Author Archives: Nuetzel

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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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”.

Poverty Maintenance Is Not A Win

01 Wednesday Apr 2015

Posted by in Poverty, Uncategorized

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Merely keeping a patient alive is inferior to curing the disease. Likewise, merely allowing the impoverished to live under tolerable conditions is inferior to eliminating the underlying causes of poverty. Evidence for the former is used by Harvard Professor Christopher Jencks to proclaim the war on poverty a success. That is the upshot of his recent article in The New York Review of Books. But does the maintenance of a permanent dependent class constitute success? I believe that our goals should be loftier, and President Johnson’s original goals for the War on Poverty went much farther than Jencks suggests.

Ostensibly a review of other work by Martha Bailey and Sheldon Danziger, Professor Jencks devotes most of his essay to arguing that the official poverty rate published by the Census Bureau is distorted, and that a “corrected” measure has declined since the “war” was initiated by Johnson in the 1960s. The official rate has fluctuated in a range of 11-15% since the mid-1960s. Jencks corrects the 2013 rate of 14.5% for 1) the value of non-cash benefits received by certain program recipients (-3%); 2) the omission of refundable tax credits from the official incomes of employed individuals below the poverty line (-3%); and 3) a change in the price index used to adjust the official poverty thresholds over time to one that does not overstate changes in the cost of living (-3.7%). These three adjustments would reduce the poverty rate in 2013 to just 4.8%.

Taken at face value, that reduction is impressive, but the third adjustment is not directly attributable to antipoverty programs. It could also be due to economic growth or other factors. Jencks notes the following:

“Both liberals and conservatives tend to resist the idea that poverty has fallen dramatically since 1964, although for different reasons. Conservatives’ resistance is easy to understand. They have argued since the 1960s that the federal government’s antipoverty programs were ineffective, counterproductive, or both. 

Liberals hear the claim that poverty has fallen quite differently, although they do not like it any better than conservatives do. Anyone, liberal or conservative, who wants the government to solve a problem soon discovers that it is easier to rally support for such an agenda by saying that the problem in question is getting worse than by saying that although the problem is diminishing, more still needs to be done.”

For my own part, I believe that many antipoverty programs succeed only as palliatives. They have not succeeded in breaking the cycle of poverty and dependence on the state. In other words, successful programs must foster self-sufficiency, which is a superior goal from a humanitarian and a Libertarian perspective. Jencks plans a follow-up on the “successes and failures specific anti-poverty programs”, but merely paying alms to the poor establishes a very low threshold for success.

In fairness to Jencks, anti-poverty programs serve a large number of individuals who are incapable of providing for themselves for a variety of reasons such as age, physical and mental disabilities. While it is beyond the scope of this post, some argue that private charities are more effective at providing for these individuals as well as the able poor. A greater role for charity could even be facilitated via public funding, but in any case, a larger role for private charity should always be on the menu of policy options.

A basic failing of many welfare programs is an incentive problem: able recipients perceive a penalty for work effort (additional hours or even kinds of employment) if rising earned income is associated with reduction or elimination of program benefits. This means that participants face a very high effective marginal tax rate on earned income.

This article from The CATO Institute contains a good overview of the federal welfare system, which consists of 126 separate programs. The article contains somewhat more detailed on the largest anti-poverty programs, such as Refundable Tax Credits (the Earned Income Tax Credit (EITC), and Child Tax Credit (CTC)), Supplemental Security Income (SSI – for aged, blind and disabled), SNAP (food stamps), housing subsidies, child nutrition (WIC), Temporary Assistance For Needy Families (TANF) and unemployment insurance. Social Security is also included since it pays benefits to many low income seniors.

