The Insane Substitution Of Regulation For Value

21 Monday Sep 2015

Posted by Nuetzel in Big Government, Regulation

Tags

Broadband Investment, Code of Federal Regulation, Compliance Costs, Coyote Blog, Dodd Frank Act, e-Verify, Great Stagnation, Jimmy Carter, L. Gordon Crovitz, Mercatus Center, Net Neutrality, Obamacare penalties, Regulatory Burdens, Regulatory State, Vestigial Regulations, Warren Meyer

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.

Statists and Stasis: The Dismal Solutions of Anti-Capitalists

26 Wednesday Aug 2015

Posted by Nuetzel in Capitalism, Markets, Socialism, Tyranny

≈ Leave a comment

Tags

A. Barton Hinkle, Administered Prices, Anti-Capitalism, Asymmetric Information, Bernie Sanders, central planning, Chris Edwards, Coercive Power, Coyote Blog, Dead Weight Loss, External Effects, Foundation for Economic Education, Fred Foldvary, Jonathan Newman, Mercatus Center, Progressivism, Reason, Robert P. Murphy, Socially useless, Statism and Stasis, The Freeman, Warren Meyer

The anti-capitalist Left is quick to condemn private businesses of unfair practices and even unethical behavior. In their estimation, certain prices are not just and profits are somehow undeserved rewards to private property, risk-taking and entrepreneurial sweat. They somehow imagine that meeting market demands is an easy matter, or worse, that market demands are not “socially useful”. Few have ever attempted to run a business, or if they have, they were unsuccessful and resent it. They also cannot grasp the social function served by private markets, to which we owe our standard of living and much of our culture.

What alternatives do these deep thinkers suggest? A socialist utopia? Jonathan Newman discusses the many practical problems presented by socialism and why it always fails to achieve success comparable to societies that rely on free markets. Newman’s treatment covers the inability of administered pricing to convey accurate information and effective incentives, the waste induced by queuing, neglect of comparative advantage, waste induced by production quotas, retarded innovation and technological development, and a deeply embedded stasis in the face of changing conditions. Little wonder that poverty is a consequence.

Warren Meyer at Coyote Blog has written of the stasis seemingly promoted by the progressives. They are quite protective of the status quo. Ironically, and quite rightly, Meyer calls them “deeply conservative”, too conservative to accept the dynamism of a capitalistic society. From Meyer:

“Progressives want comfort and certainty. They want to lock things down the way they are. They want to know that such and such job will be there tomorrow and next decade, and will always pay at least X amount. Which is why, in the end, progressives are all statists, because only a government with totalitarian powers can bring the order and certainty and control of individual decision-making that they crave..

Progressive elements in this country have always tried to freeze commerce, to lock this country’s economy down in its then-current patterns. Progressives in the late 19th century were terrified the American economy was shifting from agriculture to industry. They wanted to stop this, to cement in place patterns where 80-90% of Americans worked on farms.“

Freezing the diffusion of technology and often the state of technology itself is a consequence of socialist policy. And technology may well be the enemy of the Left in another sense: An interesting twist is provided by Fred Foldvary of the Mercatus Center in “Government Intervention Is Becoming Obsolete“. He writes that technology is undermining all of the usual economic rationales for intervention: asymmetric information, external effects, public goods, and monopoly. The article is brief, but he refers the reader to more extensive treatments.

A good example of socialism’s perverse appeal is the rhetoric of Senator Bernie Sanders, now a candidate for the Democrat Presidential nomination. Sanders has criticized the “the dizzying (and socially useless) number of products in the deodorant category….” At Reason.com, A. Barton Hinkle wondered what Sanders might consider the appropriate number of deodorant choices in our society. Would he wish to dictate a limited number as a matter of policy? And what other “socially useless” choices might he choose to limit in his failure to grasp that these choices reflect the incredible health and vibrancy of a market economy. Here’s Hinkle:

“… central planners think they can allocate economic resources better than the unguided hand of individual free choice. Like any good scientific experiment, this one is easily replicated, and has been time and again. See, for example, Venezuela, which has now run out of toilet paper, tampons, and other basic necessities because some people there think they should make all the choices for other people. And yet for many, the repeated lesson still has not sunk in. In an unintentionally hilarious essay about Cuba not so long ago, one writer noted that “the people are hungry here. There are severe food shortages. I do not understand why a tropical island would lack fruits and vegetables . . . and my only assumption is that maybe they have to export it all.”

