Monthly Archives: April 2015

Censor Me, For My Fathers Have Sinned

30 Thursday Apr 2015

Posted by in Marketplace of Ideas

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Male Privilege

Are you White? Asian? Male? A stay-at-home mom? Or maybe your family earns too much? Or your parents did? If any of those are “yes”, you just might be disqualified to engage in debate with those who self-proclaim their big-heartedness. You won’t be disqualified if your views are deemed “correct”, but then “debate” won’t really be an issue. If your views are “incorrect”, your privileged-group status is the stain of original sin, as Warren Meyer would say. Not only are you disqualified; you are an appropriate target for ad hominems.

I wrote about this phenomenon after experiencing it first-hand a few months ago in “Privileged While Males May Not Comment“. Warren Meyer at Coyote Blog just got me excited again when he expressed his amazement in “The Left and Original Sin“:

“… the sins of past generations somehow accrue to individuals of this generation. If you are male, you are born guilty for the infractions of all past males.“

Meyer mentions the recent incident involving Ben Affleck, who asked the host of a PBS documentary to omit any mention of a slave-owning Affleck ancestor:

“So an ancestor held opinions about slavery we all would find horrifying today. But given the times, I can bet that pretty much every relative of Affleck’s of that era, slaveholder or no, held opinions (say about women) that we would likely find offensive today.

Congrats to Affleck for achieving some negative alchemy here. He took an issue (his ancestor’s slave-holding) that did not reflect on him at all and converted it via some “I am a star” douchebaggery into something that makes him look like a tool.”

In addition to the demographic origins of sin mentioned above, you are likely to be stained if you believe in the profit motive, gun rights, or any number of other individual liberties. If you can’t be marked as a sinner by some privileged-group identity, the Left will find another label. If you are a black conservative, you will be called an “Uncle Tom”. Dealing with your arguments is just too inconvenient. As Meyer mentions in another recent post, Leftists are particularly unlikely to pass Bryan Caplan’s Ideological Turing test. They simply don’t listen to, or understand, other points of view.

Free Trade Lets You Make a Deal

29 Wednesday Apr 2015

Posted by in Free Trade

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“Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”

And what a shame! That quote is Alan Blinder’s Murphy’s Law of economic policy, provided by Greg Mankiw in the New York Times. Mankiw’s article, “Economists Actually Agree on This: The Wisdom of Free Trade“, discusses the prospective Trans-Pacific Partnership (TPP), an agreement that would liberalize trade between the U.S. and a number of Asian nations. A bill is before Congress that would give President Obama “fast track” authority to negotiate the deal. Some provisions of TPP are settled in principle, such as reduced tariffs, free trade unions, a reduced role for the state in the economy, and more transparency. Admittedly, it feels odd to advocate for Barack Obama to negotiate over less government — not to mention transparency!

As Mankiw says, “Among economists, the issue is a no-brainer.” Just as individuals voluntarily engage in trade because it is mutually beneficial, nations should engage in trade when they can specialize in their areas of comparative advantage. Liberalized trade, including reductions in tariffs and removal of quotas and other obstructions, ultimately brings more goods at lower prices. And ultimately, trade liberalization is not really about nations trading with one another. Rather, it is about liberating individuals to trade freely with one another across international borders.

Passage of fast-track authority is not assured. A great deal of nonsense has been written about the agreement. Oddly, people have a big hang-up about imports, but Mankiw notes that this is precisely wrong:

“A nation benefits from imports, [Adam Smith] argued, because they expand its opportunities for consumption. Exports are necessary only because other nations have the temerity to want to be paid for the goods they provide.“

Again, economists across the idealogical spectrum agree with this perspective. Mankiw offers three reasons, attributed to Bryan Caplan, for the public’s ambivalence to free trade:

“The first is an anti-foreign bias. People tend to view their own country in competition with other nations and underestimate the benefits of dealing with foreigners. Yet economics teaches that international trade is not like war but can be win-win.

The second is an anti-market bias. People tend to underestimate the benefits of the market mechanism as a guide to allocating resources. Yet history has taught repeatedly that the alternative — a planned economy — works poorly.

The third is a make-work bias. People tend to underestimate the benefit from conserving on labor and thus worry that imports will destroy jobs in import-competing industries. Yet long-run economic progress comes from finding ways to reduce labor input and redeploying workers to new, growing industries.“

Tyler Cowan is enthusiastic about the prospects for some of the poorest Asian nations to benefit from TPP, especially Vietnam. I seem to recall that he likes the cuisine! Cowan says: “Do you get that, progressives? Poorest country = biggest gainer.“

Is The Patent a Perversion?

28 Tuesday Apr 2015

Posted by in Property Rights

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No one likes a monopoly except the monopolist, and a monopoly granted by patent is generally no exception. Patents are intended to be temporary, but they are often extended, at high cost to customers, beyond what many consider necessary as an incentive for innovation. There is also doubt about the validity of many “innovations” on which patents are issued. Alex Tabarrok once posted this cute illustration on the excesses of patent law. He has also discussed the existence of “patent thickets”, situations in which “a new product can require the use of hundreds or even thousands of previous patents, giving each patent owner veto-power over innovation“, or at least a way to skim some of the profits. Such thickets serve as a detriment to innovation, contribute to excessive litigation, and ultimately defeat the purpose of rewarding an innovator. Patent “trolls”, who threaten litigation over patent issues but may not own any patents themselves, have become a growing problem. In many ways, intellectual property laws begin to look like a rent-seeker’s playground. James Pethokoukas blogged late last year about a new study by the Congressional Budget Office stating that the U.S. patent system had “weakened the linkage between patenting and innovation“.

