Who will regulate the regulators?

From the Washington Post.

Rep. Jane Harman (D-Calif.), for instance, served as chairman of a subcommittee responsible for overseeing technology-oriented efforts to improve homeland security, intelligence, information sharing and risk assessment in 2008. At the time, she disclosed more than $1 million in holdings in companies involved in intelligence and homeland security contracting, including Lockheed Martin and BAE Systems.

Sen. Frank Lautenberg (D-N.J.), who chaired a subcommittee that oversees water quality, owned a stake valued at more than $1 million in Linn Energy, a company that has been cited by federal authorities for alleged water pollution. It is unclear whether specific issues concerning Linn ever came before the subcommittee.

Sen. Thomas R. Carper (D-Del.), whose subcommittee keeps watch on clean air and nuclear safety, reported up to $65,000 in holdings in Duke Energy, which uses nuclear plants to generate electricity. Duke is 46th on the list of top 100 “corporate air polluters in the United States,” according to researchers at the University of Massachusetts. Duke spokesman Tom Williams said that the company provides power for 11 million people in five states and that some air pollution “kind of goes with what we do.”

The membership of some committees had disproportionately large holdings in companies or industries they oversee, The Post analysis shows.

On the House Agriculture Committee, which holds sway over farm policies and subsidies, members had farming and agribusiness investments worth five times on average the amount held by other colleagues in the House. Many of the committee members’ holdings were in family farms. Nothing prevents those members from also receiving farm subsidies, and in the past, some have.

Likewise, House Energy and Commerce Committee members, who routinely hold hearings about telecommunications and computer issues, had heavier than average investments in companies such as Oracle, Nokia, AT&T and Verizon.

House Homeland Security Committee members also had more communications and electronics holdings as a group than the House as a whole, and House Transportation and Infrastructure Committee members as a group owned almost six times more holdings in transportation firms.

In the Senate, the Banking, Housing and Urban Affairs Committee had on average almost twice the value of holdings in finance, insurance and real estate as that chamber as a whole. The Senate Environment and Public Works Committee members had almost three times the value of agribusiness holdings as their colleagues on other committees.

The thing that is sad about this is that it isn’t shocking. We want good regulators, so they are subject to congressional oversight. But who oversees Congress? I guess the answer is “the voters” but that’s doesn’t seem to be working. Right now, conflicts of interest abound and all we get is pledges that “My investments don’t interfere with my oversight work. I am an ethical person.” Does anyone really believe that? Do you trust congressment more or less than CEOs? Because the rules for CEOs are much, much stricter. Why? Because without them, fewer investors would invest in the company – they’re not suckers.

This is why I will favor markets over government more often than not – and especially in things like Education* and Health Care. There are natural checks on abuses by CEOs: investors stop investing; consumers stop buying their products. It is virtually impossible to unseat a member of congress for questionable ethical behavior, and as long as that is true it will continue and will get worse.

*In a recent podcast with Diane Ravitch, one of the architects of No Child Left Behind, noted that once the bill passed, educational testing companies with close ties to congressmen (both D and R) somehow got massive contracts to do all of the testing. Surprised? Me neither. I’m also now less surprised that NCLB didn’t work. It sounds to me like the primary people it helped were businesses who knew the right people in Congress.

sigh. more on usury.

As I said in the comments to Travis’ post, Rachel Anderson’s definition of a bad loan is wrong. Banks mostly lose money on bad loans – the fees and penalties simply limit the amount of losses. These are only “extra” profits if the borrower is somehow able to turn it around and eventually pay back most if not all of the principal. This doesn’t usually happen.

A much harder scenario is this: Say you are actually a scrupulous banker, but since you are a large bank, you need to provide guidelines to several hundred loan officers about how to approve a loan based on any application you want to design. How do you do it? How do you know a person will pay you back? Remember, not only do you have to give this guidance to hundreds of people, but they will themselves be dealing with hundreds of customers. Most big banks do not do “relationship banking” with individual consumers, so you can’t use that. You’ve got a paper application and perhaps an hour interview. What do you want to know?

Then, what do you tell your hundreds of loan officers to do when they are each dealing with hundreds of defaults? Mass forgiveness? If you get a reputation for that, then you’re a sucker who will attract unscrupulous borrowers (yes, those exist also). I think you may have some sort of penalty for non-payment to deter the worst borrowers from attempting fraud – it is easier to prevent the prosecute after the fact.

