Cafe Hayek

Price Controls and the Reign of Terror

In their 1975 book The Age of Napoleon, Will and Ariel Durant argue that the Reign of Terror during the French revolution was sparked, in part, by price controls.

The economy itself was a battlefield.  The price controls established on May 4 and September 29 [1793] were being defeated by the ingenuity of greed.  The urban poor approved the maxima; the peasants and the merchants opposed them, and increasingly refused to grow or distribute the price-limited foods; the city stores, receiving less and less produce from market or field, could satisfy only the foremost few in the queues that daily formed at their doors.  Fear of famine ran through Paris and the towns....

On August 30 a deputy pronounced the magic word: Let Terror be the order of the day.  On September 5 a crowd from the sections, calling for "war on tyrants, hoarders, and aristocrats," marched on the headquarters of the Commune in the Hotel de Ville.  The mayor, Jean-Guillaume Pache, and the city procurator, Pierre Chaumette, went with their delegation to the Convention and voiced their demand for a revolutionary army to tour France with a portable guillotine, arrest every Girondin, and compel every peasant to surrender his hoarded produce or be executed on the spot [pp. 62-63].

"Earth Hour" and the Dark Ages

The World Wildlife Fund arranged today's "Earth Hour" -- a pledge by many people from around the world to turn off lights for an hour.  The following is from a page on the WWF website:

Earth Hour is a global event created to symbolize that each one of us, working together, can make a positive impact on climate change - no matter who we are or where we live.

Created by WWF in Sydney, Australia in 2007, Earth Hour has grown from a single event into a global movement. In 2008, millions of people, businesses, governments and civic organizations in nearly 200 cities around the globe will turn out for Earth Hour. More than 35 US cities will participate, including the US flagships--Atlanta, Chicago, Phoenix and San Francisco.

Earth Hour brings together communities, local governments, corporate and nongovernmental organizations to heighten awareness about climate change and to inspire our nation to take practical actions to reduce their own carbon footprints.

Reading about the WWF's "Earth Hour" -- and hearing on the radio and t.v. too many mindless endorsements of this stunt, and seeing Google's special black "Earth Hour" design for its opening page today -- I sent the following letter to Carter Roberts, President of the WWF:

Dear Mr. Roberts:

You and members of your organization worry that industrialization and economic growth are harming the earth's environment.  I worry that the intensifying hysteria about the state of the environment - and that the resulting hostility to economic growth - might harm humankind's prospects for comfortable, healthy, enjoyable, and long lives.

So I commend you on your "Earth Hour" effort.  Persuading people across the globe to turn off lights for one hour supplies the perfect symbol for modern environmentalism: a collective effort to return humankind to the dark ages.

Sincerely,
Donald J. Boudreaux

By the way, of course, the WWF should award some special prize to the North Korean government, for that government keeps North Koreans not in any meager "Earth Hour," or even "Earth Day," but in what WWFers might call "Earth Decades" -- very little light ever.  This picture of the Korean peninsula speaks volumes -- the Dark Ages today; a society keeping its carbon footprint tiny.  Of course, in doing so it keeps itself also desperately poor, often even to the point of starvation.

Miracles Performed Beneath Marble Domes

Rep. Bill Sali (R-Idaho) understands economic processes.  Here's his smack-down of minimum-wage legislation.  (HT to Amit Varma at India Uncut.)

The War and Wildfires

This morning I heard a report on the radio of Senator Barbara Boxer (D-CA) complaining that the war in Iraq interferes with government's ability to fight the wildfires in southern California.  No doubt.  But.....

I oppose the war in Iraq; I always have done so.  But this war, while it does interfere with efforts to extinguish wildfires, does not interfere any more so than does nearly any other government program you care to name.  Resources have multiple uses and are scarce.  To use a worker or raw materials fighting a war is to take that worker and those materials, at least for a time, away from other potentially valuable uses.

The same is true of using workers and other resources to fight the "war on drugs" -- or using workers and other resources to administer agricultural price-support programs -- or using workers and other resources to run the Departments of Education, Transportation, Commerce, and so on -- or using workers and other resources to enforce the Endangered Species Act.

The question is not does fighting the war in Iraq reduce government's (and private persons') ability to battle the wildfires.  Of course it does.  The questions are, rather, are too many resources devoted to fighting the war?  Will Americans likely be made better off by taking some resources away from the war effort and put instead to other uses?

My answer to these questions is yes, mostly because I believe that the war is both unjustified and counter-productive.  But the fact that the war effort detracts from the ability to get other goodies is not itself a sound argument against the war.

