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Missouri Prop B: the Unintended Consequences of Wishful Thinking

04 Sunday Nov 2018

Posted by in Labor Markets, Living Wage, Minimum Wage, Uncategorized

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Proposition B sounds really good to many Missouri voters: all we have to do to help low-wage workers is declare that they must be paid a higher wage. That’s the pitch, of course. But voters should hear the cruel truth about the unintended consequences of this well-intentioned and ill-considered proposition on the ballot this week:

  1. Businesses are likely to increase prices to compensate for a higher mandated wage, which hurts all consumers, but especially the poor.
  2. Some low-skilled job losses or lost hours are assured, and they will hit the very least-skilled the hardest. No matter the legal minimum, the real minimum wage is always zero.
  3. Such job losses have long-term consequences: lost job experience that the least-skilled desperately need to get ahead.
  4. The harms will have a disparate impact on minorities.
  5. Large employers can substitute capital for low-skilled labor: automated kiosks to take orders and increasingly sophisticated robots to perform tasks. Again, the real minimum wage is always zero. As I’ve said before on this blog, automate no job before its time. But that’s what Prop B will encourage.
  6. Employers can make other compensatory changes. That includes reduced fringe benefits and break times, increased production quotas, and less desirable shifts for minimum wage workers.
  7. A large share of the presumed beneficiaries of a higher minimum wage are not impoverished. Many are teenagers or young adults living with their parents.
  8. All of the preceding points argue that an increase in the minimum wage is not an effective method of targeting poverty reduction. In fact, the harm it inflicts is targeted at the most needy. 
  9. Small employers have less flexibility than large employers, and Prop B would place them at a competitive disadvantage. To that extent, a higher wage floor is most damaging to “mom & pop”, locally-owned businesses, and their employees. Again, the real minimum wage is always zero.

At least 24 earlier posts appear on this blog covering the topic of minimum wages. You can see most of them here. The points above are explored in more detail in those posts.

William Evan and David MacPherson of the Show-Me Institute have estimated the magnitude of the harms that are likely to result if Prop B is approved by voters on November 6, and they are significant. The voters of Missouri should not be seeking ways to make the state’s business environment less competitive.

Voters should keep in mind that wages in an unfettered market reflect the realities of labor demand and labor supply. Wages and other forms of compensation reflect the actual quantity, quality and productivity of available labor supplies. And for unskilled labor, which is often supplied by those who lack experience, a wage that matches their marginal productivity is one that provides that valuable experience. The last thing they need is for tasks requiring little skill to be performed by more experienced employees, or by machines. We cannot wish away these realities, and we cannot declare them suspended by law. Such efforts will have winners and losers, of course, though the former might not ever recognize the ephemeral nature of their gains. And as long as there is freedom of private decision-making, the consequences of such legal efforts will cause harm to those least able to withstand it.

Injecting Competition Into Health Care

12 Friday Oct 2018

Posted by in competition, Health Care, Uncategorized

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Competitive pressures in U.S. health care delivery are weak to nonexistent, and their absence is among the most important drivers of our country’s high medical costs. Effective competition requires multiple providers and/or substitutes, transparent prices, and budget-conscious buyers, but all three are missing or badly compromised in most markets for health care services. This was exacerbated by Obamacare, but even now there are developments in “retail” health care that show promise for the future of competition in health care markets. The situation is not irreversible, but some basic policy issues must be addressed.

John Cochrane maintains that the question of “who will pay” for health care, while important, has distracted us from the matter of fostering more competition among providers:

“The discussion over health policy rages over who will pay — private insurance, companies, “single payer,” Obamacare, VA, Medicare, Medicaid, and so on — as if once that’s decided everything is all right — as if once we figure out who is paying the check, the provision of health care is as straightforward a service as the provision of restaurant food, tax advice, contracting services, airline travel, car repair, or any other reasonably functional market for complex services.”

We face a severe tradeoff in health care: how to provide for the needs of more patients (e.g., the uninsured, or a growing elderly population) without driving up the cost of care? As a policy matter, provider resources should not be viewed as fixed; their quantity and the efficiency with which those resources are utilized are responsive to forces that can be harnessed. Fixing the supply side of the health care market by improving the competitive environment is the one sure way to deliver more care at lower cost.

Fishy Hospital Contracts

Cochrane discusses some anti-competitive arrangements in health care delivery, quoting liberally from an article by Anna Wilde Mathews in The Wall Street Journal, “Behind Your Rising Health-Care Bills: Secret Hospital Deals That Squelch Competition“:

“Dominant hospital systems use an array of secret contract terms to protect their turf and block efforts to curb health-care costs. As part of these deals, hospitals can demand insurers include them in every plan and discourage use of less-expensive rivals. Other terms allow hospitals to mask prices from consumers, limit audits of claims, add extra fees and block efforts to exclude health-care providers based on quality or cost.”

Mathews’ article is gated, but Cochrane quotes enough of its content to convey the dysfunction described there. Also of interest is Cochrane’s speculation that the hospital contract arrangements are driven largely by cross subsidies mandated by government:

“The government mandates that hospitals cover indigent care, and medicare and medicaid below cost. The government doesn’t want to raise taxes to pay for it. So the government allows hospitals to overcharge insurance (i.e. you and me, eventually). But overcharges can’t withstand competition, so the government allows, encourages, and even requires strong limits on competition.”

