My Thoughts on the Fourth of July

When I was a boy, one of my favorite holidays was Independence Day. I was an enthusiastic student of the War for Independence. My favorite book was the How and Why Wonder Book of the American Revolution by Felix Sutton. I spent a lot of my childhood reading about the colonial era, the lives of people like Sam Adams, Paul Revere, Thomas Jefferson, Patrick Henry, and George Washington. I learned all about our American forefathers’ struggle for liberty against a king who merely treated them as revenue-generating pawns. I was nine years old when the US celebrated its bicentennial and my mother wallpapered my room with a red, white, and blue colonial American themed paper and I had various prints of famous revolutionary war scenes hanging on the walls. I looked forward every year to the day celebrating the signing of the Declaration of Independence.

Over the years, alas, my enthusiasm became dampened so that now, if I am exposed to any mainstream media celebrations of Independence Day, I do not feel the joy I once did. Instead I feel more like Charlie Brown at the beginning of A Charlie Brown Christmas. Remember in that childhood classic how, when Christmas approaches, Charlie Brown tells Linus that he knows he should be happy, but instead he always ends up feeling depressed. I increasingly get the same feeling as people gear up for 4th of July celebrations.

Now, much older and perhaps wiser, when I hear the popular media gushing about our freedoms, the Declaration of Independence, the Liberty Bell, Celebrate America concerts, and all the rest on the Fourth of July, instead of being happy, I feel a tinge of sadness. I like celebrating the Fourth of July by, say, gathering with friends, teaching my children about the Founding Fathers, reading the Declaration, and watching fireworks, but when I think about where we started and what we have become, like Charlie Brown I end up melancholy. This is because the politicians and the media talking heads clearly have no idea what they are talking about. Most seem to not even know what liberty really is. The only politician at the national level who spoke about freedom and the Constitution with actual conviction was Ron Paul and they laughed him off the stage. Instead, popular journalists and pundits try to make us believe that we are free because we are allowed to have other people vote away our liberties.

At the beginning of every major sporting event, Americans pay lip service to “the land of the free and the home of the brave,” but everywhere they are in economic chains. Last year total government spending was $6.4 trillion. That is $6.4 trillion with a t. That number amounts to over 36 percent of GDP. The Federal budget deficit the past fiscal year was $438 billion. Over the past eight years, our government debt has skyrocketed. By the end of this fiscal year, gross Federal government debt is expected to be over $19 trillion. That will be 106 precent of GDP.

Now, the important point to remember with respect to our freedom is that every single penny of government spending represents government control. When you spend money to purchase a loaf of bread, a tank of gas, or a pair of pants, you become owners of these economic goods and can use them as you see fit. When the government spends money, its bureaucrats gain control of economic resources. And the more of our resources under their control, the less free we become. . . .

Read the rest here

Supreme Court Finds in Favor of Private Property?

As hard as it is to believe, that seems to be the case. Such a ruling is something to celebrate on our upcoming Independence Day. This Monday the Supreme Court ruled that a government program meant to increase raisin prices by keeping some of them off the market amounted to an unconstitutional taking of private property by the government. Let us hope that ruling may be used as a precedent spawning further rulings identifying that other federal regulations that constrain entrepreneurs from using their factors of production as they see fit is also unconstitutional. Not only do such regulations violate the Christian ethic of private property and makes us relatively impoverished by hampering the market division of labor.

Economic Wisdom on Renewable Fuel Standards

From Timothy Terrell posting at the Corwall Alliance. Terrel comes to the issue of government mandated renewable fuel standards from the same framework I use in my book, Foundations of Economics: A Christian View, and I expressed in my most recent op-ed about EPA Clean Energy Plan. Economics recognizes that prices are indications of relative scarcity. Therefore, when entrepreneurs arrange production according to profit and loss, they most strictly economize resources that are higher priced. Forcing the move to higher-priced alternatives make no economic sense for entrepreneurs seeking to reap profits. Importantly, they also make no sense for a society seeking to enjoy sustainable economic development. Terrell notes that such mandates make for bad stewardship.

