Every expansion of the state incites more people to compete – and to compete more intensely – to possess the power over others that that expansion brings. From each individual’s perspective, it’s better to be in the group that exercises power rather than in the groups against whom the power is exercised. Unlike competition in markets, competition for power wastes material resources and human time and energy (rent-seeking wastes); such competition is never win-win but, rather, win-lose. But also unlike competition in markets, competition for power results in the worst form of inequality – indeed, the only form of inequality that warrants legitimate concern – namely, inequality of power. Those with state power, regardless of how they acquire it, can command those without state power. Those with state power use force to override the choices of those without state power. Those with state power do the choosing; those without state power do the obeying.
Unlike market-enabled differences in monetary incomes and wealth, this species of inequality – inequality of power – is inhumane and destructive, and it results from humans’ most primitive impulses.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-07-25.
August 16, 2016
QotD: The real danger of expanding the power of the state
August 12, 2016
Good news! Electricity in Ontario is cheaper to produce than ever before!
The bad news? It’s more expensive to consume than ever before, thanks to the way the Ontario government has manipulated the market:
You may be surprised to learn that electricity is now cheaper to generate in Ontario than it has been for decades. The wholesale price, called the Hourly Ontario Electricity Price or HOEP, used to bounce around between five and eight cents per kilowatt hour (kWh), but over the last decade, thanks in large part to the shale gas revolution, it has trended down to below three cents, and on a typical day is now as low as two cents per kWh. Good news, right?
It would be, except that this is Ontario. A hidden tax on Ontario’s electricity has pushed the actual purchase price in the opposite direction, to the highest it’s ever been. The tax, called the Global Adjustment (GA), is levied on electricity purchases to cover a massive provincial slush fund for green energy, conservation programs, nuclear plant repairs and other central planning boondoggles. As these spending commitments soar, so does the GA.
In the latter part of the last decade when the HOEP was around five cents per kWh and the government had not yet begun tinkering, the GA was negligible, so it hardly affected the price. In 2009, when the Green Energy Act kicked in with massive revenue guarantees for wind and solar generators, the GA jumped to about 3.5 cents per kWh, and has been trending up since — now it is regularly above 9.5 cents. In April it even topped 11 cents, triple the average HOEP.
The only people doing well out of this are the lucky cronies of the government who signed up for provincial subsidies on alternative energy (primarily wind and solar), who reap rents of well over 100% thanks to guaranteed minimum prices for electricity from non-traditional sources.
August 10, 2016
QotD: “Pro-business” versus “Pro-consumer”
In popular discourse, America is said to be more “pro-business” than is France. When people use this term “pro-business” they typically have in mind some vague notion of a government policy made up of low-ish taxes and not a great deal of government regulation. That is, “pro-business” is commonly used to mean a free, or free-ish, market.
But such language is mistaken.
A true free market is at its core pro-consumer. In a genuinely free-market economy, businesses are valued only insofar as they serve consumers. The performance of a genuinely free-market economy is assessed by how well it satisfies, over time, the demands of consumers spending their own money and not by how well it satisfies the demands of business owners and managers.
Obviously, because businesses are a useful – indeed, practically indispensable – means of abundantly satisfying consumers’ demands, government policies that obstruct the smooth operation of these means are undesirable. But such policies that obstruct or discourage business operations are economically undesirable not because they harm businesses but, rather, because they harm consumers.
Anyway, for all of its faults, American culture and policy are actually much less pro-business than are the culture and policy of France. If you’re really looking for a government that is deeply pro-business – one that regards the protection of existing businesses as a worthy end in and of itself – one that forcibly transfers resources from taxpayers, consumers, and other non-businesses in order to promote the material interests of existing businesses – look at France. You’ll find there what you seek. In France you’ll find one of the most business-friendly policy regimes on the face of the earth. (HT Chris Meisenzahl)
Pity the French.
Don Boudreaux, “Pity the French Consumer and Worker”, Café Hayek, 2016-06-27.
May 24, 2016
QotD: The battle of the crony capitalists
I am not sure that many politicians are good on this score, but Hillary Clinton and Donald Trump are likely as bad as it gets on crony capitalism. Forget their policy positions, which are steeped in government interventionism in the economy, but just look at their personal careers. Each have a long history of taking advantage of political power to enrich themselves and their business associates. I am not sure what Cruz meant when he said “New York values”, but both Trump and Clinton are steeped in the New York political economy, where one builds a fortune through political connections rather than entrepreneurial vigor. Want to build a new parking lot next to your casino or start up a new energy firm — you don’t bother with private investors or arms length transactions, you go to the government.
Warren Meyer, “2016 Presidential Election: Battle of the Crony Capitalists”, Coyote Blog, 2016-05-13.
