As formalized by Mancur Olson in his seminal 1971 book The Logic of Collective Action, smaller social groups are easier to organize than larger ones. Consequently and other things equal, a small group will be more effective at lobbying governments, even if the total benefits of its members are smaller than what all the members of the large group lose. One illustration can be found in primary and secondary education, where teachers’ unions impose working conditions that are in their members’ interests but reduce the value of the product the pupils and their parents get. (See “School in Rich Countries Are Making Poor Progress,” The Economist, July 7, 2024.) Two parties to an exchange benefit from it (as judged by each party for himself), otherwise one would decline. But this basic economic principle only applies to a free exchange; it does not apply if one party coercively imposes its conditions, or if one side includes involuntary members. Since 2000, the OECD’s Programme for International Student Assessment (PISA) evaluates 15-year-old students in maths, reading, and science. The average scores showed no improvement until the early or mid 2010s, and then declined until 2022 (latest year available). Other indicators largely confirm the trend, which precedes the Covid-19 epidemic. The magazine notes: Around a quarter of 15-year-olds in OECD-member countries do not meet basic proficiency in maths, reading and science, according to standards set by PISA. That means 16m teenagers struggle with tasks involving numeracy or find it more difficult than they should to draw meaning from basic texts. One reason why the more numerous consumers (the parents of the pupils) cannot change the situation follows from Olson’s theory of collective action: Pupils and their families are rarely organised; this makes it easier for teachers’ unions to resist changes to, say, teacher training and evaluation. Some 70% of schoolteachers belong to a union, an unusually high proportion although it also includes less controlling employees’ associations. Parents whose children attend small schools may be able to organize themselves locally at low cost (in a decentralized system like that of the US). Yet, they often face state-level or national-level teachers’ unions. Trade unions benefit from special legal privileges and powers, such as the employer’s obligation to negotiate, strike disruptions or threats thereof, or the obligation of workers to be union members or to pay union dues. Depending on state law, teachers’s unions can exercise some of these powers, which facilitate their collective actions and translate into restrictive collective “agreements.” I am not arguing that this problem is the only one plaguing public schools. Other imperfections of political processes including politicians’ short-termism prevent elected officials from correcting the weaknesses of the public education system, as The Economist recognizes: Meanwhile leaders are asked to spend political capital on changes that might not bear fruit for years.   ****************************** The unionized schoolteacher, by DALL-E (under the influence of your humble blogger)   (0 COMMENTS)

There’s a thought I’ve had rolling around in my head for a while that a recent post by Scott Sumner helped bring into focus. He argued there can sometimes be a failure to understand and appreciate how people might think in fundamentally different ways from you, and how this can lead to political polarization. As he put it: The people that cannot accept that other people like modern art suffer from a failure of imagination, an inability to grasp that other people process visual information differently than they do.  People that view voters for the opposing party as evil often fail to grasp that not everyone sees political issues the way that they do. This is similar to what Jeffrey Friedman called “ideational heterogeniety” – the idea that different minds process information in different ways. As Friedman described it,  Ideational heterogeneity between my web of beliefs and yours would keep me from knowing how you will interpret your situation, and thus how you will act in response to it. Even if I know what your situation is, then – itself a difficult matter, if you are anonymous to me, as are most agents to the technocrats attempting to predict their behavior – I cannot know how you will subjectively interpret it, and thus how you will act in response to it, if you and I are ideationally heterogeneous. While Friedman was talking about differences in how we process information leading to differences of interpretation and action, the more general case I had in my mind that was clarified by Scott Sumner’s post is the unknowability of other people’s subjective experience, not merely their thought processes. If you see modern art find nothing worthwhile about the experience but don’t take into account that different people have different subjective experiences that are fundamentally inaccessible to you, you might be tempted to think anyone who claims to enjoy the experience of viewing modern art is just role-playing. Call this phenomenon “experiential heterogeneity” – paraphrasing Friedman’s description, it could be described in the following way: Experiential heterogeneity between my subjective experience and yours would keep me from knowing how you experience your situation, and thus how you will respond to it. Even if I know what your situation is, then, – itself a difficult matter, if you are anonymous to me, as are most agents to the technocrats attempting to predict their behavior – I cannot know how you will subjectively experience it, and thus how you will act in response to it, if you and I are experientially heterogeneous. Aside from modern art, here’s two other cases where experiential heterogeneity can come into play. The first is from my own experience, the second comes from someone else.  