As he explains,

Trying to force the adoption of another energy source, whether that is ethanol, wind energy, solar, or something else, means spending something valuable to conserve something cheap. Using “renewable” ethanol means using valuable farmland, water for irrigation, fertilizer (some of which is petroleum derived), tractors and tractor fuel for planting and harvesting, trucks for transportation of corn, fuel and water for distillation plants, and human labor. Cheaper energy sources are right under our noses.

But using ethanol means we’ll have more oil to use later, right? Yes. It means that we’ll use up the existing petroleum reserves at a somewhat slower rate, and will shift to other energy sources a little later. But it also means sacrificing all those valuable resources in the present—all the food that could have been grown on the farmland, all the water which could have irrigated other crops or increased stream flow for fishing and recreation, all the tractors and other vehicles, and the rest. It means, in short, less economic development now. It is economic development that gives us the tools to extract oil from harder-to-reach places, gives us innovations that increase the efficiency with which we use oil, and which will eventually replace petroleum. And it is economic development that saves lives. It is economic development from lower-cost energy today that reduces infant mortality and other causes of death, so that children have the chance to grow up, get an education, and become the innovators of the future.

What You Need to Know about Equal Pay

Earlier today while surrounded by women President Obama again demonstrated his fondness for governing by dictate and signed two executive orders designed to force federal contractors to pay women as much as men for equal work.One prohibits government contractors from punish workers who talk about their wages. The second ordered contractors to compensation data based on sex and race to the federal government.

The move is obviously designed to shore up his electoral base among women voters. President Obama's rhetorical justification for added more labor market regulations is that full-time working women still earn 77 cents to every dollar earned by men. This statistic is not as egregious as the old "59-cent statistic," but it is merely a more contemporary variation of the same theme: there is obviously rampant discrimination on the basis of sex in the work place.

The reality is somewhat different, as I was able to write about many moons ago. It turns out that family ties are the primary explanation for men and women taking different jobs that pay different wages. Marriage and child rearing result in many women making choices that put them on a lower earning trajectory. Women have higher turnover rates and fewer continuous years on the job than men do. More women work part-time jobs than men and have a higher rate of absence than men. Women also tend to seek out occupations where an absence to raise a child will not make them obsolete.

What I said then still stands today:

[T]he performance of women's earnings over time is not the result of systematic discrimination. Whether egalitarians like it or not, for the "average" woman her family life trumps other concerns on the margin. Employers and employees are merely recognizing this fact of nature: women and men are not equal in the sense of being identical. They are different and have different comparative advantages when it comes to work outside the home versus child rearing.

Of course, both men and women would like to work for much more than what they are getting paid, other things equal. But then, the other things are never equal. That fact serves as a useful devise for egalitarian politicians and bureaucrats. Social engineers use the persistence of inequality of income as the warrant for never-ending regulation.

By the way, if it is really true that businesses easily discriminate by paying women twenty-three cents an hour less than men, would it not be in their interest to hire only women? That they do not do so seems to indicate that any compensation gap is not due to irrational discrimination.

More Regulation, Less Prosperity

As I explain in the final chapter of my book, Foundations of Economics, sound economic theory tells us that

The only way to cultivate and fill the earth without descending into a barbaric struggle for survival is to take advantage of the social division of labor, capital accu- mulation, and wise entrepreneurship. Allowing these sources of economic progress to flourish requires the security provided by the christian ethic of peace and private property. . ."

Good social institutions, such as private property are essential for economic prosperity.

Man Controlling Trade by Michael Lantz

An excellent essay by Niall Ferguson claims that increases in business regulation has contributed to a recent decline in economic freedom. He cites several studies, including the annual "Doing Business" report published by the World Bank that indicates government regulation of the business environment has increased noticeably the past few years. Such expansion of regulation has merely making it harder for entrepreneurs to engage in productive activity, resulting in relatively less prosperity.