The Role of Cross Subsidies

In this connection, Cochrane notes the perverse ways in which Medicare and Medicaid compensate providers, allowing large provider organizations to charge more than small  ones for the same services. Again, that helps the hospitals cover the costs of mandated care, regulatory costs, and the high administrative and physical costs of running large facilities. It also creates an obvious incentive to consolidate, reaping higher charges on an expanded flow of services and squelching potential competition. And of course the cross subsidies create incentives for large providers to lock-in business from insurers under restrictive contract agreements. Such acts restrain trade, pure and simple.

Cross subsidies, or building subsidies into the prices that buyers must pay, are thus an impediment to competition in health care, beyond the poor incentives they create for subsidized and non-subsidized buyers. So the “who pays” question rears it’s head after all. When subsidies are necessary to provide for those truly unable to pay for care, it is far better to compensate those individuals directly without distorting prices. That represents a huge policy change, but it would also help restore competition.

Competitive Sprouts

John C. Goodman provides a number of examples of how well competition in health care delivery can work. Most of them are about “retail medicine”, as it’s been called. This includes providers like MinuteClinic (CVS), LASIK and cosmetic surgery, concierge doctors, and “retail” surgical services. Goodman also mentions MediBid, a platform on which doctors bid to provide services for patients, and Ameriflex, which matches employers with concierge doctors. These services, which either bypass third-party payers or connect employer-payers with competitive providers, are having a real impact on the ability of patients to obtain care at a lower cost. Goodman says:

“I am often asked if the free market can work in health care. My quick reply is: That is the only thing that works. At least, it is the only thing that works well.”

Conclusion

Some of the most pernicious Obamacare cross subsidies have been dismantled via elimination of the individual mandate and allowing individuals to purchase short-term insurance. Nonetheless, U.S. health care delivery is still riddled with cross subsidies and excessive regulation of providers, including all the distortions caused by third-party payments and the tax code. Many buyers lack an incentive for price sensitivity. They face restrictions on their choice of providers, they don’t know the prices being charged, and they often don’t care because at the margin, someone else is paying. Fostering competition in health care delivery does not necessarily require an end to third-party payments, but the cross subsidies must go, employers should actively seek competitive solutions to controlling health care costs, price transparency must improve, and consumers must face incentives that encourage economies.

School Discipline, Disparate Impact, and Disparate Justice

05 Friday Oct 2018

Posted by in Discrimination, Education, Uncategorized

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Sad to say, there are racial disparities in victimization by misbehavior in schools, and African American children are the most victimized in terms of their safety and academic environment. Yet since 2014, the Department of Education (DOE) has been enforcing rules against “disparate impact” in school disciplinary policies, often aggravating that victimization. In a paper entitled “The Department of Education’s Obama-Era Initiative on Racial Disparities in School Discipline: Wrong For Students and Teachers, Wrong on the Law“, authors Gail Heriot and Alison Somin expose these unfortunate policies and the distortion of actual law they represent. These policies and actions are presumed by the DOE and the Office of Civil Rights (OCR) to be authorized under Title VI of the Civil Rights Act of 1964, but Heriot and Somin show that Title VI is not a disparate impact law and that enforcement of strictures against disparate impacts exceed the authority of the OCR.

When are disciplinary policies discriminatory? Disparate treatment occurs when a student from a “protected class” is punished more severely than other students for an identical misdeed. That is obviously discriminatory and unfair. A disparate impact, however, is a statistical difference in the punishments meted out to a protected class relative to others, which is not prima facie evidence of discrimination. Given consistent application of disciplinary policies — identical treatment for all classes under those policies — disparate impact is possible only when there are differences in the actual behavior of students across classes. Of course, such a difference does not mean that the protected class is “less worthy” in any absolute sense; instead, it probably indicates that those students face disadvantages that manifest in misbehavior in greater proportion within a school environment. The consequences of refusing to punish that behavior are bad for everyone, including and perhaps especially the miscreants themselves.

Disparate impact enforcement rules are fundamentally flawed, as Heriot and Somin explain. Almost any decision rule applied in business or other social interaction has a disparate impact on some parties. Defining qualifications for many jobs will almost always involve a disparate impact when protected classes lack those skills in greater proportion than unprotected classes. In schools, such rules lead to more lenient disciplinary policies or a lack of enforcement, either of which are likely to bring even greater disciplinary problems.

In schools with large minority populations, these perverse effects penalize the very minority students that the DOE hopes to protect. And they often have harsh consequences for minority teachers as well. Walter Williams bemoans the difficulties faced by many teachers:

“For example, after the public school district in Oklahoma City was investigated by the OCR, there was a 42.5 percent decrease in the number of suspensions. According to an article in The Oklahoman, one teacher said, ‘Students are yelling, cursing, hitting and screaming at teachers, and nothing is being done, but teachers are being told to teach and ignore the behaviors.’ According to Chalkbeat, new high school teachers left one school because they didn’t feel safe. There have been cases in which students have assaulted teachers and returned to school the next day. …

An article in Education Week earlier this year, titled ‘When Students Assault Teachers, Effects Can Be Lasting,’ discusses the widespread assaults of teachers across the country: ‘In the 2015-16 school year, 5.8 percent of the nation’s 3.8 million teachers were physically attacked by a student. Almost 10 percent were threatened with injury, according to federal education data.'”