I used to be a very heavy smoker. Towards the end of my time in the Marine Corps, I worked at the rifle range, and for my last year I was the Range Safety Officer and lead Combat Marksmanship Trainer for annual rifle qualification and pre-deployment combat training. This was a job that had me outdoors all day, for obvious reasons, which in turn meant I never needed to step outside for a cigarette. I could light up at any time – and I was easily going through three packs a day at that point. Eventually I decided to quit – I knew that after leaving the Marines and becoming a college student my income would plunge, so I needed to cut back on how much I spent. (Plus, there were several other excellent reasons to quit smoking – you can probably think of a few yourself!) The difficulty of quitting smoking is well-known enough to be a cultural meme, and after being such a heavy smoker for so many years, I knew I was in for a rough transition. Except, what I “knew” turned out to not be true. I had no real difficulty in quitting – it was actually pretty easy for me. What should I take from this? Here are two possibilities: Quitting smoking actually isn’t all that difficult. Every smoker out there who has complained about the struggle of quitting is just being a big baby.  Quitting smoking is in fact really difficult, but I happen to possess such a Herculean level of willpower that I can easily accomplish things that are simply too difficult for the plebes. While both of these interpretations provide an opportunity for me to grandstand in superiority, I don’t think they are true. I know people who have struggled mightily with quitting smoking who were not simply weak-willed babies – I knew too much about the many difficult things in their own life they had accomplished to dismiss them as lacking willpower or discipline. Nor, if I’m honest, can I claim to have some uniquely strong degree of willpower. There are many things in my life I’ve found to be a struggle that probably don’t seem difficult to most other people.  So what’s a third option? My subjective experience of quitting cigarettes was simply different from most other people. Thus, it wasn’t that I had superior willpower compared to my friends who have struggled with quitting. It’s more likely that it simply required far less willpower from me than from them. While it might be tempting for me to just say “Quitting smoking isn’t that hard – I know from personal experience! You’re just being lazy!”, that wouldn’t be justified. The truth is I have no idea what the process of quitting feels like to anyone else – and neither do you.  The second case comes from Ben Carpenter, one of YouTube’s many online fitness personalities. Provided you don’t have an aversion to profanity, I’d recommend you just take a few minutes to watch his video, but the short version is this. While Ben himself is very lean (being a fitness model and a training coach), his sister has struggled with her weight through her entire life. He talks about a time when he was dieting down to absurdly low body fat levels for a photoshoot, and the insane struggle he felt with his hunger while trying to maintain that level of leanness. His sister asked about how he was feeling and he described to her in great detail about how extreme his hunger was, how nothing he ate made a dent in his hunger, and as soon as he finished eating all he could think about is when he would eat again. Her response was “You’ve basically described how I feel every single day.” Carpenter describes the realization this gave him: Dieting to this level of leanness is the single hardest fitness thing I have ever done. If you had offered me a hundred grand to maintain this for a whole year, I don’t think I would have been able to endure it, and I am not a rich person. Almost anyone who diets to six percent body fat or below without drugs will tell you how incredibly insatiable their appetite was. But I only had to fight my appetite signals for a few weeks. She had been doing it for years…My sister has to exert more effort and willpower to fight her hunger signals for her entire life, basically, than I ever have. Ben Carpenter describes his sister as an “incredibly hard working” person, so he knows her well enough to know that her struggles with controlling her weight aren’t down to her just being a lazy weak-willed glutton. But if you just assume other people’s subjective experience is the same as yours, then you might also just assume people like Emily Carpenter are lazy and weak-willed – despite the incredible work and effort she demonstrates in other aspects of her life. But you don’t know what someone else’s hunger feels like to them. You can’t know that.  So where am I going with all of this? Well, I think in cases like I described above, regarding addiction or weight management, the views of myself on the former and Ben Carpenter on the latter are usually seen as the kinder, more compassionate view, whereas the view that it’s all just down to willpower and voluntary choice is considered the more hard-hearted view. On the other hand, the views of libertarians and classical liberals to let certain issues be handled “on the market” are often seen as being the hard-hearted view. To some, it sounds callous and uncaring to say “while having a safe job is good, money is also good. Jobs that are unusually dangerous—in the contemporary United States that’s primarily fishing, logging, and trucking—pay a premium over other working-class occupations precisely because people are reluctant to risk death or maiming at work. And in a free society it’s good that different people are able to make different choices on the risk–reward spectrum.” But I think this take, far from being callous and uncaring, is actually what shows genuine respect and even compassion for people.  Libertarians and classical liberals are much more likely to be willing to accept that “it’s good that different people are able to make different choices on the risk-reward spectrum.” But modern liberals and progressives recoil at this – they view those kinds of choices as suspect, and feel an imperative to overrule them via the state. There is often an expressed disbelief that anyone might genuinely make such a choice – surely nobody would genuinely believe higher risk for higher pay was a good trade. Such choices must surely be made under duress or perhaps out of ignorance, making their choice susceptible to an external veto by third parties.  