Posts tagged ‘welfare’
Net Neutrality is Not Neutrality, It is Actually the Opposite. It's Corporate Welfare for Netflix and Google
Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like. There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers. We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public. But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.
In fact, this fight for rents across a vertical supply chain exists in virtually every industry. Consumers will pay so much for a finished product. Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.
What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats). Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide. But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it. Net Neutrality is corporate welfare for content creators.
Check this out: Two companies (Netflix and Google) use half the total downstream US bandwidth. They use orders and orders of magnitude more bandwidth than any other content creators, but don't want to pay for it (source)
Why should you care? Well, the tilting of this balance has real implications for innovation. It creates incentives for content creators to devise new bandwidth-heavy services. On the other hand, it pretty much wipes out any incentive for ISP's (cable companies, phone companies, etc) to invest in bandwidth infrastructure (cell phone companies, to my understand, are typically exempted from net neutrality proposals). Why bother investing in more bandwidth infrastrcture if the government is so obviously intent on tilting the rewards of such investments towards content creators? Expect to see continued lamentations from folks (ironically mostly on the Left, who support net neutrality) that the US trails in providing high-speed Internet infrastructure.
Don't believe me? Well, AT&T and Verizon have halted their fiber rollout. Google has not, but Google is really increasingly on the content creation side. And that is one strategy for dealing with this problem of the government tilting the power balance in a vertical supply chain: vertical integration.
Postscript: There are folks out there who always feel better as a consumer if their services are heavily regulated by the Government. Well, the Internet is currently largely unregulated, but the cable TV industry is heavily regulated. Which one are you more satisfied with?
Update: OK, after a lot of comments and emails, I am willing to admit I am conflating multiple issues, some of which fit the strict definition of net neutrality (e.g. ISP A can't block Planned Parenthood sites because its CEO is anti-abortion) with other potential ISP-content provider conflicts. I am working on some updates as I study more, but I will say in response that
- President Obama is essentially doing the same thing, trying to ram through a regulatory power grab (shifting ISPs to Title II oversight) that actually has vanishly little to do with the strict definition of net neutrality. Net neutrality supporters should be forewarned that the number of content and privacy restrictions that will pour forth from regulators will dwarf the essentially non-existent cases of net neutrality violation we have seen so far in the unregulated market.
- I am still pretty sure the net effect of these regulations, whether they really affect net neutrality or not, will be to disarm ISP's in favor of content providers in the typical supply chain vertical wars that occur in a free market. At the end of the day, an ISP's last resort in negotiating with a content provider is to shut them out for a time, just as the content provider can do the same in reverse to the ISP's customers. Banning an ISP from doing so is like banning a union from striking. And for those who keep telling me that this sort of behavior is different and won't be illegal under net neutrality, then please explain to me how in practice one defines a ban based on a supply chain rent-division arguments and a ban based on nefarious non neutrality.
Remember the whole VA thing? It has mostly been forgotten, though we will all remember it again, or more accurately get to experience it ourselves, once the Democrats manage to get single payer passed.
People talk about government employees being motivated by "public service" but in fact very few government agencies have any tangible performance metrics linked to public service, and when they do (as in the case of the VA wait times) they just game them. At the end of the day, nothing enforces fidelity to the public good like competition and consumer choice, two things no government agency allows.
I will admit that government employees in agencies may have some interest in public welfare, but in the hierarchy of needs, the following three things dominate above any concerns for the public:
- Keeping the agency in existence
- Maintaining employment levels, and if that is achieved, increasing employment levels
- Getting more budget
But look at the VA response in this context:
- The agency remains in existence and most proposals to privatize certain parts were beaten back
- No one was fired and employment levels remain the same
- The agency was rewarded with a big bump in its budget
The VA won! Whereas a private company with that kind of negative publicity about how customers were treated would have as a minimum seen a huge revenue and market share loss, and might have faced bankruptcy, the VA was given more money.
On the free market, in short, the consumer is king, and any business firm that wants to make profits and avoid losses tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it. The government bureau does not get its income as does the private firm, from serving the consumer well or from consumer purchases of its products exceeding its costs of operation. No, the government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom, since government bureaus need not worry about losses or bankruptcy; they can make up their losses by additional extractions from the public till. Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is "wasting" the government's scarce resources. In government operations, the consumer is treated like an unwelcome intruder, an interference in the quiet enjoyment by the bureaucrat of his steady income.
There's a naive tendency to believe that whatever a government agency's mission is supposed to be, is really the mission that its people pursue. That's seldom the case for long.
Science fiction writer Jerry Pournelle, observing such things, has formulated what he calls the Iron Law of Bureaucracy: In every organization there are two kinds of people: those committed to the mission of the organization, and those committed to the organization itself. While the mission-committed people pursue the mission, the organization-committed people take over the organization. Then the mission-committed people tend to become discouraged and leave.
As a result, the strongest priority of most bureaucracies is the welfare of the bureaucracy and the bureaucrats it employs, not whatever the bureaucracy is actually supposed to be doing. That's worth remembering, whenever someone says they've found something else that we should "choose to do together."
This is not unique to government, but a rule for all organizations. However, in a private-sector, organizations that devolve in this way get slaughtered (except of course for crony favors and bailouts, but that is another topic). Accountability never ever comes to government organizations.
Update: One other observation -- in criticizing Obamacare in advance of its implementation, I never mentioned computer systems problems. And I always assumed that if you threw enough money and mandates at the problem, the number of uninsured (not to be confused with the number of people with access to quality care) would be reduced. So all the current triumphalism around Obamacare are about issues that were in fact never raised in advance as criticisms.
