Category Archive: Government

  1. How entrepreneurs can make better schools for real kids

    Comments Off on How entrepreneurs can make better schools for real kids

    Suppose that there are children throughout America who are utterly disengaged in their assigned public school each day, but that are absolutely riveted by the sports news on TV or YouTube each night.

    Suppose that at least one set of their parents realize their sports nut child is uninterested in school because it targets the instruction and examples to generic children. Dad wonders how much better their son would do if only he was in a classroom (or an online setting) that taught math through sports stats, taught science through sports examples, and taught reading and writing through sports stories. Mom says there are probably a lot of kids like their son.

    They wonder, could a sports-stories-themed school be successful? Could it work as a private school or a chartered public school?

    Our diverse kids need diverse schools.

    Children are very diverse in terms of which instructional approaches and which subject themes will achieve the needed engagement in the learning process. This means that any single approach to education cannot achieve acceptable rates of success as long as children are mostly sorted into schools by attendance zone and into classrooms only by age.

    The public school system tries to address student diversity by creating options within large, comprehensive, mall-like campuses, often-impossible differentiated instruction, and sometimes with ability grouping within classrooms. That has created unmanageable school goliaths and student alienation, and stressed teachers, but not improved performance.

    Efforts to make this approach to student diversity yield acceptable outcomes will continue, but the evidence is overwhelming in volume and urgency that policymaking needs to pursue the engagement of diverse children in other ways.

    One of the roots of the problem is that political processes tend to create uniformity because of its appearance of fairness. So, as institutions under political control, even the best traditional public schools will fail to engage a significant percentage of their students in useful learning.

    That sad fact continues to survive frenzied efforts to improve materials, teachers, and a variety of other factors.

    To get diverse schools, we need entrepreneurs.

    My non-ideological premise is that an alternative to the current public-policy strategy of different options within huge mall-like schools is “school choice” from a menu of diverse schooling options, including choices developed through the entrepreneurial initiative that drives most of our economy.

    At present, private schools struggle to exist, and are rare now, because it is very tough to sell schooling when it is available from the government for no additional charge beyond taxes you must pay.

    The charter route to specialized schools, such as sports-themed schools, depends on state law (7 states don’t allow chartered public schools, and the feasibility of charter schools varies widely in the other 43 states). And because charter law does not allow tuition co-payments, the viability of an envisioned, innovative school largely depends on whether per pupil costs are below the state’s per charter pupil payment.

    An innovative school may need philanthropic support to meet that requirement; if not permanently, then still temporarily, in many cases, to get through the developmental stages when costs can be especially high. Dependence upon donor support severely limits the potential spread of innovative instructional approaches.

    Note that specialized schooling such as sports-stories-themed schools must be schools of choice. You cannot bureaucratically assign children to specialized instructional approaches. Many themes or pedagogies that could engage a lot of children would bore or disengage the vast majority.

    How could an entrepreneurial private school work?

    Suppose that our hypothetical family with their sports-obsessed boy finds teachers talented and passionate about using sports stories to teach general things like the three r’s. Suppose that they live in a state with a Nevada-style Education Savings Account program (a $5100 annual tuition discount) that makes parents’ money available for a school like this. Suppose that they find a great location for the school. And suppose that there is a local entrepreneur willing to take on the risk of leading and funding the project.

    With all these factors put together, the new school could fill all its seats with a tuition rate way above the cost of delivering the instruction. The owner-entrepreneur will charge “what the market will bear.”

    The school’s resulting profit would be a short-term reward for the entrepreneur’s risk and wisdom. It would also be a magnet for increased investment and competition by other entrepreneurs, who would force the tuition price of sports-stories-themed schooling down to the cost achievable by the most efficient schools.

    That process will discover, reinvent, and fill the highest value instructional niches. That combination of idea-driven enterprise, profit-and-loss, and price change is what would determine the public-private mix of diverse schooling options on a “playing field” leveled by tuition tax credits, tuition vouchers, or education savings accounts. Only school choice expansion through policies like these can unleash the entrepreneurial initiative we need to create the diverse schools our kids need.

  2. Car crashes and hockey fights — how safety mandates can make life more dangerous

    Comments Off on Car crashes and hockey fights — how safety mandates can make life more dangerous

    Suppose you want to reduce deaths in automobile accidents. Should you make cars safer? Seems like a no-brainer, right? But consider: suppose instead of an airbag in your steering column, we put a six-inch dagger. If you hit something hard head-on, you get the dagger through your sternum.

    That jerk tail-gating you on I-95 would give you more space if his BMW featured an ice pick instead of a soft, comfy airbag.

    In fact, economist Sam Peltzman has found that while real mandated safety features in cars reduce the chance that a person in a car will be hurt in an accident, drivers then behave more recklessly, and thus increase the chances of accidents occurring.

    This is what we call a “Peltzman Effect.” People respond to a safety regulation by increasing their risky behavior.

    Peltzman Effects happen not only on the road but also on the ice. Hockey, both professional and amateur, has fallen prey to this sort of effect over the last few decades.

    Hockey Helmets

    There are three factors that interact to determine player safety in any game, in ways that are hard to predict. The first is the inherent physical riskiness of the sport: zooming around on the ice with 11 other people is just more dangerous than swinging a golf club.

    The second is rules and equipment: sometimes equipment evolves, and sometimes new rules dictate substantial changes, as in 1975 when the NHL required players to wear helmets with full face protection.

    The third is behavior, the human element. It’s not surprising that this element is the hardest to predict.

    We see a pretty clear Peltzman Effect in the behavior of NHL players responding to the 1975 rule requiring them to wear helmets with full face protection. Here’s the explanation from a medical journal:

    The increased protection of the face through the compulsory wearing of helmets with full face protection, which was introduced in 1975, appears to have led to a more aggressive playing style perhaps because it is believed that the head, face, and throat are now at less risk. Many believe that, after the mandatory use of helmets with a full facemask, players developed a false sense of security and invincibility leading to excessive risk taking behaviour with a resultant increase in illegal and injurious activity. It is also interesting that increased high stick violation and the use of the full facemask as a weapon were noted … after mandatory use of the full facemask.…  Other authors have even speculated that the mandatory use of helmets with full facemasks has increased the risk of neck [and brain injuries].

    Hockey Fights — The Code

    A similar kind of unintended consequence occurred after a 2003 rule change against fighting.

    Players in professional sports are governed, not just by the official rules of the league, but also by what author Ross Bernstein calls, “the code,” the unwritten rules among players. Bernstein argues that for many years, the code of hockey fights actually reduced the level of violent danger in the game as a whole.

    Hockey “goons” enforced norms against poking a star such as Wayne Gretzky in the ribs with the butt of your stick. The refs might not catch you, but if you bruised Gretzky you had to face a professional fighter.

    Of course, your team would also defend you if you behaved within the code, and send up their own enforcer for the stylized combat. But if you broke the code, you had to fight, and you would likely be both hurt and humiliated.

    So Gretzky skated free and had more of the assists and goals that fans paid to see, increasing the salaries even of the players on teams that the Oilers defeated.  Hockey thrived because the stylized violence of goons was tolerated.

    Then in 2003, the league cracked down, punishing fighting. This means there are fewer formal fights in the game.

    But now code-breakers can more easily escape the retribution of the goons. One clear effect of the rule change has been an increase in hard checks on the open ice, and an overall increase in injuries.

    Putting these factors together, we can see the unintended consequence of the change in rules and the change in equipment for behavior: more danger. Players can now fly in recklessly, using their (protected) faces to block shots and their shoulders to give hard checks. The shock of the impact is transferred to necks, spines, and joints. And there is no goonery to punish those who injure star players, so we see the paradox: more safety equipment and less fighting imply more injuries.

