Tag Archive for: regulation

Video Game Developers Face the Final Boss: The FDA by Aaron Tao

/in , , , , , , /by

As I drove to work the other day, I heard a very interesting segment on NPR that featured a startup designing video games to improve cognitive skills and relieve symptoms associated with a myriad of mental health conditions.

One game, Project Evo, has shown good preliminary results in training players to ignore distractions and stay focused on the task at hand:

“We’ve been through eight or nine completed clinical trials, in all cognitive disorders: ADHD, autism, depression,” says Matt Omernick, executive creative director at Akili, the Northern California startup that’s developing the game.

Omernick worked at Lucas Arts for years, making Star Wars games, where players attack their enemies with light sabers. Now, he’s working on Project Evo. It’s a total switch in mission, from dreaming up best-sellers for the commercial market to designing games to treat mental health conditions.

“The qualities of a good video game, things that hook you, what makes the brain — snap — engage and go, could be a perfect vessel for actually delivering medicine,” he says.

In fact, the creators believe their game will be so effective it might one day reduce or replace the drugs kids take for ADHD.

This all sounds very promising.

In recent years, many observers (myself included) have expressed deep concerns that we are living in the “medication generation,” as defined by the rapidly increasing numbers of young people (which seems to have extended to toddlers and infants!) taking psychotropic drugs.

As experts and laypersons continue to debate the long-term effects of these substances, the news of intrepid entrepreneurs creating non-pharmaceutical alternatives to treat mental health problems is definitely a welcome development.

But a formidable final boss stands in the way:

[B]efore they can deliver their game to players, they first have to go through the Food and Drug Administration — the FDA.

The NPR story goes on to detail on how navigating the FDA’s bureaucratic labyrinth is akin to the long-grinding campaign required to clear the final dungeon from any Legend of Zelda game. Pharmaceutical companies are intimately familiar with the FDA’s slow and expensive approval process for new drugs, and for this reason, it should come as no surprise that Silicon Valley companies do their best to avoid government regulation. One venture capitalist goes so far as to say, “If it says ‘FDA approval needed’ in the business plan, I myself scream in fear and run away.”

Dynamic, nimble startups are much more in tune with market conditions than the ever-growing regulatory behemoth that is defined by procedure, conformity, and irresponsibility. As a result, conflict between these two worlds is inevitable:

Most startups can bring a new video game to market in six months. Going through the FDA approval process for medical devices could take three or four years — and cost millions of dollars.

In the tech world, where app updates and software patches are part of every company’s daily routine just to keep up with consumer habits, technology can become outdated in the blink of an eye. Regulatory hold on a product can spell a death sentence for any startup seeking to stay ahead of its fierce market competition.

Akili is the latest victim to get caught in the tendrils of the administrative state, and worst of all, in the FDA, which distinguished political economist Robert Higgs has described as “one of the most powerful of federal regulatory agencies, if not the most powerful.” The agency’s awesome authority extends to over twenty-five percent of all consumer goods in the United States and thus “routinely makes decisions that seal the fates of millions.”

Despite its perceived image as the nation’s benevolent guardian of health and well-being, the FDA’s actual track record is anything but, and its failures have been extensively documented in a vast economic literature.

The “knowledge problem” has foiled the whims of central planners and social engineers in every setting, and the FDA is not immune. By taking a one-sized-fits-all approach in enacting regulatory policy, it fails to take into account the individual preferences, social circumstances, and physiological attributes of the people that compose a diverse society.

For example, people vary widely in their responses to drugs, depending on variables that range from dosage to genetic makeup. In a field as complex as human health, an institution forcing its way on a population is bound to cause problems (for a particularly egregious example, see what happened with the field of nutrition).

The thalidomide tragedy of the 1960s is usually cited as to why we need a centralized, regulatory agency staffed by altruistic public servants to keep the market from being flooded by toxins, snake oils, and other harmful substances. However, this needs to be weighed against the costs of keeping beneficial products withheld.

For example, the FDA’s delay of beta blockers, which were widely available in Europe to reduce heart attacks, was estimated to have cost tens of thousands of lives. Despite this infamous episode and other repeated failures, the agency cannot overcome the institutional incentives it faces as a government bureaucracy. These factors strongly skew its officials towards avoiding risk and getting blamed for visible harm. Here’s how the late Milton Friedman summarized the dilemma with his usual wit and eloquence:

Put yourself in the position of a FDA bureaucrat considering whether to approve a new, proposed drug. There are two kinds of mistakes you can make from the point of view of the public interest. You can make the mistake of approving a drug that turns out to have very harmful side effects. That’s one mistake. That will harm the public. Or you can make the mistake of not approving a drug that would have very beneficial effects. That’s also harmful to the public.

If you’re such a bureaucrat, what’s going to be the effect on you of those two mistakes? If you make a mistake and approve a product that has harmful side effects, you are a devil incarnate. Your misdeed will be spread on the front page of every newspaper. Your name will be mud. You will get the blame. If you fail to approve a drug that might save lives, the people who would object to that are mostly going to be dead. You’re not going to hear from them.

Critics of America’s dysfunctional healthcare system have pointed out the significant role of third-party spending in driving up prices, and how federal and state regulations have created perverse incentives and suppressed the functioning of normal market forces.

In regard to government restrictions on the supply of medical goods, the FDA deserves special blame for driving up the costs of drugs, slowing innovation, and denying treatment to the terminally ill while demonstrating no competency in product safety.

Going back to the NPR story, a Pfizer representative was quoted in saying that “game designers should go through the same FDA tests and trials as drug manufacturers.”

Those familiar with the well-known phenomenon of regulatory capture and the basics of public choice theory should not be surprised by this attitude. Existing industries, with their legions of lobbyists, come to dominate the regulatory apparatus and learn to manipulate the system to their advantage, at the expense of new entrants.

Akili and other startups hoping to challenge the status quo would have to run past the gauntlet set up by the “complex leviathan of interdependent cartels” that makes up the American healthcare system. I can only wish them the best, and hope Schumpeterian creative destruction eventually sweeps the whole field of medicine.

Abolishing the FDA and eliminating its too-often abused power to withhold innovative medical treatments from patients and providers would be one step toward genuine healthcare reform.

A version of this post first appeared at The Beacon.

Aaron Tao
Aaron Tao

Aaron Tao is the Marketing Coordinator and Assistant Editor of The Beacon at the Independent Institute. Follow him on Twitter here.

Market Corrections Inspire Dangerous Political Panic by Jeffrey A. Tucker

/in , , , , /by

Some kinds of inflation people really hate, like when it affects food and gas. But now, with the whole of the American middle class heavily invested in stocks, there is another kind inflation people love and demand: share prices that increased forever.

Just as with real estate before 2008, people seem addicted to the idea that they should never go anywhere but up.

This is the reason that stock market corrections are so dangerous. The biggest danger is not economic. It is political. Such corrections push politicians and central bankers to undertake ever-more nutty political in do order to fix them.

To make the point, Donald Trump immediately blamed China, which has the temerity to sell Americans excellent products at low prices. Bernie Sanders blamed “free trade,” even though the United States is among the most protectionist in the world.

Nothing in this world is more guaranteed to worsen a correction that a trade war. But so far, that’s what’s been proposed.

Tolerance for Downturns

It was not always so. In the 1982 recession, the Reagan administration argued that it was best to let the market clear and grow calm. Once the recession cleaned up misallocations of resources, the economy would be well prepared for a growth path. Incredibly, the idea was sold to the American people, and it proved wise.

That was the last time in American history we’ve seen anything like a laissez-faire attitude prevail. After the 1990s dot com boom and bust, the Fed intervened in an effort to repeal gravity. After 9/11, the Fed intervened again, using floods of paper money to rebuild national pride. That created a gigantic housing bubble that exploded 7 years later.

By 2008, the idea of allowing markets to clear became intolerable, and so Congress spent hundreds of billions of dollars and the Fed created trillions in phony money, all to forestall what desperately needed to happen.

Now, with dramatic declines in stock markets around the world, we are seeing what happens when governments and central banks attempt to counter market forces.

Markets win. Every time. But somehow it doesn’t matter anymore. There’s no more science, no more rationality, no more concern for the long term, so far as the Fed is concerned. The Fed is maniacally focused on its member banks’ balance sheets. They must live and thrive no matter what. And the Fed is in the perfect position now to use public sentiment to bolster its policies.

The Right and Wrong Question 

In the event of a large crash, the public discussion going forward will be: What can be done to re-boost stock prices? This is the wrong question. The right question should be: What were the conditions that led to the unsustainable boom in the first place? This is the intelligent way to address a global meltdown. Sadly, intelligence is in short supply when people are panicked about losing their retirement funds they believed were secure.

Back when people thought about such things, the great economic Gottfried von Haberler was tapped by the League of Nations to write a book that covered the whole field of business cycle theory as it then existed. Prosperity and Depressioncame out in 1936 and was republished in 1941. It is a beautiful book, rooted in rationality and the desire to know.

