Good economic outcomes typically happen when the government does not directly meddle in the marketplace but, instead, acts only to ensure the existence of the rule of law and property rights so third parties can enter into viable contracts as well as count on a level playing field for all participants in the market.
Bad economic outcomes typically happen when the government meddles in the marketplace. E.g., see this posting about the impact of government meddling in the healthcare marketplace.
The meddling typically creates new (and often unforeseen) behaviorial incentives for market participants to act in economically inefficient ways. As the cost of those inefficiencies grow, the government most often then further meddles in the marketplace and only compounds the problems they helped create in the first place.
The travails of the U.S. airline industry show how one bad government meddling begets more government meddling and creates incentives for avoiding dealing with economic reality – all at a greater long-term economic cost to taxpayers and/or consumers.
For example, consider the news in this WSJ article entitled Global Airlines Rise Above Crisis As U.S. Carriers Struggle (available for a fee):
At a time when many U.S. carriers are still struggling to survive, much of the rest of the global airline industry appears to have pulled out of crisis and is entering the summer travel season in its best shape in five years.
Carriers in Asia and Europe are starting to see cost savings from several years of difficult restructuring. Passenger demand is ballooning in many markets…That means some airlines are able to stanch their losses by raising fares — and some are even strongly profitable.
The big exception is in North America, where several giant carriers are operating either in or near bankruptcy-court protection. U.S. airlines have been filling planes to record levels recently, surpassing demand seen before the terrorist attacks of Sept. 11, 2001. Still, much of that traffic has been stoked by aggressively slashing fares.
The U.S. airline market is lagging behind the rest of the global industry for a variety of reasons. After reaching unprecedented heights in the economic boom of the 1990s, U.S. carriers were hurt worse by the Sept. 11 attacks. And the U.S. industry remains an uncomfortable mix of rabid competition and government intervention — such as loan guarantees and pension-obligation relief — that allows weak carriers to limp along far longer than ailing businesses do in other industries.
Outside the U.S., where Chapter 11 bankruptcy protection doesn’t exist and many governments lack funds to prop up airlines, carriers have been faced since 9/11 with restructuring or going out of business — and many have. Aiding the survivors, airlines outside the U.S. generally don’t face labor unions as strong as in the U.S., and few face the sort of free-for-all competition that U.S. carriers do…
“Operating fundamentals are probably as good as they’ve ever been” in the U.S., thanks to deep restructuring, “although balance sheets are not,” says John Heimlich, chief economist at the International Air Transport Association…
This nascent global pickup remains tenuous and could quickly disappear…
In Asia and the Middle East, airlines actually are growing, posting big profits, and appear to have shaken the crisis. The giant markets of China and India are deregulating and growing quickly. Carriers in the more mature markets of Japan, Southeast Asia and Australia-New Zealand also are expanding operations and renewing their fleets.
Airlines in the Asia-Pacific region started restructuring earlier than their peers in America and Europe…
“In Asia, we’ve got lower cost bases, tighter capacity and a much stronger demand recovery” than in the U.S. or Europe, says Kevin O’Connor, an analyst with investment bank CLSA Asia-Pacific Markets in Hong Kong…
In Europe, several large, traditional airlines and budget newcomers are reporting solid results…
“The results show that established carriers are able to deal with the cyclical crisis,” said Ulrich Schulte-Strathaus, secretary-general of the Association of European Airlines in Brussels…
But for most airlines in the U.S., which for years had some of the world’s strongest airline labor unions, slashing overhead remains a way simply to avoid insolvency. Rising jet-fuel prices have far outstripped most airlines’ ability to reduce overhead expenses such as labor…
Underfunded pension plans are another big drag on airlines. US Airways and UAL Corp.’s United Airlines, both of which are operating under Chapter 11 bankruptcy-court protection, were able to escape their obligations through bankruptcy proceedings…
The two carriers’ escape from their pensions has increased pressure on rivals to seek relief from their own burdens…
This attempt to help U.S. carriers is raising trade tensions within the inherently international industry, however…
“The U.S. government is subsidizing the airline industry,” charged Pierre-Henri Gourgeon, chief operating officer of Air France-KLM. In Europe, “where no subsidies are possible, market strength forces the industry to adapt.”
