Bureaucracy and Regulation: Recent Episodes
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In the global Ponzi scheme, thin air and deceit substitute for sound money. As hedge-fund manager Mitch Feierstein wrote in Planet Ponzi, “You don’t solve a Ponzi scheme; you end it.”
Original Article: "The Coming Collapse of the Global Ponzi Scheme"
Being large doesn't make a country wealthy, nor does being small shrink a country's economy.
Original Article: "No, Small Countries Are Not at an Economic Disadvantage"
Can a government regulatory system be reformed? In a word, no. The free market is always the best regulator of quality and safety.
Original Article: "Regulation in the Free Market: It’s Not What Most People Believe"
While progressives blame climate change for the deadly Lahaina fire, government created the conditions for the blaze and then helped set it.
Original Article: "Thanks to Government, Maui's Lahaina Fire Became a Deadly Conflagration"
Much of government-owned transportation destroys rather than adds to wealth. The lack of a sound system of economic calculation is to blame.
Original Article: "The Problem with Public Transit"
Many conservatives, in trying to steer the USA away from "wokeism," fail to understand that their “national greatness” schemes are just as harmful.
Original Article: ""National Greatness" Is Not the Appropriate Response to "Wokeism""
The rioting in France is not due to racism nor is it the logical end of immigration. Instead, it is rooted in France's minimum wage and other labor restrictions that lead to unemployment and resentment.
Original Article: "France's Unrest Has Deep Roots. Proposed Immigration Restrictions Will Make Things Worse"
The covid restriction machinery is being ramped up in time for fall, despite the fact that covid poses little danger.
Original Article: "The Unwelcome Return of Covid Restrictions and Lockdowns"
The DOJ claims that it has "protected" consumers by standing in the way of a partnership between JetBlue and American Airlines. The only thing the DOJ protected was higher-cost flying.
Original Article: "Flying into Foolishness: The DOJ "Saves" Consumers from Low-Cost Airlines"
Yellow Trucking Company has filed for bankruptcy and ceases to exist as a viable firm. Much of the blame is due to the Teamsters Union which has a long a violent history.
Original Article: "Yellow Trucking Goes Bankrupt, Thanks in Part to Onerous Labor Laws"
On this episode of Good Money with Tho Bishop, Connor O'Keeffe joins the show to talk about his recent work on the Mises Wire. Tho and Connor discuss the role government incompetency played in the horrific tragedy of the Maui wildfires, as well as the bankruptcy of one of America's largest trucking companies.
Join Bob Murphy, Patrick Newman, Jonathan Newman, and Murray Sabrin in November for a Mises Circle in Ft. Meyers, FL on The White House, the Fed, and the Economy. Use promo code Tampa23 for $10 off registration.
Connor's Article on the Maui Fires: Mises.org/GM20a Connor's Article on Trucking and Labor Laws: Mises.org/GM20b
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Recorded in Windham, New Hampshire, on August 20, 2023.
Special thanks to Joe and Tracy Matarese for making this event possible.
Banker and financial expert Caitlin Long believes that fractional reserve banking is closer than ever to collapse, and she has a 100 percent reserve banking solution in progress.
Original Article: "Can Fractional Reserve Banking Survive the Twenty-First Century?"
The East German secret police, the Stasi, developed the art of mass surveillance using pre-digital methods. Modern tech now makes the job a lot easier.
Original Article: "How East Germany's Stasi Perfected Mass Surveillance"
The usual answer is that secondhand smoke is bad. But if value is subjective, perhaps secondhand smoke also can be seen as a public good.
Original Article: "Is Secondhand Smoke Bad, or Is It a Public Good? It’s Complicated"
Ryan McMaken joins Bob to discuss the recent US Women's World Cup elimination, and to dispel the myth that markets are discriminatory. After defending Megan Rapinoe's failed penalty kick, they dismantle her outspoken views on "equal pay" in sports, and examine the left's claim that law is required to fix prejudice in the labor market.
Join us in Nashville on September 23rd for a no-holds-barred discussion against the regime: Mises.org/Nashville23
Modern socialism is based upon state interference in normal human relationships, economic and otherwise. It is as disastrous as the older state-planning model.
Original Article: "Modern Socialism Is Forced Socialization"
Bureaucrats operate with de facto electoral unaccountability.
Download lecture slides at Mises.org/MU23_PPT_31.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2023.
Few people understand how destructive regulations are.
Download lecture slides at Mises.org/MU23_PPT_23.
Recorded at the Mises Institute in Auburn, Alabama, on 26 July 2023.
Postwar Germany was occupied, in ruins, with an economy in chaos. Germans were reduced to using cigarettes supplied by American GIs as money.
Original Article: "To Smoke or Not to Smoke: The Cigarette Economy in Postwar Germany, 1945–48"
With each iteration of the banking crisis, the Federal Reserve System and federal regulators gain in power and authority. Maybe the banking crisis isn’t an accident.
Original Article: "Is the Banking Crisis Being Orchestrated?"
Rent control is all the rage with progressives, with several states and localities trying to impose it. However, when people have their property effectively—and legally—stolen, there are long-term consequences.
Original Article: "Call Rent Control What It Really Is: Theft"
The European Union’s General Data Protection Regulation supposedly protects people from government data abuse. In reality, it empowers governments.
Original Article: "The GDPR Paradox: Empowering Government in the Name of Data Protection"
South Africa is suffering from rolling blackouts and other power outages. These could be avoided if the government would permit competition in electricity markets.
Original Article: "Licensing Laws Deepen South Africa's Electricity Crisis"
While the faux debt ceiling drama rages in Washington, DC, governments worldwide are defaulting on their debt via inflation.
Original Article: "Default by Inflation Is the Real Drama in the Global Debt Market"
The latest round of wildfires in Canada has brought out the usual statist demands that we ban fossil fuels, but in the real world fossil fuels protect people from climate-related disasters.
Original Article: "Fossil Fuels Enable Us to Better Fight Fires and Other Environmental Disasters"
The State of California, unable to unionize fast food workers, now is trying to create workers councils that will set labor policies for fast food restaurants.
This will not end well.Original Article: "Leviathan Is on the Menu"
The Federal Trade Commission is heavily scrutinizing the proposed merger between Microsoft and Activism. Why? Sony is against it, demonstrating that antitrust law is about protecting favored producers, not consumers.
Original Article: "The FTC Should Answer Its Call of Duty to Gamers"
Ryan and Tho take a look at the legacy of Daniel Ellsberg's heroic leak of the Pentagon Papers and the evils of government secrecy. Modern leakers like Snowden, Manning, and Assange do important work educating voters and making the state more accountable.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
On this episode of Good Money with Tho Bishop, David Gornoski of A Neighbor's Choice joins to discuss how government policies have impacted American diets. From the subsidization of certain crops to anti-science propaganda campaigns about diet, to the consolidation of the agricultural industry, the politicization of the economy still shapes not only their wallet but their plates.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
Political leaders of the so-called liberal Western regimes are engaging in authoritarian tactics to quell legitimate dissent. But leftists who riot and burn get a free pass.
Original Article: "Rise of the Effete Authoritarians"
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop are joined by Mises Senior Editor Bill Anderson to discuss his recent article, "David French Gets to Sit with the Cool Kids at the NYT Lunch Table." Bill explains the transformation of French from a "cultural conservative" commentator to the preferred "classical liberal" of the elite.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading "David French Gets to Sit with the Cool Kids at the NYT Lunch Table" by William L. Anderson: Mises.org/RR_138_A
"Review: Sohrab Ahmari's New Attack on Laissez-Faire Liberalism" by Zachary Yost: Mises.org/RR_138_B
""Libertarian" Is Just Another Word for (Classical) Liberal" by Ryan McMaken: Mises.org/RR_138_C
"To Stop the Left, America Needs a Rothbardian Right" by Tho Bishop: Mises.org/RR_138_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
All too often, when we see a new technology we don't understand, our natural inclination is to condemn it. Artificial intelligence is no exception.
Original Article: "Can We Understand AI? A Response to Jordan Peterson’s Podcast"
The current regime wants to use taxation not simply as a means to collect revenue for the government, but as a weapon against economic prosperity itself.
Original Article: "Taxation as a Weapon against Prosperity"
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop discuss the role statistics play in promoting the regime. Topics include some interesting differences in recently reported unemployment data, changes to inflation reporting over time, government withholding of various reports — including crime and money supply measures — as well as alternative measures Austrians use to better cut through state propaganda.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading "Yet Another Month of Questionable Federal Jobs Data as 310,000 Fewer People Report Having Jobs" by Ryan McMaken: Mises.org/RR_137_A
"The "True" Money Supply: A Measure of the Supply of the Medium of Exchange in the U.S. Economy" by Joseph Salerno: Mises.org/RR_137_B
"Does GDP Present an Accurate Picture of the Economy? Not Likely" by Frank Shostak: Mises.org/RR_137_C
"World War I as Fulfillment: Power and the Intellectuals" by Murray Rothbard: Mises.org/RR_137_D
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
On this episode of Good Money with Tho Bishop, Jeffrey Kauffman joins the show to discuss recent attacks from the SEC on major crypto exchanges. Kauffman, CEO of LBRY and content platform Odysee, shares his own company's battle with the SEC, the impossible burdens regulators have placed on legal compliance, and why DC's Operation Chokepoint 2.0 could be a positive for the industry in the long run.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
Radical environmentalists have convinced people that we are doomed if we continue to use fossil fuels. We are doomed if we stop using them.
Original Article: "Energy and Economic Efficiency: The Market versus the Politicization of Our Energy Futures"
President Biden recently claimed that "trickle-down economics" doesn't work but transferring wealth from taxpayers to politically connected people is the real trickle-down economics.
Original Article: "Government Redistribution Is the REAL Trickle-Down Economics"
Shoddy service, regular breakdowns, and overbudget to boot. There is a reason why government-funded projects always waste resources.
Original Article: "The Failure of Public Works and Public Funding"
In 1948, Ludwig Erhardt rescued a German economy that was in shambles simply by invoking free markets and currency reform. Our economy needs its Rothbard moment.
Original Article: "Rothbard’s Button Doesn’t Exist, but It Needs to Be Invented"
It is the right of the consumer, not the regime, to determine what lighting sources work best for them.
Original Article: "Shedding Light on the Law of Unintended Consequences"
President Biden's executive order to promote transgenderism on college campuses eviscerates long-held due process protections for accused students. This will not end well.
Original Article: "Due Process or Transgender Protection on Campus?"
While most free market advocates are fixated on the national debt, they also should be looking at municipal debt over which taxpayers have no say. Maybe default is the answer.
Original Article: "Should Local Municipalities Default on Their Debts? Seems Like a Good Idea"
To prevent rail accidents like the one in East Palestine, dial back government regulation and allow the tort system to work.
Original Article: "Prevent Future Losses Like East Palestine by Reducing Regulation and Empowering Torts"
Federal laws with acronyms are usually bad news. (Think the USA PATRIOT Act.) The RESTRICT Act is yet another Orwellian proposal in which the federal government assumes ignorance is strength.
Original Article: "Disinformation and the State: The Aptly Named RESTRICT Act"
Adherents of leftist dogma increasingly push the notion that teachers should be permitted to distract, confuse, or influence their students by discussing their personal beliefs, ideas, and private activities and choices in the classroom.
Original Article: "How the Woke Left Is Destroying Education"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Are NASA contracts propping up the private space industry? Or are Government regulations stifling the private space race?
Dr. Eli Dourado, Senior Research Fellow with the Center for Growth and Opportunity at Utah State University, joins Bob to discuss the recent "successful failure" of the exploded SpaceX launch and the differences between government and privately funded space travel.
Dr. Dourado on NASA contracting private companies to build their shuttles: Mises.org/HAP393a
Dr. Dourado on the Artemis moon program: Mises.org/HAP393b
The government wants to make gas cars a lot more expensive. But electric vehicles are so expensive in the longer term that gas cars still look like a better deal.
Original Article: "Peak EV: Electric Vehicles Will Fade as Their True Costs Become Clear"
This Audio Mises Wire is generously sponsored by Christopher Condon.
President Biden pushes a wealth tax as a measure of "fairness." Not only is it unconstitutional, but it's also bad for the economy.
Original Article: "Biden's Wealth Tax Is a Trojan Horse Requiring Multiple Manipulations"
This Audio Mises Wire is generously sponsored by Christopher Condon.
With the government foolishly handicapping the oil and gas industries and pushing other alternatives, the future is not very bright..
Original Article: "What Will Our Energy Future Be? A Few Ideas"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Violent crime is on the rise in Canada, and its progressive democracy is helpless to stop it. Further empowerment of the state makes things worse.
Original Article: "Canada's Impotent Justice System Is the Product of Dysfunctional Canadian Democracy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The standard narrative around current bank failures is that they occur because of a lack of regulation. Credit Suisse was heavily-regulated; that was the problem.
Original Article: "Credit Suisse Collapsed Because of Government Intervention, Not Despite It"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Canadian politicians tout their healthcare system as morally superior to private medicine. There is nothing moral about relegating thousands of people to death each year for lack of medical care.
Original Article: "Democracy Created Canada’s Lethal Healthcare System"
This Audio Mises Wire is generously sponsored by Christopher Condon.
San Francisco, as well as the government of California, is calling for millions in "reparations" for black people in that state. Reparations, unfortunately, are fast becoming another anti-property-owner racket.
Original Article: "Reparations Are a Statist Cudgel for Bludgeoning Property Owners"
This Audio Mises Wire is generously sponsored by Christopher Condon.
If we have learned anything from hundreds of years of government oppression and atrocities, one thing is certain: government isn't our friend.
Original Article: "Government Is as Government Does"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Two "distinguished" healthcare analysts have examined the medical system in the USA and conclude that the REAL problem is . . . large hospitals. Dale Steinreich applies economic analysis to their claims.
Original Article: "Are Large Hospitals the Problem with US Healthcare?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
President Biden's executive order to "strengthen equity" in the federal government is doomed to fail. It will create a lot of havoc in the meantime.
Original Article: "Biden's Executive Order on Equity: It Will Create Greater Inequality"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Three years after the covid virus hit the world, we are just starting to take a hard look at the damage caused by the covid restrictions. The "experts" not only were wrong; they were scandalously wrong.
Original Article: "Covid-19: Will the Political and Health Scandals Erupt into the Public Light?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Can private markets only be regulated by government? Hindenburg Research's successes against corporate corruption suggest otherwise.
Original Article: "How Markets Are Better than Government Regulators at Fighting Corporate Corruption"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop address whether the Ohio train disaster is an example of "capitalism gone amuck". They discuss Murray Rothbard's views on pollution, the secondary consequences of the regulatory state, and the decaying qualities of modern financialization.
Also, join the Mises Institute in Tampa this month for a special event featuring Per Bylund, Jeff Deist, Tho Bishop, and Brett Lindell, on February 25. Learn more at Mises.org/Tampa.
Recommended Reading"Are Libertarians Too Anti-Pollution?" by Ryan McMaken: Mises.org/RR_121_A
"Financialization: Why the Financial Sector Now Rules the Global Economy" by Ryan McMaken: Mises.org/RR_121_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The government can't return the SS money it stole in the past. It's impossible. That money's gone. Taxing today's workers to "pay back" pensioners is just creating a new group of tax victims.
Original Article: "Social Security Taxes Aren't "Your" Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
China has created a crackdown cycle that is hurting the entrepreneurial spirit.
Original Article: "The Chinese Communist Party Is Creating a Crackdown Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Because government officials do not worry about the consequences of making mistakes, the government should not be permitted to regulate anything as important as vaccines.
Original Article: "Governments Cannot Effectively Regulate Vaccines"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It is no secret that freedom, both socially and economically, are disappearing in the USA and Great Britain. The consequences will be most severe if we do not reverse these patterns.
Original Article: "How Can We Restore Freedom and Sound Money in the US and the UK? Some Ideas"
This Audio Mises Wire is generously sponsored by Christopher Condon.
We like to think of the "deep state" as a conspiratorial entity. In reality, the term describes much of what the federal government does in broad daylight.
Original Article: "Yes, Virginia, There IS a Deep State—and It Is Worse than You Think"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Because police protection of students is inadequate, Temple University of Philadelphia has hired private police to help keep students safer from crime.
Original Article: "Police Failures in Philadelphia Have Made Private Policing More Attractive"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Forty years ago, American politicians claimed that Japanese economic success was due to government economic planning. Unfortunately, the myth of industrial policy never seems to die, no matter how many times it is discredited.
Original Article: "Industrial Policy Did Not Bring Prosperity to Asia"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Not satisfied with hamstringing the oil and gas industries, environmentalists now are shutting down farms and production of livestock, all in the name of fighting climate change. But people still need to eat.
Original Article: "Forget Oil. Now They Are Coming for the Cows"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Remember those dystopian futuristic films in which the evil people try to electronically erase the heroes? Social media companies are trying to recreate that scenario.
Original Article: "Notes from the Digital Gulag"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As crime rates rise and government policing fails, more and more people are turning to private security, which is more effective in preventing crime than government police.
Original Article: "Private Security: An Effective Method to Prevent Being a Crime Victim"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Economists like Paul Krugman have claimed that practice of austerity in government would damage the US economy. As Mark Thornton points out, the opposite is true: austerity works.
Original Article: "Austerity: A Real Solution to Help Heal the US Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Money laundering is illegal in the USA, but like so many other federal crimes, it is difficult to identify and define. That is the perfect recipe for government abuse of innocent people.
Original Article: "Money Laundering: Another Noncrime Pursued by Criminal Authorities"
This Audio Mises Wire is generously sponsored by Christopher Condon.
In the name of "protecting workers," progressive legislators put people out of work. For their own good, of course.
Original Article: "Leviathan Devours Free Range Entrepreneurs"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Energy production in the USA and elsewhere is in trouble because of government control. We need more energy and less regulation.
Original Article: "The World Needs More Energy and Less Energy Regulation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Progressives seem to believe that we improve healthcare outcomes by spending more. This is a recipe for failure.
Original Article: "Spending More Government Money on Healthcare Does Not Improve Health Outcomes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Following the attack on Paul Pelosi, the Capitol Police office has demanded a big budget increase. This is not to increase safety but rather to increase the agency's bureaucratic reach.
Original Article: "Paul Pelosi Is Attacked, So Naturally the Capitol Police Want More Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While high-quality automobiles and other manufactured goods are being produced in the Southeast, northeastern states like New York are falling behind, thanks to progressive governance.
Original Article: "Economic Progress and Economic Decay: North versus South"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Jeff and Bob discuss whether the FTX scandal will be used to justify new "crypto" regulations or even the creation of a central bank digital currency.
Caitlin Long and Sam Bankman-Fried debating leveraging Bitcoin: Mises.org/HAP370A
Mises on circulation credit vs. commodity credit: Mises.org/HAP370B
President of the Minneapolis Fed Neel Kashkari on CBDCs: Mises.org/HAP370C
Government programs like Medicare are called insurance, yet they are anything but. There is a difference between public and private plans.
Original Article: "Private versus Government Health Insurance: They Are Not the Same"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
As inflation advances and the economy slowly implodes, we also learn valuable lessons.
Original Article: "The Economy Is a Mess: What Lessons Will We Learn?"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Progressives are quick to blame escalating healthcare costs on free markets, yet it's government rules and policies that are responsible.
Original Article: "In Government-Regulated Healthcare, There Is No Competition Like No Competition"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Florida's government promotes a "shared adversity" plan in which individuals and organizations have distant environmental problems imposed upon them.
Original Article: "Critiquing Florida's Public Policy of "Shared Adversity""
This Audio Mises Wire is generously sponsored by Christopher Condon. '
More than forty years ago, California voters enthusiastically passed Proposition 13, which limited property tax hikes. Politicians have been lying about it ever since.
Original Article: "Why Proposition 13 and Attacking It Are Both Popular"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Law Professor David Bernstein looks at the system of racial classifications in the USA and explains why they have been harmful.
Original Article: "Review of Classified: The Untold Story of Racial Classification in America"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Even while Americans deal with skyrocketing higher education costs, few would challenge the worth of college and fewer still question the campus culture. Yet, that is precisely where the problems lie, even if people don't recognize it.
Original Article: "College as an Economic and Social Problem: Dealing with the Culture"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
While President Biden claims that forgiving student loans helps reduce college costs, it is the loan program itself that is responsible for much of the explosive growth of higher education spending.
Original Article: "Higher Education Woes: Student Loans Help Fuel Higher College Costs"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Virtue-signaling politicians in New Jersey have banned single-use plastic bags, claiming to "help the environment." They need to read Hazlitt's Economics in One Lesson instead.
Original Article: "Hazlitt's Lesson Restated: New Jersey's Disastrous Ban on Single-Use Plastic"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
Even as population has grown, increasing the intensive margin for agriculture has led to increased food production. This may not necessarily be a good thing.
Original Article: "The False Benefit of Less Land Use for Agriculture"
This Audio Mises Wire is generously sponsored by Christopher Condon.
New York City’s subways have become a nightmare, with rampant crime, delays, derailments, and poorly capitalized. This is a gift from "backdoor socialism."
Original Article: "New York City Subways: The Woes of Socialist Enterprises"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While we often concentrate on government agents' antiliberty actions, it is easy to overlook the shadow government of private business firms and NGOs that do the government's bidding.
Original Article: "America's Secret Government by Proxy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Aided by state intervention, disinformation is becoming a way of life in communications.
Original Article: "Modern Information Control: State Intervention and Mistakes to Avoid"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Journalist Jordan Schachtel joins the show to discuss Biden's escalating rhetoric against what he terms "ultra-MAGA" semi-fascists. Is America finally past any pretense of democracy?
Clifton Duncan joins the show to discuss Joe Biden's student loan forgiveness plan, along with the broader question of whether college and student loans are still worthwhile for young people.
Jeff's Article, "Is College Worth It?": Mises.org/HAP358-1
In the past, many Americans may have simply trusted to the regime to provide "law and order." But that sentiment is apparently becoming more and more rare.
Original Article: "Rising "Constitutional Carry" Is a Sign of Failing Trust in Government"
This Audio Mises Wire is generously sponsored by Christopher Condon.
On top of Congress passing the "Climate Relief Bill," environmentalists also demand that President Joe Biden declare a "climate emergency" in order to seize new powers ostensibly to combat dreaded climate change. However, climate alarmism is not based on reality.
Original Article: "The Agenda behind Climate Change Catastrophism"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While renewable energy and organic farming are considered sustainable, they're anything but. The collapse of Sri Lanka's green agricultural sector is a warning to the rest of the world.
Original Article: "Green Myths and Hard Realities: Sri Lanka as a Warning"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Few people understand how destructive regulations are.
Download the slides from this lecture at Mises.org/MU22_PPT_24.
Recorded at the Mises Institute in Auburn, Alabama, on 27 July 2022.
Once wealthy Argentina has suffered under one interventionist regime after another for nearly a century. What are the prospects for changing things for the better?
Original Article: "Argentina's Difficult Political Landscape and Libertarian Prospects for Change"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The New York Times claims that the "administrative state"—that is, governance by unelected bureaucrats—protects our country and enhances democracy.
Original Article: "Turns Out the Elites Like the Administrative State Better than Democracy"
This Audio Mises Wire is generously sponsored by Christopher Condon.
When it comes to energy and the environment, Americans not only get the wrong facts, arguments, and narratives–they get the wrong philosophy. Alex Epstein, who recently published perhaps the most important book of our time, joins Jeff and Bob to explain.
Get Alex's new book Fossil Future: Mises.org/Fossil
A Google engineer is in hot water for claiming the company's chatbot tech had become sentient. Meanwhile, Jerome Powell presumes to fight inflation technocratically, by raising the Fed Funds rate nearly a full percentage point. So is the engineer correct? Do technology and machine learning portend an end to scarcity and a solution to monetary policy? Jeff and Bob discuss.
Google Engineer Blake Lemoine's interview with LaMDA: Mises.org/HAP348-LaMDA Charles Haywood's on why AI is overblown: Mises.org/348-Haywood Read 'Yes, a Planned Economy Can Actually Work' at Jacobin: Mises.org/348-Jacobin Read Bureaucracy by Mises: Mises.org/Bureaucracy Bob's article on the Socialist Calculation Problem debate: Mises.org/348-Murphy
Colonialism, imperialism, unfair trade, and more. African politicians look everywhere for the causes of Africa's poverty and chaos but in the mirror.
Original Article: "African Politicians Must Stop Blaming Others for Africa's Economic Woes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Our friend Saif, known to the world as Dr. Saifedean Ammous, joins Jeff and Bob Murphy for a demolition of the pseudo-economics behind Green energy.
Read Saif's The Fiat Standard: Mises.org/FiatStandard Saif's paper 'Energy Systems and the Knowledge Problem: The Case of Biofuels': Mises.org/SaifEnergy
The standard line with progressives is that unless government controls medical care, prices will skyrocket. But what if the free market model costs less than government-directed care?
Original Article: "How Fully Private, No-Insurance Hospitals Help the Common Man"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Biden administration in its desire to "save" the planet from climate change has decided to destroy one of this country's most productive and important industries in the process, putting the US economy itself in jeopardy.
Original Article: "Destroying America to "Save" It? Biden's Nihilistic Destruction of the Energy Industry"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The standard bureaucratic line after a program's failure is that the government agents didn't have enough authority or resources to handle the job. Neither explains the failure of Trump's Paycheck Protection Program.
Original Article: "No, More Bureaucracy Would NOT Have Saved Trump's Paycheck Protection Program"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The agriculture industry is largely running as a planned economy. When the power to make decisions is delegated to bureaucrats rather than to those impacted, mismanagement is a given.
Original Article: "How Agriculture Bureaucrats Are Manipulating Food Prices—and Our Diets"
This Audio Mises Wire is generously sponsored by Christopher Condon.
States continue to seek new ways to make the financial system an “economic chokepoint” enabling the state to crack down on specific organizations, individuals, or activities.
Original Article: "The West's Russia Sanctions Show Why States Want to Weaponize the Financial System"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While government officials and politicians denounce high drug prices, they have created monopoly privileges for drug firms, thus ensuring higher-than-competitive prices for pharmaceuticals.
Original Article: "Patents, Legal Monopolies, and the High Prices for Drugs"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
With the approval of Biden's infrastructure bill, it now turns out the US government is even in control of a "kill switch" that could disable your car if you are deemed "impaired."
Original Article: "Elections Now Decide Who Can Operate Your Car"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
In a remarkable pivot, the White House now says, “We’ve not been pro-lockdown—most of the lockdowns actually happened under the previous President.”
Original Article: "The White House Now Says It Never Really Wanted Lockdowns"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Like new money, knowledge spreads unevenly through the economy in a kind of Cantillon effect. Here's what that means for different market actors
Original Article: "Why Intellectual Property Isn't Necessary to Reward Innovation"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Mayor Lori Lightfoot chided businesses for not doing enough to protect themselves from theft. But Chicago's government does a lot to prevent private businesses from doing this.
Original Article: "What Chicago's Mayor Gets Wrong about Private Security"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
With new mask and vaccine mandates, New York's Governor Kathy Hochul has reaffirmed the state’s status as the nation’s most zealous practitioner of covid cultism.
Original Article: "New York State Has Imposed New Covid Rituals. This Time There's Some Resistance."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Regulatory powers have enabled government agencies to push vaccine mandates in new ways. But the welfare state also offers many ways to "encourage" compliance from nearly everyone.
Original Article: "They'll Use the Welfare State to Get Compliance on Vaccine Mandates"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
A lot of economic policy is based on "economics" which makes assumptions that have very little to do with actual reality.
Original Article: "Nirvana Economics: How Treating the Real World like an Imaginary Ideal World Leads to Trouble"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
It is clear that there are situations in which the unions’ interests diverge from the public’s interest in transparency and good policing. But the unions’ interests also often diverge from the interests of individual members.
Original Article: "Why Don’t Police Unions Protect Whistleblowers?"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
HL Mencken is the writer you need to read immediately. He was savagely brilliant, caustic, and witty, but also prolific across genres in ways almost unthinkable of journalists today. His skill with the English language was virtually unmatched in the 20th century, as was his deep and abiding contempt for utopian statism in any form. And his broadsides against two world wars were incredibly courageous at the time.
Our great friend Jim Bovard joins the show to discuss Mencken's work, his complicated elitism, his Old Right politics and social views, and the magnificent pleasure of reading this master.
"H.L. Mencken, The Joyous Libertarian" by Murray N. Rothbard: Mises.org/Joyous
Mencken Wikiquote: Mises.org/HLQ
Garet Garrett was among the most important figures from the literary, political, and laissez-faire economic traditions of the Old Right, but his name is hardly known today. In 1938 he penned "The Revolution Was," a remarkable essay about FDR's revolutionary New Deal and, more importantly, how it was accomplished. FDR's revolution had already happened, though few Americans understood it or grasped what the triumph of an administrative state would mean. The New Deal was a revolution "with the form," because the old trappings of constitutionalism and separation of powers remained intact. What had changed was the substance of American government, engineered through skillful propaganda and marked by radically increased control over the nation's capital and businesses. This essay is entirely relevant to our current politics, and explains with tremendous clarity the the ongoing revolution happening under our noses today. Ryan McMaken joins Jeff Deist for a deep exploration of the essay and its lessons for us today.
You owe it to yourself to read this masterpiece.
Read Garet Garrett's prescient essay: Mises.org/GaretWas
China's industrial policy has been marked by many failures and few successes. Rather, China's real growth has been fueled by the regime's limited turn to markets.
Original Article: "Industrial Policy—a.k.a. Central Planning—Won't Make America Great"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The state is making people dependent on it, both as means for control and as an outcome of many policies intended to provide relief.
Original Article: "The Postpandemic World Is One of Widespread Dependence on Government"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Some think that beer's history of regulation begins with hops, but beer has been hemmed in by government red tape for much longer.
Original Article: "Beer: A Short and Bitter History of Regulation"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Abstract: China is currently the world’s largest installer of wind power. However, with twice the installed wind capacity compared to the United States in 2015, the Chinese produce less power. The question is: Why is this the case? This article shows that Chinese grid connectivity is low, Chinese firms have few international patents, and that export is low even though production capacity far exceeds domestic production needs. Using the tools of Austrian economics, China’s wind power development from 1980 to 2016 is documented and analyzed from three angles: (a) planning and knowledge problems, (b) unproductive entrepreneurship, and (c) bureaucracy and government policy. From a theoretical standpoint, both a planning problem and an entrepreneurial problem are evident where governmental policies create misallocation of resources and a hampering of technological development.
JEL Classification: P21, O32, Q55, Q58, B53
Jonas Grafström (jonas.grafstrom@ratio.se) is a researcher at the Ratio Institute and an assistant professor at Luleå University of Technology. He is also a visiting fellow at the Oxford Institute for Energy Studies. He is thankful for comments by John Taylor, Nils Karlson, and Christopher Coyne. All errors are solely upon the author.
INTRODUCTION The headline of a 1953 article by Peter Wiles in Foreign Affairs had stated that “The Soviet Economy Outpaces the West.” Based on the official Soviet statistics, the GDP growth numbers suggested that the Soviet Union could plausibly outgrow the West, but as later revealed, the numbers did not match reality (Levy and Peart 2011). What Peter Wiles and numerous scholars at the time did not see were the cracks in the Soviet economic system (Boettke 2001, 2002a; Huerta de Soto [1992] 2010). The Soviet Union is gone; the slightly younger, seventy-year-old People’s Republic of China is still (to a large extentAs seen in Boettke’s (2001) Calculation and Coordination, the degree of planning in the planned economy of the Soviet Union varied over the decades, and this is also the case for China, which tolerates different degrees of capitalism in different parts of its economic system. It has also been argued that the Soviet economy was never a planned economy but rather a form of military-state capitalist system (Polanyi 1957). A similar argument can be made about the Chinese economy. In the Chinese case presented in this paper, it is not a case of pure socialism but rather there are plans, government orders, and an environment in which traditional entrepreneurs find it difficult to thrive.) a planned economy that by some accounts appears to be on the verge of outpacing the West. However, cracks can be seen in the Chinese economy, as illustrated by its wind power industry, which is analyzed in this paper.E.g., the problematic housing market and a fast-increasing debt (see Liu 2018; Curran 2018).
There are many problems in the Chinese wind power expansion effort (see e.g., Zeng et al. 2015; Karltorp, Guo, and Sandén 2017). The installed wind capacity in China has long been twice that of the United States (IRENA 2018). However, despite having twice the installed capacity, China produces less power than the US. Grid connectivity is low, Chinese firms have few international patents, and exports are low even though production capacity far exceeds domestic needs (Cass 2009; Zhe 2011; Xingang et al. 2012; Sun et al. 2015; Zeng et al. 2015; Karltorp, Guo, and Sandén 2017; Lam, Branstetter, and Azevedo 2017; Zhang et al. 2017).
Despite robust government support, wind power in China is obstructed by various barriers like quality deficiencies, low operational efficiency, and two-year permit delays from the central government for grid construction (Junfeng et al., 2002; Han et al. 2009; Xingang et al. 2012; Luo et al. 2016; Zhao, Chang, and Chen 2016; Liao 2016; Sahu 2017). These issues have hampered China’s wind power energy output and exports (Zhang et al. 2015; Sun et al. 2015).
Boettke (2002a) found that the failure to predict the fall of the Soviet Union was due to three reasons: (1) a disregard among economists for evidence other than measurable statistics, (2) the elegance of the formal structure of central planning and the balancing of inputs and outputs, and (3) the preoccupation with aggregate measures of economic growth as opposed to detailed microeconomic analysis of the industrial structure. All, but especially the third reason, are an appropriate approach when investigating Chinese economic shortcomings.
Taking inspiration from Boettke’s insight above, the purpose of this article is to synthesize the literature that has documented problems in Chinese wind power development and theoretically explain these problems. Identifying problems should be useful for policymakers in other countries that are considering a transition to large-scale renewable energy utilization. In a broader sense, the paper adds to the discussion of the sustainability of Chinese economic expansion in the long term.
A reader who is familiar with the Chinese wind energy sector and has read influential works, such as Joanna Lewis’s 2012 book Green Innovation in China: China’s Wind Power Industry and the Global Transition to a Low-Carbon Economy, would probably perceive that on an aggregate level everything is all right. In Lewis’s book, as well as in most academic literature, the economic problems of Chinese energy are alluded to but never assembled and analyzed. In this article a less optimistic view of the state of China’s wind power development is presented.
It should be noted that the United States and other countries also have different government interventions in the wind power market and that negative effects have been documented. For example, US policies in the 1980s caused problems similar to the ones observed in China (Keller and Negoita 2013). Later the United States policies focused on promoting research and development (R&D) (Wiser and Millstein 2020). The German Energiewende (energy transition) and the Spanish solar bubble would be good cases for another paper, but this paper will focus on China since it is the largest producer at the moment and will probably be for some time to come.
The findings will be presented and followed by an analysis based on theoretical works by scholars of the Austrian school of economics which is utilized in two ways: firstly, in terms of its theoretical contributions regarding the role of entrepreneurship and its utilization of price signals,A reviewer brought up merit order (describes the lowering of power prices at the electricity exchange due to an increased supply of renewable energies) effects and cannibalizing effects (loss in sales caused by a company’s introduction of a new product) that might affect firms’ behavior when it comes to adding new capacity. In a stable demand market this is an issue; however, the Chinese electricity consumption increased several hundred percent during the studied period and the renewable energy portion was rather small compared to the absolute growth in other energy sources. and, secondly, in terms of the planning debate, the use of knowledge in society, and the role of the market. Using Austrian economic theory as a starting point, it is found that both a planning problem and an entrepreneurial problem exist where governmental policies create misallocation of resources and a hampering of technological development.
The article is organized as follows: First, the Austrian theoretical background for the analysis of the wind power sector will be provided. Then, the historical context for China’s wind power development will be described. Finally, the theoretical framework will be utilized to analyze problems in Chinese wind power development.
THE LIMITATIONS OF PLANNING AND THE ENTREPRENEURIAL PROCESS A cartoon in the Soviet satirical journal Krokodil that was published in 1952 showcases the failure of the Soviet economic system with a worker and a bureaucrat depicted under an enormous two thousand–kilo nail. The worker asked who needed such a big nail and the bureaucrat answered: “the month’s plan fulfilled” (Nove 1986, 94). The Soviet Union and its planned economy ended at the age of seventy-four years in 1991, which was a surprise for some, but not to a student of Hayek’s (1937, 1945), Mises’s (1920, 1949, n.d.) and Weber’s (1922) contributions to the great planning debate in the 1920s through to the 1940s (see also Lavoie 1985a and 1985b).
Let us contrast the outcome of a market with that of a centrally planned arrangement. In a market, profit is a powerful signal. Profit informs producers that consumers value that use of those scarce resources as compared to other alternatives (in the case of profits) or that they do not value that use (in the case of losses). Before a corrective process moves toward even an approximate equilibrium, changes in the market (individual preferences, the endowments of resources, and available technology) will distort any plan and make it irrelevant (Mises [1929] 2011; Kirzner 1982, 1999).
Hayek ([1968] 2002) remarked that an equilibrium was too much to hope for, since an equilibrium would presume that all facts are known and that the process of competition has thus ended, rather than that there could be temporary order. Several studies highlight how state planning, with the best of intentions, often fails (see Hayek [1935] 1956; and for a modern application to development and aid, see Boettke 1994; Leeson 2008; Coyne and Ryan 2009; Williamson 2010; Coyne 2013). The case against regulation and interventions in the market (even by well-meaning planners), is based on the insight that the market will never be close to an equilibrium state since there is an ongoing corrective process.