Scott Sumner closed out his post by saying “Don’t assume that you know what’s going on in the minds of other people.  You do not.  You don’t believe that your neighbor needs a painkiller?  How would you know?  We need free markets precisely because we do not know what other people see and feel and taste.” I wholeheartedly agree. Modern liberals see others making choices that seem wrong or misguided and think this shows those choices are not genuine, or not deserving of respect, and can therefore be negated. Classical liberals see the same thing and understand that though these choices might seem strange to us, they nonetheless deserve respect and should not be subject to outside interference, because we cannot truly know the other person’s thoughts or subjective experiences, and therefore we cannot truly know what value that arrangement offers them. If I see someone making a trade-off of higher risk for higher pay that seems crazy to me, that is excellent evidence that such a trade-off is not worth it for me – but precisely zero evidence that such a trade-off isn’t genuinely worth it for them. As is often the case, Adam Smith said it the best: The statesman who should attempt to direct people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. (0 COMMENTS)

I often hear people on the right suggest that the New York Times is a lousy newspaper. This is not true, as they are confusing quality and bias. The NYT is an excellent newspaper that is marred by an unfortunate bias toward left wing views.Someone once joked that they were not a libertarian because of “roads”. I suppose I might reply that I am a libertarian because of “elevators”. Or more specifically, elevators times a thousand.A recent NYT piece does an outstanding job exposing the gross inefficiency of the US elevator industry. Because of a highly complex web of counterproductive government regulations, elevators in America cost several times more than in Europe. Not surprisingly, America has far fewer elevators, even for buildings of a given type. (Thus it’s not merely due to our preference for single-family homes—even our apartment buildings have far fewer elevators.)The lesson here is not that the US is worse than Europe; it would be easy to find hundreds of examples where US efficiency was higher than in Europe. Instead, the lesson here is that elevators are merely one of thousands of examples of where government overregulation leads to inefficiency.When most people go through their daily lives, they don’t think about the ways in which government regulations are making their lives more difficult. In almost every case I come across with systematic inefficiency, the root cause is counterproductive regulations. Free market firms do screw up on occasion, but systematic problems are almost always due to bad incentives created by regulation. The inability of most Americans to understand the role of regulations leads to a widespread misunderstanding of issues such as stagnant living standards.  Ask most Americans why growth in real wages has slowed since 1973, and they’ll cite factors like “inflation”, “the decline of unions”, “neoliberalism”, “monopoly profits”, “the China shock” and numerous other factors. In fact, the impact of all of these factors is trivial compared to inefficiency caused by government regulation and subsidies. 1. Health care regulation and subsidy has pushed medical spending in the US to 18% of GDP, vs. 5% in Singapore (or perhaps 9% given US demographics). 2. Government subsidies and regulations have led to vastly bloated expenditures on education, which do not lead to any improvement in learning. 3. Regulations have dramatically boosted the cost of new homes, especially in big cities and coastal states. And yet, I doubt that one American in a hundred would cite health care regulation has a major factor reducing real wages. I could cite many other such examples, but let’s focus on housing, because it’s so important.  In manufacturing industries that are less heavily regulated, such as apparel, consumer electronics and home appliances, prices have tended to rise much more slowly than incomes.  Housing is an exception, and given its share of consumer budgets, it’s an important exception.   To its credit, the NYT piece suggests that the problems in construction go far beyond elevators: Beyond the elevator itself, you’ll find a byzantine mess of absurdities and contradictions behind the U.S. construction industry’s slowness, inefficiency and expense. For example, Americans cannot use the latest heat pumps — a critical tool for fighting climate change by electrifying heating systems — due to the same sorts of barriers imposed by U.S. regulators. Instead, Americans instead rely on obsolete heat pumps that don’t have a market abroad. And plumbing codes in America require an entire network of ventilation piping that has been deemed largely unnecessary in much of the world. They also discuss the problem of residential zoning, and then note that zoning reform is not enough.  Regulatory barriers are especially significant for the construction of larger multifamily buildings: Construction costs for detached single-family houses average about $153 per square foot. In America’s most in-demand coastal cities, multifamily construction costs have exploded. Even subsidized multifamily housing in California can cost $500 per square foot (or more). A generation of young, would-be homeowners locked out by skyrocketing housing costs has taken notice. Their first target was a century of tightening land-use regulation, in which existing homeowners enriched themselves by blocking development through restrictive zoning measures. In recent years, the rise of so-called YIMBY — or “yes in my backyard” — movement has succeeded in all but abolishing single-family zoning on the West Coast. But as zoning codes were liberalized, architects and developers soon began ringing alarm bells about the hurdles buried in the finer points of building codes and standards, and other more technical rules. Here’s what most progressives don’t understand.  