Posts tagged ‘capitalism’

Brink Lindsey Proposes a Growth Plan with Appeal Across The Political Spectrum

It turns out that small government libertarians like myself and large-government progressives actually have something in common -- we both fear accumulations of unaccountable power.  We just find such power in different places.  Progressives fear the accumulation of power in large corporations and moneyed individuals.  Libertarians fear government power.

I won't try to take Caplan's ideological Turing test today, but will just speak from my own perspective.  I wonder how Progressives can ignore that government has guns and prisons while corporations just have the ability to sell you something or hire you (though perhaps not on the terms you prefer).  When pressed to explain why the Left is more comfortable with government power, their explanations (to my taste) depend too much on assumptions that competent versions of "their guy" pull the levers of power, and that power itself and the vagaries of government incentives will not corrupt this guy.

On the other hand, progressives ask me all the time, "how can you trust corporations so much" and then list off a justifiably long list of examples of them acting poorly.  This, I think, is where the real difference comes in, and where the confusion often comes int he public discourse.  I will answer that I don't trust anyone, government or corporations.  What I trust are the incentives and the accountability enforced in a market where a) consumers can take their money elsewhere if they get bad products or services; b) employees can take their labor elsewhere if they are treated poorly; and c) entrepreneurs can make a fortune identifying shortcomings in incumbent businesses and offering consumers and/or employees a better deal.

Unfortunately, when a person or organization finds itself very successful in this game, there is a natural tendency to want to protect their winning position.  But nothing in the market can stop a challenge from a better product or service, so successful entities tend to turn to the government (which has a monopoly on guns and prisons and asset seizures and the like) for protection against upstart challengers.  If successful, these restrictions tend to hobble growth and innovation -- imagine if IBM had successfully used government influence to halt the PC revolution or if AT&T had blocked the growth of cell phones.

This dynamic is at the heart of Brink Lindsey's new white paper at Cato (pdf).   As has been his wont in several past works, Lindsey is looking for proposals that bridge the gap between Left and Right.  So, rather than stake out the 98th salvo in an area where there seems to be a hopeless ideological divide (e.g. minimum wage or low-skill immigration), he focuses on four areas one could imagine building a broad coalition.  Lindsey focuses on attempts by successful incumbents to use government to cement their position and calls them "regressive regulation" because they tend to benefit the already-successful at the expense of everyone else.

In the following sections, I examine four major examples of regressive regulation: (a) excessive monopoly privileges granted under copyright and patent law; (b) protection of incumbent service providers under occupational licensing; (c) restrictions on high-skilled immigration; and (d) artificial scarcity created by land-use regulation. In all four examples, current government policy works to create explicit barriers to entry. In the first two cases, the restriction is on entry into a product market: businesses are not allowed to sell products that are deemed to infringe on a copyright or patent, and individuals are not allowed to sell their services without a license. In the other two cases, actual physical entry into a geographic area is being limited: on the one hand, immigration into the country; on the other, the development and purchase or rental of real estate.

One can immediately see how this might appeal across ideologies.  Libertarians and market Conservatives will like the reduction in regulation and government scope.  Progressives should like the elimination of government actions that primarily help the wealthy and powerful.**

I said "cross ideologies" above rather than bi-partisan because things get messy when actual politics intrude.  All of these protected constituencies wield a lot of political influence across both parties -- that is why the regressive regulation exists in the first place.  And they all have finally honed stories about how these restrictions that prevent new competition and business models are really there to protect the little people (just watch the battles between Uber and the taxi cartels and you will see what I mean).

Never-the-less, this strikes me as a pretty good list.  For whatever barriers there may be, it is a hell of a lot easier to picture a bipartisan agreement on any of these issues than on, say, low-skill immigration.  I haven't finished reading to the end -- I have to get on now with my day job -- so I have yet to see if there are any concrete proposals that look promising.

 

**The ideological problem here, of course, is that libertarians think that these restrictions are the primary way in which the wealthy unfairly benefit while most Progressives would (I suppose) see it as a side issue given that they believe that even the free-est of market capitalism is inherently unfair.

We Still Haven't Figured Out How to Measure Prosperity

The previous chart on beer availability reminds me of an issue I have been thinking about for a while -- that we do no know how to measure prosperity.

GDP growth and unemployment reduction are terrible measures.  Just to give one example, these measures looked fabulous in WWII.  But the average person living in the US had access to almost nothing -- they couldn't buy anything under rationing, they couldn't travel for leisure, etc.   GDP looked great because we were building stuff and then blowing it up, the economic equivilent of digging a hole and filling it in (but worse, because people were dying).  And unemployment looked great because we had drafted everyone and sent them off to get shot.

But median income and net worth numbers fail to measure prosperity as well.  The reason was described in this post here way back in 2007.

The home on the left was owned by Mark Hopkins, railroad millionaire and one of the most powerful men of his age in California.  Hopkins had a mansion with zillions of rooms and servants to cook and clean for him, but he never saw a movie, never listened to music except when it was live, never crossed the country in less than a week.  And while he could afford numerous servants around the house, Hopkins (like his business associates) tended to work 6 and 7 day weeks of 70 hours or more, in part due to the total lack of business productivity tools (telephone, computer, air travel, etc.) we take for granted.  Hopkins likely never read after dark by any light other than a flame.

