… up until fairly recently, the home mortgage market was the most conservative financial market out there. The market was not a big money maker because risks were very low and the money was steady. The home mortgage market was the realm of community banks who held the mortgages as assets for the life of the loan. It was the 3-6-3 lifestyle. Borrow from the financial markets at three percent, make home mortgages at six percent and hit the links at 3:00 PM. That all changed in the early 1990’s when Democrat policymakers passed the Community Reinvestment Act and then forced banks to make loans that were far more risky in areas that the banks, for good reasons traditionally stayed away from. Then through Fannie Mae and Freddie Mac the “policymakers” bundled the good and bad paper and sold it on the financial markets creating the current mess. What I don’t understand is how increased home ownership was supposed to increase rents.
Home ownership has been a policy of multiple administrations since WW2, as has suburbanization. There are a bunch of reasons for this. One big one was that the policymakers were, for a bunch of reasons, not fond of urban life. It was considered dirty, old fashioned and perhaps most importantly a big target. This was not a small consideration to people coming back from all those ruined cities overseas.
John C. Carlton, “Who ‘Stole’ The Country’s Wealth, The Rich, Or Government ‘Policy Makers?'”, The Arts Mechanical, 2015-10-16.
September 16, 2017
QotD: The US housing market
August 24, 2017
Words & Numbers: Child Labor Was Wiped Out by Markets, Not Government
Published on 23 Aug 2017
In 1938 the US government passed the Fair Labor Standards Act mandating a forty hour work week, establishing a minimum wage, and prohibiting child labor. Because of legislation like this, government is often credited for making the American work environment safer and more fair. Yet, as Antony Davies and James Harrigan demonstrate with historical data, market forces were already making things easier on the American worker long before the FLSA.
Learn More:
https://fee.org/articles/child_labor_was_wiped_out_by_markets_not_government
https://youtu.be/0zq-2cKENOchttps://fee.org/articles/child_labor_was_wiped_out_by_markets_not_government
Data:
http://www2.census.gov/prod2/statcomp/documents/CT1970p1-05.pdf
See page 170 for average weekly work hours.
See page 134 for child labor rates.
August 17, 2017
Safe injection sites go rogue … to save lives
In the National Post, Chris Selley wonders why the federal government has been so slow to come around to accepting the overall harm reduction offered by legal safe injection sites:
I suspect this generation of policymakers, and the previous one especially, will struggle to explain to their grandchildren just what on earth they thought they were doing about opioid addiction. I don’t mean the likes of Donald Trump, who seems to think a get-tough policing approach — a “war on drugs,” perhaps — might get the job done. I mean smart, reasonably compassionate Canadians, by no means all conservatives, whose worries about safe injection sites in particular look bizarre even today, when people are still using them.
“It’ll attract rubadubs” — as if Vancouver’s Downtown Eastside was a middle-class utopia before Insite set up shop. “There’ll be needles in the streets” — more than if the safe injection site weren’t there, you mean? And, of course: “Addicts should go to treatment instead” — as if people haven’t been trying and failing to get and stay clean this whole time; as if the alternative, on a day to day basis, might be not waking up the next morning to go get treatment.
To its credit, the Liberal government in Ottawa has loosened the regulatory reins. There are nine approved “supervised consumption sites” up and running across the country: five on the Lower Mainland, one in Kamloops, and three in Montreal. Six more, in Victoria, Ottawa, Toronto and Montreal, are approved and awaiting inspections. An additional 10 are in the approval process; four in Edmonton applied more than three months ago; one in Ottawa has been in the works, officially, since February.
This looks like progress, and to a great extent it is. But on Sunday, a group of activists in Toronto implicitly asked another trenchant question: why does it take so bloody long to set up a supervised injection site? Why are we waiting? It’s just clean needles, chairs and tables, overdose treatment medication, a nurse and a phone.
August 4, 2017
Harry Potter and the Economic Segregation of Muggles
Published on 3 Aug 2017
Harry Potter contains a ton of incredible lessons about society, authoritarianism, and the power of love and individualism in the face of people who would exclude others based on group identity. But something people don’t think about as much are some of the economic lessons that we can draw from a world segregated into wizards and muggles.