The book covers six core theories: purely monetary (now called Chicago), overinvestment (now called Austrian), sudden changes in cost (related to what is now called Real Business Cycle), underconsumption (now called Keynesian), psychological (popular in the financial press), and agricultural theories (very old fashioned).

Each one is described. The author then turns to solutions and their viability, assessing each. The treatise leans toward the view that permitting the recession (or downturn or depression) run its course is a better alternative than any large policy prescription applied with the goal of countering the cycle.

Haberler is careful to say that there is not likely one explanation that applies to all cycles in all times and in all places. There are too many factors at work in the real world to provide such an explanation, and no author has ever attempted to provide one. All we can really do is look for the primary causes and the factors that are mostly likely to induce recurring depressions and recoveries.

He likened the business cycle a rocking chair. It can be still. It can rock slowly. Or an outside force can come along to cause it to rock more violently and at greater speed. Detangling the structural factors from the external factors is a major challenge for any economist. But it must be done lest policy authorities make matters worse rather than better.

The monetary theory posits that the quantity of money is the key factoring in generating booms and busts. The more money that flows into an economy via the credit system, the more production increases alongside consumption. This policy leads to inflation. The pullback of the credit machine induces the recession.

The “overinvestment” theory of the cycle focuses on the misallocation of resources that upsets the careful balance between production and consumer. Within the production structure in normal times, there is a focus on viability in light of consumer decisions. But when more credit is made available, the flow of resources is toward the capital sector, which is characterized by a multiplicity of purposes. The entire production sector mixes various time commitments and purposes. Each of them corresponds with an expectation of consumer behavior.

Haberler calls this an overinvestment theory because the main result is an inflation of capital over consumption. The misallocation is both horizontal and vertical. When the consumer resources are insufficient to realize the plans of the capitalists, the result is a series of bankruptcies and an ensuing recession.

Price Control by Central Banks

A feature of this theory is to distinguish between the real rate of interest and the money rate of interest. When monetary authorities push down rates, they are engaged in a form of price control, inducing a boom in one sector of the production structure. This theory today is most often identified with the Austrian school, but in Haberler’s times, it was probably the dominant theory among serious specialists throughout the world.

In describing the underconsumption theory of the cycle, Haberler can hardly hide his disdain. In this view, all cycles result from too much hoarding and insufficient debt. If consumer were spend to their maximum extent, without regard to issues of viability, producers would feel inspired to produce, and the entire economy could run off a feeling of good will.

Habeler finds this view ridiculous, based in part on the implied policy prescription: endlessly inflate the money supply, keep running up debts, and lower interest rates to zero. The irony is that this is the precisely the prescription of John Maynard Keynes, and his whole theory was rooted in a 200-year old fallacy that economic growth is based on consumption and not production. Little did Haberler know, writing in the early 1930s, that this theory would become the dominant one in the world, and the one most promoted by governments and for obvious reasons.

The psychological theory of the cycle observes the people are overly optimistic in a boom and overly pessimistic in the bust. More than that, the people who push this view regard these states of mind as causative of economic trends. They both begin and end the boom.

Haberler does not deny that such states of mind are important and contributing elements to making the the cycle more exaggerated, but it is foolish to believe that thinking alone can bring about systematic changes in the macroeconomic structure. This school of thought seizes on a grain of truth, and pushes that grain too far to the exclusion of real factory. Interestingly, Haberler identifies Keynes by name in his critique of this view.

Haberler’s treatise is the soul of fairness but the reader is left with no question about where his investigation led him. There are many and varied causes of business cycles, and the best explanations trace the problem to credit interventions and monetary expansions that upset the delicate balance of production and consumption in the international market economy.

Large-scale attempts by government to correct for these cycles can result in making matters worse, because it has no control over the secondary factors that brought about the crisis in the first place. The best possible policy is to eliminate barriers to market clearing — that is to say, let the market work.

The Fed is the Elephant in the Room

And so it should be in our time. For seven years, the Fed, which controls the world reserve currency, has held down interest rates to zero in an effort to forestall a real recession and recreate the boom. The results have been unimpressive. In the midst of the greatest technological revolution in history, economic growth has been pathetic.

There is a reason for this, and it is not only about foolish monetary policy. It is about regulation that inhibits business creation and economic adaptability. It’s about taxation that pillages the rewards of success and pours the bounty into public waste. It is about a huge debt overhang that results from the declaration that all governments are too big to fail.

Whether a correction is needed now or later or never is not for policymakers to decide. The existence of the business cycle is the market’s way of humbling those who claim to have the power and intelligence to outwit its awesome and immutable forces.

Jeffrey A. Tucker
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.  Follow on Twitter and Like on Facebook.

Will Robots Put Everyone Out of Work? by Sandy Ikeda

/in , , , /by

Will workplace automation make the rich richer and doom the poor?

That could happen soon, warns Paul Solman, economics correspondent for PBS NewsHour. He’s talking to Jerry Kaplan, author of a new book that seems to combine Luddism with fears about inequality.

PAUL SOLMAN: And the age-old fear of displaced workers, says Kaplan, is finally, irrevocably upon us.

JERRY KAPLAN: What happens to people who simply can’t acquire or don’t have the skills that are going to be needed in the new economy?

PAUL SOLMAN: Well, what is going to happen to them?

JERRY KAPLAN: We’re going to see much worse income inequality. And unless we take some humanitarian actions, the truth is, they’re going to starve and live in poverty and then die.

PAUL SOLMAN: Kaplan offers that grim prognosis in a new book, Humans Need Not Apply. He knows, of course, that automation has been replacing labor for 200 years or more, for decades, eliminating relatively high-paying factory jobs in America, and that new jobs have more than kept pace, but not anymore, he says.

I haven’t read Kaplan’s book, but you can get a sense of the issue from this video.

The  fear is that, unlike the past when displaced workers could learn new skills for a different industry, advanced “thinking machines” will soon fill even highly skilled positions, making it that much harder to find a job that pays a decent wage. And while the Luddite argument assumes that the number of jobs in an economy is fixed, the fear now is that whatever jobs may be created will simply be filled by even smarter machines.

This new spin sounds different, but it’s essentially the same old Luddite fallacy on two levels. First, while it’s true that machinery frequently substitutes for labor in the short term, automation tends to complement labor in the long term; and, second, the primary purpose of markets is not to create jobs per se, it is to create successful ventures by satisfying human wants and needs.

While I understand that Kaplan offers some market-oriented solutions, the mainstream media has emphasized the more alarmist aspects of his thesis. The Solmans of the world would like the government to respond with regulations to slow or prevent the introduction of artificial intelligence — or to at least subsidize the kind of major labor-force adjustments that such changes appear to demand.

Short-Term Substitutes, Long-Term Complements

Fortunately, Henry Hazlitt long ago worked out in a clear, careful, and sympathetic way the consequences of innovations on employment in his classic book, Economics in One Lesson. Here’s a brief outline of the chapter relevant to our discussion, “The Curse of Machinery”:

(As Hazlitt notes, not all innovations are “labor-saving.” Many simply improve the quality of output, but let’s put that to one side. Let’s also put aside the very real problem that raising the minimum wage will artificially accelerate the trend toward automation.)

Suppose a person who owns a coat-making business invests in a new machine that makes the same number of coats with half the workers. (Assume for now that all employees work eight-hour days and earn the going wage.) What’s easy to see is that, say, 50 people are laid off; what’s harder to see is that other people will be hired to build that new machine. If the new machine does reduce the business’s cost, however, then presumably it takes fewer than 50 people to build it. If it takes, say, 30 people, there still appears to be a net loss of 20 jobs overall.

But the story doesn’t end there. Assuming the owner doesn’t lower her price for the coats she sells, Hazlitt notes that there are three things she can do with the resulting profit. She can use it to invest in her own business, to invest in some other business, or to spend on consumption goods for herself and others. Whichever she does means more production and thus more employment elsewhere.

Moreover, competition in the coat industry will likely lead her rivals to adopt the labor-saving machinery and to produce more coats. Buying more machines means more employment in the machine-making industry, and producing more coats will, other things equal, lower the price of coats.

Now, buying more machines will probably mean she has to hire more workers to operate or maintain them, and lower coat prices mean that consumers will have more disposable income to spend on goods in general, including coats.

The overall effect is to increase the demand for labor and the number of jobs, which conforms to our historical experience in many industries. So, if all you see are the 50 people initially laid off, well, you’ve missed most of the story.

Despite claims to the contrary, it’s really no different in the case of artificial intelligence.

Machines might substitute for labor in the short term, but in the long term they complement labor and increase its productivity. Yes, new machines used in production will be more sophisticated and do more things than the old ones, but that shouldn’t be surprising; that’s what new machines have done throughout history.

And as I’ve written before in “The Breezes of Creative Destruction,” it usually takes several years for an innovation — even something as currently ubiquitous as smartphones — to permeate an economy. (I would guess that we each could name several people who don’t own one.) This gives people time to adjust by moving, learning new skills, and making new connections. Hazlitt recognizes that not everyone will adjust fully to the new situation, perhaps because of age or disability. He responds,

It is altogether proper — it is, in fact, essential to a full understanding of the problem — that the plight of these groups be recognized, that they be dealt with sympathetically, and that we try to see whether some of the gains from this specialized progress cannot be used to help the victims find a productive role elsewhere.