Stagnant real incomes are not about incomes; they are about “real”.  Ultimately, our living standards depend on our ability to produce real output.  In the short run, you can help workers a little bit by redistributing money from capital to labor.  But in the long run this will reduce capital formation and make workers worse off.  The overwhelmingly dominant factor driving real wages is productivity.  Swiss workers don’t earn far more than Bangladeshi workers because of strong unions, they earn more due to dramatically higher productivity. What sort of things would boost the living standards of workers?  Cutting health care from 18% to 9% of GDP.  Dramatically reducing expenditures on education.  Deregulating housing to sharply reduce house prices.  And there are thousands of other small bore reforms that could boost productivity all across the economy. Elevators may seem like a small deal, but problems in the elevator industry are emblematic of why real wage growth slowed after the early 1970s. I often get frustrated by the NYT, which has a strong left wing bias.  But in fairness they have done many excellent stories over the years. I’d love to see someone dig up 30 or 40 NYT stories similar to the elevator story I linked to in this post.  Then collect the stories in book form.  Entitle the book: The New York Times Case for Libertarianism (0 COMMENTS)

It is a common misconception that competitive markets yield efficient outcomes. While competition can spur increased effort, that effort need not be directed toward anything productive. More competition has a dark side as well—the tendency to produce unnecessary duplication of efforts and waste. That competition can be problematic rather than efficient is an idea today sometimes associated with investor Peter Thiel, but the reality is this view is hardly new. In fact, the idea that competition is wasteful resurrects a critique made by economists more than a century ago. Thorstein Veblen argued in 1899 that competition is driven by base human instincts like “ferocity and cunning.”  To Veblen, “modern competition is in large part a process of self-assertion on the basis of these traits of predatory human nature.” Predatory traits may benefit the individual who wins the competitive race, but they are often not directly advancing the interests of the community as a whole. Veblen saw the competitive drive as stemming from a fear of losing self-esteem if one fails to excel in the prized endeavors of society. Thus, competition is largely fueled by seeking the esteem of one’s peers. Joseph Schumpeter also wrote in 1942, “in capitalist reality as distinguished from its textbook picture, it is not [price] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization.” In other words, what matters for economic progress is not competition along a narrow dimension like price or number of firms, but instead it is the abundance of different organizational structures, products and innovations that should be the focus of concern. Veblen’s view may be closer to what one thinks of when one hears a phrase like “wasteful competition.” Consider two roughly equally qualified executives competing for promotion to CEO at the same company. They devote immense time and effort to outshining one another, when realistically only one can get the job. In a sense, the unsuccessful candidate’s efforts were all for naught in this winner-take-all scenario. The competition for promotions amongst employees looks a lot like firms lobbying for government favors in a zero-sum game of rent seeking. It arguably would have been better for the runner-up to apply his or her talents elsewhere, in a more specialized role that created new value. As F. A. Hayek noted, competition is helpful as a “discovery procedure” to reveal knowledge about the best candidates, products, and business models. But his argument may be overstated. Perhaps the key to unlocking knowledge about the best methods and candidates is simply having a diversity of experiments and approaches, as opposed to having multiple firms or employees imitating each other’s strategies in a crowded market space. Differentiation and specialization, therefore, may yield just as good, if not superior, “discovery procedures” as competition. Anecdotally, I’ve found I produce some of my own best work when I focus on underserved topics for which there is high demand but a low supply due to little competition. For example, I’ve found success researching regulatory reform topics in the U.S. states. Working on a niche issue like this and developing a comparative advantage in it simply follows from the principle of division of labor. If there had been a lot of competitors working on these issues, I doubt my work would have stood out to the same extent or been as effective. Hypothetically, a perfectly efficient economy might feature “perfect specialization,” whereby each person and firm is a monopoly in their own unique role. Competition still has a place to spur effort to overcome listlessness, but this role may not be as important as the one students read about in economics textbooks. Competition is downright inefficient when it encourages redundancies that come at the expense of carving out a distinctive value-add for one’s self or company. From this perspective, a monopoly isn’t so problematic if it is built on genuine uniqueness rather than barriers to entry. Another source of wasteful competition is the academic arms race to get into elite universities. Students compete on extra curriculars like SAT prep, sports, and club memberships. But taken to extremes, this becomes an unproductive signaling game of proving you jumped through more hoops than the next applicant. Again, some competition is healthy to provide a source of motivation and reveal merit. But the competitive process can quickly reach a point of diminishing returns if students pursue activities for the sake of resume padding rather than genuine value creation and human capital development. In general, competition