Tag Archives: Foundation for Economic Education

Benefit Mandates Bar Interstate Competition

30 Thursday Mar 2017

Posted by in competition, Health Care

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The lack of interstate competition in health insurance does not benefit consumers, but promoting that kind of competition requires steps that are not widely appreciated. Most of those steps must take place at the state level. In fact, it is not well known that it is already legal for states to jointly create interstate “compacts” under Obamacare, though none have done so.

The chief problem is that states regulate insurance carriers and the policies they offer in a variety of ways. Coverage mandates vary from state to state, as do rules governing the coverage of pre-existing conditions, renewability, dependents, costs, and risk rating. John Seiler, writing at the Foundation for Economic Education, offers a great perspective on the fractured character of state regulations. Incumbent insurers within a state have natural advantages due to their existing relationships with local providers. Between the difficulty of forming a new network and the costs of customizing policies and obtaining approval in multiple states, there are significant barriers to entry at state lines.

Federalism is a principle I often support, but state benefit mandates and other regulations are perverse examples because they restrict the otherwise voluntary and victimless choices available to a state’s consumers. Well, victimless except perhaps for in-state monopolists and their cronyist protectors in state government. Many powers are reserved to states under the Constitution, while the powers of the federal government are strictly limited. That’s well and good unless state governments infringe on the rights of individuals protected by the Constitution. In particular, the Commerce Clause prohibits state governments from obstructing the flow of interstate commerce.

Here is a bit of history surrounding the evolution of state versus federal control over insurance markets, as told by Pennsylvania Insurance Commissioner Teresa Miller (as quoted by reporter Steve Esack):

“Since the 1800s, the U.S. Supreme Court held individual states, not Congress, had the power to regulate insurance companies. The high court overturned that precedent, however, in a 1944 ruling, United States v. South-Eastern Underwriters, that said insurance sales constituted interstate trade and Congress could regulate insurance under the U.S. Constitution’s Commerce Clause.

But states cried foul. In response, Congress passed and President Harry S. Truman in 1945 signed the McCarran-Ferguson Act to grant a limited anti-trust provision so states could keep regulating insurance carriers. The law does not preclude cross-border sales. It means insurance companies must abide by different sets of rules and regulations and laws in 50 states.“

Congress obviously recognized that state regulation of health insurance would create monopoly power and restrain trade, even if states place bridles on insurers and impose ostensible consumer protections. The solution was to exempt health insurers from broad federal regulation and anti-trust prosecution by the Department of Justice.

Last week, the House of Representatives passed a bill that would repeal McCarran-Ferguson for health insurers. However, that would do little to encourage cross-border competition as long as the tangle of state mandates and other regulations remain in place. The regulatory landscape would have to change under this kind of federal legislation, but how that would happen is an open question. Could court challenges be brought against state regulators and coverage mandates as anti-competitive? Would anti-trust actions be brought against incumbent carriers?

Robert Laszewski has strong objections to any new law that would allow interstate sales of health insurance as long as state benefit mandates remain in place for “local legacy” carriers. In particular, he believes it would encourage “cherry picking” of the best risks by market entrants who would be free of the mandates. Many of the healthiest individuals would jump at the chance to purchase stripped down, catastrophic coverage. That would leave the legacy carriers under the burden of mandates and deteriorating risk pools. Would states do this to their incumbent insurers without prodding by the courts? Would they simply drop the mandates? I doubt it.

No matter the end-state, there is likely to be a contentious transition. Promoting interstate competition in the health insurance market is a laudable goal, but it is not as simple as some health-care reformers would have us believe. Real competition requires action by states to eliminate or liberalize regulations on benefit mandates, risk-rating and pre-existing conditions. Ultimately, the cost of coverage for high-risk individuals might have to be subsidized, whether means-tested or not, through a combination of support from the states, the federal government, and private charities. And of course, interstate competition really does requires repeal of the health insurance provisions of McCarran-Ferguson.

Governments at any level can act against the well-being of consumers, despite the acknowledged benefits of decentralized governance over central control. Benefit mandates, whether imposed at the federal or state levels, are inimical to consumer choice, competition, efficient pricing, and often to the very concept of insurance. Those aren’t the sort of purposes federalism was intended to serve.

Charitable Intent

31 Saturday Dec 2016

Posted by in Charity, Redistribution, Socialism

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charity

I’m not accustomed to writing about religious matters, but I must say that I’ve never been persuaded that Jesus himself approved or advocated for socialism and state-enforced redistribution of wealth. Instead, I believe that Jesus would have endorsed the message above: charity inheres to individuals, and it lives in their hearts. It is not a concern that individuals can ever satisfy by promoting public tax and transfer policies, pressing claims on the resources of others.