I’m pretty sure Hazlitt means that voluntary, noncoercive actions and organizations should take the lead in filling this compassionate role.

In any case, what works at the level of a single industry also works across all industries. The same processes that Hazlitt describes will operate as long as markets are left free to adjust. Using government intervention to deliberately stifle change may save the jobs we see, but it will destroy the many more jobs that we don’t see — and worse.

More Jobs, Less Work, Greater Well-Being

Being able to contribute to making one’s own living is probably essential to human happiness. And economic development has indeed meant that we’ve been spending less time working.

Although it’s hard to calculate accurately how many hours per week our ancestors worked — and some claim that people in preindustrial society had more leisure time than industrial workers — the best estimate is that the work week in the United States fell from about 70 hours in 1850 to about 40 hours today. Has this been a bad thing? Has working less led to human misery? Given the track record of relatively free markets, that’s a strange question to ask.

Take, for example, this video by Swedish doctor Hans Rosling about his mother’s washing machine. It’s a wonderful explanation of how this particular machine, sophisticated for its day, enabled his mother to read to him, which helped him to then become a successful scientist.

I had lunch with someone who was recently laid off and whose husband has a fulfilling but low-paying job. Despite this relatively low family income, she was able to fly to New York for a weekend to attend a U2 concert, take a class at an upscale yoga studio in Manhattan, and share a vegan lunch with an old friend. Our grandparents would have been dumbfounded!

As British journalist Matt Ridley puts it in his book The Rational Optimist,

Innovation changes the world but only because it aids the elaboration of the division of labor and encourages the division of time. Forget wars, religions, famines and poems for the moment. This is history’s greatest theme: the metastasis of exchange, specialization and the invention it has called forth, the “creation” of time.

The great accomplishment of the free market is not that it creates jobs (which it does) but that it gives us the time to promote our well-being and to accomplish things no one thought possible.

If using robots raises the productivity of labor, increases output, and expands the amount, quality, and variety of goods each of us can consume — and also lowers the hours we have to work — what’s wrong with that? What’s wrong with working less and having the time to promote the well-being of ourselves and of others?

In a system where people are free to innovate and to adjust to innovation, there will always be enough jobs for whoever wants one; we just won’t need to work as hard in them.

Sandy Ikeda
Sandy Ikeda

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

When Judges Quit Protecting Liberty by David S. D’Amato

/in , , /by

How do we decide if a government action is legitimate?

When courts are asked to determine whether a government action has violated an individual’s rights, they apply one of several different “standards of review” or “levels of scrutiny,” ranging from “strict scrutiny” (reserved for a very narrow category of cases) to “rational basis scrutiny.”

Rational basis tests erect the lowest possible legal hurdles for the government, yet they are applied in cases that implicate some of our most important liberties, such as the right to earn a living, simply because they were not listed by name in the Bill of Rights.

For example, a law requiring an expensive permit to arrange flowers will only merit a rational basis review. And while rational basis review is a test for constitutionality, it doesn’t have anything to do with the Constitution or its history.

As Timothy Sandefur pointed out in the Cato Unbound issue on judicial activism, such rational basis tests have “no foundation whatsoever in the Constitution of the United States.” Rather, they were simply made up, fashioned by judges out of whole cloth during a period when courts were increasingly willing to defer to legislators and bureaucrats and their arbitrary and needless interference with private enterprise.

Rational basis review amounts to carte blanche for petty tyrants in legislatures, city councils, and regulatory agencies. Since the New Deal, courts have refused to give any real constitutional protection to the basic right to choose your profession and earn an honest living.

The 1934 Supreme Court decision in Nebbia v. New York is an important episode in the creeping evolution of rational basis. Leo Nebbia, a grocer, was convicted of the heinous crime of selling milk at a price that was too low, according to the bullies at New York’s “Milk Control Board.”

Writing for the Court, Justice Owen Roberts declared that as long as a law has “a reasonable relation to a proper legislative purpose,” the courts have no authority to strike it down.

Though he admitted that “the reasonableness of each regulation depends upon the relevant facts,” Roberts still maintained that, once a law is enacted, “every possible presumption is in favor of its validity.” If a “policy may reasonably be deemed to promote public welfare,” judicial review is basically over.

As a practical matter, this strange, circular reasoning means that a legislative body determines for itself whether its bills are constitutional. Merely by passing the law, the legislature settles the question and obliges the courts to accept any explanation offered for it. Such a theory eviscerates meaningful judicial review and leaves the individual defenseless, without any legal recourse against the nearly omnipotent modern state. And, since the Nebbia decision, the courts have only become more deferential.

Conservatives mistakenly associate judicial “activism” with the progressive left, but the New Deal-era progressive judges were actually the architects of the judicial “deference” that reigns today. Traditional common law protections were discarded in favor of expedience: the desire to get out of government’s way as it systematically planned, monitored, and regulated society as it saw fit.

The liberalism of the previous century was likewise treated with an arrogant and imperious contempt. Quaint notions of individual liberty and inviolable natural rights gave way to the irresistible march of modernity and “scientific” progress, shepherded by their natural steward, the state.

Rational basis tests invert legitimate due process. The burden of proof should be on the government to prove that a law or regulation serves the general welfare. The government should have to factually demonstrate the connection between the law and public health and safety, not merely assert that one mightexist.

But, instead, judges have decided that person challenging a law must confront and rebut every possible argument and hypothetical that the government (or judge) might conjure up in support of its law.

The rational basis test demands that a victim of government overreach prove the impossible, refuting an infinite universe of possible scenarios and rationales that could justify the law. Forget the actual empirical facts — rational basis has no time for such distractions.

On the contrary, the test requires judges to help the government by inventing counterfactual stories that could have justified the law. Even if the law has nothing to do with community health or safety, even if it is openly protectionist, it must be upheld if any flight of fancy could justify it.

Thus, the rational basis “test” is no test at all. It is a hollow, perfunctory gesture as the court abandons its duty of judicial review and leaves the hapless individual at the mercy of capricious government officials and special interests.

The right to choose your occupation is as fundamental a liberty as the right to speak, an indispensable aspect of self-ownership and self-determination. The freedom to make important, personal decisions about your career and your property is the bedrock of peaceful cooperation and civil society. In any society even moderately committed to freedom and legitimate due process, the rational basis test would be inconceivable. The presumption of liberty, like the presumption of innocence, would be the individual’s default position under the law.

Sadly, judges have abandoned their posts, doing the bidding of arbitrary governments and politically powerful economic interests who use the law to prevent competition. To fulfill the Constitution’s guarantee of due process, and to restore our lost liberties, we must scrap the rational basis excuse.

David S. D'Amato

David S. D’Amato

David S. D’Amato is an attorney and independent scholar whose writing has appeared at the Institute of Economic Affairs, the Future of Freedom Foundation, the Centre for Policy Studies, and the Institute for Ethics and Emerging Technologies.

Can We Afford ‘Affordable Care’? by D.W. MacKenzie

/in , , , , /by

Does the Supreme Court decision upholding health insurance subsidies prove that Obamacare is here to stay?

With its legality settled, the longevity of the healthcare program is supposed to be politically inevitable. The millions of voters who receive subsidies from the Affordable Care Act will not tolerate the loss of this money. Insurance companies will no doubt also lobby to prevent any loss of ACA subsidies, as stockholders and employees are major beneficiaries of this program.

Political factors may well preserve the ACA in the short run. But the Court’s ruling came on the heels of a gloomy report from the Congressional Budget Office that may prove to be more decisive for the law than all of Chief Justice Roberts’ legal gymnastics.

The CBO forecasts anemic economic growth and rising public debt for decades to come. Projected revenues and projected spending indicate a growing imbalance in federal finances, driven by long-term unfunded liabilities in old entitlement programs — mainly Social Security and Medicare.

The Affordable Care Act was supposed to control health insurance costs — hence the name. Unfortunately, things are not working out that way, and insurance companies are pressing for significant rate increases.

Consumers might hope that government officials would resist pressure for rate increases, but such actions are unlikely: Stock prices for major health insurers rose sharply after the Supreme Court ruled in favor of the Obama administration. Clearly, investors expect the ACA to benefit health insurers. And in Oregon, state regulators actually raised premiums higher than insurers requested, just to keep companies in the market. Rising premiums will likely drive more subsidies, worsening the looming debt and entitlement crisis.

Politicians have ignored these issues for decades because they seemed like “long-term” problems, and political pressures from elections and lobbying force them to be shortsighted. The short-term financial situation is being shored up by the willingness of investors to buy federal debt at low rates.

The trouble is that the long term isn’t as far off as it used to be. The CBO indicates that the fiscal situation in the federal government worsened significantly over the past few years, even as the deficit was declining. Further deterioration in federal finances is expected over the next decade. How much longer will private investors continue to finance this soaring debt?

