Category Archives: Big government is the problem

Barking at Ethics

Georgia House Bill 142 (introduced on January 29, 2013) attempts to reform ethic laws in this state. Sadly, legislators have, in their zeal to cast a wider ethical net, broadened the definition of lobbyist so wide that it now encompasses basically everyone except elected officials themselves (just wait, that will come next!). Yes, this includes even you and me. The particularly onerous portions of this bill, the reporting requirements, do not apply to individual citizens expressing “personal views” UNLESS they are speaking to someone elected statewide who was not elected within their district. In other words, as the law is written (as of today February 10, 2013) if you wish to speak to the Governor, Secretary of State, Public Service Commissioner, etc. and discuss anything other than the weather or sports you technically would need to register with the state of Georgia as a lobbyist and pay a $300 annual fee for the privilege thereof.

This provision clearly violates the 1st Amendment to the US Constitution (in conjunction with the supremacy clause) or the 14th Amendment (take your pick) insofar as the 1st Amendment guarantees “the right of the people… to petition the Government for a redress of grievances.” That key phrase “right of the people to petition” – defines precisely what “lobbying” is. Therefore any laws that in any way hinder the ability of anyone to petition (lobby) are violations of this core Constitutional right. It is immaterial toward the exercise of this right whether I (or a group of people) personally petition the government or if I hire someone to act on my (or our) behalf.

The idea that society requires the intervening hand of a strong, beneficent governing body in order to keep us all in line relies upon the argument that, in general, people are bad and need to be governed. This faith in a paternalistic government rests squarely on the assumption that elected officials must necessarily be “better” than the rest of us, for if they are not, what is the point in being ruled by those no better than we? And if they are indeed not any better than we (as evidenced by the apparent need for various ethics and transparency laws), this then begs the question: if the problem with society is imperfect humans, why put imperfect humans in charge? We make the problem worse by conferring special power privileges to those in charge that invite a level of abuse that would otherwise be impossible absent such special privilege.

The fact that we find it necessary to pass ethics laws demonstrates the fundamental flaw of monopoly government. Abuse of power. Ethics laws are mere band-aids that do not address the underlying incentive problem. It is in man’s nature to abuse power just as surely as it is in a dog’s nature to bark. You can muzzle the dog, but he still barks, albeit softly. Ethics laws simply shift unethical behavior underground. I suppose if sweeping dirt under the rug constitutes “cleaning” then ethics laws “solve” ethical issues equally well.

I, like so many others, am justifiably upset with the power and sway some lobbyists seem to hold over many in government. But I’m not upset with the lobbyists; rather I’m upset with a system that encourages rent seeking by a small but vocal minority (rent seeking being the activity of manipulating the power of government so as to benefit oneself at the expense of others). The only way to solve “ethics” problems in government is to remove the incentives to “buy” power. Eliminate the monopoly power government has over the activities being lobbied. I don’t lobby McDonalds to build a restaurant near me, rather, I eat at Burger King. If McDonald’s wants my dollar, they have to earn it. So too should it be with government.

National ID = National Disgrace

The Washington Post’s editorial board recently opined that a national ID card would be the most effective method to thwart illegal immigration. Their idea was bolstered by the fact that both President Obama and a bipartisan group of eight senators recently put forward similar ideas (“fraud-resistant, tamper resistant Social Security card”). Superficially this makes sense. If the problem is uninvited guests crashing your party then the most logical solution would be to demand your guests show their invitation at the door. The Post then dismisses any potential concerns about civil liberties as nothing more than empty rhetoric by citing the fact that 35% of Americans already have a passport.

The Post misses the point in a grandly ironic fashion by citing the innocuousness of the tool the state uses to violate our civil liberties whilst simultaneously ignoring the actual violation. Move along, nothing to see here. The truth is that ID’s don’t harm civil liberties; rather it’s those that require them that do. Government says to step from point A to point B you must show this card. Government says to get a job you must show this card. Government says to start a business you must show this card. There is no end to what new actions the government could conceivably try to control by making one’s right to engage in an action contingent on the possession of “proper” ID. Do you want to go shopping? Buy gas? Go to a movie? Buy a car? Open a bank account? Go to the library? Go to the park? Please – show me your papers. Yes, ID is already required for many of these things. But that is the point. It should not be. Think about it. What are you doing when you show your ID? You – a grown adult – are asking for PERMISSION to engage in some action. It is one thing to ask for permission to engage in something that is not a natural right (i.e. enter a private residence or business), it is quite another to ask permission from the State to engage in an activity that is innocuous to others (traversing a border, starting a business, getting a job, etc.). We are not children, and the State is not our parent. I stopped asking for permission when I turned 18. How about you?