serves a valid purpose when it incentivizes people to be productive who wouldn’t otherwise be self-motivated. But preferably, people pursue excellence because they want to, not because they have to. In an ideally-efficient economy, then, every person might be endowed with “perfect preferences” and be a self-starting monopoly, propelled by their own drive to create value for others. As Schumpeter would have wanted, competition would then be amongst the best ideas, rather than the most cut-throat tactics. So in conclusion, economists shouldn’t treat all competition as an unalloyed good. They should take seriously the potential for competition to produce waste and zero-sum jockeying for status, limiting output and innovation rather than the reverse. The sweet spot may be a minimal amount of competition to incentivize effort, combined with strong intrinsic motivations and a high degree of specialization and experimentation. All told, a world of fierce competition at every turn has significant downsides relative to one where people focus on excelling each in their own distinctive way.   James Broughel is a Senior Fellow at the Competitive Enterprise Institute with a focus on innovation and dynamism.  (0 COMMENTS)

On June 6, 2024, the Wall Street Journal published my short op/ed online (but not in print) and titled it, “How Electric Vehicles Can Make Everyone Happy.” It wasn’t an ideal title. My article was how a few major changes in EV policy could make almost everyone happier than they are likely to be with current policy. Here’s the whole op/ed:   How Electric Vehicles Can Make Everyone Happy Ending subsidies, mandates and tariffs would expand use of EVs while letting people continue driving the cars they want. By David R. Henderson June 6, 2024 at 5:48 pm ET   One of the first things you learn about in an economics course is the concept of trade-offs: You can’t have everything you want. This is relevant in the debate about electric vehicles. U.S. auto workers want to keep their jobs. Most U.S. drivers still prefer cars with internal combustion engines. Environmentalists want Americans to buy EVs. And free traders want, well, free trade. Something’s got to give. Or does it? There’s a path that would enable each party to achieve many of its objectives. First, end mandates and subsidies for EVs. Second, eliminate President Biden’s 100% tariff on EVs from China and allow duty-free imports. Free trade would give lower- and middle-income Americans the chance to buy relatively cheap imported EVs. More people driving EVs would make environmentalists happy. And ending mandates and subsidies would allow U.S. automakers to do what they do best: make cars with internal combustion engines. That in turn would keep U.S. auto workers employed and able to continue using their specific skills. If we stick to our current policy path, none of these goals is attainable. For one, environmentalists can’t achieve their aims. The Environmental Protection Agency estimates that 56% of new cars would need to be EVs by 2032 to meet the agency’s emissions goals. Even with subsidies and California-style mandates, meeting that benchmark is unrealistic. According to the Energy Department, EVs and hybrids combined made up only 9.1% of all light-duty vehicles sold last year. According to the Energy Information Administration, only 1.2% of light-duty vehicles on the road in 2022 were EVs or plug-in hybrids. There are three reasons it’s unrealistic to expect more than half of new cars sold to be EVs. First, EVs are expensive. A new EV sold in the U.S. is priced, on average, at just over $50,000, more than most drivers are willing or able to pay. Second, people are rightly worried about driving an EV a long distance and being able to reach a charging station that recharges the car quickly. Third, when temperatures fall below freezing—which happens often in much of the U.S.—it takes significantly longer to charge an EV. [DRH note: I would have challenged the editor’s insert of “or able.” The majority of drivers are able to pay $50,000; it’s just that they would have to give up so much else. But I didn’t challenge because I was focused on other parts that I wanted her to get right, which she did.] It’s unlikely that within the next 10 years EVs will make up more than 25% of all cars sold annually. But we could likely come much closer to hitting the 25% mark in a few years, with no subsidies or mandates, simply by pursuing free trade, which would lower the first of the three barriers: cost. BYD, a Chinese manufacturer, offers some EV models that cost less than $20,000—significantly cheaper than U.S.-made EVs. If the U.S. makes EVs more accessible and affordable by welcoming duty-free imports, environmentalists will be closer to achieving their goal of getting more EVs on the road, consumers who want to buy EVs will be able to do so more easily, and automakers can focus on making cars with internal combustion engines, which would support auto workers’ jobs. So let’s get rid of mandates, subsidies and tariffs. There’s no perfect trade-off, but some are better than others. Mr. Henderson is a research fellow with Stanford University’s Hoover Institution. He was senior economist for energy with President Reagan’s Council of Economic Advisers. (0 COMMENTS)

