Category Archives: Unintended consequences

Faith Healing

The current outrage-du-jour over the skyrocketing price of EpiPens is a perfect example of the effectiveness of a societal indoctrination that leaves us blind to the parasitic ills wrought by the state. The credulous media reports with much indignation and finger wagging over yet another example of an evil profiteering corporation charging outrageous sums for a life-sustaining drug. Clearly this fits with the media’s preconceived narrative that capitalism is bad and we need government to right such wrongs. Case closed. No need to scratch the surface and investigate the cause and effect of this phenomenon. Even those media outlets that do ask the right question and get the right answer are still somehow blind to the necessary solution. They recognize that prices are high because of a lack of competition (a result of patents), third party payment distortions, and cronyist-driven increased demand (fueled by FDA mandates). Even the likes of the Journal of the American Medical Association have admitted as much in a recent article.

“The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents. “

But the universal answer to solve these woes? More of the same: state intervention. If we can’t even imagine a world without state-driven influences in the market then there is only one option that remains – more state intervention. The state is entirely responsible for the current quagmire that is our health care system, but hey, maybe more regulations can fix the problem the first, second, and third set of regulations caused. As they say, if all you have is a hammer, then every problem looks like a nail.

There is no quick fix. The foundation is built upon the sand of wishes and emotion rather than the stone of the unwavering principle of liberty. To solve the problems in the health care market we must dismantle the framework of rules, laws, and regulations that can do nothing but produce this distorted market.

Step 1: Eliminate the patent system entirely. Without patents competitors can instantly respond to prices that get out of control. Novel inventions have a natural period of protection because of secrecy and first-to-market advantages. The more obvious the invention, the more easily it could be copied. Praising the patent system for rewarding inventors with monopoly pricing while simultaneously pining for the low price of generics is the height of cognitive dissonance.

Step 2: End the FDA’s monopoly privilege of being the ONLY agency allowed to review the safety and efficacy of drugs. If the FDA is going to take years to approve a drug or device (resulting in countless needless deaths and higher costs) then perhaps it is time to let competitors help them out.

Step 3: The FDA and its competitors should be financially responsible for their mistakes just like any other company. Presently the FDA bears zero responsibility if they approve a flawed drug. If there existed in any other sector of the economy such a lack of competition and accountability we would be outraged. Yet somehow this state of affairs exists with the FDA and no one bats an eye. Most curious.

It’s almost like society has been brainwashed into the credulous narrative that those in government are not mere mortals but rather angels who are immune to normal human foibles. This blind faith in the supremacy and righteousness of the state has closed our eyes to the truth no less than medieval faith in the Church blinded men to the truth of heliocentrism. Time to question that faith. Our very lives depend on it.

Hooked on FERPA

There is no guarantee in government more assured than a bill doing the exact opposite of what its name implies. The “Affordable” Care Act – need I say more? An early vintage of this phenomenon is the Family Educational Rights and Privacy Act, otherwise known as FERPA amongst college students and their parents. This law, enacted over 40 years ago, purports to protect the privacy of a student’s education records. But, rather than protecting privacy it simply affirms what was already true: that parents, or whoever is paying the bill, could see the results of the product they are paying for, namely any and all records related to their student. Any educational institution denying such access wouldn’t last long as no one would go there. It’s like passing an act guaranteeing the right to eat a meal you paid for. Legislative accomplishment is often measured in answering questions no one was asking.

But rather than protecting privacy, FERPA seeks to undermine it by (a) taking away the rights of the person paying for the education by virtue of the student’s age and (b) carving out a host of exceptions to that privacy for a number of state actors and various “officials” that the student or the parent may very well wish to restrict access to. But they no longer have that right. They had to give it up in order to retain that which they already had.

As both my wife and I attended a “private” college we had no prior experience with FERPA. During the orientation day for the public university where our eldest son is attending we and (based on the laughter in the room) many other parents first learned of the head popping idiocy of this “law.” The school took great pains to underscore the reality that unless our child gave us specific written consent to access their “educational records” we would not even be permitted to pay their housing and tuition bill because disclosure of the amounts owed was an illegal sharing of a student’s educational records. Brilliant. So time to crank up the paperwork machine as 99% of parents “encourage” their student to fill out the permission paperwork just so they can pay their bill. I guess it never occurred to our wise overlords that perhaps it might be more efficient to make the default option the one that the vast majority requires.

