Tracing consequences both seen and unseen.
Lee SharpeEmployee Benefit Mandates Are Lose/Lose
Posted at 9:39 pm on April 9, 2010, by Lee Sharpe

If you were an employer, would you rather have (at the same hourly wage) a full time worker working 40 hours/week, or two part time workers working 20 hours/week each?  Most employers would answer with the former.  A worker who has a full time job is (or will be in time) more experienced than a part time worker, because of the larger number of hours worked.  Further, a full time job obviously provides a better source of income to a worker than a part time job does, so a full time worker is less likely to look for more work elsewhere, which once it occurs deprives the employer of the experience that worker already had.

So why are so many employers forcing employees to work part time hours or as temporary employees rather than provide them with a full time job?  Because health care is expensive, and many governments mandate that employers provide health benefits to full time workers.  This incentivizes employers to keep the full time employment payroll to a minimum, which as described above is often worse for both employer and worker.  Many workers now forced to work 20 or 30 hours/week would be happy to work 40 hours/week in order to bring home more money, even without health insurance.  And wanting more experienced workers on the job, employers in many cases would be happy to provide it.  But instead well-meaning politicians are making the lives of these poor workers worse, and the customers of their employer have to deal with a less experienced workforce.

Such policies are worse for employers, worse for workers, and worse for consumers.

Filed under: Regulation
Comments: 1 Comment

Christine HarbinHow the Private Sector Can Influence Good Behavior
Posted at 9:04 am on April 9, 2010, by Christine Harbin

Earlier this week, the Wall Street Journal published an article that explained how NBC Universal is using its television programming to send a subtle message to viewers to improve their lifestyle. From the article:

The tactic—General Electric Co.’s NBC Universal calls it “behavior placement”—is designed to sway viewers to adopt actions they see modeled in their favorite shows. And it helps sell ads to marketers who want to associate their brands with a feel-good, socially aware show.

This illustrates how the private sector can address problems like global warming and encourage healthy behavior simply by setting a good example–not by legislating or by nudging via choice architecture.

Since NBC’s effort encourages other companies to adopt and be affiliated with corporate social responsibility, I would not be surprised if this had a larger “behavioral” multiplier than the public sector’s efforts.

[Cross-posted at Amateur Philosophy.]

Filed under: Uncategorized
Comments: 2 Comments

John W. PayneDoes This Count as Optimism?
Posted at 12:02 am on April 7, 2010, by John W. Payne

Cato Institute executive vice president David Boaz warns libertarians against the imagined limited government utopias of America’s early days that were actually far less libertarian than today in many important ways:

If we look at the long term—from a past that includes despotism, feudalism, absolutism, fascism, and communism—we’re clearly better off. When we look at our own country’s history—contrasting 2010 with 1776 or 1910 or 1950 or whatever—the story is less clear. We suffer under a lot of regulations and restrictions that our ancestors didn’t face.

But in 1776 black Americans were held in chattel slavery, and married women had no legal existence except as agents of their husbands. In 1910 and even 1950, blacks still suffered under the legal bonds of Jim Crow—and we all faced confiscatory tax rates throughout the postwar period.

This is vitally important information to keep in mind.  Sure, there was no Federal Reserve, income tax, or drug war in 1800, but the government still did plenty of unspeakably awful things back then.  Of course, some people go too far in the other direction and claim that we have only gotten freer over the years.  Although there might be a general trend towards liberty in the last four centuries or so, that trend has never been constant, and it is in no way a necessary fact about the world.

I truly believe that we can make it to a society of maximum individual freedom, but we won’t get there by looking for it somewhere in the past.  Certainly we can and should make use of the past to show the tragedies of state control and the successes of civil society and the market, but to the best of our knowledge, there has not yet been a completely free human society.  A few have come close, and many more recently have allowed people to be freer than the vast majority of humanity that has ever lived, but freedom is an idea that still has yet to be tried in its totality.

Cross-posted at Rough Ol’ Boy.

Filed under: Uncategorized
Comments: 3 Comments

Christine HarbinUnintended Negative Consequences of ‘Extreme Makeover’
Posted at 8:44 pm on April 6, 2010, by Christine Harbin

In an article published today, the Wall Street Journal describes some unintended negative consequences of the television show Extreme Home Makeover.


Filed under: Unintended Consequences
Comments: None

Wirkman VirkkalaThe Logic of Self-Medication
Posted at 3:25 am on April 5, 2010, by Wirkman Virkkala

I may disapprove of what you take, but I’ll defend till your death your right to take it.

The same sort of values and reasoning that support the right of free speech supports, also, the right of self-medication.

Because we have had free speech rights, but have lacked the right to self-medicate, the two rights seem (to many) the most distant of cousins, if not warring foes. To most folk, the idea of self-medication? Heaven (or the state) forbid: We must always be guided by doctors, who know better!


