The issue of climate change (or “global warming” as it used to be called) arouses much passion and public interest. There are three distinct issues subject to debate:
The preponderance of credible opinion is that “yes, there is a trend towards higher temperatures, although its precise slope and variability is subject to a range of estimates.” The above graphic of the 70-year decline in the mass of glaciers scattered around the world illustrates one of the arguments behind that opinion.
The answers to the second question are much less uniform. We know that the earth’s temperature has frequently varied by sizable amounts for millions of years. Variation in the sun’s radiation, the tilt of the earth’s poles and volcanic activity are cited as historical culprits. The precise contribution of these factors (“natural variability”) to the observed recent warming is unclear, but we know that human (“anthropogenic”) activity, such as the burning of coal, does release “greenhouse” gases that can contribute to higher temperatures.
Human activity. The answer to the “human activity” question is important because projections of future temperatures shape government policy and impact individuals’ behavior. But given the complexity of human activity, the magnitude of a likely increase is impossible to model with a high level of certainty, even with assuming no significant natural variability.
Consider, for example, that at the beginning of 2015 the International Maritime Organization decreed that ocean-going ships may not use fuel oil with more than 0.10% sulphur content, compared to the 3.50% limit in effect formerly. Atmospheric sulphur dioxide is well known to reduce global temperatures, as it does with major volcanic eruptions. Thus, this regulation is having the unintended consequence of promoting global warming, as detailed in technical studies.
Cool it! So, what, if anything, should governments do about an increase (precise magnitude unknown) in climate temperatures? It is clear that any increase will have a variety of negative and positive impacts, so perhaps the first step should be to “cool it” – to stop publishing one-sided alarmist tracts as “scientific studies” as the Obama administration has just done with its “The Impacts of Climate Change on Human Health in the United States.”
This document seeks to frighten its readers with such pronouncements as:
. . . climate change impacts endanger our health by affecting our food and water sources, the air we breathe, the weather we experience, and our interactions with the built and natural environments.
But as Bjorn Lomborg, the respected Danish environmentalist who believes that climate change is a genuine problem has noted, “the report reads like a sledgehammer that hypes the bad and skips over the good.” He is particularly scornful of its failure to point out the well-documented fact that more people die from cold weather than from hot – so that moderate global warming will result in fewer deaths directly on account of weather. The fact that retirees are more likely to move to warmer regions from cooler ones than the reverse is a common sense indicator.
The fact that agricultural and livestock production will be stimulated at higher latitudes (wheat in Greenland?) is glossed over casually in the report with the observation “in the near term, some high-latitude production export regions may benefit from changes in climate.”
More importantly, there is no discussion in the report of the incentives for people, businesses and communities to adapt to warmer weather, such as changes in building design and location, which don’t need any government incentives to come about.
What to do? Two modest suggestions. With sea levels likely to rise somewhat as those glaciers melt, a simple policy change by the U.S. government could reduce substantially property losses incurred by hurricanes and flooding. Far fewer structures would be built on easily flooded sites if the government’s Flood Insurance Program charged actuarially sound premiums which would discourage such building activity. The Fund is presently $24 billion in debt because politicians prevent it from charging such rates (they are about 50% of what they should be, according to the Congressional Budget Office).
Perhaps the most effective way to reduce greenhouse emissions is to make it less costly to build nuclear power plants that would displace coal-generated power (as China is starting to do). This can be done by revising regulations governing their construction and the disposal of their waste products. Evidence is accumulating that the “linear no-threshold” model of emission risk used by the U.S. Nuclear Regulatory Commission is needlessly conservative, scientifically questionable and adds significantly to the costs of building such plants and disposing of their waste. Coal plants are allowed to put out thorium and uranium emissions “far in excess of what nuclear plants are allow to emit,” according to Wall Street Journal columnist Holman Jenkins. Properly designed and managed, nuclear power plants and their waste storage systems should be the favorite children of the green crowd.
In other words, the most sensible and less costly policy responses to an upward trend in global temperatures are to do away with “top down” mandates, designed by control-driven politicians and bureaucrats, and to encourage “bottom up solutions” – by individuals, entrepreneurs, and established firms – with minimal financial subsidies and less regulatory overhead.
“The greed of Wall Street and corporate America is destroying the fabric of our nation.” Senator Bernie Sanders, January 5, 2016.
