Egalitarian Aggression

15 Thursday Oct 2015

Posted by in Big Government, Equality, Liberty

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In what sense is “equality” a rational objective? Can it ever be achieved without aggression? It’s certainly admirable for individuals to treat all others fairly and without bias against personal traits. A society composed of individuals possessing that kind of integrity is one in which “equal opportunity” exists in an intuitive sense. Such a society would yield market outcomes that are free from personal discrimination.

There are many social pitfalls when central authorities attempt to enforce this sort of equality. There will always be minor and even random cases of treatment that someone considers unfair. Any effort to adjudicate such incidents comes at a great resource cost. The potential for moral hazard in pursuing grievances is also strong, and the enforcement authority may well have biases of its own.

Stronger forms of equality are even more difficult to achieve in a free society. There are many barriers to “equality” that most people would regard as natural, like genetics and the integrity of the family. And like family, many other barriers to equality are cultural virtues, such as educational and occupational rewards based on merit. The institution of strong private property rights provides an effective system of incentives that fosters efficient resource allocation, promoting economic growth and human well-being, but it’s rewards will not be distributed equally.

Institutionalized tampering with any of these features for the sake of equality tends to legitimize envy as a cause of social action. And the intrusions require design and enforcement of a system of social “overrides” by a central authority possessing police power. Needless to say, this must involve elements of aggression and tyranny. These overrides introduce significant risks to individual freedom and the functioning of markets, and are likely to cause widespread destruction of welfare. In that sense, forced equality cannot be a rational objective.

These points are developed more fully in “The Menace of Egalitarianism“, a piece by Llewellyn Rockwell Jr. at the Mises Daily blog.

“A libertarian is perfectly at peace with the universal phenomenon of human difference. He does not wish it away, he does not shake his fist at it, he does not pretend not to notice it. It affords him another opportunity to marvel at a miracle of the market: its ability to incorporate just about anyone into the division of labor. … Indeed the division of labor is based on human difference.“

Rockwell goes on to explain the law of comparative advantage, which allows more productive and less productive individuals to profit by specializing in areas for which each has the lowest opportunity cost. And when producers compete for rewards, as Rockwell notes, average consumers (and rich ones and poor ones) are the ultimate beneficiaries.

Outcomes such as the inequality of wealth and income are not only impossible to avoid, they are natural consequences of economic freedom. Several earlier posts on Sacred Cow Chips have dealt with this topic, and can be viewed from the Home page by typing “inequality” into the search box near the top. For his part, Rockwell discusses the “Wilt Chamberlain” problem, whereby private demand to witness great athletic prowess results in a shift towards an unequal distribution of income:

“… the pattern of wealth distribution is disturbed as soon as anyone engages in any exchange at all. Are we to cancel the results of all these exchanges and return everyone’s money to the original owners? Is Chamberlain to be deprived of the money people freely chose to gave [sic] him in exchange for the entertainment he provided?“

The fact that “equality” is seldom well-defined as an actual objective should be met with skepticism. Here’s more Rockwell:

“It is precisely this lack of clarity that makes the idea of equality so advantageous for the state. No one is entirely sure what the principle of equality commits him to. And keeping up with its ever-changing demands is more difficult still. … Equality is a concept that cannot and will not be kept restrained or nailed down.”  

He takes a dismal view of “cultural inequality” and “equality of opportunity” as worthwhile causes for invoking the power of the state. For example, two families in different economic circumstances will generally confer different opportunities to their children. Dylan Matthews at Vox makes the same point in “Equality of Opportunity“, though Matthews’ analysis is weak in several respects. The point here is that there is only so much that can be done to correct for unequal family-related endowments without undermining the integrity of the family (not to mention property rights). This has long been a bone of contention with respect to the design of U.S. welfare programs. But the problem is much deeper:

“In the course of working toward equality, the state expands its power at the expense of other forms of human association, including the family itself. The family has always been the primary obstacle to the egalitarian program. The very fact that parents differ in their knowledge, skill levels, and devotion to their offspring means that children in no two households can ever be raised ‘equally.’

Robert Nisbet, the Columbia University sociologist, openly wondered if [John] Rawls would be honest enough to admit that his system, if followed to its logical conclusion, had to lead to the abolition of the family. ‘I have always found treatment of the family to be an excellent indicator of the degree of zeal and authoritarianism, overt or latent, in a moral philosopher or political theorist,’ Nisbet said.“

And here is Rawls himself expressing doubts, as quoted by Rockwell:

“It seems that when fair opportunity (as it has been defined) is satisfied, the family will lead to unequal chances between individuals. Is the family to be abolished then? Taken by itself and given a certain primacy, the idea of equal opportunity inclines in this direction.“

The quest for “equality” is a creeping force. It infects economic life in a way that makes widespread gains in welfare difficult to achieve, diminishes expectations and fosters social devolution. It also leads to demands for eliminating useful distinctions, which can only be erased though aggression by the state. This forces a convergence toward the least common denominator throughout the culture. I believe the following statement by Rockwell rings true:

“The obsession with equality… undermines every indicator of health we might look for in a civilization. It involves a madness so complete that although it flirts with the destruction of the family…. It leads to the destruction of standards — scholarly, cultural, and behavioral. It is based on assertion rather than evidence, and it attempts to gain ground not through rational argument but by intimidating opponents into silence. There is nothing honorable or admirable about any aspect of the egalitarian program.“

Anti-Capitalists Prescribe Third-World Phlebotomy

12 Monday Oct 2015

Posted by in Free Trade, Human Welfare

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Working conditions and wages in the third-world usually look so undesirable to observers in developed countries that we commonly use the term “sweatshops” to describe production facilities serving global markets in developing countries. Those facilities, however, are relatively modern by their domestic standards. The wages and working conditions are far superior to traditional opportunities available to the workers, offering them a rare opportunity to get out of poverty. But it is not uncommon to hear a narrow view that these workers are “exploited”, as if shutting down those operations was a better alternative. Calls for boycotts and other measures to punish firms with ties to those facilities are a common refrain from the Left, but if successful, the real victims of such activists would be the very workers whose interests they claim to represent.

