Tag Archives: Reason

Obama’s On-The-Clock Undertime Rule

23 Monday May 2016

Posted by in Labor Markets, Regulation, Uncategorized

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obama-unemployment-2

Hurting the ones you love: one of the Obama Administration’s calling cards is a penchant for misguided economic policy; the change in an overtime rule announced Wednesday by the Department of Labor (DOL) is a classic example. The DOL has amended the rule, which requires payments of time-and-a-half to workers who exceed 40 hours per week, by doubling the threshold at which salaried employees are exempt from overtime to $47,500 annually. This affects almost 5 million workers earning between the old threshold of $23,660 and the new threshold. While the media heralds Obama for “lifting the wages of millions of workers”, those with a grasp of economic reality know that it is a destructive policy.

The rule change is unambiguously bad for employers, many of which are small businesses. That should not be too difficult to understand. Most private employers operate in competitive markets and do not earn lavish profits at the expense of their employees. They need good employees, especially those in positions of responsibility, and they must pay them competitively. By imposing higher costs on these businesses, the rule puts them in a position of greater vulnerability in the marketplace. The higher costs also include extra record keeping to stay in compliance with the rule. The impact on new business formation is likely to be particularly damaging:

“We might be told that the answer for a startup is simply to ‘go and raise more money.’ But — aside from diluting the founders who are paying for the company with their sweat in exchange for the hope of a payoff that comes in years, if ever — raising capital is the single most difficult thing I do as a startup entrepreneur. I would invite anyone not in our field to give it a shot before he endorses a regulation that will impose greater capital costs on us.

Regulators often act as though they cannot imagine a world where a few hundred or a few thousand dollars can make the difference between success and failure. If you raise our costs even modestly, you will put some of us out of business.“

Shutting down, or not starting up, is a bad outcome, but that will be a consequence in some cases. However, there are other margins along which employers might respond. First, a lucky few well-placed managers might be rewarded with a small salary bump to lift them above the new exemption threshold. More likely, employers will reduce the base salaries of employees to accommodate the added overtime costs, leaving total compensation roughly unchanged.

Many other salaried employees with pay falling between the old and new thresholds are likely to lose their salaried status. Their new hourly wage might be discounted to allow them to work the hours to which they’re accustomed, as demotivating as that sounds. If their employers limit their hours, it is possible that a few extra workers could be hired to fill the gap. Perhaps that is what the administration hopes when it claims that an objective of the new rule is to create jobs. Unfortunately, those few lucky hires will owe their jobs to the forced sacrifice of hours by existing employees.

A change from a salary to hourly pay will have other repercussions for employees. Their relationships to their employers will be fundamentally transformed. Ambitious “hourly” managers might not have the opportunity to work extra hours in order to demonstrate their commitment to the business and a job well done. When the rule change was first proposed last June, I paraphrased a businessman who is one of my favorite bloggers, Warren Meyer (also see Meyer’s follow-ups here and here):

“As [Meyer] 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.“

As hourly employees, these workers might have to kiss goodbye to bonus payments, certain benefits, and flexible work arrangements, not to mention prestige. The following quotes are from a gated Wall Street Journal article but are quoted by James Pethokoukis in his piece at the AEIdeas blog of the American Enterprise Institute:

“Jason Parker, co-founder of K-9 Resorts, a franchiser of luxury dog hotels based in Fanwood, N.J., said the chain will reduce starting pay for newly hired assistant managers to about $35,000 from the $40,000 it pays now. That will absorb the overtime pay he expects he would have to give them, he said. …

Terry Shea, co-owner of two Wrapsody gift shops in Alabama, would prefer to keep her store managers exempt from the overtime-pay requirement as they are now. But raising their salaries above the new threshold to ensure that would be too big of a jump for those jobs in her region, she said. Instead, she’ll convert the managers to hourly employees and try to limit their weekly hours to as close to 40 as possible. She’ll also have to stop giving them a comp day when their weekly hours exceed 46, a benefit she said they like as working moms.

‘I will be demoted,’ said one of her store managers Bridget Veazey, who views the hourly classification as a step backward. ‘Being salaried means I have the flexibility to work the way I want,’ including staying an extra 30 minutes to perfect a window display or taking work home, she said. She is particularly concerned Ms. Shea might stop taking the managers on out-of-town trips to buy goods from retail markets, an experience she said would help her résumé but includes long days.“

Here is some other reading on the rule change: Nick Gillespie in Reason  agrees that it’s a bad idea. Andy Puzder in Forbes weighs in on the negative consequences for workers.  John Cochrane explores the simple economic implications of mandated wage increases, of which the overtime rule is an example. As he shows, only when the demand for labor hours is perfectly insensitive to wages can a mandated wage avoid reducing labor input.