European Union officials have been strict since 2001 in limiting state money to airlines, and EU governments resisted paying for services such as airport security that politicians in the U.S. and some other countries have moved to underwrite…
Think about it: Government loan guarantees enabled inefficient airlines to survive without having to deal rigorously with their bloated, non-competitive cost structures. The problems were then only compounded by governmental policies that allowed United Airlines and USAirways to throw off their pension obligations. Which, predictably, is creating a reaction by the airlines which are still obligated to their pension liabilities as this next WSJ article entitled Delta, Northwest Seek Pension Aid; Senators Critical (available for a fee) shows:
[Open full post]In the June 13 edition of the Wall Street Journal, Stephen Moore wrote an editorial entitled Real Tax Cuts Have Curves (available for a fee):
…The Laffer Curve helped launch the Reaganomics Revolution here at home and a frenzy of tax rate cutting around the globe that continues to this day.
The theory is really one of the simplest concepts in economics. Yet its logic continues to elude the class-warfare lobby whose disbelief is unburdened by the multiple real-life examples which validate its conclusions. The idea is that lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and thereby will often lead to more tax revenue collections for the government rather than less.
In the 1980s, President Ronald Reagan chopped the highest personal income tax rate from the confiscatory 70% rate that he inherited when he entered office to 28% when he left office and the resulting economic burst caused federal tax receipts to almost precisely double: from $517 billion to $1,032 billion. [Remember these numbers the next time someone tries to tell you the deficits under Reaganomics were a revenue problem and not a spending a problem!]
Now we have overpowering confirming evidence from the Bush tax cuts of May 2003. The jewel of the Bush economic plan was the reduction in tax rates on dividends from 39.6% to 15% and on capital gains from 20% to 15%. These sharp cuts in the double tax on capital investment were intended to reverse the 2000-01 stock market crash, which had liquidated some $6 trillion in American household wealth, and to inspire a revival in business capital investment, which had also collapsed during the recession. The tax cuts were narrowly enacted despite the usual indignant primal screams from the greed and envy lobby about “tax cuts for the super rich.”
Last week the Congressional Budget Office released its latest report on tax revenue collections. The numbers are an eye-popping vindication of the Laffer Curve and the Bush tax cut’s real economic value. Federal tax revenues have surged in the first eight months of this fiscal year by $187 billion. This represents a 15.4% rise in federal tax receipts over 2004. Individual and corporate income tax receipts have exploded like a cap let off a geyser, up 30% in the two years since the tax cut. Once again, tax rate cuts have created a virtuous chain reaction of higher economic growth, more jobs, higher corporate profits, and finally more tax receipts.
This Laffer Curve effect has also created a revenue windfall for states and cities. As the economic expansion has plowed forward, and in some regions of the country accelerated, state tax receipts have climbed 7.5% this year already…Many of President Bush’s critics foolishly predicted that states and localities would be victims of the Bush tax cut gamble.
Alas, all of the fiscal news is not celebratory. The CBO also reports that federal expenditures are up $110 billion, or 7.2%, so far this year as the congressional Republican spending spree rolls on. Nonetheless, it now appears that the budget deficit will be at least $60 billion lower than last year and states and cities, led by California, which a few years ago were awash in debt themselves, will enjoy net surpluses of at least $50 billion. This means that total government borrowing will come in at below 2.5% of national output, which is hardly a crisis level of debt…
On the private-sector side of the ledger, what we are now witnessing is a broad-based investment boom. The lower capital gains and dividends taxes have been capitalized into higher stock values, and that in part explains why the Dow is up 24% since May of 2003 while the Nasdaq has risen 39%. Dan Clifton of the American Shareholder Association estimates that this rise in stock values has translated into roughly $3 trillion in added wealth holdings of American households. The severe slump in business capital spending in 2001 and 2002 has now taken the shape of a U-turn, with spending on capital purchases up an enormous 22% since 2003. Because higher wages and new job creation are highly dependent on business capital investment, the mislabeled “Bush tax cut for the rich” has in reality enormously benefited middle-income workers.
…Thanks to inane budget rules in Congress the capital gains and dividend tax cuts are currently set to expire in 2008. (When was the last time a spending program in Washington expired?) One thing would seem certain: Raising the tax rates on capital gains and dividends would be a formula for choking off the expansion and reversing the stock market climb. Until now, the Democrats in Congress have in unison sanctimoniously charged that the government can’t afford the price tag of making the tax cut permanent. But, of course, all this new fiscal evidence points to precisely the opposite conclusion: that we can’t afford not to make the tax cuts permanent.
Whether Mr. Bush’s critics’ ideological blinders make them capable of being persuaded by facts and evidence is an altogether different issue.
