Tracing consequences both seen and unseen.
Caitlin HartsellWishful thinking at its nuttiest!
Posted at 3:57 pm on April 26, 2010, by Caitlin Hartsell

I came across this article about a U.K. think tank’s suggestion to improve British lives: Cap the work week at 21-hours. It’s brilliant reasoning, of course. The study found that people who work fewer hours have more time for fulfilling recreational activities; therefore, the government should mandate that people work less!

At first I wasn’t sure if this study was serious, but I’ve since found that the New Economics Foundation is a real institute, established in 1986, which “aim[s] to improve quality of life by promoting innovative solutions that challenge mainstream thinking on economic, environment and social issues. We work in partnership and put people and the planet first.”

On to the mocking! From the abstract of the study:

There is nothing natural or inevitable about what’s considered ‘normal’ today. Time, like work, has become commodified – a recent legacy of industrial capitalism.

Ah yes, because before the Industrial Revolution, farmers and merchants worked about four hours a day, five days a week. The new work week would have people working the equivalent of two Industrial Revolution work days, when 10-12 hour days were typical. The study goes on:

Yet the logic of industrial time is out of step with today’s conditions, where instant communications and mobile technologies bring new risks and pressures, as well as opportunities. The challenge is to break the power of the old industrial clock without adding new pressures, and to free up time to live sustainable lives.

If people are more productive, they should be compensated to reflect that. Indeed, we’ve seen a downward trend in average hours while the average standard of living has increased. These changes do not need governmental intervention to occur; if a company believes its employees are more efficient if they work fewer hours, then it would make financial sense for them to translate that into higher pay and decreased hours.

To its credit, the study recognizes potential downsides of this policy. The article about the study says:

Downsides to the reduced working week the NEF has acknowledged are possible are lower pay for those already poorly paid and employers unhappy at increased costs and less skilled workers available.

Not to mention, higher prices at the same time! To produce the same product or services, employers will either have to either pay overtime or hire more workers. An employee working 21 hours per week gains less experience than one working 30 or 40 hours; these employees on average are less efficient. This legislation, like minimum wage, makes the cost of labor more expensive, which will translate into higher prices. The NEF’s solution to these problems?

Proposed solutions to those potential problems were a gradual rather than instant reduction in the working week, a higher minimum wage and incentivizing employers to take on more staff rather than offer overtime.

Ah, even higher prices! If a country is to achieve a 21 hour work week, it is because it has gotten so efficient that 21 hours are all that is necessary. (In fact, some people think you can get rich off a four hour work week, but that’s not for everyone.) Mandating a shorter work week does not achieve efficiency though.

At any rate, more leisure time is not a good to be valued infinitely. As Henry Hazlitt explained in Economics in One Lesson, the increase in leisure time has diminishing marginal returns for the employee, while productivity decreases:

It was a gain to health and leisure to reduce a sixty-hour week to a forty-eight-hour week. It was a gain to leisure, but not necessarily to production and income, to reduce a forty-eight-hour week to a forty-four-hour week. The value to health and leisure of reducing the working week to forty hours is much less, the reduction in output and income more clear.

People don’t work just to work, but in part because increased income translates into higher standard of living and improved leisure time. Leisure activities necessitate money. The added anxiety of lower take home pay and higher prices would potentially outweigh the added benefits of further leisure time. Unfortunately, the NEF’s study does not thoroughly take into account the unintended consequences of their policy suggestion.

Filed under: Economic Theory, Nanny State, Regulation, Unintended Consequences
Comments: 1 Comment

Greg KaczorowskiThe Federal Farmer
Posted at 6:05 pm on April 25, 2010, by Greg Kaczorowski

On October 8th, 1787, using the pen name of “Federal Farmer”, an American writes a letter to “The Republican”. The author and the recipient are deliberately vague and ultimately unimportant. The pen name is a play on words as the Federal Farmer is decidedly Anti-Federalist and he seems much more sophisticated in his writing than a stereotypical “farmer” as we might imagine one today. Whoever he was, he was nothing short of very insightful and well spoken in communicating the perils of not clearly defining the boundaries of a national government. In his first letter, the Farmer warns us about what might happen under the Constitution as it existed in its unratified form. Like so many of the Federalist & Anti-Federalist papers, it is revealing that after 223 years, nothing could be timelier.