If Mark Hopkins or any of his family contracted cancer, TB, polio, heart disease, or even appendicitis, they would probably die.  All the rage today is to moan about people's access to health care, but Hopkins had less access to health care than the poorest resident of East St. Louis.  Hopkins died at 64, an old man in an era where the average life span was in the early forties.  He saw at least one of his children die young, as most others of his age did.  In fact, Stanford University owes its founding to the early death (at 15) of the son of Leland Stanford, Hopkin's business partner and neighbor.  The richest men of his age had more than a ten times greater chance of seeing at least one of their kids die young than the poorest person in the US does today.

How do we take into account that even if a person has the same income as someone in 1952, they are effectively wealthier in many ways due to access to medical procedures, travel, entertainment, electronic devices, etc?

Somehow we need to measure consumer capability -- not just how much raw money one has but what can one do with the money?  What is the horizon of possibilities?  Deirdre McCloskey tends to eschew the term capitalism in favor of "market-tested innovation."  I think that is a pretty powerful description of our system.  But if it is, we really are only measuring the impact of productivity and cost-reduction innovations.  How do we measure the wealth impact of consumer-empowerment innovations like iPhones?  Essentially, we don't.  Which, by the way, may be one reason our current crappy metrics say we have growing income inequality.  With our current metrics, Steve Jobs' increase in wealth is noted in the metrics, but the metrics don't show the rest of us getting any wealthier by the fact that we can now have iPhones (or the myriad of competitors the iPhone spawned).  The consumer surplus from iPhones undoubtedly dwarfs the money Jobs made, but it doesn't show up in any wealth calculations.

A few years ago I told a youth group that there were still many things left to discover in the mundane world -- by this I meant the everyday world we encounter and not just at the limits of the universe or at the scale of quarks.  The example I gave at the time is that there is a lot of room for better techniques to tease out causality in complex systems -- e.g. how much did the stimulus really affect the economy or how much does CO2 really affect temperatures.  I would add this question of measuring prosperity as a second item in this category.

Where's Coyote?

I am off for Disney World to run in the Princess Half-Marathon this weekend.  My knees feel like I have four flat tires and have been driving on the rims for 20 miles, but I am running this last time with my daughter.

We started running this race together a number of years ago and the first time we ran was something of a breakthrough for my daughter -- the experience dedicating herself to a goal and the confidence she gained from achieving it led to many knock-on benefits, so much so that it became the core of her college essay.

That essay began with the story of she and I making our first tutu together.  At the time, I did not even know what tulle was, but we watched a YouTube video about how to make a tutu without sewing and we eventually got it done.   She ran the whole race, as she has ever since, with a tutu and a tiara on.  (By the way, I am always amazed at the niches in the Internet that I never knew existed.  This is the video we watched to make the tutu -- it has 2.4 million views!  We basically followed this process except we used a piece of underwear elastic for the waist band rather than ribbon).  My job is to cut the tulle into strips -- we make them twice as long as she wants the skirt, and then my daughter ties them to a piece of elastic in the middle, so two strands hang down.

The challenge has increasingly become to use different colors than any past tutu.   The last one looked more like a skirt.  This one she wanted to be shorter and puffier, more like a ballet tutu.  It is hard to capture it well in a picture to get the detail but this is the result:

click to enlarge

 

Not to worry, your humble correspondent will be in costume too.  I have some great Darth Vader running gear I will be wearing.  I wore a rebel pilot outfit last time.  Disney really hit on something with these runs -- they have 8-10 different ones now.  The Princess half-marathon is still the most popular and sells out in about 45 minutes.  It was as hard to get a spot in it as it is to get Comicon tickets.  But given the popularity, there are whole web sites specializing in themed and costumed running gear.  I love capitalism.

PS -- I am still amazed she takes on all this extra weight and drag for fashion.  When I have to run this far, I am tempted to cut off the ends of my shoelaces to save weight.

PPS-- Here was the first one, at the finish line (a little worse for wear)

finish

Naomi Oreskes and Post-Modern Science

Post-modernism is many things and its exact meaning is subject to argument, but I think most would agree that it explicitly rejects things like formalism and realism in favor of socially constructed narratives.  In that sense, what I mean by "post-modern science" is not necessarily a rejection of scientific evidence, but a prioritization where support for the favored narrative is more important than the details of scientific evidence.  We have seen this for quite a while in climate science, where alarmists, when they talk among themselves, discuss how it is more important for them to support the narrative (catastrophic global warming and, tied with this, an increasing strain of anti-capitalism ala Naomi Klein) than to be true to the facts all the time.  As a result, many climate scientists would argue (and have) that accurately expressing the uncertainties in their analysis or documenting counter-veiling evidence is wrong, because it dilutes the narrative.

I think this is the context in which Naomi Oreskes' recent NY Times article should be read.  It is telling she uses the issue of secondhand tobacco smoke as an example, because that is one of the best examples I can think of when we let the narrative and our preferred social policy (e.g. banning smoking) to trump the actual scientific evidence.  The work used to justify second hand smoke bans is some of the worst science I can think of, and this is what she is holding up as the example she wants to emulate in climate.  I have had arguments on second hand smoke where I point out the weakness and in some cases the absurdity of the evidence.  When cornered, defenders of bans will say, "well, its something we should do anyway."  That is post-modern science -- narrative over rigid adherence to facts.

I have written before on post-modern science here and here.