Filed under: Drug Policy, Nanny State
Comments: None

Christine Harbin“Homeowner” Bailouts and their Unintended Consequences
Posted at 10:16 pm on April 3, 2010, by Christine Harbin

In an op-ed published on Thursday, the editorial board at the Wall Street Journal criticizes Washington’s latest attempt to bail out homeowners. They argue that this intervention will be as ineffectual as the those that preceded it, and that homeowners would be better off if the government hadn’t intervened. From the editorial:

Here’s a heretical thought: What if Washington had simply let housing prices fall on their own to find their natural bottom? The pain would have been more severe more quickly for some owners who bought more expensive homes than they could afford. But the pain might also be over by now as housing markets cleared faster, and housing might be contributing to a healthier economic expansion.

The practice of bailing out homeowners has several unintended negative consequences. The following are among the most egregious, in my opinion.

(1) Bailouts discourage employment.

Just like any other type of unemployment benefit, payments to homeowners decrease an individual’s incentive to be employed. This contributes to a higher and longer-lasting unemployment rate.

(2) They penalize individuals who borrowed responsibly, and they encourage people to live outside of their means.

Why put 20% down for a cramped ranch-style when you could buy a McMansion and have the taxpayers pay for it?

(3) Many people bought houses that they couldn’t afford anyway, and they will foreclose on them in the future. For many people, a bailout is just delaying the inevitable.

As described in a relatively recent article in the New York Times:

As a result [of Obama’s Making Home Affordable program], desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

(4) They cause housing prices to be artificially high.

Here is a Washington Post article on the subject. The latest proposal, like many of its predecessors, inflates home prices. Additionally, the $8000 homeowner tax credit allowed individuals to buy a more expensive house than they could otherwise afford.

(5) There is a moral hazard problem. If a person knows that they are likely to be bailed out, then they are more likely to assume risk.

I oppose bailing out people who bought houses that they couldn’t afford, and I disagree that the government should encourage homeownership. When a person invests her money, she assumes risk. Higher returns are supposed to be the payoff for accepting larger amounts of risk. Buying a house is just like any other investment outside of Treasury Bonds — there is a possibility that the individual will lose money. In some aspects, real estate is riskier than stocks because houses are not diversified (i.e., in the event of a natural disaster, a person’s entire investment is wiped out). A person should do thorough research before she makes what will be one of the largest financial decisions of her life.

I recommend the article “5 myths about home sweet homeownership” by Joseph Gyourko, chairman of the real estate department at the University of Pennsylvania, in the Washington Post. It repudiates the commonly-held idea that homeownership is a investment that has good returns and no risks. To me, the following is the most eye-opening statistic in the article:

Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year after inflation. You would have earned well over 2 percent per year after inflation had you invested in Treasury bills over the same period.

[Cross-posted at Amateur Philosophy.]

Filed under: Government Spending, Market Efficiency, Uncategorized, Unintended Consequences
Comments: None

Eric D. DixonCountering the Keynesian Appetite for Destruction
Posted at 2:08 am on April 3, 2010, by Eric D. Dixon

Working as an intern for the Cato Institute in 1997 was one of the most formative experiences of my life. During that time, I participated with the other interns in a series of lunchtime discussions with Tom Palmer, a Cato senior fellow, director of Cato University, and also now with the Atlas Economic Research Foundation, where he’s vice president for international programs. I’ve written elsewhere about my high esteem for Tom, and his considerable impact on my own intellectual development, and I could say more — but for now, I’ll get to the point.

The very first reading assignment that Tom gave to the interns was Frédéric Bastiat‘s essay “What Is Seen and What Is Not Seen.” It’s pretty powerful stuff, even today, and even for those of us for whom the ideas contained in that essay are old hat. That may be partly because of Bastiat’s clear, lucid, illustrative way of making abstract economic concepts understandable and unmistakable, but also because the economic fallacies that Bastiat debunked are still widely believed today, so his points remain relevant to modern political and social problems. When journalists — and even a Nobel laureate economist — begin to credit wanton destruction as a form of economic stimulus, it becomes obvious that Bastiat is more relevant than ever. Henry Hazlitt updated Bastiat’s essays for a new generation in his book for which this blog is named. Tom Palmer is helping to bring them to the YouTube generation.

Tom has begun producing a series of video clips with Atlas that aim to take these fallacy-busting arguments viral. I’m far from the first person to link to this clip, and I’ll be far from the last. The belief that destruction — or, for the same reasons, government spending — can stimulate the economy in a useful way is a symptom of lack of forethought. Anybody reading this right now can help stem the tide of economic ignorance by passing on the link to friends, or suggesting it to the reading audience of whatever forum you might participate in.

[Cross-posted at Shrubbloggers.]

Filed under: Economic Theory, Government Spending
Comments: 5 Comments

John W. PayneThe Wire and Public Choice
Posted at 11:12 pm on April 1, 2010, by John W. Payne

N.B. I wrote this post a few weeks ago for my personal blog before I changed the site to a new server, and it seems to have gotten lost in the shuffle.  I happened to really like this one, so I went through the trouble of retrieving it and thought it was worth sharing here.