I'm delighted that Senator Barbara Boxer is aware of opportunity costs -- that she understands that resources used to do X become unavailable to do W,Y, and Z.   I hope that she'll extend this insight to ask hard questions about the desirability -- and about the costs -- of the countless government programs that she supports.

Reality Is Not Optional

The web-only edition of today's New York Times published this letter of mine on health care.

Who cares what modern health care-delivery methods are called? The elemental problem is that more and more people feel entitled to vast quantities of high-quality health care paid for by someone else.

And politicians, ever lusting for office, are only too happy to conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills.

Donald J. Boudreaux
Fairfax, Va., Sept. 28, 2007
The writer is chairman of the economics department, George Mason University.

The author of the letter published along with mine is like so many others: he forgets that -- to steal Thomas Sowell's phrase -- reality is not optional.  Calling health care "a necessity" does nothing to make it universally available in quantities and qualities sufficient to satisfy all demands that would be expressed for it by individuals each of whom is not required personally to pay for the care he or she receives (or seeks to receive).

TANSTAAFNP

Here's a letter I sent recently to a local radio station in D.C.

15 September 2007

News Editor, WTOP Radio

To the Editor:

I waited in vain for you to draw your listeners' attention to the connection between two of your reports today.  The first report - delivered in a grave voice - was of how rising rents are financially squeezing low-income families.  The cause you give for these rising rents is a "housing shortage."

The second report - delivered in an upbeat, almost triumphant voice - was of how Virginia Gov. Tim Kaine has set aside yet more land in that state as a nature preserve.

As government declares more and more land off-limits for development, it reduces the potential supply of new houses and apartments, thereby causing housing prices and rents to rise.  More nature preserves might be desirable, but people should be made aware of their long-term costs.

Sincerely,
Donald J. Boudreaux

Frank Talk on Status

In response to this review by Daniel Gross of Robert Frank's latest book, I sent the following letter to the New York Times Book Review:

Reviewer Daniel Gross should have asked harder questions about Robert Frank's argument that higher taxes on "the rich" will moderate individuals' quest for status ("Thy Neighbor's Stash," August 5). Monetary wealth and the material goodies it buys are hardly the only source of status.  Consider, for example, Prof. Frank's faculty position at Cornell University.  He earned this position in large part through his hard work.  By his own thesis, then, he inadvertently caused other scholars to work unnecessarily hard in their quest to win high status Ivy-League appointments -- a quest that for the vast majority of us futile.

Higher taxes on the rich will do nothing to create more Ivy League faculty positions, more mansions with stunning views of the Pacific ocean, a greater number of the world's most beautiful women or most eligible bachelors, or most of the other things that confer and signal high status for those who possess them. Frankly, it is naive to suppose that muting competition in markets will mute humans' competition for status.

Indeed, given that humans are quite status-conscious, a social system in which we seek status chiefly through earning money provides what is likely the best available outlet for this proclivity -- namely, competition within private-property-based markets.  Not only does it result in new and greater quantities of goods and services for others, but it sure beats the hell out of violence and even politicking as a means of challenging others for status.

A Lesson from Passport Control

Late Friday evening, Karol and I flew, on Delta Airlines, from Bucharest to New York's JFK airport.  We had two hours to connect to our Delta flight to Washington's Dulles airport.  We missed our flight.  And herein lies a lesson.

The reason we missed our flight is that nearly 50 minutes of our time after landing was consumed by waiting in a long and slow-moving line to clear passport control.  At that terminal on Friday evening, the TSA had only three agents to service the line of U.S. citizens returning from abroad.  Three.  That's it.  Most of the passport-control-agent booths stood empty.

So as we silently fumed and inched forward in line, I couldn't help but wonder why so many people want the same agency that cannot adequately staff one of the country's busiest international airports (during the height of international-travel season) to run Americans' health-care.  If government were to take over more completely the supply of medical services in the U.S., the same sorts of under-staffing (i.e., shortages of service) would occur.

In light of my recent experience -- which isn't unusual -- at JFK, can anyone give me a plausible reason why I should be optimistic that government would adequately staff (and maintain - remember Walter Reed!) its hospitals and medical clinics?  With the same general set of incentives facing bureaucrats who now supply "passport control" facing bureaucrats who would supply medical care, it's a childish fantasy to imagine that people needing medical care would not encounter unnecessarily long queues when seeking government-supplied medical care.

Those persons who think me cynical, or who think that I draw a mistaken lesson from my experience at passport control, should ask themselves as seriously as they can just why they suppose that government-supplied medical care will not be characterized by the kinds of frustrations that travelers and post-office patrons routinely suffer.