“It is obvious that even in boom times very many Americans, much like chattel slaves, receive, in the richest economic environment ever known to man, little more than enough to reproduce and sustain themselves.” Ferdinand Lundberg, “America’s 60 Families” (1937).
Stomping on Wall Street and corporate America has a long tradition. The language used by Senator Sanders in a recent speech closely resembles that of journalist Ferdinand Lundberg in his 1937 best seller, “America’s 60 Families.” Both men spend much time excoriating wealth, multi-million dollar incomes, lavish contributions to political campaigns and “Wall Street.”
To what extent do such incomes, particularly for someone working in the financial sector, reflect “greed”?
Start with a widespread definition: “greed is the excessive desire for gain or wealth.” So, the crucial issue becomes who defines what is “excessive.” I am not aware of any list that Senator Sanders has compiled of those with million dollar incomes or a billion in assets that he thinks are justified – or excessive. I would like to know how he would go about defining who qualifies as an “excessive” recipient and who does not. And, once he got his definition, what would he do about it as President?
To the extent that million dollar incomes are the result of truly “ill-gotten gains,” it’s not hard to put Bernie Madoff, a fraudulent financial adviser, on the list. But how about John D. Rockefeller? As a ferociously competitive businessman, he made a massive fortune, true. But he made it by delivering inexpensive and safe kerosene to millions of individuals around the world so they could live more safely and read a book at night (see Daniel Yergin’s “The Prize”). And then gave away the vast bulk of his estate.
Keeping Score. Perhaps the most important issue that those who bewail rich compensation packages is that they do not understand the extent to which compensation for CEOs, NFL quarterbacks and other high earners is primarily a profession’s method of keeping score.
Attention-getting annual incomes received by super achievers playing professional football, tennis, ice hockey or golf are seldom disparaged. There is little criticism of the massive wealth and comforting incomes that Bill Gates and his fellow high tech innovators receive; multi-million dollar lottery winners are usually warned of unhappy times ahead. Are “Jeopardy” or “The Price is Right” contestants driven by greed – or do they primarily just want to see how smart they are compared to the rest of us?
The general rule is clear: if you are close to the top on the scoreboard, it correlates very highly with your monetary reward.
What about the corporate types? Measuring the performance of corporate or banking behemoth CEOs is more difficult than looking at a baseball player’s published stats. But what is the “proper” compensation for a Fortune 500 Chief Executive looking after tens of thousands of employees and thousands of shareholders? How do we evaluate the Chief Financial Officer compared to the Information Technology executive vice president?
The upstairs maid. That last question is variant of “the upstairs maid problem.” The story goes that several years ago a deliveryman at the Rockefeller estate in Westchester County was chatting up the maid who answered the door. “Don’t you think you feel badly that your employer is making millions while you get only two hundred dollars a month?” “Not at all,” she is reported to have replied, “what really P.O.s me is that the upstairs maid makes $50 a month more than I do.”
As the story suggests, above a certain level it is relative incomes that matter more than absolute amounts. Thus, corporate and bank compensation committees are under the same pressure as a professional sports team’s managers: low-balling salary for a top player increases the risk he or she goes elsewhere. Under-performing CEOs may last longer than under-achieving athletes, but eventually they go sooner than their more obviously successful peers – if not quite as fast as Jeopardy losers.
Are bankers inherently greedy? Generously compensating individuals in financial institutions to move surplus funds from savers to credit-worthy investors in housing or factories is not a despicable activity. But in the financial sector the age-old legacy of laws against ‘usury” still casts a dark shadow on compensation for high earners.) Making money by lending out someone else’s money without producing something tangible like a car or loaf of bread, seems like a scam – “the greed of Wall Street.”
True, some aggressive banks expanded beyond prudent limits in during the subprime mania of the early 2000's. But they were able to do so because they were permitted to operate with excessively high ratios of risky assets relative to shareholder equity - and the fact that federal government housing agencies, under intense political pressure from “affordable housing” advocates, were more than ready to purchase high-risk mortgages from the originating banks.
Drawing the line. The line between “acceptable” and “excessive” desire for income and wealth is hard to draw. Our focus should be on the means by which wealth is acquired and the extent to which it is deployed productively – not the amounts involved. Bernie Madoff is out, Bill Gates is in.