This week, an essay on this topic caught my eye. It appeared in Lawrence Reed’s “Cliches of Progressivism“, at the Foundation for Economic Education: “#42 – ‘Jesus Was a Progressive Because He Advocated Income Redistribution  to Help the Poor’“. It covers a number of Biblical scriptures sometimes quoted in support of this notion, and Reed’s considered refutation of each. I provide just a few of Reed’s examples below, but read the whole thing, as they say:

“Make my brother share the wealth“:

“In Luke 12: 13-15, Christ is confronted with a redistribution request. A man with a grievance approaches him and demands, ‘Master, speak to my brother and make him divide the inheritance with me.’ The Son of God, the same man who wrought miraculous healings and calmed the waves, replies thusly: ‘Man, who made me a judge or divider over you? Take heed and beware of covetousness, for a man’s wealth does not consist of the material abundance he possesses.’ Wow! He could have equalized the wealth between two men with a wave of His hand but he chose to denounce envy instead.”

“Sell all your goods and share“:

“What about the reference, in the Book of Acts, to the early Christians selling their worldly goods and sharing communally in the proceeds? … In his contributing chapter to the 2014 book, ‘For the Least of These: A Biblical Answer to Poverty,’ Art Lindsley of the Institute for Faith, Work and Economics writes,

‘Again, in this passage from Acts, there is no mention of the state at all. These early believers contributed their goods freely, without coercion, voluntarily. Elsewhere in Scripture we see that Christians are even instructed to give in just this manner, freely, for “God loves a cheerful giver” (2 Corinthians 9:7). There is plenty of indication that private property rights were still in effect….’“

“Render Unto Caesar…“:

“‘Wait a minute,’ you say. ‘Didn’t He answer, “Render unto Caesar the things that are Caesar’s, and unto God the things that are God’s’ when the Pharisees tried to trick Him into denouncing a Roman-imposed tax?” … It’s found first in the Gospel of Matthew, chapter 22, verses 15-22 and later in the Gospel of Mark, chapter 12, verses 13-17. But notice that everything depends on just what did truly belong to Caesar and what didn’t, which is actually a rather powerful endorsement of property rights. Christ said nothing like ‘It belongs to Caesar if Caesar simply says it does, no matter how much he wants, how he gets it, or how he chooses to spend it.’

The fact is, one can scour the Scriptures with a fine-tooth comb and find nary a word from Christ that endorses the forcible redistribution of wealth by political authorities. None, period.“

While I generally agree with Reed’s analysis of this last point, I believe he missed the real message regarding any legitimate claims Caesar might have possessed. It is a statement about the value of material goods relative to faith and acts in the name of God. Obviously, as Reed says, it is not an endorsement of a power to tax and transfer.

The teachings of charity in the Bible have to do with the goodness of voluntary, self-motivated generosity. There are no lessons advocating compulsory taxes and transfer payments. If you say that Jesus would have supported such programs as deeds of a caring society, I would question your logic on several grounds. First, there are always political motives at play in crafting such policies, which usually include vote-buying and scapegoating. In that respect, those policies fall short of the standard for “good works”. Second, as already noted, the power to tax is backed by the police power of government, not quite the sort of “giving” about which Jesus preached. And, by extracting resources from those in a position to give unto others, tax and transfer policies reduce the capacity for private generosity. Granted, a charitable tax deduction might establish an incentive strong enough to encourage a level of continued giving. But then, the “noble” social deed becomes the hostage of tax policy, administrative definitions, rulings relative to recipient organizations, and the whims of self-interested politicians. A presumption is that individuals will not perform good works in sufficient amounts. Therefore, the state must step in, along with an army of bureaucrats and lobbyists who can be counted upon to feed off the taxpayers’ largess. The individual acts of charity encouraged in Jesus’s teachings could hardly be subject to greater convolution.

Socialism Is Concentrated Power

10 Thursday Mar 2016

Posted by in Big Government, Capitalism, Markets

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Power

Nobody likes to defend concentrated power, yet socialists earnestly crave power concentrated in the state. And state power is absolute power. They must imagine that those wielding state power, now and always, will be the sort of nice, benevolent folks they imagine themselves to be. Well, if only more power can be concentrated in the state, it will be alright. Good luck with that! Once granted, watch out.

