How Non-Markets Fail (Twice)

We've been talking about the ways in which non-markets can fail, and here is a great example of non-markets doubling down on their own failures. The Washington Post published this article yesterday explaining that a series of emails from Tuesday have come to light which indicate that the Obama administration may have attempted to rush the approval of a more than $500 million loan to Solyndra, a solar-panel manufacturing company. Unfortunately, the company folded two weeks ago, and American tax payers will now have to bear the burden of paying off this loan. Interestingly, this situation seems to have risen out of a double non-market failure.

First, it could be said that the failure of Solyndra, as well as its need for government loans may stem from a misguided attempt by the American government to subsidize oil, rendering it very difficult for other energy sources to compete. This failure may or may not fit easily into one of the categories of non-market failures as described by Charles Wolf Jr, but certainly reflects a poor definition of the problem by policy makers as Bardach might interpret it. The problem, in this instance, would not be that the market is incapable of supporting a solar-pannel company, but would rather be a subsidy system which unfairly disadvantages all energy sources other than fossil fuels. Rather than addressing the root problem of the flawed subsidy system, policy makers have attempted to address one of the symptoms by handing out loans to alternative energy companies.

Second, the choice by the Obama administration to rush the approval of this loan represents an excellent example of a failure within a non-market due to interfering internalities. As the Washington Post puts it:

"The August 2009 e-mails, released to The Washington Post, show White House officials repeatedly asking OMB (Office of Management and Budget) reviewers when they would be able to decide on the federal loan and noting a looming press event at which they planned to announce the deal. In response, OMB officials expressed concern that they were being rushed to approve the company’s project without adequate time to assess the risk to taxpayers, according to information provided by Republican congressional investigators."

These emails could be interpreted in a number of ways. Under the most cynical lens, this event offers an example of a non-government operating in a way which negatively impacted its final performance in order to satisfy its private goal of maintaining a popular impression that it supported alternative energy efforts and sought and earning a major talking point before a "looming press event." In all fairness, one might also interpret the same sequence of events as depicting a non-market following up on a project of interest to it. What do you think?

Poverty Rate

A release from the Bureau of the Census:

The U.S. Census Bureau announced today that in 2010, median household income declined, the poverty rate increased and the percentage without health insurance coverage was not statistically different from the previous year.

Real median household income in the United States in 2010 was $49,445, a 2.3 percent decline from the 2009 median.

The nation's official poverty rate in 2010 was 15.1 percent, up from 14.3 percent in 2009 ─ the third consecutive annual increase in the poverty rate. There were 46.2 million people in poverty in 2010, up from 43.6 million in 2009 ─ the fourth consecutive annual increase and the largest number in the 52 years for which poverty estimates have been published.

The number of people without health insurance coverage rose from 49.0 million in 2009 to 49.9 million in 2010, while the percentage without coverage −16.3 percent - was not statistically different from the rate in 2009.

This information covers the first full calendar year after the December 2007-June 2009 recession. See section on the historical impact of recessions.

These findings are contained in the report Income, Poverty, and Health Insurance Coverage in the United States: 2010.

Here is the perspective from the conservative Heritage Foundation:

The following are facts about persons defined as “poor” by the Census Bureau as taken from various government reports:

• 80 percent of poor households have air conditioning. In 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
• 92 percent of poor households have a microwave.
• Nearly three-fourths have a car or truck, and 31 percent have two or more cars or trucks.
• Nearly two-thirds have cable or satellite TV.
• Two-thirds have at least one DVD player, and 70 percent have a VCR.
• Half have a personal computer, and one in seven have two or more computers.
• More than half of poor families with children have a video game system, such as an Xbox or PlayStation.
• 43 percent have Internet access.
• One-third have a wide-screen plasma or LCD TV.
• One-fourth have a digital video recorder system, such as a TiVo.

For decades, the living conditions of the poor have steadily improved. Consumer items that were luxuries or significant purchases for the middle class a few decades ago have become commonplace in poor households, partially because of the normal downward price trend that follows introduction of a new product.

Matthew Yglesias writes at the liberal ThinkProgress:

When contemplating the rising poverty rate in the face of the economic downturn, it’s important to keep in mind that one crucial quirk of the way the Census Bureau calculates the poverty rate is that the value of things like food stamps and Medicaid isn’t counted in considering whether a family is above or below the line. If the government enacted a pure cash transfer, like higher EITC benefits, that would show up as lifting some families out of poverty. But if the government increases spending on non-cash anti-poverty programs, then whatever benefits those programs have doesn’t count unless they indirectly serve to boost the recipients’ market wages. This is defensible in many cases, but hardly in all of them. SNAP (“food stamps”) in particular is extremely cash-like. It’s not as good as a pure cash transfer, but it’s difficult to make the case that a family receiving an extra $50 in SNAP value isn’t clearly better off than it was before the increase in SNAP benefits.

This is important because an increase in SNAP benefit levels is something the 111th Congress enacted and President Obama signed into law back in 2009. In other words, the real evolution of living standards at the low end in the United States isn’t as bad as a cursory look at the press release would have you believe and the incremental improvement is entirely thanks to a progressive public policy intervention.