If you want even more empirical data, read this excellent article by Arthur Laffer, in which he presents historical data on the effects of marginal tax cuts from the Harding-Coolidge (1920’s), Kennedy (1960’s) and Reagan (1980’s) eras – which also turn out to be the three times of greatest economic growth in the last 100 years. In the article, Laffer explains the drivers which provide the underlying logic for the Curve:
The Laffer Curve illustrates the basic idea that changes in tax rates have two effects on tax revenues: the arithmetic effect and the economic effect. The arithmetic effect is simply that if tax rates are lowered, tax revenues (per dollar of tax base) will be lowered by the amount of the decrease in the rate. The reverse is true for an increase in tax rates. The economic effect, however, recognizes the positive impact that lower tax rates have on work, output, and employment–and thereby the tax base–by providing incentives to increase these activities. Raising tax rates has the opposite economic effect by penalizing participation in the taxed activities. The arithmetic effect always works in the opposite direction from the economic effect. Therefore, when the economic and the arithmetic effects of tax-rate changes are combined, the consequences of the change in tax rates on total tax revenues are no longer quite so obvious.
It is important to note that, in evaluating the effects of tax cuts, many opponents of such cuts (including the “pay as you go” budget deficit hawks as well as the methodology used by the Congressional Budget Office) only present a calculation of the arithmetic effect – called a “static analysis” – thereby assigning a zero value to the economic effect. Yet the empirical data from the three eras of tax cuts clearly show the error of that approach. That is why it is crucial that a “dynamic scoring” methodology be used, incorporating both arithmetic and economic effects. It is no less important to note that cash refunds from government, which do not change marginal tax rates, will have no lasting economic effect because they create no incentive to change human behavior and create new economic value.
Never underestimate the incentive power of marginal tax cuts. It’s Economics 101, after all.
In celebration of America’s birthday, here are excerpted gems from previous postings about our beloved country – brought together in one posting:
President Calvin Coolidge gave a powerful speech in 1926 on the 150th anniversary of the Declaration of Independence. If you want to rediscover some of the majesty of the principles underlying our Founding, read Coolidge’s entire speech. Here are some key excerpts:
There is something beyond the establishment of a new nation, great as that event would be, in the Declaration of Independence which has ever since caused it to be regarded as one of the great charters that not only was to liberate America but was everywhere to ennoble humanity.
It was not because it proposed to establish a new nation, but because it was proposed to establish a nation on new principles, that July 4, 1776, has come to be regarded as one of the greatest days in history…
…Three very definite propositions were set out in [the Declaration’s] preamble regarding the nature of mankind and therefore of government. These were the doctrine that all men are created equal, that they are endowed with certain inalienable rights, and that therefore the source of the just powers of government must be derived from the consent of the governed…
While these principles were not altogether new in political action, and were very far from new in political speculation, they had never been assembled before and declared in such a combination…
It was the fact that our Declaration of Independence containing these immortal truths was the political action of a duly authorized and constituted representative public body in its sovereign capacity, supported by the force of general opinion and by the armies of Washington already in the field, which makes it the most important civil document in the world…
…when we come to a contemplation of the immediate conception of the principles of human relationship which went into the Declaration of Independence we are not required to extend our search beyond our own shores. They are found in the texts, the sermons, and the writings of the early colonial clergy who were earnestly undertaking to instruct their congregations in the great mystery of how to live…
In its main features the Declaration of Independence is a great spiritual document. It is a declaration not of material but of spiritual conceptions. Equality, liberty, popular sovereignity, the rights of man – these are not elements which we can see and touch. They are ideals. They have their source and their roots in religious convictions…Unless the faith of the American people in these religious convictions is to endure, the principles of our Declaration will perish…
About the Declaration there is a finality that is exceedingly restful. It is often asserted that the world has made a great deal of progress since 1776..that we may therefore very well discard their conclusions for something more modern. But that reasoning can not be applied to this great charter. If all men are created equal, that is final. If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the governed, that is final…If anyone wishes to deny their truth or their soundness, the only direction in which he can proceed historically is not forward, but backward toward the time when there was no equality, no rights of the individual, no rule of the people…
In all the essentials we have achieved an equality which was never possessed by any other people…The rights of the individual are held sacred and protected by constitutional guarantees, which even the government itself is bound not to violate. If there is any one thing among us that is established beyond question, it is self-government — the right of the people to rule. If there is any failure in respect to any of these principles, it is because there is a failure on the part of individuals to observe them. We hold that the duly authorized expression of the will of the people has a divine sanction…The ultimate sanction of law rests on the righteous authority of the Almighty…
…We live in an age of science and of abounding accumulation of material things. These did not create our Declaration. Our Declaration created them. The things of the spirit come first. Unless we cling to that, all of our material prosperity, overwhelming though it may appear, will turn to a barren sceptre in our grasp. If we are to maintain the great heritage which has been bequeathed us, we must be like-minded as the fathers who created it…We must cultivate the reverence which they had for the things that are holy. We must follow the spiritual and moral leadership which they showed…
This Power Line posting elaborates further on the uniqueness of the American creed:
Knowledge of American history holds the key to much of the current discussion of political issues, such as the ongoing liberal attack on Christian belief and on arguments premised on belief in God…Absent knowledge of American history, one would never know that the United States is founded on the basis of a creed, rather than on tribal or blood lines, in which God plays a prominent part. Absent knowledge of history generally, one would never know that this fact makes America unique.
