Tracing consequences both seen and unseen.
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: None

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

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

Eric D. DixonThe Knowledge Problem of New Paternalism
Posted at 4:14 pm on March 28, 2010, by Eric D. Dixon

Tom Palmer‘s book reviews are more than enough to explain why Cass Sunstein is an extraordinarily sloppy thinker, but bad ideas never die — and Sunstein’s bad ideas are plentiful. One of his pet theories, developed with Richard Thaler, is “libertarian paternalism,” which posits that central authorities can frame the choices available to people in society in such a way that “better” choices will more often be made — all without running afoul of libertarian objections to authoritarian compulsion.

David Friedman has made compelling arguments that “nudges,” attempts to establish innocuous choice architecture, would likely soon become more like shoves.

Yesterday, I discovered that economists extraordinaire Mario Rizzo and Glen Whitman (check out this nice encomium to Rizzo by Peter Boettke) had thoroughly dismantled the idea that would-be paternalists have the ability to make better utility-maximizing decisions than the aggregate population they hope to influence, let alone cement this ability in a set of public policies that would implement the benefits of their omniscience in practice. Titled “The Knowledge Problem of New Paternalism,” one additional reason it caught my eye is because they published it in the law journal of my own alma mater.

(Last time I went poking around the archives of BYU’s scholarly journals, incidentally, I stumbled across this gem from 1976, which provides the interesting bit of trivia that Milton Friedman and Dallin H. Oaks had been friendly colleagues during their mutual time in Chicago.)

At any rate, Rizzo and Whitman give “libertarian paternalism” the full Hayekian analysis, concluding:

In principle, we can embrace the idea of making people better off according to their own true preferences. That goal cannot be made operational in practice without access to information that policymakers do not, will not, and often cannot possess. Yet policymakers have to make policy on the basis of something, and so they will appeal to their own preferences, the preferences of self-appointed experts, or the (alleged) preferences of the public at large. They cannot implement people’s “true” preferences, but they can implement what they believe are the “right” ones, and the new paternalist paradigm will provide the intellectual cover to do so.

It’s an excellent piece, worthy of a full, careful read.

[Cross-posted at Shrubbloggers.]

Filed under: Economic Theory, Nanny State, Regulation
Comments: 3 Comments

Justin M. StoddardRent-Seeking Potheads
Posted at 12:59 am on March 28, 2010, by Justin M. Stoddard

I honestly could not initially decide whether or not to post this, as I could not determine if it was a hoax or parody (a la The Onion). But the more I thought of it, the more plausible it seemed.

Outlaw pot farmers in Calif. fear legalization could actually hurt their business:

“The legalization of marijuana will be the single most devastating economic event in the long boom-and-bust history of Northern California,” said Anna Hamilton, 62, a Humboldt County radio host and musician who said her involvement with marijuana has mostly been limited to smoking it for the past 40 years.

Local residents are so worried that pot farmers came together with officials in Humboldt County for a standing-room-only meeting Tuesday night where civic leaders, activists and growers brainstormed ideas for dealing with the threat. Among the ideas: turning the vast pot gardens of Humboldt County into a destination for marijuana aficionados, with tours and tastings — a sort of Napa Valley of pot.

The irony is deliciously delicious…in so many ways. But, foregoing all that, this is basically an issue of rent seeking. People who deal in black-market goods are protected from the ‘legal’ market. Not only do the goods they are producing/trading have an unnaturally high price point, they are shielded from competition from the free market. If anyone can get into the pot growing business, prices will dramatically fall. Some of the former illegal growers will then be priced completely out of the market.

We see this type of rent seeking behavior every day. Groups from manicurists and hair stylists to HVAC repairmen to interior decorators insist on licensure laws as requirements to enter their professions.

Those doing the rent seeking will nearly almost always claim that these types of licensure laws are needed so that only qualified people get the job. It’s a safety issue. Or a quality issue. Or, well, pick your reason.

In truth, it’s none of those. Rent seeking protects jobs using the force of government by way of restrictive fees and time-costing measures. It protects the few at the cost of hurting everyone else by way of decreased competition, higher prices and fewer employed people. You have a limited amount of money and you want to become a florist? Do you have the right license? Have you paid enough fees and attended enough classes? Sorry, you’re now priced out of the market. Some select florists benefit; the aggregate suffers.