I say we had no prior experience with this act because private colleges typically do not receive funding from the Department of Education. However most public universities do. So in that sense FERPA is “voluntary” – all the school has to do is opt out of such funding. But that’s about as likely as a shopaholic cutting up their credit cards. These schools are hooked on this federal money and will do anything the Feds “ask.” If the prospect is losing millions in DOE funding or making students and parents jump through absurd hoops or be grossly inconvenienced, they’ll choose the latter every time. If you make a deal with the Devil, then you play by his rules.

Under the Hood

One of the apparently more innovative techniques automakers have applied to saving fuel is a concept borrowed from the electric or hybrid vehicle: automatic start/stop. The concept is fairly simple, turn off the engine when the car is stopped (i.e. at a stop sign or traffic light) and instantly turn the engine back on when the driver initiates their intent to commence motion (releasing foot from the break or depressing the clutch). Depending on the traffic patterns one encounters, fuel savings can be as low as a mere 0.5% all the way up to 10%. Truly this would seem to be getting something for nothing!

But as with any government mandated arbitrary standard there are unintended costs and consequences.  For example, prior efficiency decrees have compelled automakers to make their cars lighter – but lowering mass makes a car less crash worthy. To compensate as much as possible it became necessary to beef up the A, B, and C pillars (the front, middle and rear attachment points of the lower portion of the car to the roof) so passengers aren’t squashed in a rollover. That is, these pillars are now much wider and thus much more readily obscure objects behind them at a distance. Don’t believe me? Hold out your thumb at arms length and place it in front of a car 50 feet away; now unfurl all 5 fingers and block it with your hand. Completely disappeared now hasn’t it? Those of us who drove cars from the ‘80s or earlier are well aware of this slow change. Unfortunately anyone younger just assumes it’s totally normal to have a 6-8 inch A pillar blocking one’s view of oncoming traffic as they try to merge. Such actively growing blind spots have ironically led to more accidents, injuries, associated health care costs, repair costs, higher insurance rates and in some cases even death. But hey, what is human life worth when weighed against the “environment”?

In other words, there are costs associated with everything. If it were up to the individual to decide for him or herself how much more safety risk they are willing take relative to increased fuel economy that would be one thing. However it is quite a different story when the choice is taken away and there is only one option allowed for all. That is what government is: the removal of choice. Bureaucrats decide on the “best” route and make all other options illegal. The same removal of choice is now happening with these automatic start/stop systems. Starting with model year 2016 they are becoming more and more prevalent. Why is this? Because of government fuel economy standards like CAFE (or it’s European equivalent) mandate FLEET wide averages. Therefore the ability by the automaker to extract even a few small percent increase in fuel efficiency multiplied by a fleet of thousands or millions of vehicles helps them meet those standards and avoid possibly millions of dollars in fines. The problem, however, is that the cost of meeting those standards is shifted to the consumer. Such systems require larger, beefier starters and batteries – which cost more. Due to more frequent use these components will wear out sooner – which costs more. Ironically the greater the fuel savings, the more the engine will be damaged. Engines are most vulnerable at start up due to lack of oil. The longer it sits off the more the oil drains back down. Obviously an engine that has to be replaced or rebuilt on a more frequent basis is going to be a significant cost to the owner.

In other words, there is no free lunch. Even something seen (fuel savings) has an unseen cost (wear and tear and repairs). Fortunately, for now, we are permitted the ability to override and turn these systems off (although it must be done manually with every cold engine start). But there is no doubt that in order to eke out another 0.1% of CAFÉ fuel savings, automakers will soon remove the option to disable this feature. Then again perhaps it doesn’t really matter as soon enough the government will outlaw human drivers and we’ll all be passengers in self-driving cars within 30 years – cars that some are already discussing whether or not the automated “brain” behind it should sacrifice its passengers if it determines more deaths would result by protecting its occupants. Unintended costs indeed.

