Corporate Lapdogs of the Left

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Now don’t get me wrong, I definitely prefer to see private goods and services produced privately, not publicly. Private ownership of the means of production makes the world a better place because ownership and self-interest drive performance and value, to put it all too briefly. But corporate America is now so thoroughly encumbered by ideological distractions that it compromises the mission of creating value, risking shareholder returns and invested capital as well. Having spent the past 31 years employed successively by three gigantic corporate hairballs (with a 2-year stint at the central bank), the following thesis about corporate CEOs, and corporate America by extension, strikes me as wholly accurate:

CEOs … mostly [reject] the ethos of rugged individualism in favor of a more collectivist view of the world. The capitalists [are] not much interested in defending the culture of capitalism. … the psychological and operational mechanics of large corporations [are] much like those of other large organizations, including government agencies … American CEOs [believe] that expertise deployed through bureaucracy [can] impose rationality on such unruly social entities as free markets, culture, family, and sexuality. The supplanting of spontaneous order with political discipline is the essence of progressivism….

I changed the tenses used above by Kevin Williamson, who attempts to explain why American corporations became such progressive activists. The beginning of the quote describes interviews conducted by William H. Whyte in the 1950s, but it’s as true now as it was then, and probably much more so. The technocratic view of organizational efficacy may be true up to a point. In fact, there is undoubtedly an optimal size for any organization that is dependent upon it’s mission, the technologies at its disposal, and the range of prices it is likely to face in input and output markets. It’s all too easy for a successful firm to expand beyond that point, however, as many now-defunct businesses have learned the hard way. However, the quote merely highlights the sympathetic view often held by corporate managements toward the notion of a planned society, guided by a class of technocrats. They share this scientistic line of thinking with the statist left, though the corporatist vision is a world in which their private organizations play a critical role, with risks mitigated by “partners” in government.

Private incentives can produce wonderful results, but they are corrupted by the scent of private advantage that can be gained via government intervention in markets. The corporate practice of seeking rents through legislative and administrative action has been going on since at least the 1880s, when railroads sought protection from competition and other shipping interests via federal regulatory action.The symbiosis between government and corporate interests, or corporatism, has been growing ever since. Whether it is lucrative contract awards, subsidies, or favorable regulation, government has lots of goodies at its disposal by virtue of its exclusive ability to exert coercive power. This quote of David Cay Johnston describes the end-product of corporate rent-seeking behavior:

Corporate socialism is where we socialize losses and privatize gains. Companies that have failed in the marketplace stick the taxpayers with their losses, but when they make money they get to keep it, and secondly, huge amounts of capital are given to companies by taxpayers.”

Risk mitigation is at the heart of a second variety of corporate leftism, and Williamson notes the asymmetry in the political risks faced by most corporations:

Conservatives may roll their eyes a little bit at promises to build windmills so efficient that we’ll cease needing coal and oil, but progressives (at least a fair portion of them) believe that using fossil fuels may very well end human civilization. The nation’s F-150 drivers are not going to organize a march on Chevron’s headquarters if it puts a billion bucks into biofuels, but the nation’s Subaru drivers might very well do so if it doesn’t. … The same asymmetry characterizes the so-called social issues.

At this point, Williamson goes on to describe a few social issues on which corporate leaders are frequently harangued by the left. Those leaders may view conservative positions on those issues as aberrant, according to Williamson, because the leaders inhabit an insulated world of elitist, media-driven, politically-correct opinion. They wish to be seen as “progressive” and discount the risk of offending conservatives. While I do not take Williamson’s side on all of the social issues he mentions, I concede that there is some truth to the asymmetry he describes.

An avenue through which corporate America is strongly influenced by the left is identity politics. This is partly an unfortunate side-effect of civil rights legislation and other anti-discrimination law, but in today’s litigious environment, there are excessive legal risks against which corporations must take precautions. This is embedded in human resource policies to the point at which hiring the best individual to fill a role is subject to a series of costly, time-consuming hurdles, and is sometimes impossible. Then, there are the mandatory “Diversity and Inclusion” courses that all employees are required to complete. These overbearing attempts to “educate” the work force consume valuable staff time and are of questionable value in light of the aggravation and resentment they inspire in employees. Finally, I can’t keep count of all the corporate-sponsored activities devoted to celebrating one identity group after another. Can we please get back to work?

Today, as a consumer, it is becoming more difficult to engage in commerce without exposure to a seller’s political positioning. For example, I buy about 90% of my clothing from a particular clothier, but last weekend I learned that the company had taken an objectionable position (to me) in the debate over gun legislation. I am certain that activists badgered the company, and it succumbed, and so I will change my shopping habits. People often find that it’s easier to engage in arms-length transactions when the other party stays off the soapbox. But it goes further than that. Here is Williamson:

Whereas the ancient corporate practice was to decline to take a public position on anything not related to their businesses, contemporary CEOs feel obliged to act as public intellectuals as well as business managers.

Well, “ancient” might take it a bit too far, but as a customer, employee, and especially as a shareholder, I would urge any company to steer clear of political posturing. Do not dilute your mission of delivering value to customers, which dovetails with serving the interests of shareholders. You must pursue that mission in a way that you consider responsible and ethical, which just might narrow the scope of the mission. And that’s okay. Just be as neutral as possible on extraneous issues as you reach out to potential customers, and do not respond to politically-motivated threats except in the most diplomatic terms.

Should I bother to say that corporations should eschew public subsidies? That they should respond to competition by improving value, rather than lobbying for advantages and protection from lawmakers or regulators? That they should not badger their employees to give to their company’s Political Action Committee (PAC)?

I must be fantasizing! Corporations would never follow that advice, not as long as they can capture rents through the seductive expedient of big government. If that were the only reason for the hate reserved by leftists for corporate America, I’d be right with them. But in fact, leftist rhetoric condemns the profit motive generally, both in principle and as a method of scapegoating for any social ill. Williamson marvels at the incredible irony of the corporate enterprise-cum-lapdog of the Left, which is especially palpable as the Left beats the dog so unrelentingly.

