Economic Liberty


George Newman has a good review of the often inconsistent arguments being put forward in favor of health care “reform.”

I was glad to see him address the “health care represents a rising proportion of our income” issue. 

That’s not only true but perfectly natural.  Quality health care is a discretionary, income-elastic expense — i.e. the richer a society, the larger proportion of income that is spent on it.  (Poor societies have to spend income gains on food and other necessities.)  Consider the alternatives.  Would we feel better about ourselves if we skimped on our family’s health care and spend the money on liquor, gambling, night clubs or a third television set?

When discussing this issue, I regularly ask people if they would rather have today’s healthcare at today’s prices or 1950’s healthcare at 1950’s prices.  No one has ever chosen the 1950s option.  (People would prefer to have today’s healthcare at 1950’s prices, and I too wish that Santa Claus was real.)

Newman, Parsing the Health Reform Arguments

(HT Andrew B.)

. . . and doesn’t plan to get out of the business any time soon.

I have to admit that this scares the Hell out of me.  From the Wall Street Journal Opinion Journal:

Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now.

Which brings me to the Pay for Performance Act, just passed by the House. This is an outstanding example of class warfare. I’m an Englishman. We invented class warfare, and I know it when I see it. This legislation allows the administration to dictate pay for anyone working in any company that takes a dime of TARP money. This is a whip with which to thrash the unpopular bankers, a tool to advance the Obama administration’s goal of controlling the financial system.

I think I have a basic understanding of public choice theory, and how special interests can use political power to extort money from the rest of us.  However, I cannot understand the tremendous political power of the agricultural lobby, especially the corn growers.  Only 2-3% of the American workforce is directly employed in agriculture, and I’m sure the corn growers are only a fraction of that small percentage.  And yet, the industry continues to receive massive subsidies in the face of opposition by groups as diverse as the Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, the American Lung Association, the Union of Concerned Scientists, the Natural Resources Defense Council, and the Sierra Club.

Everyone Hates Ethanol, The Wall Street Journal Opinion Journal (Mar. 16, 2009).

Americans are unlikely to use enough gas next year to absorb the 13 billion gallons of ethanol that Congress mandated, because current regulations limit the ethanol content in each gallon of gas at 10%. The industry is asking that this cap be lifted to 15% or even 20%. That way, more ethanol can be mixed with less gas, and producers won’t end up with a glut that the government does not require anyone to buy.

The ethanol boosters aren’t troubled that only a fraction of the 240 million cars and trucks on the road today can run with ethanol blends higher than 10%. It can damage engines and corrode automotive pipes, as well as impair some safety features, especially in older vehicles. It can also overwhelm pollution control systems like catalytic converters. The malfunctions multiply in other products that use gas, such as boats, snowmobiles, lawnmowers, chainsaws, etc.

That possible policy train wreck is uniting almost every other Washington lobby — and talk about strange bedfellows. The Alliance of Automobile Manufacturers, the Motorcycle Industry Council and the Outdoor Power Equipment Institute, among others, are opposed, since raising the blend limit will ruin their products. The left-leaning American Lung Association and the Union of Concerned Scientists are opposed too, since it will increase auto emissions. The Natural Resources Defense Council and the Sierra Club agree, on top of growing scientific evidence that corn ethanol provides little or no net reduction in CO2 over the gasoline it displaces.

(HT Carpe Diem)

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

— Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Book I, Ch. 10, ¶ 82)

This Adam Smith quote is often used to emphasize the evil and collusive nature of “big business.”  Unfortunately, like so often happens in these instances, everyone forgets the rest of the quote.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Smith wasn’t advocating for anti-trust legislation; he thought such laws were unenforceable and inconsistent with liberty and justice.  Rather, Smith cautioned against government mandated collusion.

Coyote Blog illustrate how we have quite ignored Smith’s admonition.