One issue that was raised time and again was the information and incentives issues that make it almost impossible to government health care to deliver quality care at a reasonable price. And the heart of the VA disaster is all an incentives issue. And it will not get solved. In part because the incentives issues are endemic to monopoly government services (see: public high schools). But the government is not even trying to solve the incentives issue.
The first hint that the real goal of occupational licensing isn't to protect consumers' health and welfare is that far too many of the professions that are licensed pose practically zero risks to ordinary people. Among the professions that are licensed in various U.S. states are florists, hair braiders and casket sellers. What are the chances that consumers will be wounded by poorly arranged bouquets of flowers or that corpses will be made more dead by defective caskets?
The real goal of occupational licensing is to protect not consumers, but incumbent suppliers. Most occupational-licensing schemes require entrants into a trade to pass exams — exams designed and graded by representatives of incumbent suppliers....
But what about more “significant” professions, such as doctors and lawyers?
The case for licensing these professions is no stronger than is the case for licensing florists and hair braiders. The reasons are many. Here are just two.
First, precisely because medical care and legal counsel are especially important services, it's especially important that competition to supply these services be as intense as possible. If the price of flowers is unnecessarily high or the quality poor, that's unfortunate but hardly tragic. Not so for the prices and quality of the services of doctors and lawyers.
Too high a price for medical visits will cause too many people to resort to self-diagnosis and self-medication. Too high a price for legal services will cause too many people to write their own wills or negotiate their own divorce settlements. Getting matters wrong on these fronts can be quite serious.
Won't, though, the absence of licensing allow large numbers of unqualified doctors and lawyers to practice? No.
People are not generally stupid when spending their own money on themselves and their loved ones. Without government licensing, people will demand — and other people will supply — information on different physicians and attorneys. Websites and smartphone apps will be created that, for a small fee, collect and distribute unbiased information on doctors and lawyers. People in need of medical care or legal advice will be free to consult this information and to use it as they, rather than some distant bureaucrat, choose
One thing I think sometimes gets lost -- the critique of licensing often focuses on where licensing is too restrictive - e.g. hair braiding or taxis or simple medical procedures.
But it is just as likely to fail because it is insufficiently restrictive. People will always say to me that they certainly want their brain surgeon to be a licensed physician, implying that licensing is appropriate for certain extreme skills. But would you really choose a brain surgeon merely because he or she was licensed? I would do a ton of research in choosing a brain surgeon, research that would go well beyond their having managed to pass some tests 20 years ago.
The same applies for restaurants - my standards go way beyond whether they have a 3 basin cleanup sink and have sufficiently high temperatures in their dishwasher.
The criteria for licensing is never "just right". Either it is too restrictive and eliminates competition that would provide me value; or else it is insufficiently stringent such that I have to perform the same due diligence I would have in the absence of any licensing regime (though perhaps with less robust tools since licensing likely stunts development of such consumer tools). And even if it happened to be well-calibrated for me, it will not be well-calibrated for my neighbor who will have a different set of criteria and preferences.
The Senate Majority Leader has decided to try to shame and silence a private citizen for daring to engage in political discourse. Here is Harry Reid:
I believe in an America where economic opportunity is open to all. And based on their actions and policies they promote, the Koch brothers seem to believe in an America where the system is rigged to benefit the very wealthy.
Remember that this is coming from the man who has somehow become a multi-multi-millionaire over a lifetime of only holding government jobs.
Contrast this with Charles Koch's actual words, parts of which could have come out of the mouth of an occupy Wall Street protester:
I think one of the biggest problems we have in the country is this rampant cronyism where all these large companies are into smash-and-grab, short-term profits, saying how do I get a regulation, or we don’t want to export natural gas because it’s one of our raw materials … Well, you say you believe in free markets, but by your actions you obviously don’t. You believe in cronyism.
And that’s true even at the local level. I mean, how does somebody get started if you have to pay $100,000 or $300,000 to get a medallion to drive a taxi cab? You have to go to school for two years to be a hairdresser. You name it, in every industry we have this. The successful companies try to keep the new entrants down. Now that’s great for a company like ours. We make more money that way because we have less competition and less innovation. But for the country as a whole, it’s horrible.
And for disadvantaged people trying to get started, it’s unconscionable in my view. I think it’s in our long-term interest, in every American’s long-term interest, to fight against this cronyism. As you all have heard me say, the role of business is to create products that make people’s lives better while using fewer resources to do it, and making more resources available to satisfy other needs.
When a company is not being guided by the products they make and what the customers need, but by how they can manipulate the system — getting regulations on their competitors, or mandates on using their products, or eliminating foreign competition — it just lowers the overall standard of living and hurts the disadvantaged the most.We end up with a two-tier system. Those that have, have welfare for the rich. The poor, OK, you have welfare, but you’ve condemned them to a lifetime of dependency and hopelessness.
Yeah, we want “hope and change,” but we want people to have the hope that they can advance on their own merits, rather than the hope that somebody gives them something. That’s better than starving to death, but that, I think, is going to wreck the country. Is it in our business interest? I think it’s in all our long-term interests. It’s not in our short-term interest. And it’s about making money honorably.
People should only profit to the extent they make other people’s lives better. You should profit because you created a better restaurant and people enjoyed going to it. You didn’t force them to go, you don’t have a mandate that you have to go to my restaurant on Tuesdays and Wednesdays or you go to prison. I mean, come on. You feel good about that?
Harry Reid's entire job is built on a foundation of cronyism. Most of his re-election money comes from outside his home state of Nevada, from companies hoping to score political favors from him and from the power he weilds in the Senate. If laws were proposed to thwart Congressional cronyism, say through reducing the power of Congress to pick winners and losers, who would fight such a law, Reid or Koch?
