Government officials violate the public trust – in this case by, well, let the New York Times tell the tale of how the ballyhooed-at-its-birth 1998 Tobacco Master Settlement isn’t quite working out as planned:

Only a small fraction of the money has gone to tobacco prevention. Instead, the states have used the windfall for various and unrelated expenditures. In Alaska, $3.5 million in settlement money was spent on shipping docks. In Niagara County, N.Y., $700,000 went for a public golf course’s sprinkler system, and $24 million for a county jail and an office building. And in North Carolina, in the ultimate irony, $42 million of the settlement funds actually went to tobacco farmers for modernization and marketing.

But that’s not all: Nine states — Alaska, California, Iowa, Michigan, New Jersey, New York, Ohio, Rhode Island and West Virginia — and Washington, D.C., Puerto Rico and Guam decided to get as much of those annual payments as fast as they could by mortgaging any future payments as collateral and issuing bonds. They traded their future lifetime income for cash today — at only pennies on the dollar.

Shocker.  Fine pronouncements and loud boasts from 16 years ago about irresponsible tobacco companies finally being held accountable by responsible (!) government officials are proven false – all up in smoke – and in ways that yet further reveal the explanatory power of public-choice economics.  Isn’t the miracle in the government-intervention formula supposed to prevent such shenanigans?  Maybe next time the miracle will finally work!  Or is government incurably cancerous?

(I thank Peter Minowitz for the pointer to this NYT report.)

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Another Danger With Nudging

by Don Boudreaux on October 7, 2014

in Hubris and humility, Seen and Unseen

I highly recommend Michael Huemer’s 2013 book, The Problem of Political Authority.  Thumbing this morning through my heavily marked-up copy I re-read the following passage from page 134; this passage from Huemer occurs during his discussion of Philip Zimbardo’s famous Stanford Prison Experiment (in which students volunteering to role play as prison guards, and other students volunteering to role play as prisoners, displayed disturbing traits of power-abuse and acquiescence in such abuse) (original emphasis; footnote excluded):

Another lesson of the Stanford experiment concerns the reactions of others to authority figures. The prisoners in the experiment, initially at least somewhat resistant, were reduced to meek submission by the end of the experiment.  They complied with nearly all, even the most offensive demands issued by the guards.  On the face of it, this is puzzling, as the guards had no real power to compel the prisoners to obey.  The guards were prohibited from using violence and in any case were, in each shift, outnumbered three to one by prisoners.  If the prisoners had resolutely refused to obey the guards, it is unclear what the guards could have done.  Yet the prisoners obeyed, despite the increasingly irrational and offensive nature of the guards’ commands and despite the arbitrary nature of their supposed authority.  Nor was this obedience to be explained as a result of a sense of a contractual obligation.  While the subjects had agreed to be part of a simulation of prison life, they had not agreed to obey all guard commands.  And even if they thought themselves obligated to be obedient to some extent, this would not explain why the prisoners became more submissive as the study wore on and the guards’ demands became more unreasonable.  One lesson to draw from this is that psychologically, power is self-validating.  Even when the ‘authorities’ are selected entirely arbitrarily and everyone knows this, the mere assertion of authority tends to be accepted by others.  Furthermore, the longer one obeys an authority figure, the more one feels ‘bound’ to continue to do so.

The realities of humans’ psychology revealed by the Stanford and several other similar experiments are further reasons why concentrated power or even anything resembling sovereign authority is never to be trusted.  But what in particular struck me as I re-read this passage earlier today is that it offers a warning against the policy of so-called “libertarian paternalism.”  This policy, as many readers know, is the source of the suggestion that government should actively but not coercively “nudge” people to make ‘better’ choices.

Nudging might always be better than outright coercion.  This fact, however, does not make nudging an acceptable policy for government to pursue.  As Mario Rizzo, among others, points out, libertarian paternalistic nudging is plenty dangerous.  The above passage – although not explicitly about nudging – highlights one reason to beware of the danger of nudging: power corrupts its holders and simultaneously dopes its victims.  Power, in short, causes people to lose their minds.  So even power exercised through nudging rather than through jailing or shooting is never to be trusted to generate outcomes acceptable to any sane person.

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Tim Cavanaugh reports on George Selgin rightly taking Nobel laureate Eric Maskin to task for the latter’s pretense of knowledge.  (This exchange took place at last Thursday’s excellent Mercatus Center celebration of the 40th anniversary of Hayek’s award of the Nobel Prize.)

John Cochrane rightly takes Martin Wolf to task for the latter’s sloppy analysis of inequality.  A slice:

You bet “children from poor backgrounds are handicapped in completing college.” They go to terrible schools, hijacked by inner city teacher’s unions. They come from broken homes, where nobody reads to them at night. They don’t see anyone around them who is working at legal jobs. And so on.  This is just the case that Kevin Murphy and others have made about the increasing skill premium.

But that’s all inequality as a symptom of other things gone wrong, and those things desperately needing fixing no matter how much the top 1% earn.

James Pethokoukis rightly takes “Progressive” tax-hikers to task for insisting that a lot of tax revenue remains in the U.S. to be extracted through higher tax rates from “the rich.

Richard Rahn rightly take tax-hikers to task.

GMU Econ PhD candidate Abby Hall rightly takes to task those who turn blind eyes to the reality of national-defense programs: they’re government programs – and like all government programs, subject to corruption, chock-full of waste, pregnant with unintended ill-consequences, and not remotely guided by acceptable general principles.  A slice:

It is particularly important for those of us concerned about liberty to recognize these issues of national defense are of particular importance. It’s the star-spangled elephant in the room. These “defense” activities, as opposed to protecting our freedoms and expanding the rights of those abroad, often have the opposite effect. They diminish the liberties they are intended to protect.

