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How Many People Can Planet Earth Sustain? by Robert P. Murphy

Asked whether or not the growing world population will be a major problem, 59% of Americans agreed it will strain the planet’s natural resources, while 82% of U.S.-based members of the American Association for the Advancement of Science said the same. Just 17% of AAAS scientists and 38% of Americans said population growth won’t be a problem because we will find a way to stretch natural resources.
Pew Research Center

“If humanity is to have a long-term future,” writes James Dyke at the Conversation, “we must address all these challenges [of population growth] at the same time as reducing our impacts on the planetary processes that ultimately provide not just the food we eat, but water we drink and air we breathe. This is a challenge far greater than those that so exercised Malthus 200 years ago.”

Thomas Malthus was a pioneer in political economy who wrote a famous 1798 essay on the dangers of population growth. Nowadays, environmentalists concerned with “sustainable growth” typically invoke Malthusian concerns as they recommend government interventions.

Free-market thinkers tend to reject such “solutions” as unnecessary, but beyond the technical policy debate, there is also a strand in the free-market community that embraces population growth with optimism.

The crux of Malthus’s original essay was that unchecked populations grow exponentially, whereas food production grows — at best — linearly. The following passage sums up the bleak Malthusian view of life:

The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction, and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world.

The Malthusian mindset explains Paul Ehrlich’s runaway bestseller The Population Bomb and the popularity of the “zero population growth” (ZPG) movement in the 1960s. Ehrlich said, “The mother of the year should be a sterilized woman with two adopted children.” (Advocates of ZPG over the years have differed on whether their goal could be achieved purely through voluntary sterilization and restraint versus government controls.)

How does a free-market economist respond to modern-day Malthusianism?

We should first make the obvious point that people in the private sector are just as capable of extrapolating population figures as government officials. Indeed, as I explained in “Are Markets Myopic?,” market prices — particularly in futures markets — give private owners the proper incentives to balance current consumption against future uses, even for nonrenewable resources. It is, in fact, democratically elected government officials who are myopic, since their control over such resources is fleeting.

To illustrate the shortcoming of a naïve natural scientific perspective on these issues, consider an anecdote from my high school years. I remember that my biology textbook asked us to consider a petri dish with a population of bacteria that would double every day. By stipulation, the bacteria would completely fill the dish — and thus hit the ceiling of its “carrying capacity” — on the 30th day. The textbook then delivered the stunning observation that on the day before this crisis, the dish would only be half full. The textbook’s point, of course, was to warn that trends in biology were not linear, and that crises could develop rapidly out of apparent tranquility and abundance.

If my classmates and I learned this principle in high school biology, then presumably at least some traders in the Chicago agricultural commodities markets have thought about it, too. If Earth’s population will grow more rapidly than food production over the next decade, then the spot prices of wheat, soybeans, and beef will eventually skyrocket as the crunch sets in. If the crisis of population growth is “obvious” to academics the world over, then this growth would be factored into market prices and food prices would already be high in anticipation of the future disaster.

Although there are sophisticated arguments involving the “negative externalities” of climate change, generally speaking, the possible dangers of excessive population growth would manifest themselves in the form of higher prices for raising children. Couples would voluntarily reduce their (biological) family size as real estate prices, tuition, health care, and food prices rose faster than wages to reflect the impending crunch. There is nothing for government officials to do in this area except to get out of the way and let market prices do their job, as opposed to subsidizing population growth through poorly designed welfare systems, “free” government schooling, and similar programs. People in the market make horrible forecasting decisions all the time, but government policies typically reinforce those flaws in human nature rather than counteract them.

As with any serious thinker, Malthus’s real work was imbued with nuance. Rather than making him a hero of progressive interventionists, one could hold up Malthus as a pioneer in understanding the importance of market institutions in encouraging responsible decision making when it comes to family size. However, if we focus on the narrow empirical prediction that exponential population growth must outstrip food production, then Malthus was simply wrong, or at least he has been so far. The “green revolution” is the shining example in the more general history of human ingenuity overcoming obstacles, especially in the context of relatively free markets. Julian Simon famously won a bet with Ehrlich predicting that the prices of key commodities — which he let Ehrlich and his colleagues choose — would fall during the 1980s.

In his own work, Simon stressed human creativity and adaptation as the “ultimate resource.” When typical Malthusians look at humanity, they see billions of bellies that must be filled. Instead, Simon saw billions of brains that could produce a new strain of crop, discover a cure for cancer, or develop a new technique for locating oil deposits.

One of Simon’s most compelling arguments is to point out that human labor is the one resource that has consistently become relatively more scarce over the centuries. Specifically, the amount of labor time that the typical worker needs to spend in order to earn the wages for buying other resources has dropped dramatically. (Robert Bradley provides some compelling graphics on the topic.) If the Malthusians had been right, then labor would have become relatively abundant and superfluous, with commodity and energy prices rising far more than wage rates.

As the population grows, two competing forces affect living standards. On the one hand, higher population allows for a greater division of labor, as well as more inventions that can be easily scaled. (The work of J.K. Rowling and Steve Jobs would not have been nearly as valuable on a tropical island with 100 people.) On the other hand, there are finite limits on certain resources — such as standing room on Earth, for the foreseeable future — and thus at some point further population growth drives down average wages.

Nonetheless, the market contains the proper incentives to allow individuals to make informed choices about procreation. Furthermore, experience to date has definitely come down on the side of the optimists. So far, free societies have proven “the more, the merrier” to be true. Wherever population growth appears to fall into a Malthusian trap, we find excessive statism, not free markets and private property rights.

Robert P. Murphy
Robert P. Murphy

Robert P. Murphy is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

5 Unintended Consequences of Regulation and Government Meddling by Robert P. Murphy

Voters frequently support measures that sound noble and beneficial but end up causing serious mischief — and often hurt the very groups the measures were intended to help.

A well-known example is price controls, which include minimum wage laws and rent control. These can cause unemployment among low-skill workers and apartment shortages for those without connections.

But that’s not all. Not by a long shot.

Here are five more examples of unintended consequences.

1. “Shoot, Shovel, and Shut Up”

The Endangered Species Act and other laws restrict how landowners can use their property if it is discovered that their actions may adversely affect vulnerable wildlife. Besides the injustice of violating property rights, this regulation produces perverse results.

Imagine a landowner in the Midwest who had plans to sell to an outside developer who wanted to build a shopping mall. One morning, a few days before closing the deal, the man is sipping coffee and looking off his back porch into the woods. He suddenly sees a woodpecker that he recognizes as a protected species. What will the man do, if he follows pecuniary incentives? Is he going to call up federal bureaucrats and tell them the good news?

No. The man will probably go get his gun and shovel and never speak of this incident to anyone.

2. Seat Belt Legislation Kills

In the typical debate over seat belt mandates — in which drivers can be heavily fined if caught driving without buckling up — advocates of liberty tend to stress individuals’ “right to be stupid” while others claim that public safety trumps absolute freedom. Ideology aside, do such laws make us safer?

Economist Sam Peltzman looked at the evidence after some states enacted seat belt legislation, while others did not. He found that drivers did buckle up more frequently because of the government penalties but that traffic fatalities were roughly unchanged.

True, the probability of dying in a car crash went down, if you were in a crash, because wearing a seat belt definitely helps you survive a typical accident. However, the states that passed the seat belt legislation saw anincrease in rates of traffic accidents. Because people felt safer, they drove just a little more recklessly. No individual driver wakes up and says, “I’m going to get in a fender bender today,” but with millions of people driving hours per day, 365 days per year, we will definitely see more accidents in the aggregate if people are even slightly more aggressive on the margin.

Peltzman found that total fatalities were about the same. The death rate for motorists crept down, but this was offset by a higher death rate among pedestrians and cyclists hit by cars. Some groups obviously did not benefit from the higher prevalence of seat belt usage.

3. Stricter Vehicle Fuel Economy Mandates Do Little for the Environment

The federal government imposes minimum corporate average fuel economy (CAFE) standards on certain vehicles. Some states wanted to “do more” for the environment, so they passed tighter mandates. In other words, states like California imposed higher mile-per-gallon requirements on cars sold in California than the federal government insisted on.

But the way the states structured their rules led to a significant “leakage.” If a car manufacturer increased the average fuel economy for its vehicles sold in California, for example, then those cars counted as part of its “fleet” in calculating the average fuel economy for its cars sold in the nation as a whole. The manufacturer could then get away with selling cars that had lower fuel economy in the states that did not supplement the federal rule, and they were still satisfying both state and national standards. Thus, the California rule as originally designed led to fewer emissions per vehicle-mile in California — but not nearly as much in the nation as a whole. Some economists estimated this “leakage” to be as high as 74 percent. The hodgepodge of standards simply raised the total costs of vehicles while doing little to reduce total US emissions.

4. Jane Jacobs Combats City Planning

Fans of Austrian economics should not be surprised to learn that Jane Jacobs, the champion of the American city, found several flaws with typical bureaucratic city planners. For example, zoning regulations broke up the spontaneous growth of cities into “residential” and “commercial” sections, spawning crime and other social ills.

Originally, apartments were interspersed with shops, so that the owners could always keep an eye on their businesses and on their children. This “natural surveillance” was destroyed with zoning and other regulations, not to mention the interstate highways that would rip neighborhoods apart and the austere “housing projects” that placed most adults far away from the street and thus unable to monitor and shoo away unsavory characters. Zoned neighborhoods became unsafe neighborhoods.

5. Three Strikes Mean You’re Out

In an understandable reaction to “liberal” judges who would give slaps on the wrist to repeat offenders, the 1990s saw a wave of automatic sentencing legislation to take away judges’ discretion. This included California’s famous 1994 “Three Strikes and You’re Out” rule (Proposition 184), where someone convicted of a third felony would get 25 years to life. Currently, 24 states have some form of “three strikes” legislation.

One problem with these rules is that many acts are felonies that most people would consider petty, such as bringing a smoke bomb to high school. In California, one man with two prior felony convictions was sentenced to 25 years to life for being with a friend who got caught selling $20 of cocaine to an undercover cop.

