Flight Regulations: Seeing the Unseen

Writing yesterday at The American, Ike Brannon displays excellent “seeing the unseen” logic evaluating problems with a new state regulation. Following orders from legislation passed in 2010, the FAA recently began requiring pilots to have at least 1,500 hours of flight time before sitting in the cockpit of a commercial plane. Like with most regulations, this one makes sense at a cursory level but is fraught with poor logic once it’s implications are understood.

First of all, requiring pilots have more flight time before piloting commercial planes restricts the supply of pilots available to commercial airliners. This drives up costs to airliners, some of which is passed on to customers. The result: fewer flights and more people driving on dangerous highways.

Additionally, some flight schools (I assume the “better” schools) are exempted from this requirement, which will boost their application numbers at the expense of non-exempted schools and give them every reason to hike tuition (their students will, after all, face a smaller flight time requirement and become wage-earning pilots sooner than peers at non-exempted schools).

Brannon writes:

Requiring that pilots have more flight hours may seem like a sensible government action designed to protect us, but the reality is that it will destroy jobs, increase the cost of flying, and results in more people dying in transit [on highways].

I’m no expert on the airline industry, flight school or flight time requirements, but I do know that quality control is best managed by the market — not government bureaucrats.

QOTD: Lew Rockwell

Lew Rockwell writing in last Friday’s Mises Daily:

We do not need “monetary policy” any more than we need a paintbrush policy, a baseball bat policy, or an automobile policy. We do not need a monopoly institution to create money for us. Money, like any good, is better produced on the market within the nexus of economic calculation. Money creation by government or its privileged central bank yields us business cycles, monetary debasement, and an increase in the power of government.

U.S. dollar: Safe, though not sound

The dollar’s viability as the world’s reserve currency is under no serious threat because it faces no competition. This is the thesis of Desmond Lachman’s new piece in The American. Channeling Paul Volcker, he writes:

If the dollar is to lose its reserve status, as epitomized by the fact that more than 60 percent of the world’s foreign exchange and more than 85 percent of world trade is still denominated in U.S. dollars, some other currency would need to replace it. A close examination of the world’s other major currencies reveals that a currency is yet to emerge that offers the liquidity, depth of financial markets, and store of value than the U.S. dollar.

He later implies, and fairly so, that the euro is the only currency even close to challenging the dollar’s dominance. But European politics, he notes, is experiencing “a disturbing fragmentation” and the continent’s recovery lags far behind that of the U.S. Most notably, Europe continues to see record-high unemployment rates, which presently remains around 12 percent for the region as a whole, and up to 27 percent in struggling economies like Greece and Spain (how any country economy can long survive a 27 percent unemployment rate is beyond me).

I think Lachman’s thesis is fair. For all the harms done to the dollar by the Federal Reserve, people need a currency. Until another major economy proves to be as robust as the American, it’s silly to think people will quit using the dollar. If anything, I think a decentralized network of commodity-based (or dare I say crypto-) currency is more likely to slowly chip away at the dollar’s power than any single other world currency. What these will look like, I cannot say.

Why poor?

Charles M. Blow penned a hard-hitting (and rather bitter) criticism today of what he calls a “part and parcel of conservative thinking”: that the poor are poor because they lack some basic value possessed in abundance by the wealthy. He writes:

The roles of privilege, structural inequalities and discriminatory policies seem to have little weight, and the herculean efforts of the working poor, who often toil at backbreaking work that they body can’t long endure, seem invisible.

That construct, that the poor are in some way deficient, is a particularly poisonous and unsupportable position…cloaked in an air of benevolence, [it] is in fact lacking in understanding of the lives of poor people and compassion for their plight.

I agree that the poor aren’t always poor because of some moral deficiency, but my observations tell me that this is at least sometimes the case. I’ve written before about hospital patients who impoverish themselves — both physically and financially — by refusing to take medication as directed. I also know more than a few people whose unemployment has nothing to do the “roles of privilege” or “structural inequalities” and everything to do with their own fancy for late-night television, sleeping in and regular afternoon naps.

The debate about poverty seems to be a one-way street. On the Left, it’s about exogenous influences only — Blow’s “roles of privilege, structural inequalities and discriminatory policies.” On the Right, it’s about laziness and moral deficiency only. Either way, it’s about one or the other — not both at once, despite the obvious fact that both inequality and moral deficiency cause, or at least perpetuate, poverty.

I think a more fruitful discussion would examine the moral deficiencies associated with poverty in light of structural inequalities. What about the “system” encourages the type of moral failings seen amongst many poor people? How do moral failings affect and form the “structural inequalities” that concern liberals like Blow?

QOTD: Doug Bandow

From Cato scholar Doug Bandow, writing in the Orange County Register:

As applied, the insider-trading laws push in only one direction, punishing action. Yet a smart investor also knows when not to buy and sell. It is virtually impossible to punish someone for not acting, even if he or she did so in reliance on inside information. Thus, the government has an enforcement bias against action, whether buying or selling. That is unlikely to improve investment decisions or market efficiency.

