Tuesday, October 25, 2011

Post Office woes: What to do with a govt-run, monopolistic, delivery dinosaur?

(A version of this later appeared in print.)

If you're a fan of evolution, the marketplace, or competition, the answer is obvious. If you don't like monopolies or corporate subsidies, the answer is obvious. 

But if you're someone who benefits from the status quo, is a fan of big government or labor cartels, or has a limited policy imagination, then you're in an increasingly difficult position-- trying to prop up an expensive, unwieldy dinosaur. (Check out this identical editorial "written by" various postmasters-- which appeared in various newspapers around the country, including the Courier-Journal! LOL!)

As an economist, part of me loves bad policy, since it gives me great examples to use in the classroom. Take away the Keynesian stimulus efforts of Bush, Obama and Congress-- and Macro fiscal policy becomes mostly a theoretical and historical exercise. Take away our country's sugar policy and I have to find a new opening example of the need to think through the primary and secondary consequences of our choices. 

Take away the Post Office, in its present form, and I lose a great opportunity to talk about the limited term "monopoly", the powerful concept of "degrees of monopoly power", the trade-offs inherent in "elasticity" (how much will quantity demand decrease with the rate raise in January to $.45?), and the ability of technology and market competition to erode even a monopoly established by government. 

For years, it's been easy to predict that the Post Office would struggle more and more, as market participants erode its first-class mail monopoly at the margins-- and especially, as technological advance renders its services increasingly obsolete. One can even throw in some cultural/economic discussion-- such as the difference between generational use of the USPS and its continuing fade. It's great stuff for the classroom! (See also: Amtrak which has been subsidized for its entire existence, even when it sets records for ridership.)

Some of the more subtle details are hilarious and point to inefficiencies: The USPS doesn't own their own planes-- to do their own Express Mail. I'm told that it's common to take advantage of their "next-day guarantee", knowing that it's unlikely that they'll meet the commitment. So, you can get a package delivered quickly (in two days)-- for free. Labor costs for the USPS are 80-89% and 48-53% for UPS. (NY Times  has the more modest numbers; Harpers has the more extreme numbers.) The USPS does not pay property taxes or vehicle registration fees. The recent proposal to reduce in mail processing services indicates that it was grossly inefficient for awhile or it can't be expected to do much to decrease costs. 

In recent months, the Post Office has gotten a lot of attention, because its subsidies have grown, its future has become more obviously bleak, and likely, that we've reached some sort of threshold in terms of the public's perception of its tenuous future. Like many other government services (federal, state and local), the Great Recession has exacerbated this focus-- an interesting by-product of the Bush/Obama/Congressional bungling efforts with our economy. 

In the absence of disbanding the Post Office or reducing its function to subsidized services for those in rural areas, we're just tweaking a bad institution. But that's probably the way things will go for another few years, since special interest groups-- corporate and labor-- have so much to lose. As such, assuming away dramatic reform, what should the USPS do? 

Two things seem like no-brainers to me. "Reformers" are talking about dropping Saturday delivery, but that's just a tweak. Home delivery should be reduced to once or twice per week. If mail was delivered twice a week, you could reduce labor costs dramatically. And how often do you need to receive mail? For individuals who want more frequent delivery, they can pay additional for the service or get a P.O. Box. Business delivery would continue daily for a charge based on volume.

Among more significant reforms, we should no longer subsidize "junk mail"-- or any mail, except perhaps to rural areas (if voters want to continue those subsidies). Unfortunately for the USPS, this would significantly reduce the need for their services, in terms of quantity and especially weight/volume. Not surprisingly, although already about half of their volume, they want to deliver more of this type of mail.

Other options: outsource inefficient functions or focus more efforts on logistics; sell advertising on vehicles. (AEI will have a conference on November 4th, with Richard Geddes 2003 book as the foundation of the discussion. Click here to hear it on-line.) But all of this is rearranging packages on the shelves of a sinking ship.

The long-term will deliver a defunct or greatly diminished Post Office. What remains will be subsidized since it is inefficient. The question is whether its size and subsidy will be small or large. 