An unintended consequence of the “three strikes” rules is that someone with two prior felony convictions now has a serious incentive to evade arrest for a third. And in fact, empirical studies of Los Angeles data suggest that more police officers have been killed because of this effect.

The Upshot

Incentives matter. It’s not enough for voters to endorse legislation that has a nice title and promises to do something good. People need to think through the full consequences of a policy, because often it will lead to a cure worse than the disease.

Robert P. Murphy

Robert P. Murphy is senior economist with the Institute for Energy Research. He is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

The New Paganism? The Case against Pope Francis’s Green Encyclical by Max Borders

Paganism as a distinct and separate religion may perhaps be said to have died, although, driven out of the cities, it found refuge in the countryside, where it lingered long — and whence, indeed, its very name is derived. In a very real sense, however, it never died at all. It was only transformed and absorbed into Christianity. – James Westfall Thompson, An Introduction to Medieval Europe

In 2003, science-fiction writer Michael Crichton warned a San Francisco audience about the sacralization of the environment. Drawing an analogy between religion and environmentalism, Crichton said:

There’s an initial Eden, a paradise, a state of grace and unity with nature, there’s a fall from grace into a state of pollution as a result of eating from the tree of knowledge, and as a result of our actions there is a judgment day coming for us all.

We are all energy sinners, doomed to die, unless we seek salvation, which is now called sustainability. Sustainability is salvation in the church of the environment. Just as organic food is its communion, that pesticide-free wafer that the right people with the right beliefs, imbibe.

This analogy between religion and environmentalism is no longer a mere analogy.

Pope Francis, the highest authority in the Catholic Church — to whom many faithful look for spiritual guidance — has now fused church doctrine with environmental doctrine.

Let’s consider pieces of his recently released Encyclical Letter. One is reminded of a history in which the ideas of paganism (including the worship of nature) were incorporated into the growing medieval Church.

Excerpts from Pope Francis are shown in italics.


 

This sister protests the evil that we provoke, because of the irresponsible use and of the abuse of the goods that God has placed in her. We grew up thinking that we were its owners and rulers, allowed to plunder it.

Notice how Pope Francis turns the earth into a person. Sister. Mother. This kind of anthropomorphic trope is designed to make you think that, by virtue of driving your car, you’re also smacking your sibling. We’ve gone from “dominion over the animals and crawling things” to “plundering” our sister.

The violence that exists in the human heart wounded by sin is also manifested in the symptoms of the disease we feel in soil, water, air and in the living things. Therefore, among the most abandoned and ill treated poor we find our oppressed and devastated Earth, which “moans and suffers the pains of childbirth” [Romans 8:22].

First, if the state of the soil, water and air and living things is indeed symptomatic of our violent, sinful hearts, then the good news is that sin is on the decline. On every dimension the Pope names, the symptoms of environmental harm are getting better all the time — at least in our decadent capitalist country.

Do not take it on faith: here are data.

There are forms of pollution which affect people every day. The exposure to air pollutants produces a large spectrum of health effects, in particular on the most poor, and causes millions of premature deaths.

This will always be true to some degree, of course, but it’s less true than any time in human history. Pope Francis fails to acknowledge the tremendous gains humanity has made. For example, human life expectancy in the Paleolithic period (call this “Eden”) was 33 years. Life expectancy in the neolithic period was 20 years. Globally, life expectancy is now more than 68 years, and in the West, it is passing 79 years.

Yes, there is pollution, and, yes, the poor are affected by it. But the reason why the poor are affected most by air pollution is because they’re poor — and because they don’t have access to fossil fuel energy. Pope Francis never bothers to draw the connection between wealth and health because he thinks of both production and consumption as sinful. Brad Plumer writes at Vox,

About 3 billion people around the world — mostly in Africa and Asia, and mostly very poor — still cook and heat their homes by burning coal, charcoal, dung, wood, or plant residue in their homes. These homes often have poor ventilation, and the smoke can cause all sorts of respiratory diseases.

The wealthy people of the West, including Pope Francis, don’t suffer from this problem. That’s because liberal capitalist countries — i.e., those countries who “plunder” their sister earth — do not suffer from energy poverty. They do not suffer from inhaling fumes and particulate matter from burning dung becausethey are “sinful,” because they are capitalist.

See the problem? The Pope wants to have it both ways. He has confused the disease (unhealthy indoor air pollution) with the cure (cheap, clean, abundant and mass-produced energy from fossil fuels).

Add to that the pollution that affects all, caused by transportation, by industrial fumes, by the discharge of substances which contribute to the acidification of soil and water, by fertilizers, insecticides, fungicides, herbicides and toxic pesticides in general. The technology, which, connected to finance, claims to be the only solution to these problems, in fact is not capable of seeing the mystery of the multiple relationships which exist between things, and because of this, sometimes solves a problem by creating another.

It is strange to read admonitions from someone about the “multiple relationships that exist between things,” only to see him ignore those relationships in the same paragraph. Yes, humans often create problems by solving others, but that doesn’t mean we shouldn’t solve the problems. It just means we should solve the big problems and then work on the smaller ones.

Solving problems even as we discover different problems is an inherent part of the human condition. Our creativity and innovation and struggle to overcome the hand nature has dealt us is what makes us unique as a species.

Perhaps this is, for Pope Francis, some sort of Green Original Sin: “Thou shalt just deal with it.” But to the rest of us, it is the means by which we live happier, more comfortable lives here under the firmament.

The Earth, our home, seems to turn more and more into a huge garbage dump. In many places on the planet, the elderly remember with nostalgia the landscapes of the past, which now appear to be submerged in junk.

If you get your understanding of waste management and the environment from the movie Wall-E, then you might have the impression that we’re burying our sister in garbage. But as the guys over at EconPop have pointed out, land used for waste management is also governed by laws of supply and demand — which means entrepreneurs and innovators are finding better and less expensive ways to reuse, reduce, recycle, and manage our waste.

The industrial waste as well as the chemicals used in cities and fields can produce an effect of bio-accumulation in the bodies of the inhabitants of neighboring areas, which occurs even when the amount of a toxic element in a given place is low. Many times one takes action only when these produced irreversible effects on people’s health.

People, on net, are living longer and healthier than they ever have in the history of our species. What evidence does the Holy Father have that irreversible effects on people’s health rises to the level of an emergency that demands drafting in a papal encyclical? And why focus on the costs of “chemicals” without a single mention of overwhelming their human benefit? Indeed, which chemicals? This kind of sloppy thinking is rather unbecoming of someone who is (we are constantly reminded) a trained chemist.

Certain substances can have health effects, but so can failing to produce the life-enhancing goods in the first place. The answer is not to beg forgiveness for using soaps and plastics (or whatever), but to develop the institutions that prevent people and companies from imposing harmful costs onto others without taking responsibility for it.

The key is to consider the trade-offs that we will face no matter what, not to condemn and banish “impure” and unnatural substances from our lives.

These issues are intimately linked to the culture of waste, affecting so much the human beings left behind when the things turn quickly into trash.

Now we’re getting somewhere. This is where Pope Francis would like to add consumerism to production on the list of environmentally deadly sins.

Let us realize, for example, that most of the paper that is produced is thrown away and not recycled.

Heaven forfend! So would Pope Francis have us burn fossil fuels to go around and collect processed pulp? Is he unaware that demand for paper is what drivesthe supply of new trees? We aren’t running out of trees because we throw away paper. The Pope’s plan sounds like it could have been hatched in Berkeley, California, instead of Vatican City. And yet worlds have collided.

Michael Munger puts matters a little differently:

Mandatory recycling, by definition, takes material that would not be recycled voluntarily, diverts it from the waste stream, and handles it several times before using it again in a way that wastes resources.

The only explanation for this behavior that I can think of is a religious ceremony, a sacrifice of resources as a form of worship. I have no problem if people want to do that. As religions go, it is fairly benign. Butrequiring that religious sacrifice of resources is a violation of the constitutional separation of church and state.

Well, Professor Munger, this is the Pope we’re talking about.

We find it hard to admit that the operation of natural ecosystems is exemplary: plants synthesize nutrients that feed the herbivores; these in turn feed the carnivores, which provide a lot of organic waste, which give rise to a new generation of plants. In contrast, the industrial system, at the end of its cycle of production and consumption, has not developed the ability to absorb and reuse waste and slag.

Where is the evidence for this? These are matters of faith, indeed. All this time I thought the industrial system did have the ability to absorb and reuse waste: It’s called the system of prices, property, and profit/loss. The problem is not that such a “recycling” system doesn’t exist, it’s that corruption and government distorts the system of property, prices and profit/loss so that our economic ecosystem doesn’t operate as it should.

Indeed, when you have the Pope suggesting we burn gas to save glass, you have to wonder why the industrial system is so messed up. A system that “requires us to limit the use of non-renewable resources, to moderate consumption, to maximize the efficiency of the exploitation, to reuse and to recycle,” is called the market. And where it doesn’t exist is where you’ll find the worst instances of corruption and environmental degradation.

Then, of course, there’s climate change. In the interests of brevity I won’t quote the whole thing. But here’s the punchline, which might have been plucked straight from the IPCC Summary for Policymakers:

Climate change is a global problem with serious environmental, social, economic, distribution and policy implications, and make up one of the main current challenges for humanity. The heaviest impacts will probably fall in the coming decades upon developing countries.

This might be true. What the Holy Father fails to appreciate is that the heaviest impacts of policies designed to mitigate climate change will definitely fall upon developing countries. (That is, if the developing countries swear off cheap energy and embrace any sort of global climate treaty. If history is a guide, they most certainly will not.)

Meanwhile, the biggest benefits of burning more carbon-based fossil fuels will accrue the poorest billions on earth. The Pope should mention that if he really has their interests at heart or in mind.

But many symptoms indicate that these effects could get worse if we continue the current patterns of production and consumption.

“Patterns of production and consumption”? This is a euphemism for wealth creation. What is wealth except production and consumption of resources to further human need and desire?

