Why did we ever privatize prisons?

JDN 2457103 EDT 10:24.

Since the Reagan administration (it’s always Reagan), the United States has undergone a spree of privatization of public services, in which services that are ordinarily performed by government agencies are instead contracted out to private companies. Enormous damage to our society has been done by this sort of privatization, from healthcare to parking meters.

This process can vary in magnitude.

The weakest form, which is relatively benign, is for the government to buy specific services like food service or equipment manufacturing from companies that already provide them to consumers. There’s no particular reason for the government to make their own toothpaste or wrenches rather than buy them from corporations like Proctor & Gamble and Sears. Toothpaste is toothpaste and wrenches are wrenches.

The moderate form is for the government to contract services to specific companies that may involve government-specific features like security clearances or powerful military weapons. This is already raising a lot of problems: When Northrop-Grumman makes our stealth bombers, and Boeing builds our nuclear ICBMs, these are publicly-traded, for-profit corporations manufacturing some of the deadliest weapons ever created—weapons that could literally destroy human civilization in a matter of minutes. Markets don’t work well in the presence of externalities, and weapons by definition are almost nothing but externalities; their entire function is to cause harm—typically, death—to people without their consent. While this violence may sometimes be justified, it must never be taken lightly; and we are right to be uncomfortable with the military-industrial complex whose shareholders profit from death and destruction. (Eisenhower tried to warn us!) Still, there are some good arguments to be made for this sort of privatization, since many of these corporations already have high-tech factories and skilled engineers that they can easily repurpose, and competitive bids between different corporations can keep the price down. (Of course, with no-bid contracts that no longer applies; and it certainly hasn’t stopped us from spending nearly as much on the military as the rest of the world combined.)

What I’d really like to focus on today is the strongest form of privatization, in which basic government services are contracted out to private companies. This is what happens when you attempt to privatize soldiers, SWAT teams, and prisons—all of which the United States has done since Reagan.

I say “attempt” to privatize because in a very real sense the privatization of these services is incoherent—they are functions so basic to government that simply to do them makes you, de facto, part of the government. (Or, if done without government orders, it would be organized crime.) All you’ve really done by “privatizing” these services is reduced their transparency and accountability, as well as siphoning off a portion of the taxpayer money in the form of profits for shareholders.

The benefits of privatization, when they exist, are due to competition and consumer freedom. The foundation of a capitalist economy is the ability to say “I’ll take my business elsewhere.” (This is why the notion that a bank can sell your loan to someone else is the opposite of a free market; forcing you to write a check to someone you never made a contract with is antithetical to everything the free market stands for.) Actually the closest thing to a successful example of privatized government services is the United States Postal Service, which collects absolutely no tax income. They do borrow from the government and receive subsidies for some of their services—but so does General Motors. Frankly I think the Postal Service has a better claim to privatization than GM, which you may recall only exists today because of a massive government bailout with a net cost to the US government of $11 billion. All the Postal Service does differently is act as a tightly-regulated monopoly that provides high-quality service to everyone at low prices and pays good wages and pensions, all without siphoning profits to shareholders. (They really screwed up my mail forwarding lately, but they are still one of the best postal systems in the world.) It is in many ways the best of both worlds, the efficiency of capitalism with the humanity of socialism.

The Corrections Corporation of America, on the other hand, is the exact opposite, the worst of both worlds, the inefficiency of socialism with the inhumanity of capitalism. It is not simply corrupt but frankly inherently corrupt—there is simply no way you can have a for-profit prison system that isn’t corrupt. Maybe it can be made less corrupt or more corrupt, but the mere fact that shareholders are earning profits from incarcerating prisoners is fundamentally antithetical to a free and just society.

I really can’t stress this enough: Privatizing soldiers and prisons makes no sense at all. It doesn’t even make sense in a world of infinite identical psychopaths; nothing in neoclassical economic theory in any way supports these privatizations. Neoclassical theory is based upon the presumption of a stable government that enforces property rights, a government that provides as much service as necessary exactly at cost and is not attempting to maximize any notion of its own “profit”.

