Bastiat’s Bastions

How would you react if NSU’s administration passed a regulation that forbids people who were less than 6 feet tall from teaching Economics 211?

Let’s see, there are two people who teach Economics 211 – one of them, Dr. Coats, is a just pinch under 6 feet, so it would appear that this regulation would be directed only at preventing Dr. Coats from teaching Econ 211. Certainly it would be hard to argue that being tall is an important factor in teaching Econ 211.

Does it sound ridiculous that there would be this type of regulation? Gosh I hope so.

Would you see something like this in the real world? Gosh I hope not.

And yet, perhaps you should read this article from the USAToday.

My guess is that if it sticks around, it will be successfully challenged in court as being illegal.

–CT

The Sierra Club has brought suit against the EPA, claiming that it isn’t properly enforcing the Clean Air Act.  The reason:  the EPA has not come up with standards for CO₂ emissions for automobiles.  Why regulate CO₂?  Well, in Bill Cosby’s routine about Noah asking God why he should build an ark, Bill Cosby’s God character responds, “Well, how long can you tread water?”  Since CO₂ is a greenhouse gas, it causes global warming which threatens human health by changing the climate and causing low areas to flood.  To regulate autos’ CO₂ emissions, the EPA would have to classify CO₂ as an air pollutant. Take a look at the story from a month ago: http://money.cnn.com/2006/10/25/news/economy/pluggedin_gunther_epa.fortune/

If the Sierra Club is correct, then the EPA would have to go far beyond regulating auto CO₂ emissions.  A lot of important processes besides automobile combustion produce CO₂.  If the EPA labels CO₂ as a pollutant, it will be able to regulate all processes that emit CO₂.  I have a hint for you about one of the important processes that they could then regulate:  “how long can you hold your breath?”  Classifying CO₂ as a pollutant would mean that exhaling, an act necessary for human life, would be deemed dangerous to human life and subject to EPA regulations. 

Morris Coats

My brother just sent me this news story from Reuters:

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyid=2006-11-16T185745Z_01_WBT006219_RTRUKOC_0_US-FRIEDMAN.xml&src=rss&rpc=23

The story is about the death of Milton Friedman at the age of 94. Professor Friedman was probably one of the 20th century’s most important social thinkers. His theories, and those of his followers, helped convince policy makers about the importance of bringing down inflation, and why inflation is such a poor tool to fight unemployment. In the 70s when I was in college, inflation spiralled from about 4% per year to about 13% and really got out of hand. Since then, the Fed has been more careful about the growth of the money supply and our inflation rate has gone to about 2-3% per year, as measured by the CPI, which usually overstates the inflation rate by at least 1 percentage point.

In addition, Milton Friedman has been a tireless freedom fighter, fighting for everyday freedoms. He also was the person who invented education vouchers and started the whole education choice discussion.

Professor Friedman will be missed, but he certainly will not be forgotten.

Morris Coats

            Most Americans know the story of the first Thanksgiving and think about the Pilgrims and Indians and the feast.  Most Americans, we suspect, forget that when our forefathers landed on the shores of the Plymouth Bay Colony they established a communist economic system.  Out of a common product and storage, the settlers set up a rationing system.  During this time, many settlers starved to death, leaving the rest too weak to tend the crops.  To get out of this famine, a better system had to be found.  “And so assigned to every family a parcel of land…”

            This system had much better success because people were forced to work in order to survive.  Before, they were given food regardless of the time and energy they spent in the fields.  When people can see a direct result between their efforts and their rewards, when incentives are much higher, they work harder.  Pilgrims who had been practicing “farming in common” claimed illness or old age as excuses for not working began to farm eagerly on their own land. Soon, the Pilgrims grew such abundant amounts of food that they began bartering their excess with the Indians for pelts and furs.

