Los Angeles Pummels the Poor: A $15 an hour wage floor is a cruel and stupid policy by JEFFREY A. TUCKER

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Does anyone on the Los Angeles City Council have a clue about what they have just done? It really is unclear whether reality matters in this legislative body. Rarely have we seen such jaw-dropping display of economic fallacy enacted into law.

The law under consideration here is a new wage floor of $15, phased in over five years. Why phased in? Why not do it now? Why not $30 or $150? Perhaps the implied reticence here illustrates just a bit of caution. Somewhere in the recesses of the councilors’ minds, they might have a lurking sense that there will be a price to pay for this.

Such doubt is wholly justified. Recall that the minimum wage was initially conceived as a method to exclude undesirables from the workforce. The hope, back in the time when eugenics was the rage, was that a wage floor would cause the “unemployable” to stop reproducing and die out in one generation.

Racism drove the policy, but it was hardly limited to that. The exterminationist ambition applied to anyone deemed unworthy of remunerative work.

“We have not reached the stage where we can proceed to chloroform them once and for all,” lamented the progressive economist Frank Taussig in his 1911 bookPrinciples of Economics. “What are the possibilities of employing at the prescribed wages all the healthy able-bodied who apply? The persons affected by such legislation would be those in the lowest economic and social group.”

Professor Taussig spoke for a generation of ruling-class intellectuals that had egregiously immoral visions of how to use government policy. But for all their evil intentions, at least they understood the basic economics of what they were doing. They knew what a wage floor excludes marginal workers, effectively dooming them to poverty — that’s precisely why they favored them.

Today, our situation seems reversed: an abundance of good intentions and a dearth of basic economic literacy. The mayor of LA, Eric Garcetti, was elated at the decision: “We’re leading the country; we’re not going to wait for Washington to lift Americans out of poverty.”

Leading the country, maybe, but where is another question. This is a policy that will, over time, lock millions out of the workforce and forces many businesses to cut their payrolls. Machines to replace workers will come at a premium. The remaining workers will be expected to become much more productive. Potential new business will face a higher bar than ever. Many enterprises will close or move.

As for the existing unemployed, they can forget it. Seriously. In fact, it is rather interesting that in all the hooplah about this change, there’s not been one word about the existing unemployed (officially, 7.5% of the city’s workforce). It’s as if everyone intuitively knows the truth here: this law will not help them at all, at least not if they want to work in the legal economy.

The underground economy, which is already massive in Los Angeles, will grow larger. New informal enterprises will pop up everywhere, doing a cash-only business. The long, brawny arm of the state will not be powerful enough to stop it. Sneaking around and hiding from the law is already a way of life for millions. Look for this tendency to become the dominant way of work for millions more.

All of this will happen, and yet the proponents of the minimum wage will still be in denial, for their commitment to the belief that laws can make wealth is doctrinal and essentially unfalsifiable.

As for those who know better, business owners all over the city pleaded for the Council not to do this. But their pleas fell on deaf ears. The Council had already been bought and paid for by the labor unions and interests that represent the already employed in Los Angeles. Such union rolls do not include the poor, the unemployed, or even many of the 50% of workers in the city who work for less than $15. They represent the working-class bourgeoisie: people rich enough to devote themselves to politics but do not actually own or run businesses.

Will such unions be helped by this law? Perhaps, a bit — but at whose expense? Those who work outside union protection.

This is a revealing insight into why unions have been so passionate about pushing for the minimum wage at all levels. Here is the truth you won’t read in the papers: a higher wage floor helps cartelize the labor market in their favor.

You can understand this by reflecting on your own employment. Let’s say that you earn $50,000 for a task that could possibly done by others for $25,000, and those people are submitting resumes. This is your situation, and it potentially applies to a dozen people in your workplace.

Let’s say you have the opportunity to enact a new policy for the firm: no one can be hired for less than $50,000 a year. Would this policy be good for you? In a perverse way, it would. Suddenly, nobody else, no matter how deserving, could underbid you or threaten your job. It’s a cruel way to go about padding your wallet, but it might work for a time.

Now imagine pushing this policy out to an entire city or an entire country. This would create an economic structure that (however temporarily) serves the interests of the politically connected at the expense of everyone else.

It certainly would not create wealth. It would not help the poor as a whole. And it would do nothing to create a dynamic and competitive marketplace. It would institutionalize stasis and cause innovation to stall and die.

The terrible effects are many and cascading, and much of the damage will be unseen in the form of business not formed, laborers not hired, efficiencies not realized. This is what the government of Los Angeles has done. It is a self-inflicted wound, performed in the name of health and well-being.

The City Council is cheering. So are the unions. So are the ghosts of the eugenists of the past who first fantasized about a labor force populated only by the kinds of people they approved.

As for everyone else, they will face a tougher road than ever.


Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.

Republicans and Election Reform

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Now that Republicans have working majorities in both houses of Congress, the American people can once again enjoy the benefits of the constitutional republic that the Founders designed for us.  Right?  Well, not so fast.  To expect the current crop of congressional Republicans to do what is necessary to restore constitutional government and repair the damage done by Barack Obama… let alone know what must be done… is entirely problematic.

As a case in point, the recent battle over construction of the Keystone XL Pipeline demonstrates the complete fecklessness of congressional Republicans.  From the instant the last ballot was counted in November, it was clear that one of the first bills to pass in the 114th Congress would be a bill to approve construction of the pipeline… a bill that Barack Obama promised to veto if and when it reached his desk.  Does Obama care about the environment or the leftists who politicize it?  Of course not.  What he does care about are the many millions of dollars that pour into Democrat Party coffers from a handful of radical environmentalists.

What congressional Republicans apparently failed to recognize was the immense political gains to be made if the issue was properly handled.  By developing best estimates of the number of engineers, contractors, welders, heavy equipment operators, truck drivers, and laborers required to complete the project, along with the generous salaries, wages, and benefits that those workers would command, Republicans could have armed themselves with the most potent political weapon they’d ever been blessed to have.  By seeing to it that every Republican in Congress had that information at his/her fingertips, with instructions to repeated it in every radio, TV, and print media interview, and in every public appearance, Republicans could have driven a very large wedge either between the Democrat Party and radical environmentalist, or between Democrats and organized labor.

By signing the pipeline bill Obama would reap the anger of the radical environmentalists and win the approval of organized labor.  Conversely, by vetoing the bill he would win high praise from environmentalists, but organized labor would be angered enough to split the Democrat vote in many national and state elections.  For Republicans, it was a win-win proposition.  However, instead of using that opportunity to their advantage, making a veto override a real possibility, congressional Republicans treated that opportunity as if it were a sexually-transmitted disease.

While Democrats can be counted upon to always play hardball, Republicans seem intent upon playing political softball.  So, if congressional Republicans aren’t smart enough to recognize a political advantage when one falls into their laps, how can we expect them to recognize the political damage to be done if Obama is successful in giving Social Security numbers, drivers licenses, and voter registration cards to millions of illegals, none of whom are eligible to vote?

Even though they are seriously victimized by fraud, violence, and intimidation in every election, congressional Republicans appear to be blithely unaware of the problem as Democrats continue to liberalize the electoral process.  In fact, it is unlikely that election reform is even on their wish list.  Although election law is generally a matter of state law, a comprehensive election reform law targeting federal elections would supersede state law.  A comprehensive election reform bill… one that would put Obama and congressional Democrats in a tight box… would contain the following elements of reform:

  • Voter registration must be done only in person.  Fraud-friendly motor-voter, postcard, Internet, and same-day registration schemes must be either repealed or superseded.

In same-day registration states, Democrats have recruited teams of college students to travel from precinct to precinct, registering to vote and voting numerous times in the same day.  In a heavily-Democratic county in Minnesota, an undercover investigator visited a county election board to ask whether or not it was necessary for new voters to register in person, saying that he had two friends, Tom Brady and Tim Tebow, who were unable to appear in person.  The investigator was given twenty registration forms and was told that he could register twenty voters with the forms.

  • Registrations must be done only by full-time registrars, employees of counties and/or township government, and only in the state, county, and/or township in which the registrant maintains his/her primary residence.  Third party registrars, paid and unpaid, must be prohibited.

In 2012, a voter registration study showed that, in North Carolina alone, some 35,570 voters shared the same first names, last names, and dates of birth with individuals registered to vote in other states.  Another 765 North Carolinians had the same first names, last names, birthdays, and final four digits of a Social Security number as those who voted in other states.  As a requisite for voter registration, each voter should be required to show proof of citizenship (birth certificate or passport) and proof of residence (drivers license, residential deed, apartment lease, utility bills, etc.).