I am simply exhausted with Paul Krugman calling people anti-science neanderthals for staking out fairly mainstream economic positions that he himself has held in the past. It would be one thing to say, "well, I used to believe the same thing but I changed my mind because x, y, z". That would be a statement to respect. Instead Krugman 1) pretends he never said any such thing and 2) acts like his opponent's position is so out of the mainstream that they are some sort of terrorist for even suggesting it.
I had an example just the other day.
Yesterday, New York Times columnist and CUNY economics professor Paul Krugman had some very strong words about the position in Republican Congressman Paul Ryan’s new poverty report that American welfare programs discourage work and “actually reduce opportunity, creating a poverty trap.” In fact, after contrasting the Ryan report’s view on poverty traps with some data on inequality and welfare states, Krugman resoundingly concluded that Ryan’s ideas were a total sham:
So the whole poverty trap line is a falsehood wrapped in a fallacy; the alleged facts about incentive effects are mostly wrong, and in any case the entire premise that work effort = social mobility is wrong.
Despite Krugman’s strong conclusions, however, Ryan’s views about US welfare policies and poverty traps are actually pretty mainstream – cited by people across the political spectrum as a big reason to reform state federal poverty programs. In fact, a New York Times columnist and Princeton economics professor expressed these widely-held views on the Old Grey Lady’s pages a mere two months ago:
But our patchwork, uncoordinated system of antipoverty programs does have the effect of penalizing efforts by lower-income households to improve their position: the more they earn, the fewer benefits they can collect. In effect, these households face very high marginal tax rates. A large fraction, in some cases 80 cents or more, of each additional dollar they earn is clawed back by the government.”
[I]t’s actually a well-documented fact that effective marginal rates are highest, not on the superrich, but on workers toward the lower end of the scale. Why? Partly because of the payroll tax, but largely because of means-tested benefits that fade out as your income rises. Here’s a recent discussion by Eugene Steuerle…
That professor, if you haven’t already guessed, was none other than Paul Krugman.
By the way, can I say how happy the first sentance of this quote makes me, to no longer see my alma mater mentioned in the same breath as Krguman at every turn?
I have seen this fact a number of times and am always amazed when I read it, since poverty figures are never, ever presented with this bit of context
LBJ promised that the war on poverty would be an "investment" that would "return its cost manifold to the entire economy." But the country has invested $20.7 trillion in 2011 dollars over the past 50 years. What does America have to show for its investment? Apparently, almost nothing: The official poverty rate persists with little improvement.
That is in part because the government's poverty figures are misleading. Census defines a family as poor based on income level but doesn't count welfare benefits as a form of income. Thus, government means-tested spending can grow infinitely while the poverty rate remains stagnant.
Rector argues that poor today is very different than poor in Johnson's day, and that perhaps we might celebrate a bit
Not even government, though, can spend $9,000 per recipient a year and have no impact on living standards. And it shows: Current poverty has little resemblance to poverty 50 years ago. According to a variety of government sources, including census data and surveys by federal agencies, the typical American living below the poverty level in 2013 lives in a house or apartment that is in good repair, equipped with air conditioning and cable TV. His home is larger than the home of the average nonpoor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.
Remember what I presented a while back. This is what the Left thinks, or wants us to think, American income inequality looks like -- our rich are richer than comparable European welfare states because our poor are poorer.
And this is what income inequality in the US actually looks like -- our rich and middle class are richer, but our poor are not poorer. A less redistributionist approach floats all boats. I compared the US to many European welfare states, using the Left's own data source. Here is an example, but hit the link to see it all.
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.
Some folks on the Left are starting to question the corporate income tax, recognizing what economists have known for years, that a lot of the tax is paid by consumers, making it more regressive than just (say) punishing Exxon for being large and productive.
There are many other reasons to hate the corporate income tax
- It does not raise very much money
- Its administrative costs (think corporate tax attorneys) is very high
- It is hugely distortive. The tax preference for debt over equity helped drive the LBO boom, for example
- It is the font of much corporate welfare and cronyism. A LOT of political paybacks get made within the corporate tax system
So here is my simply two-point plan
- Eliminate the corporate income tax. Entirely
- Tax dividends and capital gains as regular income on individual tax returns
Done. All corporate profits get taxed but only when they pass through to individuals as capital gains or dividends. I think this would actually raise more money but rates could be adjusted (or better yet deductions eliminated) if needs to keep it neutral.
I believe the economic benefits of this would be immediate and substantial.
Of course, corporate tax attorneys are rich and powerful and would cut their throats to stop this. It would be enormously entertaining to see them try, and in turn see what the reaction of their clients was to this.
The Two Lame Answers Obama Supporters Are Giving Those of Us Who Have Had Our Health Insurance Cancelled
1. The first Obama Administration response to people (like myself) who have had their health insurance cancelled because of Obamacare and who are facing much higher future premiums is that many of can expect a subsidy. Do you realize how awful this is? Basically they are acknowledging that millions of people who paid for their own health care in the past will now be getting taxpayer money. Essentially, a huge and unnecessary increase in government dependency.
2. The other equally awful Obama Administration answer is that our new health coverage will be more expensive because it will be "better". First, there is no evidence of this -- early returns are that people are paying more for less. Second, though, this is horribly arrogant. A $200,000 Maserati sedan is likely "better" than my car I am driving, but given its price I would consider myself worse off if forced to buy a Maserati. In the same sense, forcing me to by expensive insurance options I don't want is not "better", even if I am making choices Obama's advisers would not make for themselves. I spent a lot of time shopping for health insurance and running numbers on various cases and picking the best plan for me, and am insulted that Obama does not respect my decision.
By the way, I will remind you of what I said way back in 2007 about government health care proposals
Americans are unbelievably charitable people, to the extent that they will put up with a lot of taxation and even losses of freedoms through government coercion to help people out.