There is strong disagreement among libertarians about the validity of intellectual property rights (IP — copyrights, trademarks and patents). My natural sympathies are with the individual who rightfully seeks to benefit from their own creativity and hard work, but whether an innovator should enjoy a state-enforced monopoly on any and all applications of an idea is another matter. If potential competitors, customers and society have an obligation to this individual, some would insist that it is merely an ethical obligation, not one that should be sanctioned by the state.

In what follows, I will mostly refer to generic “ideas”, with the caveat that there are important distinctions between patents, trademarks and copyrights. I do not mean to minimize those distinctions. Rather, my interest lies in the general notion of intellectual property and any fundamental rights that successful “ideation” should confer. I confess that I have a bias in favor of rewarding innovators, but that might be a mere mental remnant of our legacy of IP protection in the U.S.

Suppose that some person, Mr. I, has an idea, and it is the first of its kind. Should Mr. I be granted an exclusive right to the idea and a monopoly on its application? Two qualities of tangible property are thought to be helpful in thinking about this kind of problem: rivalrousness and exclusivity. Rivalrous benefits make sharing difficult and make a thing more suitable as private property. Exclusivity means that others can be restricted from enjoying the benefits. If ideas had these qualities, then possession of an idea would settle the issue of rights without the need for special recognition of IP by government.

Pure public goods like air are non-rivalrous. Ideas themselves are often said to be non-rivalrous, but what is done with them might produce rivalrous benefits. If the benefits of Mr. I’s idea can be enjoyed by one individual without diminishing the benefits to others, then the idea is non-rivalrous.

Exclusivity is a closely-related but separate concept meaning that the benefits can be enjoyed privately, to the exclusion of others. Pure public goods lack both rivalrousness and exclusivity. On the other hand, a painting can be owned and kept in a private home, thus making it exclusive despite the fact that its benefits are largely non-rivalrous; though multiple individuals can enjoy a film simultaneously (non-rivalrous), it can be screened in a private venue charging admission; and while software can be shared, it is possible to achieve a measure of exclusivity by limiting the media (and replicability) through which it is available. However, the idea underlying a productive machine or process may be exclusive only to the extent that it cannot be discovered or reverse-engineered. While a new machine may be purchased from Mr. I and then owned and used exclusively, the idea itself has only limited exclusivity.

To strip the problem down to bare essentials, suppose there are no frictions in the transmission of information and that if Mr. I makes any practical use of his idea, or even mentions it to someone else, then the idea will be immediately known to all others. The idea itself is non-rivalrous and non-exclusive. There could still be gains to marketing applications if there are production costs involved (as that discourages entry), and those gains are rivalrous if the number of potential buyers is limited. To slightly rephrase the original question: Should Mr. I be granted, by the power of the state, an exclusive right and a monopoly on applications of his idea? A brilliant idea may have a rivalrous dimension and its benefits may be exclusive, but any non-exclusivity of the idea itself will diminish its market value. Does that offer sufficient grounds for the existence of IP?

This was essentially Eugene Volokh’s position when he asserted, in 2003, that a non-rivalrous good (water from the water table) has a market value, like any piece of tangible property, as long as it is possible to exclude others from access (to a well). (But that was not Volokh’s main argument in support of IP — see below.) Lawrence Solum at Legal Theory Blog took issue with Volokh’s position on valuation, insisting that it is often impossible to price IP optimally and therefore it is not like tangible property. Here is Volokh’s brief rejoinder, which rests partly on the argument discussed in the next paragraph.

A standard defense for IP is that rewarding invention and creativity enhances incentives for “great works” and technological advance. This was Volokh’s main defense of IP. Many libertarians find this hard to swallow, however. First, they insist that creative action is often driven by non-pecuniary motives. Nevertheless, art and invention are facilitated by funding, so the existence of IP rights may help to secure that support. A second objection is that ideas are frequently not unique; there are many examples of near-simultaneous discoveries. So, as this objection goes, if A hadn’t thought of it, B would have, and the incentive is often unnecessary. That is anything but absolute, however.

A very libertarian argument against property rights for ideas is that defining such a right infringes on the property rights of others. That is, any law restricting the use of an idea by others necessarily prevents them from using their own resources in a particular way. It therefore represents a kind of taking. This post by Stephan Kinsella at the Mises Daily stakes out this position:

“Patents grant rights in ‘inventions’ — useful machines or processes. They are grants by the state that permit the patentee to use the state’s court system to prohibit others from using their own property in certain ways — from reconfiguring their property according to a certain pattern or design described in the patent, or from using their property (including their own bodies) in a certain sequence of steps described in the patent.

In both cases, the state is assigning to A a right to control B’s property: A can tell B not to do certain things with it. Since ownership is the right to control, IP grants to A co-ownership of B’s property.“

Kinsella’s view is that creation, in and of itself, does not imply ownership. It is a transformation of resources, but ultimately the owner of those resources must own the creation. My difficulty with this argument is that an idea, if previously unknown to anyone, has no necessary impact on a prior use of resources owned by others. The ex ante value of those resources is based on their prior use, and that use can be continued. Certainly, if the new idea implies that the prior use is no longer the best use of those resources, then an patent-like restriction on the use of the new idea represents a harm. For example, if the new idea reduces production costs and an established competitor is restricted from using the idea, they will be harmed. Nevertheless, I hesitate to call this a “taking” because there is no restriction on the prior use.

