Sunday, January 14, 2018

Government is not the source of freedom

George Will's column in the Washington Post.

GW is on target.

Government is not the source of freedom - it destroys freedom.  Wait a minute - perhaps that is too harsh - could this kind of thing happen without a populace that does not respect freedom?
Frank Lloyd Wright purportedly said, “Tip the world over on its side and everything loose will land in Los Angeles.” Today, however, Oregon is the state with the strangest state of mind, which has something to do with its being impeccably ­progressive: In the television series “Portlandia,” the mention of artisanal lightbulbs might be satirical, but given today’s gas-pumping controversy, perhaps not.

On Jan. 1, by the grace of God — or of the government, which is pretty much the same thing to progressives — a sliver of a right was granted to Oregonians: Henceforth they can pump gas into their cars and trucks, all by themselves. But only in counties with populations of less than 40,000, evidently because this walk on the wild side is deemed to be prudent only in the hinterlands, where there is a scarcity of qualified technicians trained in the science of pumping. Still, 2018 will be the year of living dangerously in the state that was settled by people who trekked there on the Oregon Trail, through the territories of Native Americans hostile to Manifest Destiny.

Oregon is one of two states that ban self-service filling stations. The other is almost-as-deep-blue New Jersey. There the ban is straightforward, no-damned-nonsense-about-anything-else protectionism: The point is to spare full-service gas stations from having to compete with self-service stations that, having lower labor costs, can offer lower prices.

Oregon’s legislature offers 17 reasons “it is in the public interest to maintain a prohibition on the self-service dispensing of Class 1 flammable liquids” — a.k.a. gasoline, which you put in your car’s “Class 1 flammable liquids tank.” The first reason is: The dispensing of such liquids “by dispensers properly trained in appropriate safety procedures reduces fire hazards.” This presumably refers to the many conflagrations regularly occurring at filling stations throughout the 48 states where 96 percent of Americans live lives jeopardized by state legislators who are negligent regarding their nanny-state duty to assume that their constituents are imbeciles.

Among Oregon’s 16 other reasons are: Service-station cashiers are often unable to “give undivided attention” to the rank amateurs dispensing flammable liquids. When purchasers of such liquids leave their vehicles they risk “crime,” and “personal injury” from slick surfaces. (“Oregon’s weather is uniquely adverse”— i.e., it rains there.) “Exposure to toxic fumes.” Senior citizens or persons with disabilities might have to pay a higher cost at a full-service pump, which would be discriminatory. When people pump gas without the help of “trained and certified” specialists, no specialists peer under the hood to administer prophylactic maintenance, thereby “endangering both the customer and other motorists and resulting in unnecessary and costly repairs.” Self-service “has contributed to diminishing the availability of automotive repair facilities at gasoline stations” without providing — note the adjective — “sustained” reduction in gas prices. Self-service causes unemployment. And “small children left unattended” by novice gas pumpers “creates a dangerous situation.” So there.

Oregon’s Solomonic decision — freedom to pump in rural counties; everywhere else, unthinkable — terrified some Oregonians: “No! Disabled, seniors, people with young children in the car need help. Not to mention getting out of your car with transients around and not feeling safe too. This is a very bad idea.” “Not a good idea, there are lots of reasons to have an attendant helping, one is they need a job too. Many people are not capable of knowing how to pump gas and the hazards of not doing it correctly. Besides I don’t want to go to work smelling of gas.”

The complainers drew complaints: “You put the gas in your car not shower in it princess.” “If your only marketable job skill is being able to pump gas, by god, move to Oregon and you will have reached the promised land.” “Pumped my own gas my whole life and now my hands have literally melted down to my wrists. I’m typing this with my tongue.” These days, civic discourse is not for shrinking violets.

To be fair, when Oregonians flinch from a rendezvous with an unattended gas pump, progressive government has done its duty, as it understands this. It wants the governed to become used to having things done for them, as by “trained and certified” gas pumpers. Progressives are proud believers in providing experts — usually themselves — to help the rest of us cope with life. The only downside is that, as Alexis de Tocqueville anticipated, such government, by being the “shepherd” of the governed, can “take away from them entirely the trouble of thinking” and keep them “fixed irrevocably in childhood.”

If you want to find racism, look to Government

An excerpt from Larry Elder's column at the Jewish World Review.
The Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.

In a labor market dominated by exclusionary unions that demanded above-market wages, blacks, at the time, competed by working for less money than the unionists. Davis-Bacon stopped this by requiring federal contractors to pay prevailing local union wages, causing massive black unemployment. Lawmakers made no secret of the law's goal.

In the House of Representatives, Congressman William Upshaw, D-Ga., said: "You will not think that a Southern man is more than human if he smiles over the fact of your reaction to that real problem you are confronted with in any community with a superabundance or large aggregation of Negro labor." Rep. Miles Clayton Allgood, D-Ala., supported the bill and complained of "cheap colored labor" that "is in competition with white labor throughout the country." Rep. John J. Cochran, D-Mo., stated that he had "received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South."

