Zimbabwean Economics Spreads to Capitol Hill

In Zimbabwe, the government is ordering businesses to cut prices and threatening to jail executives who don’t comply, in an attempt to deal with inflation that is now variously estimated at somewhere between 4,000 and 20,000 percent a year.

Meanwhile, on Capitol Hill both houses of Congress have passed legislation establishing stiff penalties for those found guilty of gasoline price gouging. The bill directs the Federal Trade Commission and Justice Department to go after oil companies, traders, or retail operators if they take “unfair advantage” or charge “unconscionably excessive” prices for gasoline and other fuels in an “energy emergency.” (The complex energy legislation is still working its way through both houses, though both have endorsed the price-gouging provisions.)

How’d'ja like to be the bureaucrat charged with enforcing such vague and emotional language, or the businessperson trying not to incur a 10-year jail sentence for doing something “unfair” or “unconscionably excessive” It’d be sort of like living in, you know, Zimbabwe.

Did Congress offer bureaucrats and businesses any more specific guidance You bet they did. H.R. 6 and S. 1263 define an ”unconscionably excessive price” as a price that

(A)(i) represents a gross disparity between the price at which it was offered for sale in the usual course of the supplier’s business immediately prior to the President’s declaration of an energy emergency;


Posted on June 28, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,Energy,Int'l Economics & Development

Google Gets Sucked into the Parasite Economy

The Washington Post reports that Google “does not intend to repeat the mistake that its rival Microsoft made a decade ago.”

Microsoft was so disdainful of the federal government back then that it had almost no presence in Washington. Largely because of that neglect, the company was blindsided by a government antitrust lawsuit that cost it dearly.

Mindful of that history, Google is rapidly building a substantial presence in Washington and using that firepower against Microsoft, among others.

This story just keeps repeating itself. People build companies, and then activists, competitors, and politicians notice that they have deep pockets. It happened to Microsoft, then to Wal-Mart. When the parasite economy first started lapping at Google last year, I wrote this:

Founders Larry Page and Sergey Brin and many other wealthy officers of the company got rich the only way you can in a free market: by producing something other people want. A lot of brilliant people worked long hours producing computer software that hundreds of millions of people chose to use, in the midst of a highly competitive market that offered lots of other options.

But in our modern politicized economy — which National Journal columnist Jonathan Rauch called the “parasite economy” — no good deed goes unpunished for long. Some people want to declare Google a public utility that must be regulated in the public interest, perhaps by a federal Office of Search Engines. The Bush administration wants Google to turn over a million random Web addresses and records of all Google searches from a one-week period. Congress is investigating how the company deals with the Chinese government’s demands for censorship of search results by Chinese users.

So, like Microsoft and other companies before it, Google has decided it will have to start playing the Washington game. It has opened a Washington office and hired well-connected lobbyists. One of the country’s top executive search firms is looking for a political director for the company.

What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, anti-business activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks. Now Microsoft is part of the Washington establishment, with more than $9 million in lobbying expenditures last year.

Google has become a brilliantly useful company. We can’t imagine how we got along with it. I can’t even imagine how I got along without Google Desktop. Some of us appreciate that; others believe that becoming indispensable imposes obligations on a company. Google has started to find out how it feels to be the most flagrantly successful company in America.

Alas, Google seems to have taken to Washington all too enthusiastically. As the Post notes,

In its first major policy assault on a competitor, Google’s Washington office helped write an antitrust complaint to the Justice Department and other government authorities asserting that Microsoft’s new Vista operating system discriminates against Google software. Last night, under a compromise with federal and state regulators, Microsoft agreed to make changes to Vista’s operations.

So Google’s brilliant staff are now spending some of their intellect thinking up ways to sic the government on Microsoft, which is once again forced to give consumers a less useful product in order to stave off further regulation. The Post’s previous story on Google’s complaint called it ”allegations by Google that Microsoft’s new operating system unfairly disadvantages competitors.”

Bingo! That’s what antitrust law is really about–not protecting consumers, or protecting competition, but protecting competitors. Competitors should go produce a better product in the marketplace, but antitrust law sometimes gives them an easier option–asking the government to hobble their more successful competitor.

Recall the famous decision of Judge Learned Hand in the 1945 Alcoa antitrust decision. Alcoa, he wrote, “insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connection and the elite of personnel.” In other words, Alcoa’s very skill at meeting consumers’ needs was the rope with which it was hanged.

I look forward to more competition between Microsoft and Google–and the next innovative company–to bring more useful products to market. But I’m saddened to realize that the most important factor in America’s economic future — in raising everyone’s standard of living — is not land, or money, or computers; it’s human talent. And some part of the human talent at another of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own. The parasite economy has sucked in another productive enterprise, and we’ll all be poorer for it.