March of the Benighted Pawns

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I’ll say one thing for the high schoolers participating in the March For Our Lives political front: they are no more ignorant about guns and the Constitution than their anti-gun, adult counterparts. These naive kids are learning the charms of virtue signaling, newly imbued with so much superstition, misconception, misplaced blame, and inflated self-regard that you’d be hard-pressed to engage most of them in reasoned discussion. But I reserve my highest disdain for adults who shake their fingers and say, “How dare you speak critically of these poor kids, who survived the tragedy that took place at their very own school.” Indeed, some of the Parkland students saw the mayhem with their own eyes. but that admonition is a sham show of indignance designed to squelch legitimate debate. The debate would be unnecessary if not for the anti-gun lobby’s opportunistic exploitation of children befallen by tragedy.

First, as I noted recently on SacredCowChips, the supposed escalation in mass shootings at schools is a myth. Northeastern University provides this summary of the research quoted in my post, including the chart on the long-term decline in school shootings shown above. In light of these statistics, the lead researcher, James Alan Fox, believes that most school security measures are counter-productive, including proposals to arm teachers. I do not fully agree, but be that as it may, it is astonishing that the media and large swaths of the public have accepted as fact the myth of a school shooting epidemic.

The ignorance of would-be gun controllers about guns themselves is legendary. Few of them can actually define an “assault weapon” yet are convinced that they must be banned. The cosmetic addition of certain features to a standard semi-automatic rifle apparently makes these guns too “scary”. And there is little understanding that standard rifles sold today, which fire one shot at a time, are semi-automatic weapons! Rifles, by the way, are involved in only a small fraction of gun homicides, so the focus on “assault weapons” is misplaced. Given this level of ignorance, it’s all too easy to dismiss the gun control crowd as unworthy of a real debate over gun regulation.

Of course, the crux of the debate revolves around constitutional rights. While many of those in favor of stricter gun regulation disavow any desire to repeal the Second Amendment or to actually confiscate guns, there is a significant contingent among them harboring that as an end-goal. Their ideal is politically laughable because it would never get a two-thirds vote of each house of Congress, let alone ratification by 3/4 of the states.

The Second Amendment is described by its foes as outdated and dangerous. I submit, however, that the right to defend oneself against predators, human or otherwise, is a natural right and not subject to obsolescence. The Second Amendment was also intended as protection against tyranny by government, and it serves as protection against a tyranny of any majority or rogue minority. Gun-rights critics argue that the founders of our country did not anticipate the powerful weapons available today, and that they would never have intended citizens to be armed with them. The claim is dubious because the founders certainly would have believed that citizens should have the freedom to arm themselves at least in proportion to the arms used by potential predators (please forgive the use of the term “assault weapons” at the link).

Frankly, I do not expect government tanks to roll down my street on a mission to confiscate guns. Instead, the first step would be a strongly-suggested voluntary sacrifice of weapons. Later, perhaps actual confiscations would be attempted via small detachments of authorities or perhaps by marauding, black-shirted proxies. But confiscations won’t happen as long as a serious threat of reprisal exists, with reasonably powerful weapons, and that is a credit to the Second Amendment.

There are serious misconceptions (not to mention plentiful media propaganda) about the likelihood that stricter gun laws can reduce gun homicides, or that they could have prevented the mass shooting tragedies that have occurred. Some of those shootings are better viewed as failures of law enforcement — examples are the lack of official follow-up on prior tips about the shooter in Parkland, FL, the failure of the school’s resource officer to engage the shooter, the failure of the FBI to detain a shooter prior to an attack at the Pulse nightclub in Orlando, and in still other cases, the failure of background checks to identify individuals as ineligible to purchase guns. There is little doubt that proper enforcement of existing law and protocol would have prevented a number of mass shootings. The focus should be on improving the existing system before expecting responsible citizens to happily consent to further erosion of their natural and constitutional rights.

Strict gun regulation would certainly infringe on liberty, leaving private citizens defenseless in exchange for tenuous assertions of social benefits. Defensive gun uses (DGUs) are thought to far outstrip gun homicides (seven posts touching on that subject are at this link). If guns could be effectively outlawed in the U.S., other instruments of homicide would replace guns because so much killing is driven by the drug war, gang activity, and other social dysfunctions. The same is true of suicides. If you recognize the futility of the war on drugs, you shouldn’t expect much success from a war on guns. Criminals will acquire guns whether they are illegal or not, so the ability to defend oneself with equal force is critical. There is a lively debate over the empirical research on the efficacy of stricter gun laws, but it’s always good to be skeptical when it comes to government prohibitions. Control advocates often cite Australia as an example of successful firearms control, but the country’s gun ban and buy-back program was ineffective in reducing gun homicides (also see here).

Finally, it’s appalling to see the depths to which certain radical enemies of gun ownership will sink in attempting to cast blame on their opponents for mass shootings. In fact, they have blamed not just the NRA, but all gun owners for the Parkland shooting and gun homicides generally. But the NRA represents responsible, law-abiding gun owners and promotes safe and responsible gun use. Roughly 47% of adults in the U.S. have guns in their homes, and they own guns for self-defense or sporting purposes. Attempts to shame them into supporting curtailments on their liberties is obnoxious and rather foolish because it is so unlikely to be fruitful approach. Successful codification always hinges on consensus, which just doesn’t exist with respect to gun law in the U.S.

The media have fawned over the students who have participated in the March For Our Lives campaign. The childrens’ ignorance of constitutional principles, and guns of course, is noteworthy, but their exploitation by powerful political and economic forces is pathetic. The significance of their numbers has been exaggerated as well: reports show the crowd size at the march in Washington, DC was about a quarter of what the organizers claimed. And the anti-gun students have failed to convince many of their peers, according to a poll conducted by USA Today/Ipsos. Perhaps as the spotlight fades, more of these student protestors will have occasion to study the U.S. Constitution and the natural rights it protects against government overreach. No matter how the kids feel now, I’m certain that many of them will be responsible gun owners someday.

Sea Level Measurement and Perspective

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The measurement of sea level change is much more complicated than most people realize. In fact, the reported changes that alarm so many are minuscule relative to the uncertainties caused by these measurement difficulties. First, consider the easy part: If you drive a stake into the ground at the shore at high tide one day, your task of measuring sea level change will be complicated by the changing day-to-day tides. Those changes will force you to calculate average readings off of your stake over complete lunar cycles (and even that isn’t quite right, since the gravitational pull of the sun matters as well, and the moon’s distance from earth fluctuates). Or, you can make comparisons only between readings one lunar cycle apart.

