Our site has been down for most of the last two weeks so that we could install some updates. Also, we have a new webmaster.
Thanks to Wayne Klick for the improvements he has made over the last 3 years. He has been responsible for the RGF website; and he helped launch our blog some 18 months ago. We wish Wayne well in his new endeavors in Lawrence, Kansas.
I have posted here, here and here about the counterproductive effects of price gouging laws.
Have you heard about the awful gas lines in Florida following Hurricane Wilma? Were you able to figure out what the problem was? Think about it before you read Russell Robert’s explanation here. Were you able to do better than the news media?
Colorado may be losing its effective limits on government growth. Since 1992 the envy of the rest of the country, it now looks like they are falling for the seductive promises of big government. Check out this fine CATO piece that explains what is really going on.
Alas, it looks like November 1st will be a sad day for the prospects of liberty, opportunity and prosperity in Colorado.
Answer is here. Hat tip to Robert Lawson for the link.
This BC cartoon would work especially well for NM too. How about bubbles that say “I’m a tax cutting governor,” “education reform will work” and/or “more economic development incentives?” Email me if you have any more suggestions (hmessen@nmia.com).
Suppose an unskilled worker is fortunate enough to retain her job with a government mandated “living wage” increase in pay and no reduction in any other job related benefits. Even in that case she is unlikely to gain much (if at all). The reason is that she loses government sponsored cash and in-kind transfers, offsetting the increase in pay.
Here (pp. 12-17) are my 2002 estimates of the loss of government transfers as pay increases.
I have heard rumors that nearly to 50 percent of Coloradoans believe in the tooth fairy. On November 1st they may overturn their state’s constitutional limits on taxing and spending via referenda C and D (mail in balloting has already begun). They believe that increased real, per capita spending will improve health care and education. Never mind that the constitutional limits have brought unprecedented prosperity to Colorado. All levels of government have had to make hard choices about the effectiveness of their spending.
Wishful thinking Coloradoans ought to visit New Mexico where the tooth fairy has been exposed as a fraud. Colorado is the envy of New Mexicans. If only we could get the government off of our backs as they have done in Colorado!
Those Coloradoans who really truly believe in the tooth fairy should move to New Mexico where we are last in everything good and first in everything bad. Why coerce other Coloradoans into accepting your wishful thinking?
Here is an excellent piece by Frank Furedi. Excerpt:
“Political debate is often reduced to competing claims about what to fear. Claims about the threat of terrorism or child obesity or asylum seekers compete for the attention of the public. In this way, our anxieties become politicised and turned into a politics of fear. Health activists, environmentalists and advocacy groups are no less involved in using scare stories to pursue their agenda than politicians devoted to getting the public’s attention through inciting anxieties about crime and law and order.”
I recommend you read the whole thing. Hat tip to Craig Newmark.
Here is the reason we are unable to break the legislative monopoly in NM. Worse yet, unlike California, we don’t have initiative or referendum.
Harriet Miers is the pick for me. I agree with what former Senator Roman Hruska once said about a failed Nixon pick: “G. Harrold Carswell is a mediocrity but mediocre Americans deserve representation on the court as well.”
Hat tip to Charles Krauthammer via Mickey Barnett.
A special session of the legislature is scheduled to start tomorrow morning. Yet there is no specific proposal that I can find on the state’s website. Somehow that doesn’t seem right.
Young, inexperienced workers can breathe a sigh of relief. The “living wage” ordinance in Albuquerque failed–but just barely.
Judge John Roberts has now been confirmed as the 17th chief justice of the US Supreme Court. Bushy is set to name another justice to fill the second vacancy any day (hour?) now. So it seems an appropriate time for another post on constitutionalism.
One of the themes Senator Biden sounded during the Roberts hearings was why the nominee did not support a broader interpretation of the Constitution to include more rights. A few weeks ago I offered one reason why the judge might be reluctant to recognize some rights. Namely: they might not be in the Constitution. But going beyond that, we might ask WHY some rights are not in the Constitution. If they are not, perhaps it is time from some amendments to put them there?
Let us begin with the republic’s mission statement, the Declaration of Independence. Perhaps better than any document before or since, the Declaration articulated the Enlightenment Era’s conception of government: People have certain unalienable rights. Governments are constituted for the purpose of securing these rights. If the government fails in this raison d’etre, the people have a legitimate cause to overthrow the government.
