Celebrating humanity's flourishing through the spread of capitalism and the rule of law
06 Jun 2014 Leave a comment
in Adam Smith, rentseeking Tags: The wealth of nations
The bounty to the white-herring fishery is a tonnage bounty; and is proportioned to the burden of the ship, not to her diligence or success in the fishery; and it has, I am afraid, been too common for vessels to fit out for the sole purpose of catching, not the fish, but the bounty.
05 Jun 2014 6 Comments
in Public Choice Tags: Yes Prime Minister
– The Daily Mirror is read by people who think they run the country;
– The Guardian is read by people who think they ought to run the country;
– The Times is read by people who actually do run the country;
– The Daily Mail is read by the wives of the people who run the country;
– The Financial Times is read by people who own the country;
– The Morning Star is read by people who think the country ought to be run by another country;
– And the Daily Telegraph is read by people who think it is."
Sir Humphrey: "Prime Minister, what about the people who read the Sun?"
Bernard Woolley: "Sun readers don’t care who runs the country, as long as she’s got big tits."
05 Jun 2014 Leave a comment
in Federalism, law and economics, politics - USA Tags: decriminalisation of marijuana, division of power, drug laws, Justice Scalia, Justice Thomas, meddlesome preferences
The decriminalisation of marijuana possession by American states doesn’t really matter that much because it is still illegal under Federal law. Marijuana markets moved into the open in the states that decriminalised it because the federal authorities have chosen not to enforce their laws against these traders.
Justice Clarence Thomas is a radical view of the interstate commerce clause. This clause of the US Constitution at the height of the new deal was reinterpreted to allow Congress to regulate both interstate commerce and intrastate markets that affected interstate commerce.
The current interpretation of this clause supported by everyone on the US Supreme Court but Thomas is Congress can regulate the possession of marijuana because this affects interstate commerce. Justice Scalia explains:
…the Commerce Clause permits congressional regulation of three categories:
(1) the channels of interstate commerce;
(2) the instrumentalities of interstate commerce, and persons or things in interstate commerce; and
(3) activities that "substantially affect" interstate commerce.
As …the Court affirms today, Congress may regulate noneconomic intrastate activities only where the failure to do so "could … undercut" its regulation of interstate commerce.
… This is not a power that threatens to obliterate the line between "what is truly national and what is truly local.
Justice Thomas rejects this view and wants to return to the original meaning of the interstate commerce clause:
Respondent’s local cultivation and consumption of marijuana is not "Commerce … among the several States."
Certainly no evidence from the founding suggests that "commerce" included the mere possession of a good or some personal activity that did not involve trade or exchange for value.
In the early days of the Republic, it would have been unthinkable that Congress could prohibit the local cultivation, possession, and consumption of marijuana
and
If the Federal Government can regulate growing a half-dozen cannabis plants for personal consumption (not because it is interstate commerce, but because it is inextricably bound up with interstate commerce), then Congress’ Article I powers – as expanded by the Necessary and Proper Clause – have no meaningful limits.
and further:
If the majority is to be taken seriously, the Federal Government may now regulate quilting bees, clothes drives, and potluck suppers throughout the 50 States.
This makes a mockery of Madison’s assurance to the people of New York that the "powers delegated" to the Federal Government are "few and defined", while those of the States are "numerous and indefinite."
In closing, Thomas said:
The majority prevents States like California from devising drug policies that they have concluded provide much-needed respite to the seriously ill.
Our federalist system, properly understood, allows California and a growing number of other States to decide for themselves how to safeguard the health and welfare of their citizens.
The adoption of the view of Thomas could not be more unlikely. Most federal regulation in the United States is based on linking it to the power of the Congress to regulate interstate commerce and foreign commerce. Thomas once noted that:
[w]hen asked at oral argument if there were any limits to the Commerce Clause, the Government was at a loss for words
The decriminalisation of marijuana in the United States will have to be based on more and more states choosing to decriminalise in the hope that the Federal Government does not enforce its rather savage criminal laws on drugs in their state. That’s is what seems to be happening. Whether that will still happen when a Republican wins the White House in 2016 remains to be seen.