To state the obvious, this undermines the ability of teachers do their jobs, let alone enjoy teaching. For many, quitting is an increasingly tempting option. And Williams, an African American, goes on to say “… when black students are not held accountable for misbehaving, they are set up for failure in life.”

When it comes to misbehavior, equalizing discipline by subgroup is almost certain to be unjust. And disparate impacts are almost certain to be a byproduct of a just disciplinary system when other social forces lead to differences in preparation for schooling. When the focus is placed on a by-product of Justice, rather than justice itself, as when disparate impacts are penalized or prohibited, everyone loses. It obviously harms unprotected classes, but ultimately it harms protected classes even more harshly by subjecting them to degraded school environments, less educational opportunity, and fewer rewards in life.

The “Judicial Temperament” Ruse

02 Tuesday Oct 2018

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“Judicial temperament” applies to situations in which an impartial third party is or would be acting as a judge, weighing evidence that might support one side of a case or the other. It cannot apply to one of the parties to a dispute or allegation of wrongdoing, nor can it reasonably be inferred in other matters from the attitude or statements of one of the first two parties with respect to the accusation. Of course, an individual accused of a misdeed for which they KNOW they are innocent can be expected to react angrily. That would be natural and understandable, and it has nothing to do with the individual’s judgement in other realms. Any victim of wrongdoing has a right to be angry, and a false accusation is no exception.

Christine Blasey Ford has accused Brett Kavanaugh of a sexual assault that she says took place 36 years ago when the two were in high school, but without corroboration of any kind. The Left has characterized Kavanaugh’s righteous indignation as a “temper tantrum” unbefitting a Supreme Court Justice. “Oh, but why are you so angry?”, they ask. Really.

Assuming that he is indeed innocent of the charge, and there are many reasons to doubt its veracity, Kavanaugh’s reaction was well-justified. The allegation was unveiled by the minority on the Senate Judiciary Committee at the eleventh hour as they prepared to vote on bringing his name to the floor of the Senate for confirmation. A much earlier disclosure was possible and would have permitted an investigation weeks before the Committee hearings. Not only that, the minority presumed his guilt, he was called “evil” by one senator, he received death threats against his family, and he was forced to field a host of probative questions about his teenage scribblings in a high school yearbook. Only a Vulcan would greet such sabotage of character with equanimity, and I’ll gladly give Kavanaugh a pass on it. I mostly enjoyed his fire and emotional at the hearing last Friday.

Another dimension of judicial temperament is impartiality. The meaning of that term can be manipulated, of course. For example, one’s views on constitutional interpretation are at the very root of many political disagreements, yet when convenient, some pretend that the two are mutually exclusive. Shall we disqualify anyone with a specific constitutional philosophy? Does it somehow depend on which seat is open? Of course not.

On the other hand, Kavanaugh voiced what many knew to be true at the hearing last Friday: the Leftist minority on the Committee had prepared an ambush to destroy him. He also noted the possibility of lingering resentment for his role on Ken Starr’s staff investigating the Clintons in the 1990s. Perhaps Kavanaugh was unchaste to express what was obvious, and the Left has seized on those statements as evidence of a disqualifying political bias. But again, he stated what he knows to be true.

Kavanaugh’s is widely viewed as an impartial jurist, and he has a history of collegiality with judicial peers from across the political spectrum. As Randy Barnett states at the link above:

“His 300 opinions have been thoughtful and well reasoned. His reasoning has repeatedly been adopted by majorities of the Supreme Court. He gets high marks from, well, from everyone for his intelligence, decency, and judicial temperament.”

It is my conviction that Kavanaugh would rely on his legal scholarship and constitutional philosophy, as he has in the past, in deciding his positions on issues that come before the Court, rather than hearing cases with a view toward malice against particular individuals or one end of the political spectrum. I also believe he is wise enough to know that he should recuse himself in cases of obvious personal conflict. The charge that he lacks judicial temperament is an additional attack based on his judicial philosophy, and it is an opportunistic attempt to discredit him on the basis of his strong and understandable response to a smear campaign.

Monstrous Mathematics: Selling Abortion As Fiscal Austerity

06 Friday Jul 2018

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Sacred Cow Chips

The pro-choice Left says, “Massive welfare benefits will be necessary to support the babies you’d force women to carry to term.” The remark is viewed as an argument clincher among pro-choicers, but it’s not a persuasive defense of abortion rights. In fact, it’s quite beside the point: human lives are at stake. The “welfare defense” suggests that there must be a valid tradeoff between public aid and lives that can otherwise be saved. Or indeed, between publicly-funded abortions and future public aid. By that logic, perhaps EMS service should be suspended in impoverished neighborhoods so that welfare payments might be reduced. These kinds of monstrous tradeoffs are not remotely on the table.

(The commentary that follows does not pertain to abortions that might be necessary to preserve a woman’s life or health, or in the case of pregnancies caused by rape.)

An operative assumption underlying the left’s suggestion is that additional…

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The Destructive Pooling of Risks and Outcomes

29 Friday Jun 2018

Posted by in Health Insurance, Obamacare, Uncategorized

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Forcing health insurers to cover pre-existing conditions at standard rates is like asking home insurers to cover homes in flood plains at standard rates. If the government says home insurers must do so, standard rates will rise as well as the cost of homeownership. Lenders generally won’t accept homes as collateral unless they are adequately insured against flooding, and by raising the cost of insurance, the government requirement that all must share in the burden of high flood risk would discourage homeownership generally. But you’ll get a break if you’re in a flood plain! Coercive government regulations like rate regulation and coverage mandates have destructive (but predictable) consequences.