Johan Norberg makes this all too clear in the Huffington Post, in “How Your T-Shirt Saves the World“, citing reports from the World Bank and the International Food Policy Research Institute: 

“The number of extremely poor in Bangladesh fell from 44 to 26 million between 2000 and 2010, despite the population growing by 15 million. Since 2004, the level of poverty in Cambodia has more than halved, from 52 to just over 20 percent. It is ‘one of the best performers in poverty reduction worldwide’, according to the World Bank.

This is a stunning success in the countries that need it the most, and the export sector has been instrumental in bringing it about. It increases the workers’ productivity, and therefore also their wages and working conditions, which has been especially important for women. In a study from the International Food Policy Research Institute, the researchers show that the increase in Bangladeshi wages from the garment sector ‘dwarfed’ the rise attributed to government programs. …

Obviously even the best jobs in very poor countries look bad compared to what we are used to in Europe and America, but that is not the alternative in an economy at a low level of capital and education. As a worker I interviewed in Vietnam once put it, the main complaint to management was that she wanted the factories to expand so that her relatives could get the same kinds of jobs.“

This is a very basic lesson in the process of economic development, and no one pretends that it’s easy. In this interview of Professor Benjamin Powell of Texas Tech University in The Freeman, he quotes Penn Jillette of Penn & Teller:

“The way Penn … put it once when he interviewed me is that ‘it’s better than tilling the soil with Grandpa’s femur.’ That is a bit crass . . . but true. Wishing away reality doesn’t give these workers better alternatives. Workers choose to work in sweatshops because it is their best available option. Sweatshops, however, are better than just the least bad option. They bring with them the proximate causes of economic development (capital, technology, the opportunity to build human capital) that lead to greater productivity—which eventually raises pay, shortens working hours, and improves working conditions.“

When you hear anyone talk about “exploitation” of workers in the third world by capitalists, ask them what alternatives they have in mind for lifting those workers out of poverty. Chances are they will pretend that firms can offer pay at levels far exceeding the current productivity of the workers — a prescription for closing the operations. Or they might offer naive suggestions that rely heavily on government as a benefactor, which are unlikely to succeed in ending poverty. They might even advocate for “fair trade”, which is leftist ear-candy code for protectionism. Nothing could be worse for first-world consumers or more harmful to the cause of economic development in the third world. As Norberg says of the so-called “sweatshops”: “The world needs more jobs like these, not fewer.“

Gun Laws and Homicides: No Correlation, Let Alone Causality

09 Friday Oct 2015

Posted by in Gun Control

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President Obama’s blustery, anti-gun outburst in the immediate aftermath of the recent shootings in Oregon included an assertion that states with the toughest gun laws have the lowest homicide rates. Eugene Volokh rebuts that claim in the Washington Post in “Zero correlation between state homicide rate and state gun laws“. Volokh’s effort prompts this quick follow-up to a post from earlier this week here on SCC: “But They Mean Well: Authoritarian, Anti-Gun Champs of Inefficacy“.

Volokh constructs a small data set for the 50 states and D.C with 2013 “Brady Scores” on gun laws, intentional homicide rates and accidental gun deaths. He discusses various measures that might be used to test the “Obama gun-law hypothesis”. Volokh rejects gun homicides because differences across states can be offset by other kinds of homicides. In addition, gun homicides may be reduced by defensive gun uses (DGUs) or the threat of DGUs. Instead, Volokh uses total homicides in one experiment and total homicides plus accidental gun deaths in another. He finds small positive correlations between tougher gun laws and both measures — a near zero association.

Volokh’s study is “quick and dirty”, so to speak, and it runs counter to the findings of some earlier cross-sectional studies. However, there are many factors that may confound any empirical association between gun laws, gun ownership rates, total guns and outcomes. That’s why other researchers insist that the question of gun-law efficacy must be assessed based on changes in outcome measures occurring after a change in gun law. These comparisons consistently show that imposition of tougher gun restrictions is not associated with declines in homicides.

But They Mean Well: Authoritarian, Anti-Gun Champs of Inefficacy

07 Wednesday Oct 2015

Posted by in Gun Control

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How would “common-sense gun laws” reduce the incidence of mass shootings, total homicides or gun violence in general? Many believe it to be true, but convincing explanations are hard to come by. That’s because reasoned thinking does not produce those explanations. Nevertheless, words are cheap, and the sheer flow of weak memes and bad journalism appears to wash the brains of those with a vulnerability to gun hysteria. Sheldon Richman addresses the feeble logic of gun control proposals in the wake of last week’s tragic shootings in Oregon. He states flatly that the claims of gun control advocates rely on “magical thinking”, and that “common sense” supports other policies. (Richman is quite a guy, having been featured in two consecutive posts on this blog).

As a preface, the recent FBI Uniform Crime Report for 2014 shows another in a long series of reductions in homicides and gun violence. This has occurred despite a trend of rising gun ownership. Previous posts on Sacred Cow Chips have dealt with the evidence on gun violence and the efficacy of gun control measures, including “A Farewell To Firearms Control“, “Causal Confusion In The Gun Debate“, and “When Government Prohibits Self Defense“. Among other issues, these posts note the overwhelming evidence that defensive gun uses far outweigh gun homicides.

Advocates of stricter gun control measures assert that they would somehow reduce the frequency of mass shootings. Richman picks apart the claim that universal background checks would help. In fact, it’s clear from the circumstances that additional restrictions on the sale of guns would not have prevented any of the high-profile mass shootings in recent memory, including New Town, Charleston and Roseburg. Some of those killers passed background checks. Furthermore, more restrictions on gun sales would do nothing to prevent illegal trade in guns.

“We can have no reasonable expectation that people who intend to commit violent offenses against others will be deterred by mere restrictions on gun purchases and possession. Stubbornly ignoring that self-evident truth is the sign of a magical disposition.“

Hillary Clinton proposes universal background checks, confiscation of weapons from domestic abusers and holding gun manufacturers and dealers liable for crimes perpetrated with weapons they made or sold. Those last two proposals are an affront to liberty, and the last is likely to be counterproductive by pricing low-income buyers out of the market, who are arguably most in need of guns for self-defense.

