I just saw The Aviator. It is every bit as good as you have heard–maybe a little better. The film is being lauded for its historical accuracy. (Though, as is often the case with Hollywood, they left out some of the more interesting aspects of reality. For instance, Hughes’ obsession with germs probably stemmed from his bout with syphilis which was entirely ignored in the movie.)
What I particularly liked about the film was how it portrayed the distressingly all-too accurate relationship that often exists between industry and government. Throughout the film, Hughes competes with Pan American’s Juan Tripp over airline market share. This, of course, would be great for the consumer if the contestants played fair. Instead, Tripp, and to a lesser extent Hughes, compete for unfair assistance from government.
To gain market-share in a free market, firms have to please the consumer–get him to voluntarily choose their product over their rivals’ product. But gaining market share is much easier when you have government on your side. Using government’s legal powers of coercion, firms can force their competitors’ prices up (for instance, with a tariff), or lower their own costs (say, with a subsidy from the taxpayers). In many cases, firms have been able to use government to simply outlaw their competitors by obtaining a legal monopoly. This is more than unfair, it is hugely costly. Intelligent, hard-working people like lawyers, accountants and lobbyists spend their time and money vying for an unfair advantage rather than thinking of new ways to please the consumer.
People often blame the firms and their executives for this unseemly behavior. What The Aviator does so well is to show that this is a government problem not a firm problem. At one point in the film, Howard Hughes is under intense interrogation from Maine’s Senator Owen Brewster. Brewster, known in real life as “the Senator from Pan Am,” had an interest in destroying Hughes’ TWA. Under oral examination, Hughes admits to dolling out gifts to government officials in hopes of gaining their assistance. But as Hughes points out, this is simply the way the government-entwined airline industry works. If you don’t take advantage of government’s unfair help, your competitors will.
The problem is not that business asks for hand-outs. After all, we can’t very well outlaw the desire for wealth. The real problem is that government obliges! This we can outlaw! So, see the movie and learn some economics.

Yesterday’s report is that Utah may be about to opt out of the No Child Left Behind abomination (thanks to Chuck Muth for the pointer). If they do opt out they are saying “thanks, but no thanks to $116 million in federal aid.” “state policy-makers are fed up with federal control of education and dictates.” The Utah legislature appears to be unanimous in wanting to opt out. According to the report, “eight other state legislatures — in Colorado, Connecticut, Idaho, Minnesota, Nebraska, North Dakota, Vermont and Virginia — are considering challenges to No Child Left Behind.”
One can only hope that this is the beginning of the end for the fraudulently titled “no child left behind” act.
The Washington Times further reports today that state legislators are demanding more flexibility.
Unfortunately, in response the Department of Education seems to have abandoned all principles of federalism: “The Bush administration warned that the national conference’s action ‘could be interpreted as wanting to reverse the progress we’ve made.’ ‘We will not reverse course,’ said Ray Simon, U.S. assistant secretary for elementary and secondary education. ‘Children must be challenged to reach their full potential, not told to settle for someone else’s lowered expectations.’” The administration is going to regret its top-down, one-size-fits-all centralized control.
When is New Mexico going to opt out of NCLB?

Chuck Muth reports yesterday:
“School administrators at Austin High School in Austin, Texas, latched onto this new obesity fad/crisis and decided to remove all the candy vending machines on campus. In light of the decision, some enterprising students have stepped into the breach and filled the need.
‘The candy removal plan, according to students at Austin High, was thwarted by classmates who created an underground candy market, turning the hallways of the high school into Willy-Wonka-meets-Casablanca,’ reports the Austin American-Statesman. ‘Soon after candy was removed from vending machines, enterprising students armed with gym bags full of M&M’s, Skittles, Snickers and Twix became roving vendors, serving classmates in need of an in-school sugar fix. Regular-size candy bars like the ones sold in vending machines routinely sold in the halls for $1.50.’
The paper notes that some kids are said to be making $200 a week selling black-market candy in the school’s halls and bathrooms.”
Questions about when this happens in New Mexico:
Will it be exempt from the food tax? After all, candy is a prepared food. Looks like Tax and Rev may have to begin hallway patrols.
How about the entrepreneurs? Aren’t they contributing to the obesity of minors? Looks like APD will have to step up their hallway patrols.
Are these entrepreneurs licensed? Looks like the PRC may have to begin hallway patrols.