    Peltzman Effects vs The Man of System

    The reason for this discussion extends beyond hockey, of course. (Though I like hockey!) The point is that bearing Peltzman Effects in mind helps policymakers and analysts remember that we are talking about people — actual sentient creatures who react and respond, not billiard balls or chemicals in solution, whose reactions are predictable.

    There is a tendency among regulators to act like Adam Smith’s “Man of System,” moving objects around on a chess board.

    The man of system … is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.… He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles … are opposite or different, the game will go on miserably.

    The “game” may be hockey or public policy; the insight is the same. Unintended consequences may reduce, or even eliminate, the good you hope to do with a policy change.

  3. What standard should we use to judge school choice?

    Comments Off on What standard should we use to judge school choice?

    The United States spends a lot of money each year on public schooling. As a percentage of GDP, government expenditures on public education (five percent) exceed the amount we spend on defense (four percent) or welfare (two percent). But how do we know if we are getting our “money’s worth” on public school?

    Too often, the primary criterion of effectiveness is standardized testing. A school is rated almost exclusively on on how well its students perform on standard testing (usually limited to reading and math) as compared to other students in the same city, district, or state. When the issue of school choice comes up, critics assume that this standard is the only one that matters.

    If an experiment in school choice doesn’t show improvement on test scores, it’s often considered empirical proof choice doesn’t work. Yet as economist Tyler Cowen says,

    To be sure, we’re still not sure how well vouchers work, and I would suggest continuing experimentation rather than full-on commitment.  Frankly, I find a lot of the voucher advocates unconvincing, but let’s not forget the single most overwhelming (yet neglected) empirical fact about vouchers: they improve parent satisfaction.

    Cowen points out there’s almost no dispute that parents who take advantage of school choice are satisfied with their option, adding:

    Of course parents may like school choice for reasons other than test scores. To draw from the first link above, parents may like the academic programs, teacher skills, school discipline, safety, student respect for teachers, moral values, class size, teacher-parent relations, parental involvement, and freedom to observe religious traditions, among other facets of school choice.

    Perhaps now is the time to remind you that how the buyers like the product is the fundamental standard used by economists for judging public policy? That is not to say it is the final standard all things considered, but surely economists should at least start here and report positive parental satisfaction as a major feature of school choice programs. In fact, I’ll say this: if you’re reading a critique of vouchers and the critic isn’t willing to tell you up front that parents typically like this form of school choice, I suspect the critic isn’t really trying to inform you.

    Since the money for public schools is funneled through the government, the issue is often framed as if the government is the “buyer” of educational goods and services. If the faceless, impersonal bureaucracy is the “customer” then perhaps it does make sense to have standardized testing—which lumps all students together and reduces them to a statistical metric—as the criterion for satisfaction. But if we believe children belong to parents, and not the state, then we should allow the true customers of public education to determine if they are satisfied with the product.

    “Parents will not be perfectly informed consumers of public schools,” says economist Arnold Kling. “But bureaucrats in Washington will be much less well informed.”

    As Kling adds, “Perhaps the voucher movement ought to be called the ‘Make schools accountable to parents’ movement.”

    This piece was originally published at the Acton Institute Power Blog.

  4. Stop calling out the hypocrites

    Comments Off on Stop calling out the hypocrites

    In a few short weeks, Donald Trump will assume the presidency, and America will be subject once again to something we’ve taken to calling the peaceful transfer of power. Its virtues are many. Peaceful transitions sure beat coups and violent uprisings, for one.

    More than this, though, the promise of a peaceful and orderly shift in political power strengthens the constitutional order by promising political players that, should they observe the rules, they’ll get their day in the sun.

    Of course, this setup has its vices. In particular, such an arrangement encourages (or, perhaps, requires) a certain looseness with one’s principles.

    Examples abound: The antiwar Left, whose email has been sending out-of-office auto-replies since 2008, is back at work. The investigation-happy Right, exhausted from ferreting out emails hosted on private servers, seems unable to muster the energy needed to look into this Russian hacking business.

    On executive orders, judicial appointments, political obstructionism, infrastructure spending, and war-making powers, rest assured: flips will be flopped, shoes will make their way onto the other foot, turnabout will be fair play, and libertarians of all stripes will be there to point out the hypocrisy.

    And why shouldn’t we? After all, there’s something a bit unbecoming about this kind of behavior. It is, as a matter of fact, intellectually and morally dishonest to oppose the use of particular powers “on principle,” only to adopt those powers when you’re at the top of the political heap. A principle so held is probably no principle at all.

    We want people to have principles, and we want people to stick to them. By consistently and loudly calling out their duplicitousness and hypocrisy, we can signal our commitment to principled behavior and to honesty.

    That’s all right and true.

    But now I’m going to propose that you, liberty-loving keeper of the flame, stop calling out hypocrisy — or, at least, that you do so more judiciously.

    I have three reasons for doing so, and I think at least one of these reasons will apply to you, no matter what kind of libertarian you are.

    1. Yes, you’re right. They are hypocrites.

    First, libertarians are rightly skeptical of the motivations of political actors. Students of public choice pride themselves on a certain clearheadedness, an economical clarity — on grasping the realities of “politics without romance.”

    A politics without romance is a politics without virtue, and it requires a theory of politics capable of recognizing self-serving opportunism in all its disguises — a theory of politics capable of recognizing incentives as the Newtonian forces setting actors into motion. The positive project of public choice is a constitutional project through which incentives reconstitute bad behavior into publicly useful outcomes.

    With such an approach in mind, railing against hypocrisy seems not only wrong but somewhat silly. In order for ambition to counter ambition, political actors have to be hypocritical; they play their role in opposition by making the strongest arguments available to them — including arguments they’ve made a habit of ignoring in the past.[1] Hypocrisy lubricates the gears of a constitutional order by allowing political actors the rhetorical maneuvers needed to alternate between ruling and opposing rule.

    2. You’re already almost alone.

    Second, libertarians are in the unenviable position of disagreeing, often vehemently, with most people, on most things. Particularly with regards to the War on Terror, the War on Drugs, the War on Poverty, and the actual wars the US churns out with such alacrity — we tend to find ourselves in a position of lonely if principled opposition.

    To put this another way: there is nothing libertarians need so badly as other people changing their minds. In loudly calling out hypocrisy, we raise the opportunity cost of doing just that — we say, very clearly, “We’re glad you’ve suddenly rediscovered your opposition to unilateral executive power, but first we’re going to make you eat shit.”

    3. What’s wrong with hypocrisy anyway?

    Finally, and far more broadly, libertarians need to get clearer about what sort of vice hypocrisy is. In particular, we need to be clearer about the costs — moral and otherwise — of the moral and political posture that places such emphasis on ideological purity.

    Often, libertarians refuse to acknowledge politics as a separate sphere — as a moral world attached to, but not coextensive with, the everyday demands of morality. And often, this refusal serves us well as an analytic tool, particularly with regards to the state-sanctioned use of force; it allows us to see the moral evil of war and police corruption with brutal clarity.

    At the same time, however, this posture has costs that must be assessed. If we write off politics as the realm of hypocrisy and politicians as, in some sense, equally and universally guilty by virtue of their respective hypocrisies, we blind ourselves in crucial ways to the present role of politics in realizing libertarian goals.

    [1] In fact, the Greek root of our word “hypocrisy” — hypokrisis — means, in part, “acting” or “playing a part.”

  5. Political parties are just shopping bags for ideas

    Comments Off on Political parties are just shopping bags for ideas

    Is Donald Trump shredding the Republican Party?

    Some commentators marvel at the statist implications of Trump’s vow to spend a trillion dollars on infrastructure projects — a vow that echoes both Obama’s stimulus package and FDR’s New Deal.

    Pundits tirelessly debate whether or not Trump is representative of the party he claims to lead, and the degree to which his policies are, or are not, Republican.

