Wages Should Be Determined by Markets, not Quota-Driven Bureaucrats

Christina Hoff Sommers of the American Enterprise Institute decimates the bean-counting feminist "paycheck fairness" legislation being considered by the Senate. Republicans presumably know this is a bad idea, but one can only wonder whether they will do the right thing and block this initiative that at best will be a boon for trial lawyers and at worst will lead to massive government intervention in employment markets. Here's an excerpt from her New York Times column.

...on the Senate's to-do list before the November elections is a "paycheck fairness" bill, which would make it easier for women to file class-action, punitive-damages suits against employers they accuse of sex-based pay discrimination. ...the bill...overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women, and it threatens to impose onerous requirements on employers to correct gaps over which they have little control. ...proponents point out that for every dollar men earn, women earn just 77 cents. ...there are lots of...reasons men might earn more than women, including differences in education, experience and job tenure. When these factors are taken into account the gap narrows considerably - in some studies, to the point of vanishing. A recent survey found that young, childless, single urban women earn 8 percent more than their male counterparts, mostly because more of them earn college degrees. Moreover, a 2009 analysis of wage-gap studies commissioned by the Labor Department evaluated more than 50 peer-reviewed papers and concluded that the aggregate wage gap "may be almost entirely the result of the individual choices being made by both male and female workers." ...The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism.

The GOP "Pledge" Doesn't Go Far Enough: There Should Be No Federal Government Role in Housing

Considering they could have sat on their hands and relied on unhappy voters to give them big gains in November, I'm not too unhappy about the House GOP's "Pledge to America." Yes, it's mostly filled with inoffensive motherhood-and-apple-pie language, but at least there's some rhetoric about reining in excessive government. After eight years of fiscal profligacy under Bush, maybe this is a small sign that Republicans won't screw up again if they wind up back in power. That being said, I was a bit disappointed that the GOP couldn't even muster the courage to shut down Fannie Mae and Freddie Mac, the two corrupt government-created entities that bear so much responsibility for the housing mess and subsequent financial crisis. The best the GOP could do was to say "Since taking over Fannie Mae and Freddie Mac, the mortgage companies that triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them, taxpayers were billed more than $145 billion to save the two companies. We will reform Fannie Mae and Freddie Mac by ending their government takeover, shrinking their portfolios, and establishing minimum capital standards." Is it really asking too much for Republicans to simply say "The federal government has no role in housing and Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development should be eliminated." Heck, the GOP's Pledge doesn't even mention a penny's worth of budget cuts for HUD. Here's an excerpt from Peter Wallison's Bloomberg column, which explains why Fannie and Freddie should be decapitated.

In a year when angry voters are demanding a reduced government role in the economy, it is remarkable that most of the ideas for supplanting Fannie Mae and Freddie Mac are just imaginative ways of keeping government in the business of housing finance. ...This is pretty astonishing. One would think that something might have been learned from the recent past, when two New Deal ideas for government housing support--the savings and loan industry and the government sponsored enterprises, Fannie Mae and Freddie Mac--failed spectacularly. It cost taxpayers $150 billion to clean up the first and may cost more than $400 billion to resolve the second. ...government policy that deliberately degrades loan quality or creates moral hazard will eventually cause devastation in the housing market. ...Government involvement in housing finance is an invitation to disaster. As illustrated by the S&Ls and GSEs, no matter how such a system is structured, government support will hide the real risks.

Bashing Bailouts and Inflexible Unions

No CAP bedwetter to debate in this segment.

Why Is the Left so Sensitive about Cuba?

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong's post was nothing more than a link to the Yglesias post with a snarky comment about "why can't we have better think tanks?" Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”...this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I'm actually not sure what argument Yglesias is making, but I think he assumed I was focusing only about fiscal policy when I commented about Cuba's failure being "a good illustration of the human cost of excessive government." At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he's really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I'm not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation's grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights.

So, yes, Cuba is an example of "the human cost of excessive government." And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He's finding out, though, that it's not easy putting toothpaste back in the tube.

Is Obama the Next Hoover or the Next FDR?

Jonah Goldberg writes in National Review that President Obama is beginning to look like the next Herbert Hoover. This is rather ironic since the left wanted him to become the next Franklin Delano Roosevelt, ushering in a new era of politically-popular statism.

...the Great Depression discredited laissez-faire economics for a generation or more. Hoover, who was hardly the "market fundamentalist" FDR made him out to be, suffered largely from the (bad) luck of the draw, giving Democrats a chance to argue for a new deal of the cards. For reasons fair and unfair, Obama, who inherited a bad recession and made it worse, every day looks more like a modern-day Hoover, whining about his problems, rather than an FDR cheerily getting things done. Inadequate to the task, Obama is discrediting the statism he was elected to restore.