The CATO analysis shows that by one measure, refundable tax credits are by far the most cost efficient at lifting people out of poverty at a point in time, at least among the large programs, followed by SSI and using subsidies. In-kind programs such as SNAP and WIC tend to be less targeted and less effective by this measure. There is fairly widespread agreement that the tax credits have better incentives for work effort, but there are still high marginal tax rates in the phase-out range, a marriage penalty, and the credits are paid only once a year as tax refunds. Some contend that the phase-out of the EITC discourages labor supply even more than the credit increases labor supply at lower incomes. Still others believe that adding certain work requirements would make the EITC a more effective measure:

“The [EITC] clearly does reduce poverty, but it raises work levels far less than some of the statistical studies of the past decade claim, and it appears to do so by encouraging working people to keep working, rather than driving the non-working poor toward jobs. If we wish the credit to promote work as well as raise incomes, we … must add other suasions to promote and enforce work, such as those found in the more successful work-incentive experiments…. These include mandating participation in work programs and setting some threshold of working hours that claimants have to achieve to get benefits.”

The incentive effects of other programs are more negative than the tax credits. This paper found that the food stamp program reduces employment and hours worked. The TANF program, which was the successor to Aid To Families With Dependent Children (AFDC), also exposes recipients to high marginal tax rates. While CATO has been criticized for analyzing the combined impact on marginal tax rates of up to eight different programs, there is little question that the incentive problem is compounded for participants in multiple programs.

There are many different approaches that can be explored for eliminating poverty, supporting those who can’t work and ending dependency for those who can. Certainly, the work incentives of existing anti-poverty programs can be improved in a number of ways. More inventive approaches can be tested at the state level. However, programs such as guaranteed incomes should be eschewed, as they tend to aggravate the incentive problem and encourage dependency.

There are many other approaches to attacking poverty and its causes that do not strictly qualify as “welfare reform.” These include measures that would improve education and employment prospects, including apprenticeship and other training programs. School choice is a fundamental reform with enormous potential to improve the quality of education among poor children. Transitioning to market-based health care reform, including competition among health insurers, would reduce medical costs across the board. Eliminating costly regulation of business can encourage economic growth, which is basic to lifting the incomes of the working poor. Minimum wage legislation should be avoided as it simply eliminates opportunities for the least productive members of society and it is not well-targeted at the poor. Tax reform that encourages saving and investment, including corporate tax reform, will increase the economy’s long-term growth potential, as would a general reduction in the size of the public sector. An end to wasteful subsidies to “privileged” industries can minimize malinvestment and release resources to uses that pass a true market test, leading to a more general prosperity.

Human Achievement, Comfort and Joy

28 Saturday Mar 2015

Posted by in Human Welfare

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2015’s Human Achievement Hour (HAH) starts at 8:30 p.m. on Saturday, March 28. That’s tomorrow night! It starts at 8:30  p.m. in every time zone, so it’s a rolling celebration. But you can celebrate human achievement for a full 24 hours, starting Saturday at about 2:30 a.m. Central Daylight Time, when it will be 8:30 p.m. Saturday in Tonga, just over the international date line. It’s coming up soon! This will be my third year of celebrating HAH. To mark the occasion I just might start celebrating with the Tongans. Here is the Facebook event page for HAH. The Competitive Enterprise Institute is the sponsor of HAH. Here is the first part of their description, followed by their suggestion for how to celebrate.

“Observing Human Achievement Hour is about paying tribute to the human innovations that have allowed people around the globe to live better, fuller lives, while also defending the basic human right to use energy to improve the quality of life of all people.” “In order to celebrate with CEI and friends worldwide, we invite you to enjoy the benefits of energy, capitalism, and human innovation by utilizing your favorite innovation or human advancement…“

Once again this year, I will illuminate every lightbulb in my home to pay homage to the wonder of widely distributed electricity and the tremendous benefits derived from our ability to harness the power of fossil fuels. In a review of Alex Epstein’s The Moral Case for Fossil Fuels, Ronald Bailey of Reason says:

“As humanity burned more fossil fuels and increased carbon dioxide in the atmosphere, human lives dramatically improved. ‘Weather, climate, and climate change matter—but not nearly as much as they used to, thanks to technology,’ Epstein writes. For example, the death rate from extreme weather events has dropped 98 percent since 1920. Indeed, the chief benefit of burning fossil fuels has been longer and healthier human lives. The central idea of Epstein’s book is that ‘more energy means more ability to improve our lives; less energy mean less ability—more helplessness, more suffering, and more death.’“

Matt Ridley adds his thoughts on the benefits of fossil fuels at The Rational Optimist blog. Both Ridley and Bailey are confident that humans will one day achieve such efficiencies in the production of energy from renewable sources as to be competitive with fossil fuels. That will be worth celebrating. We are not there yet, however, and we do ourselves no favor in attempting to restrict fossil fuel consumption in the meantime. In fact, the risks of anthropomorphic global warming are far less severe than climate activists insist. Moreover, a warmer climate would not be unambiguously bad for people.