An Anecdote on Health Care

My family and I are in France.  Yesterday we visited, near Arles, the parents of some friends.  These lovely people have a newly acquired dog, Tor.  They came to own Tor because of the unfortunate death of their 60-year-old neighbor, whose dog Tor was.

Conversation at lunch revealed that the neighbor, who had a history of heart trouble, suffered severe chest pains a few weeks ago.  He wisely went to the hospital seeking treatment.  He was told that there was no space available for him.  He was advised to go home and call back later to see if a room might have become available.  He did so, but was told repeatedly that the hospital remained full to capacity.  Several days later this man died at home, never having received hospital treatment.

This incident, while true, is also an anecdote.  It doesn't prove anything about the merits or demerits of France's universal-health-care system compared to those of the (still somewhat) private system in the U.S.  But this sad event does reveal that merely declaring, statutorily, that every citizen has a right to health care, or that health care is "free" to every citizen, does not make health care available to all or "free."

Secular priests performing ceremonies, beneath marble domes, in which health-care is declared "a universal right" do not, in fact, perform the miracle of making health-care universally available.

Like Humidity in New Orleans....

The world, it is trite to say, is unpredictable.  Indeed so.

But there are exceptions to this rule.  There is a sizable handful of predictions that I would bet my pension will prove accurate at least 99 out of 100 times.  I predict, for example, that next year every football team that wins a big game will feature a gigantic lineman dumping the contents of a Gator Aid cooler over the happy head of the team's Head Coach....  I predict that every American politician seeking office will claim to know what "the American people" want and that he or she is most trustworthy champion of that collective desire.... I predict that Paul Krugman's next New York Times column will self-righteously accuse the Bush administration or "conservatives" of evil-intentions and evil-doings....  And I predict that every political strongman will blame "speculators" for many of the  economic ills that befall the citizen-victims of their countries.

And lo!  Lookie here!

Meat cuts vanished from Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, while costly artificial sweeteners have increasingly replaced sugar, and many staples sell far above government-fixed prices. 

President Hugo Chavez's administration blames the food supply problems on unscrupulous speculators, but industry officials say government price controls that strangle profits are responsible.

The above is from this report filed today by an AP reporter in Caracas.

(Hat tip to Cafe commentor Aschkan.)

Familiar and Deplorable

The pattern is as familiar and as predictable as it is sad.

Today Zimbabwe.  Tomorrow Venezuela.

Wrong Right

Treating health-care as a right is wrong.  I explain why in today's Christian Science Monitor.

I Demand the Right to be Free of Economic Ignorance

Today's New York Times has several letters-to-the-editor expressing inanely quixotic notions about health care.  For example, Professor of Psychology Marcus Tye writes that

We should stop thinking of health care as a benefit to be earned from work and bought through middlemen (private insurers), and start treating it as a human right and a universal entitlement.

Sounds nice.  Rights are good, right?  So if some rights are good, more rights are better.

Wrong.  Bart Hinkle, columnist at the Richmond Times-Dispatch, very admirably summarizes (at the TimesDispatch.com blog) the reasons why health care is not, and cannot be made to be, a right.

Witch Doctors, Cancer, and the Minimum Wage

Today's Wall Street Journal published this letter of mine:

There are heaps of bad arguments for raising the minimum wage. Perhaps the worst, offered by Joel Schipper ("Prices Versus Wages: A False Dichotomy," Letters to the Editor, Aug. 12), is that a minimum-wage increase is justified if a full-time worker earning the current minimum wage cannot afford to live "in a city such as Chicago."

Mr. Schipper's argument implies that incomes can be raised by dictate, to whatever level is necessary to live in some locale. If this notion is correct, why settle for enabling workers to live only in the likes of Chicago? Why not raise the minimum wage so that everyone can afford to live in, say, Nantucket, Hyannis Port or Beverly Hills, within walking distance of Rodeo Drive?

Already my e-mailbox has brought me seven responses -- three from friends noting agreement with my letter and four from strangers.  Two strangers agree; two disagree -- each vehemently.  Each of these disagreements accuses me not of faulty reasoning but of hard-heartedness: "How would YOU like to live on a job paying just $5.15 [per hour]?" one correspondent asks.

Well, obviously I wouldn't like to make less than I earn now, which is substantially more per hour than $5.15.  But this fact is utterly irrelevant to the argument (contrary to what some of my correspondents and many others who weigh in on the minimum-wage debate believe).