New Mexico cannot get over its anti-market mind set. Now big Bill wants to impose price controls in the form of caps on payday loans (subscription):
“Gov. Bill Richardson says he’ll introduce a measure to the Legislature this week that will cap interest rates on payday and car title loans.
‘I’m going to enter the fray and propose a bill of my own that sets a reasonable cap,’ Richardson said Sunday in a telephone interview.”
I have seen only a little skepticism on this bad proposal. Why is it bad? Let’s answer the question by asking some questions.
1. Since there are so many payday lenders, how can it possibly be that they are charging too much for their loans? Wouldn’t an exorbitant rate of profit lead to even more lenders, driving down the charges for payday loans?
2. Similarly, why don’t those who say that payday lenders charge too much enter the market themselves and charge something more “reasonable.”
3. Undoubtedly there are a few borrowers who are misled by these loans. But with all the overbearing regulations now existing, why isn’t our government catching those who commit fraud? Isn’t detecting and prosecuting fraud one of the main reasons we have a government? Why do we want to drive this market underground where fraud will be even more difficult to detect and prosecute?
4. What is so hard to understand about the terms of these short-term payday loans? Example: Lender lends $200 for two weeks with a charge to borrower of $30. Even a borrower educated in NM should be able to understand that.
5. Why do we want to penalize borrowers who act responsibly and will get shut out of the market as a result of this bad proposal? They will suffer more when financial emergencies occur than they would with a payday loan – otherwise they wouldn’t be seeking the loan.
6. Proponents of this bad law are making a big deal out of converting the payday loan charges to an annual rate of interest. But they don’t include the value to the borrower of being able to obtain the loan hassle-free. Why not?
One thing we economists know is that price controls always make matters worse. This bad law will too.

What does a judge get if caught driving drunk in New Mexico? 90 days vacation with pay! I guess that will help make up for the two days in jail(subscription).

Not only will big Bill’s new rail transit be expensive and have few passengers. Those who do ride it will be less safe.

Add the Albuquerque Chamber to the list. Looks like this is another bad idea whose time has come. A few years from now remember you heard it here: the Pre-kindergarten expansion of government will not work.

Matt has passed the biggest obstacle to obtaining his Ph.D. in economics at George Mason University. Matt is a fellow of the Institute for Humane Studies. He has begun inquiry into the efficiency effects of the generality of rules. Does it help when the government grants tax favors or subsidies to preferred groups (the emphasis of the Richardson Administration)? Or, is it better from an economic prosperity standpoint (not to mention fairness) to make everybody play by the same rules?

How gullible can we be when it comes to the pre-kindergarten expansion of government? Answer: really gullible (subscription):
“Gov. Bill Richardson on Tuesday released the results of a poll that showed 83 percent of the New Mexico respondents support a voluntary pre-kindergarten program he is backing.”
I wonder how many would support this feel-good, “for the kids” initiative if they actually read the bill?

The federal government wants its Medicaid bed scam money back (subscription):
“The Centers for Medicaid and Medicare Services demanded the state return funds it paid last year under a now-disallowed bed tax plan designed to generate $22 million in federal funding.”
We are not going to get sane Medicaid policy until we eliminate the incentive of states to rip off the federal purse via the Medicaid match. That should be priority one for Medicaid reform

Where are the skeptics? I seem to be only one of a few. Mountains of evidence to support government pre-kindergarten? How about the mountains of contrary evidence here, here and here? Are you too much into feel-good rhetoric about the kids to check out documented skepticsm? How gullible can we be? Our government doesn’t have a track record of success. And now you believe that Lucy won’t pull the football away this time?
Suggestion: since it looks like we are going to start another expensive government program that won’t work, why don’t we abolish an equal dollar amount of those programs that already don’t work?

Here’s wishing even the wishful thinkers a happy Valentine’s Day. Unfortunately, not everyone shares my sentiment.

