How about the rest of the property owners?

I wonder if anyone has given any thought to the incentive effects on landlords of this:
“Within 24 hours of the discovery of the lab, Mayor Martin Chavez on Thursday announced three new initiatives against meth labs.
The first is the immediate and strict enforcement of the ordinance that requires property owners to pay for the cleanup of drug labs.
Standing in front of the home at a news conference, Chavez pointed at it and said, ‘This property owner is the first, and he probably won’t be too happy about it.'”
Give it some thought. Specifically, how do you think this action by the mayor will affect the supply of rental housing and its price?

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A Musical Farce

As if writing a coda to a musical farce, Bill Richardson now wants to provide corporate welfare for music. According to the Albuquerque Jounrnal:
“Richardson on Friday described his $100,000 proposal to establish the New Mexico Music Commission as an ‘economic development tool’ that would promote the state’s music and musicians.”
Economic development by means of corporate welfare is like a musical farce. Government does not orchestrate the creation of jobs, but it does dole out favors to interest groups at taxpayer expense. Our economy will continue to fall flat, if we are not sharp enough to take note of this nonsense. The key to prosperity is low tax rates and limited government.

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School Choice in NM — We already have it!

The other day I mentioned that Educate New Mexico is now providing choice to poor parents having children in failing government schools. How can you help? If you are in the 28% federal tax bracket and 6% state tax bracket, a contribution of $1,000 to Educate New Mexico would only cost you $679 net of taxes (assuming, of course, that you are itemizing deductions). But it’s even better! Educate New Mexico receives a one dollar match for every two dollars donated. Using the above example, the donor would be able to get $1,500 into school choice for a cost of only $679 net-of-taxes! It’s worth pointing out that Educate New Mexico has very low overhead, so most of the $1,500 would actually reach the poor family. If you are in a lower or higher tax bracket than the example, your net-of-tax contribution would differ very little.
Another benefit to the taxpayer: not as much of your money will go to our inept government.
I recommend you help us take matters into our own hands when it comes to school choice. Donate to Educate New Mexico. Let’s go around our inept government and make it happen!

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More on Choice

This from Craig Newmark:
A saying almost as good as Newmark’s First Law is Margolis’s Observation: “A Liberal is someone who believes a woman should be able to choose to kill her fetus, but if she carries the fetus to term, should not be able to choose where the child goes to school.”

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Choice in Education

Kudos to Micha and Sarah for their thoughtful and persuasive opinion piece in today’s Albuquerque Journal. An excerpt:
“The public schools enjoy a virtual monopoly on education. So long as there are no real penalties associated with failure, nothing will motivate our schools to improve their performance. In markets for goods and services, the best cure for monopoly is proven to be competition, a powerful force that operates to increase efficiency and improve the quality of products. This principle applies equally to the market for schooling.”
Interestingly, Arnold King also has an interesting post today on the benefits of choice and competition in education. An excerpt:
“In my view, government’s biggest weakness relative to the private sector is its inability to reward success more than failure. The biggest reason that I believe private-sector education would prove superior in the long run is that I think it would tend to weed out failing teachers and failing processes in general.”
Do you know that some help is already available for school choice in New Mexico? Educate New Mexico has some scholarships available for low income families who want their children to escape from failing government schools. Your tax deductible contributions to this self-help program may be made to Educate New Mexico. While our state government sits on its hands proclaiming the charade of “reform,” we can be going around it to promote choice and competition. We can take matters into our own hands.

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Can you blame a politician for being a prostitute?

Michael Munger does not think so:
“For one, the comparison defames prostitutes. Politics is the oldest profession. Second, in prostitution, it is the hooker who gets screwed. In politics, it is the customer.”
That reminds me, have you noticed that Joe Thompson has decided to lobby for UNM? I’ll bet hookers don’t get $20K. (Okay, hookers don’t have to do it for 60 days either.)
Let’s face it, politics often trumps principle.

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Ending Poverty as We Know it in NM

Wow! Free money is rolling in. Some excerpts:
“The windfall has been greatest in the sparsely populated states of Alaska, Wyoming and New Mexico, where revenue from oil and natural gas has yielded large budget surpluses at a time when most states are recovering from deficits. Together, the three states are on track to pull in $4.5 billion from royalties and taxes on energy for fiscal 2004, up $900 million, or nearly 25%, from fiscal 2003 and from a mere $2.9 billion as recently as 2002.”
“A similar scenario is playing out on a much grander scale from Saudi Arabia to Russia to Venezuela, where money is pouring into oil producers’ coffers. The U.S. produces five million barrels of oil a day, behind only Saudi Arabia and Russia, and 19.15 trillion cubic feet of natural gas. When energy prices rise, as they did to $55 a barrel in October before falling back recently, so do taxes and royalties on oil and gas. Yesterday, oil traded on the Nymex was up $1.79 to $43.91 a barrel, as violence flared in oil-rich Iraq and Saudi Arabia said it is making good on a pledge to cut output.”
What is to stop NM from ending poverty now? We are well on our way to imitating utopian Venezuela.