Jonah makes a compelling case, particularly from a political perspective. But if we look just at economic policy, the Obama-as-FDR analogy is more accurate. Hoover was a big-government interventionist with failed policies. That's a pretty good description of Bush. FDR got elected in 1932 by promising to fix the mess, which is akin to Obama's hope and change message in 2008. And, just like FDR, Obama then continued the big-government interventionist policies of his predecessor. The only difference is that Roosevelt somehow was able to remain popular even though his policies kept the nation mired in depression for another decade. Obama, by contrast, is veering dangerously close to becoming another Jimmy Carter. Tom Sowell has some key details about the timing and impact of the Hoover-Roosevelt policies.

The history of the United States is full of evidence on the negative effects of government intervention. For the first 150 years of this country's existence, the federal government did not think it was its business to intervene when the economy turned down. All of those downturns ended faster than the first downturn where the federal government intervened big time-- the Great Depression of the 1930s. ...if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward. Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930. What were politicians to do? Say "We messed up"? Or keep trying one huge intervention after another? The record shows what they did: President Hoover's interventions were followed by President Roosevelt's bigger interventions-- and unemployment remained in double digits in every month for the entire remainder of the decade. There is another set of facts: The record that was set in 1929 for the biggest stock market decline in one day was broken in 1987. But Ronald Reagan did nothing-- and the media clobbered him for it. Then the economy rebounded and there were 20 years of sustained economic growth with low inflation and low unemployment. Can you imagine Barack Obama doing another Ronald Reagan?

Labor Day, Unions, and the Role of Government

In a free society, people obviously should be free to join unions and companies should be free to negotiate with unions. But that also means that companies should be free to resist union demands and hire non-union workers. There is no right or wrong in these battles, just as there is no right or wrong when McDonald's decides to sell french fries for a particular price. The market will reward good decisions and penalize bad choices. The only appropriate role for policy in this area is to enforce contracts and protect public safety. The government should not attempt to tip the scales either in favor of unions or in favor of employers. Our friends on the left, however, want the rules rigged in favor of unions, in part because of a reflexive desire for coerced equality. E.J. Dionne waxes nostalgic in the Washington Post for the good ol' days, when unions held significant power in the American economy.

Only 12.3 percent of American wage and salary workers belong to unions, according to the Bureau of Labor Statistics, down from a peak of about one-third of the work force in 1955. A movement historically associated with the brawny workers in auto, steel, rubber, construction, rail and the ports now represents more employees in the public sector (7.9 million) than in the private sector (7.4 million). Even worse than the falling membership numbers is the extent to which the ethos animating organized labor is increasingly foreign to American culture. The union movement has always been attached to a set of values -- solidarity being the most important, the sense that each should look out for the interests of all. This promoted other commitments: to mutual assistance, to a rough-and-ready sense of equality, to a disdain for elitism, to a belief that democracy and individual rights did not stop at the plant gate or the office reception room. You might accuse me of being a union romantic, and in some ways I am, having grown up in a union town, loved the great union songs, and imbibed such novels about labor's struggles as John Steinbeck's fine and underrated "In Dubious Battle."

There would be nothing wrong with Dionne's love letter to big labor - but only if he also agreed that the government should not take sides. Unfortunately (and predictably), that's not the case. Like other statists, he wants a thumb on the scales to help unions. He thinks he is being pro-worker, but his mistake is failing to understand that above-market wages (at least in the private sector) are not sustainable in the long run. Workers ultimately get paid on the basis of what they produce and if it costs $25 per hour to employ a worker and that worker produces $23 per hour of output, that ultimately is a recipe for unemployment. A good example is the American auto industry, which has declined in part because of a compensation system that is not matched by productivity. This does not necessarily mean that wages are too high. It could mean that productivity is too low. Some of that, to be sure, is the fault of government policies such as a corporate tax system that penalizes investment (thus making it more difficult for workers to boost productivity). But unions also have used their government-granted power to insist on absurd workforce practices. The picture below, taken from Mark Perry's excellent blog, compares union contracts in 1941 and 2007. With all the bureaucracy that is buried in those pages, is it a surprise that American auto workers don't produce as many cars per hours as their main foreign competitors?

The Joy of Government-Run Healthcare

Here's some horrifying news from the United Kingdom, where the government-run healthcare system allowed 239 patients to die of malnutrition in 2007. Another 8,000-plus entered the system for malnutrition and actually deteriorated.