Once the local reference point is established at the shore and the tides are controlled for, there are two kinds of changes that cause the sea to rise or fall relative to the “zero” point on your stake. The sea water can rise or fall, of course, but the land itself might do so as well! Settling or upwelling at the land surface can be caused by a variety of geological phenomena. “Vertical land motion”, up or down, occurs almost everywhere. That means sea level is a relative concept. In addition, over time the placement of on-shore sea-level gauges often change with harbor and ship channel alterations, and even accidents. These all require adjustments in order to make valid comparisons across time. That’s to say nothing of variations in air pressure and water currents, which certainly affect on-shore readings. Today, sea levels are also measured by satellite, but that doesn’t make sea level measurement simpler by any means, as you’ll see below.

Kip Hansen discusses the vagaries of sea level measurement in an excellent post. If it isn’t already obvious, changes in readings from a single tide level gauge do not show the rate at which the absolute sea level is changing over time. It shows only the local net effect of the absolute sea level change and the land movement. But Hansen emphasizes an implication about which few are aware: a comparison of relative sea level changes in two different locales shows only the difference in “vertical land motion” between the two sites (at least as a first approximation).

Hansen notes a major discrepancy between the absolute sea level changes reported by NOAA (1.7 mm per year) and NASA (3.0 mm per year). These figures are estimated by satellite readings, which have extremely poor resolution (measured in cm, not mm) compared to tidal gauges. This quote from Hansen in the comments section is revealing (emphasis added):

Satellite Altimetry — when reporting sea level rise — is not a measurement, but a complex calculation with a dozen or so ‘corrections’ and ‘adjustments’ for confounding factors, all of which are of greater magnitude than the change in sea surface height being sought. Many of these confounders are orders of magnitude greater. Some additions, such the famed GIA adjustment, are acknowledged not to appear in the physical sea surface height at all, but are added on the basis that ‘the sea would have risen the 0.3 mm/yr if the ocean basins hadn’t expanded. There is no scientific justification for the difference. In this essay, I point out that NOAA has stuck to its scientitic guns and not gone along with the NASA figure.

There are statements on NOAA’s web site that seem to endorse the NASA estimate, but Hansen discounts those references. He advises that there is a big difference between the NOAA science community and its marketing staff, which undoubtedly dominates the content viewed by the public on the site.

There are many other factors that play havoc with sea level estimates, some of which are intractable. One issue, which comes up in the comments to Hansen’s article, has to do with sedimentation and its displacement of sea water. While its effect spreads out across the entire ocean, Hansen stops short of calling it a contributor to absolute sea level rise, though that would be the implication in terms of measurement.

Alarm over rising sea levels is based partly on the focus of local media on relative sea level changes. That may well be an important local issue, whether the land is settling or the absolute sea level is rising (though the two may have different local policy implications). But local concerns about relative sea level are often translated into global concerns that confuse relative with absolute sea levels. This makes excellent fodder for the propaganda of the leftist climate change movement. That propaganda is so effective that it sometimes feeds back to foment local concern, even in areas experiencing reductions in relative sea level! These concerns fly in the face of local experience as well as the absolute rates of change estimated by NOAA.

I’ll close with the following comment taken from an earlier post on SacredCowChips:

The prospect of rising sea levels is another matter that concerns alarmists, who always fail to note that sea levels have been increasing for a very long time, well before carbon concentrations could have had any impact. In fact, the sea level increases in the past few centuries are a rebound from lows during the Little Ice Age…. But even those fluctuations look minor by comparison to the increases in sea levels that occurred over 8,000 years ago.

Don’t Cry for the Former Taxi Monopoly

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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.

Francis, Papal Perónista, Courts Redistributional Mirage

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Is world poverty really increasing? Actually, no, quite the opposite, and you can blame economic liberalism, capitalism, and free markets for that. Yet we hear exactly the contrary from Pope Francis who, despite his evident compassion, has an amazingly poor understanding of economics. He misstates basic facts, offers dimly reasoned analyses of human rights, and promotes ill-considered policies. Now that the Vatican is set to release the Pope’s first feature film, no doubt a stirring piece of social justice propaganda, it seems as good a time as any to review the confounded state of Francis’ economic reasoning. This is not the first time I’ve discussed the Pope’s policy views: this link contains three previous posts from SacredCowChips on which Francis was tagged.

The False Narrative

My inspiration for this post comes from Robert P. Murphy, whose recent commentary on Francis’ pronouncements is trenchant. Murphy covers this speech written by Francis for the World Economic Forum, but delivered by a Vatican proxy, in which the Pope asserts the following:

… governments must confront … the growth of unemployment, the increase in various forms of poverty, the widening of the socio-economic gap and new forms of slavery, often rooted in situations of conflict, migration and various social problems.

Francis refers to increasing unemployment and poverty, and I could let that phrase pass if he was referring to certain nations or locales that have experienced chronically depressed economic growth. But Francis’ description is rather general, as evidenced by his diagnosis of causes. More on that below. Regarding his statement about trends in poverty, he is flatly incorrect. Here is Murphy:

As the World Bank reports, the global “extreme poverty” rate in 1990 was cut in half by 2010. Back in 1990, 1.85 billion people lived on less than $1.90 per day, but by 2013, the figure had dropped to 767 million such people—meaning that more than a billion people had been lifted out of crushing poverty.

After the Great Recession, world unemployment decreased from 2009-2015, according to the World Bank, though it is estimated to have crept up slightly in 2016-17. Again, the Pope’s woeful tale of growing unemployment and increasing poverty is nonsense.

But the world is a difficult place. In the underdeveloped world, the range and quality of goods available is extremely limited, and $1.90 represents bare subsistence, yet it’s a condition that exceeds the historical norm in many places. Movement above that threshold can represent a meaningful improvement in economic well-being.

Francis may lack an appreciation for the general enrichment in material conditions that has been taking place over the last two centuries, which is ongoing, or perhaps he believes that even greater achievements are easily within reach but for certain injustices, though he offers no qualifications. Perhaps he is mistakenly generalizing specific instances of exploitation in the underdeveloped world, which often occur with the explicit blessing of the state apparatus in exchange for kickbacks.

Rights and Markets

Even more egregious is the Pope’s presumption that private markets are at fault for any stagnation that he has identified. A notable difference between countries with successful, growing economies and those mired in stagnation is the degree to which their citizens enjoy freedoms, especially economic freedom. That is a well-established empirical fact, as Murphy explains. But the Pontiff goes further with preposterous dogma on the meaning of human rights. Again, from Murphy:

“Although inspired by concern for the poor and the marginalized, the Vatican’s message is seriously flawed…. On a conceptual level, Pope Francis posits a false dichotomy between economic freedom and human rights. … ‘Economic freedom must not prevail over the practical freedom of man and over his rights, and the market must not be absolute, but honour the exigencies of justice.’ 

