Monthly Archives: October 2012

Staples… yeah, we’ve got that!

Among the many positions being voted on November 6 is the rather mundanely named “Public Service Commissioner.” In Georgia we have a government granted monopoly for providers of various utilities (electric, natural gas, telecommunications) and in order to keep Joe Citizen from getting gouged by a state imposed monopolistic system the Public Service Commission was established to allow the citizens to have an indirect voice in keeping prices in check. I suspect that this innocuous naming was a concession to those regulated industries in order to minimize the potential that the public might actually become aware they could exercise such control. Perhaps “Monopoly Justice League” might garner more voter attention.

Why do I bring up this seemingly sleepy little race? Because it is one of those rare circumstances where Democrats, Republicans and Libertarians can (or should) all agree that ethics trumps party affiliation. The incumbent candidate for PSC District 5, Stan Wise (R), has engaged in behavior that while following the letter of the law clearly does not follow its intent. People associated with the utilities he regulates have contributed about 90% of the funds received in his reelection campaign.  I see no need to waste words on painting the obvious conflict of interest. Of course I suppose it is possible such donations had no such influence. Just as it is entirely possible Mr. Wise coincidentally voted repeatedly in a way that benefited the regulated industry at the expense of the citizens. It is possible.

Fortunately there is a choice in the District 5 race: David Staples (L). David has taken a pledge to accept NO gifts of any kind from anyone connected to regulated industries. Although David is a Libertarian, allow me to set aside any concerns those of you who normally vote D or R might have (well I suppose just R, as for the D’s reading this, it should be an easy sell to vote for David insofar as you are voting against the Republican – there is no Democrat candidate in the District 5 race). Even if you disagree with Libertarians on some issues, those issues are irrelevant on the PSC owing to the limited powers the PSC has from an ideological and legislative standpoint (i.e. the PSC can’t legalize drugs!). Basically the PSC votes on rate increases and monitors functions that will impact consumer costs (e.g. nuclear reactor construction). That’s about it. They cannot make or introduce new law. From a financial standpoint a libertarian is the ideal candidate for this position. Just as they turn a skeptical eye to big government proposals for increased spending, they will turn the same skeptical eye toward big utility proposals for rate increases. Likewise, a libertarian will seize on opportunities to enhance free market competition within the boundaries of the current monopoly system. Competition should be encouraged since it can only reduce prices. For example, it is illustrative to see the views of current commissioners regarding competition. Currently the Territorial Electric Service Act of 1973 does not allow any business to compete with a utility in its “region” (turf). This policy has thus far barred from Georgia the possibility of increased use of solar energy through a market based (rather than taxpayer funded subsidy based) approach that would eliminate the high upfront cost barrier. It is therefore illegal for a company to install solar panels free of charge on a customer’s home and simply charge the customer on a per kWh basis just as an electric utility would.

David Staples would vote to allow such entities to enter the market when and if that act is modified by the legislature. However, Stan Wise holds the paternalistic view that Georgia is “far from ready” for such arrangements.  Gee, thanks Stan, but I’ll make that decision on my own, I don’t need your guidance. On November 6 vote for ethics and for choice. Vote for David Staples. See www.votestaples.com & this interview for more info.

Permission to live

The state of Georgia has officially made it illegal to make a living UNLESS you are willing to ask your master for permission first (namely the state & federal government). To wit: I discovered today that in order to maintain the extreme privilege of operating a business in Georgia one must now sign a sworn affidavit and provide documentary evidence that one is a US citizen.

So now not only are business owners drafted into being unwilling arms of the state apparatus by being required to make their employees prove they are US citizens, but now business owners themselves must prove to the state they are US citizens (because clearly that is a real problem, undocumented illegal aliens coming to this country to establish self-sustaining businesses).

What pray tell could be the rationale for this: Well according to OCGA §50-36-1 any “public benefit” one might receive requires said recipient to prove they are a US citizen. However their definition of “public benefit” is quite odd insofar as it includes “benefits” that the state itself REQUIRES business owners to obtain from the state, namely business or other occupational licenses. If a business license given to me by the state is a “benefit” that is causing them so much distress is doling out, I’ll be the first to volunteer that they can keep it. Somehow I think businesses would run just fine absent a framed piece of paper on the wall.