I finished season two of The Wire last night (yes, I know I’m way behind on this one), and I thought there was a particularly interesting point about why governments fail running through the whole season.  While the show is essentially an in-depth study of how different institutions fail, I think this one might warrant a little drawing out.  (This post will not really have spoilers as such, but if you haven’t seen it, you likely won’t get it, so it might be time to stop reading now.)

The whole reason for the detail’s existence in season two is because Major Valchek is angry that Frank Sobotka and his union gives a more substantial gift to the church they both attend than the police union.  It is nothing more than a personal vendetta, which just happens to uncover a massive criminal conspiracy.  Furthermore, if Valchek had his way, the worst of the conspiracy would have remained hidden just so he could pursue one of the least guilty members of it.

Public choice economics holds that one of the major problems with government is that politicians and government employees do not cease to be self-interested once they become part of the government.  They do not pursue some mythical “common good” but their own profit, and Valchek is the perfect illustration of that.  To use one of his phrases, Valchek “couldn’t give a hairy-ass fuck” about some ideal like law or justice.  For him, being a police officer is about rising within the organization as far as possible and abusing his power to get what he wants in the outside world.  There are many “natural police” who do care about doing the right thing, but they are always crushed by the organization, while the Valcheks and Burrells rise to the top.  And so it is with every governmental organization.  Political decisions are almost never made with an eye to the costs and benefits of the whole society but merely the costs and benefits to the politician or bureaucrat.

Contrast this with the gangs in the show.  While there is a great deal of personal animosity between some groups (e.g. the Barksdale and Proposition Joe), it can almost always be set aside if it becomes necessary for the sake of business.  At the end of the season the Greek says “Business.  Always business,” and it’s a perfect statement for the mentality of almost all the gangsters on the show.  They do some truly awful things to keep their business functioning–usually because of the black market nature of their businesses–but it is rarely for any personal reason.  Their organizations exist for one reason: to sell a product that people want.  If they lose sight of that, they will cease to exist.

However, the police and other government organizations only theoretically exist to enforce laws and mete out justice.  In reality they have as many different missions as there are personalities involved.  What benefits one division of police, almost inevitably hurts another, so the organization can never be organized because no one can agree on its goals.  The police can only muddle forward, fighting each other almost as much as they fight crime, while even if the gangs are feuding, the shit makes it to the street.

Filed under: Drug Policy, Economic Theory, Market Efficiency
Comments: None

Eric D. DixonShout Out to Cafe Hayek
Posted at 2:27 am on April 1, 2010, by Eric D. Dixon

The venerable Don Boudreaux linked to us from Cafe Hayek yesterday, calling us a “Great new blog” — a tremendous honor for our fledgling effort. Justin floated the idea for starting this blog only 10 days ago, I built the site later that night, and we started asking a bunch of our libertarian friends to join us over the next few days. I’m a little stunned we went in only nine days from tentative mental glimmer to getting name-checked by the chairman of the George Mason University Department of Economics, but the Internet is a pretty fantastic and fast-moving place.

I had the good fortune to meet Boudreaux once, back in 2002, when he shared a Future of Freedom Foundation bill with Nathaniel Branden, the night before the Cato Institute’s 25th anniversary celebration. I sat next to Bumper Hornberger during the dinner, and he couldn’t have been nicer or more enthusiastic about spreading the ideas of liberty. At any rate, Boudreaux gave a speech pointing out the many ways that capitalism makes our lives better, safer, cleaner, and more pleasant — often in ways we take for granted because they’ve become so commonplace. It was essentially a lengthier version of this Cafe Hayek blog entry. It’s a theme that bears repeating often, such as in my blog entry from last night — or, as one of our commenters reminded me, in this Louis CK appearance on “Late Night With Conan O’Brien.”

Back during the early ’00s when I lived and worked for about six years in the DC area (at U.S. Term Limits and Americans for Limited Government), I kept telling people that I planned to pursue an economics degree at George Mason. I even relocated from Maryland to Virginia in a blatant in-state tuition rent-seeking move. But then I got laid off from my job in the then-rapidly-contracting nonprofit world and my mom’s health took a turn for the worse — so I moved back out west, and eventually ended up in St. Louis where I live today.

I often keenly regret not having taken the GMU plunge, though. If you’re a free-market econ geek, GMU’s program seems like one of the most exciting places on earth. To this day, I sometimes idly fantasize about applying, dropping everything, and moving to Fairfax. But grad school is really something I should’ve done a decade ago.

I guess I don’t have a unifying point to all of this rambling, other than to say that Cafe Hayek is excellent, and anybody who happens to be reading our blog but doesn’t yet follow theirs regularly should rectify that today.

Filed under: Blog, Economic Theory, Higher Education
Comments: 3 Comments

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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






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