Davis-Bacon adds as much as 20 percent more to the cost of any federal project. And most states have enacted local Davis-Bacon laws that similarly jack up the price of those government construction projects.

In California, for example, the Democratic governor pushes a "bullet train" that promises to benefit Los Angeles-to-San Francisco travelers. Yet the governor expects taxpayers to pay for at least part of this supposedly wonderful project. If it is predicted to be so profitable, why should taxpayers finance it?
The Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.
Read more at Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.
The Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.
The Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.
he Davis-Bacon Act, a Depression-era measure, was designed to thwart black workers from competing against white workers. It requires federal contractors to pay "prevailing union wages." This act sought to shut out black workers from competing for construction jobs after white workers protested that Southern blacks were hired to build a Veterans Bureau hospital in Long Island, New York — the district of Rep. Robert Bacon, one of the bill's sponsors. It is remarkable the Davis-Bacon still lives despite its racist intent and its discriminatory effect — to this day — on black workers. Passed in 1931, two Republicans teamed up to sponsor it.

Beware of slogans - they are verbal camouflage for weak arguments

Don Boudreaux's December 1999 column in the Freeman.

DB is on target.

It's Government, not free markets, that threaten your freedom.
Over the years, intelligent and well-meaning opponents of private property and free markets have offered thoughtful and articulate arguments in support of government intervention. These arguments have not withstood close scrutiny, but at least they were offered in the spirit of honest debate. Such arguments, even though deeply flawed, never infuriate me. Not so with a far-more-common mode of criticizing the market, namely, tossing out slogans. Three of these anti-free-market slogans are particularly galling.
Is Capitalism “Unfettered”?

The first is “unfettered capitalism” (or “unfettered free markets”). Opponents of laissez faire love this one because it so obviously describes an economic system that no reasonable person endorses. So, before I go on, let me declare without qualification: I, too, oppose unfettered capitalism.

The trouble with this slogan is that capitalism, by its very nature—by the fact that it is the product of a system of private property rights—is necessarily constrained. Capitalism is internally and inexorably fettered. To the extent that a society is capitalistic, no one in that society can coercively or fraudulently harm others. Everyone is restrained from violating the equal rights of others.

Consider, for example, Michael Dell, founder of Dell Computers. He earned an impressive fortune by producing affordable computers that consumers voluntarily purchase. Like everyone in a capitalist system, Dell was and remains quite constrained by the rules of private property. Had he produced lousy machines, or had he stubbornly priced his machines so high that too few consumers bought them, he would today be in some less-lucrative line of work. Dell is emphatically fettered by the ability of consumers to spend their money as they see fit, along with the ability of other entrepreneurs to compete with him.

Indeed, central to the economic and ethical case for laissez faire is the recognition that it is the only system that provides adequate and appropriate fetters. One of the great benefits of private property and voluntary exchange is that, because no one is compelled to engage in any exchange, all exchanges that do take place are believed by all parties to them to be beneficial.

The ability not to exchange—what Boston University [now Georgetown University] law professor Randy Barnett calls “freedom from contract”—is an enormously effective fetter protecting the weak from the strong.[1] And only under laissez faire is everyone’s freedom from contract (along with the freedom to contract) consistently respected.
Does Capitalism Favor “The Powerful”?

Reflecting on freedom from contract allows us to dismantle another popular slogan, namely, that “markets favor the powerful over the weak.” Indeed private property rights eliminate the distinction between “powerful” and “weak.” In a market economy, some people are wealthier than others, but no one exercises power over others. Although Bill Gates’s wealth is about 600,000 times greater than my own, he has no more power over me than I have over him. If he wants my car, he cannot have it unless I agree to sell it to him. He cannot imprison me, shoot me, or enslave me. He cannot tell me what to eat or drink or with whom I may be intimate. He cannot tell me how to educate my son, or how I may earn a living. It’s true that if I want to use Microsoft software I must first buy it from him, but so, too, must he buy from me anything that he wants which I own. We are both free not to contract with the other. It would be perverse to assert that Bill Gates has “power” because he is unusually talented at producing products that please consumers.[2]

A person (or an institution) is powerful only insofar as he can use authorized force to compel others to act against their wills. Only the state has such power. This fact is why the further we move toward laissez faire, the smaller is the scope for the truly powerful—those with political authority—to dominate others. At the laissez-faire limit, all power is eliminated.
Is Laissez Faire “Extreme”?

The third galling slogan is that those of us who consistently champion laissez faire are “extremists.” “We must strike a balance between the state and the market,” the refrain goes. “Laissez-faire proponents such as Milton Friedman, F. A. Hayek, and Ludwig von Mises are extremists.”


The fact is, laissez faire eliminates extremes and extremists. That’s one of its principal virtues. The greater the scope of the market, the less likely there will be extremes and extremists.