The difference between flood plains and health conditions is that sooner or later, a lot of us will be burdened with the latter. The trick is to get underwritten for health insurance before that happens. If the government says that health insurers must offer standard rates to those already afflicted with serious health conditions, à la Obamacare, standard rates will rise, which will induce some potential buyers to opt out. In fact, it will lead the youngest and healthiest potential buyers to opt out. This is the genesis of the so-called insurance death spiral.

Some then ask why the government shouldn’t prevent opt-outs by requiring all individuals to carry health insurance… an individual mandate. Perhaps doubling down on government coercion via compelled coverage might rectify the ill effects of rate regulation. However, requiring low-risk individuals to pay rates that exceed their willingness to pay cross-subsidizes individuals who belong in a different risk pool. Aside from it’s doubtful constitutionality and infringement on individual liberty, this policy forces low-risk individuals to insure and pay as if they are high-risk, and high-risk individuals to pay as if they are low risk, and it leaves the task of pricing to the arbitrary decisions of bureaucrats. It may also lead to massive distortions in the use of medical resources.

Direct Subsidies Are Better

There is a better way to provide coverage for individuals with pre-existing conditions, one that does not destroy the risk-mitigating function of health insurance markets. High-risk individuals can be covered through a combination of self-paid standard premiums and a direct public subsidy that does not distort the market’s social function in pricing risk. Such a subsidy would be funded by individuals in their roles as taxpayers, not as premium payers. Now, I’m the last person to advocate big-government solutions to social and economic problems, but this approach requires only that government serve as a pass-through entity. Government need not play any role in providing or regulating health care, and it should not interfere with the pricing of risk in private markets for health insurance.

Insurability Protection

The high-risk segment’s reliance on subsidies can be minimized over time with certain innovations. In particular, healthy individuals should be able to purchase riders protecting their future insurability at standard rates. Their premium would include a component reflecting the discounted expected costs of developing health conditions in the future. The additional premium could even be structured as level payments over time. People will develop health conditions, of course, a few much sooner than others, but without an incremental impact on their future premiums, as the additional risk  would be covered by the cost of the rider for future insurability.

To see how the situation would evolve, suppose that the standard risk pool includes everyone free of pre-existing conditions, young and old, with guaranteed future insurability. The high-risk segment is already afflicted with conditions and mostly reliant on the direct subsidies discussed above, but that segment will shrink over time as the population ages and mortality takes its toll. Therefore, the proportion of individuals reliant on subsidies will decline. Meanwhile, the standard risk pool transforms into a combination of healthy and sick, but it is actuarily sustainable without subsidies. Of course, some fraction of individuals will always be born with serious health conditions, though one day prospective parents could conceivably purchase future insurability protection for their children at conception… well, perhaps just a little after. The point is that the initial level of subsidies should be transitional. For a permanently small share of individuals, however, it will be a part of the social safety net.

To extend the foregoing, there is considerable latitude in the composition of “standard risks” and the willingness of individual buyers to pay premiums that might reflect interpersonal differences. For example, individuals should be free to self-insure, foregoing participation in the insurance market altogether. If they do so, the insured risk pool will e of lower quality. Some people might prefer to purchase insurance covering catastrophic health events only, paying for health maintenance out-of-pocket as well as care for conditions less immediately threatening. Health maintenance is not really a risk anyway, but more of a constant, so excluding it from insurance contracts is sensible. In fact, less “comprehensive” insurance coverage keeps the cost of coverage down, encouraging wider participation and enhancing the quality of the risk pool.

Mandates

These insurability riders might not accomplish much under a regime of mandated comprehensive benefits. That would increase the cost of coverage as well as the cost of the insurability rider, making it more likely that healthy individuals would opt-out. That brings us back to the “elephant in the room”: whether a so-called individual mandate is required to ensure that 1) the “standard” risk pool is of high quality; and 2) the uninsured don’t “free-ride” by capturing the public subsidy once their health deteriorates for any reason. But again, the availability of less comprehensive coverage will keep premiums low and help to accomplish both objectives. Moreover, free-riders whose health fails could always be denied the public subsidy if they had been uninsured over a period of any length prior to their diagnosis. That would leave them with several less attractive alternatives: pay high-risk-pool premiums out of their own pockets, or rely on assistance from family, friends, charitable organizations and providers.

Dumb Intervention

Requiring insurers to cover pre-existing health conditions at standard rates is destructive to insurance markets. It imposes liabilities for more certain, costly events in a market for which sustainable operation depends on the pooling of events of similar risk. It harms consumers directly by increasing the cost of mitigating those risks. It worsens the uninsured free-rider problem, causing additional deterioration in the risk pool and adding more cost pressure. It also may lead to increases in out-of-pocket deductibles and copayment rates as insurers attempt to manage high claim levels. And it invites further regulatory intervention, as policymakers engage in misguided attempts to “fix” problems created by the original intervention (while blaming the market, of course).