This is another classic example of progressive good intentions gone awry. Government is singularly incapable of managing the private economy to good effect via rules and regulations. Private businesses hire employees to meet their needs in serving customers. The private compensation arrangements they make are mutually beneficial to businesses and their employees and are able to accommodate a variety of unique employee life-circumstances. Good employees are rewarded with additional compensation and more responsibility. By and large, salaried workers like being salaried! Hard work pays off, but the Obama Administration seems to view that simple, market truism as a defect. Please, don’t try to help too much!

Words of Weasels

26 Tuesday Apr 2016

Posted by in Liberalism, Marketplace of Ideas, statism

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1984 instruction-manual

Take a moment to consider some examples of the horrible misuse of words in political debates. David Harsanyi at Reason provides a few choice examples of the corrupted and misleading language used by Democrats:

  • the absence of a tax that “should” exist but doesn’t is a “loophole”;
  • failure to pay that tax is a “fraud”;
  • denial of “access” occurs when the state doesn’t give something to you for free;
  • “disenfranchisement” means you have to show an ID or wait in line;
  • “full rights” means the entire world must be a “safe space” for your actions or views, even if the rights of others are denied in the process.

These are all recent examples of mangled language from the two candidates for the Democrat Party nomination. But here’s a big one that Harsanyi overlooked: the misuse of the term “liberalism” to describe statism. In fact, he misuses the word “liberals” himself! In “Don’t Call Leftists Liberal; They’re Not!” on Sacred Cow Chips, I offered some thoughts on this bit of Newspeak practiced by so-called progressives. I can’t resist reposting the following quote of Daniel Klein quoting Kevin Williamson, which says it all (links are in the original post):

“Williamson [quotes] two leftist authors writing in The Nation, one decrying ‘unbridled individualism,’ the other ‘unfettered capitalism.’ Williamson concludes: ‘A ‘liberalism’ that is chiefly concerned with the many clever uses of bridles and fetters does not deserve the name. It never has.’”

The following quote from Harsanyi gives emphasis to the wrongful appropriation of “liberalism” by the left, though it relates more specifically to the misuse of the term “loophole”:

“Basically, all of life is a giant loophole until Democrats come up with a way to regulate or tax it. In its economic usage, “loophole” … creates the false impression that people are getting away with breaking the law. It’s a way to skip the entire debate portion of the conversation and get right to the accusation.“

Another behavioral characteristic of leftists is a certain self-righteous satisfaction that they hold the moral high ground on any number of issues. “The Smug Style in American Liberalism“by Emmitt Rensin in Vox takes a poke at this presumption. Of course, Rensin misuses “liberalism”. I find this review of the article by Kyle Smith an effective summary, and it’s even better because it skips what comes off as a long catalog of excuses by Rensin as to why leftists might be forgiven for patting themselves on the back. I give Rensin credit, however, for a good analysis of the origins of leftist “smug”, which he attributes to a backlash against defections from the Democrat coalition by working-class voters in the second half of the twentieth century. And I credit Rensin for his ultimate condemnation of undeserved leftist attitudes of superiority. Here are some difficult realities for the left cited by Rensin:

“Nothing is more confounding to the smug style than the fact that the average Republican is better educated and has a higher IQ than the average Democrat. That for every overpowered study finding superior liberal open-mindedness and intellect and knowledge, there is one to suggest that Republicans have the better of these qualities.“

Perhaps inventing new definitions for words in the service of rhetoric comes easy with pomposity. In the end, assertions that the left is more “caring”, “tolerant” or “peaceful” are balderdash. There are honest policy debates to be had about the best way to solve social problems and respect for the rights of others, but having experienced angry reactions in debate with befuddled leftists for myself, I wholly concur with this Kyle Smith observation:

“Ridiculing opponents is easier than arguing with them. Liberals don’t want debate, they want affirmation.“

 

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”.

Trump Flaunts Shape-Shifting Powers

06 Thursday Aug 2015

Posted by in Government, Liberty, Tyranny

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trump characature

Donald Trump could take just about any position on any issue and defend it with conviction and blustery passion… until he changes his mind. At this point in his presidential bid, there is nothing on his campaign web site in the way of specific policy statements. Here is an “On The Issues” post showing the evolution of Trump’s positions in a number of policy areas. Just about anyone on the left or the right should be able to get a few chuckles out of this list. It’s truly astonishing.

A few of Trump’s current policy positions are discussed below, but before getting into that, it’s interesting to consider the overall tenor of his rhetoric. Most observers will happily admit that they find his bombast entertaining, and I do too. He’s outspoken and unapologetic, confronting his critics head-on, often to powerful effect. Many are drawn to this sort of candidate, and his popular image as a skilled businessman doesn’t hurt. But while all politicians are capable of disappointing supporters, Trump fans do not know, and cannot know, what they’re getting.

