handing out free money

Atrios periodically suggests handing out free money. As he's pointed out, free money gets handed out all the time. Since January 2008, about $2T has been handed out. It could have done a lot of good if it had been given to those who needed it.

Thank you, James Madison

Our son has difficulty reading. Two years ago, my wife found out about NIMAC, a national center for distributing textbooks in electronic form to print-challenged students (the blind, dyslexics, etc.). NIMAC was created as a result of IDEA 2004, to facilitate student access to texts. Two years later, we're still trying to get access, even though our son's eligibility for the materials has never been questioned.

The story is a common one to anyone who has ever tried to navigate an unfamiliar bureaucracy: many paths followed to dead-ends, months spent getting a particular authorization only to find that it was the wrong one, months wasted getting authorizations from uncooperative or semi-cooperative third-parties that turned out to be irrelevant, etc.

The particulars of the story aren't that important, but as the process dragged on, it became clear that the process was designed more to deny access than to facilitate it. The rules are arcane, the documentation hurdles substantial. Even when a student gets access to materials, downloads require the active participation of a public official (at least that's how it appears to us now; we think we're close, but we haven't yet been successful).

"Why," we asked ourselves, "would you create a program to help students, then make it so difficult to use that it would deny services for years?" Why even bother?

It turns out we can thank James Madison and the other authors of our Constitution. The Constitution doesn't merely tell the government to promote invention and creation. It prescribes how to do so:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

IDEA required publishers to provide their texts in electronic form, free of charge, but such a requirement creates constitutional problems. In the words of a friend of ours, 'If the government mandates “free” anything, the courts won’t uphold it without a showing of significant need and also a significant administrative check on unauthorized access.' In order to comply with the Constitution, the government has to make access difficult.

It's only two years. And counting. Thanks, Mr. Madison.

Update: I misunderstood the point my friend was making and then misinterpreted what I read. The Congress isn't required to give exclusivity, but apparently courts have interpreted such a grant as the creation of property, after which an act which reduces it is a "taking." The government might be able to limit the original exclusivity, but it's easier to make access to federal funds contingent on providing access, then making barriers to access so high that almost no one can qualify, and those that do, don't do so quickly.

monetary vs fiscal policy

Paul Krugman and Brad Delong are talking about how to get the economy running again, but they're economists so they immediately start talking about models, expectations, interest rates, etc. I'm not an economist (even after reading several textbooks), so that doesn't do much for me. Models necessarily abstract the real world, and while they can teach us a great deal by doing so, they leave a lot out. And sometimes, what they leave out is as important as what they tell us.

When Krugman and Delong say we're in a liquidity trap, they talk about models, graphs, equilibrium points, and other mathematical concepts. They rarely talk about what a liquidity trap means in terms of individual actors. If low interest rates can't stimulate the economy, it means that 1) the low interest rates don't affect consumption, and 2) low interest rates don't affect investment. In the first case, that probably means that the low interest rates we see in bond markets aren't, in fact, getting passed through to consumers. In the second case, it may mean that businesses aren't seeing low interest rates, or it may mean that even with low-interest loans, businesses aren't seeing opportunities for profitable investments.

So, what do consumer interest rates look like? Mortgage rates are low, but the housing market is so soft that investing in a house looks like a risky proposition, even with a low interest rate. People may refinance and reduce their expenses, but low rates don't appear to be creating new home owners and driving new construction. Credit card rates, on the other hand, aren't anywhere near zero. We aren't even close to a lower bound there. Low interest rates at the Fed and T-Bill level may not be doing anything to stimulate consumer demand.

I'm too lazy and unskilled to figure out the interest loans a typical business might face, but there's ample evidence that even with low interest rates, businesses don't see many investment opportunities. Businesses sitting on record piles of cash don't need loans. They have money to spend. They must not see anything worth spending it on.

The advantage of fiscal over monetary policy in times like this is that fiscal policy acts directly, without having to go through intermediaries that have to be profitable. Unlike a business, the government can spend money without worrying about whether the investment will be profitable. When demand is slack, it can even do so without worrying about driving out private activity. Unlike a bank, the government can give money to consumers without worrying about whether they can pay it back, and it can do a much better job of making sure that the funds it injects go to those who will spend it.

revolutions, movements, and anarchists

"How can you have protests without specific agendas?" ask many in the punditocracy, even those who sympathize with the protesters, but they miss the point. It is too soon to prescribe solutions. It is too soon to make demands.

Electoral politics and legislative policy are the endgame of social and democratic engagement, not the opening or the mid-game. They are how you secure gains achieved by an inspired population, not how you inspire a population. Before you can make demands, you must have the power to demand. Before you can prescribe legislation, you must have a constituency. Before you can pull a lever and move the world, you must have a place to stand.

In asking for an agenda, most pundits and leaders are not looking to empower the protesters, but to undermine and defeat them. They seek demands and policies not to address or enact the policies, but to marginalize and fracture the protests. They seek specific policies because specific policies can be attacked, because by attacking the proposed solutions, they can deny the grievances.

Elites always demand "constructive" criticism and protest, but that is merely a mechanism to deflect the criticism and silence the protest. You do not and should not need to know how to right an injustice or fix a policy to object to the injustice or point out that the policy has failed, any more than you should need to know how to cure a disease to go to a doctor and describe your symptoms.