A further question is whether the alternative I have outlined would involve federal subsidies or state outlays funded in part by federal block grants. I prefer the latter, but either way, it is less costly and distortionary to pay for insuring against the costs of pre-existing conditions via direct subsidies to needy individuals as part of the social safety net than by destroying insurance markets.

Inferior Schools, Venom For Reformers

28 Monday May 2018

Posted by in Regulation, School Choice, Socialism, Uncategorized

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We all want better K-12 education in the U.S., which has an extremely uneven — even dismal — record of student outcomes. The U.S. ranks below the OECD average in both math and science scores, despite spending 35% more per student than the OECD average. Yet there is a faction that leaps to the defense of the status quo with such viciousness that its members deride sensible reform proposals as classist and racist. Then, of course, they call for additional spending! These antics reveal their self-interest in doubling down on the status quo.

An obvious starting point for reform, and one that would save taxpayers roughly $40 billion (K-12), is to dismantle a federal education bureaucracy that adds little value to educational outcomes. Another element is expanding the set of alternatives available to parents over the way their children are educated. Betsy DeVos, President Trump’s Secretary of Education, favors both of these steps as general principles, though she lacks direct control over either, especially school choice.

Both of these steps are fiercely resisted by the public educational establishment and teachers unions. And no wonder! Who wants to lose their privileged monopoly power over a local market? The public school establishment does not wish to be troubled by demands that schools respond to competitive forces, that teachers be rewarded based on performance, or that schools should be answerable to parents and taxpayers. As for the federal role, the public school cartel seems to welcome federal money, even if it means that the feds impose control in the process.

Choice

For those skeptical of reforming public schools by allowing choice, Don Boudreaux proposed a useful thought experiment that I discussed in my earlier post “Public Monopolists Say Don’t Be Choosy“. It examines a hypothetical world in which supermarkets are structured like public schools. Consumers pay for their food via local taxes and must shop at one local public supermarket, and only one, at which food products are available at no additional marginal cost. However, parents are free to pay their taxes and pay for food elsewhere, at a private supermarket. Most thinking people would probably agree that this is a spectacularly bad idea. Public supermarkets would deteriorate relative to private supermarkets. Rural and inner city supermarkets would likely suffer the most. Public supermarket worker unions would lobby for higher food taxes. And of course proposals for supermarket choice would be met with hysteria. Read the earlier post for more discussion of the likely consequences.

One of the arguments often made in favor of today’s public school monopoly is that K-12 education should be regarded as a necessity, but few would take that as a compelling reason to grant government a monopoly in the retail food business. A better argument for government schools, were it strictly true, would be that education is a public good, yielding significant non-exclusive benefits to the community. And in truth there are some external benefits to society from an educated citizenry. The primary benefits of an education, however, are exclusive to the student. Kevin Currie-Knight offers an excellent treatment of the education-as-public-good question, and he concludes otherwise. And the public-good argument does not imply that parents should be denied choice in their selection of a school for their children. Ultimately, the policy question hinges on whether government schools, as currently structured, do a good job in educating students, and as Corey A. DeAngelis points out, they do not.

There is no shortage of evidence that school choice is beneficial for students and society in several respects, including academic outcomes for students and schools, racial integration, fiscal impacts, and parental satisfaction. This paper by MIT researchers found that school choice improved educational outcomes for special education students and those who were not proficient in English. This essay in Education Week, signed by nine educational researchers, emphasized the preponderance of positive findings on school choice and some additional dimensions of improvement on which they hope the education research community will focus.

The promise of choice is seldom greeted objectively by the public education establishment and its reflexive allies. To their dishonor, distortions of fact and ad hominem attacks on choice advocates are almost the rule. For example, John Stossel writes the following in “Why the Left Hates Betsy DeVos“:

“When she spoke at the Kennedy School of Government, students held up signs calling her a ‘white supremacist.’ … When she tried to visit a school, activists physically blocked her way. … The haters claim DeVos knows little about education, only got her job because she gave money to Republican politicians, and hates free public education.“

Of course, public education is not free! But it is a disgrace that someone so dedicated to the cause of improved education should be treated this way. The DeVos family has given over a billion dollars to various causes over the years, much of it to educational initiatives, and even those gifts, somehow, are seen by critics as a pretext for vilifying Betsy DeVos. But she knows much more about the poor performance of public schools than her critics care to discuss, as well as the dynamism and improvement that choice and competition can bring to education. Her critics disparage the performance of charter schools in DeVos’s home state of Michigan even while the facts show that they have performed well.

The idea that charter schools “hurt” public schools by creating educational choice is the very weakest protest a monopolist can put forward. These critics conveniently overlook the fact that most charter schools are in fact public schools! More importantly, an erstwhile monopolist must respond by adding value for consumers! If it fails to do so, it must be closed or reorganized. THAT is a good idea!

Monopoly public schools do not earn a profit in the way of monopolistic business enterprises, but remember that perhaps the greatest social costs imposed by monopolies are languid effort and a poor product. This is not to dismiss the great efforts of many teachers who toil under trying circumstances, though the current system also tends to protect bad teachers. And much of the waste in government schools is caused by bloated bureaucracy and costs imposed on teachers and schools of complying with regulation. 

