Category Archive: Politics & Policy

  1. What Are Health Insurance Death Spirals?

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    What’s happening to health insurance? It’s in a death spiral: premium hikes lead to enrollment drops lead to premium hikes …

    Learn More: http://www.learnliberty.org/blog/why-chairs-are-cheap-and-epipens-are-expensive/

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

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    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.

  3. Turning away Cuban refugees is a victory for Cuba’s dictatorship

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    President Obama is abandoning America’s five decade-old policy that guarantees Cubans asylum in the United States. The change comes at a time when more Cubans are arriving at U.S. borders than at any time since 1980, and it is a major win for the Cuban regime and opponents of immigration, who both want to stop Cuban immigration to the United States.

    But the sudden reversal is bad policy that will harm efforts to secure the border and aid the regime most hostile to human rights in the Western Hemisphere.

    Cuban Immigration Is a Win for America

    In 1966, Congress passed the Cuban Adjustment Act (CAA), granting lawful permanent residency to any Cuban national who has resided in the United States for at least two years (later lowered to one year). Each of the last eight administrations has interpreted the law to allow almost all Cubans who arrive at U.S. borders to apply for “parole” — a discretionary legal status that permits them to enter and wait a year to receive a green card to stay permanently.

    This system has served the United States extraordinarily well. Because Cubans who enter illegally cannot apply for a green card, border security is enhanced, since they never try to sneak past Border Patrol. Instead, they just line up and turn themselves in at a port of entry. They show their Cuban passports, receive background checks, and then are admitted. The United States has very few unauthorized immigrants from Cuba precisely because all Cuban immigrants who make it into the country are paroled and adjusted to legal permanent residency.

    America — and specifically Miami — has benefited enormously, both economically and culturally, from the presence of Cuban immigrants. After the 1980 Mariel boatlift brought about 125,000 Cuban refugees to Florida, Miami’s population has grown much faster than other cities. Despite often arriving destitute, Cuban-Americans have achieved the same median income as all Hispanics and actually have the highest rate of home ownership. The Kauffman Foundation ranked Miami in the top two cities in the country for entrepreneurship in 2016, driven in part by its large immigrant population. Miami also has the best ranking in the state for upward mobility.

    Most importantly, U.S. immigration policy has allowed 10 percent of all Cubans to escape the most tyrannical regime in the Western Hemisphere. This policy has been a constant threat to and check against a regime that survives by preying on its own people, and, for this reason, the island’s dictatorship has repeatedly condemned it.

    The Excellent Reason Cubans Are Treated Differently

    President Obama says that the United States will now treat “Cuban migrants the same way we treat migrants from other countries.” But Cuba is not like all other countries. It is the only dictatorship on America’s side of the world. As I wrote in the Miami Herald last year:

    The basic principle that people should not be treated differently based on national origin is valid, but Cubans receive special treatment not due to where they are from, but due to how they are treated where they are from. Cubans aren’t treated uniquely because they are Cubans, but because, according to Freedom House, Cuba is the only “unfree” country in the Western Hemisphere.

    The communist system has no electoral process, political dissent is a criminal offense, corruption is rampant, independent media is banned, and all forms of everyday activities are regulated, including internal movement. Cuba is the 12th most unfree country in the world. It is less free than Iran and South Sudan. Even communist China received a higher score.

    No other country in the Americas comes close. In 2015, the pretend socialists in Venezuela were still 50th and ranked “partly free.” Haiti and Honduras came in at 57th and 62nd respectively. This is why Cubans are singled out.

    Congress stated in 1996 that the law would end when “a democratically elected government in Cuba is in power.” As long as Cuba remains unfree, America will continue to welcome Cubans. Rather than repeal this principle, Congress should expand it to any country in our part of the world that is unfree.

    What Happens Next

    The fact remains, however, that President Obama cannot repeal the Cuban Adjustment Act itself, which guarantees permanent residency after one year to any Cuban who has legally entered the United States. This change could result in Cubans filing asylum claims under the normal asylum system, as Central Americans do, and waiting in line for a year before applying for a green card under the CAA, as they always have. Ultimately, this could dilute the impact of the policy shift.

