Advice for Ted Cruz

I’m typing this a few hours before the Iowa Republican Debate. By the time you read it, you might know whether Ted Cruz chose to ignore this advice.

Cruz’s opposition to ethanol subsidies is apparently a problem for him in Iowa. It shouldn’t have to be. The whole point of opposing inefficient subsidies is that if we eliminate enough of them, we can all be better off.

So what Cruz ought to do is introduce a bill eliminating a long list of subsidies, ethanol among them — together with Planned Parenthood, NPR, the National Endowments for the Arts and Humanities and I’m sure it wouldn’t be hard to find another hundred or so — and then emphasize to Iowans that the net effect of the entire package, which takes away their ethanol subidies but also relieves their tax burden, will be to make them richer. A collateral benefit is that he can then argue that the same bill makes New Hampshirites, Nevadans and South Carolinians richer, and if he succeeds in getting the nomination, that it makes Americans generally richer.

As a general rule, I do not understand why politicians take politically risky stands without this kind of bundling. It seems like good politics, and I’m sure it’s good policy.

Ethanol and NPR are of course small potatoes. One could of course do the same sort of bundling with big issues, and politicians of course sometimes do this. But why don’t they do it with both the small stuff and the big stuff?

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17 Responses to “Advice for Ted Cruz”


  1. 1 1 Ken B

    Because the press and opponents won’t discuss the whole basket or the combined effect, they will pick out particular cuts and use them to whip up indignation and fury.

  2. 2 2 Steve Landsburg

    KenB: But when the press and opponents single out, say, ethanol cuts, and respond with indignation and fury, Cruz can reply: “I absolutely oppose ethanol cuts in isolation. I support them only as a part of this package.” And likewise when the arts crowd singles out the arts subsidies: “I will fight to the death to preserve these arts subsidies unless all these other things are eliminated with them.” And so on. He’d get points for supporting fiscal restraint and points from all the special interest groups for refusing to throw them overboard alone. It seems win-win to me.

  3. 3 3 Jonathan Kariv

    In general people support subsides to small things because they think of their particular special interest (ethanol, arts, or whatever else) as being especially important. This is quite an easy trap to fall into when you’re close to a particular small issue. I’ve certainly done it.

    If you happen to really really care about the arts, then surely your best case scenario is to eliminate every subsidy in the bundle but the arts one. The trouble here is that people might ask “Why should my thing be in the bundle when that other thing isn’t?” rather than “Does the bundle as a whole make me better off?”.

    It’s not a rational response but it’s a possible one. Now maybe I’m woefully underestimating voters here but then again maybe politicians also do.

  4. 4 4 Bennett Haselton

    But there’s a valid argument for subsidies if they create positive externalities. That’s the argument for subsidies for NPR and the NEA (you may not agree, but that’s a separate argument). It’s implicitly the argument for subsidies for Planned Parenthood as well (if you assume that unwanted children create negative externalities). It’s an argument for ethanol subsidies insofar as ethanol creates fewer negative externalities in the form of pollution (although a better solution would be a pollution tax). If the subsidies are creating positive externalities, then eliminating all of them wouldn’t necessarily leave us “all better off”.

  5. 5 5 Keshav Srinivasan

    Steve, how would proposing spending cuts in other areas induces Iowans to vote for him? It’s not like spending cuts directly translate to tax cuts. The average Iowa farmer out there might assume that the debt generated by spending on NPR and other things would eventually be paid for by tax increases in the rich, not tax increases on the poor.

    I can understand pairing the elimination of Ethanol subsidies with a promise of tax cuts, but I don’t see how a promise of spending cuts will do the trick. You might believe that what you’re proposing is good policy, but it’s certainly not good politics.

  6. 6 6 Ken B

    @Steve 2
    You are assuming that the attacks will be about the cuts, but they will be about *him*. They will be character attacks, not discussions of any individual cut. Say he wants to cut the National Endowments for the Arts as an example. Then he is attacked as a know-nothing philistine. We will hear sob stories about artists who starved. I am sure you remember the contretemps over funding birth control. No amount of reason could cut through the “you are a woman-hater chauvinist monster” fog. Imagine that magnified a thousand fold.
    I think it’s a rare politician who can survive that. And one who could probably wouldn’t need to try it.

  7. 7 7 Advo

    Ted Cruz is profoundly irrational. On the Great Recession, he appears to believe that it was to a substantial degree (or mostly?) caused by the Fed cutting interest rates too slowly in 2008.

    This is emblematic of the right’s refusal to accept a very simple fact:
    A competitive financial sector always evolves towards systemic instability and eventual blowup, because during normal times, more risk = higher growth, and so myopic greed is an evolutionary advantage.

