Pork, Pork, Pork

The Albuquerque Journal reported yesterday (subscription required) that some of the spending is coming our way.
Here is how I described the incentives of pork-barrel spending in the public choice class I taught earlier this summer (those familiar with public choice may recognize this as a modified version of “Tullock’s roads example”):
Imagine you and two friends are out to dinner at Sadies (a fantastic Albuquerque restaurant for you non-New Mexicans). After a delicious meal, the waiter asks if anyone would be interested in dessert. You look at the menu and think, “I like mousse. I might be willing to spend $5 on one. They cost $6, though, so I think I’ll pass.” Let us assume that your two companions think the same thing. No one orders mousse because no one feels that it is worth it.
But, now something happens to change the incentives. The waiter informs you that he is sorry, but he forgot to split the check and it is impossible for them to itemize the bill. Did I mention that your two friends happen to be from the Democracy for New Mexico group? Well they are. Being a “social progressive,” one of your friends suggests that you just split the tab into equal thirds—everyone paying the same amount, even if some eat more than others. And being enamored with democracy, the other suggests that you take another look at the dessert menu and take a vote on whether or not you will have any dessert. The decision to have dessert has just been collectivized.
One of your friends has enjoyed many margaritas and when he gets up to go to the bathroom, you and your other friend make a deal. You will form a coalition: each voting for mousse for the other guy. When you do this, there will be two mousses (misse?) ordered at a cost of $6 a piece. Total cost will be $12, split three ways. The two of you in the majority coalition will each pay $4 for mousse which you value at $5. Pretty good deal for the majority. The (minority) third dinner-companion will also pay $4, but he gets no mousse! Pretty bad deal for the minority.
But notice what happened. The table collectively ordered $12 worth of mousse which it valued at only $10! That is insane!
Now, imagine if you made all of your dining choices this way. We could imagine shifting coalitions among the three parties: a carne adovada coalition, a tamale coalition, a chile relleno coalition. When you add up all the costs, you can expect to lose in the long-run. The table will order way more food than it really wants.
Where you went wrong was in collectivizing the decision in the first place. By doing so, you were able to concentrate benefits on the few, but diffuse the costs over the many. You should have kept dessert a private, individual decision.
Hopefully by now you see the purpose of our little parable. Every time legislators get together to vote pork for their district they are doing the same thing as our dinner companions. They are concentrating benefits on their constituents and diffusing the costs over the rest of us. For a particular project, the constituents may be better off, but in the long-run, we all lose!
We don’t even have to assume greedy, avaricious or immoral legislators. Even good people trying to help out their constituents face an incentive to spend on pork. The problem is not with the people, but with the democratic system.
The founders, of course, knew this. Franklin argued that, “Democracy is two wolves and a lamb voting on what to have for lunch.” Washington warned that “Government is not reason; it is not eloquent; it is force.” Armed with this knowledge, the founders did not create a democracy, but a constitutionally-limited republic. Under such a system, a Constitution limits government to only those powers which are specifically enumerated. In the words of Madison, “The powers delegated…to the Federal Government are few and defined.”
Unfortunately, too few people respect the Constitution these days and too many have fallen in love with unchecked democracy.

A rarity in Congress

The Washington Post has a nice piece on the GOP’s profligacy today. Congressman Flake of Arizona, one of only 8 House members to vote against the recently passed $285 BILLION transportation bill is quoted: “If you look at fiscal conservatism these days, it’s in a sorry state….Republicans don’t even pretend anymore.” In addition to being the former head of the Goldwater Institute (he left for Congress shortly before I worked there), Flake was also my representative when I lived in Arizona. I’ve lived in three congressional districts in my short voting lifetime and he is the only representative of whom I can say I am proud.

Damned by faint praise

I just saw Mario at lunch and he was a little chagrined that I characterized his blog as “usually-reasonable.” For the record, I am a big fan of his blog and have to date not found an unreasonable post. Perhaps I am subconsciously jealous that his blog is more widely-read than our own?
On another note, I now realize I should not have characterized Joe Monahan’s blog as right-of-center. I apologize if I have offended either Joe or bona fide righties.
Unlike some politicos, we here at the Foundation are not ashamed to admit our mistakes.