            In China, we have seen the same thing happen.  Chairman Mao thought it wrong for one farmer to get richer than another just because he was able to work harder.  Mao set up a system of communal farms where food was shared among the farmers.  Few worked hard and little was grown.  Mao thought that this was as it should be.  In 1957, Mao said: “People say that poverty is bad, but in fact poverty is good.  The poorer people are, the more revolutionary they are.  It is dreadful to imagine a time when everyone will be rich.”  Of course, by maintaining a large number of “revolutionaries,” Mao maintained his power.  Mao also thought poverty was good for everyone but him, as he lived more luxuriously than Bill Gates does today.

            Well, in 1978 the peasants in Xiaogang village did not have nearly enough food to survive, which seemed odd because they had very rich farm land.  Mao’s policies, not the weather or anything else, created famine conditions by robbing them of incentives to work.  Mao was right that poverty would create revolutionaries, as these farmers clandestinely agreed to disobey Mao’s orders and each family was given its own plot of land.  They doubled the amount of land planted in rice and worked much harder, noting, “You can’t be lazy when you work for your family and yourself.”  Other villages soon copied the great success of Xiaogang.  Luckily for the people of China, Mao had died in 1976—had he been alive, he would have massacred these villagers.  The new leaders of China were more compassionate than Mao and ordered the end to communal farming.    The lesson here is that making everyone share reduces the amount to be shared, making us all equal, perhaps, but all equally poor.

            Have a Great Thanksgiving!  But remember when you go back for seconds, it was private property rights that makes both seconds and firsts possible. 

Reference: Sartell Prentice, Jr., “Our First Thanksgiving,” Foundation for Economic Education (November 23, 2005) at URL:  http://www.fee.org/in_brief/default.asp?id=106

Amanda Walker (4T Economics 211) and Morris Coats

I talked to a student today who was looking for some folks to sign his petition. The petition, as I read it, is in favor of the Department of Interior’s plan for drilling for oil, amongst other locations, in Alaska.

The MMS (Mineral Management Service – a branch of the Department of Interior) continually updates what it calls the 5-Year plan. It is the Department’s plan to manage, and regulate offshore drilling.

It turns out that the public comment portion of the next 5-year plan’s proposal is coming to a close later this week, hence the petition.

Let me be clear that I don’t have a position on this one. Nor do I want you to sign petitions that you don’t want to sign.

I told the student I would post his petition – should students be interested in signing the petition, I said I would make it available for signing. The kicker is that it needs to be signed by Thursday morning at the latest, according to the student.
Here is (most of the) text of the petition. I’ve done some editing for brevity, but I don’t think I’ve altered the thrust. You are welcome to read/sign the whole petition outside my office. The typos are probably mine…

My signature below signifies support of allowing greater access to our nation’s offshore oil and natural gas resources during the 2007-2012 time period.

Currently, more than 80 percent of our nations’s offshore natural resources are off-limits to devlopment. With more than 85 billion barrels of oil and 420 trillion cubic feet of natural gas estimated to be available, the Outer Continental Shelf (OCS) stands ready to provide a major component of domestic resources for this country. To expedite devlopment of these critically needed resources, the 5 Year Plan must be as broad as possible and organized in a manner that provides reliable leasing schedules for companies to access these resources in a safe and environmentally sound manner.

I urge the MMS to expand the 5 Year Plan to include any areas that present a potential for oil and gas devlopment. All available acreage in the Gulf of Mexico, Alaska – particularly in Bristol Bay and the Beaufort and Chuckchi Seas – and the Atlantic shoudl be offerred for lease.

…would provide a tremendous benefit to state and local communities helping to build roads, schools, hospitals, and to address other vital local needs.

…The Draft Environmental Impact Statement does a good job of identifying potential environmental and social impacts.

Other Information:

MMS website for the 5-year Plan:

A short brochure on the MMS and 5-year Plan:

And, a petition that Sierra Club wants you to sign instead.