Even though the functioning of the bureaucracy has been more fleshed out by public choice scholars, the Austrians have made contributions to our understanding of how a state bureaucracy works. For example, Niskanen (1994) pointed to the fact that Mises (1944) is often credited as one of the first scholars to approach the problems of bureaucracy from an economic point of view.
Niskanen’s and Mises’s views of bureaucracy differ in significant ways. In Niskanen’s view the bureaucracy is the result of the inability of the market to supply certain goods or services. A state bureaucracy compensates for the deficiencies of the market. According to Mises, bureaucracy appears because of government hindrances of the market process, but bureaucracy also makes economic calculation impossible (Carnis 2009). The Misesian view is more productive for the understanding of the Chinese case where the bureaucratic nature of the Chinese economy is a consequence of human action and design.
In Bureaucracy Mises contrasts different forms of economic organization and shows what happens when there is no profit motive. Mises argues that “[b]ureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market…. Bureaucratic management is management of affairs which cannot be checked by economic calculation” (1944, 47–48). If you do not have profits and losses as guide you must follow rigid rule systems. These rule systems will not allow for flexibility and will rather force the bureaucrat to compliance, whether the result make sense or not.
Constant feedback generates socially desirable outcomes without a central coordinator. Knowledge of the optimal use of scarce resources is not given ex ante but instead must be discovered through the process of individual choice (Mises 1920, 1949, n.d.; Hayek 1945). Hayek ([1968] 2002) and Buchanan (1982) also emphasized that market “data” emerge after people interact with each other. Before the participants enter the process, they do not know what their choices will be. Hence, some economics knowledge cannot be gathered by regulators and planers before the interactions take place.
A prerequisite for successful entrepreneurial action is guidance by relative price signals and the attraction of pure profit (which requires calculation through profit and loss accounting). The price system economizes information which economic decision-makers must process. A market system produces social intelligence that no one planner or group of planners could approximate (Boettke 2002b). In the setting of a functioning market economy, the entrepreneur will try to make a monetary profit, which, as described by Smith (1776), enriches the other participants in the economy. Without these important indicators, the economic actor is lost (Mises 1949). These indicators are the product of specific institutional configurations. Absent the institutional context of a private property market society, economic actors will still strive to achieve their goals as best they can (North 1990).
There are several views on what entrepreneurship constitutes. Kirzner’s (1973) focuses on entrepreneurial alertness and the discovery of opportunities, where the entrepreneur is an actor responsible for creating and expanding businesses. The entrepreneurial process reveals previous errors, adjusts these errors, and thus improves the economy (Kirzner 1997).
Lavoie (1985a) extended Kirzner’s work regarding the entrepreneurial market process and revisited the socialist calculation debate and the problems of centralized economic planning (1985a). In Lavoie (1985b) the knowledge problem critique of socialist central planning is extended to include even modest attempts at national economic planning, such as industrial policy, where attempts at planning did not function well.
The Schumpeterian view of the entrepreneur emphasizes the entrepreneur as a creator of new combinations of knowledge (Klein 2008). In Schumpeter’s work ideas about an economy’s creative response to changes in external conditions are highlighted (Schumpeter 1934, 1942, 1947).There are of course more views on entrepreneurship (see, e.g., Leeson and Boettke 2009). Entrepreneurs are present in all societies. Under the existing institutions of any society the entrepreneurs will act to better their position, e.g., money, promotions, or future advancement (Boettke and Coyne 2009; Redford 2020). Schumpeter’s entrepreneur is essentially disruptive, destroying the preexisting state of equilibrium, while Kirzner’s entrepreneur spots opportunities in a disequilibrium and moves the economy toward an equilibrium. In Kirzner (1999) it is argued that the two types of entrepreneurs are not that different, rather they complement each other.
The entrepreneurial process can be contrasted with the social discoordination and lack of economic calculation which necessarily follow any institutional coercion against entrepreneurial freedom. The contrast is an administrative—or centrally planned economy. In a centrally planned economy resources are allocated to fulfil production goals (Mises [1929] 2011; Hayek 1945). The production decisions are set by an administrator with limited information and its own preferences rather than consumer demand. Plans distort the discovery process that an entrepreneur typically provides. Without price as a market signal the planner must rely on alternative measures or disregard signals all together (Huerta de Soto [1992] 2010). Entrepreneurship produces the information necessary for economic calculation. It is impossible to use a theoretical foundation in order to coordinate society by systematically imposing coercive measures.
Institutions create rules which incentivize certain behaviors by changing the payoffs associated with different behaviors. Institutions hence influence the entrepreneur’s actions and are instrumental to economic prosperity (e.g., Boettke and Coyne 2003, 2009). The factors that have been emphasized, by scholars adherent to the Austrian school, are: 1) well-defined and enforceable private property rights, 2) the rule of law, and 3) a moral code of behavior that legitimizes and recognizes these traditions. For example, Hayek (1937, 1945, 1948) and Mises’s (1920, 1949, n.d.) property rights argument revolved around the information problem. Without private property, exchange is distorted. Without market competition, the discovery process is hampered (Hayek [1968] 2002).
Baumol (1990) made the important distinction between productive and unproductive entrepreneurship. Entrepreneurs are under some institutional settings incentivized to destroy societal economic value or perform unproductive entrepreneurship (Baumol 1996). Baumol emphasized that whether entrepreneurship is value adding to society or oriented toward rent seeking or organized crime depends on the relative payoffs.
THE CONTEXT—CHINA’S HISTORICAL WIND POWER DEVELOPMENT There is an increasing interest in the transformation of the Chinese energy system, whose cumulative wind power capacity increase is the largest in the world (Zeng et al. 2015; Lam, Branstetter, and Azevedo 2017; Karltorp, Guo, and Sandén 2017; Sahu 2017). Global installed capacity in 2018 was 597 gigawatts (WWEA 2019). Globally, 52.5 gigawatts were added in 2018, constituting an annual growth rate of 9.1 percent, of which China added 21 gigawatts. The Chinese accumulated wind power capacity was 217 gigawatts in 2018 (WWEA 2019).
China’s early period of wind power expansion was slow. In the 1970s, wind power projects were limited to small off-grid projects in remote areas (Liu, Gan, and Zhang 2002; Xu et al. 2010). Grid-connected wind power in China was achieved in 1985, when four 55-kilowatt Vestas turbines were imported from Denmark (Zhengming et al. [2006]). International agencies such as the World Bank, the United Nations Environment Programme (UNEP), and Asian Development Bank facilitated China’s early buildup of renewable energy (Liu, Gan, and Zhang 2002).
By the end of 2004, accumulated installed wind capacity was 769 megawatts, ranking tenth in the world (Zhang, Andrews-Speed, and Zhao 2013). During China’s “Eleventh Five-Year Plan” period (2006–10), installed capacity doubled for five consecutive years (Sun et al. 2015). Around 2012 China bypassed the USA as the country with most installed capacity (see figure 1). The installed capacity of a power system represents the maximum capacity that the system can produce under ideal conditions. A power plant with a one-megawatt installed capacity can, hence, produce at maximum one megawatt at any instance of time. Electricity generation, on the other hand, describes the amount of electricity that actually is produced during a specific period and is normally measured in kilowatt hours or megawatt hours.
Figure 1. Installed wind power capacity in the US and China, 2000–16
Source: Data from IRENA (2018). However, when it comes to electricity generation the United States was for a long time significantly higher, even though the Chinese installed capacity was almost double—the electricity output was almost equal (See figure 2).
Figure 2. Electricity generation from wind power in the US and China, 2000–17
Source: Data from IRENA (2018). PROBLEMS AND CONSEQUENCES Several problems in Chinese wind power development have been identified and these downsides will be highlighted and discussed from a theoretical perspective. This synthesis of those problems is organized as follows: planning problems and knowledge problems; unproductive entrepreneurship; and bureaucracy and government policy.
Planning Failures and Knowledge Problems
The Chinese wind power industry has faced institutional, managerial, technological, and cultural obstacles. When analyzing undesirable policy results, an economist usually resolves to examine the incentive structure. So, what explains China’s results? The short answer is that the results are in line with the incentives found in an economy where planning and bureaucracy dominate (see e.g., Mises 1944; Nove 1982; and Boettke 2001, 2002a). The existing incentives limit traditional entrepreneurship and have replaced it with institutional entrepreneurship, in which entrepreneurs must navigate the bureaucracy and engage in rent seeking (Mises 1944; Li, Feng, and Jiang, 2006; Huerta de Soto [1992] 2010).
Many of the problems in China’s wind power development reside in political decision--making (Zhang, Andrews-Speed, and Zhao 2013; Huenteleret al. 2018). Governmental policies promoting installed capacity rather than actual utilization of wind resources have been a prevalent problem (Pengfei 2008; Li et al. 2018). For example, Chinese firms were mandated to construct a certain amount of wind power generation capacity. Given the requirement at hand, bureaucrats at state-owned enterprises constructed a specific generation capacity—without ensuring that electricity was actually generated.
The need to construct a certain amount of wind power leads to the sacrifice of quality as a selling point and to an intense price competition that hampers technological improvement and quality (Hayashi et al. 2018). Theoretically, competition should improve the quality of products. However, because quantity—not quality—is the factor for businesses to maximize and actors are spending someone else’s money on someone else, an equilibrium of lower prices and increase sales through quality reductions can be expected. In the case of Chinese wind power, the result of this quality reduction is that the equipment cannot be integrated in a large-scale grid (Xingang et al. 2012; Luo et al. 2016).
Furthermore, foreign firms exited the market driven by quantity competition and a prerequisite in the Power Purchase agreements which stipulated that there should be 50 percent local content (later 70 percent) in the wind turbines. During the eleventh five-year plan (2006–10), plans were made to advance the domestic wind power system and its related components (Feng et al. 2015). While approximately 95 percent of the turbines installed in China until year 2000 were imported, the following decades saw a significant drop. In 2005, more than 70 percent of China’s wind power equipment was imported; in 2008, only 28 percent; and by the end of 2013, domestic manufacturing levels had reached 94 percent (Junfeng, Pengfei, and Hu 2010; Liu et al. 2015; Zhang et al. 2015). In 2012 there were only two international firms (Gamesa and Vestas) among the top ten parts manufacturers in China, accounting for 3.8 percent and 3.2 percent of production, respectively (Feng et al. 2015).
The domestic production goal set in the eleventh five-year plan was fulfilled but created problems. Domestic production overcapacity caused further downward price pressure: in 2011, the manufacturing capacity was 30 gigawatts, but the annual demand was only 18 gigawatts (Li et al. 2012; Zhang et al. 2015). In 2013 the domestic new installed capacity was 16 gigawatts while only 0.7 gigawatts were exported, i.e., around 4 percent of domestic capacity (Liu et al. 2015).
The markets for advanced components such as bearings, converters and control systems were still dominated by international companies. The absence of domestic production capability generated a sizable supply–demand gap for core parts needed in turbines with a capacity exceeding one megawatt, and placed manufacturers at a technology import-absorption stage without key technologies of their own (Xingang et al. 2012). Before 2013 domestic Chinese turbine manufacturers were falling behind noticeably compared to international competitors, in cases where the Chinese companies had not mastered the construction of larger power plants (Liu et al. 2015).
Adam Smith, Ludwig von Mises, and F. A. Hayek all highlighted property rights as the roots of economic development. Property rights are lacking when the state mandates firms to construct unprofitable power plants. Smith’s (1776) argument regarding property rights revolved around the incentives they created. Where property is privately owned, agents are residual claimants on the uses of their property and would not build power plants never meant to be operated. A state employee in a state-run firm who tries to follow state production requirements does not have the same profit motive.
The government policies that intervened in property rights, created a quality–price downward spiral which drew foreign firms out of the market since they could not compete at the low price levels (Klagge et al. 2012). Hence, an important source of know-how and technology transference was cut off. Paraphrasing Kirzner’s (1985) observation; if one (China) only observes how many new plants are constructed and the generating capacity, one might miss “lightbulb moments” that could have made every wind plant more efficient. In China the single-minded focus on expansion of a good within a planned economy created a path toward a low quality equilibrium.
Unproductive Entrepreneurship
As Baumol (1990) pointed out, the entrepreneur can engage in productive and unproductive activities. Subsidies, price interventions and capacity goals have made the productive role of the classical entrepreneur absent under these Chinese institutional settings. In a market economy, it is illogical to construct a wind power plant absent grid connection. However, when the goal is to build as many power plants as possible, with the state and not the entrepreneur owning the company, the cheapest way to achieve the government’s planned goal is to buy inferior products for inferior locations. Hence, as stated by Boettke and Coyne (2009), the institutions controlling the entrepreneur’s behavior are instrumental to economic prosperity. Policies can affect the outcome, but even good policy can create unintended consequences under bad institutions (Rothbard [1970] 1977; Coyne and Moberg 2015; Evans 2016).
Wind power curtailment mainly refers to when a wind turbine must be shut down because of issues of safety, technology, and grid access management, and for other reasons. China has experienced extensive wind power curtailment, leading to a low power plant utilization rate (Sun et al. 2015; Fan et al. 2015; Zeng et al. 2015; Luo et al. 2016). The curtailment between the years 2010 and 2013 was estimated to be 3.9, 10, 20.8, and 16.2 terawatt hours, respectively (Luo et al. 2016). The rapid installation of new wind turbine capacity without adequate maintenance and management technologies compromised operation safety (Feng et al. 2015). From a technological perspective, Lin et al. (2016) identified four reasons for the operating failures: lack of core technologies; inferior quality due to price competition; design standards and wind farm climate differences; and exterior factors, such as wind farm construction, power grids, and maintenance.
In 2007 the average full-load hours of Chinese wind turbines was 1,787, which was considerably lower than in Western countries such as the United Kingdom (2,628 hours), Australia (2,500 hours), and the United States (2,300 hours). In China, some turbines designed for two thousand full-load hours are currently in operation for only three hundred hours a year (Sahu 2017). The utilization fall due to curtailment was up to 15 percent between 2011 and 2015, rendering sizeable financial costs, equivalent to about half of the wind farms’ revenues (Luo et al. 2016; Karltorp, Guo, and Sandén 2017). Bad wind turbine performance, such as when turbines without low-voltage capability ride through disconnect from the power system, creates potential safety risks in the power system.The capability of electric generators to stay connected if lower electric network voltage occurs for a short period. Without this capability a chain reaction might start where more generators are disconnected. Disconnections lead to secondary shocks, which in turn can spill over into other parts of the system (Sahu 2017; Zeng et al. 2015).
The coerced focus on constructing power plants also led to some questionable location decisions. China’s wind resource–rich regions are largely situated in the northern nonpopulated areas at the end of the power grid, where the grid structure is unsuitable for large-scale wind power (Han et al. 2009). Energy demand is concentrated in the south and around the coast, where manufacturing and a large portion of the population are situated. Placing a wind power plant over three thousand kilometers away from the main demand would in any system lead to significant power losses. Grid connection capacity has in some years lagged installed capacity by more than 30 percent. The result has been that power generation has exceeded the grid’s capacity, leading to abandonment and grid instability (Zhe 2011; Sun et al. 2015; Fan et al. 2015; Zeng et al. 2015; Zhang et al. 2017).Grid expansion is costly for power companies, and upgrading the power grid can be even more costly. Even though the concession project policies state that companies shall construct transmission lines to the wind farms, there are potential loopholes regarding when the construction has to be finished or the quality of the transmission line (Han et al. 2009).
Another field negatively affected by wind power policy is technological development. Chinese inventors have been granted few international but numerous domestic patents. Beginning around the year 2000, granted domestic patents flourished. According to Lei et al. (2013) and Li (2012), governmental programs aimed at increasing the number of patents explain the surge. Chinese companies were incentivized to seek local patents. Gosens and Lu (2013, 2014) also noticed that the number of granted patents were an evaluation criterion for many researchers and administrators. Promotions depended on goal fulfilment, and a certain number of patents was a government goal (Li 2012; Lam et al. 2017).The Chinese legal system also had problems with distinguishing real innovations from false innovations. Hence, there was a large number of “junk” patents (Lam, Branstetter, and Azevedo 2017).
In terms of wind power innovation, however, China had limited international success (Lam, Branstetter, and Azevedo 2017). Chinese wind turbine manufacturers secured few international patents, and several major manufacturers were unable to patent their technologies. For example, granted patent applications to the European Patent Office (EPO) originating in China were low (between 1980 and 2014). Even if a firm do not intend to produce on a certain market it is beneficial to patent breakthroughs to license the usage to other firms. Home country bias in patenting should be expected but it is remarkable that so many big industrial manufacturing firms that are engaged in a fast-developing technology do not patent.
The two major Chinese firms that tried to patent—Envision and XEMC—lodged thirty-eight and nineteen EPO applications, respectively. The two firms were granted two and six patents. The firm Sinovel submitted twenty-one patent applications to the EPO; of these all but one was either subsequently withdrawn by Sinovel or rejected by the EPO. At the EPO the average application has a fifty percent success rate (see Grafström, 2017). Among the top ten Chinese wind power manufacturing firms, seven obtained no EPO patents, and five of them have no recorded EPO applications. The success and application rates were similar at the USPTO.
Only observing a single patent office (such as a country’s home office) is not an optimal method for comparing the countries with the most patents in the wind sector, since the local offices can have criteria with differing degrees of strictness. In figure 3 the distribution of wind power patents among these countries when only considering patents approved at one patent office is displayed (see the appendix for each country’s total patents):
Figure 3. Proportion of patents awarded by one office or more
Source: Data from OECD.Stat (Patents - Technology Development; accessed [10 05, 2018]), [https://stats.oecd.org/]. The aggregate Chinese patent approval was high around 2006, but only if data from one patent office is considered. If the criteria are changed to require that the patent be approved by more than one office (an indicator of a higher-quality patent), as in figure 4, then the Chinese patents are absent.
Figure 4. Proportion of patents awarded by four or more patent offices
Source: Data from OECD.Stat (Patents Technology Development; accessed [10 05, 2018]), [https://stats.oecd.org/]. It is likely that it was easier to obtain a patent in China in the early 2000s and that Chinese patents were thus of lower quality, making a side-by-side comparison unproductive. Before 2009 Chinese patent examiners limited their search reports to domestic prior art, thus not considering global novelty (Cass 2009).
From a theoretical standpoint, both a planning problem and an entrepreneurial problem are evident. Policies (as, for example, requiring patents to be secured) trying to direct production and investments is often counterproductive. Drawing on insights from Kirzner (1982), it is unsurprising that attempts at technological development by direct regulation and interventions are based on erroneous information that obstructs or distorts the market’s own complicated discovery process (Rothbard [1970] 1977; Huerta de Soto [1992] 2010). The entrepreneurial process incentivizes entrepreneurs to reveal previous errors and to adjust behavior to correct those errors (Kirzner 1997). When patenting becomes a numbers game (paired with a demand for as low a price as possible, with a disregard for quality), growth can be expected in what is counted—in this case patents.
The Schumpeterian creative destruction process also becomes a dangerous activity in a planned economy. There is a risk that the process will disrupt the plan, and no resources can be allocated to a previously unknown venture. The destruction can also threaten the power of those who might prefer the status quo. Hence, whereas the entrepreneur would struggle against competition in a market economy, he will face a political power struggle in a planned economy.
Following Hayek’s “The Use of Knowledge in Society” (1945) it is evident that any central plan will face obstacles. A centrally planned wind power program in many instances will not match the efficiency of the market. The incentives, knowledge, and imagination of a single planner are only a small fraction of the total sum of knowledge in society.
Bureaucracy and Government Policy
As Mises (1983, 53) observed, the allocation of resources by bureaucracy is made through obedience to rules. When making decisions based on rules, without price signals, consumer satisfaction or production toward a low cost cannot be achieved. The system of profit and loss plays little role in the bureaucratic machinery, and to the extent that it does play a role, the highest value is placed on the bureaucratic administration’s rule-following ability. Hence, we can expect a t neglect of entrepreneurship and prices and costs where rules and regulations determine the product to be supplied, its characteristics, its price, and the method of production (Carnis 2009).
The Chinese wind power sector was under the studied period (1980–2016) profoundly regulated by administrative practices and planning. Some policies were counterproductive due to several competing/uncoordinated governmental entities (Lema and Ruby 2007). For example, Liao (2016) examined seventy-two wind energy policies issued between 1995–2014 and found more than twenty actors who independently or jointly issued policies. The issuers of policy were predominantly agencies that controlled key economic and administrative resources—not the one that oversaw wind power. The governmental agencies could not tap into the localized knowledge or predict the direction of a fast-developing technology. Hence, the agencies produced policies that hindered technological development.
In 1994, one of China’s earliest wind power–specific policies was introduced. The Ministry of Electric Power (MOEP) decided that installed wind power capacity should increase a hundredfold, from about ten megawatts in 1993 to one thousand megawatts in 2000. The government’s target was not reached, stopping at 350 megawatts. To support the government production target, power companies were obliged to buy (or produce) electricity from wind power, and they introduced a price guarantee of 15 percent above construction cost to developers (Lema and Ruby 2007). The policy measures failed, since they did not achieve legal status, meaning that noncompliance was not penalized. Noncompliance was extensive, which was not surprising considering that wind energy was significantly more expensive than coal power (Lema and Ruby 2007; Karltorp, Guo, and Sandén 2017).
Another policy-related example is revealed in the wind farm approval process. Government contract projects appeared in the early 1980s, while the first concession project was carried out in 2003 after a new concession model was established (Han et al. 2009). Approval of contract projects worked as follows: wind power companies presented large (over fifty megawatts) project proposals to the National Development and Reform Commission (NDRC) and smaller (under fifty megawatts) proposals to local administrations such as the Inner Mongolia Development and Reform Commission (IMDRC), whose decisions did not require approval from the NDRC.
The division of the approval process by project size in 2003 was intended to reduce bureaucratic delays. Previously every new project required approval by the NDRC, making the application process for wind power projects complex and time consuming. Since provincial governments could now approve projects below fifty megawatts, a substantial number of wind farms became 49.5 megawatts in size. These smaller local installations were not coordinated in terms of the development of grids, rendering grid problems (Lema and Ruby 2007; Zhang, Andrews-Speed, and Zhao 2013; Karltorp, Guo, and Sandén 2017).
The 2003 concession model opened, and to some extent formed, a market—but the new planned organization had weaknesses (Lema and Ruby 2007). The utilities/firms that offered the best price per kilowatt hour won the concessions and consequently the right to construct wind power plants and produce electricity on the concession sites. The winner was guaranteed a fixed price for the first thirty thousand full-load hours (these were power purchase agreements, PPA). After the initial thirty-thousand full-load hours and until the end of the concession period, electricity would be sold at a uniform on-grid price. The concession model had some unintended and in hindsight obvious disadvantages. Some bidders had incentives to intentionally underestimate operating costs to promise a lower price compared to other bidders.
The power companies in China were obligated to have a certain amount of generation capacity from renewable energy sources; the renewable energy portfolio standards were due to the Renewable Energy Law of 2006 (Gosens and Lu 2013). The combination of the renewable portfolio standard and the concession program initiated a steep fall in the prices of the winning bids (between 30 and 50 percent), since the firms were obligated to have the renewable output. The companies made unprofitable bids using the cash flow from other business areas to sustain unprofitable projects, but the governmental goals were fulfilled. Another price distortion came from the Chinese government’s attempt to support construction of power plants by introducing a price guarantee of 15 percent above construction cost, which incentivized developers to construct otherwise unprofitable plants (Lema and Ruby 2007).
Another problem can be observed in the bureaucratic nature of a Chinese renewable energy price subsidy scheme which caused financial constraint problems in several sectors (Liu et al. 2015; Karltorp, Guo, and Sandén 2017). The electricity end users were obliged to pay a surcharge for renewable electricity. The payment went into a fund under the Ministry of Finance, which redistributed the money to the provincial finance bureaus. The provincial finance bureaus distributed the money to local utility companies based on their renewable energy production. The companies had to wait two to three years for the payments, which was problematic considering that the subsidies were up to half the selling price of electricity (Sahu 2017). The firms in turn had problems paying the turbine manufacturers, who in turn could not pay the component providers.
It is problematic that pricing for both wholesale and retail power remains under the control of the central government, since the central government has failed to deliver incentives for flexibility for generators and end users. The influence of provincial governments over the power system impedes interprovincial electricity trading (Pollitt et al. 2017). For example, local governments have repeatedly intervened in direct electricity trades, reducing energy prices to stimulate their local economies, even though that is not beneficial for the power system (Zhang, Andrews-Speed, and Li 2018).
The application of administrative rather than market mechanisms has been a major hurdle to a well-functioning Chinese energy system (Depuy 2015). Hence, without proper exchange no proper market prices will materialize. As noted by, for example, Mises (1949), price signals direct the entrepreneurs. Without these important indicators, the economic actor is lost. Hayek (1937, 1945) building on Mises, described the information-carrying capacity of market prices, which reveal value and the relative scarcity of resources for consumers and producers.
The problems that have been revealed here should come as no surprise since the Chinese political actors do not operate on a market, but rather in a planned economy with traces of a market. In a market economy, political actions (that are market compatible) can moderately distort market outcomes without modifying the modus operandi of the market (Mises 1944). In contrast, political actions that are noncompatible with market processes, especially in a nonmarket setting, produce an entangled political economy (Smith, Wagner, and Yandle 2010).
IMPLICATIONS China’s policies and regulations between 1980 and 2016 caused problems for a renewable energy transition situation. There were problems with management, strategies, programs, and policies, which were sorted and separated under numerous departments of the Chinese central and local governments. From an economic theoretical perspective, a a strong market structure would provide practical solutions to some of these challenges.
The findings in this paper have several implications. First, as in the 1920s, the 2020s could possibly see a great planning debate because of the perceived success of China’s state-run five-year plans. In this paper, the wind power industry has been identified as revealing limitations to planning. To pass a comprehensive judgment on the Chinese economy more sectors must be investigated, following Boettke’s insight that aggregates might be misleading and that answers hide at the micro level.
Second, there are applications for the coming global energy system transition. Policymakers should use market incentives or else their countries risk experiencing problems like China’s. The observed Chinese power sector was profoundly regulated by administrative practices. Planning was likely the underlying institutional reason for the challenges that have been described.
Third, policymakers should acknowledge incentive problems. When any government set a command-and-control target for new installed capacity, the state power companies delivered to target. For example, the goal of increasing power plant capacity (with mandatory portfolios) led to construction (i.e., generation capacity) but not necessarily more generation of energy. The incentives in China promoted construction—regardless of whether the construction could be connected to a grid or was economically profitable. When a manager is evaluated based on how well he achieves the planned goal, he will optimize his effort to reach the goal, disregarding downsides such as the fact that the new power plants that will not be connected to a grid.
The findings have a last implication for other countries as a guide for what not to do. A policymaker should assume that they do not have enough information to create a detail-oriented approach to reducing carbon emissions for the whole economy.
A last reflection, going back to Boettke (2002a, 10):
Unfortunately, most individuals in these economies wake up every day and go to work at the wrong job, in a factory that is in the wrong place, to produce the wrong goods. Many of the firms actually contribute “negative value added”, that is, the value of the inputs in the production process is greater than the market value of the output that is produced. This is the legacy of decades of attempted central administration of the economy.
The Chinese economy will probably become older than the Soviet economy managed to, but there should be caution against saying that “[t]he Chinese economy outpaces the West” as in the infamous Foreign Affairs article from 1953.
APPENDIX Table 1. Absolute number of patents registered at one or more patent offices
Rounded to the nearest whole number. Source: Data from OECD.Stat (Patents - Technology Development); accessed [10 05, 2018]), [https://stats.oecd.org/].
Table 2. Absolute number of patents registered at four or more patent offices
Rounded to the nearest whole number. Source: Data from OECD.Stat (Patents - Technology Development); accessed [10 05, 2018]), [https://stats.oecd.org/].
Peter St. Onge explains how government-sector healthcare in Canada is aging, lower-quality, and generally behind the times. After all, in Canada, as everywhere else, you get what you pay for. But when healthcare is controlled by bureaucrats, much of every dollar spent on "healthcare" is really going to pay for something else.
A new world of medical entrepreneurship is growing. Concierge and cash-only practices, walk-in cash clinics, medical tourism, and cost-sharing plans are just a few of the ways free-market approaches are changing the landscape. Our expert speakers will discuss several of these developments, and more.
Recorded in Salem, New Hampshire, on June 17, 2021.
"Primary Care is about access, continuity, and responsibility."
A new world of medical entrepreneurship is growing. Concierge and cash-only practices, walk-in cash clinics, medical tourism, and cost-sharing plans are just a few of the ways free-market approaches are changing the landscape. Our expert speakers will discuss several of these developments, and more.
Recorded in Salem, New Hampshire, on June 17, 2021.
Anyone considering going to the very conservative College of the Ozarks knows what he's getting into. Yet the Biden administration has launched a war on this tiny college in the name of "equality" for transgendered students who have no reason to ever set foot there.
Original Article: "Why Are Progressives Obsessed with the Transgender Policies at the College of the Ozarks?"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The "People over Profits" mantra is once again is being heard in Washington. But this time we're hearing about it from business lobbyists themselves who are now parroting leftwing slogans about "social responsibility."
Original Article: "There's No Conflict Between Profit and 'Social Responsibility'"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Elizabeth Warren has decided that bitcoin mining uses "too much" electricity. This raises an important question: Is Senator Warren qualified to decide on the "correct" amount of electricity usage?
Original Article: "Does Bitcoin Use "Too Much" Electricity?"
Narrated by Jessica Hill.
Some advocates of self-driving cars argue that their adoption would mean that very few people would actually own a vehicle anymore. We'd all just rent rides on self-driving Uber cars. This would be a dream come true for advocates of lockdowns and stay-at-home orders.
Original Article: "The Dystopian Future in Which Almost No One Owns a Car"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Only a bureaucrat would assume that putting a small child in public school is just as effective as keeping the child at home with a parent. Unfortunately for Biden, the research isn’t on his side.
Original Article: "Biden's Family Leave Is Yet Another Attack on the Family"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The political climate that fostered panic and lockdowns a year ago is now changing. Legislatures are turning against governors and the public is no longer hysterical with fear. Politicians aren't sure what to do.
Original Article: "Not Even Gretchen Whitmer Wants More of the CDC's Lockdowns"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Don’t expect Fauci and his supporters to give up on insisting that New York and Michigan are doing "the right thing" while Texas and Florida are embracing "human sacrifice" as a part of a "death cult."
Original Article: "Texas Ended Lockdowns and Mask Mandates. Now Locked-Down States Are Where Covid Is Growing Most"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Unfortunately, the corporate press and public health officials have determined that unilateral rule by executive decree, unimpeded by any conception of individual freedom, is necessary to respond to the coronavirus.
Original Article: "Who's to Blame for Normalizing One-Man Rule?"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Government money printing may goose GDP, but It will do nothing to fix the losses that millions have suffered from covid restrictions and lockdowns.
Original Article: "GDP Hides the Damage from the Covid-19 Lockdowns"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Josiah Neeley is the Texas Director and Resident Senior Fellow in Energy for the R Street Institute. He has a lively discussion, pushing back on some of Bob’s previously articulated points regarding the recent Texas freeze and blackouts.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewJosiah’s article on the Texas freeze.Bob’s article on the Texas freeze. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Rob Bradley is an expert in the history of US energy markets. He explains the role of Sam Insull (co-founder of General Electric) in showing what a free market in electricity would look like, and then criticizes Texas’ ERCOT as a central planning agency.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interviewRob Bradley’s website, Master ResourceRob’s article on the recent Texas freeze and Paul KrugmanRob Bradley’s books Edison to Enron and Capitalism at WorkHarold Demsetz’s 1968 Journal of Law and Economics article, “Why Regulate Utilities?”Robert Bryce’s book Pipe Dreams: Greed, Ego, and the Death of EnronForrest McDonald’s book Insull: The Rise and Fall of a Billionaire Utility TycoonBob’s article on the Texas freezeBob Murphy Show episode 77, where Rob Bradley explains his education under Rothbard and his contributions to energy economics in the Austrian tradition For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
When Georgia and Florida scaled back covid restrictions, the experts predicted far more death in the "open states" than in the locked down states like New York and California. The numbers tell a different story.
Original Article: "They Said Things Would Be Much Worse in States without Lockdowns. They Were Wrong."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Wage hike advocates effectively seek to force entrepreneurs to raise the costs of production after many of them have barely survived what became a catastrophic 2020 due to the coronavirus pandemic.
Original Article: "A $15 Minimum Wage Would Be a Huge Blow to the Small Business Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Donald Devine is a legend in Washington, DC conservative circles, where he gained fame wrestling civil service bloat as head of Reagan's Office of Personnel Management. His new book The Enduring Tension: Capitalism and the Moral Order starts with Schumpter's creative destruction and asks the tough question: can capitalism alone hold America together? Channeling Hayek, Devine argues that markets are critical but not sufficient. Free and equal individualism requires a mythos and a logos, a moral order rooted in God, morality, law, or tradition—otherwise we devolve into warring factions. Bureaucratic, centralized, and unworkable government perversely encourages these factions as America rejects its federalist structure and Thomist underpinnings. This is a challenging and far-ranging book, and an excellent one for readers concerned with the tension between Locke's liberty and politically engineered license.
Find The Enduring Tension: Capitalism and the Moral Order at Mises.org/DevineBook
Rising unemployment is just one outcome of minimum wage mandates. Capital accumulation and labor productivity will also be hurt.
Original Article: "Capital and Labor Both Suffer under Minimum Wage Mandates"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Much of the harm is disguised by focusing on forecasts of higher aggregate income for the poor. Individuals, on the other hand, are another story.
Original Article: "Aggregated Data Hides the Damage Done by Minimum Wage Hikes"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Since the deep freeze in February caused millions of Texas homes to lose their power, partisans have been fighting over the blame. The governor blamed wind turbines and the green agenda, whereas Paul Krugman said the fault was with natural gas. Bob shows the numbers; natural gas was to blame only in the sense that nobody expected wind to be useful during a winter crisis.
Mentioned in the Episode and Other Links of Interest: Bob’s article at Mises.org, which gives links to all the relevant sourcesThe Foundations of IBC For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.
Our great friend Daniel Lacalle joins the show from Madrid to discuss the post-Covid economy from the framework of his newest book, Freedom or Equality. Real human cooperation happens via markets and property, not government or central bank edicts. Socially beneficial behavior needs the right incentives—without prices and profits, we have no way to measure merit or benefit.
If leaders are serious about economic recovery after lockdowns, they need to dispense with authoritarian controls and let markets work. Lacalle considers interest rates, inequality, stakeholder theory, global debt, and much more in this powerful discussion of today's economic reality.
Find Freedom or Equality: The Key to Prosperity Through Social Capitalism at Mises.org/DLbook
Normally we discuss books on The Human Action Podcast, but this new academic paper by Professor Philipp Bagus is too important to ignore. "COVID-19 and the Political Economy of Mass Hysteria" is the one journal article you need to read this year. In only about ten pages it makes the devastating case that perverse political incentives—along with a nexus of state-connected media and scientists—combine to create and amplify "public health" hysteria. Echoing Hoppe and public choice theory, Bagus explains how politicians enjoy asymmetric rewards for exaggerating risks and creating fear. The result is gross policy errors we will all pay for over many decades. Don't miss this show!
Read Dr. Bagus's paper at Mises.org/BagusPaper And read Jeff Deist's summary of the paper at Mises.org/DeistBagus Find Deep Freeze: Iceland's Economic Collapse online at Mises.org/DeepFreeze Find The Tragedy of the Euro online at Mises.org/TragedyEuro
Behavioral economists and psychologists define as irrational anything that doesn't fit into a narrow model of behavior. Anything "irrational"—like buying the "wrong" stock—must be fixed with government regulation.
Original Article: "Economists and Psychologists Are Weaponizing Psychology and the Idea of "Rationality""
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Not only will these amendments reduce the abuse of emergency declarations, but they will also help to decentralize power within Pennsylvania. While COVID-19 has allowed the executive branch to run wild, Pennsylvania is actually structured in a way that makes the decentralization of power easier.
Original Article: "Pennsylvanians May Amend Constitution to Stop Endless Lockdowns"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
There are plenty of sound reasons to oppose government minimum wage laws, but there is one objection making the rounds that is based on bad economics and should be avoided, and that’s the "businesses will pass on the costs to consumers" objection.
Original Article: "How Not to Argue against the Minimum Wage"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
It is only through the increase in capital goods, i.e., through the enhancement and the expansion of the infrastructure, that labor can become more productive and earn a higher hourly wage.
Original Article: "Understanding Minimum Wage Mandates: Empirical Studies Aren't Enough"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
If business owners were hoping to catch a break in 2021 after having been completely victimized by government lockdown procedures and left-wing rioting, they may want to brace themselves for more pain as the Biden administration gets going.
Original Article: "Biden Seeks to Finish off Struggling Business Owners"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Claiming they are "deregulating" housing, some California politicians want to make it illegal for private homeowners associations to restrict the construction of accessory units. This means more regulation and more centralization of power.
Original Article: "US States Are Seizing More Power in the Name of "Deregulating" Housing"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Surprise! An audit of Pennsylvania's covid lockdowns reveals the process lacked any legal consistency or transparency. Yet Pennsylvania's health bureaucrats have used these arbitrary rules to crush the state's entrepreneurs.