If you want post-modern science in a nutshell, think of the term "fake but accurate".  It is one of the most post-modern phrases I can imagine.  It means that certain data, or an analysis, or experiment was somehow wrong or corrupted or failed typical standards of scientific rigor, but was none-the-less "accurate".  How can that be?  Because accuracy is not defined as logical conformance to observations.  It has been redefined as "consistent with the narrative."  She actually argues that our standard of evidence should be reduced for things we already "know".  But know do we "know" it if we have not checked the evidence?  Because for Oreskes, and probably for an unfortunately large portion of modern academia, we "know" things because they are part of the narrative constructed by these self-same academic elites.

What Happens When You Abandon Prices As A Supply-Demand Matching Tool? California Tries Totalitarianism

Mostly, we use prices to match supply and demand. When supplies of some item are short, rising prices provide incentives for conservation and substitution, as well as the creation of creative new sources of supply.

When we abandon prices, often out of some sort of political opportunism, chaos usually results.

California, for example, has never had the political will to allow water prices to rise when water is short. They cite all kinds of awful things that would happen to people if water prices were higher, but then proceed instead with all sorts of authoritarian rationing initiatives that strike me as far worse than any downsides of higher prices.

In this particular drought, California has taken a page from Nazi Germany block watches to try to ration water

So, faced with apparent indifference to stern warnings from state leaders and media alarms, cities across California have encouraged residents to tattle on their neighbors for wasting water — and the residents have responded in droves. Sacramento, for instance, has received more than 6,000 reports of water waste this year, up twentyfold from last year...

Some drought-conscious Californians have turned not only to tattling, but also to an age-old strategy to persuade friends and neighbors to cut back: shaming. On Twitter, radio shows and elsewhere, Californians are indulging in such sports as shower-shaming (trying to embarrass a neighbor or relative who takes a leisurely wash), car-wash-shaming and lawn-shaming.

“Is washing the sidewalk with water a good idea in a drought @sfgov?” Sahand Mirzahossein, a 32-year-old management consultant, posted on Twitter, along with a picture of a San Francisco city employee cleaning the sidewalk with a hose. (He said he hoped a city official would respond to his post, but he never heard back.)

Drought-shaming may sound like a petty, vindictive strategy, and officials at water agencies all denied wanting to shame anyone, preferring to call it “education” or “competition.” But there are signs that pitting residents against one another can pay dividends.

All this to get, in the best case, a 10% savings. How much would water prices have to rise to cut demand 10% and avoid all this creepy Orwellian crap?

One of the features of Nazi and communist block watch systems was that certain people would instrumentalize the system to use it to pay back old grudges. The same thing is apparently happening in California

In Santa Cruz, dozens of complaints have come from just a few residents, who seem to be trying to use the city’s tight water restrictions to indulge old grudges.

“You get people who hate their neighbors and chronically report them in hopes they’ll be thrown in prison for wasting water,” said Eileen Cross, Santa Cruz’s water conservation manager. People claim water-waste innocence, she said, and ask: “Was that my neighbor? She’s been after me ever since I got that dog.”

Ms. Franzi said that in her Sacramento neighborhood, people were now looking askance at one another, wondering who reported them for wasting water.

“There’s a lot of suspiciousness,” Ms. Franzi said. “It’s a little uncomfortable at this point.” She pointed out that she and her husband have proudly replaced their green lawn with drought-resistant plants, and even cut back showers to once every few days.

Update:  Seriously, for those that are unclear -- this is the alternative to capitalism.  This is the Progressive alternative to markets.  Sure, bad things happen in a free society with free markets, but how can anyone believe that this is a better alternative?

Bizarre Payback Analysis Being Used for Alternate Energy

Check out this payback analysis that is being trumpeted for wind power:

US researchers have carried out an environmental lifecycle assessment of 2-megawatt wind turbines mooted for a large wind farm in the US Pacific Northwest. Writing in the International Journal of Sustainable Manufacturing, they conclude that in terms of cumulative energy payback, or the time to produce the amount of energy required of production and installation, a wind turbine with a working life of 20 years will offer a net benefit within five to eight months of being brought online.

So of all the scarce resources that go into producing wind power, if you look at only one of these (energy), then the project pays itself back in less than a year.  This is stupid.  Yes, I understand that there are some "green" energy sources (*cough* corn ethanol *cough*) that cannot even produce more energy than they consume, so I suppose this finding is a step forward from that.  But what about all the other scarce resources used in producing wind power-- steel, labor, engineering talent, concrete, etc?  This is roughly like justifying the purchase of an 18-wheeler truck by saying it will pay off all the vanadium used in its production in less than a year.

Environmentalists seem to all feel that capitalism is the enemy of sustainability, but in fact capitalism is the greatest system to promote sustainability that has ever been devised.  Every single resource has a price that reflects its relative scarcity as compared to demand.  Scarcer resources have higher prices that automatically promote conservation and seeking of substitutes.  So an analysis of an investment's ability to return its cost is in effect a sustainability analysis.  What environmentalists don't like is that wind does not cover the cost of its resources, in other words it does not produce enough power to justify the scarce resources it uses.  Screwing around with that to only look at some of the resources is just dishonest.