Apparently the legislative monopoly in Santa Fe thinks so. Now they want to foist pre-kindergarten on the beleaguered NM taxpayer. Here is what I think:
1)It won’t work.
a) This is interest group politics. Self-interested government bureaucrats and “advocacy groups” gain – it is in their financial interest to implement pre-K. As a result their studies are suspect. Parents are different in their abilities and motivation to educate their children. Children have different abilities when it comes to learning. What did these studies do to control for differences in parents and differences in children? Did they evaluate the trade offs between nurturing by loving parents and “teaching” by “licensed providers.”
b) Government K-12 doesn’t work. And it will not work under so called “reform.” What makes us think the Pre-k will work? How naïve can we be?
c) Touchy feely one-size-fits-all standards don’t allow for differences in parents and differences in children. Example of what they are trying to foist on us: “The curriculum for each program shall address the total developmental needs of the child, including physical, cognitive, social and emotional needs, and shall include aspects of health care, nutrition, safety, the needs of the family and multicultural and linguistic sensitivity, in coordination with other resources for families.” Give me a break! Parents know what is best for their children, not so called experts in Santa Fe or licensed providers.
d) Expands failed government school education monopoly. This will make it even more difficult to turn things around.
2)We can’t afford it.
a) Budget pie can only get so big. There is little room to increase budget, because other states (e.g. Texas, Colorado) are so much better than us. Other priorities such as teachers’ pay raises are likely to suffer.
b) We cannot raise taxes and be prosperous. NM taxes are already too high and going up (compare us to Texas and Colorado). This is not just an assertion. For detailed analysis of the history of taxes and spending in NM go to: http://www.riograndefoundation.org/tops/index.htm.
c) Pre-K will ratchet up uncontrollably after the “mere” $9 million to start.
d) Why do we want to provide more wealth transfers at others expense? This is nothing more than taxpayer funded childcare.
e) How much failed government education is enough? Will this lead to pre-pre-K and so on ad infinitum?
f) This looks like political opportunism pure and simple — politicians taking advantage of gullible public (pictures with the kids) for their own gain.
3)Other help already available (although it, too, is more than somewhat ineffective)
a) Means tested transfers (effect on family of four detailed in RGF publication “Reform This!” )
b) Head Start is a program that does not work. Any gains from the program are totally eroded in short amount of time. Some children are actually harmed because of associations with other children they would be better off never having met. Thinking Pre-K will produce better results than Head Start is wishful thinking.
Unfortunately Arizona is confronting the same nonsense.

Here (subscription required) is a fascinating story of successful efforts to control the high health care costs fostered by government price controls, mandates and tax subsidies for third party payments. With this innovation doctors do not get punished financially for spending more time with patients; and they spend no time doing government required paperwork. The only problem: You have to be large to bring health care in house. Some excerpts from the article:
“Last year Quad/Graphics, one of the nation’s biggest printing companies, spent about $6,000 per employee on medical costs, 30% less than the average company in its home state of Wisconsin. Its 12,000 workers spend fewer days in the hospital and take their medicines more regularly.
Even more unusual: Quad provides most of the care itself. Starting with a small plant clinic in 1990, Quad has brought nearly all of its primary health care in-house. As the whir of its giant presses hums through the waiting-room wall, company doctors and nurses practice everything from pediatrics to gynecology.”
“Quad is fast becoming a model for companies desperate to control double-digit rises in health-care costs. Dozens of companies have toured Quad’s clinics looking for inspiration. Those weighing plans to build their own in-house clinics include Toyota Motor Corp.’s North American manufacturing division, Kohler Inc. and Miller Brewing Co.”
“Some Quad doctors say they were initially skeptical about working in a corporate clinic. “When I interviewed, I said ‘I don’t want to just take care of sore throats,’ ” says Ann Merkow, an internist who left the general medical practice she took over from her father to join Quad nine years ago.
But she says she found it rewarding to work with incentives built around patient health. At her own practice, she says, 80% of patients were on Medicare, where doctors are reimbursed per visit but don’t get paid for preventive care. ‘In the other model, you almost get punished for taking time for patients,” she says, “There were many years I made less than teachers in the area.’”

New Mexico is first! Receiving the most aid has not helped, though, since we are near the bottom in everything good. Is this more evidence that foreign aid really doesn’t work?

It was good to see CHRIS EDWARDS and ALAN REYNOLDS calling for block grants to states for Medicaid in today’s WSJ:
“We think that Congress should go beyond the administration’s limited cuts by enacting an overall federal budget cap to force trade-offs between defense, entitlements and domestic discretionary spending. And Congress needs to start moving major programs such as highway spending and the giant Medicaid back to the states. A first step would be to turn Medicaid into a block grant and slow spending to at least the inflation rate. The Bush budget includes some restraint on Medicaid spending, but block-granting the program would create savings of $55 billion annually by 2010 and $161 billion annually by 2015.”
It is time we recognized the perverse incentives that lead states to deny scarcity when it comes to Medicaid decision making.