Zombieland

There is a type of parasite known as “zombie” parasites. They alter the brain chemistry of their host and cause them to engage in behavior that they would normally never undertake. Naturally these behaviors benefit the parasite at the expense of the host. For example the Nematomorph hairworm targets grasshoppers and will compel them to dive directly into bodies of water – an apparent suicide. To someone unaware of the parasitical influence this behavior would be truly baffling. Humankind will also engage in similarly baffling behavior due to the influence of its parasite: the state. Likewise, to those unaware of the state’s infection of society, human behavior can be sometimes baffling. For example, just this week there was much moral outrage over the revelation that a Martin Shkreli (owner of Turing Pharmaceuticals) purchased the rights to manufacturer the drug pyrimethamine (brand name Daraprim) and promptly raised the price from $13.50 to $750 per pill. How can this be?! This is horrible; obviously this is an example of “market failure” that must be remedied by state intervention to ensure such greedy bastards can’t get away with such imprudent behavior. Oh, there is greed in play here, but it is not entirely of Shkreli’s doing, he has a good friend helping him out: the state. Acting like a zombie parasite injecting poison into its victim’s brain, the state distorts natural market incentives to such a degree that we are left with nothing but head-scratching outcomes such as this.

The first clue that the state is involved in this mess was the phrase “bought the rights” peppered throughout every new report on this matter. How does one buy the right to make something? Any reasonably competent organic chemist could look at the structure of that drug and figure out how to make it.* What is preventing someone from doing that and eschewing the need to buy the “rights” to make it? The state. Acting under the auspices of the patent office and the FDA the state creates an artificial monopoly barrier for the production of goods as well as their importation into this country. In essence the state acts as the hired goons of Company A that holds a patent or a licenses to produce Drug B. If anyone else tries to produce or import Drug B, those hired goons will take them down. Don’t believe me? Here are the facts: The FDA bans the importation of this drug (for example, a company in India currently makes it for 10¢ a pill) – so Shkreli is safe from that sort of competition. And because he has bought the “right” to make it in the US, that means no one else can make it unless they go through an onerous and expensive FDA approval process. And he didn’t just buy the rights for a song, no, he spent $55 million to acquire those “rights.” So from a strictly economic standpoint the price increase makes sense. The value of a capital acquisition is driven by the price its products can command on the market. Clearly under a monopoly situation (only made possible by the state) it can command a very high price indeed. Absent such monopoly rights, the recipe for the production of that drug would have had some value but certainly no where near $55 million worth.

When the pundits and critics blame the “free” market for this sort of ridiculous outcome I am left to ponder what an odd definition they must have for the word “free”. Does “free” mean to be influenced and controlled by an implicitly violent cartel of bureaucrats that restricts, regulates, licenses, subsidizes, and outlaws in favor of the few at the expense of the many? If so, then I’d like less freedom please. Like the unfortunate grasshopper most of society is willfully ignorant of the parasitical influence in our midst and so, like the grasshopper, we blindly leap into the abyss.

* please see this page for a discussion of the inevitable “but without IP no one will innovate” objection

Aborting Jobs

There is a problem with education in this country. It isn’t the usual suspects of cost, class size, teacher workloads, mediocre test scores, or Common Core. No, the problem goes much deeper and is reflective of a societal change in attitude concerning the purpose of education: learning. We have allowed ourselves to misapprehend the structure of the thing (education) for the thing itself (learning). When we think “education” we think nice and tidy classes, desks, lectures, tests – a regimen. We don’t think unplanned conversations, spontaneous readings, curiosity driven experimentation. Learning is the random walk of the ant who never knows what he’ll discover. Education is the regimented march of the military battalion. We have become so accustomed to the structure of the former that we fear anything that differs (homeschooling, un-schooling, etc). If we want worker bee drones to work in our factories then perhaps regimented education is the best approach. But if we want free minds to push the boundaries of human knowledge then it is learning, and not education, that we should encourage.

Learning flourishes where the individual is not prohibited from following their passion and curiosity. Today an ever-growing plethora of rules and regulations smother the spark of curiosity that would otherwise ignite a passion for learning. This process has been slowly accelerating over the past few decades. I’ve seen this change in my own lifetime. My science fair project in high school utilized (expired) human blood as part of the experimental procedure. Today the hysteria over “blood born pathogens” would make such a project either impossible or a regulatory nightmare. Fear is what drives all these ridiculous restrictions. In recent days fear has once again struck, this time to new heights of stupidity. The recent arrest of Ahmed Mohamed at his school for making a homemade digital clock (that some mistook for a Hollywood-esque bomb) is symptomatic of this anti-learning pro-education-only-as-we-define-it mentality. After it became abundantly clear the device in question was not a “bomb” the entire matter should have been dropped perhaps only to be reflected upon years later as a humorous anecdote. But that is not what happened. Despite it being a mere clock, Ahmed was still handcuffed, arrested, and hauled off to jail. Although the charges were eventually dropped the school has still suspended him, for what it is unclear. Some have claimed this is evidence of an anti-Muslim attitude in this country, unfortunately I think it is indicative of something far worse: anti-intellectualism. Those that do things we don’t understand are scary and must be stopped. Time to start passing laws to restrict access to electronic parts – that will keep us safe.