    Tacit in all this debate is the assumption that parties and their platforms ought somehow to be set in stone. But unlike ideological notions like conservative or progressive, which are relatively fixed, political parties have always been flexible and even disposable.

    I often use the analogy of a flimsy plastic shopping bag to explain how parties function: a political party is nothing more than a shopping bag designed to carry a set of ideas, coherent or otherwise, forward and into practice.

    So, even though many people think the Republican bag carries the liberty-friendly ideas of states’ rights and limited national government, that doesn’t mean that Trump or the Republican Party in the future will follow through on those ideas.

    The ideas can come out of the bag.

    In fact, US parties have already flip-flopped repeatedly about how activist our federal government should be.

    The First Flip-Flop

    The party known as the Jeffersonian Republicans began in the 1790s by resisting national government activism. The key point of contention was Alexander Hamilton’s four-point financial plan, the cornerstone of which was the creation of the first central bank.

    But after the War of 1812, that party dropped its opposition to the national government directing economic growth, embraced the creation of a second central bank, and jettisoned states’ rights.

    Eventually, these Jeffersonian Republicans brought on other national-government activists and changed their party name to the Whigs.

    Democrats for Limited Government

    For almost two decades after 1812, enough of an equilibrium existed between the national government and the states that there was little impetus for those espousing the ideas of states’ rights and limited national government to assert themselves in the form of a party. But when Andrew Jackson became president in 1829, he began endorsing those ideas very forcefully, and many of those who believed as he did began to coalesce into a formal party structure called Democrats. Meanwhile those who continued to support government activism fell in line as Whigs.

    By the 1850s, though, the Whig party had ceased to be an effective way of holding a set of political ideas together. Fatal to Whig unity was that the southern wing of the party endorsed slavery, while many in the northern wing wanted to contain its expansion if not abolish it outright.

    So southern Whigs moved into the Democrat party while northern Whigs became politically homeless. But the Whig party’s various ideas — abolition, national government activism, protective tariffs, etc., all still existed. They just needed a new bag.

    Republicans for Bigger Government

    The Republican Party quickly formed to pick up some of those ideas (most centrally opposition to slavery and the embrace of national government activism). And in the late 1800s after the Civil War, the Republican Party endorsed national government activism to a degree scarcely seen before in the United States. The Republicans used that activism to expand individual civil and political rights, while at the same time taking numerous powers away from the states.

    When I explain all this in my US history survey course, sometimes a student will raise a hand and hesitantly say “This isn’t in line with the parties today,” and my response is always “You’re right.”

    The label on the outside of the bag (“Republican,” “Democrat,” “Whig,” etc.) doesn’t matter much. What matters are the ideas inside the bag at any given time.

    After the Civil War ended, the Republican Party — now christened the “Grand Old Party” — became more national in scope, and while the Democrat Party suffered nationally from its association with secession and treason it did not completely lose its connection with states’ rights.

    The Second Flip-Flop

    In the last decades of the 1800s, new issues and new ideas arose to fill the bags. Popular concerns about industrialization became more clamorous, and Democrats began to reshape their identity. They became the party standing against pro-business legislation. Farmers and immigrants who felt powerless against the economic forces of Wall Street began to respond to the Democrat message.

    At the turn of the century, the interventionist impulse called Progressivism naturally adhered to the Republican Party because of its dedication to government activism. But divisions in the party over issues like reform and regulation widened — most obviously in the election of 1912 when Progressive and conservative Republicans supported different candidates.

    Meanwhile, reform-minded Democrats like Woodrow Wilson began to pick up Progressive ideas and endorsed a national activism that didn’t fit well with their party’s other positions.

    By 1918, the crusading interventionist Democrat administration — seeking to bring all war to an end — was hardly recognizable as the somewhat-limited-government party of the 1800s.

    In the 1920s, the slide to Progressivism abated briefly. In the election of 1924, both the Republican incumbent Calvin Coolidge and the Democrat challenger John W. Davis espoused lower taxes and less regulation. Without a major-party bag in which to carry forward their ideas, the Progressive activists temporarily rallied behind third-party candidate Robert LaFollette.

    Finally, under the strain of the Great Depression and the aegis of Franklin Delano Roosevelt’s “New Deal,” those Progressives gained control of the Democrat party. They entirely abandoned the idea of states’ rights, replacing it with a concept of national government activism that was similar, but far greater in degree, to the central idea held by the Republican Party since its inception.

    Suddenly the Republicans found that rather than being opposed by a states’ rights party, they themselves were now the party opposing the contemporary understanding of national government activism. As FDR’s legacy of national authority grew larger and more central to his party, the ideas of states’ rights and smaller government were left without a party, and the Republicans absorbed them. It was an astonishing reversal of position.

    Back to the Future

    So, with Republicans taking the Oval Office on a ticket of massive government intervention, are we on the verge of seeing another massive change to the current party system? Not likely in a dramatic thunderclap sort of way.

    Major party transformations usually happen slowly, requiring a decade or so to settle, because as one group abandons certain ideas, other groups have to respond and readjust.

    But Donald Trump has more potential of rearranging the ideas in the Republican bag than any other president in a long time, due to his celebrity and the fact that he’s only nominally a Republican. Trump, moreover, like Andrew Jackson — and to a lesser extent Woodrow Wilson — is an outlier, and those are the figures who tend to trigger party transformations. And, as with Andrew Jackson, personal opposition to Trump may be enough on its own to influence the development of the opposing party.

    Remember: parties are just shopping bags for ideas. It ought not to be particularly surprising when a shopping bag breaks — when the handles wear out or the bottom of the bag tears.

    There’s little historical reason to believe that past Republican tendencies will rein in Trump’s apparent embrace of massive stimulus spending and personal intervention in businesses’ affairs. Instead, Trump’s rise may herald a long realignment — or the slow destruction — of the Republican Party.

  6. When Should Libertarians Support Foreign Intervention?

    Leave a Comment

    Dr. Stephen Davies asked a key question: for any proposed foreign intervention, which course of action maximizes liberty?  He argues that it is rare for the benefits to be  greater than the cost to human rights. He also addresses the question of consequences to both the countries acting and those being acted on.

  7. How to get millions of people working for you

    Comments Off on How to get millions of people working for you

    How many people do you have working for you? Unless you own a business, it seems like a strange question. But even if you have nobody on your payroll, the reality is that you command the labor of more people than you can possibly imagine. Almost all of the goods and services you use on a daily basis are the product of the labor and cooperation of countless people.

    At this moment, there are thousands of people in your city ready and willing to prepare meals for you, tend to your medical needs, cut your hair, defend you in court, mow your lawn, clean your house, and even do your grocery shopping.

    These are a mere fraction of the services that others regularly provide for us. When you begin to think about how many people’s labor went into growing the food you eat, manufacturing the car you drive, and designing the device on which you’re reading this — and the amount of labor that went into helping all of those people — the number of people who have worked for you (or would like to) starts to reach into the millions.

    In The Wealth of Nations, Adam Smith defined wealth as the quantity of others’ labor you can afford to buy with the income you earn from supplying labor of your own.

    Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase.

    How did it become possible for even people of relatively modest means to employ the labor of countless other individuals? Adam Smith attributed this type of widespread prosperity to the division of labor and specialization. By breaking down the production of goods and services into smaller components, and specializing in one part of the process and then trading with each other, we can create far more together than we could working in isolation. The more people we are able to freely exchange with, the more opportunities we have to extend this process of wealth creation.