Roderick T. Long makes the same argument as Kinsella in “The Libertarian Case Against Intellectual Property Rights“:

“... information is not a concrete thing an individual can control; it is a universal, existing in other people’s minds and other people’s property, and over these the originator has no legitimate sovereignty. You cannot own information without owning other people.“

Long makes the further claim that ownership of inventions embodying IP is not legitimate because one cannot own a “law of nature”:

“Defenders of patents claim that patent laws protect ownership only of inventions, not of discoveries. (Likewise, defenders of copyright claim that copyright laws protect only implementations of ideas, not the ideas themselves.) But this distinction is an artificial one. Laws of nature come in varying degrees of generality and specificity; if it is a law of nature that copper conducts electricity, it is no less a law of nature that this much copper, arranged in this configuration, with these other materials arranged so, makes a workable battery.“

I find this view preposterous. Nature exists apart from our ability to exploit it. A new piece of knowledge or practical technique is not itself a “law of nature”. It is a discovery about the laws of nature.

Here are Arnold Kling’s thoughts on these and other IP posts, including this short piece from Daniel Drezner, who discusses the importance of credible commitment in protecting rights. A credible commitment does not exist when ex ante assertions of IP protection prove to be malleable ex post, under pressure from critics pointing to the larger gains of rescinding those protections.

I was motivated to write about IP after reading a post by Jeffrey Tucker at the Beautiful Anarchy blog, who wrote about the severe handicaps imposed by government regulation on society. In that post, he briefly disparaged IP. Tucker noted the spooky similarity of the present regulatory environment to Ayn Rand’s novel Anthem. I agree, but there is some irony in this, as Rand herself was a strong supporter of IP rights. Here is what Tucker said about IP:

“Through intellectual property laws, the state literally assigned ownership to ideas that are the source of innovation, thereby restricting them and entangling entrepreneurs in endless litigation and confusion. Products are kept off the market. Firms that would come into existence do not. Profits that would be earned never appear. Intellectual property has institutionalized slow growth and landed the economy in a thicket of absurdity.“

The nation’s founders certainly wished to recognize IP rights, but only within limits. The so-called Copyright Clause in Article I of the U.S. Constitution empowers Congress:

“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

So, like it or not, IP is recognized in the Constitution. The libertarian arguments against IP are persuasive in some respects, but I am not wholly convinced of their wisdom in terms of promoting innovation and economic growth. However, I am persuaded that shorter patent duration and severe limits on extensions would reward innovators and offer them incentives without the loss of growth implied by a long-term grant of monopoly. And this sort of modification might encourage more efforts to handle IP contractually, a topic that is discussed in detail (and with skepticism) in the post linked above from Long. There may be benefits as well to defining a higher threshold as to patentable ideas. For example, some say that only discoveries, not mere innovations, should be granted patents. “Mere” innovators could still capture gains via first-mover advantage and their own branding efforts, but not via patents.

ZIRP: Zero Interest Retirement Poverty

22 Wednesday Apr 2015

Posted by in Macroeconomics

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seniors

Far be it from me to make a Keynesian economic argument, but I will play devil’s advocate and do so at the risk of alienating any Austrian friends in the audience. They might or might not appreciate the point before I’m done. Writing in Barron’s, Randall Forsyth argues that a zero or negative real interest rate, or specifically a zero interest rate policy (ZIRP), will backfire on central banks precisely because low rates add to the pressure on consumers to save. If that is the case, in the Keynesian paradigm, the policy would undermine consumer demand and lead to weaker growth.

I find it plausible that savers might react to extremely low interest rates by increasing saving. With an aging population and baby boomers fast approaching their retirement years, low interest rates mean diminished opportunities to build on existing assets. The only way to bring more assets into retirement safely is to save more. There has been much said about the impact of quantitative easing and ZIRP on asset values, and the tendency of investors to “reach” for higher, but risker, returns. However, a decent, safe return is hard to come by.

This kind of saving behavior is easy enough to demonstrate for a consumer who must choose between present and future consumption. Present consumption is limited by what the consumer can earn now. Future consumption is limited by what the consumer saves now (does not consume) and the real return or interest rate that can be earned on that saving. The consumer maximizes well being by choosing the most-preferred “bundle” of present consumption and future consumption attainable. But when the interest rate falls to zero, for example, the consumer must reallocate the bundle.

First, the “effective price” of present consumption has declined, since less future consumption must be sacrificed in order to to consume now. So there is a tendency to reallocate the bundle toward more present consumption as a pure “substitution effect”. However, the consumer’s lifetime income has declined precisely because the real rate at which present saving can be transformed into future consumption has decreased. The bundles available for the consumer to choose from are now unambiguously less preferred than the original bundle. Faced with this worsened constraint, the consumer may choose to divide the sacrifice between present consumption and future consumption. The negative income effect on present consumption may well outweigh the substitution effect.

This is standard economics, but relatively little has been said about the possibility. Instead, it is widely assumed that ZIRP must reduce saving, but there have been a few writers making the argument that saving may increase. In 2010, the Buttonwood column in The Economist made this argument in a piece entitled “Another Paradox of Thrift“. In 2012, the Trust Your Instincts blog ran this interesting piece on ZIRP and saving behavior in which the possibility is discussed. For the same reason, Phoenix Capital Management asserted that “QE and ZIRP Are Deflationary“, And the same thing is mentioned in EconoMonitor.