Welcome

New Mexico has a small but growing community of bloggers. Here, in no particular order, are some of my personal favorites:
Mario Burgos: His is a usually-reasonable right-of-center perspective from an active Republican.
New Mexico Politics with Joe Monahan: Another right-of-center perspective from an even more active Republican.
Duke City Fix: A mostly-apolitical mélange from a very diverse group. Their newest writer is a senior at my alma mater!
Albloggerque: A left-of-center chronicle of life around Nob Hill from a socially-conscious educator named Jon Knudsen.
Gregpayne.com: A right-of-center blog from a New Mexico State Representative and ubiquitous commentator.
Democracy for New Mexico: At face-value it would appear that we at the Foundation have very little in common with this decidedly lefty-group. That said, I’ve always believed that libertarians and progressives have a lot more in common than most people think. Both groups are skeptical of “big power,” “special interests” and invasions of civil liberty. Furthermore, both share a deep concern for the plight of the poor and the powerless. Now, if we could only get the progressives to appreciate that the best way to lift the poor out of poverty is to permit free individuals to interact in a free market.
And finally, we have the latest entrant:
NewMexicoMatters: A blog from a self-proclaimed “non-blogger,” this center-left New Mexico patriot’s commentary looks promising. Welcome!

The Education Monopoly Strengthened

More proof today that New Mexico’s education system is moving (running?) in the wrong direction. As many states and communities around the country are contemplating education reform which would break the public school system’s monopoly on education, we in New Mexico are talking about strengthening that monopoly.
This morning’s Albuquerque Journal reports (subscription required) that six Albuquerque schools are going to start requiring that parents produce four proof-of-residency documents in order to enroll their students. Apparently, there is a concern that these schools are overcrowded. Many suspect that there are students going to these schools who—gasp!—don’t live in the district!
James Monroe Middle School principal Vernon Martinez said that his school is even considering home check-ups to verify residency.
This is very sad.
Wouldn’t it be wonderful to see a day when providers of education are subject to the same level of competition as grocery stores? Wouldn’t it be great to see a day when schools are no longer assigned their customers but actually have to work for them like any other business? I hope that some day every public school in the state will compete with every other public AND private school for the privilege of educating our youth. Economics would predict and empirical evidence has shown that when schools do compete, education standards improve.
When I was in grade school I was lucky enough to have an industrious mother. She and an equally-industrious mother of my good friend worked diligently to navigate the red-tape and get us transferred to Jefferson Middle School. I feel that the education I got there was far superior to what I would have received in my home-district school (which shall remain anonymous). Every year our mothers hunted down the obscure forms and applied for a transfer. My friend and I came from a privileged background. We had parents who could afford to spend the time to figure out how to get around the red-tape. Unfortunately, most in New Mexico are not so lucky. Most are forced to accept the school to which they are assigned. Now it looks like even more students will have to accept mediocrity.

Ruthless Extortion

Yesterday’s Albuquerque Journal (subscription required) reported a record windfall in state tax revenue. There are lots of ideas about what to do with the money: spend it on “the kids,” give it back to the people in a rebate, reduce tax rates, etc.
Conspicuously absent is the sort of sentiment expressed by Grover Cleveland when he presided over record surpluses during his first presidential term:
“When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and expenses of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of free government.”

How Mrs. Adkins Got Her Job Back

As the “living” wage debate heats up in Albuquerque, it seems appropriate to stop and remember how we got here.
Of course, we at the Foundation have long argued that minimum wage laws are abhorrent because they harm the very people they are intended to help: the poor. By raising wages above their market-clearing levels, these laws increase unemployment among low-skilled workers. Don’t believe me? Open up any intermediate microeconomics texts such as this one. Or this one. Or this one.
Aside from the economics of the issue, what does the law say? From the very beginning, American jurisprudence held an individual’s right to contract sacrosanct. No act of government could overturn a contract lawfully entered into by consenting adults. An integral aspect of Roman and English common law since time immemorial, the right to contract was codified in the famous Dartmouth College Case of 1819. The trustees of Dartmouth College had entered into a contract with the King of England in 1769. A half century later, the New Hampshire legislature amended the charter without consulting the trustees. The trustees filed suit and the Supreme Court found that New Hampshire had impaired “the obligation of a contract.” The Dartmouth College case was a powerful demonstration that though governments rise and fall, an individual’s sacred right to contract with his fellows shall not be infringed.
The right to contract was again affirmed in the 1905 Lochner decision which struck down a law limiting working hours. The court found that if two consenting adults can agree on terms of employment, government has no right to interfere.
In 1923, an important case raised the issue yet again. A 21 year old woman of the last name Adkins worked as an elevator operator at a children’s hospital in Washington, D.C. According to the court, “[Ms. Adkins] alleges that the work was light and healthful, the hours short, with surroundings clean and moral, and that she was anxious to continue it for the compensation she was receiving.” For its part, the hotel found her “services were satisfactory” and “would have been glad to retain her.” Unfortunately, upon the enactment of a federal minimum wage law, the hospital could no longer afford to pay Ms. Adkins and had to let her go. Thankfully for Ms. Adkins, the court found the minimum wage law violated her right to contract. The court struck down the law and Ms. Adkins returned to work.
In 1936, in Morehead, the court came to the same conclusion in a similar case. Then, in an astonishing move, the court reversed itself just 10 months later in the famous West Coast Hotel vs. Parrish case. The reversal came about because of one man: Justice Owen Roberts. To this day, it remains somewhat of a mystery as to why Justice Roberts reversed himself (some have argued Roberts was trying to appease FDR in order to get the president to abandon his court-packing plan).
In any case, the sacred and ancient right to contract was forever abandoned and minimum wage laws have been legal ever since.
As the city of Albuquerque contemplates a drastic hike in its minimum wage, it seems appropriate that we pause and remember the plight of poor Ms. Adkins. There are many like her today who stand to lose their jobs because some well-meaning folks haven’t taken an economics class.

