For example, were there no law regarding which side of the road we should drive on, one imagines that self-interest would lead to a spontaneous emergence of a custom to drive, say, on the right-hand side of the road—at least in the United States. But there would probably be some who would drive on the left; therefore, a law, with associated penalties, is needed to enforce concurrence among would-be outliers.

There are other standards of human conduct not codified in law, such as men taking their hats off in Christian churches and wearing hats in synagogues, eating with utensils rather than one’s hands, and giving the appropriate greeting. It is tempting to trivialize these standards by suggesting they are not as important as laws mandating which side of the road to drive on. But that is untrue. A nasty remark, discourtesy, or show of disrespect that is not apologized for can lead to violent conflict.

What should be the characteristics of laws in a free society? Think about baseball rules (laws). Through no fault of their own, some players hit fewer home runs than others. To create baseball justice, how about a rule requiring pitchers to throw easier pitches to poorer home run hitters, or one that would treat a double like an inside-the-park home run? Some pitchers aren’t as good as others. How about allowing them to stand closer to the batter? Better yet, we could rule their first pitch to each batter a strike no matter what. In the interest of baseball justice we might make other special rules to level the playing field between old players and young players, black and white, and fast and slow.

You say, “Williams, you can’t be serious! Can you imagine the conflict that would emerge: players lobbying umpires, umpires deciding who gets what favor, lawsuits, not to mention fighting?” You’re absolutely right. The reason baseball games end peaceably, and players and team owners are generally satisfied with the process, whether they win or lose, is that baseball rules are known in advance. They apply to all players. They are fixed, and umpires don’t make up rules as they go along. In other words, baseball rules meet the test of “abstractness.” They envision no particular outcome in terms of winners and losers. Baseball rules simply create a framework in which the game is played.

Laws, or rules that govern a free society, should have similar features. There should be a “rule of law.” The rule of law means laws are certain and known in advance. Laws envision no particular outcome except that of allowing people to peaceably pursue their own objectives. Finally, and most important, laws are equally applied to everyone, including government officials.

Sir Henry Maine, probably the greatest legal historian, said, “The greatest movement of progressive societies has hitherto been a movement from status to contract.” In nonprogressive societies the rule of law is absent. Laws are not general. They’re applied according to a person’s status or group membership. There’s rule, not by legis, the Latin word for law, but by privilegium, the Latin term for private law. What’s lacking is the principle summarized by English jurist A. V. Dicey: “Every man, whatever be his rank or condition, is subject to the ordinary law of the realm and amenable to the jurisdiction of the ordinary tribunals.”

Consider the case of a person arrested and charged with rape. Should his status—whether he’s a senator, professor, or ordinary man—play a role in the adjudication of the crime and subsequent punishment? I’m betting that the average person would answer no.

Just about every law that Congress enacts violates all the requirements for the rule of law. How do we determine violations of the rule of law? It’s easy. See if the law applies to particular Americans as opposed to all Americans. See if the law exempts public officials from its application. See if the law is known in advance. See if the law takes action against a person who has taken no aggressive action against another. If you conduct such a test, you will conclude that it is difficult to find many acts of Congress that adhere to the principles of the rule of law.

A rule-of-law regime would require that we scrap the Internal Revenue Code in its entirety. What justification is there for the tax laws to treat an American differently because he has a higher income, minor children, or income from capital gains instead of wages? Equal treatment, at the minimum, would require Congress to figure out the cost of the constitutionally authorized functions of the federal government, divide it by the adult population, and send us each a bill for our share. You say, “What about the ability-to-pay principle?” That’s just a politics-of-envy concept that would be revealed as utter nonsense if applied to anything else, such as gasoline or food.

That Americans have become ruled by orders and special privileges helps explain all the lobbyists, money, and graft in Washington. We’ve moved away from a government with limited powers, as our Founders envisioned, to one with awesome powers. Therefore, it pays people to spend huge amounts of money to influence Congress in their favor. Privilege-granting is precisely what most Americans want, though they might disagree on who gets what privilege. Most Americans have no inkling of what the rule of law means. We think it means obedience to whatever laws Congress enacts and the president signs. That’s a tragedy.

Customs, traditions, mores, and rules of etiquette, not laws and government regulations, are what make for a civilized society. These behavioral norms, mostly transmitted by example, word-of-mouth, and religious teachings, represent a body of wisdom distilled through ages of experience, trial, and error. It’s the morality embodied in those thou-shalt-nots: kill, steal, lie, cheat, and so on. The importance of these behavioral norms is that people behave themselves even if nobody’s watching. There are not enough cops and laws to replace personal morality as a means to a civilized society. At best, the police and criminal justice system are the last desperate line of defense for a civilized society. Our increased reliance on laws to regulate behavior is a measure of how uncivilized we’ve become.