Richman ridicules the notion that gun violence can be reduced by devoting more resources to mental health care. I don’t agree with him 100% on this — improved mental health care might have a small effect — but he argues the point effectively. It is difficult to see how any reasonable initiative in this area could have more than a minor impact on gun violence, and by that I mean an initiative that respects individual liberty. Proponents might imagine lovely rest homes and caring personal psychiatric consultations for those identified as psychotic, along with lots of nice drugs. Perhaps they’ll get the drugs, but as often articulated, the concept smacks too much of a “lock ’em up” mentality. The accuracy with which murderers can be properly diagnosed will be close to zero, and it may cost some of the eccentric among us dearly. Richman  asks facetiously whether the police should form “pre-crime” units.

As an aside, I must make note of the gun control “meme-of-the-day”: for me, it was one from “Moms Demand Action for Gun Sense in America“. It suggested that guns should be regulated just as motor vehicles are regulated, including a requirement for liability insurance coverage. The comparison is laughable. The creation of public thoroughfares allows the state to assert that driving is a privilege, not a constitutional right. However, the individual right to bear arms is firmly protected by the Second Amendment and has been upheld by the Supreme Court as recently as 2008. It is not a privilege granted by the state. Moreover, how would one define an “insurable” gun death? Those would be accidents, which are quite small in number relative to motor vehicle deaths. It would not include suicides. Most gun incidents involve criminals who will not bother to arrange insurance coverage. Only the law-abiding will do so, and their insurers will have to grapple with the difficulty of handling claims against defensive gun users. Guns are much easier to hide than cars, so effective enforcement doesn’t stand a chance; nor do annual inspections. The expense and abridgment of personal liberty inherent in this proposal would be massive, with little if any effect on gun violence.

I’d be remiss if I failed to mention Damon Root’s excellent article on the Second Amendment. As noted above, it protects the individual right to bear arms, not merely our right as a collective. As Glenn Reynolds has written, the Second Amendment should be viewed as “ordinary constitutional law“. Root emphasizes the extent to which prominent legal minds on the Left have concluded the same. He quotes Sanford Levinson (among others such as Lawrence Tribe):

“The embarrassment, Levinson argued, came from the legal left’s refusal to take the Second Amendment seriously. ‘I cannot help but suspect that the best explanation for the absence of the Second Amendment from the legal consciousness of the elite bar,’ he wrote, ‘is derived from a mixture of sheer opposition to the idea of private ownership of guns and the perhaps subconscious fear that altogether plausible, and perhaps even ‘winning’ interpretations would present real hurdles to those of us supporting prohibitory regulation.’“

If the usual gun control proposals won’t work, what can be done to reduce mass shootings and gun victimhood in general? Richman discusses the elimination of “gun-free zones” and rebuts the typical objections to doing so. (He is critical of police, who surely deserve blame for certain gun deaths, but Richman may have an inadequate appreciation for the difficulty of police work.) Richman also promotes ending restrictions on concealed and open-carry of handguns. Here is part of his closing, but read the whole thing:

“Believers in gun-control magic refuse to acknowledge that one cannot effectively delegate one’s right to or responsibility for self-defense. With enough money, one might arrange for assistance in self-defense, but few will be able to afford protection 24/7. … The only defender guaranteed to be present at any attack against you is: you.

Those who believe in the right to bear arms have common sense on their side in the matter of ending mass shootings. Magic won’t do it.“

Must Support For “Family Planning” Be Compelled?

05 Monday Oct 2015

Posted by in Big Government, Liberty, Presumptive rights, Property Rights

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Fund Me

Where do Libertarians stand on the issue of federal funding of Planned Parenthood? What sort of balance should be struck between the rights of conscientiously-objecting taxpayers and the rights of women to use Planned Parenthood (PP) services? The correct answer has nothing to do with abortion, an issue on which Libertarians lack unanimity. However, the existence of moral objections by any segment of society, whether considered valid by a majority or not, is an important consideration.

Do Individual Freedoms Require Taxpayer Support?

Sheldon Richman discusses the funding question on his Free Association blog in “Planned Parenthood, Social Peace and  the Libertarian approach“. He first makes a basic point: “… no one’s freedom is violated by lack of access to taxpayer money.” I agree, but this statement requires some context. For Libertarians, the baseline is a society in which individual liberty is a presumption. That cannot be the case if taxes and transfers dominate our economic lives. If we’re all busy picking each other’s pockets, then perhaps anyone can lay claim to a dollop of public funds to pay for any damn thing they want. But in a society that explicitly limits the powers of coercive government, private individuals cannot, on the public dime, lay claim to whatever they wish to compel from others. What they desire, after all, is almost always available privately. Therefore, the denial of public funding for PP does not constitute a denial of anyone’s rights.

Individual’s are free to exercise their reproductive or non-reproductive rights as they see fit, and to pay for related services themselves or by seeking a benefactor. Nothing is deprived to that individual other than an invalid claim on the belongings of others.

“Individual rights ultimately boil down to the single right to be free from aggression, that is, to self-ownership. Rights would be defined out of existence if they could be ignored whenever doing so would make someone else’s objectives easier to accomplish. Such an approach to “rights” would turn rights theory on its head by making us a mere means to other people’s ends rather than ends in ourselves.“

Consistent Application of Property Rights

Richman asserts that the right of ownership of one’s body applies equally to the right of individuals to the income they produce:

“Ironically, the right to choose abortion is defended as an application of the right of women to their bodies, that is, as a property right (self-ownership). Another implication of the right to one’s own body is the right to control the fruits of one’s labor (income). No coherent theory of rights can permit a clash of the right to one’s body with the right to the fruits of one’s labor. Thus implicit in the pro-choice case is an argument against tax funding of Planned Parenthood (and anything else), that is, against taxation itself.“

Leftist elites say that a denial of public funding for PP is tantamount to a denial of service to low-income women. Richman asks the elites to put up or shut up: if they believe the services in question are critical, they are free support PP financially, but they much prefer to extract resources from taxpayers without regard to possible moral objections.

