Category Archives: Unintended consequences

Do carts push the horse?

President Obama remarked in the recent state of the union address that he is “proposing that every state require that all students stay in high school until they graduate or turn 18.” A laudable goal (for students to finish school) however the idea that this goal must be forced upon the student by the state is a symptom of how some confuse cause with effect. The effect they wish to see is a “successful” adult and they mistakenly assume that completing school causes this. Motivated individuals will complete schooling just as naturally as a fish swims in water (it is inherent to their nature). Forcing unmotivated individuals to graduate will no more make them successful than does teaching a man to swim make him a fish. Besides, what is the plan here? Jail or fine the student or parents if the kid doesn’t graduate?

Before college tuition costs had ballooned out of control it was only students that had a genuine interest in expanding their knowledge and skills that went to college. These individuals were naturally driven to be successful; going to college was simply a way station on the road to success. Those in government looked at the statistics and saw that successful people had gone to college and thus they confused correlation with causation. Government enabled more and more to attend college each year and thus the floodgates opened to not only ever increasing tuition costs but also a new generation of students where college is no longer viewed as an opportunity to grow one’s knowledge and skills but rather a rite of passage that one is obligated to endure in order to assure “success”. Those that simply endure it exit with a degree and a slightly greater perspective on western culture than your average high school graduate, but that’s about it (oh, and the morale crushing debt burden).

The ultimate goal of government subsidization of college education is nothing short of 100% college education for every citizen. But it should be obvious that were this to be achieved nothing will be gained. If everyone has a college degree then how is that supposed to lead to a high paying job? Salaries depend directly on the number of people capable of performing the desired task. That’s why janitors don’t make much money (everyone can clean) and brain surgeons make a lot. If everyone has a college degree then you’re competing with everyone… that’s a lot of people! So wages will go down for jobs that formerly required a college degree (over supply of labor). Wages will remain high for those that excelled in college (constrained supply of labor). But those were the people that used to be the only ones going to college. So nothing will change, wage disparities will remain since wages are driven by supply and demand. If you don’t believe me then just look at the unemployment levels among recent college graduates, the stories of college grads living with their parents, or college grads working at low paying jobs because they can find no other work. These are all symptoms of oversupply, in this case one that is artificially driven.

It’s not the student’s fault. They’ve been duped by promises of the moon if they can just cross the finish line. So they waste their time on useless (for real world jobs) degrees (i.e. anthropology, women’s studies, etc) that have no value to an employer. However, as with most government policies, the unintended consequences of subsidizing college education are coming home to roost. Turns out there is a large labor shortage in this country: a shortage of skilled trade labor. Because culturally and governmentally we look down on such trades there are fewer and fewer capable of performing these jobs. I suppose when a plumber makes as much as a lawyer the tide will turn naturally, but the point is this “bubble” of unemployable college grads would not exist if government had not meddled in the higher education market.


The War on…Happy Meals?

The city of San Francisco enacted a law that went into effect on November 30, 2011. It bans any chain restaurant (i.e McDonalds) from providing a toy with a meal that the overlords of that city decree does not meet an arbitrary nutrition standard. Clearly McDonalds is attempting to ensnare unsuspecting children with toys that are as irresistible as the One Ring was to Gollum. Parents’ and children’s brains are completely incapacitated by these toys and they are unable to exercise any free will and thus have no choice but to purchase a Happy Meal. Yes, I’m being sarcastic. I’m not even going to delve into the most obvious discussion here, i.e. that this is a prime example of nanny-statism at its worst, that government can interfere in transactions between a willing buyer and a willing seller because condescending politicians believe it is morally acceptable to substitute their preferences for that of the citizens.

 

Clearly McDonalds is attempting to ensnare unsuspecting children with toys that are as irresistible as the One Ring was to Gollum.

 

Although McDonalds has skirted the ban by charging 10¢ for the toy the underlying issue here has been overlooked in the media. They weren’t trying to stop McDonalds from providing a toy. They set standards for fat and sugar content, which if met, would permit a toy. So the authors of the law, like the unsuspecting chess player who overlooks his own vulnerability while attacking, thought it would force McDonalds to change the content of the meal. They failed. The toy remains a meal incentive to not only the children but also the parents as well, who are now guilt tripped into buying the meal since the toy money goes to charity. Touché McDonalds!

