Thoughts on Tenure

A colleague of mine recently posted the following on tenure:

Consider what tenure does. It is part of a compensation package designed to reduce mobility. It is a barrier to exit in the college professor employment market. Thus it reduces bargaining power for the professoriate effectively by reducing any holdup costs. Professors cannot make a very credible threat to leave if they feel their working conditions are bad or wages are too low.

I'm not sure this captures everything that tenure does. In fact, many professors seek (and successfully find) better jobs. Continuing,

In other words, removing tenure, like the end of serfdom, should increase the likelihood that the professoriate will innovate to keep themselves competitive and increase their wages.

I'm not as sure about this. Innovation is very risky when one's employment is tenuous and one's continued employment is determined by the noisy signal of student perceptions of teaching quality. I could see a valid transactions costs argument that would predict less innovation, lower overall teaching quality, and poorer administration of higher education as a result of ending tenure. Tenure exists to encourage professors to make institution-specific investments, including serving on administrative committees, advising students and student organizations, maintaining academic standards, and agreeing to meet help teach courses that match the needs of the students in the department or college. Otherwise, rational faculty members will have a greater incentive to spend their energy focusing on research and gaming their teaching evaluations. There are many things broken about higher education. I am not sure that tenure is highest on the list of problems.

Control of Strategic Resources

The Daily Show with Jon Stewart
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"Inefficient" Redistribution, or "Efficient" Insurance?

This crossed my mind this morning. I'm wary of lowering downside risk without some mitigation of the rewards, i.e. a mean preserving spread. But the new institutional economics has a lot to say about this. For example, one seeming paradox is that democracy complements markets, yet is more prone to social redistribution. North and his various coauthors have argued in several places that, for one thing, this cannot be explained by simple neoclassical theories, and two, that it may not be such a paradox.
Oddly, the argument made by Jon Stewart (and which they guy with the funny name was hesitant to endorse) is close to what the institutional school has argues for some time.

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The main roles of the state in promoting social welfare (that is, the overall well being of society) are (1) protecting private property rights (from both internal and external bandits); (2) lowering transactions costs; and (3) mitigating the risks associated with market participation. For example, a feudal system may not have promoted much "efficiency", but it did provide a framework for protecting both elites and non-elites from violence.
Fast forward a bit. Why is it today that the most market-oriented economies are also both democratic and the most prone to "inefficient" redistribution? Is it mere rent-seeking by special interests? Hardly, although this may be partly the case. In fact, it seems that the most well-organized interests influencing the government would be opposed to redistribution in the form of social security, medicare, health care, welfare, etc. The argument that North and others make (and one that liberal politicians should be making more) is that reducing risk is important to a well-functioning market economy because it makes it easier for citizens to participate in the market.
Two things I disagree with from the video: (1) it's not just about lowering risk - for justify this in the context of market mechanisms, there has to be a premium that individuals pay when they realize the "high returns" outcome, i.e. higher average tax rates for the rich and wealthy; (2) it's not about "entrepreneurship", it's about market participation in general.

The Political Economy of the Romney Tax Plan

I reeeeeally want to try to give Candidate Romney the benefit of the doubt today. I want to think that he's an honest, sincere man who wants to do the right thing for the country when it comes to tax policy. I want to be part of the 53 percent of Americans who favors Romney's arguments on taxes. I also want to be able to blow off the contradictory comments by his VP nominee, saying that under their plan people will pay less in taxes to the federal government, while maintaining that the plan would be revenue neutral ("it would take me too long to go through all of the math" wasn't even the worst part of the interview!). I even want to ignore the fact that Mr. Romney won't give sufficient details about his plan for think tanks like the Tax Policy Center to score it. Even the conservative Heritage Foundation cannot give a definitive analysis of how Romney's plan would achieve budget-neutrality. In fact, all Heritage does do is criticize the TPC's analysis for not having enough information. Touche.
But I want to ignore all of those inconsistencies in the analysis. Let's imagine that there are enough deductions that can be eliminated to compensate for the several hundred billion dollars in rate reductions Mr. Romney proposes. Let's assume that the secret details of Mr. Romney's plan to broaden the base through eliminating deductions will work. What, then, is the political equilibrium of the legislative bargaining process?
What I would suggest is that any political equilibrium would result in all or most of the loophole-closings would get tossed out of the bill through the influence of special interests, ideological gridlock. I would also suggest that, in  order to get the bill through, some degree off logrolling will have to occur during the amendment process. (Don't take my word for it, take it from the conservative Cato Institute, a Koch-funded far-right think tank.) But, the one (and possibly only) part of Mr. Romney's plan that is likely to come through the process relatively unscathed is the tax cuts. I doubt Romney is not as attached to the principle of broadening the base as he is to cutting rates; hence, I doubt that that any first-term president seeking reelection would veto a tax cuts that increase the deficit by not eliminating loopholes. A second-term president might.
So, if I'm going to come away from listening to Mr. Romney's tax proposals and still believe that he's being honest, I also have to come away thinking he's incredibly naive.