On this episode of Out of Frame, we take a look at what the world might look like if magic and non-magic people were actually allowed to trade and interact with each other without the Ministry of Magic obliviating and arresting people for it.
For a transcript of this episode and more engaging content, visit:
www.FEE.org
August 2, 2017
Ontario has scared off foreign home-buyers, but bureaucratic delays still make housing more expensive
Josef Filipowicz and Steve Lafleur explain why Ontario’s recent crack-down on foreign home-buyers in the Greater Toronto Area still leaves one of the biggest barriers to affordable housing untouched:
The Ontario Legislature in Queen’s Park, Toronto. (via Wikimedia)
According to a recent announcement from Queen’s Park, 4.7 per cent of properties purchased in Ontario’s Greater Golden Horseshoe (between April 24 and May 26) were acquired by foreign individuals or corporations. This in the wake of the raft of measures announced in April including a 15 per cent “Non-Resident Speculation Tax” ostensibly aimed at improving housing affordability.
It’s difficult to say how this portion of the housing market — foreign buyers — ultimately impacts the cost of buying or renting in Canada’s biggest urban region, and it’s far too soon to estimate the effects of the myriad of policy changes the Ontario government is introducing. But what we do know is that the laws of supply and demand apply to housing, and it’s hard to believe that a small percentage of buyers are responsible for the massive appreciation of housing prices in the GTA over the past decade. Rather than focus on a small tranche of buyers, we should focus on ensuring that regulations don’t prevent the supply of new housing from meeting demand.
[…]
So what’s preventing cities in the Greater Golden Horseshoe from issuing more building permits?
In short, red tape at city hall. Between 2014 and 2016, Fraser Institute researchers surveyed hundreds of homebuilders across Canada to better understand how government regulation affects their ability to obtain permits. In the Greater Golden Horseshoe, it typically takes one-and-a-half years to obtain a permit in this region, and per-unit costs to comply with regulation amount to almost $50,000. Approval timelines can also be affected by the need to rezone property. Approximately two-thirds of new homes in the region require this procedure, which adds 4.3 months (on average) before builders can obtain permits.
Another deterrent to more supply is local opposition to new homes. Survey results show that council and community groups in Toronto, King Township and Oakville are more likely to resist the addition of new units in their neighbourhoods, effectively preventing newcomers from moving in.
Update, 3 August: Mission accomplished. Toronto home sales plummeted 40 percent in July.
July 31, 2017
Craft brewers are good examples of “evasive entrepreneurs”
Rosemarie Fike explains why craft brewers almost always push tours of their premises and souvenir glasses, mugs, coasters, and T-shirts:
This summer I’ve been enjoying a lot of microbrewery tours — even though the main attraction isn’t the “tour” I pay for, but the free beer that comes with it. In fact, the breweries must know that’s why people come. So why don’t they just drop this tour façade and sell us the beer?
Regardless of which brewery you visit, you pay a mere $10 for a pint glass with the brewery’s logo on it. As a thank you for purchasing the pint glass, they then grant three tickets you can redeem for free “samples” — which are actually full-sized beers.
There are also usually food vendors and live music. This atmosphere combined with the inexpensive libations draw sizeable crowds to these “tours” — where only a handful of patrons actually tour the facility.
But why do the breweries insist upon selling us the pint glasses, when most of us only really want what goes inside?
In conversation with the brewery owners, I learned that the breweries in my town aren’t legally allowed to sell beer directly to consumers in the way a bar can. But there’s nothing in the law preventing them from giving their product away.
In response to those incentives, they sell customers a pint glass (or charge them for the “tour”) and rent some of their property out to food vendors to subsidize the cost of getting their product into the hands of eager consumers without technically charging them for it.
It’s far from an ideal situation for these businesses, but it allows them to introduce new people to their product and to earn some revenue in the process — even if it’s less revenue than they could earn if they were allowed to just sell people the beer. It’s a clever arrangement and a perfect example of evasive entrepreneurship.