However, in nearly every other case of government-coerced charity, the main effect is "just" an increase in taxes. Lyndon Johnson wants to embark on a futile attempt to try to provide public housing to the poor? Our taxes go up, a lot of really bad housing is built, but at least my housing did not get any worse. Ditto food programs -- the poor might get some moldy cheese from a warehouse, but my food did not get worse. Ditto welfare. Ditto social security, unemployment insurance,and work programs.
But health care is different.... what is different about many of the health care proposals on the table is that everyone, not just the poor will get this same crappy level of treatment. It would be like a public housing program where everyone's house is torn down and every single person must move into public housing. That is universal state-run health care. Ten percent of America gets pulled up, 90% of America gets pulled down, possibly way down.
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?
I personally support much more open immigration, as do many other libertarians. When I get push-back from my libertarian friends, it generally is on two fronts:
- You can't combine open immigration with a welfare state -- this leads to financial implosion
- Open immigration allows illiberal, anti-democratic people to take power through the democratic process (a phrase I stole from here, though it is not actually about immigration). In the name of liberty, we let people come in and vote for authoritarian illiberal measures.**
I agree that both of these are real problems. The key for me is to disassociate legal presence in this country from citizenship. It should certainly be possible to have multiple flavors of legal presence in this country. At level 1, anyone can legally be present, seek employment, buy property, and have access to certain services (e.g. emergency services). At level 2, history of working and paying payroll and income taxes gets more access to welfare-state sort of programs. Over time, this may or may not lead to full citizenship and voting rights, but there is no reason we can't still be careful with handing out full citizenship while being relatively free with allowing legal work and habitation.
** I have observed a US internal version of this. People run away from California to places like Arizona and Texas to escape California's dis-functionality But as soon as they arrive in their new home, they start voting for the exact same crap that sank California.
Kevin Drum is uncomfortable that Google got off the hook on anti-trust charges merely because it was not harming consumers
Google made a number of arguments in its own defense, and consumer welfare was only one of them. Still, it was almost certainly the main reason they won, and it's still not clear to me that this is really what's best for consumers in the long run. Did Google users click on the products they highlighted? Sure. Did they buy some of the stuff? Sure. Were they happy with their purchases? Sure. Is that, ipso facto, evidence that there's no long-run harm from a single company dominating the entire search space? I doubt it. After all, John D. Rockefeller could have argued that consumers bought his oil and were pretty happy with it, so what was the harm in his controlling the entire market?
The tech industry moves fast enough that antitrust might genuinely not be a big issue there. In the end, it wasn't antitrust that hurt IBM and Microsoft. It was the fact that the industry moved rapidly toward smaller computers and then the internet, and neither company was really able to react fast enough to dominate these new spaces. Nonetheless, I'm skeptical of the tautology at the heart of the consumer welfare argument. If a company is successful, then by definition people must be buying its stuff. On this basis, bigness is simply unassailable anymore. That has broad societal implications that I suspect we're not taking seriously enough.
He seems to be arguing that we consider returning to a pure bigness standard without reference to consumer harm. I am not sure that we ever followed such a standard, but certainly today the alternative to a consumer harm standard is not a bigness standard but a competitor harm standard. Whether he knows it or now, this is essentially what Drum is advocating. We see this in the article he quotes:
But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.
I am not sure what Drum really wants, but the result of eliminating the consumer-harm standard would be an environment where every failed company can haul its more successful competitors in front of the government and then duke it out based on relative political pull rather than product quality. It is pretty well understood out there that this anti-Google FTC claim was initiated and championed by Microsoft, certainly not among the powerless typically championed by progressives, and a company well known to have missed the boat on Internet search and which is apparently trying to do now through government fiat what it has not been able to do in the marketplace. Microsoft learned this technique from Sun and Oracle, which took Microsoft to the FTC in the famous browser case where Microsoft faced years of anti-trust scrutiny for the crime of giving the public a free product.
Already, anti-trust law is an important tool of the corporate state, to allow politically powerful companies to squash competition from those who invested less money in their Washington office. I am not a legal expert at all, but this consumer standard in anti-trust strikes me as a critical shield stopping a hell of a lot more abuse of anti-trust law.
By the way, there is a modern bigness problem with corporations that is very troubling -- we have made government tremendously powerful, giving it many tools to arbitrarily choose winners and losers without any reference to justice or rights. As private entities get larger and richer, they are better able to access and wield this power in their own favor. The libertarian solution is to reduce the government's power to pick winners and losers. The progressive answer is to regulate business more with tools like anti-trust.
But the progressive solution has a built-in contradiction, which why Drum probably does not suggest a solution. Because the very tools progressives suggest to regulate business typically become the tools with which politically connected corporations further tilt the game in their own favor. Anti-trust is a great example. We want to reduce the number of large companies with an eye to reducing corporatism and cronyism, but the very tool to do so -- anti-trust law -- has become one the corporate crony's best tools for stepping on competitors and insulating their own market positions.
And by the way, Rockefeller's Standard Oil did a HELL of a job for consumers. It was nominally punished for what it might some day hypothetically do to consumers.
Here are the facts, via Reason
Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller's scientists and managers had driven the price to under 6 cents per gallon, and many of his less-efficient competitors were out of business--including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller's consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.
By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office. Rockefeller, by driving down the cost of kerosene as an illuminant, did more than any other person in the history to save the whales. By making kerosene cheap, people were willing to give up whale oil, dealing a mortal blow to the whaling industry (perhaps just in time for the Sperm Whale).
