econ – Page 2 – Tools of our Tools

Privatization, aluminum sky-tube edition

This Congress still has some must-pass legislation to complete.

That includes a reauthorization bill that contains a bunch of much-needed reforms for the agency. But they slipped in a doozey of a change: complete privatization of air traffic control. The plan is to create a separate government-chartered independent non-profit to run the whole show, with the intention, of course, that it will be run much more efficiently than the government ever could. I liked quote from an unnamed conservative groups from another Hill article:

“To us it is an axiomatic economic principle that user-funded, user-accountable entities are far more capable of delivering innovation and timely improvements in a cost-effective manner than government agencies.”

Axiomatic, eh? Well, I think I see your problem…

Anyway, it’s worth taking a step back to think about this proposal from a few different angles. First, let’s remember what the FAA does. Really, there are three main activities:

Write regulations
Allocate funds for aviation-related programs (AIP and similar) and
Run ATC (Note: the FAA’s ATC arm is called “ATO,” but I’ll keep calling it ATC here)

Honestly, there has always been something of a conflict between the needs of air traffic control with safety as top priority and efficiency and cost as lower priorities, and the rest of the organization’s needs. It is a small miracle that the FAA’s ATC runs the safest airspace in the world. But miracle or not, it is a fact.

Furthermore, it is also true that ATC has been slow to modernize. This is for several reasons. First, yes, government bureaucracy, of course. But there are other reasons, such as having congress habitually cut and delay funding for new systems (NB: when you are on temporary reauthorization, you don’t buy new things; programs do not progress. You just pay salaries.) Another problem is that the old systems, as cranky and obsolete as they are, work, and it’s just not a simple matter to replace a working system, tuned over decades with new technology, particularly if you require no degradation in performance in the process.

So does this justify privatization? Will a private organization do better in this respect? Well, here are some ideas for thought, in no particular order:

a private organization will use fees to fund itself. This might be good, because they should be able to raise all the money they need, but then again, fees might grow without control. A private organization running ATC is essentially a monopoly. Government control is a monopoly, too — except that you can use the levers of democracy to manage it
a fee-run organization will be mostly responsive to whomever pays the fees. In this case, it would be the airlines, and among the airlines, the majors would have the most bargaining power. Is this the best outcome? How will small carriers fare when it comes time to assign landing slots or assign routes to flight plans? How will general aviation do under such a system? Will fees designed for B747‘s coming into KEWR snuff out the C172 traffic coming into KCDW?
Regulatory capture is a problem for any industry-regulating government entity. Does the appointment of an all-industry board of directors for a private organization that assumes most of those functions “solve” that problem making total capture a fait accompli?
Will this new organization be self supporting or will it still depend on government money? How will it perform when there is an economic or industry slump? If there is a bankruptcy, who will foot the bill to keep the lights on?
When the inevitable budgets shortfalls come, how will labor fare? Will they have to sacrifice their contracts in order to help save the company?
I don’t know, but I’m just guessing, that nobody at the top of the FAA’s ATC today makes a million dollars a year. Will it be so under an private organization? If so, where might that money come from?
Does an emphasis on efficiency server the flying public? To that matter, do the flying public’s interests diverge from those of the airlines, and if so, how are they represented in the new organization’s decision-making?

I honestly have not considered or study this matter enough to have a strong opinion, but so much of it causes the hairs on my neck to stick out.

I’ll give the authors of this new bill credit for one thing: they managed to get the ATC union (NATCA) on board, essentially by promising continuity of their contracts and protections. I’m not sure if that comes with guarantees in perpetuity. One thing I noticed immediately is that current employees would be able to pay into the federal retirement system. New employees…

[ Full disclosure: I am a general aviation pilot and do not pay user fees to use ATC, and like it that way. I do understand that this is a subsidy I enjoy. ]

Cheap shots at economists

I like a cheap shot at economists. Who doesn’t? Economists are so frequently arrogant, close-minded, smug and willing to throw out data that doesn’t match the theory. Why not enjoy a good takedown screed? If you need to hear social scientists vent even more about the weaknesses in economics, the comments here are even more fun.

I have formally and informally studied econ a lot and have to say, I have a good deal of sympathy for some of the points made in the links above. The fact that we have seen some earth-shaking economic events in our lives and our “top men” have not, even many years on, been able to set aside ideology and come to some agreement about what has happened, or why, does not speak well for the whole intellectual endeavor. (NB: I don’t read the papers; I read the blogs, so my opinion is formed from that sample set.)