    The division of labor makes us wealthier in a number of ways. When you specialize in one particular job, you gain experience and proficiency at it. You become accustomed to the work, exploring all of its nuances and learning unique ways to deal with any challenges that present themselves. This also puts you in a better position to discover innovative ways to save time and effort while completing your job. In addition, when we are focused on doing one specific job, we waste less time making the physical and mental transitions from one task to the next. As a result of this process, we become more productive overall. Instead of wasting time doing everything pretty badly, we all do one thing pretty well, and then we effectively trade a tiny bit of our labor for the tiny bits of thousands (or millions) of other people’s labor that went into making everything we see around us. Not only are there more goods and services for us to consume, there are also many more people cooperating to produce them.

    We rely on the labor of strangers to provide us with the goods and services we want in exchange for some of the income we earn providing specialized labor of our own. Even our most basic needs are met in this way. Few people living in developed countries possess the skills necessary to grow or hunt their own food, to make their own clothing, or to construct shelter. Those who do possess these skills have either specialized in them to earn a living, or they engage in these activities as a hobby. Our survival no longer depends on knowing how to do all of these basic things.

    Of course, there are plenty of tasks that we perform on our own, such as the work we do in our households and at our jobs. But even then, our tasks are continually made more pleasant and less time consuming because of tools and innovations produced by the ingenuity and labor of others. Think of all the sprays, mops, vacuums, and brushes that today seem indispensable to doing simple household chores.

    Smith goes on to say, “The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”

    The division of labor not only allows us to command the labor of a larger number of people, it also reduces the amount of time and effort we spend supplying labor of our own. Robert Whaples compiled the results of several studies providing historical estimates of how many hours an average American spends working, relative to other activities. From 1830 to 1890, the average workweek for manufacturing workers fell from 69 hours to 60 hours. By 1929, the average manufacturing worker spent only 50 hours per week working, nearly an entire day less than a century before. Manufacturing workers were supplying 38.5 hours of labor per week on average by 1955. Similar decreases in hours worked are seen across other industries.

    What are we doing with all this additional time? In 1880, Americans could expect to spend about 80 percent of their waking hours working, in both the market and at home, and only 20 percent engaging in leisure activities. By 1995, Americans were using only 41 percent of waking hours to work, and 59 percent in leisure.

    Our ability to command an ever-increasing amount of labor and to consume an increasing diversity of goods and services — while simultaneously spending more time engaged in leisure activities — can be attributed to this collaborative process of specialization and the division of labor. In this way, even the poorest people in our society are wealthier than members of the nobility were in Smith’s day. If we truly care about improving the lives of the least well-off among us, we should focus on expanding the size and scope of our trade network. When we consider protectionist trade policies that reduce the number of people with whom we can exchange, we limit this process and with it our ability to grow wealthier and more prosperous.

  8. Do colleges have an edifice complex, an amenities arms race, or both?

    Comments Off on Do colleges have an edifice complex, an amenities arms race, or both?

    Think of college, and your mind may well conjure images of ivy creeping up the walls of stately, gray, Gothic stone buildings in which the deepest of learning occurs. Such buildings exist, of course, but reality is not so pleasantly simple: Those buildings cost big money to erect and maintain, money many colleges may not have. What’s more, students often demand that more fun stuff, rather than deep learning, occur inside them. Or so a new report suggests.

    “College and university enrollments are, in aggregate, either stable or declining,” intones the report, titled “The State of Facilities in Higher Education: 2016 Benchmarks, Best Practices and Trends.” The paper is from Sightlines, an outfit that provides facilities data to academia. “In light of the building boom of recent years, many campuses now have more space to maintain and fewer students to fill it.”

    Essentially, the report says that colleges have been on a big building binge, but enrollment has been stagnant or declining. The basic math is concerning: Greater capital costs, plus decreasing revenue, equals trouble.

    Has the building boom been driven by an edifice complex — college presidents and faculty love new buildings all over campus that are imposing, cutting edge, or both — or an amenities arms race to bring in students?

    It’s probably both, but the report puts the onus on a destructive race to attract increasingly scarce students who demand ever more luxury:

    Several campuses, realizing the possibility of a decline in enrollment, used the new construction (especially for housing, dining, and recreation facilities) as a way of attracting additional students. The hope being that the development of new amenities and support services can make a campus more attractive to millennials. According to several campus administrators, today’s student body “expects” high-end dormitories, multiple dining options, and modern fitness and recreational facilities. But fulfilling those expectations comes at a cost.

    The report says that for decades, college construction has focused more on creating non-academic than academic space, and about half of all college space today is for non-academic use.

    It’s a classic arms race: Colleges frightened of losing tuition dollars feel constant pressure to spend on expensive facilities to compete for students, in the process greatly increasing the danger of becoming even more insecure financially, maybe hopelessly so.

    But how can students demand all these pricey things that are often superfluous to learning?

    The answer, largely, is that someone else is paying.

    Students, like most people, would take nice things, all else equal. But most people are constrained by cost: They often can’t afford, or cannot justify, spending their hard-earned money on many lovely but expensive items or services. The vast majority of students, however, pay for college in part with someone else’s dough.

    Much of that is in the form of direct taxpayer subsidies to public institutions, which enroll about 73 percent of all students, and in 2015 absorbed around $87 billion in state and local subsidies. Then there is federal student aid, including grants, loans, work study, and tax benefits, which totaled $158 billion in 2015.

    Students can demand so much because, in large part, you and all your taxpaying friends are footing the bill.

    College campuses are often covered in buildings that feel grand, almost mythical. But they are rooted in gritty reality: Someone’s got to pay for them, and that’s getting harder to do. Maybe the solution is to have those who demand the good life pay for it themselves.

    Reposted from Cato at Liberty.

  9. Countries are not companies

    Comments Off on Countries are not companies

    One of the most persistent false beliefs held by American voters is that someone with “business experience” would do a better job “running the economy” than politicians have. Let’s put aside the idea that an economy is something that needs to be, or can be, “run” and explore whether a CEO of a major company as president really would be better for the economy.

    Of course we have precisely this situation in front of us as Donald Trump prepares to take the oath of office. There are dozens of theories about why so many voted for Trump, but surely one part of his appeal was that his apparently successful business career made him more qualified to fix the US economy. In his runs at the presidency in the 1990s, Ross Perot had a similar appeal.

    The problem is that business experience does not automatically translate into good economic policy.

    The businessperson’s knowledge is of a very different sort than that of the economist. Being successful in the business world doesn’t require any knowledge of what causes economic growth. Instead, one needs to know much about a particular market, the consumers you might serve, how best to acquire inputs at a profitable price, and how to hire good people to help you produce.

    All Trees, No Forest

    Historically, many businesspeople have been poor judges of good economic policy. One reason is that their perspective comes from being embedded in the thick of competition rather than being able to see the market process from a bird’s-eye view as an economist attempts to. This is clear in Trump’s emphasis on how America doesn’t “win” anymore and that he’ll negotiate better trade deals that enable “us” to “win.”

    From the perspective of a CEO, markets are very much about winning. The goal of economic competition for the participants is certainly to win, at least in the sense of making more profit than others and, ideally, running them out of business. More specifically, the world of the CEO appears to be a zero-sum game: my firm winning means your firm loses.

    This also helps explain why Trump cannot seem to see a difference between cronyism or rent-seeking and true market competition. If the goal is to win by profiting, it will not matter whether the profit comes from outdoing the competition or getting government to use eminent domain to reduce your costs or to give you a direct subsidy for your new project. Markets are about winning and winning is about profit, and your win is someone else’s loss.

    The other aspect of the CEO’s perspective is that they are running an organization with a specific purpose: to make profit. The firm is structured to achieve that goal, so the quality of decisions made by the CEO and others is judged by their contributions to the bottom line. Thus, for Trump the CEO, getting a “good deal” is a form of winning. If he can bargain hard with a supplier and reduce his costs, his profits go up and he wins.

    We Always Win

    Unfortunately, the perspective of the businessperson is not helpful for understanding economies as a whole.