The logic of buying and selling vs. forced exchange

Jim Fedako makes some great points in a Mises Daily article last month about Elaine Photography v. Willock —  the recent case involving Elaine Huguenin’s refusal to photograph the commitment ceremony of a lesbian couple in Arizona. He writes,

One implication of a positive right to service from a business is the derivative positive right to quality service. So, it is not just that Elaine Photography must take pictures of the commitment ceremony, it is that they must take quality pictures, as well.

I had a similar thought when reading about this case a few months ago. If vendors like Elaine Huguenin are forced to service the demands of anyone who comes through their doors (which is what the court declared), isn’t it expected that they will treat such customers with the same quality service they’d treat any other customer? Is this something the courts are willing to enforce? If so, how can such an issue be judged fairly? Who is to determine whether a vendor (especially service providers like photographers) treated all clients with the same level of quality?

But there is yet another angle to this issue, aside from the issue above and issues of religious liberty, that I haven’t seen covered elsewhere.

Consider that not all exchange relationships are as simple as that between the Huguenins (vendor) and the lesbian couple (customer). In their case, an established vendor was approached by a customer with cash in hand. But what about those business relationships that involve an exchange of products or services only–without a money medium? In many instances, the “customer-vendor” dichotomy is anything but clear.

For example, consider grocer Bob who, seeking software applications to streamline his store’s internal operations, finds developer John, who is looking for a company to pilot test his new software applications. Instead of exchanging cash for products and/or services, Bob and John merely exchange services: Bob gets to use new software applications and John uses Bob’s user feedback to optimize his applications before selling them on the market. No cash changes hands, yet exchange takes place and both parties benefit.

In this case, who is the customer and who is the vendor? The answer is that neither is only a customer or only a vendor, but both are simply parties to the exchange. Or, if you insist, both are customers and both are vendors. I’m not sure what such parties would be called in the legal literature, but I am sure that arrangements like this are very common in the corporate world–my company is currently involved in one similar to my example above.

Here’s why this matters…

When the Court recognizes a customer’s alleged right to be serviced by the vendor of their choosing, they elevate the status of one party to an exchange (customer) over the other (vendor). While the Court’s reasoning might seem like a nice thing to do and a way to help oppressed social groups, such reasoning can not consistently apply to anything more complicated than a basic customer-vendor transaction.

For example, what if grocer Bob refused to enter into my example arrangement above on the grounds that developer John was engaged in some activity he considered unethical? Would developer John have legal recourse to force grocer Bob to contract with him and engage in this non-cash transaction? Of course not. But throw a wrench into the mix. Imagine that developer John had planned to pay some cash, in addition to free software applications, to grocer Bob for his user feedback. Is developer John now a “customer” and should he be allowed to sue Bob for rejecting his proposal? Still no. John may be paying cash, but that’s not enough to make him the “customer” and Bob the “vendor.” In the end, they are both engaged in this partnership to benefit themselves.

My point here is that traditional cash “customers” and “vendors” do the same thing. Buying coffee from Starbucks does not benefit the customer at the expense of Starbucks or vice versa. Both subjectively benefit as a result of the exchange, otherwise it would not have happened. A coffee buyer does business with Starbucks for the same reason grocer Bob and developer John do business–to profit.

What I’m getting at is that once the customer-vendor distinction is understood for what it really is–mere words created to make our conversations about certain exchange relationships easier–the faulty premises behind rulings like Huguenin case are revealed. For if advocates of such rulings are consistent in their application of the law without creating arbitrary distinctions between vendors, customers and everything in between, vendors should have the right to sue all customers who do not patron their stores because of some moral disagreement with the store’s values. Starbucks could sue all those who do not buy their coffee for religious reasons. Walmart could sue all those who did not shop there on account of their low wages. Family Christian Bookstores could sue all who don’t shop there out of opposition to Christianity. The list never ends.

I understand that the Huguenin case involves religious freedom and an allegedly “oppressed” social group and my three examples in the paragraph above do not, but ultimately anything can become a religious or social justice issue. Mormons don’t drink coffee. Low wages is, for many, a matter of social justice. Christian books are, of course, explicitly religious products.

Elaine Photography v. Willock and other similar cases are anything but black and white. They are about far more than gay rights, religious freedom or free speech. Indeed, trying them involves an audit of the very logic with which we think about economic relationships and human action — an audit I’m afraid many aren’t willing to take seriously if it jeopardizes the progress of their shallow notions about “social justice.”

(After writing this post, I discovered another article by the same Jim Fedako saying essentially the same thing. While his analysis is conciser, I think my analogy paints the picture better for those unaccustomed to thinking deeply about economic relationships or unfamiliar with economic jargon. But I encourage you to read his piece anyways.)

More on minimum wage

Yesterday I wrote about minimum wage. I cited what I consider a definitive condemnation of minimum wage as a means to actually raise wages for the working poor. Minimum wage’s true effect is to permanently disemploy everyone whose marginal revenue product is lower than the legal minimum wage.