While this sort of magical thinking might seem naive, another paradox of leftist thinking is even more befuddling: the never-yielding distrust of capitalism and private initiative, a system under which power is largely dispersed. The attitude is more than a little misanthropic. It’s as if socialists expect us to believe that someone forces us to engage in transactions with private sellers, transactions that are always unfavorable in some way. But every transaction in a private economy is voluntary, dependent only on how both parties assess benefits relative to costs. Anyone can make a bad deal, of course, and you might get ripped off by an unscrupulous buyer or seller from time-to-time. But you are free to perform due diligence. You are free to assess risks.

The left goes so far as to blame capitalism for poverty, demonstrating a complete disconnect with reality. For a better perspective on the economic miracles made possible by capitalism, I  recommend a few timely pieces of reading: economist Richard Rahn makes note of the incredible bounty of products and technology brought to us by capitalism. This includes transformative breakthroughs in almost every area of life: communication, computing, transportation, refrigeration, safety, food, medicine and on and on:

“Almost all of the great innovations came from those in the private sector who created them out of the desire for more wealth or just intellectual curiosity. The socialist countries have produced almost nothing — except for bread lines, coercive and destructive taxation and regulation, and gulags. Yet politicians all over the world proudly proclaim themselves to be socialists and attack the capitalist wealth creators and innovators — as if the real world had never existed.“

At the Foundation for Economic Education (FEE), Chelsea German and Marian L. Tupy offer ample evidence of capitalism’s successes as they shred an absurd opinion piece in Forbes magazine claiming that  capitalism “will starve humanity“:

“Throughout most of human history, almost everyone lived in extreme poverty. Only in the last two centuries has wealth dramatically increased. Early adopters of capitalism, such as the United States, have seen their average incomes skyrocket.“

German and Tupy have a more detailed post here with statistics showing dramatic increases in the standard of living enjoyed by poor households in the U.S., increases for which capitalism is largely responsible.

Last month, Don Boudreaux reflected on the well being of average Americans today compared to an individual at the extreme high end of the wealth distribution 100 years ago. Boudreaux catalogues the many ways in which John D. Rockefeller’s comforts were drastically inferior to those available today. He concludes that trading places with Rockefeller would be a questionable deal:

“Honestly, I wouldn’t be remotely tempted to quit the 2016 me so that I could be a one-billion-dollar-richer me in 1916. This fact means that, by 1916 standards, I am today more than a billionaire. It means, at least given my preferences, I am today materially richer than was John D. Rockefeller in 1916. And if, as I think is true, my preferences here are not unusual, then nearly every middle-class American today is richer than was America’s richest man a mere 100 years ago.“

I maintain that even when power is concentrated in large private companies, the situation is far preferable to concentrated power in government. First, private companies do not have the police power necessary for absolute government authority. They cannot force you to do anything. Second, private companies do not simply shuffle resources and up-charge, as the left might have you believe; they innovate and create value as an inducement to trade, a concept that is rare in state-controlled activities. When any form of competition is present, private companies discipline each other, encouraging better quality and restraint on the prices charged for their wares. Even trading with a monopolist confers gains from trade, despite its drawbacks relative to trade in competitive markets.

Of course, government is generally not confronted with competition, unless it’s prompted by citizens who “vote with their feet”, as described by Charles Tiebout. That kind of responsiveness argues for decentralized government, however. Government services are typically monopolized, but the “terms of trade” are often worse than a monopolist would offer. It’s difficult to refuse a government service or your obligation to pay, no matter how much you abhor it, and quality usually suffers due to the extreme lack of accountability to citizen-consumers.

Capitalism gets a bad rap when private businesses engage in rent-seeking. That behavior is characterized by attempts to influence government policy for the business’ own benefit, promoting subsidies, other public spending or tax policies that go to the bottom line, and regulatory actions that disproportionally harm competitors. Those efforts put the crony in crony capitalism. But note that rent seeking is not an inherent feature of capitalism. It is enabled by the existence of activist government, its control over resources and its police power. What this means is that cronyism is fostered by power concentrated within the halls of government. In other words, private power becomes more concentrated and more impervious to competitive forces when it is favored by government. That is pure privilege.

If you dislike concentrated power, then vote for small government!

 

In Praise of Refugee Aid and Precautions

23 Monday Nov 2015

Posted by in Immigration, Terrorism

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Libertarians differ from conservatives on the Syrian refugee issue and on immigration policy in general. I’m in favor of liberalized immigration because it confers powerful economic advantages. That does not imply, however, a willingness to sacrifice border security and control over the flow of immigrants. Border security is critical to the notion of U.S. sovereignty, and though I am loath to do so, I will credit Donald Trump for asking two pertinent questions: “Do we have a country? Or do we not have a country?” This is all the more important in an age when terror on the scale of a 9/11, Paris, or terrorist use of WMDs is a threat.