Sadly the real immigration “problem” has never been addressed. The problem is immigration prohibition. In fact the prohibition of anything innocuous to third parties always leads to more harm than ever could result from the prohibited activity itself (violence being the primary result). Drug prohibition is at least plausible albeit still as harmful as alcohol prohibition. But immigration? How can immigration harm anyone? By “stealing” that lucrative low wage job no American wants? Some say immigrants drive wages down. Although nominal wages for low skilled labor may decline, real wages rise for society because cheaper goods and services mean each dollar buys more. Some say immigrants are mooching off our socialist safety net. Well seeing as how it is not so much as a net as it is a luxuriant feather bed what did you expect? Turn it back into a mere net and that problem will vanish. Both big employers and low skilled workers use government to protect themselves from competition. The former uses regulation and the latter uses immigration. A few benefit at the expense of the many.

The solution to “illegal” immigration is to end the prohibition on immigration. Completely free and open borders. Chaos? The end of America? Hardly. Illegal aliens constitute a mere 2% of the US population. Even if every Mexican (all 110 million) came to live in the US (an absurd notion) “native” Americans would still outnumber them 3 to 1. Since even that outlandish scenario would not “end” America, perhaps we should face what immigration control has always been about. Fear. Fear of the unknown, of new customs, of new languages, of new competition. It is only when we humans give in to fear and allow it to guide our actions do we engage in the most reprehensible and irrational behavior. Since fear guides all immigration policy perhaps it is time to examine the rationality of such policies. If the process of entering or exiting this country is indistinguishable from the process of entering or exiting a jail, then are any of us truly free?

Mo’ Money, Mo’ Problems

It has recently come to my attention (thank you George Warren) that the economist Steve Keen has proposed a solution to our economic woes: the government should give people money to pay off their debts. According to Keen it is the high level of private debt (about three times that of annual US GDP ) that is causing the economy to move so sluggishly. While enormous artificial debt creation did indeed foster the previous boom and our current bust, Keen has erred in both identifying the root cause of this debt explosion as well as an appropriate solution.

It is revealing that Keen does not ask the most pertinent question: he blames the banks for the debt explosion yet he does not address how is it possible banks could collectively lend out five times the amount of money in existence ($50 trillion in private debt vs a $10 trillion monetary base (M2))? He then decries “bad lending” – lending for purely financial market speculation, but again fails to ask why it would be in a lender’s interest to make such “gambling” loans – loans that more often than not would default (hint: moral hazard).  What is the answer to these unasked questions? Government. Government interference in the market (legal tender laws, legalization of fractional reserve lending, a central bank, implied bail outs, etc) resulted in the distorted outcomes Keen identifies. Being apparently unaware that government is the root cause of the problems he cites, he then unwittingly invokes that same entity as our savior: he proposes that “government created money” (through deficits) will solve the problem of too much bank created money (loans). But government is the sole reason banks can (legally) create money out of thin air to begin with! The legality of a central bank and fractional reserve lending makes phony debt possible. In a truly free, hard money economy (where the lending of demand deposits would constitute the actual theft that it is) credit expansion and unproductive loans to gamblers would cease to exist (because loan defaults will not be bailed out.) Only time deposits are eligible to be loaned out, thus naturally regulating the debt load in an economy.

Keen falls into the trap of blaming those capitalizing on the fruits of the government created circus (speculators, brokers) with causing the circus. That’s like blaming the existence of slavery on slave traders; slave traders capitalized on a situation made possible only by governmental enforcement of the legality of slavery. It’s the same old story: government creates an artificial scenario that some other group takes advantage of and then that group is subsequently piously vilified while the root cause is ignored.