Suppose a witch doctor insists that he can cure cancer merely by doing a dance.  If someone who is skeptical of this claim expresses his or her skepticism, does the skeptic lose credibility if he or she isn't a cancer victim?  Would a believer in the witch-doctor's supernatural powers score intellectual points by rhetorically asking the skeptic "How would YOU like to have cancer?!"  Does the obvious benefit, the great goodness, of curing cancer patients of their disease increase the likelihood that the witch-doctor's dance will actually cure these patients of their cancers?

Minimum-wage legislation might or might not be a good means of helping low-skilled workers.  I believe it to be a very poor means.  But even if I'm mistaken, the fact that I earn a wage well above the legislated minimum wage, and the fact that I prefer to earn more rather than less, is irrelevant to the debate.

Why do so many people who weigh in on this issue make such fantastically illogical "arguments" in favor of raising the minimum wage?

Oh Mais No!

When Karol and I were at Clemson University (1992-1997), we once had the chairman of Clemson's Department of Philosophy & Religious Studies to dinner at our home.  He was (and, I presume, remains) far left.  I recall that at that dinner he accused Karol, me, and others who support markets of being "brainwashed" into thinking that high marginal tax rates discourage productive, income-earning activities.  According to this gentleman, raising tax rates even to stratospheric levels does not affect taxpayers' behavior.

He  was  sure that  Europeans had a much better model than Americans.

Now comes word from France, through this report in today's Washington Post, that

On average, at least one millionaire leaves France every day to take up residence in more wealth-friendly nations, according to a government study.
....

[France's] wealth tax -- officially called the solidarity tax -- is collected on top of income, capital gains, inheritance and social security taxes. It's part of the reason France consistently ranks at the top of Forbes magazine's annual Tax Misery Index -- a global listing of the most heavily taxed nations.

Wealthy citizens' tax bills can be higher than their incomes, according to tax analysts. President Jacques Chirac's government attempted to rectify that disparity last year with changes intended to guarantee that no one would pay more than 60 percent of income in taxes. But many businesspeople say actual maximum tax rates still hover at around 72 percent.

It's delicious to imagine what fun Frederic Bastiat would have with the fact that this tax that drives many French from France is called "the solidarity tax."

Oh, no surprise:

Socialist leaders and some government officials argue that the rich are merely trying to shirk their social responsibilities by fleeing the country with their millions.

Ideology and the Minimum Wage

In a private e-mail sparked by my most recent post on minimum-wage legislation, someone accused me of being an “ideologue.” His evidence, of course, is my opposition to such legislation as a means of helping low-skilled workers.

I realize that Humpty Dumpty instructed Alice that a user of a word can mean by that word whatever he or she wants that word to mean. But we live in a wonderland if we imagine that such use of language facilitates communication.

Am I an ideologue for continuing to believe that a higher price of labor will cause employers to hire less labor, or to extract more output from any given amount of labor?  Does this insistence that the law of demand describes reality reveal ideological blindness? (I know, I know: it’s theoretically possible for a minimum wage to increase employment if there’s monopsony power in labor markets. But any such allegation of monopsony power – any allegation that each employer of low-skilled labor does not compete with other employers to hire such labor -- flunks the smell test. One of the few benefits enjoyed by low-skilled laborers is their possession of highly versatile abilities, thus making it quite easy for each of them to switch jobs even for a modest difference in relative wage rates and work conditions.)

If I am an ideologue on this matter, then so is everyone else.  Everyone. I’m certain that no one really believes that the law of demand sometimes is suspended. For example, I’ve met no one who, upon finding that he cannot sell his house at his current asking price of $250,000, reasons that he will attract more potential buyers if he raises his asking price to $260,000. I’ve never heard of a supermarket that seeks to clear out excessively large inventories of canned peas or laundry detergent by raising the prices it charges for these items. I’ve never heard of a construction contractor who believes that the higher the price he asks to do a job the more likely he is to be awarded the contract for that job. I’ve never encountered a car salesman who, upon my rejecting the price he asks for a car that I just test drove, says “Okay, okay. I’ll talk to my manager and ask if he’ll accept an even higher price for this baby.” I don’t encounter advertisements by merchants bragging that their prices are the absolute highest in town -- guaranteed!

Do any of you, Dear Readers, know of such behaviors? More importantly, do you know people who are generally more likely to purchase something as its price rises? If you do, surely you are by now a person of enormous wealth.

What is it about unskilled- and low-skilled labor that makes many people fancy that the law of demand does not apply to it? Are the greedy, profit-lusting employers of this labor so foolish that they’ll just dish out more money for the same output as before, without economizing further on labor – say, by buying less of it or by extracting more work from each man-hour hired? Or are low-skilled workers so daft or dysfunctional that they consistently refuse to respond to pre-minimum-wage-hike differences in wages and work conditions?

