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.

Staples… yeah, we’ve got that!

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

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

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

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

Permission to live

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

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

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

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

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

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

Hunting with a BB Gun

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

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

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

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

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

The hypocrisy of local control advocates

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

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

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

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

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

Cutting corners

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

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

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

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

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

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

End the TSA

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

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

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

Don’t blame people, blame the system Mitt

Poor Mitt Romney – apparently no one ever taught him the first rule of politics: always assume you are being recorded. The issue at hand though is not so much his ham-fisted point making, but rather that he, like so many other politicians, decries the effects of government policies while ignoring the underlying causes.

What government gives in benefits they take away in choice.

Both the left and the right work their constituencies into a lather by heaping denigration upon individuals rather than upon the system that fosters the behavior they impugn. When government intervenes they not only give but take as well. What they give in benefits they take away in choice. Government programs crowd out or eliminate private markets that would permit the individual to take personal responsibility. For example, Social Security participation is mandated by law. We cannot opt out. After being robbed of 12.4% of our income whom but the wealthiest has anything left for private retirement? Social Security offers supplemental income for children with disabilities (to help pay for care). There currently exists no private insurance market for disability/long term care for those under 18. Likewise, there is no private market for unemployment insurance. Is this surprising? Why opt to pay for something that is already “free.” Private disability insurance for adults exists however only a minority of workers have such coverage. It offers little to lower wage workers relative to the “free” offerings of Social Security disability. People are not stupid. You can’t blame them for choosing “free” over “not free” given the choice. And you certainly can’t blame them when there is no choice at all. The solution is to fix the system, not the people. Phasing out government monopolized programs like social security, unemployment insurance, and welfare would give people back their natural incentive to look out for themselves. They would purchase their own individual (a) disability policy, (b) unemployment policy and (c) save for their own retirement. Elimination of the taxes that pay for these programs would permit higher wages thus offsetting or eliminating net costs. These changes alone would mean the private market would cover 99% of what people are currently receiving as government “handouts.” Private charity would easily handle the 1% of cases where extreme bad luck has left some unable to care for themselves. And even if you believe in the government “safety net” concept, surely it should be for the bottom 1%, not the bottom 50%.

The left is no more immune to this chicanery then the right. They decry the evil one-percenters and crony-capitalists without addressing what created them. Their outrage is the moral equivalent of leaving all the windows and doors of your house wide open while on vacation and then being surprised that someone robbed you. Maybe hunting down the robbers and putting them in jail will make you feel better, but wouldn’t it make sense to just lock your house? The solution to combat cronyism and corporate welfare is to simply eliminate government authority in the arenas that the large corporations are controlling. End the bailouts, the money printing, fractional-reserve lending and bogus deposit “insurance”, the tariffs, the competition-eliminating regulations, the subsidies and the mandates. All of these are mechanisms by which government helps big business to the detriment of everyone else. Big banks and big business are big and powerful because of government standing behind them like the kid on the playground who has the big bully backing them up.

The left and the right have something to learn from Mitt’s gaffe: don’t blame people for simply using the bad tools government gives them. Destroy the bad tools.

The Value Myth

Are teachers underpaid? How much is a teacher worth? To answer this we must first define “value”. Although it is a common myth, there is no such thing as intrinsic value. Gold has no more intrinsic value than a lump of mud. The act of digging a hole has no more intrinsic value than teaching. By “intrinsic” I mean objectively measurable. Value is an entirely subjective human construct (just as “beauty” is.) It cannot be measured like density or boiling point. However, subjectivity does not imply lack of consensus. In broad strokes we rank things quite similarly (i.e. we prefer gold over mud). But at the finer scales our value rankings are different and can shift over time. These differences are in fact a necessary condition for commerce. Generally speaking, one values things they want more highly than things they already have. For example, if I buy your wristwatch for $10 then I value the wristwatch more than the $10. Likewise, you value the $10 more than the wristwatch. The value of the wristwatch is not $10, it is either more than $10 or less than $10 depending on who you ask. If that seems counterintuitive, consider this: would you sell your $10 bill for my $10 bill? No, because you gain nothing in the exchange. Then why sell a wristwatch for $10 if you gain nothing in the exchange? Both parties realize a gain in an exchange due to their different value rankings (within the context of that trade).

Both parties realize a gain in an exchange due to their different value rankings

So how does understanding subjective value relate to determining if teachers are underpaid? In a free (non-coercively influenced) market, every completed trade is “fair” in the sense both parties subjectively gained. In a free market being “underpaid” simply means there was a willing buyer that you failed to find that valued what you sold more than the party you sold it to. Subsidized public schooling is at best a semi-free market. It has actually driven wages higher, not lower, than they would be in a free market. We know this because if teachers were underpaid then private schools would poach the best teachers with elevated pay. In fact the reverse is true. Private school teachers make on average 25% less than public school teachers. And yet some would like to widen the disparity even more. For example at the “Save our Schools” rally in 2011 (see video at 3 min.) a woman implied we should spend $72 trillion/year on education (I guess the public schools indeed failed her in that she lacked the math skills to realize that spending $1 billion/child would come to that sum).

So how do we align the fact that most if not all of us value teaching above say professional football and yet teachers make far less? The cumulative effect of our individual value rankings when filtered through supply and demand across an economy can result in apparent societal ranking of value at odds with the ranking of value of the individuals making up that society. Teachers don’t make less than football players because “society” values them less. They make less because of math. A small number divided by a very small number is bigger than a large number divided by a very large number. (e.g. what each pays in property taxes or tuition far exceeds what one might spend on watching professional sports yet teachers make less because in part they vastly outnumber (about 4,000 to 1) professional football players).

If you really think teachers are underpaid you are certainly free to start a private school and pay them exactly what you feel is appropriate. That’s the advantage of a free market vs government; nobody’s approval is needed for you to immediately take advantage of the mistakes of others in the market