Obviously the instigators of this law don’t have children, because as any parent will tell you, children will not eat what they don’t like. Period. No kid is going to eat a happy meal populated with apple slices, carrots and yogurt no matter how many toys it comes with. If the promoters of this law got their way, here’s what would happen: the child takes the toy, nibbles on one thing and then throw the rest of the meal out. This outcome mirrors the primary problem with the school lunch program. Let me explain. If school lunches meet federal nutrition guidelines then the meal is partially paid for (subsidized) by the government. So a $5 meal becomes a $2 meal. Great. The only problem is that kids throw away the stuff they don’t like. So what could stop them from throwing out food? Simple, just let the kids pick what they want. Problem is, if they do that then the meal no longer meets federal guidelines, so it can’t be subsidized. Now the meal is $5 with LESS food. It’s cheaper to buy the whole thing, eat what you want and throw away the rest then to just buy and eat what you want. But like a stubborn 3 year old, government stamps its foot down and insists we continue on the same failed course because it is “best”. When will they ever learn that you can’t alter human behavior by mandate?

Government should not subsidize meals for those that can afford it. The program has slowly morphed from alleviating starvation among poor students, to subsidized food for all students, to nutrition nannies that incentivize wasting food. The argument that we must subsidize all meals is that if we didn’t then poor students might be ridiculed by their peers (the same logic was also used to force TARP money onto banks that didn’t need it). So in order to protect against possible hurt feelings we as a country subsidize all meals to the tune of $16 billion/year. The least we can do is alter the program so as not to incentivize discarding thousands of tons of food every day across this country. Provide healthy options and let the kids pick what they want. To continue doing otherwise is blowing against the wind.

 

Be thankful for…Capitalism

In May 1607 the first American settlers from England arrived in North America and established a colony at Jamestown, Virginia. It was a veritable Eden: rich, fertile soil, abundant fish, game (deer and turkey),fruits, and nuts. By November 1607, 66 of the 104 colonists were dead (due mostly to starvation). In 1609 the Virginia Company attempted to “reboot” the colony with another 500 settlers. Within 6 months 440 of them were dead, again due to starvation.* How was this possible? How could so many perish among such abundant natural resources? Were they unprepared? How could the same things happen two years apart? The answer lies in the words of an eyewitness, who stated that the famine was the result of a “want of providence, industry and government, and not the barenenesse and defect of the Countrie, as is generally supposed.” Translated into modern English: it was the result of a lack of work ethic, effort and self-discipline and not due to any problem with the environment.But how is this possible? Surely the Virginia Company (the entity contracted by the British aristocracy to establish the colony) would not recruit a bunch of lazy slobs to run their very costly endeavor in the New World? No, the fault did not lie with the settlers per se but rather with the Virginia Company itself. The settlers were (willing) indentured servants. They agreed that if the Virginia Company would pay their way to the New World (a not inconsiderable sum at that time) then they would labor for the benefit of the Virginia Company for the next 7 years. The fatal error the company made was in heeding the words of Plato (who advocated collective ownership of land). They decided that all land and production therefrom would be held in common, the colonists would take from that stock what they needed and the remainder would be for the company. The company feared that if each colonist owned his land he would farm just enough for himself.

The failure of this collective ownership arrangement was a result of human nature,which leads to the “free rider” problem. Humans are inherently lazy. When given a choice between more work and less work to accomplish the same goal we will choose less work (why use a hammer if you can use an air-nailer?) In a communal system it is easy to hide indolence behind the work of others. For example, if 10 men produce 100 bushels of corn per month (total of 1000 bushels) and from that they are allotted 1% of the total output for themselves each month (10 bushels), then if one man slacks off and only produces 50 bushels then what he gets back is not cut in half, rather it is only cut by 5% as he gets 1% of 950 bushels or 9.5 bushels. Once everyone realizes they can “free ride” on the work of the more industrious (as some might increase output in a noble but futile effort to make up for the slackers) total output will decline. Or stated differently, if something is Everyone’s responsibility, then Nobody will do it.

How was the starvation problem finally solved? In 1611 Sir Thomas Dale was sent to serve as the “high marshal” of the colony. He recognized the problem and instituted a system in which each man was given 3 acres of land that he would own and farm.* All that was asked in return for ownership of the acreage was a lump sum tax for the colony of 2.5 barrels of corn (note, it was not a percentage of his output but rather a lump sum headtax!) The colony immediately began to flourish. Now rather than an incentive to decrease output and slack, each man had an incentive to produce as much as possible because he could keep the excess. He could now use the excess to trade with the Indians for furs and other goods. Trade also had the side benefit of helping to maintain peaceful relations with the Indians (why risk life and limb in warfare to get something when you can just trade for it).