I Rather Like our Name!

Economist Craig Newmark of N.C.S.U. recently lauded our own Ken Brown’s calm and reasonable piece questioning the wisdom of light rail in New Mexico. Professor Newmark is not the only one who has taken notice.
I was recently contacted by an acquaintance of mine (okay, ex-girlfriend). She works for a civil engineering firm in Arizona which might be called upon to build our light rail system should it come to that. She was wondering if the Foundation had done any research on light rail in NM. I told her that there have been no comprehensive analyses but that our own Dr. Brown has written a white paper on the subject.
She apparently passed Ken’s piece along to her boss who was not impressed.
He replied: “I guess we’d have to ask the author to point out a freeway in Albuquerque that pays for itself. The worst part of this thing is the name of the organization: ‘The Rio Grande Foundation.’ They do that to get some aura of respectability they can’t get if they refer to themselves as what they really are. The “Anti-Everything Naysayers” just doesn’t have much of a ring in the media…”
Slightly chagrined, this was my reply:
“Wow. How nice. If I may defend my organization, I believe that our small PhD-laden staff gives us an “aura of respectability.” We have three emeritus economics professors, a former CEO, a former governor’s senior policy advisor, an under-secretary from the Commerce Department’s division of Economic Affairs and, of course, me! Several of our staffers have long lists of publications in peer-reviewed academic journals and all of them have published widely in more popular formats.
As for his suggestion that roads cannot be made to pay for themselves, I’m afraid he is sorely mistaken. To start with, most of the early turnpikes in America were private. Despite onerous price regulations, many of them were quite financially successful. And as for today, the examples of financially-viable private roads are legion. I actually drive on one in Virginia called the Dulles Greenway on a semi-regular basis. Its prices are reasonable and its condition is exemplary. Private roads have also worked in California, Chicago, Israel, Hungary and Chile. It is often these private roads that pioneer new technologies like congestion-pricing.
Economists aren’t anti-everything, just anti-waste.”

With Love From Russia

People often think of the U.S. as a bastion of economic freedom. In the 19th century there could be little doubt that it was. With a strong commitment to the rule of law and property rights, low taxes, moderate tariffs, and almost no federal regulation of commerce, no place on Earth better-exemplified the “natural liberty” of a free market for which Adam Smith so passionately argued.
Today, the U.S. is no longer conspicuous for its economic freedom. Sure, we have drifted closer to a command-and-control economy than many thought possible. But perhaps more importantly, the rest of the world has caught on to Adam Smith’s timeless lesson: economic freedom leads to economic prosperity. Hong Kong, Ireland, Estonia, the United Kingdom and even Chile have all undergone remarkable market liberalization in the last few decades. Not coincidentally, all have prospered–outpacing their neighbors in almost every measure of economic well-being.
In the last few years, even the former communist nations have caught on. Latvia, Estonia, Lithuanian, Russia, Ukraine, Slovakia, and Romania ALL have flat taxes! Two weeks ago, Russia took one further step and abolished its death-tax.
Many of these nations have been slow to develop a strong commitment to the rule of law or property rights. And indeed, these prerequisites for prosperity are some of the more difficult to establish (sadly, they seem difficult to maintain, even here). Nevertheless, we could learn a thing or two from our former enemies.

Sorry, are my teeth grinding?

This sort of ruling gets my constitutionalist-blood boiling.
As Harry recently noted, its nice to have a doubting Thomas.
His dissent showed crystal clear economic insight with regard to subjective value and consumer surplus:
“So-called ’urban renewal’ programs provide some compensation for the properties they take, but no compensation is possible for the subjective value of these lands to the individuals displaced and the indignity inflicted.”
I hope good people running for local office in New Mexico are paying attention to this. Let’s not let this happen here!