That’s ridiculous, of course—much like the neoclassical rational agent—and more recent work has been done in public choice theory about the various interest groups that act against each other in government, including lobbyists for private corporations—but public choice theory is above all a theory of government failure. It is a theory of why governments don’t work as well as we would like them to—the main question is how we can suppress the influence of special interest groups to advance the public good. Privatization of prisons means creating special interest groups where none existed, making the government less directed at the public good.

Privatizing government services is often described as “reducing the size of government”, usually interpreted in the most narrow sense to mean the tax burden. But Big Government doesn’t mean you pay 22% of GDP instead of 18% of GDP; Big Government means you can be arrested and imprisoned without trial. Even using the Heritage Foundation’s metrics, the correlation between tax burden and overall freedom is positive. Tyrannical societies don’t bother with taxes; they own the oil refineries directly (Venezuela), or print money whenever they want (Zimbabwe), or build the whole society around doing what they want (North Korea).

The incarceration rate is a much better measure of a society’s freedom than the tax rate will ever be—and the US isn’t doing so well in that regard; indeed we have by some measures the highest incarceration rate in the world. Fortunately we do considerably better when it comes to things like free speech and freedom of religion—indeed we are still above average in overall freedom. Though we do imprison more of our people than China, I’m not suggesting that China has a freer society. But why do we imprison so many people?

Well, it seems to have something to do with privatization of prisons. Indeed, there is a strong correlation between the privatization of US prisons and the enormous explosion of incarceration in the United States. In fact privatized prisons don’t even reduce the tax burden, because privatization does not decrease demand and “privatized” prisons must still be funded by taxes. Prisons do not have customers who choose between different competing companies and shop for the highest quality and lowest price—prisoners go to the prison they are assigned to and they can’t leave (which is really the whole point). Even competition at the purchase end doesn’t make much sense, since the government can’t easily transfer all the prisoners to a new company. Maybe they could transfer ownership of the prison to a different company, but even then the transition costs would be substantial, and besides, there are only a handful of prison corporations that corner most of the (so-called) market.

There is simply no economic basis for privatization of prisons. Nothing in either neoclassical theory or more modern cognitive science in any way supports the idea. So the real question is: Why did we ever privatize prisons?

Basically there is only one reason: Ideology. The post-Reagan privatization spree was not actually based on economics—it was based on economic ideology. Either because they actually believed it, or by the Upton Sinclair Principle, a large number of economists adopted a radical far-right ideology that government basically should not exist—that the more we give more power to corporations and less power to elected officials the better off we will be.

They defended this ideology on vaguely neoclassical grounds, mumbling something about markets being more efficient; but this isn’t even like cutting off the wings of the airplane because we’re assuming frictionless vacuum—it’s like cutting off the engines of the airplane because we simply hate engines and are looking for any excuse to get rid of them. There is absolutely nothing in neoclassical economic theory that says it would be efficient or really beneficial in any way to privatize prisons. It was all about taking power away from the elected government and handing it over to for-profit corporations.

This is a bit of consciousness-raising I’m trying to do: Any time you hear someone say that something should be apolitical, I want you to substitute the word undemocratic. When they say that judges shouldn’t be elected so that they can be apolitical—they mean undemocratic. When they say that the Federal Reserve should be independent of politics—they mean independent of voting. They want to take decision power away from the public at large and concentrate it more in the hands of an elite. People who say this sort of thing literally do not believe in democracy.

To be fair, there may actually be good reasons to not believe in democracy, or at least to believe that democracy should be constrained by a constitution and a system of representation. Certain rights are inalienable, regardless of what the voting public may say, which is why we need a constitution that protects those rights above all else. (In theory… there’s always the PATRIOT ACT, speaking of imprisoning people without trial.) Moreover, most people are simply not interested enough—or informed enough—to vote on every single important decision the government makes. It makes sense for us to place this daily decision-making power in the hands of an elite—but it must be an elite we choose.