What does the concept of “economic freedom” entail? It means freedom to work in any occupation of one’s choice, without permission from the government, and certainly without being conscripted into service against one’s will. It means the freedom to start a business. It means the freedom to keep what you have produced, without having your assets seized by a rapacious regime. It means the freedom to trade with people who live in another country. It means the rule of law, where contracts are interpreted fairly and government officials can’t exercise arbitrary power.

Economic freedom, more than anything else, means that individuals are endowed with property rights. To deny such rights is to banish any reward for work and differential rewards for work well done. If free individuals are rewarded, it is a matter of their own discretion as to whether they immediately consume the reward or save it in order to accumulate wealth. Yet Francis takes the misanthropic and childish view that economic freedom, private property and markets imply exploitation. He lacks a basic understanding of the revolutionary power of markets as a form of social organization.

Within just a few hundred years, a small fraction of the many millennia during which mankind was mired in poverty and pestilence, markets have dramatically transformed the existence of most human populations. Peaceful, arms length transactions made in mutual self-interest exploit only one thing: gains from trade that would otherwise be wasted. And only a form of social organization that enables those gains can dovetail with the human rights and justice that Francis so strongly desires. The denial of economic freedom, property rights, and self-interest prohibits those gains, however, denying humanity of the wealth necessary to achieve anything like justice.

Pope Francis is a redistributionist, and that goes well beyond the charitable giving, good works and service performed voluntarily by individuals. In fact, he is a statist, advocating an economic system in which property rights are abrogated, wholly or in part, and wages above a politically determined threshold are confiscated.

The Pope and Perón

Francis is often described as a “Perónist”, after Juan Perón of Argentina, the so-called “right-wing socialist” (and sometime associate of the murderous Che Guevara). Anyone familiar with the economic history of Argentina should know that’s not praise. Here is Maureen Mullarkey from the last link:

“Both Juan and Eva understood the enchantments of populism. A charismatic pair, they ruled more by dint of personality—personalismo—than democratic procedure. Ushers of an ‘option for the poor,’ they glorified the lower classes and denigrated the wealthy. (This, while they amassed a huge personal fortune from the Eva Perón Welfare Foundation.) …

When Francis speaks of ‘the people’ as a revolutionary vanguard that ‘overflows the logical procedures of formal democracy,’ he is lapsing toward that ecstatic Peronist vision of a Third Way—justicialismo. That the disposition and design of it ended in economic collapse and misery is nothing against the splendor of the mystique.

In his youth, Francis absorbed the myth but not its lessons. Chief among them is how much Argentina’s fiscal catastrophe owed to an extravagant welfare system that favored enforced wealth redistribution over development. Among the many factors of Argentina’s historic economic crisis, one cries for attention: Perón’s increasing reliance on redistributing income, not only between industries and occupations but between skilled and unskilled workers.

For further perspective on Francis, Perónism, and the disastrous Argentine “experiment”, see this piece by Daniel J. Mitchell.

For many years, naive Marxists have accepted the myth that central economic planners could and would direct productive and distributional activities with foresight, efficiency, and integrity. None of those is possible. The only form of social organization capable of registering and processing the myriad and dynamic signals on preferences and scarcity is free market capitalism. It is the only system capable of spontaneously harnessing appropriate responses based on the complex incentives faced by consumers and producers, and all at a minimal administrative cost for society, free of the government intervention that typifies the Peronist welfare state and corporatism.

Conclusion

Pope Francis should know better than to make claims having no empirical support. He should also have the wisdom to understand and advocate for the empowering nature of private property rights and markets. Elevating the human condition is possible only by allowing people to be free — economically free — and endowed with opportunities to earn private rewards and build wealth. Francis should realize that the massive private gains afforded by the market mechanism enable rewards which spill over, inuring to the benefit of parties external to a given exchange. On the other hand, state domination and control of economic activity gives over decision-making to selfish and ill-informed public commandants, who are all too pleased to grant special advantages to those in a position to return private favors. Such graft and mismanagement of resources comes at the expense of others. That way lies decay and a return to the much more brutal conditions of the past, unlike the mutually beneficial promise of market exchange.

Bankers, Risk and the Rents of Slippery Skin

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Risk taking is important to the economic success of a nation. Creative energy demands it, and it is critical to achieving economic growth and wealth creation. But it’s obviously possible to take too much risk or risks that are ill-considered, and that is all the more likely when risk-takers are absolved of the consequences of their actions. That is, healthy risk-taking and responsibility are inextricably linked. One can’t truly be said to take a risk if the cost of failure is borne by another party. It’s easy to understand why risk-taking becomes excessive or misdirected when that is the case.

Risk Shifting

There are various ways in which a party can parlay risky undertakings into easy gains by shifting the risks to others. For example, any piece of merchandise comes with the risk that it will not perform as advertised. Some traders might be tempted to sell unreliable merchandise and shift risk to the buyer without recourse. This is an area in which we must rely on a bulwark of private governance: caveat emptor. On the other hand, government tends to subsidize risk-taking in various ways: limited liability under the corporate form of business organization, bank deposit insurance, bankruptcy laws, the implicit government guarantee on mortgage assets, and the “too-big-to-fail” mentality of government bailouts.

Whose Skin In the Game?

These are examples of what Nassim Taleb bemoans as the failure to have “skin in the game”. The quoted expression happens to be the title of his new book. I have both praised and castigated Taleb’s work in the past. He made an interesting contribution about the nature and risk of extreme events in his book “Black Swan”, such as his application of so-called “fat tails” in probability distributions, though some have claimed the ideas were anything but original. I was highly critical of Taleb’s alarmist hyperbole on the effects of GMOs. In the present case, however, he considers “the asymmetry of risk bearing” to be a major social problem, and I’m generally in agreement with the point. The most interesting part of the brief discussion at the link is the following:

In Taleb’s universe, the fieriest circle of hell is reserved for bankers and neoconservatives. ‘The best thing that could happen to society is the bankruptcy of Goldman Sachs,’ he tells me. ‘Banking is rent-seeking of industrial proportions.’ Taleb, who became rich as a derivatives trader, is not a foe of capitalism but of ‘cronyism’. ‘If you’re taking risks, God bless you. This is why I accept inequality. I’ve seen people go from trader to cab driver and back again.’