Continuing to indulge Forsyth’s possibility, it does not imply that increased saving from ZIRP will be channeled into productive investment. That’s because governments continue to absorb private saving by running historically large deficits. But I must note that the possibility of increased saving in response to ZIRP may contradict a couple of points made in an earlier post on Sacred Cow Chips: “Taking The Air Out of the Deflation Scare“. That post quotes Thorsten Polliet in support of the notion that the rate of time preference underlying consumer behavior cannot be zero or negative. Does that conclusion change when consumers order bundles rationally with a budget constraint that implies a negative return? In fact, the macroeconomic concept of a time preference “parameter” appears to be inconsistent with the normal micro theory of consumer utility maximization.

Increased saving from ZIRP leads to a second apparent contradiction of Polliet, who says:

“Should a central bank really succeed in making all market interest rates negative in real terms, savings and investment would come to a shrieking halt: as time preference and the originary interest rate are always positive, “capitalistic saving” — the accumulation of goods designed for improving the production process — would come to an end.”

But again, the possibility that saving may increase does not imply that capital investment will increase as well, as long as the government is absorbing the increased saving. In fact, the adoption of ZIRP policies around the developed world seems in large part intended to accommodate large government deficits by keeping interest costs low.

The evidence that ZIRP encourages saving is mixed. Japanese saving rates tended to edge up over the country’s many years of ZIRP (since 1999). More recent experience in the EU seems mixed. In the U.S., saving rates increased during the financial crisis even before ZIRP began, moved down during the recovery, but have since returned to relatively high levels. The Federal Reserve claims that consumers continue to unwind the excessive leverage that built up prior to the recession, and of course that is saving. Paying down debt certainly carries a higher and safer return than many other options. ZIRP cannot be counted upon to encourage consumer spending, and it may well do the opposite.

Progressives Identify Twin Evils: Progress and People

20 Monday Apr 2015

Posted by in Human Welfare

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doom and gloom

“The Big Coffee Table Book of Doom” is an entertaining review of an actual coffee table book entitled “Overdevelopment Overpopulation Overshoot“, which appeals to the progressive Left’s neo-Malthusian mindset. I am almost tempted to buy this book for my coffee table as fodder for my own amusement, sort of like the board game “Class Struggle” I bought for laughs when I was in grad school. The review, written by Ron Bailey in Reason, pokes fun at the selection of photos in the book, which are chosen to reinforce such fables as over-population, climate change and the supposed evils of capitalism. Of course, this sort of nonsense will never die, primarily because people love a good scare story and because it aligns with the privileged Left’s sense of righteousness and noblesse oblige. Bailey highlights several actual trends that contradict the doomsday narrative:

“Agricultural productivity per acre is improving faster than the demand for food; as a result, fewer acres are needed to grow crops. These trends suggest that as much as 400 million hectares could be restored to nature by 2060, an area nearly double the size of the United States east of the Mississippi River.“

“… the total global fertility rate has fallen from over 5 children per woman in 1970 to 2.45 today, rapidly approaching the 2.1 rate that is the threshold of population stability.“

And on the “perils” of urbanization:

“Urban dwellers have greater access to education, market opportunities, and medicine, and they have fewer kids.“

As Kevin Williamson has pointed out, an egregious distortion of the neo-Malthusian perspective is an attitude that human beings are liabilities rather than assets. This is underscored by the recent comments of a UN official calling for depopulation as a serious objective. One wonders how she might propose to attain that objective. Can the eliminationists be far behind? In rebuttal to such thinking, Bailey quotes Ramez Naam, author of “Infinite Resource“:

“‘Would your life be better off if only half as many people had lived before you?’ In this thought experiment, you don’t get to pick which people are never born. Perhaps there would have been no Newton, Edison, or Pasteur, no Socrates, Shakespeare, or Jefferson. ‘Each additional idea is a gift to the future,’ Naam writes. ‘Each additional idea producer is a source of wealth for future generations.’ Fewer people means fewer new ideas about how to improve humanity’s lot and to further decouple our endeavors from the natural world. ‘If we fix our economic system and invest in the human capital of the poor,’ Naam writes, ‘then we should welcome every new person born as a source of betterment for our world and all of us on it.'”

Population growth has traditionally been a source of economic growth and enhanced welfare, and that is likely to remain the case. I do not claim that population growth will always be an imperative. Rather, fertility decisions are properly the business of families and individuals, not central authorities or public policy, which should take a neutral stance with respect to these decisions.

Malthusian doom is related to the economic law of scarcity, but it is not a direct implication of that law: scarcity means that resource availability is limited relative to potentially limitless demand. The law of scarcity does not assert that there are absolute limits to raw materials or production in the long run, only that human wants, if unrestrained, will always exceed available supplies. There are many ways in which supplies of resources increase over time. Exploration reveals new supplies and technology makes new supplies accessible at lower cost. More fundamentally, growth in the productivity of utilized resources causes effective economic supplies to grow. This is illustrated in Don Beaudreaux’s recent essay on the productivity of land (and see a follow-ups on the topic here):

“The economic supply of land, like that of any other resources you can name, is not a physical phenomenon. As long as people are free and inspired to innovate – and as long as input and output prices are free to adjust to changes in supply and demand – the economic supplies of even the most ‘fixed’ and ‘nonrenewable’ resources will expand.“

Prognostications of doom for humanity appeal to the ignorance of those with no perspective on the mechanisms by which well-being has improved in the developed world over the past few centuries. This has occurred largely by virtue of human ingenuity and free markets. The growth has also enabled greatly improved environmental conditions. The developing world will share in the prosperity only when those governments embrace real market liberalization.

