Foot-Shooting Policy Prescriptions

The Policy Game: How Special Interests and Ideologues Are Stealing America, by Peter Navarro, New York: John Wiley & Sons, 340 pages, $18.95

There exists a vast literature containing applications of economic analysis to important issues in public policy. From Milton Friedman to Thomas Sowell to Lester Thurow and beyond, whole forests' worth of paper have been allocated to expositions without jargon upon the causes of and solutions to public-policy problems. This literature is one of the true successes of the economics profession: it is reasonably rigorous, yet well-written.

The latest addition to this scholarship-for-the-masses collection is The Policy Game: How Special Interests and Ideologues Are Stealing America, by Peter Navarro. Unfortunately, it does not measure up to the prior body of policy literature. Navarro attempts to differentiate his product by including chapters on special interests and their tactics and on the differences between (modern) "liberal" and "conservative" ideology. These chapters are somewhat pedestrian but are nonetheless straightforward, and for that reason I would include this book on the "recommended reading" list for an undergraduate course in American political institutions. Each of the chapters on specific policy issues contains an unexceptional discussion of the relative roles of special-interest influence and ideological belief in public-policy outcomes.

The heart of Navarro's book lies in six chapters dealing with specific policy issues: rent control, protectionism, farm subsidies, electric utility regulation, the Equal Rights Amendment (ERA), and defense procurement. But in each chapter, Navarro shoots himself in the foot by presenting some of the silliest policy prescriptions that I have encountered in quite a while.

For example, he notes that rent control has failed to achieve its (purported) goals of reduced housing costs, neighborhood stabilization, and wealth redistribution to the poor. He does a decent job of presenting the well-known reasons for this. And what is Navarro's solution for the problems caused by tight housing markets? He advocates "iron-clad" agreements with developers that new housing units will be free from controls permanently. How this covenant is to be enforced over time is left to the reader's imagination.

Navarro argues further that localities "can finance the construction of more public housing for their low and moderate income population." He does not inform us how such housing is to be allocated, particularly when potentially eligible tenants from outside the given municipality migrate to it in order to avail themselves of such largesse. Nor is he very clear about how such programs are to be financed, particularly when those ineligible move out of the locality in order to avoid the taxes necessary to pay for the accommodations.

Navarro continues: Local demands for redistribution could be satisfied by cash transfers or "rent stamps." But who would be eligible for such subsidies? And who would finance the American equivalent of the Berlin Wall needed to control the stampede of joyous beneficiaries anxious to move to localities offering such generosity? And what would be the effect of such rent subsidies on housing prices? Is it not likely that the subsidies would be reflected by land prices, and so benefit the nonpoor?

Despite a number of analytic errors, Navarro does point out (and also exaggerate) the inefficiencies and economic costs imposed by protectionism in US international trade. And he points out, correctly, that protectionist pressures often succeed politically because such policies bestow benefits on concentrated groups, while the larger gains of free trade accrue to the benefit of the whole decentralized economy.

Again, however, Navarro's solutions fall short. The federal government could sponsor public "information" programs about the evils of trade barriers, to ensure a more informed citizenry. Such progress doubtless would be broadcast by TV stations as a public service just before the interview with the local fire chief, shown at 5:00 A.M. Sunday morning. We could have, says Navarro, "protectionist impact" statements—guaranteed to bankrupt sleeping-pill companies faster than could the FDA in its wildest dreams.

And there is more, much more. Congress could relinquish its powers over trade policy to the president and the bureaucrats. Has Navarro ever looked at the kinds of things advocated by our benevolent bureaucrats at the Commerce Department? (Hint: They are not oriented toward free trade.) And since when do politicians give up authority? The bureaucracy could "streamline its processing" of complaints about allegedly "unfair" trade policies leveled against some foreign competitors. It seems never to have occurred to Navarro that such efficiency, however unlikely in a government bureaucracy, would attract more and more complaints, thus leading to greater rather than less governmental meddling in trade matters. Navarro also advocates expansion of unemployment insurance to vastly greater numbers of workers displaced (indirectly) by import competition. Would this scheme not evolve into the federal spending equivalent of a perpetual motion machine?

Moving right along to the farm subsidy programs, Navarro commits the by-now standard quota of analytic errors but nonetheless summarizes clearly the enormous costs and waste caused by the subsidy system. He advocates a system of direct cash payments to farmers and a more market-oriented system of acreage removal, both of which would constitute net improvements over the current system.

How do we make such change feasible politically? Well, says Navarro, with a "one-time" payment to farmers of tens of billions of dollars! Now, consider the political incentives generated by such a scheme. All the farm lobby would have to do to garner such juicy payments in the future would be to lobby for new programs and then offer to end them for an appropriate price. It would be the political equivalent of kidnapping.