So Rockefeller grew because he had the lowest cost position in the industry, and was able to offer the lowest prices, and the country was hurt, how? Sure, he drove competitors out of business at times through harsh tactics, but most of these folks were big boys who knew the rules and engaged in most of the same practices. In fact, Rockefeller seldom ran competitors entirely out of business but rather put pressure on them until they sold out, usually on very fair terms.
From "Money, Greed, and Risk," author Charles Morris
An extraordinary combination of piratical entrepreneur and steady-handed corporate administrator, he achieved dominance primarily by being more farsighted, more technologically advanced, more ruthlessly focused on costs and efficiency than anyone else. When Rockefeller was consolidating the refining industry in the 1870s, for example, he simply invited competitors to his office and showed them his books. One refiner - who quickly sold out on favorable terms - was 'astounded' that Rockefeller could profitably sell kerosene at a price far below his own cost of production.
No, not the Affordable Care Act, though we need to get rid of that, too. In this case I am talking about the Arizona Commerce Authority. This is one of those ubiquitous local / state "development" efforts that mainly consists of handing out corporate welfare to a few well-connected companies who threaten to leave or build their new plant somewhere else.
Dru Stevenson at the Privatization blog has been nice enough to invite me to blog from time to time over at his place, despite the fact that we do not always agree. But we are in total agreement on this effort:
Even from a conservative, free-market perspective, government subsidies for businesses distort markets, foster monopolies, undermine competition, and reduce efficiency. The same complaints that business advocates make about the welfare system apply to government programs to help businesses - the vicious cycle of dependence, the lack of incentive to work hard or face difficult choices, the inevitable favoritism (some businesses get taxpayer subsidies, others miss out, and those that do have an unfair advantage over competitors who might otherwise win in a free marketplace). It has a chilling effect on market-driven innovation, improvements in efficiency, or "creative destruction." The subsidies can cause inflation as the local market prices correct for the infusion of unearned money. The inherent risks in entrepreneurship get externalized onto taxpayers rather than internalized by those who hope to reap the profits if they get lucky. The conflict-of-interest problem is not just that the businessmen will engage in whitewashed embezzlement, diverting funds to their own businesses or friend's businesses (or to their suppliers, in hopes of getting discounted inputs).
The problem is also that other firms - firms that might be more efficient, providing better goods and services at lower cost - face higher entry barriers when the existing holders of market share are bolstered by government handouts. In other words, I see little difference in the morality of handouts for poor individuals/families and handouts for businesses. There is a spiritual virtue in helping the poor, of course, but also a virtue in helping those who are hard-working and who have made sacrifices to become successful. The problem for me is the unintended consequences of government subsidies for entities that are supposed to compete and succeed in a free market.
I encourage you to check it all out.
The reason this made his privatization blog is that Arizona has actually privatized this function to an independent business group. Though an advocate of privatization in many realms, this makes me queasy for a couple of reasons:
- I can't get excited about privatizing an activity that should not be occurring, or is, as Stevenson so ably explains, actually detrimental
- I am comfortable privatizing operational things -- landscaping, running buildings, cleaning bathrooms, etc -- but privatizing the handing out of political patronage is an odd one for me and I don't really know how to think about it. On the one hand, this is essentially what the PPACA (Obamacare, the other ACA) is doing with difficult decisions like determining which procedures should be on the must-cover list for insurers by putting them in the hands of independent groups. But I have criticized those provisions of the PPACA for lack of accountability, and I believe the same arguments apply here
The only quibble I have with the criticism of the Arizona group is that, like many criticisms of privatization, it does not actually make a comparison to government-run efforts. Sometimes even mistake-riddled private efforts can be better than disasterous public management. For example this criticism:
According to Arizona PIRG's report, only two of the 13 incentive programs even track how many jobs or other benefits they generate -- and none disclose that information publicly. For all its business-savvy rhetoric, the ACA can't demonstrate performance if it doesn't track results. Only one program publicly discloses what companies promise to deliver for their subsidies. Worse still, only 4 of the 13 programs even disclose which companies received subsidies or how much. And when companies that receive subsidies fail to deliver on promised economic development benefits, the ACA can reclaim taxpayer subsidies for only one program, and there is no way for the public to see if this ever happens.
None of this is good, but note that for most similar state-run development programs, the number of programs that track their results is usually less than 2 in 13, the number is usually none. And the fact that there is some sort of clawback provision on funds is better than exists in most state relocation and other subsidy programs. In fact, most third-party reviews of state-run corporate relocation and plant location subsidy awards show that they universally fall well short of their pr0mised benefits, though this analysis is really hard to do because there is so little transparency in state activities of this sort.
My quibble, then, is that I am not sure the bad results here are a function of privatization or just the activity itself, as state-run efforts seem to do no better.
Update: I have written before about government corporate subsidies and attempts at venture capital investment in the context of the "big shot" effect. Many times I have come to suspect the biggest beneficiary of these programs is to the administrators themselves, who have no money of their own and wouldn't ever be trusted to manage a private portfolio but get to act as "big shots" with other peoples' money. They get the psychic benefit of being little junior Donald Trumps. This seems especially evident to me with Glendale, AZ, but seems to be an element of all these schemes.
Well, it looks like the NHL may have a buyer for the Phoenix Coyotes. I have not seen all the terms, but the problem in finding a buyer has been this: based on comps from other recent sales (e.g. Atlanta) the price for sunbelt teams is something like $100 million max, but the NHL has promised its owners it would not sell it for less than $200 million. The NHL has to find a sucker, and if billionaire buyers are not willing to be a sucker, then they have to find a third party sucker to just kick in $1oo million of present value to make the deal work.
Enter the city of Glendale. It has tried very hard on multiple occasions to be that sucker, and only was stopped from doing so by efforts of the Goldwater Institute to enforce a state Constitutional injunction on corporate welfare.