Trump is almost always critical but rarely suggests actual solutions, making it difficult to discern whether he really has policy positions. So much so that it’s incredible to hear praise for his “clarity”. For a more sober take, read Andy Kroll’s account of frustrated attempts to get direct responses on a few policy issues from the Trump campaign, and of Trump’s bizarre tour of Laredo, Texas. A related piece by Peter Suderman appears at Reason.com. Politico has emphasized the same point in “Will the real Donald Trump please stand up?“. Kroll says this:

“I have zero to report about Trump’s plans for actually being president—except that, from all available evidence, he hasn’t given it a moment’s thought.“

An interesting piece on Trump comes from Jeffrey Tucker in “What is Trumpism?“. A longer version appeared as “Trumpism: The Ideology“. Here is one bit from Tucker, written after hearing “The Donald” speak at FreedomFest:

“The speech lasted an hour, and my jaw was on the floor most of the time. I’ve never before witnessed such a brazen display of nativistic jingoism, along with a complete disregard for economic reality. It was an awesome experience, a perfect repudiation of all good sense and intellectual sobriety. …

His speech was like an interwar séance of once-powerful dictators who inspired multitudes, drove countries into the ground, and died grim deaths.“

Here are a few examples of Trump’s “nativism”, as described by Tucker:

“I did laugh as he denounced the existence of tech support in India that serves American companies (‘how can it be cheaper to call people there than here?’ — as if he still thinks that long-distance charges apply). 

When a Hispanic man asked a question, Trump interrupted him and asked if he had been sent by the Mexican government. He took it a step further, dividing blacks from Hispanics by inviting a black man to the microphone to tell how his own son was killed by an illegal immigrant.“

Two issues on which Trump has been outspoken are international trade and immigration. As an aside, I note that he is always quick to qualify any aggressive statements he makes on these topics with a quick “I love the Chinese”, or “I love the Mexicans”. Tucker, at the link above, highlights Trump’s backward views on trade, which focus almost exclusively on U.S. producers without considering the benefits of trade to U.S. consumers. He sees big ships coming into port, and thinks only of cash flowing abroad: “What do we get?” Well, we get nice foreign goods, thank you very much. But Trump blames foreign trading partners for many ills, despite the fact that his Trump-label ties are made in China! Are we somehow being cheated on those ties? Trump says we need smarter people negotiating “these deals”. Okay… is that a policy?

We don’t need trade wars if we want to avoid a much weaker economy. Yet Trump’s trade rhetoric suggests that he would be tempted to employ trade restrictions like tariffs as a bludgeon. For example, consider one of his other big talking points: illegal immigration (despite the fact that the inflow of illegals has slowed to a trickle over the past few years). Trump wants to build a wall across the length of the U.S.-Mexican border, and he says he’ll make Mexico pay for it. To get a wall built, Trump might well decide that he can raise tariffs on Mexican goods to prohibitive levels as a way of twisting Mexican arms. That sort of action is likely to be very costly for U.S. consumers, and ultimately producers as well.

Trump’s latest pronouncements on immigration policy have been described as confusing. In a nutshell, he wants to deport “the criminals” (and not just those already doing time) and deport all other undocumented aliens; create an expedited process whereby we can let “the good ones” back into the country with legal status; “maybe” create some sort of path to citizenship (because “who knows what’s going to happen”), but not right away; and “we’re going to do something” for the “DREAMers”. Trump says he’ll know how to identify the “good ones”. If he’s so confident of that, then why would he, a smart “business guy”, allow the country to incur the expense of deporting millions of them?

Who knows what Trump will propose in terms of tax reform, health care and gun control? Ditto on welfare policy, defense, the drug war, foreign policy and energy. He wisely spoke against the drug war in 1990, but I’m not aware of any recent statements on the issue. Also in his favor, he does not accept the “consensus” on climate change and opposes Common Core. He has criticized crony capitalism but has undoubtedly benefited from cronyism, enlisting governments in the pursuit of eminent domain action. He is said to favor cuts in federal spending, but he has opposed cuts in Social Security and Medicare. He opposes an increase in the minimum wage, but he has proposed a wealth tax in the past.

Trump has not offered many specifics in this campaign, and the GOP debate this Thursday night will not provide a decent forum for articulating policy. In general, his positioning is a very mixed bag. One gets the sense that he is doing his best to appeal to a sort of populist conservatism. Unfortunately, his signature “positioning” on trade and immigration qualify him as something of a statist. He has certainly held a number of other statist views in the past, though he has disavowed at least some of those.