  1. Before voting, each voter must show an official government-issued photo ID (drivers license, passport, etc.), or an official state-issued voter registration card complete with telephone number, home address, Social Security number, and precinct number.  As an alternative, and as a means of preventing voters from voting more than once in a single day, states may require voters to dip a finger into a vial of indelible ink after voting.
  2. Court administrators must be required to furnish local election boards with name, address, date of birth, and Social Security number of every individual convicted of a felony.  Election boards must be required to purge voter registrations rolls of all felons at least ten days prior to any election.  County Coroners must be required to furnish election boards with copies of all death certificates.  All deceased persons must be removed from the voter rolls no later than ten days prior to any election.
  3. Registered voters who move from one state to another, from one county or township to another, or from one precinct to another, must be required to obtain voter registration transfer documents from their local election board.  This document must be presented, in person, to voter registrars of the voter’s new place of residence.
  4. Absentee ballots must be received no later than ten days prior to an election.  Absentee ballots, other than those of overseas military personnel, must be tallied no later than the day and hour that polls close in any election.  Absentee ballots completed by residents of hospitals, nursing homes, elder care, and mental health facilities must be completed only in the presence of representatives of both major political parties.
  5. Other than absentee ballots, voting must be done in person, only on the day of the election, and only in the precinct in which the voter maintains his/her primary place of residence.  Electronic voting and vote-by-mail schemes must be repealed or superseded.  Provisional ballots must be limited only to the most serious instances of clerical error by election board officials.
  6. The Voting Rights Act must be amended to provide fines and mandatory jail sentences for any individual who would, in any election in which the name of a candidate for federal office appears on the ballot, do any of the following:
    • Vote in the name of another person.
    • Vote or attempt to vote more than once in any election.
    • Vote in the name of a deceased or fictitious person.
    • Vote in more than one state or political subdivision.
    • Vote without benefit of U.S. citizenship.
    • Intimidate, interfere with, or cause injury to the person or property of any other person peaceably engaged in the political process, or cause any other person to do any of the foregoing.

In an April 10, 2014, speech before Al Sharpton’s National Action Network, Barack Obama attempted to rally his base by charging, falsely, that Republicans were attempting to suppress the black vote in the 2014 elections.  Demonstrating once again that he is either totally dishonest or ignorant of the facts, he said, “The principle of one person-one vote is the single greatest tool we have to redress an unjust status quo.  You would think there would not be an argument about this anymore.  But the stark, simple truth is this:  The right to vote is threatened today in a way that it has not been since the Voting Rights Act became law nearly five decades ago.”

In truth, what Obama would like to see is a system in which only Democrats and illegal aliens get to vote twice.  If Republicans had any courage at all they would insist on tightening the noose around vote fraud and stop ignoring Democrat efforts to create more fraud-friendly processes.  They might use comprehensive voting reform as yet another issue that would require Democrats to identify themselves for who and what they are.

As Obama has said, one would think that there would no longer be a question about holding open and honest elections in the United States, but that’s not the way things are.  Decent, honest, men and women will endorse the reforms outlined above.  Democrats, on the other hand, are certain to oppose them.

Common Core Communism

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AMERICANS:

One can not be indoctrinated into something – unless the ENTIRE BELIEF SYSTEM is changed to eliminate freedom, liberty and individual ownership. To Transform means to Destroy and Change.

When I taught school, I taught a class in eighth grade called Capitalism vs. Communism, where we made comparison charts, did role-playing, and had discussions – so that the students were well aware of the differences and could make informed decisions. To see a comparison chart go to:

Today, teaching Individualism and Capitalism is done only to point out their atrocities, while showing the virtues of Communism. Students no longer possess the skill of critical thinking, because only Communism is taught. America is missing and is not in the picture, unless parents and grandparents take the responsibility to STEP UP, and teach American virtues. You know: Faith, Family, and Freedoms.

Poster_Common_Core_FIstCommunists are Atheists. Mmmm, Wonder why church attendance is DOWN?

Could it be because Common Core teaches God is Dead? Everything is connected!

“To exercise power costs effort and demands courage. That is why so many fail to assert Rights to which they are perfectly entitled – because a Right is a kind of Power but they are too lazy or too cowardly to exercise it. The virtues which cloak these faults are called patience and forebarence.” – Freidrich Nietzsche.

Friedrich Nietzsche (1844–1900), was a German philosopher of the late 19th century who challenged the foundations of Christianity and traditional morality. Although John Dewey (considered the father of ‘Modern Education’) and Nietzsche never met, their philosophies were identical – and are now the foundation of American indoctrination (education). “God is dead” (German: “Gott ist tot” (help · info); also known as the death of God) is a widely-quoted statement by German philosopher Friedrich Nietzsche. The Nietzsche quote is in the content of the material our students now read.

Common Core teaches: God is DEAD. The clergy is allowing Common Core in church schools, just so they can get MONEY. Is the American clergy that stupid? Selling out and giving up their flock for a few pieces of Silver? Then, they wonder why attendance is DOWN…? Americans, IF you want to do something… STOP going to churches that teach Common Core.

The minute they say their church gets “Grant” or is “501c3”, RUN…DO NOT WALK – out of that church!

Nietzsche and Dewey also challenged modern morality. Today, morality is just an afterthought. One just only has to view the behavior of the kids on Spring Break in Panama City Beach to know we have failed. Worse for the most part the media complies. Most are afraid to post an article like this.

For 3 generations, parents have been indoctrinated into believing the School should replace the Family. Read Nietzsche’s quote again. Nietzsche and Dewey knew if they eliminate God and Rights, the people will become POWERLESS AND DEPENDENT.

And so, we have.

“It takes a Village.”

Parents now believe if they are not “Sustainable”, the World will be destroyed and it will be their fault – therefore they must give their children to the School.

Grants and regulations fueled by fear quiets the Church. Allowing Human Secularism to become the favored religious belief has emptied the church. Fear of IRS (no church has ever lost its 501C3 nor can they) has left Pastors impotent. Political correctness, being the Silent Majority, and not discussing Politics and Religion…covered the rest.

Communism are atheists. They know that a human can only believe in one thought at a time. They know if they replace economy, energy, control, regulations with the pleasure of the moment the people will be so involved in pleasuring themselves, they will no longer be capable of thinking. Teaching SEX in K-6 is their way of replacing reality. What has happened during spring break is a direct example of a failed school system no longer valuing life.

There is NO understanding the big picture. Consequences of these concepts and teachings are never learned. Schools teach bullet/talking points – not substance. Students who can no longer read, write, or do simple math have no logical concept of the domino effect of their actions.

Not knowing history gives the false sense that there are NO CONSEQUENCES or ACCOUNTABILITY for one’s actions. Just look at Baltimore…

The Proletariat (citizens) watched the Game while Rioters destroyed the City – the Mainstream Media..covered a Dinner.

I felt like a Roman watching the Gladiators, while the poor destroyed Rome; or the people that watched the Olympics, while the Jews went to the Death Camps. When you don’t know HISTORY, the more things change…the more they remain the same. And in the end, NOTHING has changed. Fortunately, the remedy is simple:

Once you recognize the Purpose of Education is… MONEY, POWER, CONTROL.

It’s TIME to STEP UP, ACT…and take back POWER and CONTROL:

  1. Parents: DEMAND to see everything YOUR CHILD READS!
  2. Homeschool – either at your home, or go to your church and ask the pastor to open some of those vacant buildings and reactivate a COMMON-CORE-FREE church school. Parents can share in the homeschool responsibility.
  3. Since many of the parents are indoctrinated as well, it is up to the grandparents to have that hard conversation and get involved!
  4. Go to School Board meetings; get involved or RUN FOR OFFICE. Don’t worry about winning. As a candidate, just by running – you get your message out.
  5. If only 10% of the parents took their kids out of school, you would see a HUGE CHANGE, immediately! Just look how crazy they get – when we OPT out!

Parents have the POWER. They just don’t know that they do, because they were trained to GIVE IT UP.

Don’t be fooled by CHOICE. Once the ESEA Bill is reauthorized, the local school boards will cease to exist. Charter Schools will not answer to local school boards. Money will follow the student. Money provided by the Feds and States will dictate school programs. There will be NO CHOICE. Call your Federal Legislator, NO WAY ESEA.

Listen to this podcast, with my special guest: Charlotte Iserbyt.