Code Word: Sustainability

16 Thursday Apr 2015

Posted by in Uncategorized

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Sustainability is a meaningful concept that has been bastardized as a code word for virtually anything that suits the progressive narrative. It is used as a catch-all for presumed goodness, while “unsustainable” is a catch-all for anything deserving of condemnation. Strictly speaking, a sustainable activity, or level of activity, is one that can be maintained indefinitely. That does not mean that the activity itself or its level is optimal; as any economist or engineer can demonstrate, “sustainable” in that sense does not necessarily imply that something is “too fast” or “too much”. In fact, a thing or an activity can occur at a rate that is unsustainably slow, or too little.

Progressives seem to have stumbled into the use of “sustainable” in another sense: that a thing or idea can be defended in argument as part of their dialectic. The broad array of things deemed to be sustainable, and those deemed unsustainable, map nicely to the progressive policy agenda. This is brought forward in “Sustainability: A new college fad with fangs“, by Geaorge Leef, a review of a paper published by the National Association of Scholars. Some colleges have established “sustainability” programs offering such challenging courses as “Ethics of Eating”, “Trash Studies”, “Environmental Poetry,” and Small Spaces Studio”:

“Frequently, courses link some ‘identity’ belief with sustainability, such as that ‘patriarchy’ is the enemy of sustainable life and therefore must be ended. … Most often, however, courses involve the supposedly unquestionable science of global warming and impending catastrophe.“

And here is a critical assessment of “sustainability” as an academic discipline:

“It’s just a farrago of beliefs, attitudes, and grievances centering around the general notion that most humans aren’t living the right way and unless we make drastic changes, we’re doomed. … [The authors] argue that sustainability is not really an academic discipline; rather, it’s an ‘ideology that unites environmental activism, anti-capitalism, and a progressive vision of social justice.’ Like a religion (hence the reference to fundamentalism), sustainability never questions its tenets. It posits them and even has ‘pledges’ for students and school officials to adhere to.“

It’s fascinating for me to read hysterical claims that capitalism is “unsustainable”. I suppose that means that market prices are simply useless at conveying information about scarcity, and that elite technocrats from the progressive tribe can make better decisions about what the rest of us can do and have. All that in the absence of incentives and information needed to align benefits with costs. I suppose it also means that strong property rights are useless for encouraging individuals to husband resources, and that the tragedy of the commons is a wicked fiction. I suppose it also means that resources should not be directed to their most valued uses, but instead to those uses most valued by the subjective judgement of the technocratic elite.

There are many other logical contradictions in the progressive sustainability mantra. This Scared Cow Chips post from several months ago, “Locavoracious Rent Seeking“, covered the uncritical acceptance of locavorism as “sustainable”.

“The reactionary mindset of today’s locavores prevents them from understanding the true nature of “sustainability,” which is best promoted by markets and a willingness to engage in trades that are mutually beneficial.“

America’s academic institutions should keep progressive sustainability doctrine at arms length. It is fine as a campus movement, but it is not worthy or appropriate as a set of governing rules for a community of higher learning. Ultimately, it has nothing to do real learning and the process of inquiry.

You Probably Broke The Law Today

15 Wednesday Apr 2015

Posted by in Over-Criminalization

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More widespread ignorance of “the law” is an implication of a regulatory state growing in size and complexity. The tendency of expanding regulation to over-criminalize prompted this reexamination of the legal doctrine of “presumed knowledge of the law”, by Michael Anthony Cottone (abstract at the link, but it offers a free download of the full paper). I believe the cause of justice compels additional protections for individuals or companies against administrative accusers. Not only does this appeal to my sense of fair play, it also should incent bureaucrats to write clear rules and minimize conflicts with existing regulations. And it may discourage overaggressive bureaucrats from pursuing charges over disputes whose resolution might be subject to more reasonable compromise.

Over-criminalization was also the impetus for Glenn Reynolds’ “Ham Sandwich Nation: Due Process When Everything is a Crime” (another abstract with a free download available):

“Though extensive due process protections apply to the investigation of crimes, and to criminal trials, perhaps the most important part of the criminal process — the decision whether to charge a defendant, and with what — is almost entirely discretionary. Given the plethora of criminal laws and regulations in today’s society, this due process gap allows prosecutors to charge almost anyone they take a deep interest in.”

The “due process gap” is said to give rise to the expression, “a good prosecutor can get an indictment against a ham sandwich.” Here is a good discussion of the Reynolds paper at The Volokh Conspiracy, with additional links. Reynolds offers a number of possible remedies, including the creation of certain forms of liability for prosecutors, banning plea bargains, and limiting criminal prosecution for regulatory crimes. There are a few other interesting suggestions at the last link.

Heavy regulation of economic and social affairs places burdens on a society’s ability to prosper economically and culturally. It requires real resources to administer and imposes compliance costs on those it regulates. There are unnecessarily high social costs to a system of detailed rule-making by unelected bureaucrats who have incentives to both increase their dominion and to enhance their long-term career prospects. The latter is often accomplished via “partnership” with some of the largest regulated entities, which leads to rules favoring those entities at the expense of smaller competitors. And a large regulatory complex also offers an avenue through which the executive branch can promulgate rules based on expansive interpretations of existing law, circumventing checks on executive power enshrined in the Constitution. To these drawbacks we can add the consequences of over-criminalization. These should be addressed through limits on prosecutorial discretion and a more neutral perspective on presumed knowledge of administrative law.

Can Water Markets Drive the Nuts From California?