This fear driven anti-intellectualism has already infected the natural sciences at the K-12 level. Some wonder why science is on the decline in this country, but when it comes to the venerable science fair a mountain of regulations scares off all but the most persistent or well-connected students interested in chemistry or biology. Both of my sons have gone through the science fair process and the message was loud and clear: unless you enjoy filling out forms and getting multiple approvals, choose a topic in an area other than biology or chemistry. Science in this country is dying a slow death of attrition. With each new generation there is yet another layer of regulation winnowing away those that pursue that path until one day I suspect one will need a law degree before they can even consider a science career.

I will offer up one more personal example. When my father was a teenager he actually made nitroglycerin. Why? He was fascinated by chemistry and wanted to see if he could do it (he discreetly detonated it in his backyard when done, much to the chagrin of my grandmother!) My point is that today if he could even manage to get his hands on the starting materials he’d be branded a domestic terrorist and thrown in jail. But because he was fortunate enough to live in a time when society was not so fearful and uptight, he took that passion for chemistry and turned it into a career that eventually gave rise to one of the few remaining US manufacturers with worldwide sales. People ask “where are all the jobs going?” – they aren’t going anywhere, they are being aborted before they ever even had a chance. Every rule and regulation or absurd response smothers a student’s curiosity and quenches the possibility of future companies and jobs. As with cancer, it is the damage we do not see that is far more insidious.

Boulders in the Stream

The surety of the law of unintended consequences proceeding from state legislation is as steadfast as the law of gravity. Emblematic of this axiom is the massive drop  off (down 40-60%) in book sales in Israel this past year after the passage of a law intended to bolster book sales, protect small book sellers from “big chains” and of course guarantee a “living wage” to authors.  To those ignorant of basic economics and human behavior the terms of this law might appear reasonable. It guaranteed authors 8% of the sales of the first 6,000 books sold and 10% of all books thereafter while simultaneously criminalizing the discounting of books during their first 18 months of sales. Supposedly this would help the underdogs: small booksellers and new authors. Ironically it does the exact opposite. It is the unknown author that has the greatest incentive to discount heavily in order to entice someone unfamiliar with their work. It is small book sellers that are most likely to haggle or “make a deal” when someone makes a substantial purchase.

Sadly Israel is not alone in this sort of book market meddling. Quite a number of other countries (mainly in Europe) have what are known as “fixed book price agreements” type laws. These are “resale price maintenance agreements”, commonly used in the US on a voluntary basis between vendor and customer, codified into law and backed by the state. In the US if company A wants Vendors B-Z to sell a widget for $1 and Vendor D sells it for less, then the solution is simple: company A just stops selling to vendor D. But in countries where such agreements are enforced by the state, vendor D can be fined or jailed. Let that sink in: jail time for selling goods “too low.” What monsters.

The usual defense of these laws is the same tired protectionist propaganda deployed whenever an entrenched business model is threatened by a new competitor: we need the state to protect us from “unfair” competition. “Unfair” being code for “somehow these people figured out how to sell the product I’m selling for a lot less and I can’t figure out what they are doing or I’m unwilling to change my business model to compete”. For example France has a “Lang Law” which permits book publishers to set the price of the book and then forbid anyone from selling it for less than 95% off the cover price. Fast forward to 2014 and a tweak was added to this law that was targeted at Amazon.com who was both discounting their books 5% and offering free shipping. Apparently selling books into the French market for the exact same price as French bookstores is considered “unfair” if the seller is a ‘foreign’ company.

So what we have here is a real world economics experiment, akin to raising the minimum wage to $50/hour. Israel has, in effect, dialed in the $50 option on book price fixing laws. While many countries have such economic interventionist type protectionism only Israel elevated theirs to stratospherically inane levels. From this we saw quick and clear signs of damage (just as we would if the minimum wage were raised to $50/hour). However, just as with the minimum wage laws, there still exist damaging effects in those countries with more “moderate” protectionist schemes such as France. It is perhaps apropos that a French economist (Bastiat, 19th century) speaks of the “unseen” damage wrought by market interventions.