To those not familiar with the regulatory hurdles one must go thorough to operate a business in this state (and I assume most states): this is not merely a one time annoyance, i.e. get your license and you’re done. Oh no, this is an annual event, every year I must prove to my overlords that I was a US citizen last year and oddly enough 12 months later I’m still a US citizen. I need to provide copies of citizenship records, I need an affidavit signed and notarized.  A few years ago it was one form, last year it was 2, now it is 3 this year and I will be shortly required to obtain the not so euphemistically named “Federal work authorization user identification number” in order to enjoy the simple privilege of operating a business and being permitted to hire employees.

But I’m a good little slave to the state and I signed my document with tail tucked between my legs knowing that if I refused to the bitter end I would ultimately be dragged from my home or office at gunpoint – all because I simply see no reason any human being should ask for permission of another human being whether they can work or not. Here’s a copy of the form to which I attached my own “Signing Statement”. If it’s a bit hard to read, here’s what I said:

“Signing statement: I sign this document under duress owing to the implied threat of violence resulting from non-compliance. OCGA §50-36-1 is morally unsound law. My inalienable right to peacefully engage in trade is not predicated or dependent on the prior approval of another person or persons. The state has no authority to say I have no right to work or trade unless I kiss their ring.”

Hunting with a BB Gun

“[The recent fungal meningitis outbreak] marks a lapse in the responsibility of government to protect against such a disaster.” – Editorial board, Washington Post, October 16, 2012

This statement (regarding an outbreak of fungal meningitis due to contamination at a New England compounding pharmacy) reflects a fundamentally paternalistic view of the world. It presumes government can and should be our protector against all the ills that might befall us in life. Click our seat belt, put on our helmet, limit our soda, license those who cut our hair, force us to buy insurance – it’s all for our own good, we’re just too ignorant to know better. The world is scary, understandably we want to be in control, but this is the real world and there simply cannot exist a magical entity that can protect us from all harm. We are adults and this desire for a paternalistic caretaker is a step backward into childhood and dependency and stands in stark contrast to stepping forward into adulthood and independence.

The danger in believing government can actually protect us is that we become complacent and assume there are no dangers lurking out there, how could there be, isn’t government in control? Why should I bother investigating this drug or this company, I mean, the FDA would never let anything dangerous through, right?  In this particular case the FDA actually did not have oversight control of the compounding pharmacy where contaminated injectable steroids (for back pain) were produced. The local state licensing boards had authority, however oversight was lax and even the regulations that were ignored were simply paperwork related and could not have prevented this disaster. But the average consumer doesn’t know all the ins and outs of government regulation; they just assume Big Brother is looking out for them. Is the answer then to give the FDA total control over everything then? Well only if you think the best answer to a failure of government is even more and bigger government. When it comes to a product as critical as drugs we obviously want someone double checking what it is we’re putting in our bodies. But I would feel a whole lot better knowing that if the entity doing the checking has an incentive not to fail because I can sue them too. The FDA (and state boards) have no such incentive; they are immune from all prosecution. Failure of the regulators has no consequences.

Government regulation is a government response to a government created problem. In this case the problem is corporate liability protection. Government creates by fiat entities that are mostly immune to liability for errors and misdeeds (LLCs, Corporation, LLPs, etc.). In order to reign in the moral hazard created by such government granted limited liability, government then decides it must regulate the beast it has created. Doing away with all liability protections and threatening owners with unlimited liability for harm (intentional or not) will be the incentive that will drive the creation of a private regulatory market wherein businesses owners insure themselves against loss and are then tightly regulated by their insurers who have an incentive to eliminate events that would result in paying damage claims. Insurers would hire FDA-like companies to closely monitor their insured and only those most effective at regulating and minimizing losses would survive (as they too could be sued for failure). Government simply stands as the backstop against any unscrupulous insurer that refused to pay valid claims (although such insurers would naturally go out of business quickly as that reputation spread).

Government regulation lulls citizens into a false sense of security. This is as dangerous as going on a lion hunt with a guide whose rifle actually turns out to be a BB gun.