In this he agrees with what I wrote several years ago in Chapter 17 of my book. Whenever the state intervenes in the economy, it benefits some and harms others. Legal privileges are given to those firms who find it easiest to abide by the regulation (indeed may have had some say in crafting the legislation).

When legal privileges are given to some sellers, factors are allocated away from their most valued uses. From the perspective of people in society, too few producers are in those industries where entry is hindered and too many are in those other industries where the value of production is lower. Resources are directed away from their higher valued and more efficient uses. Consequently, resources are wasted and fewer goods are produced with the same quantity of land, labor, and capital goods. People are left with fewer means with which to attain their ends so fewer ends are satisfied.

50 Ways to Leave Your Economy in the Dust

For the first time ever, I was able to include a formal lecture on government regulation of business in my Principles of Economics course. The thrust of my economic analysis of economic policy is comparative. Following Rothbard, I explain how a free society maximizes social preferences by allowing for the most possible mutually beneficial exchanges. I then contrast this with the outcome of various government interventions such as price controls or product standards. The end result of such regulations is generally a reduction in the quantity of people satisfying their most preferred ends because voluntary exchanges are restricted.

Jeff Tucker and Doug French apply this economic principle to the many "Dumb Ways (for an Economy) to Die." Their list includes propping up failing industries, protectionism, saving insolvent banks, regulation of the automobile industry, the minimum wage, economic class warfare, military warfare, property confiscation, socializing health care, demonizing immigrants, and abolishing interest rates via monetary manipulation. All of which is discussed with their typical style and panache.

Coming Soon to a Doctor's Office Near You

In Chapter 17 of my book, Foundations of Economics: A Christian View, I discuss the economics and ethics of voluntary exchange and regulation. Following the analysis of Murray Rothbard, I note that government regulation of business amounts to government privilege granted to certain firms who are already operating according to the dictates laid down by the state. Often such regulations are written with important input by established business firms.

As I explain in my book, such regulation "benefits the seller receiving the special privilege. Whoever has the legal right to produce is protected from potential competition. Potential competitors are barred from entering the regulated market, reducing the number of substitutes for the good made by the privileged seller."

We are on the cusp of seeing how this economic principle will play itself out in the health care industry following the implementation of Obamacare. For those who still hope that increased centralized health care will make the world a better place, I urge you to take a listen to this address by Dr. Elaina George at the Annual Meeting of the Association of American Physicians & Surgeons.




Thanks to EconomicPolicyJournal for alerting me to the perspective from a doctor who understands how increased intervention via Obamacare will result in a more centralized industry, more government control, higher costs, and an increased wedge between physicians and their patients.

The Myth of Smaller Government

Jordan Weissman, associate editor for The Atlantic, claims that we now have the smallest government in 45 years (HT: Ryan McMaken). Weissman makes this claim based on the ratio of government population to population. Ryan McMaken rightly counters that official government employment is a fallacious measure of government size because of the increase of outsourcing done by the state.

I had a friend who used to work for U. S. Department of Energy (DOE) and was there when Al Gore reinvented government. That was when the first wave of privatization of government services began. My friend told me that the DOE  contracted out about two-thirds of its work, but only laid-off about a fourth of its employees. Many bureaucrats were paid to do little except read novels, because it was more interesting than sitting and doing nothing.There was no work for them to do.

McMaken is also correct to note that government spending has skyrocketed since LBJ.

In 1968, the US government spent $883 dollars for every one of the 201 million Americans, or annual outlays totaling 178.1 billion. In 2011, the US government spent a whopping $11,493 for every one of the 313 million Americans for total outlays of 3.6 trillion. That's an increase of 1,923 percent since 1968. The CPI over this period increased 545 percent, so we're talking an enormous increase, even when adjusted for the official inflation rate.

With a reductions in government like that, who needs totalitarianism?

Additional evidence, as if any were needed, can be seen by looking at the Federal Registry which houses the U.S. Federal Code which comprises all federal regulations. In 1960 there were 20,072 pages in the Registry. In 2011 that total was up to 82,415. That is a more than four-fold increase. You can learn about our dismal regulatory state in some detail by reading Ten Thousand Commandments 2012, by Clyde Wayne Crews, Jr. at the Competitive Enterprise Institute.  Anyone who says we are living in an era of small government is either woefully mislead, willfully ignorant, or just lying.