One of the few legitimate functions of government is national security, and the U.S. Constitution sought to assure that security would be provided without compromising the liberties of individual citizens. I’d like outsiders to feel welcome to join us and partake of those liberties, but only subject to precautions related to security. Given current threats, it is reasonable to insist on deliberation and caution in admitting new immigrants and refugees. That should include a careful vetting process and possibly post-entry safeguards such as mandatory touch-points with immigration and security officials.

Recent commentary on both sides of the Syrian refugee debate has featured conservatives waxing enthusiastic over police-state security measures and cavalier dismissal of security concerns by the Left, including a moment of apparent delusion from The Daily Kos when it weighed-in on refugees and certain principles of religious ethics, probably not that outlet’s strong suit. The Left’s usual approach to commentary on social media amounts to an exercise in “virtue signaling” (HT: Glenn Reynolds) without much critical thought, and this is no exception.

Refugees or asylum-seekers may need expedited initial handling for their own safety and protection. The tumultuous experience of fleeing a hostile regime without adequate planning, and possibly involving the loss of loved ones and possessions, suggests a need for greater assistance for refugees than for typical immigrants. The expense of a large influx of refugees is likely to be high. A solution used successfully by Canada involves private sponsorship of refugees, and there are apparently a large number of Americans willing to serve as sponsors. It is possible to vet the sponsors, of course, and might provide more reliable follow-up with the refugees themselves.

Certain classes of immigrants may be considered high-risk, though refugees have not been high-risk historically. This is one of several points made by Davis Bier at the Foundation for Economic Education in “Six Reasons To Welcome Refugees“. Bier provides a good perspective, but I don’t accept all of his assertions. He says (italicized):

  • The Paris attackers were not refugees: No, but at least one of them seems to have taken advantage of the European refugee process.
  • U.S. refugees don’t become terrorists: You can certainly vouch for this in the past tense, but it’s less certain going forward. The complete lack of documentation of many Syrian refugees complicates the vetting process.
  • Other migration channels are easier to exploit: Probably true, if the claimed thoroughness of the refugee vetting process is to be believed. Also, the resettlement from temporary camps can take two years or more, but that kind of delay is not required.
  • ISIS sees Syrian refugees as traitors: This reinforces the need to protect refugees, but it strikes me as irrelevant to the question of terrorist infiltration. A better question is whether ISIS is capable of passing-off one of their own as a refugee.
  • Turning away allies will make us less safe: It certainly won’t win us friends.
  • We should demonstrate moral courage: Helping legitimate refugees is certainly an honorable thing to do. The author points to American resistance to accepting Jewish refugees prior to World War II for fear they might be German spies. This is addressed in more detail below.

A different perspective is given in “There Are Serious, Unbigoted Reasons to Be Wary of a Flood of Syrian Refugees“, by Ian Tuttle in National Review. He asserts that the comparison of current Syrian refugees to Jewish refugees prior to WWII is inappropriate, and I largely agree. The infiltration of German spies into the Jewish refugee population was a perceived threat, but no one thought the Jews represented a risk of terror on our shores. There is nothing incompatible about feeling regret for the attitude many took toward the Jewish refugees of that era while exercising caution in the face of new risks.

Tuttle cites a recent Pew Research poll of Muslims in various countries finding that 4% to 14% of respondents approve of ISIS. Can you imagine a similar level of support for terrorism in the U.S.? This is an unfortunate social malignancy that should give us pause. Another Pew Research poll of Muslims in various countries found that the minority who believe that suicide bombing was justified ranges from 3% to 45%. It is therefore difficult to argue with Tuttle when he says:

“A non-trivial minority of refugees who support a murderous, metastatic caliphate is a reason for serious concern.“

Tuttle notes that Syrian refugees will not arrive on our shores directly from Syria.  Thus, the urgency of accepting those refugees comes into question. It is curious that such wealthy middle eastern countries as Kuwait and Saudi Arabia have not accepted refugees from Syria.

Given the immediacy of terrorist threats, the lack of even basic documents for many Syrian refugees, and the Obama Administration’s record of failure in the Middle East, it is reasonable to question their assurances as to the adequacy of the refugee vetting process. Indeed, as this article warns:

“The director of the National Counterterrorism Center admitted that terrorist groups are very interested in using refugee programs to slip operatives into Europe and the United States. … 

The director of Homeland Security had no answer when asked if the “vetting” process amounted to anything more than asking refugees to fill out an application, asking them a few questions in a verbal interview, and assuming they answer honestly….

FBI Director James Comey famously admitted last month that the U.S. government has no real way to conduct background checks on refugees.”