What is the American creed?…The American creed is expressed with inspired concision in the words of the Declaration of Independence…
But does the Declaration have any legal status such that these words can be truly deemed to state the American creed? It does, although virtually no one seems to know it. In 1878 Congress enacted a revised version of the United States Code that included a new first section entitled “The Organic Laws of the United States.”
The Code is Congress’s official compilation of federal law; the organic laws of the United States are America’s founding laws. First and foremost of the four organic laws of the United States is the Declaration of Independence…
Professor Jaffa [of the Claremont Institute] teaches us that the Declaration contains four distinct references to God: He is the author of the “laws of…God”; the “Creator” who “endowed” us with our inalienable rights; “the Supreme Judge of the world”; and “Divine Providence.” Americans declared their independence, “appealing to the Supreme Judge of the world for the rectitude of our intentions.”
The Declaration states the American creed, the creed that recognizes the source (Nature and Nature’s God) of our rights.
Anchor Rising’s own Mac Owens gave a speech entitled Limited Government to Protect Equal Rights, published on this blog site, which elaborates further on the uniqueness of the American Experiment:
Before the American founding, all regimes were based on the principle of interest – the interest of the stronger. That principle was articulated by the Greek historian Thucydides: “Questions of justice arise only between equals. As for the rest, the strong do what they will. The weak suffer what they must.”…
The United States was founded on different principles – justice and equality…It took the founding of the United States on the principle of equality to undermine the principle of inequality…Thanks to the Founders, the United States was founded on a principle of justice, not the interest of the stronger. And because of Lincoln’s uncompromising commitment to equality as America’s “central idea,” the Union was not only saved, but saved so “as to make, and to keep it, forever worthy of saving…”
“Every nation,” said Lincoln, “has a central idea from which all its minor thoughts radiate.” For Lincoln, this central idea was the Declaration of Independence and its notion of equality as the basis for republican government – the simple idea that no one has the right by nature to rule over another without the latter’s consent…
Indeed, it is the idea of equality in the Declaration, not race and blood, that establishes American nationhood, constituting what Abraham Lincoln called “the mystic chords of memory, stretching from every battle-field, and patriot grave, to every living heart and hearthstone, all over this broad land…”
The United States is a fundamentally decent regime based on the universal principle that all human beings are equal in terms of their natural rights…
…the only purpose of government is to protect the equal natural rights of individual citizens. These rights inhere in individuals, not groups, and are antecedent to the creation of government…
Roger Pilon wrote the following in a 2002 Cato Institute booklet containing the Declaration of Independence and Constitution:
Appealing to all mankind, the Declaration’s seminal passage opens with perhaps the most important line in the document: “We hold these Truths to be self-evident.” Grounded in reason, “self-evident” truths invoke the long tradition of natural law, which holds that there is a “higher law” of right and wrong from which to derive human law and against which to criticize that law at any time. It is not political will, then, but moral reasoning, accessible to all, that is the foundation of our political system.
But if reason is the foundation of the Founders’ vision…the method by which we justify our political order…liberty is its aim. Thus, cardinal moral truths are these:…that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness…That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed.
We are all created equal, as defined by our natural rights; thus, no one has rights superior to those of anyone else. Moreover, we are born with those rights, we do not get them from government – indeed, whatever rights or powers government has come from us, from “the Consent of the Governed.” And our rights to life, liberty, and the pursuit of happiness imply the right to live our lives as we wish…to pursue happiness as we think best, by our own lights…provided only that we respect the equal rights of others to do the same. Drawing by implication upon the common law tradition of liberty, property, and contract…its principles rooted in “right reason”…the Founders thus outlined the moral foundations of a free society.