I can add a million examples.  Hair braiders are stepped on by the government in collusion with licensed beauticians.  Taxi companies get the government to quash low-cost or innovative shuttle transportation.  Discount casket companies are banned by government in collusion with undertakers.  Take dentistry.  Why do I need to go to an expensive dentist when 99% of my dental needs could be served by a hygienist alone?  Because the government colludes with dentists to make it so.  And don’t even get me started on medicine.  My guess is a huge percentage of the conditions people come into emergency rooms with are treatable by someone without a 4 year medical degree and 6 years of internship.  Does one really need a full medical education to stitch up a kids cut knee?  Well, yes, you do today, because doctors collude with the government to make it so.  Why can’t people specialize, with less than 10 years of education, on just, say, setting bones and closing cuts?  Why can’t someone specialize in simple wills or divorces without a full law degree?

As Adam Smith clearly saw, the real danger is not collusion between business men and business men, but collusion between business men and government.  Government is so much more dangerous because it is always done “for our own good.”

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies, The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.

–C.S. Lewis

Aichmophobia: a morbid fear of sharp or pointed objects.

Tell me if you’ve heard this one before.

So, Stephen Tall walks into a shop and . . .

So I’m buying a new set of cutlery, when the sales assistant tells me there’s a problem: he can’t serve me. Erm, why not, I ask: I’ve brought money with me and everything.

Turns out he’s 17, and so cannot sell a knife to me. Even knives whose power of serration will scarcely trouble poached salmon. He calls over a colleague, who keys in her number to his till, and he then sells me my new set of cutlery.

Thank goodness for the protections afford by that law. Imagine the chaos that might rein if 17 year-olds were freely able to sell cutlery?

He’s old enough to join the army and die for his country, mind.

We’ve talked before about the British aversion to cutlery.  Tell me again how gun control isn’t a slippery slope.

(HT: Adam Smith Institute Blog)

Professor Don Boudreaux of George Mason University has an excellent post about exchange rates and politics over at Cafe Hayek.  He makes an eloquent argument about the implausibilities and inefficiencies of currency manipulation that I couldn’t improve upon.

However, I am reminded of the discussions I had with my International Law professor.  He was convinced that China is actively and successfully strengthening the Yuan against the dollar by buying U.S. bonds and that the resulting trade deficit is disastrous for the U.S.  After he raised the issue for the forty-third time, I pointed out that if the Chinese government was in fact propping-up the Yuan, the end result would be a transfer of wealth from poor Chinese to wealthy Americans.  And why, I asked, would Americans think this was a bad thing?  His response was essentially, “Well the Chinese aren’t stupid, are they?”

Unfortunately, I didn’t have a witty response to complete this anecdote, but I have given some thought to the issue.  I think the correct response may well be, “No, Chinese politicians are not stupid, but they are beholden to special interests just like American politicians.

It is striking to me that we ascribe such a superior level of knowledge, wisdom and focus to foreign leaders.  The near hero worship of Soviet leaders during the Cold War by some, especially among the academy, is one example.  Then, during the ’70s and ’80s others imagined a concerted effort by the Japanese to conquer America economically.  People never saw individual Japanese companies competently competing in a global market place.  Rather, we were afraid of “the Japanese” invasion.

We see U.S. politicians enacting measures that benefit politically connected minorities at the expense of the majority of Americans, but we don’t assume a visionary effort to dominate the world sugar market.  Why then do we assume that Chinese politicians are so much more strategic?  Every government must appease a certain constituency in order to stay in power, even nondemocratic governments.  If we assume that the Chinese are successfully manipulating the currency market, isn’t it more logical to assume that the goal is to appease a powerful domestic manufacturing lobby?  The alternative is to assume that China plans to dominate the West by giving away its wealth.

Note:  Brad Delong sees the deficit as the result of U.S. exports of international liquidity and wealth preservation services, and Tyler Cowen notes that revaluation of the Yuan would likely have negligible effect.

“When a government takes over a people’s economic life it becomes absolute, and when it has become absolute it destroys the arts, the minds, the liberties and the meaning of the people it governs.”
— Maxwell Anderson, 1888-1959

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