Twenty-five years ago, during a dinner conversation with Nobel laureate Friedrich A. Hayek, I asked if he could propose one law that would help restore, promote, and preserve liberty. Hayek answered that the law would read: Congress shall enact no law that does not apply equally to all Americans. Hayek’s suggestion would do untold wonders in fostering the liberties envisioned by our Founders. But I’m betting that most Americans would greet Hayek’s proposal with contempt after they realized it would mean Congress could not play favorites.

Related posts:

1. Hayek on the Rule of Law and Unions
2. Fairness: Results Versus Process
3. Nullifying the Rule of Law

It seems that the only approach that has not been tried on a large scale is some form of school choice.

Most school-choice proposals are in the form of either educational vouchers, which pay all or part of the cost of nonpublic education, or tuition tax credits, which let parents deduct tuition from taxes owed. Some of the support for school choice comes from the expectation that it would introduce more competition into education and produce higher-quality education for all students, particularly minority students. Though school choice has that potential, I support it for another reason: Namely, I think any government-created and -protected monopoly is harmful to the best interests of consumers. Competition always produces a superior and lower-cost product than government monopolies. It is no accident that our supermarkets (stocking over 60,000 different items) are the best in the world. Similarly, it’s no accident that we lead the world in communication, computer hardware, software technology, the Internet, and other areas where competition is ruthless.

There is no reason to suspect that it would be any different if there were competition in primary and secondary education. U.S. universities, particularly at the graduate level, are the envy of the world. People from every country salivate at the chance to earn a graduate degree here. However, I would wager that there would be no such excellence if our graduate education were organized like our primary and secondary education.

Most of the criticism of school choice, regardless of method, is wrong and self-serving. My own preference is for tax credits as opposed to vouchers. Tax credits would reduce the risk of government intervention in the form of Departments of Vouchers.

Public Officials Choose Private Schools

There is considerable hypocrisy among some of the staunchest opponents of school choice. They want, demand, and can afford school choice for themselves, but for the less affluent it is a different matter. President and Mrs. Barack Obama enrolled their two daughters in Washington’s prestigious Sidwell Friends School, forking over $28,000 a year for each girl. Whilst Obama was senator, the girls attended the University of Chicago’s Laboratory School, a private school charging almost $20,000 each. A Heritage Foundation survey found that 37 percent of the members of the House of Representatives and 45 percent of senators in the 110th Congress sent their children to private schools. Public-school teachers enroll their own children in nonpublic schools to a much greater extent than the general public. In Cincinnati about 41 percent of them send their children to nonpublic schools. In Chicago it is 38 percent, Los Angeles 24 percent, New York 32 percent, and Philadelphia 44 percent. Both congressmen and public-school teachers enroll their children in private schools at rates three, four, and five times the rate of the general public.

Defenders of the education monopoly have advanced arguments against greater competition in primary and secondary education. These arguments seem plausible; however, a little reflection shows they are simply baseless.

Common Arguments Against School Choice

Public schools would be destroyed. This charge amounts to a tragic confession that public schools are so inferior that given choice all parents would opt out. In fact, some public schools are doing a satisfactory job; those schools would survive. Schools doing a poor job would have to either improve or face an exodus of students and perish.

Private schools would skim off the best students. Assume for a moment this might happen. To object to parental choice for that reason is callous arrogance and cruelty. It differs little from saying that parents who want better education prospects and a brighter future for their children should be held hostage until some undetermined time when public schools have improved.

School choice would lead to school racial segregation. Most voucher and tuition-tax proposals prohibit racial discrimination. The major thrust for school choice has come from black parents. Moreover, most large city public schools are already racially homogeneous, but while a smaller percentage of blacks attend private schools, those schools are more racially heterogeneous.

There are not enough private schools. This is an absurd criticism and reflects ignorance of markets. In the 1970s there were no computer software stores and few videotape rental shops. Would anyone have argued back then that the manufacturing and marketing of computers and VCRs should be held up until software and video shops were in place? By purchasing computers and VCRs, consumers created the demand for those shops. We would expect the same with private schools. If parents had vouchers or tax credits worth $3,000 or $4,000, profit-seeking entrepreneurs would meet the demand for private schools.