Listen, ask questions, learn, share the information and act.

If not NOW, WHEN? If not YOU, WHO?

The EPA Myth of “Clean Power”

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There are many things I do not like about the Environmental Protection Agency, but what angers me most are the lies that stream forth from it to justify programs that have no basis in fact or science and which threaten the economy.

Currently, its “Clean Power” plan is generating its latest and most duplicitous Administer, Gina McCarthy, to go around saying that it will not be costly, nor cost jobs. “Clean Power” is the name given to the EPA policy to reduce overall U.S. carbon dioxide (CO2) emissions by 30% from 2005 levels by 2030. It is requiring each state to cut its emissions by varying amounts using a baseline established by the EPA.

Simply said, there is no need whatever to reduce CO2 emissions. Carbon dioxide is not “a pollutant” as the EPA claims. It is, along with oxygen for all living creatures, vital to the growth of all vegetation. The more CO2 the better crops yields will occur, healthier forests, and greener lawns. From a purely scientific point of view, it is absurd to reduce emissions.

Cartoon - EPA Torture ReportWriting in The Wall Street Journal on April 22, Kenneth C. Hill, Director of the Tennessee Regulatory Authority, said “Senate Majority Leader Mitch McConnell (R-KY) set off a firestorm when he advised states not to comply with the Environmental Protection Agency’s Clean Power Plan. Yet that advice isn’t as radical as his detractors make it sound. As a state public utilities commissioner who deals with the effects of federal regulations on a regular basis, I also recommend that states not comply.”

Noting its final due date in June, that refusal would impose a Federal Implementation Plan on states “that risks even greater harm,” said Hill. “But the problem for the EPA is that the federal government lacks the legal authority under either the Constitution or the Clean Air Act to enforce most of the regulation’s ‘building blocks’ without states’ acquiescence.”

As this is being written there is are two joined cases before the DC Circuit Court of Appeals, State of West Virginia v EPA and Murray Energy v EPA. They are a challenge to President Obama’s “War on Coal” and the EPA efforts to regulate its use. Fifteen states, along with select coal companies, have sued for an “extraordinary whit” to prevent the EPA from promulgating the new carbon regulations found it the Clean Power plan.

Writing in The Hill, Richard O. Faulk, an attorney and senior director for Energy Natural Resources and the Environment for the Law and Economics Center at George Mason University, noted that “The EPA’s argument confidently hinges on convincing the courts that the Clean Air Act doesn’t mean what it says. By its plain language, the bill prohibits the EPA from regulating the power plants from which these emissions derive. Moreover, coal plants are already addressed under an entirely different section of the bill than the one EPA insists justifies its powers.”

The latest news as reported by Myron Ebell, the director for energy and environment of the Competitive Enterprise Institute, is that “Senator Shelley Moore Capito (R-W.Va.) this week introduced a bill to block the Environmental Protection Agency’s proposed rules to regulate greenhouse gas emissions from new and existing power plants. S. 1324, the Affordable Reliable Energy Now Act, has 26 original co-sponsors, including Majority Leader Mitch McConnell (R-Ky.), Senate Environmental and Public Works Committee Chairman James M. Inhofe (R-Okla.), and Democrat Joe Manchin (D-W.Va.).”

“Both Majority Leader McConnell and Chairman Inhofe have said that they are determined to stop EPA’s greenhouse gas rules, so I expect quick action to move Capito’s bill. In the House, a bill to block the rules, H. R. 2042, the Ratepayer Protection Act, was voted out of the House Energy and Commerce Committee on 29th April and is awaiting floor action.”

It’s worth noting that, when Obama took office, fifty percent of America’s electrical energy was supplied by coal-fired plants and, just six years later, that has been reduced by ten percent. What kind of President would deliberately reduce American’s access to affordable power?

It’s the same kind of President that believes—or says he does—the pronouncements of the U.N.’s Intergovernmental Panel on Climate Change. The IPCC’s “Climate Change 2014 Synthesis Report” claims that world will face “severe, pervasive and irreversible damage” if coal-fired and other carbon-based—coal, oil, and natural gas—energy sources aren’t replaced with “renewable energy sources”—wind and solar—by 2050. It wants fossil-fueled power generation “phased out almost entirely by 2100.” Now this is just insanity, unless your agenda is to destroy the world’s economic system and kill millions. That would be the only outcome of the IPCC recommendations.

The columnist Larry Bell, a professor at the University of Houston, points out that “As for expecting renewables to fill in the power curve, European Union experiences offer a painful reality check. Approximately 7.8 percent of Germany’s electricity comes from wind, 4.5 percent from solar. Large as a result, German households already fork out for the second highest power costs in Europe—often as much as 30 percent above the levels seen in other European countries. Power interruptions add to buyer’s remorse.”

Heartland - Climate News (2)As reported in The Heartland Institute’s Environment & Climate News, “European governments, once at the vanguard of renewable energy mandates, appear to be having second thoughts about their reliance on giant wind farms…” There has been a sharp drop in such projects with installations plunging 90% in Denmark, 75% in Italy, and 84% in Spain.

What the EPA is attempting to impose on America is a drain on our production of electricity coupled with an increase in its price. It is an obscene attack on our economy.

© Alan Caruba, 2015

EDITORS NOTE: The featured image is courtesy of Shutterstock.

Insuring John Galt? Insuring disobedience could take down the regulatory state by THOMAS A. FIREY

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Cato’s latest podcast is an interview with Charles Murray on his new book, By the People: Rebuilding Liberty without Permission. You can watch the podcast below or download the audio here. Be forewarned: if you’re like me, you’ll be Kindle-ing the book before the interview ends.

The word “provocative” is applied to far too many books these days, and often to books that should instead be called “wacky.” Murray’s thesis fully earns the former adjective, and perhaps a touch of the second–and I write that as high praise.

He argues that American government today is so far divorced from the nation’s founding principles of limited government and individual liberty that it can’t be returned to those principles through normal political action. No presidential administration, congressional turnover, or set of SCOTUS appointments will restore the Commerce and General Welfare clauses.

Thus, he writes, supporters of liberty should try to effect change through carefully chosen but broadly adopted acts of civil disobedience against publicly unpopular regulations. Some examples that come to my mind: people could become part-time Uber drivers, or cash businesses could routinely make deposits of $9,999, or parents could include cupcakes in their schoolchildren’s packed lunches.

Of course, public officials will try to punish the participants.

But that’s good, Murray argues, for two reasons: First, it’ll consume a lot of the regulators’ surprisingly scarce resources in order to punish even a small percentage of the participants. Second, it opens the way for challenging the regulations in court–where, in recent years, they’ve had trouble surviving judicial scrutiny.

To fund those challenges and financially protect participants, he proposes the participants create a legal defense and compensation fund prior to any disobedience. In essence, the fund would be an insurer with a muscular legal wing, reducing regulatory violations to mere insurable events.

This last bit is what gives Murray’s book a touch of wackiness – but then, perhaps not. If the targets of civil disobedience are well chosen and participation is large, the participants as a group could benefit financially even though they’d pay the “insurance premium.”

I’m interested in reading parts of the book that Murray briefly mentions in the interview: how to select “stupid and pointless” regulations that would be good targets of civil disobedience, how exactly the insurance fund would operate, how to rally public opinion and attract support from non-libertarians, and perhaps most importantly, why does he think the general public–and not just libertarians–are tired of being hassled by regulators and government officials.

Could Murray’s idea spark a large wave of civil disobedience? Perhaps – with the help of insurance.

20150514_charlesmurraycivildisobedienceinfographic

 

Thomas A. Firey is managing editor of Regulation magazine at the Cato Institute’s magazine, where this idea first appeared.

Thomas A. Firey

Thomas A. Firey is a Maryland Public Policy Institute senior fellow, and also is managing editor of Regulation magazine, the Cato Institute’s quarterly review of business in government.

What Do the Tesla and the Model-T Have in Common? by George C. Leef

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Henry Ford did a lot for the automobile in America. What everyone knows is that he figured out how to improve manufacturing efficiency so much that the auto was transformed from a toy for the rich into an item that ordinary people could afford.

(Nothing really extraordinary in that, by the way. As Ludwig von Mises wrote in The Anti-Capitalist Mentality, “Under capitalism the common man enjoys amenities which in ages gone by were unknown and therefore inaccessible even to the richest people.”)