A large part of the problem with rising debt is that financing it requires steady economic growth, but large public debts can crush growth. Federal debt is a millstone on the economy, the burden of which could at some point lead to national bankruptcy. The ACA, with its enormous subsidies and regulatory compliance costs, will simply pile on an already unaffordable mass of federal spending programs.

The bottom line is that Supreme Court maintained the ACA subsidies legally,but the American people will not be able to maintain them financially.

The passage and continued defense of the Affordable Care Act is an example of the rank irrationality of public budgeting. The outcome of our political and legislative processes over the past few decades has been to create a myriad of wasteful and financially unsustainable federal programs. Meanwhile, the analytical office the legislative branch of government has been quietly raising the alarm about to the direction and sustainability of government finances. It would seem that delirium is winning out over reason.

There is, of course, nothing truly inevitable about the growth of federal spending. Federal spending developed into its present irrational state because many people pressed for this growth.

But spending can and will be curtailed. Citizens can push for real spending cuts through the electoral process. Otherwise, investors in financial markets will at some point put a sharp and sudden stop to government excesses.


D.W. MacKenzie

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.

RELATED ARTICLE: Under Obamacare, Uninsured Rate Fell to Lowest Level in 50 Years. Why There’s More to That Number.

How Economic Control Threatens Political Liberty, Free Speech and the Rule of Law by Jon Guze

/in , , , , /by

John Cochrane (aka “The Grumpy Economist”) has posted a long meditation entitled “Rule of Law and the Regulatory State,” in which he makes a very important point:

The United States’ regulatory bureaucracy has vast power. Regulators can ruin your life, and your business, very quickly, and you have very little recourse. That this power is damaging the economy is a commonplace complaint. Less recognized, but perhaps even more important, the burgeoning regulatory state poses a new threat to our political freedom.

What banker dares to speak out against the Fed, or trader against the SEC? What hospital or health insurer dares to speak out against HHS or Obamacare? What business needing environmental approval for a project dares to speak out against the EPA? What drug company dares to challenge the FDA?

Our problems are not just national. What real estate developer needing zoning approval dares to speak out against the local zoning board?

Readers who doubt that this is an urgent problem should read the whole thing, which includes numerous chilling descriptions of regulatory abuse, but here I want to focus on an issue he raises in passing: how best to refer to this urgent problem?

Cochrane says he hasn’t found “a really good word to describe this emerging threat of large discretionary regulation, used as tool of political control.” He considers “socialism,” “regulatory capture,” and “cronyism,” but he rejects all three. Regarding the last two, he notes:

We’re headed for an economic system in which many industries have a handful of large, cartelized businesses — think 6 big banks, 5 big health insurance companies, 4 big energy companies, and so on.

Sure, they are protected from competition. But the price of protection is that the businesses support the regulator and administration politically, and does their bidding. If the government wants them to hire, or build [a] factory in unprofitable place, they do it.

The benefit of cooperation is a good living and a quiet life. The cost of stepping out of line is personal and business ruin, meted out frequently. That’s neither capture nor cronyism.

The fact is, we’ve seen this system of political economy before — most notably in Mussolini’s Italy and in Hitler’s Germany — and there’s a commonly used term for it. It’s fascism. Maybe Cochrane thinks that term is too emotionally charged. However, I’d have thought a bit of emotional charge was warranted. As Cochrane says:

The power of the regulatory state…lacks many of the checks and balances that give us some “rule of law” in the legal system. …

The clear danger we face is the use of regulation for political control. Each industry gets carved up into a few compliant oligopolies. And the threat of severe penalties, with little of the standard rule-of-law recourse, keeps people and businesses in line and supporting the political organization or party that controls the agencies. …

A return to economic growth depends on reforming the regulatory state. But… preservation of our political freedom depends on it even more.

Read the rest here.

This post first appeared at the John Locke Foundation.

EDITORS NOTE: See Steve Horwitz’s “Why the Candidates Keep Giving Us Reasons to Use the “F” Word“; Jeff Tucker’s “Trumpism: The Ideology“; and Jason Kuznicki’s “The Banality of Donald Trump.”

Jon Guze

It’s a Mad, Mad, Mad, Mad World

/in , , , , , /by

animals versus human babyThree decades after the ‘Moral Majority’ revolution, after fighting numerous battles for our culture, we can claim victory on, well … hardly anything.

The world is going mad. And it’s not just political madness. It’s madness everywhere.

  • Are we really selling aborted baby body parts? It’s madness.
  • Are we really joining two people of the same sex and calling it marriage? That’s madness, too.
  • Are we really extending the power to get a nuclear bomb to Iran, a nation that has chanted “Death to America” and “Death to Israel?” That’s complete madness.

Oh, there’s more madness. Much more.

Law-abiding citizens are being turned into lawbreakers for such things as refusing to sell wedding cakes to homosexual couples – while those who were once lawbreakers are now law-abiding citizens, like those who smoke pot in Colorado, Oregon, Alaska and Washington.

It’s still against federal law to smoke weed. Right? But who cares?

And how about this madness: There’s world outrage over a hunter’s killing of a lion in Zimbabwe, but hardly any public outrage over hundreds of Christians being beheaded in the Middle East and Africa by Islamists.

There’s more.

A Florida man was told by a Pinellas County air quality inspector to keep his barbecue smoke in his yard. What? This should make Linda Blair’s head spin all over again.

A New York restaurant owner was fined $5,000 because he used the word “waitress” in an employment ad. An Indian-restaurant owner also was fined $5,000 in New York for trying to hire an Indian waiter.

Maddening, I tell you.

All right, I need to stop or I’ll never get to my point.

I’ve been in the movement of defending America’s traditional, moral and biblical heritage for more than 30 years, first as the editor of Dr. Jerry Falwell’s Moral Majority Report in 1983, then as president of Christian Action Network since 1990.

The battles back in the day seem small, compared to today’s struggles.

We were fighting abortion and court decisions to kick God and prayer out of the public schools, as well as combatting the relentless chants of feminists, homosexuals and secularists to distort, pervert and destroy the laws of nature and nature’s God.

Three decades later we can claim victory on, well … hardly anything.

Every once in a while we would celebrate a win, such as passing the Defense of Marriage Act, which defined marriage as the union of a man and a woman in federal eyes, or the “Don’t Ask, Don’t Tell” policy on homosexuals openly serving in the military, or the Religious Restoration Act, which ensured that religious freedoms were protected from federal overreach.

And we did wage a successful campaign against the National Endowment for the Arts, which was funding some of the most blasphemous, sadomasochistic and sexually gruesome art imaginable.

(My “favorite” was the NEA’s funding of an art project called “Testicle Stretch with the Possibility of a Crushed Face.” It featured a man lying prone on a platform, a rope tied to his testicles that led to a pulley supporting heavy metal weights. If his testicles gave out, his face would theoretically get crushed, giving the art project its brutal and insane name.)

While a couple of these victories remain, the courts, Congress, presidents or federal administrators have gutted most of them.

Now we find ourselves fighting battles that make you wonder whether we are still living in America. It’s as if we’ve been conquered but refuse to admit it.

No army ever came. No outside soldiers ever took over the White House. The American flag still flies. And we still sing the National Anthem at baseball games.

But while the White House lights up in gay rainbow colors in celebration of legalized homosexual marriage, there are no red, white and blue lights on the White House on the fourth of July.

And in Reno, Nev., City Hall replaces the American flag with a gay rainbow flag. Oops, they admitted afterward, they meant to fly the gay flag ALONGSIDE the American flag.

The fact that the head of the DNC can’t explain the difference between a Democrat and a Socialist should tell us a lot.

The president of the United States ignores the laws. The U.S. Supreme Court ignores the Constitution. And Congress, well that’s easy: They ignore the people.

The IRS is using its agents to punish conservatives. If you support anything that America once stood for, you are a hatemonger. If you claim any of your beliefs are grounded in the Bible, you are immediately dismissed as a flat-earth-society lunatic.

Then there’s this particularly harrowing story out of Wisconsin, reported in the National Review:

(Illustration: Roman Genn)

In an article titled, “They came with a battering ram,” the publication exposed how certain Wisconsin officials raided the homes of innocent Americans simply because they publicly supported Gov. Scott Walker’s re-election bid and his “Wisconsin Budget Repair Bill.”

Here’s just a small excerpt from this rather frightening story. It’s the story of “Anne” and the police invasion of her home:

Someone was pounding at her front door. It was early in the morning – very early – and it was the kind of heavy pounding that meant someone was either fleeing from – or bringing – trouble. “It was so hard. I’d never heard anything like it. I thought someone was dying outside.”

She ran to the door, opened it, and then chaos. “People came pouring in. For a second I thought it was a home invasion. It was terrifying. They were yelling and running, into every room in the house. One of the men was in my face, yelling at me over and over and over.”