This conversion from a communal property system with rampant starvation to a private property (capitalist) system with abundance was not a fluke. The same thing happened again at Plymouth, Massachusetts in 1620. After three years of starvation and death the governor of the colony, William Bradford, finally realized the problem and ordered that they “should set corn every man for his own particular, and in that regard trust to themselves…”* In other words, private plots of land were established for each family to farm themselves.
Why does this notion of communal property keep appearing throughout history? Why does it intuitively seem like it should just “work”?Perhaps because we are already familiar with the one and only place it can work: the family. A family is the ideal setting for a communal system because it is (a) small and (b) members are bound to each other by love. There is no incentive to free ride because (a) you’ll be caught and (b) you’ll harm those you love. The fatal error is in assuming that what works in a small group can work in a large group. This can never be due to an alteration of the incentive structure as the group size and character changes. No one will ever love their neighbor to the same degree as they love their own family.

* “How Capitalism Saved America”,DiLorenzo, Thomas J., 2004, Chapter 3.

FOLLOW UP: I received two Letters to the editor in the Morgan County Citizen, here and here, and my response is below:

In response to Bill Scholly (Dec 7, 14): Bill, would that I could opine on your version of events, but alas I cannot, as you have provided no citation source. Is the reader simply to believe your version is infallible and therefore requires no substantiation? I provided only one source (DiLorenzo) due to length limits on editorial articles. There are several other sources that I have added to my blog version of the article that substantiate the version I presented. However I find it curious that rather than question the specifics of the events, you instead chose to attempt to discredit the source by way of name-calling (“delusional”) and innuendo (the “hang with” comment). But I’m afraid you have us all at a disadvantage. Without knowing your source it is impossible for anyone to question you. How convenient.

OTHER REFERENCES

Tom Bethell, TheNoblest Triumph: Property and Prosperity Through (New York: St.Martins’ Press, 1998).

Warren M. Billings, ed., “George Percy’s Accountof the Voyage to Virginia and the Colony’s First Days,” in The Old Dominion in the Seventeenth Century: A Documentary History of Virginia,1606-1689 (Chapel Hill: University of North Carolina Press, 1975), 22-26.
Philip A Bruce, Economic History of Virginia in the Seventeenth Century (New York:Macmillan, 1907).
Gary M. Walton and Hugh Rockoff, History of the American Economy, 9thed. (New York: Dryden Press, 1998), 30.
Mathew Page Andrews, Virginia, The Old Dominion, vol 1 (Richmond, VA: Dietz Press,1949), 59.
William Bradford, Of Plymouth Plantation, 1620-1647, with an introduction by SamuelEliot Morison (New York: Knopf, 2002), 116.
Samule Eliot Morison, The Story of the “Old Colony” of New Plymouth (New York: Knopf,1960).
Larry Scweikart, The Entrepreneurial Adventure: A History of Business in the UnitedStates (New York: Harcourt Brace, 2000), 37.
Jeremy Atack and Peter Passell, A New Economic View of American History,2nd ed. (New York: Norton, 1994), 50

A Wasted Protest

The “Occupy <insert city name here>” protestors are certainly an eclectic bunch. From what I can gather they blame “the wealthy” and “corporate greed” (whatever that means) for a myriad of the problems this country faces, not the least of which is that they don’t have a job. Give me a break. If they have time to travel across the country and camp out in a park for weeks on end, then they have time to find a job. The protestors have one slender thread of a justifiable grievance: the “too big to fail” crony capitalist policies of our political system. The problem is that they should be protesting the government that bailed out big businesses (the financial and auto sectors). Those businesses made risky investments because they knew Uncle Sam would back them up if things went south. Ask yourself, if you could go into a casino and gamble as much as you wanted knowing that any losses would be repaid to you, would you really restrain yourself from not simply gambling as much and as fast as you could?

This protest is a wasted opportunity to raise national awareness of what really ails this country: big government. The protestors are simply too ignorant of basic economics (“let’s just get rid of all money” said one) and the nature of free-market capitalism (as distinguished from crony-capitalism) to advance any kind of legitimate, useful agenda. For example, some constructive demands would be:

1) end the Fed and the ability of the government to print money: this brings an end to the “business cycle” which is an artificial result of government money manipulation

2) end all government subsidies: this would lower taxes by eliminating corporate welfare

3) repeal all government regulation of business: this would put all the lobbyists out of work and would then create a boom in new businesses and new jobs (as regulations are the tool that big business uses to raise the barrier to entry by new competitors)

4) repeal all business taxes: a lack of income tax would create a huge increase in rate of return on invested capital thereby attracting thousands of US and foreign companies to the US which would in turn create millions of new jobs.