In 2007, 239 patients died of malnutrition in British hospitals, the latest year for which figures are available. A wag might say it must be the English cuisine. But the real roots of this tragedy lie in Britain's government-run medical system, which tells us something about what we might expect from ObamaCare in the years ahead. A British charity, Age U.K., has been seeking for years to raise awareness of the issue. Yet despite increases in screening, training and inspection programs, the problem has only gotten worse. The charity reports that in 2007-2008 148,946 Britons entered hospitals suffering from malnutrition and 157,175 left in that state, meaning that hospitals released 8,229 people worse-off nutritionally than when they entered. In 2008-2009, that figure was up to 10,443. The problem is not a lack of food. Hospital malnutrition mostly affects the elderly or otherwise frail, who often need individualized mealtime assistance. Spoon-feeding the elderly may not seem like the best use of a nurse's time, but for some it may literally be a matter of life and death. Yet the constant scarcities created by government medicine, along with the never-ending drive to trim costs, has led the National Health Service to give nurses additional responsibilities and powers in recent years. Inevitably, this leaves them with less time to make sure patients are getting fed.

No system is perfect, so the point of this post is not to assert that there is something especially inhumane and/or incompetent about the British system. Instead, the real lesson is that doctors and hospitals generally try to please the people paying the bills. In government-run systems, that means appeasing politicians. This doesn't preclude good patient care, but it does mean that other factors may have too much of an impact on decisions. In a market-based system, though, medical professionals have a greater incentive to focus on patients.

I should also say that this is not an endorsement of the American system, which also suffers from the third-party payer problem. In part, this is because of direct government financing, but also because of excessive use of insurance caused by government-created distortions.

Get the Government Out of the Business of Embryonic Stem-Cell Research

As is so often the case, Jeff Jacoby of the Boston Globe hits the nail on the head, asking why taxpayers should be forced to fund embryonic stem-cell research. The moral issues in this debate are very important, to be sure, but Jacoby's column takes a different approach and uses economic arguments to thoroughly debunk those who claimed that taxpayer funding is the only hope for people suffering from a wide range of ailments. After all, if stem-cell research is expected to yield medical miracles, it should go without saying that the private sector will jump in with both feet. Which is exactly what has happened.

James Thomson, an embryologist at the University of Wisconsin, cultivated the first embryonic stem cell lines in 1998. By then the prohibition on using federal funds for scientific research in which human embryos are destroyed was already on the books; President Bill Clinton had signed it nearly three years earlier. So how did Thomson secure a government grant to finance his landmark achievement? He didn’t. His work was funded by the Geron Corporation, a California biotechnology company that develops treatments for cancer, spinal cord injuries, and degenerative diseases. ...this a good moment to ask a threshold question: Why should the federal government be funding controversial medical research in the first place? As Thomson’s 1998 discovery proved, pathbreaking accomplishments in stem-cell science are possible even when the government isn’t footing the bill. That was no anomaly. If the feds didn’t fund the search for embryonic stem-cell therapies, the private sector would. ...For-profit corporations and their shareholders aren’t the only source of private-sector stem-cell funding. The Washington Post reported in 2006 on the private philanthropy that was building new stem-cell labs in academia. “Los Angeles philanthropist Eli Broad gave $25 million to the University of Southern California for a stem cell institute, sound-technology pioneer Ray Dolby gave $16 million to the University of California at San Francisco, and local donors are contributing to a $75 million expansion at the University of California at Davis. . . Early this year, New York Mayor Michael R. Bloomberg quietly donated $100 million to Johns Hopkins University, largely for stem-cell research.’’ ...Imagine those that would do so if the federal government stopped underwriting research that so many taxpayers find problematic. Douglas Melton, the co-director of Harvard’s Stem Cell Institute, told the Boston Globe last week that private support is “the only durable and consistent source’’ of funding for embryonic stem-cell research. He’s right. Medical research would not wither away if the government took a back seat to the private sector. In this as in so many other areas, perhaps it's time to re-think Washington’s role.

Should the FDA Get More Power after Salmonella Egg Scare?

Steve Chapman of the Chicago Tribune makes several excellent points in his column on the recent salmonella scare, commenting on the absurd tendency to reward government bureaucracies that screw up. But more important, he explains that there are very strong incentives for safety in an unfettered marketplace. The fundamental issue, though, is that there is no way of completely eliminating risk in society, so the responsible approach is finding the best ways to minimize risk without imposing excessive costs. Relying on free markets is surely the best answer, though the government does have a role. As Chapman notes, a well-functioning tort system ensures that companies can be punished by people who suffer damages. Command-and-control regulation, by contrast, is a very expensive and inflexible approach.