So if governments are constituted for the purpose of securing rights, then why not secure the heck out of all sorts of rights? This was basically the gist of Senator Biden’s indignant question to Mr. Roberts.
The answer is rather simple. It lies in the somewhat paradoxical fact that rights inherently involve restrictions of freedom. My right to life restricts your freedom to kill me. When we say that someone has a right to something we mean that the rest of us have an obligation to respect that right. Some obligations are more costly than others. And in some instances the obligation to respect Mr. A’s right may be onerously costly to Mr. B. It may even cost Mr. B his own rights! Thus, we have to be very careful when we delineate the rights which people possess. We cannot just hand them out like so many public high school diplomas.
To make this more concrete, let us think of some rights which can be respected with relatively low cost. Take, for instance, the right to life. When we say that I have a right to life, we oblige the rest of you to respect that right. In general, it is fairly easy to respect it. You don’t have to do anything but resist the temptation to pull a trigger. For another example, take the right to property. Here again, my right to my wallet means that you are obliged not to take it from me. Not too terribly onerous an obligation. These are examples of what philosophers call “negative rights.” They get their name because respecting them requires no positive action be taken by others.
I think it is safe to say with little exaggeration that at the time of America’s founding, negative rights were the only recognized rights. Those who recognized a broad class of negative rights were called liberals and those who had a more circumscribed view of rights were known as conservatives. (Nowadays few thinkers in the Western world defend the old conservative position.) As the 19th century wore on, however, some came to recognize a new species of right: what some have called a “positive right.”
Unlike a negative right, a positive right DOES obligate positive action be taken by others. For instance, some say that I have a right to medical care. You are in violation of my right if you are a doctor and you do not provide medical services to me. When society says that I possess a positive right like that of medical care, it is asking a great deal more of my fellows than when it says I have a negative right. It is obliging the nurse, the doctor, the hospital employee to attend to me. Other examples of positive rights include the right to education, or what FDR called the right to “freedom from want.”
Like those recognizing negative rights, those recognizing positive rights also called themselves liberals. This of course, got confusing, so to distinguish themselves from both conservatives and the new liberals, those who didn’t recognize positive rights began to call themselves classical liberals. Increasingly, they call themselves libertarians.
Anyway, back to the story. Why do libertarians fail to recognize positive rights? For one thing, it is simply more costly to impose an obligation on others to do something than it is to oblige them not to do something. In most instances, the obligation to respect another’s right to life or property can be fulfilled without cost. But an obligation to provide medical care can be extremely costly. Are all doctors obliged to save all people who might be suffering at all times? Obviously they must sleep. Are they permitted to take the weekend off? If we oblige someone to take a certain course of action—which is what we do when we recognize a positive right—we rob people of their more fundamental negative right to liberty.
The logic becomes crystal clear when we take the example to its extreme and recognize every positive right which comes to mind: a right to a job, a car, a girlfriend. The only way to recognize these rights is to force others to hire you, give you cash, or go see a Hugh Grant movie with you. A free society is impossible when everyone has a right to everything under the sun.
Because positive rights can be so much more costly to respect, their recognition poses another important problem: the risk that society will simply ignore them. No society is actually going to enforce someone’s right to medical care by obliging every doctor and nurse to work every waking hour. Thus society is likely to tolerate the abridgement of positive rights. Once it becomes acceptable to abridge a positive right, it may become acceptable to abridge more fundamental negative rights.
On this, all liberals, classical and modern can agree. A society which fails to recognize fundamental negative rights is a society which is lost.
Can you believe what Alaskan Republican Congressman Don Young said when someone suggested that he return the money he got for a bridge to nowhere in Alaska to pay for Hurricane Katrina relief?
I am off to the annual SPN meeting and won’t be blogging for a few days. But before I leave I wanted to write a few thoughts about the special session. The details of the upcoming special session are still pretty sketchy. It is being cast by the governor as “relief” for high-energy prices. You have already heard from me on the counterproductive proposal regarding “gouging.” So how about the “relief?”
For the most part it constitutes increased spending on welfare. Most of the tax rebate “relief” and all of the low-income “relief” will go to residents who do not pay taxes. I have already cast doubt on the effectiveness of the state’s welfare programs. The mishmash allows politicians and “advocates” to take credit for individual programs (such as low-income housing energy assistance) while they ignore the big picture. Oh, well.