If the demand for books is inelastic then to the extent book sellers earn more, the sellers of other goods earn less, while on net the public receives fewer goods for money spent. If the demand is elastic then book sellers earn less and other vendors earn more but the public still receives fewer goods. Indeed, the Israeli example demonstrated the elasticity of book demand. After their law went into affect, book sales went down and toy sales went up (as parents passed over high priced books for more affordable toys).

The fatal conceit of the politician is the belief that they can control nature (man) by dictate: people want they want and laws are like boulders in a stream  – it may slow, but it will not stop the flow of water.

The Unseen (Septic)

What does a septic tank have to teach us about economics? This rather mundane bit of technology is at the center of depressingly familiar story figuratively brewing in my backyard. It’s not my septic tank that is the issue, but rather one literally just down the street from me in the small town of Bishop, GA. Bishop residents Blyth and Diana Biggs purchased the “Fambrough House” on the main thoroughfare (Hwy 441) with the intention of residing there and turning it into the first ever restaurant in Bishop. They were on target to open in August 2014 when they hit a snag, well, more of a massive pothole, on the road of entrepreneurship. It seems the Oconee County Health Department is going to require them to rip out their current septic system and install a commercial grade unit to the tune of a mere $75,000. Why? Well, ‘cause regulations say so. And we all know that regulations are infallible because the mantra “one size fits all” has never ever resulted in unintended consequences. Suffice it to say, when I saw their post about this last year on Facebook, all I had to read was “We’ve run into a bit of a problem…” and I instantly knew what the source of their problem was – the state. Nothing will throw cold water faster on the dreams of an entrepreneur than a byzantine labyrinth of irrational regulations.

So, to return to the original question, what does a septic tank teach us about economics? In this case it reminds us of the central lesson of Frédéric Bastiat’s Broken Window Fallacy – unseen effects must also be brought to account when analyzing economic outcomes. In this case, a restaurant that never opens would be an “unseen” effect of a gross misapplication of this particular regulation.

Regulations are an economic good. They provide a benefit, but like all economic goods they have a cost. However, when economic goods are forcibly imposed their cost no longer bears any relationship to the true demand (and hence price) for them. For example, some people like aquariums, but not everyone does. If the government made a law that required all households to have an aquarium, this would naturally shift the demand pattern from partial to universal. From this universal demand we would then witness an elevated price (Econ 101: as demand increases so does price). In the same way an artificially increased demand for regulation drives up the costs for those regulations. The price of these imposed regulations operates in a vacuum, uninfluenced by any other considerations that might compel one to balance their costs with other equally important considerations. For example, if the owners were not compelled by the threat of violence to keep their doors shut they would then be able to freely weigh the costs of opening with a potentially undersized septic vs. the costs of a delayed opening. All things being equal, absent state imposition of these regulations, we would find that demand, and hence price, for septic installation would be lower. This leads to the rather ironic outcome that in the absence of state mandated regulations many places like the Bishop House would actually be more likely to make these such changes owing to their lower costs).

But, if the Bishop House is unable to open due to this artificially imposed barrier, then we will all be the poorer for it, for what is wealth if not the betterment of our lives by the voluntary actions of fellow human beings? Every person barred from adding his own unique contribution to society by artificial barriers (the economic interventionism of regulations, licensing and employment law) erected by the state makes all of society that much poorer.

P.S. If you would like to learn more about The Bishop House or help them please see http://www.gofundme.com/fo1klc

Student Loan Bubble & Moral Hazard

The insurance industry is unique in that its product tends to incentivize the very behavior people seek to protect themselves from. This is called “moral hazard.” For example, all things being equal, someone with collision insurance will tend to drive more recklessly than someone with no coverage. Someone with flood insurance will deliberately build their home in a flood zone. In other words, people do things they would never otherwise do absent the assumption of protection.

There are ways to tame moral hazard. Large first-dollar deductibles ensure that the insured will feel some pain with a loss – negative feedback affects one’s behavior and results in more cautious behavior. Likewise, some events are not insured if the moral hazard cannot be mitigated. For example, homeowner’s policies do not cover loss from damage attributable to failure to maintain the upkeep of one’s home. Although moral hazard is a foundational flaw in human behavior, the market (that is, people) has figured out how to tame it.