–CT

I don’t know what you think about the abortion issue, nor do I think I have ever let you know my opinion. If it is all the same to you, I prefer it that way. It avoids people getting upset about each other’s beliefs. Pro-choice vs. Pro-life, when does life begin, murder vs. reproductive rights, these are all questions better left for a philosophy class, an anatomy class, or best of all, a medical ethics class. Try, just for a moment, to just be a positive economist, whose personal values do not enter into the discussion. In other words, leave your opinions on abortion at the door and let’s just think about cause and effect for now. You can think about right and wrong later on. Your current job, instead, is to see if there are ways of using your knowledge of how markets work and what sort of things throw a monkey wrench into the market for abortions that would make abortions truly rare. In other words, can a way be found to use our knowledge of markets to reduce abortions?

Before going any further, I want to tell you a little about a Japanese martial art called Aikido. This is a 20^th century martial art with ancient roots in jiu-jitsu. The idea of Aikido is to use the force of the attacker against him, expending only a small amount of energy to slightly re-direct the force of the opponent, and using the opponent’s force or energy against them. So, instead of going at an opponent head on, the way linemen might in football, the opponent’s momentum is utilized to one’s own advantage. There are times when, if we are interested in regulating certain behavior, it is better to harness the forces of the market instead of trying to stand in the way of market forces and face them head on.

As distasteful to some of you as it may be, there is a market for abortions that follows the same laws of supply and demand as other markets. Increased demand for abortions will drive up the price. Price controls also work in the same way in abortion markets as they do in more common markets.

First, suppose a state were to place a price floor on abortions of say $250,000. This would decrease the quantity of abortions demanded significantly, even if health insurance were to pay 80% of the bill, keeping all but the very rich from being able to afford abortions. I am sure such a law would get struck down because it would unnecessarily reduce the ability of poorer women to get abortions.

However, what if the price control used were, instead, a price ceiling? Suppose we start off with a price ceiling of say $200, while the equilibrium price was $500? A price of $200 would increase the quantity demanded for abortions (though probably not by that much). It is not by increasing the quantity demanded that this price ceiling would reduce the incidence of abortions, but rather by reducing the quantity supplied. Some could argue that this would increase the access of poor women to abortions, as it would now bring abortions into a more affordable range.

What if the price ceiling were instead more like $50? How long could an abortion clinic stay open financed with such funds?

Actually, it would be difficult for many politicians to argue against such a proposal, as many, such as Sen. Clinton, fought hard to impose price ceilings in health care, with exactly these arguments, to make health care accessible to the poor.

Actually, a state imposing a price control in a market of its choosing might be difficult for the Supreme Court to overrule. Time for a little legal history:

In 1877 the Supreme Court heard a case (Munn v. Illinois) which involved the owner, Munn, of a grain elevator on a river. The state of Illinois regulated the price that the grain elevator operator, a natural monopolist, could charge.  Munn claimed that it was his property, and if he could not charge what he liked, that the state was, in effect, taking some of his property without due process. The court ruled that when someone puts their property to a public purpose, the property ceases being only private property, and so, the state had a right to control such prices.  After Munn, states could regulate prices, but might have to show that the good or service being regulated was somehow affected by the “public interest.”

During the depression the state of New York imposed a price floor in the milk market to try to help out dairy farmers. A grocer named Nebbia decided it was his milk he was selling, and he would sell it for the price he wanted to sell it at, deliberately violating the New York law (Nebbia v. New York was argued in 1933 and decided in 1934). The court ruled that since the price controls were not “arbitrary, discriminatory, or demonstrably irrelevant” to the policy of the legislature to promote the general welfare, it did not violate the Constitution. In this case, prices were seen as not being sacred, and so, not insulated from government regulation. The public interest in price regulation, then, was obvious to the Supreme Court, since it was enacted by a body representing the public, the legislature, taking the view that laws enacted by majority rule represent the will and interests of the public.

So, state price controls of abortions would surely not be “arbitrary, discriminatory or irrelevant” and, being passed by elected representatives, would surely be the policy of that legislature to promote the general welfare. Such a price control would not be a ban on abortions, but would instead, render abortion an unprofitable enterprise.