    As a consequence, companies pursuing myopically greedy strategies grow faster, employees pursuing myopically greedy strategies get promoted, and myopically greedy business plans proliferate throughout the industry, each driving out, crowding out or taking over their more prudent, conservative counterparts.
    This process ends only once the level of systemic risk created by the increasingly dominant number of greedy idiots becomes so high that a credit crunch and a meltdown occurs. This dynamic has played out countless times in human history and in every country with a financial industry, yet economists have a hard time understanding it, perhaps because it’s not driven by rational human actors but rather by impersonal Darwinian forces which reward irrationality instead.

    The only way to stop is to hamstring the financial industry with regulation and keep it on a tight leash.

    If Ted Cruz becomes president, he will dismantle the restrictions imposed on the financial sector’s behavior in the aftermath of the credit bubble, setting the stage for the next meltdown in the not too distant future.

    The most important lesson of R&R’s work is that deregulation of the financial sector has historically virtually always leads to such meltdowns. It appears that the US will have to re-learn this truth once again.

  8. 8 8 Jimbino

    Two of the worst subsidies include those supporting national parks and forests and and those supporting the rampant Amerikan breeding.

    National parks and forests because they are among the most racist of Amerikan institutions: rarely will you see a Black, Red or Brown face in any of their visitors, and almost never in pictures and documentaries, like Ken Brown’s, that feature these fabulously expensive public lands.

    Rampant Amerikan Breeding because it is polluting the planet, causing more than its share of carbon footprint, contributing to devastation of the flora and fauna, and drying up California. It is also unnecessary to secure a future of workers, as long as there are so many available from elsewhere, already potty-trained, often bilingual, and usually more literate than our native Amerikan kids that we will go on to spend well over $200,000 each to bring to a high level of miseducation. Germany and Sweden seem to have figured that out, and Japan will soon collapse for failure to do so.

  9. 9 9 Harold

    Advo, “The only way to stop is to hamstring the financial industry with regulation and keep it on a tight leash.”

    One could argue that another way to stop it is to allow the big banks to go bust without a bailout, then there would be an incentive to follow less risky paths.

  10. 10 10 Harold

    “It seems win-win to me.”
    But it does allow his opponents to say to every single person in the USA “He is going to take away your X!!” The opera buff may irrationally focus on the loss of the arts subsidy, and the Ioawan farmer may focus on the loss of the ethanol subsidy. Everybody will have the loss of something to obsess about.

    I think economists have spent a lot of time and effort learning to think in a certain way in order to make sense of the world. It then becomes difficult to understand how everyone else thinks. The answer is obviously to teach everyone economics and books such a The Armchair Economist is a great step forward. But for now what seems an obvious answer to economists may look like suicide to a politician.

  11. 11 11 Advo

    @Harold:

    The problem with letting the big banks go bust is that banking crises tend to cause double-digit declines in GDP. Unfortunately, big banks don’t go bust by themselves, they always drag other banks down with them. This happens because 1) if one bank does a stupid thing, you can bet there’s several others which have been doing the same and 2) if one big bank goes down, this causes a drastic decline in asset values and liquidity, which can be enough to make other banks illiquid or even insolvent – and so on.

    Failures of prominent banks cause harsh shifts in the credit environment of the entire economy, with far-reaching consequences.

  12. 12 12 Harold

    I didn’t say it would be painless, but it might be another way. Or it might not. Banks are only collections of individuals. We must ensure the individuals do not have perverse incentives such as limitless wins but limited losses.

  13. 13 13 Advo

    Prior to the FDIC and to any bailouts, the US suffered a banking meltdown roughly every 15-20 years. Apparently the lessons from the last one never lasted very long.

    That aside, if you look at the fate of the executives of Citigroup and Bear Stearns on the one hand and Washington Mutual and Lehman (not bailed out) on the other, how do they differ?
    Answer: They don’t.
    They all lost their jobs and their stock and stock options. They all retired rich nevertheless.
    If you want to prevent that, you have to attach personal liability to executives. Bailouts don’t matter to them one way or the other.

  14. 14 14 Harold

    King John had a bit of a fall-out with his bankers. He castrated them. Or possibly King Edward and the Royal Mint. Anyway, a possible solution from history?

  15. 15 15 nobody.really

    [W]hat Cruz ought to do is introduce a bill eliminating a long list of subsidies, ethanol among them — together with Planned Parenthood, NPR, the National Endowments for the Arts and Humanities….

    [T]here’s a valid argument for subsidies if they create positive externalities. That’s the argument for subsidies for NPR and the NEA (you may not agree, but that’s a separate argument). It’s implicitly the argument for subsidies for Planned Parenthood as well (if you assume that unwanted children create negative externalities). It’s an argument for ethanol subsidies insofar as ethanol creates fewer negative externalities in the form of pollution (although a better solution would be a pollution tax). If the subsidies are creating positive externalities, then eliminating all of them wouldn’t necessarily leave us “all better off”.