Never forget that government can only pursue policy objectives via coercive power. I don’t think socialists have forgotten at all. Without the power to coerce, nothing proposed or done by the state can be accomplished and enforced. This is the course that progressive, anti-capitalists must follow to achieve their collectivist vision. But Chris Edwards reminds us that “Coercion Is Bad Economics” with the following points about government:

When it “uses coercion, its actions are based on guesswork.“
Its “actions often destroy value because they [arbitrarily] create winners and losers.“
Its “activities fail to create value because the funding comes from a compulsory source: taxes.”
Its “programs often fail to generate value because the taxes to support them create “deadweight losses” or economic damage.“

By arranging voluntary, mutually beneficial trades, market forces avoid all of these problems. As Robert P Murphy explains in The Freeman, “Capitalists Have a Better Plan“.

The anti-capitalists do not hesitate to saddle private businesses with confiscatory tax and regulatory burdens in the name of their own vision of society. Want to live in a bleak world of decline? Then here’s your prescription, courtesy of the anti-capitalist Left: regulate heavily, monitor transactions, impose wage and price controls, dismantle markets, tax at punitive levels, confiscate property, censor “offensive” speech, extend dependence on the state, absorb private savings and crowd out private investment with government borrowing, and inflate the money stock. Smells like a crappy “utopia”.

Obamanomics and Opportunity Knocked Off

10 Wednesday Jun 2015

Posted by Nuetzel in Regulation

≈ 1 Comment

Tags

Coyote Blog, Department of Labor, Effective wage, Exempt employees, Non-exempt employees, Obama administration, Overtime rules, Politico, the administrative state, Warren Meyer

Another Obama fallacy and a new, binding constraint on voluntary private arrangements: in the latest example of administrative rule-making gone berserk, the Obama Administration (via The Department of Labor) is proposing a drastic change in the definition of an exempt employee, increasing the salary threshold for the exemption from $23,660 to as much as $52,000. This is likely to change the status of a large number of workers, but as Warren Meyer explains, not in the way the administration hopes.

Obama and his advisors imagine that this change will actually increase the incomes of a large number of workers — that employers will begin paying overtime to hard-working supervisory and administrative employees. Meyer quotes Politico‘s headline: “Barack Obama poised to hike wages for millions.” But employers are not indifferent to the cost of a given labor input.

As Meyer asserts, currently exempt employees who now earn a salary between the current and the new thresholds may well be converted to hourly, non-exempt employees. And those now working extra hours are likely to be working fewer hours under the new rules. In fact, they may well see their hours and incomes reduced. Some employers will be able to automate certain tasks to compensate for the reduction in labor input, as Meyer suggests. Or perhaps more part-time workers will be hired.

There is another issue at stake, however, in addition to the mere calculation of workers X hours X the wage rate. Meyer expresses disgust at the way the new threshold could change relationships between employers and certain employees. As he tells it, the change will convert ambitious young managers into clock-punchers. In case that sounds too much like a negative personality change, a more sympathetic view is that many workers do not mind putting in extra hours, even as it reduces their effective wage. They have their reasons, ranging from the non-pecuniary, such as simple work ethic, enjoyment and pride in their contribution to reward-driven competitiveness and ambition. Hours worked gives exempt employees an additional margin along which to prove their value to the enterprise. Obama’s proposal takes that away, which may penalize employees with less talent but strong ambition. Opportunity’s knock is getting softer.