Posted on June 20, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,General,Tech, Telecom & Internet

Good News on Income Mobility

Steven Pearlstein of the Washington Post takes a beating around here sometimes, so I want to draw attention to his dynamite column this week on the non-disappearance of the middle class. Drawing on a new book, Social Stratification in the United States by Stephen Rose, Pearlstein demonstrates that

rumors of the demise of the American middle class are greatly exaggerated. In fact, living standards for most Americans are improving. Not everyone is flipping hamburgers or working at Wal-Mart. To the degree that the middle class is shrinking, it is because more people are rising out of it than falling from it.

Pearlstein takes pains to note that Rose “is not your standard-issue conservative market apologist — far from it. He left medical school to get his PhD in economics, then alternated between teaching and community organizing. He served on the Democratic staff of the Joint Economic Committee and in the economics shop of the Clinton Labor Department.” So you can trust him — he worked for Clinton!

And Rose finds, as Pearlstein lays it out, that there’s a lot more good news than the “sky-is-falling rhetoric of the Democratic left” would lead you to believe. Pearlstein notes:

[I]t is often reported that the median household income in the United States is $44,500. Of course, that takes in households of varying size, from singles to the Brady Bunch. It also includes households headed by workers in the prime of their working years (29 to 59), as well as those just beginning or ending their careers, when earnings tend to be lower. So, to get a truer picture of economic well-being, Rose adjusts the data for household size and excludes those headed by people younger than 29 or older than 59. And when he does, it turns out that the median income for the “typical American family” jumps to $63,000, which in most parts of the country buys a pretty comfortable middle-class lifestyle.

This doesn’t mean the middle class isn’t shrinking. In fact, from 1979 to 2004, Rose calculates, the percentage of households in the “middle class” category — those with incomes of $30,000 to $90,000 — fell to 39 from 47 percent. But it would be hard to describe that as bad news when the proportion of well-off households — those with incomes of more than $90,000 — rose by nearly nine percentage points. During the same time frame, the percentage of households that were poor or near-poor remained about the same.

One of the favorite liberal story lines is that the only way middle class families have been able to maintain their standard of living is by forcing mom to work more hours. But that, too, turns out to be an exaggeration. By looking just at married couples at various points in the income ladder, Rose found that for all but the poorest households, inflation-adjusted income was higher in 2004 than in 1979 even after factoring out any increase in spousal work hours.

It is also a myth that the Great American Jobs Machine is producing mostly lousy, low-paying service jobs. Rose simplifies the government data by putting all jobs in three categories: “elite” jobs, encompassing managers and professionals; “good jobs,” such as those held by supervisors, skilled blue-collar workers, craft workers, police, firefighters and clerical workers; and “less skilled” jobs, such as those held by unskilled machine operators, laborers, sales clerks and waiters. Looking at it that way, it turns out that the number of lousy, low-skilled jobs has been on a long, steady decline since 1979, while the number of “elite” jobs has been growing steadily. The number of “good” jobs has declined marginally as skilled office work has replaced skilled factory work.

Rose is concerned, quite properly, about the condition of the poorest people in the American economy, though he and I would probably disagree on the best way to help them enter the economic mainstream. But he’s also brought a healthy dose of reality to the debate over “the declining middle class.”

For more on these topics, see the recent posts by Brink Lindsey at his personal website and the award-winning Cato Institute book Cowboy Capitalism: European Myths, American Reality by Olaf Gersemann.

Posted on June 1, 2007  Posted to Cato Publications,Cato@Liberty,Economics & Economic Philosophy,General,Welfare & Workforce

Sharks and the Tragedy of the Commons

The global shark population may be sharply declining, according to an article in the Washington Post. Actually, the article never quite gives a number for the global population, but it does warn that “something must be done to prevent sharks from disappearing from the planet.” And there are suggestive reports like this:

In March, a team of Canadian and U.S. scientists calculated that between 1970 and 2005, the number of scalloped hammerhead and tiger sharks may have declined by more than 97 percent along the East Coast, and that the population of bull, dusky and smooth hammerhead sharks dropped by more than 99 percent. Globally, 16 percent of 328 surveyed shark species are described by the World Conservation Union as threatened with extinction.

Post reporter Juliet Eilperin notes that shark attacks can be big news, but in reality sharks kill about 4 people a year worldwide, while people kill “26 million to 73 million sharks annually.”

Why kill sharks To make money, of course, mostly for the Asian delicacy shark-fin soup. Shark fins are much more valuable than shark meat. Mexican shark hunters say they get $100 a kilogram for shark fins but only $1.50 a kilo for meat.