A recent article in The Economist made some rather ambiguous claims about baby boomers like me: Now that the generation is moving into retirement, what are they going to do with their money? The question matters for more than just suppliers of cruises and golf clubs. Boomers have deep pockets, so their spending choices will exert a huge influence on global economic growth, inflation and interest rates. And it turns out boomers are remarkably stingy—not just in America but across the rich world. They are not spending their wealth, but trying to preserve or even increase it. The big question for the economy in the 2020s and 2030s will not be why boomers are spending so much, as many had anticipated. It will be why they are spending so little. I suppose that I am one of those “stingy boomers.”  Before writing this post, I decided to check to make sure that I knew the definition of “stingy”.  Here’s a definition provided in an online dictionary: unwilling to give or spend; ungenerous. OK, now I’m totally confused.  Which is it?  Unwilling to spend?  Or ungenerous?  I regard people who spend as selfish, and people who are unwilling to spend as generous.   The Economist also uses the term “miserly”, which is every bit as ambiguous as stingy: Our analysis suggests that the wealth-decumulation puzzle is becoming still more puzzling, for boomers are more miserly than previous generations. Think of it this way.  You have X dollars of total wealth.  You can spend the money on consumer goods, in which case you benefit.  Or you can refrain from spending the money (i.e. save), in which case someone else benefits. In the article, the Economist claims that high levels of boomer saving will tend to depress interest rates (which is plausible) and will also tend to depress inflation (which is highly dubious.)  But they ignore the most important effect; it would boost economic growth and raise the living standards of millennials and zoomers. PS.  A new WSJ article has exactly the opposite view.  They claim that a surge in spending by boomers is driving the economy: ‘We’re Not Dead Yet.’ Baby Boomers’ Good Times Drive the Economy. Sky-diving, concerts, classic cars. An influx of older Americans bolsters the nation’s fastest-growing city. ‘We have more fun than our daughter.’ My conclusion?  Don’t trust a reporter’s generalization about the economy—look at the data. (0 COMMENTS)

  Gorsuch Apes NIMBY Government Lies in Supreme Court’s Grants Pass Decision by Christian Britschgi, Reason, July 2, 2024. Excerpt: Phoenix’s amicus brief in the Grants Pass case was co-written by the League of Arizona Cities and Towns—a taxpayer-funded lobbying group that spent most of this past year fighting efforts in the Arizona Legislature to liberalize local zoning codes. Local governments love to blame Martin for rising homelessness because it relieves them of any real responsibility for the problem. Homelessness is something that happened to them, and here comes the 9th Circuit preventing them from doing anything about it. It’s an incredible act of blame-shifting. In fact, local and state governments bear a considerable share of the blame for the rising homeless population by making housing so hard to build in the first place. Nothing correlates more with homelessness rates than high housing costs. And nothing drives up housing costs like government restrictions on building housing. When getting city approval for a new apartment building takes two years, state environmental law lets anyone delay an approved project with lawsuits, and the cheapest forms of housing are banned completely, is it any surprise that thousands of people end up on the streets?   Social Security’s $4.1 Trillion Hidden Government Deficit by Romina Boccia, Reason, July 2, 2024. Excerpt: In reality, Social Security operates on a pay‐​as‐​you‐​go basis. This means that the payroll taxes collected from current workers are immediately used to pay benefits to current retirees. Any surplus funds are credited to the Social Security Trust Fund, but these are not cash reserves; they are special‐​issue Treasury bonds, which are essentially IOUs from the federal government. When Social Security runs a deficit—meaning it pays out more in benefits than it collects in taxes—it must redeem these bonds to cover the shortfall. The federal government then has to come up with the cash to honor these IOUs, either by raising taxes, cutting spending in other areas, or borrowing more money. Thus, the Trust Fund does not contain real, liquid assets but rather a promise that the government will pay itself back, which ultimately depends on the federal budget’s overall health and fiscal policy. (bold in original) DRH story: In 2004, when Dan Klein taught at Santa Clara University, he asked me to come up and give an evening talk to the students. We discussed what might be a good topic that would grab them and I suggested “Social Security: The Nightmare in Your Future.” That’s what I spoke on. My daughter, Karen, was a student there and although she wasn’t required to attend, she showed up with a guy friend. It was on a Tuesday evening and, just as had been the schedule when her mother and I had taught there in the early 1980s (that’s where we met), there were no classes on Wednesday. That’s relevant because my daughter told me that she would stay for the first half hour and then leave because it was party night. I told her that was fine and asked her permission to use a story about an interaction we had had when she was 11. She said yes. Here’s the story I told to drive home the fact that the Trust Fund is not really a trust fund. When Karen was 11, she asked me if I d been saving for her college. I answered that I had just started to in the last year. Being the daughter of an economist, she asked, “How much?” I answered that I was saving $10,000 a year for 8 years. That satisfied her. Then I said to the audience, “Imagine that, instead of putting $10,000 a year in a money market fund, I had written, ‘IOU $10,000’ on a scrap of paper and put it in a jar, and did that 8 years in a row. Who here believes that when I emptied the jar in 8 years, I would have $80,000?” By the way, the talk lasted 45 minutes and Q&A another 40. At the end, Karen came up with her friend. They had stayed the whole time. She said, excitedly, “I didn’t know those things.”   