It must be granted, that if men hastily and blindly adopt a system of government, they will as hastily and as blindly be led to alter or abolish it; and changes must ensue, one after another, till the peaceable and better part of the community will grow weary with changes, tumults and disorders, and be disposed to accept any government, however despotic, that shall promise stability and firmness.

Describing the American public as not applying critical thought to the political process in this country would be the understatement of the century. But the real point made by the Farmer here is that the form of government that is eventually chosen must be designed in such a manner that it does not require much modification post-ratification. However, this creates a second problem. If the system were perfect, what need would there be for a legislature? Like a virus assaulting the body of the Constitution, it is the nature of every politician to attempt to substitute enough of their DNA with the host’s DNA in order to perpetuate them into office in the next election. A politician measures life and death by what tangible proof of leadership he can bring home to his constituents. The result is that the pressure to do more far outweighs the pressure to do less.

When we want a man to change his condition, we describe it as miserable, wretched, and despised; and draw a pleasing picture of that which we would have him assume. And when we wish the contrary, we reverse our descriptions. Whenever a clamor is raised, and idle men get to work, it is highly necessary to examine facts carefully, and without unreasonably suspecting men of falsehood, to examine, and enquire attentively, under what impressions they act. It is too often the case in political concerns, that men state facts not as they are, but as they wish them to be; and almost every man, by calling to mind past scenes, will find this to be true.

Politics 101. The statement above sums up the car-salesman-like politicians of today and, undoubtedly, the politicians of 1787. It is neither new nor unique to our times that politicians are, by necessity, people who seek power. It is a character trait that is necessary for any man who would place himself under the kind of scrutiny he would face in the political arena. The noble images we are fed of even the Founding Fathers (right down to the label “father”), is contradictory to the personality needed to be successful in that role. Like the Farmer suggests, a politician is predisposed to lie, cheat and steal to achieve their ends. It is the responsibility of the consumer to invest themselves in the process or suffer the consequences.

It is natural for men, who wish to hasten the adoption of a measure, to tell us, now is the crisis – now is the critical moment which must be seized, or all will be lost: and to shut the door against free enquiry, whenever conscious the thing presented has defects in it, which time and investigation will probably discover. This has been the custom of tyrants and their dependants in all ages.

This matter is a little more difficult to put a finger on. Anyone on the losing side of an argument would like more time to convince his peers that there is a better course of action. Determining when a debate had been sufficiently argued is a situation that would paralyze any organization made up of more than one person. That said, legislation of unbelievable complexity and proportions is passed today with relative blinding speed. Find a victim, describe their condition as “miserable, wretched and despised” and you can easily whip the public into a pitchfork-wielding frenzy. The public will demand legislative action that is both immediate and comprehensive, consequences be damned. The most immediate example is the health insurance reform law, but that legislation will have plenty of company in the library of hastily written and poorly conceived laws passed over the years.

The plan of government now proposed is evidently calculated totally to change, in time, our condition as a people. Instead of being thirteen republics, under a federal head, it is clearly designed to make us one consolidated government. Of this, I think, I shall fully convince you, in my following letters on this subject. This consolidation of the states has been the object of several men in this country for some time past. Whether such a change can ever be effected in any manner; whether it can be effected without convulsions and civil wars; whether such a change will not totally destroy the liberties of this country – time only can determine.

The Farmer, without the aid of a crystal ball, anticipates an event that will not occur for almost 90 years; the growth from the Constitution of a powerful central government and the trampling of state’s rights in a civil war. Specifically, he predicts wars; I hope he is wrong. Abraham Lincoln, long held as a champion for his Emancipation Proclamation, may ultimately be defined by his redefinition of the Federal government. By invading the South after its secession, he made it clear that the United States of America was no longer a collection of republics, but rather a single republic under one federal government. It has been accepted as a necessary evil that resulted in the undoing of the practice of slavery. It did nonetheless weaken the very foundation of our government and has sent us into a spiral of never-ending growth in the power of the Federal government.

Human nature with regard to public office had not changed in the hundreds of years leading up to the writing of this essay, nor has it changed in the hundreds of years since. To those who would argue that the Founding Fathers could not have anticipated the circumstances we face in the world today, I say they saw it more clearly than we do. The Founding Fathers possessed a very clear understanding of the dangers of centralized power, but like a weather-beaten vessel at sea, the Constitution needs time to refit and repair. This is best accomplished by a broader public awareness of the contents of the debate that surrounded the drafting and ratification of the Constitution. The Federalist and Anti-Federalist papers offer an incredible insight into the minds of the those who molded the Constitution.