    First, the whole justification for market competition is that it is not a zero-sum game. It seems to be zero-sum for those engaged in the actual competition, but for the rest of society, the process whereby some firms profit and others lose is one that benefits all of us over time. Firms that go out of business lose in some sense, but the reallocation of their resources to higher valued uses is a “win” for everyone else.

    When we discovered through competition that Borders books no longer had a value-creating business model, that enabled us to stop destroying value and use those resources in new ways that would create value. To the CEO of Borders, this was “losing,” but his perspective is not the same as that of the economist judging the social benefits or costs of market competition.

    So when Trump talks about how America doesn’t win anymore, presumably because other countries have, say, more manufacturing jobs, or because our trade deals have enriched our trading partners, he’s speaking from a CEO’s perspective, not an economist’s.

    That China and  Mexico have become richer by trading with the US does not mean they have won and we have lost. It means we all have won: they are richer for being able to sell us the things they make most cheaply (as we do for them), and we are richer for being able to acquire those goods at lower prices and have income left over to buy other goods and services and create new jobs in those industries.

    Countries are Not Teams

    International trade is not like a sports event where one “team” wins and the other loses. Once we stop thinking in terms of countries being like teams and start thinking about the individuals and organizations who are engaging in mutually beneficial trade, we can understand how the CEO’s perspective misses the point.

    Moving away from the “country as team” view also enables us to see the problem with Trump’s emphasis on getting “better deals.” The US economy is not an organization with a single purpose as is one of Trump’s firms.

    As Hayek reminded us, markets are “means-connected” institutions, while firms are “ends-connected.” What he meant by that is that a market is defined by agreeing to use certain means to pursue whatever ends we desire. We use the rules of property, contract, and exchange to achieve our own individual or organizational ends.

    The US economy does not have a specific goal or end or purpose other than to serve as a means for the multitude of projects we are all pursuing.

    Inside of a firm (or a sports team), there is a singular end to be pursued: profit (or winning for the team). Most, if not all, of the organization’s activities are aimed at that end, so it can be treated as a unified whole for which winning, getting a better deal, etc all might make sense. The CEO knows “a better deal” because it enhances profits, which is the singular end. That conceptualization isn’t relevant for a means-connected institution like a whole economy.

    There are other reasons why we might be suspicious that a CEO is properly equipped to know what constitutes good economic policy. However, in the case of Trump, the problem is clearly that he brings the mentality of someone inside of the competitive process to the activity of trying to understand that process from the outside, which is the task of the economist.

    We will not make America great by President Trump cutting better deals or trying to ensure that we are winning in international trade. Treating the spontaneous order of the means-connected economy as if it were the hierarchical constructed order of the ends-connected firm is a recipe for economic disaster.

    American consumers have “won” thanks to genuine market competition, including the globalization of the division of labor through international trade. We don’t need a president who will negotiate better deals so that we can beat other countries. We need a president who understands that real competition, both domestically and internationally, is good because it means everyone, whether Chinese, Mexican, or American wins.

    This piece was originally published at the Foundation for Economic Education.

  10. The robber barons weren’t robbers. Here’s why.

    Comments Off on The robber barons weren’t robbers. Here’s why.

    Among the great misconceptions of the free economy is the widely-held belief that “laissez faire” embodies a natural tendency toward monopoly concentration. Under unfettered capitalism, so goes the familiar refrain, large firms would systematically devour smaller ones, corner markets, and stamp out competition until every inhabitant of the land fell victim to their power. Just as popular is the notion that John D. Rockefeller’s Standard Oil Company of the late 1800s gave substance to such an evil course of events.

    Regarding Standard Oil’s chief executive, one noted historian writes, “He (Rockefeller) iron-handedly ruined competitors by cutting prices until his victim went bankrupt or sold out, whereupon higher prices would be likely to return.”

    Two other historians, co-authors of a popular college text, opine that “Rockefeller was a ruthless operator who did not hesitate to crush his competitors by harsh and unfair methods.”

    In 1899, Standard refined 90 percent of America’s oil—the peak of the company’s dominance of the refining business. Though that market share was steadily siphoned off by competitors after 1899, the company nonetheless has been branded ever since as “an industrial octopus.”

    Does the story of Standard Oil really present a case against the free market? In my opinion, it most emphatically does not. Furthermore, setting the record straight on this issue must become an important weapon in every free market advocate’s intellectual arsenal. That’s the purpose of the following remarks.

    Theoretically, there are two kinds of monopoly: coercive and efficiency. A coercive monopoly results from, in the words of Adam Smith, “a government grant of exclusive privilege.” Government, in effect, must take sides in the market in order to give birth to a coercive monopoly. It must make it difficult, costly, or impossible for anyone but the favored firm to do business.

    The United States Postal Service is an example of this kind of monopoly. By law, no one can deliver first class mail except the USPS. Fines and imprisonment (coercion) await all those daring enough to compete.

    In some other cases, the government may not ban competition outright, but simply bestow privileges, immunities, or subsidies on one firm while imposing costly requirements on all others. Regardless of the method, a firm which enjoys a coercive monopoly is in a position to harm the consumer and get away with it.

    An efficiency monopoly, on the other hand, earns a high share of a market because it does the best job. It receives no special favors from the law to account for its size. Others are free to compete and, if consumers so will it, to grow as big as the “monopoly.”

    An efficiency monopoly has no legal power to compel people to deal with it or to protect itself from the consequences of its unethical practices. It can only attain bigness through its excellence in satisfying customers and by the economy of its operations. An efficiency monopoly which turns its back on the very performance which produced its success would be posting a sign, “COMPETITORS WANTED.” The market rewards excellence and exacts a toll on mediocrity.

    It is my contention that the historical record casts the Standard Oil Company in the role of efficiency monopoly—a firm to which consumers repeatedly awarded their votes of confidence.

    The oil rush began with the discovery of oil by Colonel Edwin Drake at Titusville, Pennsylvania in 1859. Northwestern Pennsylvania soon “was overrun with businessmen, speculators, misfits, horse dealers, drillers, bankers, and just plain hell-raisers. Dirt-poor farmers leased land at fantastic prices, and rigs began blackening the landscape. Existing towns jammed full overnight with ‘strangers,’ and new towns appeared almost as quickly.

    In the midst of chaos emerged young John D. Rockefeller. An exceptionally hard- working and thrifty man, Rockefeller transformed his early interest in oil into a partnership in the refinery stage of the business in 1865.

    Five years later, Rockefeller formed the Standard Oil Company with 4 percent of the refining market. Less than thirty years later, he reached that all-time high of 90 percent. What accounts for such stunning success?

    On December 30, 1899, Rockefeller was asked that very question before a governmental investigating body called the Industrial Commission. He replied:

    I ascribe the success of the Standard to its consistent policy to make the volume of its business large through the merits and cheapness of its products. It has spared no expense in finding, securing, and utilizing the best and cheapest methods of manufacture. It has sought for the best superintendents and workmen and paid the best wages. It has not hesitated to sacrifice old machinery and old plants for new and better ones. It has placed its manufactories at the points where they could supply markets at the least expense. It has not only sought markets for its principal products, but for all possible by-products, sparing no expense in introducing them to the public. It has not hesitated to invest millions of dollars in methods of cheapening the gathering and distribution of oils by pipe lines, special cars, tank steamers, and tank wagons. It has erected tank stations at every important railroad station to cheapen the storage and delivery of its products. It has spared no expense in forcing its products into the markets of the world among people civilized and uncivilized. It has had faith in American oil, and has brought together millions of money for the purpose of making it what it is, and holding its markets against the competition of Russia and all the many countries which are producers of oil and competitors against American oil.