But back to the rent seeking pot farmers of Humboldt County, California. Not only are their actions unbelievably immoral, they’re frightfully hilarious. The whole thing reminds me of the Simpsons episode where Homer Simpson is bullied out of the chiropractic market:

Steve: [walks in] Simpson! You’re not a licensed chiropractor, and you’re stealing patients from me and from Dr. Steffi.

Homer: Boy, talk about irony. The AMA tries to drive you guys out of business, now you’re doing the same to me. Think about the irony.

Steve: [grabs Homer by the collar] You’ve been warned. Stop chiropracting.

Homer: Not unless you think about the irony.

As pot legalization becomes more likely, I would expect to see more of this type of behavior. Just remember, the behavior is equally ridiculous when applied to interior decorators or florists, or the nearly other 30% of the workforce that requires licensure.

[Cross-posted at Shrubbloggers.]

Filed under: Drug Policy, Economic Theory, Regulation
Comments: 7 Comments

John W. PayneMore Bans Won’t Deter Use, but Will Increase Costs
Posted at 10:51 pm on March 23, 2010, by John W. Payne

Early last month, Missouri Supreme Court Chief Justice William Ray Price Jr. called for reforms of our criminal justice system, including incarcerating fewer nonviolent offenders. Price argued that such changes would both decrease recidivism and save the state money by decreasing prison budgets, and he was widely applauded by editorialists across the state for his stance. However, when a bill to ban K2, a chemical used as a synthetic substitute for marijuana, received its first public hearing little more than a week later, newspapers were equally eager to support the restriction. It should not be necessary to point out that increasing the number of nonviolent offenses is not obviously compatible with decreasing the number of nonviolent offenders behind bars. Furthermore, although enforcing a ban on K2 would require spending additional tax dollars, it is unlikely to lower the rate of drug use significantly.

According to Harvard economist Jeffrey Miron, federal, state, and local governments spend more than $44 billion per year in their attempts to stop people from using certain drugs. It is difficult to determine exactly how much money is spent on specific drugs, but given that there were 847,863 arrests for marijuana during 2008 — half of all drug arrests — it is safe to say that spending on marijuana enforcement is higher than for any other drug, and far out of proportion to the dangers of a drug that is relatively innocuous in comparison to most others. Still, despite the billions of dollars spent and millions of people arrested over the years, legal restrictions on marijuana appear to have had little to no impact on decreasing its use.

Although exact statistics for the period during marijuana’s initial prohibition are impossible to come by, when it was first outlawed in 1937, its use was confined almost exclusively to Mexican immigrants in the West and only a tiny proportion of the population had ever smoked it. Marijuana use skyrocketed during the 1960s, when simple possession still typically triggered jail time across the country. As use of the drug continued to increase throughout the 1970s, some states began decriminalizing marijuana possession, indicating that marijuana use tends to influence the law — not the other way around. The 2008 Monitoring the Future Survey, published annually by the National Institute on Drug Abuse, concedes that “A study of the effects of decriminalization by several states during the late 1970s found no evidence of any impact on the use of marijuana among young people, nor on attitudes and beliefs concerning its use.” The report does go on to note that some more recent studies find that teens living in states where marijuana possession is decriminalized are more likely to smoke marijuana, but this correlation does not indicate causation. As noted earlier, the idea that higher use rates drive decriminalization is a better fit for the timeframe, and it could also be that a third variable — such as wider adoption of more socially liberal views — help to cause both decriminalization and higher rates of marijuana use.

As of 2009, 102 million Americans — a third of the population — have used marijuana, according to estimates from the Substance Abuse and Mental Health Services Administration. Almost all of them did so after marijuana was made illegal 73 years ago. Clearly, the law does not stop people from obtaining and using marijuana. Usage rates have changed dramatically over the years, but those changes are driven far more by wider social changes and shifting attitudes than by any law. Only politicians could be so vain as to believe their dictates are the guiding force in the lives of millions of people.

A ban of K2, or of any similar drug, will not stop people from becoming intoxicated in some politically incorrect way. In fact, given that K2 is being sold primarily as a legal substitute for marijuana, banning it may simply send K2 users back to marijuana use, an outcome that I do not believe the bill’s supporters intend. However, if people truly enjoy K2, no law passed by a legislature will ever repeal the law of supply and demand. Market forces will provide consumers with the goods they want — even illicit ones. Banning K2 would increase the already stratospheric costs of enforcing our drug laws, without making an appreciable dent in drug use. Reasonable people would laugh such proposals out of the legislature, but when it comes to the war on drugs, we abandoned reason a long time ago.

Filed under: Drug Policy, Regulation
Comments: 2 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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