Compare the relationship of one market participant to another with that of the state to its subjects. On the market, farmer Jones can get Ms. Smith’s money only by offering her something that she values. Each party to the exchange gains; no one is harmed and no one carries away all of the benefit. If farmer Jones seeks to be an extremist—say, if he asks Ms. Smith to pay $1,000 per bushel of his corn—Ms. Smith walks away. Ms. Smith’s freedom not to contract with farmer Jones, along with her freedom to contract with other suppliers, ensures that farmer Jones will abandon his extremist position. Likewise, Ms. Smith cannot be an extremist. She might initially offer farmer Jones a mere one cent for each bushel of his corn, but farmer Jones need not accept. If Ms. Smith wants to buy corn from farmer Jones, she’ll raise her offer; she’ll abandon her extremist position.

Market prices balance the costs and benefits to all parties of producing and consuming. Extremes are avoided.

Suppose, though, that farmer Jones is so greedy that he isn’t content to play by the rules of private property. So he successfully lobbies Uncle Sam for a higher, guaranteed minimum price for corn. The state might achieve this price hike by paying farmer Jones and other corn farmers to reduce their production, and by prohibiting upstart corn farmers from entering the market. Now we’ve got true extremism. Not only does the state stand ready, ultimately, to kill anyone who insists on doing nothing more heinous than selling corn at prices lower than the dictated minimum, but farmer Jones need no longer bargain with Ms. Smith. If Ms. Smith isn’t content to pay the state-enforced minimum price, too bad for her. She remains free not to buy the corn (except insofar as her taxes are used to subsidize corn farmers!), but she may not now bargain with other farmers for a lower price. Government intervention favors corn farmers with a disproportionate—we might say “extreme”—advantage.

Beware of slogans. They are verbal camouflage for weak arguments.

Saturday, January 13, 2018

Government vs. Markets

Here is Don Boudreaux's October 1999 column in the Freeman.

DB is on target.

More often than not, Government's attempts to "fix" markets makes things worse.
Politicians and bureaucrats are prone to overemphasize problems with the world and to propose command-and-control “solutions.” Economists, sad to say, have aided and abetted that mindset with a series of suspect theories of how markets are doomed to perform inadequately.

Thankfully, not all economists have played this game. Many of the better ones have done outstanding research showing that free markets consistently deliver maximum value.

For example, while most economists 50 years ago were convinced that only vigorous antitrust enforcement could keep industries from becoming monopolized, far fewer economists today hold such a belief. One reason for this change is that a handful of researchers during the mid-century wisely re-examined the theoretical grounds supporting antitrust. (Aaron Director, Milton Friedman’s brother-in-law, deserves special recognition for conveying to countless law students a deep understanding of how free markets keep unregulated industries from becoming monopolized.) But another reason is that—guided by these better theories—other researchers found persuasive evidence that the market doggedly resists monopolization. Faced with solid evidence of the robustness of unregulated markets, most economists grew appropriately skeptical of claims that markets are prone to monopolization. The perceived need for antitrust enforcement declined.
New Justification for Government Activism

But government’s thirst for power is unquenchable, as is the willingness of some economists to provide intellectual cover for regulatory activism. Evidence of how such activism is bolstered by new theories is the current antitrust case against Microsoft. Critical to this case is the government’s charge that consumers continue to purchase Microsoft software only because they are “locked in” to these products.

The allegation is that most consumers want to purchase software from other suppliers, but Microsoft’s very dominance locks these consumers into its products, now and forever. After all, the story goes, because a great majority of other computers currently use Microsoft’s Windows operating system, it doesn’t pay for you to buy another software-maker’s less-expensive or technically superior operating system. If you did, your computer couldn’t communicate with all those many others that use Windows.

The market, therefore, locks consumers into products and suppliers that by right ought to lose their market shares to firms offering superior deals. Naturally, the story concludes with the assertion that such inefficient “lock-in” is a widespread threat in markets and that only government can spring consumers from these traps.

This “lock-in” theory is dead wrong.

Anyone who cares to look will discover the incredible entrepreneurial dynamism that has long characterized our market economy. If the “inefficient lock-in” tale were true, we would all still be listening to AM radio, for no one would have built an FM transmitter when virtually no one owned an FM receiver. And no one would have bought an FM receiver when virtually no one broadcast FM signals. Likewise for color televisions. And for CD players. (I recall a conversation during the early 1980s with a fellow graduate student who insisted that compact-disc recordings would never catch on because too many people owned vinyl LPs. I hope he isn’t now an investment adviser.) In each of these cases, the market smoothly performed the complex task of coordinating the switch by millions of people from a less desirable to a more desirable product standard.

Not surprisingly, there’s no evidence that the market dynamism that assured substantial progress for consumers in the past isn’t working now in the computer industry. In a thoroughly researched new book, economists Stan Liebowitz and Stephen Margolis document not only how the market has never been inefficiently locked into old technologies or products, but also that Microsoft owes its current success to its consistency in offering quality deals to consumers.[1]
Stuck with Government

Ironically, those who demand that government police against inefficient lock-in are oblivious to the fact that it is government, not the market, that locks people into bad situations. Once created, government power seldom disappears. Statutes, regulations, and bureaucracies remain cemented in place long after their original justifications have evaporated. In short, government—not the market—is the principal source of inefficient lock-in.