    A Master Organizer of Men and Materials

    Rockefeller was a managerial genius—a master organizer of men as well as of materials. He had a gilt for bringing devoted, brilliant, and hard-working young men into his organization. Among his most outstanding associates were H. H. Rogers, John D. Archbold, Stephen V. Harkness, Samuel Andrews, and Henry M. Flagler. Together they emphasized efficient economic operation, research, and sound financial practices. The economic excellence of their performance is described by economist D. T. Armentano:

    Instead of buying oil from jobbers, they made the jobbers’ profit by sending their own purchasing men into the oil region. In addition, they made their own sulfuric acid, their own barrels, their own lumber, their own wagons, and their own glue. They kept minute and accurate records of every item from rivets to barrel bungs. They built elaborate storage facilities near their refineries. Rockefeller bargained as shrewdly for crude as anyone before or since. And Sam Andrews coaxed more kerosene from a barrel of crude than could the competition. In addition, the Rockefeller firm put out the cleanest-burning kerosene, and managed to dispose of most of the residues like lubricating oil, paraffin, and vaseline at a profit.

    Even muckraker Ida Tarbell, one of Standard’s critics, admired the company’s streamlined processes of production:

    Not far away from the canning works, on Newton Creek, is an oil refinery. This oil runs to the canning works, and, as the newmade cans come down by a chute from the works above, where they have just been finished, they are filled, twelve at a time, with the oil made a few miles away. The filling apparatus is admirable. As the newmade cans come down the chute they are distributed, twelve in a row, along one side of a turn-table. The turn-table is revolved, and the cans come directly under twelve measures, each holding five gallons of oil—a turn of a valve, and the cans are full. The table is turned a quarter, and while twelve more cans are filled and twelve fresh ones are distributed, four men with soldering cappers put the caps on the first set. Another quarter turn, and men stand ready to take the cans from the filler and while they do this, twelve more are having caps put on, twelve are filling, and twelve are coming to their place from the chute. The cans are placed at once in wooden boxes standing ready, and, after a twenty-four-hour wait for discovering leaks, are nailed up and carted to a nearby door. This door opens on the river, and there at anchor by the side of the factory is a vessel chartered for South America or China or where not—waiting to receive the cans which a little more than twenty-four hours before were tin sheets lying on flatboxes. It is a marvellous example of economy, not only in materials, but in time and in footsteps.

    Market Competition Protects the Public

    Socialist historian Gabriel Kolko, who argues in The Triumph of Conservatism that the forces of competition in the free market of the late 1800s were too potent to allow Stan dard to cheat the public, stresses that “Standard treated the consumer with deference. Crude and refined oil prices for consumers declined during the period Standard exercised greatest control of the industry . . .”

    Standard’s service to the consumer in the form of lower prices is well-documented. To quote from Professor Armentano again:

    Between 1870 and 1885 the price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to .452 cents in 1885. Clearly, the firm was relatively efficient, and its efficiency was being translated to the consumer in the form of lower prices for a much improved product, and to the firm in the form of additional profits.

    That story continued for the remainder of the century, with the price of kerosene to the consumer falling to 5.91 cents per gallon in 1897. Armentano concludes from the record that “at the very pinnacle of Standard’s industry ‘control,’ the costs and the prices for refined oil reached their lowest levels in the history of the petroleum industry.”

    John D. Rockefeller’s success, then, was a consequence of his superior performance. He derived his impressive market share not from government favors but rather from aggressive courting of the consumer. Standard Oil is one of history’s classic efficiency monopolies.

    But what about the many serious charges leveled against Standard? Predatory price cutting? Buying out competitors? Conspiracy? Railroad rebates? Charging any price it wanted? Greed? Each of these can be viewed as an assault not just on Standard Oil but on the free market in general. They can and must be answered.

    Predatory price cutting

    Predatory price cutting is, according to Armentano, “the practice of deliberately underselling rivals in certain markets to drive them out of business, and then raising prices to exploit a market devoid of competition.”

    Professor John S. McGee, writing in the Journal of Law and Economics for October 1958, stripped this charge of any intellectual substance. Describing it as “logically deficient,” he concluded, “I can find little or no evidence to support it.

    In his extraordinary article, McGee scrutinized the testimony of Rockefeller’s competitors who claimed to have been victims of predatory price cutting. He found their claims to be shallow and misdirected. McGee pointed out that some of these very people later opened new refineries and successfully challenged Standard again.

    Beyond the actual record, economic theory also argues against a winning policy of predatory price cutting in a free market for the following reasons:

    1. Price is only one aspect of competition. Firms compete in a variety of ways: service, location, packaging, marketing, even courtesy. For price alone to draw customers away from the competition, the predator would have to cut substantially—enough to outweigh all the other competitive pressures the others can throw at him. That means suffering losses on every unit sold. If the predator has a war-chest of “monopoly profits” to draw upon in such a battle, then the predatory price cutting theorist must explain how he was able to achieve such ability in the absence of this practice in the first place!
    2. The large firm stands to lose the most. By definition, the large firm is already selling the most units. As a predator, it must actually step up its production if it is to have any effect on competitors. As Professor McGee observed, “To lure customers away from somebody, he (the predator) must be prepared to serve them himself. The monopolizer thus finds himself in the position of selling more—and therefore losing more—than his competitors.
    3. Consumers will increase their purchases at the “bargain prices.” This factor causes the predator to step up production even further. It also puts off the day when he can “cash in” on his hoped-for victory because consumers will be in a position to refrain from purchasing at higher prices, consuming their stockpiles instead.
    4. The length of the battle is always uncertain. The predator does not know how long he must suffer losses before his competitors quit. It may take weeks, months, or even years. Meanwhile, consumers are “cleaning up” at his expense.
    5. Any “beaten” firms may reopen. Competitors may scale down production or close only temporarily as they “wait out the storm.” When the predator raises prices, they enter the market again. Conceivably, a “beaten” firm might be bought up by someone for a “song,” and then, under fresh management and with relatively low capital costs, face the predator with an actual competitive cost advantage.
    6. High prices encourage newcomers. Even if the predator drives everyone else from the market, raising prices will attract competition from people heretofore not even in the industry. The higher the prices go, the more powerful that attraction.
    7. The predator would lose the favor of consumers. Predatory price cutting is simply not good public relations. Once known, it would swiftly erode the public’s faith and good will. It might even evoke consumer boycotts and a backlash of sympathy for the firm’s competitors.

    In summary, let me quote Professor McGee once again:

    Judging from the Record, Standard Oil did not use predatory price discrimination to drive out competing refiners, nor did its pricing practice have that effect. Whereas there may be a very few cases in which retail kerosene peddlers or dealers went out of business after or during price cutting, there is no real proof that Standard’s pricing policies were responsible. I am convinced that Standard did not systematically, if ever, use local price cutting in retailing, or anywhere else, to reduce competition. To do so would have been foolish; and, whatever else has been said about them, the old Standard organization was seldom criticized for making less money when it could readily have made more.

    Buying out competitors

    The intent of this practice, the critics say, was to stifle competitors by absorbing them.

    First, it must be said that Standard had no legal power to coerce a competitor into selling. For a purchase to occur, Rockefeller had to pay the market price for an oil refinery. And evidence abounds that he often hired the very people whose operations he purchased. “Victimized ex-rivals,” wrote McGee, “might be expected to make poor employees and dissident or unwilling shareholders.”

    Kolko writes that “Standard attained its control of the refinery business primarily by mergers, not price wars, and most refinery owners were anxious to sell out to it. Some of these refinery owners later reopened new plants after selling to Standard.”

    Buying out competitors can be a wise move if achieving economy of scale is the intent. Buying out competitors merely to eliminate them from the market can be a futile, expensive, and never-ending policy. It appears that Rockefeller’s mergers were designed with the first motive in mind.

    Even so, other people found it profitable to go into the business of building refineries and selling to Standard. David P. Reighard managed to build and sell three successive refineries to Rockefeller, all on excellent terms.