The state is an insurer (it purports to protect its citizens). It is however the worst kind of insurer because it actively encourages moral hazard. From the crony-capitalism of “too big too fail”, loan guarantees for favored industries, to student loan bailouts, the state has a sordid record of incentivizing moral hazard by encouraging behavior its minions witlessly seek to avoid. For example, the student loan program was implemented to encourage more tuition lending by banks so that more people would go to college. This created the moral hazard of banks lending to people they otherwise would never lend to, thereby vastly increasing the demand for higher education. This massive explosion in demand (quite predictably) encouraged schools to ratchet tuition upwards. Why? Supply and demand. Loan guarantees ensured ever increasing demand that was insensitive to price increases. In a normal market, increasing tuition would have decreased the pool of available funds for such lending or raised the cost of such lending, but in either case these would have both resulted in inhibition of tuition increases and a subsequent restoration of equilibrium between supply and demand. But in a market suffering state intervention, equilibrium can never be achieved, as rising prices present no inhibitory effect on the level of demand. This resulted in tuition increasing over the last 40 years at 3-times the rate of inflation.

This willful blindness of moral hazard by Obama and his ilk is not merely sad, it is downright destructive. His recent actions only serve to deepen the crisis, not ameliorate it. By executive order (royal decree) he recently extended a cap on student loan payments to cover loans made before 2007. This cap allows borrowers to limit their loan repayments to 10% of their income for 20 years and after that the loan is “forgiven” – that is, it simply vanishes like a fart into the wind, courtesy of the US taxpayer.

This executive order is symptomatic of all state interventions: heaping fixes upon fixes to fix previous fixes. To encourage lenders to make student loans to anyone with a pulse, the state removed bankruptcy protection for student loans in 1976 and then promised the lenders to act as their enforcement agent. Step 1: All risk shifts from lender to borrower. So with Uncle Sam acting as Guido the Enforcer the floodgate of loans opened. Then loan repayment became problematic for a growing number of students (due to a dismal job market resulting from state intervention in the economy) and this inability to discharge loan debt likewise became a political liability for our wise overlords. The quick fix? Step 2: Shift all risk from the borrower to the taxpayer. For now, concentrated benefits (to students) and diffuse costs (from taxpayer) ensure little mass objection. But soon enough these loan write-offs will be priced back into tuition rates. The only solution to this quagmire is the most politically painful one: end all loan guarantees, permit bankruptcy protection, and allow lenders, not the state, to determine who is a worthy credit risk and who is not.

Health of the State

The War on Drugs is perhaps the most unjust “war” ever waged. It is not, as in conventional warfare, a conflict between states, but rather a conflict of a parasite (the state) against its host (the people). Just as cancer grows by attacking its host, so too does state power expand as it attacks its citizens in the name of saving them. The tumor that is the drug war is but one variant of the cancer that is state power.

It has been said that war is the health of the state (Randolph Bourne). If that is so, then traditional wars (against people) are far too fleeting as a means to bolster state power. The end comes relatively soon as both sides are worn down through attrition. In order to have unending war the state must fight an enemy without form, substance, or soul. This is achieved by waging war against thoughts, emotions, and things; for these things can never be conquered, and thus is ensured the eternal health of the state.

The colorful imagery of a “War on Drugs” suggests perhaps we are battling against anthropomorphized weed and poppies as they brutally attempt to intoxicate us by crashing through our doors and up our noses. Yes, I’m being facetious – now I shall be sarcastic: the real criminals in this war are those who possess these vilified substances.

The police will almost never stop a murder, rape or robbery in progress, but gosh darn it they sure as heck can find a crime in progress if the crime is mere possession. What is the easiest way to capture a criminal? Declare random object X illegal and then find people who happen to possess X. Such prohibitionary lawmaking has led to a perversion of policing incentives. The police now have two choices: Demonstrate effectiveness in catching real criminals through laborious detective work that rarely pays off, or, invent new and interesting pretexts to see if dear citizen is in possession of a verboten substances. Which one is more likely to yield results? Exactly. And so focus shifts to the quick and easy result at the expense of the more difficult task of meting out authentic justice.