Banks are a prominent example of the risk-shifting phenomenon. First of all, banking institutions are not required to hold much capital against their assets. In fact, recently banks have had average equity of less than 6% of assets. That’s much higher than during the financial crisis of ten years ago, but it is still rather thin and hardly represents much “skin in the game”.

Fractional Reserves

It should come as no surprise that a bank’s assets are funded largely by account balances held by depositors (liabilities), and not by equity capital. But your bank balance is not kept as cash in the vault. Instead, it is loaned out to the bank’s credit clients or used to purchase securities. This is facilitated by “fractional reserve banking”, whereby banks need only keep a fraction of their depositors’ money on hand as cash (or in their own reserve deposit accounts with the Federal Reserve). This generally works well on a day-to-day basis because depositors seldom ask to redeem more than a small fraction of their money on a given day.

Reserve requirements are set by the Federal Reserve and range from 0-10%, depending on the size of a banks’ deposit account balances. At the upper figure, a dollar of new cash deposits would allow a bank to extend new loans of up to $0.90. This legal practice divides many in the economics profession. Some believe it represents fraud rather than sound banking. This article by Frank Hollenbeck at the Mises Canada web site states that it is improper for a bank to lend a depositor’s money to others:

“Suppose you lived in the 18th century and had 100 ounces of gold. Its heavy and you do not live in a safe neighborhood, so you decide to bring it to a goldsmith for safekeeping. In exchange for this gold, the goldsmith gives you ten tickets where eachis clearly marked as claims against 10 ounces. …

… Quickly the goldsmith realizes there is an easy, fraudulent, way to get rich: just lend out the gold to someone else by creating another 10 tickets. Since the tickets are rarelyredeemed, the goldsmith figures he can run this scam for a very long time. Of course, it is not his gold, but since it is in his vault, he can act as though it is his money to use. This is fractional reserve banking with a voluntary reserve requirement of 50%. Today, modern US banks have a reserve requirement of between 0% and 10%. This is also how the banking systemcan create money out of thin air, or basically counterfeit money, and steal the purchasing power from others without actually having to produce real goods and services.”

Another aspect of the argument against fractional reserves is that it creates economic instability, fueling booms and busts as the quantity of money in circulation sometimes exceeds or falls short of the needs of the public. Many authorities have taken a negative view of fractional reserve banking through the years: Irving Fisher, Milton Friedman, John Cochrane, Ralph Musgrave, and Laurence Kotlikoff, to name a few prominent economists (see this recent paper by Musgrave).

In Defense of Fractional Reserves

Others have defended fractional reserves as a practice that has and would again arise in a free market environment. According to this view, depositors would accept the logic of allowing banks to lend a portion of the funds in their accounts in order to generate income, rather than charging larger fees for “storage” and administration. If the depositing public is aware of the risk and has competing choices among banks, then the argument that banks expose depositors to excessive risk via fractional reserves is moot. Fractional reserves can exist in a private money economy in which competitive pressures reward banks (and their privately circulating notes) having sound lending practices. In fact, some would say that the very idea of a 100% reserve requirement is an unacceptable government intrusion into the private relationship between banks and their customers. All of that is true.

Some have compared fractional reserve banking to the sale of insurance. Consumers buy insurance to take advantage of pooled risk, but they have no expectation of a refund unless they incur the kind of insured loss in question. Bank depositors, on the other hand, expect a return of their funds in-full. Yes, low risk is an attribute they desire, and pooling across the withdrawal needs of many depositors is one reason why banks can invest and pass a part of the return on to depositors, both in interest and reduced fees. So, despite the differing needs and expectations of their customers, there is some validity to the comparison of insurers to fractional-reserve bankers.

Amplification of Shifted Risks

Do fractional reserves allow banks to take risks without having skin in the game? Absolutely! With as little as 6% equity at risk, banks have relatively little to lose relative to depositors. Yes, banks pay the FDIC to insure deposits, and premiums are higher for riskier banks. However, not all deposits are insured by the FDIC. More importantly, at the end of 2017, the entire FDIC deposit insurance fund was about 0.7% of commercial bank assets. One big bank failure would wipe it out, or a few hundred small ones. That’s well within the realm of possibility and historical experience. So, where does that leave depositors? Their skin is very much in the game, and the game is about the risks taken by banks in investing depositors’ funds.

We now live in the era of “too-big-to-fail” (TBTF), whereby large banks (and sometimes industrial firms) are viewed as so “systemically important” that they cannot be allowed to fail. Taxpayers must bail them out in the event they become insolvent. Thus, taxpayers have skin in the game. Banks collect rents to the extent that their returns exceed those commensurate with the risks for which they are actually “on the hook”.

Another avenue through which banks off-load risk is the extent to which Fannie Mae and Freddie Mac are still presumed to have the federal government’s implicit guarantee against default on the mortgage debt they purchase from banks. That is beyond the scope of the present discussion, however. And I have not discussed the role of large investment banks in the capital markets. That’s a whole other dimension of the story. This article by Guatam Mukunda in the Harvard Business Review provides a perspective on rent seeking in investment banking.

Conclusion

The combination of deposit insurance, TBTF and other risk-insulating subsidies, layered on top of a fractional reserve banking system, places banks into Taleb’s “fieriest circle of hell”. These factors blunt bank incentives to manage risk effectively as well as consumer incentives to conduct adequate due diligence in their banking relationships. It means that risk is not priced properly, because banks are likely to ignore risks from which they are shielded. Therefore, banks may allocate resources into excessively risky uses. The consequences for depositors and taxpayers can be dramatic.

Fractional reserves are not “fraud” in the sense that the system has unsuspecting victims. Anyone who has watched “It’s a Wonderful Life” knows that banks lend your deposits to others. But fractional reserves magnify the risk-mitigating privileges conferred upon the banking industry by government through various mechanisms. This “risk-cleansing” is converted to rents and collected by banks for their shareholders, but the risks are still borne by society. To the extent that fractional reserves create instability, deposit insurance is viewed as a necessity, but banks should pay a market premium to an insurer to cover the actual risk inherent in the system. Too-big-to-fail should end, as should the implicit subsidy collected by banks through the government-sponsored enterprises.