The Federal Bureaucracy

Another priority of Secretary DeVos is to reduce the federal role in education. Hurry, please! The unpopular Common Core standards, implemented in 2009, proved a failure. Test scores declined for student cohorts expected to benefit the most (those in the lowest percentiles). At the last link, Nancy Thorner discusses more recent legislation:

“It was in December of 2015 that Congress passed the Every Student Succeeds Act (ESSA), that replaced the often criticized No Child Left Behind Act (NCLB). ESSA, in contrast to NCLB, signified a clear move away from federally prescribed standards. In fact, ESSA expressly forbid federal regulators from attempting to ‘influence, incentivize, or coerce’ states to adopt the Common Core.”

That’s progress, but 36 states plus DC still use those standards. Curriculum mandates are only one area of federal school regulation that must be addressed. “Educational equity” is also mandated along several dimensions, requiring schools to devote a disproportionate share of resources to various subsets of students who might not benefit from the extra instructional intensity. Then there are the administrative costs of demonstrating compliance with these mandates, not to mention the virtual prohibition under these mandates of developing innovative, local solutions to the problem of educating their charges.

There is well-deserved pushback against federal control over school discipline, which requires schools to implement policies that avoid disparate impacts on certain minorities (African Americans, Latino, and special-ed children) such that they are no more likely to receive detention, suspension, or expulsion than the general student population. This is an absurdity, potentially requiring schools to go light on offenders should they happen to belong to a minority. Even worse, if the enforcement of discipline results in an observable bias in favor of any minority, it is likely to be noticed by the minority students themselves, creating a negative behavioral incentive and potentially stoking resentment among non-minority students.

In April, President Trump signed an executive order authorizing a review of federal education rules imposed on states and local school districts. Again, central regulation is costly: it involves rule-making at the federal level to interpret enabling legislation, then review by state departments of education where specific policies are designed, which are then passed down to school districts and individual schools, who must review and attempt to implement the policies, and who then must report back on their success or failure in meeting the mandates. Resources are consumed at every level. In the end, the process creates increased complexity, and the policies have proven to be of questionable value to the goal of good education. While spending on education has soared over the past 30 years, student achievement has remained static, and the same disparities of outcome remain.

Secular Statism

Robert P. Murphy provides a brief history of U.S. public schooling. It is a fascinating take on the history of secularization of education in America. It is the story of the substitution of state for private institutions, including family and church, in the development and socialization of children. Murphy offers a telling quote:

“Thus Henry Brown, second only to Horace Mann in championing state education, commented, ‘No one at all familiar with the deficient household arrangements and deranged machinery of domestic life, of the extreme poor, and ignorant, to say nothing of the intemperate—of the examples of rude manners, impure and profane language, and all the vicious habits of low bred idleness—can doubt, that it is better for children to be removed as early and as long as possible from such scenes and examples.'”

Whoa! The K – 12 public education system, as it now stands, is striking in its failure to benefit the children and families it is intended to serve. Critics of meaningful reform do not acknowledge the abysmal condition and performance of many government schools in America today, except to insist that they need more money. These critics, including the educational bureaucracy, teachers unions, and misguided statists generally, behave as if they accept the attitudes expressed by Henry Brown. They have no respect for private decision makers — families, churches, private schools of any stripe, and private markets in general. They do not understand the power of incentives and competition to allocate resources efficiently and maximize well-being. But they know how to disparage, defame, and propagate hateful rhetoric for those with a true interest in creating a better educational system for all.

Secession and Other Remedies for Intrastate Revolt

14 Monday May 2018

Posted by in Federalism, Regulation, Tyranny, Uncategorized

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How many states will we have in the Union in twenty years? Probably 50, but there’s an outside chance that the number will be 55 plus. That could include a split of upstate New York from New York City, downstate Illinois from Chicagoland, eastern from western Washington State, eastern from western Oregon (or eastern Oregon combining with Idaho), and a division of California into as many as six states, as one proposal has it. There are secessionist movements alive in all of those states and it has happened before, as Glenn Reynolds notes in his recent paper “Splitsylvania: State Secession and What to Do About It“.

The origins of state boundaries and state governments were probably based on combinations of natural geographic features and confluent economic and political interests existing at the time. It would be surprising if those factors remained in static alignment over time, however. For various reasons, West Virginia seceded from Virginia many years ago, and Tennessee was once part of North Carolina. But to the extent that interests diverge within states, would a series of secessions promote better representative government? Reynolds’ approach to this question is fairly even-handed, though he apparently leans toward less disruptive solutions to the kinds of grievances voiced by secessionists.

Secession is a complex process; it obviously involves a major task in establishing a new state governmental apparatus. Also, legislative roadblocks to secession movements exist at both the state and federal levels. Nevertheless, there is great disaffection among rural interests in the states mentioned above for the policies they say are forced upon them by “urban elites”, as Reynolds calls them. At present, the secession of rural areas would tend to benefit republicans at the federal level, as two new Senate seats would be created to offset the seats held by democrats elected in more urban areas. Conceivably, however, the same process could work in reverse in other states, such as Texas. Even the proposal for six Californias seems designed to at least neutralize any possible negative impact on democrats in national politics.