    Nonetheless, the current asylum system, which is already massively backlogged, will only grow more so as a result. At a time when a record number of asylum seekers from Central America are coming to the border, the United States is going to throw the Cuban refugees in with the rest, making a broken system that much more dysfunctional. It will also increase illegal immigration, as Cubans will know that they can no longer be guaranteed entry to the U.S., and those who expect their asylum claims to be denied will seek illicit means of entry.

    Some people claim that the only reason so many Cubans are coming right now is that they feared the administration would do exactly what it has just done. But the reality is that the rise in Cuban arrivals in recent years started before President Obama announced any changes in Cuban policy. Its true causes are 1) the Cuban regime’s relentless assault on human rights, and 2) its decision to end restrictions on travelling abroad, which has led many oppressed Cubans to seize the chance to leave.

    Despite President Obama’s hopeful message after the death of Fidel Castro, the Cuban government continues its oppressive policies. Nearly 10,000 people were arbitrarily arrested in 2016 alone, and there was a particularly large surge of arrests after Castro’s death, demonstrating that his dying changed little.

    Donald Trump — whose statement condemning the Cuban dictator after his death had more moral clarity than any single statement that the president-elect has ever made — should immediately reverse this policy upon assuming office. The United States should honor its commitment to remain open to the Cuban people for as long as the electoral process in Cuba remains closed to them.

    A version of this article first appeared at Cato.org.

  4. What do Politicians Mean by “Pro Business?”

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    “Pro-Business” can mean a few different things when it comes out of politicians’ mouths. It could mean they want to let free markets create as many jobs and opportunities as possible, or it could mean they want to treat the economy like a machine, pulling levers and pushing buttons to pick winners and losers. Mercatus Senior Research Fellow Matthew D. Mitchell explains.

  5. When Should Libertarians Support Foreign Intervention?

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    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.

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

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    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.

  7. 4 New Year’s resolutions for the Trump administration

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    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).

  8. Making college “free” will only make it more expensive.

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    Making things free only makes them more expensive.

    Making things free sounds like a good policy idea. Who doesn’t like free things?

    These days, a lot of policy-makers are calling for no prices (or at least lower prices). “Free higher education” is the form this refrain takes the most, especially during presidential debates.

    But free higher education is a policy unicorn. Making college free sounds great, but it will bring great harm instead of great benefits.

    Free of Charge, but Free to Provide?

    Presumably, the goal of making college free is to make it more widely available. We’re facing a problem of scarcity, constraints, and, ultimately, tradeoffs.

    The key to human flourishing in a fallen world marked by scarcity is to overcome and, if possible, eliminate tradeoffs. Unleashing human creativity and entrepreneurship is the best way to do this. If college is a path to more entrepreneurship, greater technological innovation, and higher incomes, wouldn’t cheapening the cost of college increase all these things?

    Paradoxically, lowering the cost of college will increase the cost on society. And it won’t make entrepreneurship and creativity more widely available, either.

    Why?

    Economics teaches that reducing or eliminating prices induces greater consumption. Think about your favorite ice cream flavor or pair of shoes. You consume more of these things when their price drops. It’s as predictable as gravity.

    The same thing will happen with college. If we reduce the price of college to zero, we will encourage inefficient consumption of higher education.

    Inefficient? What does that even mean?

    College dropout rates are at an all-time high. One-third of all students who enroll in school will drop out before finishing. This is a tragic unintended consequence of inducing more students to attend college, regardless of their needs. This also makes college incredibly expensive for everybody.

    Eliminating prices doesn’t change the level of scarcity of any item, college included. Making college free of charge doesn’t make it free to provide. Professors still need to be paid. The lights still need to be turned on. The janitorial staff is still required. Eliminating the price doesn’t eliminate the resources required to provide the education. Somebody still has to pay those costs, even if students aren’t.