The Master Negotiator: I’ll Beat Myself Till You Accept My Terms!

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As if you needed more evidence that governments are incompetent, look no further than trade policy: public officials the world over are almost universally ignorant regarding the effects of international trade and trade imbalances. In this sense, the Trump Administration’s new tariffs on imported steel and aluminum are in keeping with the long history of public sector foibles on trade. This phenomenon stems from an unhealthy and obsessive focus on the well-being of producers without regard to the implications of policy for consumers. Warren Meyer of Coyote Blog offers an evaluation of Chinese trade policy, which he mischievously (I believe) claims was written by a Chinese blogger on a “sister blog” called “Panda Blog“. Despite Meyer’s playfulness, the post is instructive:

Our Chinese government continues to pursue a policy of export promotion, patting itself on the back for its trade surplus in manufactured goods with the United States. The Chinese government does so through a number of avenues, … each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers. A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese. So-called ‘dumping’ represents an even clearer direct subsidy of American consumers over their Chinese counterparts. And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange. Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.

The very idea of a trade deficit is often used to intimate a threat to a nation’s economic health. Conversely, a trade surplus is used to suggest that a nation is achieving great economic success. Both contentions are nonsense. Here is more from “Panda Blog“:

“We at Panda Blog believe it is insane for our Chinese government to continue to chase the chimera of ever-growing foreign exchange and trade surpluses. These achieved nothing lasting for Japan and they will achieve nothing for China. In fact, the only thing that amazes us more than China’s subsidize-Americans strategy is that the Americans seem to complain about it so much. They complain about their trade deficits, which are nothing more than a reflection of their incredible wealth. … They complain about China buying their government bonds, which does nothing more than reduce the costs of their Congress’s insane deficit spending. They even complain about dumping, which is nothing more than a direct subsidy by China of lower prices for American consumers.

And, incredibly, the Americans complain that it is they that run a security risk with their current trade deficit with China! This claim is so crazy, we at Panda Blog have come to the conclusion that it must be the result of a misdirection campaign by CIA-controlled American media. After all, the fact that China exports more to the US than the US does to China means that by definition, more of China’s economic production is dependent on the well-being of the American economy than vice-versa.

By the way, those “quotes” from “Panda Blog” appeared on Coyote Blog 12 years ago!

All nations tend to play these trade games to one extent or another. But protectionist actions always harm a nation’s consumers more than they help producers, a proposition that is easy to demonstrate using a simple supply and demand diagram. While the class of consumers is broader than the class of producers, ultimately “producer” and “consumer” are different roles played by the same individuals. So protectionism is always harmful to a nation, on balance. Furthermore, retaliation against another nation for its dim-witted trade barriers also harms the retaliating nation’s consumers more than it helps its producers, and that’s true regardless of whether retaliation begets reciprocal actions.

Of course, producers are generally in a better position than consumers to grease the political skids in their favor. In a separate post, Meyer notes that protectionist trade policies are rooted in cronyism. The costs to society are very real, but they tend to be diffuse and therefore less obvious to most consumers.

A lot of the media seems to believe the biggest reason they are bad is that they will incite retaliatory tariffs from other countries, which they almost certainly will.  But even if no one retaliated, even if the tariffs were purely unilateral, they would still be bad. In case after case, they are justified as increasing the welfare of a certain number of workers in targeted industries, but they hurt the welfare of perhaps 100x more people who consume or work for companies that consume the targeted products. Prices will rise for everyone and choices will be narrowed.

A couple of points deserve emphasis in relation to my last post on Trump’s tariff action:

  • In terms of jobs, the tariffs announced by President Trump present a very poor risk-reward tradeoff (WSJ article is gated):

The policy point is that Mr. Trump’s tariffs are trying to revive a world of steel production that no longer exists. He is taxing steel-consuming industries that employ 6.5 million and have the potential to grow more jobs to help a declining industry that employs only 140,000.

  • Stephen Mihm discusses ways in which the U.S. steel industry squandered its superiority in the post-World War II era. Much of Mihm’s article is devoted to the industry’s failure to upgrade to new production technologies. Interestingly, however, it fails to mention the damaging role played by unions in the process. “Dumping” had very little to do with it.
  • Finally, Pierre Lemieux takes a closer look at the national security argument for trade barriers. He concludes that it is fallacious. Of course, it is an excuse for cronyism. Protectionism harms the competitiveness of the protected industries, which actually undermines national security. And protectionism is usually unnecessary on close examination. In the case of steel, for example, national defense and homeland security use only about 3% of American steel production. Beyond that simple fact, the argument is dangerously open-ended. Almost anything can be represented as critical to national security: steel, food, clothing, and many other categories. Even human resources.

Today, Trump announced that Canada and Mexico will be exempt from the new tariffs while a renegotiation of the North American Free Trade Agreement (NAFTA) is underway. That’s better, but this carve-out exempts only 25% of U.S. steel imports. Perhaps Australia will be granted an exemption as well, but additional carve-outs will prompt further increases in tariffs on non-exempt imports. Trump also said that U.S. flexibility in applying the new tariffs to allies will depend on their commitments for military spending!

Thus, rather than maintaining the pretense that trade relationships are about economics, the administration has conceded that the tariffs and the exemption process will be transparently political, never a prescription for efficient resource allocation. Moreover, U.S. trading partners are likely to be reluctant to test the politics of modifying their own trade manipulations at home. Indeed, the politics may dictate retaliation, rather than concessions. In any case, the governments of our trading partners are as clueless on trade as Trump, his Commerce Secretary Wilbur Ross, and his economic advisor Peter Navarro, or they would never intervene in private trade decisions to begin with.

Trump Bumbles On Trade With Tariffs

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You can get away with lousy policy by calling it a “negotiating tactic” for only so long. But that dubious ploy is one of the rationales offered last week by the Trump Administration for imposing a 25% tariff on imported steel and a 10% tariff on imported aluminum. Sure, the tariffs are like gifts rendered onto American steel and aluminum producers, their shareholders, and their unionized workers. The tariffs allow them to compete more effectively, without any effort, with foreign steel and aluminum in the domestic market, and the tariffs may also give them leeway to raise prices. The tariffs are also forgiving of degraded performance by domestic producers, since reduced competition relieves pressure for efficiency, a primary social cost of monopoly power.