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Fare Wage

by Don Boudreaux on October 7, 2014

in Seen and Unseen, Work

On one of DC’s news radio stations this morning (either WTOP or WNEW, I don’t recall which) I heard a report of “community activists” protesting a proposed increase in fares to be charged by a government-operated bus line in Washington.  The activists (according to the reporter) insisted that “any fare hike will reduce ridership.”

Indeed so.  That’s the universal effect of higher costs: if the costs that an individual incurs as a result of his or her choice to engage in activity X rise, that individual will choose to engage in less X per period of time than he or she would have chosen to engage in had the costs to that individual of engaging in X not risen.  (Note that this effect of higher costs does not imply that higher costs are unjustified.  If X is a scarce good or service, or if people must use scarce goods or services to engage in X, then it is often beneficial for people to engage in less X.)

But my question: How many of the community activists who correctly understand the dampening effect that higher bus fares will have on the quantity of bus-service demanded also believe that government should raise the minimum wage?  I’d not be surprised if a great majority of the very same people who argue against raising bus fares (because higher bus fares reduce ridership) deny that raising the minimum age reduces the job prospects of low-skilled workers – or at least never stop to make this connection.

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… is from page 140 of Diane Coyle’s excellent 2014 book, GDP (original emphasis):

Meanwhile, it is above all important not to confuse GDP with social welfare.  The way the economy has changed has made the gap between GDP and welfare bigger than it used to be.  The acceleration in the variety of products, in customization, and in the blurring of the boundary between leisure and work in many creative professions and occupations – all of these mean that GDP growth increasingly underestimates increases in welfare.  Contrary to the popular impression that it exaggerates the improvement in our standard of living, the opposite may be true.

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Here’s a letter to a correspondent from my home state of Louisiana:

Mr. Eddie Bergeron

Mr. Bergeron:

Thanks for your e-mail.

You ask why I cannot “be more practical about trade.”  My answer is that unconditional support for unconditional free trade is the most practical policy that is practically available.  Unconditional free trade is far more practical than is your proposed alternative of empowering government officials to decide when, for how long, and to what degree trade should be free.

Free trade is simply consumers spending their money as they - rather than as government officials - wish.  Yes: changes in the pattern of consumer demands destroy some jobs.  But this reality is true whenever consumers change their spending pattern.  It is as true, for example, when consumers shift their demands from domestically produced steel to domestically produced aluminum as when they shift their demands from domestically produced steel to foreign-produced steel.  Anytime consumers change their spending pattern some incumbent producers suffer – and others gain.  There’s absolutely nothing about freedom to trade across political borders that uniquely “destroys” (or creates) jobs.

What is unquestionably impractical is your notion that politicians and bureaucrats can be trusted to superintend the spending decisions of millions of individual and diverse consumers.  Do you honestly believe that government officials with such awesome power will consistently resist political pressures to use that power on behalf of formidable interest groups?  And do you really suppose that even if such officials, by some miracle, rise steadily above politics, they can ever gather enough knowledge to distinguish correctly between changes in consumer demands that are (to use your term) “economically tolerable” and those that are not?

With respect, your fantastical confidence in the motives and competence of government officials leads you to endorse policies that are profoundly impractical in comparison to a policy of unconditional free trade.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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The Crime of Civil Forfeiture

by Don Boudreaux on October 6, 2014

in Civil Asset Forfeiture, Video

Although more than 16 minutes long, this video of John Oliver discussing civil forfeiture is well worth every second of your time.  It’s not only revealing, it’s also quite funny.  (Writing “funny” about the banana-republic practice of civil forfeiture seems odd, but the humor works well in this video without detracting from its serious message.)

Send this video to friends, family, co-workers, anyone who might conceivably watch it.  (HT Alex Tabarrok)

(The only good that I see ever coming from civil forfeiture is that it reveals more clearly than does any other practice of the modern state the true, predatory nature of government.)

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In this fine video from Prager University, George Will explains that so-called “campaign-finance reform” undermines free speech and protects incumbent politicians.

And anyone who thinks it alarmist to worry that “campaign-finance reform” undermines free speech as well as unjustly protects incumbent legislators believes in miracles.

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… is from page 147 of John Taylor’s excellent 2012 book, First Principles:

Regulatory capture and more general crony capitalism caused financial regulatory policy to deviate from rules-based principles and thereby helped cause the [2008 financial] crisis.  Unfortunately the financial regulations passed in 2010 do little to curb the excesses, and they have not ended the bailout mentality that could push America once again into crisis.  Unfortunately the newly passed heath care regulations raise costs and contribute to an atmosphere of unpredictability that has slowed down the economic recovery.

Robert Higgs, Roger Koppl, John Allison, and other sensible scholars, of course, would agree.

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Here’s a letter to the New York Times:

Jeff Madrick argues that support for free trade is naïve (“Our Misplaced Faith in Free Trade,” Oct. 5).  A letter detailing Mr. Madrick’s errors would be as lengthy as the Mary Maersk, the super-sized container ship (described elsewhere in your pages today; “Aboard a Cargo Colossus”) that peacefully helps people from Amsterdam to Seoul reach more buyers for what they wish to sell and more sellers for what they wish to buy.

So I content myself with a general point: if free trade is harmful, then so, too, are technology, education, and infrastructure.  These phenomena, no less than free trade, enable more output to be produced for market from fewer inputs.  Like free trade, therefore, these phenomena save labor.  They thus also – again, no less than does free trade – destroy some jobs while creating new jobs as well as new goods and services that would otherwise be too costly to produce.

Unless Mr. Madrick is willing also to argue that “faith” in greater knowledge and improved infrastructure is “misplaced,” your readers should reject Mr. Madrick’s brief against free trade.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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