County in Virginia Fines Farmer for Selling Her Own Produce

This spring, Martha Boneta hosted a birthday party for one of her friend's daughters on her small farm in Paris, Virgina. For her troubles she was threatened by Fauquier Country with thousands of dollars in fines. She was cited for holding an event without a permit and for selling produce directly to consumers.

It turns out that Boneta had paid for a "retail farm shop" business license in June of last year. However, just one month later, the county Board of Supervisors approved an amendment that restricted "farm sales", and began issuing citations to farmers in the area. You can watch a report, including eyewitness testimony here:




Remember, they hate us because we're free.

Intervention, Scarcity, and the Environment: It's Not Easy Being Green

I've come across a number of items related to economics and the environment recently. One of the overriding themes is that, because economic goods are scarce, all interventions into the economy, even for the sake of the environment, requires the bearing of costs.

David Bier contrasts the different perspectives on recycling by Newt Gingerich and Julian Simon and sides with Simon's position that we should "recycle only if it is worth it." It might not be worth it, because recycling is not free and in many cases, the costs may outweigh the benefits. This principle is also the theme of Roy Cordato's provacatively entitled classic, "Don't Recycle: Throw It Away!"

Word has also come that BP Solar, an huge alternative energy player that received a $7.5 million grant four years ago, has decided to exit the solar energy industry because it is unprofitable. It seems that there has been so much investment lured into the industry, in large part because of government subsidies, that prices have fallen to a point where firms are having trouble making it without continuing subsidies.

In his book Eco-nomics, Richard Stroup uses the case of the 2000 Los Alamos, New Mexico fire to explain that along with any benefits to be had from environmental regulation, there come costs. Stroup recounts how, during the 1990s the Forest Guardians sued the federal government to cease logging in the national forest in New Mexico. In 2000 there was a fire that destroyed most of the forest the advocacy group wanted to preserve. The fire was so devastating because little thinning out of small trees had occurred the previous decade because of lobbying by environmental groups.

As Stroup notes,

It’s one thing to be passionate about protecting the environment. It’s another thing to be successful at it. Many laws have been enacted in the United States to clean up pollution or preserve natural beauty, but many of them have unintended consequences. They don’t save the species they were supposed to. Or they don’t clean up the rivers as Congress intended. They end up costing a lot of money, often creating large government bureaucracies that can’t seem to achieve the goals that seemed within reach when the agency was formed or the law was passed.

None of the above should be taken to imply that we are not to care about the environment. It is simply to not that all of our actions, including environmental regulation, incur costs. As Kermit sang, "It's Not Easy Being Green."

Did the Repeal of Glass-Steagall Make Possible the Financial Crisis?

Noted historian Tom Woods says no, it was irrelevant. The Glass-Steagall Act of 1933 separated commercial banking and investment banking. The so-called repeal in 1999, Woods notes, revoked only one paragraph of the original law and allowed the same holding company to control both investment and commercial banks.

Woods argues:

Because Glass-Steagall was passed during the Depression, it is assumed that it was addressing a pressing need of the time. In fact, the lack of government-enforced division between commercial and investment banking had precisely zero to do with bank problems during the Great Depression. The 9,000 bank failures during the early 1930s had far more to do with the damage done by government regulation — namely, the unit-banking laws that made it difficult for banks to diversify their portfolios (by limiting them to a single office and making branching illegal) — than with a lack of regulation. These were small banks, not the behemoths for which Glass-Steagall would have been relevant. Canada had none of these stifling regulations, and had zero bank failures. (Incidentally, Canada also avoided all the post-Civil War bank panics that struck the U.S., even though Canada did not have a central bank until 1934 — yet again, reality refuses to conform to the where-would-we-be-without-our-wise-overlords comic-book version of events.)