Protection of Religious and Moral Principles

Richman adds the following thoughts on public funding of Planned Parenthood near the end of his post:

“Reasonable people of all persuasions should see that it is simply unreasonable to force people to finance an organization they find morally offensive. Thomas Jefferson famously said, ‘To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical.’ Compelling men and women to furnish contributions for the performance of services they deem immoral (whether or not they are) is worse.“

Supporters of public PP funding have sought to deflect morality-based opposition with the contention that abortions represent only 3% of PP’s services, but Slate debunked that claim over two years ago. It was based on a count of tests and procedures performed, not on revenue. PP also claims that tax funds never pay for abortion, but as Richman points out, once available, the revenue is fungible and may be used to cover the cost of any procedure. In short, the argument is specious.

The Public Good Argument Is Weak

One more elephant in the PP funding debate concerns the appropriate functions of government. Does PP provide a truly “public” good, one having benefits that are nonexclusive to the primary user? Health services are sometimes assumed to confer public benefits; that is an easy argument in the case of infectious diseases and to some extent for medical research, but not for most health services. The benefits of individual health services are largely private, providing little justification for government funding of PP from a public finance perspective.

Collective Action Needs Strict Limits

Collective action should be confined to the provision of public goods, but even then it can be fraught with conflicts, such as the difficulty of accommodating pacifists during wartime. A truly liberal society will do all it can to accommodate diverse beliefs by allowing objectors to opt out, if possible, or avoiding the funding of private activities, especially those over which there is significant dissent. Under no circumstances should one be compelled to pay for private services that they find to be morally objectionable.

Degrees of Poverty and The Social Safety Trap

01 Thursday Oct 2015

Posted by in Poverty

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Income Dist Chart

The poor in the United States are extremely well-off by international standards. That is clear in the chart above, which David Henderson discusses in “The Role of Luck In The Income Distribution“. By luck, Henderson means that one’s country of birth has a huge impact on their ultimate place in the global income distribution. The chart compares positions in a single country’s income distribution with corresponding points in the global distribution (2008 data). For example, an individual in the 20th percentile of the U.S. income distribution (20 on the horizontal axis) is in roughly the 86th percentile of the global distribution (from the vertical axis). Those at the very bottom of the U.S. income distribution have a greater income than half of the individuals in the world. The average U.S. earner in the lowest 20% earns more than nearly 75% of all earners globally. Individuals across the entire income distribution in the U.S. have higher incomes than their counterparts elsewhere.

Within the U.S., we often use the term “impoverished” in a fairly parochial sense: compared to our compatriots, not to the rest of the world. Robert Rector discusses the living standards of the poor in America in “How Do America’s Poor Really Live? Examining the Census Poverty Report“. The actual census report released this month is discussed in The Atlantic here. Rector states the following:

“According to the government’s own reports, the typical American defined as poor by the Census Bureau has a car, air conditioning, and cable or satellite TV. Half of the poor have computers, 43 percent have Internet, and 40 percent have a wide-screen plasma or LCD TV. … Far from being overcrowded, poor Americans have more living space in their home than the average non-poor person in Western Europe.“

Rector notes that the Census Bureau’s measure of poverty is based on a flawed definition of income, one that is inconsistent with how income is defined in calculating official measures of poverty in other countries. The Census definition excludes most welfare benefits, and taxes aren’t always subtracted from income by other countries. The Rector post linked above contains an incorrect link to this recent article on international comparisons of poverty rates. When the measurement inconsistencies are corrected, the official U.S. poverty rate is similar to the advanced economies of Europe, and it is lower than Eurooean poverty rates based on a more inclusive definition preferred by many on the left. And again, the actual standard of living of those below the official poverty level in the U.S. is impressive compared to the rest of the world. It is also impressive from a historical perspective.

Rector discusses the failure of the welfare state and the War on Poverty to lift the impoverished out of dependency. This has been covered here on Sacred Cow Chips several times (see here and here). The terrible structure of incentives built into many anti-poverty programs is one of the primary causes, as well as the failure of public education. Also at fault are minimum wage legislation, the War on Drugs, tax policy and a regulatory regime that discourages job creation by punishing new capital investment and business creation.

The left often claims that the distribution of income in the U.S. is becoming increasingly skewed toward high-income households. In “Myths and Causes of Income Inequality“, James D. Agresti demonstrates that the real causes of this phenomenon are demographic. The splintering of families at low income levels has increased the number of low-income households and reduced average incomes among those households. At the level of individual earners, there is no discernible trend in income inequality. According to Agresti:

“… the rise of household income inequality stems from family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility.“

Agresti stops short of drawing a link between anti-poverty policies and the disintegration of the family, though there are reasons to suspect pernicious connections along those lines.

It is easy to exaggerate the extent and severity of poverty in the U.S.; doing so is of obvious value in promoting the leftist agenda. In reality, the poor in this country are provided with a standard of living through public assistance that is high relative to their counterparts across the globe, and it is similar to other advanced economies. In addition, when changes in the structure of households are neutralized, there has been no upward trend in income inequality, contrary to assertions from the left. Our long-term objective should be to lift able recipients out of dependency, consistent with President Johnson’s original goals for the War on Poverty. That will require major reforms to our anti-poverty efforts, public education and many other aspects of public policy. Most poor families in the U.S. receive support that is enviable to the poor elsewhere. Nevertheless, their plight of dependency has dispiriting and self-reinforcing effects.

Government “Planning” A High-Density Housing Crash

29 Tuesday Sep 2015

Posted by in Housing Policy

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work.5868804.1.flat,550x550,075,f.high-density-living

How will the next housing bust play out? Joel Kotkin believes that it will be an unavoidable consequence of “high-density” policies imposed by central planners. That is Kotkin’s major theme in “China’s Planned City Bubble Is About To Pop—And Even You’ll Feel It“, an essay in New Geography.

Central planning generally achieves undesirable results because it is incapable of solving the “knowledge problem”. That is, planners lack the detailed and dynamic information needed to align production with preferences. Freely-operating markets do not face this problem because voluntary trade between individuals establishes prices that balance preferences with resource availability. There are severe frictions in the case of housing that slow the process, but it is almost as if central planners willfully ignore strong signals about preferences, instead promoting measures such as “containment policies” and “regionalism” that restrict choice and inflate home prices. Of course, the technocratic elite think they know what’s good for you!