Unlike fish that reproduce in large numbers starting at an early age, most sharks take years to reach sexual maturity and produce only a few offspring at a time. Shark fishermen also tend to target pregnant females, which are more profitable because they are larger. As a result, said Michael Sutton, director of the Monterey Bay Aquarium’s Center for the Future of the Oceans, “there is no such thing as a sustainable shark fishery.”

So OK, here’s where Eilperin should have said, “Wait a minute . . . if there’s money to be made, why would greedy capitalists want to destroy the goose that lays the golden egg Shouldn’t they want to maximize their long-term profits ” And if she had, she might have run into a concept called “the tragedy of the commons.” Owners try to maximize the long-term value of their property. Timber owners don’t cut down all the trees and sell them this year; they cut and replant at a sustainable rate. But when people don’t own things, they have no incentive to maintain the long-term value. That’s why passenger pigeons went extinct, but chickens did not; why the buffalo was nearly exterminated but not the cow. (more…)

Posted on May 28, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,Environment & Climate,Int'l Economics & Development,Libertarian Philosophy

Washington–the Anti-Economic Center

“Two West Coast senators are leading an effort to increase the number of cross-country flights out of [convenient but overcrowded] Reagan National Airport, a move that could lead to more noise over neighborhoods and jam already filled parking lots,” reports the Washington Post.

Sens. Gordon Smith (R-Ore.) and Maria Cantwell (D-Wash.) have amended a Federal Aviation Administration reauthorization bill to allow up to 20 additional takeoffs and landings a day.

“It’s about connecting West and East Coast economic centers,” said R.C. Hammond, spokesman for Smith, elaborating on the senator’s motivation for the amendment.

Actually, Washington isn’t really an economic center. It’s more like an anti-economic center. Washington doesn’t do business, it impedes business, and subsidizes business, and regulates business, and cripples business. New York, Baltimore, Atlanta — those are East Coast economic centers. Not Washington, the city of lobbyists and government contractors.

Just what is it that businesspeople from Seattle and Portland would come to Washington for They’d go to New York and Atlanta to make business deals. But they’d come to Washington to lobby for subsidies, or for regulations on their competitors, or to try to get a piece of the $2.9 trillion federal budget. But not to do actual wealth-creating business in the marketplace.

Some people say that West Coast senators want direct flights from National Airport to their home towns to make travel more convenient for them. If so, they should say so. But don’t tell us that the country would benefit from more Lobby Express flights.

Posted on May 19, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,Government & Politics

May Day in Latin America

This Tuesday, May 1, Venezuelan ruler Hugo Chavez will take control “of Venezuela’s last remaining privately run oil projects.” The symbolism is obvious: the socialist May Day. Last year, Bolivian president Evo Morales sent his soldiers to occupy the gas fields in his country on May Day.

So I’m reminded, as I was last year, that May 1 is also the anniversary of the institution of private retirement accounts in Chile. Since then Chile has been a great economic success story.

Perhaps 25 or 50 years from now, we will know whether Chile’s privatization or Bolivia’s and Venezuela’s nationalizations brought a higher standard of living to their citizens.

Posted on April 30, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,Int'l Economics & Development

Abracadabra! County Pulls a Subsidy Out of a Hat

Jacob Grier, the blogger-barista-magician with a highly coveted Vanderbilt degree, has been writing about Montgomery County’s plans to evict Barry’s Magic Shop from the site in Wheaton, Md., where it has survived for 31 years. As he wrote last June:

The real story is that simply because a few county planners have decided that the land could be better used to attract developers than as a magic store, the man who owns the building has had his property forcibly taken from him and a small business that has thrived for decades is being evicted years before its lease is up.

The county used eminent domain to take the building in order to build a walkway as part of a grand plan for Wheaton. The plan has been in the works for years, and there are no immediate plans for actually building the walkway, but the building has been seized.

But today there’s good news! For Barry’s and its customers, anyway, if not for Maryland taxpayers and property owners. In addition to spending over $2 million to take the building and build the walkway, taxpayers — in the person of Montgomery County Executive Isiah Leggett — are also going to spend $260,000 to relocate the magic shop.

So first the county spends taxpayers’ money to seize private property in the name of its own vision of what that corner of Wheaton should look like. Then it spends more taxpayers’ money to subsidize a small business.

Here’s an idea: Why not let the market decide where businesses locate, without subsidizing the businesses and without seizing their property As Jacob says,

This is a story that should make people angry. Angry that George Chaconas had his land taken from him. Angry that Barry Taylor and Suzie Kang are being evicted years before their lease is up. Angry that this is all being done with taxpayers’ money to subsidize the developers who will eventually move into the area, just because some guy named Joseph Davis thinks that’s the way things ought to be.