The false dichotomy here is one of a “good” lender who forgives debts and a “bad” lender who imposes penalties for non-payment. Yes, there are unscrupulous bankers, but I doubt they consist of a majority of employees or loan officers at big banks. Most of them are trying to deal with a very difficult scale problem. Economies of scale allow lower borrowing costs – that is why big banks exist. But to scale up, they need to deal with people in large groups based on common characteristics.

We are talking about big banks and mass lending. Scale is a big, big problem when you are talking about things like forgiving debts, fines, penalties and like. How do you tell the difference between someone who is genuinely in need versus someone telling you a story who is just trying to sucker you?

Anyone who has been approached for money on the street has faced this problem. Let’s say you could talk to the person requesting money for an hour. What would you ask to determine if they were honest or lying? Let’s say you could force them to provide documentation. What would you want to see? Then, you make the decision on the spot to “loan” them money. Now, let’s say this is your business. How will you make enough to have money to pay your mortgage?

That is why I advocate the use of local community banks – you get more context and relationship. Trying to impose context and relationship on big bank lending is a waste of time. If you want less “usury” as defined as penalties and high interest rates for risky borrowers, then let’s focus on the financial regulation legislation and see if we can get a cap on bank size to start with.

More on Politics – what I’ve been trying to articulate

Is stated quite clearly by Tyler Cowen here. Some excerpts, first on motivation:

In fact, there is a dynamic that pushes politicians to embrace the preferences of the typical or “median” voter, who sits squarely in the middle of public opinion. A significant move to either the left or the right would open the door for a rival to take a more moderate stance, win the next election and change the agenda. Politicians will respond to this dynamic, whether they are power-seeking demagogues or more benevolent types who use elected office to help the world.

And a bit on what Travis posted recently on why the whole country may look like California eventually:

In the federal budget, the largest line items include Social Security, Medicare, Medicaid and military spending — all very popular programs. The interest on the national debt is mounting because we don’t like paying higher taxes now for all those benefits, so our government borrows to postpone the pain.

A bit on the recent Supreme Court decision on campaign finance:

For all the anecdotal evidence, it’s hard to show statistically that money has a large and systematic influence on political outcomes. That is partly because politicians cannot stray too far from public opinion. (In part, it is also because interest groups get their way on many issues by supplying an understaffed Congress with ideas and intellectual resources, not by running ads or making donations.) It is quite possible that the court’s decision won’t affect election results very much.

And the finish. Don’t try to blame politicians – what is needed is leadership (and individual effort) which changes actual public opinion. Then the politicians follow.

If you’re looking for change to believe in, and change that will last, the odds are best when political competition is pushing the world in your direction.

Historic steps lead Taylor to freedom

From the News & Observer.

Gregory Taylor walked into freedom Wednesday with baby steps trained by leg shackles.

He stepped into fame after serving 17 years of a life sentence for murder; three judges declared him, clearly and emphatically, innocent. He was the first man freed by a new process propelled by the N.C. Innocence Inquiry Commission, the first of its kind in the nation.

Taylor, 47, wasted more than half his adult life in prison after what his lawyers declared a reckless rush to judgment by Raleigh police and Wake County prosecutors. Their mistakes cost him 6,149 days. In those, his daughter graduated from college and walked down the wedding aisle unescorted. His grandson, Charles, learned to walk and talk. His sister lost a battle with cancer.

//

Wednesday, Taylor cried until his horned-rimmed glasses fogged and laughed until his whole body shook.

“Sometimes I’d like to be more angry than I am,” Taylor said. “It’s not a sustainable emotion. Right now, I’m just the most elated person in the world.”

Check out the whole article. I think casting Taylor’s conviction as merely a “mistake” softpedals the issue. Particularly the fact that the SBI agent presented evidence in a way that was, at best, totally misleading (a preliminary test on Taylor’s truck indicated the presence of blood, but a follow-up test did not. The agent testified only about the first test), and the way the Wake County DA’s office has fought this the whole way.The NY Times article is particularly ambiguous on this front, quoting DA Colon Willoughby and ADA Tom Ford’s apology to Taylor, and not the fact that they had just spent the whole hearing calling him a liar.

Best of luck to Gregory Taylor, and to North Carolina’s Innocence Inquiry Commission. I hope other states follow suit.

A thought on change

Another wrinkle that a lot of people leave out is that many of us have, and more of us should have, a bias towards the status quo on any issue. It’s a bias that can be overcome if the people advocating change make a really good case, but we place the burden of proof squarely on those who want to change something. If they don’t make a good case for the specific change they propose, the other side isn’t obliged to do anything. But of course the other side can make a case for a different change, if they want to, in which case the burden is on them.