Glendale has apparently found a new way to subsidize the transaction by promising to pay an above-market stadium management fee. I have talked to some sports executives, including one very familiar with this stadium, and they have all said that in a free market, a third party might take the stadium management contract for free, because though it carries operational costs, it also yields offsetting revenues (like stadium rentals for concerts).
By paying an above-market rate for stadium management services, Glendale can provide a corporate subsidy but retain the fiction that this is a service contract rather than crony welfare. Over the last two years, Glendale has paid the NHL $25 million a year in stadium management fees, a payment everyone understands to actually be a subsidy to keep the team in town.
I presume the new buyer has met the NHL's $200 million price tag. But that is obvriously overpaying. So Glendale is going to kick a bunch of money back to the buyer to make it work, in the form of $306 million in stadium management fees. Via the Sporting News:
Longtime Glendale city councilor Phil Lieberman on Monday, in an interview with Sportsnet.ca, estimated that arena management fees paid by the city to Jamison under terms of the deal would total $306 million over the next 21 years, or an average of $14.6 million. A large chunk of that money, Lieberman says, is front-loaded, with Glendale on the hook for $92 million over the next five years. Nearby University of Phoenix Stadium, home to the Arizona Cardinals of the NFL, carries a $9.2-million management fee annually.
By the way, University of Phoenix Stadium is far larger and more expensive to operate, so one would expect the Coyotes arena management payment to be less than $9.2 million. And the $9.2 million, since it comes from Glendale as well, likely has a subsidy built in. But let's for a second assume something like $8 million a year is the high end for what a market rate for such a contract would be. This would be $168 million over 21 years, implying $138 million minimum in subsidy built into the management contract. There you go, there is the sucker payment to make up the difference between market value of the team and the NHL's price.
In fact, according to numbers at the WSJ, the city would have been better off leaving the stadium empty and just paying off the note (and they certainly would have been better taking Jim Balsillie's offer to move the team but help them pay down their note).
The NHL has announced a tentative sale to a group headed by former San Jose Sharks executive Greg Jamison, under terms that would essentially institutionalize Glendale's commitments. Under the proposal that the NHL has laid out for city council members, the city would continue paying an arena-management fee that would average about $14.5 million a year.
On top of the city's average $12.6 million in debt service, that amounts to annual expenses of about $27.1 million—to be offset by anticipated Coyotes-related revenue of $14.2 million, according to projections by Glendale's city management department. That adds up to a projected annual loss for Glendale of $12.9 million.
Of course, Glendale wants to keep the team because it cut a crony deal with a few real estate developers to build a retail and condo complex around the stadium. Of course, these ventures have also gone bankrupt. So the city is trying to bail out and keep a bankrupt hockey team to sustain an already bankrupt retail developer.
The logic of course is that Glendale wants to attract retail businesses to Glendale from nearby Peoria and Phoenix. But in the end, they are just messing up their own goal:
Some Glendale business owners may also oppose the deal, including David Kimmerle, owner of Sanderson Ford car dealership in Glendale. A longtime sponsor and fan of the Coyotes, Kimmerle felt betrayed when Glendale officials recently proposed raising the city's sale tax, in large part to support the cost of the team. The proposed increase would make a $30,000 car on Kimmerle's lot $330 more expensive than in the neighboring suburb of Peoria. "No one is going to pay a premium to shop in Glendale," Kimmerle said. "If it is choosing between the Coyotes or a business that is been in my family since 1955 and employs 500 people, I have to choose my business."
So, which would you bet on: That retail buyers will choose a location based on prices and taxes, or based on its proximity to a hockey team? Glendale is betting hundreds of millions of dollars its the latter. Which is why they are idiots.
Oh, and those Goldwater folks. Per the Sporting News article:
As for Goldwater Institution opposition to the deal, the league, Jamison and Glendale are aggressively striving to craft a sale that avoids Goldwater opposition and possible legal action.
And how are they doing this?
The NHL, city and Jamison are also not producing public documents on their deal so they can avoid records falling into Goldwater's hands.
Your transparent government at work. Its not breaking the law if no one can prove it.
I found this to be one of the most immoral statements I have read in a long time (bold added)
Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.
It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.
The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.
From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.
Another way to state the passage in bold is, "if one can convince himself he will be happier with another person's money than that other person would be, it is not only morally justified, but a moral imperative to take it."
This is the moral bankruptcy of the modern welfare state laid bare for all to see. Not sure if this even deserves further comment. Either you see the immorality or you bring a lot of very different assumptions about morality to the table than I. For those of you who accept the quoted statement, how are you confident you will always be the taker, the beneficiary? You might be if the box is drawn just around the US, but from a worldwide perspective all you folks in the American 99% may find yourselves in the world's 1%.
And from a purely practical standpoint, while I suppose one might argue that the total happiness in this particular instant could be maximized by taking most all the rich's marginal income, what happens tomorrow? It's like eating your seed corn. Taking capital out of the hands of the folks who have been the most productive at employing capital and helicopter dropping it on the 99% feels good right up until you need some job creation or economic growth or productivity improvement.
To this day, over 30 years after I had it explained in economics class, I am still floored by the line I read in the introductory macro textbook describing the Keynesian manipulation of Y=C+I+G+(X-M) to demonstrate a "multiplier" effect. The part that I never could get over was at the very beginning when they said "I, or Investment, is considered exogenous" - in other words, the other variables could be freely manipulated, the government could grow and deficit spend as much as it liked, and investment would be unaffected. Huh?
My memory was that Keynesians considered "I" a loser. They felt anything that was not G or C actually acted as a drag, at least in the near term (in the long run we will all be dead). This despite the fact that "I" is the only thing that grows the pie over time.