In the private sector, entities that fall short of doing their jobs find themselves forced to shrink. In the public sector, the opposite is typically true. Failure is an option, and often a beneficial one. The Federal Reserve Board and Treasury facilitated the 2008 financial crisis? Then obviously we have no choice but to give them even more responsibility. The Securities and Exchange Commission let Bernie Madoff rob investors? A bigger SEC will be a smarter SEC. Just once, I'd like to see a government official say, "We blew it, and you know what? If you give us another chance, we'll probably blow it again." But so far, my hope has not availed. It's true that the FDA is charged with assuring food safety. But really, the government can't do that. The task is too big and too complex. Fortunately, it doesn't have to do it, because the pressures of competition force producers to make sure their goods are clean and wholesome. What goes curiously unnoticed is that egg suppliers and grocery stores have nothing to gain from sickening their customers -- and a lot to lose. It doesn't take many obvious hygiene lapses for a company to get a bad reputation, and a bad reputation can be catastrophic. In 1971, a New York man died of botulism after eating a can of Bon Vivant soup. If you've never heard of Bon Vivant soup, there's a simple explanation: In no time at all, the company was bankrupt and the brand was as defunct as William McKinley. The farms implicated in this episode are likely to find themselves oddly short of buyers in the coming months, if not years -- unless they can prove they have taken drastic steps to clean up their act. But the burden of proof will be on them. They can also expect to be sued for huge sums of money. Meanwhile, there are plenty of other companies that didn't screw up, whose wares will be more attractive going forward.

Great Moments in Government Stupidity and Incompetence

For those who favor truth in labeling, the housing meltdown and related financial crisis and economic downturn should be brightly stamped with the phrase, "Made in Washington." Here are two good pieces of evidence. First, this paper from the American Enterprise Institute is one of the best big-picture analyses on the issue. It identifies how "affordable lending" policies are at the heart of the problem. Here's an excerpt from the abstract.

Government policies forced a systematic industry-wide loosening of underwriting standards in an effort to promote affordable housing. This paper documents how policies over a period of decades were responsible for causing a material increase in homeowner leverage through the use of low or no down payments, increased debt ratios, no loan amortization, low credit scores and other weakened underwriting standards associated with NTMs. These policies were legislated by Congress, promoted by HUD and other regulators responsible for their enforcement, and broadly adopted by Fannie Mae and Freddie Mac (the GSEs) and the much of the rest mortgage finance industry by the early 2000s. Federal policies also promoted the growth of overleveraged loan funding institutions, led by the GSEs, along with highly leveraged private mortgage backed securities and structured finance transactions. HUD’s policy of continually and disproportionately increasing the GSEs’ goals for low- and very-low income borrowers led to further loosening of lending standards causing most industry participants to reach further down the demand curve and originate even more NTMs. As prices rose at a faster pace, an affordability gap developed, leading to further increases in leverage and home prices. Once the price boom slowed, loan defaults on NTMs quickly increased leading to a freeze-up of the private MBS market. A broad collapse of home prices followed.

Then, to show a good example of Mitchell's Law, which is how bad government policy leads to more government policy, here's a story about the fiasco surrounding President Obama's mortgage subsidy program. The government is so bloody incompetent, it can't even give away money effectively.

Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out. The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday's report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say. More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year. "The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications," said Mark Zandi, chief economist at Moody's Analytics. ...Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork. The banking industry said borrowers weren't sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out. Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers' monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

Creating Jobs: The Real World vs. Obamanomics

Michael Fleischer is a brave man. He exposed himself and his company to retribution and attack by explaining how Obama's policies are discouraging job creation in a column for the Wall Street Journal. Let's hope he doesn't mysteriously get audited, because he provides valuable real-world insight into how taxes and other forms of government intervention hinder job creation (and reduce take-home pay for those lucky enough to still have jobs).

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally. Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally's Medicare and $3,661 for her Social Security. When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally's job each year. Because my company has been conscripted by the government and forced to serve as a tax collector, we have lost control of a big chunk of our cost structure. Tax increases, whether cloaked as changes in unemployment or disability insurance, Medicare increases or in any other form can dramatically alter our financial situation. With government spending and deficits growing as fast as they have been, you know that more tax increases are coming—for my company, and even for Sally too. Companies have also been pressed into serving as providers of health insurance. In a saner world, health insurance would be something that individuals buy for themselves and their families, just as they do with auto insurance. Now, adding to the insanity, there is ObamaCare. Every year, we negotiate a renewal to our health coverage. This year, our provider demanded a 28% increase in premiums—for a lesser plan. This is in part a tax increase that the federal government has co-opted insurance providers to collect. We had never faced an increase anywhere near this large; in each of the last two years, the increase was under 10%. To offset tax increases and steepening rises in health-insurance premiums, my company needs sustainably higher profits and sales—something unlikely in this "summer of recovery." We can't pass the additional costs onto our customers, because the market is too tight and we'd lose sales. Only governments can raise prices repeatedly and pretend there will be no consequences. And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company's vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment. A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.