It was indeed a home invasion, but the people who were pouring in were Wisconsin law-enforcement officers. Armed, uniformed police swarmed into the house. Plainclothes investigators cornered her and her newly awakened family. Soon, state officials were seizing the family’s personal property, including each person’s computer and smartphone, filled with the most intimate family information.

When you get a chance, read this remarkable and disturbing article, written by David French. It will send shivers down your spine and make your hair stand on end.

Anne was told by police not to call her lawyer and not to tell anyone about the raid – not her mother, her father nor her closest friends.

She was left with a single question: “Is this America?”

Which brings me to this question: As Iranian citizens chant “Death to America”… are they too late?

RELATED ARTICLE: 405,000 people, 104 bishops sign petition to Pope Francis asking for ‘clarification’ on marriage

Government Ruins the Dishwasher (Again) by Jeffrey A. Tucker

/in , , , /by

The regulatory assault on the dishwasher dates back at least a decade. For the most part, industry has gone along, perhaps grudgingly but also with a confidence that dishwashers would survive. Surely government rules wouldn’t finally make them useless.

But the latest regulatory push by the Department of Energy might have finally gone too far. The DoE says that loads of dishes can’t use more than 3.1 gallons. This amounts to a further intensification of “green” policies that are really just strategies to wreck the consumer experience.

The agency estimated that this would “save” 240 billion gallons of water over three decades. It would reduce energy consumption by 12 percent. It would save consumers $2 billion in utility bills.

But as with all such estimates, these projections have three critical problems.

First, saving money and resources is not always an absolute blessing if you have to give up the service for which the resources are used. Giving up indoor plumbing would certainly save water, just as banning the light bulb would save electricity. The purpose of resources is to use them to make our lives better.

Second, the price system is a far better guide to rational resource use than bureaucratic diktat. If the supply of water or electricity contracts, prices go up and consumers can make their own choices about how to respond. This is true with one proviso: There has to be a functioning market. This is not always true with public utilities.

Third, the bureaucrats rarely consider the possibility that people will respond to rationing by using resources in a different way. A low-flow toilet causes people to flush two and three times, a low-flow showerhead prompts people to take longer showers, and so on, with the end result of even more resource use.

What does breaking the dishwasher accomplish? It drives us back to filling sinks or just running water over dishes for 10 minutes until they are all clean, resulting in vastly more water use.

The Association of Home Appliance Manufacturers, which has quietly gone along with this nonsense all these years, has finally said no.

“At some point, they’re trying to squeeze blood from a stone that just doesn’t have any blood left in it,” said Rob McAver, the lead lobbyist.

The Association demonstrated to the regulators that the new standards do not clean the dishes. They further pointed out that this can only lead to more hand washing. The DoE now says it is revisiting the new standards to find a better solution.

All of this is rather preposterous, since dishwashers are already performing at a far lower level than they did decades ago. Even when I was growing up, they were getting better, not worse. You could put dirty dishes in, even with stuck-on egg and noodles, and they would come out perfectly clean.

I started noticing the change about five years ago. It was like one day to the next that the dishes started coming out with a gross-me-out film on the glasses. I thought it was my machine. So I bought a new one. The new one was even worse, and it broken within a year. Little by little, I started hand washing dishes first, just to make sure they are clean.

It turns out that this was happening all over the country. NPR actually discerned this trend and did a story about it. The actual source of the problem was not the machine or the user, but something that everyone had taken for granted for generations: the soap itself.

The issue here is phosphorous. The role of phosphorus in soap is critically important. It is not a cleaning agent itself but a natural chemical that unsticks the soap from fabrics and surfaces generally. You can easily see how this works by adding phosphorus to a sink full of suds. It attacks the soap and causes it to bundle up in tighter and heavier units, taking oil and dirt with it and pulling it down the drain. It is the thing that extracts the soap, making sure that it leaves surfaces.

Painters know that they absolutely must use phosphorous to prepare surfaces for painting. If they do not, they will be painting on a dirty, oily surface. This is why the only phosphorus you can now find at the hardware store is in the paint department (sold as Trisodium Phosphate). Otherwise, it is gone from all detergents that you use on clothes and dishes, which is a major reason why both fabrics and dishes are no longer as clean as they once were.

Why the war on phosphorous? It is also a fertilizer. When too much of it is dumped into rivers and lakes, algae growth takes over and kills off fish. The bulk of this comes from large-scale industrial farms in specific locations around the country. Regulators, however, took on the easy target of domestic soaps, and manufacturers faced pressure to remove it from their soaps.

Now it is impossible to get laundry or dish soap with phosphorous as part of the mix. If you want clean, you have to physically add your own by purchasing trisodium phosphate in the paint department and adding it to the mixture by hand.

Welcome to regulated America, where once fabulous consumer inventions like refrigerators, freezers, washing machines, and dishwashers have been reduced to a barely functioning state. The reasons are always the same: 1) phosphorous-free detergent, 2) a fetish with saving water, 3) weaker motors that use less electricity, 4) more tepid water due to low default settings on hot water heaters, and 5) reduced water pressure in general.

Put it all together and you have an array of products that no longer function in ways that make our lives better. There is an element of dystopia about this, especially given that these household appliances were first invented and widely deployed in postwar America. This was the country where women, in particular, first started to enjoy the “freedom from drudgery.” It was machines as much as ideology that began to enable women to cultivate professional lives outside the home.

No, we are not going to be forced back to washboards by the river anytime soon. But suddenly, the prospect of having to hand wash our dishes does indeed seem real. If the regulators really do get their way, functioning dishwashers could become like high-flow toilets: contraband to be snuck across borders and sold at a high black market prices.

It seems that the regulators can’t think of much to do these days besides ruining things we love.


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. Follow on Twitter and Like on Facebook.

Economists Steve Forbes, Larry Kudlow, Dr. Arthur B. Laffer, Steve Moore Launch the Committee to Unleash Prosperity

/in , , , , /by

NEW YORK /PRNewswire-USNewswire/ — Economists Steve Forbes, Larry Kudlow, Dr. Arthur B. Laffer, and Steve Moore have launched the Committee to Unleash Prosperity. This group aims to end America’s growth slump and restore faith in the American Dream.

The Committee to Unleash Prosperity was founded to combat America’s “growth gap” by promoting an agenda that will revitalize America’s economy. In the past decade and a half, under both Republican and Democratic presidents, U.S. economic growth has diminished to roughly 2% annually—a significant decrease from its Post-World War II average of 3.5%.

This subpar growth rate has come at tremendous cost to American families, household incomes, employment opportunities, investment, and poverty levels. Above all, the lack of growth has led some to doubt the attainability of the American Dream and to wonder if our current economic climate is the new norm.

The Committee to Unleash Prosperity is working to change this. In pursuit of rapid growth, the Committee promotes the following six economic principles:

  1. A broad-based, low rate, flat tax
  2. Limited government spending
  3. Decreased regulation
  4. Sound money
  5. Free trade
  6. Rule of constitutional law

Thus far, the Committee has hosted several Presidential candidates to discuss their economic platforms including Governor Scott Walker, Governor Bobby Jindal, Governor John Kasich, Governor Mike Huckabee, Senator Ted Cruz, Senator Lindsey Graham, and Carly Fiorina. The Committee has invited other Republican and Democrat presidential candidates to attend future events.

Today, the Committee will host a luncheon with former Texas Governor Rick Perry to discuss how to restore economic growth and opportunity for all Americans. The event is sponsored by Margo and John Catsimatidis.

Prominent thought leaders have joined the four founders in their mission:

David L. Bahnsen
Richard Breeden
Travis H. Brown
Andrea Catsimatidis
John Catsimatidis, Sr.
John Catsimatidis, Jr.
Margo Catsimatidis
Veronique de Rugy
Steve Elieff
Dr. Edwin Feulner, Jr.
Harold Hamm
Kevin A. Hassett
Roger Hertog
James Kemp
Lewis E. Lehrman
Adele Malpass
David Malpass
Betsy McCaughey
Dan Mitchell
Georgette Mosbacher
David Mullins
Mary Ann Mullins
Deroy Murdock
Liz Peek
Alexandra V. Preate
Andrew F. Puzder
Avik Roy
Rex Sinquefield
David Webb

The Executive Director is political strategist Jon Decker. The Committee to Unleash Prosperity looks forward to promoting its optimistic vision for America’s economic future.

STEVE FORBES

Steve Forbes is Chairman and Editor-in-Chief of Forbes Media. In both 1996 and 2000, Mr. Forbes campaigned vigorously for the Republican nomination for the Presidency. Key to his platform were a flat tax, medical savings accounts, a new Social Security system for working Americans, parental choice of schools for their children, term limits, and a strong national defense.