Filed under: Nanny State, Regulation
Comments: Comments Off on The Federal Farmer

Sarah BrodskySubsidies for Grocery Stores
Posted at 7:41 am on April 25, 2010, by Sarah Brodsky

I love Schnucks, but I can’t agree with this:

Robert Buchanan, assistant professor of finance at St. Louis University, gives the Schnucks credit for trying something bold and innovative — and for not jacking up the prices at the downtown store.

As for the businesses who are struggling as a result, that’s a fact of competitive life, he said.

“Retail is very much a Darwinian struggle, and the best operators are going to win,” Buchanan said.

The competition for lunch customers in downtown St. Louis isn’t simply a matter of the best food establishment winning out. Schnucks received state and federal “incentives” and tax increment financing from the city–subsidies that allow it to keep prices low and put smaller eateries out of business.

The story of the Schnucks Culinaria in St. Louis illustrates how government efforts to subsidize grocery stores can effect neighborhoods. Small stores and diners are hurt. The people who gain the most are the office workers who get access to cheap, convenient salads and sandwiches. But it’s not like those salaried employees wouldn’t have been able to eat any other way. They could have packed lunches from home just as cheaply if they had cared to take the trouble.

We should keep in mind the unintended consequences of grocery store subsidies the next time activists like Michelle Obama call for eradicating food deserts. To politicians, any place without a fancy deli that suburbanites would find attractive is a food desert–and all the small cafeterias that are already there had better get out of the way.

Filed under: Food Policy, Taxes, Unintended Consequences
Comments: Comments Off on Subsidies for Grocery Stores

Sarah BrodskyLessons From the Parents as Teachers Cuts
Posted at 8:25 am on April 23, 2010, by Sarah Brodsky

The State of Missouri has cut funding to its Parents as Teachers program. I hope the drop in funding will redirect Parents as Teachers to focus on people who need the most help.

Maybe I’m not a pure libertarian, but I’m actually not opposed to government programs that give poor people free stuff or try to improve the odds for children in bad situations. I’m even okay with limited home-visiting programs, as long as they’re voluntary (and Parents as Teachers is) and as long as there’s no better way to provide the services.

But Parents as Teachers, as it’s currently run here in Missouri, goes way beyond intervening with at-risk children. The program accepts children from wealthy homes; in some participating families, the parents are pediatricians. Parents as Teachers provides the same costly home-visiting services to people who own two cars and drive their kids to gymnastics every day as it does to people who don’t have transportation and really do need someone to come to their house.

Parents as Teachers also conducts research activities that do nothing to help the kids now enrolled in the program. For example, this blog post written by a participant mentions the questions Parents as Teachers asked her for a study about autism. Of course, there’s a need for research, but it’s not clear that it should be conducted by this publicly-funded program. For one thing, there are benefits to specialization; some programs concentrate on research, while others teach parents and distribute children’s books. Most programs can’t do both well. It’s also questionable whether research should be tied to programs that ostensibly support vulnerable people, opening up the possibility that participants will feel pressured to go along with the research because they want to continue receiving services.

Parents as Teachers should learn from the funding cuts that taxpayers won’t help it do everything for everyone. The program should target people who most need help–either through geographic boundaries, like the Harlem Children’s Zone or Kansas City’s Zone 27, or through income limits. It could also seek out more private donations, or charge wealthy participants for some services.

Filed under: Child Policy, Government Spending, Nanny State
Comments: Comments Off on Lessons From the Parents as Teachers Cuts

Wirkman VirkkalaBetter Than the Golden Rule?
Posted at 1:37 pm on April 22, 2010, by Wirkman Virkkala

Attempts to summarize all morality into a simple principle are ancient. Long before Kant’s categorical imperative we were blessed with the Silver and Golden Rules. Indeed, there is a sort of progress in the development of these rules:

Silver: Do not do unto others that which you do not want done to yourself.

Golden: Do unto others that which you want done unto you.

Cat. Imp.: Act only in such a manner that you can at the same time will that your act should become a universal law.