Policy Analysis: A First Cut

The Eightfold Path

• Define the Problem
• Assemble Some Evidence: other governments, think tanks
• Construct the Alternatives
• Select the Criteria: efficiency and effectiveness
• Project the Outcomes
• Confront the Trade-offs
• Decide
• Tell Your Story: SUCCES

Markets and Non-Markets

• Externalities and public goods v. "internalities" and private goods
• Increasing returns v. redundant and rising costs
• Market imperfections v. derived externalities
• Inequity of income & weath v. inequity of influence & power

Peters' Iron Triangle and the Deficit-Cutting Supercommittee

Peters' uses the illustration of "picket fence federalism" to describe how different policy areas tend to be isolated based on function. His "iron triangle" depicts the different actors involved in policy making for each functional area. One component of his iron triangle is the "committee or subcommittee." He asserts that members of subcommittees have a greater level of expertise on the policy issue at hand and in theory can come up with a more sound decision. Yet, POLITICO recently reported that the new "supercommittee" created by Pelosi to cut 1.5 trillion dollars from the deficit has been struggling to come up with ideas and focusing more on old solutions. Does this bipartisan panel have the expertise and ability to successful solve this policy issue?

Read the story here

Scott Wong of POLITCO reports on strategy of the supercommittee, "

“It wouldn’t make sense to try to reinvent the wheel,” California Rep. Xavier Becerra, a supercommittee member and the Democratic Caucus vice chairman, told POLITICO.

“We can take a lot of the good work that was done by any of these commissions and groups to give us a set of ideas which we can work off of,” he said. “If we do that, I think that can help us accelerate our time frame.”

While that doesn’t sound terribly ambitious, it does create a pretty familiar road map for the deficit panel: tax code reform, including closing loopholes for special interests and overhauling the big entitlement programs of Medicare, Medicaid and Social Security. Other cuts to domestic programs are also under discussion, though the Defense Department is fighting deep cuts to military programs."

Policies, Cycles, and Politics

The instruments of policy affect one another. Special education is a good illustration:

• 1972: The U.S. District Court, District of Columbia rules in Mills v. Board of Education that DC could not exclude disabled children from the public schools. The U.S. District Court, Eastern District of Pennsylvania, in PARC v. Pennsylvania struck down various state laws excluding disabled children from the public schools.
• 1973: The Rehabilitation Act of 1973 bans discrimination in federal programs and services and all other programs or services receiving federal funds. Section 504 says: “No otherwise qualified handicapped individual in the United States, shall, solely by reason of his handicap, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving federal financial assistance.”
• 1975: With the Mills and PARC cases as a template, The Education of All Handicapped Children Act (PL 94-142) requires free, appropriate public education in the least restrictive setting. This Act later gets a new name: The Individuals With Disabilities Education Act (IDEA). The law s authorizes the federal promise to provide 40 percent of the excess costs of serving students with disabilities, but during the next 36 years, Congress never appropriates more than 20 percent.
• 1977: After a year an a half, Bureau for the Education of the Handicapped issues regulations implementing the law. Meanwhile, Congress holds oversight hearings and passes additional legislation.
• 1977-82: States and local educational agencies issue their own regulations on special education.
• 1982: In the Rowley case (458 U.S. 176 (1982)), the US Supreme Court rules that "free appropriate public education" means only "some educational benefit."

Stages

First, Identification and agenda setting of a policy problem

• Confluence of policy, problems, and policy characteristics
• "Construction" of problems

Second,Formulation of policy options
Third, Approval of policy
Fourth, Implementation of policy
Fifth, Evaluation of policy, which leads to identification of unanticipated consequences and new problems, return to top

Policies create politics

The Boiler Rule

On Monday, we discussed the importance of administrative rules. In this light, The Wall Street Journal reports:

Just ahead of President Barack Obama’s big jobs speech, the American Forest & Paper Association says a pending environmental rule could cost 20,500 jobs or 18% of the industry’s workforce.

In a study to be released Wednesday, the group is taking aim at an Environmental Protection Agency rule to cut pollution from factory boilers, saying the regulation will cause 36 U.S. paper and pulp mills to close. The study comes on the heels of a decision by Mr. Obama to jettison another EPA air quality rule related to ozone that industry complained would kill millions of jobs.

The so-called boiler rule has come under sharp attack from both Republican and Democratic lawmakers, as well as industry, which say the regulations would be too costly and difficult to implement. House Majority Leader Eric Cantor included the rule in his list of 10 “job-destroying regulations” that he has vowed to fight.

The boiler rule would affect paper mills, refineries, chemical factories and other facilities that use boilers, such as universities, hospitals and apartment buildings. Boilers are on-site generators that can provide energy for facilities and factories. Bipartisan legislation is now pending in the House and Senate to delay implementation of the rule, with the aim of having EPA reconsider the regulation.

What Is Public Policy

The Structure of Policymaking

Federalism: There were 89,527 governments in the U.S. in 2007, up from 87,576 in 2002. This number includes the federal government, the 50 states, and 89,476 others. The federal government gives a lot of money to state and local governments.

Separation of power: see Statements of Administration Policy.

Bicameralism: conference committees and pingpong.

The private side of government: Contractors and grantees

Subgovernments and policy networks: The Case of Carol Browner

The Instruments of Policy

Law

• Statutes: US Code or state law
• Other legislative documents
• Regulations: Code of Federal Regulations or state codes
• Presidential executive orders, signing statements; Gubernatorial executive orders; "bill jackets" (New York)
• Court decisions: US Supreme Court; lower federal courts; state courts

Taxes and spending: federal budget, state budget

Services