Original Article: "Pennsylvania's Lockdown Rules Were Arbitrary, Inconsistent, and Political"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Biden’s pick for assistant secretary of health forced nursing homes to accept patients with covid and wants to ration healthcare based on social justice.
Original Article: "Biden Nominee Rachel Levine Was a Disaster in Pennsylvania. Now She's Headed to Washington."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Ryan McMaken and Tho Bishop discuss some of the new policies the Biden administration wants to inflict on us, on topics ranging from Bitcoin to foreign policy.
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
The silent majority is the one that benefits from recent agricultural reforms, but mounting pressure from the vocal minority has prompted the government to once again increase government meddling.
Original Article: "Corporatism: Influential Farmers in India Oppose Profreedom Agricultural Reforms"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Managerialism, not socialism or capitalism, dominated the West in the latter half of the 20th century. Nobody explained this better than James Burnham in his seminal 1941 book The Managerial Revolution: What is Happening in the World. Burnham challenges both Marxist orthodoxy on class (exploitation happens without capitalism) and libertarian orthodoxy on market firms (managerial control overtakes "owners"). This is hugely important book, and prescient to put it mildly: Burnham's thesis explains both the populist Trump revolution and the Deep State response. To understand modern politics and bureaucracy, and especially the DC Beltway, you need to read this book.
Edward Welsch, editor of Chronicles magazine, joins Jeff Deist for a thorough discussion of Burnham and his most influential work.
Watch Dan McCarthy on the history of Burnham at Mises.org/McCarthyBurnham
Read Samuel Francis's review of James Burnham's works at Mises.org/FrancisBurnham
The new "right to repair" measure on the ballot in Massachusetts has very little to do with rights, and a lot to do with new costly and bureaucratic mandates on automakers.
Original Article: "Massachusetts Is Back with More "Right to Repair" Nonsense".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Twenty years ago, it looked like Chile was well on its way to joining the world's small club of developed countries. But this path looks less and less likely as Chile abandons its commitment to freedom and markets.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Original Article: "Chile Won't Become a Developed Country If It Doesn't Change Course".
Global health bureaucrats would have a much easier time if they could force "renegade" countries like Sweden into line with the power to force a uniform health policy on everyone.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Global Health Bureaucrats Want Even More Power to Impose Their Plans across National Borders".
India's parliament has recently passed new reforms to its long-standing interventionist regime which limits farmers' ability to buy and sell goods. These reforms are badly needed.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "India Takes Small Steps toward Economic Freedom with New Agrarian Reforms".
Leonard Read has explained how so many Americans arrived at the clearly false notion that a government post office is necessary.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "No, We Don't Need a Government Post Office".
If we want to understand the numbers behind the need to "flatten the curve," we must look at how government programs like Medicare have reduced hospital capacity in recent decades.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "How Government Healthcare Has Reduced Access to Hospital Beds"
Homeowners believe their property rights extend far beyond their property lines. They want to dictate who lives near them, how much money their neighbors make, and what the houses in their neighborhood look like.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Why Homeowners Hate Real Estate Developers"
Marion Mass is a pediatrician in the Philadelphia area where she has practiced in hospital, Emergency Room, delivery room, outpatient, and urgent care settings. She graduated from Duke University Medical School and trained in Pediatrics at Northwestern Memorial Hospital in Chicago. She has been writing about life inside medicine, published in the WSJ, Washington Times, and the Philly Inquirer. She is also co-founder of Practicing Physicians for America, a physician lead organization that advances the interests of practicing physicians. She has written extensively on the role of third party intermediaries in medicine.
Dr. Rupali Chadha is a Board Certified Psychiatric Physician who diagnoses and treats mental illness. She is also Board Certified Psychiatric Physician in the specialty area of forensics. She serves the LA Superior Courts in identifying inmates who are incompetent to stand trial and has also served as a forensic expert in criminal trials. She recently traveled to Washington DC to visit the White House and witness signing of a recent Presidential Executive Order on intermediaries in healthcare.
SHOW NOTES White House Executive Order
Overview of third parties that suck up most of the health-care dollars
The rebates that may fuel higher drug prices
John Arnold in statnews discusses the role of Pharmacy benefit managers (PBM)
A detailed look at Group Purchasing Organizations and PBMs
Needle stick story referenced in the podcast
Watch the episode on YouTube
Joshua Gottlieb is an economist who co-authored a recent paper examining the effect of government policy and physician income. The paper was recently presented at a conference co-sponsored by the NBER and NIA and its pre-publication has generated significant controversy among doctors.
SHOW NOTES Joshua Gottlieb, PhD: Twitter and WebsitePaper: Who Values Human Capitalists’ Human Capital? Healthcare Spending and Physician Earnings Watch this episode on YouTube
The highly regulated, protectionist Japanese economy, and an overall collectivist culture, leaves little room for flexibility in executive pay. This makes Japanese businesses less competitive, and work life more miserable.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Japan's Executive Pay Gap".
Scott Beyer is the author of the Market Urbanism Report, which applies free market economic principles to urban issues, such as traffic congestion and housing affordability. Bob asks about these topics while bringing up obvious objections from the man on the street.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interview.The Market Urbanism Report website and the Facebook group.Jane Jacobs’ classic book, The Death and Life of Great American Cities. #CommissionsEarned (As an Amazon Associate I earn from qualifying purchases.)Bob’s book The Politically Incorrect Guide to Capitalism. #CommissionsEarnedWalter Block’s book on roads. #CommissionsEarned For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
The story of how housing became so unaffordable for so many is a tragic one. But this is a story of our own making, thanks to decades of misguided government regulations.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "How Government Regulations Make Housing Unaffordable".
The medical profession has long employed the state to pad doctor salaries and influence. Before the Flexner Report, mechanics made more than doctors and the brightest students avoided the profession to enter the clergy.
Narrated by Daniella Bassi.
Original Article: "The Flexner Report and Our Modern Medical Cartel".
Free the liquor stores to sell what products they want, what days of the week they want, what hours they want, and to whom they want.
Narrated by Daniel Diefenbach.
Original Article: "Free the Liquor Stores!".
It is in a time of crisis where the leviathan state has the greatest opportunity to grow. The global coronavirus pandemic has given cover to governments around the world to give into totalitarian instincts and implement authoritarian policies against their people. It is in times like this when an uncompromising defense of liberty and markets is needed most. We are grateful that people around the world have sought out the content of the Mises Institute to better understand the environment we find ourselves in, pushing traffic on mises.org to all-time highs.
In this issue of The Austrian, we provide highlights from some of the most important and salient articles we have published during this unprecedented crisis.
The Benefits of a Free Society during Pandemics by Per Bylund
In this time of crisis, many exclaim how impressed they are by the “swift and decisive” actions by the Chinese regime. Instead of recognizing the abhorrent disrespect for human life, the Chinese response is put forth as an exemplar for combatting a pandemic.
These hailers conveniently forget the many weeks of silencing and censorship that preceded the brutal shutting down of the city of Wuhan and the whole Hubei Province. They also turn a blind eye to the nature of hierarchy and bureaucracy, pretending what is needed to choose proper action is simply power and that access to accurate, reliable information is of little concern.
The calls for a strongman solution are misguided at best but have been used to paint the picture of freedom as being impotent. Per the strongman delusion, libertarianism would seem to lack exactly what is needed for “swiftly and decisively“ dealing with a pandemic—centralized power…
But a centralized solution also makes us more vulnerable. An example might illustrate this. Consider the difference between a structured, centralized national defense and an armed populace. Switzerland is the popular example of the latter, but this is not a unique idea. For example, Sweden’s defense comprises both a traditionally structured military and the Home Guard. While you can rather easily cripple the military by taking out a couple of their bases, the decentralized and dispersed forces of the Home Guard are almost impossible to wipe out.
What does this have to do with a virus pandemic? It illustrates the false promises of centralization, which is a costly and inadequate solution that in fact makes a society more vulnerable. The same argument applies whether it is the national defense, centralized education, or the monopoly of the CDC. A centralized command structure offers only a false sense of security.
Libertarian society has exactly the decentralized structure that our present society is lacking. Rather than a pyramid with information selected and repackaged on its way up and orders issued from the top, it would be a collaborative network of individuals and neighborhoods. A neighborhood affected by an outbreak could quickly and easily choose to contain the virus, perhaps in collaboration with adjacent neighborhoods. Others could choose to temporarily quarantine themselves to not get infected.
There would also be little reason for them to not share information. While the Chinese apparently believed they didn’t have to do anything, other than silencing whistleblowers, a government is typically not held responsible for its failures. It’s the other way around: a government agency that fails in its task is not punished, but instead offered larger budgets and more discretion.
In rather stark contrast, a libertarian neighborhood that chooses to suppress vital information about an outbreak could (and would) be held liable for the harm caused to others. They face the same mechanism as the private store owner, who would be liable if s/he welcomed those knowingly carrying a virus to enter the premises and infect other customers. It is thus in their interest not to hide the facts, as is the government modus operandi, but to share the information and get in front of the problem.
None of what is appropriate action during an outbreak or pandemic requires central command. The downsides of centralization in fact make matters worse and are what made us vulnerable to begin with. The many calls for increased centralization, and their outright dismissal of libertarianism and freedom as “impotent,” are fundamentally confused. Rather than being reasonable and rational, these outcries are emotional and contrary to fact. They are but symptoms of the strongman ideology.
Calls for Central Planning in the COVID-19 Panic Are like the Calls for the “War Socialism” of Old by Philipp Bagus
The similarity between the reasoning in favor of war socialism and the arguments that have been brought forward during the corona emergency is striking. Today war rhetoric abounds. Emanuel Macron explicitly stated, “We’re at war,” and sent, as in Spain, the military to the streets. US president Donald Trump similarly speaks of “Our Big War” and invokes the wartime authority of the Defense Production Act. We hear the slogan “We are in this together” all the time.
Mises discusses German war socialism during the First World War in detail. He points out that Emperor Wilhelm II basically lost all powers to the General Staff. General Ludendorff “became virtually [an] omnipotent dictator,” he explains in Omnipotent Government, and subordinated everything to the war effort.
Winning the war was thought to be the outstanding goal, which could only be achieved by centralizing all powers. These powers were given to the military. After all, they were the experts in military matters.
Today, we face a similar tyranny of experts, to borrow a term from William Easterly. In the medical emergency, enormous power lies in the hands of doctors such as Anthony Fauci in the US or Christian Drosten in Germany. These experts advise governments on what to do—for instance, which size of gatherings shall be prohibited (events of 1000, 100, or 3 persons), if and for how long economies shall be locked down, and if the wearing of masks shall become mandatory. And politicians follow the advice of the doctors. After all, they are the experts…
The central medical planning focuses only on measurable variables such as the infection rate. By not taking into account other ends (and not being able to do so), this planning exerts enormous harm from the point of view of voluntarily interacting individuals. In contrast to the central planning approach, which focuses on one end, all ends in human society are taken into account in the market economy through (expected) profits. Production is adjusted swiftly and efficiently toward the changing ends of consumers.
It is entrepreneurial profit seeking that unleashes human creativity and genius and thereby satisfies human needs as efficiently as humanly possible. The right answer to a war, and to the corona war as well, is therefore to eliminate all barriers to entrepreneurship. Mises said:
“For anyone of the opinion that the free economy is the superior form of economic activity, precisely the need created by the war had to be a new reason demanding that all obstacles standing in the way of free competition be set aside.”
In other words, in order to win the corona war, government should cut taxes and regulations vigorously. Unfortunately, governments around the world have opted for the opposite path, namely war socialism. If they do not quickly rectify their responses and end their war, the socialization of our economies will continue. Mises warns: “in the long run war and the preservation of the market economy are incompatible.”
The COVID-19 “Lockdowns” Are What Twenty-First Century Mob Rule Looks Like by Ryan McMaken
As of April 6, forty-one states have statewide “stay-at-home” decrees in place. These orders vary widely from place to place.
In some states, there are long lists of exempted industries including marijuana dispensaries, liquor stores, hardware stores, and of course, grocery stores. In some states with these edicts, public lands, state parks, and beaches remain open. In some states, city parks are more crowded than ever as local residents, with little else to do, attempt to recreate. In other places—such as California—one can be arrested for paddleboarding all alone in the ocean.
Yet in all of these places, the current regime of rule by decree will have—and already has had—a devastating effect on many small and medium-sized businesses and their employees. As governments have created new arbitrary definitions of what constitutes an “essential” business, some businesses find themselves forced to close. Employees have lost these jobs. The owners of these enterprises will likely lose far more as debts mount and business investments are destroyed. As unemployment and poverty increase, the usual pathologies will arise as well: suicides, child abuse, and stress-induced death.
Yet the politicians—mostly state governors, mayors, and unelected bureaucrats—remain popular. In New York State, where the lockdown orders are among the most draconian in the nation, it is now claimed that 87 percent of those polled approve of Governor Andrew Cuomo’s handling of the situation. As Donald Trump’s administration has recommended ever harsher government limits on the freedom of Americans, his poll numbers have only improved.
Meanwhile, among critics there appears to be a misconception of these lockdowns (which are very often only partially imposed or enforced) as being imposed over the howls of the local population, which is being silenced and cowed by jackbooted local police.
If only that were true. In most places, it appears clear that a great many residents approve of the lockdowns. We see this support in the form of all the local scolds who complain on nextdoor.com about neighborhood children who don’t properly engage in “social distancing.” We see it in the people who call the police to report violators of stay-at-home orders. We see it in those who report local businessesfor allowing too many people inside…
Thus, we’re not witnessing a usurper regime imposing unpopular measures on a resistant but helpless citizenry. We’re more likely witnessing widespread mob rule, the central characteristic of which is rule by the majority with no regard for the rights of dissenting minorities. The government may now be ruling by decree, but it is in many places doing so with the hearty approval of the majority. Politicians have calculated that they’re likely to remain popular so long as they cultivate an image of “decisive leadership“ through strong decrees and demands for compliance in the name of safety. As Cuomo’s surging popularity suggests, this may be a safe political move.
Certainly there are those who resist. There are those for whom the rule of law, the Bill of Rights, and basic freedoms actually matter. But for others, principles such as these are quickly forgotten once fear and anxiety enter the picture. The rights of minority groups (such as business owners or old-fashioned Bill of Rights enthusiasts) mean little or nothing once the majority—conditioned by years of public schooling to demand a government solution to nearly everything—decides that such rights are an inconvenient obstacle to “doing something.”
The public demands action. Politicians are more than happy to oblige.
Anthony Fauci, the “Learned Ignoramus“ by Zachary Yost
As the COVID-19 shutdown across the US continues, one cannot but help see the importance of specialization and the division of labor time and time again, as many Americans deal with true shortages of goods for the first time in their lives. Specialization has allowed us to enjoy a much more prosperous life than we would were we all to do everything ourselves. However, as with everything in this imperfect world, specialization comes with certain tradeoffs that are important to understand. As the unemployment numbers continue to rise by millions more every week, as meager savings are eliminated, and as our highly organized society slides into chaos it is important to understand the way in which an unbalanced intellectual specialization has contributed to bringing about the current crisis.
In his 1930 book The Revolt of the Masses, Spanish philosopher José Ortega y Gasset addresses what he considers to be a strange byproduct of the prevalence of specialization in everything, specifically the intellectual sphere. “Previously,” he writes, “men could be divided simply into the learned and the ignorant, those more or less the one, and those more or less the other.” Now, however, a new kind of person has emerged, “an extraordinarily strange kind of man” who cannot be called “learned for he is formally ignorant of all that does not enter into his specialty,” yet at the same time cannot be considered “ignorant because he is ’a scientist’ who ’knows’ very well his own tiny portion of the universe.“ Thus, Ortega y Gasset says that the only fitting name for such a person is a “learned ignoramus.”
There can be no doubt that numerous learned ignoramuses can be found in all parts of society, but most importantly they are very clearly involved in the response to the COVID-19 virus, as sweeping calls for months of lockdown make clear.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases and seen by many as the face of the federal virus response, has perhaps made the most ridiculous assertion, stating at a White House briefing on April 1 that “we could ’relax social distancing’ once there’s ’no new cases, no deaths,’ but the real turning point won’t come until there’s a vaccine.” Similarly, Dr. Zeke Emanuel, an architect of Obamacare and current advisor to Joe Biden, declared that it will be impossible to return to “normalcy” for eighteen months and that no matter the economic cost: “The truth is we have no choice….We cannot return to normal until there’s a vaccine.”
Such ideas are frankly madness, and would take an incalculable toll on the health and wealth of all Americans. Tens of millions of Americans find themselves out of work or with reduced hours or pay. The idea that society could continue to exist in such a state betrays a lack of any understanding of the social order…
The phenomenon of the learned ignoramus can be seen in every field and at all levels of intellectual life and popular punditry. However, the current crisis reveals the damage such “experts“ can wreak upon civilization itself.
Ortega y Gasset fully recognized the important role that specialization has in making modern life possible; however, he calls for a balanced intellectual specialization, in contrast to the unbalanced status quo that he fears threatens the advancement of scientific discovery itself. Two such balanced intellectuals are without a doubt Ludwig von Mises and F.A. Hayek; although economists, they could be more accurately called social thinkers whose work encompassed far more than that of the typical economist today.
Rather than insular, unbalanced specialization, Mises argued that “He who wants to achieve anything in praxeology must be conversant with mathematics, physics, biology, history, and jurisprudence.” Hayek similarly warned that “Unless you really know your economics or whatever your special field is, you will be simply a fraud. But if you know only economics and nothing else, you will be a bane to mankind, good, perhaps, for writing articles for other economists to read, but for nothing else.”
Undoubtedly, the entire situation would look entirely different from the chaotic disruptive mess it is now if our public health officials and social scientists were trained in the mold of Mises and Hayek. Whereas both men stressed the complex and ultimately fragile nature of the social order, and therefore the need for broad understanding of this complexity, the learned ignoramus, in the words of Ortega y Gasset, “believes that civilization is there in just the same way as the earth’s crust and the forest primeval.”
Every time the “experts” demand that life be halted into the indeterminate future, they vindicate Ortega y Gasset’s observation that the learned ignoramuses are ignorant of the very nature of the social order itself and are therefore a menace to its preservation. This crisis demonstrates how prescient Ortega y Gasset’s warning was. Hopefully it is not too late to prevent a true societal catastrophe.
Airline Bailouts Destabilize the Economy and Inflate Asset Prices William L. Anderson
In the end, after all of the political posturing and all of the speeches and exhortations for Congress to “do something,” a $2 trillion “coronavirus stimulus” bill landed on the president’s desk for The Donald to sign. And sign he did, uttering all of the platitudes and everything else that comes with “historic” spending legislation that never should have seen the light of day. Although COVID-19 has helped expose vast weaknesses in public health systems in the USA, it also has shown that with much of corporate America, the emperor has no clothes.
Although tracking where the money goes is not an easy thing, we do know that the airlines will receive about $50 billion in cash and loans, while Boeing will receive a share of $17 billion earmarked for industries favored by Congress. Another $500 billion will go to cruise lines, hotels, and other firms that have lost business because of travel restrictions and the economic shutdowns.
Politicians of both parties heaped praise upon themselves for their “bipartisan” efforts, which in real life only can mean that Congress cleaned out what was left of the IOUs in the till. Rep. Thomas Massie, a Republican from Kentucky, drew attacks from all sides as he tried to force a roll call vote (as opposed to the voice vote that the members wanted) and announced his opposition to the bailout. President Trump called for his expulsion from the Republican Party while Democrats declared him to be an unsavory ideologue.
There is not much to do but to wait for the results, and they will unfold over time. However, much of this bill’s harm is invisible, the way that termites quietly but surely destroy a house when homeowners fail to detect them. The politicians and the pundits, along with corporate executives, are hailing this infusion of public funds to business as a lifeline to the economic system itself, when, in reality, it will weaken these firms in the long run.
This commentary deals mostly with the airlines, but what we say here applies to any firm receiving rescue funds and loan guarantees. While some of these essentially bankrupt firms gain some relief as taxpayers and consumers pony up to pay the companies’ bills, the temporary cash infusion allows them to kick the financial can down the road and not deal with the underlying problems that they are facing, at least for now…
Although most politicians and airline executives want us to believe that airlines are an “essential” industry that is the equivalent of the “thin blue line” between prosperity and a depressed economy, the markets see things differently. First, and most important, with the current situation there is no way that airlines can meet their loan payments, issue stock dividends, or even pay all of their employees at current rates (including their executives). Faced with that situation, the healthier companies would most likely come to terms with their creditors and restructure their finances.
The unlucky firms, however, would go into Chapter 7 bankruptcy, with all assets sold to pay off their creditors. That means massive layoffs, fewer flights—and realistic valuation of their assets. If the economic need for airlines really were as great as airline executives and political pundits claim, then whoever has purchased those assets at bargain prices would be able to put them to use in no time. The industry will have had its necessary cold-water bath, and asset values, along with prices of airline tickets, would settle at true market values, not the bloated numbers that pollute current airline balance sheets.
Because the “bad effects” of allowing airlines to go under would result at first in massive layoffs, bankruptcies, and fewer passengers in the air, the media and political classes would be condemning those who voted down the federal largess. “Bad effects,” not surprisingly, are quite visible and the plight of the newly unemployed and of stranded travelers plays well on the news.
The “good effects,” however, are less visible. By the time airline assets were sold at bankruptcy auctions and new companies hit the airport runways with market-priced capital and market-paid employees, the media would be on another crusade and the resurrection of airlines would not receive the coverage it deserved.
By shoveling out cash to the airlines and more promises to the banks whose unsteady solvency always lurks in the background, Congress and Trump have perpetrated a financial fraud greater than much of the mess we saw on Wall Street more than a decade ago. Yes, they will receive praise in the media and votes from those grateful to have taxpayers pay their wages and salaries, but they have solved no problems and have created a generation of new ones. Almost surely we will be covering the next crisis in these pages.
How to Think about the Fed Now by Jeff Deist
The Great Crash of 2020 was not caused by a virus. It was precipitated by the virus, and made worse by the crazed decisions of governments around the world to shut down business and travel. But it was caused by economic fragility. The supposed greatest economy in US history actually was a walking sick man, made comfortable with painkillers, and looking far better than he felt—yet ultimately fragile and infirm. The coronavirus pandemic simply exposed the underlying sickness of the US economy. If anything, the crash was overdue.
Too much debt, too much malinvestment, and too little honest pricing of assets and interest rates made America uniquely vulnerable to economic contagion. Most of this vulnerability can be laid at the feet of central bankers at the Federal Reserve, and we will pay a terrible price for it in the coming years. This is an uncomfortable truth, one that central bankers desperately hope to obscure while the media and public remain fixated on the virus.
But we should not let them get away with it, because (at least when it comes to legacy media) the Fed’s gross malfeasance is perhaps the biggest untold story of our lifetimes.
Symptoms of problems were readily apparent just last September during the commercial bank repo crisis. After more than a decade of quantitative easing, relentless interest rate cutting, and huge growth in “excess” reserves (more than $1.5 trillion) parked at the Fed, banks still did not have enough overnight liquidity? The repo market exposed how banks were capital constrained, not reserve constrained. So what exactly was the point of taking the Fed’s balance sheet from less than $1 trillion to over $4 trillion, anyway? Banks still needed money, after a decade of QE?…
So monetary “policy” as we know it is dead as a doornail. What central banks and Fed officials do no longer falls within the realm of economics or policy; in fact the Fed no longer operates as what we think of as a central bank. It is not a backstop or “banker’s bank,” as originally designed (in theory), nor is it a steward of economic stability pursuing its congressionally authorized dual mandate. It does not follow its own charter in the Federal Reserve Act (e.g., impermissibly buying corporate bonds). It does not operate based on economic theory or empirical data. It no longer pursues any identifiable public policy other than sheer political expediency. Fed governors do not follow “rules” or targets or models. They answer to no legislature or executive, except when cravenly collaborating with both to offload consequences onto future generations.
The Fed is, in effect, a lawless economic government unto itself. It serves as a bizarro-world ad hoc credit facility to the US financial sector, completely open ended, with no credit checks, no credit limits, no collateral requirements, no interest payments, and in some cases no repayments at all. It is the lender of first resort, a kind of reverse pawnshop which pays top dollar for rapidly declining assets. The Fed isnow the Infinite Bank. It is run by televangelists, not bankers, and operates on faith.
The Destructive Effects of the Coronavirus Relief Package by Thorsten Polleit
Governments and their central banks have put together mega-bailout packages. In the US, President Donald J. Trump has signed off on a $2 trillion “virus relief package” amounting to around 10 percent of the US gross domestic product. It is meant to provide massive financial support—in the form of loans, tax breaks, and direct payments—to large and small businesses as well as individuals whose revenue and income have been destroyed by the politically dictated “lockdown.”
What is more, the US Federal Reserve (the Fed) has provided a colossal “backstop” to financial markets. It injects ever higher amounts of central bank money into the financial system by buying up all sorts of credit instruments—not only government bonds, but also mortgage debt, corporate bonds, commercial papers, etc. The Fed thereby props up financial asset prices, keeping the cost of credit artificially low and, most importantly, avoids payment defaults on a grand scale.
In fact, the Fed is at the heart of all these rescue measures, for the US administration does not have the money to finance all its promises. The US Treasury will issue new bonds that will be bought by the Fed, which thereby creates new US dollar deposits in the hands of the US government. These are then transferred to the bank accounts of entrepreneurs, consumers, and most of all to government beneficiaries (its employees, service providers, and contractors). As a result, the newly created money shows up in people’s bank accounts, increasing the stock of money in the economy.
Beyond that, the Fed purchases credit instruments—bonds and bills (and perhaps even other assets at some stage). As it does business with banks, the Fed ramps up the central bank money supply to the interbank market: banks hand credit papers over to the Fed in exchange for newly created central bank money deposits. As a result, the “excess reserves” of banks increase and credit risk is taken off theirbalance sheets. Equity capital is freed up and can be used to increase lending to corporates, consumers, and, of course, government entities. This also contributes to the increase in the outstanding money stock.
If and when the Fed purchases credit products from, say, hedge funds, mutual funds, and insurance companies, the quantity of money will also be increased: these market players will hand unwanted credit products over to the Fed in exchange for deposits held with commercial banks. These new money balances can, and most likely will, be used to purchase other assets (e.g., stocks, land, commodities, etc.).
It becomes obvious that the mega-bailout package will effectively result in an increase in the quantity of money in the economy. Sound economics tells us what the consequences are: the increase in the quantity of money will result in higher goods prices, thereby lowering the purchasing power of money. In other words: the mega-bailout package boils down to “money printing”—to an inflationary policy. Again, sound economics tells us that inflation is a policy redistributing income and wealth among people: it does not create a win-win situation; it creates winners and losers…
Today, the policy of printing new money to hold up an economic and financial system that cannot last is being pursued again—as it has been in the past, on many occasions. The question is not whether money will lose its purchasing power. It is just a question of how much and how quickly. The best-case scenario is that the economic slump will be overcome quickly and, as a result, central banks will not have to monetize too much debt and issue too much newly created money.
But even then the underlying problem will not be solved; it will merely be postponed, because the government-controlled unbacked paper money system will predictably lead to ever greater amounts of debt on the part of entrepreneurs, consumers, and, most importantly, governments. At some point, debtors will no longer be in a position to service their debt. This is the point at which the unbacked paper moneysystem collapses altogether through payment defaults, or when governments begin to issue ever greater amounts of money in a last-ditch effort to fend off the inevitable. That said, economies that have become addicted to unbacked money will, at some point, be confronted with a “recession-depression” à la 1929 or a German hyperinflation à la 1923.
Meanwhile, however, governments and central banks’ mega-bailout programs may very well succeed in keeping the artificial boom going—that is, in transposing the approaching economic and financial bust into yet another boom, thereby preventing the system from collapsing. One thing, however, is certain: the official currencies—be it the greenback, the euro, Chinese renminbi, or the Japanese yen—will most likely lose their purchasing power. The truth is that they have never been a reliable means to store wealth—and never will be.
Neither voters nor politicians watch the bureaucracy very carefully, so they respond as one might expect—advancing their own and their favorites' interests, at the expense of the public they are supposedly working for.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Why Congressional "Oversight" of the Bureaucracy Is No Such Thing"
In a free country, doctors would be free to prescribe whatever drugs they wish to anyone for any reason. In fact, individuals should be free to buy drugs without a special government-required doctor's note.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Hydroxychloroquine Controversy Is a Reminder That Prescription Laws Are a Government Racket"
Mark Thornton delivered this talk via Zoom to the Auburn Rotary Club on Wednesday, May 6, 2020.
The people who really run the country are unelected "experts" and bureaucrats at the central banks, at public health agencies, spy agencies, and an expanding network of boards and commissions. This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "America Is a Technocracy, Not a Democracy"
With oil prices in likely long-term tailspin, corrupt governments can't count on oil sales to bail them out anymore. But Mexico's government didn't get the memo and still clings to the state oil monopoly.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "As Oil Craters, Mexico's Government Still Bets on Its Oil Monopoly"
Many argue that unregulated markets would fail due to lack of consumer knowledge, or information asymmetry. But competition in free markets actually gives rise to all kinds of mechanisms that help consumers make informed decisions. This is as true of medical tests for any other good.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Testing Deregulation Can Help Fight COVID-19"
The shortages and lack of flexibility caused by government red tape during the COVID-19 crisis has forced many governments to rethink their many arbitrary and unnecessary regulations. This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Crisis Has Exposed the Damage Done by Government Regulations"
Bureaucrats cannot conjure wealth from nothing. They only have what they extract from the private sector. Unfortunately, the bureaucrats are now starving the private sector of funding while making government budgets ever larger.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Bureaucrats Can't Fix This"
From medical practices to grocery shipments, governments are loosening restrictions in order to keep goods and services affordable. But if these restrictions are unnecessary now, why claim they are ever necessary?
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "COVID-19 Is Forcing Governments to Admit Their Regulations Aren't Really Necessary"
Many left-wing pundits and politicians are claiming that the Centers for Disease Control budget was "gutted" in recent years. But the CDC's budget is now higher than it was in the final years of the Obama administration.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The CDC's Budget Is Larger Now Than Under Obama"
Many Americans could die in the coming weeks and months thanks to the FDA’s blockade on coronavirus testing. Should we consider those victims as martyrs for the principle of bureaucratic supremacy?
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "It's Time to Track the FDA's Death Toll"
We are about to enter a production slowdown—a collapse, really—not because some businesses miscalculated their investments, but because government intervened drastically and without warning to shut down all businesses.
Narrated by Millian Quinteros.
Original Article: "This Is Not a Recession—This Is a Government-Imposed Shutdown of the Private Sector"
After weeks of bungling, faulty tests, and policy reversals the CDC bureaucrats managed to achieve some semblance of competence. But by then they were already far behind the curve.
Narrated by Daniella Bassi.
Original Article: "How the CDC Prevented Fast and Accurate Testing for COVID-19"
Economist Tim Terrell explains why the common rankings of "health outcomes" are so often biased against the United States, and why big businesses often support certain environmental regulations. Hint: it's not for reasons progressives will like.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Comedian Dave Smith's set at Mises U.
By far, the coolest thing I have ever done in my career... is coming here to the Mises University. Long live the Mises Institute!
Includes an introduction by Jeff Deist. Recorded at the Mises Institute in Auburn, Alabama, on 20 July 2019.
Many of the worst costs that will come with "Medicare for All" won't be calculated in dollars. They'll come in the form of doctor shortages, long wait times, and less access to care.
Original Article: "The Unseen Costs of "Medicare for All"".
The twentieth century revolution in America was bureaucratic, not ideological. And in 1944, a new American—Ludwig von Mises—published Bureaucracy, the most important and devastating critique of administrative rule ever written. Clocking in at just over 130 pages, this is Mises at his hard-hitting best. Professor William Anderson joins the Human Action Podcast for an in-depth discussion of both the book and the bureaucratic capture of America it warned against.
Subscribe and listen on iTunes, YouTube, Stitcher, Soundcloud, Google Play, Spotify, or via RSS.
Social Security acts as a sort of "reverse insurance," doling out money now, leaving less for the future.
Original Article: "Unlike Real Insurance, Social Security 'Insurance' Creates Greater Risk for the Future".
The High Cost of Good Intentions: A History of U.S. Federal Entitlement ProgramsJohn F. CoganStanford: Stanford University Press, 2017, 513 pp.
Dr. Mark Thornton (mthornton@mises.org) is Senior Fellow at the Mises Institute and Book Review Editor of the Quarterly Journal of Austrian Economics.
Quarterly Journal of Austrian Economics 21, no. 4 (Winter 2018) full issue, click here.
Entitlement programs such as Social Security, Medicare and Medicaid are the “elephant in the room” for America. They are projected to expand enormously and to destroy the US economy in the coming decades, but little is being discussed or implemented to address the seriousness of the issue. Indeed, the trend has been to expand entitlements over the last half century.
Economist Lawrence Kotlikoff has estimated that the present value of the “fiscal gap,” i.e. the projected entitlement expenditures minus projected entitlement tax revenues, to be in excess of $200 trillion! That figure leads me to thoughts of hyperinflation and the severe damage it can do to society.
One approach towards improving our understanding of the issue and the problems it causes is by studying the history of entitlements. John Cogan provides an excellent introduction and overview of entitlements in The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs.
Cogan describes the current state of affairs as: “The scale of federal entitlement assistance today is unmatched in human history. … While the massive expenditure has significantly reduced poverty among senior citizens, poverty rates for all other adults and for children are no lower today than they were a half century ago.” (pp. 1, 2)
However, the idea that poverty rates are still as high for non-seniors can only be sustained if you ignore all the monetary and nonmonetary benefits that the “poor” are given. When those benefits are accounted for, the people in the bottom of the income distribution statistics are not much worse off than the working middle class. (Gramm and Ekelund, 2018)
Cogan’s historical investigation finds at least two major problems. The first is that as “well meaning and beneficial as many entitlements may be, they have come at a high cost. They have undermined the natural human desire for self-sufficiency and self-improvement.” The second problem is the book’s central theme: “the creation of entitlements brings forth relentless forces that cause them to inexorably expand.” (p. 4)
President Franklin Roosevelt’s “New Deal” and Lyndon Johnson’s “Great Society” produced the modern and most famous entitlements, but the history of U.S. entitlement programs is much longer and broader. Indeed, this deeper history highlights some important lessons about the origin, growth, and reform of entitlements.
The early entitlement programs were targeted at war veterans and followed similar paths of development. The Revolutionary War initially provided entitlement benefits to members of the Continental Army and Navy who were disabled during the war and to family members of those killed in the war. Benefits were extended over time to veterans of the state militias, those who were disabled after the war and eventually to all living veterans. Thus a disability program was transformed into a pension program.
The Civil War, WWI and other military conflicts resulted in military entitlements too. At first, they were limited to veterans that were disabled during the war. The entitlements expanded on the backs of budget surpluses to include veterans disabled after the war and eventually to all remaining veterans. The good thing about entitlements for veterans is that if you do not have wars, eventually the entitlement will be retired for lack of beneficiaries.
The early navy pension fund was financed from the sale of captured ships and cargos of enemy boats, e.g. pirates. As the fund expanded, Congress voted to increase benefits to such an extent that they completely drained the fund and the pensions had to be supported with general funds. Therefore, it is a likely precursor of Social Security, how it expanded and what will become of it.
In Chapter 7 Cogan deals with the birth of the modern entitlement state: the New Deal. It was a “progressive” revolution. Prior to the New Deal, most assistance for the needy was provided by the private sector: mostly civic organizations, clubs, and churches. There was also assistance provided by state and local governments.
Here Cogan finds that it is not just Congress behaving badly, but also the beneficiaries who have bad incentives. “Regardless of where eligibility rules were drawn, the provision of assistance would create incentives for potential recipients to modify their behavior to qualify for aid, often in ways detrimental to their own long-run interests.” (p. 82) In today’s framework, this would be people gaining enough body weight to qualify for disability benefits.
Early “outdoor relief” provided money to people who were unable to provide for themselves. However, this was found to encourage too many people to request aid who were actually able bodied. In response, governments started emphasizing “indoor relief” where the poor elderly would be housed and feed in almshouses, children in orphanages, the insane in mental asylums, and the able bodied in workhouses. This not only reduced people seeking assistance, but it also provided progressive reformers the opportunity to save the souls and livers of the retched.
One surprise from the book was that President Franklin Roosevelt opposed most entitlement benefits for veterans. He was able to successfully cut those benefits, at least temporarily. His vision was that government benefits should not be based on class, i.e. military service, but should rather be open to all Americans. Roosevelt’s approach led to the largest reductions in entitlement spending for veterans in US history and “served as a template nearly fifty years later for Ronald Reagan, the only other twentieth-century president to achieve significant entitlement restraint.” (pp. 74–75)
Roosevelt’s New Deal was first and foremost about providing security, so it included Social Security and unemployment insurance where individuals pay in over time and eventually collect benefits. Cogan shows that the Supreme Court was a big part of the problem. He does not deal with Roosevelt’s preferred approach to relief, that of make-work jobs and public works. It should be noted that his approach not only sounded better to taxpayers, in that it required work and produced public goods, but it also served as an enormous source of political patronage that sustained FDR politically throughout the 1930s.