Consider, for example, one of America’s most regrettable government programs: Social Security. Aside from those with naked political or material stakes in this deluxe boondoggle, no one today argues that it works. That argument would be ludicrous—as was shown recently by Professors Richard McKenzie and Dwight Lee, who calculated that a 38-year-old worker today, earning no more than $40,000 annually, must live to be 143 years old before getting as good a return as he would by investing. And a worker of the same age earning at least $68,400 per year has to pray for true earthly immortality, for only if he or she lives forever will Social Security pay off.[2]

Social Security has long been known to be disastrous for young people. No sensible person would today voluntarily join this system. But join they must. The reason is that Social Security—by its very existence, by the fact that it transfers wealth from the many to the few—has created its own hardcore constituency who benefits directly from its forced continuation. Because of the gargantuan political clout of today’s Social Security recipients, Americans are locked into this nefarious scheme.

Of course, there are good people working now to help liberate Americans from the Social Security trap. These efforts, though, ultimately require politicians to release citizens from Social Security. Perhaps it will happen. I’m hopeful.

But no significant scale-back in government power can occur until large numbers of people are educated and mobilized to support the change. In contrast, inferior products and programs supplied by the market are assuredly and quickly doomed. No political consensus is necessary to free consumers from unresponsive suppliers. All it takes in the market is a creative idea, entrepreneurial gumption, and consumers who recognize superior bargains.

If government is to launch a campaign against programs, products, and institutions that are protected from competition—“locked in”—it had best look in the mirror.

Friday, January 12, 2018

A lesson on trade

From Don Boudreaux.

DB is on target.

Keep in mind that this applies to all trade.  The "imports" could be from the next state at the "expense" of jobs in your state.  For example, you gain by growing oranges in Florida at the expense of growing oranges in Maine.
Here’s a quiz. Which of the following inventions would most increase Americans’ prosperity: an inexpensive pill that cures all heart disease and, therefore, destroys all jobs for high-wage cardiologists and heart surgeons, or an inexpensive electrical cleaning-and-tidying devise that destroys all jobs for low-wage hotel- and house-maids? Only if you prefer the second invention to the first are you consistent when you bemoan imports that destroy existing high-wage jobs.

Wednesday, January 10, 2018

The reason for high youth unemployment

Deirdre McCloskey's paper "Youth Unemployment Worldwide: The Canary in the Coal Mine of Excessive Regulation".

DM is on target.

DM's paper can be considered a test of whether your intellect rules your emotions or vice versa.
The central responsibility of an academic economist is to give the bad news that such and such a policy beloved of politicians and journalists is bad. Arnold Harberger is fond of pointing out that the salaries of all the academic economists worldwide could be covered many times over by the economic gain from their repeated bad news that protectionism is bad. I want to tell you today, whether you like it or not, that protecting jobs with regulations and minimums and imposed conditions is bad, and especially bad for our children and grandchildren when they enter, or try to enter, the labor force. It’s a crisis of democracy.

You know the proverbial expression. A caged little bird was brought into coal mines as an early signal for bad air, such as a buildup of carbon monoxide. If the bird died, the miners fled. You also know that it’s crucial to socialize young men in the puberty rite of responsible jobs. Elephants and lions sidestep the task violently, expelling young males as chronic disturbers of the peace, or revolutionaries. We do it violently, too, occupying the West Side of Chicago. When the late political scientist James Q. Wilson was asked what would prevent crime he would say in jest, “Put all the males in a concentration camp from age 15 to 30.” It’s not that young men are the only criminals or revolutionaries on the scene. Their leaders are of course older. Lenin was 47 in 1917, Mussolini 39 in 1922, Hitler 44 in 1933—though for good or ill, Martin Luther was only 34 in 1517 and Al Capone only 27 in 1926. But as the longshoreman and sage Eric Hoffer noted in his 1951 book The True Believer: Thoughts on the Nature of Mass Movements, the youths are the cadres, the followers, the storm troopers. No cadres, no revolutions. For good or ill.

I do not mean to suggest that the main reason we should worry about the size and causes of youth unemployment is their violent threat to us oldsters. The main reason we should worry is that a life without employment is a sorry life, whether the youth is a laborer or a university graduate. They are all of them our children and grandchildren, and it would be appalling not to care. Yet the political threat is there, and is a bomb waiting to go off worldwide. Populism in Hungary, socialism in Venezuela. The high rate of youth unemployment in many places nowadays, and its increase since earlier times, signals bad economic air.