Note that this isn’t to say the status quo is perfect. It’s just that we have full information about it, because the experiment has been run and the outcome is there for all to see. We can see the good points and the bad. But with any hypothetical change, we really don’t know what is going to happen. The benefits that proponents of the change promise may occur, or they may not. There will almost certainly be unintended consequences. We don’t really know. And that suggests a need to move slowly, test things out, communicate honestly about what does and does not seem to work, and so forth. The exact opposite of bumper sticker politics and rushing through legislation before the public can digest it and weigh in.

The Democrats have failed the communication test rather spectacularly in this case. And a lot of people who are NOT stupid or uninformed can articulate real problems with the bills Congress has passed. And so, for these people, the Democrats haven’t met the burden of proof and we should default to the status quo for a few more years.

This isn’t about a preference for public vs. private sector solutions either. I would apply the same kind test to a proposed change that involved privatizing something the government currently does. The lack of information is the same no matter which way you are going.

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This whole post was from a commenter on Megan McArdle’s blog. I couldn’t have said it better myself.

Politics and Politicians

There has been a lot of angst and anger amongst liberals and progressives following the defeat of Susan Crowley in the Massachusetts Senate race. It seems that the Health Care bill is now on its death bed. But that is not the topic today.

First, we start with Tyler Cowen, “A Simple Theory of Political Jobs“:

Political jobs would be torture for most people.  You have no freedom.  You are underpaid and over-bugged.  You lose a lot of your privacy.  You have to stop writing emails or saying what you think.  You don’t get to read many good books or go for many quiet walks.  It’s hard to be a non-conformist.  And so on.

Yet it’s really hard to get top political jobs.  So who gets them?  People who truly, deeply love the power.

Plus “doing what the voters want” very often feels like, or can be described as, “doing the right thing.”

I have a keen interest in politics and the idea that government, done well, can truly help. But I will never be a politician because of the environment described above. He didn’t even mention the bureaucratic junk you have to deal with every day.

I think regardless of how you slice it, you have politicians who care primarily about getting power, then staying in power. And herein lies the problem. Things like Health Care and Climate Change, in particular, are things that need to be addressed, but require short term pain in order to get the long term benefit. The Health Care bill the Dems tried to pass we a massive giveaway that was pretty transparent to all. Most liberal/progressives supported it on the grounds that the uninsured need help no matter what, conservatives and libertarians opposed it on the grounds (primarily) that it was vastly unaffordable in even the medium term. To pass health care reform, it will be necessary to reduce the amount and type of care we all get. The question is who will do it an how? The current bill doesn’t do that – or rather it claims to, but anyone looking at the recent past knows that the “medicare reform” was never going to happen because as soon as the AMA opposes it, congress backs down like they do every year with the medicare reimbursement reduction that they suspend annually. And “evidence-based medicine” was never going to fly either as we saw with the very simple case of mammograms. The fact is, Congress is not willing to stand in between a patient and their doctor.

We see a similar pattern in Climate Change. Until I hear a majority of congressmen saying “This bill will raise the price of energy – that is the whole point” I won’t really be paying all that much attention. There are lots of shenanigans about cap-and-trade, and “frameworks” for progress, etc. but right now, the vast majority of Americans are not willing to pay more for gasoline (for their cars or indirectly in the price of virtually everything we buy that is shipped via truck) to avert climate change. Until they are, this one isn’t going anywhere. The infrastructure for burning fossil fuels gives them such a huge head start on alternative energy that all the subsidies in the world are not going to help in the short to medium term. And so, I predict nothing will happen in the US for a while on climate change. Things will have to get a lot worse before that happens.

And you know what? This is, on the whole, good. I think the Democrats vastly overestimated their “mandate” when Obama was elected because there is no such thing as Blue/Red and all that stuff is really overblown. Many moderate locations (Congressional Districts and States) very slightly crossed from R to D in 2008 and the Dems threw a party. Well, the new folks weren’t that different from the old folks, they just had (D) after their name. They still represent the same set of people. And I think on Health Care, the majority of Americans are not willing to pay a ton of money for an incremental extending of care to uninsured – it was not the reform they wanted. And now congress responds.