Major Mistake: The Minimum Opportunity Wage

06 Saturday Jun 2015

Posted by Nuetzel in Price Controls

≈ 1 Comment

Tags

Alan Krueger, Brian Doherty, competition, Coyote Blog, David Card, Don Boudreaux, Economic justice, Fast food robots, Mark Perry, Minimum Wage, Monopsony, Reason Magazine, Rise of the Machines, Robert Reich, Robot replacements, Show-Me Institute, Steve Chapman, Substitutability, Tim Worstall, Unintended Consequences, Wage compression, Warren Meyer

City leaders in St. Louis and Kansas City are the latest to fantasize that market manipulation can serve as a pathway to “economic justice”. They want to raise the local minimum wage to $15 by 2020, following similar actions in Los Angeles, Oakland and Seattle. They will harm the lowest-skilled workers in these cities, not to mention local businesses, their own local economies and their own city budgets. Like many populists on the national level with a challenged understanding of market forces (such as Robert Reich), these politicians won’t recognize the evidence when it comes in. If they do, they won’t find it politically expedient to own up to it. A more cynical view is that the hike’s gradual phase-in may be a deliberate attempt to conceal its negative consequences.

There are many reasons to oppose a higher minimum wage, or any minimum wage for that matter. Prices (including wages) are rich with information about demand conditions and scarcity. They provide signals for owners and users of resources that guide them toward the best decisions. Price controls, such as a wage floor like the minimum wage, short-circuit those signals and are notorious for their disastrous unintended (but very predictable) consequences. Steve Chapman at Reason Magazine discusses the mechanics of such distortions here.

Supporters of a higher minimum wage usually fail to recognize the relationship between wages and worker productivity. That connection is why the imposition of a wage floor leads to a surplus of low-skilled labor. Those with the least skills and experience are the most likely to lose their jobs, work fewer hours or not be hired. In another Reason article, Brian Doherty explains that this is a thorny problem for charities providing transitional employment to workers with low-skills or employability. He also notes the following:

“All sorts of jobs have elements of learning or training, especially at the entry level. Merely having a job at all can have value down the line worth enormously more than the wage you are currently earning in terms of a proven track record of reliable employability or moving up within a particular organization.“

The negative employment effects of a higher wage floor are greater if the employer cannot easily pass higher costs along to customers. That’s why firms in highly competitive markets (and their workers) are more vulnerable. This detriment is all the worse when a higher wage floor is imposed within a single jurisdiction, such as the city of St. Louis. Bordering municipalities stand to benefit from the distorted wage levels in the city, but the net effect will be worse than a wash for the region, as adjustments to the new, artificial conditions are not costless. Again, it is likely that the least capable workers and least resourceful firms will be harmed the most.

The negative effects of a higher wage floor are also greater when substitutes for low-skilled labor are available. Here is a video on the robot solution for fast food order-taking. In fact, today there are robots capable of preparing meals, mopping floors, and performing a variety of other menial tasks. Alternatively, more experienced workers may be asked to perform more menial tasks or work longer hours. Either way, the employer takes a hit. Ultimately, the best alternative for some firms will be to close.

The impact of the higher minimum on the wage rates of more skilled workers is likely to be muted. A correspondent of mine mentioned the consequences of wage compression. From the link:

“In some cases, compression (or inequity) increases the risk of a fight or flee phenomonon [sic]–disgruntlement culminating in union organizing campaigns or, in the case of flee, higher turnover as the result of employees quitting. … all too often, companies are forced to address the problem by adjusting their entire compensation systems–usually upward and across-the-board. .. While wage adjustments may sound good for those who do not have to worry about profits and losses, the real impact for a company typically means it must either increase productivity or lay people off.“

For those who doubt the impact of the minimum wage hike on employment decisions, consider this calculation by Mark Perry:

“The pending 67% minimum wage hike in LA (from $9 to $15 per hour by 2020), which is the same as a $6 per hour tax (or $12,480 annual tax per full-time employee and more like $13,500 per year with increased employer payroll taxes…)….“

Don Boudreaux offers another interesting perspective, asking whether a change in the way the minimum wage is enforced might influence opinion:

“... if these policies were enforced by police officers monitoring workers and fining those workers who agreed to work at hourly wages below the legislated minimum – would you still support minimum wages?“

Proponents of a higher minimum wage often cite a study from 1994 by David Card and Alan Krueger purporting to show that a higher minimum wage in New Jersey actually increased employment in the fast food industry. Tim Worstall at Forbes discussed a severe shortcoming of the Card/Krueger study (HT: Don Boudreaux): Card and Krueger failed to include more labor-intensive independent operators in their analysis, instead focusing exclusively on employment at fast-food chain franchises. The latter were likely to benefit from the failure of independent competitors.