What types of activity deserve to be cited as “greedy”? I suggest the primary targets should not be bankers and CEOs. Rather, they should be politicians ready to tweak a regulation or budget line item or steer a government contract at the behest of a cash-carrying constituent. The politician adds no genuine economic value by taking bribes of various sorts, including campaign contributions from business types and unions. To the extent that such monies are revealed in a timely manner, the damage can be limited. But the opprobrium should be directed at the recipients, not the givers.
A possible billionaire and would-be politician, Donald Trump, is an interesting case: he employs several thousand people at his various resorts and golf courses, but has conned a fair number of individuals into enrolling in “pop-up” schools to learn “how to invest in real estate” - and left many a builder and would-be condo buyer on the short end of a bankrupt real estate project. He appears very comfortable with having government exercise eminent domain to seize private property if it will advance his real estate projects. In the past, he has given generously to politicians of all stripes. That kind of vita suggests to me a very greedy individual.
In short, money, greed and politics are familiar bedfellows in public policy debates. The challenge for the thoughtful citizen is to distinguish between the participants' rhetoric and reality – and to remember that “greed” should not be defined by someone’s annual income; rather, it’s how you get there.
One of the four traits of a dominant civilization, according to Stanford University historian and archaeologist Ian Morris in “Why the West Rules – For Now,” is the positive relationship with “energy capture.” In other words, how much energy a country consumes in everyday living and commerce and how much is expended in agriculture, manufacturing and transportation is a good indicator of how important and powerful a country is.
I was reminded of Morris’s metric in reading the latest diatribe against a well-advanced proposal by Dominion Resources to build a natural gas pipeline through West Virginia and into Virginia and North Carolina. The West Virginia portion of the Atlantic Coast pipeline is on the order of 280 miles and will cost close to $900 million.
The West Virginia Highlands Conservancy, among others, is attempting to block this major energy transmission project. The latest issue of their monthly bulletin, The Highlands Voice, trots out the usual potential victims: the Cheat Mountain and Cow Knob salamanders, and the West Virginia Northern Flying Squirrel.
In addition, according to the Conservancy, “there remains a serious question of whether or not it is wise to invest . . . in a natural gas pipeline that supports what many see as a dying technology.” Of course, the editorial does not mention that natural gas demand soared over 38% in Virginia and North Carolina over the past five years. Nor is there is any discussion of how natural gas will displace coal (another bête noir of the Conservancy) used in many Virginia and North Carolina power plants.
The well-meaning but intellectually crippled writer behind that “serious question” is symptomatic of today’s “antigrowth” and “sustainable growth” lobbies, fresh from their success in stopping the $5 billion Keystone Pipeline from Canada to Texas. To be anti-growth, as Dr. Roger Pielke at the University of Colorado has pointed out, implies keeping poor people poor. Most sustainable growth types appear to want to stop the clock on 99% of natural evolutionary trends, which include the way we humans adjust to the challenges of everyday living.
That includes the challenge of providing energy for daily activities. Here we have a major corporation with a multitude of investors, including all manner of pension funds and individuals, willing to put up $900 million to provide customers with relatively low cost heating, light, and energy for everyday living and business. Construction jobs over three years would average over 1,500 well-paid positions.
Having a public review of the pipeline’s route to avoid egregious damage to the environment surely makes sense, especially when Dominion can call upon eminent domain to dislodge recalcitrant landowners. The route has already been altered in a major way once in response to complaints. But in the final analysis, I would much rather trust Dominion Resources management to choose the most sensible energy sources and delivery systems for several million customers than the staff of The Highlands Voice.
Healthy civilizations don’t stifle investment that changes the way we do things or subsidize feel-good alternatives, like ethanol. Let investors take the risks – and the losses if the investments don’t work out. True, the act of investing can disrupt communities and the environment, as Titusville, PA and neighboring communities found out in 1860 with Colonel Drake’s oil well. (Although the subsequent collapse in demand for whale oil saved that species.)
But would we really have wanted the EPA in existence at that time?
One year ago, in a major media hoopla, Walmart announced that it was increasing wages for most of its entry-level employees to $9 an hour in 2015 and $10 in 2016. Many of them had been earning $7.25, the federally-mandated minimum wage. This would be at a cost to the company on the order of $1 billion a year.
