Archive for regulation

Regulate It First, Learn About It Never

Conference MeetingMises Daily Friday by Gary Galles:

Politicians and regulators usually don’t know what they don’t know about everything from health care to your small business, but that sort of compound ignorance won’t stop them from regulating the minutiae of everyday life and commerce.


Must Free-Marketers Reject Global Warming?

GISS_temperature_2000-09_lrgYou can’t make this stuff up. Someone at the UK Guardian named David Grimes has declared that “economic liberalism,” by which he means the ideology of laissez-faire, “clashes” with “scientific evidence.” Which scientific evidence, you might ask? Well, the unassailable scientific dogma of global warming is one:

Climate change illustrates this well, because despite overwhelming evidence of anthropogenic influence, there is a tendency for those with pronounced free-market views to reject the reality of global warming. The reason underpinning this is transparent – if one accepts human-mediated climate change, then supporting mitigating action should follow. But the demon of regulation is a bridge too far for many libertarians.

There is no doubt that some people who purport to be advocates for free markets reject arguments of anthropogenic global warming out of hand without even considering the evidence. I’m agnostic on the matter myself, although I certainly reject the ludicrous assertion that there is such a thing as “settled science” and that the matter is not debatable. And unlike many allegedly great men and women of scientific inquiry, I refuse to agree that global warming “deniers” are heretics who should be burned at the stake (or the modern equivalent of having one’s career ruined). To anyone capable of logical thought, it should be obvious that one’s support for free markets is utterly independent from one’s opinions on the matter of global warming. There’s no reason at all why someone who accepts the reality of anthropogenic global warming would have to support government regulation of all energy usage. To argue such would be like arguing that one’s acceptance of the Bering Strait theory determines one’s opinions about the minimum wage. So why would Grimes think this? We can see it in his quotation above where he says:

The reason underpinning this is transparent – if one accepts human-mediated climate change, then supporting mitigating action should follow.

Ah, so there it is. Acceptance of global warming = acceptance of “mitigation” = acceptance of government regulation. Case closed.

Grimes packs many assumptions into just this one statement. Let’s look more closely:

If one accepts that global warming is a grave danger, is it nonetheless necessary to support “mitigating action” even if it can’t be shown to actually improve anything at all? Even assuming that global warming were proven beyond a reasonable doubt, the burden of proof of success is still on those who want mitigating action. Specifically, they need to be able to prove that such action has  a reasonable chance of achieving the desired ends. They most certainly have not done so. Indeed, many scientists say it’s already too late to stop it. Many argue that even if major global action were taken right now, the expected result over the next century would be too small to make any difference. In other words, it’s futile at this point to enact mitigating actions. (Also here.) Presumably, if it’s too late, then there’s no reason we should still be debating mitigating action. But of course, having realized that the “it’s too late” message is a PR disaster, the message has instead been changed to “it won’t be too late if we act right now!”

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Video: Robert Higgs on the FDA and Consumer Welfare

Archived from the live broadcast, this Mises University lecture was presented at the Mises Institute in Auburn, Alabama, on 23 July 2014.

Europe Protests Progress

Taxicab protest in London. Credit: David Holt

Taxicab protest in London. Credit: David Holt

Striking taxi drivers snarled traffic in several European cities yesterday in a show of solidarity against a common threat. Unlike other protests of the past few years which have largely been against austerity measures, this time workers from London, Paris, Berlin and Madrid were unified against Uber.

A smartphone app that connects drivers and passengers in a ridesharing program, Uber has already made strong headway in many other countries. Of course, it has also already met strong resistance from taxi drivers looking to protect themselves from a new competitor.

The public’s reaction has been mostly unified with the view that taxi drivers are just trying to protect their turf, and that this is on balance harmful for consumers.

At the same time, though, one could also sympathize with these poor taxi drivers. Imagine you were in an industry with high barriers to entry imposed by the local city’s government. You needed to go through a licensing program and pay a fee to be able to legally call yourself a taxi driver, and to pick up customers. Then, seemingly out of the blue, something happens which causes your initial “investment” to decline in value.

The arrival of Uber changes the rules of the game for taxi drivers. I would be upset too if this happened in my own line of work.

Still, chagrin over a new competitor that removes the old rationale for why you paid such a high levy to enter an industry is not a reason to not allow the new competitor in. If anything, the ire that taxi drivers have should be directed at the local city governments that imposed strict licensing requirements on them in the past. It was these laws that unnecessarily increased the costs to enter the industry. It is also these old laws that are now making a new low-cost competitor in the taxi world so threatening.