Another common argument put forward by supporters of higher minimum wages is that economic theory predicts positive employment effects if employers have monopsony power in hiring labor, or power to influence the market wage. This is a stretch: it describes labor market conditions in very few localities. Of course, any employer in an unregulated market is free to offer noncompetitive wages, but they will suffer the consequences of taking less skilled and less experienced hires, higher labor turnover and ultimately a competitive disadvantage. Such forces lead rational employers to offer competitive wages for the skills levels they require.

Minimum wages are also defended as an anti-poverty program, but this is a weak argument. A recent post at Coyote Blog explains “Why Minimum Wage Increases are a Terrible Anti-Poverty Program“. Among other points:

“Most minimum wage earners are not poor. The vast majority of minimum wage jobs are held as second jobs or held by second earners in a household or by the kids of affluent households. …

Most people in poverty don’t make the minimum wage. In fact, the typically [sic] hourly income of the poor appears to be around $14 an hour. The problem is not the hourly rate, the problem is the availability of work. The poor are poor because they don’t get enough job hours. …

Many young workers or poor workers with a spotty work record need to build a reliable work history to get better work in the future…. Further, many folks without much experience in the job market are missing critical skills — by these I am not talking about sophisticated things like CNC machine tool programming. I am referring to prosaic skills you likely take for granted (check your privilege!) such as showing up reliably each day for work, overcoming the typical frictions of working with diverse teammates, and working to achieve management-set goals via a defined process.”

Some of the same issues are highlighted by the Show-Me Institute, a Missouri think tank, in “Minimum Wage Increases Not Effective at Fighting Poverty“.

A higher minimum wage is one of those proposals that “sound good” to the progressive mind, but are counter-productive in the extreme. The cities of St. Louis and Kansas City would do well to avoid market manipulation that is likely to backfire.

Censor Me, For My Fathers Have Sinned

30 Thursday Apr 2015

Posted by Nuetzel in Marketplace of Ideas

≈ 1 Comment

Tags

Ben Affleck, Bryan Caplan, Coyote Blog, Group Identity, Identity Politics, Ideological Turing Test, Original Sin, PBS, Privilege, privileged white male, Warren Meyer

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

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

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

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

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

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

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

May No Window Be Unbroken

24 Tuesday Feb 2015

Posted by Nuetzel in Obamacare, Uncategorized

≈ 1 Comment

Tags

ACA, Broken window fallacy, Coyote Blog, Frederick Bastiat, Government intervention, misallocation of resources, Obamacare, regulation, Sheldon Richman, third-party payments, Warren Meyer, WW II wage controls

The misallocation of resources precipitated by regulation is sometimes so thorough that proponents are apt to describe it as a feature, and not a bug! Apparently, that is how some think of new business startups and venture capital funding stimulated by Obamacare. Warren Meyer describes the situation in his post, “Worst Argument For Regulation Ever“. Providers confronting a thicket of new regulations, including a mandate for a massive reconfiguration of medical records, necessarily requires services that were heretofore unnecessary. As Meyer says:

“All this investment and activity is going into trying to get back to even from productivity losses imposed by the government, or is being spent addressing government mandates for new services that the market did not want or value. This is a diversion of resources from new value-creation to fixing things, and as such is just the broken windows fallacy re-written in a new form.”

The fallacy to which Meyer refers has a deep tradition in economic thinking, with a lineage tracing to Frederick Bastiat. A simple telling is that a broken window leads to more work for the glazier, more spending, and an apparent lift in income. Of course, someone must pay, and the broken window itself represents a loss of physical capital. But there are other consequences, since the glazier receives a payment that could have, and would have, purchased other goods and services that would have been preferred to window repairs. There are many broken windows in the case of Obamacare, including direct hits to providers, medical device manufacturers, and many of the previously insured. It was not enough for proponents to simply extend coverage to the uninsured. That simpler approach would have created plenty of challenges. But instead, Obamacare became a legal and regulatory behemoth in the hope that it would transform the health care industry… into what?