Reynolds’ paper outline a few ways in which interests represented by legislative minorities, such as rural populations, could be better served without a step so drastic as secession. State regulation is often what rankles secessionists. To add fuel to the fire, states are free to adopt rules that are more strict than rules established under federal legislation, if they so choose, but never rules that are less strict. Today this applies to wages, working conditions, gun regulation, and environmental law. Reynolds suggests turning this on its head:

“The federal government’s legislative role has traditionally been the opposite: To use (as in the case of the 1964 Civil Rights Act) a national majority to ensure that local majorities can’t oppress local minorities. I thus suggest that federal laws regulating these key subject-matter areas be recast to pre-empt more restrictive state laws, meaning that urban regions would be unable to impose stricter laws on less- powerful rural areas. If this seems too inflexible, perhaps that pre-emption should in some cases be defeasible at the county level; if the government of a county affirmatively wants to accept stricter state regulations, then it may do so, but if not, then the federal regulations are a ceiling, as well as a floor.”

Reynolds contends that this approach would be relatively easy to defend against state challenges. The idea that federal rules provide minimum standards of regulation is only one interpretation of the Supremacy Clause of Article VI of the Constitution. There is no reason why federal legislation cannot be written in the way Reynolds describes. Moreover, Reynolds asserts that the Guarantee Clause of Article IV, which assures that mandates are to be established according to republican principles, could be used to buttress this argument. But he offers another remedy to curb secessionism among rural voters that states could exercise:

“There is nothing to stop a state from being mindful of the differences between urban and rural areas when crafting legislation or regulations, after all. States could adopt a local-option regulatory scheme relating to key subject areas on their own, and by doing so would lighten their footprint in rural areas and lessen the likelihood of festering resentments.”

Perhaps that’s hoping for too much. State majorities are unlikely to cede power to rural minorities, but it’s nice to imagine that sort of cooperation. There is no question that this sort of state regulatory approach would protect local interests from the tyranny of one-size-fits-all state regulation, but it wouldn’t eliminate the burdens created by the standard interpretation of federal supremacy.

In general, federal preemption of stricter state laws is no less consistent with the principles of federalism than federal pre-emption of more lenient state laws. One could even argue that the best way to apply federal supremacy depends on the issue, so there is some symmetry in Reynolds’ proposal. In terms of representative democracy, it is less an evil than federal preemption of less restrictive laws. It does what a democratic republic is supposed to do: protect minorities from the tyranny of a majority.

Secession from states is an intriguing possibility. Perhaps it is even the best approach in some cases. Nevertheless, Reynolds’ suggestions for revising federal and state regulatory approaches would be less costly and would avoid a nationwide race to subdivide states in order to gain a federal political advantage.

A Voluntary Redistribution of Sex

11 Friday May 2018

Posted by in Free markets, Prohibition, Redistribution, Uncategorized

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“Incels” have received plenty of bad publicity since the horrifying van attack in Toronto two weeks ago. It was preceded in 2014 by a killing rampage in California perpetrated by an individual with a similar profile. In case you haven’t heard, an incel is an involuntary celibate, either male or female, though male incels have garnered nearly all of the recent attention. Whatever their other characteristics, incels share a loneliness and an unmet desire for intimacy with other human beings.

Lux Alptraum shares her views about the differences between male and female incels. She blames “angry, straight men” and “toxic masculinity” for both the violence that’s recently come to be associated with incels and the relative inattention paid to the plight of female incels. I value her perspective on the issue of female incels. There are obviously extreme misogynists among males in the incel “community”. Some are so enraged by their plight that they engage in on-line bullying, and a plainly deranged segment of incels, including the perpetrators of the crimes mentioned above, have advocated violent retribution against those they deem responsible for their low sexual status. That means just about anyone who can find a partner.

Alptraum paints male incels with a very broad brush, however. Similarly, various leftist writers have categorized incels as predominantly “right wing” and even racist, but involuntary celibacy and misogyny do not lie conveniently along a two-dimensional political spectrum. Incels are present in many groups, crossing racial, religious, and political lines. There are incels among the transgendered and undoubtedly in the gay community. Gay individuals can exist in relative isolation in towns across America. Physical disabilities may condemn individuals to involuntary celibacy. And not all incels are “ugly”; instead, they may suffer from severe social awkwardness. But there are bound to be incels who live quiet lives, unhappy, but adjusted to their circumstances, more or less.

The recent focus on incels has prompted some interesting questions. Ross Douthat’s opinion piece in The New York Times asks whether anyone has a “right to sex”, as some incels have asserted. Robin Hanson discusses the idea of a “redistribution of sex“, noting in a follow-up post that governments throughout history have influenced the distribution of sex through policies enforcing monogamy, for example, or banning prostitution. Voluntary agreements to exchange sex for remuneration are one way to alter the distribution. In fact, to demonstrate the lengths to which a government could go to redistribute sex and intervene against “sex inequality”, Hanson mentions policies of cash redistribution, funded by taxpayers, to compensate incels for the services of prostitutes. There are examples of such benefits for the disabled. Here is Alex Tabarrok on that subject:

“In the UK charities exist to help match sex workers with the disabled. Similar services are available in Denmark and in the Netherlands and in those countries (limited) taxpayer funds can be used to pay for sexual disability services.”

Subsidies and charity aside, it’s easy to understand why prohibition of sexual services for hire would be seen as an injustice by those unable to find partners willing to grant sexual benefits. From a libertarian perspective, trade in sex should be regarded as a natural right, like the freedom to engage in any other mutually beneficial transaction, so long as it does no harm to third parties. One’s body is one’s own property, and it should not be for government — or others — to decide how it will be used.