One quarter of French young people age 16 to 25, male or female, not in educational programs, are unemployed. The office of the Secretary General’s Envoy on Youth of the United Nations declared in 2016 that “Global Youth Unemployment is on the Rise Again.” Referring to the International Labor Organization’s 2015 report, it says that “the global number of unemployed youth is set to rise by half a million this year to reach 71 million—the first such increase in 3 years.” It is 71 million revolutionary cadres, a mere one percent of the world’s population, true, but a highly volatile part, and anyway 71 million lives blighted. The ILO report says the status of young people “neither employed, nor in education or training (NEET)…carries risks of skills deterioration, underemployment and discouragement. Survey evidence for some 28 countries around the globe shows that roughly 25 per cent of the youth population aged between 15 and 29 years old are categorized as NEET. … [The] rates for youth above the age of 20 years old are consistently higher, and by a wide margin, than those for youth aged 15–19.” [ILO 2015, p. viii; their source is one well-named Elder 2015]. “In South Africa, more than half of all active youth are expected to remain unemployed in 2016, representing the highest youth unemployment rate in the [sub-Saharan] region.” (ILO, p. 5). “Southern European countries are those which report the highest NEET rates [for 25-29 year olds], peaking at 41 per cent in Greece. However, relatively high NEET rates for youth aged 25– 29 are also found in the United Kingdom (17 per cent), United States (19.8 per cent), Poland (21.6 per cent) and France (22.5 per cent)” (ILO, p.18). Among 25 OECD countries the five with the highest unemployment rates of 20–29 year olds [roughly 25% to 40% unemployed] are in descending order Greece, Turkey, Italy, Spain, and Morocco. The five with the lowest [roughly 12%] are in descending order Denmark, Austria, Germany, the Netherlands, and Sweden (ILO, p. 18, Fig. 5). For a somewhat larger group of 37 countries in 2016 mostly in the OECD (that is, well-off countries by international standards) the rates for 15–24 year olds ranged from Japan’s 5.2% and Iceland’s 6.5% to South Africa’s 53.3% and Greece’s 47.4% of people searching for work and not finding it. Spain’s is 44.5%, Italy’s 37.8%, Portugal’s 27.9%, France’s 24.6% (OECD 2018).

For some reason, undeniably, the actual and potential businesses in such places do not want to hire young men. One explanation commonly put forward is that the schools have failed to make the young men worth hiring. A version of the education explanation, given credence for instance by low rates of youth unemployment in Germany at present, is an absence of apprenticeships and other training for the trades. Yet earlier systems, which did not educate or apprentice young men at all, did not result in disproportionate unemployment.

Krugman's genius is subservient to his emotional agenda

From Robert Murphy at the Institute for Energy Research.

RM is on target.

It's a shame to see a very smart person, Paul Krugman, reduced to saying anything to further his emotional agenda when that requires burying his intellect.
A recent New York Times article reported on some U.S. businesses that are getting increasing investment in light of the Trump Administration’s deregulatory efforts. Although the claims are broad, the article specifically mentions the rollback of Obama-era regulations on the coal industry as an example.

Economist Paul Krugman—whose own column is carried by the NYT—was aghast. On Twitter, Krugman linked to the article and claimed that “There is no evidence—none—that regulation actually deters investment.” He then went on to argue the exact opposite, namely that climate change regulations in particular would promote business investment (in renewables and conservation projects).

In this post, I’ll refute Krugman’s assertions. His claim that there is “no evidence—none” is simply balderdash; of course there are reputable, peer-reviewed studies that document a negative relationship between excessive regulations and investment/growth. On his more substantive argument, Krugman ignores the reasons that we want pro-growth policies. On both points, Krugman’s response misinforms the public and disguises his support for climate change intervention in neutral garb.

Regulation Doesn’t Deter Investment?

On the face of it, it’s downright funny that Krugman is assuring us that government regulation doesn’t deter investment—at the same time he is warning that we need the government to prevent the construction of more coal-fired power plants. In previous posts, I’ve pointed out this contradiction among many interventionists: On the one hand, they claim we need high carbon taxes, the EPA’s “Clean Power Plan,” and so on, in order to induce massive changes in the power generation and transportation sectors, to save humanity from the ravages of climate change. On the other hand, they claim that high carbon taxes and the EPA’s “Clean Power Plan” won’t pose any significant compliance burden on business, and that the loss of jobs in the coal industry has nothing to do with government policy.

Now in fairness, a defender of Krugman might say, “OK, Murphy, your gotcha is funny and all, but Krugman was writing on Twitter. Obviously he acknowledges that the government has the power to stop investment in more coal-fired power plants. What Krugman meant was that there’s no evidence that government regulation deters good investment.”

Hmm, but if that’s the case, it’s interesting that Paul Krugman himself has argued that “blue states” engage in excessive housing regulations that deter economic growth. Here’s Krugman writing in August 2017 in the NYT: “[A]ll too many blue states end up, in practice, letting zoning be a tool, not of good land use, but of NIMBYism [Not In My BackYard], preventing the construction of new housing. In fact, liberal (in the non-political sense) land use policy is probably the secret behind Texas economic growth” (bold added).

Now to be sure, Krugman wasn’t embracing the religion of laissez-faire; in a 2014 article you can see an elaboration of his views regarding zoning. My modest point in our current discussion is that Krugman himself acknowledges that right now, in the real world, excessive zoning restricts economically beneficial housing investment and that this hampers economic growth in certain states. So he is clearly bluffing when he says there is “no evidence—none” that regulation restricts investment.