A lesson to be learned here is this: things are not always as they seem, especially when it comes to price controls.

Another lesson is that you can do a better job of messing something up if you know how it is supposed to work than if you have no clue.

Morris Coats

For some reason, my table doesn’t display unless you click on the title of the post above. If you do, it will display nicely.

There were six states with initiatives on the ballot proposing increaes in minimum wages. All six passed. A “Yes” vote is in favor of raising the minimum wage.

The column marked “Adjustment” indicates that future minimum wages are automatically indexed to inflation (usually annually).

The Nevada amendment is interesting. It reads:

Proposed amendment to Nevada Constitution would require employers to pay at least $6.15 per hour worked if the employer does not provide health benefits. The employer could still pay the federal minimum wage of $5.15 if health benefits are provided. Rates would be adjusted by the amount of increase in the federal minimum wage over $5.15 per hour, or, if greater, by the cumulative increase in the cost of living measured by the Consumer Price Index (CPI), with no CPI adjustment for any one-year period greater than 3%.

–CT

Here is a comment I recently posted to a blog post by Don Boudreaux on his blog, Café Hayek.

Read Don’s Nov. 4^th post here.

Don,

Could it be that those who argued against the draft in the 1970s, many good economists, such as Bob Tollison and Roger Miller, were wrong in just not being thorough enough in their analysis? While they correctly noted that the draft was a more costly way to raise an army, they somewhat failed to note the public choice results of the change to an all-volunteer force. In Bob’s case, this means not making a point that he was making over and over again about the nature of public interest legislation. That point is that when benefits of some proposal are concentrated while the costs are spread out rather thinly and evenly, the legislation will see little opposition and is more likely to be passed. The opposite is, of course true as well, that when the costs are concentrated but the benefits are spread out thinly and evenly, the opposition will be tough and it will be difficult to carry. In a way, this is part of the problem that Anshu Sharma noted in his Nov. 4th post. When benefits are widespread, but low to most, people do not “feel” or perceive those benefits and do not favor them, so special interest legislation prevails over public interest or public goods legislation.

When we went from the draft, which unfairly concentrated the costs of war onto those who were being drafted, to a so-called volunteer force or more correctly, a professional force, or a mercenary force, we change it from one where the costs are less concentrated on the soldiers and are spread across all taxpayers, thus decreasing opposition to military involvement.

Still, to the extent that military involvement is defensive (and so, one of the few real public goods) and not mere imperialism, then at least the benefits to military activity are spread out as well, and here voters will be mostly unmotivated either for or against the military activity. In which case, national defense, a public good, will not suffer from this special interest bias against public goods.

So here I am having come full circle. Tollison, Miller and other economists in the 70s who fought against the draft made no errors of omission in doing so. Moving from a draft to a professional force removed the public choice bias against proposals that have costs that are concentrated on a few.

One other point should be made against Reinhardt’s characterization of our troops in Iraq mentioned by one of the other commentators. If Reinhardt thinks that troops now are cannon fodder, under a draft it would be worse. When troops are easy to replace by going back to the draft board and telling them to send more, current troops are not as well treated and are more likely to be thought of expendable. In the 25 or so years since the draft was ended, I cannot think of a single “they were expendable” case, as we had with Iwo Jima or D-Day. When we rely upon paid troops and must pay “compensating differentials” to attract troops, minimizing the human risk of war suddenly becomes more important.