The hypocrisy of local control advocates

November 6 there will be a proposed constitutional amendment to the Georgia state constitution (Georgia Charter Schools Amendment 1) on the ballot that would grant the General Assembly the authority to create charter schools directly, thus bypassing creation by the local school board. This activity had been found to be unconstitutional in a May 2011 ruling by the Georgia Supreme Court – hence the amendment to make it constitutional. This amendment is quite the conundrum: voting yes would marginally increase school choice at the expense of creating an entirely new government bureaucracy to oversee “state” charter schools. However voting no would prevent new bureaucracy, but at the expense of continuing to maintain the monopoly privilege of the local school system. A bit like trying to decide if I would prefer to be kicked in the mouth or the stomach.

When the positions of both sides are contrary to the principles of a free society it makes it that much easier to pick apart their rhetoric. The argument from the pro camp is essentially that in order to increase choice we need to just stop pouring money into the current (local) system, and now pour money into an entirely new (state) system. Trust us. We know what we’re doing. They claim it will not divert money from the local schools, and that is true, to an extent, as the amendment makes specific mention of non-diversion of funds. However, it is laced with qualifying language such as “prohibits…deduction of CERTAIN state funds from local school districts”. Funds are fungible, although non-discretionary funding may not be touched, there is no doubt that discretionary funding will magically become scarcer. And when that happens you will have one side shouting “draconian cuts!” and the other “no change in funding!” and both would be correct. Is it any wonder voters are turned off by the political process?

The con side is just as bad. They employ the same anti-competitive rhetoric usually reserved for discussions of vouchers. Charters are evil because the competition they would engender results in (a) wasteful duplication of effort and (b) would siphon money away to evil non-local “for profit” school organizations. So I suppose then it would be an equally good idea if we were to outlaw private groceries and establish a local government run “food board” that monopolistically sells food to citizens in its region in order to eliminate duplication of effort and the export of “local money”. It’s much easier to misdirect the spotlight from one’s own pro-monopoly rhetoric if it is draped in anti-local jingoism. I guess a local monopoly is preferable to “foreign” competition.

The perplexing part is that both sides are right and wrong. Both local control and more choice ARE better, but monopolistic trusts and bureaucratic government programs are not the way to achieve those goals. The truly hypocritical position lies with the local school boards that take great offense at the state intruding into their perceived power domain, however, they have no qualms about intruding into a parent’s right to have ultimate control over their child’s education. A true advocate of local control defends the rights of the most local decision makers: the parents. Parents have the right, not the privilege, of deciding how their children will be educated – without being required to suffer the diminishment of choice via the act of reaching into the parent’s wallet in order to pay for the choice already made for the parents by the school board.

In the end I reluctantly recommend a “no” vote if only to send a message to the legislature that we want better legislation. We do not need more government control of the education market, we need less. We need an option that provides for less outside control and more local control, control by the parents.

Cutting corners

“And so you’ve got higher administrative costs, plus profit on top of that. And if you are going to save any money through what Governor Romney’s proposing, what has to happen is, is that the money has to come from somewhere.” – President Barack Obama.

President Obama made the above remark in last week’s (10/3/12) presidential “debate” (aka joint press conference) comparing the cost structure of Medicare to that of private insurance. His remarks rely on a grade school understanding of profit that is sadly shared by many.

Let’s dissect the error of his ways. “And so you’ve got higher administrative costs”: The president is being a bit deceptive here. Medicare’s administrative costs are lower because it has virtually no checks against fraud prior to payment. The system is designed purposefully this way in order to entice doctors with an easy claims process. Unfortunately it leaves the system vulnerable to every type of conman and charlatan. Kind of like saying a government-run unmanned honor system bank operates with lower costs than a private bank full of tellers and security guards.

Next he says “plus profit on top of that” in reference to private insurance: Implicit in this statement is the notion that without profit (or perhaps just “excess” profit, “excess” being defined in the liberal dictionary right next to “fair share”) everything would cost proportionately less. If he is going to be intellectually honest then using this logic there is no other conclusion then that government should run everything profit-free. Considering how well that system (communism) has worked, it is unlikely he will be intellectually honest.