    A firm which adopts a policy of absorbing others solely to stifle competition embarks upon the impossible adventure of putting out the recurring and unpredictable prairie fires of competition.

    Conspiracy to fix prices

    This accusation holds that Standard secured secret agreements with competitors to carve up markets and fix prices at higher-than-market levels.

    I will not contend here that Rockefeller never attempted this policy. His experiment with the South Improvement Company in 1872 provides at least some evidence that he did. I do argue, however, that all such attempts were failures from the start and no harm to the consumer occurred.

    Standard’s price performance, cited extensively above, supports my argument. Prices fell steadily on an improving product. Some conspiracy!

    From the perspective of economic theory, collusion to raise and/or fix prices is a practice doomed to failure in a free market for these reasons:

    • Internal pressures. Conspiring firms must resolve the dilemma of production. To exact a higher price than the market currently permits, production must be curtailed. Otherwise, in the face of a fall in demand, the firms will be stuck with a quantity of unsold goods. Who will cut their production and by how much? Will the conspirators accept an equal reduction for all when it is likely that each faces a unique constellation of cost and distribution advantages and disadvantages?

    Assuming a formula for restricting production is agreed upon, it then becomes highly profitable for any member of the cartel to quietly cheat on the agreement. By offering secret rebates or discounts or other “deals” to his competitors’ customers, any conspirator can undercut the cartel price, earn an increasing share of the market and make a lot of money. When the others get wind of this, they must quickly break the agreement or lose their market shares to the “cheater.” The very reason for the conspiracy in the first place—higher profits—proves to be its undoing!

    • External pressures. This comes from competitors who are not parties to the secret agreement. They feel under no obligation to abide by the cartel price and actually use their somewhat lower price as a selling point to customers. The higher the cartel price, the more this external competition pays. The conspiracy must either convince all outsiders to join the cartel (making it increasingly likely that somebody will cheat) or else dissolve the cartel to meet the competition.

    I would once again call the reader’s attention to Kolko’s The Triumph of Conservatism, which documents the tendency for collusive agreements to break apart, sometimes even before the ink is dry.

    Railroad rebates

    John D. Rockefeller received substantial rebates from railroads who hauled his oil, a factor which critics claim gave him an unfair advantage over other refiners.

    The fact is that most all refiners received rebates from railroads. This practice was simply evidence of stiff competition among the roads for the business of hauling refined oil products. Standard got the biggest rebates because Rockefeller was a shrewd bargainer and because he offered the railroads large volume on a regular basis.

    This charge is even less credible when one considers that Rockefeller increasingly relied on his own pipelines, not railroads, to transport his oil.

    The power to charge any price wanted

    According to the notion that Standard’s size gave it the power to charge any price it wanted, bigness per se immunizes the firm from competition and consumer sovereignty.

    As an “efficiency monopoly,” Standard could not coercively prevent others from competing with it. And others did, so much so that the company’s share of the market declined dramatically after 1899. As the economy shifted from kerosene to electricity, from the horse to the automobile, and from oil production in the East to production in the Gulf States, Rockefeller found himself losing ground to younger, more aggressive men.

    Neither did Standard have the power to compel people to buy its products. It had to rely on its own excellence to attract and keep customers.

    In a totally free market, the following factors insure that no firm, regardless of size, can charge and get “any price it wants”:

    1. Free entry. Potential competition is encouraged by any firm’s abuse of the consumer. In describing entry into the oil business, Rockefeller once remarked that “all sorts of people . . . the butcher, the baker, and the candlestick maker began to refine oil.”
    2. Foreign competition. As long as government doesn’t hamper international trade, this is always a potent force.
    3. Competition of substitutes. People are often able to substitute a product different from yet similar to the monopolist’s.
    4. Competition of all goods for the consumer’s dollar. Every businessman is in competition with every other businessman to get consumers to spend their limited dollars on him.
    5. Elasticity of demand. At higher prices, people will simply buy less.

    It makes sense to view competition in a free market not as a static phenomenon, but as a dynamic, never-ending, leap-frog process by which the leader today can be the follower tomorrow.

    Rockefeller was greedy

    The charge that John D. Rockefeller was a “greedy” man is the most meaningless of all the attacks on him but nonetheless echoes constantly in the history books.

    If Rockefeller wanted to make a lot of money (and there is no doubting he did), he certainly discovered the free market solution to his problem: produce and sell something that consumers will buy and buy again. One of the great attributes of the free market is that it channels greed into constructive directions. One cannot accumulate wealth without offering something in exchange!

    At this point the reader might rightly wonder about the dissolution of the Standard Oil Trust in 1911. Didn’t the Supreme Court find Standard guilty of successfully employing anti-competitive practices?

    Interestingly, a careful reading of the decision reveals that no attempt was made by the Court to examine Standard’s conduct or performance. The justices did not sift through the conflicting evidence concerning any of the government’s allegations against the company. No specific finding of guilt was made with regard to those charges. Although the record clearly indicates that “prices fell, costs fell, outputs expanded, product quality improved, and hundreds of firms at one time or another produced and sold refined petroleum products in competition with Standard Oil,” the Supreme Court ruled against the company. The justices argued simply that the competition between some of the divisions of Standard Oil was less than the competition that existed between them when they were separate companies before merging with Standard.

    In 1915, Charles W. Eliot, president of Harvard, observed: “The organization of the great business of taking petroleum out of the earth, piping the oil over great distances, distilling and refining it, and distributing it in tank steamers, tank wagons, and cans all over the earth, was an American invention.” Let the facts record that the great Standard Oil Company, more than any other firm, and John D. Rockefeller, more than any other man, were responsible for this amazing development.

    This piece was originally published at the Foundation for Economic Education.

  11. Why we need to deemphasize schooling in America

    Comments Off on Why we need to deemphasize schooling in America

    School has nothing to do with freedom. First, there are state laws mandating that you have either attended school or have learned the very specific kinds of things you’d learn in school. That form of education is not a choice: it is legally compulsory.

    But schooling is culturally compulsory as well. That’s what Austrian philosopher and Roman Catholic priest Ivan Illich said.

    Illich was a critic of state education systems who, in 1970, wrote a now celebrated book called Deschooling Society, in which he boldly argued that, like the separation of church and state, we need a corresponding right protecting people from state establishment of education. He suggested that the article should read, “The State shall make no law with respect to the establishment of education.”

    But his point didn’t end there. Illich recognized that preventing the state from making school compulsory might not be enough. We live in a society where even if schooling weren’t legally compulsory, we’ve grown to think of it as the only legitimate path to adulthood. In other words, schooling (or something like it) is not only legally mandatory, but it is culturally mandatory.

    After Illich proposed this separating-school-from-state amendment, he suggested that it might have to be accompanied by a “law forbidding discrimination in hiring, voting, or admission to centers of learning based on previous attendance at some curriculum.”

    Unfree Minds

    Think of it this way: even if schooling were not legally compulsory, if you live in a society where employers and others expect to see a school transcript as a condition of employment or of membership, or where the common question posed to children is “What did you learn in school today?” then most people will see school as the path to becoming an adult.

    Despite the title of Illich’s book, his end goal wasn’t the abolition of schools. At several points, he makes it clear that school is fine as an option for people who want it. His concern was that the legal establishment of schooling leads to the idea that the only way to learn the necessary skills for adulthood is through schools. Twelve-plus years of math and English, of grades and grade point averages. That schooling.

    How have we succumbed to such a narrow understanding of education? Simply put, when anything is legally mandatory, it becomes universal, and when anything is universal for long enough, the culture forgets that there were ever any alternatives.

    Step 1: Pass Laws

    Public school advocates in the early 19th century like Horace Mann and Henry Barnard sought to create tax-funded public school systems in the states that, because they wouldn’t charge tuition, would outcompete private schools. Eventually, reformers pushed for laws making school attendance mandatory in all states (Massachusetts was first in 1851, and Alabama was the last in 1918).