So who pays for these gifts to the domestic steel and aluminum industries? A tariff, of course, is a tax, and a significant portion of it will be passed along into higher prices of both imported and domestically-produced steel and aluminum. Therefore, the burden of that tax will be borne to a large extent by domestics users, including every domestic industry that uses steel or aluminum as an input, and by consumers who purchase those products. That erodes the job security of many domestic workers outside of the steel and aluminum industries. In fact, the tariffs are unlikely to create more jobs even in the steel and aluminum industries given the negative impact of higher prices on the quantities of those metals demanded.

The desperate story line in support of tariffs also includes the assertion that the U.S. steel and aluminum industries are in such dire straits that they are in danger of vanishing. Statistics on U.S. production hardly suggest that is the case, however. Steel output in the U.S. has been reasonably steady since recovering from the last recession, though it has not achieved its pre-recession level. While aluminum output has been declining, it is hardly in a free fall. The stock prices of major steel and aluminum producers, which are forward-looking, have not demonstrated a particular need for government aid (as if that could ever justify a too-big or too-important-to-fail mentality).

Defenders of the tariffs claim that one effect will include additional direct investment in the U.S. by foreign producers of steel and aluminum, because they can avoid the tariffs by setting up production within our borders. Perhaps a few will, but capital is mobile in other sectors as well. Producers in other industries requiring intensive use of steel or aluminum inputs will now have an incentive to shift production overseas, where the tariffs won’t apply. Attempting to prevent such shifts via import tariffs on final products would quickly become a nightmare of central planning.

Apologists for the tariffs go even further, noting that our new regulatory and tax environment will bring foreign producers to the U.S., essentially making the tariffs irrelevant. If that’s the case, why bother imposing the tariffs at all? And why penalize consumers and industries requiring intensive use of steel or aluminum?

The argument that tariffs provide a stronger position from which to negotiate with foreign “trading partners” (or rather, their governments) is tenuous at best. More likely, the tariffs will prompt retaliation by foreign governments against a range of American products. The very notion that “trade wars are good”, tweeted by President Trump on Friday morning, is as nonsensical as a suggestion that voluntary exchange is destructive. Already, the EU has announced plans to retaliate by imposing tariffs  on bourbon and motorcycles produced in the U.S.

Negotiations are unlikely to be successful. Perhaps some foreign governments who subsidize their steel and aluminum producers could be persuaded to enter talks. Our own domestic producers are penalized by various tariffs and quotas in place abroad, and those might be used by foreign interests as a lever in negotiations. However, the most fundamental foreign trade advantages, when they exist, have to do with low wages, less regulation, more efficient production facilities, and sometimes a more favorable tax environment. Wage levels reflect labor productivity, but those wage levels are valued more highly in their home countries than in the U.S, and penalizing these countries with trade sanctions merely penalizes their workers. Not all dimensions of a cost advantage can be negotiated, and in any case, healthy competition in any industry is always in the interests of a nation’s consumers.

National security is another standard argument in favor of protectionist measures. We’re told, for example, that we cannot allow China to produce all of the steel, but China provides only a small fraction of U.S. steel imports. Canada, Brazil and Mexico provide far more. In fact, China was in 11th place on that list in 2017. So our sources of steel are fairly well diversified. A domestic shortage of steel or aluminum caused by a breakdown in relations with one or more steel-exporting countries would lead to higher prices, but it would bring forth greater supplies from other countries and even from high-cost domestic sources. That is not a national emergency.

It’s possible that the Trump Administration will create “carve-outs”, exempting goods from certain countries from the tariffs. Presumably, those would be based on an assessment of each country’s trade policies and whether they are consistent with “fair” trade, in the judgement of U.S. trade authorities. However, all nations play the protectionist game in one form or another, including the U.S. Any carve outs would be better than none at all, but the remaining tariffs imposed by the administration will be a net burden to the U.S. economy.

Up till now, I have been pleasantly surprised by the Trump Administration’s efforts to de-tax and deregulate the U.S. economy. However, the threat that Donald Trump would adopt protectionist trade policies was one of my major trepidations about his candidacy. And here it is, as he promised. The dilemma often expressed by protectionists is that foreign producers can put elements of the domestic economy out of business by selling below cost. That drain on a country’s resources cannot span all industries — the U.S. has a comparative advantage in many areas. Such an effort cannot last forever or else these nations would cannibalize their own industrial base. Foreign governments quite simply cannot afford it economically and politically. On our end, the best advice is to accept the gift of low-cost goods. With access to ultra-cheap goods, whether steel, sorghum, or some finished product, American consumers and producers who use those imports gain unambiguously, and the purchasing power released can be spent on other goods and services.

School Shootings, Distorted Trends, and Hysteria

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It’s not possible to exaggerate the tragic nature of a school shooting, but the frequency and trend in such events is often overstated. A wave of misinformation about mass shootings in schools is circulating in the wake of the massacre at Marjory Stoneman Douglas High School in Parkland, Florida. That awful day notwithstanding, the so-called epidemic of mass shootings underway in American schools is a fiction. Criminology professor James Alan Fox provides an illuminating discussion of statistics on school shootings since 1990:

Since 1990, there have been 22 shootings at elementary and secondary schools in which two or more people were killed, not counting those perpetrators who committed suicide. … Whereas five of these incidents have occurred over the past five-plus years since 2013, claiming the lives of 27 victims (17 at Parkland), the latter half of the 1990s witnessed seven multiple-fatality shootings with a total of 33 killed (13 at Columbine).

But what about reports that there have been 290 school shootings over the past five years? Fox addresses that claim:

Nearly half of the 290 were completed or attempted suicides, accidental discharges of a gun, or shootings with not a single individual being injured. Of the remainder, the vast majority involved either one fatality or none at all.

Some of the gun fatalities in schools are drug- and/or gang-related. I have written about the destructive effects of drug prohibition before, and school shootings are a dimension of that problem. The drug war has done much to keep the overall homicide rate elevated in the U.S. Suicides, in-school or not, are relatively insensitive to the availability of guns, as international data show.

Any shooting of an innocent should be mourned, particularly when it is a child. But there are many dangers in the modern world that loom larger than school shootings, once they are reported accurately. Fox notes the following:

Over the past quarter-century, on average [of] about 10 students are slain in school shootings annually. ..Compare the school fatality rate with the more than 100 school-age children accidentally killed each year riding their bikes or walking to school. Congress might be too timid to pass gun legislation to protect children, but how about a national bicycle helmet law for minors? Half of the states do not require them.