But I must admit that while the minimum wage seems easy to refute, the idea has widespread support among economists. Not long ago, the Economic Policy Institute published an open letter signed by more than 600 economists asking President Obama and Congress to raise the minimum wage to $10.10. Polls substantiate the legitimacy of this sample — more than half of economists in a recent IGM Forum survey said the alleged benefits of minimum wage outweigh whatever costs it may impose on least-skilled workers.

I must also admit, however, that I’ve yet to see a pro-minimum wage economist level a convincing argument against the policy’s common criticisms (e.g. mine from yesterday). Paul Krugman, for example, stops with saying human relationships are complicated and that raising minimum wage does not automatically result in the laying off of least-productive workers. He writes:

…one theme in all the explanations is that workers aren’t bushels of wheat or even Manhattan apartments; they’re human beings, and the human relationships involved in hiring and firing are inevitably more complex than markets for mere commodities. And one byproduct of this human complexity seems to be that modest increases in wages for the least-paid don’t necessarily reduce the number of jobs.

I agree that these relationships can be complicated, but “relationships” is quite possibly the most insignificant factor in this equation. What about minimum wage’s effect on longer-term employee replacement rates? On profits, and by implication, consumer prices? On capital-labor substitution rates, whereby businesses replace labor with mechanized, non-labor factors of production? Even if employers hesitate to immediately act like the perfectly competitive agents economists often, for better or worse, assume them to be, higher labor costs will affect business decision-making at every level, possibly to the detriment of consumers, business-owners and the working class alike.

Krugman is just one example, of course, but countless other defenders of minimum wage have leveled similar, half-hearted justification for their views. Marxist economist Rick Wolff, for example, abandons the economic debate altogether, saying the issue ought to be made on political and ethical grounds because “we don’t know how raising the minimum wage will play out on employment.” Others, like Nobel laureate Bob Solow and Harvard professor Richard Freeman, make no theoretical argument for their positions, choosing instead to simply cite studies that show minimum wage hikes to have little-to-no effect on unemployment. But as Wolff himself notes, sifting through studies and surveys on the issue is a waste of time — they are largely inconclusive and have, for decades, fueled activism on both sides of the issue.

Romney is wrong on minimum wage

Not that anyone cares what Mitt Romney says anymore, but he came out in support of minimum wage on MSNBC’s “Morning Joe” this morning. His reasoning: “[The GOP] is all about more jobs and better pay.”

That’s too bad, because minimum wage does anything create more jobs and better pay. In fact, it does just the opposite. I once wrote about minimum wage for the Mises Institute. I explained why minimum wage outlaws employment below a certain wage rate, leading to unemployment for all workers whose marginal value product — that is, their contribution to their employer’s firm — is below the legal minimum. This hits the lowest-skilled workers hard. Murray Rothbard writes in Making Economic Sense:

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between those two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by the prohibition will be precisely the “marginal” (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of minimum wage are claiming to foster and protect.

I also note in my article at the Mises Institute that minimum wage is anything but an innocent idea proposed by those with only the best interests of working people in mind. It’s a tool whereby unions can discriminate against laborers willing to work for lower wages — especially against teenagers and immigrants.

So think twice before assuming not only that minimum wage helps poor laborers, but also that it’s advocates have good intentions in mind.

These are America’s least valuable college degrees

I just came across an amusing-verging-on-horrifying list at The Atlantic (channeling PayScale) about the least valuable colleges and majors in the United States. Put simply, the chart below shows how much students pursuing these majors at these colleges can expect to have earned, on average, twenty years after graduating.

Least Valuable Colleges + Majors list

Least Valuable Colleges + Majors

Clearly, college is not always a great investment. That’s not to say education is worthless in and of itself, or that studying Arts at Murray State University is a waste of time, or even that growing one’s income potential is the most important reason to go to college. But at the very least, students should inform themselves about how others have fared after graduating from their college or, more specifically, their academic program — especially if they are financing their education with student loan debt or have no concrete plans for employment after graduation.

Is American entrepreneurship dying?

The Brookings Institution reported on Monday that the American economy is less entrepreneurial than at any point in the last three decades. See chart below:

Washington Post Chart

From WashingtonPost.com

The report continues:

…recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech… if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship-enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Given the Bush and Obama administrations’ insistence on trickle-down, faux-recovery policies that inflate asset prices at the expense of small-time entrepreneurs, these results are not surprising. But the authors of this report don’t seem privy to this elementary insight when they write:

Whatever the reason, older and larger businesses are doing better relative to younger and smaller ones.

“Whatever the reason”…not that a steady piling on of regulatory compliance costs (a la Obamacare) has anything to do with keeping young firms out of the market. But of course, these authors don’t cite such costs a single time in their report. Instead, they blame tough immigration laws (go figure). If only we had more entrepreneurial immigrants, they say, our problem would be solved. But of course, this doesn’t address the problem — it’s like your mechanic proposing a new car as a fix for your broken old car, which shouldn’t be broken in the first place.