Do We Need a Supernational Authority to Enforce Social Justice?

The Vatican's Council for Justice and Peace seems to think so. According to Reuters, the Vatican has called for a "global public authority" and a "central world bank" to rule world financial institutions in an effort to enforce social justice. Additionally, the new document, "Towards Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority," calls for various specific state interventions in the market such as taxing specific financial transactions.

As Jeff Tucker notes, this call for increased economic statism is particularly unfortunate because the document diagnoses the cause of the economic crisis pretty well. The problem was created by government control of the monetary system and the inflation it fostered. It seems unlikely that the solution will be the same thing that caused the problem.

Additionally, there is a severe problem of mistaken jurisdictions. The Reuters piece quotes from the Vatican report.

It condemned what it called “the idolatry of the market” as well as a “neo-liberal thinking” that it said looked exclusively at technical solutions to economic problems. “In fact, the crisis has revealed behaviours like selfishness, collective greed and hoarding of goods on a great scale,” it said, adding that world economics needed an “ethic of solidarity” among rich and poor nations.

The Vatican is making a big mistake in thinking that behaviors such as selfishness and collective greed can be solved through global economic planning, or any state action for that matter. The church is the institution that exists to make disciples of all nations. As I explain in my book when discussing the issue of government regulation of the market,

Some Christians might fear that such a free market economic policy will result in an unbridled capitalism that produces a society characterized by harsh, greedy, unrestrained industrialists who stop at nothing as they increase their fortunes. This worry misconstrues the nature of the free market. In a free market entrepreneurs cannot force anyone to buy their products. To receive revenue, firms must convince people to voluntarily purchase from them. The action of a profit-seeking entrepreneur is far from unregulated. In a free market, the entrepreneur may not be regulated by the state but he will be regulated by his conscience and especially by consumer preferences. If people do not want to buy from an entrepreneur with a reputation for wrong-doing they are free to refrain. The accounting firm Arthur Andersen went into bankruptcy at the mere allegation of improper accounting.

In this way that the church can properly act to regulate the economy. The Christian ethic of private property does not allow them to use the coercive state to achieve their ends for a better society. Instead Christians are called to evangelize and disciple converts in the paths of righteousness. As the church does what it is called to do, people will change their preferences. They will begin to be more loving and kind to their neighbors. If Christians really want different market outcomes, they should be obedient in their calling and have faith that God can transform the hearts and minds of men and women (pp. 476-77).

I simply do not understand the charge that the economic crisis has revealed a hoarding of goods on a great scale. Calls for a super-national central bank and global economic regulation are the sort of economic policy suggestions we get when people do not understand basic economics or the nature and role of the Federal Reserve and state intervention in the economy.

One of the Riskiest Things You Can Do in America Is Hire Somebody

So says Peter Schiff, President and CEO of EuroPacific. In this testimony before the House Subcommittee on Government Reform and Stimulus Oversight, he explained how the regulatory burden makes hiring a very dicey game and why government stimulus programs, such as President Obama's recent proposal is like "pouring gasoline on a fire."



Schiff is more right than wrong in his testimony.

Government Intervention Reduces Social Welfare: Babysitting Edition

Word comes that the California legislature is considering a bill, AB 889 to be exact, which will make it a lot harder to obtain babysitting services. According to The Union,

Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers' compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.

If the bill becomes law, some parents and prospective babysitters who are over the age of eighteen and willing to work for less than the minimum wage will be harmed. It is likely that parents will try to hire younger babysitters or will simply go out less.

It is also likely that the entire industry will become more institutionalized and less personal. There would be economies of scale in handling the regulatory paperwork and arranging for substitute workers. I can easily imagine that parents would then find using babysitting firms more attractive than handling all of the regulatory burden themselves.

The bottom line is that this is the sort of regulation that makes it harder for voluntary exchange to occur, and therefore makes it harder for people to satisfy their ends. As I explain on page 459 of my book Foundations of Economics: A Christian View,

Each time people engage in exchange, they do so because they think they will be better off. In this way the free market tends to maximize the satisfaction of society. Intervention in the market, however, hinders this process and necessarily creates conflict. Instead of an exchange which is mutually beneficial, one party benefits at the expense of another party.