But very few people know that Ford had to fight against a cartel to be allowed to sell his vehicles. In this 2001 article published in The Freeman, “How Henry Ford Zapped a Licensing Monopoly,” Melvin Barger goes into the fascinating history of Ford’s legal battle against the Association of Licensed Automobile Manufacturers (ALAM).

In 1895, an inventor named George Selden had received a patent for a gasoline powered automobile. That patent was later acquired by ALAM, which then said to everyone who wanted to sell a gasoline powered car, “You must pay us royalties for the privilege of selling such vehicles and if you sell without our license, we’ll take you to court for patent infringement.”

Ford had developed his auto without any knowledge of Selden’s patent and saw no reason why he shouldn’t be free to make and sell cars without paying ALAM for the right to do so.

So Ford thumbed his nose at ALAM and sold his cars without paying royalties. ALAM naturally sued him in an effort to keep its cartel going. The legal battles lasted from 1903 to 1911, when a federal appeals court ruled that the Selden patent only applied to vehicles made to its exact specifications. (That had actually been tried, with dismal results.) Ford therefore did not owe ALAM anything. He was free to continue putting his capital into making cars the public wanted without diverting even a dollar to appeasing a group of rent-seekers.

Turn the clock ahead a century, and we find that an innovative car company faces similar obstacles.

Substitute Elon Musk for Henry Ford and Tesla for Model-T and state dealer regulation for an extortionate patent scheme, but the stories are largely the same. ALAM didn’t want competition that might break up its cartel and neither does the established auto dealer system want innovative marketing upsetting its business.

In their January 2015 Mercatus Center paper “State Franchise Law Carjacks Auto Buyers,” Jerry Ellig and Jesse Martinez discuss the way established dealers have used their lobbying clout to stifle competition.

This post first appeared on Forbes.com.

George C. Leef

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

F.A. Hayek on Free Thought vs. Free Action: Can intellectual freedom survive without economic liberty?

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Today is Friedrich Hayek’s 116th birthday, and so I thought I’d celebrate the great economist and classical liberal thinker with an excerpt from his wonderful treatise The Constitution of Liberty, on the relationship between freedom of thought and freedom of action.

Leftist thinkers have (traditionally, at least) vigorously defending intellectual liberty — the right to speak, to think, and to write as you saw fit — but refused to even acknowledge freedom of action, dismissing it as merely an “economic” rather than a “fundamental” liberty.

Hayek not only rejected this distinction, he further argued for the crucial relationship between the freedom to act, even in the most basic sense, and the flow of new ideas to the intellectual sphere:

The manner in which we have learned to order our day, to dress, to eat, to arrange our houses, to speak and write, and to use the countless other tools and implements of civilization, no less than the “know-how” of production and trade, furnishes us constantly with the foundations on which our own contributions to the process of civilization must be based. And it is in the new use and improvement of whatever the facilities of civilization offer us that the new ideas arise that are ultimately handled in the intellectual sphere.

Though the conscious manipulation of abstract thought, once it has been set in train, has in some measure a life of its own, it would not long continue and develop without the constant challenges that arise from the ability of people to act in a new manner, to try new ways of doing things, and to alter the whole structure of civilization in adaptation to change.

The intellectual process is in effect, only a process of elaboration, selection, and elimination of ideas already formed. And the flow of new ideas, to a great extent, springs from the sphere in which action, often non-rational action, and material events impinge upon each other. It would dry up if freedom were confined to the intellectual sphere.

The importance of freedom, therefore, does not depend on the elevated character of the activities it makes possible. Freedom of action, even in humble things, is as important as freedom of thought.

It has become a common practice to disparage freedom of action by calling it “economic liberty.” But the concept of freedom of action is much wider than that of economic liberty, which includes; and, what is more important, it is very questionable whether there are any actions which can be called merely “economic” and whether any restrictions on liberty can be confined to what are called merely “economic” aspects.

Economic considerations are merely those by which we reconcile and adjust our different purposes, none of which, in the last resort, are economic.

Economic liberty is neither severable from intellectual freedom, nor the most basic concerns of human life. Freedom of action is the lifeblood of innovation, not just in industry but in ideas.

“Commercial” or “economic” liberty is inseparable from our more supposedly “essential” freedoms because it is the means by which we achieve most of what we want out of life — which, as Hayek points out, is not money but happiness, health, security, and love.

Here’s more on Hayek’s legacy today from Reason‘s Brian Doherty, David Boaz at Cato, as well as some more great resources from FEE.

I especially recommend Brian Summers’ 1977 Freeman essay “The Division of Knowledge,” as well as Hayek’s own “The Use of Knowledge in Society,” which is pound for pound the most insightful thing written about economics, markets, and central planning in the last century.

Anything Peaceful

Anything Peaceful is FEE’s new online ideas marketplace, hosting original and aggregate content from across the Web.

Why Are Feds Threatening to Black Out Times Square? by MARC SCRIBNER

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Colleagues tipped me off to an absurd news story about how the federal government is threatening to punish New York City for its famously gaudy Times Square electronic billboards:

It is known as the “Crossroads of the World,” the “Center of the Universe” and “the Great White Way,” but Times Square could become like the “Black Hole of Calcutta” if the federal government has its way. . .

The feds say many of Times Square’s huge and neon-lit billboards must come down or the city will lose about $90 million in federal highway money.

The edict comes from a 2012 law that makes Times Square an arterial route to the national highway system. And that puts it under the 1965 Highway Beautification Act, which limits signs to 1,200 square feet. It took the feds until now to realize that Times Square was included. . .

City Transportation Commissioner Polly Trottenberg agrees.

“The signs in Times Square are wonderful. They’re iconic. They’re not only a global tourist attraction, they’re important to the economy,” Trottenberg said.

She said she’s not going to let it happen.

“We’re not going to be taking down the billboards in Times Square. We’re going to work with the federal government and the state and find a solution,” Trottenberg said.

Some have suggested that this is an example of regulators run amok. It isn’t. This is a classic example of Congress passing stupid laws, ordering regulators to implement them stupidly, and then forgetting about them until unintended consequences spring up down the line.

Allow me to explain what’s going on here, as virtually all the news articles and commentary out there provide next to zero context.

As the article noted, in the last surface transportation bill (the MAP-21 Act), Section 1104 created what is now known as the “enhanced National Highway System.” The enhanced National Highway System refers to MAP-21’s amendment to include, “Other urban and rural principal arterial routes … that were not included on the National Highway System before the date of enactment of the MAP-21.”

In a nutshell, this provision added roads that meet the definition of “principal arterial” to the National Highway System that were not previously designated as components of the National Highway System.

Why might someone want to do this? Because arterials that aren’t designated as part of the National Highway System are not eligible for federal Highway Program funding. Based on the current statutes and regulations governing National Highway System designations, roads evaluated to be principal arterials by the Federal Highway Administration’s Highway Performance Monitoring System were automatically added to the National Highway System under Congress’s 2012 law.

This included some roadways in New York City.

Enter the Highway Beautification Act of 1965, the brainchild of President Lyndon Johnson’s wife Lady Bird. The law that unnecessarily imposes federal restrictions on outdoor advertisements within 660 feet of the National Highway System.

(As a curious aside, Republicans were so incensed by the Johnson administration’s statist foray into a trivial aesthetic issue that should have been left to the states and private citizens that then-Congressman Bob Dole introduced an amendment that would have replaced every instance of “Secretary of Commerce” in the bill with “Lady Bird.”)

The law prohibits “jumbo” billboards over 1,200 square feet within 660 feet of a National Highway System right-of-way, which now includes none other than Time’s Square. Obviously, this does not sit well with many New Yorkers, who are now facing the prospect of losing 10 percent of their federal highway funding thanks to two dumb pieces of legislation enacted almost 50 years apart.

But the most recent change occurred under the watch of one Polly Trottenberg. Trottenberg, now New York City’s transportation commissioner, was the Under Secretary for Policy at the US Department of Transportation when Congress passed and President Obama signed MAP-21 into law in 2012.

It was her job to understand the legislation and serve as chief advisor to the Secretary of Transportation on implementation. Apparently she missed a section and is now forced to reconcile her current outrage as a local official with her past incompetence as a federal official.

Federal regulators are not “abusing” their authority by attempting to de-glitz Times Square. The problem is an unintended statutory conflict, and it rests at the feet of Congress. As Jake Flanagan notes, the Federal Highway Administration has bent over backwards not to turn off the lights or impose the Highway Beautification Act’s 10% highway funding penalty.