And yes, people often vote irrationally. One of the central problems in the United States today is that almost half the population consistently votes against rational government and their own self-interest on the basis of a misguided obsession with banning abortion, combined with a totally nonsensical folk theory of economics in which poor people are poor because they are lazy, the government inherently destroys whatever wealth it touches, and private-sector “job creators” simply hand out jobs to other people because they have extra money lying around. Then of course there’s—let’s face it—deep-seated bigotry toward women, racial minorities, and LGBT people. (The extreme hatred toward Obama and suspicion that he isn’t really born in the US really can’t be explained any other way.) In such circumstances it may be tempting to say that we should give up on democracy and let expert technocrats take charge; but in the absence of democratic safeguards, technocracy is little more than another name for oligarchy. Maybe it’s enough that the President appoints the Federal Reserve chair and the Supreme Court? I’m not so sure. Ben Bernanke definitely handled the Second Depression better than Congress did, I’ll admit; but I’m not sure Alan Greenspan would have in his place, and given his babbling lately about returning to Bretton Woods I’m pretty sure Paul Volcker wouldn’t have. (If you don’t see what’s wrong with going back to Bretton Woods, which was basically a variant of the gold standard, you should read what Krugman has to say about the gold standard.) So basically we got lucky and our monetary quasi-tyrant was relatively benevolent and wise. (Or maybe Bernanke was better because Obama appointed him, while Reagan appointed Greenspan. Carter appointed Volcker, oddly enough; but Reagan reappointed him. It’s always Reagan.) And if you could indeed ensure that tyrants would always be benevolent and wise, tyranny would be a great system—but you can’t.

Democracy doesn’t always lead to the best outcomes, but that’s really not what it’s for. Rather, democracy is for preventing the worst outcomes—no large-scale famine has ever occurred under a mature democracy, nor has any full-scale genocide. Democracies do sometimes forcibly “relocate” populations (particularly indigenous populations, as the US did under Andrew Jackson), and we should not sugar-coat that; people are forced out of their homes and many die. It could even be considered something close to genocide. But no direct and explicit mass murder of millions has ever occurred under a democratic government—no, the Nazis were not democratically elected—and that by itself is a fully sufficient argument for democracy. It could be true that democracies are economically inefficient (they are economically efficient), unbearably corrupt (they are less corrupt), and full of ignorant idiotic hicks (they have higher average educational attainment), and democracy would still be better simply because it prevents famine and genocide. As Churchill said, “Democracy is the worst system, except for all the others.”

Indeed, I think the central reason why American democracy isn’t working well right now is that it’s not very democratic; a two-party system with a plurality “first-past-the-post” vote is literally the worst possible voting system that can still technically be considered democracy. Any worse than that and you only have one party. If we had a range voting system (which is mathematically optimal) and say a dozen parties (they have about a dozen parties in France), people would be able to express their opinions more clearly and in more detail, with less incentive for strategic voting. We probably wouldn’t have such awful turnout at that point, and after realizing that they actually had such a strong voice, maybe people would even start educating themselves about politics in order to make better decisions.

Privatizing prisons and soldiers takes us in exactly the opposite direction: It makes our government deeply less democratic, fundamentally less accountable to voters. It hands off the power of life and death to institutions whose sole purpose for existence is their own monetary gain. We should never have done it—and we must undo it as soon as we possibly can.

What just happened in that election?

JDN 2456970 PST 11:12.

My head is still spinning from the election results on Tuesday. Republicans gained a net of 12 seats to secure their majority in the House. Even worse, Republicans gained at least 7 seats in the Senate (note that each Senate seat should count for 4.35 House seats because there are 100 Senators and 435 Representatives) and may gain two more depending on how runoffs go. This gives them a majority in both houses of Congress. So people like Republicans then? Maybe they’re fed up with Obama and dissatisfied with his handling of the economy (even though it has actually been spectacular given what he had to work with).
But then when we look at actual ballot proposals, the ones that passed were mostly liberal issues. California passed proposition 47, which will reduce sentences for minor drug and theft crimes and substantially reduce our incidence of incarceration. (There’s no sign of releasing current prisoners, unfortunately; but at least we won’t be adding as many new ones.) Marijuana was legalized—fully legalized, for all purposes—in Alaska, Oregon, and DC, further reducing incarceration. At last, the US may finally stop being the incarceration capitol of the world! We currently hold the title in both per-capita and total incarceration, so there can be no dispute. (Technically the Seychelles has a higher per-capita rate, but come on, they don’t count as a real country; they have a population smaller than Ann Arbor—or for that matter the annual throughput of Riker’s Island.)