This truth has engendered the most sinister aspect of the drug war: the no-knock raid. If the police knock then the suspect might stealthily comply with the law and cause himself to no longer possess the banned material. So on the premise that it is better that a thousand men die than one guilty drug user go free, we have seen the birth of the no-knock raid. Yes, sometimes they’ll get the wrong house, sometimes they’ll accidentally shoot totally innocent people (or almost routinely shoot innocent dogs), but it’s all worth it if it prevents a drug possessor from sometimes getting away. No-knock raids are a breeding ground for all manner of confusion and mistakes. To wit, just last week in Cornelia, Georgia a no-knock raid resulted in a 2 year old suffering massive burns over his face and body when a “distraction device” (aka flash grenade) was tossed into his crib, inches from this face, by the invading SWAT team. Naturally this was a mistake; they never intended that to happen. Procedurally they did nothing wrong – everything was by the book. That fact alone should scare the hell out anyone. Who will be next? Maybe someone that matters to you.

Even if we were granted a wish that all recreational drugs were forever vanquished from this planet and the only price would be the life of one innocent, that price would be far too high. The irony is that those in charge of this wretched war are killing people who would never have used drugs in order to possibly save those who actively seek to use them. But what would you expect from the state? States have always sought to butcher civilians in order to persuade others to change their behavior. Sound familiar? But the ends justify the means, so that makes everything ok.

Who is the customer?

Outsourcing, public-private partnership – this is the Trojan horse of the political entrepreneur that will fool the political class every time into believing salvation from inefficient government lies within. For those familiar with how markets are actually supposed to function, the irony is clear: only harm shall spring forth.

One of the more insidious “partnerships” is that of the outsourced private prison and probation services. The Georgia legislature has recently passed HB 837 which has expanded the authority of private probation companies while simultaneously decreasing public oversight of their operations. In Georgia, if one is convicted of a misdemeanor  (anything from shoplifting to traffic citations) and cannot pay the assessed fine in full, then one is turned over to a private probation company (basically a glorified collection agency) which then collects the fine, along with their monthly fee of course. Under the new law, if fines are unpaid then those convicted may be thrown in jail or electronically monitored all the while accruing greater fines. The original probation period may be “tolled” or extended indefinitely until the fine is paid in full. Inability to pay will land one in prison. Essentially Georgia has reestablished debtor prisons. Herein lies a perverse incentive; inability to pay translates into larger fines. The public courts and the private companies then share in this growing revenue stream. Ironically they make more money off of those with the least ability to pay.

“But criminals must make restitution, surely you’re not suggesting that just because someone is “poor” they should not be compelled to answer for their crime?” No, I’m not suggesting that at all (although I do seriously question whether traffic violations rise to the level of “crime”). To understand why outsourcing leads to distorted incentives, ask yourself, who is the customer? Is it the state, or is it the lawbreaker? In fact, it is the lawbreaker. The state intercedes and poses as the customer, which diverts the stream of responsibility. The probation company is not answerable to the real customer, so they have no incentive to serve them.

Now you may be scratching your head trying to figure out why the lawbreaker should be the customer. Allow me to explain. Assuming that an actual rights violation has occurred (e.g. petty theft), then there is a victim and a perpetrator. The conflict is between those two parties and no one else. It can then be resolved by use of an arbitration (court) proceeding to uncover fault. Assuming the thief is at fault, he has an obligation to make all parties whole (the entity that apprehended him, the court that adjudicated the facts, and of course the victim). To simplify things we’ll assume the insurance carrier of the victim has made all parties whole. Now the insurance carrier has a rightful claim against the thief. It seeks to be made whole. Stated differently, the thief has a debt obligation to that insurance carrier. If the thief cannot pay immediately, then those two parties can come to a mutual agreement as to how that debt will be discharged. They are not constrained by any “laws” – they may agree to whatever they wish. There are many options, but one option could be a voluntary arrangement with a private “prison” (if you can call it that) that would discharge the debt to the insurance carrier in exchange for a certain amount of labor. The thief would have many of these private prisons to choose from and he is under no obligation to choose this path at all – therefore such private prisons would compete for such a labor source, enticing their customers with favorable terms. Indeed, conditions would most assuredly be far more favorable than in any public or private prison system today. After all, if they don’t please their customers (the voluntary “prisoners”) then they won’t be in business for long.

Public-private partnerships will always be corrupted by perverse incentives if the company providing the service is not directly accountable to the customer.