Regulations do not work

When I say regulations do not work, I do not mean that they do not succeed in controlling or regulating the economy. What I mean is that regulations do not work in the way that naive supporters of state regulations believe that they do. I mean that regulations do not overcome market failures (as that term is commonly used) to produce more efficient outcomes. Regulations do not succeed in protecting either workers or customers except incidentally and not better than could be done under the free market.

The argument is rather simple. The people most motivated to become regulator are those who personally benefit from regulating. There is also an idea we learn from game theory, reciprocity. People who are in the industry would be more qualified to regulate it on the basis of their knowledge. But since they come from that industry, they are going to be more willing to reciprocate to those who helped them get where they are. The flip side is also that regulators will need to find a job after they leave the government sector. Building a network by appeasing firms in an industry is the best way for a regulator to do that.

Even if a regulator has the best of intentions, she can only act on the information she has. But she only has information about the past and only incomplete information since much of it is personal. She can never have full information about the present.

In order to regulate an industry, a regulator is going to need to have regular contact with members of that industry. Stockholm syndrome and its converse Lima syndrome illustrate that people in an antagonistic relationship can over time develop sympathy for one another. Since regulators are often creating win-lose situations, since they have sympathy for the industry they regulate and the firms they work with, will create situations that benefit their friends in the industry.

This is why absurd regulations exist and why they will always exist. And regulations will never work.

Maximizing and Satisficing in Online Dating

One of the supposed benefits of online dating is that it gains you access to a wider selection of possible mates. In the times of our parents and grandparents, people would often meet potential love interests through their friends or social group. This meant that you were limited to meeting people who knew people that you knew. This has the advantage that both people are vetted by their common friends.

With limited choice comes sacrifice. Being limited in potential partners, you are forced to accept less than perfect mates. But with limited choice, people are often more happy with the choice they make. This is where the issue of maximizing versus satisficing comes to play.

Imagine making an economic decision, purchasing a new sweater for example. There are several factors that will be used to make your choice in which sweater to purchase. You must weigh the cost against the quality, color, style, et cetera.If you have two choices, the decision is easy. But when there are many different styles, colors, qualities, costs, the decision becomes harder. A person who is a maximizer will want to maximize her well being in the consumption of the sweater and will thus want to look at all possible sweaters from all possible stores and weigh them.

A satisficer on the other hand recognizes that there is a cost to trying to weigh all possible options. Going from store to store, trying on every sweater, comparing prices and qualities of material has a cost in time and effort. The satisficer decides on the key attributes she is looking for and once she has found them, makes her purchase. She will only go to one or two stores knowing what she wants and what she is willing to pay. While she may not get the sweater that is most perfect, her over all well being may be higher simply from not paying the higher price in the search.

In a certain sense we are all maximizers and satisficers. On decisions we hold to be important, we will take more time and care weighing the costs and benefits of our choice. But what can be more important than who we will choose to be our life partner. And where as in the choice of sweaters there are dozens of different options maybe hundreds, but just peruse an online dating site and you will see there are thousands of people.

In any one meeting of two people, even if based on some magical formula from the dating website, while there may be a high degree of compatibility, each has an incentive to continue looking if there other is not close to perfect. After all, there are plenty of fish in the sea, as the saying goes. So even if there is a high degree of compatibility, the odds of both viewing the other as close enough to their ideal mate is low. And thus, while we can hope that we will find love through an online site, we must persevere in a way our parents and grandparents did not have to. And because of the higher cost in the search, we will ultimately be less satisfied with our result.

Diminishing Returns in Healthcare

Many people are ignorant of economics. This sad fact leads to misguided beliefs with regards to how states should allocate resources. The problem has never been clearer than in healthcare.

Diminishing returns has to do with how the average cost of a good or service increases as the amount produced of the good or service increases. At lower levels of output, we experience increasing returns, meaning the average cost decreases. As output increases, we reach a point where the average cost starts to increase. This point is determined by our level of technology.

As an example, historically grocery stores were small. They provided the necessary goods people needed within a small community. As technology improved, both in the ability of consumers to travel further and in the ability of grocery stores to get and hold larger inventories, the average cost of larger grocery stores fell. This has lead to the rise of large stores like WalMart who is able to provide more goods than so-called mom and pop stores at lower prices.

How does this apply to healthcare? There is a natural progression from small hospitals who take care of the need of a small community to larger hospitals that have more specialized nurses and doctors. By serving more people, they take advantage of increasing returns and can care for more specialized needs.