Montgomery County, Maryland: Where everything goes according to plan. Or else.

Posted on April 12, 2007  Posted to Cato@Liberty,Constitutional Studies,Economics & Economic Philosophy,General

High-Tech Welfare for High-Tech Billionaires

Voters in a New Mexico county appear to have approved a tax increase to build the nation’s first commercial spaceport. Two other counties will also hold tax referendums before the project can proceed. British billionaire Richard Branson and his company Virgin Galactic have signed a long-term lease to use the spaceport.

But why should the taxpayers of rural New Mexico be paying for facilities for billionaire space entrepreneurs If the spaceport is going to be profitable, then businesses could pay for it. And even if it weren’t profitable, the space business has attracted the attention of a lot of people with a sense of adventure and billions of dollars, from Branson to Microsoft cofounder Paul Allen, the seventh richest man in America.

The argument to spend tax dollars on the spaceport is very similar to the argument for tax-funded stadiums and convention centers. Proponents say it will bring jobs and tax revenues to the three rural counties. But apparently it isn’t a sure enough thing for businesses to invest their own money.

Cato scholars have argued for years against corporate welfare. The spaceport is a classic example of corporate welfare, though in this case it might better be called billionaire welfare. It will transfer money from middle-class and working people to subsidize businesses and billionaires who won’t have to invest their own money — just like the typical stadium deal, paid for by average taxpayers to benefit millionaire players and billionaire owners.

At least in this case the voters get to decide, which rarely happens with stadium subsidies. The vote pitted “political, business and education leaders” against retirees and groups representing the poor.

“I’m not opposed to the spaceport, but I think it’s a terrible idea to tax poor people to pay for something that will be used by the rich,” said Oscar Vasquez Butler, a county commissioner who represents many of the unincorporated rural colonias where the poorest New Mexicans live, often without proper roads and water and sewage systems. “They tell us the spaceport will bring jobs to our people, but it all sounds very risky. The only thing we know for sure is that people will pay more taxes.”

Posted on April 6, 2007  Posted to Budget & Tax Policy,Cato@Liberty,Economics & Economic Philosophy,Government & Politics,Science & Space,Tech, Telecom & Internet,Welfare & Workforce

Pure Protectionism

Several years ago, I appeared on the radio show of the late and much-missed David Brudnoy to discuss deregulation of taxicabs. I advocated a free market and an end to licensing and medallions. We got a call from a spokesman for the taxicab industry, who was outraged. Public safety! he exclaimed. “Without licensing, you could have some crazy person driving a cab and have an accident and you could have a mudda an’ a dotta killed! Do you want to be responsible for that !”

I remembered that call when I saw the letter in the Washington Post from Michael C. Alin, executive director of the American Society of Interior Designers. Responding to George Will’s column on the absurdity of licensing for interior decorators, Alin writes:

In one of the worst hotel fires in U.S. history, 85 lives were lost and more than 700 people were injured at the MGM Grand Hotel and Casino in Las Vegas in November 1980, partly because some of the materials in the interior finish and furnishing fueled a rapid spreading of the fire. If furniture is placed in such a manner that it impedes egress during an emergency, people will die. Should a nonqualified, non-educated person select the materials for the interior of a hospital, school or high-rise building

Will had blithely and insensitively mocked the idea of criminal penalties for impersonating an interior designer:

In Las Vegas, where almost nothing is illegal, it is illegal — unless you are licensed, or employed by someone licensed — to move, in the role of an interior designer, any piece of furniture, such as an armoire, that is more than 69 inches tall. A Nevada bureaucrat says that “placement of furniture” is an aspect of “space planning” and therefore is regulated — restricted to a “registered interior designer.”

Placing furniture without a license Heaven forfend.

I hope that Will is suitably chastened now that he understands the real risks of letting just anyone pick out wallpaper and position furniture.

Posted on March 30, 2007  Posted to Cato@Liberty,Economics & Economic Philosophy,Government & Politics,Welfare & Workforce

Congress Looks at Stadium Subsidies

This Thursday the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform will hold a hearing titled, “‘Build It and They Will Come’: Do Taxpayer-financed Sports Stadiums, Convention Centers and Hotels Deliver as Promised for America’s Cities ”

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,” Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports — or a possible negative effect.

In Regulation magazine, (.pdf) Dennis Coates and Brad Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

Humphreys will testify at Thursday’s hearing.

Posted on March 27, 2007  Posted to Cato Publications,Cato@Liberty,Domestic Issues,Economics & Economic Philosophy,General,Government & Politics

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