It is no accident that HAH is scheduled to coincide with Earth Hour, a “celebration” that stands in stark contrast to HAH in its antipathy for free market institutions and its condemnation of humankind’s relatively recent success in adapting to our planet’s environment. But there is no doubt that our progress in reducing poverty has hinged on the complementary nature of human ingenuity and the free market, the latter being a fairly recent (on historical scales) and most powerful innovation for promoting voluntary human cooperation and enrichment. Here is a recent Ridley post in which he elaborates on reasons for continued optimism. A quote:

“For 200 years, pessimists have had all the headlines-even though optimists have far more often been right. There is immense vested interest in pessimism. No charity ever raised money by saying things are getting better. No journalist ever got the front page writing a story about how disaster was now less likely. Pressure groups and their customers in the media search even the most cheerful statistics for glimmers of doom. Don’t be browbeaten-dare to be an optimist!“

Let’s celebrate for the right reasons. The flourishing of human welfare in the face of a harsh natural environment is real achievement.

Obamacare Swampland: Mendacity Made the Sale

27 Friday Mar 2015

Posted by in Obamacare

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Perhaps I’d quit writing about Obamacare if President Obama would quit lying about it. No, probably not, because the flaws of Obamacare are so numerous that they deserve to be exposed again and again. In fairness to Obamacare, the president lies about many other things, but tonight’s topic is his latest assertion about the supposed success of the health care law. On the occasion of the five-year anniversary of the passage of the ACA, the president said:

“… one thing couldn’t be clearer: This law is working, and in many ways, it’s working even better than anticipated… After five years of the Affordable Care Act, more than 16 million uninsured Americans have gained the security of health insurance – an achievement that has cut the ranks of the uninsured by nearly one third.”

Actually, the Administration claims that the ACA is responsible for an additional 16.4 million insured Americans, 14.1 million of which are presumed to have gained coverage since the start of open enrollment in late 2013. The latter figure was extrapolated by HHS from Gallup survey data, and its full attribution to the ACA is gratuitous. Even if we stipulate to the integrity of the extrapolation, it is severely at odds with information reported on actual enrollments, as noted here by Edmund Haislmaier:

“Taken together, the administrative data tell us that the number of Americans with health insurance coverage increased by around 9.7 million individuals during 2014—not the 14.1 million estimated by Health and Human Services.”

Not only are the incremental insureds severely overstated, but Obama now asks us to judge the “success” of the law based on an implied 35% reduction in the number of uninsured, which still leaves well over 25 million people uninsured. Lest anyone forget, the original projections for exchange enrollments were far higher than even the rosy numbers reported by Obama. The so-called “target” population remains mostly unserved. The vast bulk of the coverage gains have come from Medicaid, which is free to eligible enrollees. Exchange enrollments have been light relative to expectations despite the promise of subsidies. (About half of the enrollees receiving subsidies will have to pay some of those benefits back to the IRS, according to the Kaiser Family Foundation. While the other half of subsidy recipients will get refunds, on average, the taxes owed by the first group will pose hardships.)

As noted above, a number of previous posts on Sacred Cow Chips have covered the flaws inherent in Obamacare. These fall into two general categories of destructive effects: 1) on the market for health care insurance; and 2) on actual access to, and delivery of, patient care. See here, here, and here for discussions of various clumsy and shortsighted ways in which the law attempts to regulate care. Scott Atlas points to another fundamental truth about Obamacare: it fails the poor and middle class by inhibiting access to care and making employer-based coverage less likely. Edmund Haislmaier has another excellent article on four key design flaws in the ACA as it relates to health care coverage. The negative employment effects of the law will continue to play out.

