Easy wins aren’t news
Recently I talked with a guy from Grant Street Group. They make, among other things, software with which local governments can auction their bonds on the Internet.
By making the auction process more transparent and easier to participate in, they enable local governments which need to sell bonds (to build a high school, for instance), to sell those bonds at, say, 7% interest instead of 8%. (At least, that’s what he said.)
They have similar software for auctioning liens on property taxes, which also helps local governments raise more money by bringing more buyers to each auction, and probably helps the buyers reduce their risks by giving them more information.
This is a big deal. I think it’s potentially more important than any budget argument that’s been on the front pages since the 1960s. Yet I only heard of it by chance.
People would rather argue about reducing the budget by eliminating waste, or cutting subsidies to people who don’t deserve it, or changing our ideological priorities. Nobody wants to talk about auction mechanics. But fixing the auction mechanics is the easy win. It’s so easy that nobody’s interested in it. It doesn’t buy us fuzzies or let us signal our affiliations. To an individual activist, it’s hardly worth doing.
What exactly is a big deal?
If you want to claim that this system will reduce the local governments’ financing costs, I would like to see evidence other than sales pitches.
You need to show that it’s a win to start with.
Thumbs up because showing that a problem exists is the most important part of trying to solve it.
I think no one talks about small changes to systems for the same reason the economists don’t pick up the dollar in that old joke about the efficient market hypothesis; “if it worked, someone would have already done it”. The idea that bonds weren’t already sold as efficiently as possible is news to me, and likely news to most people.
There’s also the tendency for people to disproportionally praise “big thinking”; when we think of ideas to fix a system, the only ideas we think of (or at least, the ideas I usually think of, unfortunately) are changing the system, not optimizing the existing system. And since optimizing the existing system doesn’t sound like a big, important change to most people, those ideas never get propagated. The devil is in the details, but no one wants to be a nitpicker.
No. It’s a topic difficult to talk about and raise awareness and a lot of money is interested in keeping the status quo.
It’s difficult enough to talk about that you write this post without explaining the issue enough for the reader to understand how the auction mechanism exactly differ from the status quo and what the status quo happens to be.
That 1% that you want to save comes from somewhere. At the moment that money goes to some bank. That bank can afford to spend some of that money to lobby the politicians in charge to stay with the status quo. Politicans who don’t understand the details of auction mechanics and who have to trust some expert that he knows how to issue bonds.
Incremental technological/process improvements tend not to be news. There’s nothing to argue over, nothing to form factions over, nothing to fight about. Nothing, even, for most of us to do. It’s neither entertaining, nor actionable intelligence for most of us. And that’s even assuming that the improvement claims are true.
The news aspect may emerge if it delivers the promised savings, particularly if they run controls and can show the savings.
“Hey, good news, things are getting better, but not anything that you have much to do with.” Not a lot of those stories, although there are some.
This probably harms some set of investment bankers, so it is most likely not an easy political win.
But investment bankers have no political influence in local politics and very little in state politics, outside of New York and Delaware.
I don’t know the specifics, but I would bet that the SEC (and probably other federal agencies) had to approve the auction, and investment bankers have lots of say over what happens with the SEC.
But the SEC did approve the 1997 auction. Maybe it was very difficult for this company to enter the market back then. Maybe it would be very difficult for a new company to enter this market. But that is not the topic. The topic is municipal bonds taking advantage of the options that are available, the options that have already passed regulatory hurdles.
Maybe not, but notice that it also makes it easier for those investment bankers to find more possible investments, maybe evaluate them more accurately, and buy them with less overhead. These are replacing systems where you used to have to be physically present to bid.
I think the result should be a net gain to society, as is generally the case when you make markets more efficient.
Taking power away from the most powerful actors is often good a net gain for society. That doesn’t make it a “easy win”.
Matt Taibbi writing about the municipal bond market is worth reading:
That article is not about the municipal bond market. It is certainly not about the interest rate on municipal bonds. It’s true that the quote says so, but the rest of the article says not.
But that collusion becomes impractical and then impossible as the process becomes more and more transparent. This is helping that problem.
Yes, that’s why there a lot of money invested in keeping the process intransparent and making it more transparent isn’t easy.
It’s not that fixing the auctions is easy. It’s that it’s not interesting. There’s no story. There’s no us vs. them. People would prefer the President eliminating some pointless subsidy without a thought to someone slaving for months on a computer perfecting the software for selling bonds and ideal prices.
It depends. I don’t know how it’s in the USA, but in Eastern Europe where I come from, it’s an open secret that a lot of auctions are rigged, or at least the information is only published in obscure (or almost fictional) newspapers to guarantee that only the privileged people will know about it in time.
Parts of Tim Roughgarden’s excellent talk here are about this. Part is about work with Braess’s paradox and while not relevant to auctions is also pretty cool.
Very cool! It sounds like they are doing something very similar to what Neighbor.ly is planning to do. You can read a good overview here… A New Way to Invest in Communities.
It’s interesting that Neighbor.ly started off as a “traditional” civic crowdfunding website. Evidently they think there’s more money to be made by making it easier for everybody to purchase municipal bonds. It makes sense because it’s an investment rather than a donation.
Speaking of donations… I’m convinced that it would be super excellent if every government organization (GO) had a really visible donate button on their website. If you’re interested… here’s what I wrote about the topic of donating to GOs… razotarianism.
Not sure if you saw it already but here’s my favorite budget argument… Is Pragmatarianism (Tax Choice) Less Wrong?.
See also.