As the intricacies of lending and finance are rather opaque I shall attempt to distill what has occurred and what Keen proposes to a simple narrative. Let us imagine three friends, Dave, Bob and Gary. Dave needs $800 to buy a house. Nobody has money to lend to Dave. Gary has a solution. Gary prints money ($1000) and gives it to Bob (because Gary doesn’t want Dave to know he is the source of the money). Bob loans the money ($800) to Dave and Bob keeps $200. Dave has his house built which provides builders with money. When the house is done Dave begins paying Bob back. All the builders are sad because Dave is not paying them anymore. Others are sad because Dave buys fewer goods because he has to repay Bob. When Bob gets money from Dave he gives it to Gary who promptly burns it (to hide what he has done). Because Gary is burning the money it is not being spent and so all the sad people ask Gary to print more money (so they won’t have to lower their prices) and to give it directly to Dave so Dave does not have to pay Bob anymore. So Gary prints more money and gives it to Dave to pay Bob, who then gives it to Gary who burns it. So what is the end result here? Dave got a free house and Bob got $200 for handling the money. Seems like everyone came out ahead here, right? Almost makes counterfeiting seem noble – I wonder why it is illegal? Oh, that’s right, because it is theft. It is theft from those not mentioned in the story. It is theft from every other person who holds and is paid in dollars as their dollars become worth less (because there are now more dollars) or worthless – take your pick!

When people propose “solutions” to our economic woes that involve government bailing out some group know that it is nothing more than calls to legally do what would otherwise land any one of us in jail were we to do so individually. It is theft. To have government take from unfavored groups and give to favored groups is theft. It was wrong to bail out the banks and it is wrong to bail out individuals. The only solution is to remove all authority government has over fiscal and monetary concerns. All unfairness in our current system is attributable to crony-capitalism fostered by big government colluding with big business. Dismantle big government and you’ll dismantle the inequity it fosters.

This Butt’s for You

I saw you PCI 3798. I saw you blithely flick a cigarette butt out your car window whilst I was trailing you in traffic. But you’re not alone. I often see smokers discarding their used cigarettes with the casual lack of concern befitting the monarchs of old. Why do others and I find such littering so disturbing? Is it merely because of the visual damage to our surroundings? No, I think the animus runs beyond mere cosmetic harm. Our outrage toward the litterer is a result of recognizing the arrogance the litterer holds to believe they are so important that it is the job of others to clean up their mess (no, cigarette butts are not biodegradable). But wait – isn’t that what we do when we go to a nice restaurant (expect others to clean up our mess after we’re done eating)? Aren’t we expecting others to provide a service for us whenever we purchase a good or service? But this expectation is not arrogance because we in fact provide something in return by paying for such services. The litterer expects (dare I say feels entitled to the notion) that someone else should clean up after them without giving anything in return. It is this sense of entitlement, this sense of “others should bear the cost of cleaning up my mess” that we object to.

How did we as a society arrive at a framework wherein it can occur to someone to feel they are entitled to others cleaning up after themselves at no cost? What created this framework? Government naturally. Only government can create “public” resources by decree. Public ownership of resources is that paradoxical state wherein a resource is owned by everyone and no one simultaneously. Any public resource carries with it the burden of the “free-rider” problem, which is a subset of the “tragedy of the commons.” The tragedy of the commons refers to the use of “free” public resources in a disproportionate manner that maximizes individual benefit. Overuse occurs because there is no direct cost linked to such usage. Direct costs act as a feedback mechanism to meter usage. “Free” public resources have no such feedback and thus overuse results.

Whether it is roads or healthcare, anything made “public” will be utilized disproportionately by some because the over utilizers are able to acquire the goods at artificially lowered free-ride prices paid for (subsidized) by others. In the case of public road, litterers over utilize the limitless ability to litter because others bear the clean up costs. And which “others” bear this cost? Not the government. The government is a terrible environmental steward. They do not as a matter of policy clean up litter. Public roads often bear much similarity to public bathrooms for this reason. Rather, private citizens and organizations freely choose to sacrifice their time in road beautification efforts. Would there be no littering on private roads? Of course not. However the ability to shift more of the direct cost of littering (through tolls) onto the litterer would tend to decrease the frequency of littering. It is also possible behavior would not change at all, in which case road owners would simply clean up the mess and incorporate the cost of clean up into the tolls. But at least the roads would be clean. That is not the situation today.