What to do about health care? I like this from Megan McArdle:

Raise the Medicare tax by half a percentage point, and eliminate the tax-deductibiity of health insurance benefits for people making more than $150K a year in household income, $100K for singles.  Then make the federal government the insurer of last resort.  Any medical expenses more than 15% or 20% of household income, get picked up by Uncle Sam.

It is incremental change in the right direction, while reducing the life-dislocating problems of massive health care bills. Because it the federal insurance is a % of income and health care costs are not related to income (directly) it will disproportionately help low income folks who find themselves very ill. But the threshold is high enough that it won’t be too attractive to people to skip insurance altogether.

And so it goes…

Seven Theses on a Mission Approach to Law

David Opderbeck proposes some principles in regard to law/government on JesusCreed (here). What do you think?

The Seven Theses on a Missional Approach to Law

(Note:  “positive law” here means simply “law enacted by human beings pursuant to human governmental authority”)

1.    Positive law plays only a limited role in God’s economy of salvation.  Neither individual human beings nor human culture can be redeemed through positive law in itself.  A missional theology of law therefore can never mistake law for mission.

2.   Positive law can, however, help check the spread of evil, serve as a reminder of the good, and facilitate God’s mission of liberating human beings from the powers of sin and oppression.   A missional theology of law therefore will emphasize the law’s liberating potential.

3.    Positive law is provisional and temporary.  In the eschaton, when God will be all in all, the nature and function of positive law itself will be taken up by God and transformed.  A missional theology of law therefore will not have law as its ultimate telos.

4.    Positive law is contextual and incarnational.  Although just laws always spring from universal moral principles, positive law always represents the mediation of moral principles into a particular historical and cultural moment.  A missional theology of law therefore will remain wary of absolutist claims about what the positive law should say in any historical moment or context.

5.    Positive law is bounded by human limitations and by sin.  The natural weaknesses of human knowledge and perception limit the human ability to craft law that will comprehensively address all wrongs.  Moreover, the pervasiveness of sin means that an ideal legal regime can never be realized prior to the eschaton.  Legal policy decisions inevitably involve choices among competing ideals and suboptimal alternatives.  A missional theology of law therefore will always be both ever reforming and pragmatic.

6.    Positive law derives its legitimacy primarily from its consistency with God’s character and secondarily from the consent of the governed.  A law that is consistent with God’s character but that is not supported by a broad public consensus ultimately will undermine the rule of law.  A missional theology of law therefore will avoid the extremes of theonomic  / reconstructionist and libertarian approaches to law.

7.    Positive law does not derive its legitimacy or authority from the Church or from any ecclesial body or structure.  When the Church seeks the enactment of laws that do not enjoy a broad consensus of public support, this compromises both the rule of law and the missionary posture of the Church, even when such laws are otherwise consistent with God’s character.   A missional theology of law therefore will insist that legal and political advocacy embody the virtues of humility, patience, willingness to suffer, and regard for the other.

Increasing Returns and The Fall

So, I’ve been thinking a lot this holiday season about increasing returns. For those who don’t know, this is the “rich get richer” phenomena which seems pretty pervasive to me. Good college football teams get the best recruits, a few popular artists (music, theatrical, etc.) get a majority of the popularity, ‘hot’ technology companies attract the best talent and thus gain more advantage. Those are just a few examples – you can likely think of more. It may be harder to think of something where this is not true. The opposite would be a dampening process, sort of like your air conditioner – when it gets hotter, cool air comes out to reverse the rise, not reinforce it. Can you think of any societal process which is naturally dampening? I haven’t yet, but I’ve not given up either.

The popular get more popular, the rich get richer, the powerful get more powerful. And there are cycles/crashes, obviously – exponential increases aren’t sustainable, and so the same reinforcing process that gave you popularity can also crush you. Ask Britney Spears.

And then I think of socialism/communism. As I’ve stated previously, my primary gripe with those political theories is that they inevitably lead to centralization of power when the group size gets at all large (bigger than a small commune) because it gets too big to self-govern. Then, you get a situation like communist Russia, which is again a rich-get-richer phenomenon. Those in power use that power to stay in power and profit for themselves at the expense of the masses. And socialism inevitably leads to centralization of power as we discover more social problems that need to be solved by the government to be sure that things are done equitably. But this leads to a very large and powerful government, which the larger it gets, the less accountable it becomes to voters. Rinse, dry, repeat and viola, you have an unaccountable, totalitarian government.