Kotkin begins by drawing a contrast between policies that led to the last housing crisis and the short-sighted policies now in place that could lead to another:

“If the last real estate collapse was created due to insanely easy lending policies aimed at the middle and working classes, the current one has its roots largely in a regime of cheap money married to policies of planners who believe that they can shape the urban future from above.“

The list of bad government policies precipitating the last housing bust is long, and I have discussed them before here on Sacred Cow Chips. They included federal encouragement of loose lending standards, a strong bias favoring mortgage assets embedded in bank capital standards, the implicit federal guarantee of Fannie Mae and Freddie Mac against losses, the mortgage-interest income tax deduction, and an easy-money policy by the Federal Reserve. These all represent market distortions that led to a malinvestment of excess housing. Several of those policies are still in place, and today the presumption of “too-big-too-fail” financial guarantees by the federal government is as strong as ever, so risk is not adequately managed.

But the tale of today’s housing market woes told by Kotkin really begins in China, where the government has been on a high-density housing binge for a number of years:

“As a highpoint in social engineering, a whole new dense city (Kangbashi) has been constructed by the Ordos, Inner Mongolia city government, in the middle of nowhere, growing, but still apparently mainly vacant. … The key here is not so much planning, per se, but planning in a manner that ignores the aspirations of people. Americans no more want to live stacked in boxes in the middle of nowhere than do their Chinese counterparts.“

Kotkin is too generous to central planning, and he is sloppy about the distinction between public and private planning efforts: while China’s current real estate difficulties may be a case of extreme negligence, central government planning always has and always will suffer from a mismatch between preferences and supplies that is strongly resistant to self-correction. Ultimately, resources are wasted. In any case, China’s easy monetary policy and efforts to “densify” led to an inflation of urban housing prices. The situation is unsustainable and the market is now extremely weak.

Can the U.S. “catch China’s cold”, as Kotkin suggests? That’s likely for several reasons. First, as noted by Kotkin, the Chinese government’s efforts to stabilize domestic asset prices and maintain economic growth have led to restrictions on foreign investment, which will undercut asset values in the U.S. (and even more in Australia). More importantly, governments in the U.S. have caught an extreme case of the “planning bug” with the same bias in favor of high density as the Chinese central planners:

“… increasingly, particularly during the Obama years, state planning agencies, notably in California, and the federal Department of Housing and Urban Development (HUD) have embraced a largely anti-suburban, pro-density agenda.“

Kotkin cites evidence of a strong preference among U.S. households for detached housing, but government authorities prefer to dictate their own vision of residential life:

“… like Soviet planners and their Chinese counterparts, our political elite and the planning apparat seem to care little about preferences, and have sought to limit single-family homes through regulations. This is most evident in California, notably its coastal areas, where house prices and rents have risen to hitherto stratospheric levels.

The losers here include younger middle and working class families. Given the regulatory cost, developers have a strong incentive to build homes predominately for the affluent; the era of the Levittown-style ‘starter home’, which would particularly benefit younger families, is all but defunct. Spurred by the current, highly unequal recovery, these patterns can be seen elsewhere, with a sharp drop in middle income housing affordability while the market shifts towards luxury houses.“

In an interesting aside, Kotkin emphasizes that high-density housing is often more expensive to construct than single-family homes, so it does not advance the cause of affordability, as is often claimed.

The close of Kotkin’s essay summarizes misguided policies now in place and the ominous conditions they have created in some of the nation’s most expensive housing markets:

“Today’s emerging potential bubble is driven in large part by low interest rates and a new post—TARP financial structure, anchored by ultra-low interest rates, which favor wealthy investors…. This, plus planning policies, has accelerated a boom in multi-family construction, much of it directed at high-end consumers. In New York and London, wealthy foreigners as well as the indigenous rich have invested heavily in high-rise apartments, many of which remain empty for much of the year. In San Francisco, for example, roughly half of all new condos are owned by non-residents, including both Chinese investors and Silicon Valley executives. … Since the vast majority of people cannot afford to buy these apartments, even if they want them, this kind of construction does little to address the country’s housing shortage.“

Housing policy has long been dominated by subsidies that encourage over-investment in housing. At the same time, restrictions increasingly limit the development of detached homes, which is what most people prefer. Local control over decisions about housing development is being compromised by intrusive federal policies of “regionalism” that demand more high-density housing in costly areas. These policies are unlikely to benefit low- and middle-income households, who are increasingly unable to afford the high cost of quality urban housing as either renters or buyers. Either prices must adjust downward, as Kotkin suggests, or more subsidies will be required to keep the bubble inflated. Like China, we will be unable to stave off a correction indefinitely.

Francis Pontiff-icates In His Fallible Zone

24 Thursday Sep 2015

Posted by in Capitalism, Global Warming, Poverty, Socialism

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Francis Politics

Pope Francis dispenses guidance in matters of faith from his heart. In matters of economics and science, his guidance doesn’t come from a well-informed mind. I’ve devoted two posts to Francis’ political follies this year: “Green Hubris: The Flub of Rome“, and “Francis’ Statist Vision Not Shared By Venezuelan Clergy“. While foreswearing ideology in the pulpit, he nevertheless promotes leftist economic ideology and denigrates capitalism, the single-best form of social organization for lifting mankind from privation. He ignores mountains of evidence demonstrating that his hopes for humanity are best served by free markets and liberty. Francis further confuses the issue of church teachings versus personal ideology by claiming that his views are longstanding views of the Church.

A dark theory of the Pope’s anti-capitalist rhetoric occurred to me. It has to do with an ecclesiastical variant on statism: just as statist elites like President Obama seem to prefer widespread dependence on the state, so too does the Pope wish for widespread dependence on the Church for spiritual nourishment. Karl Marx is often quoted as having said “Religion is the opiate of the masses.” However, the full quote is the following:

“Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.“

Perhaps the Pope understands this all too well. An impoverished world may well be a more pious world, and his condemnation of capitalism might help to lead us there. Is such an ulterior motive too Machiavellian to describe the kind-hearted pontiff? Probably. Perhaps the Devil made me think of it!