His suggested cure for our dangerous patterns of wealth creation, of course, is good ole demand-side management. Wiser, more enlightened minds (like his, he hopes) will let you know which light bulbs to buy, what sort of car to drive, and which insolvent solar company they’ll “invest” your money in. You can even buy papal indulgences in the form of carbon credits. As the late Alexander Cockburn wrote,

The modern trade is as fantastical as the medieval one. … Devoid of any sustaining scientific basis, carbon trafficking is powered by guilt, credulity, cynicism and greed, just like the old indulgences, though at least the latter produced beautiful monuments.

But the most important thing to realize here is that the “current” patterns of production and consumption are never current. The earthquakes of innovation and gales of creative destruction blow through any such observed patterns. The price system, with its lightning-quick information distribution mechanism is far, far superior to any elites or energy cronies. And technological innovation, though we can’t predict just how, will likely someday take us as far away from today’s energy status quo, just as we have moved away from tallow, whale oil, and horse-drawn carriages.

The Pope disagrees with our rose-tinted techno-optimism, saying “some maintain at all costs the myth of progress and say that the ecological problems will be solved simply by new technical applications.”

The Pope sits on his golden throne and looks over the vast expanse of time and space — from hunter-gatherers running mammoths off cliffs to Americans running Teslas off electric power, from the USA in 1776 and 2015, from England before and after the Industrial Revolution, from Hong Kong and Hiroshima in 1945 to their glorious present — and sneers: progress is a myth, environmental problems can’t be fixed through innovation, production is destroying the earth, consumption is original sin.

Innovation is the wellspring of all progress. Policies to stop or undo innovation in energy, chemistry, industry, farming, and genetics are a way to put humanity in a bell jar, at best. At worst they will put some of us in the dark and others in early graves. They are truly fatal conceits.

And yet, the Pope has faith in policymakers to know just which year we should have gotten off the train of innovation. William F. Buckley famously said conservatives “stand athwart history, yelling ‘Stop!’” Greens are similar, except they’re yelling “Go back!”

Therefore it has become urgent and compelling to develop policies so that in the coming years the emission of carbon dioxide and other highly polluting gases is reduced drastically, for instance by replacing fossil fuels and by developing renewable energy sources.

I reflect again on the notion that this effort might be just another way of the Church embracing and extending a competitor religion. Then again, Pope Francis so often shows that he is a true and faithful green planner. In an unholy alliance with those who see the strategic benefit in absorbing environmentalism, the Holy Father has found the perfect way to restore the power of the Church over politics, economics, culture, and the state to its former glory.


Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also cofounder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.


Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Why Is Snapchat More Secure than the Federal Government? by Andrea Castillo

Cyberhawks have seized upon this year’s massive hack of the Office of Personnel Management (OPM) to shove a wolfish surveillance bill in a sheepish cybersecurity bill’s clothing down America’s throat.

But the “Cybersecurity Information Sharing Act of 2015” (CISA) would have done nothing to stop the hack that exposed as many as 14 million federal employees’ personnel records. The pro-NSA crowd’s arguments are obvious nonsense — if anything, the OPM hack clearly demonstrates the danger of trusting incompetent government bureaucracies to manage huge datasets of sensitive personal information.

But amid all of the hubbub, these self-styled champions of strong cybersecurity — who also just happen to be anti-private encryption and pro-surveillance — have neglected to raise one important question: Why did a goofy picture-sharing app implement basic security measures before the central repository for all federal personnel data did?

This week, Snapchat announced that the private picture messaging service was offering two-factor authentication for its users. This basic measure of security helps to verify that the person logging in is indeed the legitimate owner of their account by sending out a text message with a special access code to the owner’s cell phone.

That way, a hacker must obtain both your password and your mobile phone to access and control your account. It’s simple, but simple security solutions can sometimes mean the difference between a foiled infiltration and a very, very bad day for a Snapchat user.

Of course, it is too much to expect the chief steward of federal employee information to implement such a simple policy. As the beleaguered office’s Inspector General reported last fall, OPM does not require multi-factor authentication to access its information systems.

If a careless OPM employee chose a weak and easy-to-guess password, or emailed it in plain text across an insecure channel, or merely left it on a sticky note on his or her desk (as is common practice in the federal government), than any common hacker could potentially access vast amounts of federal data.

In other words, an application for sharing pictures of wild parties and funny cats has better authentication standards than the federal government’s primary steward of millions of current and former federal employees’ and contractors’ addresses, Social Security numbers, financial information, and health records. Oh, and that of our military leadership and intelligence contacts — several of which are embedded deep undercover in dangerous missions — as well.

Hackers also accessed the feds’ cache of Standard Form 86 files for the aforementioned groups, dragging countless family members, friends, and colleagues into the databreach crossfire.

To call this a huge mess would be the second biggest understatement of the year. The biggest? That OPM’s substantial information security vulnerabilities are entirely unacceptable and directly at fault for the hack.

The OPM’s annual information security reports to Congress have admitted “material weaknesses” and “significant deficiencies” for years. The department lacked an IT team with “professional security experience and certifications”until 2013. Disgruntled employees could have merely walked off with this data if they wanted to, since OPM does not “maintain a comprehensive inventory of servers, databases, and network devices.” Nor did the OPM encrypt any of the data that the hackers stole — they might as well have just invited our forward friends in China to sweep in through the front door!

As Ars Technica’s Sean Gallagher concludes, “Considering the overall condition of OPM’s security, it’s no surprise that an attacker — almost any attacker — could gain a foothold inside the agency’s network. But attackers didn’t just gain a foothold, they had practically a free run of the networks.”

It’s true that Snapchat has hardly been a paragon of good cybersecurity in the past, as previous security vulnerabilities, breaches, misleading marketing, and the infamous “Snappening” testify. However, there is another important difference between Snapchat and the OPM that puts the humble app ahead of the mighty federal office: Snapchat has to learn from its mistakes.

As a private service provider in a hotly-competitive market that must keep its users happy to stay afloat, Snapchat moved quickly to get its security house in order after their big mistakes. They hired the former social network security leader for Google and started to build a “culture of security” within the firm.

They may still have a long way to go, but these investments and cultural prioritization are important first steps that demonstrate a proactive sense of ownership in their platform’s security. And of course, if they keep screwing up, they’ll be sued out the nose and go out of business for good.

We see no such sense of urgency with OPM. The agency received what could have been a saving wakeup call in last year, when it was discovered that Chinese hackers had accessed OPM databases in March of 2014.

OPM had the opportunity to implement simple encryption and authentication measures, tighten up their ship, and increase employee education about good data and security practices. No such luck! The office more or less continued on its merry way.

No one was fired back then and it looks like no one will get fired now. It’s government work, after all.

Unfortunately, OPM is hardly the only sucker on cybersecurity in the federal government, as my research for the Mercatus Center has found. This kind of unbelievably poor cybersecurity posture is the norm rather than the exception.

In fact, it’s hard to pick what is scarier: that the federal government operates under the digital equivalent of leaving all of their doors and windows unlocked and wide open, or that these same federal agencies want more power to manage your personal data through CISA.


Andrea Castillo

Andrea Castillo is the program manager of the Technology Policy Program for the Mercatus Center at George Mason University and is pursuing a PhD in economics at George Mason University.

California Government Puts Uber on Blocks by Jeffrey A. Tucker

The California Labor Commission, with its expansive power to categorize and codify what it is that workers do, has dealt a terrible blow to Uber, the disruptive ride-sharing service. In one administrative edict, it has managed to do what hundreds of local governments haven’t.

Every rapacious municipal taxi monopoly in the state has to be celebrating today. It also provides a model for how these companies will be treated at the federal level. This could be a crushing blow. It’s not only the fate of Uber that is at stake. The entire peer-to-peer economy could be damaged by these administrative edicts.

The change in how the income of Uber drivers is treated by the law seems innocuous. Instead of being regarded as “independent contractors,” they are now to be regarded as “employees.”

Why does it matter? You find out only way down in the New York Times story on the issue. This “could change Uber’s cost structure, requiring it to offer health insurance and other benefits, as well as paying salaries.”

That’s just the start of it. Suddenly, Uber drivers will be subject to a huge range of federal tax laws that involve withholding, maximum working hours, and the entire labor code at all levels as it affects the market for employees. Oh, and Obamacare.

This is a devastating turn for the company and those who drive for it.

Just ask the drivers:

Indeed, there seems to be no justification for calling Uber drivers employees. I can recall being picked up at airport once. Uber was not allowed to serve that airport. I asked the man if he worked for Uber. He said he used to but not anymore.

“When did you quit?”

“Just now,” he said. Wink, wink. He was driving for himself on my trip.

“When do you think you will work for Uber again?”

“After I drop you off.”

That’s exactly the kind of independence that Uber drivers value. They don’t have to answer any particular call that comes in. They set their own hours. They drive their own cars. When an airport bans Uber, they simply redefine themselves.

They can do this because they are their own boss; Uber only cuts them off if they don’t answer a call on their mobile apps for 180 days. But it is precisely that rule that led the commission to call them “employees.”

That’s a pretty thin basis on which to call someone an employee. And it’s also solid proof that the point of this decision is not to clarify some labor designation but rather to shore up the old monopolies that want to continue to rip off consumers with high prices and poor service. No surprise, government here is using its power to serve the ruling class and established interests.

This is exactly the problem with government regulations that purport to define and codify every job. Such regulations tend to restrict the types and speed of innovation that can occur in enterprises.

The app economy and peer-to-peer network are huge growth areas precisely because they have so far manage to evade being codified and controlled and shoe-horned into the old stultifying rules.

If everyone earning a piecemeal stream of income is called an employee — and regulated by relevant tax, workplace, and labor laws — many of these companies immediately become unviable.

There will be no more on-demand hair stylists, plumbers, tennis coaches, and piano teachers. The fate of a vast number of companies is at stake. The future is at stake.

For now, Uber is saying that this decision pertains to this one employee only. I hope that this claim is sustainable. If it is not, the regulators will use this decision to inflict a terrible blow on the brightest and fastest growing sector of American economic life.