Dr. Pilon concluded his essay by writing:
In the end, however, no constitution can be self-enforcing. Government officials must respect their oaths to uphold the Constitution; and we the people must be vigilant in seeing that they do. The Founders drafted an extraordinarily thoughtful plan of government, but it is up to us, to each generation, to preserve and protect it for ourselves and for future generations. For the Constitution will live only if it is alive in the hearts and minds of the American people. That, perhaps, is the most enduring lesson of our experiment in ordered liberty.
The powerful words from and about our Founding appeal to timeless moral principles grounded in both our Declaration of Independence and the great moral traditions that preceded our Founding. It is these principles that make America unique and inspire us to be proud, engaged citizens who are vigilant stewards of freedom and opportunity for all Americans.
Happy Birthday, America!
William Kristol, in an article entitled Reversing the Bork Defeat, makes this observation:
[Open full post]On October 23, 1987–a day that lives in conservative infamy–Robert Bork’s nomination to the Supreme Court was rejected by a Democratic Senate. Now, 18 years later, George W. Bush has the chance to reverse this defeat, and to begin to fulfill what has always been one of the core themes of modern American conservatism: the relinking of constitutional law and constitutional jurisprudence to the Constitution.
The restoration of constitutional government has been the one area in which modern conservatism has had the least success. From Ronald Reagan to George W. Bush, conservative economic policies have been (more or less) pursued, and, when pursued, have been vindicated. From Ronald Reagan to George W. Bush, conservative foreign policies based on American strength and American principles have been–when pursued–remarkably successful. One might even say that, in both economics and foreign policy, the degree of conservative success has been far greater than anyone would have imagined in 1980.
But in the area of constitutionalism, conservative goals have been thwarted, and the key moment of failure, from which conservative constitutionalism has never recovered, was the Bork defeat in 1987. For the last 18 years constitutional jurisprudence has continued to drift away from a sound constitutionalism based on the written Constitution and a proper deference to popular self-government in many areas of public life. Bork’s defeat was both a cause and a symbol of this continued downward drift…
In the book entitled Government Failure: A Primer in Public Choice, Arthur Seldon writes:
Many economics writers and teachers still present economic systems of exchange between private individuals or firms as “imperfect” and requiring “correction” by government. Most teachers of politics, politicians, and political journalists still present government as well-meaning and able to remove such “imperfections.”
In spite of this view of government, Seldon notes:
Economic systems based on exchange between individuals and on selling and buying between firms usually correct themselves in time if they are free to adapt themselves to changing conditions of supply and demand. Government “cures” usually do more harm than good in the long run because of three stubborn and too-long neglected excesses of government: their “cures” are begun too soon, they do too much, and they are continued for too long.
So, the question arises regarding whether American citizens should continue to assume the actions of government are well-meaning and focused primarily on the public interest. The answer is no.
Why this claim? Just think about it. Most American citizens have personal stories about how various public sector players (politicians, bureaucrats, lobbyists, and other parties with an economic stake in government actions like corporations and unions) act in their own self interest and not in the public interest. In fact, the bottom of this posting contains numerous previous postings which provide examples of such behavior.
The balance of this posting will elaborate on public choice theory, which explains why we cannot assume government is either well-meaning or focused primarily on the public interest. The posting then concludes with specific recommendations in a Call to Action.
Gordon Tullock, writing in the same book, explains the evolution of public choice theory:
[Open full post]Public choice is a scientific analysis of government behavior and, in particular, the behavior of individuals with respect to government. Strictly speaking, it has no policy implications…
Until the days of Adam Smith, most social discussion was essentially moral…
David Hume was the first to make significant cracks in this monolithic approach. He took the rather obvious view that most people pursued their own interest in their behavior rather than a broadly based public interest…Adam Smith developed modern economics by assuming that individuals were very largely self-interested and by working out the consequences of that assumption in the realm of economics…
From the time of Plato…[t]here was no formal theory of how government works outside such moral and ethical foundations.
Throughout the 19th and well into the 20th century, economists assumed that individuals were primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families. However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.
Economists changed this bifurcated view of human behavior by developing the theory of public choice…
This bifurcation of the individual psyche is particularly impressive when it is remembered that the economic system based upon self-interest assumptions can be demonstrated to produce a result not totally out of accord with the classical ideas of the public interest…
We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so. The primacy of private interest is not inconsistent with the observation that most people, in addition to pursuing their private interests, have some charitable instincts, some tendency to help others and to engage in various morally correct activities.