    So making college “free” just makes it more expensive, because now we have to find a way to pay for all the resources more students will be consuming at higher levels now that the price is (theoretically) reduced. And now we know that one-third of those students will consume those resources only to later drop out altogether.

    Prices Help Solve the Problem of Higher Education

    Policy makers cannot eliminate prices any more than meteorologists can fend off snowstorms. Snowstorms happen. So do prices. The difference is that prices are critical to better stewardship of our scarce resources.

    Prices bring together the people who want to consume college the most with those who can supply it best. Increasing higher-education opportunities and alternatives happens when competition in the supply of college exists. That means opening more universities or providing professional certificates and vocational schooling. This competition will also drive down prices of higher education over time.

    If we want more people to be able to afford and attend college, we need to allow the market, through buyers and sellers, to innovate, create alternatives, and compete to lower costs. In college, as with any other good, prices provide transparency and encourage innovation – we need more of that, not less.

    This piece was originally published at the Institute for Faith, Work & Economics.

  9. Over-Criminalization Nation — 5 Blood-Boiling Cases of Government Overreach

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    Every year the number of regulations, dictates, rules, decrees, guidelines, statutes, laws, and bylaws in the United States grows by leaps and bounds. Just look at the growth in the number of final rules contained in the Federal Register:

    federal-register

    Now it seems we can’t go a week without hearing a new story about someone being punished, with fines or even jail time, for activities that would be encouraged in a free society. I’ve taken the liberty (pun intended) of compiling some of the more egregious examples of this trend for your reading pleasure (or displeasure).

    1. Single mom faces possible jail time for selling $12 worth of ceviche to an undercover police officer.

    Mariza Ruelas had her day in court in early November. Her crime? She sold a $12 plate of ceviche, an authentic Mexican dish, to an undercover cop on Facebook.

    I know what you’re thinking: Why are police setting up stings to catch people selling food to willing customers over Facebook? Don’t they have actual crimes to investigate — like ones with actual victims? I wish I knew the answers to those questions.

    2. Federal prosecutors threaten Aaron Swartz with a life-crushing sentence for downloading academic articles.

    On January 11th, 2013, Aaron Swartz ended his own life, concluding one of the biggest miscarriages of justice in contemporary history.

    In the months leading up to his suicide, Swartz had been embroiled in a legal battle with the federal government after prosecutors charged Swartz under the draconian Computer Fraud and Abuse Act. His crime? Downloading thousands of academic articles from the JSTOR database.

    The CFAA is a particularly cruel piece of legislation, as it carries severe mandatory minimum sentencing requirements, resulting in Swartz facing up to 35 years in prison for a nonviolent crime.

    Many legal observers at the time pointed out that had Swartz robbed a bank, aided al-Qaeda, or produced child pornography he would have faced a more lenient sentence.

    Swartz’s story was detailed in great depth in the documentary The Internet’s Own Boy. The documentary was released under the Creative Commons — a nonprofit initiative Aaron Swartz himself was an early architect of — so you can watch it for free on YouTube.

    3. Government claims ownership of all water, jails Oregon man for 30 days for collecting rainwater on his own property.

    Way back in 2012 the libertarian blogosphere was abuzz over an egregious case of local government tyranny out of Oregon. Gary Harrington was sentenced to spend 30 days in jail for the crime of collecting rainwater using three reservoirs (that’s newspeak for “ponds”) on his property.

    Oregon law states that all water is a public resource, to be owned communally by the collective population of Oregon, and as such any attempts to obtain or store water must first begin with applying for the proper permits to do so. Yes, really.

    One of the reservoirs on his property had been there for 37 years, Harrington said. To add insult to injury, Harrington’s applications for permits were initially approved by the state’s Water Resource Department, but were rescinded after a state court reversed their decision.

    As a result of this 1920s-era law, Harrington was ordered to turn himself in to the county jail to serve his 30-day sentence.