LARRY KUDLOW

Larry Kudlow is CNBC’s Senior Contributor. He was previously host of CNBC’s primetime “The Kudlow Report.” He is also the host of “The Larry Kudlow Show,” which broadcasts each Saturday from 10:00 a.m.–1:00 p.m. on WABC Radio and is syndicated nationally by Cumulus Media.  Kudlow is the author of “American Abundance: The New Economic and Moral Prosperity,” published by Forbes in January 1998. He served on the transition committees for Reagan-Bush in 1980 and Bush-Cheney in 2000. During President Reagan’s first term, Kudlow was the associate director for economics and planning, Office of Management and Budget, Executive Office of the President, where he was engaged in the development of the administration’s economic and budget policy.  He was formerly chief economist and senior managing director of Bear Stearns & Company. Kudlow started his professional career at the Federal Reserve Bank of New York where he worked in open-market operations and bank supervision. He is co-authoring a forthcoming book about President John F. Kennedy’s tax cuts.

DR. ARTHUR B. LAFFER

Dr. Arthur B. Laffer is founder and chairman of Laffer Associates and was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms. Dr. Laffer also advised Prime Minister Margaret Thatcher on fiscal policy in the U.K. during the 1980s. He has been a faculty member at the University of Chicago, University of Southern California, and Pepperdine University. Dr. Laffer received a B.A. in economics from Yale University in 1963. He received a MBA and a Ph.D. in economics from Stanford University in 1965 and 1972 respectively.

STEVE MOORE

Stephen Moore, who formerly wrote on the economy and public policy for The Wall Street Journal, is the Distinguished Visiting Fellow, Project for Economic Growth, at The Heritage Foundation.  Moore, who also was a member of The Journal’s editorial board, returned to Heritage in January 2014—about 25 years after his tenure as the leading conservative think tank’s Grover M. Hermann Fellow in Budgetary Affairs from 1984 to 1987. He was a senior economist under Dick Armey’s Joint Economic Committee, and he played a large role in the creation of the FairTax proposal.

MARGO AND JOHN CATSIMATIDIS

John Catsimatidis is the Chairman and CEO of the Red Apple Group, a Fortune 500 company with annual revenues in excess of $5 billion. The Red Apple Group is a diverse holding company comprised of an energy sector which includes oil refineries, bio-diesel plants, and extensive New York area storage facilities with a deep draft tanker facility on the eastern shore of Long Island.  The Red Group also carries a real estate portfolio valued at nearly $1 billion. In addition, Red Apple Group has an aviation component which leases corporate aircrafts as well as a major supermarket chain in New York City.  Margo Catsimatidis is the President of MCV Advertising and is heavily involved with philanthropy. One of Mrs. Catsimatidis’ primary charities is the Hellenic Times Scholarship Fund which has provided college scholarships for the past 25 years. Margo and John are parents of Andrea and John Jr., both graduates of NYU and now work alongside their parents in all facets of their businesses.  Margo and John are firm believers in giving back to the community and they have a large portfolio of charitable interests which have a common theme of assisting young people.

RELATED ARTICLE: The Path to Repeal Obamacare With Just 51 Votes

Real Hero James U. Blanchard: You Can’t Keep a Good Man Down by Lawrence W. Reed

/in , , , /by

Great movements are marked by the dedication and accomplishments of steadfast individuals who make the most of every moment, every opportunity, and every available resource. When those great men and women pass from the scene, they leave behind untold numbers of friends and followers who derive comfort from their memory and inspiration from their deeds.

Such a man was James U. Blanchard III, who died on March 20, 1999, at the age of 56.

The causes to which he devoted ceaseless energy and with which his name will always be associated are liberty and sound money. Jim knew that neither is long safe without the other. Few American entrepreneurs in the second half of the 20th century did as much as he did to promote them both. The opening sentence of his family’s formal notice of his passing summed him up well: “James U. Blanchard III was a man who accomplished much against great odds and changed more people’s lives than he ever knew.”

I was privileged to know Jim Blanchard for the last 15 years of his life. For two years, I served as chief economist for his firm. I spoke at many of his conferences. I traveled with him to Brazil, Nicaragua, and Kenya. Though many others knew him better, it didn’t take much acquaintance with him for anyone to marvel at what a man in a wheelchair can get done if he puts his mind to it.

Jim was nearly killed in a tragic automobile accident at the age of 17 and was unable thereafter to walk. But if anything, his handicap only spurred him on.

Not once did I hear Jim bemoan his physical plight. If he talked about it at all, it was to relate how sitting in a wheelchair gave him time to read. In his 20s, he read voraciously. Introduced to the writings of Ayn Rand by a medical student friend, he became an unabashed defender of laissez-faire capitalism. Rand’s influence on Jim is perhaps best exemplified by the name he gave his oldest son: Anthem. Jim also became a devoted reader of the Freeman and of books by FEE’s founder, Leonard Read.

In 1974, Gerald Ford signed a bill that restored the right of Americans to own gold. The real hero of that moment was Jim Blanchard, who had formed the National Committee to Legalize Gold in 1971 and spearheaded a nationwide grassroots campaign. He knew that governments don’t like gold because they can’t print it. He saw gold ownership as a fundamental human right, a hedge against government mismanagement of money, and a first essential step down the long road to monetary integrity.

True to his spirit, some of Jim’s efforts were dramatic and unconventional. He arranged for a biplane to tow a “Legalize Gold” banner over President Nixon’s 1973 inauguration. He also held press conferences around the country at which he would brandish illegal bars of gold and publicly challenge federal officials to throw him in jail. These and many other stories about Jim’s colorful career can be found in his 1990 autobiography, Confessions of a Gold Bug.

Once gold became legal, Jim held his first annual investment conference in New Orleans. Expecting 250 attendees, he was stunned to see 750 show up. More than 40 years later, Blanchard’s New Orleans Investment Conference carries on and has drawn tens of thousands of individuals from all 50 states and dozens of nations. Investment advice comprised most of the 25 programs Jim assembled, but he always made sure that attendees were provided a hefty dose of sound-money and free-market ideas. His speakers included Milton Friedman, F.A. Hayek, Robert Bleiberg, Walter Williams, and many other great economists. Ayn Rand’s last public appearance was at a Blanchard conference. (In October 2015, I’ll be speaking again at the conference myself.)

In the meantime, Jim’s original $50 investment to begin a coin business in the 1970s grew into a giant within the industry. When he sold the business 15 years later, it was a $115-million-a-year precious-metals and rare-coin company. He cofounded the Industry Council for Tangible Assets to combat unscrupulous business practices in the coin and bullion industry, and he helped to reverse several burdensome laws and regulations that afflicted American investors.

Jim’s adventurous instincts and love of liberty combined to put him on the front lines of important struggles around the world. On my return in 1986 from visiting with activists in the anti-communist underground in Poland, I went to Jim with a request. I advised him that for $5,000, pro-freedom forces in Warsaw could translate Milton Friedman’s Free to Choose into Polish and then print and distribute hundreds of copies throughout the country. He wrote that check on the spot, and many others for similar causes behind the Iron Curtain. Not content only to fund these worthy endeavors, he often transported illicit, pro-freedom literature himself when he visited communist countries.

One of Jim’s favorite foreign projects was assisting anti-communist rebel forces inside war-torn Mozambique in the 1980s and early 1990s. He once sent a colleague and me on a clandestine journey inside the country to live for two weeks with the rebels in the bush and help to spread a pro-freedom message. Once the war was over and Mozambique adopted policies friendly to private property and free markets, Jim pitched in to assist in reconstruction.

“I remember my father as the bravest and most adventurous person that I have ever known to this day,” Anthem recently told me.

He never let anyone tell him no. He was fearless in his belief in the goodness of the human spirit. He understood that the path to personal betterment is best shepherded by free enterprise, and [he understood] the importance of balance between natural rights and property rights protected by a responsible, accountable, made-as-limited-as-possible government.

If Jim were alive today, he would beam with pride in his son, who carries three famous names: Anthem Hayek Blanchard is founder and president of Anthem Vault, a Nevada-based company pioneering a gold-backed cryptocurrency called HayekGold after Nobel laureate and Austrian economist F.A. Hayek. (Browse through the news items on the company’s web page and you’ll learn more about the currency that wouldn’t even be legal today had it not been for the work of Anthem’s father.)

Anthem says his father taught him “above all else” that true freedom can only be achieved once the world experiences a Hayekian choice in currency that technologies like bitcoin, HayekGold, and other virtual assets are wonderfully making a rapidly growing reality. I know Pop would be the most excited person in the world about all of these new technology developments enabling Austrian economics to flourish in a modern digital society.

Jim Blanchard overcame personal tragedy to become a powerful figure for liberty and sound money. His indomitable spirit lives on in all those who know that the noble causes to which he devoted his life require both hard work and eternal vigilance.

Video from FreedomFest: Remembering James U. Blanchard III with Lawrence Reed

RELATED ARTICLES:

Jim Blanchard’s 1990 autobiography, Confessions of a Gold Bug

Jim Blanchard’s 1984 interview of Austrian economist F.A. Hayek

Steve Mariotti’s 2014 interview with Anthem Hayek Blanchard


Lawrence W. Reed

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

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

The Politics of Nostalgia: Why Does the Left Want to Take Us Backwards? by Steven Horwitz

/in , , , /by

One of the more curious developments in the last couple of years has been left-wing nostalgia for the economy of the 1950s.

