Quotulatiousness

September 1, 2016

Don’t blame the market for the EpiPen price hike – blame the FDA

Filed under: Bureaucracy, Government, Health, USA — Tags: , , , — Nicholas @ 03:00

Scott Alexander explains why “the market” has very little to do with the outrageous price hike for EpiPens:

EpiPens, useful medical devices which reverse potentially fatal allergic reactions, have recently quadrupled in price, putting pressure on allergy sufferers and those who care for them. Vox writes that this “tells us a lot about what’s wrong with American health care” – namely that we don’t regulate it enough:

    The story of Mylan’s giant EpiPen price increase is, more fundamentally, a story about America’s unique drug pricing policies. We are the only developed nation that lets drugmakers set their own prices, maximizing profits the same way sellers of chairs, mugs, shoes, or any other manufactured goods would.

Let me ask Vox a question: when was the last time that America’s chair industry hiked the price of chairs 400% and suddenly nobody in the country could afford to sit down? When was the last time that the mug industry decided to charge $300 per cup, and everyone had to drink coffee straight from the pot or face bankruptcy? When was the last time greedy shoe executives forced most Americans to go barefoot? And why do you think that is?

The problem with the pharmaceutical industry isn’t that they’re unregulated just like chairs and mugs. The problem with the pharmaceutical industry is that they’re part of a highly-regulated cronyist system that works completely differently from chairs and mugs.

If a chair company decided to charge $300 for their chairs, somebody else would set up a woodshop, sell their chairs for $250, and make a killing – and so on until chairs cost normal-chair-prices again. When Mylan decided to sell EpiPens for $300, in any normal system somebody would have made their own EpiPens and sold them for less. It wouldn’t have been hard. Its active ingredient, epinephrine, is off-patent, was being synthesized as early as 1906, and costs about ten cents per EpiPen-load.

Why don’t they? They keep trying, and the FDA keeps refusing to approve them for human use. For example, in 2009, a group called Teva Pharmaceuticals announced a plan to sell their own EpiPens in the US. The makers of the original EpiPen sued them, saying that they had patented the idea epinephrine-injecting devices. Teva successfully fended off the challenge and brought its product to the FDA, which rejected it because of “certain major deficiencies”. As far as I know, nobody has ever publicly said what the problem was – we can only hope they at least told Teva.

[…]

Imagine that the government creates the Furniture and Desk Association, an agency which declares that only IKEA is allowed to sell chairs. IKEA responds by charging $300 per chair. Other companies try to sell stools or sofas, but get bogged down for years in litigation over whether these technically count as “chairs”. When a few of them win their court cases, the FDA shoots them down anyway for vague reasons it refuses to share, or because they haven’t done studies showing that their chairs will not break, or because the studies that showed their chairs will not break didn’t include a high enough number of morbidly obese people so we can’t be sure they won’t break. Finally, Target spends tens of millions of dollars on lawyers and gets the okay to compete with IKEA, but people can only get Target chairs if they have a note signed by a professional interior designer saying that their room needs a “comfort-producing seating implement” and which absolutely definitely does not mention “chairs” anywhere, because otherwise a child who was used to sitting on IKEA chairs might sit down on a Target chair the wrong way, get confused, fall off, and break her head.

(You’re going to say this is an unfair comparison because drugs are potentially dangerous and chairs aren’t – but 50 people die each year from falling off chairs in Britain alone and as far as I know nobody has ever died from an EpiPen malfunction.)

Imagine that this whole system is going on at the same time that IKEA spends millions of dollars lobbying senators about chair-related issues, and that these same senators vote down a bill preventing IKEA from paying off other companies to stay out of the chair industry. Also, suppose that a bunch of people are dying each year of exhaustion from having to stand up all the time because chairs are too expensive unless you’ve got really good furniture insurance, which is totally a thing and which everybody is legally required to have.

And now imagine that a news site responds with an article saying the government doesn’t regulate chairs enough.

August 10, 2016

QotD: “Pro-business” versus “Pro-consumer”

Filed under: Bureaucracy, Business, Economics, Europe, France, Quotations, USA — Tags: , , — Nicholas @ 01:00

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.