Three American States have even passed hopelessly unconstitutional right to try laws. These laws purport to allow the residents try experimental drugs that have not yet received approval of the Federal level by the FDA.
Even under the narrow interpretation of federal powers by Justice Thomas, these laws are unconstitutional. These laws nonetheless have social value because they are push the boundaries of the current political sense consensus.
This evaluation applies to marijuana decriminalisation laws too. They test the current boundaries and can create the possibility of social change through democratic action.
Many who want a strong central government forget that the social agendas of the crazies to the left and right of them will also be implemented all in good time at the national level as well. Power rotates in any democracy so with enough time the meddlesome preferences of most sides of politics will be legislated into law so that everyone ends up been annoyed and over-regulated and more than a few end up before the courts and even in prison.
A wiser course in constitutional design is to give the parliament as much powers as you might wish those wreckers and crazies that make up your political opponents to have when they come to office, as they surely must in six or nine years time. Even the British Labour Party took an interest in devolution and an assembly for London after 15 years of Maggie Thatcher, good and hard.
05 Jun 2014 Leave a comment
in constitutional political economy, Federalism, Public Choice Tags: European Union
The best achievements of European institutions have all stemmed from removing restrictions—to trade, travel, residency and financial transactions.
But for at least 30 years, the EU has mainly been in the business of imposing restrictions on everything from the judicial sentences that national courts can impose to the shape of the vegetables that Europeans get to eat.
Stealth Europe transmogrified into Busybody Europe.
Wall Street Journal via Managerial Econ: What’s going on in the EU?
02 Jun 2014 Leave a comment
in income redistribution, Public Choice, rentseeking Tags: The Samaritan's dilemma
HT: The Town Crier
01 Jun 2014 Leave a comment
in constitutional political economy, Gary Becker, income redistribution, Public Choice, rentseeking, Sam Peltzman Tags: growth in government, The Great Restraint
From 1950 to 1980 the size of government doubled in the developed world and then stopped dead in 1980. This great restraint on the growth of government happened everywhere. It was not just Thatcher’s Britain or Reagan’s America. It was everywhere, in France and Germany, and even in Scandinavia.
Peltzman’s data below has government spending double between 1950 and 1980, and then nothing much happened in between 1980 and 2007 – the size of government is pretty flat as a share of GDP for 27 years.
Source: Sam Peltzman, The Socialist Revival? (2012).
There is a noticeable reduction in the size of government spending in Scandinavia. Reagan and Thatcher had nothing on those Social Democrats in Scandinavia when it comes to cutting the size of government.
Governments everywhere hit a brick wall in terms of their ability to raise further tax revenues. Political parties of the Left and Right recognised this new reality.
Government spending grew in many countries in the 20th century because of demographic shifts, more efficient taxes, more efficient spending, a shift in the political power from those taxed to those subsidised, shifts in political power among taxed groups, and shifts in political power among subsidised groups.
The median voter in all countries was alive to the power of incentives and to not killing the goose that laid the golden egg.
After 1980, the taxed, regulated and subsidised groups had an increased incentive to converge on new lower cost modes of redistribution.
More efficient taxes, more efficient spending, more efficient regulation and a more efficient state sector reduced the burden of taxes on the taxed groups.
Most subsidised groups benefited as well because their needs were met in ways that provoked less political opposition.
Gary Becker made this warning about the political repercussions of tax reform and economic reform in general for the size of government:
…the greater efficiency of a VAT and its ease of collection is a two-edged sword.
On the one hand, it would raise a given amount of tax revenue efficiently and cheaply.
Since economists usually evaluate different types of taxes by their efficiency and ease of collecting a given amount of tax revenue, economists typically like value added taxes.
The error in this method of evaluating taxes is that it does not consider the political economy determinants of the level of taxes.
From this political economy perspective, the value added tax does not look so attractive, at least to those of us who worry that governments would spend and tax at higher levels than is economically and socially desirable.
Reforms ensued after 1980 led by parties on the Left and Right, with some members of existing political groupings benefiting from joining new political coalitions.
The deadweight losses of taxes, transfers and regulation limit inefficient policies and the sustainability of redistribution.
Peltzman likes to note that at the start of the 20th century, the United States government was about 8% of GDP. The two largest programs were education and highways. The post office was as big as the military.
Government is about five times that now with defence, health, education and income security accounting for 70% of this total. Peltzman makes the very interesting point that:
There is no new program in the political horizon that seems capable of attaining anything like the size of any of these four.
For the time being the future government rest on the extent of existing mega programs.
Health and income security account for 55% of total government spending in the OECD. It is in these two programs where the future of the growth of government lie.
The pressure for that growth in government will come from the elderly. Governments will have to choose between high taxes on the young to fund these programs for the elderly or find other options.
01 Jun 2014 Leave a comment
in applied welfare economics, constitutional political economy, Gordon Tullock, income redistribution, Public Choice Tags: Gordon Tullock, income redistribution
26 May 2014 Leave a comment
in applied price theory, Public Choice, urban economics Tags: supply of land, town planning, urban limits
Land just inside the Auckland urban limit is worth 10 times the value of land just outside the limit.
23 May 2014 Leave a comment
in applied price theory, applied welfare economics, economic growth, economics, international economics, Public Choice, rentseeking Tags: anti-foreign bias, Bryan Caplan, free trade, protectionism
21 May 2014 Leave a comment
in applied price theory, David Friedman, development economics, Public Choice Tags: bootleggers and baptists, expressive voting, foreign investment, imperialism, marxist fallacies
Much more commonly, [economic imperialism] is used by Marxists to describe–and attack–foreign investment in “developing” (i.e., poor) nations.
The implication of the term is that such investment is only a subtler equivalent of military imperialism–a way by which capitalists in rich and powerful countries control and exploit the inhabitants of poor and weak countries.
There is one interesting feature of such “economic imperialism” that seems to have escaped the notice of most of those who use the term.
Developing countries are generally labour rich and capital poor; developed countries are, relatively, capital rich and labour poor. One result is that in developing countries, the return on labour is low and the return on capital is high–wages are low and profits high. That is why they are attractive to foreign investors.
To the extent that foreign investment occurs, it raises the amount of capital in the country, driving wages up and profits down.
The effect is exactly analogous to the effect of free migration. If people move from labour-rich countries to labour-poor ones, they drive wages down and rents and profits up in the countries they go to, while having the opposite effect in the countries they come from.
If capital moves from capital-rich countries to capital-poor ones, it drives profits down and wages up in the countries it goes to and has the opposite effect in the countries it comes from.
The people who attack “economic imperialism” generally regard themselves as champions of the poor and oppressed.
To the extent that they succeed in preventing foreign investment in poor countries, they are benefiting the capitalists of those countries by holding up profits and injuring the workers by holding down wages.
It would be interesting to know how much of the clamour against foreign investment in such countries is due to Marxist ideologues who do not understand this and how much is financed by local capitalists who do.
David D. Friedman
Opposition to immigration might protect the wages of local workers. Opposition to foreign investment might increase the profits of local capitalists.
How does more competition help the local capitalists? The foreign investment is in response to the high returns in the local market and that inflow of foreign capital will continue until local rates of return match those in other countries.
Equalisation of risk-adjusted rate of returns is central to the operation of capital markets.
Stopping this process of equalisation through regulation only benefits the capitalists inside the country. It reduces the wages of workers because they have less capital and fewer modern technologies to work with.
20 May 2014 Leave a comment
in applied welfare economics, industrial organisation, Public Choice, rentseeking, survivor principle Tags: corporate welfare, farm welfare, middle-class welfare
The term corporate welfare was coined by Ralph Nader in 1956. Corporate welfare is subsidies, tax breaks, or other favourable treatment for business and implies that business are much less needy of such treatment than the poor.
The Right talks of the deserving and undeserving poor. The Left countered with payments to business.
Supporters of corporate welfare often justify them as remedying some sort of purported market failure.
Businesses, big and small, see market failure everywhere under balance sheets that are in the red.
