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Coercion Is Bad Economics

July 27, 2015 in Economics

By Chris Edwards

Chris Edwards

A common feature of Obama administration economic policies is the use of government coercion. The Obamacare health law mandated that individuals buy insurance. The administration’s tax increases grabbed more earnings from millions of people. And federal agencies are imposing an increasing pile of labor, environmental, and financial regulations on businesses.

Pro-market policy experts point out the negative effects of each intervention, but the administration keeps dreaming up with new ways to take our money, restrict what we do, and manipulate the economy. 

Liberals or progressives seem to have no inkling of why free economies work better than economies based on central authority. They favor using centralized force apparently because they think that it creates practical benefits.

But coercion is not a practical way to help the economy—regulations and taxes rarely make us better off. Some people may gain, but the vast majority of people lose. Coercion tends to destroy value, not create it.

There are at least four fundamental reasons why.

Free markets generate value, deliver diversity, and spur better ways of doing things.”

First, because the government uses coercion, its actions are based on guesswork. Regulations are top-down commands, not efforts at finding common agreement. Spending relies on compulsory taxation, not voluntary customer revenue. So government actions generate no feedback regarding whether or not they generate any net value.

Compare that to markets. We know markets generate value because they are based on voluntary and mutually beneficial exchanges. Decisionmaking in markets is a reality-based system guided by individual preferences.

Consider the purchase of aircraft. In the private sector, an airline chooses the number to buy based on the demand for air travel, which is aggregated through the price system from choices made in the marketplace. By contrast, when the Pentagon buys aircraft, it has no price system or measured demand to guide it, so its decisions are made flying blind.

Second, government actions often destroy value because they create winners and losers. Regulations squelch personal choices and impose one-size-fits-all rules. The amount of federal spending on each program is chosen for the whole nation, and thus differs from the amount that would be favored by each individual. 

In markets, people choose the amount of each item they purchase, and they can pursue a vast array of different interests, lifestyles, and careers. “The great advantage of the market,” Milton Friedman said, “is that it permits wide diversity,” while “the characteristic feature of action through …read more

Source: OP-EDS

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Millennials Support Iran Deal

July 27, 2015 in Economics

By A. Trevor Thrall, Erik Goepner

A. Trevor Thrall and Erik Goepner

The polls are in: A majority of Americans supports President Obama’s nuclear deal with Iran. But in what is emerging as a significant new element of the political landscape, the millennial generation (those born between 1980 and 1997) is by far the most supportive, with 65 percent for the deal, compared with 55 percent of older Americans in a recent Cato/YouGov poll.

The millennials’ attitudes toward the deal bolster the findings of our recent study, published by the Cato Institute, of millennials’ foreign policy attitudes. Compared with their elders, millennials view the world as less threatening, are more supportive of international cooperation and diplomacy, and are far more averse to the use of military force. All of these attitudes likely contribute to millennial support for the Iran deal.

Though 9/11 is the defining event of their generation, millennials see the world as a less dangerous place than their elders. Millennials are less worried about almost all potential threats to international security, including international terrorism, Islamic fundamentalism, and the rise of China. This is why, as the Cato/YouGov poll found, just 53 percent of millennials believe that Iran acquiring nuclear weapons would be a “disaster,” compared with 68 percent of older Americans.

The findings are the bow wave of a sea change ahead in American politics.”

The broad reasons behind their relative ease are twofold. First, millennials grew up after the Cold War, in the absence of a superpower confrontation and the specter of nuclear holocaust. Terrorism is certainly dangerous, but it has not fueled the same level of fear that the Cold War did. Many millennials were simply too young for 9/11 to have had the direct emotional impact it did for older Americans.

In fact, the youngest millennials, born after 1987, are significantly more sanguine about global threats than older millennials, more supportive of the Iran nuclear deal, and less concerned about whether Iran might develop nuclear weapons someday.

Second, the meaning and impact of 9/11 have become entangled with the U.S. response to it. A majority of millennials, as with other generations, views the wars in Afghanistan and Iraq as a mistake, but millennials are also the least likely to believe that using military force is the best way to solve problems. For millennials, 9/11 demonstrates less that the world is a dangerous place than that that aggressive U.S. military action is counterproductive.

And that’s …read more

Source: OP-EDS

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Occupy Albany: New York's Far-Left Attorney General

July 27, 2015 in Economics

By Walter Olson

Walter Olson

Eric Schneiderman had no prosecutorial experience when he became New York attorney general in 2011. But he did have the unwavering support of progressives. As Ben Smith noted in a Politico profile, Schneiderman had “spent his career building an ideological infrastructure for the left.”

In a 2008 article for The Nation, then-state Sen. Schneiderman declared that the left needed to pursue a more “transformational” style of politics. The real challenge was to “slow down the bone-crushing machinery of the contemporary conservative movement.”

The Occupy left was smitten and helped make the difference in 2010’s five-candidate Democratic AG primary. Schneiderman went on to win by 11 points against Republican candidate Dan Donovan.

Last year, he won re-election against GOP challenger John Cahill, this time by a 13-point margin.

Since becoming the state’s top prosecutor, Schneiderman has made a show of remembering the people who put him in office.”

Since becoming the state’s top prosecutor, Schneiderman has made a show of remembering the people who put him in office — labor advocates, community activists and the sorts of Upper West Siders for whom progressive ideology is not just an Election Day predilection but a way of life — and helping them get what they want.

For his chief of staff, the newly sworn-in attorney general chose not some career legal type but the up-and-coming political director of Unite Here, the hotel union. His director of advocacy, like his top campaign advisor, had previously worked for the politically formidable Service Employees International Union, or SEIU.