August 2, 2016

The Old Third Vineyards wins their appeal against the VQA

Filed under: Bureaucracy, Cancon, Wine — Tags: , , , — Nicholas @ 02:00

The Ontario government granted the Vintner’s Quality Alliance (VQA) some regulatory power to police the marketing and labelling of wines made in Ontario, including (the VQA thought) the rights to restrict the use of certain geographical designators like “Ontario” and “Prince Edward County” to VQA-compliant wineries. In a recent decision, a non-VQA winery located in Prince Edward County won an appeal against the VQA’s over-restrictive order:

Yesterday (July 28, 2016) was a big day for The Old Third Vineyards, a small, boutique winery located in Prince Edward County. The Licence Appeal Tribunal ruled in their favour against the Vintner’s Quality Alliance Ontario (VQAO) compliance order that they remove “Prince Edward County” from The Old Third website.

The Old Third Vineyard is located in Prince Edward County. It is owned and operated by winemaker Bruno François and Jens Korberg. They make Pinot Noir and Cabernet Franc wines, sold from their estates. Their wines have received ratings of 90 points or higher by esteemed wine experts Jamie Goode, John Szabo and Quench’s own Rick VanSickle. Each vintage – only one per year per variety – is bottled with a wine label that reads “Product of Canada”.

However, their website has a heading tagline that reads “Producers of fine wine and cider in Prince Edward County.” This is an issue for the VQA.

On February 3, 2016, VQA compliance officer Susan Piovesan emailed The Old Third with regards to the use of the geographic designation “Prince Edward County” on their website.

In other words, the VQA wanted to prevent the Old Third Vineyards from even revealing where in the country they were located because the legal designator for that area is also a restricted term for use by the VQA’s own wineries on wine bottle labels. Old Third wasn’t using it on a label, but as any common sense interpretation would agree, they have to indicate where customers can find them if they want to sell much of their wine … and they’re physically located in Prince Edward County, and said that on their website.

The VQA argued that The Old Third are trying to monopolize on the value the VQA has added to the term “Prince Edward County” by making it an official wine designation. The Tribunal disagreed: “The information conveyed in the banner … locates it geographically. Giving the words, in context, their ordinary meaning, they do not convey that the Appellant produces a Prince Edward County wine.”

The Tribunal’s ruling in favour of The Old Third shows that, even if an organization that regulates wine believes they own a term or regional name, it doesn’t mean they have the right to enforce their designations on those wineries that don’t wish to buy into the designation. The Old Third is a small vineyard in Prince Edward County and it will most likely remain that way.

And it’s these small wineries that first put Prince Edward County on the wine scene – there wouldn’t be a VQA designation for Prince Edward County if it weren’t for the wineries and estates that were producing quality wines long before the VQA came around in 2007: Waupoos Winery, The Grange of Prince Edward Vineyards and Winery, Casa-Dea Estates Winery, By Chadsey’s Cairns Winery, Sandbanks Estates Winery… the list goes on (and on).

July 17, 2016

QotD: Regulating Napa County

Filed under: Bureaucracy, Business, Quotations, USA, Wine — Tags: , , , — Nicholas @ 01:00

… at each tour we typically got the whole backstory of the business. And the consistent theme that ran through all of these discussions was the simply incredible level of regulation of the wine business that goes on in Napa. I have no idea what the public justification of all these rules and laws are, but the consistent theme of them is that they all serve to make it very hard for small competitors or new entrants to do business in the county. There is a board, likely populated by the largest and most powerful entrenched wine makers, that seems to control the whole regulatory structure, making this a classic case of an industry where you have to ask permission of your competitors to compete against them. There are minimum sizes, in acres, one must have to start a new winery, and this size keeps increasing. Recently, large winemakers have started trying to substantially raise this number again to a size greater than the acreage of any possible available parcel of land, effectively ending all new entrants for good. I forget the exact numbers, but one has to have something like 40 acres of land as a minimum to build a structure on the land, and one must have over 300 acres to build a second structure. You want to buy ten acres and build a small house and winery to try your hand at winemaking? — forget it in Napa.

It took a couple of days and a bunch of questions to put this together. Time and again the guide would say that the (wealthy) owners had to look and wait for a long time to find a piece of land with a house on it. I couldn’t figure out why the hell this was a criteria — if you are paying millions for the land, why are you scared to build a house? But it turned out that they couldn’t build a house. We were at this beautiful little place called Gargiulo and they said they bought their land sight-unseen on 3 hours notice for millions of dollars because it had a house AND a separate barn on it grandfathered. Today, it was impossible to get acreage of the size they have and build two structures on it, but since they had the barn, they could add on to it (about 10x the original size of the barn) to build the winery and still have a separate house to live in.