    4. Maryland church ordered to evict homeless people from its property or pay a $12,000 fine.

    No good deed goes unpunished in the Land of the FreeTM. In late 2016, Reverend Katie Grover was met with a $12,000 citation attached to the door of the Patapsco United Methodist Church in Dundalk, Maryland. The alleged crime was allowing several homeless people to sleep on the church’s property in violation of the county regulation prohibiting “non-permitted rooming and boarding.”

    The church wasn’t even letting the homeless sleep indoors, rather they were just allowing a few homeless people to sleep on some of the benches located in the church’s yard.

    5. San Antonio chef fined $2,000 for feeding homeless people.

    In early 2015, the chef and founder of the not-for-profit food truck Chow Train, Joan Cheever, was cited by police officers for the outrageous crime of serving hot meals to the city’s homeless population.

    The citation, which she received for transporting the food in a different vehicle than her licensed food truck, carries with it a fine totaling $2,000.

    As is par for the course in these sorts of cases, there isn’t an observable wronged party. The only apparent “crime” here is the violation, unwitting or otherwise, of an arbitrary government dictate. In this case in particular, no one called the police requesting assistance. Cheever was doing what she had done for more than 10 years, except this time her charity stepped outside of the parameters set forth by an unelected bureaucrat at the city’s health department.

    Parting Words

    These cases brought to light a troubling trend unfolding in the US that couldn’t be summarized better than by the indispensable words of Ayn Rand, writing in Atlas Shrugged,

    When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.

    Hopefully the tendency to criminalize mundane activities or even charitable giving itself can be arrested before anyone else finds themselves on the business end of the growing regulatory state.

  10. The black hole of Pentagon finance

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    The Pentagon suppressed a 2015 study exposing $125 billion—yes, billion—in administrative waste, over a five year period, in order to protect its own budget from being slashed. The Washington Post revealed the suppressed report earlier this month.

    The numbers in the report are staggering:

    • 23% of the Pentagon’s $580 billion budget ($134 billion) is spent on overhead and core business operations like accounting, HR, and property management.
    • The Pentagon employs over 1 million people in its back-office bureaucracy.
    • The average administrative job at the Pentagon costs taxpayers more than $200,000.

    But none of this should come as a surprise given how government bureaucracies operate The political arrangement of the military-industrial complex is very different from the way competitive markets work, which has important consequences. In competitive markets, profit and loss provide continual feedback as to whether companies are using their resources effectively or not. The result is that resources tend to be used where they create the most value.

    But for government (in this case the Department of Defense), profit and loss are determined, not by the market, but by a political actor’s ability to navigate politics. Decisions about where resources will go are made by bureaucrats, not consumers and entrepreneurs. This means there is no way to ensure that resources in the defense industry are being used where they are valued most highly. Success is determined by the size of the agency’s budget. This incentivizes bureaucratic bloat and administrative secrecy.

    After all, it’s taxpayer money, so there is little accountability for wasteful spending. The result is that the Department of Defense overspends and under-delivers.

    Impossible to Audit

    Given the incentives at work, it shouldn’t be surprising that this report is not the most recent instance of waste and mismanagement.  Consider that since 1997, the Government Accountability Office has been legally required to audit the financial statements of federal agencies. Despite this requirement, it has been unable to audit the Department of Defense — because the DOD has been unable to provide accurate and credible financial documents.

    This fundamental lack of basic accounting processes and controls means that the Pentagon is unable to keep track of its financial resources and expenditures in any kind of meaningful way. But this wouldn’t change the underlying problems anyway. The sheer size and complexity of the military bureaucracy coupled with overly lofty foreign-policy goals means thorough oversight and accountability are virtually impossible.

    The only real solution would be to drastically reduce the size and scope of the military and related government agencies, which would remove many of the incentives for the DOD to overspend and to obfuscate its spending. This reduction, in turn, requires adopting a restrained foreign policy minimizing the use of military abroad and the significant resources necessary to fund such international adventures.

  11. Democrat vs. Republican is Outdated

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    “There’s this big shuffling of the deck going on in most western democracies,” says Professor Steve Davies, on the global political realignment of globalists vs. nationalists.