We really can’t blame the litterer. He has rationally determined the cost of littering (to him) is $0 due to the warped incentives made possible by government interference in the market. In fact we should praise the litterer! He serves as the ubiquitous example of the result of government interference in society. If we can see that socially undesirable behavior is the result of government, then perhaps it will give us reason to reflect on what other kinds of less obvious damage government is inflicting on society (runaway housing, healthcare and education costs perhaps?).

 

Arbitrary Fairness

With the fiscal cliff looming there has been renewed discussion of “fair share” and how it’s only “fair” to ask the wealthiest Americans to be pay more taxes. Yes, “ask”. I believe that is the same kind of “asking” a mugger engages in when he “asks” for your wallet. I have yet to have revealed to me a definition of “fair share” so perhaps it is time to offer one myself. The income tax system is built on the notion that one’s payment burden should correlate to net income. If your share of society’s aggregate income is 25% then it logically follows under such a system that it is not unfair to demand you pay at least 25% of total taxes. A “progressive” tax system (the one we have today and which is a plank in the Communist Manifesto) demands one pay more than their proportionate revenue stream. Some argue this is “fair” on the grounds that mere ability to pay more is sufficient grounds to take more because on balance society (supposedly) benefits. However there exists no non-arbitrary method that reveals precisely how much more above one’s revenue proportion one’s tax burden should be. How exactly do these wise sages propose to derive a fair ratio between tax burden and income share that results in a perfect balance between societal benefits at the expense of the individual? Is a 2:1 ratio fair, but a 3:1 ratio not fair? If not, why not?

Sadly the mainstream media leaves us (unsurprisingly) with the impression that top taxpayers are paying less than their proportionate share. Nothing could be further from the truth. For 2010 (IRS data) 3% of taxpayers (earning above $200,000/year) had a 27% share of income and a 52% share of all personal income taxes with an average tax rate of 22%. Yes you read that correctly, 3% of taxpayers pay over HALF of all personal income taxes even though they earn only ONE-QUARTER of income. Earners between $75k – $200k (18% of taxpayers) receive and pay about a third in income and taxes with an average tax rate of 11%, so in terms of balancing income and tax burden this group is perhaps the most “fairly” taxed. Those solidly in the middle class ($25k-$75k – 38% of taxpayers) earn 30% of all income and pay only 14% of the tax burden with an average tax rate of 6%. And lastly those in the under $25k (41% of taxpayers) range earn 9% of all income but pay a mere 1% of the tax burden with a 1% average tax rate. Including payroll and corporate taxes would alter the numbers somewhat however the overall analysis remains the same: there is only one segment of taxpayers paying far in excess of their share of national income and for some bizarre reason they as a group are the ones most vilified for not paying enough. I’m not suggesting those in the lower brackets pay more and the top less. What I am suggesting is we cut spending so that everyone can pay less.

Due to the persistent fairly tale that there was a budget surplus during the Clinton years people somehow imagine that if we simply let rates rise back to where they were under Clinton we will magically close the budget gap and have surpluses again. As the Democrats are fond of saying “the math just doesn’t work.” Allowing the top marginal rate to rise on 3% of taxpayers would raise only approximately $100 billion/year. Coupled with a projected $900 billion deficit for 2013 that barely scratches the surface.

Consider what a $100 billion increase in taxes means. It is $100 billion removed from the private sector where it could be spent OR used to build new factories, hire more employees or invest in R&D. All of these events occur regardless of current demand. They are the direct result of the speculation incentive, that is, the incentive to possibly make more money in the future by spending money today. Increasing taxes kills the speculation incentive on two fronts: slowing the rate of investment (as more money goes to taxes and less to saving) and decreasing the incentive to invest due to lowered potential after tax returns.

Instead the tax dollars are redirected to government favored entities. If you think this might produce a net benefit, then ask yourself: Is society really better off if we allow the government to funnel money to those businesses that are most effective at the art of lobbying and suckling at the government teat (the political entrepreneur) by taking from those businesses and individuals that are most effective at actually producing things people want (the market entrepreneur)? Until we can face the reality that wants are infinite but resources finite nothing will stop us from going over that fiscal cliff.

Warning, Warning!

