans denounce as “socialism” (it really isn’t, but never mind).

To put it in terms even a clueless Princess might understand, a generous social safety net provides the bootstraps that allow people to pull themselves up.

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