This is why the Napa Valley, to my eye, has become a weird museum of rich people. It seems to be dominated by billionaires who create just fantastically lovely showplaces that produce a few thousand cases of wine that is sold on allocation for 100+ dollars a bottle to other rich people. It is spectacularly beautiful to visit — seriously, each tasting room and vineyard is like a post card, in large part because the owners are rich enough to care nothing about return on capital invested in their vineyards. The vineyards in Napa seem to have some sort of social signalling value which I don’t fully understand, but it is fun to visit for a few days. But in this set-piece, the last thing the folks who control the county want is for grubby little middle-class startups to mess up their carefully crafted stage, so they are effectively excluded.

I know zero about wines, but from other industries this seems to be a recipe for senescence. It would surprise me not at all to see articles get written 10 years from now about how Napa wines have fallen behind other, more innovative areas. I have never been there, but my friends say newer areas like Paso Robles has an entirely different vibe, with working owners on small plots trying to a) actually make a viable business of it and b) innovate and try new approaches.

Warren Meyer, “My Nomination for Corporate State of the Year: Napa County, California”, Coyote Blog, 2016-07-08.

June 27, 2016

QotD: The dangers of expanding the government’s power

Filed under: Government, Law, Liberty, Quotations, USA — Tags: , — Nicholas @ 01:00

Urging vague and unconstrained government power is not how responsible citizens of a free society ought to act. It’s a bad habit and it’s dangerous and irresponsible to promote it.

This is not an abstract or hypothetical point. We live in a country in which arbitrary power is routinely abused, usually to the detriment of the least powerful and the most abused among us. We live in a country in which we have been panicked into giving the government more and more power to protect us from harm, and that power is most often not used for the things we were told, but to solidify and expand previously existing government power. We live in a country where the government uses the power we’ve already given it as a rationale for giving it more: “how can we not ban x when we’ve already banned y?” We live in a country where vague laws are used arbitrarily and capriciously.

Ken White, “In Support Of A Total Ban on Civilians Owning Firearms”, Popehat, 2016-06-16.

June 13, 2016

QotD: The absurdities of many occupational licenses

Filed under: Bureaucracy, Business, Quotations, USA — Tags: , , — Nicholas @ 01:00

In 2012, the Institute for Justice — a public-interest law firm advocating libertarian causes — looked at the number of occupations that require licensing. Specifically, the institute looked at occupations typically filled by lower- and middle-income workers. These are not your airline pilots, your certified public accountants and your neurosurgeons; they’re the nations interior decorators, auctioneers and florists. (Yes, you read that right: In at least one state, these occupations cannot be practiced without a license.)

Why, you might ask, is the state requiring a license to decorate an interior? Are customers at risk of death from collapsing piles of pillow shams? Must we fear that they will be blinded by the decorator’s decision to pair fuchsia chiffon drapes with a chartreuse brocade sofa? Do we worry that without the threat of losing their license to keep them on the straight and narrow, these fly-by-night operators might be tempted into purchasing furniture from unlicensed auctioneers, and sourcing their floral arrangements from black-market florists?

Well, no. Mostly, these regulations benefit folks who are already plying the trade. They get helpful state legislators to protect them from competition by instituting tough licensing requirements. Their income goes up; the consumer’s wallet suffers. And people who want to follow their dreams into the industry get shut out if they lack the time to study for the licensing exams, the capital to pay the licensing exam fees (which can run in to the hundreds of dollars), or the social capital to know how to work the system.

Megan McArdle, “You’re Gonna Need a License for That”, Bloomberg View, 2016-05-17.

June 10, 2016

QotD: Against historical preservation

Filed under: Architecture, Bureaucracy, Government, History, Quotations — Tags: — Nicholas @ 01:00

Summers alludes to the regulatory thicket as a cause of the infrastructure slowdown but doesn’t have much to say about fixing the problem. Here’s a place to begin. Repeal all historic preservation laws. It’s one thing to require safety permits but no construction project should require a historic preservation permit. Here are three reasons:

First, it’s often the case that buildings of little historical worth are preserved by rules and regulations that are used as a pretext to slow competitors, maintain monopoly rents, and keep neighborhoods in a kind of aesthetic stasis that benefits a small number of people at the expense of many others.

Second, a confident nation builds so that future people may look back and marvel at their ancestor’s ingenuity and aesthetic vision. A nation in decline looks to the past in a vain attempt to “preserve” what was once great. Preservation is what you do to dead butterflies.

Ironically, if today’s rules for historical preservation had been in place in the past the buildings that some now want to preserve would never have been built at all. The opportunity cost of preservation is future greatness.