In closing, here are two more quotes from Jeffrey Tucker about Trump that I found both ominous and plausible:

“What’s distinct about Trumpism, and the tradition of thought it represents, is that it is not leftist in its cultural and political outlook (see how he is praised for rejecting “political correctness”), and yet still totalitarian in the sense that it seeks total control of society and economy and demands no limits on state power.“

“These people are all the same. They purport to be populists, while loathing the decisions people actually make in the marketplace (such as buying Chinese goods or hiring Mexican employees).“

Progressives Identify Twin Evils: Progress and People

20 Monday Apr 2015

Posted by in Human Welfare

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doom and gloom

“The Big Coffee Table Book of Doom” is an entertaining review of an actual coffee table book entitled “Overdevelopment Overpopulation Overshoot“, which appeals to the progressive Left’s neo-Malthusian mindset. I am almost tempted to buy this book for my coffee table as fodder for my own amusement, sort of like the board game “Class Struggle” I bought for laughs when I was in grad school. The review, written by Ron Bailey in Reason, pokes fun at the selection of photos in the book, which are chosen to reinforce such fables as over-population, climate change and the supposed evils of capitalism. Of course, this sort of nonsense will never die, primarily because people love a good scare story and because it aligns with the privileged Left’s sense of righteousness and noblesse oblige. Bailey highlights several actual trends that contradict the doomsday narrative:

“Agricultural productivity per acre is improving faster than the demand for food; as a result, fewer acres are needed to grow crops. These trends suggest that as much as 400 million hectares could be restored to nature by 2060, an area nearly double the size of the United States east of the Mississippi River.“

“… the total global fertility rate has fallen from over 5 children per woman in 1970 to 2.45 today, rapidly approaching the 2.1 rate that is the threshold of population stability.“

And on the “perils” of urbanization:

“Urban dwellers have greater access to education, market opportunities, and medicine, and they have fewer kids.“

As Kevin Williamson has pointed out, an egregious distortion of the neo-Malthusian perspective is an attitude that human beings are liabilities rather than assets. This is underscored by the recent comments of a UN official calling for depopulation as a serious objective. One wonders how she might propose to attain that objective. Can the eliminationists be far behind? In rebuttal to such thinking, Bailey quotes Ramez Naam, author of “Infinite Resource“:

“‘Would your life be better off if only half as many people had lived before you?’ In this thought experiment, you don’t get to pick which people are never born. Perhaps there would have been no Newton, Edison, or Pasteur, no Socrates, Shakespeare, or Jefferson. ‘Each additional idea is a gift to the future,’ Naam writes. ‘Each additional idea producer is a source of wealth for future generations.’ Fewer people means fewer new ideas about how to improve humanity’s lot and to further decouple our endeavors from the natural world. ‘If we fix our economic system and invest in the human capital of the poor,’ Naam writes, ‘then we should welcome every new person born as a source of betterment for our world and all of us on it.'”

Population growth has traditionally been a source of economic growth and enhanced welfare, and that is likely to remain the case. I do not claim that population growth will always be an imperative. Rather, fertility decisions are properly the business of families and individuals, not central authorities or public policy, which should take a neutral stance with respect to these decisions.

Malthusian doom is related to the economic law of scarcity, but it is not a direct implication of that law: scarcity means that resource availability is limited relative to potentially limitless demand. The law of scarcity does not assert that there are absolute limits to raw materials or production in the long run, only that human wants, if unrestrained, will always exceed available supplies. There are many ways in which supplies of resources increase over time. Exploration reveals new supplies and technology makes new supplies accessible at lower cost. More fundamentally, growth in the productivity of utilized resources causes effective economic supplies to grow. This is illustrated in Don Beaudreaux’s recent essay on the productivity of land (and see a follow-ups on the topic here):

“The economic supply of land, like that of any other resources you can name, is not a physical phenomenon. As long as people are free and inspired to innovate – and as long as input and output prices are free to adjust to changes in supply and demand – the economic supplies of even the most ‘fixed’ and ‘nonrenewable’ resources will expand.“

Prognostications of doom for humanity appeal to the ignorance of those with no perspective on the mechanisms by which well-being has improved in the developed world over the past few centuries. This has occurred largely by virtue of human ingenuity and free markets. The growth has also enabled greatly improved environmental conditions. The developing world will share in the prosperity only when those governments embrace real market liberalization.

When Government Prohibits Self Defense

13 Friday Mar 2015

Posted by in Uncategorized

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gun control

The Obama Administration is dropping a proposed ban on a certain kind of AR-15 ammunition after the ATF was deluged with negative comments. Gun rights supporters asserted that the ban, to be accomplished by administrative fiat, would have constituted a form of “back-door” gun control. There is no doubt that the “right to keep and bear arms” would be compromised by piecemeal bans on various types of ammo. In this case, the rationale for the proposal was that the “green-tip” ammo in question was said to be armor-piercing and therefore a greater threat to law enforcement. A spokesman for the Fraternal Order of Police says that the ammo in question “has historically not posed a law enforcement problem“. Moreover, the Law Enforcement Officers Protection Act of 1986, which banned armor-piercing bullets, specifically exempted the green-tip ammo and other types of rifle ammo because they did not meet “either part of the two-part definition of ‘armor-piercing’“.