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.

5 Reasons the FDA’s Ban on Trans Fat Is a Big Deal by Walter Olson

The Obama administration’s Food and Drug Administration today announced a near-ban, in the making since 2013, on the use of partially hydrogenated vegetable fats (“trans fats”) in American food manufacturing.

Specifically, the FDA is knocking trans fats off the Generally Recognized as Safe (GRAS) list. This is a big deal and here are some reasons why:

1. It’s frank paternalism. Like high-calorie foods or alcoholic beverages, trans fats have marked risks when consumed in quantity over long periods, smaller risks in moderate and occasional use, and tiny risks when used in tiny quantities. The FDA intends to forbid the taking of even tiny risks, no matter how well disclosed.

2. The public doesn’t agree.2013 Reason-RUPE poll found majorities of all political groups felt consumers should be left free to choose on trans fats.  Even in heavily governed places like New York City and California, where the political class bulldozed through restaurant bans some years back, there was plenty of resentment.

3. The public is also perfectly capable of recognizing and acting on nutritional advances on its own. Trans fats have gone out of style and consumption has dropped by 85 percent as consumers have shunned them.

But while many products have been reformulated to omit trans fats, their versatile qualities still give them an edge in such specialty applications as frozen pizza crusts, microwave popcorn, and the sprinkles used atop cupcakes and ice cream. Food companies tried to negotiate to keep some of these uses available, especially in small quantities, but apparently mostly failed.

4. Government doesn’t always know best, nor do its friends in “public health.” The story has often been told of how dietary reformers touted trans fats from the 1950s onward as a safer alternative to animal fats and butter.

Public health activists and various levels of government hectored consumers and restaurants to embrace the new substitutes. We now know this was a bad idea: trans fats appear worse for cardiovascular health than what they replaced. And the ingredients that will replace minor uses of trans fats – tropical palm oil is one – have problems of their own.

5. Even if you never plan to consume a smidgen of trans fat ever again, note well: many public health advocates are itching for the FDA to limit allowable amounts of salt, sugar, caffeine, and so forth in food products. Many see this as their big pilot project and test case.

But when it winds up in court, don’t be surprised if some courtroom spectators show up wearing buttons with the old Sixties slogan: Keep Your Laws Off My Body.


Walter Olson

Walter Olson is a senior fellow at the Cato Institute’s Center for Constitutional Studies.

EDITORS NOTE: This post first appeared at Cato.org.

How Ice Cream Won the Cold War by B.K. Marcus

Richard Nixon stood by a lemon-yellow refrigerator in Moscow and bragged to the Soviet leader: “The American system,” he told Nikita Khrushchev over frosted cupcakes and chocolate layer cake, “is designed to take advantage of new inventions.”

It was the opening day of the American National Exhibition at Sokol’niki Park, and Nixon was representing not just the US government but also the latest products from General Mills, Whirlpool, and General Electric. Assisting him in what would come to be known as the “Kitchen Debates” were attractive American spokesmodels who demonstrated for the Russian crowd the best that capitalism in 1959 had to offer.

Capitalist lifestyle

“This was the first time,” writes British food historian Bee Wilson of the summer exhibition, that “many Russians had encountered the American lifestyle firsthand: the first time they … set eyes on big American refrigerators.”

Laughing and sometimes jabbing fingers at one another, the two men debated the merits of capitalism and communism. Which country had the more advanced technologies? Which way of life was better? The conversation … hinged not on weapons or the space race but on washing machines and kitchen gadgets. (Consider the Fork)

Khrushchev was dismissive. Yes, the Americans had brought some fancy machines with them, but did all this consumer technology actually offer any real advantages?

In his memoirs, he later recalled picking up an automatic lemon squeezer. “What a silly thing … Mr. Nixon! … I think it would take a housewife longer to use this gadget than it would for her to … slice a piece of lemon, drop it into a glass of tea, then squeeze a few drops.”

Producing necessities

That same year, Khrushchev announced that the Soviet economy would overtake the United States in the production of milk, meat, and butter. These were products that made sense to him. He couldn’t deliver — although Soviet farmers were forced to slaughter their breeding herds in an attempt to do so — but the goal itself reveals what the communist leader believed a healthy economy was supposed to do: produce staples like meat and dairy, not luxuries like colorful kitchenware and complex gadgetry for the decadent and lazy.

“Don’t you have a machine,” he asked Nixon, “that puts food in the mouth and presses it down? Many things you’ve shown us are interesting but they are not needed in life. They have no useful purpose. They are merely gadgets.”

Khrushchev was displaying the behavior Ludwig von Mises described in The Anti-Capitalistic Mentality. “They castigate the luxury, the stupidity and the moral corruption of the exploiting classes,” Mises wrote of the socialists. “In their eyes everything that is bad and ridiculous is bourgeois, and everything that is good and sublime is proletarian.”

On display that summer in Moscow was American consumer tech at its most bourgeois. The problem with “castigating the luxury,” as Mises pointed out, is that all “innovation is first a luxury of only a few people, until by degrees it comes into the reach of the many.”

Producing luxuries

It is appropriate that the Kitchen Debate over luxury versus necessity took place among high-end American refrigerators. Refrigeration, as a luxury, is ancient. “There were ice harvests in China before the first millennium BC,” writes Wilson. “Snow was sold in Athens beginning in the fifth century BC. Aristocrats of the seventeenth century spooned desserts from ice bowls, drank wine chilled with snow, and even ate iced creams and water ices. Yet it was only in the nineteenth century in the United States that ice became an industrial commodity.” Only with modern capitalism, in other words, does the luxury reach so rapidly beyond a tiny elite.

“Capitalism,” Mises wrote in Economic Freedom and Interventionism, “is essentially mass production for the satisfaction of the wants of the masses.”

The man responsible for bringing ice to the overheated multitude was a Boston businessman named Frederic Tudor. “History now knows him as ‘the Ice King,’” Steven Johnson writes of Tudor in How We Got to Now: Six Innovations That Made the Modern World, “but for most of his early adulthood he was an abject failure, albeit one with remarkable tenacity.”

Like many wealthy families in northern climes, the Tudors stored blocks of frozen lake water in icehouses, two-hundred-pound ice cubes that would remain marvelously unmelted until the hot summer months arrived, and a new ritual began: chipping off slices from the blocks to freshen drinks [and] make ice cream.

In 1800, when Frederic was 17, he accompanied his ill older brother to Cuba. They were hoping the tropical climate would improve his brother’s health, but it “had the opposite effect: arriving in Havana, the Tudor brothers were quickly overwhelmed by the muggy weather.” They reversed course, but the summer heat chased them back to the American South, and Frederic longed for the cooler climes of New England. That experience “suggested a radical — some would say preposterous — idea to young Frederic Tudor: if he could somehow transport ice from the frozen north to the West Indies, there would be an immense market for it.”

“In a country where at some seasons of the year the heat is almost unsupportable,” Tudor wrote in his journal, “ice must be considered as outdoing most other luxuries.”

Tudor’s folly

Imagine what an early 19th-century version of Khrushchev would have said to the future Ice King. People throughout the world go hungry, and you, Mr. Tudor, want to introduce frozen desserts to the tropics? What of beef? What of butter? The capitalists chase profits rather than producing the necessities.

It’s true that Tudor was pursuing profits, but his idea of ice outdoing “most other luxuries” looked to his contemporaries more like chasing folly than fortune.

The Boston Gazette reported on one of his first shiploads of New England ice: “No joke. A vessel with a cargo of 80 tons of Ice has cleared out from this port for Martinique. We hope this will not prove to be a slippery speculation.”

And at first the skeptics seemed right. Tudor “did manage to make some ice cream,” Johnson tells us. And that impressed a few of the locals. “But the trip was ultimately a complete failure.” The novelty of imported ice was just too novel. Why supply ice where there was simply no demand?

You can’t put a price on failure

In the early 20th century, economists Ludwig von Mises and F.A. Hayek, after years of debate with the Marxists, finally began to convince advocates of socialist central planning that market prices were essential to the rational allocation of scarce resources. Some socialist theorists responded with the idea of using capitalist market prices as a starting point for the central planners, who could then simulate the process of bidding for goods, thereby replacing real markets with an imitation that they believed would be just as good. Capitalism would then be obsolete, an unfortunate stage in the development of greater social justice.

By 1959, Khrushchev could claim, however questionably, that Soviet refrigerators were just as good as the American variety — except for a few frivolous features. But there wouldn’t have been any Soviet fridges at all if America hadn’t led the way in artificial refrigeration, starting with Tudor’s folly a century and a half earlier. If the central planners had been around in 1806 when the Boston Gazette poked fun at Tudor’s slippery speculation, what prices would they have used as the starting point for future innovation? All the smart money was in other ventures, and Tudor was on his way to losing his family’s fortune and landing in debtor’s prison.

Only through stubborn persistence did Tudor refine his idea and continue to innovate while demand slowly grew for what he had to offer.

“Still pursued by his creditors,” Johnson writes, Tudor

began making regular shipments to a state-of-the-art icehouse he had built in Havana, where an appetite for ice cream had been slowly maturing. Fifteen years after his original hunch, Tudor’s ice trade had finally turned a profit. By the 1820s, he had icehouses packed with frozen New England water all over the American South. By the 1830s, his ships were sailing to Rio and Bombay. (India would ultimately prove to be his most lucrative market.)

The world the Ice King made

In the winter of 1846–47, Henry David Thoreau watched a crew of Tudor’s ice cutters at work on Walden Pond.

Thoreau wrote, “The sweltering inhabitants of Charleston and New Orleans, of Madras and Bombay and Calcutta, drink at my well.… The pure Walden water is mingled with the sacred water of the Ganges.”

When Tudor died in 1864, Johnson tells us, he “had amassed a fortune worth more than $200 million in today’s dollars.”