A substantial majority of American voters oppose the administration’s plan to accept Syrian refugees, at least under the current process. Last week, the U.S. House of Representatives passed a bill requiring that:

“… the heads of the FBI, Homeland Security Department and the Office of the Director of National Intelligence certify that each refugee being admitted would not pose a threat.“

It would be nice to have our security agencies accept some accountability for, well,  national security. The House bill would put the ball in their court with respect to high-risk refugees.

I concur with the general position of Libertarians who support a more open U.S. immigration policy and acceptance of refugees. I also believe that private sponsorship of refugees should be legalized in the U.S. to reduce their fiscal impact. And I believe we should welcome Syrian refugees provided that they can be thoroughly vetted. In the parlance of economics, transacting with refugees may involve severely asymmetric information. It is not advisable to make risky “trades” when due diligence is impossible. Short-cuts in the vetting process do not help to assure a mutually beneficial outcome. We must therefore temper our humanitarian impulse. Under the present circumstances, including an acceptance of terrorism by a “nontrivial minority” of Muslins, it is reasonable to proceed with caution, and only with caution.

Statists and Stasis: The Dismal Solutions of Anti-Capitalists

26 Wednesday Aug 2015

Posted by in Capitalism, Markets, Socialism, Tyranny

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Thought Hanging

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”.

Statists Make a Mess of Markets

20 Tuesday Jan 2015

Posted by in Markets, Regulation

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Government is not well suited to regulate markets in many respects. In the first place, regulation is never absent from free markets: consumers, competitors, technology and all factors of production such as labor ultimately represent a network of forces that regulate market outcomes. The power of market self-regulation, and the often destructive results of government regulation, are discussed by Howard Baejter in “There is No Such Thing as an Unregulated Market“. Beyond the efficiency with which markets direct resources, Baejter notes that markets regulate the quality and pricing of goods and services. Mark Perry reviews Baejter’s post approvingly and adds some thoughts of his own:

“… the ruthless consumer-regulators also waste no time praising, endorsing and recommending the products, restaurants, movies, services, sellers, contractors and businesses they like, both by supporting them with plenty of their regulatory certificates of approval (dollars), and by giving them positive, sometimes even glowing reviews on Amazon, Yelp, Rotten Tomatoes, eBay, Angie’s List, Uber, etc….”

Baejter’s concluding section covers some ways in which government regulation short-circuits healthy market regulation. Regulatory actions not only impose significant compliance costs, but they often have the effect of suspending market price signals and hampering voluntary adjustments to change that would otherwise lead to improved welfare. Furthermore, regulated firms are often successful in “capturing” regulators, enabling the most powerful players in an industry to manipulate and obtain regulatory treatment that blunts competition. As Baetjer says:

“… government regulation often “crowds out” regulation by market forces and consumer-regulators, and markets therefore operate less efficiently because the interests of the producers take priority over the interests of consumers…”

The Mises Daily ran a post in early January by Patrick Barron in which he elaborates on the truism that peaceful, voluntary exchange necessarily improves well-being relative to third-party interference. Such interference may take the form of forced exchanges, rules, mandates, price controls, or distortions from taxation. A recent post on Sacred Cow Chips, “The State and the Invisible Future Lost“,  emphasized the sacrifice of human well-being brought on by over-regulation. From that post:

“Our society routinely destroys economic opportunities as a matter of policy. This includes immediate discouragement of economic activity via tax disincentives and regulatory obstacles as well as lost capital investment and innovation. And it includes actions that grant protected status for monopolists, a steady by-product of the regulatory state.“

Rhett Butler and the War on Drugs

01 Monday Sep 2014

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Rhett

Prohibiting the consumption of any good is always likely to have undesirable effects. One typically unintended consequence is the tendency for less costly varieties of the good to disappear in favor of expensive variants, which provide rewards to suppliers that better compensate for the legal risks inherent in their trade. Some have dubbed this the “Rhett Butler effect,” after the dashing blockade runner in Gone With The Wind. This effect is discussed in “Why Rhett Butler’s Weed Is So Strong“,:

“… in the context of the North’s blockades against the South, blockade runners could profit more from delivering smaller and lighter-weight luxuries to Confederate ports. The South thus found itself flush with things like ‘bonnet ribbon, playing cards, corset stays and . . . all kinds of personal items.’” 

In the context of alcohol prohibition and, more recently, the so-called war on drugs, prohibition has created a systematic tendency for the potency of contraband to increase. Art Carden quotes Milton Friedman on this point: “crack would never have existed…if you had not had drug prohibition.” The unfortunate result is that drugs become more powerful and often more dangerous and addicting. The cost also rises on average, which may create incentives for desperate users to engage in other nefarious activities.