Wednesday, October 19, 2011

Curtis Morrison ode to OWS and the Tea Party

Currently, there are more than 1,500 uprisings taking place on our planet, all born from Occupy Wall Street, which began Sept. 17. Occupy Louisville, in Jefferson Square Park, is just one of those uprisings, but like all the others, people at home are struggling to understand its purpose. The uprisings, by their nature, are unprecedented. These are philosophical protests of how our democratic republic’s been working. Or actually, not working. 

We/they don't understand "its purpose" because it's not well-defined and varies quite a bit by individual. In this way, it's like the dog's breakfast of Tea Partiers. And oh, it's quite precedented...

One really bad idea, unregulated capitalism, just hasn’t worked out for us.

One really bad myth gets repeated a lot. Unregulated capitalism? Crack is a bad idea too. I'd recommend throwing your pipe as far away as possible. This is as ridiculous as those who say a socialistic economy has been bad for us.

It’s been called a leaderless movement. And that’s true, although there are times I’ve wished Elizabeth Warren would just show up and take over.

Leaderless has its advantages. But they have had a handful of leader types show up, at least for face time. As for Ms. Warren, I'm not sure what she brings to the table, aside from some political charisma.

To many, this movement is an out-of-wedlock, unplanned pregnancy, and their alarm and concern are no surprise. Instead of browbeating this poor child, couldn’t we instead choose to nourish it, encourage it and provide it opportunities to create us a better world? Just a thought.

I wonder if he penned the same ode for the Tea Party. Just a thought.

Thursday, October 6, 2011

income tax reform

It's exciting to see President Obama propose the elimination of some loopholes. But it's frustrating that he won't propose getting rid of all of them, even all of those that disproportionately benefit the wealthy-- e.g., the HMID.

It's exciting to see people defend flat taxes-- e.g., the federal payroll tax on income and a variety of state income taxes such as Massachusetts. But it's frustrating to see people demagogue a flat "income tax" on income at the federal level or push so hard for multiple tax brackets. (In the WSJ recently, John Gordon provides a history of the income tax.)

Loopholes are tough, politically-- as is common, since the benefits go to a powerful special interest group while the costs are relatively subtle. The results are never efficient and rarely equitable. Politicians don't respond out of ignorance, because they're in the pocket of interest groups, don't want to reduce loopholes without reducing rates, etc. And the general public (as usual) pays little attention to arcane policy details. You'd hope that advocates for the poor would step up, but that's rare indeed.

One promising angle: eliminating loopholes to attack the deficit. For example, eliminating the HMID and the subsidy on health insurance through employers would raise more than $2 trillion over a decade.

A "flat tax" with exempted income results in a progressive tax structure. If $30K is exempted, then an income of $40K has only $10K of taxable income. Assuming a 20% tax rate, they would pay $2K or 5% of their income as an average tax rate. An income of $120K would have $90K exposed to taxation, resulting in $18K in taxes for a 6.7% average tax rate. And so on.

This also helps explain how the Bush tax cuts could have increased the progressivity of the federal income tax code. By reducing rates on the lower end, even a tax cut for the wealthy could increase progressivity on net. There's a lot of confusion about the "Bush tax cuts"-- even focusing on the non-Keynesian reduction in marginal tax rates. People often think the cuts only went to the wealthy-- and that's not (close to) the case. 

In the WSJ, Stephen Moore runs with the ball:

"Suddenly, liberal Democrats are making the same argument about the tax code that I've been making for 20 years," laughs former Republican House Majority Leader Dick Armey. "Welcome to the party." Mr. Armey, who along with Steve Forbes has been the torch bearer for the flat tax since the early 1990s, believes that the latest applause line from President Obama that "billionaires should pay the same tax rate as janitors" may be the political gateway to sweeping tax reform...inadvertently helped as Mr. Obama and his new best friend, billionaire Warren Buffett, barnstorm the country trashing the tax system for, as the Oracle of Omaha puts it, "coddling the super rich." In truth, the system isn't nearly as skewed in favor of those at the top of the income pyramid as they allege: Today the top 1% pay 38% of the income tax. But in Washington, perception drives policy. The virtue of a flat tax with no deductions is that it provides an ironclad guarantee that the rich pay no lower a tax rate than janitors and secretaries.