The New York Times opined that the wage increases were
. . . an attempt to stem employee turnover and to respond to pressure for higher wages from politicians, labor groups and employees . . . a hugely profitable corporation like Walmart can readily afford to do better than those measly increases. But it is very unlikely to do that voluntarily, without governmental action.
The Dallas Morning News chimed in,
Score a win for economics and a defeat for the tired argument that a minimum-wage hike would be bad for business. Wal-Mart, known for paying low wages, might be a lot of things, but a naïve, altruistic business it isn’t. We hope this provides an incentive for other companies and federal lawmakers to increase the pay of minimum-wage workers.
Eight months later, in November, Walmart delivered a profit warning to Wall Street. Earnings in 2016 would likely drop 6%-12% from 2015. (Analysts had been forecasting a modest increase.) The company’s stock price dropped 10%, its worst decline in 27 years. Three-quarters of the decline in expected profitability was attributed to $1.2 billion in wage increases and new training programs.
Store closings. Two weeks ago, the company announced that it was closing 154 stores in the U.S. and another 115 in other countries. The closing will “impact” about 10,000 employees in the U.S. whose jobs will disappear. Twenty nine of the 154 U.S. stores are located in Texas, but I can’t find any Dallas Morning News - or New York Times - editorials celebrating another “win for economics.”
My reading of Walmart’s strategy is that greater long-run profitability can be achieved with fewer stores in current locations and a more productive, leaner work force with less turnover that is motivated with higher compensation and better training. Marginally profitable stores that would become even more so at higher wage levels needed to be closed.
Four hundred jobs were eliminated in Oakland, California where the City-mandated minimum wage was raised from $9 an hour a year ago to $12.55 today. Two Walmart locations in nearby San Leandro, where the minimum wage is $10, will remain open.
Then there are the jobs that won’t be created. To the displeasure of local politicians, two large Walmart stores planned for Washington, DC were cancelled, since they were “not viable at this time.” (A local referendum this coming November could raise the minimum wage from $11.50 to $15.)
Lessons learned? There are some lessons in economics here, but I doubt that Hillary Clinton and Bernie Sanders are taking note. (She is campaigning for a $12 federal minimum wage; he is for $15.) Research on the impact of minimum wage laws on the economy is extensive but verdicts are mixed, although the loss of low-paying jobs for younger workers, with the experience that comes with them, is generally conceded. Their unemployment rate, at 16% compared to the overall rate of 4.9%, provides strong support for such a finding.
But we don’t need an econometric analysis of what Walmart has done to count the jobs lost at that company.
The basic, underlying reality is that over a sufficiently long period, businesses will not pay more for labor than the value it adds to their operations – and that workers will not show up if they are paid less than what they believe to be an acceptable wage. Both propositions are evident in the Walmart story.
Governments at all levels that intrude on this process do so at the risk of serious unintended consequences.
Michael Lewis’s retelling of the history of the subprime residential mortgage bubble and bust of 2008 was a good read. It has now been made into a multiple Academy Award nominee movie.
But as a helpful guide to understanding the powerful forces that fueled the animal spirits of all those realtors, mortgage lenders, investment bankers and bond traders “The Big Short” comes up very short, indeed.
Viewers can enjoy the story of a small group of trash-talking, odd-ball mortgage bond traders who decided the bubble was going to burst and battled their way to success and riches. The screenwriters even managed to make “credit default swaps” comprehensible for the attentive viewer.
Perspective, please. However, the explanation in both book and movie for why the bubble grew to such gargantuan proportions is essentially superficial and sophomoric: it was all greedy bankers, traders, realtors and credit rating agencies. There are no references to the recurring historical pattern of manias, panics and crashes so well described by Charles Kindleberger in his book with that title, nor to the insights that Hyman Minsky developed regarding the all-too-human behavior that creates financial instability and crises.
In his book, Lewis goes so far as to write that, “The problem was the system of incentives that channeled greed.” But nowhere does he discuss incentives except with respect to “outrageous bonuses” for traders and the transformation of the investment banks from partnerships to public (shareholder) firms, which vastly increased their appetite for risky trading.
Perverse incentives. There is not a word in the movie or book about pressure from “affordable housing” advocates and the obedient politicians of both parties in Washington who continuously pressured lending institutions and government agencies to create and buy subprime mortgages. The chief instruments were the federal government’s Community Reinvestment Act (CRA), which coerced lending institutions into making subprime loans, and the lowering of standards by the two government-sponsored mortgage companies, Fanny Mae and Freddie Mac, as well as the Federal Housing Agency.
The chief front man for affordable housing promoters was Congressman Barney Frank, Chairman of the House Financial Services Committee. In neither the book nor the movie does Barney Frank exist. But he played a leading role in pressuring the government housing agencies to lower their lending standards and bad-mouthing those who warned of possibly dire consequences, as Gretchen Morgenson and Josuha Rosner detail in their book, “Reckless Endangerment.”
It is notable that Frank has confessed to being a part of the problem. In an interview in 2010, he stated “it was a great mistake to push lower-income people into housing they couldn't afford and couldn't really handle once they had it."
Of course, there were lots of other players, mentioned above, who threw wood on the fire once it was lit, and who helped to make this particular boom/bust cycle an unusually severe one. Perhaps the best study of the forces which lead to all major financial crises, especially "subprime 2008," can be found in “Fragile By Design” by Charles Caloramis and Stephen Haber.
I have summarized their findings in an earlier blog, “Why Banks Go Bust”. The bottom line is that “banking systems and financial crises . . . are produced by political bargains that shape the institutional structure, incentives and regulatory framework within which banks operate.”
The big deal. As Caloramis and Haber show, the bargain which played the leading role in the great bust of 2008 was straightforward: banks that wished to take advantage of the 1994 law allowing interstate banking needed to buy off affordable housing advocates who could block the banks’ expansion plans by charging them with failure to comply with the de facto lending quotas that grew out of the 1977 Community Reinvestment Act.
Trashing bonus-driven bankers, bond traders, credit rating agency managers and realtors for responding to the incentives put in place by politicians and regulators may earn “The Big Short” more than one Academy Award. But as a thoughtful story of why the subprime bubble blossomed and burst, this movie deserves a D minus.
The incentive to engage in risky behavior is dramatically increased when you can count on someone else to bear the costs if things go wrong. Insurers try to write contracts and price their services to make sure that customers don’t rip them off with such behavior. It’s called “moral hazard.”
How it happens. We are about to see another test of whether the federal government is going to encourage more risky behavior by aggressive financial operators thanks to a taxpayer-financed bailout, or make them pay the full price for their actions.
Almost two years ago, I drew attention to the moral hazard involved when Puerto Rico and its bankers delivered a $3.5 billion junk-rated bond issue to enthusiastic investors with a tax-free yield of just under 9%.
How was it possible that such a dog of a borrower, with over $70 billion in debt and a perennial weak economy, was able to borrow so much? I suggested two reasons: the Federal Reserve’s ultra-low interest rate policy and bets by yield-hungry individuals and aggressive hedge fund managers that when Puerto Rico started to go belly-up, the Federal government would come to its rescue.
The first default, on a $58 million payment to bond holders, took place in August. Bond insurers have started to open their check books. But the 500-pound gorilla arrives in January when $900 million in payments are due, followed by similar payments throughout the year.
Today The New York Times published a lengthy article detailing the lobbying and political shenanigans taking place around the impending default on billions of dollars of Puerto Rican debt. The immediate issue is whether or not Congress should pass a law allowing Puerto Rico to declare a Chapter 9 bankruptcy, like Detroit. This appeals to Puerto Rican politicians and liberal Democrats since it would probably protect creditors other than bond holders (e.g. pensioners) much better than the alternatives.
Hedge fund operators are insisting that Puerto Rican politicians should knuckle down and develop a credible set of fiscal reforms that would restore its debt servicing capacity. Some legislators are concerned that letting Puerto Rico declare Chapter 9 will put pressure on them to do the same for Illinois and a number of other profligate states.
Bailout ahead. But we shouldn’t be surprised if waiting in the wings is a sizable amount of U.S. taxpayers’ money: Senator Orin Hatch, Chairman of the Senate Finance Committee, has gone so far as to introduce legislation that would funnel $3 billion to Puerto Rico through a Federal Assistance Authority that would oversee the territory’s spending.
Senator Hatch is supported by Senator Chuck Grassley who is concerned with “ensuring that people like the 16,000 Iowans who invested their hard-earned money in Puerto Rico’s tax free electric utility bonds, for example, aren’t left holding the bag.” Why shouldn’t they be “left holding the bag,” along with all the hedge fund operators and their investors? How else do we teach Iowa investors that juicy bond yields mean high risks?