ULTRAs: The Worst Idea You’ve Never Heard Of by Michael Munger, AIER, July 1, 2024. Excerpt: It would be possible to treat such as value as “mark to market” estimates, but again for assets that have thin markets—stocks in closely held or family corporations — or no annual market at all — for a unique mansion, or a large piece of real estate for which no “comparables” exist — such estimates are likely to be inaccurate, and expensive to check. That’s where “ULTRAs” come in. Instead of taking two percent (say) of the liquidated value of the wealth, the state would simply take ownership of the wealth, in place. An ULTRA is a “notional equity interest.” The government literally takes a portion of the value of the asset; that value will be paid to the state when the asset is sold. Now, it is only a “notional” stake, in the sense that no shared right of control or voting rights exists. But for those who advocate for ULTRAs, in any situation where tax agencies are authorized to tax an asset today, but cannot because there is no evaluation event, the taxpayer could be made to pay with an ULTRA rather than with cash. And: It is very difficult to know the value of the asset, but ULTRA to the rescue! As Delmotte puts it: Without knowing its economic value, the government takes 2 percent equity in Plenty in Year One while in Year Two the remaining 98 percent of the asset is subject to a 2 percent charge (leaving 96.04 percent for Giselle); in Year Three, another 2 percent ULTRA-tax leaves Giselle with 94.12 percent of the original asset’s value. After twenty years of wealth taxes, this leaves Giselle with 66.4 percent equity in Plenty, and the tax authorities now own 33.6 percent of the company’s value. Under ULTRAs, there is no current cash tax payment, but when Giselle sells her shares in Plenty after 20 years, 33.6 percent of whatever the sales price turns out to be goes to the tax authorities. The effect is rather startling, looking at the example. In a relatively short time, the government literally takes substantial ownership of all successful private businesses. Rather than being a drawback, advocates have actually become excited about government ownership of “the Metaverse,” and giving the Treasury Secretary extremely broad and unilateral discretion about the use of ULTRAs in lieu of cash payments.   Why It Is So Hard to Become an Acupuncturist in California? by Krit Chanwong, Cato at Liberty, July 5, 2024. Excerpt: Forty-six states and DC require acupuncturists to be certified with the National Certification Commission for Acupuncture and Oriental Medicine (NCCAOM). To obtain certification, aspiring acupuncturists must hold a degree from one of the 49 accredited schools of acupuncture. Aspiring acupuncturists also need to pass at least two of four exams administered by the NCCAOM. The number of exams required differs by state. Delaware, for example, mandates that its acupuncturists take all four NCCAOM exams. On the other hand, Pennsylvania mandates only two exams. California does not recognize any NCCAOM certification. Instead, the state has its own licensing rules. Aspiring acupuncturists in California need to graduate from one of 29 universities accredited by California’s Acupuncture Board and take California’s acupuncture licensing exams. According to the People’s Organization of Community Acupuncture (POCA), California’s acupuncture licensing exams “has been held up as the gold standard for acupuncture licensing tests.” The high regard given to California’s exam is due to the test’s increased rigor and depth when compared to the NCCAOM’s. And: Acupuncture licensing is just one small example of California’s licensing mania. For 20 years, California was ranked 49 out of 50 in Cato’s Freedom in the 50 States survey for occupational licensing freedom. A 2023 Archbridge Institute study found that California requires occupational licensing for 189 occupations, which is higher than the national average of 179. These licensing regulations harm all Californians: a 2018 Institute of Justice study suggests that California’s licensing regime costs 195,000 jobs annually—perhaps one reason the Golden State has one of the highest state unemployment rates. (0 COMMENTS)

When a politician declares that he is “ready to govern,” what does he mean by “govern”? The Oxford English Dictionary tells us that the verb “to govern” came from a French word and first appeared in English in the 14th century. In its intransitive form, it meant “to direct or control the actions and affairs of a people or place” (OED, accessed on July 2, 2024). What we may call the naïve conception of governing sees it as a way to please everybody, to make everybody happier. But it is not obvious how individuals with different preferences, values, and circumstances can all be made happier by the government’s decisions and policies. Moreover, how are the rulers incentivized to be benevolent angels? What we know from history shows the opposite. The more realistic majoritarian conception of governing focuses on satisfying a majority of the members of society, presumably the group of voters whose support the rulers need most. Majoritarian democracy means that the majority is little restrained by a constitution. If you are in a minority, there is a good probability that you will be exploited by the majority, that is, you will pay (in money, discrimination, or otherwise) for the benefits and privileges offered to the majority. Note that non-democratic governments often need to respond to the demands of a majority or a significant plurality. In a democratic regime, however, a minority citizen has a better chance to be part of a future majority and have his turn at exploiting others. The majoritarian conception of governing is questionable from both an economic and a moral viewpoint. From a moral viewpoint, some individuals may get stuck in a permanent minority and never have their turn at governing and exploiting others. From an economic viewpoint, being alternatively or cyclically among the exploiters and the exploited may average out with a net benefit, but the average is calculated on a lower level of wealth. The reason is that the ruling majority’s constant interference with free exchange and free social interaction in general (which is what exploitation is about) reduces the general level of wealth. A more sophisticated conception of governing can be labeled “public-good” or “contractarian.” Governing then means directing a subset of social affairs so as to ensure the production of public goods (or services), goods that everybody wants but which cannot be procured at an “efficient” level by voluntary cooperation. We may view the idea of a “social contract” in