The Third Man

A few weeks ago some friends asked my wife and I over to enjoy the film The Third Man with them. We had a wonderful time revisiting this true gem of cinematic art. One of the great themes of the picture is the conflict between order and disorder or control versus confusion (or chaos). Much of the film is devoted to revealing the negative consequences of people trying either to control things they ought not or using the wrong means to bring order out of chaos.

One important way screenwriter Graham Greene and director Carol Reed communicate their theme is through the juxtaposition of the machinery of the state and the organization of Harry Lime, a criminal smuggler and racketeer. The most popular scene in the film is probably Holly Martin's meeting with Harry Lime in a Ferris Wheel car high above the ground.

Lime's racket involved diluting very valuable and rare penicillin with base materials, thereby making it more profitable but useless. Many child victims of meningitis ended up dead or having gone mad because of doctors giving them worthless liquid when they thought they were giving them penicillin. In defense of his criminal activity Lime adopts the position of state tyrants. Looking down at people from high above--the closest to the heavens Lime ever gets--he asks Martin,

Would you really feel any pity if one of those dots stopped moving forever? If I offered you £20,000 for every dot that stopped - would you really, old man, tell me to keep my money? Or would you calculate how many dots you could afford to spare?...Free of Income Tax, old man...

 Later in the conversation he does a neat bit of equivocation.

Nobody thinks in terms of human beings. Governments don't, so why should we? They talk about the people, and the Proletariat... I talk about the suckers and the mugs... It's the same thing. They have their five-year plan, and so have I.

It is hard to disagree with Lime's sentiment if one accepts the legitimacy of the totalitarian state.

One thing that can be easily missed, however, is that the entire dramatic conflict of the film is due to the institutional back drop of the picture. It is a society of government intervention and control. Vienna is introduced as a city divided into four sectors, each occupied by a different foreign government: American, British, Russian and the French. The city center, however, instead of representing the core of an urban civilization, is described as a modern day Babel:

But the center of the city, that's international, policed by an international patrol, one member of each of the four powers. Wonderful! What a hope they had. All strangers to the place and none of them could speak the same language. Except of course a smattering of German. Good fellows on the whole. Did their best, you know.

Did their best to maintain control and order perhaps, however it was precisely state controls that created the disorder and encouraged the moral confusion and corruption that serves as the dramatic impulse driving the film.

Government price ceilings and other controls on the post-war Viennese economy are what stimulated the rise of the black market casually mentioned in the film's introductory monologue. Price ceilings encourage corruption, because the law makes it illegal to sell certain goods at a price above the legal maximum. When the state fixes a price ceiling below the market price (and this is the only kind of price ceiling governments find it in their interest to mandate) it is certain that the quantity of the affected goods demanded will be greater than the quantity supplied. The resulting shortage causes frustrated buyers who are willing to pay the market price, but are prohibited from legally doing so.

This shortage opens the door for the emergence of the black market. Some more eager buyers who are willing to risk skirting the law seek out sellers who are willing to sell the effected goods under the table at a higher price. The high potential profits due to the price controls also encourage sellers to reduce the quality of their products so as to meet demand. Harry Lime did so by committing fraud of the most dangerous sort--selling useless liquid as penicillin.

One of the great truths in the film is that, when a society ignores the moral law that comes from above they attempt to fill the moral vacuum by becoming a law unto themselves. On the Ferris Wheel, Martin says to Lime, "You used to believe in God." Lime responds,

I still do believe in God, old man. I believe in God and Mercy and all that. The dead are happier dead. They don't miss much here...poor devils.

Lime takes upon himself the mantle of divine sovereignty, deciding who should live and who are "happier dead." A people who attempt to live lives above the divine moral law, ultimately fail to control themselves. The consequences can be very messy. Things are no less messy, indeed social chaos is magnified, when the state uses such disorder as an excuse to assume the role of God, attempting to create and maintain social order on its own terms for its own sake.