But what happens if the state comes in and tries to increase the number of people they serve? Resources that should be directed to assisting in more specialized treatments have to be directed to deal with more generalized treatments. This is why in countries with socialized medicine, getting in to see a general practitioner is faster than in the US but the wait to see a specialist is much longer.

Since we are talking about government services, it is hard to see how the cost of medical care is higher. The cost of devoting more resources to general practice is the forgone ability to serve those with more specialized needs. Since prices are set by government for these resources, we cannot accurately measure the true costs this imposes on society in dollar terms.

When resources are allocated by market forces, meaning according to the needs of the people, the way firms increase profits is by investing resources in improving technologies. Under government directed healthcare, resources are misdirected and investment is misallocated due both to the inefficiency of government due to lack of prices and the effect of diminishing returns.

The Anti-Free Speech Left

While the Left often claims to be champions of civil rights, but often vehemently oppose free speech rights. One class of speech the Left often tries to suppress is political speech. They support this form of political oppression on the grounds that money spent on speech corrupts politicians. By contributing to a politicians political campaign, supposedly if the politician wins he will reward the donor. This may or may not be true, but limiting people's ability to support their candidate will not stop politicians from being corrupted.

One way that people voice their support or opposition to a candidate is by coming together as part of a corporation. The Left claims silencing the views of these corporations does not violate anyone's right because corporations are not people. But corporations are people. They came together to use a corporation as a means of jointly expressing their political views. These are the people the anti-free speech Left wants to suppress.

The case that brought this issue to the forefront was Citizen's United vs FEC. Citizen's Unitedwas a corporation, a group of people, who produced a video opposing Hillary Clinton. They wanted to run ads for this film during 2008 Democratic primaries. This was in violation of the the McCain–Feingold Act which attempts to silence such political dissent.

These types of laws have the clear purpose of silencing speech. This is not about if a corporation is a new independent person. The intent of the laws is irrelevant as the ends do not justify the means

The Left supports giving the government grand powers to take from one group and give to others. To change the basic rules governing the economy, to set regulations that benefit one group at the expense of other. These powers are what are corrupting politicians not the contributions of donors. As long as they refuse to accept that the government they want will always be corrupt, they will not deal with the real problem.

Defending liberarianism: against modern liberalism

Modern liberals are a peculiar bunch. They advocate the use of violence against the very people the purport to want to help. Few will claim they want violence, but they want laws to prohibit or mandate certain activities which are enforced through violence as I explain here.

There are several areas where liberals attack the ones they propose to help. In healthcare, they advocate for a single payer system, also known as universal healthcare. The problem with such a system is that resources are misallocated. A free market system would be logically superior. Since government misallocates resources, prices are forced up. Not too surprisingly, healthcare cost have gone up in the US since the government has gotten more involved. Virginia is proposing a single payer healthcare system but since such a system would require the state to almost double its budget, there is no way to support such a system without massive tax hikes which would result in massive economic harm. Since health is highly correlated with income, such an effort would be expected to hurt overall health, not improve it.

Liberals also advocate using violence to sut down businesses who cannot afford to pay their employees a "liveable" wage.What the minimum wage does is drive out businesses and kill jobs while at the same time reducing competition and forcing up prices of finished goods. This double whammy against the poor, low skilled laborer forces them out of the job, destroying their ability to improve their standard of living through learning job skills and forces up the prices of the goods they once produced.

Another way the modern liberals hurt the poor is through anti-discrimination laws. After the Jim Crow laws were repealed, laws that mandated discrimination, states have done an about face and gone to the complete opposite extreme. These extremist laws force people to associate who otherwise would not. These laws have been in the news lately because they compel involuntary servitude and people trying to exercise their freedom of religion refused to serve gays. While liberals usually stand for civil rights, this is an instance where the rights of one are trumped by the political prejudices of others. Liberals have no basic principles and will stomp on whom ever they don't like. A classic example of irrational behavior, using an inappropriate means to achieve an end. Worse, these anti-discrimination laws hurt the people they claim to help. If a business owner hires a member of a special class protected by these laws, they could potentially face discrimination law suits for any number of activities including overlooking them for a promotion or firing the, even if justified. With these threats looming over employers, it is no wonder being a protected class, exempted from the equal protection clause of the 14th amendment to the constitution, makes it harder to find work.