The one reasonable argument is that the price of fuels does not adequately reflect the externalities of Co2 production.  I don't think these are high but obviously there are those who disagree.  The right way to do this analysis is to say that wind power provides a return only if electricity prices are X (X likely being well above current market rates) which in turn reflects a Co2 cost of Y $/ton.  My gut feel is that it would take a Y -- a cost per ton of CO2 -- way higher than any of the figures that are typically bandied about even by environmentalists to make wind work.

Postscript:  I did not critique the analysis of energy payback per se, but if I were to dig into it, I would want to look at two common fallacies with many wind analyses.  1) They typically miss the cost of standby power needed to cover wind's unpredictability, which has a substantial energy cost.  In Germany, during their big wind push, they had to have 80-90% of wind power backed up with hot fossil fuel backup.  2)  They typically look at nameplate capacity and not real capacities in the field.  In fact, real capacities should further be discounted for when wind power produces electricity that the grid cannot take (ie when there is negative pricing in the wholesale market, which actually occurs).

This Is Why Freaking Republicans Drive Me Crazy

From the WSJ

A little-noticed provision in a bill passed by the House this month calls for relying more on U.S.-flagged ships to deliver food aid to foreign countries—a change backed by labor groups and criticized by the White House.

The measure, tucked into a Coast Guard and maritime bill, would increase the proportion of food aid transported abroad on private ships flying the U.S. flag, which are required to employ primarily American mariners.

The Obama administration opposes boosting the requirement to 75% of food aid, in tons, from the current 50%, saying it would raise shipping costs by about $75 million a year—siphoning off funds that otherwise could be used to send food aid overseas.

Jeez, when President Obama of all people has to lecture you that protectionism and kowtowing to labor groups is costly, you have gone off the rails.   The Jones Act is one of the stupidest pieces of interventionist legislation on the books and the House should be working on its repeal to sort out the oil transport mess.  Instead, here are the Republicans in the House doubling down on it.  With so-called friends of capitalism doing this garbage, who needs enemies?  At least Progressives trash the economy without pretending that they are pro free market.

By the way, here is a bit from the Cato article on the Jones Act and oil and gas prices

First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products.  According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.”  As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity.  And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive.  According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.

It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers.  According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”

Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports.  As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada.  Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart.  One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices.  As a result, several recent analyses – including ones byCitigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.

It is Time to End Favored Tax Treatment of Capital Gains

My new column is up at Forbes.com, and asks why we fetishize capital gains over regular income

Let's consider two investors.  Investor A buys a piece of land and builds a campground on it, intending to run the campground for decades.  Investor A gets her return on investment from the profits each year running the campground, profits that are taxed as regular income  (Full disclosure:  In my business life, I am essentially investor A).

On the other hand, Investor B buys the same piece of land and builds the same campground on it, but in about a year Investor B sells the newly developed facility, making a profit on the sale over his original investment.  Investor B likely will pay taxes on this gain at reduced capital gains tax rates.

But why?  When Investor B sold the property, the price he got was probably something like the present value of the expected cash flows from operating the campground.   Both Investor A and B created essentially the same value., but Investor B took the value as a single lump sum rather than as a stream of income over time.  Why is Investor B's approach preferred in the tax code?  Or, stated another way, why does the tax code favor asset flipping over long-term operations?

Progressives Lamenting the Effects of Progressive Policies

Kevin Drum writes

Via Harrison Jacobs, here's a recent study showing the trend in income segregation in American neighborhoods. Forty years ago, 65 percent of us lived in middle-income neighborhoods. Today, that number is only 42 percent. The rest of us live either in rich neighborhoods or in poor neighborhoods.

This is yet another sign of the collapse of the American middle class, and it's a bad omen for the American political system. We increasingly lack a shared culture or shared experiences, and that makes democracy a tough act to pull off. The well-off have less and less interaction with the poor outside of the market economy, and less and less empathy for how they live their lives. For too many of us, the "general welfare" these days is just an academic abstraction, not a lived experience.

He does not give a reason, and apparently following the links, neither does the study author.  But my guess is that they might well attribute it to 1. effects of racism, 2.  growth of the suburbs, 3. laissez faire capitalism.

I don't think racism can be the driver of this change, given that racism and fear of other cultures is demonstrably better in the last 30 years than at most times in history  (read bout 19th century New York if you are not sure).  The suburbs have been a phenomenon for 100 years or more, and capitalism has been less laissez faire over the last 30 years than at any time in our history.

I actually believe a lot of this income sorting is a direct result of two progressive policies.  I have no data, of course, so I will label these as hypotheses, but I would offer two drivers

  • Strict enforcement of the public school monopoly.  People want good schools for their kids.  Some are wealthy enough to escape to private schools.  But the only way for those who stay in the public school system to get to the best schools is to physically move into their districts.  Over time, home prices in the best districts rise, which gives those schools more money to be even better (since most are property tax funded), and makes them even more attractive.  But as home prices rise, only the most wealthy can afford them.  This is dead easy to model.  Even in a starting state where there are only tiny inhomegeneities between the quality of individual schools, one ends up with a neighborhood sorting by income over time.  Ex post facto attempts to fix this by changing the public school funding model and sending state money to the poorest schools can't reverse it, because at least half of school quality is driven not by money by by the expectations and skills of the parents and children in it.  Thus East St. Louis can have some of the highest per pupil spending in the state but have terrible schools.  A school choice system would not likely end sorting by school, but it would eliminate a huge incentive to sort by neighborhood.
  • Strict zoning.  There has always been a desire among certain people to exclude selected groups from their neighborhoods.  This desire has not changed, or if anything I would argue it has declined somewhat.  What has changed is the increased power that exists to exclude.  Zoning laws give the rich and well-connected the political vehicle to exclude the rabble from their neighborhoods in a way that never would have been possible in a free market.  I live just next to the town of Paradise Valley, which has very strict zoning that is absolutely clearly aimed at keeping everyone but the well-off out.  They will not approve construction of new rental units.  The minimum lot sizes are huge, way beyond the reach of many.