Negativity

PAC spending in the last week:

Committee	Entire Cycle Total	Last Week Total	Last 24 Hours Total	Supported	Opposed	Super PAC
Republican National Cmte (R)	$9,485,456	$9,485,456	$0	$0	$9,485,456
Priorities USA Action (D)	$14,900,294	$1,244,192	$0	$0	$14,900,294	x
Restore America's Voice PAC (R)	$582,952	$111,900	$0	$0	$582,952	x
America's Next Generation(R)	$106,500	$42,500	$0	$0	$106,500	x
Moveon.org (D)	$367,171	$33,552	$0	$5,400	$361,771
National Rifle Assn (R)	$110,952	$31,459	$0	$0	$110,952
National Right to Life Victory Fund (R)	$163,260	$6,786	$0	$0	$163,260	x

Candidate money spent last week:

Candidate	Entire Cycle Total	Last Week Total	Last 24 Hours Total	Supported	Opposed
Obama, Barack (D)	$27,761,536	$9,678,101	$0	$2,852,327	$21,064,674
Romney, Mitt (R)	$32,603,333	$1,277,744	$0	$7,285,760	$25,161,173

I added rough party affiliations for the PACs, but it's worth noting that Moveon.org spent some money in opposition to a democratic candidate for the House of Representatives.
Notice more generally how the money is all piling into the "opposed" column. Source: http://www.opensecrets.org.

Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History (9780521761734): Douglass C. North, John Joseph Wallis, Barry R. Weingast: Books

By Douglas North, John Wallis, and Barry Weingast.
In the middle of this book right now. Makes some interesting arguments about democracy and capitalism, and how countries make the transition from "Natural States", with limited access to modern states, with open access. The discussion of property rights will please the political right; the discussion of the role of government and public goods will please the left. Both groups will walk away from the book equally unhappy with his discussion of special interest groups (spoiler alert: special interests are not all bad!). The argument for how and why democracy is essential for modern capitalism is the only convincing logical case I've seen and is not based on some half-baked liberty argument.

A Couple of Links on Immigration

Migration and Remittances during the Global Economic Crisis and Beyond: Myths and Realities | A blog about migration, remittances, and development:


Children of Immigrants Study More - NYTimes.com:

Outsourcing and the Campaign

I've had a little time to reflect on the Bain-outsourcing-Romney stuff. So here are a couple of observations, which I share with the Free Exchange editors at the Economist.
(1) Outsourcing is good on the net, not just for the country receiving the investment, or even some vague global sense. It is welfare-improving for the US in the aggregate.
(2) Outsourcing can be pareto-improving, meaning that not only does it increase income, wealth and efficiency on average, but it is possible to ensure that no one is worse off.
Point (1) implies that, even if you support President Obama, the criticism of outsourcing by itself is misplaced. That includes this criticism by Paul Krugman. We should be outsourcing when it is profitable to do so.
Point (2) is tougher. Basically, it qualifies the political feasibility of (1) by implying that, in order to bring everyone on board with free trade, outsourcing, etc., you need pretty extensive structural adjustment assistance programs also known as the Welfare State. Here, as the Economist correctly points out, we could learn a little something from the 1997 incarnation of Professor Krugman when he says that voters aren't nuanced enough in their understanding of trade and public policy to grasp this subtlety - or care. They know jobs are gone, and US companies are growing operations in China. They win, I lose.
The Economist article points out that Obama could come out with a more nuanced and correct argument. But really, either candidate could take up this mantle and make it part of their platform without abandoning their core values. Mr. Romney, for his part could say, "yes, I am for free markets and outsourcing, and the fact that it puts some folks out of work only highlights the need to reform existing welfare programs so they help people who really want to work." Mr. Obama, instead of spewing protectionist garbage could say, "see, people are hurt by some aspects of free markets and we need social programs like my health care law to make markets work better for everyone" (he could even throw in some of his "shared prosperity" catchphrases).
But neither candidate is doing this. Obama is pretending to be protectionist (when we all know he won't govern that way); Romney is acting like the attacks are simply unfair, which doesn't seem to help much - do we really want a crybaby for a President? Obama's strategy, sadly, is the politically effective one, and I expect to see much more of it through November.