Government Intervention, Favors for the Rich, and Economic Damage

Whether we're looking at TARP bailouts, Obamacare, or tax loopholes, a common theme is that politicians implement a policy by arguing they want to help the less fortunate. When the dust settles, however, it is often the case that politically well-connected rich people are the big beneficiaries. The overall economy tends to be weaker, meanwhile, and the specific sector suffers because of resource misallocation, so poor people actually fall farther behind. A good example is rent control. The Wall Street Journal has an editorial citing the case of Bianca Jagger to illustrate how the law has become a giant rip-off that deprives landlords of their property rights while lining the pockets of the elite. Those lower on the income scale, by contrast, suffer because of a housing market crippled by government intervention.

Jetsetter and social activist Bianca Jagger has lost her legal bid to keep her knock-down-price rental at 530 Park Avenue. A New York state judge last week ordered Mick's ex to pay $708,600 in back rent and other fines to her landlords. Ms. Jagger spent nearly 20 years in the two bedroom apartment—rent-stabilized at $4,600 a month. But then she complained about poor upkeep. The landlords in turn noted that Ms. Jagger, in the U.S. on a tourist visa, shouldn't pay the lower rent since New York isn't her "primary residence," one of the criteria under rent control laws. A state appeals court sided with them in 2008 and last week another court upheld the decision and said she could be evicted. As part of the fine, the judge ruled that Ms. Jagger owes $246,468 for the "fair market use and occupancy" over the years she was in dispute with the landlords. They said the apartment would have gone on the open market for $8,800 a month. The case sums up the insanity of regulating prices in one of the world's most competitive and dynamic real estate markets. Rent control, a "temporary" World War II-era measure that survives into this century, creates housing shortages, drives up prices for non-rent control real estate and contributes to middle class flight. As Ms. Jagger perhaps found out with her moldy apartment, artificially keeping down rents gives landlords the rational financial incentive to skimp on upkeep. Worse than that, rent control disproportionately subsidizes the affluent. A Harvard University study in the late 1980s found that rent-controlled apartments were in some of the cities best neighborhoods, that 94% of its tenants were white and roughly three-quarters were families without children.

Another Sad Example of Mitchell's Law

I've decided my one legacy to the world is the phrase, "Bad government policy begets more bad government policy." This term, which I am modestly calling Mitchell's Law, describes what happens when government intervention (Fannie and Freddie, for example, or Medicare and Medicaid) causes problems in a particular market (a housing bubble or a third-party payer crisis), which leads the politicians to impose more misguided intervention (bailouts or Obamacare). Here's a good example from Germany. The politicians created government-run healthcare. Overweight people are putting a larger burden on the system, imposing costs on taxpayers. The logical response is to shift to a market-based system where people are in charge of their own healthcare costs. Not surprisingly, that option isn't being considered. Instead, politicians are using the situation as an excuse to consider even more taxes.

Marco Wanderwitz, a conservative member of parliament for the German state of Saxony, said it is unfair and unsustainable for the taxpayer to carry the entire cost of treating obesity-related illnesses in the public health system. "I think that it would be sensible if those who deliberately lead unhealthy lives would be held financially accountable for that," Wanderwitz said, according to Reuters. Germany, famed for its beer, pork and chocolates, is one of the fattest countries in Europe. Twenty-one percent of German adults were obese in 2007, and the German newspaper Bild estimates that the cost of treating obesity-related illnesses is about 17 billion euro, or $21.7 billion, a year. ...Health economist Jurgen Wasem called for Germany to tackle the problem of fattening snacks in order to raise money and reduce obesity. "One should, as with tobacco, tax the purchase of unhealthy consumer goods at a higher rate and partly maintain the health system," Wasem said, according to Germany's English-language newspaper The Local. "That applies to alcohol, chocolate or risky sporting equipment such as hang-gliders." Others are suggesting even more extreme measures. The German teachers association recently called for school kids to be weighed each day, The Daily Telegraph said. The fat kids could then be reported to social services, who could send them to health clinics.

The Nanny State and Toxic Light Bulbs

Deroy Murdock explains in National Review how politicians in Washington have imposed legislation - which most Americans still don't know about - to ban traditional light bulbs.