Anyone close to a victim can be forgiven for calls to action they might make in the midst of their grief. However, it’s wise to keep a proper perspective on events before rushing to legislate policy changes. The frequency and trend in mass shootings at schools has been greatly exaggerated, and largely in service to a political agenda. The news media does a disservice to the public by propagating this lie (and it is not the only falsehood in circulation). It would be appropriate to call it “fake news” and dispense with the false sense of urgency it creates in the debate. Reducing the risk of school shootings is an important objective, but let’s not distort the magnitude of the risk.

Gays and Bakers: Expression or Repression?

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A lot rides on the legal interpretation of “expression” in the gay-wedding-cake dispute. Eugene Volokh discusses a recent ruling in California in which a trial court judge ruled that the baker’s right to free expression, buttressed by her right to free exercise of religion, protected her from demands that she participate in a form of expression to which she objected. Specifically, she had no legal obligation to create a cake for the celebration of a gay couple’s wedding, according to the ruling.

The facts in the case, CA Dept. of Fair Employment and Housing v. Cathy’s Creations, are that the baker refused to bake the couple a wedding cake but expressed a willingness to sell them anything that was already available in the shop. Thus, she did not discriminate against the couple by denying them access to her “public accommodations”. She also gave the couple a referral to another baker whom she believed would be willing to produce the cake. So there were probable alternatives available to the couple, and the baker’s assistance in locating one mitigated against any harm suffered by the gay couple. That sort of mitigation is an important factor to consider in weighing the rights of conflicting parties. Courts have tended to view “dignitary harm” as less compelling than forced expression.

Volokh argues that the baker’s role in the episode did not demand expression on her part. He says the proposed cake was a pre-existing design and did not involve writing of any kind. Otherwise, Volokh would have supported the ruling. He and a coauthor discuss the distinctions between an artist (who expresses) and an artisan (who merely executes), and an expressive and a non-expressive cake, in an amicus brief, as noted in the article linked above. Here is Volokh’s summary of his view:

While creating photographs, videos, and text would be constitutionally protected speech (so we support the right of, for instance, photographers not to photograph same-sex weddings), creating wedding cakes with no text or symbolic design on them is not.

The Volokh article is a little confusing because the amicus brief seems to have been filed in a different but similar case, Masterpiece Bakeshop v. Colorado Civil Rights Commission, which is now before the U.S. Supreme Court. A ruling is expected this summer. Here is a transcript of the oral arguments in that case, which were heard late last year. It’s a fascinating discussion.

Volokh’s analysis is fine as far as it goes. However, a wedding cake is likely to be considered expressive to both the baker and the cake’s buyers. The baker’s effort in executing even a pre-existing design may involve meaning for her beyond mere execution, since the usual intent of a wedding cake is to celebrate a sacred union. Likewise, the baker knows that the buyers consider the cake to be expressive of their union. The baker doesn’t want any involvement in that expression, asserting that it is not for the government to intercede, forcing them to participate by producing the cake.

Does the baker’s offer to supply an existing cake (or any other bakery good) undermine their case? Does the necessity of baking a new cake for a gay wedding differ from offering a cake already on the shelf for the same purpose? That may be irrelevant to the cases at hand, because no other wedding cakes were available at the time, and freshness might demand the preparation of a new cake for such an occasion. Nevertheless, that sort of line between an acceptable sale for the baker and unacceptable expression strikes me as thin.

As for the matter of the baker’s religious beliefs and their importance to her expressive rights, Volokh derides some of the language of the ruling. Those beliefs, Volokh says, are irrelevant to the question of whether a particular kind of expression is protected or compelled:

By the way, I take it that it’s clear that the Free Speech Clause issue can’t turn on whether Miller’s belief ‘is part of the orthodox doctrines’ of many religions, or whether it’s instead ‘trivial, arbitrary, nonsensical, or outrageous’ — the Free Speech Clause protects views regardless of whether they express views that are seen as orthodox, outrageous, or nonsensical.

Bravo! However, when the rights of two parties are in conflict, it is appropriate to weigh any impingement upon other, secondary rights of both parties.

A disturbing aspect of these cases is that they do not turn in any way on freedom of association, a freedom that encompasses a right not to associate (since any association must be voluntary for both parties). The presumption is that the baker’s right to freely associate or not associate with whomever they please is superseded by their obligations under public accommodation laws, despite the fact that freedom of association is an enumerated right in the U.S. Constitution. While public accommodation laws have generally been found to be constitutional, those laws do not apply in all circumstances, such as when a particular product or service involves expression. But on its own, a violation of the baker’s freedom of association seems to matter less, in today’s legal environment, than abridgment of her free expression, and perhaps less than any obligation she has to provide public accommodation.

Richard Epstein gives a general treatment of the balance between freedom of association and anti-discrimination law. David Henderson has bemoaned the dilution of the freedom of association suffered in the name of non-discrimination. He does not defend discrimination on the basis of race, gender or sexual preference. Quite the contrary. However, as a matter of individual liberty, he prefers that we retain our right to associate on any basis of our choosing and pay the price imposed by the market for discrimination. For example, if you hang a sign outside your restaurant saying that you won’t serve African Americans, you are likely to suffer a loss of business from all who find your preference offensive, as many will. That solution is obviously unappealing to those who believe that participation in civil society requires public standards of equal access in private transactions. Still, there is some truth to a quote Henderson provides from an anonymous individual comparing the idea of non-discrimination in public accommodations to the “common carrier” designation:

“‘Either way, the theory boils down to “you brought forth a good or service and abracadabra you now have fewer rights”‘”.

The legal actions against the bakers in the cases discussed above rely on anti-discrimination law (in CA, the Unruh Act, and in CO, the Anti-Discrimination Act). Those laws must face limits in their application, as may be necessary in the case of compelled expression, especially expression against one’s most deeply-held convictions, religious or otherwise. The most basic question in this regard is whether the creation of the proposed wedding (or union) cakes can be described as expression. Whether the bakers are acting as mere fabricators or as artists, there is no doubt that the wedding parties desired the cakes as part of the celebration of their unions. That use of a cake constitutes expression on their part, and it is a kind of expression and an association from which the bakers would prefer to demure.

I support the right of homosexuals to enter into legal marriage, but I also support the bakers’ right to refuse the business. To invoke a phrase used by Richard Epstein in the article linked above, the world would be a better place if all agreed to simply “live and let live”.