The notion behind corporate welfare is profits should be private while losses should be a reason for a taxpayer bailout.
Both direct and indirect subsidies to businesses are classified as corporate welfare. The reason is businesses as supposed to make a profit or go out of business.
If a business is losing money, they should try better or do something different or just go out of business.
Losses are not a reason for a taxpayer bailout. No business project should be premised on government subsidies.
The purpose of the capital market is to direct investment to projects that have a future and take support away from failing projects.
The capital market is picking winners and losers every day because that’s its job. That’s what it’s good at.
The participants in the capital market who are not good at picking winners and avoiding losers will themselves will go soon out of business.
Corporate welfare is increasingly used interchangeably with crony capitalism.
A kissing cousin of corporate welfare is farm welfare. These are the countless subsidies that farmers get in Europe and America, and in the past, in New Zealand.
Middle-class welfare is cash payments by the government to the non-poor. These payments to the middle-class can be for having children such as in Working for Families, for early-childhood education or for childcare. Middle-class welfare also can be tax breaks and subsidies for retirement savings of the nonpoor.
It is pointless to tax the middle-class and then give them their money pretty much straight back as a cash payment for a particular purpose be it child care or for their retirement. Middle-class welfare covers at least in part expenses the middle-class could have covered themselves but for the taxes.
13 May 2014 Leave a comment
in development economics, Gary Becker, politics, Public Choice Tags: crony capitalism, Latin America
One legitimate reason for the opposition to capitalism in Latin America is that it frequently has been "crony capitalism" as opposed to the competitive capitalism that produces desirable social outcomes.
Crony capitalism is a system where companies with close connections to the government gain economic power not by competing better, but by using the government to get favoured and protected positions.
These favours include monopolies over telecommunications, exclusive licenses to import different goods, and other sizeable economic advantages. Some cronyism is found in all countries, but Mexico and other Latin countries have often taken the influence of political connections to extremes.
…The excesses of cronyism have provided ammunition to parties of the left that are openly hostile to capitalism and neo-liberal policies. Yet when these parties come to power they usually do not reduce the importance of political influence but shift power to groups that support them.
…Leftist ideologies take advantage of the discontent this causes among intellectuals and the poor, and promise a redistribution of assets and better education opportunities for the poor.
Promises of redistribution have figured prominently in the speeches of Chavez, Lula, Morales, Peronists in Argentina, and Andres Manuel Lopez Obrador, former mayor of Mexico City and a leading candidate to be Mexico’s next president.
When it is discovered that left wing governments usually do not end up helping the poor very much, they tend to be voted out of office.
… The overall trend during the past several decades in practically all countries of this region has been toward more open economies with greater competition within industries, with much more reliance on private enterprise, and with a reduced role for government mandates, government-run enterprises, and cronyism.
Since these policies have provided greater benefits to all classes than the socialist policies of a Fidel Castro or a Hugo Chavez, the vast majority of people that live under such leaders will be, or in Cuba have been, disappointed by the unfulfilled promises. They are likely to come back to parties that support more market policies as long as free elections are preserved.
Gary Becker 2006
11 May 2014 Leave a comment
in politics - Australia, Public Choice Tags: Attack Ads, electioneering, Tasmanian elections
Tasmania’s House of Assembly election in 1982 had no party campaigns, no TV or newspaper ads, no how to vote cards and all candidates could only solicit votes for themselves, not for others in their party or anyone else.
A late legal opinion was that any form of expenditure on co-ordinated campaigning and joint solicitation of votes would be added to each individual candidate spending limits of $1000 separately.
With no party campaigns, no TV or newspaper ads, no how to vote cards and all candidates could only solicited votes for themselves, the date of the election slipped my mind and I forgot to get a postal vote before going inter-state for a holiday.
The Liberal Party won in a landslide defeating the incumbent Labor Government.
The campaigning ban seemed to give an advantage to the party already leading because the party on the nose could not dig itself out of a hole in the campaign by pointing out that they may be bad, but, on closer inspection, the other side is worse.
I do not know of any studies of this unusual election.
Econ Prof at George Mason University, Economic Historian, Québécois
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