April 14, 2016
Why there’s very little “free trade” involved in the TPP
ESR explains why the Trans-Pacific Partnership is such a huge monstrosity of regulations, crony capitalist favours to big business, anti-consumer intellectual property rules, and other mercantilist interventions in trade:
Today there’s a great deal of angst going on in the tech community about the Trans-Pacific Partnership. Its detractors charge that a “free-trade” agreement has been hijacked by big-business interests that are using it to impose draconian intellectual-property rules on the entire world, criminalize fair use, obstruct open-source software, and rent-seek at the expense of developing countries.
These charges are, of course, entirely correct. So here’s my question: What the hell else did you expect to happen? Where were you idiots when the environmentalists and the unions were corrupting the process and the entire concept of “free trade”?
The TPP is a horrible agreement. It’s toxic. It’s a dog’s breakfast. But if you stood meekly by while the precedents were being set, or – worse – actually approved of imposing rich-world regulation on poor countries, you are partly to blame.
The thing about creating political machinery to fuck with free markets is this: you never get to be the last person to control it. No matter how worthy you think your cause is, part of the cost of your behavior is what will be done with it by the next pressure group. And the one after that. And after that.
The equilibrium is that political regulatory capability is hijacked by for the use of the pressure group with the strongest incentives to exploit it. Which generally means, in Theodore Roosevelt’s timeless phrase, “malefactors of great wealth”. The abuses in the TPP were on rails, completely foreseeable, from the first time “environmental standards” got written into a trade agreement.
That’s why it will get you nowhere to object to the specifics of the TPP unless you recognize that the entire context in which it evolved is corrupt. If you want trade agreements to stop being about regulatory carve-outs, you have to stop tolerating that corruption and get back to genuinely free trade. No exemptions, no exceptions, no sweeteners for favored constituencies, no sops to putatively noble causes.
April 10, 2016
QotD: Big business
If you still believe big business is, as novelist and philosopher Ayn Rand famously described it, “America’s Persecuted Minority,” then you must be on the same amphetamines she was taking.
Conservatives have a nasty habit of being sympathetic to corporations, viewing them as a bulwark against government overreach. The reality is far different. If you’re a religious traditionalist in 21st-century America, big business hates your guts.
James E. Miller, “The Business End of Freedom”, Taki’s Magazine, 2016-03-31.
April 1, 2016
QotD: The real purpose of the TSA
The big pretend that costuming and repurposing mall food court workers as “security” will be anything approaching that has fooled the lazy American public that takes its civil liberties for granted.
They miss most of the items in DHL tests of their detection abilities, and really, it is clear that this is not security but a jobs program for unskilled earners, a cash program for former government employees like Michael Chertoff and the companies they are associated with, and obedience training for the American public — to be docile in the face of their rights being yanked from them.
Amy Alkon, “The Tragedy In Belgium Shows Up The Utter Fallacy That The TSA Will Keep You Safe”, Advice Goddess Blog, 2016-03-22.
March 1, 2016
QotD: Tall building mania
This is a sign of growing maturity on the part of the United States. Many of these super-tall building projects make little economic sense, but are completed to validate the prestige of emerging nations, like teenage boys comparing penis sizes. Grown men are beyond that behavior, just as are grown-up nations. I discussed this in the context of rail a while back at Forbes. In that case, it seems everyone thinks the US is behind in rail, because it does not have sexy bullet trains. But in fact we have a far more developed freight network than any other country, and shift of transport to rail makes a much larger positive economic and environmental impact for cargo than for rail. It comes down to what you care about — prestige or actual performance. Again choosing performance over prestige is a sign of maturity.**
The US had a phase just like China’s, when we were emerging as a world economic and political power, and had a first generation of successful business pioneers who were unsure how to put their stamp on the world. So they competed at building tall buildings. Many of the tallest were not even private efforts. The Empire State Building was a crony enterprise from start to finish, and ended up sitting empty for years. The World Trade Center project (WTC) was a complete government boondoggle, built by a public agency at the behest of the Rockefeller family, who wanted to protect its investments in lower Manhattan. That building also sat nearly empty for years. By the way, the Ken Burns New York documentary series added a special extra episode at the end after 9/11 on the history of the WTC and really digs in to the awful crony and bureaucratic history of that project. Though Burns likely did not think of it that way, it could as easily be a documentary of public choice theory. His coverage earlier in that series of Robert Moses (featuring a lot of Robert Caro) is also excellent.
** I have always wondered if you could take this model further, and predict that once-great nations in decline (at least in decline relative to their earlier position) might not re-engage with such prestige projects, much like an aging male seeking out the young second wife and buying a Porche.
Warren Meyer, “This is a GOOD Sign for the United States”, Coyote Blog, 2015-01-15.