The Ice King had also changed the fortunes of all Americans, and reshaped the country in the process. Khrushchev would later care about butter and beef, but before refrigerated train cars — originally cooled by natural ice — it didn’t matter how much meat and dairy an area could produce if it could only be consumed locally without spoiling. And only with the advent of the home icebox could families keep such products fresh. Artificial refrigeration created the modern city by allowing distant farms to feed the growing urban populations.

A hundred years after the Boston Gazette reported what turned out to be Tudor’s failed speculation, the New York Times would run a very different headline: “Ice Up to 40 Cents and a Famine in Sight”:

Not in sixteen years has New York faced such an iceless prospect as this year. In 1890 there was a great deal of trouble and the whole country had to be scoured for ice. Since then, however, the needs for ice have grown vastly, and a famine is a much more serious matter now than it was then.

“In less than a century,” Johnson observes, “ice had gone from a curiosity to a luxury to a necessity.”

The world that luxury made

Before modern markets, Mises tells us, the delay between luxury and necessity could take centuries, but “from its beginnings, capitalism displayed the tendency to shorten this time lag and finally to eliminate it almost entirely. This is not a merely accidental feature of capitalistic production; it is inherent in its very nature.” That’s why everyone today carries a smartphone — and in a couple of years, almost every wrist will bear a smartwatch.

The Cold War is over, and Khrushchev is no longer around to scoff, but the Kitchen Debate continues as the most visible commercial innovations produce “mere gadgets.” Less visible is the steady progress in the necessities, including the innovations we didn’t know were necessary because we weren’t imagining the future they would bring about. Even less evident are all the failures. We talk of profits, but losses drive innovation forward, too.

It’s easy to admire the advances that so clearly improve lives: ever lower infant mortality, ever greater nutrition, fewer dying from deadly diseases. It’s harder to see that the larger system of innovation is built on the quest for comfort, for entertainment, for what often looks like decadence. But the long view reveals that an innovator’s immediate goals don’t matter as much as the system that promotes innovation in the first place.

Even if we give Khrushchev the benefit of the doubt and assume that he really did care about feeding the masses and satisfying the most basic human needs, it’s clear the Soviet premier had no idea how economic development works. Progress is not driven by producing ever more butter; it is driven by ice cream.


B.K. Marcus

B.K. Marcus is managing editor of the Freeman.

Kelo: Politicians Stole Her Home for Private Developers and Started a Legal War by Ilya Somin

Most of my new book, The Grasping Handfocuses on the broader legal and political issues raised by the Supreme Court’s ruling in Kelo v. City of New London.

As explained in the first post in this series, I wrote the book primarily to address these big-picture issues.

But the story of how such a momentous case arose from unlikely origins is interesting in its own right.

The case originated with a development project in the Fort Trumbull area of New London, a small city in Connecticut. The neighborhood had fallen on difficult economic times in the 1990s after the closure of a naval research facility.

City officials and others hoped to revitalize it. The administration of Republican Governor John Rowland hoped to expand his political base by promoting development in New London; but to avoid having to work directly through the heavily Democratic city government, they helped resuscitate the long-moribund New London Development Corporation, a private nonprofit organization established to aid the city with development planning.

The NLDC produced a development plan that would revitalize Fort Trumbull by building housing, office space, and other facilities that would support a new headquarters that Pfizer, Inc. – a major pharmaceutical firm – had agreed to build nearby.

The development plan produced by the NLDC was in large part based on Pfizer’s requirements, which NLDC leaders (some of whom had close ties to Pfizer) were eager to meet. Pfizer would not be the new owner of the redeveloped land, but did expect to benefit from it.

I believe that NLDC leaders genuinely thought the plan would serve the public interest, as did the city and state officials who supported it. But it is also true, as one of those who worked on the plan put it, that Pfizer was the “10,000-pound gorilla” behind the project.

In order to implement the plan, the NLDC sought to acquire land belonging to some ninety different Fort Trumbull property owners.

In 2000, the New London city council authorized the NLDC to use eminent domain to condemn the land of those who refused to sell. Some defenders of the takings emphasize that all but seven of the owners sold “voluntarily.”

But as New London’s counsel Wesley Horton noted in oral argument before the Supreme Court, many did so because there was “always in the background the possibility of being able to condemn… that obviously facilitates a lot of voluntary sales.”

Moreover, owners who were reluctant to sell were subjected to considerable harassment, such as late night phone calls, dumping of waste on their property, and locking out tenants during cold winter weather.

Seven individuals and families, who between them owned fifteen residential properties, refused to sell despite the pressure. One was Susette Kelo, who wanted to hold on to her “little pink house” near the waterfront.

Some of the other families involved had deep roots in the community and did not want to be forced out. Wilhelmina Dery, who was in her eighties, had lived in the same house her whole life, and wished to continue living there during the time left to her.

The Cristofaro family were also strongly attached to their property, which they had purchased in the 1970s after their previous home had been condemned as part of an urban renewal project.

Susette Kelo’s famous “little pink house” in 2004 (photo by Isaac Reese)The resisting property owners tried to use the political process to prevent the takings. They managed to attract the support of a wide range of people in the community, including many on the political left who believed that it was wrong to forcibly expel people from their homes in order to promote commercial development.

But the Coalition to Save Fort Trumbull organized by the resisters and their allies had little, if any, hope of prevailing against the vastly more powerful forces arrayed against them.

The owners also tried to hire lawyers to fight the taking in court. But the lawyers they approached told them that there was little chance of success, and that – in any event – they could not afford the necessary prolonged legal battle.

The owners would almost certainly have had to capitulate, if not for the intervention of the Institute for Justice, a libertarian public interest law firm. IJ had long been interested in promoting stronger judicial enforcement of “public use” limitations on takings, and one of the members of the Coalition reached out for help.

As IJ lawyer Scott Bullock put it, the Fort Trumbull situation was an “ideal public interest case” for the Institute. Legally, the case was a good one because the city did not claim that the property in question was “blighted” or otherwise causing harm, thereby making it harder to prove that condemnation would genuinely benefit the public.

The case also featured sympathetic plaintiffs who were determined to fight for their rights. That made it likely that it would play well in the court of public opinion, and that it would not be settled before it could lead to a precedent-setting decision.

IJ hoped to achieve a ruling holding that takings that transfer property from one private individual to another for “economic development” do not serve a genuine “public use” and are therefore unconstitutional.

Thanks to IJ’s pro bono legal representation, the case went to trial. In 2002, a Connecticut trial court invalidated the condemnation of 11 of the 15 properties because the city and the NLDC did not have a clear enough plan of what they intended to do with the land.

Both sides appealed to the Connecticut Supreme Court, which upheld all fifteen takings in a close 4-3 decision. The majority ruled that almost any public benefit counts as a “public use” under the state and federal constitutions, and that courts must generally defer to government planners.

In a dissenting opinion, Justice Peter Zarella argued that “the constitutionality of condemnations undertaken for the purpose of private economic development depends not only on the professed goals of the development plan, but also on the prospect of their achievement.”

Presciently, he warned, “The record contains scant evidence to suggest that the predicted public benefit will be realized with any reasonable certainty,” and that it was “impossible to determine whether future development of the area… will even benefit the public at all.”

At this point, most legal commentators (myself included) believed that the case was almost certainly over. Few thought that the federal Supreme Court was going to take a public use case.

Supreme Court precedent dating back to 1954 held that virtually any possible public benefit counts as a public use, and the Court had unanimously reaffirmed that view in 1984. Most experts thought that the debate over the meaning of “public use” had been definitively settled.

But Scott Bullock and Dana Berliner – the IJ lawyers who represented the property owners – thought the conventional wisdom was wrong. And they were vindicated when the Supreme Court unexpectedly agreed to take the case. At that point, much new national media attention was focused on the New London condemnations.

Property law experts were well aware that longstanding Supreme Court precedent permitted the government to take property for almost any reason. But very few members of the general public knew that. Many ordinary Americans were shocked to learn a city could condemn homes and small businesses in order to promote private development – a reality they were unaware of until the publicity surrounding Kelo drove it home to them.

The Supreme Court upheld the takings in a 5-4 ruling. But the resulting controversy created a major political backlash and shattered the seeming consensus in favor of a broad approach to public use.

As for the City of New London, Justice Zarella and other skeptics turned out to be right. The NLDC’s flawed development plan fell through, as did a number of later efforts. Richard Palmer, one of the state supreme court justices who voted with the majority, later apologized to Susette Kelo, telling her he “would have voted differently” had he known what would happen.

Today, the condemned land still lies empty, though city officials now plan to build a memorial park honoring the victims of eminent domain, on the former site of Susette Kelo’s house.

The former site of Susette Kelo’s house – May 2014 (photo by Ilya Somin)

In the meantime, feral cats have been using the property. So far, at least, they have been the main local beneficiaries of the takings.

Feral cat near the former site of the Kelo house – March 2011 (photo by Jackson Kuhl)

(I should point out that the events in New London leading up to the Supreme Court case are the subject of an excellent earlier book by journalist Jeff Benedict. My book primarily focuses on the broader legal and policy issues raised by the Kelo case, which Benedict touched on only briefly. But I also cover the origins of the case in Chapter 1, and post-decision developments in New London in the conclusion.)

This post first appeared on the Volokh Conspiracy, where Ilya Somin is a frequent blogger.

You can buy The Grasping Hand on Amazon here.


Ilya Somin

Ilya Somin is Professor of Law at George Mason University School of Law. He blogs at the Volokh Conspiracy.

A Simple Question for Minimum Wage Advocates by Donald J. Boudreaux

I will return in a later post to the topic of my previous post, namely, the validity or (as I see it) invalidity of the argument that proposes a tolerance of locally set minimum-wage rates if not of nationally or super-nationally set rates.

I state, however, here and again my conclusion: Legislating minimum wages – that is, enacting a policy of caging people who insist on entering voluntarily into employment contracts on terms that political elites find objectionable – is no more attractive or justified or likely to succeed at helping low-skilled workers if the particular caging policy in question is enacted locally than if it is enacted nationally or globally.