Social order is encouraged by voluntary exchange, which fosters social integration via the division of labor. Voluntary exchange, of course, requires a certain respect for private property and an element of trust. When the moral law is thwarted, by either private citizens or the state, bad things happen.

Shave and a Haircut $14,000????

Aaron Rounds Barbershop

Over at The Art of Manliness, Aaron Round tells the story of how and why he turned his garage into a barbershop. Here is a man who wants to be a barber and has people demanding his services, but cannot freely pursue his dream. Why? He does not have the 14,000 Australian Dollars to pay for the general hairdressing certificate required to professionally cut hair. Not even that would cut the mustard, it turns out, because he would have to pay for additional classes in shaving and men's hairdressing.

He decided to take the first step toward living his dream by turning his garage into a barber shop. Since he cannot charge money for his services he is settling for cutting hair for family and friends on the weekends and saving up any donations until he can afford the government license. Good for Mr. Round, a man passionately committed to his dream and who is willing to take strong measures in pursuit of that dream.

It should be apparent, however, that what stands between him and his dream is the state. There is no good reason for the government not to allow Mr. Round to use his garage and barbering supplies as he sees fit. Anyone who is willing to voluntarily pay Mr. Round for a haircut demonstrates that he values his service more than the money and Mr. Round would value the money more than the service. Who gets hurts by this arrangement? No one. Both parties benefit. It is clear, therefore, that government intervention in this market is reducing the number of haircuts available to the general public. By artificially reducing the supply of hair cuts, the price of hair cuts is being kept artificially high as well. Such regulation is socially destructive.

Some might argue that government licenses in the barber industry helps maintain a uniform standard of high quality and safe hair cuts. If that was the real motive for the regulation, however, why is cutting hair for free legal?  Why is Mr. Round legally able to give potentially bad hair cuts away for free? Murray Rothbard cogently recognized that the economic purposes of such government licenses is to restrict competition, thereby giving established firms special privilege. In his Power and Market he writes:

How much these requirements are designed to “protect” the health of the public, and how much to restrict competition, may be gauged from the fact that giving medical advice free without a license is rarely a legal offense. Only the sale of medical advice requires a license. Since someone may be injured as much, if not more, by free medical advice than by purchased advice, the major purpose of the regulation is clearly to restrict competition rather than to safeguard the public (p. 1097).

Is Economic Stagnation Fostered by Regime Uncertainty?

One entrepreneur thinks so. While on a plane, Yale law professor Stephen L. Carter recently struck up a conversation with a business owner who explained to him "why he refuses to hire anybody." His reason can be summed up in the word uncertainty. He is unsure about the regulatory environment and how changes in regulations will affect labor costs, investment returns, and capital gains he would reap if he merely sold his businesses. His response lends credence to Robert Higgs' theory of regime uncertainty contributing to economic recessions.

When asked what the property roll of government should be, the businessman responds,

“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss."

Unfortunately, he does not elaborate what are the "things the government has to do." I imagine he means things like police, the military, roads and schools. That is not an uncommon opinion. Economic theory, however, teaches that even these are not things the government has to do.  His last sentence, moreover, implies he may mean something more. He may mean that the government should promote industry, provide protection against imports, give subsidies to small businesses, and ensure relatively low interest rates.  These things, of course, merely create more uncertainty.

The best thing for the state to do is to get out of the market altogether. Remove price controls and business regulation, lower government spending and taxes, and get out of the money production business. Such a path would of course change the current regime, but what follows would be a free society in which the division of labor could freely develop, making use capital accumulated and invested by entrepreneurs who could use economic calculation to make wise investment decisions. It would be the best possible environment for productive activity and for the employment and higher real wages that go with it. That is regime change we can believe in.