The Empirical Literature

In any event, anyone who wanted to actually consult the literature—rather than taking Krugman’s word for it—could find several peer-reviewed articles in reputable outlets, with about 15 minutes of looking.

For example, James Broughel has a new book on the subject that recently came out. Now one might push back and say the book is published by the Mercatus Center, and so this is ideological. I would disagree with that characterization, but fair enough, let’s just look at the references in the back of the book, where we find, for example:

A 2016 paper by Balázs Égert in the American Economic Review—one of the top-ranked journals—with the following abstract (I’m just grabbing an excerpt):

This paper seeks to understand the drivers of country-level multi-factor productivity (MFP) with a special emphasis on product and labour market policies and the quality of institutions. For a panel of OECD countries, we find that anticompetitive product market regulations reduce MFP levels and that higher innovation intensity and greater openness result in higher MFP.

Nicoletti and Scarpetta had a similar Working Paper for the World Bank posted in 2003. Here’s part of the abstract:

[R]egulation limiting entry may hinder the adoption of existing technologies, possibly by reducing competitive pressures, technology spillovers, or the entry of new high technology firms. At the same time, both privatization and entry liberalization are estimated to have a positive impact on productivity in all sectors. These results offer an interpretation to the observed recent differences in growth patterns across OECD countries, in particular between large continental European economies and the United States. Strict product market regulations-and lack of regulatory reforms-are likely to underlie the relatively poorer productivity performance of some European countries…

A 2007 working paper from the OECD Economics Department by Erlandsen and Lundsgaard has the following in its abstract:

The economic crisis in the early 1990s prompted action on reforming the Swedish welfare state and its institutions, including deregulation of a wide range of product markets. In that way, Sweden took early action compared to other OECD countries currently struggling with how to make public finances more robust in an ageing context. The reforms that were implemented during the 1990s are now paying off in terms of productivity and GDP growth. Empirical evidence suggests that deregulation has delivered a considerable “productivity dividend”.

Don Boudreaux, former chair of the George Mason economics department, also pushed back against the absurd claim (made by Jared Bernstein in this case, rather than Krugman) that deregulation doesn’t lead to faster economic growth. Boudreaux listed the two following papers:

In a 2003 NBER Working Paper, Harvard’s Alberto Alisina and three co-authors state the following:

One commonly held view about the difference between continental European countries and other OECD economies, especially the United States, is that the heavy regulation of Europe reduces its growth. Using newly assembled data on regulation in several sectors of many OECD countries, we provide substantial and robust evidence that various measures of regulation in the product market, concerning in particular entry barriers, are negatively related to investment. The implications of our analysis are clear: regulatory reforms, especially those that liberalize entry, are very likely to spur investment.

A 2016 Mercatus Center working paper by Coffey et al. that found:

Using a 22-industry dataset that covers 1977 through 2012, the study finds that regulation—by distorting the investment choices that lead to innovation—has created a considerable drag on the economy, amounting to an average reduction in the annual growth rate of the US gross domestic product (GDP) of 0.8 percent.

I will stop here. I hope that I’ve amply demonstrated that Krugman is simply making stuff up when he claims “there is no evidence—none—that regulation actually deters investment.” At this point, when Krugman emphasizes one of his claims—like saying “none” set off by dashes—this should alert the innocent public that Krugman is now in rhetorical mode, rather than scientist mode. It’s not even that he’s lying; we should interpret Krugman’s claims the same way we would consider a car dealer saying, “My prices can’t be beat!”

Could Climate Change Boost Investment?

Interestingly, not only does Krugman claim that government regulation hasn’t in practice deterred business investment, he then tries to argue the opposite: By tightening emission and renewables standards, Krugman argues that businesses must invest in order to comply. So isn’t this the best of both worlds, where we reduce possible climate change damages and benefit from job creation?

The fallacy here is one that I tackled with co-author Robert Michaels in our study for IER. Yes, in Krugman’s “liquidity trap” model his claim makes sense, but I happen to reject that framework. Regardless of the height of the unemployment rate, you don’t make Americans richer by having the government dictate the flow of resources.

Yes, if the government suddenly mandated that businesses had to use hot pink construction vehicles, that would “promote” a lot of investment. But it would make Americans poorer. The reason for the standard free-market emphasis on “pro-investment” policies is that in the market these investments are directed to serving consumer welfare. It’s not a fetish for investment per se.

It’s ironic that Krugman would cite energy sector regulations to justify his view, since the oil price controls of the 1970s were clearly inefficient and restricted domestic development, as even Nobel laureate (and left-leaning) Kenneth Arrow and Joseph Kalt documented in this study.


In a refreshing move, the NYT ran a story explaining that businesses have increased investment (in part) because of the friendlier regulatory environment under the Trump Administration. Paul Krugman and others pushed back, claiming there was no evidence to support such a linkage.

This is demonstrably false. Several papers—including ones published in prestigious outlets—have purported to show empirical support for the claim that excessive regulation deters investment. Maybe these papers are wrong, but Krugman misleads his readers when he acts as if this is a mere right-wing fantasy.