In this short post, I ask a simple question of all advocates of minimum wages:

If enforcement of minimum-wage policies were carried out in practice by policing low-skilled workers rather than employers – if these policies were enforced by police officers monitoring workers and fining those workers who agreed to work at hourly wages below the legislated minimum – would you still support minimum wages?

Would you be good with police officers arresting those workers who, preferring to remain employed at sub-minimum wages rather than risk losing their current jobs (or risking having do endure worsened employment conditions), refuse to abide by the wage terms dictated by the legislature?

Would you think it an acceptable price to pay for your minimum-wage policy that armed police officers confine in cages low-skilled workers whose only offense is their persistence at taking jobs at wages below those dictated by the government?

If a minimum-wage policy is both economically justified and morally acceptable, you should have no problem with this manner of enforcement.

(You might still prefer, for obviously aesthetic reasons, enforcement leveled mainly at employers. But if the policy is to unleash government force to raise wages above those that would be otherwise agreed to on the market voluntarily between employers and workers, then you should agree that, if for some reason enforcement aimed at employers were impossible or too costly, enforcement aimed at workers is morally and economically acceptable.)

If, however, you do have a problem with minimum-wage regulations being enforced by targeting workers who violate the legislature’s dictated wage terms, then you might wish to think a bit more realistically and deeply about just what it is you advocate in the name of economic improvement or “social justice.”

This post first appeared at Cafe Hayek, where Don Boudreaux blogs with Russ Roberts.

Donald Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

The New Republic: The Dumb Libertarian Era Is Here by Max Borders

As civilized human beings, we are the inheritors, neither of an inquiry about ourselves and the world, nor of an accumulating body of information, but of a conversation, begun in the primeval forests and extended and made more articulate in the course of centuries. It is a conversation which goes on both in public and within each of ourselves. – Michael Oakeshott

What do academics see when they stare down upon the rest of America? Columbia’s Mark Lilla, at least, thinks he sees a “libertarian age.”

Writing in the New Republic, Lilla wraps his punchline in a shroud of obscurity, concluding,

The libertarian age is an illegible age. It has given birth to a new kind of hubris unlike that of the old master thinkers.

Our hubris is to think that we no longer have to think hard or pay attention or look for connections, that all we have to do is stick to our “democratic values” and economic models and faith in the individual and all will be well.

Having witnessed unpleasant scenes of intellectual drunkenness, we have become self-satisfied abstainers removed from history and unprepared for the challenges it is already bringing.

Lilla suggests the old master thinkers knew better how to understand the great arc of history because they had an ideology. But we don’t.

“Our libertarianism operates differently,” writes Lilla, “it is supremely dogmatic, and like every dogma it sanctions ignorance about the world, and therefore blinds adherents to its effects in that world. It begins with basic liberal principles — the sanctity of the individual, the priority of freedom, distrust of public authority, tolerance — and advances no further.”

Now that’s strange. The normal line is that libertarians are too ideological. Of course it’s true that a form of libertarianism that advances no further than a few platitudes or axioms would be an anemic sort of libertarianism.

But the point of libertarianism is not to fill our lives with specific virtues and values; rather, it is to provide a superstructure for various moral communities to coexist peacefully.

A Libertarian Age?

Even if one agrees a libertarian age is upon us, the cock has only just crowed. According to Lilla, though, because this age is not rooted in an ideology, it is marked by an errant attitude that somehow washed over us after the fall of communism in place of all ideology. If that’s the case, why call it “libertarian”?

To describe this age as Lilla does is to fundamentally misunderstand the wordlibertarian, or at least to use it haphazardly as a convenient, if denigrating label. To misunderstand the word is also a failure to appreciate a living tradition that is only now beginning to flower in the digital era.

When I think about that rich, expanding tradition, I think of economic historian Deirdre McCloskey. She offers the kinds of connections Lilla might like to see, especially in her excellent The Bourgeois Virtues. I doubt, however, those connections are the ones Lilla would like us to draw.

Here’s McCloskey choosing not to abstain:

The master narrative of High Liberalism [modern, left-liberalism] is mistaken factually.

Externalities do not imply that a government can do better. Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers. Efficiency is not the chief merit of a market economy: innovation is. Rules arose in merchant courts and Quakers fixed prices long before governments started enforcing them.

I know such replies will be met with indignation. But think it possible you may be mistaken, and that merely because an historical or economic premise is embedded in front page stories in the New York Times [or The New Republic] does not make them sound as social science.

It seems to me that a political philosophy based on fairy tales about what happened in history or what humans are like is going to be less than useless. It is going to be mischievous.

It’s true. There is no ideology here, just the sum of facts.

A Narrative, an Ideology

But Lilla thinks he has a different and better narrative about history — one that is not so devoid of ideology. It’s difficult to say what that narrative is, because Lilla is so vague in his critique — so much so that one wonders if he’s simply dissatisfied with the want of ideology and hopes to put a sticker on it. He reaches for a sticker. “Libertarian” will do.

The closest we get to any proposed counternarrative comes in who Lilla would award for attempting to fix the Middle East: “The next Nobel Peace Prize should not go to a human rights activist or an NGO founder. It should go to the thinker or leader who develops a model of constitutional theocracy giving Muslim countries a coherent way of recognizing yet limiting the authority of religious law and making it compatible with good governance.”

Notice he did not say a working model, nor a successfully implemented model. Just a model. Despite the nod to a people’s history and culture, he wants to see more intellectuals with models.

Political philosopher Michael Oakeshott once said, “Like Midas, the Rationalist is always in the unfortunate position of not being able to touch anything, without transforming it into an abstraction; he can never get a square meal of experience.”

But that’s just the problem with models and planning, says Deirdre McCloskey:

How do I know that my narrative is better than yours? The experiments of the 20th century told me so. It would have been hard to know the wisdom of Friedrich Hayek or Milton Friedman or Matt Ridley or Deirdre McCloskey in August of 1914, before the experiments in large government were well begun.

But anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

Or perhaps they’re failing to “look for connections.”

No Good Reason

But there’s more. Lilla writes:

Libertarianism’s dogmatic simplicity explains why people who otherwise share little can subscribe to it: small-government fundamentalists on the American right, anarchists on the European and Latin American left, democratization prophets, civil liberties absolutists, human rights crusaders, neoliberal growth evangelists, rogue hackers, gun fanatics, porn manufacturers, and Chicago School economists the world over.

The dogma that unites them is implicit and does not require explication; it is a mentality, a mood, a presumption — what used to be called, non-pejoratively, a prejudice.

Got that? A mood. A dogma. A prejudice.

Let’s assume that we all agree about what the words dogma and prejudice mean. A dogma is not an ideology because it offers no reasons for anyone’s commitments. A prejudice is simply a disposition to believe something, perhaps also for no good reason at all.

That means libertarians have no good reason to be suspicious of power (such as police power excesses in Baltimore or Ferguson), no good reason to commit to smaller government (like bank bailouts or military adventurism), no reason to believe that open trade helps the world develop (despite all the evidence), no reason to protect expression, no reason to acknowledge the social benefits of emergent order, and no reason to create a digital currency (Argentine inflation is fine).

Voluntary cooperation or the free flow of ideas, people, capital, and goods? These are all just byproducts of our dumb post-ideological age. Why? Because, according to Lilla, libertarianism is just a dogma.

To understand history through the lens of people with power screwing things up more than helping is not an abstention, and it is not illegible. The relationship between people with coercive power and the rest is our historical-ideological filter, and that’s just for starters.

Rational Irrationality

Lilla’s mischief does not just extend to history. That failure to understand libertarianism hangs about his thesis, too.

For example, a libertarian does not admire “democratic values,” as Lilla suggests. These are the values of those who would trade in the one-headed master with the many-headed one. Libertarians don’t find much value in masters at all.

Majoritarian elections don’t harness the wisdom of crowds, as Bryan Caplan reminds us in The Myth of the Rational VoterSuch wisdom can only be gained by people who are more directly accountable for their actions, who have more skin in the game, or who feel the invisible threads of community animating them in common missions. That’s not electoral politics, though.

Voters, as such, are hopelessly biased, because they don’t pay directly for what they pray for in the voting booth. So yeah, democracy is overrated. It’s certainly not something most libertarians wish to export or impose on people with twelfth-century cultures and mores. Nor is it is a twenty-first century social operating system for a free people.

Libertarians prefer organizations, markets, and community groups that compete for mindshare and marketshare. But organizations, markets, and community groups only emerge in the fertile soil of free institutions. That’s why libertarians like voluntary systems with rule of law, porous borders, and rights of exit.

Individuals coordinate either in support of organizational goals, or they participate in an order no individual could have planned. Both forms of order are beautiful — at least to the libertarian. But we certainly don’t expect to find such orders everywhere.

The Problem of Power

What about acquiescence to “public authority”? Yes, we are skeptical. And it’s true we are more interested in shedding authority, because power interferes with people’s life projects and communities. We don’t have this skepticism due to habit or breeding. We have it because we want to live the kind of happy and fulfilled lives that comes in a decentralized discovery process, which doesn’t figure into any planner’s plans. Yet planners are constantly trying to plan despite those life projects. You might say we’re not living in a “libertarian age,” but in a regulated age.

But Lilla insists our libertarian age is one marked by people failing to “think hard, or pay attention, or look for connections.” This is the sort of thing that might make progressives in the New York salon nod in vigorous assent, but it’s the nodding of those who have no idea what they’re talking about, the affectations and social signals of the salon.

The libertarian worldview is not based on technocratic dreams, government largess, or “communitarian” fancies in which elites concoct statutory schemes to blanket the land with unitary control. If this were really in a libertarian age, we would not be arguing over whether or not we are “self-satisfied abstainers.”

We would have a lot more opt-in systems — not everywhere, but in enough places, including the U.S. We would be a nation of joiners again. We could, as Paul Emile de Puydt suggested, “move from republic to monarchy, from representative government to autocracy, from oligarchy to democracy, or even to Mr. Proudhon’s anarchy — without even the necessity of removing [our] dressing gown or slippers.”

But this is not the age we live in.