Yesterday, Congress agreed to extend the payroll tax reductions for another period of time. I have been thinking about this for a while, and I am slowly coming to the conclusion these taxes should be raised. I am still thinking this through so I welcome feedback.
I don't think I have to convince regular readers of this site that I am against government-run and mandated-for-all retirement funds (income via Social Security, medical via Medicare). But if we are going to have such programs, and maintain the pretense that they are insurance programs and not welfare/transfer programs, then the "premiums" we are forced to pay should reflect true costs.
I don't think Medicare premiums are covering anywhere near the actuarial-expected costs of one's future medical care. And while Social Security rates may be set correctly if trust funds were truly held securely, the fact of the matter is that past Social Security premiums that were paid to support future benefits have all been spent by a corrupt Congress. Rates are going to have to be raised to replace this theft.
I don't like raising taxes. I wish these two programs would go away or else be restructured drastically. If they exist, though, there is nothing more dangerous than an incorrect price. Prices help consumers make price-value tradeoffs -- the Keanu Reeves lifetime DVD collection may be a deal at $6.99 but not at $99.99. So charging the wrong prices for these programs not only royally screws up the government's finances, but it also misleads Americans about the value of these programs in comparison to what they pay for them.
Apparently, the gap between the productive and hard-working and those with less productive habits is growing larger. David Brooks suggests that the productive be forced into a couple of years of government servitude. The idea, as I understand it, is for the productive to teach the less fortunate how to be more diligent and productive in the context of a shared experience in an unproductive government make-work program. Sort of like teaching your teenager good work habits by putting him in DMV internship.
Seriously, I suppose I understand how class-mixing at the point of a gun might expose the wealthy to classes and cultures they have never encountered. But how is working together in some service brigade with a post office-trained manager on a government paycheck going to teach the welfare-and-food-stamp set anything new about productive work and self-reliance?
Perhaps I do not give Sarah Palin enough credit, because this is a really good passage, from one of her recent speeches (emphasis added by Mickey Kaus)
We sent a new class of leaders to D.C., but immediately the permanent political class tried to co-opt them – because the reality is we are governed by a permanent political class, until we change that. They talk endlessly about cutting government spending, and yet they keep spending more. They talk about massive unsustainable debt, and yet they keep incurring more. They spend, they print, they borrow, they spend more, and then they stick us with the bill. Then they pat their own backs, and they claim that they faced and “solved” the debt crisis that they got us in, but when we were humiliated in front of the world with our country’s first credit downgrade, they promptly went on vacation.
No, they don’t feel the same urgency that we do. But why should they? For them business is good; business is very good. Seven of the ten wealthiest counties are suburbs of Washington, D.C. Polls there actually – and usually I say polls, eh, they’re for strippers and cross country skiers – but polls in those parts show that some people there believe that the economy has actually improved. See, there may not be a recession in Georgetown, but there is in the rest of America.
Yeah, the permanent political class – they’re doing just fine. Ever notice how so many of them arrive in Washington, D.C. of modest means and then miraculously throughout the years they end up becoming very, very wealthy? Well, it’s because they derive power and their wealth from their access to our money – to taxpayer dollars. They use it to bail out their friends on Wall Street and their corporate cronies, and to reward campaign contributors, and to buy votes via earmarks. There is so much waste. And there is a name for this: It’s called corporate crony capitalism. This is not the capitalism of free men and free markets, of innovation and hard work and ethics, of sacrifice and of risk. No, this is the capitalism of connections and government bailouts and handouts, of waste and influence peddling and corporate welfare. This is the crony capitalism that destroyed Europe’s economies. It’s the collusion of big government and big business and big finance to the detriment of all the rest – to the little guys. It’s a slap in the face to our small business owners – the true entrepreneurs, the job creators accounting for 70% of the jobs in America, it’s you who own these small businesses, you’re the economic engine, but you don’t grease the wheels of government power.
So, do you want to know why the permanent political class doesn’t really want to cut any spending? Do you want to know why nothing ever really gets done? It’s because there’s nothing in it for them. They’ve got a lot of mouths to feed – a lot of corporate lobbyists and a lot of special interests that are counting on them to keep the good times and the money rolling along.
From the Hill, the ghost of Hawley-Smoot returns
The Senate voted Monday to advance legislation pressuring the Chinese government to stop undervaluing its currency, a practice most economists agree is giving the country an unfair trade advantage and is costing the U.S. jobs.
The Senate voted 79-19 to end debate on a motion to proceed to the bill, the Currency Exchange Rate Oversight Reform Act of 2011. While the vote does not mean the bill has passed, the strong show of support suggests it could well be approved in the upper chamber by the week’s end. Passage through the House is less clear, however, and GOP leaders have given no indication they will move forward with it.
Senate Democratic leadership, responsible for bringing the legislation to the Senate floor, heralded it as a way to create jobs and right a long-standing trade imbalance with China.
“China is by far the biggest exploiter of predatory currency practices,” Sen. Charles Schumer (D-N.Y.) said Monday. “[T]hese currency policies artificially raise the price of U.S. exports and suppress the price of imports into the United States, undermining the economic health of American manufacturers and their ability to compete at home and around the globe.”
This is a great example of how a group, in this case the Democratic Party, can say they are against corporate welfare, but in fact be 100% behind it simply by changing the terms used.
Look at the sentence in bold. Another way to write this would be "we want a law to help a few visible and influential manufacturers who most compete with China, but hurts consumers (ie every single American) and every business that uses imported raw materials.
Protectionism like this is corporate welfare for a few large manufacturers. I find it amazing the reporter can say that "most economists agree" an undervalued Chinese currency is costing us jobs. My sense is that most economists don't agree with this statement. All this law will do is unilaterally increase consumer prices and raw material costs, and I know few economists who think this is stimulative.