    I share this view. But where Planned Parenthood is concerned, I’d go further: I don’t know of any government grants to Planned Parenthood.

    Rather, I understand that government buys services from Planned Parenthood under the Title X Family Planning Program and Medicaid. If some other provider came along that was better able to provide those services, or offered a lower price, presumably government would switch to buying the services from the other providers. It’s a simple quid pro quo.

    Thus, it makes as much sense to get government to stop buying services from Planned Parenthood as to stop buying weapons from the low-cost bidders on military contracts, or stop buying paperclips from the low-cost bidder on office supplies. I’m surprised to hear a market-oriented guy disparaging this arrangement. Would Landsburg prefer government to treat Planned Parenthood employees like the airport scanners and put them on the federal workforce instead?

  16. 16 16 Mac Tonight

    nobody.really wrote:

    I understand that government buys services from Planned Parenthood under the Title X Family Planning Program and Medicaid. If some other provider came along that was better able to provide those services, or offered a lower price, presumably government would switch to buying the services from the other providers. It’s a simple quid pro quo.

    Okay, so the government isn’t subsidizing buying pap tests at Planned Parenthood; it’s buying pap tests f/b/o some woman.

    Isn’t that true of all subsidies, though? The government isn’t subsidizing corn; it’s buying corn f/b/o someone who turns it into ethanol. The government isn’t subsidizing college educations; it’s buying college educations f/b/o some student who takes the classes. The government isn’t subsidizing houses; it’s buying houses f/b/o someone else.

    Now turn this around: all government spending (that results in the public receiving a benefit*) is a subsidy in a per-unit amount equal to the market-clearing price. Draw the supply and demand curves for such a subsidy. It looks a little weird but you can still figure out the consumer surplus, the producer surplus, and the DWL.

    So to answer your question: You see “a market-oriented guy disparaging this arrangement” because every time the government spends a dollar, there’s DWL.*

    *The natural objection here is to say “wait a second, what about when the government is acting as a market participant? The government buys paper clips, and Bob buys paper clips. Are you saying there’s DWL associated with the government’s purchase but not Bob’s? That makes no sense.”

    That objection isn’t completely wrong. What matters is the beneficiary of the consumer surplus. The government can’t spend for its own benefit. It always spends for someone else’s benefit, even on a single paper clip. That paper clip in an input intended to produce an output that someone else will enjoy.

    Remember: even some private transactions have DWL. My parents gifted a watch to me for Christmas. The price was $350, and it probably cost $300 to manufacture. I valued it at $200, which is why I hadn’t bought it for myself. So when I got the free watch, I got $200 of consumer surplus, the manufacturer got $50 of producer surplus… but my parents had to spend $350. There’s $100 of DWL in this private transaction.

    But what about my parents’ happiness, the joy they got from giving a gift to me? Sure, that’s a real thing that we want to model if we can. My parents’ happiness is a positive externality. Just as we, the citizen-rulers of our democracy, enjoy the benefits of an educated workforce, or of reduced atmospheric carbon dioxide, or whatever benefits accrue from not having unwanted children born to poor women.

  17. 17 17 nobody.really

    1. Can we distinguish between government buying stuff and government subsidizing stuff? Presumably government does each in order to advance government’s interest – including government’s interest in influencing the behavior of buyers and/or sellers in the subsidized market, as Bennett Haselton noted @ 4. So maybe we can’t really distinguish.

    The premise of the question suggests that whenever government spends money for a purpose that is not immediately obvious to Landsburg, it demonstrates that government has been captured by some special interest. And maybe that’s true. But it’s also possible that government has been captured even when it spends money on things whose purpose seems immediately obvious, and also when government refrains from spending money on things that seem obvious. (Some will argue that government’s past inaction in the face of global climate change reflected the fact that government was captured by the fossil fuel industry.) And it’s also possible that government has sound reasons for what it’s doing, even if those reasons are not immediately apparent to Landsburg. Again, in the abstract, it’s pretty hard to distinguish.

    2. That said, this abstract discussion overlooks the specific context in which people object to government “subsidizing” Planned Parenthood. People don’t object to Planned Parenthood providing pap tests. Rather, they object to Planned Parenthood providing abortions – and they want to retaliate against Planned Parenthood by attacking the organization’s contracts with the feds to provide pap tests. But to entertain this desire for retribution, government would presumably switch to contracting with some second-choice bidder. In short, to capitulate to these demands to stop “subsidizing” Planned Parenthood would likely result in an obvious form of subsidy to some third party vendor – that is, paying a higher price or receiving a lesser service than that offered by Planned Parenthood.

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