The Coming Libertarian Age

The coming libertarian age will be marked not by a failure to think about the meaning of history. It will be marked by people participating in the creation of new communities, governance structures, businesses, and networks — building them up like coral reefs.

“Everyday forms of resistance make no headlines,” says James C. Scott in Two Cheers for Anarchism.

Just as millions of anthozoan polyps create, willy-nilly, a coral reef, so do thousands upon thousands of individual acts of insubordination and evasion create a political or economic barrier reef of their own. There is rarely any dramatic confrontation, any moment that is particularly newsworthy.

And whenever, to pursue the simile, the ship of state runs aground on such a reef, attention is typically directed to the shipwreck itself and not to the vast aggregation of petty acts which made it possible

If there is anything to terrify Lilla and the New Republic, it is that libertarian age. Technocracy runs aground on the coral reefs of genuine connection and decentralized market participation.

So in order to critique this “new kind of hubris,” Lilla should really tell us more about the hubris of the old master thinkers. I recall the organized-perfection society of Plato, whose order would be planned based on some, well, Platonic ideal about the virtuous person who would rule. Perhaps Lilla is referring to master thinkers like Bentham, who reduced humanity to an aggregate of hedonic calculation machines, which has given rise to an entire field of mathematical macroeconomics that lobotomizes the individual and ignores real people. Then there is of course Karl Marx, whose ideology left scores of millions destitute or dead.

Lilla cautions us not to ignore Marx’s concerns, even though the Marxists themselves left scorched earth. We still need ideology, he thinks:

The end of the cold war destroyed whatever confidence in ideology still remained in the West. But it also seems to have destroyed our will to understand. We have abdicated. The libertarian dogma of our time is turning our polities, economies, and cultures upside down—and blinding us to this by making us even more self-absorbed and incurious than we naturally are. The world we are making with our hands is as remote from our minds as the farthest black hole. Once we had a nostalgia for the future. Today we have an amnesia for the present.

Destroyed our will to understand? Libertarian dogma means “turning our polities upside down”? Making us self-absorbed? What in the world is he talking about?

Is he referring to those self-absorbed and benighted souls who brought down the Berlin Wall? Or is he simply disturbed that all they could find to do after communism’s fall was start shops and buy heavy metal albums? Maybe it’s their children — the millennials with their texting and their selfies.

He doesn’t really say. He only seems to suggest we need more Isaiah Berlins. Fair enough. At least give us something we can sink our teeth into. In conflating democracy with libertarianism, perhaps Lilla thinks voters are in fact too dumb to rule and that a wise, though considerably less hubristic, elite could show us the way if we weren’t so distracted by modern amusements.

But apart from evoking the bugbear of “neoliberalism” and praying for a theocratic modeler for the Middle East he’s scant on details. Instead, all he can offer is that we have “amnesia for the present.”

Sounds deep: chicken soup for the progressive soul. To show that we’re in a vapid libertarian age, Mr. Lilla needs to cite evidence and name names. Otherwise, it’s just the same innuendo and intimation we’ve come to expect from those prepared to spin out caricatures or just-so stories to slap the L-word on them.

In the Mood

So, Dear Reader, take with you your dogmas and your prejudices and make this world freer one act of defiance at a time. Why not? Because it’s fun — just a mood — and we have the excuse of living in that insipid age.

Your dream community, your world-changing innovation, or your preferred causes have no relevance there in the Department of History at Columbia University. Participate then in the creation of your self-absorbed fantasies with a thousand acts of permissionless kindness, a thousand dollars of investment in a small business, or a thousand lines of code.

What will flow from your dogmas and your prejudices is a great coral reef — one that is created by you and others locking arms in solidarity around a thousand different causes. And may the ship of state run aground on it.

Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also cofounder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

Health Insurance Is Illegal by Warren C. Gibson

Health insurance is a crime. No, I’m not using a metaphor. I’m not saying it’s a mess, though it certainly is that. I’m saying it’s illegal to offer real health insurance in America. To see why, we need to understand what real insurance is and differentiate that from what we currently have.

Real insurance

Life is risky. When we pool our risks with others through insurance policies, we reduce the financial impact of unforeseen accidents or illness or premature death in return for a premium we willingly pay. I don’t regret the money I’ve spent on auto insurance during my first 55 years of driving, even though I’ve yet to file a claim.

Insurance originated among affinity groups such as churches or labor unions, but now most insurance is provided by large firms with economies of scale, some organized for profit and some not. Through trial and error, these companies have learned to reduce the problems of adverse selection and moral hazard to manageable levels.

A key word above is unforeseen.

If some circumstance is known, it’s not a risk and therefore cannot be the subject of genuine risk-pooling insurance. That’s why, prior to Obamacare, some insurance companies insisted that applicants share information about their physical condition. Those with preexisting conditions were turned down, invited to high-risk pools, or offered policies with higher premiums and higher deductibles.

Insurers are now forbidden to reject applicants due to preexisting conditions or to charge them higher rates.

They are also forbidden from charging different rates due to different health conditions — and from offering plans that exclude certain coverage items, many of which are not “unforeseen.”

In other words, it’s illegal to offer real health insurance.

Word games

Is all this just semantics? Not at all. What currently passes for health insurance in America is really just prepaid health care — on a kind of all-you-can-consume buffet card. The system is a series of cost-shifting schemes stitched together by various special interests. There is no price transparency. The resulting overconsumption makes premiums skyrocket, and health resources get misallocated relative to genuine wants and needs.

Lessons

Some lessons here are that genuine health insurance would offer enormous cost savings to ordinary people — and genuine benefits to policyholders. These plans would encourage thrift and consumer wisdom in health care planning,  while discouraging the overconsumption that makes prepaid health care unaffordable.

At this point, critics will object that private health insurance is a market failure because the refusal of unregulated private companies to insure preexisting conditions is a serious problem that can only be remedied by government coercion. The trouble with such claims is that no one knows what a real health insurance market would generate, particularly as the pre-Obamacare regime wasn’t anything close to being free.

What might a real, free-market health plan look like?

  • People would be able to buy less expensive plans from anywhere, particularly across state lines.
  • People would be able to buy catastrophic plans (real insurance) and set aside much more in tax-deferred medical savings accounts to use on out-of-pocket care.
  • People would very likely be able to buy noncancelable, portable policies to cover all unforeseen illnesses over the policyholder’s lifetime.
  • People would be able to leave costly coverage items off their policies — such as chiropractic or mental health — so that they could enjoy more affordable premiums.
  • People would not be encouraged by the tax code to get insurance through their employer.

What about babies born with serious conditions? Parents could buy policies to cover such problems prior to conception. What about parents whose genes predispose them to produce disabled offspring? They might have to pay more.

Of course, there will always be those who cannot or do not, for one reason or another, take such precautions. There is still a huge reservoir of charitable impulses and institutions in this country that could offer assistance. And these civil society organizations would be far more robust in a freer health care market.

The enemy of the good

Are these perfect solutions? By no means. Perfection is not possible, but market solutions compare very favorably to government solutions, especially over longer periods. Obamacare will continue to bring us unaccountable bureaucracies, shortages, rationing, discouraged doctors, and more.

Some imagine that prior to Obamacare, we had a free-market health insurance system, but the system was already severely hobbled by restrictions.

To name a few:

  • It was illegal to offer policies across state lines, which suppressed choices and increased prices, essentially cartelizing health insurance by state.
  • Employers were (and still are) given a tax break for providing health insurance (but not auto insurance) to their employees, reducing the incentive for covered employees to economize on health care while driving up prices for individual buyers. People stayed locked in jobs out of fear of losing health policies.
  • State regulators forbade policies that excluded certain coverage items, even if policyholders were amenable to such plans.
  • Many states made it illegal to price discriminate based on health status.
  • The law forbade associated health plans, which would allow organizations like churches or civic groups to pool risk and offer alternatives.
  • Medicaid and Medicare made up half of the health care system.

Of course, Obamacare fixed none of these problems.

Many voices are calling for the repeal of Obamacare, but few of those voices are offering the only solution that will work in the long term: complete separation of state and health care. That means no insurance regulation, no medical licensing, and ultimately, the abolition of Medicare and Medicaid, which threaten to wash future federal budgets in a sea of red ink.

Meanwhile, anything resembling real health insurance is illegal. And if you tried to offer it, they might throw you in jail.

Warren C. Gibson

Warren Gibson teaches engineering at Santa Clara University and economics at San Jose State University.

Israel Puts Price Controls on Books, Sales Plummet

A lesson on the terrible consequences of price controls comes from Israel this week, the Blaze reports:

A new Israeli law controlling the price of books and mandating guaranteed minimum compensation for writers has had the complete opposite effect of what lawmakers had intended. . . .

Under the new law’s dictates, any new book that’s been on the shelf 18 months or less may not be discounted. During the same time period, Israeli authors are guaranteed to earn a minimum of 8 percent of the price of the first 6,000 books sold and 10 percent of all subsequent books sold, the Jerusalem Post explained last year.

The results were swift and predictable:

Publishers told Haaretz that the law “has upset the entire literary food chain” with sales of new book titles down between 40 and 60 percent and down 20 percent for books overall. . . . Booksellers say they’ve experienced a 25 percent drop in children’s book sales in just one year, according to Channel 2.

The combination of price controls on books and minimum wages for authors has had pronounced effects on new, young, and unestablished writers:

Publishers have been hesitant to bank on new writers under the government mandate, because they don’t want to take the financial risk on books they’re not allowed to put on sale. And from a consumer perspective, those looking for new books are less likely to drop some $25 on the debut novel of a writer they’ve never heard of.

“Almost the only way for unknown writers to become popular is to put their first book on sale, even to give it for free if possible, to publicize their name and get their audience and eventually make money from their writing,” [Boaz] Arad said. Thus the new law has been particularly devastating on new authors who can’t get their work to the public.

Arad, chief of the Ayn Rand Center-Israel, said that the parliament blithely ignored the fates of similar laws in Europe, telling the Blaze, “It’s no surprise that we face a book market struggling and suffering and it’s the most unbecoming situation for the ‘People of the Book.’”