14 Tuesday Apr 2015

Posted by in Price Mechanism, Secondary Markets, Shortage

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Water Use CA

Leaders in California seem determined to deal with the state’s water shortage in the least effective and most intrusive ways possible. Governor Jerry Brown has ordered such “bold”, yet ultimately weak, actions as restricting urban water usage, fines on “water wasters”, and xeriscaping of public property. The plan includes additional state intrusions such as rebates for high-efficiency appliances, bans on certain types of faucets, toilets and residential lawn irrigation systems, and more rigorous monitoring of water use, which could ultimately include shower time. A $1 billion state investment in wastewater recycling and desalinization plants is also planned, and pundits advocate other huge projects such as new reservoirs. These efforts are costly, but they are also beguiling to politicians seeking the appearance of positive action.

Overlooked is a straightforward and relatively costless way to achieve effective conservation and relief from the shortage: use the price mechanism! This simple approach encourages conservation in many large and small ways that are beyond the  discernment of government planners. Obviously, it can also address the profligacy of certain agricultural uses. A market mechanism is the one sure way to find the most rational price for water, and it is sorely needed in the face of such a significant shortage.

The misallocation of water rights in California is truly staggering, as demonstrated by the graphic at the top of this post, which is from a post at Marginal Revolution (originally from Mother Jones):

“… as farmers are watering their almonds, San Diego is investing in an energy-intensive billion-dollar desalination plant which will produce water at a much higher cost than the price the farmer are paying. That is a massive and costly misallocation of water. … In short, we are spending thousands of dollars worth of water to grow hundreds of dollars worth of almonds and that is truly nuts.”

The Mises Daily blog makes the same point in an article entitled, “Drought and the Failure of Big Government in California“.

“When crops like pecans, which are native to Louisiana where it rains over fifty inches per year, are being grown in central California, we will have to ask ourselves if there is true comparative advantage at work here, or if the industry is really sitting upon a shaky foundation of government-subsidized and -allocated resources.

The rhetoric that’s coming out of the growers, of course, is that California growers are essential to the American food supply. Some will even suggest that it’s a national security issue. Without California growers, we’re told, we’ll all starve in case of foreign embargo. … But let’s not kid ourselves. North America is in approximately zero danger of having too little farmland for staple crops.” [Emphasis added.]

Last month, my post “Scarcity, Scarcity Everywhere, And Water Pricing Stinks” addressed the mispricing of water and the promise of marketable use permits for water conservation. Details may vary, but in this sort of arrangement, residential, industrial and agricultural users would receive a base assignment of water rights at a relatively low, uniform price. The base assignment can be a function of historical usage. A secondary market then allows consumers and other users to purchase additional use permits or to sell permits exceeding their own usage:

“The price of water on the secondary market will rise to the point at which users no longer perceive a benefit to marginal flows of water above cost. A higher price encourages voluntary conservation in two ways: it is a direct cash cost of use above one’s base water rights, and it is an opportunity cost of foregoing the sale of permits on water use up to the base assignment. Those best-prepared to conserve can sell excess rights to those least prepared to conserve.”

Price incentives and their power for conservation are discussed in this post at Marginal Revolution. Market pricing is the single-most effective method of fostering sustainable patterns of resource use. Increasingly scarce conditions naturally lead to higher prices, which both discourage excessive use and create incentives for investments in reuse and other efficiencies. Yet politicians are highly averse to the idea of pricing resources rationally via the market. Instead, as exemplified by Governor Brown’s restrictions, they promulgate a seemingly endless series of measures that play on “green guilt” without adequate consideration of alternatives.

A colorful example of this misguided philosophy is the low-flow toilet, as described in this post entitled “Americans Destroyed Indoor Plumbing“. Mandatory recycling presents a classic case of conflicting policy goals: another sacred cow of environmental dogma, it increases water use in California because containers must be washed before they go to the curb. And there are other conflicting environmental goals, such as an effort to protect the Delta Smelt in San Francisco Bay by diverting over 300 billion gallons of water away from the Central Valley.

Meanwhile, big government Republicans are thumping their chests over their self-described success in planning for water needs in Arizona. This consists of infrastructure projects that capture runoff and store water in underground reservoirs, which are fine as far as they go (and, if available, better than above-ground storage subject to evaporation). However, these projects involve considerable public expense, and they have not prevented the imposition of mandatory conservation requirements. It should also be mentioned that current drought conditions in Arizona are mild compared to California. The point here is that market-oriented pricing and conservation reduces the need for such costly projects and intrusions. Administered water prices are expected to rise in Arizona, and they probably should. But it’s noteworthy that the last link, a summary of what is purported to be a careful study of water pricing issues, makes no mention of trade in water use permits and market pricing. As Glenn Reynolds might say, unlike big infrastructure and intrusive regulations, market-oriented policies and efficient pricing may not entice politicians with sufficient opportunities for graft.

Immigration and Reverse Discrimination

09 Thursday Apr 2015

Posted by in Immigration

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Affirmative Action

Conflicts between anti-discrimination law and presumptive constitutional rights were discussed Monday’s SCC post. Another avenue for such conflicts is when anti-discrimination efforts interact with other policies to foster a perverse spiral of encroachments upon presumed rights. In a post entitled “Immigration and Equality“, Nicholas Rosenkranz asserts that affirmative action programs not only discriminate unfairly against “unprotected classes”, but that their interplay with an open-borders immigration policy makes these reverse discriminatory effects far more pernicious.