The cost of Obamacare to taxpayers is staggering, despite the CBO’s recent reduction in its estimates due entirely to lower than expected enrollments:

“The CBO now projects that the law will cost nearly $2 trillion over the next ten years. Obamacare’s subsidies alone will cost $1.1 trillion. In 2010, the agency put the cost of the entire law at $940 billion over its first decade.”

The author at the last link above also notes that the employment effects of Obamacare will be costly to taxpayers:

“Obamacare hasn’t just failed to expand coverage as projected — it’s caused more people to lose their insurance than its architects intended. The CBO now estimates that 10 million people will lose their employer-provided health benefits by 2021. That’s a tenfold increase over the agency’s 2011 projections…. Employers might cut back on their workers’ hours so that they’re considered part-time — or stop hiring workers. Some firms may dump their health plans altogether, thanks to Obamacare’s many other cost-inflating mandates and regulations. The fine may be cheaper than the cost of coverage.”

Some of the statist cheerleaders of the administration offer anecdotes and testimonials from the new class of happily insured. Given the (expected) subsidies and some of the expanded coverage provisions, these individuals certainly think they have something to be happy about, but anecdotes are easy. A great many anecdotes have also been heard about lost individual coverage, severely limited and even lost access to physicians and care, lost work hours and reduced employment opportunities. Further disappointments lie ahead, even for the newly insured. Provisions of the Affordable Care Act (ACA) that are least likely to be popular have been delayed by executive fiat.

We have a destructive health care law that should be replaced at our earliest “convenience”. That will be either when Obama leaves office or, more optimistically, in June if the Supreme Court rules against federal exchange subsidies in the King v. Burwell case.

This is unlikely to be my last post on Obamacare, if the history of Obama’s mendacious claims about the law is any guide: “If you like your coverage, you can keep your coverage“. “If you like your doctor, you can keep your doctor“. “The individual mandate is not a tax“. “No family making less than $250,000 a year will see any form of tax increase“. “I will not sign a plan that adds one dime to our deficits – either now or in the future.” The ACA will “cut the cost of a typical family’s premium by up to $2,500 a year.” “I don’t believe that government can or should run healthcare“. All lies about Obamacare issued from the lips of President Obama. And I could go on…

Taking The Air Out Of The Deflation Scare

25 Wednesday Mar 2015

Posted by in Macroeconomics

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Deflation is not the evil so many journalists have been taught to believe. The historical evidence does not support the contention that deflation is always a consequence of “underconsumption”, that it leads to a self-reinforcing spiral, or that it is destructive in and of itself. A new academic paper on the costs of deflation is reviewed here by John Cochrane, who reproduces some of the interesting evidence from the paper showing that deflation is not correlated with output growth historically. Cochrane quotes the paper’s authors:

“‘The almost reflexive association of deflation with economic weakness is easily explained. It is rooted in the view that deflation signals an aggregate demand shortfall, which simultaneously pushes down prices, incomes and output. But deflation may also result from increased supply. Examples include improvements in productivity, greater competition in the goods market, or cheaper and more abundant inputs, such as labour or intermediate goods like oil. Supply-driven deflations depress prices while raising incomes and output.’”

The Science Times has a succinct review of the same paper:

“After analyzing figures going back to 1870 from 38 countries, Borio [one of the co-authors] concludes that declines in consumer prices are not actually the problem. He argues that the negative effects associated with deflation are in reality caused by huge declines in real estate prices and equity values. All this time, he posits, economists have been deceived by the fact that prices for goods and services have at times decreased at the same time that asset prices have gone down, especially during the Great Depression.”

An earlier op-ed on deflation by Cochrane was the subject of this Sacred Cow Chips post a few months ago, which noted an unfortunate tendency among traditional Keynesian economists related to the statist agenda they often support:

“Quick to blame insufficient private demand for economic ills, they propose to ratchet government to higher levels to make up for the supposed shortfall. That diagnosis is often debatable; the prescription may be a palliative at best and destructive at worst.”