But you won’t hear any of the protestors calling for such reforms. Their solution to “income inequality” is not to raise those on the bottom up (by promoting an environment conducive to job creation) but rather to cut those at the top down (by promoting punitive taxation under the mantra of redistribution following a misguided appeal to “fairness.”) Income inequality is a natural consequence of being human. It is the same as inequality in a foot race. In fact the statistical distribution in both a race and income is identical: a handful are wealthier or faster than everyone else, a large portion are average and a handful are very slow or poor. Government mandated redistribution of wealth is no different than forcing the fast runners to carry sandbags on their back, so as to remove their “unfair” advantage over slower runners. Capitalism is like the foot race; those that come in first do not gain their speed by sapping the speed of the slower runners.

To insist that income must be equal for all or have a very narrow distribution is to tilt at the windmill of biology: we all have equal natural rights but we are not created with equal abilities. Those with skills in high demand or low supply (doctors, lawyers, actors, sports stars, etc) will always earn much more than those with skills in low demand or high supply. That’s life, get used to it. The solution the protestors should be seeking is to improve their skill set rather than promoting government-sanctioned solutions that use threat of violence (taxation) in order to “right” their perception of a “wrong.”

 

Decriminalize Immigration

The idea of “illegal” immigration is a silly notion. It’s akin to an “illegal” vacation. Immigration is simply the act of moving from Location A to Location B. Why should permission be required to exercise this right? Up until 1882 (with passage of the non-euphemistically named “Chinese Exclusion Act”) anyone was permitted entry. Immigration laws were tightened further until 1921 when the Temporary Quota Act set “national quotas” and permanently criminalized immigration. And thus a legal harmless act was made “illegal” by arbitrary government fiat.

The RIGHT to immigrate (or emigrate) is distinct from the PRIVLEGE of citizenship. The basic idea is “you’re welcome to come and work and live here and support yourself but don’t expect handouts from the government… if you want a handout then you must become a citizen.” If immigration were properly viewed in this manner it would solve the issue of an overburdened social safety system. If only citizens can utilize the social institutions then you remove all incentives for those with parasitic intentions from immigrating. We would, however, have to change the antiquated citizenship laws that confer citizenship to those born on US soil. Citizenship should be a privilege reserved for those that meet the established criteria or the children of a US citizen.

The most common justification for restricting immigration is that they ‘steal’ jobs from Americans. Hogwash. They are doing the jobs that nobody wants. And when nobody does them, they don’t get done. For example, my family has been buying peaches from a fruit stand on Hwy 441 for several years and we have gotten to know the owners quite well. This past spring Governor Deal signed into law Bill 87 (which enacts severe penalties and mandates in order to curb illegal immigration). So this was the first growing season after that bill passed and recently one of the owners, Amy Bishop, remarked to us that the lack of immigrants had severely affected their business. There are simply not enough pickers. Food is rotting in the fields. The peach harvest was greatly diminished in both quality and quantity. She stated “I’ve thrown away more peaches this year then in 15 years, we lost, at our cost, over a 6 week span over $2000 just on peaches” (due to low quality from lack of tending and higher prices due to diminished supply).

“I’ve thrown away more peaches this year then in 15 years, we lost, at our cost, over a 6 week span over $2000 just on peaches”

With high unemployment you’d think the growers would have people lining up to work. Apparently not. When unemployment compensation can last 2 years it disincentivizes the unemployed to find work when such work might only equal or barely exceed what they already collect for doing nothing at all. Some say the wages for such “menial” jobs are too low to attract Americans to work them. Funny, the immigrants seem to get by just fine. Nevertheless, if the pay is “too low”, then I don’t understand the argument that jobs are being stolen? Stolen from the people that don’t want them?

Many immigrants fill a niche in our economy, the niche of the menial jobs that the native born don’t want. This has been true since this country was founded. The first generation is willing to do the hard work so that their children won’t have to. Removing the immigrants simply leaves those jobs undone, driving up prices. If we don’t want immigrants “mooching” off our big social safety net we need to either make the net smaller or require proof of citizenship for those wishing to partake in a government handout.