Like most on the Left, the Pope does the world’s poor no favor by way of blindly accepting the global warmist agenda, which is based on a hypothesis “proven” only in the sense that a certain class of climate models predict a directional outcome. Those models have accumulated a long track record of bad forecasts. Not only that: the surface temperature records reported by U.S. Government agencies and the media as “evidence” of global warming are not supported by satellite records, and trends have been heavily manipulated via downward adjustments to past temperatures. But even if we stipulate that the carbon-forcing models and the surface temperature records are correct, there are major questions regarding the severity of the outcome and whether it poses a two-sided risk to human welfare. Mediation of this hypothetical risk is extremely costly, requiring diversion of vast quantities of resources, and that takes a real human toll. This is why the policy prescriptions of the warmist community lack internal consistency. For example, they wish to restrict power production from fossil fuels in the developing world, forcing populations to deforest and rely on unhealthy wood burning — indoors! — to meet basic needs like heating and cooking.

Here is the full text of a letter from Don Boudreaux to the Washington Post:

“On the opening page of your website today you ask readers to register their agreement or disagreement with this statement of Pope Francis: ‘This is our sin: Exploiting the Earth and not allowing her to give us what she has within her.’

This claim is laughable. History testifies unmistakably that the earth is extremely stingy in volunteering to humans ‘what she has within her.’ Indeed, what the earth has within her are mere raw materials, by themselves useless unless and until human creativity discovers not only how to transform them into actual resources and outputs that improve human well-being (Ever try fueling your jet with crude oil?) but also how to ‘exploit’ the earth so that she releases her materials to us at a reasonable cost.

The Pope is vocal about helping the world’s poor. I believe that he’s sincere. So I sincerely hope that he comes to realize that the greatest sin of all against humanity would be the suppression of those capitalist institutions that have proven to be the only practical means of transforming what the earth has within her into a bounty of goods and services that allows the masses, for the first time in history, to live lives of material abundance and dignity upon her.“

A few of the comments that follow Boudreaux’s post on Cafe Hayek are good, too.

Stephanie Slade has an excellent piece in Reason entitled “If Pope Francis Wants to Help the Poor, He Should Embrace Capitalism“. Here are some samples addressing the power of markets and capitalism to improve human welfare and eradicate poverty:

“Pope Francis thinks free marketeers have been deluded by a ‘myth of unlimited material progress.’ If we have, it’s because we’ve seen for ourselves the wonders that economic development and technological advancement can bring—from modern medicine stopping diseases that were the scourge of civilizations for centuries, to buildings more able to withstand natural disasters than at any time before, to ever-widening access to the air conditioning he wishes us to use less of.“

“‘Entrepreneurial capitalism takes more people out of poverty than aid.’ With those 10 words, spoken to an audience at Georgetown University in 2013, philanthropist rock star Bono demonstrated a keener understanding of economic reality than the leader of global Catholicism.

The U2 frontman clearly has it right—and Pope Francis is wrong to suggest that poverty is growing, or that capitalism, free markets, and globalization are fueling the (non-existent) problem. In just two decades, extreme poverty has been reduced by more than 50 percent. ‘In 1990, almost half of the population in developing regions lived on less than $1.25 a day,’ reads a 2014 report from the United Nations. ‘This rate dropped to 22 per cent by 2010, reducing the number of people living in extreme poverty by 700 million.’

How was this secular miracle achieved? The bulk of the answer is through economic development, as nascent markets began to take hold in large swaths of the world that were until recently desperately poor. A 2013 editorial from The Economist noted that… ‘Most of the credit… must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.’“

As Slade explains, far from a scourge on the environment, capitalism is and has been a great blessing:

“Both the economics and the history are clear: The more prosperous the developing world becomes, the more it too will be able to demand and achieve livable conditions. If your goal is to move the world to concern for the preservation of biodiversity, the answer is economic growth. If you want to increase access to clean water, the solution is to increase global wealth, and the consumer power that comes with it. Studies have shown that deforestation reverses when a country’s annual GDP reaches about $3,000 per capita. While some environmental indicators do get worse during the early stages of industrialization, the widely accepted Environmental Kuznets Curve hypothesis convincingly argues that they quickly reverse themselves when national income grows beyond a certain threshold. If the pope wants a cleaner world, the best way to get there is by creating a richer world—something Pope Francis’ own policy recommendations will make more difficult.“

A theme in Slade’s essay is that Francis is simply confused. On one level, he seems to know that technological advance is of great benefit to mankind, yet he is extremely wary of economic growth and believes that less production and consumption is better. That would make the job of alleviating conditions for the world’s poor much more challenging, if not impossible! He acknowledges that the environment has improved drastically in some parts of the world, but he seems unaware that the same areas are the most economically developed, and have the most well-developed markets. Like most on the Left, he also seems confused about the real meaning of capitalism. And the Pope “often blurs the line between public and private action.”

Slade concludes with some messages for Catholics. First, the Pope’s opinions on matters of faith are said to be infallible, according to Catholic doctrine. But opinions on topics like capitalism and the environment are outside his sphere of infallibility. Second, Slade is rightly offended by the Pope’s attitude that libertarianism and a belief in the efficacy of free markets is not compatible with Christianity.

Thus far during the Pope’s visit to Cuba and the U.S., he has thrilled the murderous Castro brothers and spoken out in favor of Obama’s climate agenda. Raul Castro is so happy about the Pope’s opinions on capitalism “that he might ‘start praying again’ and rejoin the church“. I truly hope that members of the Catholic flock, or any others,  don’t take the Pope’s political exhortations too seriously.

The Insane Substitution Of Regulation For Value

21 Monday Sep 2015

Posted by in Big Government, Regulation

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Regulatory Burdens

My day-job at a financial institution has become increasingly dominated by governance and compliance issues, due largely to the Dodd-Frank Act. Much less of my time these days is dedicated to activities that are of direct value to the business or its customers. It’s not just me, but a large number of talented professionals with whom I work, many having advanced degrees. And a platoon of government regulators with advanced degrees often resides in a conference room on our floor. As I overheard one colleague say the other day, even a sneeze now requires permission from regulators. It feels very much like working for a regulated public utility, or worse yet, a government agency. This is obviously costly for shareholders, customers and taxpayers. If asked, I would be hard-pressed to explain how such massive compliance activity adds value for anyone, except perhaps the regulators themselves, or those who like the job guarantee provided by the situation. Does it offer some extra guarantee of stability for our institution, which remained stable and viable throughout the last financial crisis? Not likely, especially if actually managing the business has anything to do with it. Does it guarantee the stability of the larger financial system to impose massive compliance costs and ossify an otherwise dynamic enterprise?