No – the true ideologue is one who suspends his awareness of all that he knows about reality in order to continue to believe in some pet possibility – some pet possibility that is inconsistent with reality.

On Legislating 'Living Wages'

Jon Gertner’s cover article in today’s New York Times Magazine offers no surprises. It’s as predictable as what you’ll read here.

Gertner reports on the movement for a “living wage” – a movement working mostly at the local level, trying to persuade local governments to legislate minimum wages well above the national minimum wage of $5.15 per hour.
 

Of course, Gertner mentions the famous (or infamous) 1995 study by David Card and Alan Krueger in which the authors claim to find evidence that a hike in New Jersey’s minimum wage caused no fall in employment and might even have caused employment to increase. Card and Krueger are quoted, each predictably insisting that their data exposes the error in the standard economists’ analysis in which legislated minimum wages increase unemployment among low-skilled workers.
 

Gertner makes no mention of the many critical responses to Card’s and Krueger’s study. (He does quote critic David Neumark – once – but only on the success of the political movement for ‘living-wages,’ not on the Card-Krueger study.) A good summary of the criticisms of Card-Krueger is this essay by Donald Deere, Kevin Murphy, and Finis Welch.  (I must also recommend this outstanding blog-post by my colleague Bryan Caplan, over at EconLog.)

 

Maybe Gertner can be forgiven, for Krueger told him that (in Gertner’s words) “Some recent surveys of top academics show a significant majority now agree that a modest raise in the minimum wage does little to harm employment.” If a “significant majority” of “top academics” accepts the Card-Krueger finding, why bother to talk with the lunatic fringe who cling to the archaic superstition that higher minimum wages cause greater unemployment?

But look more closely at what Krueger told Gertner – namely, “top academics” (we’ll assume those to be economists and not sociologists and experts on French literature) “agree that a modest raise in the minimum wage does little harm to employment.”

 
It seems as if Krueger is saying that economists now agree that “modest” increases in the minimum wage are justified, or at least not harmful. That is certainly Gertner’s reading of Krueger’s meaning.

 
But taken literally, the economist consensus that Krueger reports is neither new nor inconsistent with the traditional understanding that higher minimum wages reduce employment. This understanding has nothing to do with the extent of the effect that higher minimum wages have on employment; it has to do with the direction of the effect: higher minimum wages, lower rates of employment of un- and low-skilled workers.

 
Because more than 95 percent of American workers have skills sufficient to enable them to earn wages higher than the federal minimum, any “modest raise in the minimum wage” is unlikely to have an effect on employment that is more than modest.

 
But let’s assume that Krueger really means something more substantive – namely, that economists have been wrong to assert that higher legislated minimum wages increase unemployment – and that, therefore, the economists’ case against the minimum wage is without merit. (Again, this meaning is the one that Gertner takes from Krueger.)

 
Because there are margins other than pecuniary wage rates upon which employers and employees can adjust, it’s possible that higher legislated minimum wages don’t so much reduce employment as reduce the quality of available employment. Most obviously, employers of low-skilled workers can reduce (or not increase) fringe benefits, or they can work their employees harder (thereby extracting more output per hour from them).

 
If the brunt of employer and employee adjustments to higher minimum wages take place on these non-wage-rate margins, even the finest empirical studies will show little or no effect of higher minimum wages on the rate of employment.

 
But it would still be a grotesque error to conclude that low-skilled workers are generally better off as a consequence of the higher minimum wage.

The Real World

Today I listened to some of the broadcast of the confirmation hearings of Supreme Court nominee Samuel Alito. The part I caught included questioning by Sen. Joe Biden. Biden expressed great admiration for retiring Justice Sandra Day O’Connor (whom Alilto is nominated to replace). Biden kept saying that Justice O’Connor understood “the real world” and cared about “the real world.” Clearly, Biden was suggesting that good judges pay attention to “the real world” – and that failure to pay attention to the real world (say, by instead paying attention only to abstractions) is a mark of a poor judge.

I agree with Biden that the real world is important. Law grows from experience. Good law cannot be deduced logically by a genius or a committee of geniuses.

But I suspect that Biden’s concept of the real world differs from my own. What is the real world?

The real-world examples used by Biden to flesh out his conviction that a good Supreme Court justice is one who pays attention to the real world were of employees who were fired or not promoted because of alleged workplace discrimination. My guess is that Biden regards any political or judicial theory that is skeptical of granting relief for such real-world discrimination as a theory that ignores the real world – a theory that callously elevates abstractions over reality.