July 27, 2017
The EU is so abstruse that career UK civil servants are “not up to the task of understanding the complexities of EU processes and regulations”
Samizdata‘s Natalie Solent linked to this article at Geopolitical Futures, saying that it suggests the kind of artificial, obfuscated complexity that kept ancient Egyptian priests in their secure and powerful positions for centuries:
In recent weeks, EU negotiators have claimed that the British negotiators of Brexit are not sufficiently sophisticated to understand the complex issues being dealt with, and that, in essence, it is frustrating for EU negotiators to deal with unskilled negotiators. I have found that dealing with unskilled negotiators has frequently created opportunities for me, but apparently the EU wants to have a better team to play against.
A great deal of this is, of course, political maneuvering. The EU desperately wants to avoid a British withdrawal from the bloc. By making this charge, it hopes to discredit the British negotiating team and sow distrust between the British public and the negotiators. Implicit in what is being said is that the British team is going to fail to get a good deal for Britain, and that therefore the risks of Brexit for Britain are pyramided. Why the EU wouldn’t keep this fact secret, and negotiate a superb deal for itself, is a mystery, but the posture is almost that the EU wants to save the British from their own stupidity.
It’s not a bad maneuver, but it unravels at a certain point. The British team consists of well-educated and experienced civil servants. In claiming that this team is not up to the task of understanding the complexities of EU processes and regulations, the EU has made the strongest case possible against itself. If these people can’t readily grasp the principles binding Britain to the EU, then how can mere citizens understand them? And if the principles are beyond the grasp of the public, how can the public trust the institutions? We are not dealing here with the complex rules that allow France to violate rules on deficits but on the fundamental principles of the European Union and the rights and obligations – political, economic and moral – of citizens. If the EU operating system is too complex to be grasped by British negotiators, then who can grasp it?
The EU’s answer to this is that the Maastricht treaty, a long and complex document, can best be grasped by experts, particularly by those experts who make their living by being Maastricht treaty experts. These experts and the complex political entities that manage them don’t think they have done a bad job managing the European Union. In spite of the nearly decade long economic catastrophe in Southern Europe, they are content with their work. In their minds, the fault generally lies with Southern Europe, not the EU; the upheaval in Europe triggered by EU-imposed immigration rules had to do with racist citizens, not the EU’s ineptness; and Brexit had to do with the inability of the British public to understand the benefits of the EU, not the fact that the benefits were unclear and the rules incomprehensible. The institutionalized self-satisfaction of the EU apparatus creates a mindset in which the member publics must live up to the EU’s expectations rather than the other way around.
July 14, 2017
The Peltzman Effect
The odd situation where increasing the safety of an activity by adding protective gear is offset by greater risk-taking by the participants:
In the 1960s, the Federal Government — in its infinite wisdom — thought that cars were too unsafe for the general public. In response, it passed automobile safety legislation, requiring that seat belts, padded dashboards, and other safety measures be put in every automobile.
Although well-intended, auto accidents actually increased after the legislation was passed and enforced. Why? As [Professor of Economics Steven E.] Lansburg explains, “the threat of being killed in an accident is a powerful incentive to drive carefully.”
In other words, the high price (certain death from an accident) of an activity (reckless driving) reduced the likelihood of that activity. The safety features reduced the price of reckless driving by making cars safer. For example, seatbelts reduced the likelihood of a driver being hurt if he drove recklessly and got into an accident. Because of this, drivers were more likely to drive recklessly.
The benefit of the policy was that it reduced the number of deaths per accident. The cost of the policy was that it increased the number of accidents, thus canceling the benefit. Or at least, that is the conclusion of University of Chicago’s Sam Peltzman, who found the two effects canceled each other.
His work has led to a theory called “The Peltzman Effect,” also known as risk compensation. Risk compensation says that safety requirements incentivize people to increase risky behavior in response to the lower price of that behavior.
Risk compensation can be applied to almost every behavior involving risk where a choice must be made. Economics tells us that individuals make choices at the margin. This means that the incentive in question may lead the individual to do a little more or a little less of something.
[…]
The fact that incentives reduce or increase behavior is an economic law: Landsburg posits that “the literature of economics contains tens of thousands of empirical studies verifying this proposition and not one that convincingly refutes it.” Incentives change the effectiveness of government policy and shape day-to-day life.