Noble intentions frequently motivate destructive actions out of sheer economic ignorance. That encompasses almost every effort to use government as an active manager of economic or social affairs. That’s the cogent message from Sheldon Richman in “The Economic Way of Thinking About Health Care“. Richman agrees that “health insurance for all” is an outcome to be hoped for, but he derides the notion that activist government can achieve it effectively. First, the redistributive element in many government intrusions is a questionable economic strategy:

“When government provides health insurance through subsidies or Medicare or Medicaid, it presides over the disposal of the fruits of other people’s labor. Government personnel decide who gets what, even though they had no hand in producing the resources they “redistribute.” In other words, they traffic in pilfered property. Hence H.L. Mencken’s immortal insight: ‘Every election is a sort of advance auction sale of stolen goods.’”

The central planners decide who gets what in ways that are more destructive than simple redistribution. By way of demonstrating this phenomenon, Richman goes on to discuss the health insurance third-party payment system encouraged by government policy. Employer-paid coverage started as an unintended consequence of WW II wage controls. It also has tax-favored status as a popular fringe benefit. Unfortunately, this led to the bastardization of the concept of insurance itself:

“That [tax-favored status] gives employer-provided insurance an appeal it would never have in a free society, where taxation would not distort decision-making. Moreover, the system creates an incentive to extend “insurance” to include noninsurable events simply to take advantage of the tax preference for noncash compensation. Today pseudo-insurance covers screening services and contraception, which of course are elective. (This does not mean they are trivial, only that they are chosen and are not happenings.)”

Excess demand, owing to a marginal cost of routine care and elective services to the consumer that appears to be zero, sets off a series of unintended consequences:

“… the real prices of medical inputs to rise … the price of insurance goes up; the government’s health care budget rises, requiring higher taxes now or later (because of the debt); and resources and labor flow into the stimulated health care industry and away from other valued purposes, raising the prices of other goods and services. Higher insurance premiums in turn prompt demand for more government subsidies, higher taxes, and more debt.”

May that circle be broken. Richman mentions several steps at the link to promote more competitive, comprehensive and affordable health care.

Precaution Forbids Your Rewards

19 Thursday Feb 2015

Posted by Nuetzel in Regulation

≈ 2 Comments

Tags

Carbon forcing, Climate models, Climate Warming, Coyote Blog, GMOs, Precautionary Principle, psuedoscience, regulation, Risk Management, Warren Meyer

The precautionary principle (PP) is often used to justify actions that radically infringe on liberty, but it is an unreliable guide to managing risk, both for society and for individuals. Warren Meyer makes this point forcefully in a recent post entitled “A Unified Theory of Poor Risk Management“. The whole post is worth reading, but PP is the focus of second section. Meyer offers the following definition of the PP from Wikipedia:

“The precautionary principle or precautionary approach to risk management states that if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is not harmful, the burden of proof that it is not harmful falls on those taking an action.”

He goes on to explain several problems with PP, the most important of which is its one-sided emphasis on the risks of an activity while dismissing prospective benefits of any kind. Enough said! That shortcoming immediately disqualifies PP as a guide to action. Rather, it justifies compulsion to not act, which is usually the desired outcome when PP is invoked. We are told to stop burning fossil fuels because CO2 emissions might lead to catastrophic global warming. Yet burning fossil fuels brings enormous benefits to humanity, including real environmental benefits. We are told to stop the cultivation of GMOs because of perceived risks, yet the potential benefits of GMOs are routinely ignored, such as higher yields, improved nutrition, drought resistance and reduced environmental damage. Meyer asks whether there is an irony in ignoring these potential gains, as it entails an acceptance of certain risks. Forced energy shortages would bring widespread economic decline. Less-developed countries face risks of continuing poverty and malnutrition that could otherwise be mitigated.

The terrifying risks cited by PP adherents are generally not well-founded. For example, climate models based on CO2 forcings have extremely poor track records. And whether such hypothetical warming would be costly or beneficial, on balance, is open to debate. The supposed risks of GMOs are largely based on pseudoscience and ignore a vast body of evidence of their safety. As Meyer says:

“… the principle is inherently anti-progress. The proposition requires that folks who want to introduce new innovations must prove a negative, and it is very hard to prove a negative — how do I prove there are no invisible aliens in my closet who may come out and eat me someday, and how can I possibly get a scientific consensus to this fact? As a result, by merely expressing that one ‘suspects’ a risk (note there is no need listed for proof or justification of this suspicion), any advance may be stopped cold. Had we followed such a principle consistently, we would still all be subsistence farmers, vassals to our feudal lord.”