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Recommendation

If you have not yet checked out the blog at Division of Labour, you should do so immediately. Their posts are quite entertaining as well as informative. And they have just added three sensational bloggers: Larry White, Deirdre McCloskey and Michael Munger. This is a blog worth checking every day.

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More Complications for NM Health Care

Simple Solutions and Simple Care just became more expensive in New Mexico; and complicated care just became less expensive. Of course, the growing cost of additional administrative burdens may more than offset the gross receipts tax advantage enjoyed by complicated care.
According to my calculations, a health care provider now accepting straightforward fee-for-service billing will effectively be taxed on her income at a rate that is 10 to 14 percentage points higher than for an equivalent “managed care” provider. I have created an Excel Spreadsheet that will give you more precise estimates of the difference. Let me know if you would like a copy.
To break even net of tax, a fee-for-service provider must charge roughly 25 percent more (for the same procedure) than a managed care provider.
See my previous post on how well health care turns out when we keep it simple and allow markets to function without government controls.

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On Terrible Policies and Terrible Diseases

A friend of mine recently recounted a debate he had with a liberal on libertarianism. His counterpart claimed that in a libertarian world, the FDA would not exist and we would all die of a terrible disease. Sound familiar?
This is a common argument. It has many flaws. I think we can all agree that under laissez-faire, as under any system, some people will do bad things some of the time. Some producers will try to dilute their medicines, take short-cuts in production processes, etc. The question is whether the government is better at policing bad activity than the market. A priori, there is no reason to think that it is. There are several ways that markets police themselves:
1. Reputation. Once people discover that a product is bad, it does not take long for profits to nose-dive. Firms can either: (a) cut corners now, earn high profits in the short term and nothing in the long term, or (b) make their products as diligently as possible and earn a long stream of moderate profits for years to come. The second strategy is almost always more profitable.
2. Asset markets. Stock prices do not just take account of current business conditions, they actually account for a firm’s prospects of long-run performance. What’s more, these markets react instantaneously to news, so stock prices immediately reflect new information the instant it hits. People who claim that businesses have an incentive to cut corners in the short run don’t understand that these asset markets take advantage of the best information available about the future. If a share price does not reflect the actual long-run health of a firm, people can make money by buying or selling shares until the value is accurate.
3. Competition. Rival companies have an incredibly strong incentive to find flaws in their competitor’s products and vociferously publicize them.
4. Information markets. If an industry is not good at policing itself, this provides an opportunity for others to make a profit in the “information industry.” This includes consumer magazines like Consumer Reports or buyer’s services like those that millions use when they buy cars. There is no reason to believe that these wouldn’t pop up if the FDA were eliminated.
What are the FDA’s incentives to police accurately and thoroughly?
1. Reputation? The FDA already has a bad reputation. They certify drugs that are unsafe and keep other, life-saving drugs off the shelf. Their profits are unaffected by this. If you try to stop ‘shopping’ at the FDA, the IRS will bang on your door and arrest you.
2. Competition? There is only one game in town. The FDA has no rivals looking over its shoulder.
3. Asset markets? Fat chance. Unlike stock owners, regulators and politicos have no incentive to look past the next election. Political institutions ensure that almost no one thinks about the long term (witness the impending Social Security crisis).
4. Information markets? The public is notoriously misinformed about political realities. This is because it costs money, time and effort to make oneself informed and unlike in private interactions, it just doesn’t pay off to be informed about politics. The chance that any one vote is decisive is about 1 in 60,000,000 (that was the actual probability going into 2004) so this gives voters little incentive to do their homework and learn whether the regulators are doing their jobs well.
People often assume that economists denigrate regulations because we fear that it hurts business. Actually, the opposite is true. The problem with regulation is not that it hurts business, but that it hurts consumers (it tends to enrich politically powerful business leaders). Regulations like those promulgated by the FDA raise the price of goods. They also raise the cost of doing business so that fewer firms enter the business in the first place. This grants a de-facto monopoly position to those firms already in. This is why, historically, producer groups and not consumers are usually the chief constituencies pushing for regulations!
In some cases, regulatory bodies flat out set monopoly rates. This is what happened in the case of the very first federal regulatory body, the Interstate Commerce Commission. It was instituted to keep railroad rates low. Within a very short time, railway barons were using the Commission to raise rates not lower them. Before the Commission, barons had tried unsuccessfully for years to establish monopoly cartels, but the cartels would always break down. With the Commission setting prices by law, government effectively established a cartel that was unsustainable under laissez-faire.
All of this is to say that I seriously doubt we will all die of a horrible disease were the FDA to be abolished.

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