The proposals to allow wolf hunting in Michigan failed, for which many wolves would thank you if they could. Minimum wages were raised in five states, four of which are Republican-leaning states. The most extreme minimum wage hike was in San Francisco, where the minimum wage is going to be raised as high as $18 over the next four years. So people basically agree with Democrats on policy, but decided to hand the Senate over to Republicans.

I think the best explanation for what happened is the voting demographics. When we have a Senate election, we aren’t sampling randomly from the American population; we’re pulling from specific states, and specific populations within those states. Geography played a huge role in these election results. So did age; the voting population was much older on average than the general population, because most young people simply didn’t vote. I know some of these young people, who tell me things like “I’m not voting because I won’t be part of that system!” Apparently their level of understanding of social change approaches that of the Lonely Island song “I Threw it on the Ground”. Not voting isn’t rebellion, it’s surrender. (I’m not sure who said that first, but it’s clearly right.) Rebellion would be voting for a radical third-party candidate, or running as one yourself. Rebellion would be leading rallies to gather support—that is, votes—for that candidate. Alternatively, you could say that rebellion is too risky and simply aim for reform, in which case you’d vote for Democrats as I did.

Your failure to vote did not help change that system. On the contrary, it was because of your surrender that we got two houses of Congress controlled by Republicans who have veered so far to the right they are bordering on fascism and feudalism. It is strange living in a society where the “mainstream” has become so extremist. You end up feeling like a radical far-left Marxist when in fact you agree—as I do—with the core policies of FDR or even Eisenhower. You have been told that the right is capitalism and the left is socialism; this is wrong. The left is capitalism; the right is feudalism. When I tell you I want a basic income funded by a progressive income tax, I am agreeing with Milton Friedman.

This must be how it feels to be a secularist in an Islamist theocracy like Iran. Now that Colorado has elected a state legislator who is so extreme that he literally has performed exorcisms to make people not gay or transgender (his name is apparently Gordon Klingenschmitt), I fear we’re dangerously on the verge of a theocracy of our own.

Of course, I shouldn’t just blame the people who didn’t vote; I should also blame the people who did vote, and voted for candidates who are completely insane. Even though it’s just a state legislature, tens of thousands of people voted for that guy in Colorado; tens of thousands of Americans were okay with the fact that he thinks gay and transgender people have demons inside us that need to be removed by exorcism. Even in Iran theocracy is astonishingly popular. People are voting for these candidates, and we must find out why and change their minds. We must show them that the people they are voting for are not going to make good decisions that benefit America, they are going to make selfish decisions that benefit themselves or their corporate cronies, or even just outright bad decisions that hurt everyone. As an example of the latter (which is arguably worse), there is literally no benefit to discrimination against women or racial minorities or LGBT people. It’s just absolute pure deadweight loss that causes massive harm without any benefit at all. It’s deeply, deeply irrational, and one of the central projects of cognitive economics must be figuring out what makes people discriminate and figuring out how to make them stop.

To be fair, some of the candidates that were elected are not so extreme. Tom Cotton of Arkansas (whose name is almost offensively down-homey rural American; I don’t think I could name a character that in a novel without people thinking it was satire) supported the state minimum wage increase and is sponsoring a bill that would ban abortions after 20 weeks, which is actually pretty reasonable, rather than at conception, which is absurd.

Thom Tillis of North Carolina is your standard old rich White male corporate stooge, but I don’t see anything in his platform that is particularly terrifying. David Perdue of Georgia is the same; he’s one of those business owners who thinks he knows how to run the economy because he can own a business while it makes money. (Even if he did have something to do with the profitability of the business—which is not entirely clear—that’s still like a fighter pilot saying he’s a great aerospace engineer.) Cory Gardner is similar (not old, but rich White male corporate stooge), but he’s scary simply because he came from the Colorado state legislature, where they just installed that exorcist guy.