That said, there are basically three options for New York and the feds going forward:

  1. Revert the impacted principal arterial National Highway System designations, although removing these roadways from the National Highway System would cost those corridors federal-aid highway funding;
  2. Attempt to carve out a regulatory exemption for the impacted roadways, although an expansive exemption would likely earn the ire of the scenic highway lobby (yes, they exist) and is likely an unlawful expansion of regulatory power; or
  3. Convince Congress to create a statutory exemption for these types of gaudy but culturally significant mega-advertisements in the next surface transportation reauthorization or MAP-21 extension.

Personally, short of repealing the Highway Beautification Act, I find the third option to be the most appealing. Congress should accept responsibility for this legislative absurdity and fix it.

Marc Scribner

Marc Scribner is a Fellow at the Competitive Enterprise Institute, where a version of this post first appeared.

Real Heroes: Ludwig Erhard — The Man Who Made Lemonade from Lemons by LAWRENCE W. REED

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How rare and refreshing it is for the powerful to understand the limitations of power, to actually repudiate its use and, in effect, give it back to the myriad individuals who make up society. George Washington was such a person. Cicero was another. So was Ludwig Erhard, who did more than any other man or woman to denazify the German economy after World War II. By doing so, he gave birth to a miraculous economic recovery.

“In my eyes,” Erhard confided in January 1962, “power is always dull, it is dangerous, it is brutal and ultimately even dumb.”

By every measure, Germany was a disaster in 1945 — defeated, devastated, divided, and demoralized — and not only because of the war. The Nazis, of course, were socialist (the name derives from National Socialist German Workers Party), so for more than a decade, the economy had been “planned” from the top. It was tormented with price controls, rationing, bureaucracy, inflation, cronyism, cartels, misdirection of resources, and government command of important industries. Producers made what the planners ordered them to. Service to the state was the highest value.

Thirty years earlier, a teenage Ludwig Erhard heard his father argue for classical-liberal values in discussions with fellow businessmen. A Bavarian clothing and dry goods entrepreneur, the elder Wilhelm actively opposed the kaiser’s increasing cartelization of the German economy. Erhard biographer Alfred C. Mierzejewski writes of Ludwig’s father,

While by no means wealthy, he became a member of the solid middle class that made its living through hard work and satisfying the burgeoning consumer demand of the period, rather than by lobbying for government subsidies or protection as many Junkers did to preserve their farms and many industrialists did to fend off foreign competition.

Young Ludwig resented the burdens that government imposed on honest and independent businessmen like his father. He developed a lifelong passion for free market competition because he understood what F.A. Hayek would express so well in the 1940s: “The more the state plans, the more difficult planning becomes for the individual.”

Severely wounded by an Allied artillery shell in Belgium in 1918, Ludwig’s liberal values were strengthened by his experience in the bloody and futile First World War. After the tumultuous hyperinflation that gripped Germany in the years after the war, he earned a PhD in economics, took charge of the family business, and eventually headed a marketing research institute, which gave him opportunities to write and speak about economic issues.

Hitler’s rise to power in the 1930s deeply disturbed Erhard. He refused to have anything to do with Nazism or the Nazi Party, even quietly supporting resistance to the regime as the years wore on. The Nazis saw to it that he lost his job in 1942, when he wrote a paper outlining his ideas for a free, postwar economy. He spent the next few years as a business consultant.

In 1947, Erhard achieved the chairmanship of an important monetary commission. It proved to be a vital stepping stone to the position of director of economics for the Bizonal Economic Council, a creation of the American and British occupying authorities. It was there that he could finally put his views into policy and transform his country in the process.

Erhard’s beliefs had by this time solidified into unalterable convictions. Currency must be sound and stable. Collectivism was deadly nonsense that choked the creative individual. Central planning was a ruse and a delusion. State enterprises could never be an acceptable substitute for the dynamism of competitive, entrepreneurial markets. Envy and wealth redistribution were evils.

“It is much easier to give everyone a bigger piece from an ever growing cake,” he said, “than to gain more from a struggle over the division of a small cake, because in such a process every advantage for one is a disadvantage for another.”

Erhard advocated a fair field and no favors. His prescription for recovery? The state would set the rules of the game and otherwise leave people alone to wrench the German economy out of its doldrums. The late economist William H. Peterson reveals what happened next:

In 1948, on a June Sunday, without the knowledge or approval of the Allied military occupation authorities (who were of course away from their offices), West German Economics Minister Ludwig Erhard unilaterally and bravely issued a decree wiping out rationing and wage-price controls and introducing a new hard currency, the Deutsche-mark. The decree was effective immediately. Said Erhard to the stunned German people: “Now your only ration coupon is the mark.”

The American, British, and French authorities, who had appointed Erhard to his post, were aghast. Some charged that he had exceeded his defined powers, that he should be removed. But the deed was done. Said U.S. Commanding General Lucius Clay: “Herr Erhard, my advisers tell me you’re making a terrible mistake.” “Don’t listen to them, General,” Erhard replied, “my advisers tell me the same thing.”

General Clay protested that Erhard had “altered” the Allied price-control program, but Erhard insisted he hadn’t altered price controls at all. He had simply “abolished” them. In the weeks and months to follow, he issued a blizzard of deregulatory orders. He slashed tariffs. He raised consumption taxes, but more than offset them with a 15 percent cut in income taxes. By removing disincentives to save, he prompted one of the highest saving rates of any Western industrialized country. West Germany was awash in capital and growth, while communist East Germany languished. Economist David Henderson writes that Erhard’s motto could have been: “Don’t just sit there;undo something.”

The results were stunning. As Robert A. Peterson writes,

Almost immediately, the German economy sprang to life. The unemployed went back to work, food reappeared on store shelves, and the legendary productivity of the German people was unleashed. Within two years, industrial output tripled. By the early 1960s, Germany was the third greatest economic power in the world. And all of this occurred while West Germany was assimilating hundreds of thousands of East German refugees.

It was a pace of growth that dwarfed that of European countries that received far more Marshall Plan aid than Germany ever did.

The term “German economic miracle” was widely used and understood as it happened in the 1950s before the eyes of the world, but Erhard himself never thought of it as such. In his 1958 book, Prosperity through Competition, he opined, “What has taken place in Germany … is anything but a miracle. It is the result of the honest efforts of a whole people who, in keeping with the principles of liberty, were given the opportunity of using personal initiative and human energy.”

The temptations of the welfare state in the 1960s derailed some of Erhard’s reforms. His three years as chancellor (1963–66) were less successful than his tenure as an economics minister. But his legacy was forged in that decade and a half after the war’s end. He forever answered the question, “What do you do with an economy in ruins?” with the simple, proven and definitive recipe: “Free it.”

For additional information, see:

David R. Henderson on the “German Economic Miracle”
Alfred C. Mierzejewski’s Ludwig Erhard: A Biography
Robert A. Peterson on “Origins of the German Economic Miracle”
Richard Ebeling on “The German Economic Miracle and the Social Market Economy”
William H. Peterson on “Will More Dollars Save the World?”

Lawrence W. Reed

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.

EDITORS NOTE: Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

Texas and Kansas File Amicus Briefs Supporting Florida’s Lawsuit Against Expansion Of Obamacare

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AUSTIN – Governor Greg Abbott today filed an amicus brief in support of Governor Rick Scott and the State of Florida’s lawsuit against the Obama administration’s unlawful attempt to coerce the State of Florida into a massive expansion of Medicaid under the Affordable Care Act. Governor Abbott released the following statement:

“The federal government has overstepped its constitutional authority and ignored the Supreme Court’s decision in NFIB v. Sebelius, where the Court held that Congress could not coerce States into accepting a massive expansion of an already broken and bloated Medicaid program. The State of Texas will exercise its constitutional right to refuse Medicaid expansion, and we support the State of Florida’s effort to do the same.”

“[The Department of Health and Human Services (HHS)] has threatened to withhold from Florida billions of dollars in Medicaid payments, and it has issued similar threats to Texas, Kansas, and others,” wrote Governor Abbott in the amicus brief. “These threats are surely just the beginning of a nationwide campaign to hold hostage federal waiver dollars in those States who are standing firm on their constitutional right to refuse the new Medicaid.

“No litigant should be put to the choice of surrendering its day in court against an agency that is violating the constitution, or facing unjustifiable retaliation by the same agency in the future. HHS’s public reasons for harassing Florida do not withstand scrutiny. The agency picked this fight with Florida in an unlawful attempt to isolate, intimidate, and coerce, [and] the court should grant Florida’s request for declaratory and injunctive relief.”

To view the amicus brief in its entirety, click here.