The state should give relief to all; and it should get its explosive spending under control. One really helpful way to do that in the special session: Reduce the statewide gross receipts tax rate by one percentage point (from 5% to 4%); and pledge to keep spending under control. The real tax reduction would provide proportionately more help for the poor while boosting the economy. There is plenty of revenue surplus right now to do it.
We are speeding down the road to denying reality. We will be there on October 7th when the special session is supposed to end. Governor Richardson actually said this (subscription) to help speed us down the road:
“I don’t believe that these profits that are being generated are being done without some kind of manipulation,” he said.
While he couldn’t articulate during a news conference on Monday how New Mexico might quantify exploitation, the governor reiterated that most residents are feeling the pain of high gasoline prices.
“It’s hurting consumers, it’s hurting kids, schools, agriculture,” Richardson said. “In essence, the first step has to be, let’s have a law that protects our consumers, and the state does not have a law.”
But the Guv is going to insure that we suffer the unintended consequences of this phantom menace based on his “belief.” No one can deny that we are harmed when the price of something (such as gasoline) goes up. When that happens we have to give up more of other things to get that something. That hurts.
What is not well understood, however, is how the higher price acts as a signal that will mitigate the suffering. In response to the higher price consumers immediately begin to reduce their consumption of gasoline. Firms immediately begin to bring more gasoline to where it is needed. As the late, great Professor Hayek said here:
“The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.
I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”—and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously—should remember this: The problem is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.”
Of course, in the recent case of rising gasoline prices many people may think they know the cause. But they don’t. And the only thing they will have to “marvel” at is how the government further gouges us by not letting price signals guide our behavior.
Our governor has signed the letter to the FTC requesting an investigation into “price gouging” and “excess profits.” Here is what Lynne Kiesling has to say:
“Remind me to add that [excess profits] to the list of economic non-concepts, right behind “price gouging” and “windfall profits.”
“If you are analyzing price effects along a vertical supply chain, and you have a capacity bottleneck in the middle of that chain, how can you expect historic relationships between the price of the initial input and the price of the final product to persist? That is incredibly naive and reflects a lack of understanding of how vertical supply chains work.
Of course the price of crude oil and the price of gasoline are going to become more disconnected as your refining capacity becomes the binding constraint. Furthermore, when a natural disaster exacerbates that bottleneck, you should expect a further deviation from that historic relationship.
More work for the FTC, which routinely investigates claims of “price gouging” when one politician or another raises the populist hue and cry. The FTC has studies stretching back for almost two decades that show no evidence of anti-competitive outcomes in gasoline markets.”
Hawaii has attempted to deal with price “gouging” by capping the amount that gasoline refineries can charge for their product. Now it is estimated that Hawaiians are paying 51 cents more per gallon at the pump than they would without their government’s “help.”
The long term effects of this misguided government gouging are going to be even worse. There is no incentive on the part of refiners to improve or expand their facilites. And there is certainly no incentive to increase the supply of crude oil to the Islands. That means future prices at the pump will be even higher.
This silly cap encourages illegal behavior. There will be tremendous incentives to engage in fraud rather than innovation. Refiners have a limited amount of product and pump prices are much higher than fundamental economics would indicate. Look for some side payments and favors from gas stations to refiners as ways to increase their supply and thereby the profits of both.
The Albuquerque Journal again reports uncritically (subscription) the findings of a camp following whore.
This time it’s Olivier Uyttebrouck who uncritically reports what an “economist” says:
“Workers who would be affected by the proposed minimum wage average 31 years old, said Robert Pollin, a University of Massachusetts at Amherst professor.”
And:
“Of workers who earn less than $7.50 an hour, 27 percent are ages 15-19 and 73 percent are 20 or older, he said.”
Let me expose these misleading statistics by way of an example: Suppose we have 4-20 year olds and 1-70 year old working below the proposed $7.50 per hour threshold. Their average age is 30! Does that give a clear picture of that population? If we switch one of the 20 year olds to 19, then 80 percent of the population is over 20. Does that give a clear picture of the population?
What really gets me about local reporting on the minimum wage is that not one reporter (that I know of) recognizes that the vast majority of the economics profession concludes that “living wage” ordinances are harmful to the workers they are purported to help.