Parents, particularly those who are low-income, can’t make wise choices. This is a demeaning attitude toward the poor, and it also reflects ignorance of how markets operate. People have little direct information about the quality of most goods and services they use. They depend on indirect information, such as word of mouth, consumer reports, and advertisements. The market would generate information about K–12 schools just as markets already provide information about colleges and universities. It is inconceivable that parents, particularly black parents, could choose schools worse than the ones their kids already attend.

Education vouchers and tuition tax credits face another source of opposition: from those fearful of government control of nonpublic schools. I share that concern and urge strong measures to minimize that likelihood. The question I pose to these critics is: Which is the more serious and costly risk, the increased government intervention in nonpublic schools that might accompany school choice or the continued educational destruction of the nation’s youngsters, particularly its black and Hispanic youngsters?

Finally, I am thoroughly convinced that all children, including black children, can achieve academic excellence. What’s necessary is 1) parental involvement, 2) well-behaved and motivated children, and 3) a competitive educational environment.

Related posts:

1. Ideas and Consequences ~ School Choice via the Universal Tax Credit
2. School Choice for Inner-City Kids
3. What American Education Needs

Don’t misinterpret me. I am not suggesting that people not vote. Most Americans see voting as their civic duty and, despite the evidence shown by Professors Gelman, Silver, and Edlin, people have a feeling that their vote counts. If one thinks that his vote makes a difference, that is a worthy benefit deserving of the time and effort it takes to vote.

You Get What You Pay For

Voting has other problems in addition to the relative unimportance of each individual vote. When one votes for a particular candidate, is there any way to be sure that one will get what one votes for? There’s no older story in the political arena than that of the candidate who promises one thing when he campaigns and does something else when he wins office. Moreover, if he lives up to a promise made to one group of Americans, it will always come at the expense of another. Some political promises are incredible, such as Barack Obama’s promise that he would work to unite Christians, Muslims, and Jews. That’s true political arrogance in light of the hundreds of years of sometimes murderous conflict between these groups.

Americans cast millions upon millions of votes—that is, they make decisions—in the non-political arena where individual votes do count and where there is a much higher probability of being satisfied with the outcome. Moreover, what they get in return for their vote does not come at the expense of another. That arena is the marketplace.

In our wallets we have what amounts to ballot slips; we can think of them as dollar votes. When we take, say, nine of them and “vote” for two pounds of steak, we are fairly certain about the outcome. We get the two pounds of steak. If we don’t get the outcome we voted for—we get, say, steak of poor quality—there is swift retribution. We can simply fire the seller by taking our business elsewhere. We act unilaterally and don’t have to bother with costly organizing. Very often simply the threat of taking our business elsewhere is enough to get some kind of remedy.

An individual’s threat to vote for a politician’s opponent as an expression of dissatisfaction with the politician’s actions, on the other hand, is not likely to carry as much weight.

There is another contrast between the market arena and the political arena that can be appreciated by asking what draws the greatest public complaints: Is it market-provided goods and services, such as computers, televisions, clothing, and food? Or is it government-provided services, such as public schools, postal services, and motor vehicle departments? In the case of market-provided goods and services, the prospect of profit gives providers an incentive to please customers. The government sector, however, is not-for-profit, so it suffers no losses when it fails to please “customers.”

Better for Poor People, Too

You might say, “That’s okay, Williams, if you have enough dollar votes. But what about poor people?” Poor people are far better served in the market arena than the political arena. Check this out. If you visit a poor neighborhood, you will see some nice clothing, some nice cars, some nice food, and maybe even some nice homes—no nice schools. Why not at least some nice schools? The explanation is simple. Clothing, cars, food, and houses are allocated through the market mechanism. Schools are allocated through the political mechanism. By the way, if you are a member of a minority, it is in your interest to minimize those decisions over your life made in the political arena, where the majority rules.

There is another unappreciated feature of the market arena. It reduces the potential for human conflict. Different Americans have different and intense preferences for cars, food, clothing, and entertainment. When is the last time you heard about Chrysler lovers fighting with Lexus lovers? It seldom if ever happens. Why? Those who love Chryslers get what they want, and those who love Lexuses get what they want, and each can live in peace with one another.

It is a different story in government-provided education. Some parents wish for their children to recite a morning prayer in schools. Other parents are repulsed by the idea. The fact that education is produced by government means there is either going to be prayer in school or no prayer in school. Parents must enter into conflict with one another. Why? If, for example, the parent who wishes for prayers in school loses the political battle, that parent will not have his wishes met. Of course he can send his child to a non-government school that has morning prayers, but through the tax code he is forced to continue paying for school services for which he has no use.