Our legislature should recognize this(subscription required) from Mississippi. Some excerpts:
“Over the past five years state and federal spending in Mississippi on Medicaid — the health program for the poor and disabled — has doubled to $3.5 billion. Fully one-quarter of state residents are in the program. “Medicaid is a cancer on our state finances,” says Mississippi Gov. Haley Barbour…”
“Now a state-versus-federal battle over Medicaid may be looming. President Bush, faced with a swelling federal deficit, will propose Medicaid changes in the budget he sends Congress today. The administration wants to cut about $60 billion from what it projects it will spend on the program over the next decade, mostly by cracking down on techniques used by states to collect extra federal payments.
Federal officials also are pushing a broader overhaul of Medicaid financing. Currently the federal government and state governments split Medicaid costs, so if states boost benefits or costs go up, Uncle Sam has to keep pitching in. One option under discussion with governors would cap federal contributions for certain Medicaid recipients at a set amount each year. They would have to pay 100% of Medicaid costs above the cap, but they would have wider flexibility than they do now to reconfigure benefits and increase costs for the targeted populations.
As states try to slash costs under current rules, they run into many roadblocks. Federal law mandates that states must cover many types of care, such as pregnancy care for certain low-income women. Reducing the number of beneficiaries is hard because they often have nowhere else to turn. What’s more, because Medicaid is a “fee for service” program that pays doctors and hospitals every time they treat a fever or patch up a cut, it’s difficult to encourage efficiency.
Patients, too, have little incentive to ration their own care because they pay at most a small sum to see the doctor. “When something is free, people don’t care what it costs,” says Mr. Barbour in Mississippi. Advocacy groups for the poor say that even a $5 fee for a doctor visit can prevent some people from getting needed care.”
Florida is actually doing something about the problem:
“By far the most promising answer to date comes from Florida, where Governor Jeb Bush is proposing a radical restructuring of the program that serves 2.2 million low-income people at an expected cost this year of $14.7 billion. The aim is twofold — to provide incentives for better service by putting more choice in the hands of the consumer and to rein in the rate of growth in spending.”
Somewhere along the line somebody has to do something about the perverse incentives faced by state governments because of the federal Medicaid match for state spending. Because of the match there is an overwhelming incentive on the part of state politicians, bureaucrats and advocates to deny scarcity. For example, in the 2004 legislative session an absurd and harmful nursing home bed tax was passed into law. Its only purpose was to generate more revenue from the federal government for Medicaid.

Do you get tired of hearing commercials about the wonderful things NM’s lottery scholarships are doing to educate our youth? Are you ever somewhat skeptical about the claims? If so, check out an assessment of what is going on in Georgia.

Bad things are happening in Santa Fe. They prevent voluntary interaction; they coerce us into doing what we do not want to do. Why cannot the Guv and Legislature leave us alone?

Here is one that has so far escaped Big Bill’s attention. The only question: Would we stand for it? Thanks to Ralph R. Frasca at Division of Labour for the pointer.

I won’t be blogging for the next two weeks. We are off to do some birding in the Everglades. Then we will be cruising the Eastern Caribbean. Eat your hearts out.
Yes, I will miss the first 10 days of the circus.

The Tax Foundation has just issued a new tax study that compares the “business climates” of each state. The study is quite well done; and it should be a must read for tax “reformers.” As you might guess, New Mexico is in the lower quartile; but certainly not as bad as New York or Hawaii. However, given the rate at which Richardson is cranking up state spending, we may be catching down with them quickly.
A few comments on the study:
1. It does not include property taxes; New Mexico’s position in the rankings would improve if it did.
2. It weighs the components equally, so does not really catch the adverse impact of our gross receipts tax. New Mexico’s ranking would be far worse if it did.
3. It does not include severance taxes. If it did, our corporate tax ranking would be worse.
A little elaboration on point 2:
Federal and state taxes are inextricably intertwined. That being so, we can calculate the effective rate of tax on income for an entrepreneur engaged in providing a service subject to the gross receipts tax. We take into account that the GRT payment is a business expense, that state income tax is deductible on state and federal returns and that the entrepreneur’s taxable income is a certain percentage of her total receipts (say, for example, 50 percent). Give our entrepreneur a somewhat modest income: she is in the 25 percent federal tax bracket, 6 percent New Mexico tax bracket, makes “contributions” to social security and Medicare at the rate of 15.3 percent and has gross receipts that are twice her taxable income. In that case her overall rate of tax on income is 52 percent! Compare that to an equivalent entrepreneur in Texas: her effective rate of tax is 40 percent. Now you can see how the gross receipts tax destroys jobs in New Mexico. Maybe we should call our gross receipts tax the “Texas, Colorado, Arizona Economic Development Initiative.” Since the effective rate of tax on each dollar earned is much higher than is usually thought in discussions of state taxes, the adverse effects of GRT “pyramiding” for New Mexico are a much worse than is usually thought

The Council for Affordable Health Care has just issued a fine publication detailing mandates in the states.

Look here if you want to find an entertaining yet economically informative discussion of WalMart.
An excerpt:
If you liberals want to pile on a lot more welfare payments, as a matter of political choice, then okay. But don’t tell me that this is a “cost.” We make a political choice to subsidize poor people, perhaps to ensure that there will be lots of poor people who might vote Democrat, since apparently no employed person can bring themselves to pull the D lever. (Sure, that doesn’t count college profs. I meant “gainfully employed.”)