Gun control advocates have little sympathy for broad interpretations of second amendment rights granted by the U.S. Constitution. The amendment reads:

“A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.”

A statist interpretation of this sentence puts “the people”, and more specifically individuals, in a subservient position to the “militia” and ultimately the government. However, we know that the Constitution was intended as a device to limit the power of the federal government and protect individual rights. This is what Glenn Reynolds means by “ordinary constitutional law“. As he notes, “… individual citizens’ lives and autonomy are themselves, in some important aspects, beyond the power of the state to sacrifice.” The right of self-defense, and to bear arms, was part of English common law and was certainly an important issue in the times of the founders, and it is still important today.

Beyond the legal interpretations, an empirical and philosophical debate rages over whether gun violence, including homocides, accidents and suicides, and gun crimes in general, can be weighed against crimes prevented by so-called defensive gun uses (DGUs). Not that DGUs are the end of the pro-gun rights story: private gun ownership in society carries with it an enormous deterrent value against criminality, but that is obviously difficult to quantify.

As a baseline, the annual number of gun deaths in the U.S. is known with a fairly high degree of accuracy. The number of non-justifiable gun homocides each year is roughly 10- 12 thousand (see p. 27 of this publication from the DOJ). The number of accidental gun deaths is typically less than 1 thousand per year (see here for this and the following statistics). About 18-20 thousand gun suicides occur each year, though some of these would have occurred by other means if a gun had not been available. Together, roughly 29-33 thousand gun deaths occur annually in the U.S. Again, some of these deaths would have occurred with or without guns. In addition, in 2010, there were 73,505 non-fatal gunshot wounds treated in emergency rooms. And crime victimization with firearms should be defined more broadly. While the following would double count the deaths cited above, the DOJ reports an annual average of about 250 thousand victimizations involving strangers with guns, and roughly 170 thousand involving known individuals with guns. Also, the DOJ estimates that each year, there are an average of about 180 thousand unreported incidents of victimization involving guns.

These are daunting numbers, but again, some of these incidents would have occurred in the absence of guns. Note as well that violent crime rates have been in decline over most of the past 25 years, including gun crime.

DGUs are phenomena that occur with greater frequency than gun opponents care to admit. DGUs include the actual discharge of a gun in self-defense or merely brandishing or threatening the use of a gun. Estimates range from under 100 thousand per year to more than 2.5 million. There are reasons to doubt both of the extremes. This article by Brian Doherty in Reason and this paper from The CATO Institute do a good job of explaining some of the controversies surrounding measurement of DGUs. The high-end estimates and some of the low-end estimates come from  survey data, but the reliability of both can be called into question. Police reports and media coverage have been used as well, but these are certain to undercount the actual number of DGU incidents, especially for cases in which no shots are fired.

Given this range of estimates, it would be conservative to hedge toward the lower end. One researcher attempted to reconcile the gap in 1997, but he did so with the use of some very rough discounting and gross-up factors that brought the range of annual DGUs up to 256-373 thousand at the low end, and down to 1.2 million at the high end. And while it would be simplistic to assert that these estimates, in any absolute sense, outweigh those given above for gun violence, the DGU estimates are certainly nontrivial by comparison. Again, there is no way to estimate of the value of the general deterrent against violent crime provided by legal gun ownership, but it must be considered to reinforce the DGU side of the ledger.

Case studies cover a variety of crimes prevented by DGUs. But even if you subscribe to the low-end estimates of DGUs, Brian Doherty points out that the statistics are irrelevant to those who have had to defend themselves with guns:

“Those people who lived out the stories in any case study collection of newspaper or police reports of DGUs would doubtless find it curious to hear they shouldn’t have had the right to defend themselves, because an insufficiently impressive number of other citizens had done the same. But underestimating the significance of what’s at stake in Second Amendment rights—even though it can clearly be life itself, not to mention dignity—is a favorite pastime of gun controllers and their ideological soldiers.”

Finally, to pretend that any form of prohibition can be successful in stamping out objectionable activity is foolhardy. That lesson is offered by the drug war, alcohol prohibition, prostitution laws, and many other misguided attempts to control behavior. The same is even true of laws upon which there is broad consensus. However, there is a difference when government attempts to prohibit victimless behavior. And the difference is more pernicious when government prohibits tools with which citizens can defend themselves against victimhood.

While outright prohibition exceeds the extent of most serious gun control proposals, prohibition is the ultimate goal of anti-gun activists. Laws against gun ownership do not eliminate guns, but they do hinder the possession of guns and self-defense by law-abiding citizens.