If government decided whether Chryslers or Lexuses would be produced, we would see conflict between lovers of Chryslers and Lexuses.

The prime feature of political decision-making is that it’s a zero-sum game. One person’s or group’s gain, of necessity, comes at the expense of another person or group. As such, political allocation of resources is conflict-enhancing while market allocation is conflict-reducing. The greater the number of decisions made in the political arena the greater the potential for conflict.

I never cease to be amazed by Americans’ faith in government and the political arena, whose essence is coercion, and their suspicion of the market arena, whose essence is peaceable, voluntary exchange.

Related posts:

1. I Won’t Vote!
2. Who Should Vote?
3. Ideas and Consequences: How Important Is Your Vote?

“Equality of opportunity” is a widely used term, but what does it mean? Sometimes I ask students if they are for or against equal opportunity. Most say they are for it.

Then I ask how can they tell if equality of opportunity exists in a given activity. For example, does everyone in the class have an equal opportunity to earn an A? If not, how would they create equal opportunity? I ask them whether it is unfair when another is denied equal opportunity. Then I cite examples where I have denied others equal opportunity. For instance, not every woman was given an equal opportunity to marry me. I systematically discriminated against white and Asian women, handicapped women, women with criminal records, and women who did not bathe regularly. None of my criteria for setting up a long-term contractual arrangement would have met EEOC standards.

Occasionally, a student might rejoin by saying marriage and earning an A are different—equality of opportunity mostly refers to employment or college admission. At that point I ask whether they think every employer should give them equal opportunity to be hired or every college give them equal opportunity to be admitted. Most often the reply is yes, at which point I ask whether they plan to give every employer equal opportunity to hire them or gave every college equal opportunity to admit them. Most often their answer is no; they plan to discriminate among employers, and they have already discriminated in choosing a college. I then ask them, if they’re not going to give every employer an equal chance to hire them, why should every employer give them an equal chance to be hired?

Part of the justification for various labor-market restrictions, such as minimum-wage laws, collective-bargaining legislation, and work-hour legislation is to protect workers from the alleged superior bargaining power of employers. What is meant by superior bargaining power? Let’s see. The president of George Mason University, where I am employed, has the power to tell me that the maximum wage he is willing to pay me is $20,000 a year. I have the power to tell him how many hours I am willing to work at $20,000 a year, namely, zero. So who has the superior bargaining power, me or the president? He has the power of price and I have the power of quantity. Alternatively, I have the power to tell him that I refuse to work for less than $500,000 a year. He has the power to decide how many hours he is willing to hire me at that price. Again, who has the superior bargaining power? I think it is impossible to say. What sets the minimum price the president pays for my labor services? If he wants my services, the minimum salary he can pay me is the salary I could earn at some other university. What sets the maximum salary I could get from him is the salary some other economist will accept to do the same job that I am doing. Bargaining power is a vacuous concept. What truly protects the worker is the number of employers competing for his services. Similarly, what protects the employer is the number of employees competing for his job.

The Perils of Majority Rule

Another example of fuzzy thinking involves the word “democracy.” So often we hear that our nation is a democracy. Somehow Americans have come to accept whatever our congressmen, state legislatures, or city council can muster a majority vote on. There is nothing benign about majority-rule decision-making. In fact, majority rule gives an aura of legitimacy to acts that would otherwise be deemed tyranny. Let’s look at it while asking ourselves how many decisions in our daily lives would we like to be settled through majority rule.

How many people would like the majority to decide whether we have turkey or ham as the main course for Thanksgiving dinner? If turkey won the vote, it would be illegal to serve ham. What about the kind of car that we drive? If Lexus won the vote, it would be illegal to drive other cars. I am sure that if majority rule were the decision-making criteria in these and most other areas of our lives, we would deem it tyranny. Is it not the same when majority rule is used to dictate how we provide for our health care, how we prepare for retirement, or whether restaurants permit smoking, use trans fats, or serve foie gras?

In addition to majority rule being a form of tyranny, it is a major contributor to human conflict. The reason is that majority rule can be a zero-sum game. One group of people has their wishes satisfied at the expense of another group of people who do not have their wishes satisfied. In the Thanksgiving-dinner example, turkey lovers have their wishes satisfied at the expense of ham lovers. Ham lovers then have high incentives to enter into conflict with turkey lovers because they know that if turkey lovers win it will be at their expense. There would be no conflict if, as it is now, the decision on what to have for Thanksgiving dinner is made by individuals. In general, decision-making at the individual or market levels is conflict-reducing, while making decisions collectively or at the political level is conflict-enhancing.