Trade is Mutally Beneficial: Long Ears and Fluffy Tail Edition

From time to time I read a story that simply fills me with righteous anger. My friend Timothy Terrell made me aware of a recent example: the case of the USDA tyrannizing John Dollarhite. Dollarhite is a man from Nixa, Missouri who has been fined over $90,643 for the crime of selling over $500 worth of bunny rabbits in one calendar year. If he does not pay the exorbitant fine in short order, he could be slapped with additional fines of almost $4 million!

According to this report, the Dollarhite bunny operation began as a family business operated by his son as a way for him to learn some entrepreneurial skills; a sort of advanced lemon-aid stand. The son was successful and the business grew until he sold it to his parents when he was 18 years old. In 2009 their sales revenue from the bunnies increased to $4,600. USDA officials got wind of their business and, after USDA inspections the Dollarhite's received a certified letter indicating that they were guilty of violating federal law 9 C.F.R. § 2.1 (a) (1): Selling more than $500 worth of rabbits in a calendar year. It was never alleged that they mistreated their animals or that their rabbits were ever in anything but the best of health.

Here we have a clear case of government regulation making life worse for everyone involved, except perhaps the bureaucrats at the USDA. That Dollarhite reaped $4,600 in a single year selling rabbits is a demonstration that he successfully served others. Those who bought the rabbits demonstrated this by voluntarily buying the rabbits with their own money. The Dollarhites valued the $4,600 more than the rabbits they sold. The rabbit buyers valued the rabbits more than the money. All parties were net beneficiaries. No one was a loser. Voluntary exchange is mutually beneficial.

It should go without saying that if we lived in a free society, such prosecutions would never occur.That a family could be facing potential fines of up to $4 million dollars as a result of selling $4,600 worth of rabbits is outrageous. THIS  is what I mean when I tell my students that government regulation of business is aggression against a person's property. The law says that John Dollarhite cannot use his property as he sees fit. He cannot sell his rabbits for money, if he sells them for more than a total of $500 in one calendar year. If he does use his property this way, more of his property will be taken from him in the form of fines and legal fees. Such laws are contrary to all economic wisdom and the Christian ethic of private property.

Hope for Entrepreneurship in Cuba

Hopeful news is coming out of Cuba. Bloomberg's Business Week reports that recent changes in Cuba's economic system is sparking the beginnings of entrepreneurial activity. Even though the move toward a market is small and there are still huge obstacles for business, "including high taxes, a lack of raw materials, an uncertain customer base, labyrinthine bureaucratic rules and limited access to startup capital," since Jan. 7 over 75,000 citizens have been granted licenses to operate private firms. That there are that many willing to bear the risk of production in the face of such challenges says a lot for the spirit of enterprise. For the sake of the people of Cuba, we can only hope that these men and women will be successful. Who knows what could be accomplished if the state would really get out of the way?

Voluntary Exchange Is Mutually Beneficial: Massage Edition

I have explained before that when parties engage in voluntary exchange, both benefit in the sense that each party obtains a good they value more than the good they trade away. When the state hampers the market in a way the reduces mutually beneficial exchange, this harms citizens by frustrating their preferences.

We should keep these foundational economic principles in mind when considering new legislation from Michigan that will now requires all masseuses to be licensed by the state. This new law in Michigan is just one example of a growing trend throughout the country documented by the Wall Street Journal. The number of people employed in industries that require a government license is on the rise.

What may surprise some is that pressure for such regulation is coming from those in the industries themselves. Why would they do that? To restrict competition. If it becomes harder to enter an industry because, in addition to normal economic costs of operation, participants must spend time and money for government approved training and licensing, these additional costs make it more difficult for potential workers to enter the regulated field. This restricts the supply and thereby raises the price for whatever is licensed. Morris Kleiner, a University of Minnesota labor professor, has shown that in occupations that are licensed in some states and not in others, from 1990 to 2000 employment growth in states without regulation grew 20% more than in those states with licensing requirements. In another study by Kleiner and Alan Krueger, they found that licensed workers earn 15% more than workers in the same occupation in states that do not require licensing.

So what has government licensing wrought? Consumers paying higher prices for fewer services. Fewer mutually beneficial exchanges take place and more people have their preferences frustrated.