We can’t change the past. The costs that taxi drivers have already incurred to enter their industry cannot be reversed. But we can at least take this as a lesson for the future. Licensing requirements raise the cost of entry to a given industry, and protect the profits earned by the people already a part of it. These requirements also make it unusually painful for those that completed them when a new competitor shows up.

If you want to remove the pain these types of regulations cause, don’t stop new competitors from competing – remove the regulations!

(Originally posted at Mises Canada.)

Should E-Cig Manufacturers Love the FDA?

6743 (1)Christopher Westley writes in today’s Mises Daily:

If the purpose of anti-smoking regulation was about, you know, actually reducing smoking, then one might presume regulatory authorities would champion the emergence of smoking substitutes. But it was never about this. It was, and is, always about control, and the result is a Bizarro World in which e-cig manufacturers apparently support the use of extra-market force against the sale of their products.

The Big, Bad Market: A French Psychosis?

6733Louis Rouanet writes in today’s Mises Daily:

But despite this crazy fiscal policy, French economists, who are rather statist and Keynesian, ignore the Laffer curve and the inefficiency of taxation. Instead of admitting the disastrous effects of taxes on capital accumulation and growth, there has been a debate about taxation of labor and capital. Indeed, some economists, such as Thomas Piketty, wrongly affirm that, in France, labor is more taxed than capital. This shows how disconnected to reality the debate has become. Pascal Salin, an economist belonging to the Austrian School, demonstrates that contrary to Piketty, income from capital is far more taxed than income from labor. However, nobody cares about overtaxation of capital because they think that equates to taxing the rich, and those inspired by Keynesianism think that consumption, and not capital, is the key for economic growth.

Killing the Maximum-Wage Myth

6731Julain Adorney writes in today’s Mises Daily:

CEO turnover has reached its highest peak since 2009, which indicates two things. First, CEOs who do not fully grasp the rapid technological change their companies are living through are being let go. Being a CEO is not a secure job; you earn your keep or you find yourself on the street. Second, CEOs who do have a solid understanding of the challenges and opportunities of the evolving economy are in high demand; many may leave their current job for a better offer with a new company.

If this sounds like the labor market for a lot of other workers, that’s because they’re very similar. The labor market for the top 1 percent is not fundamentally different from the labor market for other workers. Some employees, who are underqualified or who golf with the boss’s son or who simply perform less well than their hirer expected they would, may be overpaid. Others, who work harder than their coworkers and provide more value, are underpaid.[2] “The market is an ongoing discovery process,” Mr. Reed points out. “Information being imperfect, adjustments and movements take time.” That’s as true for highly paid employees as lower paid ones.

The Logical Progression of “Public Accomodation”

6728Jim Fedako writes in today’s Mises Daily: 

One implication of a positive right to service from a business is the derivative positive right toquality service. So, it is not just that Elane Photography must take pictures of the commitment ceremony, it is that they must take quality pictures, as well.

Now, if I were to walk into a shop and discuss my desire for photography services, only to end up in a heated argument with the owner, I would not attempt to convince him to serve me. Instead, I would find someone who is interested in doing a good job, not someone simply going through the motions while holding a grudge.

Inherent in the demand for service is the demand for quality — quality commensurate with the price, of course. Now, if I had some claim to the labor of someone else, it is fair to assume he would not welcome that claim and its implication of servitude. So it is not unreasonable to assume his efforts would be less than that exerted in a free exchange.


Labor and Energy Regulations Take Us To the Cleaners

6657Christopher Westley writes in today’s Mises Daily

With my own broken dryer, I could have dipped into savings and bought a new low-end model for about half a grand, but this was an option I wanted to avoid. I could have contacted a repair service, but the cost could have easily reached the price of a new machine.

Both outcomes result from restrictions on market forces that hinder both the supply of dryers and availability of repair. “Energy Star” compliance standards on appliances have increased production costs so as to cartelize this industry while providing only negligible benefits in terms of power efficiency. Meanwhile, labor market interventions, especially on the entry-level side of the market, have reduced the supply of repairmen, thus allowing existing repairmen the ability to claim higher wages than they would otherwise. For people (like myself) who do not live in a big city, evenfinding a repairman can be difficult.