Furthermore, Krugman tries to turn his liability into an asset by arguing that climate change regulations in particular boost investment. This might be true in the obvious sense that outlawing existing equipment might force businesses to buy new equipment, but in that case we squander the rationale for being “pro-investment” in the first place. If Krugman wants to justify particular government interventions on climate change grounds, we can have that discussion, but it doesn’t make us richer to scrap existing techniques and equipment in order to comply with a new rule from Washington.

The source of injustice to consumers

Don Boudreaux's column in Trib Live at

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University.

DB is on target.

Transactions voluntarily entered into by both parties benefit both parties.  Interfering with them makes the participants worse off.
Are employers in free markets more powerful than workers? Are merchants more powerful than consumers? Many people answer “yes.” I answer “no.”

An essential component of a market economy is freedom of contract. Yet a key feature of freedom of contact is freedom not to contract — to say “no,” which protects each adult from being made worse off by those who offer to deal with him or her.

If I don't like an automaker's price for a car, I don't buy that car. If I don't like a job offer, I reject that offer. By rejecting these offers, I'm not made better off, but nor am I made worse off. My veto power requires merchants who want my business, or businesses that want me to work for them, to offer me deals that, in my judgment, improve my well-being. This veto power of mine, in other words, gives me power to protect myself from even the largest, most profitable firms — and it gives them incentives to work to improve my well-being by offering deals that I judge attractive.

My veto power also means third parties are in no position to judge whatever contracts I enter into. Suppose I accept a job at an hourly wage that a third party judges to be too low. That third party's judgment should be ignored. My willingness to take that job means that, in my judgment, my well-being is improved by working at that job. I could have rejected the job offer. But because I accepted it, I obviously believe that, however poor the job offer might be in some objective sense, it's better for me than my next-best alternative. So, if the third party strips me of this job, he makes me worse off, regardless of his intentions.

It's a myth, therefore, that within markets, firms have power over consumers and workers. Yet such power can be — and too often is — gotten when firms conspire with government to diminish competition or to otherwise constrict individuals' options. If, for example, domestic automakers persuade government to obstruct automobile imports, options that I and other consumers might have found more attractive than those offered by domestic automakers are made artificially unavailable. I and other consumers become more likely to buy cars assembled domestically. And while those of us who buy domestically assembled cars are thereby made better off compared to not buying them, we are made worse off compared to buying the imported cars we would have bought in the absence of the import restriction.

An underappreciated danger of government action is that, unlike free markets, it frequently forces individuals into situations that make them worse off. Minimum-wage legislation forces many low-skilled workers into the ranks of the unemployed by denying them the ability to offer to work at hourly wages below the legislated minimum. They would prefer working at the lower pay to unemployment with no pay, but government arbitrarily strips them of this preferred option. Similarly, damage is inflicted on consumers who buy domestically produced goods “protected” by tariffs.

Any unjust power that firms have over individuals comes not from markets, but from government.

Government knows what's good for you

John Stossel at

JS is on target.

All activities are risky.  If it is appropriate for Government to determine what risks you may take, it is appropriate for Government to control every aspect of your lives.

Think about how much higher our standard of living could be if the man-hours devoted to writing, complying with, and enforcing these kinds of regulations were devoted to doing something useful.  Let's put lawyers and bureaucrats to work making cars.

Beware Do Gooders - they are just would be Tyrants.
Store owner Kamal Saleh was just hit with thousands of dollars in fines.

His crime? He sold three cigars for $8.89. "Too cheap!" say New York City bureaucrats. "The cigars should have cost 11 cents more."

Politicians want you to spend more for tobacco.

They decided this after anti-smoking crusader Dr. Kurt Ribisl told the Centers for Disease Control, "Higher prices will deter children from smoking."

A pit of socialist micromanagers called the New York City Council quickly embraced the idea. "It's also being considered very seriously in a number of jurisdictions in California," Ribisl told me.

When health totalitarians make suggestions, leftist politicians jump.

Ribisl also told the CDC, "Very cheap (tobacco) products should no longer be available." So for my YouTube video this week, I asked him, "Why do you get to decide?!"

"No, I'm not deciding," he insisted. "I'm a person who studies these policies. I'll let the policymakers decide."

OK, I sighed, "Why do the politicians get to decide?"

"Cigarettes are the most lethal product ever introduced," he replied.

That may be true, although few people realize that half the people who smoke do not die from tobacco-related illness.

Fatty foods, swimming pools and cars also kill lots of people. Maybe the health police will raise their prices next.

But so far, it's just tobacco. At Ribisl's urging, New York City adopted price floors and taxes to bring the price of a pack of cigarettes to $13 a pack.

"People still have the ability to buy it, if they so choose," he said.

"Just not poor people," I told him. "You're screwing poor people."

"We see much higher smoking rates among poor people," answered Ribisl. "We need policies that are going to reduce tobacco use among poor people."

I think all people should get to decide for themselves, but Ribisl wants to engineer "a transition toward thinking more about healthy food and beverage."