Our nation’s founders had absolute disdain for democracy and majority rule. James Madison, in Federalist 10, said in a pure democracy, “[T]here is nothing to check the inducement to sacrifice the weaker party or the obnoxious individual.” During the 1787 Constitutional Convention, Edmund Randolph said that “in tracing these evils to their origin every man had found it in the turbulence and follies of democracy.” John Adams said, “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There was never a democracy yet that did not commit suicide.” Chief Justice John Marshall added, “Between a balanced republic and a democracy, the difference is like that between order and chaos.” The founders knew that a democracy would lead to the same kind of tyranny suffered under King George III. The term democracy appears in none of our founding documents. Their vision for us was a republic and limited government.

Related posts:

1. The Economic Way of Thinking Part 6
2. The Economic Way of Thinking Part 5
3. The Economic Way of Thinking Part 7

The Energy Independence and Security Act of 2007 mandated that oil companies increase the amount of ethanol mixed with gasoline. The argued benefits were that it would decrease our dependence on foreign oil and provide a more environmentally friendly fuel. Anyone with an ounce of brains would have realized that diverting crops from food to fuel would raise the prices of a host of corn-related foods, such as corn-fed meat and dairy products. A Purdue University study found that the ethanol program has cost U.S. consumers $15 billion in higher food costs in 2007, and it will be considerably higher in 2008. Higher food prices, as a result of the biofuels industry, have had international consequences as seen in the food riots that have broken out in Egypt, Haiti, Yemen, Bangladesh, Mexico, and other nations.

Anti-Terrorism Spending

The victims of benefits-oriented policies, such as those of the Energy Independence and Security Act of 2007, are visible, but for many other policies the victims and the costs are invisible. That is the case with anti-terrorism expenditures. Take Wyoming with its two major cities: Cheyenne (population 53,000) and Casper (50,000). Federal and state homeland security anti-terrorism expenditures there in 2007 totaled $6,673,910. The benefits of such expenditures are that they might prevent Wyoming from being attacked and if attacked, ameliorate some of the consequences.

There’s no precise way to determine Wyoming’s risk of a terrorist attack and its cost, but simple reasoning suggests that too little or too much can be spent. The costs of spending too little might result in a devastating terrorist attack that could have been prevented. The costs of spending too much are less obvious because the victims are invisible. For example, the price for dump trucks for snow and ice removal ranges between $140,000 and $160,000. How many Wyoming lives could have been saved had some of the anti-terrorism expenditures been spent on additional dump trucks to clear streets and roads of snow and ice? Those victims are invisible.

Environmentalism

Environmentalists have been very active and successful in California in getting huge tracts of land set aside as “open space,” on which nothing can be built, and enacting “smart growth” policies severely restricting residential and business construction. Open space and smart growth are seen as benefits. The cost is skyrocketing housing prices at some multiple of housing prices nationwide, whereas before the 1970s they were similar. Dr. Thomas Sowell wrote, “One of the ways of coping with high housing costs is with ‘creative’—and risky—financing. Roughly two-thirds of the home mortgages in the San Francisco Bay area are interest-only mortgages. Theoretically, you could make mortgage payments forever without acquiring a cent of equity in your home. . . . In reality, the interest-only mortgage payments apply for only a limited number of years—three to five years in most cases—after which the payments rise, so as to contribute something toward the payment of the principal. People who expect their incomes to rise significantly in a few years assume that they will be able to handle the higher payments then. Of course that assumption can turn out to be wrong and the house can be lost” (“Froth in Frisco?” Wall Street Journal, May 26, 2005). Such practices have contributed to the subprime crisis we now face.

There’s another cost. According to Census estimates, the number of black residents in San Francisco has shrunk from 13.4 percent of the population in 1970 to just 6.5 percent in 2005—the steepest decline in any major American city. Guess what. San Francisco Mayor Gavin Newsom appointed a task force to study how to reverse decades of policies that black leaders say have fueled the flight. He made no mention of environmentalist policies that have driven the cost of housing beyond the reach of many blacks.

FDA

The Food and Drug Administration’s (FDA) beneficent mission is to ensure the safety and effectiveness of pharmaceuticals. FDA officials can make two types of errors: approving a drug that has unanticipated dangerous side effects, or disapproving and delaying a drug that is both safe and effective. An FDA official has unequal incentives to avoid these two types of errors. Making the first error, erring on the side of under-caution, the victims are visible and he is directly accountable. Erring on the side of over-caution, the cost and the victims are invisible and there is no accountability. Victims die never knowing why.