Rothbard: Gun Regulation Explained

220px-IOF-32-REV-1This month, dozens of state legislatures will convene, and many of them plan to hear new proposed gun laws. This selection from For a New Liberty explains some basics of gun regulation:

by Murray Rothbard

If, as libertarians believe, every individual has the right to own his person and property, it then follows that he has the right to employ violence to defend himself against the violence of criminal aggressors. But for some odd reason, liberals have systematically tried to deprive innocent persons of the means for defending themselves against aggression. Despite the fact that the Second Amendment to the Constitution guarantees that “the right of the people to keep and bear arms shall not be infringed,” the government has systematically eroded much of this right. Thus, in New YorkState, as in most other states, the Sullivan Law prohibits the carrying of “concealed weapons” without a license issued by the authorities. Not only has the carrying of guns been grievously restricted by this unconstitutional edict, but the government has extended this prohibition to almost any object that could possibly serve as a weapon — even those that could only be used for self-defense. As a result, potential victims of crime have been barred from carrying knives, tear-gas pens, or even hatpins, and people who have used such weapons in defending themselves against assault have themselves been prosecuted by the authorities. In the cities, this invasive prohibition against concealed [p. 115] weapons has in effect stripped victims of any possible self-defense against crime. (It is true that there is no official prohibition against carrying an unconcealed weapon, but a man in New York City who, several years ago, tested the law by walking the streets carrying a rifle was promptly arrested for “disturbing the peace.”) Furthermore, victims are so hamstrung by provisions against “undue” force in self-defense that the criminal is automatically handed an enormous built-in advantage by the existing legal system.

It should be clear that no physical object is in itself aggressive; any object, whether it be a gun, a knife, or a stick, can be used for aggression, for defense, or for numerous other purposes unconnected with crime. It makes no more sense to outlaw or restrict the purchase and ownership of guns than it does to outlaw the possession of knives, clubs, hatpins, or stones. And how are all of these objects to be outlawed, and if outlawed, how is the prohibition to be enforced? Instead of pursuing innocent people carrying or possessing various objects, then, the law should be concerned with combatting and apprehending real criminals.

There is, moreover, another consideration which reinforces our conclusion. If guns are restricted or outlawed, there is no reason to expect that determined criminals are going to pay much attention to the law. The criminals, then, will always be able to purchase and carry guns; it will only be their innocent victims who will suffer from the solicitous liberalism that imposes laws against guns and other weapons. Just as drugs, gambling, and pornography should be made legal, so too should guns and any other objects that might serve as weapons of self-defense.

In a notable article attacking control of handguns (the type of gun liberals most want to restrict), St. Louis University law professor Don B. Kates, Jr., chides his fellow liberals for not applying the same logic to guns that they use for marijuana laws. Thus, he points out that there are over fifty million handgun owners in America today, and that, based on polls and past experience, from two-thirds to over eighty percent of Americans would fail to comply with a ban on handguns. The inevitable result, as in the case of sex and marijuana laws, would be harsh penalties and yet highly selective enforcement — breeding disrespect for the law and law enforcement agencies. And the law would be enforced selectively against those people whom the authorities didn’t like: “Enforcement becomes progressively more haphazard until at last the laws are used only against those who are unpopular with the police. We hardly need to be reminded of the odious search and seizure tactics police and government agents have often resorted to in order to trap [p. 116] violators of these laws.” Kates adds that “if these arguments seem familiar, it is probably because they parallel the standard liberal argument against pot laws.”

Kates then adds a highly perceptive insight into this curious liberal blind spot. For:

Gun prohibition is the brainchild of white middle-class liberals who are oblivious to the situation of poor and minority people living in areas where the police have given up on crime control. Such liberals weren’t upset about marijuana laws, either, in the fifties when the busts were confined to the ghettos. Secure in well-policed suburbs or high-security apartments guarded by Pinkertons (whom no one proposes to disarm), the oblivious liberal derides gun ownership as “an anachronism from the Old West.”

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How Housing Regulations Ruin Tenant-Landlord Relations

6641Predrag Rajsic writes in today’s Mises Daily: 

Given the current regulatory environment in Ontario, it is in fact, rational that a landlord provides low quality service to his/her tenants. Why? Because under the current regulatory system, a landlord has minimal to no benefits from providing high quality service. In fact, a landlord may even achieve financial gains by providing low quality service. Ontario is one of the most legislated and bureaucratic regions in the world for tenant-landlord relationship management. Under this regulatory system, landlords are subject to the rent stabilization program and to a plethora of other requirements. This program has at least three main consequences: (1) it reduces the revenue that the landlord has on disposal for providing quality service; (2) it creates excess demand for rental units; (3) it provides incentives for landlords to evict tenants with a longer tenancy history.