Third, repealing historic preservation laws does not mean ending historic preservation. There is a very simple way that truly great buildings can be preserved–they can be bought or their preservation rights paid for. The problem with historic preservation laws is not the goal but the methods. Historic preservation laws attempt to foist the cost of preservation on those who want to build (very much including builders of infrastructure such as the government). Attempting to foist costs on others, however, almost inevitably leads to a system full of lawyers, lobbying and rent seeking–and that leads to high transaction costs and delay. Richard Epstein advocated a compensation system for takings because takings violate ethics and constitutional law. But perhaps an even bigger virtue of a compensation system is that it’s quick. A building worth preserving is worth paying to preserve. A compensation system unites builders and those who want to preserve and thus allows for quick decisions about what will be preserved and what will not.

Some people will object that repealing historic preservation laws will lead to some lovely buildings being destroyed. Of course, it will. There is no point pretending otherwise. It will also lead to some lovely buildings being created. More generally, however, the logic of regulatory thickets tells us that we cannot have everything.

Alex Tabarrok, “Against Historic Preservation”, Marginal Revolution, 2016-06-01.

May 26, 2016

QotD: The weaknesses of laws

Filed under: Law, Liberty, Quotations, Religion, USA — Tags: , , , , — Nicholas @ 01:00

The strange American ardor for passing laws, the insane belief in regulation and punishment, plays into the hands of the reformers, most of them quacks themselves. Their efforts, even when honest, seldom accomplish any appreciable good. The Harrison Act, despite its cruel provisions, has not diminished drug addiction in the slightest. The Mormons, after years of persecution, are still Mormons, and one of them is now a power in the Senate. Socialism in the United States was not laid by the Espionage Act; it was laid by the fact that the socialists, during the war, got their fair share of the loot. Nor was the stately progress of osteopathy and chiropractic halted by the early efforts to put them down. Oppressive laws do not destroy minorities; they simply make bootleggers.

H.L. Mencken, Editorial in The American Mercury, 1924-05.

May 5, 2016

All regulations have obvious costs and hidden costs

Filed under: Bureaucracy, Environment, Government, USA — Tags: — Nicholas @ 02:00

J.C. Carlton explains why the US government’s latest regulatory intervention in the dishwasher market is pretty much guaranteed to make dishwashers more expensive and less capable:

… it’s amazing how much doesn’t work, or works poorly because of the rules that bureaucrats come up with. Yet time and again the bureaucrat’s solution is always more cowbell. For some reason they think that because something may have worked before, it will always work as long as you just do it more. The fact is that no matter what you do, that 24% energy “savings” and 38% less water use are going to have to come from somewhere. My guess is that it will come from making dishwashers that do a very lousy job of actually washing dishes or are terribly expensive.

There’s only so much you can do. 24% less electricity means that you will have to use a smaller motor, a smaller heating element, or both. You might have to use different heating elements or motors that work at different times during the cycle. More than likely you will have to use complicated electronics to run it all. Even when you are all done with meeting the mandate, you will end up with a machine that just doesn’t work very well. Which also costs more and has to be serviced more often to boot. How much savings to you get it the reliability is halved and the truck has to keep coming out for service calls. That’s the problem with those one-dimensional rules. They tend to cost more in compliance than they actually save.

[…]

Of course the endless quest for false efficiencies does have its costs. Somehow the bureaucrats never seem to have to pay those costs in their lives, or at least aren’t effected enough by the pain to notice. I have to wonder if whoever came up with the 1 gallon toilet ever flushes. Does the Energy Star guy never have to go shopping for appliances and when he gets home finds out that it barely works?

April 14, 2016

Why there’s very little “free trade” involved in the TPP

Filed under: Bureaucracy, Business, Economics, Politics, USA — Tags: , , , , , — Nicholas @ 02:00

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.

March 8, 2016

QotD: The Civil Works Administration, the Works Progress Administration and the Wagner Act

Filed under: Bureaucracy, Economics, History, Quotations, USA — Tags: , , , — Nicholas @ 01:00

Roosevelt created the Civil Works Administration in November 1933 and ended it in March 1934, though the unfinished projects were transferred to the Federal Emergency Relief Administration. Roosevelt had assured Congress in his State of the Union message that any new such program would be abolished within a year. “The federal government,” said the President, “must and shall quit this business of relief. I am not willing that the vitality of our people be further stopped by the giving of cash, of market baskets, of a few bits of weekly work cutting grass, raking leaves, or picking up papers in the public parks.”