But the progress may be illusory. (more…)

Filed under: Economic Theory
Comments: 1 Comment

John W. PaynePutting the “Free” in “Free” Market
Posted at 12:04 am on April 19, 2010, by John W. Payne

The left wing caricature of a market economy presents rapacious businessmen monopolizing resources and raising prices to further enrich the wealthy while crushing the poor and middle class. There are a multitude of problems with this notion, but the primary one is that the market almost always discourages monopoly and drives prices down for the benefit of everyone except the firms that cannot compete. Even more remarkable is that in many cases the downward pressure on prices actually reaches its logical conclusion of firms giving away numerous goods and services for free (i.e. at a zero monetary cost to consumers).

One often overlooked example of this phenomenon is the near total availability of condiments at fast food restaurants. Salt, pepper, ketchup, mustard, hot sauce, and more can be taken in large amounts whenever you make an order. When I was still in college, I stockpiled those little packets to use at home so that I didn’t have to pay for them at the grocery store. I’m sure this seems insignificant to most people, but that’s only because the market has made these goods so abundant that we take them for granted. In ages past, salt was such a valuable commodity that it was used as money, giving rise to the expression “worth your salt.” And it was demand for other spices like pepper that sent Europeans scrambling across the world 500 years ago in an effort to reap the enormous profits they could bring. It is nothing short of amazing that what was once so expensive that thousands of people would risk their lives to procure it is now so abundant that we don’t even give a second thought to people giving it away.

A similar, if more high tech, example of the same phenomenon is the plethora of restaurants and coffee shops that now give away free WiFi internet access to anyone who wants it. Most of these places don’t even require users to make a purchase, operating on the belief that the longer a person stays in the store, the more likely they are to buy something. If you have a laptop, you can now access the greatest store of information the world has ever known as much as you want for free, all thanks to the free market, which forces businesses to compete by enticing potential customers with such fringe benefits.

You might object here that the cost of these goods is included in the price of a meal, so it isn’t actually free to the consumer. That cost is negligible, which is why they give the stuff away, but the point is true enough, so let me give you a few examples where the user never has to spend a dime to reap some pretty enormous benefits.

Many of the internet’s most powerful tools are completely free to users. Without search engines, the internet would be of very limited use, but despite being so valuable, they are almost all free because if one tried to charge people would very quickly migrate to a free alternative. Facebook allows individuals, businesses, charities, and all other manner of like-minded groups to set up free profiles and communicate with each other. I regularly chat on Facebook with friends across the country and the globe. Two generations ago, such instant communication wasn’t available at any price, but now it’s just part of an average day. The major search engines and Facebook rely on advertisers to provide their revenue, so you only pay for those services if you buy something through one of their ads.

Furthermore, even these ads typically benefit the consumers. Because the advertisements are generated by a computer program based on information given by the user, they are more likely to be of interest than the average TV or radio commercial, and if a person buys a product because of the ad, he is made better off, provided it meets his expectations. To give a personal example, I discovered the service Groupon, which sells daily coupons to local businesses with steep discounts, through an ad on Facebook. I have eaten numerous meals for around 50 percent off thanks to Facebook, a service that I enjoy for free.

Now contrast these remarkable market achievements with the government. The free market is providing numerous, highly valued goods and services at no cost to the consumer. On the other hand, the government provides many “services” that I don’t even want (e.g. the drug war, the war in Iraq, illegal wiretapping) and never for free. Why anyone would ever prefer the latter to the former is beyond me.

Filed under: Economic Theory, Market Efficiency
Comments: 7 Comments

Wirkman VirkkalaTwo Words for Capitalism
Posted at 8:51 pm on April 16, 2010, by Wirkman Virkkala

A number of writers from across the political spectrum have been writing about the word “capitalism” recently. What does it mean? Do we have what it signifies? Does talking about such a seemingly vague thing increase our understanding?

John Stossel argues that we don’t live under capitalism, unless you modify the word to mean “crony capitalism.” His essay “Let’s Take the ‘Crony’ Out of ‘Crony Capitalism’” makes a very familiar case:

The word “capitalism” is used in two contradictory ways. Sometimes it’s used to mean the free market, or laissez faire. Other times it’s used to mean today’s government-guided economy. Logically, “capitalism” can’t be both things. Either markets are free or government controls them. We can’t have it both ways.

The truth is that we don’t have a free market — government regulation and management are pervasive — so it’s misleading to say that “capitalism” caused today’s problems. The free market is innocent.

But it’s fair to say that crony capitalism created the economic mess.

This is all very well and good. Accurate in its own way. But I am not sure we should give in to either libertarians who want to defend free markets or statists who want to bury them in red tape. “Capitalism” isn’t a word that means just one thing, just as “democracy” isn’t a word that means just one thing. One usage isn’t obviously better than another. Thackeray’s coinage serves more than one master.