Don’t political progressives usually portray themselves as being on “the right side of history” — representing, as the term suggests, the march of “progress”?

Not when it comes to the economy.

Paul Krugman has written a number of columns over the last decade about how much better things were in the middle of the 20th century. More recently, we have presidential candidate Hillary Clinton making a major economic policy statement in which she longs for a time like the 1950s when workers had the structure of the corporate world and unions through which to lobby and negotiate for pay and benefits, rather than the so-called “gig” economy of so many modern freelance employees, such as Uber drivers. “This on-demand or so-called gig economy is creating exciting opportunities and unleashing innovation,” Clinton said, “but it’s also raising hard questions about workplace protection and what a good job will look like in the future.”

To protect Americans from the uncertain future, Clinton promised she would “crack down on bosses that exploit employees by misclassifying them as contractors or even steal their wages.”

In an economy where technology has enabled people to have a great deal more flexibility with their workdays and independence with their work choices, it’s now the “progressives” who are complaining about the economic organizations that have been agents of more efficient resource use, expanded choice for workers, and cheaper goods for consumers.

In short, the progressives are complaining about what would otherwise be called progress.

And let’s not let the conservatives off the hook here either, as they demonstrate their own nostalgia for an economy of the past, with cheers for Donald Trump’s anti-immigrant and anti-trade tirades and for his general love of dirigiste policies. Immigration and trade have also expanded the range of work available, lifted millions out of poverty through better-paying jobs in the United States, and enriched the rest of us through more affordable goods and services.

What’s particularly amusing about both sides, but especially the progressives, is how wrong they are about life for the average American being better back in the 1950s, including how much more secure they were. In a terrific paper for the Cato Institute, Brink Lindsey effectively demolished Krugman’s nostalgia with some actual data about the economy of the 1950s. He pointed out that the increase in income inequality since then noted by so many progressives is largely overstated, and that the economy they are nostalgic for is one that restricted competition in a variety of ways, mostly to the benefit of the politically influential. Limits on immigration and trade, in particular, prevented the 1950s economy from achieving the reductions in cost and increase in variety that we associate with our economy today.

Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

It is more than a little ironic that modern progressives are nostalgic for the very economy that GOP front-runner Donald Trump would appear to want to create.

As I argued in a recent paper, when we look at the cost of living in terms of the work hours required to purchase basic household items, most goods and services are far cheaper today than in the 1950s. The equivalents of those items today are also of higher quality: think about the typical household TV or refrigerator in 1955 versus 2015. These substantial decreases in cost have had another effect. They have made these goods increasingly accessible to the poorest of Americans. American households below the poverty line are far more likely to have a whole variety of items in their homes than did poor families in the 1950s. In fact, they are more likely to have those things in their houses than was a middle-class American family in the 1970s.

When you also consider the number of goods that weren’t even available in the 1970s or 1950s, from technology like computers and smartphones, to innovative medicines and medical procedures, to various forms of entertainment, to a whole number of inventions that have made us safer, healthier, and longer-lived, it’s difficult to argue that things were better “back then.”

The effect of all of this change driven by increased competition is that our world is one in which the middle class and poor are better off, and the gap between poor and rich as measured by what they consume has narrowed substantially. Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

Politicians do. And here’s one reason why: back then, it was easier to influence and control people’s economic lives. Progressives with a desire to shape their ideal economy aren’t happy with the world of freelancers, Uber, and independent contractors.

The economy of the 1950s and 1970s had organizational focal points where politicians could exercise leverage and thereby influence the lives of large numbers of citizens.

I’m thinking here of the auto companies in the 1950s, the oil companies in the 1970s, and any number of industries where large firms were created by restrictions on domestic and foreign competition, which were easy points of contact for politicians with a desire to control, and which had corporate leaders who were happy to reap the benefits of corporatism.

In a world of Uber, Airbnb, and all the rest, there are no central points of leverage. Facebook produces no content, Uber owns no cars, Alibaba owns no inventory. More important: Uber has no employees, only contractors. If you are Clinton or Trump, or even Krugman, there’s nowhere to go to exercise your power or to drum up support from workers in one place. There’s nothing to grab hold of. There are just people trading peacefully with each other, enriching everyone in the process.

The real irony, once again, is that what this decentralized economy has produced is more freedom and more flexibility for more workers. The same progressives who railed against the conformism of the 1950s a decade later are now nostalgic for what their predecessors rejected and are rejecting exactly the “do your own thing” ethos their 1960s heroes fought for.

The “gig” economy works for people who want options and who want flexible hours so they can pursue a calling the rest of the day. Or perhaps they want to spend a few hours a week driving an Uber because Obamacare caused their employers to cut their hours at their other job.

Whatever the reason, this economy offers the freedom and flexibility for workers, and the benefits for consumers, that represent the progress progressives should love. That progressives (and conservatives) with power are fighting against it tells you that they are much more concerned with power than with progress.

Nostalgia is a dangerous basis for making policy, whether left or right.


Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

Social Security Administration Stripping Gun Rights of Millions of Seniors

/in , , , , /by

As the L.A. Times reported this morning, the Social Security Administration (SSA) is currently developing a program to strip the Second Amendment Rights of over four million Americans currently receiving SSA benefits through a “representative payee.”  Not only would this amount to the largest gun grab in American history, but according to the published report, would take place without any due process protections for recipients, amounting to a nullification of Second Amendment rights for millions of Americans who don’t pose a threat to themselves or anyone else.

This new program appears to have been instigated by the SSA in response to a memorandum issued by Obama in January of 2013 which directed all federal agency executives to “improve the availability of records to the National Instant Criminal Background Check System (NICS).” This memorandum required all agency heads to submit to the Department of Justice (DOJ) a plan for “sharing all relevant Federal records” for submission to the NICS.

Evidently, Obama’s SSA bureaucrats read “all relevant Federal records” to mean all Social Security recipients who have a “representative payee” assigned to their accounts to help them manage their payments and receipts. Obviously, many individuals swept up in this egregious case of bureaucratic over-reach would not otherwise be prohibited from owning, possessing, or acquiring firearms under federal law.

The federal prohibitions against acquiring or possessing firearms apply to those “adjudicated as a mental defective,” among others. The term “adjudication,” however, refers to a determination made after a judicial-type process that includes various due process protections.  In no case does the federal law describe or contemplate the type of prohibition by bureaucratic fiat exercised by the SSA in developing its guidelines for those with “representative payees” assigned to their accounts.

But SSA is not alone in this directive. The memorandum names several agencies, including the Departments of Defense, Health and Human Services, Homeland Security, Transportation, and “such other agencies or offices as the Chair may designate.” Potentially, bureaucrats in all these agencies could be working hard to identify and forward “all relevant Federal records,” to the NICS pursuant to the Obama mandate.

In total, this program could easily grow to include many more millions of Americans who have any connection to the Federal government through the various agencies named in the memorandum.

Unfortunately, this fits a pattern of abuse within the Obama Administration which is clearly hell-bent on destroying the Second Amendment in any way possible. As we reported previously (here and here), the Veterans Administration (VA) has already implemented a similar program to designate veterans as “prohibited persons”  when they have a fiduciary assigned to administer their VA benefits.  Like the SSA program described above, the VA procedures are also devoid of significant due process protections or any requirement that the beneficiary be found a danger to self or others. According to the L.A Times article, 177,000 vets have been swept into NICS with the bureaucratic short-cut.

The implications of this policy are too far reaching to fathom at present. Social Security is one of the more prolific and relied upon Federal programs in American history. That Obama’s directive could so easily be implemented within the SSA suggests that bureaucrats could effectively cloak such a program in any agency within the growing leviathan that is the federal government.

EDITORS NOTE: Readers who may wish to call or write their members of congress may do so using the Congressional switchboard at 202-225-3121 or send an email to their lawmaker by using the NRA-ILA “Write Your Representatives” tool.

Don’t Agree with the Mayor’s Politics? No Permits for You! by Walter Olson

/in , , , , /by

Boston mayor Martin Walsh gives Donald Trump the Chick-Fil-A rush* over his immigration opinions. Via the Boston Herald:

If Donald Trump ever wants to build a hotel in Boston, he’ll need to apologize for his comments about Mexican immigrants first, the Hub’s mayor said.

“I just don’t agree with him at all,” Boston Mayor Martin J. Walsh told the Herald yesterday. “I think his comments are inappropriate. And if he wanted to build a hotel here, he’d have to make some apologies to people in this country.”

More on the use of permitting, licensing, and other levers of power to punish speech and the exercise of other legal rights at Overlawyered’s all-new regulatory retaliation tag. (And no, I’m not exactly thrilled with Mayor Walsh for making me take Trump’s side in an argument.)

* In case you’d forgotten the infamous Chick-Fila-A brouhaha, here’s Overlawyered’s coverage:

The uproar continues, and quite properly so (earlier here and here), over the threats of Boston Mayor Thomas Menino and Chicago alderman Proco (“Joe”) Moreno to exclude the Chick-Fil-A fast-food chain because they disagree (as do I) with some of the views of its owner.