July 11, 2017
QotD: The non-profit scam
Oddly, another form of this non-profit scam exists in my industry. As a reminder, my company privately operates public recreation areas. Several folks have tried to set up what I call for-profit non-profits. An individual will create a non-profit, and then pay themselves some salary that is equal to or even greater than the profits they would get as an owner. They are not avoiding taxes — they still have to pay taxes on that salary just like I have to pay taxes (at the same individual tax rates) on my pass-through profits.
What they are seeking are two advantages:
- They are hoping to avoid some expensive labor law. In most cases, these folks over-estimate how much a non-profit shell shelters them from labor law, but there are certain regulations (like the new regulations by the Obama Administration that force junior managers to be paid by the hour rather than be salaried) that do apply differently or not at all to a non-profit.
- They are seeking to take advantage of a bias among many government employees, specifically that these government employees are skeptical of, or even despise, for-profit private enterprise. As a result, when seeking to outsource certain operations on public lands, some individual decision-makers in government will have a preference for giving the contract to a nominal non-profit. In California, there is even legislation that gives this bias a force of law, opening certain government contracting opportunities only to non-profits and not for-profits.
The latter can have hilarious results. There is one non-profit I know of that is a total dodge, but the “owner” is really good at piously talking about his organization being “cleaner” because it is a non-profit, while all the while paying himself a salary higher than my last year’s profits.
Warren Meyer, “The New Rich – Living the High Life Through Your Non-Profit”, Coyote Blog, 2015-09-29.
July 6, 2017
Words & Numbers: Let Amazon Play Monopoly
Published on 5 Jul 2017
Amazon’s offer to buy Whole Foods for $13.7 billion sounds pretty great to both parties, but it seems that isn’t good enough. The proposal has a lot of people worried about Amazon becoming an indestructible monopoly, and the government is all too happy to step in and settle the issue. But this concern ignores consumers’ own preferences as well as business and entrepreneurial history. This week in Words and Numbers, Antony Davies and James R. Harrigan discuss the probable future of the Amazon-Whole Foods merger, what it could mean for us, and what it could mean for another once-equally feared corporation: Wal-Mart.
June 28, 2017
Concert-goers rejoice, for the government is here to help you!
Of course, if you have any experience of the utility of “government help”, you shouldn’t get your hopes up too high, as Chris Selley explains:
The results of an online public consultation were clear, said Naqvi. “One: the current system clearly is not working for fans; and two: Ontarians expect the government to take action.” We should have expected nothing less: ticket rage is a real thing among concertgoers in particular — a mind-boggling 35,000 people completed the online consultation — and besides, the survey didn’t include an option to suggest the government do nothing.
Among other things, Naqvi said, it will be illegal to resell tickets for more than 150 per cent of face value, and it will be illegal to use bots. Soon, he promised, “everyone (will have) a fair shot at getting the tickets they want.” Ontario, he said, will become “a world leader in ticket sales regulation.”
You’re supposed to think that’s both plausible and desirable. You should instead be very, very skeptical. So long as U2, the Tragically Hip and other artists insist on pricing their tickets vastly below what people are willing to pay for them, there will be an enormous incentive to circumvent whatever laws are in place to prevent third parties from reaping those foregone profits. A 150-per-cent cap would reduce the incentive, as Naqvi says — but only if the entire scalping community decided to respect it.
It won’t. It doesn’t. Scalping is illegal in Arkansas. Tickets for the University of Arkansas Razorbacks’ Nov. 24 game against Missouri are going on Stubhub for well over twice face value. Scalping is illegal in Quebec. Stubhub will put you in the third row for Bob Dylan’s show at the Montreal Jazz Festival next month for US$275; face value is $137.50 Canadian. The experiment works in every scalping-restrictive North American jurisdiction I tried. Heck, scalping used to be illegal in Ontario. That sure didn’t deter the gentlemen who prowled around outside Maple Leaf Gardens and SkyDome.
Many Stubhub users aren’t even in Ontario — that’s even more true for the people with the bots. Is the Attorney General really going to prosecute people for the crime of selling tickets at prices people are perfectly willing to pay? People in other countries? That would get awfully old in an awful hurry.