I favor a liberalized immigration policy, provided that it is accompanied by security at entry to ensure health and public safety, and without subsidizing either potential employers or the immigrants themselves (except perhaps for short-term settlement assistance). Most critics of liberalized immigration focus on negative employment and wage impacts for established residents, but this piece in The New York Times Magazine debunks that notion. Alex Tabarroc adds some great points on the subject here. In essence, the evidence suggests that the short-run economic impact of immigration is not negative, and the long-run impact is unambiguously positive. The always passionate Don Boudreaux makes a case for liberalized immigration, and he is skeptical of the assertion that immigrants, once endowed with voting rights, will always support statist policies.

Yet as Rosencranz argues, affirmative action policies may attract flows of immigrants to the U.S. that are not supported by the labor market and general economic conditions. In this view, the contention that immigration is an always beneficial flow of productive resources is erroneous. Instead, the policy may attract an excess supply of immigrant labor that truly would undermine wages and employment for established workers. It could also give rise to other negative consequences such as skewed college admission decisions.

Federal anti-discrimination law has roots of varying depth in a few different parts of the Constitution, but the “protected status” conferred to specific classes or minorities is statutory, based on several federal laws, beginning with the Civil Rights Act of 1964. Government and private affirmative action programs favor hiring or advancement of members of protected classes to eliminate discrimination against them, or as a form of reparation for past discrimination. Rosenkranz has this to say about these programs:

“American law and policy will discriminate in favor of most immigrants — those of favored races such as blacks and Hispanics — and their children, and their children’s children. Correspondingly, American law and policy will discriminate against Americans of disfavored races — Asian Americans, Indian Americans, Caucasian Americans — and their children, and their children’s children.”

Rosenkranz believes this creates a “natural bargain”, a political compromise involving immigration reform in exchange for an end to government affirmative action programs, which have institutionalized “discrimination on the basis of race“:

“Democrats believe that immigration is a winning political issue for them; they believe that it makes them look compassionate while it makes Republicans look churlish. Affirmative action, on the other hand, is a political winner for Republicans; polls overwhelmingly oppose it, and it allows Republicans to argue for the ringing principle of equality under law, while Democrats are left to defend the status quo of institutional discrimination and racial spoils.”

I seriously doubt that such a compromise can be reached, but it’s a nice idea.

On a related note, the federal judge who placed a hold on President Obama’s immigration order has denied the administration’s request to lift the hold, and in rather dramatic fashion.

Suit Me, Or Face a Lawsuit: Adventures In Litigationland

06 Monday Apr 2015

Posted by in Discrimination, Presumptive rights

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Racism-cartoon

Suppose that Jim and Bob, who are life partners, own and operate a company that produces signage. A church group requests a banner to read “Only one man and one woman make a marriage”. Jim and Bob are likely to be offended by the suggestion that they use their art to express such a sentiment, and I think they are entitled to refuse the business. The freedom of expression granted by the First Amendment to the U.S. Constitution protects individuals against compulsion to express things they find objectionable. Will Jim and Bob engage in discrimination if they refuse the business? You bet, but I do not think the government has a “compelling interest” to intervene on behalf of the religious group, especially if there are other businesses capable of producing the banner or if the group can produce it themselves.

Has the exercise of free expression been tested as a defense against charges of illegal discrimination? The example above dealt with discrimination by a private company against a religious group. A similar case involved New Mexico photographers who refused to shoot photos at a same-sex wedding. The plaintiffs alleged discrimination on the basis of sexual orientation, but the photographers claimed that compulsion to accept that work constituted a violation of their freedom of expression. The New Mexico Supreme Court ruled against the photographers. They appealed to the U.S. Supreme Court (SCotUS), which refused to hear the case without additional comment. While this case established a precedent in New Mexico for the compelling interest of government to enforce anti-discrimination law, the refusal of SCotUS to get involved did not create a wider precedent in favor of anti-discrimation law over free speech. There are a number of reasons why the Court might have refused to hear the case, including the fact that the suit was brought under state law, not federal law; simple prioritization across many competing cases for an always full docket; or the lack of any conflict with other court decisions.

At the link above, which was written just after the New Mexico court’s ruling, Eugene Volokh offered his views on the case:

“Is it permissible for the law to require freelance writers, composers, artists, editors, and the like to create speech that they don’t want to create? Might it even be permissible for the law to require other conduits, such as bookstores and movie theaters, to distribute speech that they don’t want to distribute? (I use ‘speech’ here in the standard First Amendment sense, which includes music, pictures, video, and the like.) … It seems to me that having to create speech, using your own creative abilities and judgments as an artist, musician, writer, or what have you, is an even deeper ‘foster[ing]’ of ‘an idea [you might] find morally objectionable’ — an even deeper intrusion on ‘individual freedom of mind’”

We often couch discussions like this in terms of “rights”, which is easily understood. However, there is a strong distinction between this framing and the actual structure of the Constitution. Rather than granting specific rights to individuals, that document presumes the existence of those rights and instead enumerates powers held by the federal government and restrictions on its exercise of those powers. For example, here is the First Amendment:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

And below is a key excerpt from the Fourteenth Amendment, upon which much anti-discrimination law is based. Note that its prohibitions apply only to government action, not private action:

“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

One right that should be presumptive is that of individuals to form a union in marriage. It is not addressed explicitly in the Constitution, and perhaps that would be less important if the government were not so intricately involved in the marriage business. Property rights, estate law, taxes, and legal benefits to employees and significant others can all be dependent on the legal status of a marriage. Still, it is not obvious why the government should be anything but neutral with respect to who can be married. Even if we concede a government interest in certifying marriages (it is a source of license fee revenue), are there other reasons for government authority in this area? Call me a skeptic. In any case, the legal recognition of marriage has been left up to the states.