However, the evidence seems fairly strong that motives other than the pursuit of private interests are not ones on which we can depend for the achievement of long-continued efficient performance…
Kimberley Strassel wrote an editorial last week in the Wall Street Journal entitled Another Reason to Love Wal-Mart (available for a fee). In that editorial, she provides another example of how misguided government behavior is forcing many working families and retirees across America to pay unnecessarily higher gasoline prices:
[Open full post]The Senate passed its energy bill yesterday, and is already peddling the fiction that this uninspired bit of legislation may somehow help with soaring gas prices. Yet if drivers really care about getting some immediate relief at the pump, they’d be better off putting some heat on their own state legislatures to back away from a class of anticompetitive laws that are jacking up gas prices around the country.
Known as “sales-below-cost” laws, these restrictions take different forms but all have the same purpose: to protect smaller gas stations from larger competitors who are willing to sell fuel at cut-rate prices. Some of these laws forbid retailers from selling gas below cost, while others actually force companies to mark up their prices. Many were passed back in the 1930s, relics of a bygone era when governments fretted that gas behemoths would use predatory pricing to gain a monopoly and drive out competitors. That threat, we now know, was never very likely, and in the meantime the laws have accomplished the exact opposite — blocking new entrants to the market and preventing pro-competitive price-cutting.
The only big bad gas giants these days are the Wal-Marts and Costcos of the world, who see gasoline sales as a natural extension to their one-stop shopping philosophy. These giant retailers, while still less than 10% of the gasoline market, are ramping up gas sales in a huge way, and often can sell their fuel at up to 15 cents a gallon cheaper than many competitors. That’s because they can often buy their product in bulk at a better price, or can make up for cheaper gasoline sales with profits from other products inside their stores.
But their growth has also inspired a backlash from mom-and-pop retailers and convenience stores, all of which have turned to below-cost laws as their preferred political tool for kneecapping this new competition. Some 13 states currently have below-cost laws, from Massachusetts to Alabama to Utah, and in recent years, with gas prices and drivers’ tempers rising, sensible legislators had contemplated repealing the antiques. In response, the independent gas retailer lobby has geared up and made the retention and vigorous enforcement of the laws their No. 1 priority…
….A favorite argument of these smaller businesses is that the law is still necessary in order to ward off nefarious antitrust behavior…
This argument gets to the heart of the flawed logic that motivated the original passage of below-cost laws. Antitrust law, as any good economist will tell you, exists to protect consumers. As such, below-cost pricing isn’t on its own an antitrust threat. It is only considered a problem if there is a reasonable likelihood that the company engaged in lower pricing is likely to become a monopoly, which would then allow that firm to later raise prices to supracompetitive levels that would harm consumers.
Over the years, economic research, legal studies and court cases have all found that below-cost pricing hardly ever leads to a monopoly, and that it is especially unlikely in the competitive market for motor fuels…
What antitrust is not about is protecting competitors from more efficient, or more aggressive companies. Yet that is clearly what laws like Wisconsin’s are being used for, and nobody denies it. That’s one reason why the Federal Trade Commission has felt compelled to wade into this debate, encouraging those states with below-cost laws on the books to get rid of them…
…As gas prices go up, this blatant protectionism will be all the more inexcusable.
I recently read Michael Barone’s book entitled Hard America, Soft America: Competition vs. Coddling and the Battle for the Nation’s Future. It is well worth reading. Here is an excerpt from the Introduction to the book:
For many years I have thought it one of the peculiar features of our country that we seem to produce incompetent eighteen-year-olds but remarkbly competent thirty-year-olds. Americans at eighteen have for many years scored lower on standardized tests than eighteen-year-olds in other advanced countries…Half a century ago Americans leaving high school were expected to be ready to go out into the world and make their way. Today they aren’t expected to be ready for that, and most of them aren’t.
But by the time Americans are thirty, they are the most competent people in the world. They are part of the strongest and most vibrant private-sector economy. They produce scientific and technological advances of unmatched scope. They provide the world’s best medical care. They man the strongest and most agile military the world has ever seen. And it’s not just a few meritocrats on top: American talent runs wide and deep…
How do I explain this phenomenon? Because from ages six to eighteen Americans live mostly in what I call Soft America – the parts of our country where there is little competition and accountability. But from ages eighteen to thirty Americans live mostly in Hard America – the parts of American life subject to competition and accountability. Soft America coddles: our schools, seeking to instill self-esteem, ban tag and dodgeball, and promote just about anyone who shows up. Hard America plays for keeps: the private sector fires people when profits fall, and the military trains under live fire.