As American as the grand slam, the Mustang convertible, and the constitutional republic, Thomas Alva Edison’s incandescent light bulb is among this nation’s most enduring gifts to mankind. ...Today’s federal government, naturally, had to hammer something that has hummed along nicely for 130 years. In one of his most shameful moments, former president George W. Bush foolishly signed the Energy Independence and Security Act of 2007. EISA establishes performance criteria that Edisonian bulbs cannot meet. ...Few Americans realize that federal busybodies plan to snatch their traditional bulbs. Sylvania’s December 2009 survey of 302 adults found that “awareness of the 2012 100-watt bulb phase-out” is just 18 percent (error margin: +/- 5.7 percent).

The political elite are imposing these rules on us because they think we're too stupid to make intelligent decisions about the tradeoff between cost and energy. That's offensive, but it's just one of the problems. Deroy also points out that there are potentially serious health risks associated with the new light bulbs we'll be forced to use.

CFLs should be discarded at recycling centers. Hundreds of millions of busy Americans, however, will toss these dangerous bulbs in the trash, atop table scraps and junk mail. CFLs will clog landfills from coast to coast. Decades hence, mercury will have leeched into the environment. Americans will wonder why people are suffering brain, kidney, and lung damage. Medical visits will yield lawsuits. And yet another national disaster will erupt, courtesy of Washington, D.C. ...“Here we have the government entering all of our homes. Our homes are our castles,” says Brandston, a former adjunct professor of architecture at Rensselaer Polytechnic Institute and a founder of its Lighting Research Center. “Now they are telling us how to light our homes, and they are putting onerous burdens on us in terms of handling these toxic CFLs. The government should not enter our homes, tell us how to live, endanger our health, and ruin our quality of life.” Republicans and thinking Democrats running for Congress this fall should pledge publicly to repeal the federal ban on Thomas Edison’s monumental creation. Why not try something worthy of the Spirit of ’76? Keep traditional bulbs, CFLs, halogens, and everything else on the market, and allow Americans to purchase whatever bulbs help them pursue happiness.

Bureaucracy Run Amok

John Derbyshire of National Review has an interesting article on bureaucratic harassment of private business. He begins with a personal story of something that happened when he first came to the United States and was working at a food-preparation company:

The first federal regulator I ever knew was a fellow named Ernie. ...Ernie was a power freak. If you showed him the respect he thought he was entitled to, he was generally harmless. If you crossed him, however, his wrath was terrible. The boss of the firm was a no-nonsense former Marine. ...He put up with Ernie as best he could, but sometimes the forbearance required was too great. ...On one occasion the boss lost it and yelled at Ernie. Ernie then had his minions go round the firm “tagging” all the preparation tables with what looked like old-fashioned white luggage tags. Peered at up close, the tags revealed printed messages saying that no food product could go anywhere near the tagged table until the tag was removed, with ferocious federal penalties threatened against transgressors. The tags could, of course, only be removed by Ernie. The tables were out of commission. We had to scrub those suckers three or four times over with green scouring pads and Comet before Ernie would deign to remove his tags and let the firm get on with their business. Another time, after some other go-round with the boss, Ernie determined that the firm’s ZIP code was printed on the dinner boxes in too small a font. The boss had to get rolls of stick-over labels printed up, and we menials spent a couple of days working our way through the freezer rooms relabeling the dinners so the ZIP code was in the FDA-approved font size. I guess this was real important to the nation’s health.

The substance of his article is another example of bureaucratic excess, though this time with much greater potential for economic damage. The federal bureaucracy and Washington political elite (with the support of big companies that don't like competition) are hampering the development of an industry that is offering 100-percent safe genetic testing for consumers. The excerpt is long, but shows how government intervention is both unwarranted and driven by bad motives.