If I were before Sen. Biden's committee, I’d respond to Biden’s remarks like this:

Senator, I, too, believe that law is a product exclusively of the real world and should not be divorced from it. I agree with Oliver Wendell Holmes’s observation that law is no “brooding omnipresence.”  But Senator, we must be careful about what we take to be the real world. The real world is not limited to the here and now; it’s not limited to the plaintiff and defendant in whatever case happens to be in front of the court. It’s not limited to the people we can see and hear standing before us or shouting behind us.

The real world exists through time and vast space. It includes millions of people whose names and faces we don’t know and will never encounter – but each of whom is as real as you and me. The fact that we – you and me – don’t see these persons and don’t know them doesn’t make them unreal or less-real than the people we do see and hear and touch and smell in our courtrooms and in the lobbies of our legislative halls.

So let’s say we have a statute aimed at preventing employment discrimination against disabled people. I ask: Which disabled people? And I answer: all disabled people. Surely being a man committed to the real world you understand that this country contains many more disabled people beyond the one who sues a company under the statute. If the court grants relief to the plaintiff – the disabled worker who filed the suit demanding (say) that his employer build a special elevator just for his use – that real-world disabled worker might well be helped. But what if the consequence of applying the statute in this way makes it less likely that disabled people will be hired in the future and by other companies?

I realize, Senator, that judges’ scope for making policy decisions is far narrower than that enjoyed by legislators.  And I agree that judges' role is not to rewrite legislation. But please, Senator, don’t insult me or the audience listening to this political spectacle by insinuating that only persons, such as yourself, who focus only on the anecdote, only on a handful of identifiable persons, have a monopoly on caring about the real world. Don’t suggest that those of us who care about rules – who understand that rules are to be judged by their performance over time and space rather than by how they work in any one instance – are less concerned about the real-world than you are.

Indeed, Senator, because I understand that statutes and legal rulings have effects far beyond those which are seen, I dare say that I am more aware of the real-world than are those – such as you, Senator? – who typically judge a rule to be good or bad based exclusively upon how it affects a single or a few identifiable persons.

Senator Biden, the issue isn't whether or not the real world matters. We all agree that it does. What separates you and me, Senator, is that I don’t ignore that part of the real-world that is less visible than that relatively small part that attracts the attention of politicians and the press.

Pigs Can't Fly

When the trough is full and the pigs are hungry, they push and shove their way toward the food.  This is the way pigs are.  They do not fly.  We cannot expect them to fly.  We expect them to try and get at the food.  This is the way of pigs.  It cannot be otherwise.

So it is something of a dog bites man story that politicians and those who would benefit from their spending of other people's money are lining up to eat at the trough.  The politicians spend and proclaim their virtuousness.  Those who would eat, take the money and run.  This is the way it is.  There are always those who suggest that we need nicer pigs or nicer farmers or nicer troughs.  But none of those suggestions will keep pigs from eating.  None of them will make pigs airborne.

Anne Applebaum has an eloquent essay (rr) on the unpleasant sight of the various pigs in action:

Two hurricanes have now hit Louisiana, wreaking terrible destruction. New Orleans continues to flood. Hundreds of thousands of people are scattered across the country, many in shelters. Given the scale of the calamity, surely it's time for Louisiana politicians to stop, assess the damage and work out the most rational way to help their state recover. Surely this is not the time for the government to write blank checks, for legislators to get greedy about unnecessary canals in their districts, or for federal agencies to launch projects that make future flooding more likely. Surely this is the time to spend money wisely. Right?

Wrong -- and if you thought otherwise, then you, like me, are still learning how deeply corrupt America's legislative branch has become. Most of the time, members of Congress don't accept cash bribes in unmarked envelopes. Most of the time, senators don't pay for their daughters' wedding receptions out of government slush funds. Most of the time, American politicians don't put their ill-gotten gains into numbered Swiss bank accounts or get the Mafia to launder their money. But corruption comes in many forms, and in this country it comes in the dull-sounding, unglamorous, switch-off-the-television form of infrastructure appropriations.

Read the whole thing.  It's wonderful.  I suspect Anne Applebaum realizes that pigs can't fly.  But it is harder for her fellow columnist at the Post, Steven Pearlstein (rr) to come to that conclusion.  First, he describes a scene around the trough:

Hold on to your wallets, Mr. and Mrs. America. Congress is in session, Katrina relief is on the agenda and special interests are drumming up schemes to help themselves under the guise of helping others.

Let's start with an ingenious proposal to extend, retroactively, federal flood insurance to all those owners of damaged homes along the Gulf Coast who didn't have it.

At first blush, it sounds reasonable. After all, if we want people who have lost everything to return home and rebuild, they'll need a little capital to get started.

But the hidden winner in this arrangement would be the mortgage industry, which otherwise would have to write off billions of dollars in loans when owners stop making monthly payments for homes that are beyond repair. That explains why the idea is being championed by the Consumer Mortgage Coalition, representing large companies that originate, service and guarantee home mortgages.

He goes on to talk about this and other bad post-Katrina ideas.  But he can't end the column on such a negative note.  So he adds this caveat:

Don't get me wrong: There is good reason for the federal government to step in as a subsidized lender of last resort for individuals, businesses and local governments walloped by natural disaster. But none of that money should cover the losses of sophisticated lenders who took their chances, placed their bets and made tons of money before the dice finally came up snake eyes.

Maybe there is good reason for the feds to step in here or there or everywhere.  But how does that reason look in reality?  How does it work in practice?  If implementation requires flying pigs, maybe there isn't a good reason after all.

Here is what I tell my children.  In downtown Wahsington, DC, we keep a document under glass called the Constitution.  You should know that we had a Constitution to keep government from being too powerful and from doing things that are better left to us to do for ourselves.  Maybe someday we will take it out from under the glass and it will be alive again.  Not alive the way that most people mean it.  By alive, they mean dead.  They mean to have a Constitution so flexible that it can stand for nothing.  But someday, maybe, it can be alive in the way that it once was, written for a world where pigs are not presumed to fly.

A Fair Price

The topic of gouging continues to occupy conversation and the news.  My gas station's price, btw, is down 39 cents from the peak two or so weeks ago.  One theme I keep hearing is that it's one thing to charge more than you paid for something—that's OK, that's a profit.  Gouging is when you charge a lot more.  By what right (asks the critic) can a gas station owner or the oil company charge so much more?

Right has nothing to do with it.   It's an interesting thought.  We can allow prices to rise "a lot" or we can't.  But before we take away that "right" we ought to remember one thing.

The reason the price goes up is because without the price rise, there isn't enough gasoline to go around.  If you decry gouging, you are asking for gas stations to run out of gas at unknown times of the day, ruining people's plans to get to work, go to the hospital, take a pleasure ride.  You are asking for lines to form that make it hard to plan those trips.

Suppose you show up at your regular gas station tomorrow and find the price is $10 a gallon.  What's going on, you ask.  "My daughter's getting married in a month.  I didn't realize how much it was going to cost.  I need to make more money this week."  Does the owner have the right to charge $10?  Sure, and you have the right to shop elsewhere, which you will unless you feel really sorry for him or know him well.

Suppose you show up at your regular gas station tomorrow and find the price is $10 a gallon.  What's going on, you ask.  "I made a bad deal with my wholesaler.   I overpaid.  To cover my costs, I need $10 a gallon."  Does the owner have the right to charge $10?  Sure, and you have the right to shop elsewhere, which you will unless you feel really sorry for him or know him well.

Suppose you show up at your regular gas station tomorrow and find the price is $10 a gallon.  What's going on, you ask.  "I know it's a lot.  But I bought the gas two weeks ago when it was really expensive.  I know it's cheaper now and everyone else is charging less, but I need to cover my costs."  Does the owner have the right to charge $10?  Sure, and you have the right to shop elsewhere, which you will unless you feel really sorry for him or know him well.  (HT to Zev Fredman for pointing out this example.)

What you pay for something does not determine what you can sell it for.  This is the reality in a market-based economy.  There might be times as buyers that we wish it were otherwise.  There might be times as sellers that we wish it were otherwise.  But that is the reality.  We can change that reality, of course, with regulations.  But we can't change it one piece at a time, such as leaving everything else the same, except for the price.  That option is not available.

Sheep, Wolves and Sheepdogs

In the middle of the worst of the New Orleans chaos, when people were being raped and strangled in the SuperDome, when people there worried about their children being preyed on in the middle of the night, when someone shot at a rescue,  there was a certain feeling of incredulousness, a feeling of surreality that this couldn’t be happening in America.

New Orleans started to remind me eerily of Iraq.  One TV reporter said that the army had arrived to restore order but that they were being fired at and that it was hard to tell the good guys from the bad guys.  Sounds like Iraq, I thought.

My wife was very troubled by some of the stories.  She said she likes to think people pull together in a crisis.  It seems like everything is coming apart instead.  What’s wrong, she wondered.

Part of it was that people were under incredible stress.  If you think your children are in danger you’ll do some pretty unpleasant things to protect them.  But part of it, part of the reason things seemed so desperate is that a few evil people can do a lot of damage.  This too is like Iraq.  Whether our presence in Iraq is a good thing or a bad thing, is not to be judged solely by whether there are suicide bombers.  They take a lot of the fun out of daily life and it only takes a few.  The same I am sure was true in the SuperDome.  Most people tried to get along.  But a handful of evil folk can terrorize thousands.