At the CDC, Ribisl suggested that it should also be government policy to "reduce the number of tobacco stores."

That seems cruel to store owners like Kamal Saleh, but Ribisl said, "We're not interested in putting stores out of business ... They're going to find new products to sell."

Really? How does he know?

New York already has a blizzard of regulations that put little stores out of business.

Tobacco sales regulations alone go on for 47 pages -- confusing pages filled with fine print like: "the price floor for any package of cigars that contains more than one cigar and that has been delivered to a retail dealer in a package described by subdivision a of section 17-704 shall be computed by multiplying the number of cigars in the package by $1.75 and adding $6.25 to the total."

The 47 pages are just for tobacco sales. "For food, refrigeration, deliveries and everything else, the administrative code could be thousands of pages," says lawyer Andrew Tilem.

Tilem defends store owners who get fined. Many can barely afford to pay him. Sometimes they pay in "fish and paper plates and tortillas." Those who can't afford to hire a lawyer may just go out of business.

City Council meddlers, who often complain about "big business," don't notice that their own rules make the big businesses bigger.

"The big guy can hire lawyers," says Tilem. "It's the little guy who's trying to pinch his pennies and make a dollar that has the biggest problem."

Playing devil's advocate, I tell him, the government just wants to protect people's health.

"I'm not a smoking advocate," Tilem replied, "but I think in this country ... people have the right to do the wrong thing."

We should.

Tuesday, January 09, 2018

Ethical Government at work

From Jonathan Turley.

JT is on target.

Ethical Government is on a par with the tooth fairy - except that the tooth fairy makes people better off.
Another major case has been thrown out due to prosecutorial abuse by the United States Department of Justice. We have previously discussed cases where federal prosecutors have withheld evidence and filed false or misleading statements to the court. Now, U.S. District Court Judge Gloria Navarro has issued a dismissal with prejudice against the Justice Department in the case against Cliven Bundy and his sons due to what Navarro describes as flagrant and knowing violations of professional ethics and federal law by the Justice Department. In past cases, the Justice Department has shown little commitment to discipline, let alone terminate, anyone for the violations (or the waste of millions of dollars). In this case, however, Attorney General Jeff Sessions has called for a review of the case.

Once again, the Justice Department has been accused of violating the Brady Rule, the foundational evidentiary rule that requires prosecutors to disclose potentially exculpatory evidence to the defense. The Justice Department has been a serial violator of Brady for decades.

While many judges seem to struggle to avoid findings of misconduct against federal prosecutors, Navarro remained firm in upholding the basic tenets of judicial independence and integrity. By dismissing with prejudice, she barred the Justice Department from trying the defendants again in light of the misconduct of the federal prosecutors.

The federal prosecutors have not been particularly successful in their past efforts. Two Las Vegas juries acquitted or deadlocked on felony charges against Ammon Bundy, 42, and Ryan Bundy, 44. They faced beat federal felony charges in a case stemming from a 41-day standoff at an Oregon wildlife preserve two years ago.

The latest case was troubling in its effort to use the exercise of free speech as the basis for criminal charges — claiming that Bundy and his sons engaged in inflammatory rhetoric in opposing the government’s effort to stop the grazing cattle outside Bunkerville, Nev., in 2014. The four defendants were charged with threatening a federal officer, carrying and using a firearm and engaging in conspiracy.

Assistant U.S. Atty. Steven Myhre maintained that the federal team had simply “culled the database with witness protection in mind.” Navarro did not buy it for good reason.

The judge earlier detailed six different types of evidence withheld by the government. This evidence include the presence of an FBI camera on a hill overlooking the Bundy ranch. The DOJ mocked allegations by the defendants that there were devices planted near the ranch while knowingly withholding evidence of at least one such device. There were also maps and threat assessments that seemed to support the public statements by the Bundys that they were being surrounded. Some of these documents were linked to lead bureau special agent Dan Love, who was later fired by the agency. Other evidence showed that an agent did appear near the ranch in tactical gear and carrying a heavy weapon before the call went out for support. 

The evidence would have led credence to the call by the Bundys for help in dealing with threats from the government.

Some of the most serious allegations, in my view, dealt with the withholding of threat assessments that concluded that the Bundy did not represent a likely threat of violence. Such assessments were developed by the FBI Behavioral Analysis Unit, the Southern Nevada Counter Terrorism unit, the FBI Nevada Joint Terrorism Task Force, the Gold Buttle Cattle Impound Risk Assessment and the Bureau of Land Management.

The result has been the expenditure of millions on prosecutions based in part on some troubling theories and advanced through unethical means. Yet, there is not even a suggestion of discipline from Main Justice, which is why this pattern will continue in federal courts. The Justice Department has never shown a particularly credible record of policing its own ranks. The Brady violations reflect the absence of any real deterrent due to this culture of tolerance and willful blindness at Main Justice. Hopefully, the review ordered by Sessions will result in real changes and actions by Main Justice to deal with this persistent problem. However, in seeking changes, Sessions will face a bureaucracy with a proven record of resistance to reform.