Morris Coats

Many people have more respect for not-for-profit organizations than for-profit firms. We really ought to be equally critical of both. Take, for instance, the group ACORN. There are some claims that ACORN, the Association of Community Organizations for Reform Now, has been involved in voter fraud, apparently having registered thousands of voters in Missouri. The problem is that all but about 40 of the thousands they registered seemed to be ineligible for a variety of reasons, such as the registered person was under-aged, the signatures were forged, or simply because the person must have been registered by Haley Joel “I see dead people” Osment. We need the democratic process open to everyone, whether they are still residents of the place where wish to vote or not, or whether or not they are still alive. (Warning: Sarcasm Alert)If you go to their website, at www.ACORN.org, you will see that they are big supporters of increasing the minimum wage and have fought for workers. But again, there is a little problem with that stance. I think the word is “hypocrisy. “ From an article on the Employment Policies Institute’s website you can read the article at URL: http://www.epionline.org/news_detail.cfm?rid=33 that states ACORN and Minimum Wage Hypocrisy – Most egregiously, ACORN promotes ballot initiatives and local ordinances to force businesses to pay higher minimum wages, as they are currently doing with the minimum wage proposal in Amendment 5. In 1995, however, ACORN sued the state of California to have its employees exempted from the state minimum wage. ACORN argued that being forced to pay higher wages would mean that they would hire fewer employees—the very dilemma faced by businesses. Incredibly, ACORN stated that paying its employees a lower wage would allow them to be more sympathetic to the low- and moderate-income families they were attempting to help. ACORN argued that abiding by the state minimum wage would limit their ability to promote their agenda and would therefore be a violation of their First Amendment rights. The trial court judge dismissed ACORN’s suits, stating, “leaving aside the latter argument’s absurdity … we find ACORN to be laboring under a fundamental misconception of constitutional law.” The citation for that California lawsuit is Association of Community Organizations for Reform Now v. Department of Industrial Relations, 41 Cal. App. 4th 298, 301 (Cal. Ct. App. 1995).ACORN also has had a checkered past with its employee relations. If you look at the National Labor Relations Board’s (the federal administrative law agency that rules on labor elections and unfair labor practices) website you will find the ruling against ACORN (www.nlrb.gov/nlrb/shared_files/decisions/338/338-129.pdf). ACORN intimidated and fired employees who were trying to organize a union to represent them.

Certainly, not everything ACORN is involved in is fraudulent, but they taint any good work that they might be involved in with hypocrisy and unethical practices.

We do need to keep as critical an eye on not-for-profits as we do businesses.

-MC

I just posted a piece about new oil discoveries pushing prices down today before that oil ever comes on line, as other oil will instead be pumped and consumed. A related point is often made with the same theory of non-renewable resources, and that is that we really won’t run out of oil, it will just start getting so expensive that people slow down their consumption alot, until some better resource comes along.

Well, I noticed today a news story where some scientists are predicting that the world is running out of something far more precious than oil, and that is seafood. At 51, I’ll probably not live to see this prediction come true. Anyway, you can read the story here: http://apnews.myway.com/article/20061103/D8L59FQ00.html. Running out of seafood is a real tragedy. In fact, it is called “the tragedy of the commons.” (See Hardin’s article at URL: http://www.econlib.org/library/Enc/TragedyoftheCommons.html)
This is a problem that is repeated over and over again, where people, because of certain social rules that we call property rights (see this article about property rights by Armen Alchian at URL: http://www.econlib.org/library/Enc/PropertyRights.html).

Now think about the contrast in the two cases. In one, the resource runs out and in the other, it does not. Why the difference: Most costs are, in both cases, borne by the producer, but in the seafood case, some significant costs are NOT borne by the producers. In these cases, people continuously act irresponsively. They are not really required to bear all costs. When people do not have to bear all of the costs of their actions, such as the costs of catching breeding stock, so that there are fewer fish in the future, they will act irresponsibly. Since people cannot OWN fish until they capture and kill them, they will not bear the marginal user costs mentioned in the previous ANWR blog.

Of course, one fisheries prof begged to differ. Read about his tale at URL:

http://seattletimes.nwsource.com/html/localnews/2003340489_seafood03m.html

Economists have been at the forefront of fisheries management, coming up with the idea to manage fisheries with something called an individually tradable quota, or ITQ. YOu might want to look that one up on Wikipedia.
What do you guys think about all of this?

Morris Coats