One deficiency of the book is its seemingly intentional neglect of the role of ideology. For example, he mentions all of the progressive characters that were responsible for bringing New Deal entitlements to life, as described by Rothbard (1996). However, he does not discuss the deep ideological themes that unite them. In the background of progressive thinking there is the drive to create a heaven on earth in preparation for the return of Jesus. In the foreground there is the statist ideology of Progressivism, the American version of socialism. Ideology explains the why, when and where of the emergence and evolution of entitlements throughout this period.
The book goes on to report on post-WWII entitlement programs, such as the GI Bill, the continuous expansion of Social Security entitlements, and the failure to introduce national health insurance before coming to President Lyndon Johnson’s War on Poverty. The Johnson administration had promised that the welfare rolls would shrink with his policies. Instead, like most other such promises, the number of people on the rolls soared to record levels. Instead of being lifted up, the welfare family was increasingly living in broken homes due to illegitimacy, divorce, separation, and desertion.
According to Cogan “Welfare was also becoming a way of life for an increasing number of AFDC households. … The bold and confident promises of the War on Poverty’s architects were turning out to be empty.” The cost of the programs was skyrocketing far beyond projections.
Shockingly, according to Cogan:
The main beneficiaries were the service providers, mainly middle-class professional social workers in and outside of government welfare agencies, educators in schools of social work, legal services lawyers and academicians. The federal government was spending more on professional social workers than on school lunches for poor children. (p. 207)
The rest of the book chronicles the period from the late 1960s to the present. It’s not a pretty picture. With few exceptions, entitlement programs have gotten worse. The only bright side is that this experience vindicates economic and public choice theory. Politicians have continuously used our taxes to buy votes, not to help people, just as theory would predict. Theory also correctly predicts that some people, namely recipients and bureaucrats, would take advantage of entitlement-welfare programs. Predictably, this has led some unfortunate people to lead a dull, lazy, almost inhuman existence. The failure of all the reforms to entitlements is testament that these problems are part of the very nature of such programs.
I never detected an overt ideological aversion to entitlements in Cogan’s book. Rather it was his frustration and concern for the country’s future that was evident. For instance, in the case of Social Security and Medicare, he concludes that:
Together these now massive entitlements can, by themselves, afford many retirees a middle-class standard of living, often supplanting other meaningful sources of retirement wealth that retirees would have accumulated in the absence of these entitlements. (p. 376)
He expresses the frustration of the working class when noting that welfare benefits are increased during recessions when others are hurting and they are also increased during expansions when the working class is paying more taxes and creating budget surpluses.
He concludes that the entitlement programs have worsened the problems they were designed to solve and are now giving out massive subsidies to the non-poor.
In 2015, only 26 percent of all cash entitlement assistance was spent to reduce the extent of poverty. Including the market value of in-kind benefits, only 21 percent of entitlement assistance went to alleviating poverty. Sixty-three percent of all cash and in-kind benefits distributed to poor persons was over and above the amount necessary to lift them from poverty. (p. 382)
The problems of entitlements are intractable and solutions are vexing, to say the least. This book proves it.
Warren and her fellow progressives have the regulatory issue with respect to free markets and public utilities almost precisely backwards.
Original Article: "Elizabeth Warren's New Antitrust Crusade: A New Progressive War on Wealth".
If climate change effects aren't enough to put a noticeable dent in life expectancy, then why is climate change talked about as an apocalypse?
Original Article: "If Climate Change Is Killing Us, Why Is Life Expectancy Increasing?".
Bob provides an introductory framework on how to analyze the economics of immigration, as well as the politics involved in this controversial topic. The point isn't to pick sides, but to sharpen everyone's arguments. For example, make sure your arguments about immigration don't "prove" that having babies makes a country poorer.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Jeff Deist joins Australian podcaster Stephan Livera (twitter) for an in-depth look at money in an era of crazed monetary policy.
They tackle how Austrian economics relates to cryptos, why gold still matters, how deflation and "hoarding" are healthy for an economy, and how any challenge to the central bank cartel could create a political upheaval far beyond banking and economics.
Skin in the Game: Hidden Asymmetries in Daily LifeNassim Nicholas TalebRandom House, 2018
To review Skin in the Game is a risky undertaking. The author has little use for book reviewers who, he tells us, “are bad middlemen. … Book reviews are judged according to how plausible and well-written they are; never in how they map the book (unless of course the author makes them responsible for misrepresentations).”
The risk is very much worth undertaking, though, because Skin in the Game is an excellent book, filled with insights. These insights stress a central antithesis. Irresponsible people, with what C.D. Broad called “clever silly” intellectuals prominent among them, defend reckless policies that impose risks on others but not on themselves. They have no “skin in the game,” and in this to Taleb lies their chief defect.
Interventionist foreign policy suffers from this defect. “A collection of people classified as interventionistas … who promoted the Iraq invasion of 2003, as well as the removal of the Libyan leader in 2011, are advocating the imposition of additional such regime change on another batch of countries, which includes Syria, because it has a ‘dictator’. So we tried that thing called regime change in Iraq, and failed miserably. … But we satisfied the objective of ‘removing a dictator.’ By the same reasoning, a doctor would inject a patient with ‘moderate’ cancer cells to improve his cholesterol numbers, and proudly claim victory after the patient is dead, particularly if the postmortem showed remarkable cholesterol readings.”
But what has this to do with risk? The fallacy of the interventionists, Taleb tells us, is that they disregard the chance that their schemes will fail to work as planned. A key theme of Taleb’s work is that uncertain outcomes mandate caution.
“And when a blowup happens, they invoke uncertainty, something called a Black Swan (a high-impact unexpected event), … not realizing that one should not mess with a system if the results are fraught with uncertainty, or, more generally, should avoid engaging in an action with a big downside if one has no idea of the outcomes.”
The same mistaken conception of risk affects economic policy. “For instance, bank blowups came in 2008 because of the accumulation of hidden and asymmetric risks in the system: bankers, master risk transferors, could make steady money from a certain class of concealed explosive risks, use academic risk models that don’t work except on paper … then invoke uncertainty after a blowup … and keep past income — what I have called the Bob Rubin trade.”
Instead of relying on mathematical models, economists should realize that the free market works. Why use misguided theory to interfere with success in practice? “Under the right market structure, a collection of idiots produces a well-functioning market. … Friedrich Hayek has been, once again, vindicated. Yet one of the most cited ideas in history, that of the invisible hand, appears to be the least integrated into the modern psyche.”
Upsetting a complex system like the free market, can have disastrous consequences. Given this truth, libertarianism is the indicated course of action. “We libertarians share a minimal set of beliefs, the central one being to substitute the rule of law for the rule of authority. Without necessarily realizing it, libertarians believe in complex systems.”
Taleb greatly admires Ron Paul, the foremost libertarian in politics, and he is one of two people to whom the book is dedicated. (Ralph Nader is the other.) Ron Paul grasps Taleb’s fundamental lesson that misguided theory should not supplant what has stood the test of time. “The insightful and luckily nonacademic historian Tom Holland ... wrote: ‘The Romans judged their political system by asking not whether it made sense but whether it worked,’ which is why while dedicating this book, I called Ron Paul a Roman among Greeks.”
One common objection to the free market is that it allows powerful corporations to dominate people. Taleb’s response converges with that of Murray Rothbard: “There are two ways to make citizens safe from large predators, say, big powerful corporations. The first one is to enact regulations — but these, aside from restricting individual freedoms, lead to another predation, this time by the state, its agents, and their cronies. … The other solution is to put skin in the game in transactions, in the form of legal liability, and the possibility of an efficient lawsuit. The Anglo-Saxon world has traditionally had a predilection for the legal approach instead of the regulatory one; if you harm me, I can sue you. This has led to the very sophisticated, adaptive, and balanced common law, built bottom-up, by trial and error.”
Rothbard held the same view. In his pathbreaking monograph “Law, Property Rights, and Air Pollution,” he remarks: “There are, of course, innumerable statutes and regulations that create illegality besides the torts dealt with in common-law courts. We have not dealt with laws such as the Clean Air Act of 1970 or regulations for a simple reason: None of them can be permissible under libertarian legal theory. In libertarian theory, it is only permissible to proceed coercively against someone if he is a proven aggressor, and that aggression must be proven in court (or in arbitration) beyond a reasonable doubt. Any statute or administrative regulation necessarily makes actions illegal that are not overt initiations of crimes or torts according to libertarian theory. Every statute or administrative rule is therefore illegitimate and itself invasive and a criminal interference with the property rights of noncriminals.”
Another complaint against the free market stems from “behavioral economics.” Consumers, it is alleged, often act in an irrational way against their own best interests. Hence the benevolent action of bureaucratic experts is required to “nudge” people into rationality. Taleb responds. “We have survived in spite of tail risks; our survival cannot be that random.” (Tail events are “extreme events of low frequency,” i.e., the Black Swans mentioned earlier.) The supposed “mistakes” that the behavioral economists allege people commit often are good ways to cope with tail risks.
Taleb assails the leading behavioral economists in mordant fashion: “And if you dream of making people use probability in order to make decisions, I have some news: more than ninety percent of psychologists dealing with decision making (which includes such regulators as Cass Sunstein and Richard Thaler) have no clue about probability, and try to disrupt our efficient organic paranoias.” In another place, he calls Thaler a “creepy interventionist.”
Taleb extends his criticism of “pseudo-rationalism” to ethics. Here “universalism” is the enemy: “So we skip Kant’s drastic approach for one main reason: Universal behavior is great on paper, disastrous in practice. Why? As we will belabor ad nauseam in this book, we are local and practical animals, sensitive to scale. … We should focus on our immediate environment: we need simple practical rules. Even worse: the general and the abstract tend to attract self-righteous psychopaths. … In other words, Kant did not get the notion of scaling — yet many of us are victims of Kant’s universalism.” (In another place, though, influenced by Derek Parfit, Taleb assigns a positive though not exclusive rule to Kantian ethics.)
In one of the most original passages in the book, Taleb applies “skin in the game” to criticize Pascal’s wager. “This argument (that real life is risk taking) reveals the theological weakness of Pascal’s wager, which stipulates that believing in the creator has a positive payoff in case he truly exists, and no downside in case he doesn’t. Hence the wager would be to believe in God as a free option. If you follow the idea to its logical end, you can see that it proposes religion without skin in the game making it a purely academic and sterile activity.”
For Taleb, this will never do, as it neglects the whole point of religion. “It is therefore my opinion that religion exists to enforce tail risk management across generations, as its binary and unconditional rules are easy to teach and enforce.” Though one disagrees with this author at one’s peril, I wonder whether this account of religion is unduly reductionist. Does not religion involve cognitive claims about the nature of ultimate reality, which must be assessed directly, rather than viewed exclusively as tools for evolutionary survival? When, e.g., Henry Vaughan writes, “There is in God, some say/ A deep but dazzling darkness,” this seems a claim about the world, rather than a rule for our conduct in it.
Readers of Skin in the Game will be struck by Taleb’s originality, acuity, and erudition. He is a thinker of outstanding merit, and it would be risky indeed to ignore him.
The great James Bovard addresses our annual research conference in Auburn on the dismal failures of government regulation — from farm subsidies to steel tariffs to FDA drug trials.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
Rothbard’s power-elite historical analysis shows how big business, big unions, and big government conspired to cartelize industries in order to further their own interests. Programs and agencies started in the Progressive Era have a destructive legacy that has carried on for a century.
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright. The full text is available online here.
Download the complete audio book (74 MP3 files) in one ZIP file here. This audiobook is also available on Soundcloud, Apple Podcasts, Google Podcasts, and via RSS.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 15, "Herbert Hoover and the Myth of Laissez-faire".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 12, "War Collectivism in World War I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 7, "Theodore Roosevelt: The First Progressive, Part I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 6, "1896: The Collapse of the Third Party System and of Laissez-faire Politics".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 10, "The Progressive Era and the Family".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 7, "Theodore Roosevelt: The First Progressive, Part I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 2, "Regulating the Railroads".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 10, "The Progressive Era and the Family".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 15, "Herbert Hoover and the Myth of Laissez-faire".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 1, "Railroads: The First Big Business and the Failure of the Cartels".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 4, "The Third Party System: Pietists vs. Liturgicals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 6, "1896: The Collapse of the Third Party System and of Laissez-faire Politics".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 7, "Theodore Roosevelt: The First Progressive, Part I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 7, "Theodore Roosevelt: The First Progressive, Part I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 10, "The Progressive Era and the Family".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 7, "Theodore Roosevelt: The First Progressive, Part I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 3, "Attempts at Monopoly in American Industry".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 1, "Railroads: The First Big Business and the Failure of the Cartels".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 1, "Railroads: The First Big Business and the Failure of the Cartels".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 2, "Regulating the Railroads".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 4, "The Third Party System: Pietists vs. Liturgicals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 4, "The Third Party System: Pietists vs. Liturgicals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 4, "The Third Party System: Pietists vs. Liturgicals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 5, "The Democratic Triumph of 1892".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 5, "The Democratic Triumph of 1892".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 6, "1896: The Collapse of the Third Party System and of Laissez-faire Politics".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 8, "Theodore Roosevelt: The First Progressive, Part II".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 8, "Theodore Roosevelt: The First Progressive, Part II".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 11, "Origins of the Welfare State in America".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 8, "Theodore Roosevelt: The First Progressive, Part II".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 9, "The National Civic Federation: Big Business Organized for Progressivism".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 10, "The Progressive Era and the Family".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 14, "The Federal Reserve as a Cartelization Device: The Early Years, 1913–1930".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 10, "The Progressive Era and the Family".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 12, "War Collectivism in World War I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 12, "War Collectivism in World War I".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
From Chapter 13, "World War I as Fulfillment: Power and the Intellectuals".
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
This audiobook is made available through the generosity of Mr. Tyler Folger. Narrated by Graham Wright.
In this course, Professor Patrick Newman walks students through the highlights and major themes of Murray Rothbard’s recently published book, The Progressive Era. Rothbard’s power-elite historical analysis shows how big business, big unions, and big government conspired to cartelize industries in order to further their own interests. Programs and agencies started in the Progressive Era have a destructive legacy that has carried on for a century.
Patrick Newman, in addition to being a professor and former Mises Summer Research Fellow, is also editor of this previously unpublished Rothbard gem. Patrick discusses not only the book's content but also Rothbard’s methods of historical analysis and other related materials.
This online course is free, and is designed to be taken along with reading Murray Rothbard's previously unpublished work, The Progressive Era. You can order a paperback or hardcover copy of The Progressive Era from the Mises Bookstore or access the ebook for free. Please consider a donation to help support the creation of more courses!
Joseph Sobran of National Review cautions against all foreign aid, calls for an end to entangling alliances, and suggests that America's most important export is Misesian economics and the Founding Fathers' vision of liberty. Includes an introduction by Lew Rockwell. Presented by the Mises Institute at the Washington Court Hotel in Washington, DC, on 23 April 1990.
Kęstutis Baltramatis, chief privatization economist of the Lithuanian Council of Ministers, speaks of Lithuania's plan to completely privatize industry and dramatically cut the size of the public sector. Especially notable is his revelation that Lithuania plans to welcome foreign entrepreneurs with no restrictions. Includes an introduction by Lew Rockwell, and features Yuri Matsev as translator. Presented by the Mises Institute at the Washington Court Hotel in Washington, DC, on 23 April 1990.
Hans-Hermann Hoppe of the University of Nevada, Las Vegas, a German emigre, notes the errors already made in the process of German unification and offers an alternative free market route that avoids the stagnation of social democracy. Presented by the Mises Institute at the Washington Court Hotel in Washington, DC, on 23 April 1990.
Murray N. Rothbard of the University of Nevada, Las Vegas, explains that Mises and the Austrians forecasted the collapse of socialism, and points to the tremendous opportunity that now exists for a social experiment in freedom. He focuses on what must be done—monetarily, institutionally, and ideologically—to achieve it, and urges a stroke-of-the-pen dismantling of the old order. Includes an introduction by Lew Rockwell. Presented by the Mises Institute at the Washington Court Hotel in Washington, DC, on 23 April 1990.
Krzysztof Ostaszewski of the University of Louisville, a Polish emigre, offers a critique of Poland's half-way reforms and describes the obstacles the country faces in attempting to become a fully capitalist society. Includes an introduction by Lew Rockwell.
Presented by the Mises Institute at the Washington Court Hotel in Washington, DC, on 23 April 1990.
It sounds like London Councillor Anna Hopkins is in favour of formulating government policies aimed at reducing the number of cars on London’s roads, but she offers no economic justification for this view.
In the September, 2017 issue (no. 23) of the Byron Villager magazine (unavailable online), Hopkins wrote (emphasis added):
If anyone was to ask me what is the issue that you hear over and over again in Ward 9, I would have to reply “Traffic Concerns.” Not only on our main arterial roads but in our neighbourhoods. How we balance growth as Ward 9 expands and the need to improve congestion on our roads, to slow down and not cut through neighbourhoods has been a concern no matter if you live in Lambeth, Byron or Riverbend. It is becoming more apparent that we can no longer afford to keep on building our road infrastructure and maintaining it without looking at other means of transportation like transit, cycling and walking.
In other words, because London’s municipal government cannot solve the traffic congestion problem, residents may have to walk, cycle, and use public transit more often. Hopkins’ solution would be economically counterproductive, while ignoring the source of the problem – government mismanagement. Traffic congestion is also a problem in other Wards, and I fear most (or all) of the other councillors would support this ill-advised solution. Previous actions by council point in this direction.
Each year, City Hall adds more cycling lanes to London’s roads. Yet, I often do not see any cyclists when I am out driving. For every cyclist on the road, there must be at least a thousand cars. Miles of empty cycling lanes is a constant reminder of municipal government waste. And for the few cyclists on the road, there is no evidence they are safer in ‘cycling lanes’. Car drivers and cyclists may believe cycling lanes offer an additional layer of safety for the cyclists, but this belief may cause both parties to alter their behaviour – such that they become less attentive, less cautious, which can produce more collisions. Indeed, we saw this with seat belt laws many years ago. In 2000, in the British Medical Journal, Malcolm J. Wardlaw wrote:
Between 1974 and 1982 cycling mileage in Britain increased 70%, but there was no increase in fatalities until the seatbelt law was introduced in 1983 ... Compulsion to wear a seatbelt cut deaths among drivers and front seat passengers by 25% in 1983. But in the subsequent years, the long established trend of declining deaths in car accidents reversed, and by 1989 death rates among car drivers were higher than they had been in 1983. Evidently the driving population “risk compensated” away the substantial benefits of seatbelts by taking extra risks, putting others in more danger. This period saw a jump in deaths of cyclists. Although temporary, the jump can be explained fully only by cyclists having adapted to a more dangerous road environment through extra caution, retreat, or giving up. Is it coincidence that the long decline in cycling began in 1983?
Research in the United States revealed similar effects of seatbelt laws.
With London’s cycling lanes so sparsely populated with cyclists, where is the evidence to suggest that London’s car drivers would support Councillor Hopkins’ idea of cycling as an alternative form of transportation? Very curious! Even more curious because we live in an aging society. And car drivers are not going to become walkers either. I occasionally enjoy a healthy, leisurely walk of one or two kilometers. But that’s it. When time is a factor, as it often is, and I have to travel longer distances in the city for various reasons (as most people do), I need a car, period. Public transit? Seriously? Very slow and inefficient, and since time is money, this is not a viable economic option for a lot of people. If London’s economy depended on the government’s public transit system, there would be no economy.
What about the building and maintenance of London’s roads? Why is summer driving always a nightmare, with continuous road construction/repairs in multiple locations? Is it all necessary? How can we know? Bureaucrats make the decisions. City council approves the decisions. Are jobs sometimes awarded to favoured contractors at inflated prices? Are other jobs awarded that are not actually necessary? What about traffic congestion, which in some areas is an ongoing problem, regardless the time of year?
The answer is that London City Hall’s road management is inefficient, as it is in other cities. The government simply cannot match the performance of private firms operating on the free market. History shows many of our road problems would disappear if roads were owned and operated privately. This is especially notable when we recognize that private firms lack the power possessed by government to steal land (expropriate in Canada, eminent domain in U.S.) in order to facilitate road construction. I have written about this previously – here is a brief excerpt:
In 2014, a private citizen in the U.K., frustrated by a lengthy detour because of government delayed road repairs, built his own bypass toll road which attracted many commuters and embarrassed the government. Read about it here, here, and here. The government delayed road repairs had a negative impact on the local economy.
It is often difficult to conceive of a different way of doing things, especially when a particular field is monopolized by the government. However, legally imposed monopolies are inefficient because they lack competition, which means they lack the incentive to maximize quality and minimize prices for the products and services they produce. Private versus public policing is a good example, which I have written about here.
Free enterprise delivers superior results because private firms are incentivized to quickly respond to the demands of the market, which means the demands of consumers. If they don’t, they lose money. This is a foreign concept to bureaucrats and politicians whose decisions are completely arbitrary and have nothing to do with satisfying the desires of consumers. When private firms fail to satisfy consumers, the firms lose money. When the government fails to satisfy consumers, the consumers lose money – the government does not lose money because consumers are still compelled to pay taxes. Thus, the government is wasting resources.
Simple, basic economics, which I know Councillor Hopkins can understand if she takes just a few minutes to think it through. With that said, Hopkins may be half right. There may soon come a time when it becomes “apparent that we can no longer afford to keep on building our road infrastructure and maintaining it” if our inefficient government continues to enforce its road monopoly, because taxes may become unbearable. But in this event, cycling, walking, and the government’s public transit system will not be viable options. Dependence on these alternate forms of transportation would collapse the economy.
Dr. Carmen Elena Dorobăț is a Fellow of the Mises Institute and Senior Lecturer (Associate Professor) at Manchester Metropolitan Business School in the United Kingdom. She has a PhD in economics from the University of Angers, and is the recipient of the 2015 O.P. Alford III Prize in Political Economy and the 2017 Gary G. Schlarbaum Prize for Excellence in Research and Teaching. Her research interests include international trade, monetary theory and policy, and the history of economic thought.
According to a recent report from the Centers for Disease Control ("Mortality in the United States, 2017"), "Life expectancy for the U.S. population declined to 78.6 years in 2017," largely due to obesity and drug addiction.
The American life expectancy trend does not reflect global trends, however.
Worldwide, the evidence continues to point toward rising life expectancy in most of the world, with the biggest gains in the poorest countries.
According to data compiled by the World Bank, life expectancy continues to grow fastest in Africa. During the ten-year period from 2007 to 2016, the largest gains were realized in Zimbabwe, Eswatini (formerly Swaziland), Botswana, Malawi, and South Africa. The gains in years ranged from 13 years over the period in Zimbabwe to nearly 10 years in South Africa. Wealthy and mid-level countries saw gains during this period as well, including Switzerland and Mexico, where life expectancy increased 1.1 years and 1.4 years, respectively.
Indeed, the continued gains should surprise no one who keeps up with global trends in health. Globally, access to sanitation and clean water has improved substantially while extreme poverty, malnourishment, and child mortality have all declined. This has especially been the case in Sub-Saharan Africa and Southern Asia, where some of the worst poverty can be found.
Why the Climate-Change Panic? Oddly, however, you won't hear much about this in the context of the climate change debate.
For years — as life expectancy numbers have continued to rise — pundits and researchers have repeatedly attempted to claim that climate change has led to — or will soon lead to — declines in overall life and health.
For example, The New Republic announced in 2015 that climate change "devastates food security, nutrition, and water safety." Yet, the data shows that none of these things have been in any way "devastated" over the past decade. In fact, the indicators are all better now than where they were ten years ago.According to the Food and Agriculture Organization of the UN, "food insecurity" and malnutrition went up from 2016 to 2017. This is driven primarily by declines in food availability in Africa where social and political strife continue to be highly problematic. Malnutrition and fod insecurity numbers continue to decrease in South Asia, and are flat in South America, North America, and Europe. http://www.fao.org/faostat/en/#data/FS
Meanwhile, The Lancet predicted (in a report released in November of last year) "continued progress in improving life expectancy." The biggest gains are to be found in poorer countries. The report also predicts continued life-expectancy growth through the year 2040:
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Needless to say, the usual narrative we hear isn't to expect most of humanity to be living longer decades from now. The UN's secretary general, on the other hand, assures us that climate change is “a systemic threat to humankind,” and President Obama concluded nothing "poses a greater threat to future generations" than climate change. Congresswoman Alexandria Ocasio-Cortez has predicted "the world is going to end in twelve years" due to climate change. But, while we're told global temperatures are already at catastrophic levels, we're also told the net gain in life expectancy continues to be positive well into the future. Where we do see life expectancy declining — as in the United States — we see it due primarily to drug addiction and an inability to cut back on cheeseburgers.
Upon noting this, advocates for climate-change regulations might claim "well both things are true. We'd be living even longer if not for climate change!" Except here's the rub. The very things that make it possible to expand life expectancy: medical care, high quality housing, heating, air conditioning, and clean water are all byproducts of our industrialized economies powered primarily by fossil fuels. Tearing down this system in the name of preventing climate change would be devastating to life and health worldwide. In other words, taking steps to greatly increase the cost of essential resources and amenities — as carbon taxes and other anti-climate change regulations do — would only pull the rug out from under current efforts to continually fight against countless causes of mortality such as water borne diseases, cancer, and diabetes. It is not climate-change that poses the greatest threat to future generations. The real threat lies in losing the ground gained in the Global South in terms of sanitation, medical care, and housing. Thus, crippling the global economy through climate-change regulation — not climate change itself — is "the most systematic threat."
The bird-in-hand of industrial globalization has clearly delivered a higher standard of living than has ever been known before in the old "third world." The promised two-birds-in-the-bush of global climate control offers fewer plausible promises for a better life.
Realizing the need to up the ante, researchers continue trying to connect a myriad of health problems directly to climate change in order to justify more regulatory intervention. The New Republic continues:
It [a 2012 report on climate change] linked 400,000 deaths worldwide to climate change each year, projecting deaths to increase to over 600,000 per year by 2030.
But how do they arrive at these numbers? They're achieved by claiming a variety of diseases are indirectly caused by climate change. Given that most mortality is now caused by diseases such as diabetes, cardiovascular disease, liver failure and other chronic conditions, it's chronic disease (and not factors directly connected to climate like heat stroke) that will be the most significant drivers in life expectancy.Recognizing this, The Lancet has attempted to connect obesity to climate-change, although the Lancet is careful to not say that climate change causes obesity. See: www.cnn.com/2019/01/27/health/obesity-climate-change-undernutrition/index.html Thus, a solid connection must be made to diseases such as diabetes if climate-change can be held up as a leading cause of mortality.
But even if they could show the precise degree to which, say, cardiovascular disease can be blamed on climate change — which hasn't been done — big numbers such as those used in the New Republic article don't provide a picture of net mortality.There are, of course, studies that attempt to use regression analysis to connect climate change to declines in life expectancy. Some show connections some do not. For example, in the Journal of Economics and Financial Issues, a study on Nigeria concluded the data "suggests that greenhouse gas (CO2) emission has not reduced the average number of years of Nigerian life." (a http://econjournals.com/index.php/ijefi/article/view/6552/0). Another recent study concluded that variations in temperature produced more mortality in chronically ill people over 65. (https://factor.niehs.nih.gov/2012/5/science-temperature/index.htm), but as with so many other issues, the answer was more easily addressed through strategies that are readily available in more industrialized nations such as adding green space and use of air conditioning. That is, it's easy to blame large numbers of deaths on climate change while ignoring the many ways that mortality rates and life expectancy are simultaneously being improved by our industrialized fossil-fuel powered modern society.
Admittedly, significant changes in food availability have some of the highest potential for significantly impacting life expectancy predictions. But if this occurs, it would then be necessary to connect food availability to climate change itself. After all, malnutrition issues in Africa are heavily impacted by economic and political problems caused by governments — such as civil wars and dysfunctional economies. Clearly, it would be nonsensical to point to the current situation in Venezuela and claim the current shortages there are significantly due to a climate-change problem. It's not enough to point out there are malnutrition problems. It's also necessary to show the exact extent to which climate change has been a significant driver.
Natural Disasters Are Not a Significant Cause of Growth in Mortality Nor can much of a case be made for claims that climate change causes more deadly natural disasters.
The media has attempted to create the picture that climate-change-related natural disasters are worse than ever, but this case can only be made in terms of dollar amounts. This is because, at least in wealthy parts of the world, people are putting more expensive cars, homes, and other amenities in harm's way. A street full of flood-ruined automobiles is far more expensive today than in the past.
In most of the world, though, the cost of climate-change-related natural disasters is much lower — in terms of human life — than in the past. The evidence points toward sizable declines in deaths due to natural disasters, and these deaths are far fewer today than a century ago:
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This should not be surprising since modern economies and higher standards of living make it easier for populations to take shelter and get out of harm's way. Vehicles and equipment needed for medical triage are more readily available, and there is greater surplus wealth to deal with large temporary relocations of populations.
The Lancet itself report also notes that natural-disaster related deaths are unlikely to be relevant to life expectancy predictions:
Predicted impacts in other studies on extreme weather-related deaths and heat wave deaths are not large enough to have much impact on global life expectancy.
So, while journalists like to talk about how many people climate change will supposedly kill this year, the fact remains that the net gains in life expectancy continue to be positive. Those who want to rein in economic activity in the name of climate-improvement would be destroying the very thing that's improved the quality of life for billions already. Second, the anti-climate-change research would have to show that carbon taxes and similar policies will both reduce climate-change and increase access to better medical care, housing, and clean water. This has certainly not been done. In fact, as Robert Murphy has noted, we have every reason to believe the costs of implementation of anti-climate change regimes will be very high.
The Svalbard Global Seed Vault is a fascinating project. Built by the Norwegian government on the island of Spitsbergen at a cost of approximately $9 million and opened in 2008, its mission is to preserve the seeds of the world’s food crops in case other seed banks lose samples due to mismanagement or large-scale regional or global crises. With a futuristic-minimalist entrance and a rather unostentatious interior, it has all the makings of a plot point in a dystopian novel.https://www.croptrust.org/our-work/svalbard-global-seed-vault/interactive-visit/
In order to fulfil its mission, the vault was designed to be “failsafe” — able to preserve the seeds even if human maintenance were to be disrupted. As such, it has been built in a tectonically stable region, high above the sea level, and deep inside a mountain encased by permafrost, so that the seeds would remain dry and frozen even if the polar caps were to melt or the cooling system stopped operating. In late June, however, doubts were cast on how failsafe the vault actually is, when melting snow and heavy rain led to water flooding the access tunnel, freezing on the way down.https://www.theguardian.com/environment/2017/may/19/arctic-stronghold-of-worlds-seeds-flooded-after-permafrost-melts While the water did not threaten the seeds per se, future survivors of the apocalypse, after trekking all the way to Spitsbergen, might find their access to the vault blocked by a tunnel full of ice.
What went wrong? Given was built to even withstand the melting of the polar caps, one can rule out that the recent flooding is a portent of a changing climate that defied even the wildest expectations of the expert planners. In fact, the possibility of water entering the access tunnels of Spitsbergen’s coal mines seems to have been well-understood by mining companies, which builds most of the tunnels leading to mines with an upward slope, allowing water to flow out of the tunnels instead of into the mines. For some reason, however, the access tunnel to the Global Seed Vault was constructed with a downward slope. As one coal miner put it: “For me it is obvious to build an entrance tunnel upwards, so the water can run out. I am really surprised they made such a stupid construction.”
Now, the Norwegian government is looking into fixing the problem and re-establishing the failsafe nature of the vault, investing a further $4.4 million (some 50% of the initial cost of the vault) for improvements, including $1.6 million to find a suitable access solution. One suggestion they already got for free from the coal miner quoted above: “Make a new access tunnel going upward so the water can run out, not into the seed bank.”
What are the lessons from this mishap? Evidently, it is not a major disaster, and in the current day and age, the few million dollars that will be spent on fixing the problem appear rather minuscule compared to other public expenditures, such as the $16 million-a-piece Moab bomb the US government dropped on Afghani militants in April. Yet, it does serve to illustrate some general problems of planning.
Planners cannot take every eventuality into account and sometimes, the experts might overlook seemingly minor details which are common knowledge to common people. Had the developers of the seed vault just consulted the right miners with field experience building access tunnels in Spitzbergen, the Norwegian government could have saved itself millions of dollars. While in this case, the consequences of planning failures are not dire, this can change once large-scale plans affect actual people and their livelihoods. If one looks, for example, at unsuccessful urban planning projects, costs can spiral and what was intended as urban renewal or social housing can deteriorate into crime-ridden ghettoes. Moreover, the case perfectly illustrates the gap between “expert” and “local” knowledge, which, especially in global development policy, has led to countless failures of large and small projects over decades.
Of course, such challenges of planning affect the public and private sector equally. Yet, in the free market, the impact of planning failures tends to be limited in scope and enterprises have to pay for them out of their own pockets. In contrast, when the government gets involved, ambitions tend to soar, and the tax payers have to foot the bill, sometimes even the same taxpayers who have to suffer the consequences of misplanned projects in the first place.
Sascha Klocke is a PhD candidate in Economic History at Lund University in Sweden and is a member of the Austrian Economics Meeting Europe. Sascha hold a MA in African Studies from Copenhagen University and a BS in economics from Goethe University in Frankfurt, and was is a 2016 Mises Institute Fellow.
Teaching and writing about public policy for more than half my life has taught me that most of the errors made in that realm are not complicated or sophisticated, beyond the ability of “ordinary people” to understand. They are failures to apply basic logical and economic principles. The complications and sophistication mainly arise from efforts to disguise the misrepresentations and wealth transfers being committed, when policies are designed, presented and scored. (For example, see my “Comparing Obamacare Scams.”)
My experience implies that seeing through the policy camouflage to recognize where analyses are inconsistent with core principles is a primary skill in evaluating policies.
One such helpful guide to accurate economic analysis is the principle of symmetry. That is because the logic of economics focuses on the need for individuals to choose, which derives from scarcity. Choosing in the face of scarcity means bearing the costs of foregoing other things we also value with every choice. Consequently, virtually anything that would change the marginal expected benefits or the marginal expected costs of a choice to a decisionmaker would predictably influence what self-interested individuals choose.
An increase in the marginal expected benefits or a decrease in marginal expected costs of a choice or behavior will tend to increase its amount. Symmetrically, a decrease in marginal expected benefits or an increase in marginal expected costs of a choice or behavior will tend to decrease its amount.
Such symmetry means that if a lower price leads to an increase in the quantity of some good demanded, other things equal, a higher price for a good must lead to a decrease in quantity demanded, other things equal (i.e., the law of demand holds in either direction); that if a higher price leads to an increase in the quantity of a good supplied, other things equal, a lower price must lead to a decrease in quantity supplied, other things equal (i.e., the law of supply applies in either direction). Similarly, if a $1 per unit subsidy would increase production of a good, a $1 per unit tax would decrease its production.
Failures to apply such symmetry in economic analysis reveals misunderstanding and/or intentional deception. Yet such errors are ubiquitous in the marketing of public policy proposals, always (shockingly) in the direction that advances the self-interests of the special pleaders.
Consider how this plays out with price controls. Those who push for higher minimum wages (and similarly for other price floors) go to great lengths to argue that they won’t have an appreciable effect reducing employment (i.e., the law of demand has so little power that it essentially does not hold in that case); those who push for rent controls (and similarly for other price ceilings) go to similarly great lengths to argue that they won’t have an appreciable effect reducing the amount of rental housing available (i.e., the law of supply has so little power in that case that it essentially does not hold). They often supplement their “this is an exception” claims by hiring what Henry Hazlitt called “the best buyable minds” to produce “research” reverse-engineered to get the desired conclusions (for example, when the city of Seattle authorized a study of a higher minimum wage, and then authorized another study to contradict it when the results were adverse).
In fact, the pro-price control cases both misrepresent the analysis and contradict each other.
Minimum wage advocates present the issue as a simple leading question for low-skill workers: “If you could earn more per hour of work, wouldn’t you would be better off?” It is true that they would be willing to work more at higher wages, reflecting the law of supply, but higher wages reduce how many of their services employers will hire, reflecting the law of demand. Since you need both willing buyers and willing sellers for each market exchange, fewer of those labor services will be actually be employed as a result. Therefore, the framing of the question misrepresents what economics reveals would be the result.
Symmetrically, rent control advocates frame that issue as a simple leading question for renters: “If you could rent for less, wouldn’t you be better off?” It is true that reducing rents by law will increase how much housing renters will want (reflecting the law of demand), but rent control will reduce how much landlords will offer (reflecting the law of supply). Since you need both willing buyers and willing sellers for each market exchange, renters will get less housing, rather than more (although existing renters gain because the costs are focused on those not yet trying to rent in an area). The framing of the question again misrepresents what economics reveals would be the result.
Further, despite the fact than minimum wage increased supporters also support rent controls, those argument for each shows the glaring error in the argument for the other.
If higher mandated wages increase the amount of labor services offered, the reverse must also be true. Lower wages must reduce workers willingness to offer labor services. But if that is so, rent controls must, symmetrically, reduce landlords’ willingness to provide housing, and rent control will restrict rather than expand tenants’ housing options.
Similarly, if legislated lower rents increase willingness to rent housing, the reverse must also be true. Higher rents would reduce families’ willingness to rent housing. But if that is so, higher minimum wages must, symmetrically, reduce employers’ willingness to hire low-skill workers, and the minimum wage will restrict rather than expand their employment options.