Thad Cochran of Mississippi was re-elected, so he was already there; he generally votes along whatever lines the Republican leadership asks him to, so he is not so much a villain as a henchman. Shelley Moore Capito of West Virginia also seems to basically vote whatever the party says.

Joni Ernst of Iowa is an interesting character; despite being a woman, she basically agrees with all the standard Republican positions, including those that are obviously oppressive of women. She voted for an abortion ban at conception, which is totally different from what Cotton wants. She even takes the bizarre confederalist view of Paul Ryan that a federal minimum wage is “big government” but a state minimum wage is just fine. The one exception is that she supports reform of sexual harassment policy in the military, probably because she experienced it herself.

But I’m supposed to be an economist, so what do I think is going to happen to the economy? (Of course, don’t forget, the economy is made of people. One of the best things that can ever happen to an economy is the empowerment of women, racial minorities, and LGBT people, all of which are now in jeopardy under a Republican Congress.)

The best-case scenario is “not much”; the obstructionism continues, and despite an utterly useless government the market repairs itself as it will always do eventually. Job growth will continue at its slow but steady pace, GDP will get back to potential trend. Inequality will continue to increase as it has been doing for about 30 years now. In a couple years there will be another election and hopefully Republicans will lose their majority.

The worst-case scenario is “Republicans get what they want”. The budget will finally be balanced—by cutting education, infrastructure, and social services. Then they’ll unbalance it again by cutting taxes on the rich and starting a couple more wars, because that kind of government spending doesn’t count. (They are weaponized Keynesians all.) They’ll restrict immigration even though immigration is what the First World needs right now (not to mention the fact that the people coming here need it even more). They’ll impose draconian regulations on abortion, they’ll stop or reverse the legalization of marijuana and same-sex marriage.

Democrats must not cave in to demands for “compromise” and “bipartisanship”. If the Republicans truly believed in those things, they wouldn’t have cost the economy $24 billion and downgraded the credit rating of the US government by their ridiculous ploy to shut down the government. They wouldn’t have refused to deal until the sequester forced nonsensical budget cuts. They wouldn’t make it a central part of their platform to undermine or repeal the universal healthcare system that they invented just so that Democrats can’t take credit for it. They have become so committed to winning political arguments at any cost that they are willing to do real harm to America and its people in order to do it. They are overcome by the tribal paradigm, and we all suffer for it.

No, the Republicans in Congress today are like 3-year-olds who throw a tantrum when they don’t get everything exactly their way. You can’t negotiate with these people, you can’t compromise with them. I wish you could, I really do. I’ve heard of days long gone when Congress actually accomplished things, but I have only vague recollections, for I was young in the Clinton era. (I do remember times under Bush II when Congress did things, but they were mostly bad things.) Maybe if we’re firm enough or persuasive enough some of them will even come around. But the worst thing Democrats could do right now is start caving to Republican demands thinking that it will restore unity to our government—because that unity would come only at the price of destroying people’s lives.

Unfortunately I fear that Democrats will appease Republicans in this way, because they’ve been doing that so far. In the campaign, hardly any of the Democrats mentioned Obama’s astonishing economic record or the numerous benefits of Obamacare—which by the way is quite popular among its users, at least more so than getting rid of it entirely (most people want to fix it, not eliminate it). Most of the Democratic candidates barely ran a campaign deserving of the name.

To be clear: Do not succumb to the tribal paradigm yourself. Do not think that everyone who votes Republican is a bad person—the vast majority are good people who were misled. Do not even assume that every Republican politician is evil; a few obviously are (see also Dick Cheney), but most are actually not so much evil as blinded by the ideology of their tribe. I believe that Paul Ryan and Rand Paul think that what they do is in the best interests of America; the problem is not their intentions but their results and their unwillingness to learn from those results. We do need to find ways to overcome partisanship and restore unity and compromise—but we must not simply bow to their demands in order to do that.

Democrats: Do not give in. Stand up for your principles. Every time you give in to their obstructionism, you are incentivizing that obstructionism. And maybe next election you could actually talk about the good things your party does for people—or the bad things their party does—instead of running away from your own party and apologizing for everything?