This past summer the Senate Budget Committee, which is run by Democrats, reported that 26.5% of all tax deductions and credits are taken by those with incomes in the top 1% on the wealth scale...

Democrat Kent Conrad of North Dakota, the chairman of the Senate Budget Committee, says that loopholes are "subsidies, and subsidies are not the type of thing that you want for an efficient market system." He sounds like Milton Friedman there and he proposes to reduce "tax expenditures" by 17%. Why stop there? Republicans should counter-offer: We see your 17% and raise it to 100%...

The candidate who comes closest to a true flat tax is Herman Cain, the former Godfather's Pizza CEO. His argument for a "9-9-9" plan puts the current income and payroll taxes in the shredder and replaces them with a 9% personal income tax with no deductions, a 9% net business income tax, and a 9% national sales tax...

sheltering kids (too much?)

Excerpts from a very long, but really good article from Reb Bradley (hat tip: Dave Carlsen)...

It's also available as a booklet, so that says something about its length. He does repeat himself at times, so you can get through it with some skimming, but it's the sort of thing that will require a chunk of time to read and you'll want some quiet so you can reflect on it. 

His explicit audience is homeschoolers, but he's careful to broaden his net to "other family-minded people". More broadly, he's directly addressing a Christian audience, but many of the principles would hold for secular families too.

The intro is probably a bit hyperbolic-- and depending on your perspective, will sound somewhere between naive, weird, or sobering: 

In the last couple of years, I have heard from multitudes of troubled homeschool parents around the country, a good many of whom were leaders. These parents have graduated their first batch of kids, only to discover that their children didn't turn out the way they thought they would. Many of these children were model homeschoolers while growing up, but sometime after their 18th birthday they began to reveal that they didn’t hold to their parents’ values...

As each of my three oldest children reached adulthood I was shocked to discover that they did not conform exactly to the values I had sought to give them. They had retained much of what I had given, but not everything... 

God has opened our eyes to a number of critical blind spots common to homeschoolers and other family-minded people. Bev and I still stand behind what we have taught on parenting in the past. However, we urgently add to it the following insights...

From there, he lists seven "contributing factors": 

1. Self-centered dreams
It is easy for conscientious parents to become “dream” oriented....our dreams, but they involve our children...not just for them, but also for us.  [Especially] As homeschool parents we make great sacrifices and invest a great deal to influence how our children turn out. The problem is that love for children can be lost in love for personal success as a parent...

2. Family as an idol
...preoccupation with results can turn the family into a measurement of success...a badge of honor...determine our security or sense of well-being...idolatry...we look to our family for our significance when it has the most power to lift us up or to demoralize us. It is most obvious in a public setting when we either glory in our children or become enraged when they embarrass us.  Our children are either the source of our pride or our disappointment.

...as my own children aged and I discovered that they were self-determining individuals with their own walks with Christ, I came to the alarming realization that I had a lot of control over their outside, but not their inside...[But] Consider the parable of the Prodigal Son – the righteous father raised two sons who turned out sinful...

3. Emphasis on outward form
Parents are destined for disappointment when they admire fruit in others and seek to emulate merely that expression of fruit in their own children...

4. Tendency to judge
...becomes easy to judge others by our personal standards...proud of our accomplishments...if we make preeminent for our families issues of outward appearance, we will likely condescend to those who don’t hold to our standards...Typically, when we belittle others who don’t measure up to our standards, we will also imagine others are judging us. Consequently, we will find ourselves frequently being defensive...

5. Over-dependence on authority and control
If we think we have total control over how our children respond to our training, we will relate to them not so much as people, but more as soulless animals...parents who want to influence their children during the teen years must not rely strictly upon their authority to keep their children obedient...Winning their hearts means gaining the opportunity to influence who they are, not just what they do.
7. Formulaic parenting breaks down relationship
     1. The more we focus on formulas and principles, the more children become "things."
2. The more they become things the less we have significant relationship.
3. The less we have relationship the more we lose their hearts. 
4. Without their hearts the less we are able to influence their values. 
5. Without their hearts, the best we can do is control the outside (for a while)...