Capitalism is an Un-System

Markets and commerce are not created top-down, they are emergent behavior:

...“no one” made markets. No one put out rules for when a market should or should not exist, much like the footprints in the snow following a fresh storm, these markets emerge from the self-interested actions of millions of buyers and sellers each responding to hundreds upon hundreds of incentives every day. Indeed, no one ever sat down and said, “you know, we have this major problem here – there are simply not enough things out there for all of the people who want them, so, let’s have this thing called capitalism and see how it works.” It simply didn’t go down that way, and discussing “markets” in the anthropomorphic way that is often done, particularly in these lines of inquiry, really takes us away from appreciating that market activity is an emergent process. Yes, it does operate in a richer institutional and intellectual framework and yes the “rules” of the game do alter when ends up being for sale or not, but simply condemning “markets” as allowing “everything” to be sold quite misses the point.

After Criticizing Capitalism For Using Advertising to Trick Consumers into Bad Deals, Progressives Try to Use the Same Tactic for Obamacare

From our favorite politically-blinkered economist who used to be smart:

Chait stresses the youth aspect:

Fortunately for Obama, this field of battle favors his side. To pass the law, he needed to win over skeptical senators. To defend it in court, he needed conservative jurists. But identifying and persuading young people is a battle Obama does not expect to lose to Republicans, and in place of the federal outreach funds, the administration is deploying a campaignlike array of weapons: microtargeting, including door-to-door outreach, and all forms of media. (A few weeks ago, Katy Perry tweeted out a link informing her 42 million followers that health care was available beginning October 1.)

Yep, when it comes to reaching hipsters, or young people in general — I know, Katy Perry — Dems have big advantages; all that coastal cultural elite hatred suddenly turns into a big disadvantage for the right.

A couple of thoughts:

  • Katy Perry is part of the cultural elite?  We have sure dumbed down that concept.
  • As to Ms. Perry, whose music is actually a guilty pleasure of mine, health care has been available to your twitter followers all their lives, not just beginning October 1.  A better way to put this is that, as of October 1 you will be forced to buy some amount of health care whether you want it or not.  
  • The whole campaign aimed at young people is simply obscene.  I understand that folks like Ms. Perry honestly believe that young people are getting a better deal, and that she is doing them a service.  Fine, millionaires can be low information voters too.  But people in the Administration have a much more cynical purpose, which explains the magnitude of the campaign described by Chait:  For Obamacare to work and not be a fiscal disaster, it depends on young people overpaying for health insurance.  The Administration knows that young people are overpaying -- the whole system depends on it -- and yet they are telling them it is in their interest to sign up.   A private company that did this would be in jail.
  • I think this whole campaign is going to fail due to a basic fallacy of Progressive thinking.  Progressives are convinced that consumers are helpless dupes of advertising.  They in fact criticized health care advertising expenses in the private world for years for this reason, making this whole campaign incredibly ironic.  Obama and company are convinced that with enough advertising, average consumers will buy anything, even if it is a bad deal, because they are convinced that this is how consumer capitalism works (it got him elected, didn't it?)  I think they are going to be disappointed.

Blast from the Past

I have not reread this little classic article from 9 years ago, until a customer in California found it and complained that it was outrageous that the state would actually allow such a person as its author to operate anything in a state park.  So I suppose it is worth relinking, if just for that reason.  Most of it holds up pretty well, though I regret the jab implying that progressives supported suicide bombers.  Here is an example:

Beyond just the concept of individual decision-making, progressives are hugely uncomfortable with capitalism.  Ironically, though progressives want to posture as being "dynamic", the fact is that capitalism is in fact too dynamic for them.  Industries rise and fall, jobs are won and lost, recessions give way to booms.  Progressives want comfort and certainty.  They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount.  That is why, in the end, progressives are all statists, because, to paraphrase Hayek, only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave.

Progressive elements in this country have always tried to freeze commerce, to lock this country's economy down in its then-current patterns.  Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry.  They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.  I, for one, am glad they failed, since for all of the soft glow we have in this country around our description of the family farmer, farming was and can still be a brutal, dawn to dusk endeavor that never really rewards the work people put into it.

This story of progressives trying to stop history has continued to repeat itself through the generations.  In the seventies and eighties, progressives tried to maintain the traditional dominance of heavy industry like steel and automotive, and to prevent the shift of these industries overseas in favor of more service-oriented industries.  Just like the passing of agriculture to industry a century ago inflamed progressives, so too does the current passing of heavy industry to services....

Take prescription drugs in the US - isn't it pretty clear that the progressive position is that they would be willing to pretty much gut incentives for any future drug innovations in trade for having a system in place that guaranteed everyone minimum access to what exists today?  Or take the welfare state in Continental Europe -- isn't it clear that a generation of workers/voters chose certainty over growth and improvement?  That workers 30 years ago voted themselves jobs for life, but at the cost of tremendous unemployment amongst the succeeding generations?