All that said, let’s remember that microeconomics has been a mostly successful enterprise. You want to know how to structure a welfare program to provide the least distortions? You want to internalize the costs of pollution? You want to set up an auction? Economists have your back.

You want to maximize social utility according to a welfare function of you choosing? Fuggetaboutit.

The great unequalizer?

This post is sloppily going to try to tie together two threads that have been in my newsfeed for years.

The first thread is about rising inequality. It is the notion, as Thomas Piketty puts it that r > g, or returns to capital are greater than the growth rate of the economy, so that ultimately wealth concentrates. I think there is some good evidence that wealth is concentrating now (stagnating middle class wages for decades) but I am certainly not economist enough to judge. So let’s just take this as a supposition for the moment. (NB: Also, haven’t read the book.)

There are many proposed mechanisms for this concentration, but one of them is that the wealthy, with both more at stake and more resources to wield, access power more successfully than most people. That is, they adjust the rules of the game constantly in their favor. (Here’s a four year old study that showed that in the Chicago area, more than 1/2 of those with wealth over $7.5M had personally contacted their congressional representatives. Have you ever gotten your Senator on the line?)

The second thread is about what technology does or does not accomplish. Is tech the great equalizer, bringing increased utility to everyone by lowering the cost of everything? Or is its role more complex?

The other day in the comments of Mark Thoma’s blog, I came across an old monograph by EW Dijkstra that described some of the belief of early computer scientists:

I have fond memories of a project of the early 70’s that postulated that we did not need programs at all! All we needed was “intelligence amplification”. If they have been able to design something that could “amplify” at all, they have probably discovered it would amplify stupidity as well…

If you think of tech as an amplifier of sorts, then one can see that there is little reason to think that it always makes life better. An amplifier can amplify intelligence as well as stupidity, but it can also amplify greed and avarice, could it not?

Combining these threads we get to my thesis, that technology, rather than lifting all boats and making us richer, can be exploited by those who own it and control its development and deployment can use it disproportionally to their benefit, resulting in a permanent wealthy class. That is, though many techno-utopians see computers as a means to allow everyone a leisure-filled life, a la Star Trek, the reality is that there is no particular reason to think that that benefits of technology and computers will accrue to the population at large. Perhaps there are good reasons to think they won’t.

In short, if the wealthy can wield government to their benefit, won’t they similarly do so with tech?

There is plenty of evidence contrary to this thesis. Tech has given us many things we could never have afforded before, like near-infinite music collections, step-by-step vehicle navigation, and near-free and instant communications (including transmission of cat pictures). In that sense, we are indeed all much richer for it. And in the past, to the degree that tech eliminated jobs, it always seemed that new demand arose as a result, creating even more work. Steam engine, electrification, etc.

But recent decades do seem a different pattern, and I can’t help but see a lot of tech’s gifts as bric-a-brac, trivial as compared to the basics of education and economic security, where it seems that so far, tech has contributed surprisingly little. Or, maybe that should not be surprising?

Racket of the day: higher education

A professor at Cal State Fullerton is in trouble for assigning a cheaper textbook than the one assigned by his department. The department-chosen text retails for a whopping $180. It’s also worth noting that the $180 textbook was written by the chair and vice chair of the math department.

Aside from unfortunate conflict of interest, one has to step back and wonder why it is that textbooks are so expensive these days. Has the cost of publishing gone up significantly? Prices in the rest of the book industry would seem to indicate not. Is it harder to recruit authors than ever? Maybe, but it’s worth pointing out that there’s probably not much that has changed in an introductory linear algebra text in the past 50 years.

The only explanation I can’t bat away is that the educational publishing industry learned to assert market power. The students have to buy the course textbook, and that gives publishers who can get in the door strong pricing flexibility, better yet if they are in cahoots with the administration. Furthermore, the ability to pay is bolstered by our good friends, non-dischargeable student loans.

It’s embarassing and sad. One could imagine an alternative universe where a system like Cal State endeavors to create its own teaching materials for free or minimal cost. It’s not like their are a dearth of linear algebra resources for free on the web. But that is not our world.

Finally, as a point of comparison, it just so happens that I still have my linear algebra textbook from undergrad.

Linear Algebra for Calculus, K. Heuvers, J. Kuisti, et al.

$13.35 in 1992 would be $22.64 today. Amazon lists the current edition today for $111. Hmm.