February 6, 2016
The most likely explanation for politicians doing what they do
In his weekly column for USA Today, Glenn Reynolds distills down the essence of public choice theory:
The explanation for why politicians don’t do all sorts of reasonable-sounding things usually boils down to “insufficient opportunities for graft.” And, conversely, the reason why politicians choose to do many of the things that they do is … you guessed it, sufficient opportunities for graft.
That graft may come in the form of bags of cash, or shady real-estate deals, or “consulting” gigs for a brother-in-law or child, but it may also come in broader terms of political support and even in opportunities for politicians to feel superior or to humiliate their enemies. What all these things have in common, though, is that they’re not about making life better for voters. They’re about making life better for politicians.
This doesn’t sound much like the traditional view of politics, as embodied in, say, the Schoolhouse Rock “I’m Just A Bill” video. But it’s a view of politics that explains an awful lot.
And there’s a whole field of economics based on this view, called “Public Choice Economics.” Nobel prize winning economist James Buchanan referred to public choice economics as “politics without romance.” Instead of being selfless civil servants motivated solely by the public good, public choice economics assumes that politicians are, like other human beings, heavily influenced by self-interest.
Public choice economists say that groups don’t make decisions, individuals do. And individuals mostly do what they think will be best for them, not for the “public.” Public choices, thus, are like private choices. You pick a car because it’s the best car for you that you can afford. Politicians pick policies because they’re the best policies — for them — that they can achieve.
How do they get away with this? First, most voters are “rationally ignorant.” That is, they realize that their vote isn’t likely to make much of a difference, so it’s not rational to learn all the ins and outs of policy or of what political leaders are doing. Second, the entire system is designed — by politicians, naturally — to make it harder for voters to keep track of what politicians are doing. The people who have a bigger stake in things — the real estate developers or construction unions — have an incentive to keep track of things, and to influence them, that ordinary voters don’t.
Can we eliminate this problem? Nope. But we can make it worse, or better. The more the government does and the more decisions that are relegated to bureaucrats, “guidance” and other forms of decisionmaking that are far from the public eye, the more freedom politicians have to pursue their own interest at the expense of the public — all while, of course, claiming to do just the opposite. Meanwhile, if we do the opposite — give the government less power and demand more accountability — politicians can get away with less. But they’ll always get away with as much as they can.
December 15, 2015
Hillary Clinton’s well-intentioned plans will make the prescription medicine market even worse
Another older post from Megan McArdle on the nice-soundbites-but-terrible-economic-notions from the Hillary Clinton campaign to fix the prescription medicine marketplace:
Hillary Clinton thinks drug development should be riskier, and less profitable. Also, your health insurance premiums should be higher. And there should be fewer drugs available.
This is not, of course, how the Clinton campaign would put it. The official line is that Americans are just paying too darn much for drugs, and she has a plan to stop that:
- Regulate direct-to-consumer advertising more heavily, and strip its tax deductibility
- Require drug companies to spend a certain percentage of revenue on research and development, or face penalty payments and the loss of their R&D tax credit (I am inferring that this is what she is talking about, since the actual language of the proposal is long on paeans to the importance of federal research funding and short on details)
- Cap out-of-pocket costs for drugs
- Reduce the exclusivity period for biologic drugs
- Prohibit companies from making side payments to generic manufacturers to keep generic competition off the market
- Allow drug reimportation
- Require that new treatments be proved to be a substantial improvement over existing treatments — i.e., eliminate the dreaded “me too” drugs
- Allow Medicare to “negotiate” drug prices
Eliminating the side payments seems eminently sensible. (Yes, yes, you can strip my libertarian card, but market-rigging contracts shouldn’t be enforced.) It also seems reasonable to require some sort of comparative effectiveness research. Other provisions will certainly drive down drug prices, at the risk of also driving down innovation.
Still other provisions, however, are simply bad economics. In what other market do we worry about having a second product available that’s merely just as good as the first? Should we really only have one antidepressant, one statin, one blood pressure medication, and so forth? Might there be variation among patients so that drugs that are statistically about equally effective in large groups are nonetheless individually more or less effective for different people? Might one drug’s side effects be better tolerated by some patients than another’s? Might having two drugs in the category help keep prices down?
Then there is notion that we should force pharmaceutical companies to spend a set percentage of their revenues on R&D. This seems to me to be … what’s the word I am looking for? Ah, I’ve got it: “insane.”
[…]
Economically, large parts of this plan make little sense. Politically, many of these items would be very difficult to pass, not least because the Congressional Budget Office would assess the likely effects and would make it sound much less appealing than it does in a gauzy stump speech. But away from those harsh realities, purely as campaign rhetoric, it probably works very well.