The book turns next to electric utility regulation, the sole area in which Navarro has any substantial expertise as a policy analyst. Analytic errors aside (again), Navarro summarizes nicely the problems caused by regulatory lag and rate suppression by many public utility commissions (PUCs.) (Navarro's dire warnings about future blackouts, however, are overblown: because of the PUCs, future electricity generation will be much more costly than necessary, but mere availability is unlikely to be a problem.) The obvious answer is to deregulate electricity generation; because transmission and distribution costs have fallen relative to generation costs, much greater competition for service to any given community is now economic.

Navarro apparently does not support this clear solution. His proposal? First, appointment rather than election of PUC commissioners. Navarro gives no thought to the implications of this proposed change; after all, do appointed judges make systematically better decisions than elected members of Congress? Do we really want decisionmakers to be less rather than more accountable? Second, Navarro argues, curiously, that utilities ought to combine both "hard" (central generating plants) and "soft" (wind, solar, geothermal, etc.) sources of electricity. This is despite the uneconomic nature of most soft generation. Finally, he argues that regulation ought to be on a regional instead of a state-by-state basis. Is there any evidence that greater centralization of governmental authority leads to enhanced economic productivity?

The chapter on defense procurement contains, aside from still more analytic errors, the standard discussion of weapons complexity, perverse Pentagon incentives, and budgetary uncertainty. Part of the discussion is incoherent; for example, Navarro complains at one point that weapons complexity precludes acquisition of large numbers of weapons, so that scale economies cannot be achieved. He then advocates later that given weapons be produced by two (or more) firms in order to enhance "competition." He seems not to realize that such "dual-sourcing" probably would exacerbate the scale-diseconomy problem even more. Navarro wants defense bureaucrats to "insist" on accurate cost estimates; but how can "accuracy" be measured ex ante? And how is this to be enforced in a way consistent with the bureaucrats' institutional incentives? The bureaucracy, after all, is in business to induce Congress to approve weapons, not reject them.

Above all, Navarro wants more "arms control" as a means of "reducing tension" and thus the need for weaponry, begging the question whether arms produce tension or tension produces arms. Does "arms control" make the United States (and the world) more or less safe? What are the incentives faced by the Soviet leadership? Even if agreements can be "verified," how can they be enforced? Navarro displays not the slightest insight into the answers to or even the existence of such issues.

And finally, there is the chapter on the Equal Rights Amendment. With trumpets blaring, and errors of analysis aplenty, it is an utterly unabashed propaganda parade for the ERA. For Navarro, women's rights and the ERA are synonymous. He would have us believe that the anti-ERA movement has been composed solely of Mormons, proselytizing fundamentalists, housewives, mothers, and other assorted Neanderthals, while ERA proponents are "largely well-educated, working women who prided themselves on their rationalism (and who) refused to stoop to (Phyllis Schlafly's) level." And where was Navarro during the boycott and other assorted pressure tactics, during the demands for the (clearly illegal) extension of the deadline, and during the attempts to bribe Illinois legislators into voting for the ERA?

As Navarro would have it, the ERA failed because of a lack of "charismatic leaders." Had Gloria Steinem or Betty Friedan led the fight—Navarro here is being absolutely serious—the ERA would have passed. Now there are two who really would have played in Peoria!

Throughout the chapter, Navarro asserts the widespread existence of discrimination against women. His evidence? The wage gap, which he adjusts to 60 cents from the famous 59 cents. Does he control for education? No. For experience? No. For labor-market mobility? For myriad other factors, many intangible, that determine market wages? Sorry. Navarro simply advocates that the ERA be passed in the name of "equality." Nowhere does he consider what the courts could read into an embryonic monster like the ERA. This chapter has to be seen to be believed.

I have noted in passing several times the analytic errors in this book, discussion of which would consume another whole article. Here is an example: Navarro correctly argues that rent control reduces the mobility of renters, because artificially low rents induce them to remain in controlled apartments longer than would be the case otherwise. He then argues that this "lock-in effect" increases unemployment, "as workers are less willing to commute longer distances to find and hold jobs."

This conclusion is incorrect: because rent control reduces the supply of housing—and thus of workers for any given cost of commuting—in a given area, wages will be bid up there and down elsewhere, so that the result would be inefficiency in the allocation of labor instead of increased unemployment. (This assumes that the demand for labor in the two areas is unchanged, which probably would not be true because of other perverse effects of rent control.)

For all the importance of his overall topic, Navarro's is a mediocre book. Buy it only if you have $18.95 to spare. But then, one can think of much better things to do with spare change.

Zycher is an economist in Canoga Park, California. During 1981–83 he was a senior staff economist at the Council of Economic Advisers.