Among the latest commentary, the impeccably liberal Boston Globe has sided with the company in an editorial (“which part of the First Amendment does Menino not understand?…A city in which business owners must pass a political litmus test is the antithesis of what the Freedom Trail represents”), as has my libertarian colleague Tom Palmer at Cato (“Mayor Menino is no friend of human rights.”)

The spectacle of a national business being threatened with denial of local licenses because of its views on a national controversy is bad enough. But “don’t offend well-organized groups” is only Rule #2 for a business that regularly needs licenses, approvals and permissions. Rule #1 is “don’t criticize the officials in charge of granting the permissions.”

Can you imagine if Mr. Dan Cathy had been quoted in an interview as saying “Boston has a mediocre if not incompetent Mayor, and the Chicago Board of Aldermen is an ethics scandal in continuous session.” How long do you think it would take for his construction permits to get approved then?

Thus it is that relatively few businesses are willing to criticize the agencies that regulate them in any outspoken way (see, e.g.: FDA and pharmaceutical industry, the), or to side with pro-business groups that seriously antagonize many wielders of political power (see, e.g., the recent exodus of corporate members from the American Legislative Exchange Council).

A few weeks ago I noted the case of Maryland’s South Mountain Creamery, which contends through an attorney (though the U.S. Attorney for Maryland denies it) that it was offered less favorable terms in a plea deal because it had talked to the press in statements that wound up garnering bad publicity for the prosecutors. After that item, reader Robert V. wrote in as follows:

Your recent article about the [U.S. Attorney for Maryland] going after the dairy farmers reminded me a case in New York state where the Health Department closed down a nursing home in Rochester. They claim is was because of poor care, the owner claims it was because he spoke out against the DOH.

The state just lost a lawsuit where the jury found the DOH targeted the nursing home operator because he spoke out against them.

According to Democrat and Chronicle reporters Gary Craig and Steve Orr, the jury found state health officials had engaged in a “vendetta” against the nursing home owner:

Beechwood attorneys maintained that an email and document trail showed that Department of Health officials singled out Chambery for retribution because he had sparred with them in the past over regulatory issues. The lawsuit hinged on a Constitutional argument — namely that the state violated Chambery’s First Amendment rights by targeting him for his challenges to their operation.

The Second Circuit panel opinion in 2006 permitting Chambery/ Beechwood’s retaliation claim to go forward is here. It took an extremely long time for the nursing home operators to get their case to a jury; the state closed them down in 1999 and the facility was sold at public auction in 2002.

Versions of these posts first appeared at Overlawyered.com, Walter Olson’s indispensable law blog, published by the Cato Institute. 


Walter Olson

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

Who Will Protect Us from Tainted Food Trucks? by B.K. Marcus

/in , , /by

My Haitian babysitter told me to get into the car, an old sedan with peeling paint, driven by a stranger. She’d hailed it, like a cab, and it pulled over for us, like a cab, but it didn’t look like a cab.

“I thought you said we were taking a taxi,” I said.

“This is a taxi.” She pushed me into the back seat.

“It doesn’t look like a taxi,” I whispered.

“Real taxis don’t come into this neighborhood,” she said. “This is a gypsy.”

I thought she was describing the ethnicity of the driver. Only later, listening to radio news reports about city police campaigns against gypsy cab drivers did I understand that my babysitter had dragged me into a mobile version of the black market.

That brief ride through a 1970s New York City ghetto was my only time in a gypsy cab: a bewildered little boy forced into the car of a man I didn’t know. It felt dangerous in a way that even hitchhiking in the Middle East when I was a teenager did not.

So why do I use Uber and Lyft without hesitation? Why do I prefer gray-market ride sharing with unlicensed strangers to hailing a municipally sanctioned taxi?

At this point, my confidence is based on past experience: the dozens of Uber drivers I’ve had were far more pleasant than the hundreds of cab drivers I’ve ridden with. But even my very first time with Uber, I got in without hesitation.

Peer-to-peer apps have made reputation markets real and robust — at least in certain corners of the service economy. Uber drivers have far greater incentive to make me happy than any cab driver ever has. More than their tip depends on it: the rating I give them can affect their future earnings.

Cab companies could have adopted reputation apps years ago as a way to outdo their competitors. But they weren’t worried about competition. City licensing often creates a protective cartel for current cabbies. That’s why Uber and Lyft became so popular so fast: the market — meaning everyone looking for a ride — wanted what the cab industry felt no need to offer us.

Will food trucks be the next service to escape the archaic model of licensing and regulation?

“Illegal Food Trucks Worry Health Officials,” reports the Herald-Sun of Durham, North Carolina. “Unlicensed food trucks operating illegally in Durham have health officials concerned that customers could end up getting sick.”

One such official, Chris Salter, told the paper that people selling food from the back of SUVs have posed food-poisoning risks to the public for years: “Did they slaughter a chicken in their backyard and cut it up on a piece of plywood? You just don’t know.”

The solution Salter proposes, of course, is stricter policing and greater regulation. After all, if cops and bureaucrats don’t protect the public, who will?

To the generation that reads newspapers and waits in line for taxis, the argument makes sense: when you eat in a restaurant, you may not know for sure that the food is safe, but the restaurant isn’t going anywhere; even without a health inspector’s oversight, restaurant owners have an incentive to protect their reputations. It’s not hard to spread the word that you got sick eating at Big Joe’s on the corner of 1st and Main. It’s a lot less helpful to say you ate a bad fajita out of the back of a faded green RAV4 in the abandoned parking lot.

When I used to take city cabs, the seats were filthy, the driving was reckless, and the drivers ranged from sullen to rude. But I felt relatively safe. I knew I could always write down the cabby’s name and medallion number. In theory, at least, I could report him and maybe someone would wag a finger at him. That seemed better than nothing.

Licensed food trucks offer a similar assurance: “Salter’s advice to the public is to look for the health grade card at food trucks if they’re unsure whether it’s operating legally. Since 2012, food trucks have been required to display the same cards as restaurants.”

Again, even without the health inspection required to get a permit and a health grade card, food truck owners don’t want to risk customers’ health for fear of losing their permits or having to display a lackluster “health grade” on their cards.

Government licensing acts as a sort of hampered reputation market. The food SUVs have no such incentives.

As in the case of cabbies versus Uber drivers, the legitimate food truck owners are on the side of the government officials: “Many of those owners are upset because the illegal trucks skirt regulation fees and cut into their business.”

Food trucks in Durham may not yet operate as a cartel — the way they are beginning to do in New York City, for example, where the number of food-truck licenses has been frozen for years — but the complaint is typical of the established players in a protected industry: upstarts with lower costs are threatening our profit margin!

But suppose you’re a foodie with fear of salmonella. Would you rather rely on an 11-month-old government report card or just check your food-truck app to see what your fellow foodies have to say? What sort of insurance does the owner carry — what third-party assurance is available? How’s their guacamole?

Don’t like this truck’s rating? The app will guide you to the next nearest truck serving similar fare.

Salter told the Herald-Sun, “We’re not trying to keep anybody from making a living. We’re trying to be fair and to protect the public.” So why is he offering 20th-century advice to consumers in the 21st century? Might he have any interests at stake other than public safety?

No doubt health officials would counter that the sharing economy is an option only for the privileged. It’s not like everyone has a smart phone, right? Right?

Many of the illegal vendors speak only Spanish, Salter told the Herald-Sun. And “many of them can’t read, so even if we pass out documents, they can’t read them.”

So who buys questionable chicken out of the back of an SUV operated by illiterate, Spanish-speaking strangers when Durham has so many government-approved food trucks with English-speaking staff?

Might those who choose to do so be similar to those who hailed gypsy cabs in the New York City of my youth?

“Real taxis don’t come into this neighborhood,” my babysitter had told me. I didn’t need to ask why. I didn’t want to be in that area either. But folks in the bad neighborhoods still needed rides, and they were willing to pay for them. There was extra risk involved for both parties, and the drivers couldn’t make the kind of money that licensed taxi drivers made, but driving a gypsy cab was better than their next-best option, so supply and demand met in illegal exchanges that benefitted both parties.

It’s safe to assume something similar is going on at the back of some of Durham’s SUVs.

These are most likely working people on the margins of the economy who don’t have the time or the money to seek a quick lunch elsewhere. If they’re buying their food from obviously unlicensed and uninspected vendors, that suggests that the higher-scale food trucks aren’t coming to their neighborhood — or that they charge considerably more than the illegal food.

The health officials aren’t protecting these people. At best, they are limiting their options. Worse, they could be driving economic exchanges further underground, where neither the government nor the market can effectively regulate safety.

Salter implies that vendor noncompliance is the result of ignorance, but it’s more likely buyers and sellers who don’t feel especially well protected by the legal system are taking measured risks to improve each other’s lives.

And I bet plenty of them do have smart phones. What they need now isn’t more ardent government oversight; it’s more reliable reputation markets. If there isn’t already an app for that, there soon will be.

B.K. Marcus

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

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

/in , , , , , /by

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).