September 15, 2015
QotD: The Ex-Im Bank
… every time the Ex-Im Bank gets involved in a deal, there are only two possibilities: The government is needlessly subsidizing something that would have happened anyway, giving away cheap money to a huge corporation. Or else it’s subsidizing a deal that wouldn’t have happened anyway, in which case we are defending the use of taxpayer dollars to sell cheap manufactured goods to foreigners. It’s not even as if we’re picking out especially needy foreigners, who may require a charitable contribution from the prosperous citizens of the United States; the subsidy is distributed on the basis of who is willing to, say, buy cut-rate U.S. airframes. And guess who benefits? U.S. corporations that export a lot.
This is not a good use of taxpayer dollars, and conservative ideologues, bless their hearts, are quite right to want to get rid of it. Their passion is a little out of proportion to the harm that this agency does, but even a small step in the right direction is better than none. The bank’s opponents concede that. For them, the appeal of taking on Ex-Im is that they might be able to take it down.
Against this impeccable economic and political logic, the bank’s supporters marshal a few arguments. First, they often claim (as Nocera implies) that the Ex-Im Bank generates a lot of money for the Treasury. Which is sort of true … except. First of all, it doesn’t account for the opportunity costs of the distortion; resources are diverted into production of certain goods, and away from others. And second of all, government accounting for loans is rather weird. According to the Congressional Budget Office, if we used a fair value accounting method, which would account for the risk of changing market conditions, the Ex-Im Bank’s six largest programs would be generating a deficit, not a surplus.
We are also told that Ex-Im is a vital matter of national security. I’m going out on a limb here, but I’m pretty sure that if the U.S. government needs to find some money to give foreigners as a vital matter of national security, they will manage to find it even if the Ex-Im Bank is shuttered and its silent halls hold only the lingering ghosts of departed exporters.
Megan McArdle, “Ex-Im Bank Is a Tiny But Tempting Target”, Bloomberg View, 2015-08-03.
September 1, 2015
August 25, 2015
Roger Kimball says Elon Musk is crazy
Oh, sorry, he actually said Musk is “crazy like a visionary“:
I am an unlikely fan of Elon Musk, the flamboyant, Steve Jobs-like (some would say Tony Stark-like) entrepreneur behind SpaceX, SolarCity, Tesla Motors, and other enterprises that seemed like starry-eyed impossibilities a scant decade ago. Musk’s two governing passions, he has said repeatedly, are “sustainable transport” to battle “global warming” and finding a way to make mankind an interplanetary species, beginning with a space colony on Mars.
For my part, the word “sustainable” has me reaching, if not for my revolver, then at least for an air-sickness bag. I regard the whole Green Lobby as a cocktail composed of three parts moralistic hysteria mixed with a jigger of high-proof cynical opportunism (take a look at Al Gore’s winnings from the industry) fortified with a dash of beady-eyed left-wing redistributionist passion. You can never be Green enough, Comrade, and if the data show a 20-year “hiatus” in global warming (so much for Michael Mann’s infamous hockey stick), that’s no reason not to insist that capitalist powerhouses like the United States drastically curtail their CO2 emissions right now, today, while giving egregious polluters like China a decade or more to meet its quotas.
No, when it comes to energy, I often quote, sometimes with attribution, the Manhattan Institute’s Robert Bryce: what the world needs now is cheap, abundant energy, period, full stop, end of discussion. My motto is: frack early, frack often. Do you want to help the poor/clean up the environment/save the spotted wildebeest? Then you need economic growth, and to achieve that you need energy, which at the moment means you need fracking. Q.E.D.
When it comes to interplanetary travel, I suspect that Musk’s passion for transforming us into “space-faring” creatures was heavily influenced by his youthful reading of Isaac Asimov, Robert Heinlein, and (one of his favorites) The Hitchhiker’s Guide to the Galaxy. Not that those adolescent chestnuts necessarily argue against the plausibility of his ambitions. Behind Musk’s enthusiasm for space colonization is a worry that a future “extinction event” might delete human consciousness from the emporium of the universe.
For what it’s worth, I’m very much split on Musk and his works: I generally agree with his desire to help get humanity expanding beyond our single, frail planet … I just wish he wasn’t guzzling down government subsidies to get there. I’ve read the book Kimball is reviewing (Ashlee Vance’s Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future), and I certainly feel I got my money’s worth from the purchase … Musk is potentially a very great man. Right now, he’s a pretty good man who still takes everything he can get from the government.
August 24, 2015
Billionaires, good and bad
In the Washington Post, Ana Swanson examines the good and bad (for economic growth) of the billionaire class:
Over the past few decades, wealth has become more concentrated in the hands of a few global elite. Billionaires like Microsoft founder Bill Gates, Mexican business magnate Carlos Slim Helú and investing phenomenon Warren Buffett play an outsized role in the global economy.
But what does that mean for everyone else? Is the concentration of wealth in the hands of a select group a good thing or a bad thing for the rest of us?
You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.
Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.
A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.
Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.
May 24, 2015
Mitchell’s First Theorem of Government
Dan Mitchell clearly understands what modern western government is really all about:
