Quotulatiousness

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.

December 13, 2015

The TPP is pretty far from being a genuine “free trade” deal

Filed under: Bureaucracy, Business, Economics, Environment — Tags: , , , — Nicholas @ 03:00

Last week, Kevin Williamson attempted to explain why the Trans Pacific Partnership isn’t all that similar to an actual “free trade” agreement (and why that’s so):

Prominent among the reasons to look askance at TPP is that its text calls for the incorporation — sight unseen — of whatever global-warming deal is negotiated at the conference currently under way in Paris. It is one thing for a trade deal to incorporate changes to environmental practices — regulatory differences are an inhibitor of truly liberal trade — but there is a world of difference between incorporating specific environmental policies and incorporating environmental policies to be named later.

It would be preferable if we could simply enact a series of bilateral “Goldberg treaties,” so called in honor of my colleague Jonah Goldberg, who argued that an ideal free-trade pact would consist of one sentence: “There shall be free trade between …” But the unhappy reality is that the snouts of the nations’ sundry regulatory apparatuses are so far up the backsides of various industries and economic sectors that sorting them out requires thousands of pages of text. Consider, for example, the problem of defense-acquisition practices. Some countries have rules mandating that defense procurement be restricted to domestic firms, and some countries don’t. Coming up with a harmonized, one-size-fits-all approach is difficult; we Americans, accustomed as we are to operating in an economy that produces the best of almost everything in the world, sometimes forget that there are countries with no domestic aerospace industry or sophisticated manufacturers of military materiel. Of course Kuwait goes abroad for military gear; if memory serves, at one point their air force uniforms were made by Armani.

[…]

All of which is to say, we should expect trade deals, especially multi-lateral trade deals, to be complex, and we should expect environmental and labor standards, along with government procurement procedures and the like, to be part of the accord. There’s no getting around it. And, again, there is nothing wrong in principle with using trade accords, which have real economic bite, as a critical instrument for enforcing environmental rules and other regulatory reforms that are incorporated into trade relationships. But using TPP to commit the United States to whatever is cooked up in Paris, without an additional vote in Congress, is a poor tradeoff. It’s not often that I will turn up my nose at a trade deal — even far-from-perfect trade pacts are generally desirable — but here we should draw the line. TPP was negotiated, Congress and the public have had a chance to review the text, and Congress should reject it. That’s the system working, not the system failing to work. It’s why we have votes.

December 4, 2015

Britain’s “ghost trains”

Filed under: Britain, Railways — Tags: , , — Nicholas @ 02:00

BBC Future explains why there are some very odd trains that run on British railways, but aren’t advertised or even known about by railway staff:

The Leeds-Snaith line is what rail enthusiasts call a ghost train; Snaith station, a ghost station. The webpage about Snaith on ticket sales site TheTrainLine.com warns that ticket machines are not available at the station. Nor is there a ticket office, taxi rank or cab office.

It’s one of many train services around Britain that run with empty carriages – sometimes once or twice a day, sometimes as rarely as once a week. Sometimes even ticket sellers don’t know they exist, and it takes dedicated amateurs to seek them out. So why do these trains run at all?

There is no single definition of what constitutes a ghost train, although the general consensus is that it’s when a service is so infrequent, the train becomes effectively useless. Slippery or not, though, the term “ghost train” seems apt. It implies a service that is not exactly whole – something that whispers through towns and countryside, leaving barely a dent in its wake.

Perhaps most important of all, the term ghost train implies something that only a special few know exists. The press contact of the National Rail Museum of York, for example, was baffled by my request for an interview about ghost trains, thinking I wanted to discuss “haunted items” in the museum’s collection.

Nobody knows exactly how many ghost trains there are. On the website The Ghost Station Hunters, run by rail enthusiasts Tim Hall-Smith and Liz Moralee, there are 37 listed, and those are only the stations the intrepid pair has gotten to and written about so far. Hall-Smith says he’s counted more than 50 by looking through timetables.

So what is the point of running trains that almost nobody uses or even knows about?

Given the overcrowding on Britain’s trains, it may seem odd for these empty carriages to ride the rails – or for empty stations to stand sentry over them. From 1995-96 to 2011-12, the total number of miles ridden by train passengers leapt by 91%, while the entire UK train fleet grew by only 12%.

“Ghost trains are there just for a legal placeholder to prevent the line from being closed,” says Bruce Williamson, national spokesperson for the advocacy group RailFuture. Or as Colin Divall, professor of railway studies at the University of York, puts it: “It’s a useless, limited service that’s borderline, and the reason that it’s been kept is there would be a stink if anyone tried to close it.”

That is the crux of why the ghost trains still exist. A more official term is “parliamentary trains”, a name that stems from past years when an Act of Parliament was needed to shut down a line. Many train operators kept running empty trains to avoid the costs and political fallout – and while this law has since changed, the same pressures remain.

Closing down a line is cumbersome. There must first be a transport appraisal analysing the effect of a closure on passengers, the environment and the economy. The proposal is submitted to the Department of Transport and at that point its details must be published in the press, six months ahead of the closure. Then comes a 12-week consultation period, during which time anyone is welcome to protest; public hearings are sometimes held, especially if the closure is controversial. Then, finally, the plans are submitted to the Office of Rail and Road, who decide if the line closes.

In other words, it’s cheaper to run just enough service to keep the line “active” than it is to go through the bother and cost of shutting it down.

December 2, 2015

Maximizing Profit under Monopoly

Filed under: Economics, Health — Tags: , , , , , — Nicholas @ 05:00

Published on 18 Mar 2015

AIDS has killed more than 36 million people worldwide. There are drugs available to treat AIDS, but the price of one pill is incredibly high in the U.S. — coming in at 25 times higher than its cost. Why is that? In this video, we show how patent rights have created a monopoly in the U.S. market for AIDS medication, causing pills to be very expensive. In other countries, however, such as India, which does not recognize patents on AIDS medication, prices remain low. Using this example, we go over how monopolies use market power to increase prices.

November 30, 2015

The Pennsylvania Steagles

Filed under: Economics, Football, History, USA — Tags: , , , , , — Nicholas @ 05:00

Megan McArdle talks about the plight of Pennsylvania’s two NFL teams during World War Two … oh, and some boring stuff about financial regulation:

Fun fact: During the 1943 professional football season, the World War II draft had so depleted the ranks of football players that the Pittsburgh Steelers and the Philadelphia Eagles were forced to unite their teams into a joint production that became colloquially known as “the Steagles.” In a heartwarming turn, this plucky band of men went on to one of the winningest seasons in the history of Pennsylvania football. That was, alas, their only season; the next year each city fielded its own team, and the proud name of the Steagles retreated into history.

I’m beginning to think that we should revive it, however, not for football players, but for those intrepid souls who continue to fiercely agitate for the return of the Glass-Steagall financial regulations. Like the Steagles, these people are not daunted by the many obstacles in their path. Like the Steagles, they are passionate in their determination. Probably also like the Steagles, they mostly don’t know much about Glass-Steagall.

And we desperately need a name for Team Steagles, because they seem to have become a powerful force in the Democratic Party. Last night’s Democratic debate, like the first one, featured lengthy paeans to the joys, and urgency, of a modern Glass-Steagall act. Somehow, an obscure Depression-era banking regulation has turned into a banal political talking point. Or worse — a distraction.

You, like the Steagles, may not know much about Glass-Steagall. That’s all right. There is no particular reason that most of us should know about Glass-Steagall, and many people manage to live perfectly happy and fulfilling lives anyway.

November 27, 2015

A different view of Uber and other ride-sharing services

Filed under: Business, Politics, Technology — Tags: , , , , — Nicholas @ 02:00

Robert Tracinski on Uber as a form of “Objectivist LARP“:

If it sometimes seems like it’s impossible to restore the free market, as if every new wave of government regulation is irreversible, then consider that one form of regulation, which is common in the most dogmatically big-government enclaves in the country, is being pretty much completely dismantled before our eyes. And it’s the hippest thing ever.

I was reminded of this by a recent report about yet another attempt to help traditional taxis compete with “ride-sharing” services like Uber and Lyft: a new app called Arro, which allows you to both hail a traditional taxi and pay for it from your phone. So Arro takes a twentieth-century business and finally drags into the twenty-first century. This certainly might help improve the taxi experience relative to how things were done before. But it won’t fend off Uber and Lyft, because it doesn’t change the central issues, which are political rather than technological.

[…]

Uber has been hit with complaints that it’s running “an Objectivist LARP,” a live-action role playing of a capitalist utopia from an Ayn Rand novel. That’s pretty much what it is doing, and the results are awesome. And the benefits don’t stop with more drivers and lower rates. Uber is ploughing a fair portion of its profits into another wave of technological innovation—self-driving cars—that promises to offer even greater improvements in the future.

All of this should counter some of the despair about how to promote free markets, especially among urban elites who have been programmed by their college educations to embrace the rhetoric of the Left. Give them half a chance, and they will flock to capitalist innovations run according to the laws of the market.