Tesla Actually Strikes a Blow Against the Corporate State

Tesla Motors and Elon Musk, the folks who seem to perennially have their hands out for special government favors and taxpayer money, may have actually struck a small blow against the corporate state:

Tesla Motors Inc. says it’s won another round in its fight with established car dealers who want to stop the company from selling its electric luxury cars directly to consumers.

Tesla CEO Elon Musk says, via Twitter, that a New York judge has tossed out a suit brought by New York auto dealers who challenged Tesla’s direct sales model as a violation of the state’s franchise laws.

Mr. Musk spent Wednesday in Texas making the case for a legislative proposal to change the law to allow direct sales of electric vehicles by U.S.-based manufacturers.  Texas car dealers have opposed the measure, saying it would open the door for other car makers to sell electric cars direct to customers –  which could undermine the value of their franchises.

Government protections of middle men in the auto business (states generally do the same in the liquor business) are a classic example of crony capitalism.  Car dealers tend to have a lot of sway with politicians, not to mention with local media for who they are generally the largest advertisers, so they are able to engineer special privileges for themselves.  Congrats to Tesla for taking this on.

Matt Yglesias is Reinventing History

Matt Yglesias and I certainly do read history differently.  He writes recently in a Salon article:

The basic economic foundations of industrial capitalism as we've known them for the past 150 years or so have an activist state at their core. Building political institutions capable of doing these things properly is really difficult, and one of the main things that separates more prosperous places from less prosperous ones is that the more prosperous places have done a better job of building said institutions. There's also the minor matter of creating effective and non-corrupt law enforcement and judicial agencies that can protect people's property rights and enforce contracts.

The point is, it takes an awful lot of politics to get an advanced capitalist economy up and running and generating wealth. A lot of active political decisions need to be made to grow that pie. So why would you want to do all that? Presumably because pie is delicious. But if you build a bunch of political institutions with the intention of creating large quantities of pie, it's obviously important that people actually get their hands on some pie. In other words, you go through the trouble of creating advanced industrial capitalism because that's a good way to create a lot of goods and services. But the creation of goods and services would be pointless unless it served the larger cause of human welfare. Collecting taxes and giving stuff to people is every bit as much a part of advancing that cause as creating the set of institutions that allows for the wealth-creation in the first place.

This is counter-historical crap.  Unfortunately, my real job is taking all my time today so I can only give a few quick responses rather than the thorough beating this deserves

  1. Capitalism is not a "system."  It is an un-system.   It is an order that emerges from individuals exchanging goods and services to their mutual self-interest.  While it requires a rule of law, those rules can be exceedingly simple -- at their core they are "don't deal with other people via force or fraud."  Sure, case law can be complex - what happens to a land deed that has one boundary on a river when the river moves.  But I don't think this is what Matt is thinking of.  
  2. Yglesias is following the typical socialist-progressive line that our modern wealth creating capitalist economy was somehow created by the government.  I am sure this line works with the low information voter, but that does not make it any more true.  Industrial capitalism arose long before the government even acknowledged its existence.  The US economy was generating wealth - for everyone, rich and poor - long before politicians stuck an oar into the economic waters.  Go back even 85 years and you will not see anything in the "political economy" that would be recognizable to a modern progressive.  In other words, the wealth creation came first, and then the politics came second.
  3. Again we see this bizarre progressive notion that wealth creation is this thing apart, like a water well in the desert.  Income distribution in this model is a matter of keeping the piggy rich people from hogging all the water.  But in a free society, the economy and its gains are not separate from people, they are integral to the people.  Gains are not somehow independent variables, but are the results of individual gains by each person in the system.  People operate by mutual self-interest.  When I work for you, I get a paycheck, you get your products made -- we both gain.  Steve Jobs grew wealthy selling iPads, but simultaneously my iPad made me vastly better off.
  4. It is wrong to say that all distributions of wealth are arbitrary.  In a free society, there emerges a natural distribution of wealth based on people's exchange with each other.  And contrary to the progressive mythology, that system was floating all boats, not just the rich ones, long before the government gained the power to redistribute wealth.  Yglesias is right in saying that income distribution in a progressive political economy is arbitrary.  In fact, income in any government-managed economy is distributed arbitrarily to whoever can gain power.  I am always amazed at progressives who somehow have this vision that there will be some group of people with absolute power who wukk make sure there will be a flat and equitable income distribution.  When has that ever happened?  Name even a single socialist country where that has happened.
  5. What political decision has ever been made the grows the pie, except perhaps to keep the government's hands off pie creation?  When "political" decisions are made to grow the pie, what you actually get is bailouts of Goldman Sachs, wealth funneled to connected billionaires like Elon Musk, and Solyndra.  Politics don't create wealth, they are a boat anchor lashed to the wealth creators.  The only thing politicians can do productively is make the boat anchor lighter.

Go Gary Johnson

I decided today to volunteer for Gary Johnson's independent libertarian run for President.  I have always been a Johnson supporter, and was disappointed that he did not get more attention in the debates and nomination process.