“New Jersey has a tough price gouging law to ensure that profiteers will not take unfair advantage of people at their most vulnerable” Governor Chris Christi

Unfair advantage – so who exactly is the Solomonesque arbiter of that which is fair and unfair? In this case the states of New Jersey and New York. And how is unfairness defined? By pulling arbitrary numbers out of thin air of course! In New Jersey it is holy writ that a 10% markup above normal price level is perfectly justified and fair, but 11% is the act of a wanton criminal. In New York it is left to the highly subjective discretion of a judge to decide if one has breached the barrier of “unconscionably excessive” pricing.

The state of New Jersey is currently charging 8 businesses with violation of its “anti-gouging” laws. How horribly high must one raise prices to be so charged? Thirty-dollars. One hotel charged $119 a night rather than the usual $90 a night! Oh the humanity! Give me a break. Hotels routinely raise prices this much or more when demand is high for other reasons. So apparently it’s criminal if a storm increases demand but not criminal if the Super Bowl does? Even the gas stations under indictment only raised price by $2/gallon, which translates into an extra $20-$40 per tank. Which would you prefer? No gas at all (or the prospect of waiting for hours in line) OR a quick fill up that cost an extra $40.

Anti-gouging laws are probably the most convincing proof that politicians are completely ignorant of economics. About on part with someone ignorant of physics trying to cool their house with a refrigerator. Anti-gouging laws give birth to another set of laws that try to repair the damage caused by the anti-gouging laws: rationing laws. If controlling the seller makes a mess then try to control the buyer. Genius.

Such laws are the sole cause for all shortages following in the wake of a disaster. Although supplies can become constrained, actual shortages arise because price controls cause demand to outstrip supply (e.g. if the government decreed all BMW’s cost only $1,000 the increased demand would quickly create a shortage). Not convinced shortages are demand and not supply driven? Consider this: what happens every time there is even a whisper of possible snowfall here in Georgia? Everybody and their cousin rushes straight to the grocery store and buys up every last loaf of bread and gallon of milk. This is entirely irrational. But people are irrational beings and will irrationally increase their demand for goods they do not need. High prices are a way of telling people “hold your horses there – do you really need those 10 loaves of bread?” If a loaf of bread were allowed to go from $2 to $10 chances are high you will reconsider just how badly you need it. This will leave more available for those that truly need it.

Think of high prices as flashing red lights in the cockpit of the economy saying “warning, warning – supplies are constrained, please devote resources over here to relieving the constraint” Government’s brilliant solution is to disconnect the light. Entrepreneurs flock to high prices like cats to catnip, rapidly increasing supply and lowering prices through competition. For example, absent such laws a gas station might hire a tanker truck to travel out of state, buy up as much $3/gallon gas as it can find, haul it back and sell it for $6/gallon. But because prices can’t be raised this scenario and many others do not happen, and we are left with long lines and shortages.

Anti-gouging laws are about as effective as outlawing fevers by requiring the ill to take ibuprofen. Masking the symptoms does not cure the disease; it only prolongs the illness.

Keynesian Coin Toss

Hurricane Sandy wrought not only terrible destruction this past week, it likewise whipped a few economic fallacies to the surface. Chief among these was the unwarranted attacks on the “price gougers” and the stunning ignorance of those pontificating on the “prosperity through destruction” meme. I shall defer my defense of the gougers and turn my attention toward the “destructionists”. What pray tell might be the upside to destruction? Jobs. The same old hackneyed drivel that was laid to rest 160 years ago by Frédéric Bastiat (see “the fallacy of the broken window”) and yet it keeps popping up with every natural disaster like the game of Whack-A-Mole. Even Ph.D. economists (Duncan Black, USA Today) who should know better continue to espouse such drivel. His recent article is illustrative toward this way of thinking insofar as he seems to be suggesting that a storm is primarily beneficial not because of the illusory short term economic benefit, but rather because it is a useful tool to teach the unwashed masses how non-voluntary spending can spur economic expansion and job creation. Such an example can then be used to justify to those obstructionist dimwits in Congress that we need much larger and grander government sponsored non-voluntary (stimulus) spending. The core premise of this argument is akin to a eulogy in which the grieving are instructed to take solace in the fact that the undertaker will benefit financially from the death of their loved one.