its liberal version as an extension of the public good approach. Governing amounts to directing or orienting social affairs according to general rules that its members unanimously agree on. Unanimous agreement to a set of rules (the “constitution”) implies that each and every member of society gets a net benefit, even if specific political decisions under the rules may sometimes run against his interests. Nobody can be consistently exploited. We owe the best-developed form of this conception to James Buchanan, Gordon Tullock, and the related school of constitutional political economy (see notably James Buchanan and Gordon Tullock, The Calculus of Consent, 1962; and Geoffrey Brennan and James Buchanan, The Reason of Rules, 1985). Many, perhaps most, liberal thinkers, from Adam Smith to Friedrich Hayek, can be understood as espousing a related but less formalized theory in which any act of government must respect rules and institutions that meet wide agreement (where “wide” means much more than 50%+1). However attractive is the formal or informal contractarian approach, is it realistic to think that subjecting to a government can be in the interest of virtually everybody? For Anthony de Jasay, the answer is no. Any coercive act of government and even any general rule or set of rules supposedly unanimous must favor some citizens and harm others. There is no way but the arbitrariness of political authority to decide that the benefits of some are higher than the costs supported by others (see notably de Jasay’s 1985 book The State). To govern means nothing else than to favor some by harming others—taking money from some to transfer it to others, or granting privileges to some (a tariff to protect some producers against their foreign competitors, for example) at the cost of others (consumers pay higher prices). The government may be producing public goods at a level otherwise impossible to attain, but it then becomes the locus where free riders get free goods at the expense of other taxpayers (see de Jasay’s Social Contract, Free Ride, 1992). De Jasay’s theory is consistent with current observations in the democratic world: a significant part of the population hate their democratic rulers, and more governing to solve public discontent only worsens it. Although many aspects of his theory are debatable, I don’t think that the challenges it raises have been persuasively met. ****************************** I asked ChatGPT, “What does ‘governing’ or ‘to govern’ mean, as when we say that political leaders govern?” To summarize, he answered that the purpose of the rulers is “to ensure the stability, security, and welfare of their society.” But he admitted that “governing requires balancing various interests, making difficult decisions.” In other words, harming some to favor others. I then instructed “him”: “Generate an image illustrating the concept of governing you just explained.” The image he produced is as confused as his conception of democracy. Chat GPT’s first image after being asked to illustrate what governing means, as when we say that political leaders govern (0 COMMENTS)

A recent article in the OC Register provides a good example of why some decisions should be made at the state level: Mission Viejo councilmembers axed plans for a new Department of Motor Vehicles location in the Kaleidoscope shopping mall over traffic and safety concerns.The DMV — which would have been the first for the city — was initially approved by the city’s planning commission for a vacant spot in the Kaleidoscope shopping mall off Crown Valley Parkway.But on Tuesday, June 11, the City Council rejected the plans after a multitude of disapproving messages from residents and apprehension from councilmembers. The city government cited concerns over traffic. I was quite disappointed by this decision, as it means that I will have to drive a much longer distance when I need to renew my drivers license.  Last time I had to drive up to a crowded DMV facility in Santa Ana, where there was an extremely long line.  This means the decision will actually increase the amount of traffic congestion in Orange County, even if it reduces traffic congestion in Mission Viejo. This problem has become endemic to those parts of California that are near the coast.  The very same issue of the OC Register had another example of NIMBYism in action: A Toll Brothers proposal to build a 2- to 5-story apartment complex with 306 units and an attached six-story parking structure in Doheney Village is set to go before the Dana Point City Council on Tuesday, June 18. The city Planning Commission’s approval of the project earlier this year is being appealed by Supporters Alliance for Environmental Responsibility, or S.A.F.E.R., a California public benefit corporation that contends environmental studies done as part of the required consideration of the development didn’t meet health and environmental requirements. Even if this development is eventually approved, the hurdles to development created by “environmental groups” stop many projects, and actually end up hurting the environment.  The people who are unable to live in this dense 306 unit development would likely end up somewhere else, almost certainly a place that is worse from an environmental perspective.  They might be forced to move to the cheaper “Inland Empire”, where people use much more AC to cool their homes and drive much longer distances.  Or they might move to Florida, Texas or Arizona, which also have a worse environmental record than coastal California.   Local governments in California that restrict development generally end up hurting the environment and/or making traffic worse.  Only a state government is able to “internalize the externalities” in these decisions.  This is why most NIMBY policies are enacted by local governments, and most of the recent opposition to NIMBYism is coming from state governments. PS.  The term “Inland Empire” refers to Riverside and San Bernardino counties, which are just east of Los Angeles.  They now contain nearly 4.7 million people. PPS:  Here’s a picture of Dana Point: (0 COMMENTS)