Many violations of symmetry also haunt government stimulus claims.
Government spending supposedly created jobs. That is true as far as it goes, but those same resources, left in the hand of their owners, would have been spent elsewhere, also creating jobs. Treating those two options symmetrically reveals that government moves rather than creates jobs.
Government spending also supposedly generates multiplier effects, producing additional benefits beyond where those dollars are spent, because added incomes from government spending generate additional spending and still more income, etc. However, leaving those dollars with private individuals instead would have left them with more of their own incomes, triggering additional spending, which would have also led to parallel multiplier effects. Government spending delivers multiplied gains only at the expense of multiplied costs, but the latter are routinely ignored.
The economic approach also requires correctly counting benefits and costs. But double counting is common. Most commonly, jobs and income are both asserted as benefits, even though the jobs are actually the work that must be done (a cost, not a benefit) to earn the incomes.
The deficit financing involved with government stimulus is also misleadingly compared to tax financing. Tax financing imposes the full resource burden of government spending in the present. Deficits, however, defer much of the burden into the future (by forcing higher future taxes, crowding out future disposable income and consumption, to pay off the added debt or finance it over time).
While these symmetry failures do not exhaust the cornucopia of examples, they reveal that it is not uncommon for multiple logical and economic errors to be incorporated in public policy proposals. Each one becomes a faulty premise in the analysis. And as I emphasized in my book, Faulty Premises, Faulty Policies, “When there are several false premises, the odds turn heavily against the likelihood of good policy…while the ability to use such tools to misrepresent or deceive increases sharply.”
As so often happens in the wake of a natural disaster, government officials in Texas are currently investigating claims of “price gouging,” which the office of the Attorney General reminds residents is illegal after the governor declares a disaster. This is a classic example of the ostensible contrast between greed and altruism, capitalism and charity.
Economists who favor the free market know the standard arguments for letting the price skyrocket to “clear the market” when there are supply shortages and demand spikes. These are important arguments, and indeed I will review them below.
At the same time, I think in our zeal to lecture the public on the efficient allocation of resources, we economists often forget to stress an important aspect of private morality when disaster strikes. Specifically, if certain individuals experience a genuine “windfall gain” simply because they happen to be holding goods that suddenly become very scarce, then these individuals can donate their windfall to support relief efforts. In this way, there is no question of them profiting from their neighbors’ suffering. Market prices are still able to perform their valuable function of communicating information about supplies and demands to everyone in the system, while the losses imposed by nature are more evenly distributed because of charitable assistance given from the lucky to the unlucky.
The Standard Arguments for Letting Prices Clear the MarketAfter a natural disaster, the supplies of certain items — such as bottled water, gasoline, flashlights, and canned goods — become much more rigid, while the demand for these items goes through the roof. Consequently, the “market-clearing price,” at which the quantity supplied equals the quantity demanded, also may rise quite significantly. (There were reports of a convenience store in Houston charging $99 for a case of bottled water and $20 for a gallon of gasoline.)
It’s obvious why most people would find this outcome horrendous, and that government officials would reassure the public that such behavior won’t be tolerated.
Even so, free market economists stress the social benefits of allowing the price to rise in this scenario. We can break these benefits into those emanating from the supply side and those emanating from the demand side. (For an excellent discussion, listen to David R. Henderson’s recent appearance on the Tom Woods Show.)
Benefit 1: Calling in More Supplies On the supply side, a much higher price acts as a loudspeaker telling the rest of the world: “Houston wants a lot more bottled water and gasoline!” Even though we might casually say that after a natural disaster, the supply of these items is fixed, strictly speaking that isn’t correct. Except in the most outrageous circumstances (such as an avalanche or radiation leak), outsiders can bring in additional amounts of these precious items.
It’s certainly true that morality comes into play here. For example, a convenience store owner who lives only an hour from Houston, and who has a big van, might decide to cancel his golf plans to instead make a few trips to either donate or sell “at cost” whatever supplies he has, in order to do his part in relieving suffering. Most Americans would probably say that was “the right thing to do” for somebody who found himself in that situation, when the news reported just how bad the flooding was.
But what about a convenience store owner who lives six hours from Houston? Is it acceptable for him to charge a bit more than “cost” or even “normal retail price” in order to recoup some of the sacrifice he would have to make — not just counting the gas in his vehicle but also the opportunity cost of missing work — if he were to make one or more round trips?
As we change the circumstances, Americans would begin to disagree about the exact moral obligations of various people who happened to have access to much-needed goods. But we can certainly agree that in practice more people would end up deciding to help move water, gasoline, flashlights, and other items into Houston, the more we allowed them to charge for these items once they unloaded them in the beleaguered city.
Also keep in mind that this “upward sloping supply curve” — meaning that as the price rises, there are more units of bottled water (say) in Houston — doesn’t just operate geographically, but it also operates temporally.
Benefit 2: Storing Up Goods for Emergency Use For example, suppose the manager of a grocery store hears on the news that a hurricane is approaching. If she believes the authorities will let her charge whatever the market will bear, then she might decide to stock the warehouse with extra cases of water, flashlights, batteries, generators, etc. She knows that if the storm turns out to be a nothingburger, she will have to run a big sale the following week, in order to clear out the excess inventory. (After all, she presumably already had the optimal amount of inventory before the impending hurricane made her bulk up the warehouse.)
However, so long as our hypothetical grocery store manager knows she will be legally allowed to charge (say) quadruple the normal price in the event of flooding, then she will probably err on the side of loading up the warehouse with more units, compared to her decisions if she knows that the authorities will punish her for “gouging” her customers.
Similar reasoning holds for gas station owners, who might have the ability to load up on unusually large amounts of inventory — perhaps by having extra trucks come in, and remain on their property — but would only be willing to incur this extra expense, if they thought there were a possibility the market price of gasoline would break (say) $10 and that the authorities would allow them to charge such prices.
As these examples illustrate, the amount of bottled water, gasoline, batteries, etc. “on hand” in Houston when the hurricane struck is itself influenced by the attitude of the authorities toward “price gouging.” Business owners and pure speculators didn’t ship in as much of these goods as they would have done, in an environment in which voluntary transactions were sacrosanct legally.
In his interview with Tom Woods, Henderson also made a very subtle point about high prices inducing owners to carry goods forward in time. I’ll illustrate his point with a hypothetical story: In the current legal environment, with prohibitions against “gouging,” a Houston store owner sitting on a few pallets of bottled water would probably just unload them all on Day 1 and leave town, because there would be nothing else for him to do. However, if the authorities and the public didn’t condemn owners for charging the true market price, such a person might reason, “Right now bottled water is selling for $10 per case in this neighborhood. But if the rain doesn’t stop and it takes longer than people expect for the streets to clear, it’s entirely possible that I could hold back 50 of my remaining cases in the back storeroom, and then sell them for $50 each in a few days. The prospect of getting an extra $2000 totally makes it worth my while to sleep here in the store for a few days, rather than leaving Houston.”
This type of analysis shows that we want high prices not simply to tell businesses in Arkansas that they should sell some of their bottled water in Houston, rather than unloading it all in Little Rock, but also to tell businesses in Houston that they should sell some of their bottled water on Day 5 after the hurricane rather than unloading it all on Day 1.
Benefit 3: Encouraging Conservation In the previous section we outlined the social benefits of high prices coming from the increased quantity supplied of the crucial items. On the flip side, letting prices rise will also encourage conservation among the end users, so that any given supply of items is “rationed” among people more uniformly.
Consider bottled water. Once the storm hits and a particular family knows they will be stuck in Houston for several days with flooded streets, the first inclination might be to run to the store and stock up on needed items. At the normal retail price, a mother might buy 10 cases of bottled water, not only for drinking but also in case they need to use it for (say) boiling pasta. After all, who knows how long the utilities might be knocked out? She reasons that she can store the cases in her pantry and draw the water down over the next two months, if it turns out that things go back to normal sooner rather than later. There’s no harm in stocking way up on water, just in case.
But of course, this is exactly what we don’t want people to do, in a situation where there are only (say) 3 cases of bottled water per stranded family in the city. We want the people who hit the stores before their neighbors to be very judicious in how much they buy, because they need to leave other units on the shelves for the next families who show up.
This is exactly what an “unconscionable” price will do. If the store is charging $20 for a case of water that normally retails for $4, our hypothetical mother won’t so casually load 10 cases into her SUV. After that sticker shock, suddenly boiling pasta with bottled water won’t seem as appealing. Maybe she’ll only buy 3 cases of water, and get some cans of tuna fish and protein bars instead.
When it comes to gasoline, there is a particular perversity of anti-gouging rules in the case of an impending storm. Imagine yourself as a military commander, who has thousands of vehicles you need to move away from the coast, and you only have a limited amount of fuel on your coastal base. However, there are plenty of refueling depots a few hours inland. What do you do?
The obvious solution is to only allow your troops to put enough fuel in their vehicles to make it to the next refueling station. This spreads the available fuel around so that you can evacuate as many vehicles as possible.
Now back to the real world: In the path of an incoming storm, where thousands of people want to evacuate the coast, depending on refinery interruptions and other bottlenecks, it’s possible that some local stations will run out of gas if they don’t raise their prices significantly. The people who are lucky enough to get to the stations first will naturally fill the tank up, before getting on the interstate to get out of Dodge. Then the unlucky followers will see the gas station is empty, and may end up stalling on the interstate. The authorities then have a problem of dealing with stranded motorists who are stuck not because of flooding, but because they ran out of fuel during their escape.
In contrast, if the few relevant station owners charge $15 per gallon, then people who had (say) a half-tank in their car when the storm hit, will say, “That’s outrageous!” and get back on the highway, to see if prices are any better in another 50 miles. At a price of $15, only people who are about to run out of gas will buy any, and even they will only purchase enough to give them some breathing room. They too will probably take their chances and hope that gas is cheaper if they move away from the storm. Just as our hypothetical military commander, the decentralized price system allocates the scarce fuel among the vehicles to allow as many as possible to evacuate.
Is It Moral to Profit While Others Suffer?Some people on social media heard these familiar economist arguments, but pushed back. “Yeah, we get your points about ‘efficiency,’” they said. “But let’s face it: During a disaster, plenty of heroes rise to the challenge, putting themselves in harm’s way in order to do what they can to help people in need. It is simply wrong for some convenience store owner who had just coincidentally gotten in a shipment of bottled water the day before, to effectively hit the lotto while his neighbors lose their house.”
I am sympathetic to this point, and I agree that typical libertarian economists often come across as coldhearted and seem detached from this everyday morality. (Indeed, this was the position I took in my concluding essay to the Independent Institute’s new book, Pope Francis and the Caring Society.)
Yet rather than prohibit owners from charging “what the market will bear,” I think a better way to avoid personally profiting from the tragedy of others is to suggest that they donate their genuine “windfalls” to relief efforts.
For example, consider a convenience store owner who happens to be sitting on 100 cases of bottled water that he normally sells for $4. (Assume he didn’t take any special measures to bulk up before the storm hit; this is the inventory he would have been holding in any case.) Because of the flooding, he realizes he could probably charge $14 and still sell out. So there is a potential $1,000 ( = $10 margin of “gouging” x 100 cases) in pure windfall profit he could make.
The conventional moralists would say no, he should keep his price at $4. But they have in mind that he would otherwise take that $1,000 and pocket it.
Suppose instead, however, that the owner charges the full $14, but then donates his $1,000 windfall to a local relief effort that is handing out free packets of food and dry clothes to families who were flooded out of their homes and have literally nothing (including wallets). Or to make the point even more clearly, suppose he donates the $1,000 windfall to a local organization that uses the money to buy bottled water and hand it out to desperate people?
Once we go down this path, we see that the insistence on charging only $4 for the cases of water really just means that our hypothetical store owner is concentrating his $1,000 worth of charity on the particular Houstonians who happen to walk into his store and pull out their credit card to make a big purchase. What are the odds that these people are the ones in Houston most in need of his implicit $1,000 charitable donation that day?
ConclusionAs economists in the Austrian tradition stress more than others, market prices act as signals that allow humans to communicate valuable information with each other. Just as it would stymie relief efforts if rescue workers couldn’t use cell phones or walkie talkies in a disaster area, by the same token government officials hamper humanity’s ability to recover from a crisis when they prohibit market prices from letting producers and consumers talk to each other.
The New York City Health Department wants to ensure that pet sitters are licensed, and has warned a popular internet-based pet sitter service that its users are in violation of the law.
Following outrage, the Health Department clarified and somewhat softened the regulations, stating that “individual families” would not be targeted, but that commercial pet sitters in private homes would be.
It’s worth discussing how a regulation like this will apparently be enforced, as it explains a lot about how state agencies think about us.
First off, we get the usual justification from the Health Department about why these rules are necessary to protect us:
Health Department spokesman Julien Martinez said the ban is justified by public health concerns.
“To ensure the health and safety of pets and reduce risks to public health, the NYC Health Code requires certain businesses to obtain a Health Department permit and comply with necessary regulations — this includes animal boarding facilities and kennels,” he said. “We also conduct inspections of these facilities to make sure animals would be secure and safe.”
Note the keywords, “health” and “safety” at the beginning, as well as “public health” — who can be against “health,” “safety,” and “public health”?
One rare article that tried to defend the regulation is very enlightening. We learn that, for some reason, the Health Department will not issue the licenses to private homes that house or board pets. But, not to worry, hiring someone to come to your home to care for your pet, or perform walking services, remains legal. And, if someone simply watches your pets while you are gone, and no money changes hands, that’s acceptable (according to the city), too.
So, the target here is someone who wants to mimic, and improve upon, the services offered by commercial pet boarders.
As explained here:
Pet owners themselves also lose out, since these apps are more convenient than traditional boarding kennels. Whereas traditional kennels usually require pets to be dropped off on-site, which can mean more time spent schlepping a crate around the city, Rover [the competing pet sitting app] allows pet owners to select from a bevy of care options, including drop-in visits, midday walks, in-house pet-sitting and traditional boarding.
Which leads to the most telling part of all:
As The Wall Street Journal put it in 2014: “While it’s hard to find a cage in a Manhattan kennel for less than $60, rates on these sites [such as Rover] start at around $20 a night.” This is a significant difference for lower and middle-income New Yorkers, who could potentially be priced out of the market if forced to use traditional kennel services.
So, we see how this regulation, whether intentional or not, is serving to protect commercial pet boarders who might be put out of business from this new competition. While earning $20 and up per customer per night could serve as a nice source of supplemental income, the fact that the Health Department fines begin at $1,000 serves as an effective barrier to anyone thinking about performing these services.
And, the fact that these services have sprung up at all suggests a market need. Indeed, one of these interest-based service providers has 95,000 register pet owners, and 9,000 sitters — surely enough to scare the established commercial pet boarders.
Beyond the obvious protectionist effect of these rules, the role of the licensing in helping to ensure the “health” and “safety” of the pets can easily be questioned. While it does appear that a licensed pet boarder has to undergo an annual inspection, most of the process seems to focus on getting documents and paying fees. The documents indicate that an Animal Care and Handling course has been successfully passed, but whether this is even relevant when compared to the experience (as mentioned here, one pet sitter is a former zookeeper and wildlife researcher) of those wishing to board pets in their own homes is unknown.
Why can’t pet owners and potential boarders simply meet, as often as necessary, and make mutually-beneficially arrangements (which is happening with the new service providers)?
This is yet another example of how a state agency is attempting to save us from ourselves. As mentioned above, currently, there are limits on state authority in terms of who has to have a license for pet sitting, but why? Why is it acceptable for someone’s neighbor to care for their pets? The neighbor hasn’t has any type of training, presumably. There is no certificate telling everyone that all is well. What about the “health” and “safety” of pets in these situations? Taken further, what about the well-being of horses kept on someone’s farm, or animals raised for food? Potentially, there is no end in sight for this “solution” that seems to be looking to find a “problem.”
History is something one can try to escape, but sometimes you can’t as millions of train riders find out every day.
They can’t escape Penn Station falling apart along with Amtrak, New York City commuter railroads, and the New York City subways. They all have the same problem: Every day they are reminded of the sordid history of government enterprise with derailments, delays and the billions of dollars of red ink of these dysfunctional systems. The bill is handed to the taxpayers whether they ride these trains or not.
As the New York City subways, Amtrak, and other government enterprises continue to fail, mainstream media and our political class have consistently missed how we reached this point of rail disasters as the norm. That’s because few of them have time for history. The management of Amtrak, New York Subways is actually a story of generations of the limitless failures of government. Indeed, most of the analyses and criticisms of government ownership and management of the subways are hopeless.
Among the lost are the Goo-Goo groups of the 1930s — who called for public subway ownership — and their scions, the Straphangers Campaign of today. And then there's the allegedly laissez-faire Manhattan Institute. All reject the privatization discussion. That’s because they work from a proposition that Albany and Washington, owing to their ability to tax and spend, are omnipotent and should continue to run transit systems; that they are part the solution. History proves the opposite.
The City to the Rescue?Today, there is an assumption that no degree of private management can be allowed on the rails because they will always fail.
Yet it was private management that was there at the beginning. Private railroads helped build the economy of the United States in the 19th and 20th centuries. And it was private management that was essential when the first subways were built.
Private management companies built the first lines in 1904 under a contract with the city. They were considered “an engineering marvel,” wrote Robert Caro in The Power Broker, his biography of the New York uber-builder and power broker Robert Moses. And the subways made money in their first 15 years of operation until the inflation of World War I squeezed the nickel fare. Repeated attempts to raise the fare in the 1920s and 1930 were rejected by politicians as the actions of “greedy” owners. However, soon after the city took control of the subways in 1940, ousting the last private companies, fares went up and up.
But the ousting of the private management companies and the triumph of government enterprise supposedly heralded a new brighter period in subways. The sacred nickel fare would be protected. Labor unions would be happy and wouldn’t strike. (They would illegally strike several times and cripple the city’s economy). New lines would be built because, in 1940, the avaricious private management companies had been shown the door.
Back then Mayor LaGuardia drove the first city train after the last private management company was bought out. He also promised a Second Avenue subway line as the city’s East Side el lines were ended. It took three bond issues over more than half a century even to get just a few stops of the Second Avenue going. New York Governor Cuomo, in recently opening the stations, bragged about the accomplishments of the system. However, he said nothing about the reverse signaling system the subways desperately need but haven’t been able to afford over decades. Yet what happened in 1940 had a significance that has redounded throughout the American economy. Governments increasingly moved into areas that no one could have imagined generations ago.
The Broken Promises of Forgotten LeadersLet us review where this all started — the supposed golden era of the New York City subways that started just before World War II
The subway promises of 1940 were a joke in every way — from the fare to the quality of service to the promises of line extensions (Example: what happened to the 1960s plan to extend the E and F lines to the Queens/Nassau border? It never happened. This one of a number of trains to “nowhere,” new branches that were started and never finished). Under city mismanagement, the subways became a mess. The city yielded control over the subways in 1968 to a state authority.
Now, after almost 50 years of Albany controls, after countless bond issues and deficits in a system that is an effective monopoly, the system, by all accounts, is a disaster. Many New Yorkers, in numerous ways, have no confidence in this state subway system, with millions of New Yorkers driving cars even though it is incredibly expensive to run a car here (My old neighborhood in the South Bronx, a poor area, has a huge parking problem).
The state authority running the subways, the Metropolitan Transportation Authority (MTA), is in debt and hasn’t been able to maintain the system properly for decades, a fact mainstream New York media only seems to have discovered lately. Vital repairs and improvements can’t be made because the subway system has no money since it consistently loses tons of money. Yet the MTA spends billions of dollars recklessly and has its headquarters in the most expensive part of town, located on Madison Avenue in Midtown.
New York City Mayor Bill de Blasio, who rarely rides the subways, now offers to solve their problems. The mayor says the city should take over the subways from a state authority. Apparently, he has forgotten that the city under LaGuardia once owned the subways. Few pols are willing to learn from history.
An Enlightened Critic IgnoredOne journalist understood what was happening when private companies were forced out of the subways.
“The City of New York has set a pattern for the nationalizing of the railroads of the country.” Libertarian journalist Frank Chodorov, in reviewing the events of 1940, said that, “A regulatory body, with power to fix rates and compel unprofitable operation, squeezes the business into bankruptcy, so that the owners are quite willing to sell their property to the taxpayers, and bureaucracy improves its position.”
Chodorov’s analysis was prescient. He would be proven right in the 1970s under President Richard Nixon as the government took over the passenger railroads (This is the same Nixon who imposed wage and price controls, kept interest rates artificially low so he could win re-election, proclaimed himself a Keynesian and led the nation into a decade of stagflation). In the 1970s this was a group of passenger railroads that were pushed into bankruptcy by the over-regulation of the ICC as detailed in the book No Way to Run a Railroad: The Untold Story of the Penn Central Crisis by Stephen Salisbury.
Nixon’s kind of backdoor socialism is one that had been under discussion by American social democrats for over a century. Their goal was, and is, how does one repackage socialism to the average American, a person who usually is repelled by the idea.
The backdoor socialism dream of progressives to take over transportation companies through over-regulation goes back to Herbert Croly and William Jennings Bryan, who favored nationalization of the railroads after visiting Czarist Russia. Wrote Croly in The Promise of American Life in 1909, when the idea of government railroads and transit systems seemed ridiculous, “the railroads might submit to the operation of some gradual system of appropriation, which would operate only in the course of several generations, and the money for which could be obtained by the taxation of railroad earnings.”
By 1971, Americans got a national passenger railroad system called Amtrak. Amtrak officials, at the founding, then promised “the greatest turnaround in business history,” as detailed in the book End of the Line by Joseph Vranich. That hasn’t happened as anyone who uses Penn Station these days will tell you. Amtrak ran in the red from day one (Amtrak lost at least $13 billion between 1972 and 1997, according to author Stephen Moore). In fact, all the lines using Penn Station, including New Jersey Transit, the Long Island Railroad and the city subways, are deep in the red.
Feeding the State Enterprise BeastYou don’t solve the problem of government enterprise by giving the entity — whether it be the New York City Subways or Amtrak—more money and more power. For instance, Senator Chuck Schumer proposes that Amtrak now be given trillions of dollars in new funding. The governor calls for an emergency appropriation of a billion dollars. Many city officials propose the same for the subways. But this has been tried before. Often bond issues were once routinely approved by trusting New York voters. Proposed emergency plans, all providing for more taxpayer geld and new forms of state or city authorities, abound.
Writes one historian of the subway system: “If anything has emerged as a timeless and universal characterization of the New York Subway, it is the endless search for some future salvation, some not yet realized resolution of it difficulties and cure for its ills. Plans are made, programs developed, goals established. But they never quite live up to their initial expectations, and a new cycle must begin.”
The writer was Brian Cudahy, and yet he is a former federal transit official and longtime defender of this flawed system of public subways. He wrote that some 20 years ago.
Collectivism and CoercionSubway socialism, the government enterprise of Amtrak, not only is collectivism, which is inherently flawed, it is undemocratic. No elected official is directly in charge of these enterprises. The New York governor, for instance, appoints some but not all members of the state authority that runs the subways. That is the way our lawmakers duck responsibility for the woes of the government trains.
Most of the lawmakers haven’t a clue about what is going on at the MTA or on Amtrak. And that is the way they want it. They wanted transportation companies to stay in the public sector, but they don’t want to be held accountable when Amtrak trains crash, the subways break down or when high speed train service is egregious.
This collectivism combined lack of accountability in running state enterprises is dangerous.
“If anything has been demonstrated by modern experience in these matters,” F.A. Hayek wrote in 1960, “it is that, once wide coercive powers are given to government agencies for particular purposes, such powers cannot be effectively controlled by democratic assemblies.”
It is the same with the majority of mainstream media. It still favors continued government ownership of the subways and almost always rejects op-eds like this one (I write from experience).
Through the years it and most state and city lawmakers have failed in its job of policing these government authorities. Most media outlets don’t even go to MTA meetings and have no specialized reporters covering these transit authorities.
But again, this government ownership with no accountability idea is part of the long history of government enterprise. Alexander Gray, an economist who wrote the “The Socialist Tradition from Moses to Lenin” over 70 years ago, warned of the lack of accountability in the London Underground. “More and more,” he wrote, “the state interferes and controls, the less does it show a disposition to accept ultimate responsibility.”
Sounds similar to New York or Amtrak or almost any other government enterprise today.
Gregory Bresiger (GregoryBresiger.com) is an independent business journalist who lives in Kew Gardens, Queens, New York. He is the author of MoneySense, a forthcoming book of basic of money management with a libertarian point of view.
In a tale of questionable historical validity, the British colonial government in early 20th century India found itself confronting a fearsome pest: cobras. Though natives had long since adjusted to uneasy coexistence with the snakes, the occupying force did not take kindly to their ubiquitous presence. Seeking their eradication, authorities devised a bounty program to financially reward anyone presenting a severed cobra tail.
The program worked. Which is to say it precipitated a significant increase in severed cobra tails—the only thing the prize was truly capable of incentivizing—while also presenting enterprising individuals with a profitable opportunity: snake-breeding. Snakes need their tails neither to live, nor to reproduce, enabling a single snake to generate a stream of tails by way of countless progeny. The program had transformed the vipers into a financial instrument that would continue yielding “payments” as long as the snake could reproduce.
Confronted with abysmal failure—snakes (many tail-less) were slithering through the streets in greater numbers than before the bounty project—the authorities abandoned the scheme. The dissolution of the program encouraged snake-breeders to release their now-worthless assets into the wild, where they quickly found their way back into the city. The infamous results, now known as the “cobra effect,” depict those government interventions which generate more than the “garden variety” unintended consequence. While virtually all government interventions have some unintended consequences, a few positively engender the thing they were enacted to counter.
Policymakers have spawned the “cobra effect” in a host of other contexts, including an attempt to stamp out sewer rats in colonial Vietnam and a recent effort to decimate a feral pig population at Fort Benning, Georgia. In both cases, the bounty program incentivized fraud and a swift burgeoning of the pest populations.
It’s partly due to the “cobra effect” that I note with trepidation the summons for the United States to imitate Europe in its comprehensive scheme to regulate digital privacy. Since the 1995 Data Protection Directive, the EU’s regime has seen several updates, notably in 2002 and in 2016, with the General Data Protection Regulation (GDPR) set to take effect in mid-2018.
Digital privacy means different things to different people. And the expansive scope of the GDPR renders sensible discussion difficult because the law contains many disparate directives. Much of the GDPR is aimed at curtailing the alleged “abuse” of non-sensitive information (an Internet firm tracking a browser’s activities) rather than at cybersecurity (credit card theft). Some view web privacy as a “fundamental right” on which private firms, by their surreptitious collection of data, are trampling. Ironically, these same critics often remain silent on the government’s own privacy-invasive activities, which, at best, have a “chilling effect” on digital activity.
Regardless of one’s stance on digital privacy, there are reasons to question whether top-down regulation is the answer to perceived privacy problems. Though the productivity-reducing impact of the European legislation has already been anticipated, I want to focus on the “cobra effect” potential of privacy law.
Commentator Geoffrey Manne warned of the Obama administration’s proposed “Consumer Privacy Bill of Rights Act.” Like many pieces of legislation with nice-sounding names (who could be against privacy rights?), the law carried the potential to increase serious privacy threats. Though many firms don’t link real-identifying info (name, credit card number) with more anonymous info (IP addresses), this bill would force firms to do just that. The rationale? So that consumers can demand to know what information has been collected and demand its deletion. For the same reason, the law might also require businesses to keep more detailed databases of their customers. This makes firms a more attractive target for would-be hackers. The cobra strikes again.
A 2005 study took advantage of the stark differences between Europe and the United States with respect to digital privacy law. Whereas Europe has an overarching digital privacy regime, the U.S. has nothing comparable. That study found that the United States is home to a flourishing industry devoted to third-party certification of firms’ privacy practices. Not unlike Consumer Reports, particularly privacy-conscious firms can earn a digital “sticker,” testifying to their superior privacy practices. By contrast, the United Kingdom boasts only a handful of companies offering similar services. As the authors suggest, privacy law in Europe has “crowded out” the emergence of a quality assurance (in this case, assurance of privacy) market. The results of this study suggest that it may be easier for privacy-sensitive U.S. consumers to identify websites that value consumer privacy. In the United Kingdom, consumers have fewer means to differentiate between the privacy practices of rival firms. Most firms simply gravitate toward the baseline privacy mandated by EU law (and some even skirt that). The result: a regulation intended to confer privacy makes it more difficult to evaluate firms’ heterogenous approaches to privacy.
Lastly, under the new regulations, consumers have more opportunity to forgo supplying the information that firms seek as a “payment” in return for offering their services free of charge. Indeed, one study has shown that the 2002 updates to the directive reduced the ability of digital firms to collect information and thus target digital advertisements to interested consumers.
Since many digital companies depend on collecting this information to sell it to advertisers, the regulation puts the squeeze on a host of firms. Less information to sell means less revenue. Firms begin looking for second-best ways of earning income. Some of them may begin charging money prices for services that were previously offered in return for information. In turn, this may lead to an increase in credit card transactions. With an increase in “sensitive” transactions, there are more opportunities for digital theft. Once again, an effort to nudge consumer-firm interaction toward privacy may result in more egregious privacy violations.
Governments are good at shifting risk in sneaky ways, but they can’t legislate it out of existence. And the cobra’s venomous bite provides ample reason to mistrust Big Brother’s attempts to impose privacy on us all.
It would seem that most people on the planet have seen the viral video of Alex Wubbels, the nurse at the University of Utah Medical Center, being arrested by police officer Jeff Payne because she insisted on following state and federal law, along with hospital protocol, regarding Payne’s demand that he be permitted to draw blood from a car accident victim. Not surprisingly, most viewers have reacted with outrage and after the incident became public, the Salt Lake City Police Department placed both Payne and his lieutenant, James Tracy (who ordered the arrest), on paid leave.
Pretty much everyone agrees on this one point: Payne and his boss at the very least violated department policy and probably broke the law. Whether or not they are punished is another matter.
In releasing the video during a press conference last week, Wubbels said that while she was grateful for the overwhelming support she received and for the apologies given her by the Salt Lake police chief and the city’s mayor, she called for “more training” for police officers to keep them from violating the law. Would be that Payne and his lieutenant engaged in this outrageous behavior simply because they had lacked proper “training.”
We have been down this road many times. The idea that government is supposed to protect our “inalienable rights” (in the words of Thomas Jefferson’s eloquent Declaration of Independence) is woven into our mystical political fabric, but instead of protection, governments hand out abuse, lots of abuse. While the vilification that Payne and his police allies presently are receiving is well-deserved, the real problem is not people like Payne, nor will firing him – as much as his superiors need to do it – will solve any fundamental problems with government agents abusing everyone else.
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No, the real problem is that we are like Charlie Brown every October, who believes that this time Lucy van Pelt will not jerk the football away just before the hapless Charlie is about to kick it. We train police officers to obey the law, write “protect and serve” on the sides of squad cars, and then watch helplessly as police rampage through our communities, shooting innocent and unarmed people, stealing their property via “asset forfeiture,” and killing their pets as an added bonus.
Let us look at the situation in Salt Lake City. Despite the fact that the police knew from when Payne arrested and brutalized Wubbels that he had acted illegally (the video of the entire incident makes that point clearly), the authorities did absolutely nothing until the video was broadcasted around the world. Yes, the police chief and mayor were “outraged” (their words) by what happened, yet their people had known about what happened and were quite satisfied with their non-response – until having their hand called. Suddenly the local district attorney wanted a “criminal investigation,” yet prosecutors had shown no interest until the general public saw firsthand their “public servants” at work.
No, we are being given the ubiquitous dog-and-pony show in which officials are shocked, SHOCKED! that one of their own would do such things, but they promise to “fix” the problem. Of course, all of us are aware at some level that what we are seeing is little more than a rehearsal for the next round of police abuse in which their supposed public overseers once again will express “shock” over what they have seen and are apologizing profusely to the next victims. And so on.
While all of us would like to “fix” whatever problem exists with police abuse, in reality it is just as impossible to rectify the situation as it is for Lucy to keep the football on the ground. It won’t happen because it cannot happen. Although we want government that actually protects our “inalienable rights,” we always will get the Jeff Paynes instead of the Thomas Jeffersons.
I am not making a cynical statement, nor is this a clarion call for people to “take back” their governments. The hard reality is that governments will not and cannot protect our rights, and it has little or nothing to do with education or one’s personal commitment to life, liberty, and the pursuit of happiness for others.
For all of the talk about “the policeman is your friend,” or that police allegedly “serve the public,” police forces are little more than the muscle arm of the state. They act as revenue collectors (although most of the revenue they collect through traffic tickets goes directly to police coffers) but their most important duty is to enforce the numerous rules that governments impose on citizens.
Far from protecting the “inalienable rights” of citizens, the police generally violate those rights – in the name of a utilitarian view of “fighting crime” and (of course) “keeping us safe.” Try reciting something from the Bill of Rights to a cop that is trying to force you to do something against your will – even if you are not suspected of having broken the law – and you will find quickly that the officer is visibly angered by your assertion of your rights.
This is not something that “more training” will cure. Most problems regarding police brutality are not the result of a lack of “training,” but rather are the result of the police officer representing a government body that is demanding submission.
Far from the Jeffersonian ideal of being the protector of our “inalienable rights,” governments today are progressive rule-making bodies. Rules tied to protecting our rights are prima facie evident, such as laws against theft, assault, and murder. We don’t need governments to tell us that these actions are wrong; indeed, there are laws against them precisely because everyone recognizes their wrongness and people do not object when governments declare murder to be illegal.
Very little of what governments do today have anything to do with protecting citizens. Instead, governments impose numerous burdens upon others by telling them what they can eat, what they can say, what plants are permissible to ingest and which are not, and how we are to interact with others when we engage in economic exchange and production. In earlier days, before the Progressive Era brought about a sea change in how Americans view government and how governments interact with citizens, criminal law revolved around the legal doctrine of malum in se, which means that an illegal act, such as murder, is wrong in itself. Today, the vast number of “crimes” that land people in prison are based upon the legal doctrine of malum prohibitum, which says an act such as smoking marijuana is wrong only because a governing body says it is wrong.
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The distinction is vital because “crimes” committed under malum prohibitum often are acts for which all parties involved gave consent and no one was harmed. People charged with such crimes are lawbreakers only because the authorities say so.
As famed attorney Harvey Silverglate wrote in his book, Three Felonies a Day, there are thousands of laws, both federal and state, in which anyone that transgresses them can end up in jail. Almost all police officers will enthusiastically enforce these laws, even if some of them believe the laws to be unjust. (The typical response to the injustice claim is: “I’m just doing my job.”)
Indeed, after Payne violently arrested Wubbels and shoved her into a hot police car (making her wait in the sweltering heat), Tracy, who ordered the arrest told Wubbels that “Your policies are getting in the way of my law.” In other words, the cop believes that whatever he says is the law, no matter what courts and legislatures might say.
People with such mindsets – and they are legion in police departments – have no intention of protecting the rights of anyone but themselves. The so-called Policemen’s Bill of Rights, which is little more than a get-out-of-jail-free card for police who break the law, is an affront to any kind of rule of law, because it provides legal protections to government employees that are not available to ordinary citizens.
It is safe to say that most police today – and most politicians, frankly – see the rights of due process enshrined in the Bill of Rights not as rights that police need to protect, but rather as barriers to “good police work.” Officer Payne wanted a blood sample, and he was going to get a blood sample no matter what the law or medical procedures might be because that was his job, and if the rights of citizens clash with what the police see as “doing their jobs,” they will ignore the rights of individuals every time.
A few weeks ago I was quoted, along with several other business-school professors, in a newspaper article on President Trump's management style. Does the fact that Trump was a successful businessperson before becoming President -- rather than a lawyer and politician, like most of his predecessors -- make him a better chief executive? (George W. Bush was a Harvard MBA and a titular head of a professional baseball team, but not particularly known for his business acumen.) Now that we have an ex-CEO in charge, will the federal government be run more efficiently than usual? Is business leadership good preparation for political leadership? How good is Trump's management style?
As you might imagine, the business-school professors were mostly unimpressed. A family real-estate business is not a Fortune 500 company. Trump is a salesman and deal-maker, not a manager. He doesn't exhibit classic leadership traits like humility, caution, prudence, and so on. Nothing too surprising there.
In my conversations with the reporter, I emphasized a different point, one mentioned only in passing in the published article. Specifically, government cannot be "run like a business," as people sometimes hope, because government and business are intrinsically different.
Sure, the US federal government is a massive organization with thousands of employees and hundreds of divisions, branches, and department. It has buildings and equipment to buy and replace, teams to be put together and directed, strategies to be formulated and executed, payrolls to be met. But, as Ludwig von Mises emphasized in his classic 1944 book Bureaucracy, those similarities are superficial.
Private companies exist for one primary purpose: to earn profit. Participation, as an employee, supplier, investor, or customer, is strictly voluntary. The firm's capital is privately owned. Profits are earned, and losses avoided, by producing goods and services that consumers want and are willing to pay for. Under competition, we can measure a firm's success or failure in monetary terms, by looking at accounting income and the market value of the firm's assets or equity. A good executive earns profits for the firm's owners, a poor one incurs losses. The details in each case are varied and fascinating -- that's what we business professors study! -- but the general model is straightforward and consistent.