However the last statement, “the money has to come from somewhere” reveals his ignorance of business. This ignorance renders him incapable of comprehending how a business could enhance profit by any method other than cutting corners. The method that eludes him is productivity improvements. These are achieved by (a) identifying inefficiencies and removing them and (b) utilizing new or existing tools. With productivity gains the consumer receives the same or a better product for a lower price while the business earns a greater profit. The profit motive encourages good businesses to enhance productivity, which benefits both themselves and their consumers. The profit motive can also encourage some businesses to cut corners on product quality. However these businesses can only cut corners to the extent consumers are willing to accept the tradeoffs. If they go too far they risk going out of business at the hands of more efficient competitors. In the long run the profit motive strengthens good businesses and weakens bad businesses.

If government operates without a profit motive (as the President implies is a superior route for purposes of saving money) it operates in an information vacuum, like a ship adrift beneath a cloudy sky with no stars to guide it. It is not possible to know if one is adding or degrading value if they never ask “what is this worth?” A prime example: baking apple pies adds value, but burning apple pies degrades value. Both involve the same use of resources (apples, labor, oven) however one process is wasteful while the other beneficial. There is no non-arbitrary method to determine which process adds value or degrades value and by how much. The only way to know is to offer each on the market and see which one more people are willing to give more in exchange for. To those that might say healthcare is different, then I ask you this: if the consumer does not directly bear the cost of the healthcare they consume, then on what basis can they draw a line and say “this is too much to spend?” Is there no amount that is too much? There is only one tool government has to maintain product access when it forces prices for scarce goods below their market rate: rationing. Rationing through waiting lists (a common practice in the single-payer no profit systems) gives the false illusion of lower nominal costs by simply ignoring the costs in terms of quality of life for those suffering while they wait or the cost of lives cut short. It may seem like voodoo to President Obama, but the desire for profit is a powerful motivator to increase efficiency and thus lower costs.

End the TSA

“You can’t professionalize unless you federalize” said Senator Tom Daschle after the 9/11 attacks regarding the apparent need for the federal government to assume the responsibility for all airport security. It sounded somewhat plausible at the time. After all, clearly the private system must have failed by allowing the hijackers through? Actually, no. The knives used were not in any way restricted under the government rules in place at the time. Three of the hijackers were permitted entry to the US by the federal government even though they had expired visas. Yet these failures in both governmental policy and procedure were simply ignored as those in power assured themselves that NOW we would learn from our mistakes. Until the shoe bomber. Ok, now we’ve really learned – check everyone’s shoes too. Until the underwear bomber. Ok, ok, now we’ve really got it this time, we swear – check for liquids above some arbitrary number we pulled out of thin air. Some might argue that despite its flaws the TSA must be effective, as we’ve had no more hijackings since 9/11. True, but under the prior private system there had not been a single hijacking incident on a commercial passenger flight originating from a US airport since 1983 (and that was merely a diversion, no lives were lost). For some perspective consider that in the 1970’s we had 13 hijacking in US airspace. Thirteen! And yet no one saw the need to federalize then. However after nearly two highjack-free decades it was decided that the only way to prevent another 9/11 style attack is to put in charge of security the same people that can’t even manage to efficiently run the post office or Amtrak: the US federal government. The TSA has increased staff over 400% since 2001 (costing taxpayers $56 billion) while flights have only increased 12% – and yet security related delays are commonplace. That is classic text-book government inefficiency at work.

The real problem with the TSA, however, is not the bloated inefficiency or free mammography’s but rather their complete lack of accountability to the airlines or the passenger. When a terrorist does eventually manage to navigate the well-publicized security maze, who will be held accountable? No one. The government is immune from any sort of prosecutorial culpability. Rather than being the catalyst to ending the TSA, such a failure will only be the rallying cry for even more money and manpower. Funny, failure in the private sphere results in bankruptcy, but in the government sphere it only enhances the failing entity. In a private system there is accountability. Airlines have a self-interest in not seeing their planes destroyed and their customers killed – it’s kind of bad for business. They have insurance for such events. Their insurer has a self-interest in not paying claims, therefore it requires the airline to screen passengers. The airline in turn hires an outside firm to handle screening. That outside company would bear liability for their failures therefore they would have insurance. Both insurers would closely monitor and regulate the screening company to ensure they did an effective job because those insurers would not want to pay out claims.

In a private system of interlocking companies and insurers the common goal of not losing money is accomplished most effectively by those who in turn are most effective at preventing property damage and loss of life. Those ineffective at it are quickly driven out of business (assuming no government bailouts). It is accountability, not government, which fosters professionalism.