Consequentialists Dismiss Obamacare Consequences

15 Sunday Feb 2015

Posted by in Obamacare

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supreme-court-obama

The King vs. Burwell case now before the U.S. Supreme Court turns on whether the Affordable Care Act (ACA, or Obamacare) authorizes the payment of federal subsidies to consumers in states that do not sponsor their own state health insurance exchanges (up to 37 states, by some counts, depending on how certain “hybrid” exchanges are treated). In those states, Obamacare must be purchased on the federal (or a hybrid) exchange. Proponents of the law strongly desire the court to uphold the subsidies. However, the “plain language” of the law states that tax credits apply only to insurance purchased “through an Exchange established by the state.” That language does not appear to support the governments position in the case. In addition, one of the chief architects of the ACA, Jonathan Gruber, seemingly exposed the real intent of this provision:

“What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits — but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges.”

Who could have given a better description of the motive?

Others insist that the awkward language in the ACA on this point might have been a typographical error, that the tax credits were intended to subsidize purchases on any exchange, and that other wording in the legislation makes the legislative intent “ambiguous” at worst. Harvard law professor Laurence Tribe subscribes to this view. Tribe argues elsewhere that a ruling which finds federal-exchange subsidies illegal would throw the health insurance market into turmoil. Thus, taking a “consequentialist” approach, Tribe argues that the court should be reluctant to disrupt the market by ruling that subsidies were intended to be unavailable to states without exchanges under the ACA. This conveniently dismisses the fact that Obamacare itself has had and will continue to have so many negative “consequences.”

Obviously, not all agree that a ruling against the government would be such a travesty. A victory for the King plaintiffs would not increase anyone’s premiums. What it would do is prevent the IRS from shifting the burden of those premiums from enrollees to taxpayers. According to  Michael Cannon,  arguments against the plaintiff’s case have:

“… misrepresented the impact of a potential ruling for the plaintiffs by ignoring three crucial facts: (1) a victory for the Halbig [and King] plaintiffs would increase no one’s premiums, (2) if federal-Exchange enrollees lose subsidies, it is because those subsidies are, and always were, illegal, and (3) the winners under such a ruling would outnumber the losers by more than ten to one.”

Nevertheless, the  consequentialist argument suggests that the court might be reluctant to rule against the government in the absence of a viable and immediate alternative to Obamacare. That belief helped motivate the most recent GOP plan, sponsored by Senators Richard Burr, Orin Hatch and Representative Fred Upton, which is due for a vote in the House of Representatives next week. This alternative has been called “Obamacare Lite” by some GOP critics, and it does retain a few of the most popular Obamacare provisions. However, it eliminates some highly intrusive aspects of the ACA (the individual and employer mandates) and attempts greater reliance on markets to control costs. This review in the Washington Free Beacon is mostly favorable. Peter Suderman at Reason explains that the proposal would involve tax credits designed to promote affordability, but they would be less distorting and less generous than under the ACA. Here is a fairly complete but mixed review of the GOP alternative.by Robert Laszewski:

“My sense is that voters will end up liking parts of both Republican and Democratic ideas. They might ask a reasonable question: Why can’t we take the best from both sides? If Democrats would just admit Obamacare needs some pretty big fixes, and Republicans would be willing to work on making those fixes by putting some of these good ideas on the table, the American people would be a lot better off. In fact, I am hopeful that this is eventually what will happen once Obamacare’s failings become even more clear (particularly the real premium costs) and both sides come to understand that neither will have a unilateral political upper hand.”

Laszewski is critical of the plan’s potential for creating a new set of winners and losers, but his objection losses sight of the fact that distortions in the ACA create so many winners and losers as to be indefensible. For example, the ACA limits differences in age rating, effectively transferring wealth from younger premium payers to much wealthier seniors, while the GOP plan loosens those limits. Similar distortions were created by Obamacare’s mandates, taxes, lack of choice in health coverage, revocation of individual coverage, poorly designed provider incentives and reduced physician reimbursements, to give a short list.

I like many of the ideas in the Republican plan, but it is a compromise. Its reforms should reduce the cost of coverage. It increases choice, leverages market incentives, and reduces tax distortions, including the tax advantage of employer-provided coverage. At the same time, it wholly or partially retains ACA provisions that make coverage more affordable at low incomes and provide continuous coverage for those with pre-existing conditions. It also encourages the creation of state pools for high-risk individuals. These provisions might or might not  mollify “consequentialist” sentiment on the Supreme Court, leading to a majority ruling against the government in King vs. Burwell. If not, and while the question before the court is more narrow, the irony would be for the court to uphold the many destructive consequences of Obamacare.

Big Tax & Spend Party In Obama’s Head

04 Wednesday Feb 2015

Posted by in Big Government, Taxes

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President Obama has thoughtfully dangled lots of freebies before the eyes of Americans in his proposed budget under the guise of “middle-class economics.” It’s not clear that the middle class will benefit over the long haul, but this certainly isn’t about forsaking present pleasure for future gain. It’s just about politics. Obama hopes his budget establishes a superior negotiating position with Republicans, and he hopes that the opposition to many of his giveaways will allow Democrats to tar the GOP as hard-hearted. In introducing his proposal, the president derided what he called the “mindless austerity” of the sequestration spending caps (which his budget would exceed by a mere $74 billion), but as Reason notes, the “sequestration process was the White House’s idea in the first place.”