Government, of course, is different. Assets aren't privately owned -- in theory, the land and capital and equipment of a government agency are owned by the taxpayers, or the citizens, but are de facto controlled by bureaucrats and politicians. The (ostensible) purpose of a government agency is, well, whatever is specified in the relevant statutes, executive orders, etc. The job of the Defense Department is . . . to provide defense. The Commerce Department, according to its website, "promotes job creation and economic growth by ensuring fair and secure trade, providing the data necessary to support commerce, and fostering innovation by setting standards and conducting foundational research and development."
Each agency, bureau, and department, from the federal level down to the local police department, has some stated objectives. But how well are these objectives being met? Is the nation being defended effectively and efficiently, in a way that satisfies its "customers"? Do its top officials deserve praise or condemnation? How about Commerce? The local beat cop? What constitutes "high performance" in these contexts?
As Mises explains (pp. 46-47), these questions are fundamentally unanswerable, or at least impossible to answer with the same precision we apply to assessments of private businesses, because government agencies do not sell their services on competitive markets. The "consumer" does not choose among providers, directing funds toward the firm that provides the best products at the most reasonable prices. Rather, the consumer pays whether he likes it or not. So how do we judge performance?
The objectives of public administration cannot be measured in money terms and cannot be checked by accountancy methods. . . . In public administration there is no connection between revenue and expenditure. The public services are spending money only; the' insignificant income derived from special sources (for example, the sale of printed matter by the Government Printing Office) is more or less accidental. The revenue derived from customs and taxes is not "produced" by the administrative apparatus. Its source is the law,not the activities of customs officers, and tax collectors. It is not the merit of a collector of internal revenue that the residents of his district are richer and pay higher taxes than those of another district. The time and effort required for the administrative handling of an income tax return are not in proportion to the amount of the taxable income it concerns.
Mises defines business management or profit management as "management directed by the profit motive." In a large firm, profit management entails a mix of rules and discretion. Executives provide overall direction, establish systems and procedures, recruit managers and employees, settle disputes, and focus on strategy, while delegating a large measure of day-to-day discretion to subordinates or to local departments. (Firms can be fairly decentralized, featuring "flat hierarchies," but management still matters.)
Bureaucratic management, in contrast, "is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money" (p. 47).
Mises goes on to explain how profit management and bureaucratic management require entirely different sets of skills and use completely different management principles (for example, under bureaucratic management, decision-making must be hierarchical with strictly limited discretion for subordinates -- because how would you know if their actions contribute to overall performance, without a financial bottom line?). Unlike Murray Rothbard and other modern libertarian thinkers, Mises does not question the legitimacy of agencies like the US Internal Revenue Service, but he insists that their nature and function, and organization and governance, be analyzed and assessed as government bureaus, not as "firms." Government agencies and private businesses are intrinsically different entities, and one should never be confused with the other.
(An additional problem is that increasing government "efficiency" in simple terms, such as making an agency achieve some specified objective with fewer employees or in less time, is not unambiguously good. Employees can stay on the payroll, consuming "slack" as discussed in William Niskanen's classic analysis, or can take on new objectives -- so called "mission creep" -- inconsistent with their original mandate. See further discussion here.)
Back to contemporary politics. The idea of making government run like a business goes back at least to the "Reinventing Government" initiative championed by Bill Clinton and Al Gore in the 1990s, a program with few demonstrable successes. Scholars and practitioners in public administration are well aware of the performance measurement problem; you can find hundreds of research books and articles on the subject and it continues to be hotly debated and discussed by specialists. But, whatever clever ways researchers try to measures public-sector performance -- using surveys, secondary indicators, randomized-controlled trials, computer simulations, etc. -- nothing can get around the fundamental problem that government agencies do not sell services to consumers on competitive markets and have no financial bottom line.
Even with a former CEO in charge, no government agency can be run like a business -- nor do we want it to be. Whatever one thinks of Trump, his business experience gives him little advantage Washington, D.C.
I personally might admit one exception to this principle, however. I'd love to see a CEO-President who formerly specialized in divestitures, layoffs, asset sales, liquidations, and dissolutions.
It’s no secret that Latin America is rife with violence. A recent ranking from the Citizen's Council for Public Security and Criminal Justice (CCSPJP) further illustrates this point with the top 10 most violent cities in the world being exclusively located in Latin America. Additionally, Latin America has the dishonor of having 43 of the 50 most violent urban centers located in the region.
These shocking levels of violence can be attributed to several factors — corruption, failed drug war policies, and the lack of rule of law in the region.
Source.UN's Global Study on Homicide. 2012 data is the most recent available. Argentina did not report statistics in 2011 and 2012, so the most recent year available for Argentina is 2010.
But there is one elephant in the room that is largely ignored in the discussion of crime in Latin America: the stringent gun-control laws present in these countries.
While the previously mentioned factors cannot simply be discounted, the lack of coverage on Latin American gun control policy is rather alarming.
Countries like Brazil, Colombia, Mexico, and Venezuela feature some of the most draconian gun control policies in the region. With crime rates at already high levels, gun control simply makes matters worse for law-abiding citizens fearful of criminals.
RELATED: "Borderland Homicides Show Mexico's Gun Control Has Failed" by Ryan McMaken
A more detailed look at the countries’ gun laws is necessary to understand the degree of gun control that is prevalent in these countries.
BrazilBrazil has some of the most violent cities on the planet, with 19 of them in the CCSPJP’s top 50 rankings. Brazil’s notoriously high crime rates have spurred the Brazilian political class to enact all sorts of heavy-handed attempts to curb crime. Since the 1990s, Brazil has passed over a dozen pieces of gun control laws and regulations.
To own a firearm, Brazilians must be 25 years of age, hold a gun license, pay registration fees, and go through extensive background checks. Prior to 2004, only 3.5% of the Brazilian population legally owned firearms, all thanks to the country’s onerous registration system. Despite Brazil’s gun control status quo, crime rates have continued to rise without end.
ColombiaColombia is no stranger to violence. Violent encounters with the brutal guerilla forces of the FARC and drug cartels have been the norm in Colombia over the past few decades. While former Colombian President Álvaro Uribe’s security measures did play a considerable role in curtailing organized crime and guerilla warfare in the first decade of the 21st century, Colombia remains among the most violent countries in the region. Colombia features four cities in the CCSPJP’s top 50 most violent cities rankings.
Although the Colombian Constitution of 1991 does allow for civilians to possess and carry firearms, they still must go through considerable amounts of red tape to exercise their right to self-defense.
Civilians 18 and older are limited to the purchase and carry of small caliber handguns and shotguns with a license. However, higher caliber handguns and semi-automatic guns are prohibited, and can only be possessed under “exceptional circumstances.” Additionally, all guns must be registered with the military, which has a monopoly on the sale of weapons and issues all gun permits.
Source.Brazil data is only available since 2007.
A 2014 study revealed that there are more than 500,000 legal guns in the hands of over 400,000 owners, with private security making up more than half of the ownership. This comes as no surprise when factoring in the aforementioned regulations.
MexicoOne needn't look any further than across the border in Mexico to comprehend the failures of gun control in curbing crime. Like Brazil and Colombia, Mexico has some of the most stringent gun control policies in the region.
RELATED: "Guns: How The NY Times Manipulates Data" by Ryan McMaken
With only one official gun store in the country, located in the capital of Mexico City, law-abiding citizens have very little options for attaining weapons. Potential buyers must not only submit references and demonstrate that their income was legally earned, they also must be photographed and fingerprinted. And once they’ve successfully jumped these hoops, they can only purchase one firearm.
Despite all the red tape in acquiring a firearm, Mexico is awash with guns in criminal hands.
This has not served the Mexican people well, as they are frequently at the mercy of powerful drug cartels.
VenezuelaWhile extreme, the Venezuelan case can shed light on the effects of gun control. The late Hugo Chávez and Nicolás Maduro’s socialist policies have not only impoverished millions of Venezuelans, but they have also completely ripped the social fabric of Venezuelan society apart.
As a result, Venezuela has 10 of the most violent cities in all Latin America according to the CCSPJP’s ranking, with Caracas at the top of the list.
In response to the rampant levels of crime, the Venezuela government started by banning the private ownership of firearms in 2012. Studies show that while Venezuelan crime rates were already high before the ban, Venezuela’s gun control measures did not seem to make a dent on crime
With the Venezuelan government's recent call to mobilize armed militia members, it makes sense for Venezuelans to be allowed to carry weapons for self-defense not only to protect themselves from common criminals, but from a government that has a proven track record of tyrannical behavior.
A Modest ProposalWhat can be done in the short term to ameliorate the rampant degree of violence in Latin America?
For starters, it would behoove Latin American policymakers to consider tackling these problems from a self-defense angle. A good first step would be to allow law-abiding citizens to freely own and carry firearms for self-defense.
These policies would come in handy in a region where the integrity of law enforcement and military forces is frequently called into question. The harsh reality is that in many Latin American countries the lines between the political and criminal classes are blurry at best. Thus, counting on public entities to deliver security services in these countries is simply a fool's errand.
Eighteenth-century Americans understood the importance of private gun ownership as a bulwark against potential tyranny. But gun ownership has also served as a practical means of self-defense for numerous citizens, especially when considering the inefficiency of police agencies in providing security.
All in all, Latin America would benefit from policies that allow law-abiding citizens to exercise their right to self-defense. While this may not be a cure-all for the region’s rampant violence, it at least gives the citizenry a fighting chance in the face of organized crime and authoritarian regimes.
I've always been willing to accept a repeal of Obamacare that was less than perfect, and I've never subscribed to the idea that only a total and complete repeal of Obamacare should warrant my support.
Even a small tax cut is better than no tax cut, and even a partial repeal of Obamacare is better than no repeal.
But, there's been little reason to celebrate the GOP's effort at an Obamacare repeal. And now that the effort appears doomed, there seems to be little reason for prolonged lamentation.
Indeed, right up until the apparent failure of the repeal effort this week. the whole affair has been marked by confusion, muddled messaging, and a clear lack of any direction beyond scoring some political points against the supporters of Barack Obama.
The Senate version, for example, only partially repealed the Obamacare tax while leaving much of the rest of the law untouched. Worse yet, the Senate version added bailout provisions for insurance companies.
Looking Beyond Obamacare If actually improving the lives of taxpayers and constituents were the goal, the GOP could have focused less on specifically repudiating the Obama agenda, and instead looking for ways to undo decades of government meddling in healthcare — which has produced the expensive, inflexible, and monopolistic healthcare system we have today.
Instead, the focus has been only on Obamacare itself — the repeal of which would only return us to the bad old days of 2013 when the healthcare sector was already long over-regulated, distorted, subsidized, and made far more expensive than would be the case in a functioning marketplace.
Even worse, the rhetoric surrounding the Obamacare-repeal effort has tended to send the message that things were more or less fine before Obamacare was passed, and this once it was repealed, things would improve. In truth, healthcare was already headed toward disastrous price increases and problems of falling quality even before Obomacare was passed. Given how government has come to dominate the industry, this should surprise no one.
Decades of Government Control and Subsidy The pre-Obamacare world was one in which the United States spent more government money on healthcare than almost any other nation. That's government spending, not total spending overall.
This data is from the world Health Organizations 2014 report on healthcare spending. The data pre-dates the implementation of Obamacare. Specifically, per capita government spending in the US comes in at $4,047 behind Norway ($5,198), Luxembourg (5,061), and the Netherlands ($4,070), and is also quite comparable to Denmark ($3,801).
Indeed, by the time Obamacare was passed, the US had already been piling on regulations and subsidies in the healthcare sector for more than 70 years.
However, it wasn't until the 1960s that a real crisis began to appear on the horizon. As noted in Mike Holly's article "How Government Regulations Made Healthcare So Expensive":
The U.S. “health care cost crisis” didn’t start until 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded at twice the rate of inflation. Now, the U.S. is repeating the same mistakes with the unveiling of Obamacare (a.k.a. “Medicare and Medicaid for the middle class”).
This artificially inflated demand was then heaped on top of efforts that were already in place to restrict supply. Holly continues:
Since the early 1900s, medical special interests have been lobbying politicians to reduce competition. By the 1980s, the U.S. was restricting the supply of physicians, hospitals, insurance and pharmaceuticals, while subsidizing demand. Since then, the U.S. has been trying to control high costs by moving toward something perhaps best described by the House Budget Committee: “In too many areas of the economy — especially energy, housing, finance, and health care — free enterprise has given way to government control in “partnership” with a few large or politically well-connected companies”
So, we have for many years faced a situation in which the government works to subsidize healthcare — thus increasing demand — while simultaneously reducing supply. And yet, these efforts at regulating the industry, picking winners and losers, and enhancing monopoly powers have become to entrenched in the industry, we don't even notice them anymore. They now seem natural. Some might even conclude they're the result of natural market behavior.
The Overuse of Health Insurance One of the most important aspects of the healthcare industry — something most now wrongly assume is a product of unhampered market forces — has been the use of health insurance as the mainstay in allocating healthcare resources. This over-reliance on insurance has produced not a few unfortunate side effects. For example, the use of insurance to pay for common procedures has created moral hazard and thus over-utilization of healthcare services. Moreover, by inserting a third party between the consumer and the healthcare providers — a third party that obscures prices from the end user — consumers cannot make informed choices on the true costs of services and which are most prudent to use. This in turn drives up prices for all users, including cash-only customers and anyone who doesn't fit into the inflexible and government-created employer-based insurance system.
Dr. Michel Accad discusses the origins of the health insurance system that got us where we are today:
[During the 1930s and 40s the] main boost to the health insurance industry ... came from new legislation and administrative rulings.
State-level legislations were passed to allow pre-payment plans, such as Blue Cross and Blue Shield programs, to obtain non-profit, tax-exempt status and to offer insurance coverage without the reserve requirements imposed on commercial insurance companies...
More importantly, insurance programs benefited greatly from the federal Stabilization Act of 1942 which allowed companies facing scarce labor (during a time of price and wage control) to compete for this labor by offering health insurance benefits and by making those benefits exempt from payroll taxes.
There were also rulings preventing employers from canceling or modifying group insurance during the contract period, and rulings that established health benefits as wages, allowing labor unions to negotiate for the provision of health insurance on behalf of employees.
With successive legislation and rulings, commercial insurance entered the health care market more willingly and employers began to offer health insurance to employees on a very large scale. Between 1940 and 1950, the number of people with health insurance grew from less than 10 million to over 80 million Americans.
Holly notes some other developments as well:
In 1945, buyer monopolization begun after the McCarran-Ferguson Act led by the Roosevelt Administration exempted the business of medical insurance from most federal regulation, including antitrust laws. (States have also more recently contributed to the monopolization by requiring health care plans to meet standards for coverage.)In 1946, institutional provider monopolization begun after favored hospitals received federal subsidies (matching grants and loans) provided under the Hospital Survey and Construction Act passed during the Truman Administration. (States have also been exempting non-profit hospitals from antitrust laws.)In 1951, employers started to become the dominant third-party insurance buyer during the Truman Administration after the Internal Revenue Service declared group premiums tax-deductible. This isn't to say that reductions in taxes or regulations are a bad things in themselves. The problem lies not in that the insurance industry benefited from tax reductions and lowered regulatory barriers. The problem lies in the fact that other healthcare arrangements — industries and options that competed with the insurance model — were still subject to the usual taxes and regulations. Thus, the insurance industry enjoyed a relative advantage over the competition. This caused immense amounts of wealth to flow into the insurance industry — and this has burdened us with the insurance-centric system we have today.
RELATED: "Why Health Care Costs Exploded After World War II" by Michel Accad.
In a less interventionist economy, market factors and competition had worked to restrain the use of health insurance. However, as new legislation worked to give insurance an advantage over cash-for-service healthcare, large insurance agencies came to dominate the industry. Over time, large providers like BlueCross/BlueShield would become major interest groups that worked to ensure the insurance industry would assume a larger and larger role in the provision of healthcare.
Supply Is Restricted Thus it is no accident that today's tax law provides incentives to have health insurance while doing far less to incentivize health savings accounts and the purchase of healthcare services outside the insurance system. Cash-only and membership-based medical services function at a competitive disadvantage because governments have picked who the winners and losers should be. And insurance companies have already been declared the winners.
Meanwhile, a variety of government and quasi-government licensing laws and regulations restrict the production of healthcare services. Kel Kelly noted just how restrictive these regulations can be:
[Since the American Medical Association began restricting medical education], the US population has increased by 284 percent, while the number of medical schools has declined by 26 percent to 123. In 1996, the peak year for applications, only 16,500 candidates were accepted out of 47,000. While high rejection rates can be common in many schools, applicants to medical schools are usually among the brightest and highest-quality students and have put themselves through a very costly admissions process.... The medical monopoly also marginalizes or outlaws alternative or slightly alternative (i.e., competing) medical practices, along with nurses and midwives, who could perform many of the tasks doctors do today.
Fewer training facilities for medical personnel means higher tuition, fewer spots for students, fewer doctors, and higher prices for consumers.
Meanwhile, in many jurisdictions, new hospitals cannot be built without permission of governments through a "certificate of need" process.
Obamacare Was Just More of the Same The result of all this, of course, has been more expensive healthcare that is less competitive, less accessible, more restricted, and more geared toward the benefit of a few large special interests.
None of this is new to the world of Obamacare, and little of the problem will be undone by repealing Obamacare. In fact, Obamacare was really just a doubling down on a broken healthcare system that had been created decades earlier. Obamacare represents more of same, not a break from an imagined "free-market" past.
If repealing Obamacare is really the goal, the GOP should instead focus on repealing and undermining the edifice on which Obamacare was built: the highly regulated, subsidized, and manipulated healthcare markets that dominate today.
Was the New Deal responsible for segregated housing?
The New Deal was filled with legislation that disproportionately hurt minorities such as African Americans. The Wagner Act of 1935, which granted entrenched labor unions major leeway in excluding low-wage workers, allowed these same unions to discriminate against blacks. Additionally, the Davis-Bacon Act was designed to prevent African American construction workers from working on public projects during the Great Depression.
However, one of the least discussed aspects of discriminatory government policy during Franklin Roosevelt’s administration was in housing.
In the article, How FDR Promoted Racial Segregation , Jim Powell detailed some interesting facts about New Deal housing policy. With the Great Depression in full swing, once FDR stepped into office, one of his legislative priorities was to promote home ownership among America’s middle class. FDR established the Home Owners Loan Corporation (HOLC), which spent roughly $3 billion refinancing mortgages for people who failed to make their mortgage payments.
To minimize risks, HOLC would develop more standardized methods for property assessment. According to Powell, “HOLC rated properties and neighborhoods on a descending scale from most desirable to least desirable, and maps were produced to help speed up the process of evaluating mortgage applications.”
The neighborhoods were divided up into four categories:
Neighborhoods were marked as A (green), B (blue), C (yellow) or D (red). An "A" neighborhood was suburban with recent construction, low crime, business and professional people - a white neighborhood. A "D" neighborhood was inner city, old buildings often in need of repair, sometimes high crime - a minority neighborhood. HOLC avoided "D" neighborhoods. This was how official redlining began.
One year after FDR created the HOLC, he established the Federal Housing Administration (FHA). Instead of loaning money or building anything, it provided insurance “that guaranteed to make bankers whole when they wrote mortgages for properties approved of by the FHA.”
Since the probability of mortgage defaults was high, the FHA took a page out of the HOLC’s playbook and crafted policies to minimize risk. Powell explains how the FHA fostered discrimination:
FHA mortgage insurance was originally limited to $20,000, so FHA officials favored “B” housing — modest, single-family homes with comfortable lots in all-white suburban residential neighborhoods where business and professional people lived. In “A” neighborhoods, homes tended to cost more than $20,000, and not many people needed help from the FHA. Officials were concerned about the presence of “inharmonious racial or nationality groups.” Few FHA-insured loans went to blacks. The FHA steered mortgage lending away from cities.
Discriminatory housing policies were a hallmark of the New Deal. Historian Kenneth H. Jackson argued that the “FHA exhorted segregation and enshrined it as public policy” for decades.
The Revival of the Segregated Housing Question
There was relative silence on the discriminatory nature of the New Deal housing policy until Richard Rothstein broke the silence in his book The Color of Law .
In an interview , Rothstein emphasizes that the government was the main catalyst of housing segregation:
"In many cases, the federal government did create...segregation in metropolitan areas and in cities that had never known segregation before. In other cases...it did reinforce segregation that was already in existence. But the country was much, much more segregated as a result of these federal policies than it was before, or would be today without them."
World War II saw a significant portion of the population uprooted from their homes in order to contribute to the war effort either on the battlefield or in the domestic defense industry. Rothstein highlighted the case of Richmond, California and its segregationist policy:
From 1940 to 1945, the influx of war workers resulted in Richmond’s population exploding from 24,000 to more than 100,000. Richmond’s black population soared from 270 to 14,000….With such rapid population growth, housing could not be put up fast enough. The federal government stepped in with public housing. It was officially and explicitly segregated. Located along railroad tracks and close to the shipbuilding area, federally financed housing for African Americans in Richmond was poorly constructed and intended to be temporary. For white defense workers, government housing was built farther inland, closer to white residential areas, and some of it was sturdily constructed and permanent. Because Richmond had been overwhelmingly white before the war, the federal government’s decision to segregate public housing established segregated living patterns that persist to this day.
Although the South is commonly perceived as the hyper-segregated region of the country, Rothstein uncovered that Northern, liberal Democrats like Hubert Humphrey, who sponsored the Civil Rights Act of 1964, were adamant about maintaining segregated housing. As Rothstein points out in the interview, Northern liberals were actually opposed to any form of housing integration during the amendment process of the Housing Act of 1949:
Republicans in Congress put forward an amendment to Truman's 1949 Housing Act, requiring that from now on, public housing had to be integrated. No more segregation in public housing. They assumed that conservative republicans would be able to get northern liberal democrats to support this amendment, and the amendment would pass. Then once the housing bill was saddled with an integration amendment, southern democrats would abandon it, and the entire bill would go down to defeat.
Well, the result was that northern liberals campaigned against the integration amendment. They were led by Hubert Humphrey, a civil rights advocate in the Senate, the leading civil rights advocate in the Senate was Paul Douglas of Illinois, and he also led the campaign against the integration amendment. The integration amendment was defeated. The 1949 Housing Act was adopted, preserving segregation in public housing.
Approximately 20 years later, the passage of the Fair Housing Act ended discrimination against African Americans during the home buying process. However, there was one problem — most housing was now unaffordable for both African Americans and working-class whites. Rothstein adds:
By the time the federal government decided finally to allow African Americans into the suburbs, the window of opportunity for an integrated nation had mostly closed. In 1948, for example, Levittown homes sold for about $8,000, or about $75,000 in today’s dollars. Now, properties in Levittown without major remodeling…sell for $350,000 and up. White families who bought those homes in 1948 have gained, over three generations, more than $200,000.
Most American families from the 1940s until the passage of the 1968 Fair Housing Act built their wealth from equity. On the other hand, African Americans were usually renting properties and accumulating no equity or owned less attractive properties. This is arguably one of the reasons why white Americans dwarf African Americans in terms of accumulated wealth .
What Must be Done? Rothstein’s research has brought new light to segregation in the United States. It’s clear that government policy may have played a larger role in institutionalizing segregation than cultural norms. So what can be done to resolve this problem?
On one hand, completely getting rid of segregation is not very feasible when taking into account that people tend to self-segregate . And there’s nothing wrong with that at all. People should have the right to associate with whomever they please. Numerous ethnic enclaves such as Black Wall Street, Chinatown , and Koreatown have thrived without any need to be forcibly integrated.
Rothstein is no libertarian, and in fact, has actually floated the idea of “federal subsidies for middle-class African-Americans to purchase homes in suburbs.” Frankly, with so much government involvement in housing, adding more subsidies into the mix is simply sub-optimal.
Instead, we need genuine liberalization in housing markets. That means doing away with zoning laws and land-use regulations that restrict housing supply, thus pricing out many potential buyers, especially African Americans.
In what has become a running joke amongst those skeptical of the claim that minimum wage increases have no effect on unemployment, a recent report by the Employment Policies Institute showed that 174 of the 184 co-sponsors of a bill to raise the federal minimum wage to $15 an hour hired unpaid interns.
My personal favorite example of this type of this is when the Freedom Socialist Party, which was pushing for an even more ridiculous $20 minimum wage, posted ads for new employees offering $13 an hour.
The party’s national secretary doused himself in irony to defend his organization by saying “We’re practicing what we’re preaching in terms of continuing to fight for the minimum wage... But we can’t pay a lot more than $13.”
Hmmm, perhaps some of the unemployment a higher minimum wage would bring might actually be beneficial. Maybe we’ve gotten this whole debate wrong…
At the federal level Nancy Pelosi promised to pass a $15 an hour minimum wage if the Democrats take control of the House in 2018. Increasing the federal minimum wage across the nation is far more vulgar than increasing a state or city minimum wage. Having spent some time in New York recently, I can definitely understand the desire to increase wages. When a 350 sq. ft. studio that lacks enough space for anything more than a mini fridge rents for $2500 a month, taxes are through the roof and a pack of cigarettes costs $13, it can be hard to get by. Artificially raising the minimum wage isn’t going to fix that, but the desire to is understandable.
RELATED: "A Nationwide Minimum Wage Is Even Worse than State-Imposed Wages" by Ryan McMaken
New York State may have the seventh highest median per capita income in the country, but the cost of living vary wildly by city and state throughout the United States. The Mises Institute’s Ryan McMaken showed that once you have accounted for the different costs of living in different states, “New York ($26,152) is now the state with the lowest median income due to its very high cost of living.”
And they want to put a one-sized-fits-all $15 minimum wage across the whole country? From Podunk, Kansas to Midtown Manhattan, the geniuses in Washington will decide the minimum someone can agree to work for someone else. Whatever would we do without such wise bureaucrats to guide us?
In Podunk, Kansas, a $15 minimum wage would be catastrophic. But even in large, wealthy cities, the minimum wage offers no panacea. The most notable example of this is Seattle, which put in motion a gradual increase to a $15 an hour minimum wage back in 2015.
Now a $15 minimum wage in a city like Seattle was unlikely to ever be disastrous. The city is so expensive that wages are generally much higher than they are in other parts of the country. In 2015, the median household income in Seattle was $80,349 while it was only $56,516 in the United States on the whole. In other words, Seattle’s median income was 42 percent higher than the American average.
That being said, increasing the costs of labor is still going to decrease its demand. Early on, economist Mark Perry noted, with the imperfect data he had available, that the unemployment rate seemed to increase after the passage of the bill. Anecdotal evidence, such as McDonalds and others rapidly switching to automated self-order kiosks, also trickled out. But with more time having passed, we have a better vantage point to evaluate the law.
Now we have a study from the University of Washington that demonstrates that the new minimum wage law “…reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent.” Not a disaster for a wealthy city like Seattle, but it’s not good. And it’s more proof of what you should expect from basic economic theory.
This story gets much more interesting though, as another study from the University of California Berkeley showed no effect. What gives? The title of Daniel Person’s article on the subject gives away the punchline, “The City Knew the Bad Minimum Wage Report Was Coming Out, So It Called Up Berkeley.” Here’s how Person describes what happened,
While the Berkeley report… was cheered in many corners of the web, one blogger at Forbes called foul. Michael Saltsman is an avowed critic of higher minimum wages… [and he] raises a good question, pointing to a paragraph on the title page of the study that says the Berkeley report was "prepared at the request of the Mayor of Seattle." This was odd, Saltsman noted, given that the city was already funding a series of six studies from the University of Washington on the impacts of the wage law. Why look outside the city for research when taxpayers are already funding local number crunching?
He had a theory: Those UW studies just weren’t positive enough. Saltsman pointed out that Reich is a go-to academic for proponents of a $15-an-hour minimum wage across the country.
After contacting the mayor’s office and looking into the matter further, Person believes the timeline is as follows,
The UW shares with City Hall an early draft of its study showing the minimum wage law is hurting the workers it was meant to help; the mayor’s office shares the study with researchers known to be sympathetic toward minimum wage laws, asking for feedback; those researchers release a report that’s high on Seattle’s minimum wage law just a week before the negative report comes out.
As Person puts it, Seattle “weaponized data” to vindicate its minimum wage increase.
The criticism that because Seattle’s overall economy is booming that that somehow detracts from the minimum wage hindering it in any way is also false. As Jonathan Meer observes,
This is exactly backward: If Seattle is growing faster than expected, then the counterfactual comparison group is not keeping up as well at it should be, understating the extent of the job losses. It also seems strange to claim that low-wage work will do worse in good economic times, when the recent evidence of the Great Recession shows the opposite. More to the point, recent research shows that the negative impacts of the minimum wage are higher during economic downturns, not boom times.
Finally, it would be worth addressing the often-heard point that recent studies have disproven the idea that minimum wages increase unemployment. Or in other words, that apparently the cost of labor behaves completely differently from other goods. In a review of over 100 studies, economists David Neumark and William Wascher found that,
…there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.
Yes, minimum wages still do increase unemployment.
Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor's degree in economics and a master's degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
Matthew McCaffrey is a Fellow of the Mises Institute and assistant professor of enterprise in the Alliance Manchester Business School at the University of Manchester. He holds a PhD in economics from the University of Angers, an MS in economics from Auburn University where he was a Mises research fellow, and a BA in literature from Colorado State University. He is also the recipient of the 2012 Richard E. Fox Foundation Research Prize, the 2010 Lawrence W. Fertig Prize in Austrian Economics, and the 2017 Gary G. Schlarbaum Prize for Excellence in Research and Teaching. His research focuses on the social and economic role of entrepreneurship, and the influence of institutions on entrepreneurial behavior. His published work covers topics such as entrepreneurial decision making, judgement strategy, and the history of entrepreneurial ideas.
Jacob Huebert is a Senior Attorney at the Goldwater Institute, litigating cases on free speech and property rights, among other issues. Jacob currently leads the Goldwater Institute's First Amendment challenges to state laws that require attorneys to join and pay dues to a bar associations.Before joining Goldwater, he served as Director of Litigation for the Liberty Justice Center in Chicago. There, he successfully litigated cases to protect economic liberty, free speech, and other constitutional rights, including the landmark Janus v. AFSCME case, in which the U.S. Supreme Court upheld government workers’ First Amendment right to choose for themselves whether to pay money to a union. Jacob and his work have appeared in numerous national media outlets, including the Wall Street Journal, New York Times, and Fox News Channel.Jacob holds a B.A. in economics from Grove City College and a J.D. from the University of Chicago Law School. After law school, Jacob served as a clerk to Judge Deborah Cook of the U.S. Court of Appeals for the Sixth Circuit.
It seems that anyone on Planet Earth with a pulse now is familiar with the situation at Google in which a male engineer sent a 10-page memo over the company’s internal listserv in which he questioned some of Google’s “diversity” policies. As most of us expected when the story became public, Google fired the employee, citing “incorrect” thoughts about “gender” as its justification.
Not surprisingly, we have seen people on both the Right and the Left shooting missives at each other via social media and the usual journalistic outlets. From the left, not surprisingly, the engineer who wrote the memo, James Daramore, is a slimy bigot who got what was coming to him. Conservatives see Daramore’s memo as being reasonable, but that Google is so Politically-Correct that even a slight deviation from the path of leftist orthodoxy cannot be tolerated. Even some people who consider themselves to be politically and socially liberal are critical of Google’s decision to fire Daramore.
We like to think of modern high-technology firms in the famed Silicon Valley such as Google, Apple, and Twitter as representing much that is good about our present day. These companies are full of young, hard-working people who are near-genius in their capacity to understand technology and how it can be used entrepreneurially. As I see it, one of the reasons that federal economic policies (not to mention the predations of the Federal Reserve System) have not created mass destruction of the economy has been the presence of tech-savvy entrepreneurs that continue to foil even the best (or, more appropriately, worst) efforts of politicians and regulators to block economic progress.
Furthermore, we know throughout history that private enterprise often undermines things like racism and sexism (despite the claims from socialists that capitalism is the source of All Bad Things) and that private property, prices, and free exchanges have tied people together that keep politicians from successfully tearing things apart. As economists like Thomas Sowell have noted, it has been governments that have prevented the free association of people who seek to engage in market behavior to better their lives.
For example, Jim Crow policies did not arise out of businesses demanding discrimination against blacks. Economic historians such as Jennifer Roback Morse have noted that the private bus and rail companies opposed Jim Crow laws that segregated city buses, and businesses in general resisted racial discrimination, but were brought to heel by city councils and state and federal legislators.
Jim Crow is long gone, but it seems that Progressives (which gave us Jim Crow in the first place) now are imposing what essentially is a new form of segregation, that being ideological and religious segregation that is more reminiscent of how the former USSR treated dissidents than anything we have seen in private enterprise. For example, I know a young Christian couple in San Francisco, and the woman works at Twitter, where the company leadership has made it clear that it does not tolerate deviation from Political Correctness. She has said that she has to keep her faith hidden, since if others find out her beliefs, she likely would lose her job at worst and be subject to harassment at the very least, not to mention that she could expect no promotions or pay raises in the future. The new “diversity” standards of Silicon Valley seem to want a “diversity” in which everyone doesn’t have the same racial or sexual characteristics, but manages to think in lockstep.
So far, it does not seem that companies like Google are paying much of a price for their Soviet-style enforcement against what only can be “thought crimes.” True, after political conservatives boycotted Starbucks following the declaration from its (now former) CEO that political conservatives were not welcome at the company’s coffee shops, the Starbucks stock price fell and the boycott did seem to hurt the firm’s bottom line. Firms like Google, Twitter, and Apple, however, are so large and so dominant that it is doubtful any boycott would succeed in affecting them.
Libertarians believe that Google, as a private firm, should be able to set its own work policies, including the employment of religious and political discrimination. Indeed, there is no such thing as a “pure” meritocracy in which the most talented are always employed in their best positions. Real life is messier and we should not be surprised (or even upset) when factors other than pure talent are used in part to determine employment decisions.
For all of its expenditures on creating a “diverse” workplace, Google’s staff of mostly white males reflects overall what one might expect in a business that hires math and physics majors by the handful. But, given that at least one Google manager admitted (proudly) that he keeps what he calls a “blacklist” of employees that have uttered un-PC comments, thus making them unfit for working on his “team,” it is safe to say that anyone who might dissent from PC orthodoxy, should he keep his job, might be given a job sorting paper clips.
Google Can Choose: Profits or Policing ThoughtcrimesHere is where it becomes interesting. Google is a profit-making entity; its stock is sold publicly and its stockholders expect a return on their investment. Yet, with its “blacklists” and in its drive to increase efforts to attain a better state of “diversity,” Google’s management is acting more like government bureaucrats than people seeking to make their company more profitable. This state of affairs might seem contradictory, but Ludwig von Mises more than 70 years ago explained why we observe managers of private enterprise act like bureaucrats. In his 1944 book Bureaucracy he writes:
No private enterprise will ever fall prey to bureaucratic methods of management if it is operated with the sole aim of making profit. It has already been pointed out that under the profit motive every industrial aggregate, no matter how big it may be, is in a position to organize its whole business and each part of it in such a way that the spirit of capitalist acquisitiveness permeates it from top to bottom.
But ours is an age of a general attack on the profit motive. Public opinion condemns it as highly immoral and extremely detrimental to the commonweal. Political parties, and governments are anxious to remove it and to put in its place what they call the "service" point of view and what is in fact bureaucratic management.
Mises added: “…the general tendency of our time is to let the government interfere with private business. And this interference in many instances forces upon the private enterprise bureaucratic management.”
Thus, we ask whether or not the continued obsession with “diversity” and all of the enforcement of the PC codes will cut into Google’s viability as a profit-making firm, or if Google’s efforts actually will make the company stronger (as its current management insists). Is this, as the advocates of the Silicon Valley “diversity” claim, simply “good business” practice, or will it undermine the long-term efficiency of these firms, adding unnecessary costs, creating workplace strife, and ultimately resulting in disaster?
Mises would say the latter. Bureaucratic management – and Silicon Valley firms are beginning to reek of it – stands in the way of the very kind of innovation and entrepreneurship that has made these firms powerful and profitable. Firms cannot have blacklists and managers prowling emails and listserves to ferret out any un-PC thoughts held by “rogue” employees, but then expect to be dynamic and profitable for very long. Mises writes:
Nothing could be more nonsensical than to hold the bureaucrat up in this way as a model for the entrepreneur. The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient.
It is more than just promoting what would be a culture of fear. Google spends more than $100 million a year on “diversity” issues, yet there is a reason that the company’s demographic makeup does not mirror that of the USA, and it isn’t due to misogyny or racism. The problem is that the managers at Google and in Silicon Valley have come to believe that appeasing modern Social Justice Warriors is more important than growing their firms and being profitable. In the end, these firms will have neither profits nor social justice.
Absolute Immunity for Prosecutors Creates the Classic “Lemons Problem”Public officials argue that to be able to carry out their duties, laws must protect them from lawsuits by disgruntled individuals or those harmed by wrongful actions of government agents. The U.S. Supreme Court especially has protected prosecutors, granting them absolute immunity as long as they committed wrongful acts within the scope of their legal duties.
Advocates argue that unless prosecutors receive such drastic protection, those charged and sometimes convicted – guilty or not – will bury prosecutors under a blizzard of lawsuits for misconduct. Yet, as we see with the infamous Pottawattamie County vs. McGhee, one also can argue that prosecutorial immunity also create conditions for a legal version of a “Lemons Problem,” in which prosecutors are encouraged to present false information as being true and jurors and the public can be fooled.
