Thursday, September 23, 2010

Valuable Yglesias Service: Pointing out Dumb Things Liberals Say

Earlier this year Matt Yglesias had a series of posts on occupational regulation and licensing, and how dumb it is, for example, to regulate barbers.

I had mixed reactions to it. It was such an obvious point that I was immediately suspicious of the posts. It smacked of throwing conservatives a bone, which might give the impression that liberals actually like regulating for the hell of it, and that Yglesias is some wise exception. In a way, the posts frustrated me for the same reason that it frustrates me when libertarians or conservatives bring up the same stuff. The implicit point is this "presumption of ideological orthogonality": because we don't like X, and X exists clearly somebody likes X so it must be the people we disagree with on questions of governance and the economy. Of course that's nonsense. These regulations do exist, but its not because liberals love them and conservatives hate them and liberals have been in power. They exist because laws like this have concentrated benefits and dispersed costs - so industry insiders (successfully) lobby for them and nobody is hurt badly enough by them to bother to challenge it. Nobody likes barber regulations and certifications except practicing barbers. And nobody dislikes them enough to do anything about it. Period, end of story. Waxing poetic about the free market rather than highlighting this rent-seeking dynamic distorts the ideological content of things like barbershop regulations because it allows you to draw spurious connections (like "well that guy questions other things about the free market so his arguments must be related in some way to these occupational regulations we have").

I have warmed up to these Yglesias posts in one respect, though. By posting these things (and a few other points he has a tendancy to post, like demand-based payment for parking) he deconstructs buzz-words that can trip up liberals. In this case, the buzz-word is "regulation". Plain and unelaborated, the word "regulation" to some liberals sounds like taking a stand against problematic special interests. So if someone challenges "regulation" their ears perk up. That's a bad instinct to have. To me the word "regulation" is pretty devoid of substance. When I hear "regulation" I react similarly to how you would when you hear "statute" or "law" or even "constitution". The appropriate reaction is entirely contingent on exactly what the regulation is. Regulations, in and of themselves, are neither good nor bad. I think Yglesias is making people think more about the content and purpose of regulations, which on net is probably a good thing.

He had another great post yesterday doing the same thing with another buzz-word: "outsourcing". He writes (specifically with respect to government outsourcing):

"I got into a little back and forth on twitter yesterday about having written that “It’s often the case that, in principle, contracting-out should be able to save money” as a preface to some remarks about problems with contracting-in-practice that are likely to be made worse by Citizens United.

So to expand on my remarks, it’s worth starting with the observation that many liberals who think they’re against “privatizing” government services or dread contractors in fact have no real problem with the practice. After all, the federal government doesn’t manufacture its own printer toner and your state’s Department of Education doesn’t manufacture desks. The official standard is supposed to be that you don’t outsource “inherently governmental functions” but that’s a bit tautological. Conversely, I often hear it said that we could save money by contracting this or that out without skimping on quality but it’s not possible because the vile public employees unions won’t let us. This, however, is kind of an apples to oranges comparison—the contractors can and will lobby to have programs turned to their private benefit rather than to a public purpose."

Adam Smith told us the division of labor is limited by the extent of the market. If there is a wide market for something, someone is more likely to be able to produce it at scale and it will pay to contract it out. This was further elaborated on and connected to the idea of increasing returns by George Stigler. This should be pretty uncontroversial stuff. Of course a transition from in-sourcing to out-sourcing is going to be painful for a certain group of people and beneficial for another group of people. But that alone doesn't constitute a reason to be suspicious.

There are things to think about: asset specificity, transaction costs, etc. But that's not what people are thinking about when they have a knee-jerk reaction to "outsourcing".

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