Russell Roberts has a great article here. Some excerpts:
“Understanding the emergent phenomena economists call a market is the essence of the economic way of thinking. In contrast, the human brain seems more accustomed to what might be called the engineering way of thinking where human action and human design work together. If I’m dissatisfied with the size of my kitchen, I make a plan and by following the plan, if it’s a good plan, the result is a bigger kitchen. A person who sits around hoping for a new kitchen without design or action is going to be disappointed. Or if I notice the leaves falling from the trees, I don’t hope that they’re going to clean themselves up. I have to plan to rake them and then do the actual raking. Changing my thermostat to alter the temperature inside my house is another such example.
But the engineering way of thinking doesn’t work with emergent phenomena. Trying to change emergent results is inherently more complex than building a bridge or expanding your kitchen or even putting a man on the moon. Understanding the challenge involved is to begin to answer the old question that asks why we can put a man on the moon but we can’t eliminate poverty. Putting a man on the moon is an engineering problem. It yields to a sufficient application of reason and resources. Eliminating poverty is an economic problem (and by the word “economic” I do not mean financial or related to money), a challenge that involves emergent results. In such a setting, money alone—in the amounts that a non-economic approach might suggest, one that ignores the impact of incentives and markets—is unlikely to be successful.
Thomas Sowell likes to say that reality is not optional. But we oh so want it to be. We want to change outcomes without consequences with the ease of adjusting the thermostat on the wall of our house. We want to dial incomes upward and gasoline prices downward. We want to blame Wal-Mart for the fact that its employees earn below the national average. We want to blame China (or Mexico or Japan or India) for our trade deficit. We want to blame or honor the occupant of the White House for whether new jobs are high-paying or low-paying. This worldview that flies in the face of reality and that ignores the inherent complexity of the real world is the bread-and-butter of journalism and the breeding ground for unintended consequences.”
Following a cogent explanation of the confusion of well-meaning opponents of Wal-Mart (that you should read), Roberts goes on:
“As I write these words, New Orleans is in chaos. A number of oil refineries have been knocked out of commission by Hurricane Katrina. Gas prices have spiked upward. Politicians are threatening suppliers with legal action for “price gouging,” raising prices at a time of crisis. Politicians from President Bush on down are asking drivers to drive less or “only when necessary” as if that phrase had meaning. These politicians evidently believe that begging and lecturing citizens can perform the role that prices do in creating and sustaining order, an order where I never have to think twice or even once about whether gasoline will be available at the corner for my vacation or drive to work or to take an emergency trip to the hospital.
But reality is not optional. You cannot have a sudden reduction is gasoline available to the market and low prices at the same time. There is no dial for gasoline prices. The result of these threats is easily predicted—suppliers are already rationing. Drivers are worried about shortages and in the face of threats to punish ‘gougers.’ They are right to worry. As a result, lines are forming in some cities, and gasoline retailers are closing early in the day, out of gasoline, the same results we saw when explicit rather than implicit price controls were put in place in the 1970s.
Friedrich A. Hayek, in The Fatal Conceit, wrote that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Unfortunately, when politicians try to dial down prices to preserve order, they only worsen the problem. We would do well to remember the emergent nature of prices, especially in times of crisis.”
I recommend you read the entire article.
I am not surprised that Steve Moore shares (subscription) my view of the already profligate GOP’s response to the New Orleans tragedy:
“There’s an old adage that no one in Washington can tell the difference between $1 million and $1 billion. Seldom has that Beltway learning disability been more vividly demonstrated than in the weeks since Katrina.
When President Bush announced last Thursday that the feds would take a lead role in the reconstruction of New Orleans, he in effect established a new $200 billion federal line of credit. To put that $200 billion in perspective, we could give every one of the 500,000 families displaced by Katrina a check for $400,000, and they could each build a beach front home virtually anywhere in America.
This flood of money comes on the heels of a massive domestic spending build-up in progress well before Katrina traveled its ruinous path. Federal spending, not counting the war in Iraq, was growing by 7% this year, which came atop the 30% hike over Mr. Bush’s first term.”
It gets even worse:
“Rapacious trial lawyers are already on the hunt rounding up Katrina’s victims to unleash a barrage of multimillion dollar lawsuits. Now they have been empowered by Congress to finance these lawsuits against taxpayers … with taxpayer dollars.”
The Governor also wants to form a “task force” to investigate price “gouging.” No such task force that I know of has ever successfully found a problem. The reason that “gouging” cannot exist is that consumers have alternatives. But we don’t have alternatives to the coercive, idiotic, wasteful policy of our government. Isn’t it time for a task force on government gouging?
Winthrop Quigley had a good article recently on so-called price “gouging.”
Music to my ears; and it gets even better.