A firm named Pathway Genomics, based in San Diego, is one of many that have come up in the past few years offering to scan a person’s DNA and report on any significant disease-risk or drug-response markers. You swab your cheek with a sterile Q-Tip they provide, or spit into a sterile plastic tube, and you send the saliva sample off to them. They scan it and send you back the information. The cost of a test can be from $20 to $500, depending on how many markers are scanned for. Earlier this year Pathway entered into a deal with Walgrens, a nationwide drugstore chain with 7,500 outlets. The deal would have allowed Pathway to operate counters at 6,000 of those outlets, selling their service. Instead of signing up with Pathway via their website and sending in your saliva sample through the mail, you could do the thing right there in your local drugstore. Health reporter Rob Stein at the Washington Post did a story on the Pathway-Walgreens deal. The story appeared in the May 11 edition of the newspaper. By way of researching it, Stein called the FDA to ask them for a quote. ...The call, however, woke the FDA from their dogmatic slumbers. ...The regulocrats lumbered into action. A letter went out to Pathway warning them that their test was a “medical device” likely subject to FDA oversight and pre-marketing approval. Hearing of this, Walgreens canceled the deal with Pathway. Close behind the FDA, like jackals following tigers, came Congress. Henry Waxman, head of the House Energy and Commerce Committee, demanded a comprehensive document dump from three of the firms — every letter, every lab report, every e-mail. Last week the FDA escalated the war, sending letters out to five more of the firms (23andMe, Navigenics, DeCode, Illumina, and Knome) couched in similar terms to the original Pathway letter. ...The logic of classifying these DNA scans as “medical devices” bears a closer look. What actually is a “medical device”? Answer: A medical device is anything the FDA declares to be a medical device. ...You might still think it’s a bit of a stretch to call these tests “medical devices.” They are, after all, merely informational. Consumers are not being dosed with anything, or having anything attached to or implanted in their bodies, nor even inserted into their mouths for purposes of tongue depression. “Medical device”? Huh? ...Lest you should think this is a straightforward tale of power-crazed regulators and tax-hungry politicians killing off an infant industry, please let it be noted that Big Government is by no means the only predator that struggling start-ups must face. There is also Big Business. In seeking to widen its regulatory scope, the FDA has some support from big, established biotech companies. Back in 2008, biotech giant Genentech petitioned the FDA to expand its authority into products involving “laboratory-developed tests” (LDTs). An LDT is one with an expert in the loop. An example of a non-LDT would be a home pregnancy test — no expert between test and interpretation. LDTs are more lightly regulated than non-LDTs, for understandable reasons. ...It was natural for Genentech and other established companies to look with disfavor on impertinent startups taking advantage of regulatory loopholes. Big Business is just as capable of hating entrepreneurial startups as is Big Government. A business can only lobby, though. Government can act. ....The U.S.A. is a real nice place to have a job in government, and still a pretty nice place to work for a big corporation — especially one designated “too big to fail.” For the start-up entrepreneur in an ideologically fraught field, however, the environment is increasingly hostile. Why do they even bother?

Great Moments in Government Stupidity

There really isn't much I can add to this story in USA Today about the IRS giving money to prisoners. Yes, it is a story about typical government incompetence. But it also shows the inevitable problems that occur when government engages in industrial policy and social engineering via the tax code. Let's call this argument 1,549,628 in favor of the flat tax.

Despite efforts by the IRS to combat scams, thousands of individuals — including nearly 1,300 prison inmates — have defrauded the government of millions of dollars in home buyer credits, Treasury's inspector general reported Wednesday. ...1,295 prisoners, including 241 serving life sentences, received $9.1 million in credits, even though they were incarcerated at the time they reported that they purchased their home. These prisoners didn't file joint returns, so their claims could not have been the result of purchases made with or by their spouses, the report said. 2,555 taxpayers received $17.6 million in credits for homes purchased before the dates allowed by law. 10,282 taxpayers received credits for homes that were also used by other taxpayers to claim the credit. In one case, 67 taxpayers used the same home to claim the credit.

Government Intervention and the Great Depression

Citing a scholarly book by Richard Vedder and Lowell Gallaway, Tom Sowell concisely explains that government intervention caused the Great Depression.

Right here and right now there is a widespread belief that the unregulated market is what got us into our present economic predicament, and that the government must "do something" to get the economy moving again. FDR's intervention in the 1930s has often been cited by those who think this way. ...Although the big stock market crash occurred in October 1929, unemployment never reached double digits in any of the next 12 months after that crash. Unemployment peaked at 9 percent, two months after the stock market crashed-- and then began drifting generally downward over the next six months, falling to 6.3 percent by June 1930. This was what happened in the market, before the federal government decided to "do something." What the government decided to do in June 1930-- against the advice of literally a thousand economists, who took out newspaper ads warning against it-- was impose higher tariffs, in order to save American jobs by reducing imported goods. This was the first massive federal intervention to rescue the economy, under President Herbert Hoover, who took pride in being the first President of the United States to intervene to try to get the economy out of an economic downturn. Within six months after this government intervention, unemployment shot up into double digits-- and stayed in double digits in every month throughout the entire remainder of the decade of the 1930s, as the Roosevelt administration expanded federal intervention far beyond what Hoover had started. If more government regulation of business is the magic answer that so many seem to think it is, the whole history of the 1930s would have been different.

I particularly like that Sowell compares the 1929 and 1987 stock market crashes. The market actually fell more in 1987, but Reagan wisely did nothing and the economy continued growing.

The very fact that we still remember the stock market crash of 1929 is remarkable, since there was a similar stock market crash in 1987 that most people have long since forgotten. What was the difference between these two stock market crashes? The 1929 stock market crash was followed by the most catastrophic depression in American history, with as many as one-fourth of all American workers being unemployed. The 1987 stock market crash was followed by two decades of economic growth with low unemployment. But that was only one difference. The other big difference was that the Reagan administration did not intervene in the economy after the 1987 stock market crash-- despite many outcries in the media that the government should "do something."