Laws against private discrimination are thought to derive their authority from an enumerated power in the commerce clause, in Article 1 of the Constitution. This allows Congress to “regulate commerce among the several states“. This power was traditionally held to relate only to interstate commerce, consistent with the preservation of federalist principles and states’ rights. The courts have interpreted the power more broadly at times, but it is certainly not unlimited. In the traditional context of interstate commerce, and in view of the presumptive nature of individual rights under the Constitution, this seems to be a strikingly thin rationale for regulating many kinds of private behavior, or for compelling certain activities that burden the exercise of other rights.

Returning to the example above, defending Jim and Bob for turning away the church group’s business is similar in most respects to defending the photographer in the New Mexico case, or the baker who refuses, on religious grounds, to decorate a cake with a gay wedding theme. The cases all involve a form of private discrimination and a conflict between anti-discrimination law and forms of free expression. Whether presumptive rights to free speech, religious practice, or even freedom of association can trump statutory prohibitions against discrimination, or vice versa, is unlikely to be resolved once and for all, at least not any time soon. The individual circumstances surrounding a dispute of this nature will always be helpful, if not determinative. But what sort of test can be applied in order to achieve a resolution?

When sufficient tension exists, it is up to the courts to consider the specific nature of the discrimination in question, its rationale under any presumptive rights, and whether the claimant has “protected” status under a relevant anti-discrimination law. In terms of anti-discrimination law, a line is often drawn by insisting on the universal, non-discriminatory provision of “public accommodations”. The exact meaning of this term can differ by jurisdiction, but it generally implies a sales channel for which the “doors are open”. The presence of competition and alternative providers would argue against the state’s contravention of the presumptive rights of individual sellers in order to satisfy a statuary requirement. The competitive landscape and presence of viable alternatives should be an important consideration in balancing interests in these kinds of conflicts.

Choosing to discriminate against a specific group is not costless, even when legally sanctioned. It is obvious to most business people that tolerance is more profitable than intolerance. The acceptance of this disparity was clearly articulated as a “taste” for discrimination by Gary Becker in his 1957 book, “The Economics of Discrimination“. Becker’s analysis of discrimination in the labor market noted that employers with such a “taste” are willing to pay higher wages in order to avoid hiring certain minorities. In the examples above, Bob and Jim are willing to turn away otherwise profitable business, as are the baker and the photographer. However, their tastes for discrimination do not imply economic irrationality. In all three cases, the business people hold the maintenance of certain principles to be of greater value than the foregone profits.

These issues are relevant to the recent controversy surrounding Indiana’s new Religious Freedom Restoration Act (RFRA). The context for RFRAs is narrower, as they relate to religious expression as opposed to expression generally. The first RFRA was a federal law supported by liberals in response to a conservative SCotUS decision in a dispute over the use of peyote for religious purposes. Generally, RFRAs require that the government have a compelling interest in burdening religious exercise and then must do so using the least restrictive means available. A number of individual states have passed their own RFRAs in order to carve out religious exemptions to various rules. In a recent post, Eugene Volokh discusses the history that gave rise to RFRAs, and the irony that many liberals now decry their existence, while conservatives tend to support them. The principles underlying these laws were once championed by prominent liberal members of SCotUS.

The version of the Indiana RFRA originally signed by Governor Pence would have allowed religious expression to be used as a defense in a discrimination lawsuit. Subsequently, the Indiana state legislature amended the bill with a provision stating that the law does not authorize a “provider” to refuse business from a range of protected groups, including gays and lesbians (ministers, churches and non-profits are exempted). Does this nullify the impact of the bill on free exercise of religion? Many believe so. However, the absence of positive “authorization” may not mean the courts will decide that the state of Indiana has a compelling interest in preventing a particular case of discrimination.

[An aside: One interesting approach has been suggested for businesses in the wedding industry whose owners believe that accepting work at same-sex weddings would violate their religious principles. These businesses should continue to accept business through their “public accommodations” except for customized wedding goods and services. According to this approach, they should offer the latter exclusively through binding contracts with specific churches or places of worship, thereby operating  exemptions granted to those institutions.]

Critics of the original Indiana RFRA were generally silent regarding RFRAs in 19 other states, as well as a federal RFRA signed by President Clinton. Moreover, it is clear that there has been some contrived activity from partisans on both sides (see here, here and here). At least the contrived activity demonstrates a greater depth of understanding than some of the hateful speech that I have witnessed on social media. Some would claim my example of Jim and Bob is contrived as well, but it is a plausible scenario and it shows that the tension between rights can cut both ways. A call for the legal supremacy of anti-discrimination law over presumptive rights means that the freedoms of protected groups can be abrogated as well when in conflict with another protected group.

Persecution is well known to both gays and people of faith. Both groups are certainly aware that there will always be others who do not share their views, strictures and practices, and some who may well disapprove. Both groups should be sympathetic to the notion of “live and let live”, and they should have the forbearance to avoid insisting on everyone’s direct participation in their celebrations. Some might even call this good manners. Participation (even for profit) cannot be compelled any more than approval. Regardless of what one might think of the values of outsiders who do not wish to participate, the “discriminatory” actions (or failures to act) in question are not prima facie evidence of hatred.

Jim and Bob, as well as the baker and the photographer, have broad presumptive rights under the constitution, whether they involve free speech or religious exercise. No one should be compelled to engage in expression they find objectionable without the ability to challenge it in court. Protections against discrimination are important, but they certainly do not confer the power to force others to participate in your celebrations. And why bother? Live and let live.

Postscript: Why bother, indeed! And here is Jonathan Turley on the key issue of defining an “expressive act”.