There have been a lot of arguments across the blogosphere about the role of centralized vs. decentralized rescue efforts.  But one thing the government usually does well is maintain order.  For reasons that probably have a lot to do with New Orleans politics and patronage and corruption, the government abdicated its duty in this role.  The policemen ran away or contributed to the looting.  The Governor failed to ask for the National Guard.  The absence of the police or the guard allowed a few thugs to wreak a lot of havoc.

Here is an essay by Bill Whittle (ht: David Dalva) that says these things in ways you rarely hear them said. It’s a superb polemic, probably the best I’ve read in a few years.  The language is crude in places.  There’s a lot of anger, too.  It's very long.  But there is a great deal of wisdom about how to deal with the fact that there are some bad people in the world, the role of the police and the military in a civil society and about where best to place responsibility and decision-making to make sure people respond well in a crisis.  I don’t agree  with all of it—and you won't either, probably, regardless of where you sit on the political spectrum—but it may help your thinking as it did mine about the issues of where fault lies in this tragic mess.

Bringing down the price of gasoline

Marc Fisher, in this Washington Post column (rr), complains that the two candidates for governor of Virginia have no solution for high gasoline prices:

Mike Haley, who sells honey, beckoned to Jerry Kilgore, who wants to be governor of Virginia. Haley offered a deal: "I swear, if you tell me how you're going to solve these gas prices, I'll vote for you."

Kilgore was game. "I'm the one candidate who won't raise your gas taxes," he told Haley at the Chesterfield County Fair, south of Richmond, over the weekend. "Take that to the bank."

Haley nodded and said nothing, and the Republican candidate continued on, shaking hands. The honey man's vote is still up for grabs. "I want to hear what's being done, because this is ridiculous," he told me. "At least in the '70s, they did something, those odd-even days" when motorists could buy gas only on certain days, depending on their license plate numbers.

Never mind that the odd-even policy had no impact, zero, on the demand for gasoline and thereby did absolutely nothing to relieve the shortage caused by price controls, the one option, mercifully, that neither candidate puts forward.  Though Kilgore's opponent, Kaine, has a price-control lite policy that Fisher rejects as well:

(Kaine was also disappointing: He responded to the surge in gas prices by asking oil companies to voluntarily freeze their prices. Right.)

So what would Fisher do?  No answer is given.  Alas, reality isn't optional.  The always brilliant James Lileks lays out the unrealistic options here.

Expanding Broadband

(I am filing this post under a new category, "Reality Is Not Optional." a phrase I read first somewhere in Thomas Sowell.  The category here at Cafe Hayek will be used to critique those who expect flying pigs and other phantasmagoric events to be par for the course.)

Thomas Friedman (rr) is worried that our cell phones and internet access here in America is not keeping up with the rest of the world.  And he's found a politician who wants to do something about it:

A new generation of politicians is waking up to this issue. For instance, Andrew Rasiej is running in New York City's Democratic primary for public advocate on a platform calling for wireless (Wi-Fi) and cellphone Internet access from every home, business and school in the city.

Mr. Rasiej wants to see New York follow Philadelphia, which decided it wouldn't wait for private companies to provide connectivity to all. Instead, Philly made it a city-led project - like sewers and electricity. The whole city will be a "hot zone," where any resident anywhere with a computer, cellphone or P.D.A. will have cheap high-speed Wi-Fi access to the Internet.

Why is such public provision necessary?

Mr. Rasiej argues that we can't trust the telecom companies to make sure that everyone is connected because new technologies, like free Internet telephony, threaten their business models.

Well, he's on to something there.  It's true you can't trust the telecom companies to be disinterested in profits. That's kind of their raison d'etre, their modus operandi, their goal, their lifeblood.  In a market economy, where some modicum of economic freedom remains, companies try to make profit and avoid losses.  Expecting them to act otherwise is like expecting pigs to fly.  So I'm totally with Mr. Rasiej.  I don't trust businesses to do anything except to try and make profits and protect their business models and their niches and their competitive edges and whatever else keeps them afloat.

That's what businesses do.

The public policy question that both Mr. Friedman and Mr. Rasiej ignore is to ask whether current regulations make it easier to hold onto to those business models and subsequent profits.  I suspect they do because I see and hear a lot of ads from different parts of the telecom industry asking Congress to let them compete for some piece of business on that old information superhighway.  When businesses spend good money on ads like that, I know that it's Congress and the FCC that are part of the problem rather than part of the solution.