But in 1935 the Works Progress Administration came along. It is known today as the very government program that gave rise to the new term, “boondoggle,” because it “produced” a lot more than the 77,000 bridges and 116,000 buildings to which its advocates loved to point as evidence of its efficacy. The stupefying roster of wasteful spending generated by these jobs programs represented a diversion of valuable resources to politically motivated and economically counterproductive purposes.

The American economy was soon relieved of the burden of some of the New Deal’s excesses when the Supreme Court outlawed the NRA in 1935 and the AAA in 1936, earning Roosevelt’s eternal wrath and derision. Recognizing much of what Roosevelt did as unconstitutional, the “nine old men” of the Court also threw out other, more minor acts and programs which hindered recovery.

Freed from the worst of the New Deal, the economy showed some signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936, and even lower in 1937. But by 1938, it was back up to 20 percent as the economy slumped again. The stock market crashed nearly 50 percent between August 1937 and March 1938. The “economic stimulus” of Franklin Roosevelt’s New Deal had achieved a real “first”: a depression within a depression!

The stage was set for the 1937–38 collapse with the passage of the National Labor Relations Act in 1935 — better known as the Wagner Act and organized labor’s “Magna Carta.” To quote Hans Sennholz again:

    This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board further perverted this law, which already afforded legal immunities and privileges to labor unions. The U.S. thereby abandoned a great achievement of Western civilization, equality under the law.

Armed with these sweeping new powers, labor unions went on a militant organizing frenzy. Threats, boycotts, strikes, seizures of plants, and widespread violence pushed productivity down sharply and unemployment up dramatically. Membership in the nation’s labor unions soared; by 1941 there were two and a half times as many Americans in unions as in 1935.

From the White House on the heels of the Wagner Act came a thunderous barrage of insults against business. Businessmen, Roosevelt fumed, were obstacles on the road to recovery. New strictures on the stock market were imposed. A tax on corporate retained earnings, called the “undistributed profits tax,” was levied. “These soak-the-rich efforts,” writes economist Robert Higgs, “left little doubt that the president and his administration intended to push through Congress everything they could to extract wealth from the high-income earners responsible for making the bulk of the nation’s decisions about private investment.”

Higgs draws a close connection between the level of private investment and the course of the American economy in the 1930s. The relentless assaults of the Roosevelt administration — in both word and deed — against business, property, and free enterprise guaranteed that the capital needed to jumpstart the economy was either taxed away or forced into hiding. When Roosevelt took America to war in 1941, he eased up on his anti-business agenda, but a great deal of the nation’s capital was diverted into the war effort instead of into plant expansion or consumer goods. Not until both Roosevelt and the war were gone did investors feel confident enough to “set in motion the postwar investment boom that powered the economy’s return to sustained prosperity.”

Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.

February 18, 2016

QotD: FDR’s New Deal

Filed under: Economics, Government, Quotations, USA — Tags: , , , , — Nicholas @ 01:00

Franklin Delano Roosevelt won the 1932 presidential election in a landslide, collecting 472 electoral votes to just 59 for the incumbent Herbert Hoover. The platform of the Democratic Party whose ticket Roosevelt headed declared, “We believe that a party platform is a covenant with the people to be faithfully kept by the party entrusted with power.” It called for a 25 percent reduction in federal spending, a balanced federal budget, a sound gold currency “to be preserved at all hazards,” the removal of government from areas that belonged more appropriately to private enterprise, and an end to the “extravagance” of Hoover’s farm programs. This is what candidate Roosevelt promised, but it bears no resemblance to what President Roosevelt actually delivered.

In the first year of the New Deal, Roosevelt proposed spending $10 billion while revenues were only $3 billion. Between 1933 and 1936, government expenditures rose by more than 83 percent. Federal debt skyrocketed by 73 percent.

Roosevelt secured passage of the Agricultural Adjustment Act (AAA), which levied a new tax on agricultural processors and used the revenue to supervise the wholesale destruction of valuable crops and cattle. Federal agents oversaw the ugly spectacle of perfectly good fields of cotton, wheat, and corn being plowed under. Healthy cattle, sheep, and pigs by the millions were slaughtered and buried in mass graves.

Even if the AAA had helped farmers by curtailing supplies and raising prices, it could have done so only by hurting millions of others who had to pay those prices or make do with less to eat.