This book is about Hard America and Soft America. It is about schools and work, about the public sector and the private sector, about the economic marketplace and the marketplace of ideas, about the military and the universities…it is not primarily about politics: it is about how Americans live and learn and work, not about how they vote.
The book is also about how we have gotten to where we are today, and about where our society is headed – or should be headed. For no part of our society is all Hard or all Soft…Soft America expanded during much of the twentieth century, as people sought to Soften an America that seemed overly harsh and unforgiving. Government regulation eased working conditions, and welfare state measures like Social Security provided a safety net for individuals. The Hard discipline of schools was eased by progressive educators. By the 1960’s and 1970’s, it seemed like Soft America might eradicate Hard America entirely. Proposals were advanced for government-guaranteed incomes, increased welfare payments, and more regulation of private-sector business; criminals were punished more leniently; even the military abandoned traditional tactics, procedures, and goals and suffered as a result. But in the 1980’s and 1990’s, Hard America fought back. Economic entrepreneurs and political innovators Hardened many parts of American life by their example and with their ideas. This Hard counteroffensive continues today, as we battle over how Hard and Soft the different parts of our society should be in the future.
Public schools, for example, may be the most notable example of a predominantly Soft institution – which helps explain why American children are confined mostly to Soft America. But…our schools have not always been so Soft…and there are signs they are getting Harder again. The private-sector economy, with its market competition, may be predominantly Hard, but it has always contained large niches of Softness…Many public-sector bureaucracies are Soft…and bureaucrats’ political masters are subject to the Hard discipline of elections.
So the boundary between Hard America and Soft America is not fixed. It is fluid, often moving back and forth. Most of us recognize that some amount of Hardness helps to maximize productivity and achievement. Yet most of us in our personal and professional lives seek zones of Softness in which we can go our own way…
I do not take the view that Softness is bad…It would be a cruel country that had no Soft niches. But it would be a weak and unproductive country that did not have enough Hardness. There will naturally be differences about how much of American life should be Hard and how much Soft – something reasonable Americans will argue about forever.
But as we consider those arguments I think we have to keep this in mind: Soft America lives off the productivity, creativity and competence of Hard America, and we have the luxury of keeping parts of our society Soft only if we keep enough of it Hard.
It is this last point that provides a frame of reference for the debates about topics such as (i) the miserable quality of our public education system; (ii) how we instill self-esteem in our children devoid of any connection to whether it is warranted by their performance; (iii) refusals by management and labor to confront bad decisions such as uncompetitive cost structures in certain industries; and, (iv) excessive health and pension benefits, especially those found in the public sector.
Or, to put it another way, our ongoing war against Islamic terrorists who want to destroy our society combined with an increasingly competitive global economy clearly suggest the importance of maintaining a vibrant Hard America core so we do not see the reduction or destruction of our country’s political and economic freedoms and a reduction in our standard of living.
I would encourage you to read the book.
Here is a troubling story:
…Senator Jay Rockefeller, a Democrat from West Virginia…has over the past two years repeatedly accused the Bush administration of deliberately deceiving the American public to take the nation to war. It’s hard to imagine a more serious charge. And Rockefeller makes it perhaps more credibly than most Iraq War critics–as the vice chairman of the Senate Intelligence Committee.
It’s no surprise then that reporters sought out Rockefeller for his reaction to George W. Bush’s address to the nation Tuesday night. The junior senator from West Virginia minced no words. Iraq, he said, “had nothing to do with Osama bin Laden, it had nothing to do with al-Qaida, it had nothing to do with September 11, which he managed to mention three or four times and infer three or four more times.”
This, Rockefeller seems to find outrageous. “It’s sort of amazing that a president could stand up before hundreds of millions of Americans and say that and come back to 9/11–somehow figuring that it clicks a button, that everybody grows more patriotic and more patient. Well, maybe that’s good p.r. work, which it isn’t, but it’s not the way that a commander in chief executes a war. And that’s his responsibility in this case.”