Yes, I know folks will be saying that if Gary Johnson does well, it will just be guaranteeing an Obama victory.  You know what?  Given the choices, I don't care.  My other choices seem to be the guy who pilot-tested Obamacare and Rick Santorum, perhaps the only person the Republicans could have found with a deeper authoritarian streak than Obama.  You know those 2x2 matrices where one leg is "government intervention in social issues" and the other is "government intervention in economic issues?"  Where libertarians are low-low and Republicans and Democrats are each in one of the low-high boxes?  Did you ever wonder who was in the high-high box?  Well, Obama has moved pretty strongly into that space.  But Santorum staked it out years ago.   He is right out of the John McCain, I-am-nominally-for-small-governemnt-but-support-authoritarian-solutions-for-a-range-of-random-issues school.

In fact, I might argue that freedom and small government would be better served by an Obama second term that the yahoos likely to gain the Republic nomination.  First, there is nothing worse than having statism and crony capitalism sold by someone who is nominally pro-market (see either of the Bushes as an example).  Second, Republicans are much feistier about limiting spending and regulation in Congress when in opposition.  They tend to roll over for expansions of state power when they have a fellow Republican in the White House -- just compare spending of the Republican Congress under Clinton vs. Bush.  Medicare Part D, anyone?

As I heard Ayn Rand say in a public speech in 1981, there is only so far I can go choosing the lesser of two evils.  I am now all in for Gary Johnson.

Protectionism -- The Worst Form of Crony Capitalism

Food activists on the Left often point to the use of High Fructose Corn Syrup (HFCS) as one of those failures of capitalism, where rapacious capitalists make money serving an inferior product.  But HFCS resulted from a scramble by food and beverage companies to find some reasonable alternative to sugar as the government has driven up sugar prices through a crazy tariff system that benefits just a tiny handful of Americans, and costs everyone else money

For the last 10 years or so, HFCS-42 has actually traded at a price higher than the world market price for sugur, but lower than the US price for sugar.   There is a lot complexity to prices, but this seems to imply that HFCS would not be nearly as attractive a substitute for sugar if US sugar tariffs did not exist (not to mention subsidies of corn which support HFCS).  This can also be seen in the fact that HFCS has not been used nearly so often as a sugar substitute in markets outside of the US, even by the same manufacturers (like Coke) that pioneered its use in the US.

President Obama used a lot of his state of the union address again teeing up what sounded to me like a new round of protectionism.  Protectionism is the worst form of crony capitalism, generally benefiting a handful of producers and their employee to the detriment of 300 million US consumers and any number of companies that use the protected product as an input.

Public vs. Private Privacy Threats

I am always fascinated by folks who fear private power but support continuing increases in public / government power.  For me there is no contest - public power is far more threatening.  This is not because I necesarily trust private corporations like Goldman Sachs or Exxon or Google more than I do public officials.  Its because I have much more avenues of redress to escape the clutches of private companies and/or to enforce accountability on them.  I trust the incentives faced by private actors and the accountability mechanisms in the marketplace far more than I trust those that apply to government.

Here is a good example.  First, Kevin Drum laments the end of privacy because Google has proposed a more intrusive privacy policy.  I am not particularly happy about the changes, but at the end of the day, I am comforted by two things.  One:  I can stop using Google services.  Sure, I use them a lot now, but I don't have to.  After all, I used to be a customer or user of AOL, Compuserve, the Source, Earthlink, and Netscape and managed to move on from those guys.  Second:  At the end of the day, the worst they are tying to do to me is sell me stuff.  You mean, instead of being bombarded by irrelevant ads I will be bombarded by slightly more relevant ads?  Short of attempts of outright fraud like identity theft, the legal uses of this data are limited.

Kevin Drum, who consistently has more faith in the state than in private actors, actually gets at the real problem in passing (my emphasis added)

And yet…I'm just not there yet. It's bad enough that Google can build up a massive and—if we're honest, slightly scary—profile of my activities, but it will be a lot worse when Google and Facebook and Procter & Gamble all get together to merge these profiles into a single uber-database and then sell it off for a fee to anyone with a product to hawk. Or any government agency that thinks this kind of information might be pretty handy.

The last part is key.  Because the worst P&G will do is try to sell you some Charmin.  The government, however, can throw you and jail and take all your property.  Time and again I see people complaining about private power, but at its core their argument really depends on the power of the state to inspire fear.  Michael Moore criticizes private enterprise in Capitalism:  A Love Story, but most of his vignettes actually boil down to private individuals manipulating state power.  In true free market capitalism, his negative examples couldn't occur.  Crony capitalism isn't a problem of private enterprise, its a problem of the increasingly powerful state.  Ditto with Google:  Sure I don't like having my data get sold to marketers, and at some point I may leave Google over it.  But the point is that I can leave Google .... try leaving your government-enforced monopoly utility provider.  Or go find an alternative to the DMV.

A great example of this contrast comes to us from Hawaii:

There may be some trouble brewing in paradise, thanks to a seemingly draconian law currently under consideration in Hawaii's state legislature. If passed, H.B. 2288 would require all ISPs within the state to track and store information on their customers, including details on every website they visit, as well as their own names and addresses. The measure, introduced on Friday, also calls for this information to be recorded on each customer's digital file and stored for a full two years. Perhaps most troubling is the fact that the bill includes virtually no restrictions on how ISPs can use (read: "sell") this information, nor does it specify whether law enforcement authorities would need a court order to obtain a user's dossier from an ISP. And, because it applies to any firm that "provides access to the Internet," the law could conceivably be expanded to include not just service providers, but internet cafes, hotels or other businesses.