Transforming Education Beyond Common Core: Arne Duncan’s “Classroom of the Future”

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Last month, Secretary of Education Arne Duncan described his “vision for the classroom of the future” in what he hoped would be the first of many posts on the site called Bright (at medium.com), which is funded by the New Venture Fund, a non-profit that supports public interest projects in education, global issues, public health, and other issues.

The classroom of the future, wrote Duncan, would involve the “digital revolution,” as he presented reasons quasi-syllogistically: “In the United States, education is meant to be the great equalizer.  Technology has the potential to bridge gaps for those who have the least.  Simply put, technology can be a powerful tool for equality as well.”

Of course, many would differ with him about the major premise: that education is meant to be the great equalizer, at least in the way that Duncan and this administration think of it – as ending the achievement gap, with that duty falling to the federal government.  Other departmental missives have promoted the same goals.  Duncan has put pressure on states for “equitable funding” of school districts to overcome racial disparities, and has called for increased federal funding through the Elementary and Secondary Education Act (ESEA) to overcome disparities of the “tax base” in communities.

Similarly, the Department recently cast the opting-out of Common Core tests as a lack of concern about “underserved populations,” recalling the comment made by Duncan in 2013 about Common Core opponents being “white suburban moms.”

The Department has been redefining education, emphasizing behavior and attitudes over academics, and even casting awareness about racial and ethnic identity as overlooked evidence of intelligence.  Education is no longer about teachers imparting knowledge to their students.  Linda Darling-Hammond, leader of Obama’s education transition team and developer of one of the two Common Core national assessments, has repeatedly disparaged traditional assessments that objectively test students’ knowledge as skill and drill.  In this she follows progressive and radical educators who see their roles as developing agents of social change, agents who do not learn in the traditional Eurocentric linear and logical way, but emotively and tactilely.

Replacing our traditional ways of learning, through reading, writing, and study—contemplative and solitary activities—are the communal and hands-on activities promoted in Common Core and now digital learning.  Both Common Core and digital learning serve to obscure a large part of the reason for the achievement gap: reading ability.  Students who are poor readers lag in other subjects.  To cover up this inability, Common Core emphasizes “speaking and listening skills,” (with points given for behavior and attitudes, such as the ability to work with “diverse” groups) and group work, where lagging students are coached along by others as they do “close readings” of short passages.  This ensures that all students have mastered the same (minimal) level of knowledge. Similarly, games offer an opportunity to hide differences in ability.  Information is delivered through images and sound, not words on a page, and at a pace that the student directs.  Duncan writes that technology is “helping teachers to use their time and talents more effectively to personalize learning for students — tailoring the pace, approach, and context of the learning experience to students’ individual needs and interests.”

Additionally, technology alters the relationship between teachers and students, leveling the relationship even further than the currently fashionable one of teacher as “facilitator.”  The student presumably gains the information on his own and applies that knowledge to “real-world” problems.  Duncan writes:

Until recently, the main function of public education has been to convey knowledge in one direction, from teachers to students. But with the growth of the Internet and mobile technology, our relationship to knowledge has fundamentally changed. To succeed in today’s world, our students need to be adept at not only recalling information, but using their knowledge to conceive, create, and employ solutions to real-world problems.

Duncan then employs the much-used strategy of reductively stereotyping traditional education, as he writes, “Students aren’t vessels to be filled with facts. And educators aren’t simply transmitters of information.”

In this schema, little attention is paid to “recalling information”—or the acquirement of knowledge. Emphasis is placed on the ability to – through the wonders of technology – find information.  (Of course with little concern about the ability to discern among the sources of information.)

In Duncan’s estimation, technology is the great liberator, unleashing children’s creativity and natural ability to solve problems.  It’s the ultimate instantiation of the progressive idea that students simply “discover” knowledge through their own creativity and curiosity – a theory which has time and again been disproven by the data, as Jeanne Chall and her student Sandra Stotsky have shown.

Aside from the logical impossibility of doing “real-world” problem-solving outside the real world, i.e., in a classroom and with children, such a focus away from objective measurements to hypothetical problems and solutions is another way to ensure equality of outcomes.

For those teachers who agree to promote such pedagogies, the Department of Education has many awards and ambassadorships to bestow.

EDITORS NOTE: The next installment will discuss the latest effort by the Department to promote digital learning, as described enthusiastically by a teacher and a U.S. Department of Education “Teaching Ambassador Fellow.”

Obama’s Economic Disaster

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Commenting on the rioting in Baltimore, the Wall Street Journal’s Daniel Henniger was almost to the end of his April 30 text when he said “On Wednesday morning, the year’s first-quarter GDP growth rate came in—0.02%. Next to nothing. For the length of the Obama presidency, with growth significantly below norm, unemployment for blacks aged 24 and younger has hovered between 30% and 40%. That’s the real powder key, not the police.”

Most Americans do not put the state of the economy at the heart of everything else that is occurring. Instead they listen to politicians apply the blame to everything other than themselves. President Obama spent his entire first term blaming George W. Bush for the bad state of the economy he inherited, but instead of addressing it, he increased it by imposing ObamaCare, radically altering how many would be hired while others were cut to a part-time status. The bill added a number of taxes as well.

When 2015 arrived in January CNS News reported that “A record 92,898,000 Americans 16 and older did not participate in the labor force in December, as the labor force participation rate dropped once again to 62.7 percent, a level it has not seen in 36 years,” according to the Bureau of Labor Statistics (BLS).

Remember those unemployed young blacks? In March the BLS noted that a record of 12,202,000 black people were not in the labor force. The unemployment rate for black people in March was 10.1 percent, which is nearly double the overall unemployment rate of 5.5 percent. For black teens, age 16 to 19, the unemployment rate was even higher at 25.0 percent, meaning that one in four black teens who were actively seeking a job did not have one.

By the beginning of April, the BLS reported that “a record 93,175,000 Americans 16 and older did not participate in the labor force in March, as the labor force participation rate dropped to 62.7 percent, the lowest level seen in 37 years.”

Also in April, the BLS reported that “a record 56,131,000 women, age 16 years and over, were not in the labor force the previous month, as the participation rate for this group dropped to 56.6 percent—a 27 year low.

It was no surprise that the Department of Agriculture reported that “The number of beneficiaries who receive compensation from the Supplemental Nutrition Assistance Program (SNAP), otherwise known as food stamps, has topped 46,000,000 for 37 straight months.”

The U.S. Census Bureau started 2015 with news that one out of five young adults—white, black, Hispanic—and ages 18 to 34, currently live in poverty!  That’s 13.5 million people, “up from one in seven (8.4 million people) in 1980.”

If all this strikes you as very bad news, it gets worse. In February, the Daily Caller’s White House Correspondence, Neil Monro, reported that “President Barack Obama has quietly handed out an extra 5.46 million work permits for non-immigrant foreigners who arrived as tourists, students, illegal immigrants or other types of migrants since 2009.”

“’The executive branch is operating a high parallel work-authorization system outside the bounds of the (immigration) laws and limits written by Congress (and which) inevitably reduces job opportunities for Americans,’ said Jessica Vaughan, the policy director at the Center for Immigration Studies” which filed the FOIA request the revealed this travesty.

So it didn’t matter to  Barack Obama that millions of Americans were out of work while the White House masterminded a secretive program to provide non-Americans access to the jobs that were available.

We are living in the midst of an economic disaster and despite the often rosy headlines the reality is one that Stephen Moore, the chief economist at the Heritage Foundation, took note of in January in The Washington Times. He identified “hidden indicators” of the true state of the economy as 2015 began:

“The $1 trillion growth gap. This economic recovery is the lowest in 50 years”

“The restless recovery. It’s been 10 years since Americans in the middle class got a pay raise that kept pace with inflation.”

“Inequality is worse. The Gini coefficient (as measured by the Census Bureau), the left’s favorite measure of income inequality, rose each of Mr. Obama’s first four years in office, breaking all-time highs in both 2011 and 2012, and it remains high.”

“The debt has grown by $7.3 trillion. When Mr. Obama entered office the national debt was under $11 trillion. Now it’s more than $18 trillion…it will be $19 trillion when he leaves office.”

The record speaks for itself. Americans are worse off today than when Obama took office in 2009. In the years since then he has totally failed to take the best understood steps to push back against a recession and unemployment. He has expanded the federal government. He has failed to initiate a reform of the nation’s tax code to stimulate investment and expansion.