If Christians can consistently achieve seemingly spiritual results by human efforts, I ask – where is God in the equation?...

You may have noticed that I skipped #6, because it's his biggest point (one-third of the essay)-- which is noteworthy in itself. Here's what he says there: 

6. Over-reliance upon sheltering
An over-dependence on control in a family is often accompanied by an over-reliance on sheltering of children...Protecting our children is not only a natural response of paternal love, but fulfills the commands of God...but it is possible to become imbalanced and rely too heavily upon sheltering. We do this in a couple of ways.

1. ...more concerned with protecting our kids from that which is bad or with putting into them that which is good?...we must give them that which strengthens them spiritually and morally...I protected my oldest children from harm more than I invested into them health. I certainly taught my children a great deal about God and Kingdom living – we saturated them with the Word and Kingdom stories. Their lives were full of outreach and ministry, but comparatively, I was most intense about sheltering...what thing Dad would declare off-limits next...When protection from the world becomes the defining characteristic of Christianity, we shouldn’t be surprised if our kids grow up and forsake the lifeless “religion of avoidance” they learned from us...

2. Sheltering is a critical part of parenting, but if parents keep it their primary focus, the children will grow up ill equipped to handle the temptations in the world...sheltering does not transform the human heart...Growing up isolated from temptation can develop a child who appears spiritually strong, but the appearance is not reality...
a. Take time to teach them about God and living in His kingdom. I emphasize this particularly for dads who are careful to shelter, but rarely get around to actually instructing their children in the faith...
b. Pass on a pure faith...
c. Expose them to the world a little at a time, so that they will not be overwhelmed by its attraction when they finally face it. Just as babies raised in germ-free environments more easily contract diseases, so also do Christians who have not encountered the world... 
     d. Take them into the world on the offense, not defense...I want to be with my children when they encounter the world, but not merely so that they will survive it. Survival has to do with self-preservation, and is concerned with self, not others. Like a good captain I want to be with my children, so that I can lead them offensively into battle...

A major problem for us may be that we do not have what we need to give. We lack a kingdom view, so cannot give it to our kids. The sheltering mindset common to homeschoolers sometimes creates inward-focused families...God’s goal for us is not that we raise strong family-minded children who grow up and meet other strong family-minded children, who then marry and raise more strong family-minded children, who grow up and do the same. That line of thinking is totally self-centered and renders God’s people impotent as warriors for His kingdom. God’s goal for all His warriors is to continually reach out to the lost in the world. That is why we are here.
e. Cultivate a loving relationship with them...

f. Help them find security in their relationship with you...

I believe that a primary reason we can over-rely on sheltering is because it is the easiest part of parenting to do. It requires no planning, little preparation, or expenditure of energy...an aspect of parenting that is effortless to do, yet seems to promise an extreme impact. I don’t know if I would go so far as to call it lazy parenting, but I will say that investing into our children does take a lot more work and much more time.

On point #4, there's a fine line between pressuring children in a public context and explaining the higher expectations of being in public and instructing/practicing with them what that will look like.

Big points: 

-Don't invest in your kids to the point of idolatry. Part of this is the middle-class American dream and its relation to Christianity and secular families as well. 

-The way I've said this for years: I think I can, mostly, get my kids to behave themselves until they're 18. But that's not my goal. How to accomplish that? Good question, with good but not utopian answers in prayer, godly counsel, candid and transparent living, teaching/mentoring vs. commanding, and so on.

-You can easily raise kids who end up falling on either side of the Parable of the Prodigal Son. 

-If you find yourself judging others and being defensive, consider that a sobering barometer. 

-If you think of parenting as a formula-- within your own family or for others-- take care. 

-Is protection from the World the defining characteristic of your approach to parenting? Is avoidance the defining characteristic of your approach to Christian living?

-Do you have a Biblical worldview-- or just a semblance of polite middle-class morality? Do you have more focus on what you don't do-- or what you do? 

-Why do many Christian kids "leave" the faith when they go to college? Evil college professors (not me, of course) are a convenient scapegoat. In most cases, we haven't prepared them properly. They are not thoroughly equipped for the task and the life change and the freedom.