Video Explains Why Government-Imposed Minimum Wages Are Wrong

A former intern of mine does a very good job of showing how minimum wage laws cause joblessness in this new video from the Center for Freedom and Prosperity.

The Way Healthcare Should Function

This article from the Weekly Standard almost makes me want to cry with frustration. It shows how the healthcare system generally would function in the absence of government-imposed distortions such as Medicare, Medicaid, and (especially!) the tax loophole for employer-provided insurance. Sadly, Obamacare will push the system even further in the wrong direction. And when those bad results become obvious, I can safely predict politicians will blame the free market and use the mess as an excuse for even more government intervention. This is "Mitchell's Law": Bad policy begets more bad policy.

On a wall inside Dr. Brian Forrest’s medical office in a suburb of Raleigh, North Carolina, is something you won’t find in most doctors’ offices, a price list... Forrest doesn’t take insurance. If he did, the prices would be far higher and not nearly as transparent. He says listing prices up front is about trying to do business in a straightforward way, “like a Jiffy Lube.” Forrest’s practice, Access Healthcare, was born out of his frustration with the bureaucratic system run by major health care providers and insurance companies. His epiphany came about 10 years ago, as he was completing his family medicine residency at Wake Forest University. “I was basically being told I needed to see 30 patients a day every day, and that’s what we had to do,” he recalls, speaking with a soft drawl. He didn’t care for that pace, preferring to spend 45 minutes to an hour with each patient. ...Because he doesn’t have to file insurance forms, he only needs a single office assistant, and the low overhead allows him to charge less than other doctors. Occasionally, his charges wind up being less than just the co-pays for Medicare or private insurance. He’s negotiated deals with a lab company to reduce his patients’ costs for tests. The lab loves being paid on the spot for services rendered and allows Forrest to charge his patients $30, for example, for a prostate-cancer screening test that the company bills to an insurer at $184. “For specialists, cash in the hand is better than a bigger amount charged to insurance,” he says. He’s found other doctors happy to join in, such as a cardiologist who’s willing to give discounts of 80 to 90 percent to his patients if he’s paid cash up front. “The discovery I made was that by getting rid of administrative, bureaucratic hassles, I was able to do very well financially and at the same time have high patient satisfaction and good quality of care,” he says. Even more surprising, most of his patients are not wealthy. Half have no insurance, and another 15 percent are on Medicare. ...in recent months, he’s been flooded with inquiries from fellow doctors. “Since the health care reform bill passed, you wouldn’t believe the number of doctors who have said they’ve had it and want to operate outside the system,” he says.

Obamacare Kills a Company and Puts 50 More People on the Unemployment Rolls

In the real world, government policies that raise the cost of doing business often lead to crippling - and sometimes even fatal - results. Here's a story, which I saw via Instapundit and Megan McArdle, about an insurance company that is closing its doors because "federal healthcare legislation made the two-year old company's business model unsustainable." In her commentary, Megan displays an appropriate level of skepticism about whether bad policy deserves all the blame whenever a company goes under, but this does seem to be one of those instances since Obamacare forces health insurance companies to follow bad business practices such as allowing people to get sick before getting insurance. The loss of 50 jobs is discouraging, as is the loss of a company that was providing very sensible (or at least would be very sensible in the absence of destructive government policies) high-deductible policies that represented genuine insurance rather than inefficient low-deductible policies (i.e., pre-paid, "all you can eat" plans) that dominate the current quasi-private market:

The hotly debated healthcare reform bill signed into law in March has killed a local insurance company. At least that’s according to a brief letter Richmond-based nHealth sent to insurance agents explaining the reason behind the shuttering of the once promising local startup. “I wanted to share with you the decision by nHealth’s board of directors to exit the health insurance market,” wrote James Slabaugh, executive vice president of the Richmond-based insurance company that employed about 50 people. (Many of those were at an office in Ohio). ...The letter explained that “considerable uncertainties” in the health insurance market caused by the recent federal healthcare legislation made the two year-old company’s business model unsustainable. ...Nezi said nHealth tried to raise additional capital but was unsuccessful. “People got skittish about writing any more checks,” Nezi said. “Because of that uncertainty, would you invest a few more million dollars of your money in a startup if you don’t know what the rules are going to be?” That left company with only one choice. “The most prudent and sensible conclusion for us is to discontinue the sale of healthcare policies and withdraw from the healthcare business,” Slabaugh wrote in the letter. Founded in 2008, nHealth was built around a high deductible insurance plan model that utilized health savings accounts and kept costs down making consumers more involved in their healthcare decisions.