The nation’s first black President has so poorly served the interests of the African-American population that they are worse off today. He has practiced “equal inequality” by afflicting our other demographic groups, younger workers, woman, and everyone else who has been left unable to afford college and unable to purchase a home and start a family. These years will be seen in retrospect as a desert of opportunity.

© Alan Caruba, 2015

Warren Buffett Would Understand the Plight of this Seattle Pizza Shop Worker

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At his annual shareholders’ meeting, Berkshire Hathaway CEO Warren Buffett said raising the minimum wage isn’t the answer to economic ills [emphasis mine]:

“I don’t have anything against raising the minimum wage but I don’t think you can do it in a significant enough way without creating a lot of distortions,” Buffett, 84, Berkshire Hathaway Inc.’s chief executive officer, said Saturday at the company’s annual shareholders meeting in Omaha, Nebraska. Those distortions “would cost a whole lot of jobs,” Buffett said.

One Seattle pizza shop worker understands exactly what that means:

Devin Jeran was happy to get a raise, when Seattle’s minimum wage went up to $11 an hour at the beginning of the month.

“I definitely recognize that having more money is important,” he says, “especially in a city as expensive as this one.”

Unfortunately, he’ll only enjoy that bigger paycheck for a few more months. In August, his boss is shutting down Z Pizza and putting him and his 11 co-workers out of work.

“Fortunately she keeps us in the loop, she didn’t just tell us last minute.”

Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes.

“I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”

Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.

We see similar distortions from a different perspective a few hundred miles south in San Francisco. Brian Hibbs, owner of two comic book stores, is also learning what happens when politics is used to raise wages [emphasis mine]:

Hibbs opened Comix Experience on April Fools’ Day, 1989, when he was just 21 years old. Over two-and-a-half decades, the store has become a must-visit location for premier comic-book artists and graphic novelists, and Hibbs has become a leading figure in the industry, serving as a judge for the prestigious Will Eisner Comic Industry Awards and as a member of the Comic Book Legal Defense Fund’s board of directors. He notes with pride that his store has turned a profit each year — no small task — since its very first year.

But that may not last. Hibbs says that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. “I was appalled!” he says. “My jaw dropped. Eighty-thousand a year! I didn’t know that. I thought we were talking a small amount of money, something I could absorb.”

He runs a tight operation already, he says. Comix Experience is open ten hours a day, seven days a week, with usually just one employee at each store at a time. It’s not viable to cut hours, he says, because his slowest hours are in the middle of the day. And he can’t raise prices, because comic books and graphic novels have their retail prices printed on the cover.

[h/t Sonny Bunch]

The wage increases are no picnic for Bay Area restaurants either.

While minimum wage increases are well-intentioned, as the American Enterprise Institute’s Aparna Mathur explains, they’re ineffective in helping low-skilled workers:

New research finds that the effect of increases in the minimum wage between 2007 and 2009 was to significantly reduce employment of low-skilled workers. Further, minimum wage hikes increased the likelihood that low-skilled individuals would work without pay, and this was true even for workers with some college education. Finally, this new research tracked workers over time and found that increases in minimum wages had negative medium-run effects on the ability of low-skilled workers to rise up the income ladder. The paper finds that during the late 2000s, effective minimum wages rose by nearly 30 percent and estimates these increases reduced the employment-to-population ratio of working age adults by 0.7 percentage points.

This is far from a one-off finding even though some earlier research finds no impact on employment. The fact that we need to account for negative employment effects shows up in a careful analysis done by the Congressional Budget Office last year on President Obama’s proposed minimum wage hike to $9 or $10.10. The CBO estimated that in the aggregate, employment losses could be as high as 500,000 or 1 million as a result of the hike in the minimum wage to $10.10.

To borrow from the Wall Street Journal editorial board: Business and economic success–not political coercion–are the only ways to sustainably raise wages.

EDITORS NOTE: Meet Sean Hackbarth / @seanhackbarth / Follow@uschamber. The featured image is of Warren Buffett at the Berkshire Hathaway annual shareholders meeting in Omaha, Nebraska. Photo credit: Daniel Acker/Bloomberg.

3 Myths about Economic Intervention

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Whenever a social or economic problem arises, most people’s default position is that the government should “do something about it.” Indeed, most people think that if the government does nothing, nothing will get done. It’s crazy to think our elected officials should sit idly by. But when the government does intervene, things can go wrong.

Let’s explore the empirical evidence when it comes to the effectiveness of three popular government interventions.

Myth #1: Occupational licensing increases the quality and safety of services provided in the market.

Occupational licensing has been one of the most rapidly growing labor market institutions in the United States over the last few decades. According to the Brookings Institution (the most influential think tank in the world),

In the early 1950s less than 5 percent of US workers were required to have a license from a state government in order to perform their jobs legally. By 2008, the share of workers requiring a license to work was estimated to be almost 29 percent.

Nowadays it isn’t just highly skilled professionals who need a license; florists, truck drivers, and even hair stylists in many states find that they can’t practice their trade without first overcoming expensive and time-consuming barriers.

The primary justifications for occupational licensing are to guarantee a minimum level of safety and quality for the services sold in the market. However, there isn’t much evidence that occupational licensing actually achieves these goals. A paper published by the National Bureau of Economic Research found that more difficult requirements to earn a dental license lead to higher prices for consumers but not to superior dental outcomes.

Other research has found that more stringent licensing requirements for opticians, mortgage brokers, and teachers have no impact on the quality of the services provided, while at the same time increasing the cost of these services. Even the merit of medical licenses is questionable. “The link between [medical] licensing and service quality is tenuous at best,” according to one review of the evidence on medical licensure and service quality. Most importantly, in a recent paper published by the Brookings Institution, the author notes,

The evidence from the economics literature suggests that licensing has had an important influence on wage determination, benefits, employment, and prices in ways that impose net costs on society with little improvement to service quality, health, and safety … a reduction in licensing restrictions … would lead to employment growth in affected occupations and a reduction in prices.

That evidence paints a clear picture: Occupational licensure erects entry barriers that hinder a person’s ability to practice a given profession while providing no measurable benefits to consumers. Indeed, it imposes net costs on society through higher consumer prices and lower levels of employment than would likely have been the case otherwise.

According to the Brookings paper, “Standard economic models imply that the restrictions from occupational licensing can result in up to 2.85 million fewer jobs nationwide, with an annual cost to consumers of $203 billion.”

At the very least, state and local governments ought to seriously consider slowing the growth of licensing restrictions as a means to mitigate their growing economic costs.

Myth #2: Patent protection spurs innovation.

An innovative company invests a large amount of money in research and development for a new product. The company then proceeds to release that product to the market. Soon after, other companies start producing the same product, and this competition leads to a general price decline as well as customers buying from many companies rather than just one. As a result of this competition, the original innovator’s return on investment is close to 0 percent.

When innovators understand that they likely will not recoup their investments because of the competitive nature of the marketplace, they won’t bother innovating at all — so the established wisdom goes. To provide incentives for innovation, intellectual property advocates argue, the government must provide a temporary monopoly status for the creators of new products, thus increasing the price of the product. This temporary monopoly is supposed to promote innovation by increasing the incentive to innovate.

However, with monopoly protection comes political rent-seeking. Firms that hold government-granted monopolies seek to extend the length of their monopoly status. Similarly, firms who do not yet have monopoly status in the form of a patent attempt to obtain one.

Another problem with patents isn’t necessarily that they fail at providing an incentive to innovate; it’s that existing patents may hinder the subsequent innovation that would have been built on these patented products.

The net effect of patents on innovation seems to be neutral at best, and probably negative. According to a paper published in the Journal of Economic Perspectives,

Overall, the weight of the existing historical evidence suggests that patent policies, which grant strong intellectual property rights to early generations of inventors, may discourage innovation. On the contrary, policies that encourage the diffusion of ideas and modify patent laws to facilitate entry and encourage competition may be an effective mechanism to encourage innovation.

Similarly, the authors of a working paper published by the Federal Reserve Bank of St. Louis find that “there is no empirical evidence that [patents] serve to increase innovation and productivity, unless the latter is identified with the number of patents awarded — which, as evidence shows, has no correlation with measured productivity.”

Even if there are some industries (pharmaceuticals, perhaps) where government intervention can promote innovation, patent laws can heavily distort the direction of those innovations, subsidizing some consumers at the expense of the rest of us.

A paper by economists from Harvard, MIT, and the University of Chicago found that distortions in the US patent system cause the pharmaceutical industry to invest more in drug development for people who are late-stage cancer patients than for people who are in the early stages of cancer or for cancer prevention.