Perhaps the most radical aspect of the New Deal was the National Industrial Recovery Act (NIRA), passed in June 1933, which set up the National Recovery Administration (NRA). Under the NIRA, most manufacturing industries were suddenly forced into government-mandated cartels. Codes that regulated prices and terms of sale briefly transformed much of the American economy into a fascist-style arrangement, while the NRA was financed by new taxes on the very industries it controlled. Some economists have estimated that the NRA boosted the cost of doing business by an average of 40 percent — not something a depressed economy needed for recovery.

Like Hoover before him, Roosevelt signed into law steep income tax rate increases for the high brackets and introduced a 5 percent withholding tax on corporate dividends. In fact, tax hikes became a favorite policy of the president’s for the next ten years, culminating in a top income tax rate of 94 percent during the last year of World War II.

Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.

January 8, 2016

QotD: Thinking like an economist – incentives matter

Filed under: Economics, Quotations — Tags: , — Nicholas @ 01:00

A lot of what constitutes “thinking like an economist” involves asking the right questions. Those questions typically involve looking for the incentives people face in a particular situation.

For instance, one response to inflation — a sustained increase in an economy’s general price level — is to think that making it illegal to charge more a fixed amount for any given product would solve the problem. That is, you see an outcome you don’t like, and without understanding why it is the way it is, you try to impose what you think is a better outcome. In the case of price ceilings, the consequence is chronic shortages.

Similarly, a common response to rising residential rents in some cities is to declare, “the rent is too damn high!” (In fact, there’s a political party in New York that actually calls itself The Rent Is Too Damn High Party.) This declaration is usually followed by a demand for regulations that would make it illegal to charge more rent than someone in authority thinks is necessary.

On the other hand, if an economist determines that rents are indeed too high in a district, she will then ask how they got that way. (The all-too-common answer — greed — doesn’t go far, because self-interest is no more a cause of high rents than air is a cause of fire.) In many cases, it’s because the supply of residential property has been artificially restricted — perhaps by building codes, minimum parking requirements, and landlords “warehousing” livable buildings in order to escape existing rent-control policies. Armed with some basic economic principles, she would try to figure out what choices people made that caused rents to rise and why they made those choices.

This is another way of saying that incentives matter.

Sandy Ikeda, “Incentives 101: Why good intentions fail and passing a law still won’t get it done”, The Freeman, 2014-11-13.

December 24, 2015

So what about that Mens Rea stuff anyway?

Filed under: Law, Liberty, USA — Tags: , , — Nicholas @ 04:00

Scott Greenfield on an important legal quirk:

The inclusion of a specific mens rea requirement is common in criminal laws. For example, first degree murder usually requires the “intent to kill,” whereas lesser degree murders or manslaughters may only require “recklessness.”

So why do some laws lack a mens rea requirement? They tend (though are hardly so limited) to be regulatory laws that are backed up by criminal sanctions. There are tens of thousands of laws that demand people do or not do some remarkably inconsequential act, such as not throwing undersized fish over the side of a boat.

The way Congress compels compliance with these trivial regulations is to enforce it with a criminal sanction, such as “failure to do X is a felony punishable by up to seven million years imprisonment.” And there are, literally, tens of thousands of opportunities to visit Club Fed.

These laws have been subject to strict liability, not because they are so evil and harmful, as they are almost invariably malum prohibitum laws, wrongs only because Congress says so, not because they reflect some inherent immorality. The problem, as was made clear in the fish case or the Gibson guitar case, is that no one knows all the tens of thousands of regulations the government enacts, creating a trap for the unwary when there is no rational reason to believe that conduct is wrong, no less criminal.

Of course, as the DoJ points out, the maxim that “ignorance of the law is no excuse” (except if you’re a cop) has been around for centuries. What hasn’t been around for centuries, however, are the tens of thousands of trivial regulations that can land someone’s butt in prison just as well as a nice drug conspiracy. So Main Justice didn’t show Sensenbrenner’s bill the love.

    If the bill passes, the result will be clear, said Melanie Newman, the Justice Department spokeswoman. “Countless defendants who caused harm would escape criminal liability by arguing that they did not know their conduct was illegal” she said.

By “countless,” she means too few to count. Or she means nothing other than a new law would limit prosecutors to only those defendants who deserved to be prosecuted. That would cause sad prosecutor tears.

December 15, 2015

Hillary Clinton’s well-intentioned plans will make the prescription medicine market even worse

Filed under: Business, Economics, Government, Health, USA — Tags: , , , , — Nicholas @ 04:00

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.

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