Investor’s Business Daily has this to say in their editorial:

“The era of big government would be back with a vengeance. Obama wants a preposterous 7% spending hike this year for government agencies — with more nanny-state money for schools, early-childhood education, roads and bridges, child care, green energy and corporate welfare for manufacturers.”

All of these priorities are behaviorally non-neutral, heavily cross-subsidized and of questionable value, at best. Of course, everybody wants a high-speed rail line as long as the fare is heavily subsidized. Beyond that yearning, the poor state of American transportation infrastructure is something of a myth. Just as stupefying is the proposed increase in defense spending, which will end up as the most popular provision among hawks in Congress. From Reason:

“President Obama’s budget requests $561 billion for defense spending, which includes the biggest baseline Pentagon budget ever. Sequestration caps for military were already loosened from initial levels in a budget deal made in 2013. And the Pentagon has managed to keep spending freely on boondoggles like the Joint Strike Fighter—a $400 billion futuristic fighter that has serious trouble with basic functionality, like flying—and a program to build new nuclear bombers and subs expected to cost about $350 billion. This is not a picture of a fighting force that is desperately starving for cash.”

On the revenue side, the Obama budget would increase taxes by $1.6 trillion over 10 years. Some of the details are discussed here, including $200 billion in corporate tax reform. As explained by Timothy Taylor, the so-called reform is a hodge-podge of 67 different provisions. For the 2017 budget year, these would add revenue of about $19 billion, but when Taylor totals the top ten provision, those come to $49 billion. The $30 billion difference consists of various items such as “simplification and tax relief for small business,” which might represent sensible changes, and “incentives for manufacturing, research, and clean energy.” Those are tax breaks and subsidies. From Taylor: “Clearly, the temptation to redistribute the “special deductions, credits, and other tax preferences,” rather than ending them, remains strong.”

The current 35% U.S. corporate income tax rate is the highest in the industrialized world. The idea of corporate tax reform is to reduce the tax rate in exchange for eliminating various deductions, which is laudable in itself. Unfortunately, the Obama plan also proposes a tax on corporate profits earned and held abroad (not repatriated). Taylor explains the rub:

“Here, I’ll juse [sic] make the point that the U.S. is unique among the major economies in that it claims the right to tax the profits of U.S. corporations wherever in the world they are earned. Other countries only tax profits earned within their borders. Of course, this is one reason why U.S. companies sometimes seek to merge with a foreign firm and transfer their official ownership abroad. A foreign-controlled domestic company in the United States is taxed only on its U.S. profits; in contrast, if a company with the same structure is a U.S.-controlled firm, then the U.S. government claims the right to tax its foreign profits as well. This is a real issue for US corporate tax reform in a globalizing economy, and the approach in this budget document bascially just doubles down on going after revenue from abroad.”

Other tax increases proposed by Obama include an increase in the rate on dividends (already double-taxed) and capital gains (with its implicit inflation tax on wealth), capital gains taxation of assets at death (elimination of stepped-up basis), higher estate taxes, limits on itemized deductions, and several others. All of these complexities in the tax code could be eliminated entirely with real tax reform and simplification, but that would prevent the president’s beneficent “middle-class economics,” more appropriately called middle-class pandering. Higher taxes undermine economic growth: first, by reducing disposable income and spending, the traditional Keynesian explanation; second, and more fundamentally, by reducing incentives to work, invest and take risks that increase the economy’s productive potential over time. When it all plays out, a budget with a $1.6 trillion increase in taxes, no matter where the direct burden falls, will not help the middle class.

Finally, the Obama budget includes optimistic assumptions about economic growth. Even under that outlook, the budget deficit is expected to rise from  $474 billion in 2016 to $687 billion in 2025. The debt will keep expanding, absorbing private saving, leaving a smaller pool of capital available for private investment.

The president’s efforts to grow the state apparatus continue with this budget proposal. It might be “toast” as a package, but the political bidding war continues. Much depends on the ability of Americans to resist the goodies dangled before them by the White House candyman. That much is required to reverse the ongoing slide into dependency on the state.

Community College Free-For-All

12 Monday Jan 2015

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Obama keeps puffing on the horn of taxpayer plenty, this time proposing free tuition at community colleges for all comers. This is a misapplication of the empirical observation that earned income is positively related to the level of education.