Good intentions fail to trump the laws of supply and demand once again.

To “protect” authors, the government has driven off readers.

Read more coverage of the story here.

Anything Peaceful

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

Razing the Bar: The bar exam protects a cartel of lawyers, not their clients by Allen Mendenhall

The bar exam was designed and continues to operate as a mechanism for excluding the lower classes from participation in the legal services market. Elizabeth Olson of the New York Times reports that the bar exam as a professional standard “is facing a new round of scrutiny — not just from the test takers but from law school deans and some state legal establishments.”

This is a welcome development.

Testing what, exactly?

The dean of the University of San Diego School of Law, Stephen C. Ferrulo, complains to the Times that the bar exam “is an unpredictable and unacceptable impediment for accessibility to the legal profession.” Ferrulo is right: the bar exam is a barrier to entry, a form of occupational licensure that restricts access to a particular vocation and reduces market competition.

The bar exam tests the ability to take tests, not the ability to practice law. The best way to learn the legal profession is through tried experience and practical training, which, under our current system, are delayed for years, first by the requirement that would-be lawyers graduate from accredited law schools and second by the bar exam and its accompanying exam for professional fitness.

Freedom of contract

The 19th-century libertarian writer Lysander Spooner, himself a lawyer, opposed occupational licensure as a violation of the freedom of contract, arguing that, once memorialized, all agreements between mutually consenting parties “should not be subjects of legislative caprice or discretion.”

“Men may exercise at discretion their natural rights to enter into all contracts whatsoever that are in their nature obligatory,” he wrote, adding that this principle would prohibit all laws “forbidding men to make contracts by auction without license.”

In more recent decades, Milton Friedman disparaged occupational licensure as “another example of governmentally created and supported monopoly on the state level.” For Friedman, occupational licensure was no small matter. “The overthrow of the medieval guild system,” he said, was an indispensable early step in the rise of freedom in the Western world. It was a sign of the triumph of liberal ideas.… In more recent decades, there has been a retrogression, an increasing tendency for particular occupations to be restricted to individuals licensed to practice them by the state.

The bar exam is one of the most notorious examples of this “increasing tendency.”

Protecting lawyers from the poor

The burden of the bar exam falls disproportionately on low-income earners and ethnic minorities who lack the ability to pay for law school or to assume heavy debts to earn a law degree. Passing a bar exam requires expensive bar-exam study courses and exam fees, to say nothing of the costly applications and paperwork that must be completed in order to be eligible to sit for the exam. The average student-loan debt for graduates of many American law schools now exceeds $150,000, while half of all lawyers make less than $62,000 per year, a significant drop since a decade ago.

Recent law-school graduates do not have the privilege of reducing this debt after they receive their diploma; they must first spend three to four months studying for a bar exam and then, having taken the exam, must wait another three to four months for their exam results. More than half a year is lost on spending and waiting rather than earning, or at least earning the salary of a licensed attorney (some graduates work under the direction of lawyers pending the results of their bar exam).

When an individual learns that he or she has passed the bar exam, the congratulations begin with an invitation to pay a licensing fee and, in some states, a fee for a mandatory legal-education course for newly admitted attorneys. These fees must be paid before the individual can begin practicing law.

The exam is working — but for whom?

What’s most disturbing about this system is that it works precisely as it was designed to operate.  State bar associations and bar exams are products of big-city politics during the Progressive Era. Such exams existed long before the Progressive Era — Delaware’s bar exam dates back to 1763 — but not until the Progressive Era were they increasingly formalized and institutionalized and backed by the enforcement power of various states.

Threatened by immigrant workers and entrepreneurs who were determined to earn their way out of poverty and obscurity, lawyers with connections to high-level government officials in their states sought to form guilds to prohibit advertising and contingency fees and other creative methods for gaining clients and driving down the costs of legal services. Establishment lawyers felt the entrepreneurial up-and-comers were demeaning the profession and degrading the reputation of lawyers by transforming the practice of law into a business industry that admitted ethnic minorities and others who lacked rank and class. Implementing the bar exam allowed these lawyers to keep allegedly unsavory people and practices out of the legal community and to maintain the high costs of fees and services.

Protecting the consumer

In light of this ugly history, the paternalistic response of Erica Moeser to the New York Times is particularly disheartening. Moeser is the president of the National Conference of Bar Examiners. She says that the bar exam is “a basic test of fundamentals” that is justified by “protecting the consumer.” But isn’t it the consumer above all who is harmed by the high costs of legal services that are a net result of the bar exam and other anticompetitive practices among lawyers? To ask the question is to answer it. It’s also unclear how memorizing often-archaic rules to prepare for standardized, high-stakes multiple-choice tests that are administered under stressful conditions will in any way improve one’s ability to competently practice law.

The legal community and consumers of legal services would be better served by the apprenticeship model that prevailed long before the rise of the bar exam. Under this model, an aspiring attorney was tutored by experienced lawyers until he or she mastered the basics and demonstrated his or her readiness to represent clients. The high cost of law school was not a precondition; young people spent their most energetic years doing real work and gaining practical knowledge. Developing attorneys had to establish a good reputation and keep their costs and fees to a minimum to attract clients, gain trust, and maintain a living.

The rise in technology and social connectivity in our present era also means that reputation markets have improved since the early 20th century, when consumers would have had a more difficult time learning by word-of-mouth and secondhand report that one lawyer or group of lawyers consistently failed their clients — or ripped them off. Today, with services like Amazon, eBay, Uber, and Airbnb, consumers are accustomed to evaluating products and service providers online and for wide audiences.  Learning about lawyers’ professional reputations should be quick and easy, a matter of a simple Internet search.  With no bar exam, the sheer ubiquity and immediacy of reputation markets could weed out the good lawyers from the bad, thereby transferring the mode of social control from the legal cartel to the consumers themselves.

Criticism of the high costs of legal bills has not gone away in recent years, despite the drop in lawyers’ salaries and the saturation of the legal market with too many attorneys. The quickest and easiest step toward reducing legal costs is to eliminate bar exams. The public would see no marked difference in the quality of legal services if the bar exam were eliminated, because, among other things, the bar exam doesn’t teach or test how to deliver those legal services effectively.

It will take more than just the grumbling of anxious, aspiring attorneys to end bar-exam hazing rituals. That law school deans are realizing the drawbacks of the bar exam is a step in the right direction. But it will require protests from outside the legal community — from the consumers of legal services — to effect any meaningful change.

Allen Mendenhall

Allen Mendenhall is the author of Literature and Liberty: Essays in Libertarian Literary Criticism (Rowman & Littlefield / Lexington Books, 2014). Visit his website at AllenMendenhall.com.

The Case Against Rent Control: Bad housing policy harms lower-income people most by Robert P. Murphy

To someone ignorant of economic reasoning, rent control seems like a great policy. It appears instantly to provide “affordable housing” to poor tenants, while the only apparent downside is a reduction in the income flowing to the fat-cat landlords, people who literally own buildings in major cities and who thus aren’t going to miss that money much. Who could object to such a policy?

First, we should define our terms. When a city government imposes rent control, it means the city makes it illegal for landlords to charge tenants rent above a ceiling price. Sometimes that price can vary, but only on specified factors. For the law to have any teeth — and for the politicians who passed it to curry favor with the public — the maximum rent-controlled price will be significantly lower than the free-market price.

The most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. At a lower rental price, more tenants will try to rent apartment units, and at a higher rental price, landlords will try to rent out more apartment units. These two claims are specific instances of the law of demand and law of supply, respectively.

In an unhampered market, the equilibrium rental price occurs where supply equals demand, and the market rate for an apartment perfectly matches tenants with available units. If the government disrupts this equilibrium by setting a ceiling far below the market-clearing price, then it creates a shortage; that is, more people want to rent apartment units than landlords want to provide. If you’ve lived in a big city, you may have experienced firsthand how difficult it is to move into a new apartment; guides advise people to pay the high fee to a broker or even join a church because you have to “know somebody” to get a good deal. Rent control is why this pattern occurs. The difficulty isn’t due to apartments being a “big-ticket” item; new cars are expensive, too, but finding one doesn’t carry the stress of finding an apartment in Brooklyn. The difference is rent control.

Rent control reduces the supply of rental units through two different mechanisms. In the short run, where the physical number of apartment units is fixed, the imposition of rent control will reduce the quantity of units offered on the market. The owners will hold back some of the potential units, using them for storage or keeping them available for (say) out of town guests or kids returning from college for the summer. (If this sounds implausible, consider just how many people in a major city consider renting out spare bedrooms in their homes, as long as the price is right.)

In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped. Building a movie theater or shopping center is more attractive on the margin.

There are further, more insidious problems with rent control. With a long line of potential tenants eager to move in at the official ceiling price, landlords do not have much incentive to maintain the building. They don’t need to put on new coats of paint, change the light bulbs in the hallways, keep the elevator in working order, or get out of bed at 5:00 a.m. when a tenant complains that the water heater is busted. If there is a rash of robberies in and around the building, the owner won’t feel a financial motivation to install lights, cameras, buzz-in gates, a guard, or other (costly) measures to protect his customers. Furthermore, if a tenant falls behind on the rent, there is less incentive for the landlord to cut her some slack, because he knows he can replace her right away after eviction. In other words, all of the behavior we associate with the term “slumlord” is due to the government’s policy of rent control; it is not the “free market in action.”

In summary, if the goal is to provide affordable housing to lower-income tenants, rent control is a horrible policy. Rent control makes apartments cheaper for some tenants while making them infinitely expensive for others, because some people can no longer find a unit, period, even though they would have been able to at the higher, free-market rate. Furthermore, the people who remain in apartments — enjoying the lower rent —receive a much lower-quality product. Especially when left in place for decades, rent control leads to abusive landlords and can quite literally destroy large portions of a city’s housing.

20141014_RobertMurphyABOUT ROBERT P. MURPHY

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute. You can find him at http://consultingbyrpm.com/

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.