The problem is that they don’t want to admit it. That’s where the euphemism “ride-sharing” comes in. To cover up the capitalistic nature of the activity, they tell themselves they’re “sharing” something that they are quite obviously paying for, and paying at market rates. Imagine what could be accomplished if they were just willing to drop the euphemisms and embrace the free market.

November 25, 2015

Food labelling laws and craft brewing … not a match made in heaven

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

Eric Boehm on how well-intentioned laws can still have significant and unforeseen negative side-effects:

Brewers are facing the prospect of spending potentially thousands to determine calorie counts for every variety of beer produced. Unless they spend the money to provide the information, breweries may never get their products into chain restaurants, like Buffalo Wild Wings and Applebee’s.

As is often the case with regulations, smaller breweries stand to lose the most.

“A regional craft brewer or a major brewery can spread the cost over a much larger volume of sales and it’s not so unreasonable for them,” said Paul Gatza, a former brewer who now heads the Boulder, Colorado, based Brewers’ Association, an industry group.

“Smaller guys that are just trying to sell a keg or two here or there, they have a decision to make on whether it is worth the additional cost to try to get their beers into chain restaurants,” Gatza told Watchdog.

The Food and Drug Administration is in the process of finalizing menu labeling rules that were part of the Affordable Care Act. Intended to make Americans more aware of their dietary choices, the rules are subject to controversy on several fronts, and the FDA announced in September that implementation of the new rules would be pushed back one full year, until December 2016, as the feds try to work out the kinks.

My favourite local brewery isn’t even a micro-brewery (they’re somewhere between a pico- and a nano-brewery): every week when I drop in, there are three or four new batches ready to sample (and it’s rare that there’s anything left of last week’s offerings). If they had to spend hundreds or even thousands of dollars to comply with detailed labelling requirements for every small batch they brewed, they’d never stand a chance of making a profit. I understand the urge to ensure that people have a chance to avoid ingredients that might make them ill, but this is the sort of regulation that tilts very heavily toward the big companies that have regional or national markets. A thousand dollars per product isn’t even a drop in the bucket to them, while to a small local business, that might be more than their profit margin when you require it be done for everything they produce.

November 20, 2015

Here’s a very disturbing economic issue

Filed under: Bureaucracy, Business, Economics, USA — Tags: , — Nicholas @ 03:00

At Coyote Blog, Warren Meyer shares his concerns about the constantly increasing regulatory burden of American business:

5-10 years ago, in my small business, I spent my free time, and most of our organization’s training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc). Over the last five years, all of my time and the organization’s free bandwidth has been spent on regulatory compliance. Obamacare alone has sucked up endless hours and hassles — and continues to do so as we work through arcane reporting requirements. But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time. We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over. For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.

Greg Mankiw points to a nice talk on this topic by Steven Davis. For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs. A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size. The author has a nice chart on this point, which is actually pretty scary. This is probably the best single chart I have seen to illustrate the rise of the corporate state:

decline-of-new-business-employment

November 18, 2015

A maple-flavoured world’s first?

Filed under: Bureaucracy, Business, Cancon, Government — Tags: , — Nicholas @ 04:00

On the Mercatus Centre site, Laura Jones points out an unexpected Canadian first:

Canada recently became the first country in the world to legislate a cap on regulation. The Red Tape Reduction Act, which became law on April 23, 2015, requires the federal government to eliminate at least one regulation for every new one introduced. Remarkably, the legislation received near-unanimous support across the political spectrum: 245 votes in favor of the bill and 1 opposed. This policy development has not gone unnoticed outside Canada’s borders.

Canada’s federal government has captured headlines, but its approach was borrowed from the province of British Columbia (BC) where controlling red tape has been a priority for more than a decade. BC’s regulatory reform dates back to 2001 when a newly elected government put in place policies to make good on its ambitious election promise to reduce the regulatory burden by one-third in three years. The results have been impressive. The government has reduced regulatory requirements by 43 percent relative to when the initiative started. During this time period, the province went from being one of the poorest-performing economies in the country to being among the best. While there were other factors at play in the BC’s economic turnaround, members of the business community widely credit red tape reduction with playing a critical role.

The British Columbia model, while certainly not perfect, is among the most promising examples of regulatory reform in North America. It offers valuable lessons for US governments interested in tackling the important challenge of keeping regulations reasonable. The basics of the BC model are not complicated: political leadership, measurement, and a hard cap on regulatory activity.