The Economist summarized the findings:

The patent system encourages [pharmaceutical companies] to pump out drugs aimed at those who have almost no chance of surviving the cancer anyway. This patent distortion costs the US economy around $89 billion a year in lost lives.

Distortions like these cast doubt on the belief that society can rely on government to produce efficient patent laws.

Myth #3: Antitrust laws benefit consumers.

Competition is vital to a thriving market economy. It increases productivity,increases the availability of consumer goods, and reduces consumer prices. Many people believe, therefore, that government intervention is necessary to ensure that large firms do not dominate entire markets of goods and services and end up exploiting consumers.

According to the conventional wisdom, 19th-century “robber barons” were monopolists who used such techniques as predatory pricing to drive out competitors and then charge obscene prices. Consequently, on behalf of the people, the government stepped up and passed antitrust legislation, most notably the Sherman Antitrust Act of 1890, which put an end to the rapacious monopolists.

But is this popular version of history accurate? That some firms dominate large shares of a given market does not necessarily imply that they are acting as monopolists (that is, restricting output and raising prices). Indeed, these firms often gained their market share by expanding output, lowering prices, and offering the best prices to consumers. In other words, they were so good that their competitors simply couldn’t keep up.

Historian Thomas E. Woods writes,

Mainstream economics identifies monopolists by their behavior: they earn premium profits by restricting output and raising prices. Was that behavior evident in the industries where monopoly was most frequently alleged to have existed? Economist Thomas DiLorenzo, in an important article in the International Review of Law and Economics, actually bothered to look. During the 1880s, when real GDP rose 24 percent, output in the industries alleged to have been monopolized for which data were available rose 175 percent in real terms. Prices in those industries, meanwhile, were generally falling, and much faster than the 7 percent decline for the economy as a whole. We’ve already discussed steel rails, which fell from $68 to $32 per ton during the 1880s; we might also note the price of zinc, which fell from $5.51 to $4.40 per pound (a 20 percent decline) and refined sugar, which fell from 9¢ to 7¢ per pound (22 percent). In fact, this pattern held true for all 17 supposedly monopolized industries, with the trivial exceptions of castor oil and matches.

In other words, the conventional wisdom justifying antitrust laws isn’t based on an accurate representation of economic history.

Still, it may be worth asking if antitrust policy in the United States has achieved the supposed goal of saving consumers from predatory monopolists. The answer appears to be no.

In a highly cited paper published in the Journal of Economic Perspectives, the authors assessed the evidence regarding the efficacy of federal antitrust policy and found that there was “no evidence that antitrust policy in the areas of monopolization, collusion, and mergers has provided much benefit to consumers.” Further: “in some instances … [anti-trust policy] may have lowered consumer welfare.”

That’s a pretty shocking conclusion given how casually most people accept the efficacy of anti-trust law. Instead of relying on government intervention to break up monopolies, perhaps the government should start dismantling the barriers it creates that inhibit competition in the first place. According to a paper by economists at the Federal Reserve Bank of Minneapolis, “Government policies themselves, such as tariffs and other forms of protection, are an important source of monopoly” that lead to “significant welfare losses.”

The solution to monopoly — and professional licensure, and the incentives of innovation — is less government intervention, not more.

Corey Iacono
Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

The Other Half of the Inflation Story

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Credit expansion adds noise to price signals by Sandy Ikeda.

More money means higher prices. It’s too bad not everyone understands that connection. Even some economists don’t get it. Readers of the Freeman do, I’m sure. And they also understand why that’s a bad thing.

Increasing the supply of money and credit, other things equal, will cause a general rise in wages and prices across an economy. When the Federal Reserve, the central bank of the United States, excessively “prints money,” the result is “inflation” as it’s now commonly called. For those who get the new money after everyone else has spent theirs, inflation means incomes will now buy fewer goods, and every dollar lent before prices rose will be worth less when it’s returned.

If inflation continues, people will eventually learn to demand more for what they sell and lend in order to compensate for the purchasing power that inflation keeps eating away. That, in turn, will cause prices to rise faster, which makes planning for households and businesses even more difficult. In the past, that difficulty has led to hyperinflation and a breakdown of the entire economic system.

But as awful as all this may be, it’s really only half the story, and perhaps not even the worse half. What follows is a highly simplified story of what happens.

The structure of production

If you’d like to build a sturdy house, you’ll need to have some kind of blueprint or plan that will tell you two things:

  1. how the frame, floor, walls, roof, plumbing, and electrical system will all fit together; and
  2. the order in which to put these components together.

Even if the house was made entirely of identical stones, you would need to know how to fit them together to form the floor, walls, chimney, and other structural components. No two stones would serve exactly the same function in the overall plan.

The economy is like a house in the sense that each of its parts, which we might call “capital,” needs to mesh in a certain way if the eventual result will be order and not chaos. But there are two big differences between a house and an economy. The first is that the economy is not only much bigger, but it consists of a multitude of “houses” or private enterprises that have to fit together orcoordinate, and so it’s an unimaginably more complex phenomenon than even the most elaborate house.

The second major difference is that a house is consciously constructed for a purpose, typically for someone to live in it. But an economic system is neither consciously designed by anyone nor intended to fulfill any particular purpose, other than perhaps to enable countless people with plans to do the best they can to achieve success. It’s a spontaneous order.

The way all the pieces of capital, from all the diverse people in the economy who own them, fit together is called the capital structure of production.

Credit expansion distorts the structure of production

When people decide to spend a certain portion of their incomes on consumption today, they are at the same time deciding to save some portion for consumption for the future. The amount that they save then gets lent out to borrowers and investors in the market for loanable funds. The rate of interest is the price of making those transactions across time. That is, when you decide to increase your saving, other things equal, the rate of interest (what some economists call the “natural rate of interest”) will fall. The falling interest rate makes borrowing more attractive to producers who invest today to produce more goods in the future.

That’s great, because when the market for loanable funds is operating freely without distortions, that means when people who saved today try to consume more in the future, there actually is more in the future for them to consume . Businesses today invested more at the lower rates precisely in order to have more to sell in the future when consumers want to buy more.

Now, if the Federal Reserve prints more money and that money goes into the loanable funds market, that will also increase the supply of loans and lower the interest rate and induce more borrowing and investment for future output. The difference here is that the supply of loans increases not because people are saving more now in order to consume more in the future, but only because of the credit expansion. That means that in the future, when businesses have more goods to sell, consumers won’t be able to buy them (because they didn’t save enough to do so) at prices that will cover all of the businesses’ costs. Prices will have to drop in order for markets to clear. Sellers suffer losses and workers lose their jobs.

And, oh yes, all that credit expansion also causes inflation.

While this process sounds rather involved, it’s still a highly simplified version of what has come to be known as the Austrian business cycle theory. (For a more advanced version, see here.) Of course, each instance in reality is significantly different from any other, but the narrative is essentially the same: credit expansion distorts the structure of production, and resources eventually become unemployed.

The explanation is more involved than the typical inflation-is-bad story that we’re more familiar with. Indeed, that probably explains why it’s the less-well-known half of the story. Even Milton Friedman and the monetarists pay little attention to the capital structure, choosing instead to focus on the problems of inflationary expectations.

Again, for Austrians, the problem arises when credit expansion artificially lowers interest rates and sets off an unsustainable “boom”; the solution is when the structure of production comes back into alignment with people’s actual preferences for consumption and saving, which is the “bust.” Most modern macroeconomists see it exactly the opposite way: the bust is the problem, and the boom is the solution.

An intricate, dynamic jigsaw puzzle

To close, I’d like to use an analogy I learned from Steve Horwitz (whom I heartily welcome back as a fellow columnist here at the Freeman).

The market economy is like a giant jigsaw puzzle in which each piece represents a unique unit of capital. When the system is allowed to operate without government intervention, the profit-and-loss motive tends to bring the pieces together in a complementary way to form a harmonious mosaic (although in a dynamic world, it couldn’t achieve perfection).

Credit expansion, then, is like someone coming along and making too many of some pieces and too few of others — and then, during the boom, trying to force them together, severely distorting the overall picture. During the bust, people realize they have to get rid of some pieces and try to discover where the others actually fit. That requires challenging adjustments and may take some time to accomplish. But if the government tries to “help” by stimulating the creation of more superfluous pieces, it will only confuse matters and make the process of adjustment take that much longer.

Inflation is bad enough. Unfortunately, it’s only half the story.

Sandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.