And these are seasoned Republican politicians!
The writing seems to be on the wall. One way or another, over the months (years?) ahead, the U.S. taxpayer will be forced to pay for failed risky investments by others in Puerto Rican debt – and the moral hazard problem will be greater than ever.
For over 50 years I have had the pleasure of visiting Ireland on a regular basis, taking advantage of family events (e.g. marriage to a Dubliner), invitations to lecture and a most hospitable populace to follow a case study in economic growth and business cycles.
That case study covers the emergence of the "Celtic Tiger" in the 1980s (discussed in my 2003 paper "Why Ireland Boomed") as well as the subsequent property investment mania that ended in an equally massive crash in 2008.
A recent 10-day visit helped to document the impressive recovery the country has made over the past three years, thanks to a tough, disciplined austerity program, an €84 billion bailout package from fellow European Union members, and a grudging acceptance of the fact by most Irish that Ireland had brought its most recent "troubles" upon itself. Recovery meant swallowing some very tough medicine.
THE IRISH ECONOMY: 2008-2016
As the chart above demonstrates, the Irish economy fell out of bed in 2008-09, led by a precipitous fall in housing-related investment. Unemployment in 2012 rose to 15%. A massive bailout of errant banks was undertaken, underwritten by the European Union. In response, government spending was slashed in nearly every category. Taxes were raised to reduce the amount of borrowing needed. Civil service pay and pensions were cut. As one analysis in 2013 summarized the program:
Public sector pay has been cut by significant amounts, income taxes and VAT rates have been raised, non-welfare current spending has been cut back and capital spending has been slashed . . . budgets have implemented a total amount of discretionary tax increases and spending cuts of €28.8 billion. These in adjustments are the equivalent of 18 percent of 2012's level of GDP . . . and represent one of the largest budgetary adjustments seen anywhere in the advanced economic world in modern times.
With 6% growth likely in 2015, the Irish economy is now growing faster than any other European economy and twice as fast as the United States. You can see and feel the recovery in Dublin, where business types are cheerful, airport traffic is setting records and foreclosed properties are being sold at pleasantly higher prices (although still below their boom peaks).
In travelling to other parts of the Emerald Isle, the hangover from the real estate bubble is still present in many places. The unemployment rate is still unsatisfactory at over 9%. But visits and spending by visitors are running well ahead of a year ago and automobile registrations are extremely strong. U.S. internet startups continue to establish European headquarters in the country. The central bank forecast for growth next year is on the order of 5%.
Ireland's recovery is a flat repudiation of the spend and borrow policies advocated by Paul Krugman and others who aggressively attack "austerity" programs whenever and wherever they are proposed. Note the four year decline (2009-12) in "government consumption" in the chart above. Krugman is now reduced to conceding that Ireland's recent performance is successful, but "only in a relative sense." His reasoning is backed by "a textbook Keynesian model" that for some reason has been put forward only now, after the race has been run.
With a spring election in the offing, the government has come up with a budget that loosens the purse strings a little bit for most everybody. Let's hope that the current government's hard-won fiscal credibility for Europe's "comeback kid" over the past several years is not eroded by trying to buy a majority in the Dail (parliament).
Milton Friedman would be delighted. The Nevada legislature has passed and Governor Brian Sandoval has signed into law the nation’s most sweeping “school choice” initiative. It is due to become operational in early 2016, assuming legal challenges fail.
Responding to dismal national rankings of the state’s public school system overall, the law follows Friedman’s analysis and recommendations in many respects: it gives parents who pull their kids out of public schools vouchers worth roughly the cost of sending them to those schools - $5,700 a year for low income families and $5,100 for middle and upper income families.
Parents choose. These funds can be spent on private or parochial school tuition, homeschooling, or tutoring. Overall state funding for education increased $400 million, recognizing additional costs in school choice. But now the public school system will suffer if it cannot meet the heightened competition for students from a variety of new providers.
An interesting caveat, to prevent a windfall for parents already sending children to private schools, is that students must have attended a public school for a minimum of 100 days before they can receive a voucher. But the students at the Davidson Academy in Reno, a nationally-ranked selective public high school for “the profoundly gifted” sponsored by the University of Nevada, are unlikely to switch. They already are receiving a top-flight education, i.e. they are competitive.