I could go on about how liberals hurt the poor and middle class. They force their views through regulations forcing businesses to serve the government and not customers. They support child labor laws which keep children of desperate families from being able to acquire legal work and often forcing them into prostitution.

Defending libertarianism: Monopolies

There is a certain amount of irony hearing people complain that a libertarian society would be controlled by monopolies. These same people support monopolies on law enforcement and contract enforcement. The state has created monopolies that control our money and our mail. In most cities, basic utilities like water, sewage, gas and electricity are controlled by government protected monopolies.

What is not important is if monopolies exist but if transactions are voluntary and voluntary transactions are not prohibited. There are few real monopolies that exist without government protection. At one point, Microsoft was declared a monopoly, and due to copyright laws it is to a certain extent, but Microsoft still faced competition. Microsoft's biggest competitor for its Windows operating system is actually older versions of that same system.

Antitrust laws are supposed to protect us from monopolies. Unfortunately these laws use coercion to force companies to behave the way politicians want. The anti-trust case against Microsoft was based on the fact that Microsoft integrated its web browser into its operating system. This means that the government went after Microsoft for trying to improve consumer experience.

Worse, antitrust laws ignore the reality of how firms form and expand to serve customers. This is documented by Alan Greenspan.

Defending libertarianism: What about the poor

One of the most common criticisms of libertarianism is "What about the poor?" It is a bizarre question. Would the person who is concerned about the poor not be willing to help the poor if the government were not forcing them too?

To meet immediate needs, access to food and monetary handouts would be necessary. These are done on a regular basis by private charities. Before government got involved, private charities were more numerous. Thanks to the New Deal, the role of charity has been significantly diminished.

 The poor also need access to low paying, low skill jobs. These are the kinds of jobs that disappear due to misregulation. When government gives special privileges to labor like mandatory benefits or minimum wages, it becomes relatively cheaper to substitute capital equipment in place of labor. Increased use of capital equipment requires more skilled labor and less unskilled labor.

The poor would be better off if voluntary employment transactions including working in more dangerous or less comfortable conditions or for lower wages were permitted. The reason anyone would choose to work until these conditions or for low pay would be because those are their best options. Making someones best option illegal does not make them better off.

As poor people gain experience, they can move up the social ladder. There will always be poor people, those on the bottom of the social ladder. We do not make them better off, however, by removing the bottom rungs.

Defending libertarianism: Who will build the roads?

Today I would like to deal with one of the easiest and silliest objections to libertarian philosophy, "Who will build the roads?"

This is an easy objection because it is clear that the market can provide roads. Historically, roads were done privately in the US until the they were seized by the government. There are still some private roads in operation.

Roads provide an essential service for  businesses because they provide consumers access and provide transportation routes. Local businesses will support roads that make it easier for consumer to reach them. Exporting businesses will support highways that allow for the transportation of goods to areas were their consumers are located at.

Roads would be built and maintained by private entities who wish to serve consumers. Right now, there is monopoly on the building of roads. Governments use eminent domain, a legal form of theft, to take property to construct roads often for political gains.

The question should not be"Who will build the roads?" but "Should the roads serve the people or the politicians?"

Defending libertarianism: The non-aggression principle

I want to start a series of posts defending libertarian principles against the critics of libertarianism. To start, I want to explain what libertarianism is. The founding principle of libertarianism is the non-aggression principle.

Simply put the non-aggression principle states that "It is wrong to initiate aggression." Most people will claim to agree with the principle but most confusion about the libertarian position constitutes a failure to understand the application of this principle.

Broadly speaking, the non-aggression principle asserts that it is wrong to use violence or threats of violence in a non-defensive manner. Going forward, I will apply this principle to refute objections and defend libertarian conclusions.

Arizona law banning some slavery vetoed

The nation should, by now, be aware of the Arizona bill that would have allowed businesses to deny service to gays and lesbians on religious grounds. This bill was vetoed by the governor of Arizona.

Anti-discrimination laws, whether meant to protect gays and lesbians or racial minorities, are legalized slavery. That is why this bill should have been passed and why it did not go far enough. The constitution of the United States explicitly prohibits involuntary servitude.

It is not hard to show that anti-discrimination laws are slavery.

1. All forms of involuntary servitude are slavery.
2. Anti-discrimination laws are involuntary servitude.
3. Therefore anti-discrimination laws are slavery.

Proposition one is noncontroversial, it is the definition of slavery. Proposition two is clearly true.