In 1977, police and prosecutors in Council Bluffs, Iowa, desperately wanted to solve the murder of a former police officer there. The district attorney, David Richter, faced an election the next year, and he wanted to keep his job.
Despite having good evidence that led to the trail of the potential killer, Richter and police charged two black teenagers, Terry Harrington and Curtis McGhee, who lived in neighboring Nebraska, and tried them for murder. What followed was a nightmare for the two young men, one of whom was the captain of his high school football team. Richter, his assistant, Joseph Hrvol, and the police zeroed in on the two young men, even to the point of ignoring evidence that would have taken them elsewhere.
What followed was a frame-up, and the state convinced an all-white jury in 1978 that Harrington and McGhee were guilty. The star witness for the state was a 16-year-old boy who, to be charitable, was quite unreliable:
Harrington (after being convicted and given a life sentence in prison) struck up a friendship with the prison barber, who petitioned for the police records in his case. According to defense lawyers, those records not only disclosed how police and prosecutors had coached Hughes until his story matched the facts, and how other witnesses were coerced into lying, but that the records also showed that police and prosecutors had withheld evidence that pointed to another suspect.
They had identified a white man named Charles Gates, who had been seen with a shotgun near the scene of the crime. Gates, the brother-in-law of a Council Bluffs Fire Department captain, was interviewed and failed a polygraph. But prosecutors and police abandoned their interest in him in favor of Harrington, who was not even offered a polygraph.
Harrington appealed his conviction and, after serving 25 years, finally had his case heard before the Iowa Supreme Court, which overturned the verdict, the court declaring that the state’s main witness was a “liar and perjurer.” Harrington and McGhee sued the prosecutors and won at the district and appellate levels in part because Richter and Hrvol had taken an active role in the actual investigation, working alongside the Council Bluffs police.
Not surprisingly, even though the state admitted it had used perjured testimony and police and prosecutors had manufactured evidence, the prosecutors through their attorneys argued that they could not be sued for misconduct because the U.S. Supreme Court in its 1976 Imbler vs. Pachtman decision ruled that prosecutors acting within the scope of their duties enjoy absolute immunity from civil lawsuits. Attorneys for Richter and Hrvol argued to the U.S. Supreme Court in 2009 that prosecutors were protected even if they broke the law and purposely pursued false charges:
The prosecutors counter that there is "no freestanding constitutional right not to be framed." Stephen Sanders, the lawyer for the prosecutors, will tell the Supreme Court on Wednesday that there is no way to separate evidence gathered before trial from the trial itself. Even if a prosecutor files charges against a person knowing that there is no evidence of his guilt, says Sanders, "that's an absolutely immunized activity." (Emphasis mine)
Iowa authorities settled with Harrington and McGhee for large sums of money before SCOTUS could make a decision, however, leaving it to a future court to revisit prosecutorial immunity.
Moving beyond the obviously outrageous defense of immunity – the claim that people have no right not to be framed by authorities – let us look at the incentive structures that prosecutors face. In a recent Mises article, Chris Calton argues that the current justice system creates a “commons” in which the benefits of a conviction flow to individual players in the system – judges, prosecutors, and police – but the costs of incarceration are borne by the taxpayers. While one can argue that “society” gains some immeasurable benefits from conviction of violent and dangerous criminals, the real beneficiaries are officials who make a living in that system.
The Lemons ProblemIn his famous “Lemons” paper in 1970, George Akerlof wrote that markets might break down if parties involved in market transactions faced information asymmetries. He used the example of used cars, noting that buyers often cannot tell the difference between a “good” used car and one that is a “lemon” and has a high likelihood of breaking down soon after the purchase.
Despite Akerlof’s claim that information asymmetries constitute a “market failure” that should be rectified by government intervention, we have seen (especially with development of the Internet) market players create a number of information mechanisms that enable buyers and sellers to make informed decisions.
Criminal trials are not market-based events, but, nonetheless, guilt and innocence depend upon all of the participants – and especially jurors – having correct information presented to them within the rules of due process. People rightfully are disturbed by wrongful convictions.
Prosecutors have huge incentives to convict, and benefits of winning convictions are likely to outweigh any potential costs. More convictions mean electoral victories (many members of Congress are former prosecutors), raises for staff attorneys, and prestige.
The main cost is the levying of legal sanctions for misconduct. However, unlike most professionals that have to weigh the potential costs of lawsuits should they fail to satisfy a customer or client, prosecutors don’t have to worry about lawsuits, and it is extremely rare for prosecutors ever to face any legal sanctions even for the most egregious of behavior.
It isn’t just Pottawattamie. The list is endless. From the infamous Duke Lacrosse Case in which prosecutor Michael Nifong broke state and federal criminal laws but only lost his law license, to the “expert witness” scandals in Mississippi in which Dr. Steven Hayne gave testimony (for the prosecution) in hundreds of criminal cases that many prosecutors knew was false, to the prosecutorial scandals in Orange County, California, we see a reoccurring pattern: prosecutors suborn perjury, lie to judges and jurors, and fabricate evidence favorable to their cases, with the very rare prosecutor ever punished for dishonest conduct.
With the odds ever in their favor, unscrupulous prosecutors are rewarded for lying and presenting false information. Like the stereotypical used car salesman that foists lemons onto hapless customers, the law incentivizes prosecutors to win at all costs, and they do so with frightening regularity.
When it imposed its net neutrality rules on the telecom industry, the FCC was fixing a problem that didn't exist.
While proponents of Net Neutrality have long claimed that the regulations are necessary to impose fairness for internet usage, access to the internet has only become more widespread and service today is far faster for users — including “ordinary” people — than it was twenty years ago.
Nevertheless, when the FCC in recent months — now under pressure from the Trump Administration — announced that it may step back from net neutrality, supporters immediately began claiming that net neutrality was necessary to keep internet access affordable and "fair."
In truth, net neutrality has never fostered fairness or better access for consumers, and has instead created conditions that will encourage less competition and more monopolistic power for large firms within the industry.
Instead of relying on the market place to allocate goods, net neutrality ensures that politics will determine who gets what, instead. This is hardly a recipe for fairness or neutrality.
In the marketplace, goods and services tend to be allocated according to those who demand the goods the most. Where demand is highest, prices are highest.
In some cases, this will mean that some customers will be able to pay for faster internet service than others.
But, the existence of some "luxury" types of internet service do not interfere with the existence of lower-priced services, just as the existence of luxury cars do not prevent the manufacture of economy cars.
It is this market mechanism that drives the marketplaces for food, clothing, and a host of other products. Consequently, both food and clothing have become so plentiful that obesity is a major health problem and people often throw out barely-worn clothing. Similarly, cell phones have only become more affordable and more widespread in recent decades, and have freed us from the telephone monopolies of old.
This is all the natural outcome of market competition. In industries where new firms may freely enter, and customers are not compelled to buy, companies or individuals that wish to make money must use their resources in ways that are freely demanded by others. Unless they have been granted monopoly power by government, no firm can simply ignore its customers. If they do, competing firms will enter the marketplace with other goods and services.
But, goods and services need not be allocated by markets. Goods and services can be allocated by political means, instead. That is, governments employing coercive means can seize goods and services and allocate them according to certain political goals and the goals of people in positions of political power.
Supporters of net neutrality, however, are claiming that the FCC will somehow necessarily work in the “public” interest and against the special interests who — experience tells us — tend to hold the most influence with regulatory agencies. .
In practice, the natural outcome of regulatory schemes like net neutrality is “regulatory capture,” in which the institutions with the most at stake in a regulatory agency’s decisions end up controlling the agencies themselves. We see this all the time in the revolving door between legislators, regulators, and lobbyists. And you can also be sure that once this happens, the industry will close itself off to new innovative firms seeking to enter the marketplace. The regulatory agencies will ensure the health of the status quo providers at the cost of new entrepreneurs and new competitors.
Moreover, as Nobel-prize-winning economist Douglass North noted, regulatory regimes do not improve efficiency, but serve the interests of those with political power: "Institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create new rules."
Not surprisingly, small, less-powerful internet providers are the most at-risk under net neutrality, with nearly two dozen of them recently asking FCC chairman Ajit Pai to reconsider net neutrality rules that are especially burdensome on small providers.
Smaller companies claim that the regulations have caused them to pull back from expansion plans, and also impact their ability to obtain financing.
While larger carriers have their own objections, of course — and will surely send in an army of lobbyists and attorneys to ensure rules and legislation are to their liking — small businesses are more at the mercy of regulatory schemes.
Unlike the few huge firms that dominate the industry, smaller firms can't afford the long legal battles that come with new regulations, and they must compete more heavily for financing.
The end result will be fewer small firms entering the marketplace, and thus less competition. This in turn will lead to higher prices and fewer choices for customers.
Government regulation has long been an easy way for large firms to drive the smaller competition out of business. Net neutrality is no different.
I saw a small sign stuck in the grass near the side of a road where I live in Orlando that I have never seen before. I wrote down the text on the sign so I could remember it. It simply said:
Legal Weed
Office Visit $199
Signs like this were inconceivable until January 3 of this year. That is the day when Florida’s Amendment 2 took effect, “The Florida Medical Marijuana Legalization Initiative.” Amendment 2 appeared on the November 8, 2016, ballot in Florida as an initiated constitutional amendment under the title of: Use of Marijuana for Debilitating Medical Conditions. The ballot summary reads:
Allows medical use of marijuana for individuals with debilitating medical conditions as determined by a licensed Florida physician. Allows caregivers to assist patients’ medical use of marijuana. The Department of Health shall register and regulate centers that produce and distribute marijuana for medical purposes and shall issue identification cards to patients and caregivers. Applies only to Florida law. Does not immunize violations of federal law or any non-medical use, possession or production of marijuana.
Florida voters overwhelmingly passed Amendment 2 by a vote of 71.32 to 28.68 percent. Article X, section 29 of the Florida constitution has been amended to allow Floridians access to marijuana for medical use. There are now 29 states that have legalized medical marijuana, plus the District of Columbia.
But all is not well.
According to the text of Amendment 2, a “debilitating medical condition” means
cancer, epilepsy, glaucoma, positive status for human immunodeficiency virus (HIV), acquired immune deficiency syndrome (AIDS), post-traumatic stress disorder (PTSD), amyotrophic lateral sclerosis (ALS), Crohn’s disease, Parkinson’s disease, multiple sclerosis, or other debilitating medical conditions of the same kind or class as or comparable to those enumerated, and for which a physician believes that the medical use of marijuana would likely outweigh the potential health risks for a patient.
“Identification card” means “a document issued by the Department that identifies a qualifying patient or a caregiver.”
“Medical use” means “the acquisition, possession, use, delivery, transfer, or administration of an amount of marijuana not in conflict with Department rules.”
“Caregiver” means
a person who is at least twenty-one (21) years old who has agreed to assist with a qualifying patient’s medical use of marijuana and has qualified for and obtained a caregiver identification card issued by the Department. The Department may limit the number of qualifying patients a caregiver may assist at one time and the number of caregivers that a qualifying patient may have at one time. Caregivers are prohibited from consuming marijuana obtained for medical use by the qualifying patient.
“Physician” means “a person who is licensed to practice medicine in Florida.” According to the Orlando Sentinel: “More than 630 physicians have been licensed by the state — with dozens in Orlando — to recommend medical cannabis to patients.”
“Physician certification” means
a written document signed by a physician, stating that in the physician’s professional opinion, the patient suffers from a debilitating medical condition, that the medical use of marijuana would likely outweigh the potential health risks for the patient, and for how long the physician recommends the medical use of marijuana for the patient. A physician certification may only be provided after the physician has conducted a physical examination and a full assessment of the medical history of the patient. In order for a physician certification to be issued to a minor, a parent or legal guardian of the minor must consent in writing.
“Qualifying patient” means “a person who has been diagnosed to have a debilitating medical condition, who has a physician certification and a valid qualifying patient identification card.”
All medical marijuana treatment centers (MMTCs) must be registered with the Florida Department of Health.
RELATED: "Ludwig von Mises Explains the Drug War" by Laurence Vance
The Department of Health is tasked with issuing “reasonable regulations necessary for the implementation and enforcement of this section” to ensure “the availability and safe use of medical marijuana by qualifying patients.” No later than six months after the effective date of section 29, “the following regulations shall be promulgated”:
Procedures for the issuance and annual renewal of qualifying patient identification cards to people with physician certifications and standards for renewal of such identification cards. Before issuing an identification card to a minor, the Department must receive written consent from the minor’s parent or legal guardian, in addition to the physician certification.Procedures establishing qualifications and standards for caregivers, including conducting appropriate background checks, and procedures for the issuance and annual renewal of caregiver identification cards.Procedures for the registration of MMTCs that include procedures for the issuance, renewal, suspension and revocation of registration, and standards to ensure proper security, record keeping, testing, labeling, inspection, and safety.A regulation that defines the amount of marijuana that could reasonably be presumed to be an adequate supply for qualifying patients’ medical use, based on the best available evidence. This presumption as to quantity may be overcome with evidence of a particular qualifying patient’s appropriate medical use.The text of the amendment is also very clear that nothing in it “shall affect or repeal laws relating to non-medical use, possession, production, or sale of marijuana” or “authorizes the use of medical marijuana by anyone other than a qualifying patient.”
What a racket.
No one in Florida in pain because he suffers from a “debilitating medical condition” can obtain marijuana to alleviate his pain without jumping through numerous hoops and going to great expense even though he can easily purchase and consume all the Tylenol, aspirin, or alcohol he wants to. Yet, these three substances (especially alcohol) cause many deaths every year while the number of deaths from marijuana every year is still a big fat zero.
So, what’s a libertarian to make of all this?
First of all, some freedom is better than no freedom. Some marijuana freedom is better than no marijuana freedom. Legal medical marijuana and illegal recreational marijuana is better than illegal medical and recreational marijuana. Legal medical marijuana with regulations and restrictions is better than illegal medical marijuana.
Second, limited federalism is better than no federalism. On the federal level, marijuana is classified as a Schedule I controlled substance under the Controlled Substances Act with “a high potential for abuse” and “no currently accepted medical use in treatment in the United States.” The Supreme Court case of Gonzales v. Raich (2005) affirmed the power of the federal government under the Constitution’s commerce clause to ban the medical use of marijuana. Yet, 29 states, including Florida, are permitted by the federal government to allow the medical use of marijuana.
Third, any adult should be able obtain marijuana just like he would obtain any other medicine. It shouldn’t matter what his medical condition is. He shouldn’t have to obtain an identification card. He shouldn’t have to be a qualified patient. No physician should need a special license to prescribe marijuana. Patients should be able to chose anyone to be a caregiver. No qualifications and standards for caregivers should be promulgated. No physician certification should have to be issued. No MMTCs should have to be registered. No regulations, reasonable or otherwise, should be issued by the government. The amount of marijuana possessed by a patient should not be limited. No prescription should have to be obtained to purchase marijuana. No physician should have to be seen before one is able to use marijuana for some ailment.
And fourth, the use of marijuana for any reason should be perfectly legal. There should be no laws at any level of government regarding the buying, selling, growing, processing, transporting, manufacturing, advertising, using, possessing, or “trafficking” of marijuana for any reason. There should be no laws at any level of government to prohibit, regulate, restrict, or otherwise control what a man desires to smoke, drink, inject, snort, sniff, inhale, swallow, or otherwise ingest into his mouth, nose, veins, or lungs. There should be no federal or state DEAs, no Office of National Drug Control Policy, no drug schedules, and no Controlled Substances Act. There should be marijuana freedom.
Originally published at LewRockwell.com.
There is one important area of American life where no effective freedom of speech or the press does or can exist under the present system. That is the entire field of radio and television. In this area, the federal government, in the crucially important Radio Act of 1927, nationalized the airwaves. In effect, the federal government took title to ownership of all radio and television channels. It then presumed to grant licenses, at its will or pleasure, for use of the channels to various privately owned stations. On the one hand, the stations, since they receive the licenses gratis, do not have to pay for the use of the scarce airwaves, as they would on the free market. And so these stations receive a huge subsidy, which they are eager to maintain. But on the other hand, the federal government, as the licensor of the airwaves, asserts the right and the power to regulate the stations minutely and continuously. Thus, over the head of each station is the club of the threat of nonrenewal, or even suspension, of its license. In consequence, the idea of freedom of speech in radio and television is no more than a mockery. Every station is grievously restricted, and forced to fashion its programming to the dictates of the Federal Communications Commission. So every station must have “balanced” programming, broadcast a certain amount of “public service” announcements, grant equal time to every political candidate for the same office and to expressions of political opinion, censor “controversial” lyrics in the records it plays, etc. For many years, no station was allowed to broadcast any editorial opinion at all; now, every opinion must be balanced by “responsible” editorial rebuttals.
Because every station and every broadcaster must always look over its shoulder at the FCC, free expression in broadcasting is a sham. Is it any wonder that television opinion, when it is expressed at all on controversial issues, tends to be blandly in favor of the “Establishment”?
The public has only put up with this situation because it has existed since the beginning of large-scale commercial radio. But what would we think, for example, if all newspapers were licensed, the licenses to be renewable by a Federal Press Commission, and with newspapers losing their licenses if they dare express an “unfair” editorial opinion, or if they don’t give full weight to public service announcements? Would not this be an intolerable, not to say unconstitutional, destruction of the right to a free press? Or consider if all book publishers had to be licensed, and their licenses were not renewable if their book lists failed to suit a Federal Book Commission? Yet what we would all consider intolerable and totalitarian for the press and the book publishers is taken for granted in a medium which is now the most popular vehicle for expression and education: radio and television. Yet the principles in both cases are exactly the same.
Here we see, too, one of the fatal flaws in the idea of “democratic socialism,” i.e., the idea that the government should own all resources and means of production yet preserve and maintain freedom of speech and the press for all its citizens. An abstract constitution guaranteeing “freedom of the press” is meaningless in a socialist society. The point is that where the government owns all the newsprint, the paper, the presses, etc., the government—as owner—must decide how to allocate the newsprint and the paper, and what to print on them. Just as the government as street owner must make a decision how the street will be used, so a socialist government will have to decide how to allocate newsprint and all other resources involved in the areas of speech and press: assembly halls, machines, trucks, etc. Any government may profess its devotion to freedom of the press, yet allocate all of its newsprint only to its defenders and supporters. A free press is again a mockery; furthermore, why should a socialist government allocate any considerable amount of its scarce resources to antisocialists? The problem of genuine freedom of the press then becomes insoluble.
The solution for radio and television? Simple: Treat these media precisely the same way the press and book publishers are treated. For both the libertarian and the believer in the American Constitution the government should withdraw completely from any role or interference in all media of expression. In short, the federal government should denationalize the airwaves and give or sell the individual channels to private ownership. When private stations genuinely own their channels, they will be truly free and independent; they will be able to put on any programs they wish to produce, or that they feel their listeners want to hear; and they will be able to express themselves in whichever way they wish without fear of government retaliation. They will also be able to sell or rent the airwaves to whomever they wish, and in that way the users of the channels will no longer be artificially subsidized.
Furthermore, if TV channels become free, privately owned, and independent, the big networks will no longer be able to put pressure upon the FCC to outlaw the effective competition of pay-television. It is only because the FCC has outlawed pay-TV that it has not been able to gain a foothold. “Free TV” is, of course, not truly “free”; the programs are paid for by the advertisers, and the consumer pays by covering the advertising costs in the price of the product he buys. One might ask what difference it makes to the consumer whether he pays the advertising costs indirectly or pays directly for each program he buys. The difference is that these are not the same consumers for the same products. The television advertiser, for example, is always interested in (a) gaining the widest possible viewing market; and (b) in gaining those particular viewers who will be most susceptible to his message. Hence, the programs will all be geared to the lowest common denominator in the audience, and particularly to those viewers most susceptible to the message; that is, those viewers who do not read newspapers or magazines, so that the message will not duplicate the ads he sees there. As a result, free-TV programs tend to be unimaginative, bland, and uniform. PayTV would mean that each program would search for its own market, and many specialized markets for specialized audiences would develop—just as highly lucrative specialized markets have developed in the magazine and book publishing fields. The quality of programs would be higher and the offerings far more diverse. In fact, the menace of potential pay-TV competition must be great for the networks to lobby for years to keep it suppressed. But, of course, in a truly free market, both forms of television, as well as cable-TV and other forms we cannot yet envision, could and would enter the competition.
One common argument against private ownership of TV channels is that these channels are “scarce,” and therefore have to be owned and parcelled out by the government. To an economist, this is a silly argument; all resources are scarce, in fact anything that has a price on the market commands that price precisely because it is scarce. We have to pay a certain amount for a loaf of bread, for shoes, for dresses because they are all scarce. If they were not scarce but superabundant like air, they would be free, and no one would have to worry about their production or allocation. In the press area, newsprint is scarce, paper is scarce, printing machinery and trucks are scarce, etc. The more scarce they are the higher the price they will command, and vice versa. Furthermore, and again pragmatically, there are far more television channels available than are now in use. The FCC’s early decision to force stations into the VHF instead of the UHF zone created far more of a scarcity of channels than there needed to be.
Another common objection to private property in the broadcast media is that private stations would interfere with each other’s broadcasts, and that such widespread interference would virtually prevent any programs from being heard or seen. But this is as absurd an argument for nationalizing the airwaves as claiming that since people can drive their cars over other people’s land this means that all cars—or land— must be nationalized. The problem, in either case, is for the courts to demarcate property titles carefully enough so that any invasion of another’s property will be clear-cut and subject to prosecution. In the case of land titles, this process is clear enough. But the point is that the courts can apply a similar process of staking out property rights in other areas— whether it be in airwaves, in water, or in oil pools. In the case of airwaves, the task is to find the technological unit — i.e., the place of transmission, the distance of the wave, and the technological width of a clear channel—and then to allocate property rights to this particular technological unit. If radio station WXYZ, for example, is assigned a property right in broadcasting on 1500 kilocycles, plus or minus a certain width of kilocycles, for 200 miles around Detroit, then any station which subsequently beams a program into the Detroit area on this wavelength would be subject to prosecution for interference with property rights. If the courts pursue their task of demarking and defending property rights, then there is no more reason to expect continual invasions of such rights in this area than anywhere else.
Most people believe that this is precisely the reason the airwaves were nationalized; that before the Radio Act of 1927,stations interfered with each other’s signals and chaos ensued, and the federal government was finally forced to step in to bring order and make a radio industry feasible at last. But this is historical legend, not fact. The actual history is precisely the opposite. For when interference on the same channel began to occur, the injured party took the airwave aggressors into court, and the courts were beginning to bring order out of the chaos by very successfully applying the common law theory of property rights — in very many ways similar to the libertarian theory — to this new technological area. In short, the courts were beginning to assign property rights in the airwaves to their “homesteading” users. It was after the federal government saw the likelihood of this new extension of private property that it rushed in to nationalize the airwaves, using alleged chaos as the excuse.
To describe the picture a bit more fully, radio in the first years of the century was almost wholly a means of communication for ships — either ship-to-ship or ship-to-shore messages. The Navy Department was interested in regulating radio as a means of ensuring safety at sea, and the initial federal regulation, a 1912 act, merely provided that any radio station had to have a license issued by the Secretary of Commerce. No powers to regulate or to decide not to renew licenses were written into the law, however, and when public broadcasting began in the early 1920s, Secretary of Commerce Herbert Hoover attempted to regulate the stations. Court decisions in 1923 and 1926, however, struck down the government’s power to regulate licenses, to fail to renew them, or even to decide on which wavelengths the stations should operate.2In the decisions Hoover v. Intercity Radio Co., 286 Fed. 1003 (Appeals D.C., 1923); and United States v. Zenith Radio Corp., 12 F. 2d 614 (ND. Ill., 1926). See the excellent article by Ronald H. Coase, “The Federal Communications Commission,” Journal of Law and Economics (October 1959): 4–5. At about the same time, the courts were working out the concept of “homestead” private property rights in the airwaves, notably in the case of Tribune Co. v. Oak Leaves Broadcasting Station (Circuit Court, Cook County, Illinois, 1926). In this case the court held that the operator of an existing station had a property right, acquired by prior use, sufficient to enjoin a new station from using a radio frequency in any way so as to cause interference with the signals of the prior station.Ibid., p. 31n. And so order was being brought out of the chaos by means of the assignment of property rights. But it was precisely this development that the government rushed in to forestall.
The 1926 Zenith decision striking down the government’s power to regulate or to fail to renew licenses, and forcing the Department of Commerce to issue licenses to any station that applied, produced a great boom in the broadcasting industry. Over two hundred new stations were created in the nine months after the decision. As a result, Congress rushed through a stopgap measure in July 1926 to prevent any property rights in radio frequencies, and resolved that all licenses should be limited to 90 days. By February 1927 the Congress passed the law establishing the Federal Radio Commission, which nationalized the airwaves and established powers similar to those of the current FCC. That the aim of the knowledgeable politicians was not to prevent chaos but to prevent private property in the airwaves as the solution to chaos is demonstrated by the legal historian H.P. Warner. Warner states that “grave fears were expressed by legislators, and those generally charged with the administration of communications . . . that government regulation of an effective sort might be permanently prevented through the accrual of property rights in licenses or means of access, and that thus franchises of the value of millions of dollars might be established for all time.”Harry P. Warner, Radio and Television Law (1958), p. 540. Quoted in Coase, “The Federal Communications Commission,” p. 32. The net result, however, was to establish equally valuable franchises anyway, but in a monopolistic fashion through the largesse of the Federal Radio Commission and later FCC rather than through competitive homesteading
Among the numerous direct invasions of freedom of speech exercised by the licensing power of the FRC and FCC, two cases will suffice. One was in 1931, when the FRC denied renewal of license to a Mr. Baker, who operated a radio station in Iowa. In denying renewal, the Commission said:
This Commission holds no brief for the Medical Associations and other parties whom Mr. Baker does not like. Their alleged sins may be at times of public importance, to be called to the attention of the public over the air in the right way. But this record discloses that Mr. Baker does not do so in any high-minded way. It shows that he continually and erratically over the air rides a personal hobby, his cancer cure ideas and his likes and dislikes of certain persons and things. Surely his infliction of all this on the listeners is not the proper use of a broadcasting license. Many of his utterances are vulgar, if not indeed indecent. Assuredly they are not uplifting or entertaining.Decisions of the FRC, Docket No. 967, June 5, 1931. Quoted in Coase, “The Federal Communications Commission,” p. 9.
Can we imagine the outcry if the federal government were to put a newspaper or a book publisher out of business on similar grounds?
A recent act of the FCC was to threaten nonrenewal of license of radio station KTRG in Honolulu, a major radio station in Hawaii. KTRG had been broadcasting libertarian programs for several hours a day for approximately two years. Finally, in late 1970, the FCC decided to open lengthy hearings moving toward nonrenewal of license, the threatened cost of which forced the owners to shut down the station permanently.The best and most fully elaborated portrayal of how private property rights could be assigned in radio and television is in A. DeVany et al., “A Property System for Market Allocation of the Electromagnetic Spectrum: A Legal-Economic-Engineering Study,” Stanford Law Review (June 1969). See also William H. Meckling, “National Communications Policy: Discussion,” American Economic Review, Papers and Proceedings (May 1970): 222–23. Since the DeVany article, the growth of community and cable television has further diminished the scarcity of frequencies and expanded the range of potential competition.
Last week, Donald Trump signed a new executive order facilitating more flexibility for consumers of health insurance.
The order allows for more flexibility in purchasing insurance across state lines, and greater freedom both small businesses and groups of consumers in creating "association health plans" (AHPs). In theory, this will broaden access to the benefits currently enjoyed only by those with employment-based insurance, and other types of group insurance.
The order paves the way for healthcare reforms long favored by Kentucky Senator Rand Paul who believes the reforms will help bring down healthcare costs.
In an op-ed for Breitbart, Paul writes:
Millions of Americans will be eligible to band together to demand less-expensive insurance. The 28 million individuals left behind by Obamacare will now be eligible for inexpensive insurance.
How will it work? Well, nationwide associations like the National Restaurant Association will be allowed to form groups across state lines and, with the leverage of size, demand Big Insurance bring down their outrageous premiums.
Many of the 28 million people left behind by Obamacare who still don’t have insurance work low-wage jobs in our fast food restaurants. The President’s decision today will allow workers from two million restaurants to come together to form a buying group and through sheer size get cheaper and better insurance.
Millions of people will be eligible for the same group insurance that big corporations offer. In fact, Health Associations may grow to be larger than the largest of our corporations. Currently, about half of private insurance is cross-state, self-insured ERISA plans, and most employees love them. The President’s action today will allow the millions of people in the individual market an escape route to group insurance.
Why Do We Need an "Escape" From the Individual Market?But why should people need an "escape route to group insurance" as Paul describes?
Well, as anyone who's had to buy health insurance in the non-group market knows, the "independent market" in health care is often an unpleasant ordeal. It's a small part of the market, and prices are high. Large well-capitalized firms prefer to focus on the more lucrative group insurance market.
This state of affairs, however, isn't due to some law of nature or some immutable reality of human behavior.
The fact that the independent market is so small and unresponsive is due to decades of public policy that favors group markets, and drives up costs for the independent market.
To see some of the origins of this problem, we need to go back to the 1940s.
As asked in a 2009 NPR article, "How did Americans end up with a system in which employers pay for our health insurance? After all, they don't pay for our groceries or our gas."
The answer lies in policies that encouraged the creation and spread of health insurance.
The concept of health insurance in the United States began in the late 1920. From there, it grew into a nationwide industry, and it was helped along by the federal government:
In 1942, the Roosevelt administration imposed price controls on wages. Offering health insurance as a fringe benefit thus because an easy back-door way to raise wages.
More changes followed. Mike Holly at mises.org explains how "In 1945, buyer monopolization begun after the McCarran-Ferguson Act led by the Roosevelt Administration exempted the business of medical insurance from most federal regulation, including antitrust laws."
By the 1950s, federal law began to favor not just any health insurance, but specifically group health insurance.
Holly continues: "In 1951, employers started to become the dominant third-party insurance buyer during the Truman Administration after the Internal Revenue Service declared group premiums tax-deductible."
The Individual market then became even more irrelevant in the 1960s with the creation of Medicare and Medicaid, which were types of group coverage themselves. This drive up prices for all types of insurance as it subsidized demand.
By 2013, before Obamacare took effect, 31 percent of the population was covered by Medicare or Medicaid. An additional 50 percent was covered by employer-based insurance. Before Obamacare started requiring that the uninsured purchase insurance through the independent market, only four percent of the American population was getting insurance through non-group health insurance. Since then, with Obamacare's mandated coverage, the market has increased to only seven percent, as of 2016.
In recent decades, state governments have also been adding numerous mandates to health insurance coverage that required certain types of medical care, such as mental health care and prenatal care, be included. This drove up costs and prices for everyone, but it especially impacted the non-group market where costs and risks were not spread out among members of a large group. With the introduction of Obamacare, these mandates became even more numerous, and costs in the individual market rose even more.
This is where the Trump executive order comes in. It allows small employers, professional associations, and presumably other small groups to enter into AHPs that would offer similar advantages as group plans.
The order in many ways reflects the provisions of 2003 legislation that never passed, but was reintroduced earlier this year. Back in March, NPR noted the basics of the legislation, which appear to apply to Trump's order as well:
Plans from associations could offer stripped down coverage and would have more latitude in setting premiums than regular plans in the small-group market. They could operate in multiple states and generally avoid state-mandated benefits and other state insurance rules.
Under the Republican bill, association health plans still couldn't discriminate against individuals based on their health, but they could charge higher premiums to companies with sicker workers.
The idea behind the executive order here, however, is that even when older, sicker consumers join an AHP, firms would compete to keep costs down while increasing coverage or keeping it stable. This, after all, is what already often happens in employer-based group coverage — even in spite of crippling government regulation.
Critics of the plan assume that markets will remain static, and, unlike markets in food, transportation, and clothing — which have declined as household expenses for middle- and low-income households — healthcare prices will become increasingly unaffordable even for the middle class. But even in housing, where overall prices have increased, square footage per unit has increased in both multifamily and singlefamily units. In other words, healthcare seems to be the only industry where it can be assumed that quality (i.e., coverage) will go down as prices increase.
Experience would suggest that this only happens in the presence of ongoing government intervention. As we're noted many times here at mises.org, the story of healthcare in the United States is one of rapidly increasing government subsidy of healthcare and over ever-increasing regulation. Both work to increase prices.
Moreover, in spite of the tiny baby steps made toward de-regulation by the Trump executive order, it's unlikely that this move will be accompanied by any significant changes in other regulations that might pave the way for more competition and more production on the part of service providers. Policymakers will continue to cripple markets with anti-competitive regulations that limit healthcare facilities, and healthcare personnel. Then, when markets fail to overcome these barriers, we'll declare "market failure" and demand even more regulations, and more subsidies.
Why AHPs Were Undercapitalized When Tried Critics of the new executive order also claim that in the 1980s — when AHPs were more easily formed under the federal law of the time — many providers were undercapitalized, provided poor service, and were prone to overpromising what they could deliver.
However, if we want real insight into why AHPs in the past have been undercapitalized — or lacking the robustness of the employer-based market — we need look no further than the federal government to understand why.
After decades of controls on interstate purchases, and in the wake of a tax code that favors employer-based insurance, who can be surprised that the markets for other group plans and the individual market are now under-developed? Essentially, health insurance markets have lost decades of innovation, competition, and capitalization outside the employer group market thanks to federal law.
Now we're being told that allowing people to buy group insurance outside the usual straitjacket of federal policy is unworkable. It's not unworkable, of course, it's just a market that has been all but destroyed by government intervention.
Now, the only way the market for AHPs can develop and become competition and well-capitalized is to let is exist. It remains to be seen if that will ever be allowed beyond the short term.
For more, see:
"To Fix Healthcare, We Need to Repeal a Lot More than Obamacare" by Ryan McMaken"How Government Regulations Made Healthcare So Expensive" by Mike Holly "Healthcare: "Insurance" Now Just Means Redistribution" by Gary Galles "Has "Market Failure" Caused High Health-Care Prices?" by Dale Steinreich"Why Health Care Costs Exploded After World War II" by Michel Accad
When unions are in their justifying-their-existence mode, they quickly turn to false claims, such as asserting that higher union wages benefit other workers. In fact, unions actually actually reduce the availability of union jobs, and force workers elsewhere, increasing labor supply and decreasing wages for those jobs. At a more basic level, though, they justify themselves as exemplars of the right of freedom of association, so that anything which restricts them violates freedom of association.
The union version of freedom of association is that workers are free to associate with them, under unique government-granted privileges, including monopoly representation of all workers based on a one-time election. As Brenda Smith of the AFT put it, “Exclusivity for a union with majority support…is democracy…It allows employees to select their representative freely, without coercion from the employer. It allows them to amplify their voice through collective action under our constitutionally protected right to freedom of association.” But such union freedom of association rights are sharply inconsistent with universal rights to freedom of association.
Others’ freedom of association are violated in multiple ways. Such union “rights” take away workers’ freedom to be associated with a different union, their freedom to choose alternative forms of group representation, such as voluntary unions, and their freedom to represent themselves in negotiations with employers. It takes away workers’ freedom to associate with non-union employers or to resolve workplace issues directly with them, rather than forcing arrangements exclusively though the union. It takes away the freedom of employers to not associate with unions or to solely employ workers who have no union involvement. In addition, in heavily unionized industries, it undermines consumers’ freedom to associate with (buy from) lower cost, non-union producers (or, as taxpayers, to have government services provided at a lower cost in the case of government unions), if they choose. In other words, unions’ freedom of association means one-way freedom for them to coerce others. Those who don't wish to associate with unions, however, are not entitled to this same freedom.
However, a fundamental or inalienable human right must be one that all possess. If one party’s exercise of a right prevents a second party’s exercise of the same right, it is a special privilege given only to the first party, not a right. If the second party is required to accept the first party’s offer of association on the terms they offer, the second party is not free to choose his associations. Freedom of association would be a right of the first party, but denied to the second party. A fundamental right to freedom of association can only mean freedom to associate with those who also choose to associate with us — i.e. voluntary association on both sides. That includes freedom to refuse association with others against one’s will.
Consider a suitor asking to marry a woman. His freedom of association does not deny her equal freedom. She can say no. Similarly, a student application to a university does not compel that university to accept the student. But the union version of freedom of association would require those they want to associate with to say yes.
Unions manage to divert attention from the logical contradictions in their version of freedom of association by focusing discussion on living up to the freedom of association of those workers who choose to be members. That often goes a long way to defuse opposition, in the name of democracy. However, careful thinking about that reasoning reveals it as perhaps the strongest argument against union freedom of association claims.
As James Sherk has documented, not a single current worker in many unions ever voted to select that union, and vanishingly few current workers voted for them in other instances. In fact, it may be the case that very few unions have been voted for by a majority of the current workers they represent. That destroys any claim that the union advances current workers’ freedom of association.
How could that be? Labor law and interpretation requires only a majority those who voted (not a majority of the number of workers) in a single certification election to allow unions to impose exclusive union representation on all workers. After that, no further elections need ever be held. So new workers need never be given a vote on the union. This is also true for anyone who changes their mind after their initial vote.