A cheap yuan is a direct subsidy of American consumers by the Chinese, and I am not sure why we shouldn't let it continue as long as they are dumb enough to keep doing it.
Second, the president should do more to help the American worker. He should establish a jobs program. Do the simple math: We are spending more than $110 billion annually in Afghanistan. Stop it. Or scale it back to the sort of covert operations and drone war that is warranted. Savings? Perhaps about $100 billion—per year. Use that money to create up to 5 million jobs at $20,000 each....Just as FDR did during the Great Depression, put these Americans to work in states, counties, schools, parks.
Even Drum considers this unrealistic, though for the wrong reasons (i.e. the evil Republicans in the House would never let us do it). I have a series of thoughts on this
- FDR had low paying jobs programs in part because this was the only form of relief -- there was not welfare or food stamps or medicaid or unemployment or EITC or social security. A $20,000 dig-a-hole-and-then-fill-it-in government make-work job would likely just displace about the same amount of other government transfer payments. I can't see this doing squat.
- We are really going to kick-start the consumer market with $20,000 jobs?
- The Left needs to get its story straight on the stimulative effects of wars. Democrats blame Bush for the current economy in large part because of his wars, and the author here implies that moving spending out of wars would be a net plus. But Keynesians believe WWII ended the Great Depression and Krugman wrote just the other day that what we really need is a war with space aliens (I kid you not) to end the Great Recession. So which is it?
By the way, I think wars are a total economic waste and drag on the nation. Dedicating scarce resources to blowing stuff up is the worst possible use of capital. However, diverting this into politically correct, politician-selected make-work projects is not really a lot better.
Ray Lane of Kleiner Perkins has helped score hundreds of millions of dollars of taxpayer money from the Obama administration to help subsidize Kleiner investments. More corporate welfare for billionaires.
It is a nice touch, therefore, that the first tangible result of these sizable public subsidies will be... a new family car for Ray Lane (the car is from Fisker Automotive, a Kleiner investment and recipient of $529 million in taxpayer subsidies. It appears to be a cool car, but an iPhone is a cool piece of tech too but you don't see me advocating taxpayer money for Apple.
My new column is up at Forbes, and it is one of my favorites I have written for a while (at least it seems so with my current scorpion-induced double vision). It begins with Krugman's recent statement that the Left understands the Right and libertarian positions better than the Right and libertarians understand the Left.
I first demolish this as a pretentious crock, but then wander to more important topics
But I do understand the leftish position well enough to identify its key mistake. As I mentioned earlier, we libertarians are similarly concerned with aggregations of power. We have, at best, a love-hate relationship with large corporations, for example, enjoying the bounties they can bring us but fearing their size and power.
But what the Left ignores is that there is absolutely no power imbalance as large as that between the government and its citizens. After all, you may get ticked off when Exxon charges you $4.00 a gallon for gas for reasons that aren't transparent to you, but you can always tell Exxon to kiss off and buy from someone else, or ride a bike, or stay home. Because Exxon does not have armies and police and guns and prisons.
Every single time we give the government the power to right a perceived imbalance, we give the government more power than the private entity we are trying to contain. In effect, we make things worse. Because we want the government to counter-act the power of oil companies, Congress now has the power to dump large portions of our food supply into motor fuel, to the benefit of just a few politically connected ethanol companies.
One of the reasons the Left often cannot adequately articulate the libertarian position is that the notion of bottom-up emergent order tends to be difficult for many to understand or accept (this is mildly ironic, since the Left tends to defend the emergent order of Darwinian evolution against the top-down Christian creation vision).
The key to much of libertarian economics is not that libertarians trust private actors, but that libertarians trust natural correction mechanisms in free markets far more than it trusts authoritarian power of the government. When, for example, large corporations become sloppy and abusive and senescent, markets will eventually bring them down.
In fact, when government is given power, nominally to correct such imbalances, they tend to use it to protect those in power as often as they do to protect the disenfranchised. Government restrictive licensing of hair dressers, interior designers, and morticians; bailouts of GM, Chrysler, and AIG; corporate welfare to GE and ADM; and use of imminent domain to hand private property to favored real estate developpers -- all are examples of finding government cures for perceived private power imbalances that are worse than the disease.
Isacc Asimov, in a book called Foundation that Paul Krugman recently rated as one of the most influential on his life, related this fable: Once there was a man and a horse, who were both imperiled by a wolf. The man approached the horse, and said that if the horse would put its superior speed at his disposal, he could kill the wolf. And so the horse agreed to take the man's saddle and bridle, and helped the man kill the wolf. The horse said, "great job, now remove your saddle and we can both be free," and the man said "never!"
I hope the moral of the story is clear. In trying to deal with the threat of the wolf, the horse gave the man so much power he became an even bigger threat. So too when we look to government to solve our problems.
Read the whole thing, as they say
My new column is up at Forbes.com, and it is the first in a three-part series on Obamacare.
In order to protect the core of Obamacare, Congressional Democrats have recently begun to acquiesce to a few incremental changes to the legislation that fix some of the most egregious parts of the plan (e.g. the burdensome 1099 requirements). The implicit message is that yes, the legislation was rushed and has some flaws, but these flaws can be fixed by targeted tweaks around the edges.
Today I will begin the first of a three-part series explaining several reasons why any health care law that relies on the fundamental assumptions of Obamacare is doomed to fail, even if crafted by the smartest people through the best process. In this first installment, we will discuss information problems inherent in the law’s top-down approach. In the second segment, we will cover incentives issues that will breed a myriad of unintended consequences. In the final part, we will discuss the ever-powerful urge to rent-seeking among certain businesses that will likely turn Obamacare into the largest single corporate welfare program in the history of this country.