The PP has obvious appeal to statists and fits comfortably into the philosophy of the regulatory state. But it’s a reasonable conjecture that widespread application of the PP exposes the world to greater natural and economic risks than without the PP. Under laissez-faire capitalism, human action is guided by the rational balancing of benefits against costs and risks, which has brought prosperity everywhere it’s been practiced.

Can Federal Regulation Enrich Your Web? What?

05 Thursday Feb 2015

Posted by Nuetzel in Net neutrality

≈ 2 Comments

Tags

Broadband service, Common Carrier, Coyote Blog, elasticity of demand, FCC, incentives, Internet Service Providers, Net Neutrality, Peter Suderman, regulation, Tom Wheeler, Warren Meyer

Do you really believe that government regulation of the internet will keep it “open”, fast and innovative? Really? Then you will be happy with today’s FCC decision to reclassify broadband internet service providers (ISPs) as “common carriers.” (The link above will take you to a Google search page with another link to “Washington Conquers the Internet“.) This puts the ISPs on the same regulatory footing as land-line and wireless voice services. The FCC’s action is a legal move that will pave the way for regulation of rates and service rules with the supposed aim of “net neutrality”.

The FCC chairman, Tom Wheeler, has recently argued that because the wireless carriers have enjoyed tremendous growth under the common carrier rules, there is no reason to fear that the broadband industry would suffer under the reclassification. However, as Peter Suderman explains, the common carrier rules applied only to wireless voice services, not to rapidly growing wireless data services. Wheeler’s argument is therefore misleading:

“... it suggests that Wheeler wants to pursue reclassification not because the wireless sector has been successful under Title II, but because of the service that has been successful without it.”

The FCC would almost assuredly reclassify wireless data as well as broadband as common carrier services.

Net neutrality is a misnomer, as Sacred Cow Chips has noted in the past here, here, and here. These posts cover shortcomings of so-called net neutrality such as mis-pricing of services, subverting incentives for network maintenance and growth, massive non-neutral subsidies for network hogs, the potential threat to free speech, and a negative impact on the poor. Warren Meyer at Coyote Blog expresses his dismay at the utter naivete of those who think that “net neutrality” sounds appealing:

“Here is my official notice — you have been warned, time and again. There will be no allowing future statements of “I didn’t mean that” or “I didn’t expect that” or “that’s not what I intended.” There is no saying that you only wanted this one little change, that you didn’t buy into all the other mess that is coming. You let the regulatory camel’s nose in the tent and the entire camel is coming inside. I guarantee it.”

Today’s FCC decision will also expose unsuspecting internet users to federal and local fees and taxes averaging about $49 per year. According to this calculation, that’s an increase in average broadband cost of about 9%. I believe that the estimate of the negative impact on subscribership given at the link is mistaken and too large (even in the update at the bottom), but there will certainly be a negative impact that could run into the millions of subscribers.

Finally, there is little doubt that FCC Chairman Wheeler felt strong pressure from the White House (another link at a Google search page) to reclassify ISPs as common carriers. President Obama is one of those souls who find “net neutrality” appealing, but I’m cynical enough to think that he merely finds the politics of “net neutrality” appealing. Big government can’t wait to control your “open internet”.

Postscript: This video is a lighthearted take on what the FCC is getting us into.

Pesticides Preferable To Pests, Damaged Crops

08 Thursday Jan 2015

Posted by Nuetzel in Uncategorized

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Autism, Biofortified, Coyote Blog, Discover, Facebook GMO Skepti-Forum, Glyphosate, Huffington Post, Kevin Drum, MIT, National Public Radio, pesticdes, Stephanie Seneff, Synthetic vs. natural pesticides, Warren Meyer

The chart above is something of a joke, but it has a serious point: it provides evidence every bit as solid as some research making the rounds on social media. Bad science finds easy footholds on the internet, but more shocking is the ease with which it is tolerated and even promoted within academe. But according to Warren Meyer, we live in the age of “post-modern science“:

“It means that certain data, or an analysis, or experiment was somehow wrong or corrupted or failed typical standards of scientific rigor, but was none-the-less (sic) ‘accurate’. How can that be? Because accuracy is not defined as logical conformance to observations. It has been redefined as ‘consistent with the narrative.’”