This paper describes British Columbia’s reforms, evaluates their effectiveness, and offers practical “lessons learned” to governments interested in the elusive goal of regulatory reform capable of making a lasting difference. It also offers some important lessons for business groups and think tanks outside government that are pushing to reduce red tape. These groups can make all the difference in framing the issue in such a way that it can gain wide support from policymakers. A brief discussion of the challenges of accurately defining and quantifying regulation and red tape add context to understanding the BC model, and more broadly, some of the challenges associated with effective exercises in cutting red tape.

While I’m a huge fan of reducing the regulatory burden in theory, I can’t help but expect to be disappointed about the implementation in reality… (however, should the federal bureaucracy somehow manage to perform nearly as well as the BC experiment, it’ll be Justin Trudeau getting the credit for it, rather than Stephen Harper — but better that the country benefits as a whole rather than the former PM gets boasting rights.)

November 14, 2015

The US government has morphed from being part of “us” to being “them”

Filed under: Bureaucracy, Government, History, Liberty, USA — Tags: , , , , — Nicholas @ 04:00

Charles Murray explains why so many Americans are feeling alienated from their own government:

I have been led to this position by what I believe to be a truth about where America stands: The federal government is no longer “us” but “them.” It is no longer an extension of the people through their elected representatives. It is no longer a republican bulwark against the arbitrary use of power. It has become an entity unto itself, separated from the American people and beyond the effective control of the political process. In this situation, the foundational principles of our nation come into play: The government does not command the blind allegiance of the citizenry. Government is instituted to protect our unalienable rights. The more destructive it becomes of those rights, the less it can call upon our allegiance.

I won’t try to lay out the whole case for concluding that our duty of allegiance has been radically diminished — that takes a few hundred pages. But let me summarize the ways in which the federal government has not simply become bigger and more intrusive since Bill Buckley founded National Review, but has also become “them,” and no longer an extension of “us.”

[…]

In 1937, Helvering v. Davis explicitly held that the federal government could spend money on the “general welfare,” establishing that the government’s powers were not limited to those enumerated in the Constitution. In 1938, Carolene Products did what the Ninth Amendment had been intended to prevent — it limited the rights of the American people to those that were explicitly mentioned in the Constitution and its amendments. Making matters worse, the Court also limited the circumstances under which it would protect even those explicitly named rights. In 1942, Wickard v. Filburn completed the reinterpretation of “commerce” so that the commerce clause became, in the words of federal judge Alex Kozinski, the “Hey, you can do anything you feel like” clause.

Momentous as these decisions were, they were arguably not as crucial to the evolution of the federal government from “us” to “them” as the decisions that led to the regulatory state. Until the 1930s, a body of jurisprudence known as the “nondelegation doctrine” had put strict limits on how much power Congress could delegate to the executive branch. The agencies of the executive branch obviously had to be given some latitude to interpret the text of legislation, but Congress was required to specify an “intelligible principle” whenever it passed a law that gave the executive branch a new task. In 1943, National Broadcasting Co. v. United States dispensed with that requirement, holding that it was okay for Congress to tell the Federal Communications Commission (FCC) to write regulations for allocating radio licenses “as public convenience, interest, or necessity requires” — an undefined, and hence unintelligible, principle. And so we now live in a world in which Congress passes laws with grandiose goals, loosely defined, and delegates responsibility for interpreting those goals exclusively to regulatory agencies that have no accountability to the citizenry and only limited accountability to the president of the United States.

The de facto legislative power delegated to regulatory agencies is only one aspect of their illegitimacy. Citizens who have not been hit with an accusation of a violation may not realize how Orwellian the regulatory state has become. If you run afoul of an agency such as the FCC and want to defend yourself, you don’t go to a regular court. You go to an administrative court run by the agency. You don’t get a jury. The case is decided by an administrative judge who is an employee of the agency. You do not need to be found guilty beyond a reasonable doubt, but rather by the loosest of all legal standards, a preponderance of the evidence. The regulatory agency is also free of many of the rules that constrain police and prosecutors in the normal legal system. For example, regulatory agencies are not required to show probable cause for getting a search warrant. A regulatory agency can inspect a property or place of business under broad conditions that it has set for itself.

There’s much more, but it amounts to this: Regulatory agencies, or the regulatory divisions within cabinet agencies, operate as self-contained entities that create de facto laws that Congress would never have passed on an up-or-down vote. They then act as both police and judge in enforcing the laws they have created. It amounts to an extra-legal state within the state.

I have focused on the regulatory state because it now looms so large in daily life as to have provoked a reaction that crosses political divides: American government isn’t supposed to work this way.

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