Supporters of “college for all” naively assume that enabling college enrollment will always translate into actual learning and success on the job market, or that college is always a good idea. Those assumptions are incorrect. Not everyone is capable of benefitting from higher education. It is a disfavor to them, and to their more academically competitive peers, to encourage them to enter an environment in which they are likely to fail or benefit less than in other pursuits, and where they will absorb scarce educational resources such as facilities, equipment, and instructor time and effort. And if less capable individuals are allowed to “succeed” under more relaxed standards, the degrees they earn will be degraded. Moreover, as Peter Theil has emphasized, we tend to think “too highly of higher eduction,” as if it is always one’s best option. In fact, that may not be true for even the most talented individuals, who may be capable of accomplishing greater things without it, and sooner!

But what real costs and benefits can be expected from Obama’s latest proposed giveaway? Scott Shakford at Reason summarizes and critiques the program, explaining that community college administrators are likely to be the chief beneficiaries. Shakford also notes that the program is likely to encourage grade inflation, based on the minimum GPA requirements built into the program. This op-ed in the Digital Journal points out that Obama’s plan will also encourage grade inflation at the high-school level, so as not to “unfairly” deny students their new opportunity to matriculate into community college.

Shakford at Reason puts the total cost to taxpayers at $34 billion, but it is based on an administration estimate that 9 million students could attend community college free-of-charge. It is not clear whether that number is net of those already attending for free. Tyler Cowen offers links to some good discussions of the plan, one of which notes that community college is already free on average for low income students via Pell grants. Higher income students obviously stand to gain, however, so the plan’s targeting of benefits is perverse. Community college completion rates are already quite low, and Cowen notes that the rate for marginal students pulled in by Obama’s program is likely to be even lower, which would further diminish the value of the degree on the labor market.

“Free stuff” always sounds so good and well-intentioned that is it difficult for many to oppose. But free stuff generally means that resources must be diverted from more highly-valued uses for little or no gain. After all, the value of the freebie to beneficiaries of a politician’s scheme can be minimal and they’ll still be takers. Taxes to fund the diversion of resources creates other perverse incentives.

Funding the education of promising but needy students may be quite worthwhile, but offering a free post-secondary education for all will grossly misallocate resources and carry a high social cost.

Big Daddy Wants To Neutralize Your Net

09 Friday Jan 2015

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Net-Neutrality

Once again, President Obama is trying his hand as populist candyman, now pressing the FCC to adopt “net neutrality” rules for regulating internet service providers (ISPs) as common carriers. Net neutrality refers to regulations on ISPs that would prohibit different treatment of different types of internet content, matters that are better left to market participants. Obama has no idea what he’s doing or who he’ll be hurting (hint: internet users of all stripes). The candy is an illusion. Peter Suderman’ has an aptly titled article on this topic at Reason: “Will 2015 Be the Year the FCC Regulates the Internet Back to 1934?” He offers some background on the history of U.S. telecommunications regulation and explains the context within which FCC Chairman Tom Wheeler and the Commission will deal with the issue. Suderman closes with this thought:

“If Wheeler does take this route (reclassification of ISPs as common carriers], as he now seems to determined (sic), we’ll end up with an Internet that is more regulated, more subject to regulatory uncertainty in the near-term, and more like a public utility from another era than an information delivery service for the modern age. It’ll be 2015—but for the Internet, it’ll be 1934 all over again.”

Wired also gives its perspective but implies that Wheeler is seeking ways to reclassify the ISPs, impose neutrality rules, while also creating sufficient exceptions to mollify the ISPs, avoiding litigation as well as market disruption. That would be nice as far as it goes.

Net neutrality is a misnomer, as Sacred Cow Chips has discussed on two previous occasions in “The Non-Neutrality of Network Hogs“, and “Net Neutrality: A Tangled Web“. A lowlight is the corporate cronyism inherent in calls for net neutrality. The biggest beneficiaries are not consumers, but large content providers such as Netflix and Google, though the latter has altered its position on neutrality now that it is entering the market as an ISP. Another lowlight is the disincentive for network expansion created by forced subsidies to the large content providers, who are extremely heavy users of internet capacity.

Jeffrey Eisenach at AEI picks apart the arguments in favor of internet regulation. He also counters assertions that consumers are likely to benefit from internet regulation. Here are two choice quotes:

“And while much is made of consumers’ limited choices, the broadband market is actually less concentrated than the markets for search engines, social networks, and over-the-top video services: discriminatory regulation of ISPs cannot be justified on the basis of market power.”

“Finally, there’s the argument about fast lanes and slow lanes, or, in regulatory jargon, “paid prioritization.” The simple reality is that edge providers like Netflix require prioritization for their services to work. It’s just the “paid” part they don’t like.”

Finally, Don Boudreaux provides two relevant quotes on regulation, one from the great Ronald Coase, along with some of his own thoughts. I close with Boudreaux’s summation:

“Government imposition of “net neutrality” will substitute bureaucrats’ politically poisoned judgments on what are and what are not appropriate business practices for the market-tested judgments of legions of suppliers competing for the patronage of hundreds of millions – indeed, often billions – of consumers.“