4. The purpose of anti-discrimination laws is to force people to serve those who they would discriminate against.
5. Forcing people to serve is involuntary servitude.
6. Therefore, anti-discrimination laws are involuntary servitude.

Both propositions four and five should be non-controversial. If you disagree with four, you must now explain what you believe the purpose of anti-discrimination laws is.

This does not mean I condone discrimination. There may be times when discrimination is appropriate. Other times it is not. Using the guns of government to deal with discrimination is the solution to this problem. In a free society, some people will make choices we disagree with. But violence and slavery are not the correct tools to deal with these people.

Deflation is not to be feared

One of the most bizarre concerns that economist have is of falling prices, commonly referred to as deflation. We hear horror stories about how deflation is associated with economic collapse and we need to avoid inflation at all costs. Nothing could be farther from the truth.

Inflation is actually historically more commonly associated with depression than deflation. (Andrew Atkeson and Patrick J. Kehoe, "Deflation and Depression: Is There an Empirical Link," American Economic Review Papers and Proceedings 94 (May 2004): 99–103.) This purported link is mainly due to the observation of falling prices during the Great Depression. However, in general this is not the case as Atkeson and Kehoe show. Even if such a correlation existed, it would not prove any particular causal relationship.

A different argument against deflation is that if prices fall, people will put off their purchases. Certainly in the short run people will be willing to wait for prices to fall before they make a purchase for certain items, but in general it is an absurd argument. Simply look at the video game industry. Gamers willingly buy titles on the launch date, even pre-order titles, that in a year will be discounted 20-50%. Prices of computers have been falling and yet people continue to buy despite the fact they could pay less if they waited a year.

So the economic arguments against deflation are bogus. More importantly though is the moral argument against inflation, meaning the increase of the money supply that leads to higher prices. By increasing the supply of money, the value of money decreases and prices rise. This devaluation of the currency directly hurts the poor and savers. For this reason alone, regardless of other reasons, we should oppose any policy that is intended to increase inflation.

The moral case for default

I recently made the case that the government has only 2 real options for dealing with the debt crisis, default or hyper inflation. While it is logically possible that the government could raise taxes or cut spending and actually pay off the debt, these are not feasible options.

While the official debt is in the neighborhood of 17 trillion, the real debt is at least an order of magnitude greater because of the unfunded liabilities not just for Social Security but for Medicare. With the baby boomer generation entering retirement, these liabilities are going to exacerbate the current crisis.

If the only two possible options are default and hyperinflation, which option should the government choose? We could discuss the economic impact of both options but regardless of which is best economically, which option is the most ethical? We do not debate gay right and civil liberties based on their economic impact but on what is the moral choice.

Hyperinflation is a form of wealth destruction. Any wealth held in currency is quickly destroyed as the currency is debased. Those most dependent on holding cash in order to complete transactions will be hurt more than those who can hold wealth in assets. This means hyperinflation greatly hurts the poor more than the rich. Clearly hyperinflation is a bad choice.

There are negative consequences to default as well. People who hold government debt were promised a return for their investment and reneging on that promise would be wrong. But unlike with hyperinflation, those holding government debt are not innocent victims. They know that they payments they are expecting are the result of taxation. The government must steal from the people in order to repay these loans. If an individual loaned in order to finance criminal activity and expected a return from such activity, we would not consider it unjust if the criminals abandoned crime and refused repay their debtors. These debtors are accomplices to the crimes the helped fund.

The moral case is clear, we can either hurt the innocent and disproportionately hurt the poor or we can deprive accomplices to government criminality of ill gotten loot.

Rising Student Loan Debt

In life there are trade offs. Student loan default rates have risen as student loan burdens also continue to rise. The purpose of student loans has been to make college education more affordable but has instead turned to making it easier for young adults to get degrees that they will never use.

What is the trade off that student loans require? Which problem is worse, a generation facing massive student loan debt and degrees that do nothing or a low debt generation where some people may not be able to afford college?

The great health insurance lie

We have all heard the fact that before Saint Obama granted us Obamacare, if you got sick, your insurance company would drop you. This is quite simply not true. But that has not kept our wise overlord from perpetuating the myth as part of the justification for Obamacare.

The truth is, before the government interfered with the market, the market offered guaranteed automatic renewals. Sure you might have had to pay a little extra for it, but it was an option people could choose. HIPAA violated people's right to choose and mandated guaranteed renewability, forcing people to pay for something they did not want or forcing group insurance plans to not exclude members due to preexisting conditions.