Americans fed up with Google's nosiness can simply switch email providers.  But if they live in Hawaii, they will have no escape from the government's intrusiveness.

Keystone XL: Voting for the Stone Age

(update: link is fixed)  My new Forbes column is up, and it attempts to strip away the window dressing around the Keystone pipeline decision to get at the core issue -- "a quasi-irrational ('I'm blogging against the modern economy from my iPhone'), almost aesthetic distaste for energy production, the modern industrial economy, and capitalism itself. "  Read it all here.

PS-  the contrast between the Administrations support of the egregious HSR project in CA and its rejection of the takes-no-tax-dollars Keystone XL infrastructure project reminds me of my earlier piece on the Timeless Appeal of Triumphalism.   Politicians love to shift capital from private, boring, productive things like pipelines to sexy taxpayer-funded things that they can put their names on.

The Worst Polluter

This country has made great progress in cleaning up its waterways over the last four decades.  Conservatives like to pretend it's not true, but there is absolutely nothing wrong from a strong property rights perspective in stopping both public and private actors from dumping their waste in waterways that don't belong to them.

The problem today with the EPA is not the fact that they protect the quality of the commons (e.g. air and water) but that

  1. New detection technologies at the parts per billion resolution have allowed them to identify and obsess over threats that are essentially non-existent
  2. Goals have changed such that many folks use air and water protection as a cover or excuse for their real goal, which is halting development and sabotaging capitalism and property rights
But there is one actor that is still allowed to pollute at unarguably harmful levels.  You guess it, the government.

What might surprise Brougham and many other New Yorkers who were appalled by last summer’s sewage discharge is that there’s nothing particularly unusual about it. Almost every big rainstorm causes raw sewage to flow into the city’s rivers. New York is one in a handful of older American cities — Baltimore, Philadelphia and Washington, D.C., are others — that suffer from poor sewer infrastructure leading to Combined Sewer Overflows, or CSOs. New York City has spent $1.6 billion over the last decade trying to curb CSOs, but the problem is so pervasive in the city that no one is sure whether these efforts will make much of a difference.

CSOs occur because the structure of New York City’s sewage system often can’t cope with the volume of sewage flowing through it. Under the city’s streets, thousands of drains, manholes and plumbing systems converge into a few sewage mains. These pipes can handle the 1.3 billion gallons of wastewater that the five boroughs produce on a typical day — about as much water as would be generated by a 350-year-long shower. But whenever the pipes gather more water than usual — such as during a rain- or snowstorm — the pumps at the city’s 14 wastewater treatment plants can’t keep up with the flow. Rather than backing up into streets and homes, untreated sewage systematically bypasses the plants and heads straight into the waterways.*

In this way, 27 to 30 billion gallons of untreated sewage enter New York City waterways each year via hundreds of CSO outfalls, says Phillip Musegaas of Riverkeeper, a New York clean water advocacy group. Musegaas says he finds it especially upsetting that city officials don’t effectively warn the thousands of people like Brougham who use the waterways and could encounter harmful bacteria during overflow events.

I thought this correction was funny:

This story originally read that New York City’s sewage system could “barely” handle the city’s wastewater, an untrue statement. As long as there’s little surplus stormwater entering the system, it’s adequate to handle the flow.

Oh, so everything is OK, as long as it does not rain.  Which it does 96 days a year.  I am just sure this reporter would say that BP's offshore safety systems were "adequate" if it only spilled oil 96 days of the year.

Crony Capitalism? Blame the Progressives

That is the purposely inflammatory title of my article this week at Forbes.com, finding the roots of crony capitalism not in capitalism itself, but in progressive legislation.  An excerpt:

The core of capitalism has nothing to do with, and is in fact inherently corrupted by, the exercise of state power.  At its heart, capitalism is one simple proposition -- free exchange between individuals based on mutual self-interest.  There is no room in this definition for subsidies or special government preferences or bailouts.  The meat and potatoes activities of crony capitalism are corruptions rather than features of free markets.  Where state power to intervene in economic activity does not exist, neither does cronyism.

Believe it or not, the Occupy movement reminds me of nothing so much as 1832.  Flash back to that year, and you will find Federal officials with almost no power to help or hinder commerce... with one exception: the Second Bank of the United States, a powerful quasi-public institution that used its monopoly on government deposits as a source of funds for private lending.  The bank was accused of using its immense reserves of government cash to influence elections, enrich the favored, and lend based on political rather than economic formulae (any of this sound familiar?).  Andrew Jackson and his supporters, the raucous occupiers of their day, came into office campaigning against the fraud and cronyism at the Bank.

Jackson, much like the current OWS folks, was a strange blend of sometimes frontier anarchist and sometimes tyrannical authoritarian.  But in the case of the Second Bank, the OWS movement could well learn from Jackson.  He didn't propose new and greater powers for government officials to help check abuses of the existing powers -- he proposed to kill the Bank entirely.  Eliminate the source of power, and men can no longer tap it for their own enrichment.

Unfortunately, the progressive Left which makes up most of the OWS movement has taken exactly the opposite approach over the last century or so, expanding government powers and economic institutions (such that today the scope of the second bank seems quaintly limited) and thus the opportunity for cronyism.   In fact, most of the interventions that make crony capitalism possible are facilitated and enabled by the very progressive legislation that the progressive Left and the OWS protesters tend to favor.  Consider some examples...