The financial industry is not the only sector plagued by this phenomenon. At Coyote Blog, Warren Meyer provides a great perspective based on his own experience (and he deserves the inspirational hat-tip for this post). Meyer owns and operates a company that manages public parks. Here is his summary:

“Ten years ago, most of my company’s free capacity was used to pursue growth opportunities and refine operations. Over the last four years or so, all of our free capacity has been spent solely on compliance.“

Meyer offers details of compliance issues that have robbed his business of productive time and energy:

  • Managing hours of seasonal employees to avoid Obamacare penalties;
  • Seeking government approval of price increases to recover minimum wage hikes;
  • Implementing and running e-Verify on new hires;
  • Additional employee hiring documentation requirements;
  • Compliance with California regulation of chairs, hot-day practices, meal breaks, overtime assignments, employee sick days, and other processes;

He goes on to note some economy-wide implications of these entanglements:

“… for folks who are scratching their head over recent plateauing of productivity gains and reduced small business origination numbers, you might look in this direction.

By the way, it strikes me that regulatory compliance issues set a minimum size for business viability. You have to be large enough to cover those compliance issues and still make money. What I see happening is that as new compliance issues are layered on, that minimum size rises, like a rising tide slowly drowning companies not large enough to keep their head above water.“

There is no doubt that heavy regulation favors large firms over small firms, and it makes competing with entrenched businesses more difficult for new entrants. Here is the first of a trio of relevant posts from the Mercatus Center, a summary of research finding that regulation reduces new business start-ups and hiring activity.

A heavily regulated economy is likely to suffer from an accumulation of old, irrelevant, or often conflicting rules. A second Mercatus Center post, “‘Regulatory Appendicitis’ and the Dangers of Vestigial Regulations” focuses on an additional problem: the application of old rules to regulate new technologies:

“From a regulatory agency’s perspective, recycling old rules makes sense: Old rules have withstood legal challenges and offer a relatively safe legal route. However, the rules are unlikely to optimally fit the new context for which they are employed. The use of rules that aren’t optimized for the task at hand can significantly hamper innovation and the development of technology. Even worse, due to poor design, they may not actually accomplish the new objective.“

A case in point is the recent imposition of “net neutrality” rules, which prevent ISPs and internet backbone providers from charging incremental rates to network hogs. This involves the application of regulatory rules designed for railroads 130 years ago and applied to the phone system 80 years ago. L. Gordon Crovitz writes of the early, negative impact of this regulation on investment in broadband in a piece entitled “Obamanet Is Hurting Broadband” (if the link fails, Google “wsj Crovitz Obamanet Broadband” and choose the first link returned):

“Today bureaucrats lobbied by special interests determine what is ‘fair’ and ‘reasonable’ on the Internet, including rates, tariffs and business arrangements. The FCC got thousands of requests for new regulations within weeks of the new rules. … Before Obamanet went into effect, economist Hal Singer of the Progressive Policy Institute predicted in The Wall Street Journal that if price and other regulations were introduced, capital investments by ISPs could quickly fall … 5% and 12% a year …. Now Mr. Singer has analyzed the latest data, and his prediction has come true.“

Crovitz correctly states that consumers want more broadband, and broadband growth requires investment. Systematically punishing those who make such investments will not bring improvements in service. And this is not an isolated result. Apart from the absorption of staff time (which is often required to manage new investment), regulation discourages productive capital investment in new facilities, equipment and technology. The potential growth of the economy suffers as a result, including the potential growth of wages.

Several past posts on Sacred Cow Chips have dealt with the heavy costs imposed by regulation, including “Life’s Bleak When Your Goal Is Compliance“, “You Probably Broke The Law Today“, and “There Oughtta NOT Be a Law“.

Is there really a trend toward greater regulation? Yes, and it is not new. Has it accelerated? A third Mercatus Center post demonstrates that the Obama Administration, in terms of new regulatory restrictions, is on a pace to exceed all preceding presidents over the past 40 years. This is based on the Code of Federal Regulation (though Jimmy Carter edged Obama slightly over Obama’s first four years). Obama’s penchant for executive orders shows no sign of abating, and Congress is apparently incapable of over-riding any veto. Much of this can be reversed, in principle, but new regulations have a way of creating political constituencies, so reversals might be easier to say than do.

Bernie Sanders: Just a Regular Looter

17 Thursday Sep 2015

Posted by in Free markets, Poverty, Socialism

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Bernie

Economic illiteracy is getting to be a central theme in the early stages of the 2016 presidential race. The two candidates with whom the public and media are most fascinated at the moment are Bernie Sanders and Donald Trump. Both are veritable case studies in delusional economic reasoning. I have already devoted two posts to Trump, the current frontrunner for the Republican nomination (both posts appear at the link in reverse order). At the time of the second of those posts, I recall hoping desperately that someone or something would rescue my blog from him. I have managed, since then, to resist devoting more attention to his campaign. In this post, I’ll focus on Senator Bernie Sanders of Vermont, currently the top rival to Hillary Clinton for the Democrat nomination.

It’s ironic that Sanders, a self-proclaimed socialist, shares several areas of acute economic illiteracy with Donald Trump. There is a strong similarity between Sanders and Trump on foreign trade (and both candidates are pro-Second Amendment). Like Trump, Sanders demonstrates no understanding of the reasons for trade, as Kevin Williamson notes:

“The incessant reliance on xenophobic (and largely untrue) tropes holding that the current economic woes of the United States are the result of scheming foreigners, especially the wicked Chinese, “stealing our jobs” and victimizing his class allies…. He describes the normalization of trade relations with China as “catastrophic” — Sanders and Jesse Helms both voted against the Clinton-backed China-trade legislation — and heaps scorn on every other trade-liberalization pact. That economic interactions with foreigners are inherently hurtful and exploitative is central to his view of how the world works.“

Sanders lacks an understanding of trade’s real function: allowing consumers and businesses to freely engage in mutually beneficial exchanges with partners abroad, and vice versa. Trade thereby allows our total consumption and standard of living to expand. It is not based on “beating” your partners, as Sanders imagines. It is cooperative behavior.