As he points out in the article, this is yet another instance of the Ontario government pandering to the demands of economic illiterates (recent examples include slapping on new rent controls in the middle of a housing crunch and significant increases in the minimum wage as new workforce entrants are already finding it tough to get hired). It’s as though the government is reading the economic textbook upside down … bringing in exactly the wrong “solutions” to every problem they see.
QotD: How “Jim Crow” laws were brought in to suppress competition
Lebergott’s historical account – which reinforces the important findings of Robert Higgs about the postbellum economic trajectory of blacks in America – reveals the equalizing powers of economic competition. Contrary to popular myth, even racist southerners put their own economic well-being ahead of their irrational prejudices by competing with offers of higher wages for blacks’ labor and with offers of low prices for blacks’ business. This competition, in turn, increased blacks’ geographic and economic mobility and raised their incomes. The reason southerners – whether racists or rent-seekers (or both) – turned to government to get Jim Crow legislation is that market forces were undermining their racist preferences and competing away their uncompetitively high profits, rents, and wages.
Lebergott’s account also further reveals the utter implausibly of the claims of those who assert that today’s market in America for low-skilled workers is infected with monopsony power. While this market isn’t textbook perfect (no real-world market is), and while this market would be improved by making it even freer (for example, by eliminating occupational-licensing statutes and zoning restrictions), the ability of low-skilled workers today throughout the U.S. to move from job to job is surely better than was the ability of low-skilled blacks 150 years ago throughout the American south to move from job to job. And yet, as Lebergott documents, low-skilled American blacks of 150 years ago in the American south did indeed enjoy such mobility that economic competition raised their wages. Similarly, the ability today of entrepreneurs and business owners to discover and compete for under-priced labor is surely greater than was the ability of employers 150 years ago to do the same – and yet, again as Lebergott documents, such competitive initiative by employers was common 150 years ago and served to increase low-skilled workers’ mobility and wages.
Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2017-05-22.
June 22, 2017
The EU regulators want to get rid of a Belgian food tradition
Carol Off reports for CBC Radio’s As It Happens:
Belgian Fries, traditionally served with mayonnaise
(photo by vokimberly at Flickr)
Belgium’s government says a new proposal by the European Union could spell disaster for the country’s world-famous fries.
“We adore our fries the way we make them, so just let us do so for the next 100 years, because the last hundred years it wasn’t a problem, so why should it be a problem now?” Flemish Tourism Minister Ben Weyts told Carol Off, host of CBC Radio’s As It Happens.
Traditionally, Belgian fries, are twice fried in fat. First, they go in raw to generate a soft, fluffy interior. Then they are refried at a higher temperature to create a crispy, golden exterior.
This process sets Belgian fries apart from soft and chunky British chips, or the sleek and thin fries preferred by the French.
But the European Commission is proposing that all potatoes be blanched — briefly cooked in boiling water — before they hit the fat.
It’s part of an EU effort to curb exposure to acrylamide, a chemical that can form in foods cooked at high temperatures, and has been linked to cancer in animal tests.
[…]
On the heels of the Belgian backlash, the European Commission has insisted the proposal is a suggestion, not a ban.
“The commission has no intention whatsoever to ban Belgian frites — or any other frites, for that matter,” spokesperson Margaritis Schinas said on Tuesday.
“Instead, the commission is preparing a new regulatory measure to oblige food business operators to apply a code of practice to reduce acrylamide in food, as it is carcinogenic.
“We are all very attached to the rich culinary heritage we find in our member states.”
For more information on Belgian Fries, see The One and Only Original Belgian Fries Website (which hadn’t been updated with this latest existential threat when I checked it).
H/T to Chris Myrick for the link.