Here is a particularly egregious example of scientific swill that I have seen posted several times over the past few days: “MIT Researcher: Glyphosate Herbicide will Cause Half of All Children to Have Autism by 2025“. The headline itself is more than sufficient to sound the BS alarm. This MIT “researcher”, Stephanie Seneff, is not a biologist, chemist, or geneticist. As it happens, she is a computer scientist (with advanced degrees in electrical engineering) who specializes in “text mining.” Her work, apart from serving as an activist, involves finding correlations between the appearance of words and “adverse outcomes” in reports and literature. She has a reputation in the scientific community as a bit of a “quack”. In this case, HuffPo goes so far as to say that her glyphosate research is “dumb.” Discover has also objected to Seneff’s work, and MIT’s tolerance of it.

A frequent refrain in critiques of research is that correlation is not causation, a fact that is demonstrated by the chart above and Seneff’s research. At best, Seneff presents evidence of correlation between the uses of certain words, the selection of which may be subject to severe bias. In addition, there is no convincing evidence that autism is increasing, but there is plenty of evidence that the definition and diagnosis of autism have expanded dramatically. There is increasing evidence that autism is often of purely genetic origin.

Here are a couple of other useful links debunking Seneff’s work:

“Medical Doctors weigh in on Glyphosate Claims”

“Stephanie Seneff: Following the Geiers dumpster-diving in the VAERS database”

Synthetic pesticides like glyphosate are applied to crops in low concentrations that are unlikely to cause harm. So-called natural pesticides are often applied more heavily because they are less effective at controlling pests. It is not clear that one is safer than the other. Here is a nice piece on synthetic vs. natural pesticides.

Kevin Drum has asserted that the internet contributes to “cognitive inequality”. That is, it “makes smart people smarter and dumb people dumber”. The spread of disinformation like Seneff’s research via social media is a good case study of the latter part of Drum’s claim.

A big hat tip to members of the Facebook GMO Skepti-Forum for many of the links above.

We Need Trolleys Like We Need Excuses For New Taxes

30 Thursday Oct 2014

Posted by Nuetzel in Uncategorized

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Coyote Blog, Delmar Trolley, Federal Grants, Forest Park, Judy Garland, Resource Costs, Streetcars, The Atlantic, The Show Me Institute, Transit Taxes, Trolleys

Streetcars and trolleys seem to evoke romantic notions, but they are a gigantic waste of resources. They are costly to build relative to alternatives by about an order of magnitude. After construction, the revenue they produce generally pays only a fraction of ongoing operating costs, contributing nothing to the original capital costs. It’s a loser all the way around. The “economic development” mantra is a fallacy. Relative to what alternative? Assertions of “environmental benefits” are even more bogus, as if pouring resources valued in the millions down the hole to build a new civic toy did not have negative environmental implications. Waste is waste.

Here is a recent article in The Atlantic that covers the poor performance of many new streetcar and trolley systems. They defend the rail concept, provided that it is dedicated and not competing with auto, bike, bus and pedestrian traffic for lanes. This problem has been encountered by a number streetcar systems, including one in Washington, DC. Coyote Blog has some additional thoughts on the DC line and the urbanist streetcar obsession in general:

“What we see over and over again is that by consuming 10-100x more resources per passenger, rail systems starve other parts of the transit system of money and eventually lead to less, rather than more, total ridership (even in Portland, by the way).”

A trolley project is underway in St. Louis that is typical of other systems in terms of waste. It would link a popular district called the University City Loop with Forest Park. Nostalgic images of Judy Garland riding the trolley to the World’s Fair in the park must dance in the heads of supporters. Clang, Clang, Clang! Here is a short piece on the Delmar Trolley:

“The total construction cost will reach close to $45 million — almost $20 million per mile of track. … taxpayers will finance most of the project’s construction and operational costs. … The plan’s proponents have not presented any kind of cost-benefit analysis to the public. ”

Ah, but a $25 million federal grant was approved for the project back in 2012, and that’s just a free lunch for locals, right? How many local planners around the country think in those terms? Short answer: too many!