It is an attack on President Bush that echoes those we’ve heard from Democrats–both those on the fringe left and those at the top of the party–for the past 27 months. And it is nonsense…
Odd then that Senator Rockefeller would have spoken of a “substantial connection between Saddam and al Qaeda” just one month before the Iraq War began. In some interviews Rockefeller did say that he hadn’t seen evidence of close ties between Iraq and al Qaeda. But asked about an Iraq-al Qaeda relationship by CNN’s Wolf Blitzer on February 5, 2003, Rockefeller agreed with Republican Senator Pat Roberts that Abu Musab al Zarqawi’s presence in Iraq before the war and his links to a poison camp in northern Iraq were troubling. Rockefeller continued: “The fact that Zarqawi certainly is related to the death of the U.S. aid officer and that he is very close to bin Laden puts at rest, in fairly dramatic terms, that there is at least a substantial connection between Saddam and al Qaeda.”…
…other aspects of Rockefeller’s 2002 speech. It’s worth noting, however, that the vice chairman of the Senate Intelligence Committee told his colleagues that “there is unmistakable evidence that Saddam Hussein is working aggressively to develop nuclear weapons and will likely have nuclear weapons within the next five years.” And: “Saddam’s existing biological and chemical weapons capabilities pose a very real threat to America, now.” And: “We cannot know for certain that Saddam will use the weapons of mass destruction he currently possesses, or that he will use them against us. But we do know Saddam has the capability.”
Unmistakable evidence. Existing biological and chemical weapons capabilities. We do know Saddam has the capability. Remember these things the next time you hear Rockefeller and his colleagues accuse the Bush Administration of exaggerating or fabricating the threat from Iraq.
Rockefeller ended his 2002 floor speech with yet another direct reference to September 11–his fifth.
“September 11 has forever changed the world. We may not like it, but that is the world in which we live. When there is a grave threat to Americans’ lives, we have a responsibility to take action to prevent it.”
Do you find it troubling when politicians radically change their tune – and the only reason for it seems to be politics? Do you find it troubling when those changes relate directly to the national security of America – at a time when we are at war?
And then, on top of it, they are so full of themselves:
…can you imagine George Washington referring in public, or in private for that matter, to his many virtues? In normal America if you have a high character you don’t wrestle people to the ground until they acknowledge it. You certainly don’t announce it. If you are compassionate, you are compassionate; if others see it, fine. If you hold to principle it will become clear. You don’t proclaim these things. You can’t, for the same reason that to brag about your modesty is to undercut the truth of the claim…
How exactly does it work? How does legitimate self-confidence become wildly inflated self-regard? How does self respect become unblinking conceit? How exactly does one’s character become destabilized in Washington?…
What is wrong with them? This is not a rhetorical question. I think it is unspoken question No. 1 as Americans look at so many of the individuals in our government. What is wrong with them?
Normal people just don’t act this way.
Yet more arguments for term limits. Yet another argument for limited government.
And another reason why a diligent citizenry is so essential to ensuring our freedoms are protected.
Sadly, it is an uphill battle, isn’t it?
The New York Times published an editorial yesterday entitled False Data on Student Performance:
Americans often can’t find reliable information about how the schools in their state compare with schools elsewhere. The No Child Left Behind Act [“NCLB”] was supposed to change that by requiring states to file clear and accurate statistical information with the Education Department. The news so far is less than encouraging. Many states have chosen to manipulate data to provide overly optimistic appraisals of their schools’ performance.
A distressing example emerged last week in a study of graduation rates by the Education Trust, a nonpartisan foundation in Washington. For the second year in a row, the Education Trust has found that many states are cooking the books on graduation rates – using unorthodox calculation methods or ignoring students who drop out. Some states submitted no graduation data at all…
The secretary of education, Margaret Spellings, says she is concerned about accuracy. But Congress itself needs to take up this issue and force the states to use accurate methods of calculation when it reauthorizes No Child Left Behind in 2007. Until changes are made at the federal level, student performance data in the United States won’t be worth the paper it’s printed on.
Several thoughts:
Corporations caught filing false information to the public get publicly attacked and sued? Where is the comparable outrage for this behavior which has a much broader societal impact as it is about how well we are educating our children?
Why does the NY Times think more federal involvement in state-level educational issues is going to change behaviors? The only logical extension of the NY Times’ argument is to reach for total federal micro-management and control. But, the Soviet Union showed that model of government just plain doesn’t work. Think further about the silliness of their argument: Within the state of Rhode Island alone, there are nearly 40 school districts, some with multiple high schools. As a further example, how is Congress going to ensure my town – with its roughly 150 graduating seniors every year – files proper data? And how will the Congress define and enforce penalities if my town were not to do it properly? Sheer folly.
No, the false performance data reporting occurs because there is a fundamental structural problem in public education. NCLB may highlight problems like this false reporting but it cannot fix the real problems because school bureaucracies and teachers’ unions receive no tangible rewards from excellent performance and suffer no adverse consequences for non-performance.
The only thing that will change that dynamic in public education – which unfortunately hurts our vulnerable children the most – is the power of competition implemented via educational choice. This Milton Friedman posting explains both the structural problems of the public education monopoly and the power of education choice.