The establishment resists. Of course, guardians of the administrative state have leapt to the ramparts. The Nevada chapter of the American Civil Liberties Union filed suit against the new law, arguing that parents who use their vouchers for parochial schools will mean that public funds are being used for sectarian purposes. More recently, a foundation-funded advocacy group, Educate Nevada Now, has joined the fray against the law. Bad mouthing letters to the editor from unionized teachers abound.
Milton wins. While Nevada’s initiative is the most sweeping school choice reform enacted to date, the Washington Post points out that since 2006, 27 states have enacted laws that transfer public dollars to private schools – either through tax credits, vouchers, or education savings accounts.
In this sector of the economy, at least, public pressure, “the laboratory of the states” and federalism are alive and kicking – and Milton Friedman’s 1983 Newsweek article on “Busting the School Monopoly” shows the continuing power of good ideas forcefully presented. Read it.
In his important new book, By the People: Rebuilding Liberty Without Permission, Charles Murray has produced a penetrating analysis of “the regulatory state” – how it came about, what sustains it, and how we might be able to tame it.
The volume of federal regulation has soared from less than 23,000 pages in the Code of Federal Regulation in 1950 to over 175,000 today. And it continues to increase at a rapid rate, as the chart makes clear. Example: if you are a dentist, you need to be familiar with the Occupational Safety and Health Administration’s 307 page “Manual for Dentists” (cost: $199) if you want your place of work to pass OSHA’s inspectors. The overall federal regulatory budget is approaching $50 billion annually.
Murray writes as clearly as he thinks. The tone of By the People is moderate, the arguments cautious and the citations of facts and events (such as Supreme Court rulings) highly supportive of his propositions. Moderate liberals and conservatives, as well as civil libertarians, will find his conclusions persuasive.
Murray is pessimistic regarding the possibility of reform via Supreme Court appointments or legislative action. The weight of precedent and the fact that “the political system has tied itself in knots” appears to rule out those options today. (He might have described the circumstances that enabled President Carter and his regulatory czar, Alfred Kahn, to successfully in obtain legislation from Congress that liberated the trucking, airline, and railroad industries from vast amounts of counter-productive regulation, and why that wouldn’t be possible today.)
A “Madison Fund”? Murray is most constructive in suggesting how we might pare back the regulatory “infrastructure” through “systematic civil disobedience” that overwhelms the bureaucrats. This would be done via third-party financed legal challenges to egregious examples of regulatory law enforcement triggered by regulations derived from vague federal legislation. Third parties might be professional associations that insure their members from the costs, including fines, of defending themselves from “arbitrary and capricious” actions by the agencies. Or funding could be provided by a “Madison Fund” endowed by a couple of today’s billionaires.
Most individuals, professionals and small- and medium-sized businesses that are cited by the regulatory agencies are small fry – and as such, not in a position financially or time-wise to resist an agency’s assault. Consequently, they typically roll over and pay a fine. The availability of third party legal and financial support would change this.
The Case for Civil Disobedience. Murray’s prime targets would be patently ridiculous enforcement actions on the part of federal agencies like the EPA wetlands compliance order against a couple trying to build a new home (they successfully resisted the EPA, but it took a 9-0 Supreme Court ruling to end the struggle). My targets for “civil disobedience” legal resistance, as readers of this blog may suspect, would be the Health and Human Services Administration (patient privacy regulations) and the Treasury Department (money laundering).
The focus of the “civil disobedience” litigation would be on “arbitrary and capricious” enforcement actions, not the underlying regulations themselves. That step would occur at a later stage, when sufficient cases have been won and widespread publicity has been given to the underlying issues behind the legislation that gave rise to them.
Given the limited resources of the agencies to deal with a multitude of well-financed, lengthy challenges to their most questionable enforcement actions, Murray posits they will back off. They would not have enough lawyers to handle them.
The existing model for such behavior: speed limit enforcement. Almost no one exceeding speed limits by 5-10 mph on an interstate is pulled over by troopers for breaking the limit. To do so would swamp the legal system. Truly dangerous behavior is what the troopers are looking for. This is what the regulatory agencies should be doing.
Responding to the spreading tentacles of the regulatory state via systematic civil disobedience is an audacious proposal. It deserves serious consideration. In short, By the People is an important, readable book. Buy it for yourself and send a copy to someone who has had a bad experience with the regulators.
And, if you have one, a billionaire friend.