As a consequence, when a workplace was unionized long ago, virtually no one who voted in the certification election still works there. How many of its current workers voted for UAW unionization of GM’s Michigan plants in 1937, 80 years ago? How many current government union workers voted to certify their unions in the 1960s and 70s? Zero, in many cases. Current union members have therefore often had no effective input into who represents them. Consequently their unions even deny freedom of association to the majority of their current members, the one group one whose freedom of association could plausibly be consistent with union freedom of association claims. That is, unions’ destruction of others’ freedom of association extends to almost everyone, so that such a right cannot justify their current existence and power.
Some of restrictions of others’ freedom of association due to unionization could be addressed by having regular union certification elections. Alternatively, decertification elections are also possible. But unions have managed to hamstring both options both options, revealing that workers’ freedom of association was more an intended victim than their intended motive.
Union members can try to change their union representatives in internal elections, if they are unhappy with the current leadership. But even if they successfully oust their leadership, since the local is subordinate to the national union, the national union can neutralize it by putting the local under its trusteeship and leadership. That is, even when unhappy workers “win,” they can lose.
What about regularly occurring union certification elections, an idea supported by more than 4 out of 5 union households? Unions never offer such an option voluntarily, which, itself, says a great deal about their commitment to their workers’ freedom of association. However, such elections can be forced on them. Wisconsin not long ago mandated that government unions face re-certification elections. Many did not even file for re-election, revealing how badly they knew they had served members. In other cases, membership fell dramatically (AFSCME membership fell by over half) or dues were cut to maintain membership, as unions had to finally compete for members.
Decertification as an option is also strewn with restrictions. It requires signatures from 30 percent of all employees in a unit (versus 50 percent of votes cast for certification, which can be a far lower hurdle), within a one-month time frame which is only open once every three years, and those signatures cannot be gathered while employees are being paid or in work areas. Further, union members who support decertification are commonly expelled from the union (but not relieved of paying for their “representation services”) giving them still less freedom of association. Such restrictions show why decertification is such a faulty escape valve for poorly represented workers.
In sum, not only do unions deny rather than empower members’ freedom of association, they have made it all but impossible to reverse the abuse. As John Ransom summarized it, “for unions, freedom of association means workers are given only one representative, one association, one, non-dissenting voice carefully following the party line.” Given the importance FOA for all, (as Alexis de Tocqueville wrote, “The most natural privilege of man, next to the right of acting for himself, is that of combining his exertions with those of his fellow creatures and of acting in common with them. The right of association therefore appears to me almost as inalienable in its nature as the right of personal liberty. No legislator can attack it without impairing the foundations of society”), this reveals unions’ freedom of association claims as almost totally baseless. Consequently, not only is unions’ supposed justification in freedom of association (which Thomas Jefferson recognized provided “the guarantee to everyone of a free exercise of his industry and the fruits acquired by it”) false; it is a contradiction in terms.
There is a lot to learn from the slow and painful post-hurricane recovery that is going on in Puerto Rico right now.
One of Puerto Rico's biggest problems is that it is by far, one of poorest areas of the United States. The median household income in Puerto Rico is approximately $18,600. The median household income in the United States, by contrast, is around $57,000. As we've recently discussed here at mises.org (see here and here) it is generally far more difficult for low-income areas to weather storms, than it is for high income areas. The amount of capital at hand for repair and recovery is less in poor areas, as is the wealth available for constructing high-quality infrastructure.
Repeating this fact to Puerto Ricans, however, does them little good in the short term. So we must explore ways that Puerto Rico could be helped right now in gaining greater access to badly needed goods and services.
One: Repeal the Jones Act Unbeknownst to many Americans, shipping in the United States exists under the shadow of highly protectionist and archaic regulations passed as part of the Jones Act. The Jones Act was originally passed in 1920 as part of an effort to increase the number of merchant marine vessels produced by the United States. It restricts trade between American ports to vessels built and owned by Americans, and to vessels whose crew is at least three-quarters American. Unfortunately, as Gary Galles notes, the Act "works against its stated goals, and does so at a steep cost."
The Jones Act drives up the cost of goods and services by restricting shipping options for merchants. As Galles explains, this can be especially damaging in times of natural disasters:
In the aftermath of Hurricanes Katrina and Sandy, Jones Act restrictions were suspended because they hindered emergency responses. In 2014, New Jersey was not allowed to use a foreign ship to bring rock salt from Maine in time to respond to a snowstorm. A Jones Act-eligible ship required far more time and added $700,000 to the cost. And such problems extend beyond emergencies. Maryland imports rock salt from Chile rather than Louisiana, because shipping it all the way from Chile is three times cheaper than Jones Act domestic transportation.
These issues can be especially damaging to places like Puerto Rico and Hawaii. Galles continues:
In 2014, shipping a forty-foot container from Los Angeles to Honolulu reportedly cost more than ten times shipping it to Singapore. Dependent on Jones Act shipped petroleum for three-quarters of its electricity generation, Hawaii’s electricity prices are almost double the next most expensive state.
A 2012 report found that sending a container of household goods from the east coast to Puerto Rico cost more than double that to nearby Santo Domingo. A GAO study found that some Puerto Rico companies had shifted sourcing from America to Canada, due to cost savings from escaping Jones Act restrictions.
The Jones Act's effects on cutting resources for places like Puerto Rico are so undeniable that the Act was suspended early in September to allow for Puerto Rico to stock up on fuel and other necessities in preparation for the storm. The waiver expired after September 22, however, greatly diminishing the supply of fuel coming into the island.
Even John McCain, rarely quoted as one of the good guys in these pages, has urged the total repeal of the Jones Act, calling it an "archaic and burdensome act." McCain is right.
Only after substantial pressure did the Trump administration finally relent, and it granted a new waiver on Wednesday.
Total repeal should be next on the agenda, as it's absurd to wait for a highly destructive hurricane before allowing Puerto Ricans to access goods and services at lower cost.
Two: Declare Puerto Rico a Free Trade Zone Why stop with just a repeal of the one protectionist measure that is the Jones Act?
Puerto Rico is subject to American customs and trade laws, and thus importing goods and services into the island is limited by tariffs, quotas, and other protectionist measures — thus driving up the costs of goods and services.
Given Puerto Rico's desperate need for supplies in the wake of Maria, the humane thing to do would be to grant trade autonomy to Puerto Rico allowing it to engage in total unilateral free trade in order to attract merchants from all over the world.
Unilateral free trade, of course, is beneficial always and everywhere. But in the short term, Congress and the administration can begin small and simply declare Puerto Rico to be an open port in which all goods can be imported duty-free. This would end the need to restrict trade and collect tariffs in Puerto Rico to remain in accordance with US law. A look at US customs policies reveal restrictions fall on a variety of highly-useful products in times of emergency including ethyl alcohol, dried milk, and peanuts.
Other disastrous trade restrictions include the Trump administration's new tariff slapped on lumber earlier this year. The end effect will be to drive up the cost of construction for everyone, but this will be most felt in hurricane-devastated areas.
Needless to say, this policy of open trade would be most effective if both national and territorial officials allow merchants and importers to charge prices without fear of any restrictions on so-called price-gouging. Such restrictions would act to reduce the total amount of goods and services being brought to the island.
Three: Remove Restrictions on Physical CashIn times of emergency, when the electricity is out, access to physical cash becomes extremely important in facilitating a functional economy. In the wake of Hurricane Maria, ATMs ceased to function and armored car services had difficulty reaching banks. "Demand for cash [in Puerto Rico] is extraordinarily high right now," a Federal Reserve spokesman noted on Wednesday.
While it is a good thing that the Fed believes it can soon ensure a working amount of cash in the region, the problem would have been largely avoidable were United States banking regulations not so geared toward restricting the use of physical cash.
Prior to a looming natural disaster, of course, it would be wise to take out a significant amount of cash to make sure one can purchase goods and services even when power is out, and banks are closed.
In the US, however, removing even a few thousand dollars from one's accounts is likely to raise eyebrows and trigger greater surveillance from banking regulators. Technically, it is legal to withdraw cash amounts up to $10,000, but doing so can trigger government charges of "structuring" in which it is actually illegal to withdraw cash amounts under $10,000 total. In other words, its unclear as to how much cash one can actually withdraw without asking for trouble from federal banking regulators. Nor is this an especially huge amount, especially when power is expected to be out for months in some areas.
Both banks and their customers, however, are repeatedly discouraged from engaging in sizable cash transactions by federal regulators.
A more reasonable government would seek to facilitate the use of physical cash in large amounts, especially in the lead up to natural disasters, so as to ensure residents need not resort to barter and other types of highly-inefficient transactions.
Moreover, in a post-disaster situation, where communities have become more isolated, and access to resources on the mainland becomes limited, residents will become more dependent on short-terms loans, micro loans, and informal loans during the process of rebuilding. In many cases, these loans will be risky. Policymakers could help ensure that cash and capital reaches those who need it most by reducing banking restrictions and regulations on so-called usury, same-day lending, and other types of short-term and emergency loans.
It's at times like these that the effects of government interventions, intrusions, and regulations come to be felt most. As resources become scarce, and established institutions may not be present or reliable, it becomes all the more important to facilitate a nimble and inventive marketplace in which solutions can be pursued quickly and in an unrestricted manner.
As with all Americans nationwide, Puerto Ricans are subject to trade restrictions, taxes, and other regulations that cripple markets and impact their standard of living. Much of the time, these effects can be better tolerated because an abundance of goods continues to be available — even if made unnecessarily expensive. In the wake of a natural disaster, however, accessing goods and services becomes much more difficult, and it is at times like these that economic freedom is needed most.
A few weeks ago, Maine Governor Paul LePage signed a Food Sovereignty Bill into law, guaranteeing the rights of Maine towns to regulate food production locally, rather than submitting to federal regulation. Although the press is avoiding describing the bill as such, this is a nullification of federal food regulations.
The movement for food sovereignty in Maine began in the town of Sedgwick, which passed its own food sovereignty bill, and the idea quickly spread to twenty towns across the state. The Sedwick law explicitly gave citizens of the town the right to “produce, process, sell, purchase, and consume local foods of their choosing,” such as raw milk and meats slaughtered locally in plants that do not meet the burdensome federal regulations that create barriers of entry for smaller operations.
At first, the state of Maine reacted by suing citizens of the municipalities that passed Food Sovereignty Laws, with the state Supreme Court ruling against farmer Dan Brown for selling raw milk in the town of Blue Hill, which had passed a law mimicking Sedgwick. It was this case that helped the food sovereignty movement gain steam, and in June, the state government capitulated to the farmers by passing the state-wide law protecting the citizens of any municipality that passed such a law. Essentially, the state of Maine is recognizing the right to local regulation of its food industries.
Decentralizing measures regarding food regulation are not isolated to Maine. Two years ago, Wyoming passed a law protecting the right of the citizens to sell unlicensed “homemade” food without fear of prosecution. The Wyoming law is not as sweeping as the Maine Food Sovereignty Laws, but it similarly represents the increased willingness of states to nullify federal regulations regarding food. Maine, however, is the first state to pass a law aimed broadly at all food regulations, rather than a single specific regulation.
The food sovereignty movement is undoubtedly a response to the increasingly burdensome regulations on small food producers. The response from Maine farmers who support the bill indicate that the movement is a reaction to the costs imposed on small producers by federal regulations. Jordan Pike, a farmer from Lebanon, Maine, said of the law:
Providing this service to community members and neighbors can mean the difference between keeping the cow — even keeping the farm — or having to sell out. It means being able to pay the vet bill for an animal instead of putting it down, or pay the roofer to fix the leak in the barn, or the painter and keep our property values up.
In other words, like many – if not most – government bureaus, the US Department of Agriculture effectively regulates to the benefit of large businesses at the expense of smaller competitors. Maine is leading the charge against this kind of protectionism, and it is using the principle of nullification to do so.
The law is set to take effect on November 1, but the governor has called for a special session of the state government before then to address the objections of the federal government. The USDA has threatened to “designate” the Maine Meat and Poultry Inspection if the new law is not amended to exempt the slaughtering of meat and poultry from protection under the new law. To have “designation status” means that any meat or poultry slaughtered in the state would be required by federal law to “be transferred to the Federal meat and poultry inspection program overseen by the USDA-Food Safety and Inspection Service.”
It is no surprise that the federal government is unwilling to relinquish any regulatory power back to the state and local governments of the country, and if Maine chooses to fight back and uphold the nullification of federal regulations, then the Department of Agriculture will be in a position to use the might of the federal government to force the state to submit. As it stands, Governor LePage is encouraging the state government to meet federal demands. Hopefully, the legislature will choose otherwise and the Food Sovereignty movement will spread to the rest of the country.
Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system.
By using the perspective of Austrian business cycle theory, lets take a look at China’s real estate industry, which is suffering more and more painfully from artificial credit issued by China’s central bank, the People’s Bank of China (PBC). During the 2008 global economic crisis, China’s central government issued the famous RMB 4 Trillion Stimulus Package Plan (equaling to $586 billion). Since 2009, the Chinese real estate economy has already suffered from three small economic cycles. As it is becoming more difficult for real estate companies to live on artificial prosperity, the duration of every business cycle has become shorter than the previous one. We also see more and more ghost cities because of the economic boom in every sub-economic cycle. There were at least 12 ghost cities founded in 2013, and the number of them jumped to at least 50 in 2017! Bankruptcy is happening more frequently among Chinese real estate enterprises. Since 2016, at least three real estate companies — with a combined debt of at least RMB 763 million — have gone bankrupt. The story of bankruptcy is continuing, with one of the biggest real-estate-driven enterprises, Wanda Group, facing financing problems. If Wanda no longer has access to cheap debt, it might not be able to refinance or roll over all its debt again. If Wanda has to face bankruptcy, it could possibly accelerate an end of the the current Chinese boom.
The data from the Chinese local governments is also not optimistic; their debt levels have reached almost RMB 25 trillion (US$ 4 trillion) at the end of 2014. In 2015, even the PBC admitted in one of its annual reports saying that China’s financial system is facing higher instability and uncertainty.
The above evidence is not a surprise. All these are the consequence of artificial bank credit created by central banking and central planning. In China, the loans are easy to get from the State Owned Enterprises (SOEs) or the businessmen who are the friends of the politicians in the Communist Party. China’s real estate industry is also the ally of the state and only the people who are friends of those in authority can participate in housing programs.
Besides the SOE economic system, what we should worry more about is how the Keynesian and crony system hurts small and private businesses in China, who are driving the economy of this country. Compared with the SOEs, and the businessmen who are the close allies of some influential politicians, it is harder for ordinary entrepreneurs who are running small businesses to get loans. Moreover, the recent market squeeze makes it harder for Chinese small business to survive. These entrepreneurs are not only facing an unfriendly bank credit situation, but also the threat of having to bribe the government to circumvent the massive scale of governmental economic regulations.
Consider the story of a small business boss Li Lang, who is a typical Kirznerian alert businessman in China. Several years ago, he observed a shortage of moving companies in the Southwest Chinese town of Chengdu. He started his business to serve the local people. The business is not easy, not only because it requires hard work, but Li also must bribe and maintain good relations with the local politicians to let them “protect” his business and help him introduce some business opportunities. According to Li, if the local bigwigs in the crony system had already discovered the opportunity of earning a fortune by managing a moving company, it wouldn’t have been possible for him to enter the business. Though now that he has earned a lot of money, he still has to carefully maintain the relationship with the politicians to "protect" his business. His is not an isolated case. In China, the less connections you have with the cronyist system, the less business opportunity you have. And even if you become successful in your business, be careful, the state has eyes on your wealth.
We know that the private sector is driving the Chinese economy and has improved the living standard of many Chinese individuals despite state economic manipulation. Yet, we still have to emphasize that the Chinese economic model is dominated by Keynesianism and cronyism. If we ignore this, the false prosperity we see would make us misread what is happening in China.
Have you ever been birdwatching? If not, how well do you think you would recognize the birds around you the first time you tried? Even if you were specifically looking for a species present in your area, you might fail to recognize it. The reason is simple. Without additional training, there are many ways to identify birds you are unaware of — you often would not know what to look at or listen for, or where or when to look. An experienced birder might well see what you missed.
Applying economics to public policy is akin to birdwatching in this way, except for the fact that few untrained birdwatchers presume they have the expertise to “educate” others to their views, while almost everyone seems to assume they have sufficient expertise in economics to pontificate on public policies. This leads to ignorance of the predictable, even if unintended, adverse side effects that can turn seemingly helpful economic policies into harmful ones, because people don’t know where or how to look to recognize them, and massive overconfidence in government’s ability to effectively solve societal problems.
At its core, economic analysis reduces to the proposition that “incentives matter.” Changes in the relevant costs or benefits facing decision-makers will alter people’s choices in predictable directions. Higher expected benefits induce people to do more of something, and higher expected costs induce them to do less. And, importantly, there are almost always more areas in which peoples’ incentives, and thus choices, are changed than those not “expert” in a field realize, resulting in responses to market incentives that are surprisingly (to central planners, if not to economists) large.
The altered choices of one group will also alter the costs and benefits of choices facing others, causing changes in their behavior that illustrate the impossibility of changing just one incentive story via changing policy. Those changes will, in turn, alter others’ incentives and behaviors, in a widening series of effects.
Economists are trained to “look” for all the important incentive changes that will face the affected individuals, and the predictable effects that will result, when analyzing policy changes — effects which untrained policy watchers often miss. If they are well-trained, they should also have learned enough humility about the complexity of social processes to admit that there can be margins of choice they might have overlooked as well, leading to drastic limitations on anyone’s ability to confidently issue authoritative pronouncements that some new government intervention into our lives will improve them.
This principle seems self-evident. However, the many choices for which incentives can be changed by any policy makes it far more difficult to correctly apply the principle than it is to recognize it in the abstract. As a result, adequate analysis takes both knowledge of the details (where the devil of unrecognized incentive changes lurk) and alertness to the vast number of ways they can alter behavior. But neither condition is always, or even typically, met for government “innovations.”
Decision-makers therefore commonly ignore crucial aspects of policies in their too-narrowly-focused search for policy answers. This frequently triggers the law of unintended consequences, my favorite version of which is: “Government policies always have unintended adverse consequences, and this fact always comes as a surprise to them.”
The law of unintended consequences is so prevalent that a complete, compact discussion is impossible. But perhaps it can be best illustrated by something apparently so simple it could not work other than as intended. One good example was the imposition of the national 55 mph speed limit in the 1970s.
It was promoted as a way to save lives. Given that “speed kills,” what could be more obvious? Slowing everyone down would mean not only more reaction time for driver “surprises” and reduced impacts when people hit stationary things. However, that ignored several other predictable consequences which increased road risk, to the point where some analysts have concluded that it increased roadway deaths rather than decreasing them.
Lowering the speed limit also increased the differences, or variance, in speeds between freeway flyers (who didn’t change their speeds much) and more law-abiding drivers (who slowed their speeds much more). That meant drivers approached one another at a higher speed differential, reducing the time drivers had to react, and increased such accidents. It also meant greater impact speeds between vehicles in such accidents. Both effects increased traffic deaths.
The law change also made long trips longer. That meant there would be more sleepy, much higher risk, hours on the roads at the end of trips, which would also lead to more accidents. If trips were all short, that would make little difference. But where trips are generally longer, like in much of the west, those effects would be far larger, as the results bore out.
The law also shifted traffic from safer to less safe routes. The main reason is that time is often far more important than distance to drivers. Before the law, 65 mph was the speed limit on California freeways, which meant that staying on the freeway would often get you where you were going faster, even if it was somewhat longer than alternatives, which were frequently two-lane 55 mph roads, with lots of curves and truck traffic. The speed limit differential kept more vehicles on the safer route. But changing the law slowed down speeds on freeways, while leaving speed limits on surface roads unchanged, which shifted traffic from safer freeways to more dangerous surface roads (including more than one nicknamed “blood alley” near where I have lived). That increased highway risks. It also explained why the policy’s promoters only wanted to look at freeway deaths (whatever good effects would tend to be on the freeway), while it took opponents to focus attention on all road deaths (because proponents did not want to “discover” the adverse effects on non-freeway roads).
The route-shifting effect was also reinforced by the need to shift highway enforcement resources. Imposing limits further below drivers’ desired speeds required more freeway enforcement than before. Because freeways are designed to be safer at speed than other roads, the added freeway enforcement might save some lives, but the required shift of such resources away from more dangerous roads and other forms of policing with more robust effects on safety could very well lose more lives elsewhere than saved on the freeways.
The 55 mph speed limit example is far from the only example of the law of unintended consequences to government policy. But it offers a clear illustration of the many margins at which unanticipated, unintended consequences played out, surprising government planners with their results. And it does so in a case apparently so simple that planners could not possibly get things wrong.
That warning is increasingly important as government intervention invades more areas of life and in more complex ways. For good results, both good theory and carefully examined details are necessary. The latter are why it is so important to be a good economic birdwatcher. Lacking that skill, the consequences will all too commonly harm Americans by supposedly helping them. And our country does not need still more illustrations of what Ronald Reagan called the nine scariest words in the English language: “I’m from the government, and I’m here to help.”
Fighting poverty is a favorite pastime of government because politicians get to portray themselves as champions of the poor. However, the unfortunate few tend to be far fewer in number when aid is extended privately instead of through tax funded programs.
Government Bureaucracies Benefit from Welfare ProgramsCoercion is used to acquire the revenue (taxes) to finance welfare programs. As evidenced by the commission it retains prior to redistributing this wealth, government bureaucracies are one of the beneficiaries of these programs, and thus highly incentivized to claim a perpetual need for the programs. I live in Canada, where the number of federal government welfare program employees increased by 43% between 2006 and 2012. Clearly, it serves the interests of politicians and bureaucrats to create (impose) a culture of dependency. As Murray Rothbard wrote in For a New Liberty:
Since welfare families are paid proportionately to the number of their children, the system provides an important subsidy for the production or more children. Furthermore, the people being induced to have more children are precisely those who can afford it least; the result can only be to perpetuate their dependence on welfare, and, in fact, to develop generations who are permanently dependent on the welfare dole.
Economist Thomas Sowell wrote:
The black family, which had survived centuries of slavery and discrimination, began rapidly disintegrating in the liberal welfare state that subsidized unwed pregnancy and changed welfare from an emergency rescue to a way of life.
The government exacerbates the problems it is supposedly trying to solve.
Why Private Aid is Superior to Public AidDrawing on the work of David Beito, historian Hildegard Hoeller describes the presence of decentralized systems of mutual aid:
Regardless of where they came from, the members of nearly all ethnic and national groups erected formidable networks of individual and collective self-help for protection. These social welfare systems fell into two broad categories: hierarchical and reciprocal relief.
While hierarchical relief was often bureaucratic, Beito notes, “reciprocal relief tended to be decentralized, spontaneous, and informal. The donors and recipients were likely to be from the same or nearly the same walks of life. Today’s recipients could be tomorrow’s donor.”
In his book From Mutual Aid to the Welfare State, Beito continues:
Reciprocal relief was far more prevalent than either governmental or private hierarchical relief. Its most basic expression was informal giving, the countless and unrecorded acts of kindness from neighbors, fellow employees, relatives, and friends . . .
. . . The self-help and informal neighborly arrangements created by the poor themselves dwarfed the efforts of formal social welfare agencies. In this regard Edward T. Devine, a prominent social worker, used an article in the “Survey” to warn his colleagues against the sin of self-importance. He reiterated that millions of poor people were able to survive and progress without recourse to organized charities and governmental aid: “We who are engaged in relief work . . . are apt to get very distorted impressions about the importance, in the social economy, of the funds which we are distributing or of the social schemes which we are promoting . . . If there were no resources in times of exceptional distress except the provision which people would voluntarily make on their own account and the informal neighborly help which people would give to one another . . . most of the misfortunes would still be provided for.”
Private charity was more effective than government welfare because private persons contributing their own money are highly incentivized to identify genuine needs. On the local level it is easy to monitor recipients to ensure they are making every effort to become independent. Indeed, long ago, much of the aid provided came from those who personally knew the recipients.
In contrast, centralized government bureaucracies are impersonal by nature. This does not mean government employees are uncaring and lack empathy. It means they deal with countless welfare recipients who they can’t possibly know personally, and perhaps are forbidden from doing so. Coupled with the fact that they are giving away someone else’s money, incentives for determining genuine need are very weak. Thus, the indolent know how to milk the modern public system, but were denied aid in the private system of the nineteenth century.
There is a big difference between those who are incapable of supporting themselves, and those who are capable but unwilling. If you fall into the latter group, you are undeserving of assistance — a concept a ten-year-old can understand. Yet, socialists are aghast at such a statement. It is not for us to assess personal character and habits, they say. When a person says they are in need, we must automatically open our wallets, but we must never judge (which, by the way, simply means to express an opinion). As William Gairdner unhappily noted in his book The Trouble With Canada . . . Still!, “Canada’s National Council of Welfare deplores any effort to distinguish between the “deserving” and the “undeserving” poor.”
Is Reform Possible?
Politicians say they can alleviate poverty, which they often blame on ‘greedy capitalists’ and ‘inequality’ — assertions which Ryan McMaken has disproven. Consistent with McMaken’s article, when markets are hampered by government intervention, poverty increases. As Ludwig von Mises wrote in Human Action:
It is highly probable that the funds of the charitable institutions would be sufficient in the capitalist countries if interventionism were not to sabotage the essential institutions of the market economy . . . The greater part of those assisted by charitable institutions are needy only because interventionism has made them so.
Can government welfare programs be reformed in order to match the superior incentives possessed by private individuals? No. The superior nature of private incentives derives from the fact that individuals are deploying their own resources — their own money. As such, this is impossible to duplicate within the coercive institutional structure of government.
ConclusionGovernment welfare discourages productive work, encourages dependency, and places an enormous economic burden on the backs of resentful, hard-working taxpayers. As Gairdner wrote:
Like iron fillings drawn to magnets, the country divides into those who produce and want to protect what they have earned, and those who want to share by right (and so, by force) in what the former have produced. In this respect, the shift from the idea of a State set up to provide and protect equal opportunity, to one that is expected to provide equal outcomes, or results, has been decisive, and has resulted in what the insurance industry calls a “moral hazard.” George Gilder summed up the misguided policy effects as follows:
The moral hazards of current programs are clear. Unemployment compensation promotes unemployment. Aid for families with dependent children . . . makes more families dependent and fatherless. Disability insurance in all its multiple forms encourages the promotion of small ills into temporary disabilities and partial disabilities into total and permanent ones. Social security payments may discourage concern for the aged and dissolve the links between generations . . . All means-tested programs . . . promote the value of being “poor” (the credentials of poverty), and thus perpetuate poverty.
The Miami Herald reports that a local couple is going all the way to the state supreme court to fight a local ordinance banning front-yard vegetable gardens:
Hermine Ricketts and her husband Tom Carroll may grow fruit trees and flowers in the front yard of their Miami Shores house...
Vegetables, however, are not allowed.
Ricketts and Carroll thought they were gardeners when they grew tomatoes, beets, scallions, spinach, kale and multiple varieties of Asian cabbage. But according to a village ordinance that restricts edible plants to backyards only, they were actually criminals.
“That’s what government does – interferes in people’s lives,” Ricketts said. “We had that garden for 17 years. We ate fresh meals every day from that garden. Since the village stepped its big foot in it, they have ruined our garden and my health.”
These sorts of stories pop up several times a year. They are often discussed at free-market oriented and libertarian sites to illustrate just the myriad of ways that the state interferes in our daily lives. Many times, they intervene to prohibit totally innocuous activities like growing a front-yard garden.
What articles like these often fail to point out of course, is that these laws didn't appear out of nowhere. They are often passed because some voters demanded the city council or the county commission pass laws prohibiting front-yard gardens, or backyard chicken coops, or other non-violent activities deemed by some to be a nuisance to the neighborhood. These laws then persist over time because the majority of voters either agree with the laws, or don't feel strongly enough about the matter to demand a change.
In Miami Shores, the law against front-yard gardens was likely passed because at least a few people felt that front yard gardens were not so innocuous after all.
This situation illustrates, yet again, a problem with majoritarian government. If a majority of the citizens of Miami Shores — or whatever jurisdiction — hate front-yard gardens, then they likely to vote for candidates who will vote to ban them. The minority, of course, is simply out of luck.
The implied solution in many of these free-market publications is that government should just get out of the business of regulating front yards. OK. But then people will begin to ask the inevitable questions:
Should people be able to just dump garbage in their front yards then?Can they park a food truck there 24-hours a day and sell hamburgers out of them? Can they put in their front yards a 20-foot sculpture of a jackalope? If the response is "of course not" then the next question is "why not?" or "so what is prohibited in front yards?" If a pile of old appliances is not acceptable in the front yard, why is a vegetable garden acceptable? What if many people think gardens are nearly as unsightly as an old car on blocks?
You can probably figure out where this leads. We're right back at regulating what people can do in their front yards.
Indeed, when Ricketts laments that "government interferes in people's lives" in response to the ban on her garden, one wonders if she'd be equally libertarian if her neighbors had piles of junk cars in their front yards.
So, is there no solution here? Must we choose between bans on gardens on the one side, and piles of garbage on the other?
The solution, of course, lies in decentralization and privatization.
The Role of the Homeowners AssociationWere local governments to totally abandon all regulations on neighborhood aesthetics, it's easy to imagine what would happen next.A similar situation would occur if states were abolished altogether. People would quickly sort themselves into like-minded groups of people governed by private agreements similar to homeowners association covenants. Assuming, of course, that they were unable to convince local governments to ban allegedly "unsightly" features like front-yard gardens, those who hate the veggie gardens would then seek a solution in private homeowners associations.For the record, this author lives in a jurisdiction that allows both front-yard gardens and backyard chicken coops. There is no homeowners association. I don't even particularly care if my neighbor paints his house a color I don't especially like. Not everyone, however, shares my views, and those people would probably be happier moving to a covenant-controlled community. They should be free to do so.
Those who want to be surrounded by neighbors who only plant nicely manicured lawns can have it — provided they find others willing to enter into a private agreement banning front-yard gardens.
And this is exactly what many people do when they choose to move to covenant-controlled communities where they believe their "property values" will be protected by private agreements banning unsightly features to front yards or houses.
People like to complain about their homeowners associations, of course, but there's a reason they aren't going away. The homeowner agreements don't actually deter a large number of people from purchasing homes in those communities. Thus, the developers who sell houses there have little reason to believe consumers want a more laissez-faire neighborhood. Many residents actually like knowing that the local association won't tolerate a weed-filled front yard or an old car up on blocks in the driveway.
This is why the homeowners association became widespread in the first place:
These developments were often more self-contained than the large-scale communities in that they maintained stricter standards regarding the appearance of the homes (both the structures and the landscaping). The general idea was that people who were looking for certain amenities (whether restrictions on pets or rules governing hedge planting) would be drawn to these communities; those who sought other amenities would look at other developments.
Some homeowners association are more strict than others, but most are far more strict than the local municipal governments. Indeed, those who want front-yard gardens will probably find it easier to find a municipal government that tolerates them, than a private homeowners association. Finding a homeowners association that allows chicken coops is probably even harder. Many municipal governments, on the other hand, allow them.
Decentralization Is the KeyA second option — decentralization — can achieve a similar result.
Imagine, for instance, that Ricketts convinced a group of people on her side of town to form a secessionist neighborhood that was able to separate from the city of Miami Shores. It became West Miami Shores.
The Ricketts and their neighbors would then get to have their front-yard gardens. This would also be good for the residents in Old Miami Shores. When potential new residents come looking around to buy a house in Old Miami Shores, the anti-garden people can simply say "you want a front-yard garden? Don't move here, move over there."
Problem solved.
Yes, it's true that some residents in both areas will then have to move if they want to live in a neighborhood that favors their particular views on front-yard gardens. But at least now both groups have the option of getting what they want.
In the absence of either of these options, we're only left with a situation in which the majority can run untrammeled over a minority, and the minority has no escape.
For decades in the United States, turkey has been the center of the Thanksgiving meal. Some eccentrics may offer other choices, such as roast beef or duck, but nowadays, it's a sure bet that few households will be offering horse meat as one of Thursday's featured dishes.
Horse meat has largely disappeared from the Western diet, and not even our pets eat much horse anymore.
In the United States, however, this flight from horse meat has been helped along by the federal government, which, as with so many other matters, has taken up the task of micromanaging how meat is produced in the United States.
In fact, while Congress debates issues like Obamacare and tax reform, it has also been debating whether or not to end a federal ban on horse meat production:
Animal advocates are keeping close watch on Congress amid concern that a moratorium on horse meat production may be in jeopardy.
Congress shut down the industry nearly a decade ago by cutting off funds for USDA meat inspectors. But in July, a key House committee approved an annual farm spending bill that would lift the ban.
The full House then ratified that shift in policy, for the first time in two years — opening the door to revival of an industry that many Americans find repugnant, but which some horse owners view as a practical way to dispose of unwanted livestock.
Horse meat is consumed in a number of countries, including Mexico, Japan, France and Belgium. Two of the three U.S. slaughterhouses serving the export market before the 2006 ban were in North Texas, in Kaufman and Fort Worth.
When confronted by such a story, the first thing one might wonder is "why is this a federal issue?" And then: "where exactly in the Constitution is the part that grants federal power to regulate horse meat." Hint: it's not in there.
Obviously, this is the sort of issue that can be handled quite easily at the municipal and county level — if at all — but since the US long ago seized for itself the power to inspect meat, it can just as easily decide what meat can be sold in the marketplace.
A Brief History of Horse Meat To understand how horse meat came to be something that most Americans couldn't care less about, we must first take a look at its history.
It appears the last time there was a concerted effort in the West to encourage the consumption of horse meat by humans as high-end cuisine may have been in the late 19th century. According to Frederick Simoons, particularly notable was a French campaign to promote consumption of horse meat, including a posh event at the Grand Hotel in Paris in 1865. At the event, "the horse soup was judged good, and the boiled horsemeat and cabbage was acclaimed excellent."
Simoons continues:
That same year, a horsemeat butcher shop (boucherie hippophagique or boucherie chevaline) was opened in Paris, and it was soon followed by others...the French campaign stimulated an interest in horse meat in England; a rise in meat prices following an epidemic among cattle enhanced this interest and led to the holding of horsemeat banquets in England in 1868.
In the US, consuming horse has never been terribly popular, largely because other sources of meat have long been so readily available.
On the other hand, horse meat was frequently used in the past as pet food.
And by "the past" I mean just one generation ago. One need only peruse this June 21, 1963 issue of Life to find an ad for Friskies dog food that announces "Horse Meat with Gravy" dog food, which the ad informs us is made from "selected cuts of finest horse meat."
Many Americans over the age of 50 may remember that butchers often made a selection of horse meat cuts available, usually for use as pet food. Children who are fond of the novels of Beverly Cleary may remember that Henry Huggins's beloved dog Ribsy was known to eat horse meat.
The prevalence of horse meat in pet food up until the 1960s was even featured in an episode of Mad Men (Season 3: "The Gypsy and the Hobo") in which a dog-food company sought the help of an advertising firm to help hide from the public the equine origins of its meat. The episode, which portrayed consumers as being horrified by horse meat, is actually anachronistic. Few people in the 60s cared that horse meat was still being fed to dogs.
It is true, though, that by the 1960s, the use of horses for meat was in decline. But much of this was driven by the fact that there were fewer and fewer horses in the United States as the decades rolled by, and it was a previous glut of horses that had made horse meat a staple.
The Rise of Horse Meat as Pet Food In Catherine C. Grier's history of Pets in America, she notes that pre-packaged pet foot was itself highly unusual before the 20th century: "Canned dog food first appeared in the 1910s and developed as a regional business with relatively low start-up costs."
Prior to the 1900s, metal cans were too expensive to be feasible for low-priced animal food, and were only used for higher priced food for human consumption. Thanks to the proliferation of mass production methods and mechanization in the early 20th century, however, canned food became a product that families could afford for their dogs. Prior to this, people fed their pets scraps, and hardly devoted much of the family budget to specially-prepared meals for cats and dogs.
But mechanization also contributed to the rise of horse meat as an ingredient in pet food, precisely because the horses themselves were being replaced by automobiles and tractors. As Grier notes, "the American public turned from equine- to gasoline- powered vehicles in the 1910s and 1920s."
In the 1930s, butchers began offering regular delivery of horse meat for dog food along with deliveries for the usual human fare, and "[b]y 1940, canned dog food was a profitable business for regional packers."
The Stage Is Set for Banning Horse MeatBack then, of course, few people were interested in banning the slaughter of horses, but even if many had been, they would have met fierce opposition from a great many family businesses and local communities were horse meat was an important source of income.
By the 1970s, though, federal legislation and regulation was making it increasingly difficult to sell horse for either human or animal consumption. Thus, by 2006, processing horse meat for consumption in the United States had become a thing of the past. Horse meat is still exported, and horse meat in the form of "animal byproducts" still finds its way into pet food. But long gone are the days when Friskies was openly advertising its use of horse meat.
Those who advocate against the federal prohibition on horse meat face an uphill climb. This is made worse by the fact that sentimentalism about horses — even among people who daily eat beef and pork — is very widespread. Moreover, a rapidly rising American living standard throughout the 20th century made horse meat irrelevant to the daily lives of Americans. In parts of the world where meat is especially expensive, horse meat continues to be a viable industry, but in the US, thanks to an abundance of other meats, horse meat is a concern only of a tiny minority. And in a democratic system ruled by interest group politics — as is the American political system — the wants of the minority are very frequently disposable.