June 20, 2017
“Licensing … is now one of the biggest labor problems facing California”
In the Orange County Register, Dick Carpenter outlines how many jobs in California are now closed off to anyone who doesn’t have a license:
Whether it’s brick-and-mortar restaurants fighting to outlaw food trucks, or taxicab associations suing Uber and Lyft, examples abound for this type of anticompetitive lobbying. One of the more blatant instances comes courtesy of the California Landscape Contractors Association. In 2014, the association supported a bill that made it even easier for regulators to crack down on contractors operating without a license. Their stated reasons were revealing: “Unlicensed persons unfairly compete,” because they can “significantly undercut licensed contractors when pricing projects to consumers.” The cost of compliance is quite substantial, as it “typically adds 15 to 20 percent to the cost,” the association estimated. Not only does licensure jack up consumer prices, it also keeps out aspiring entrepreneurs who ask for nothing more than the opportunity to work hard and prove themselves by the sweat of their brow.
Licensing goes well beyond contractors and is now one of the biggest labor problems facing California. In the 1950s, about 5 percent of Americans needed a government-issued license to work. Back then, government-mandated licensing was limited to a handful of trades, such as medicine and the law. But over the years, bottleneckers — often through self-serving professional associations — successfully persuaded governments to adopt new licenses that are difficult or practically impossible to obtain. This restricts opportunities for would-be entrepreneurs trying to break into the marketplace and provide new or better services.
Today, more than one-fifth of California’s workforce is licensed. When it comes to low- and middle-income occupations, which are often a gateway for upward mobility, California is the second-most extensively and onerously licensed state, according to a study by the Institute for Justice. In fact, there are so many licensing bottlenecks that when the bipartisan Little Hoover Commission began examining the issue, it reported that “No one could give the commission a list of all the licensed occupations in California.”
These restrictions are great for the bottleneckers, but they are bad for consumers. A report by the Brookings Institution summarized many of the academic findings on occupational licensing. Licensure can boost wages for licensed workers by as much as 15 percent, while increasing the cost for consumers by anywhere from four to 33 percent. As a result, one study even estimates that pervasive licensing leads to “up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.”
Bottleneckers typically claim the costs of licensing are necessary to protect the public, but the reality is quite different. In California, barbers, cosmetologists, tree trimmers and many construction contractors all must complete far more training for their licenses than is required for emergency medical technicians — who hold people’s lives in their hands. Manicurists need 400 hours of coursework and training for their licenses, which can costs thousands of dollars; EMTs require less than half the amount of training at only a 160 hours.
The introduction of licensing to a previously unregulated field typically benefits the existing workers in that field and severely disadvantages anyone hoping to enter that field — existing workers and businesses restrict competition by keeping out new entrants, and create an artificial shortage which allows them to boost their prices. The consumer generally does not benefit in any measurable way from the introduction of licensing, and ends up paying more for the services offered.
June 12, 2017
“They have gradually moved legislative power out of Congress and into administrative agencies — to be exercised, in more genteel ways, by persons like … themselves”
Glenn Reynolds (aka the Instapundit) on the unelected bureaucracies that have taken on more and more executive power over the lives of ordinary American citizens and their businesses:
Watching the ongoing clown show in Washington, Americans can be forgiven for asking themselves, “Why did we give this bunch of clowns so very much power over our nation and our lives?”
Well, don’t feel so bad, voters. Because you didn’t actually give them that much power. They just took it. That’s the thesis of Columbia Law Professor Philip Hamburger’s new book, The Administrative Threat, a short, punchy followup to his magisterial Is Administrative Law Unlawful? Both deal with the extraordinary — and illegitimate — power that administrative agencies have assumed in American life.
Hamburger explains that the prerogative powers once exercised by English kings, until they were circumscribed after a resulting civil war, have now been reinvented and lodged in administrative agencies, even though the United States Constitution was drafted specifically to prevent just such abuses. But today, the laws that actually affect people and businesses are seldom written by Congress; instead they are created by administrative agencies through a process of “informal rulemaking,” a process whose chief virtue is that it’s easy for the rulers to engage in, and hard for the ruled to observe or influence. Non-judicial administrative courts decide cases, and impose penalties, without a jury or an actual judge. And the protections in the Constitution and Bill of Rights (like the requirement for a judge-issued search warrant before a search) are often inapplicable.
As Hamburger writes, “Administrative power also evades many of the Constitution’s procedures, including both its legislative and judicial processes. Administrative power thereby sidesteps most of the Constitution’s procedural freedoms. Administrative power is thus all about the evasion of governance through law, including an evasion of constitutional processes and procedural rights.”