This means that for the past 18 years since HIPAA was passed, no person has legally been denied the ability to renew their health insurance due to sickness. Every individual health insurance policy is mandated to include the extra charge for guaranteed renewability.

So next time someone says that Obamacare saved people from being dropped, ask them to show even a single case where someone has been dropped due to getting sick.

Fixing inequality

The president does not understand even basic economics. In his State of the Union address, he showed his misunderstanding several times when talking about inequality. Two important topics he talked about are corporate profits and the minimum wage.

While it is true that corporate profits are up for some companies, this irrelevant to the topic of inequality. This is an attempt by an ignorant president to instigate class warfare to divert from the fact that inequality has risen during his administration largely due to the policies he endorses. He ignores the important role profits play and if government would get out of the way, long run profits will decline as new competitors enter these markets seeking some of those profits for themselves.

As for the minimum wage, it is a largely uncontested fact that minimum wage causes unemployment. A few studies have tried to show that increasing the minimum wage does not cause unemployment but there are serious methodological flaws in these studies. We can see the effect of minimum wage in the employment statistics. Younger unskilled workers have a very high unemployment rate compared to the general population.

Rather than help the poor and fix inequality, President Obama wants to double down on his own failed policies. If we seriously want to fix inequality, we need to get the barriers out of the way that the government has put up. We need to abolish the minimum wage and begin to deregulate industries. We need to make it easier for manufacturers to produce in America. Manufacturing, the industry government has been working hardest to drive out of the US, is where the high paying low skilled jobs are located.

Default or hyperinflation?

The US is in a bind. Our leaders have no ethics and the economists at the Federal Reserve are incompetent. There are four possible endings to the US government's current fiscal position and only 2 are plausible. Currently interest on government bonds is at historic lows and such a situation cannot last. When interest rates go up, either because the Fed reduces quantitative easing or because inflation becomes too obvious to ignore, the payments for the debt will begin to consume a significant portion of the budget.

The US government will either default on its debt obligations or we will suffer hyperinflation. The other two possible but unlikely options are tax hikes with no spending increases or spending cuts. Let me fist explain the unlikely options.

The only time government spending declines is when temporary spending ends. Spending on long term programs is never cut. The government's spending problem is so bad that they lie and claim spending cuts when they increase spending by less than they originally planned.

If spending cuts are off the table, what about tax increases. I am not talking about increasing tax rates but tax revenues. The confusion between tax rates and tax revenues makes this a hard path to follow. Regardless of the tax rates, the government has historically never taken more than about 19% of GDP. To increase tax revenues, the government has to promote progrowth policies. However, the government prefers to try increasing revenues by increasing rates which has the effect of reducing growth and thus reducing future revenues and exacerbating the debt crisis.

Even if the government could increase revenues, that does not mean it would fix the problem. Historically the government has taken additional revenues and increases spending by the same amount plus more.

Now that we know what won't happen, what are our remaining options. The government will either default because it cannot continue to make payments on the debt or the Federal Reserve will monetize the debt and we will suffer hyperinflation. Clearly the country would be better off with default. Some would suffer who held US debt but everyone will suffer from hyperinflation.

Rising house prices are a bad sign

How prices have risen significantly in the recent years. Naive economists claim that this is a sign of recovery. There are two primary reasons for increases in housing prices, or any price for that matter. Prices increase if there is a decrease in supply or increase in demand.

New housing starts have been picking up pace recently based on data from the National Association of Home Builders. And with the large stock of homes built during the housing boom that still need to be sold, it would seem to be unlikely that rising prices are due to a decrease in supply.

Since we know it is most likely an increase in demand that explains rising house prices, is this not evidence of a recovery? Surely people buying homes is a sign of recovery. However, the US median real income is falling. From this fact alone we know that there is no recovery. We can also know that the increase in home purchases is not by middle income home buyers purchasing new homes. They could not afford these homes.

Home purchases are due to investors. We know this because of the stagnant incomes and that a large number of purchases were in cash. With stagnant incomes and low savings rate, regular Americans are in no position to purchase homes with cash.

This means that rising house prices are an asset bubble.

But things get worse. Rising house prices make it harder for middle class Americans to purchase homes. The wealth effect leads to excess consuming by home owners who feel richer do to the higher home values. This leads to borrowing against the home equity. With stagnant incomes, home owners will not be able to pay back these new loans. When interest rates begin to rise, these homeowners will be in a world of hurt.