To be sure, there will be a localized economic uptick following any rebuilding. That is the “seen” benefit. But as Bastiat taught, one must also consider the “unseen” losses. That is, all the things that could have been done but were not. This is called “opportunity” cost. We experience this every time we buy something insofar as we could have bought something else. There is nothing wrong with that. The problem arises when our will, our desires, are overridden by an outside force that corrals us into choosing something we would not, absent such coercion, freely choose. When that force is Mother Nature we don’t like it, but we accept it and move on. The Keynesian understands that if they can convince us that Mother Nature’s destruction might be positive then we will be that much more willing to accept it when Man (through his proxy the State) imposes his diversionary will upon us. In other words, if I can convince you that getting hit in the face isn’t all that bad, you’ll be much more willing to put up with having your foot stomped on.

The Keynesian tries to rationalize their position by suggesting that funds “tied up” by insurance companies or unpatriotic savers are simply “idle.” * Well, parked cars are “idle” too. Should we melt them down and make a bunch of toasters? That would certainly benefit the toaster makers and their employees, but somehow I don’t think the car owners would appreciate this. This is how the Keynesian’s sell their ideas, by dishonestly pointing at only what we can see and mumbling zombie-like “jobs” while conveniently ignoring those that provided the resources. Money is never idle. If it’s not being spent then it is being saved or invested. Saved money is lent out and spent. Invested money supports new and existing businesses and jobs. Consider what would happen if all of the “idle” stock of a company were converted to cash by a company and paid to shareholders. That company would cease to exist insofar as every asset would have been sold. I’ll say it again: money is never idle. Repairing destroyed property involves removing active resources from the economy. In order for insurance companies to pay claims they need cash, which they either (a) withdraw from a bank, thereby decreasing lendable funds or (b) they sell assets, thereby decreasing the ability of those that buy the assets to further spend. Each dollar devoted to repairs in one area of the economy represents another dollar removed elsewhere. In other words, there is no such thing as a free lunch.

Natural disasters and government stimulus are two sides of the same will-manipulating coin – wealth destruction on one side and wealth diversion on the other.

 

* Because these articles are published in newspapers where I am under a word count constraint sometimes I must leave out some discussions that are entirely germane but simply will not fit. But as this is the online mirror of the article I will include a bit more of the economics discussion here. There is in fact a legitimate route by which disasters and destructions can and do result in increased productive output. I’m not suggesting this is a good thing, but I would be remiss if I did not bring up this point and clarify that however true it can sometimes be there is a cost involved that is always overlooked when brought in the mainstream press. 

Natural disasters can in theory produce enhanced productive output, however whether you view this as good or bad depends on whether you view working 12 hours a day preferable to working 8 hours a day. The basic premise is this: if your house burns down and you have to rebuild it yourself while still carrying on all the other duties you previously had you will indeed be more productive. Not only are you building a house you are still producing enough to continue feeding and sheltering yourself as much as you were before. The obvious tradeoff here is leisure time. Formerly you could work 8 hours a day but now you must work 12 or 14, the excess time being devoted to recreating that which was destroyed. If this is indeed beneficial then perhaps the government should mandate everyone work 12 hours a day and we could grow GDP in this country by 50% in one year!

Leisure time also has value but this value, being subjective, is non-monetary. It is impossible for the state economists to account for the loss of this value when factoring in the apparent expanded productivity following a disaster. Obviously people aren’t rebuilding their own homes but the net aggregate effect is the same. If resources in the economy are devoted to (a) normal home building + (b) home reconstruction then those in the construction industry are either working more than they normally would choose to (with concomitant less leisure time) or if they are not working more then one must bid up the price of getting a home built which has the effect of you having to work more in order to afford what you want OR more people are attracted into construction keeping costs down but the loss of those employment resources from other sectors of the economy results in scarcity in those other sectors which drives wages up and hence prices, and thus we all must work more in order to afford what we used to afford in those other sectors: net result, we’re working and producing more but only obtaining the same amount of goods and services we used to get when we worked less prior to the destructive event.

 If we do not work more but borrow more then increased demand for borrowed funds will drive up interest rates which will still cost us more in the long term requiring us to work more than we otherwise would have or if money lending demand is met and interest rates stay low that means more people are saving and making do with less which is the functional equivalent of working more for the same. We either choose less leisure time and more work to have 100 units of “stuff” or we choose the same amount of leisure time and accept higher costs and therefore accept we can only now get 80 units of “stuff”. Either way the destructive event is a loss, either to goods or to leisure time.

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.

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.