Laws against prostitution do great harm to society and to the individuals involved in the sex business. Forget about ending prostitution. That will never happen. According to  Abigail Hall, there are about 1 million prostitutes working in the U.S. They almost all work underground, with the exception of those operating in legal brothels in Nevada. Prohibition keeps the price up, but the workers capture a low share of those returns. Their bosses are harsh masters relative to those in legal businesses. These workers cannot report crimes against them, so they are often subject to the worst kinds of abuse. Illegality usually means they don’t have access to good health care, which places customers at greater risk. Legalizing (or decriminalizing) prostitution would reduce or eliminate these problems. From Hall:

“By legalizing the sex trade, we would allow those involved in the sex trade to come out from the shadows, use legitimate business practices and legal channels, and decrease the likelihood that women will be trafficked by violent groups of criminals. … As prostitution becomes a legitimate profession, it allows for prostitutes to be more open with their doctors about their sexual history and seek treatment for STIs and other problems.”

Many object that prostitution exploits women, legal or not, and that it exploits low-income women disproportionately. But there will be voluntary sellers as long as there is a market, again, legal or not. And there will be a market. As for a disparate impact on the poor, Hall says:

“The fact that those who select prostitution as a profession may be poor is inconsequential…. It may be true that some women who work as prostitutes would strongly prefer another profession. Even if this is the case, women who voluntarily choose prostitution as a means of income should be allowed to practice their profession in the safest environment possible.”

The ongoing development of “sex robots” offers an avenue through which incels might enjoy activity that approximates sex with a human being. These robots are becoming increasingly realistic, and their costs are likely to decline dramatically in coming years. For incels with a congenital inability to interact with other human beings, this option might be far preferable to hiring the services of a prostitute. And the introduction of both male and female sex robots into senior care facilities might reduce the likelihood that sexually aggressive residents will abuse others. It happens.

Free markets are amazing in their ability to maximize the well being of both consumers and producers of a good or service. Trades are mutually beneficial and therefore are voluntary, and price signals redirect resources to their most valued uses. The prohibition on prostitution, however, has made it a very dangerous business for practitioners and customers alike. Prohibition has led to dominance by organized crime interests and local strong-men and -women. It has also thickened the intersection of prostitution with other prohibited activities, such as the drug trade. This creates a toxic criminal environment within which women are trapped and abused. Legalizing prostitution would liberate these individuals and create safer conditions for them and their customers. Private solutions would still be available to those who wish to keep prostitution out of their buildings or neighborhoods. And legalization is one way that sex could be made safely and voluntarily accessible to incels. Perhaps, one day soon, the availability of sex robots will help incels satisfy their desires as well. Some incels will still harbor strong resentment toward those for whom sex is not out of reach. Nevertheless, it is reasonable to ask whether such a “voluntary redistribution of sex” would not produce unambiguous social benefits. To deny these benefits to groups like the disabled, or really to anyone with a physical or emotional inability to find a willing partner, and to insist that sex workers be exposed to danger and abuse, is not just priggish, but cruel.

Don’t Cry for the Former Taxi Monopoly

23 Friday Mar 2018

Posted by in competition, monopoly, Technology, Uncategorized

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It would be odd to argue that innovation is not unequivocally positive, that its costs will exceed its benefits. Certainly there are downsides: human capital invested in the methods and technologies supplanted by an innovation is devalued, jobs may be lost, retraining becomes necessary, and even consumers must get used to new ways of doing things, which is not costless. But most of these costs are temporary. And when an innovation eliminates an incumbent’s monopoly, the former monopolist’s profit ends up back in the pockets of consumers.

People do seem to focus excessively on the downside of innovation without carefully tallying the benefits. For example, this article focuses on the loss of New York City taxi pickups since ride sharing services like Uber and Lyft began to have an impact in 2014. Mark Perry reproduces a chart from that article, which is featured above. The number of monthly taxi rides in NYC has fallen by about one-third since then, from an average of 13+ million to about 9 million in 2017. In fact, Perry reports that the market for taxi medallions has tanked since then as well, with plunging medallion prices and many medallions sold out of bankruptcy and foreclosure. But don’t be too quick to shed tears for a monopoly lost.

The same chart shows the massive upside to ride sharing, as discussed here by Warren Meyer. The size of the total market has nearly doubled, from about 13 million per month to roughly 24 million (adding the two lines together). And it was a quick transition! That’s what happens when real competition is introduced to a market: prices fall and quantity increases, with an attendant increase in the welfare of consumers. That increase always exceeds the loss suffered by the former monopolist or cartel (as the case may be), which was earning excessive profits at the expense of consumers before the innovation had a market impact. And many former taxi drivers have made the switch to ride sharing providers, and they seem to prefer it for the flexibility and autonomy it offers. Yes, the best innovations benefit workers as well as consumers.

Competition can bloom when government opens markets to competitors or when an innovation creates new alternatives for consumers. In the case of ride sharing, both were necessary. For many years, NYC restricted the supply of taxi medallions, which kept taxi fares artificially high. The formal approval of ride sharing services in the city was not uncontested. But once it was approved, consumers took advantage of superior dispatching and payment technologies enabled by their smart phones, as well as security features and rating systems, not to mention lower fares. Again, these developments have contributed massively to consumer well-being, which is ultimately the point of all economic activity. Traditional taxis have to try to keep up. The ride sharing industry has inflicted the kind of creative destruction for which consumers are quite grateful.