So, how much of this is due to the fall? Doesn’t it seem that humanity at some level was designed to live together in a way that the rich give more away, and the poor find themselves to be the major benefactors of that largess without even needing to ask? This is a big part of Jesus’ counter-cultural message – to give away your riches, to give away power, and to eschew the praise of men (popularity). On the one hand, it is better for you – your soul is less tied to those things when you are able to give them away and you live in freedom and not slavery to them. But it is also better for society. We as Christians are the dampening mechanism, at least in some sense. In another sense, that seems impossible.

A lot of what I’ve said here is probably obvious to some. I guess what feels new to me is that this seeming inexorable push for increasing returns to various things is embedded deep on our society and must be a major target of Christ’s redemptive work.

the future of africa

This article in the New York Times Magazine is a great (6 page) nuanced view of the new “Agro-Imperialism” happening in Africa. For those of you who don’t know, what is happening is governments in the Middle East and Asia are entering into contracts with borderline (or fully) corrupt African governments to lease very fertile land which they cultivate and ship back to their own citizens. This article highlights the Middle East, but they are not alone. China may be the biggest player.

Tyler Cowen, an economist and blogger I greatly respect, said this:

Foreign investment can do wonders but the interaction between such investment and corrupt foreign governments can also be negative if workers and citizens are not granted adequate rights.  This article caused me to revaluate possible paths for some African futures… I see corrupt politicians deciding it is more profitable, and also more secure, to “sell off” their countries than to oppress them in the traditional manner.  I see a new kind of tax farming, based on the extraction and exploitation of resources and raw materials, with African labor along for the ride.  It will mean higher living standards and better infrastructure, but probably not along a path that will look very appealing to most Western observers.

I agree, and the article hints at it. It may be that this situation does raise living standards for some desperately poor people. It may also be that this puts Africa on a path of big problems in the future. At first, optimistically I was hoping that this may be a way to develop agricultural infrastructure which could later be taken over by the locals. But if wealthy, armed, neo-imperialists may not take kindly to threats to their food supply. So how will the world respond if a still relatively impoverished African country (say, Ethiopia) refuses to renew a lease on a huge farm and the Middle Eastern lessor invades to take it by force in response?

Unchecked Power

The danger of centralized or unchecked power has been a recurrent theme of Jesse’s posts, and while we tend to disagree about the benefits of, say, a single-payer system for healthcare, I absolutely agree that power corrupts and we should spread it out as much as we can. Conservatives (generally speaking, of course) are fond of making this argument about economics, but tend to wear blinders when it comes to criminal justice issues.

A soon-to-retire California district attorney represents, to me, many of the problems inherent to both the way we invest so much power in one individual, and in the way we conceive of justice almost entirely in retributive terms.

The molesters drank blood, the children said, and hung them from hooks after forcing them to have sex with their parents. They murdered babies, prosecutors told jurors, and snapped photographs as the horror unfolded.

Ed Jagels, renowned as one of California’s toughest district attorneys, built his career on the Kern County child molestation cases of the 1980s, putting more than two dozen men and women behind bars to serve decades-long sentences for abusing children.

Appellate judges now say most of those crimes never happened.

…

“They basically coached me through my whole testimony, and told me that I had to say that my parents had sexually abused me,” said [Brandon] Smith, whose parents Scott and Brenda Kniffen served 12 years on molestation convictions before they were reversed by an appeals court. “We’ve all put it behind us, but the one thing I would love is a verbal apology from Ed Jagels for tearing my family apart.”

Since the late 1980s, all but one of 26 convictions Jagels secured have been reversed. Kern County has paid $9.56 million to settle state and federal suits brought by former defendants and their children.

…

“One thing we know for sure is criminals can’t commit felonies when they’re locked up,” Jagels said. “If California prisons are overcrowded it’s not because we have too many people in prison. It’s because we don’t have enough prisons.”

Think about that last quote. It appeals to our sense of justice and our concern for our families to say that money shouldn’t be a consideration when it comes to locking criminals away. But how is this different than arguing that a moral right to healthcare trumps financial considerations?

In the realm of economics, if somebody in power screws up, or is corrupt, the results are very bad. Lost jobs. Depleted savings. Stagnant markets. That deeply concerns many conservatives, and me too, and rightly so.

But in criminal justice, if somebody in power abuses that power, they can take you away from your family. They can beat you for resisting. They can spray mace in your eyes. They can ignore the times you are raped. They can keep you in a room for 23 hours a day for decades. They can kill you.

I don’t know about the conservatives, but that terrifies me.