Opposition to free trade nearly always boils down to one thing: avoiding competition. That goes for businesses seeking to protect or gain some degree of monopoly power and for unions wishing to keep wages, benefits and work rules elevated above levels that can otherwise be justified by productivity. The result is that consumers pay higher prices, have access to fewer goods and less variety, and have a lower standard of living. It is no accident that trade wars deepened the severity of the Great Depression domestically and globally. But Sanders, like Trump, has failed to learn from the historical record.

Another area of Sanders’ deep economic ignorance is his position on wage controls. He advocates a mandatory $15 federal minimum wage with no recognition of the potential damage of such a change. Kevin Williamson has this to say:

“Prices [and wages] in markets are not arbitrary — they are reflections of how real people actually value certain goods and services in the real world. Arbitrarily changing the dollar numbers attached to those preferences does not change the underlying reality any more than trimming Cleveland off a map of the United States actually makes Cleveland disappear.“

The minimum wage was the subject of a recent post on Sacred Cow Chips. A higher minimum is a favorite policy of well-meaning leftists and social justice warriors, but they fail to address the realities that the least-skilled suffer adverse employment effects, that a higher minimum wage hastens the substitution of capital for unskilled labor, and that the policy often benefits non-primary workers from middle and upper-income households. It’s a lousy way to help the impoverished. Moreover, minimum wages were originally conceived as a tool of racial exclusion and in all likelihood still act that way. Most of the research supporting minimum wage increases focuses on short-run effects or on sectors that are less capital-intensive. Findings about long-run effects are much more negative (see here, too). It’s a given that Sanders understands none of this.

Other elements of Sanders’ platform are essentially freebies for all: universal health care (see the first link from this Bing search), free college tuition for all, and expanded social security benefits. And of course there is a promise to rebuild our crumbling infrastructure, taking full advantage of the myth that our infrastructure is so decrepit that it must be replaced now. All of these ideas are costly, to say the least, and there is nothing adequate in Sanders’ platform to pay for them. He’ll raise taxes on the 1%, he says. Just watch the capital fly away. Ed Krayewski of Reason discusses Sander’s rich promises and the lack of resources to pay for them in “Bernie Sanders, the 18 Trillion Dollar Man“:

“The Wall Street Journal spoke with an economist at the liberal Center on Budget and Policy Priorities, who acknowledged taxes would have to go up for the middle class too to pay for Sanders programs.“

Middle class tax hikes would undoubtedly be accompanied by a lot more public debt, and ultimately inflation. Freebies for whom? As Krayewski says, Sanders “wants taxpayers to ‘feel the Bern’“.

In fairness, Sanders suggests that some of the needed revenue can be diverted from military spending. Possibly, but the military budget has already been reduced significantly, and it is not clear that much fat remains for Sanders to cut. There will certainly be demands for greater military spending given the significant threats we are likely to face from rogue states.

Sanders’ promise to transform our energy system is another one that will come with high costs. What Sanders imagines is a widespread fallacy that green energy can be produced at little cost. However, we know that renewables carry relatively high distributed costs and their contributions to load are intermittent, requiring base load backup from more traditional sources like fossil fuels or nuclear energy. Like President Obama, Sanders would impose new costs on fossil fuels, but the poor will suffer the most without offsetting assistance. And subsidies are also required to incent greater adoption of expensive alternatives like home solar and electric vehicles. Sanders would authorize this massive diversion of resources for the purpose of mitigating a risk based on carbon-forcing climate models with consistent track records of poor accuracy.

If free speech is your hot button, then Sanders’ promise to “overturn” Citizen’s United won’t make you happy. Why should an association of individuals, like a union or a corporation, be denied the right to use pooled resources for the purpose of expressing views that are important to their mission? Sanders is proposing an outright abridgment of liberty. From the first Kevin Williamson link above:

“… criminalizing things is very much on Bernie’s agenda, beginning with the criminalization of political dissent. At every event he swears to introduce a constitutional amendment reversing Supreme Court decisions that affirmed the free-speech protections of people and organizations filming documentaries, organizing Web campaigns, and airing television commercials in the hopes of influencing elections or public attitudes toward public issues.“

It is hard to take issue with Sanders’ call for an end to police brutality without a clear sense of his attitude toward law enforcement. I believe all fair-minded people wish for zero police brutality, but critics often minimize the difficulty of police work. No doubt there are gray areas in the practice of law enforcement; some police officers take their powers too far, which cannot be condoned. If institutional reforms can help, so much the better. But the police must be given the latitude to do a difficult job without fear of unreasonable legal reprisal.

On a related note, Sanders advocates an end to the war on drugs, a reform that I wholeheartedly support. Go you Bernie!

Finally, here is a more general illustration of Bernie Sanders’ backward views on economics. It is a Sanders quote I repeat from the second Kevin Willamson link above:

“You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country. I don’t think the media appreciates the kind of stress that ordinary Americans are working on.“

Sanders’ complaint about the plethora of choices in consumer goods fails to recognize that they reflect real differences in consumer preferences, as well as an economy dynamic enough to provide for those preferences. Far from causing hunger and poverty, that dynamism has lifted standards of living over the years across the entire income distribution, even among the lowest income groups, to levels that would astonish our forebears. And it created the wealth that enables our society to make substantial transfers of resources to low income groups. Unfortunately, those very transfer programs are rife with incentives that encourage continued dependency. Other government interventions such as the minimum wage have diminished opportunities for work for individuals with little experience and skills. Meanwhile, regulation and high business and personal taxes undermine the continued growth and dynamism of the economy that could otherwise lift more families out of dependency. Sanders would do better to study the history of socialism in practice, and to look in his own socialist mirror to identify the reasons for persistently high levels of poverty.