    In the early 1900’s reformers also succeeded in mandating all teachers (at least in public schools) must pass through state-approved teacher education programs. As historian Diane Ravitch describes, “Teacher certification eventually came to be identified with the completion of teacher education programs rather than with the receipt of local certificates or the passing of subject-matter examinations.”

    The result was that, by the early 20th century, each state had laws mandating that the proper path to adulthood was to go through a set amount of schooling, and while one could go to a state-approved private school if one could pay tuition, the obvious choice for most was the local (“free”) public school — which only hired teachers who passed state licensing requirements.

    Step 2: The Culture Conforms

    Those legal requirements have cultural effects. Colleges and jobs that don’t require college degrees grow to expect or require high school transcripts as part of the application process. And culturally, we come to see schooling as a normal part of childhood — any parent out with their child during a school day can expect to hear, “Shouldn’t she be in school?”

    The question “How old are you?” has been all but replaced with “What grade are you in?” Suzy isn’t 11 or 12; she’s a sixth grader.

    Homeschooling and unschooling are on the rise, but even then, many states (like Louisiana, Maine, and New York) set strict guidelines on how homeschooling may or may not be done, including what subjects must be taught and annual testing of students that resembles testing done in public schools.

    Culturally, the current model of K–12 schooling is so entrenched that homeschooling and unschooling are often criticized for not properly “socializing” children, the assumption being that the proper socialization is the kind found in schools.

    Deschooling Culture

    When Illich called the first chapter of his book “Why We Must Disestablish Schools,” he meant disestablish in two senses. Legally, he argued that there should be no compulsory schooling laws or state licensing laws for teachers that, as he said “constitutes a form of market manipulation and is plausible only to a schooled mind.”

    But he also wanted to see a world in which companies no longer require school transcripts for hiring, a world without the cultural expectation that the only or best path to adulthood is through formal schools. School should be one educational option among many: apprenticeships, individual or group tutoring, and any other educational structure human minds can create. But schooling should not be the culturally privileged default option.

    This piece was originally published at the Foundation for Economic Education.

  12. 4 New Year’s resolutions for the Trump administration

    Comments Off on 4 New Year’s resolutions for the Trump administration

    It’s a new year again, which I always consider a time for making resolutions. Of course, it’s much more satisfying to make resolutions for other people. Now that Sen. Rand Paul has aired his annual Festivus grievances about his colleagues in Washington, I thought I’d offer them some suggestions for self-improvement.

    President-elect Trump doesn’t seem like the sort to  feel the need for self-improvement and resolutions, but maybe the prospect of becoming president of the United States would prompt reflection and resolve in anyone. So here are four unsolicited resolutions for Trump and his team, plus a bonus resolution for the rest of us.

    1) Bring back growth.

    People are worried that our economy is not strong and that our kids won’t have it as good as we do. And they have a point. From 2000 to 2015, annual growth in real GDP has averaged only 1 percent. The recovery from the 2007 recession has been the slowest and weakest since World War II.

    Here’s a simple relationship to keep in mind: presidential approval ratings depend heavily on economic growth. If you care about your poll ratings, re-election, or legacy, you’d be well advised to keep the economy growing.

    So how do you increase anemic growth rates? First, look at what government has done to drag down the economy. Taxes, government debt, and regulations are a burden on investment and economic activity. Higher taxes make investments less profitable and create a “wedge” between what the employer pays and what the employee receives, which reduces the number of jobs created.

    Regulations also add to the cost of doing business. The Obama administration’s Department of Labor has been on a veritable crusade to reduce U.S. employment. Its 2010 “guidance” discourages companies from offering unpaid internships, which are often the first work experience for students. The new overtime regulations, currently put on hold by a court decision, impose huge costs on management and reduce opportunities for workers. And still the regulations keep coming. Cut back on regulation, and you can expect stronger growth.

    One place to look for regulatory reform — where you could find some left-right agreement — is in cutting back on what Brink Lindsey calls “regressive regulation”: barriers to entry and competition that redistribute income and wealth up the socioeconomic scale. From doctors and lawyers to taxis and Big Sugar, many incumbent businesses are protected from free competition. Opening those markets to the little guys will be good for consumers, innovation, and growth.

    And remember, you don’t want to bring back the jobs of 1953, as George Will put it, but to help create the jobs of today and tomorrow.

    Along those lines:

    2) Don’t make a fetish out of campaign promises.

    Presidential candidates say a lot of things on the stump that aren’t actually good policy. You promised to bring back jobs that have been lost. But what you really meant was that you wanted more people to have better jobs. (This is what it means to say that voters took you “seriously but not literally.”)

    You shouldn’t try to recreate the jobs of 1953 or 1973 or even 2003. After all, in a typical year before the Great Recession, some 33 million American jobs were created, while over 30 million were lost. The point is not to try to “save” or “bring back” those 30 million but to create a growing economy where more people can find work and wages rise.

    It’s also been common for presidential candidates to promise to “get tough” with China or “renegotiate” international trade deals. Then they get elected and come to appreciate the downside of wrecking the world’s most important economic relationship and creating new international tensions. You want a growing economy and a more peaceful world. Focus on that, not on keeping campaign promises.

    3) Play more golf.

    Partisan critics always snipe at presidents for playing golf and taking vacations. But presidents do a lot less damage on the golf course than in the Oval Office. Hit those links. Let the country run itself with less direction from Washington. And while you’re at it, don’t worry about spending time in New York, Palm Beach, and Bedminster, New Jersey. Washington doesn’t need to be the center of the country’s attention.

    And speaking of downsizing Washington:

    4) Push for term limits — on Congress and the bureaucracy.

    You struck a chord when you talked about term-limiting Congress. Seventy-four percent of Americans agree, and only 13 percent oppose term limits. You’ll need a new Supreme Court justice or two to make this happen, but start the effort now.

    Meanwhile, federal employees stay in office even longer than members of Congress. “Few die, none resign” goes the pithy paraphrase of Thomas Jefferson’s complaint in 1801. Now we might say “few resign, none are fired.” A new book finds a vast gulf between how Americans think, and what federal administrators think of them. How about a little turnover there?

    The bigger problem here is the rise of the administrative state, in which legislative, executive, and judicial powers are concentrated in the executive branch, and even in single federal agencies. Take it on. Restore the separation of powers. Tell the permanent bureaucracy that they don’t make the laws, Congress does.

    That brings me to my final resolution, for the rest of us. Throughout the Bush and Obama administrations — but going back much further, at least to Franklin Roosevelt — we have seen a steady drift of power from the states to the federal government and from Congress to the executive branch, and more specifically to the president. A lot of people have worried recently about the powerful presidency that Barack Obama is turning over to Donald Trump. Some of us have been worrying about executive power and the potential for abuse for a long time.

    Now would be a good time for libertarians, liberals, and conservatives to resolve to rein in executive power. Recent presidents have blithely exceeded the powers granted to them under the Constitution. Congress bears a significant part of the blame for presidential excesses, and so do all of us who approved of presidential power grabs — as long as we liked the president or the particular exercise of power.

    Now we should demand that Congress assert its authority under Article I of the Constitution — “All legislative powers herein granted shall be vested in a Congress of the United States” — and stop delegating vast and vague authority to executive agencies. We should insist that presidents no longer take the country to war without congressional authorization, use “a pen and a phone” to usurp legislative authority, or use the power of the White House to intimidate private individuals and businesses.

    If the administration and the rest of us do these things, there’ll be a lot fewer grievances to air next Festivus.

    David Boaz is the executive vice president of the Cato Institute and the author of The Libertarian Mind (Simon & Schuster, 2015).