Deflation is usually a symptom of other, more primary economic phenomena. Whether it can be taken as a sign of economic malaise depends on the underlying cause. Certainly, as noted above, deflation is quite welcome when it results from supply-driven growth of output, especially if wages are supported by advances in labor productivity.

On the other hand, deflation may be a demand-side symptom of weakness engendered by restrictive monetary policy, fragile confidence among consumers or employers, trade restrictions, excessive taxation, over-regulation, or adjustments to a binge of malinvested capital. It does not follow, however, that a resulting deflation is unhealthy. Quite the opposite: Downward price adjustments help to clear the economy of excesses and pave the way for renewal, as excess goods, capital and other resources are repriced to levels at which purchases become gainful. This may involve more severe declines in some relative prices due to specific excesses, such as real estate. Some recent examples of deflation and reversals of economic weakness are discussed in this post at The Mises Daily.

One consequence of expected deflation is that market interest rates are driven below “real” interest rates, or the rates at which economic agents are indifferent between present and future consumption (abstracting from risk and liquidity premia). The latter is sometimes called the rate of time preference, the natural interest rate, or the originary interest rate. Recently, some short-term market interest rates in Europe have been negative, prompting some to offer arguments that the natural rate may have turned negative. This post by Thorsten Polliet reveals these arguments as nonsense:

“If the originary interest rate was near-zero [let alone negative], it means that you prefer two apples available in, say, 1,000 years over one apple available today. A truly zero originary interest rate implies that the actor’s planning horizon or “period of provision” is infinitely long, which is another way of saying that he would never act at all but would continually push the attainment of his goals into the future.”

Polleit discusses the fact that market real interest rates may be negative, but that is a consequence of central bank manipulation of nominal market rates, including the Federal Reserve’s so called ZIRP, or zero interest-rate policy. Polleit has this to say about the destructive consequences of this kind of behavior, albeit in extreme form:

“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.”

While Keynesians imagine that expansive government policy can rescue the economy from the ravages of weak private demand, they also know that accumulation of public debt is an unavoidable by-product. That reveals an underlying motive for policies such as ZIRP, as Polite explains:

“It is an actually perfidious policy for debasing the real value of outstanding debt; and it is a recipe for wreaking havoc on the economy.”

An otherwise innocuous supply-side deflation, or a deflation corrective of demand-side forces, may well be accompanied by intervention by an activist central bank. The ostensible purpose would be to stimulate the demand for goods, but a more direct consequence is a reduction in the government’s interest costs. If the policy succeeds in pushing real market interest rates to zero or below, the intervention may well undermine capital formation and economic growth.

One Year Of Sacred Cow Chipping

19 Thursday Mar 2015

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Tomorrow, March 19 is the one-year anniversary of my first blog post on Sacred Cow Chips (SCC). This is my 242nd post and traffic is increasing. Please forgive this bit of self-congratulation, but I think 242 in a year is okay for a guy with a fairly busy professional and family life, plus a few other hobbies. My earliest posts tended to be brief. More recently, I’ve been unable to keep my posts down to a paragraph or two, but perhaps I’ll try to add some shorter posts to the mix in the future. I also had frequent formatting issues in my first month or two of blogging, some of which remain uncorrected. That’s my fault, but in my defense, the editing software on WordPress at the time was primitive compared to subsequent upgrades.

I confess to some self-inflicted pressure to “feed the monster”, to post something after any absence of a few days. Fortunately, finding inspiration for posts is simple. There is always a surfeit of tempting memes on social media, and traditional media provide a steady stream of questionable commentary. And then there are the politicians. Of course, I have some favorite blogs and sites from which I draw ideas on a regular basis.

I have been using the most basic WordPress account plan, which imposes some limits on features and formats. Among other shortcomings, the text on SCC always looks too large to me. I plan on upgrading to a premium plan in the next few days. That might interfere with regular posting activity as I arrange a new format, but we’ll see how it goes.

If you are following my blog, thank you, and I hope you’ll keep visiting. It’s a lot of fun for me! In the meantime, Happy Anniversary, SCC!