I support laissez-faire. It’s a great and noble — and ultra-civilized — policy. But laissez-faire isn’t the only form of capitalism. (more…)

Filed under: Economic Theory, Regulation
Comments: 3 Comments

Christine HarbinAnother Way the Private Sector Can Influence Behavior
Posted at 7:30 pm on April 16, 2010, by Christine Harbin

As component of its Make a Difference campaign, Starbucks gives its customers a 10 cent discount if they use a reusable travel mug. This is another example of how the private sector can encourage certain behaviors without direction from the government, such as environmental stewardship.

Corporate Social Responsibility (CSR) initiatives like Starbucks’s are preferable to government mandates because they respect individual choice. If, for whatever reason, a person does not want to use a reusable mug, he or she can still purchase coffee.

Consumers win because they pay a lower price for the product and also because their choice is unrestricted. Companies like Starbucks win because they can reduce their material and inventory costs. The environment wins because fewer paper cups go to landfills.

Filed under: Economic Theory, Environment, Market Efficiency
Comments: 2 Comments

John W. PayneA Perfectly NORML Event
Posted at 11:33 pm on April 15, 2010, by John W. Payne

Last Saturday, I spoke to the annual convention of the Missouri chapter of NORML (National Organization for the Reform of Marijuana Laws) on the economics of marijuana legalization, and I was thoroughly impressed by the event. This surprised me because I halfway expected all the participants to be so high that they couldn’t follow a supply and demand graph. I joke, but the attitude is born out of experience.

I attended several NORML events back in college, and there was always a NORML contingent whenever Students for a Sensible Drug Policy brought in a speaker. There was never any tension between the groups to my knowledge, but I was always more than a little underwhelmed by NORML as an organization in those days. I think it might have been the guy that got up and sang a marijuana themed version of the national anthem after Mike Gray spoke that began my disillusionment with the group, but it wasn’t just that. At times it seemed that dreadlocks and a distinct odor of patchouli was a prerequisite for membership in NORML, and members often crossed the line between advocating an end to marijuana prohibition and simply advocating the drug itself. There were always members of NORML that I respected and thought really cared about the issue, but I long ago ceased to think of them as a very serious organization.

That changed on Saturday. Most attendees were dressed well, and no one ever suggested that world problems could be solved if everyone would just get high. Certainly a large percentage of the people there used marijuana, but the vast majority of them looked and sounded like responsible individuals, not the stoner caricatures I had often encountered in the past. The speaker lineup was also superb, featuring a couple ex-police officers, the current mayor of a Missouri town, a former district attorney, and a number of defense attorneys. Finally, there were a number of African-American participants, which was heartening given the disproportionate impact the drug war has on black communities and lack of minority involvement I had seen at previous NORML events. (NORML is hardly alone among drug law reform groups with this problem, however.) In short, what I saw on Saturday was a far more disciplined, professional group fighting to legalize marijuana. If this is a national trend, the prohibitionists should be very worried.

Filed under: Drug Policy
Comments: 2 Comments

Sarah BrodskyAnti-Immigration “Libertarians”
Posted at 11:20 am on April 11, 2010, by Sarah Brodsky

I’m disappointed whenever political candidates who call themselves libertarians turn out to oppose open immigration. Some of these candidates are satisfied with the current immigration system and don’t plan to reform it; others decry “illegal aliens” and vow to restrict immigration even further.

Libertarians need to get immigration right. People matter more to the economy than any inanimate goods, which don’t have brains and can’t invent things or solve problems. So the unfettered movement of people is more important than the free exchange of material goods. But for some reason, many so-called libertarians who support the latter won’t make the former a priority.

This is especially puzzling given the humanitarian case for open immigration. A shipment of electronics doesn’t care where the government allows it to go. But immigration restrictions can mean, for people, the difference between being destitute or having a happy life.

I’m suspicious of anyone who supports free exchange for material commodities but won’t extend the same courtesy to his fellow human beings. And it makes me question such candidates’ libertarian credentials on other issues, too. Are they really trying to apply free-market principles across the board? Or are they making decisions based on their inclinations and prejudices, and adopting the label “libertarian” only when it suits them?

Filed under: Immigration
Comments: 11 Comments

Next Page » previous posts »
Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson






Recent Entries