The rent stabilization regulations prevent landlords from increasing the rent from year to year by more than a certain percentage. That percentage for the 2014 rent relative to 2013 is 0.8 percent, which is a fraction of the general inflation rate for this year. Rent restrictions applied over a longer period of time suppress rents below the level that would be established on the market in the absence of this regulation

A Free Market Approach to Insider Trading

financial symbols coming from handFernando Herrera-Gonzalez writes in today’s Mises Daily: 

This problem can be solved by the stock markets themselves. Conditions imposed on insider trading (including its prohibition) should simply be features of each stock market. Thus, each stock market’s definition of what constitutes unacceptable insider trading should be in the hands of the owner or operator of the market. In turn, competition among stock markets, i.e., the “stock-market market,” would reveal the preferences among stock market customers in the matter of insider-trading rules.

If there is (or may be) competition among stock markets, that is, if firms can choose in which stock market to list their stock, they will prefer, ceteris paribus, those stock markets in which more investors (i.e., more possible buyers) participate. The number of participating investors of course depends on the conditions in which they can access information relevant for their investments, among other features. These investors may choose to buy stock in one or other stock markets depending on prices of transactions or, if they wish, on the conditions imposed to insider trading, or on other factors.

Looking at Entrepreneurship From a Theoretical Perspective

6631Peter Klein is interviewed by Steve Mariotti in today’s Mises Daily: 

SM: Are there particular government policies that are hurting entrepreneurship?

PK: Our current monetary regime, with hyperactive central banks that create booms and busts, creates a terrible climate for entrepreneurs. Artificially low interest rates distort market incentives, leading to what Mises and Hayek called “malinvestment.” Taxes and regulations make it harder to start and to run companies, favor some companies at the expense of others, and hamper bargaining between firms, financiers, employees, and customers. Think of the uncertainty caused by the Affordable Care Act or the heavy reporting burdens imposed by Dodd-Frank. Mises once wrote that in an economy such as ours where the state plays a huge role in all aspects of business, entrepreneurship degenerates into “bribery and diplomacy.” Instead of focusing on creating value for customers, entrepreneurs spend their time lobbying for favors or to avoid penalties, trying to discern the government’s next move, anticipating or adapting to the newest regulations.

SM: Have you experienced any obstacles in your career related to these challenges?

PK: Business entrepreneurrship is the kind that drives the market economy but, in a sense, we are all entrepreneurs — life is uncertain, and we are always investing our time, energy, and reputation in search of one outcome or another. I’ve been entrepreneurial in that my perspective on entrepreneurship is not the “mainstream” one, in economics or management, and that my work blends insights from Oliver Williamson’s transaction cost economics, the “Austrian” School of Mises,F. A. HayekMurray Rothbard, and Israel Kirzner, and other scholars. It’s sometimes been a tough sell — despite the popular image of the university as an open, tolerant, and innovative place, academia is actually very conservative, and ideas that don’t fit within the dominant paradigm — as Thomas Kuhn famously explained — are often marginalized.

How Intellectual Property Distorts Big Business, Science, and Creativity

6632Butler Shaffer writes in today’s Mises Daily:

There are many other costs associated with IP that rarely get attention in cost-benefit analyses of the topic. One has to do with the fact that the patenting process, as with government regulation generally, is an expensive and time-consuming undertaking that tends to increase industrial concentration. Large firms can more readily incur the costs of both acquiring and defending a patent than can an individual or a small firm, nor is there any assurance that, once either course of action is undertaken, a successful outcome will be assured. Thus, individuals with inventive products may be more inclined to sell their creations to larger firms. With regard to many potential products, various governmental agencies (e.g., the EPA, FDA, OSHA) may have their own expensive testing and approval requirements before new products can be marketed, a practice that, once again, favors the larger and more established firms.

Increased concentration also contributes to the debilitating and destructive influences associated with organizational size. In addressing what he calls “the size theory of social misery,” Leopold Kohr observes that “[w]herever something is wrong, something is too big,” a dynamic as applicable to social systems as in the rest of nature. The transformation of individuals into “overconcentrated social units” contributes to the problems associated with mass size. One sees this tendency within business organizations, with increased bureaucratization, ossification, and reduced resiliency to competition often accompanying increased size. Nor do the expected benefits of economies of scale for larger firms overcome the tendencies for the decline of earnings and rates of return on investments, as well as the maintenance of market shares following mergers. The current political mantra, “too big to fail,” is a product of the dysfunctional nature of size when an organization faces energized competition to which it must adapt if it is to survive.