One of Schneiderman’s biggest publicity hits came early in his tenure, when he derailed an all-but-finished deal between the other 49 attorneys general and large mortgage servicers over “robo-signing” and related practices, saying it wasn’t punitive enough toward the companies and should be renegotiated.

After winning concessions in that battle, he pulled a sequel by barging into a nearly completed settlement between investors’ lawyers and Bank of New York Mellon, bringing new allegations against the bank. New York state wasn’t even a party to that case; Schneiderman’s office said that it was representing the public interest under what is known as the doctrine of parens patriae, or the state suing on behalf of its citizens.

Many of the lawyers who had negotiated the deals — including, in the robo-signing case, some of Schneiderman’s fellow state AGs — were furious. But the body of opinion leftward of Sen. Elizabeth Warren rejoiced.

Beyond the …read more

Source: OP-EDS

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Note to Greece: Mixing Currency and Politics Doesn't Work

July 27, 2015 in Economics

By George Selgin

George Selgin

Greece’s monetary troubles have dominated the headlines now for weeks, releasing a torrent of analysis assigning blame or proposing solutions. Yet that torrent overlooks the bigger tragedy in which the recent Greek drama is but the latest act:  governments’ misuse of currency as a tool of politics.

What currency is meant to do—and how the euro betrays that purpose

Ask any competent economist what currency is and he or she will tell you that it’s a generally accepted medium of exchange meant to overcome the difficulties of barter. A specialist might go on to explain how certain currency systems do a better job of facilitating exchange and of avoiding financial crises than others. Few would think of currency as a tool of politics.

The euro’s creators, in contrast, meant it to serve not just as a medium of exchange but as a symbol of European solidarity. By treating currency as a political tool, they unwittingly put politics at loggerheads with economics. Economic considerations demanded that the European Central Bank resist bailing out fiscally irresponsible eurozone members. Politics, on the other hand, insisted that that the eurozone be held together by hook or by crook. So far politics has prevailed. But precisely because it has, the euro’s fate hangs in the balance.

The euro’s predicament is nothing new.”

The current situation is not without precedent

The euro’s predicament is nothing new. Governments have long considered currency a tool of politics, and currency has long been the worse for it. Until modern times, governments routinely looked upon currency not as a medium of exchange but as a source of easy revenue. They made the minting of currency a royal “prerogative” and illicit minting a capital crime, so they could, in a pinch, pay their bills in adulterated coin. As a result, ancient and medieval history are chock-full of currency debasements and accompanying turmoil, from the Roman emperors’ gradual conversion of the denarius from a silver to a copper coin to the “Great Debasements” of Henry VIII and Edward VI.

Although paper money was originally developed as a substitute for governments’ crummy coins, that didn’t keep medieval governments from perceiving its fiscal advantages: Printing paper was, after all, even easier than minting metal discs. Early central banks, including the Swedish Riksbank, the Bank of England and the Bank of France (not to mention the last-named bank’s ill-fated predecessor, John Law’s Banque Royale), were all meant to be government piggy-banks. Their creators couldn’t care less whether their monopoly privileges might …read more

Source: OP-EDS

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Promoting Very Unsettled Science

July 27, 2015 in Economics

By Richard W. Rahn

Richard W. Rahn

If you have been to the beach at Treasure Island, Florida (adjoining St. Petersburg), you will notice something very odd. The hotels (many of which were built in the 1950s and ‘60s) and the seawall are very far from the water in the Gulf of Mexico — giving an extraordinarily wide beach. It was not always that way. When the hotels and seawall were built, they were set back from the high tide a normal hundred yards or so; but over the years, there was a natural but unforeseen accretion to the beach — which, having grown up in the area, I observed. (It can be seen on Google Earth.)

It is a news story when a beach erodes and beach front homes fall into the sea. What is not a news story is that the sand that left one beach for the most part ends up on another beach. The sand barrier islands that ring much of the U.S. Atlantic and Gulf coasts are in constant motion, moving up and down, in and out, and always have been. Yet people seem to be endlessly surprised when part of their beach or riverfront ends up adjoining someone else’s property.

This past week, former NASA scientist, James Hansen, who was one of the first to sound the alarm of global warming back in 1988, said that sea levels might rise as much as 10 feet in the next 50 years. His reasoning was so unsupported by evidence that even much of the global warming establishment is walking away from it. Sea levels have been slowing rising since the end of the last ice age 12,000 years ago, but over the last century the sea level rise has decelerated to less than seven inches per century, which mankind has shown it can easily adapt to. Mr. Hansen had predicted and continues to predict rapidly increasing global temperatures — which hasn’t happened. In fact, there has been a 17-year pause in the temperature rise — which neither Mr. Hansen nor any of the major global warming models predicted.

Some scientists at NOAA are now claiming that the 17-year pause in temperature rises did not occur because, if you take the year 2000 (a cold year) as the starting point, there has been a small temperature rise. But if you take 1998 as the starting point (a warm year), there has been almost no measurable temperature rise, say NOAA’s critics. …read more

Source: OP-EDS

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Why the Federal Government Fails

July 27, 2015 in Economics

Most Americans think that the federal government is incompetent and wasteful. What causes all the failures? A new study from Cato scholar Chris Edwards examines views on government failure, and outlines five key sources of federal failure. Edwards concludes that the only way to substantially reduce failure is to downsize the federal government: “Political and bureaucratic incentives and the huge size of the federal government are causing endemic failure. The causes of federal failure are deeply structural, and they will not be solved by appointing more competent officials or putting a different party in charge.”

…read more