In an article in Regulation magazine, Robert M. Goldberg examined some examples of the costs of FDA delay:

Beta Blockers: Beta blockers regulate hypertension and heart problems. The FDA held up approval of beta blockers for eight years because it believed they caused cancer. In the meantime, according to Dr. Louis Lasagna of the Tufts University Center for the Study of Drug Development, 119,000 people died who might have been helped by that medication.

Clozaril: First approved and used in 1970 in Europe, Clozaril’s ability to treat schizophrenics who did not respond to other medicines became known in 1979. Yet the drug was not approved in the United States until 1990 because companies believed the FDA would reject it on the grounds that 1 percent of all patients who take the drug contract a blood disease. As an article in the New England Journal of Medicine marveled . . . : “What is remarkable is that [Clozaril] has a beneficial effect on a substantial proportion [30 to 50 percent] of patients who have an inadequate response to other. . . drugs.” FDA delay therefore meant that nearly 250,000 people with schizophrenia suffered needlessly, when relief was at hand.

Mevacor: Mevacor is a cholesterol-lowering drug that has been linked to reduction in death due to heart attacks. It was available in Europe in 1989 but did not become available in the United States until 1992. Studies confirm what doctors saw to be the case: taking the drug reduced death due to heart disease by about 55 percent. During that three-year period as many as a thousand people a year died from heart disease because of the FDA delay.

The economist’s bottom-line message is that for the sake of human compassion and efficiency, any discussion of benefits from this or that public policy should entail an explicit acknowledgment of costs.

Related posts:

1. Why Are Economists So Misunderstood?
2. Economists and Scarcity
3. Economists Against the FDA

Critics of the U.S. health-care system often suggest that we should adopt the single-payer universal systems of other countries. The serious problems encountered by those systems are increasingly documented and well known, such as the long waiting lists, restrictions on physician choice, and rationing in countries such as Canada, Italy, Greece, and the United Kingdom.

People often suggest that our health-care system’s problems stem from the fact that we have a free market; hence, their solution is to move to socialized medicine, where everyone has a right to a certain level of health care. The problem with that assessment is that our health-care system is not a free-market system. Over 50 percent of health-care expenditures are made by government at various levels, and there is extensive government regulation and control. Most of the problems of health care can be directly connected to that fact.

But there is a much more important question, not given much discussion, that will be the focus of this article.

Do people possess a right to health care whether they can afford it or not? If you believe the 2008 presidential aspirants, the answer is yes. In a Wisconsin campaign speech Senator Hillary Clinton said, “I believe health care is a right, not a privilege. And I will not rest until every American is covered.” In a campaign speech in Iowa, Senator Barack Obama said, “I believe that every American has the right to affordable health care.” While Senator John McCain has not said health care is a right, he nonetheless proposes greater government involvement. Many Americans share the vision that health care is a right. Let us try to decide what is or is not a right.

Imagine that I meet an attractive young lady and ask her to date me. Suppose she refuses. Have my rights been violated? Or suppose I ask to live in your house, and you say no. Have you violated my rights to decent housing? Finally, suppose I knock on your door and tell you I am hungry and wish to share dinner with you and your family. If you refuse, have you violated my rights? I am sure that most Americans, including Senators Clinton, Obama, and McCain, would agree that I have no constitutional, human, or natural right to date someone, or to live in someone’s house, or dine with him. But why?

Rights and Obligations

True rights, such as those in our Constitution, or those considered to be natural or human rights, exist simultaneously among people. The exercise of a right by one person does not diminish those held by another. It imposes no obligations on another except those of non-interference. I have a right to ask a lady for a date, but I have no right to impose an obligation on her to actually date me. Similarly, I have a right to ask you to permit me to live in your house and dine with your family, but I have no right to impose such an obligation on you. Moreover, since I do not have these rights, I do not have a right to delegate authority to government to impose such obligations on another. In other words, from a moral point of view, one can delegate only those rights that one possesses.

To argue that people have a right that imposes obligations on another is absurd. This can be readily seen if we apply such an idea to my rights to speech or travel. Under that vision, my right to free speech would require government-imposed obligations on others to provide me with an auditorium, television studio, or radio station. My right to travel freely would require government-imposed obligations on others to provide me with airfare and hotel accommodations.

For government to guarantee a “right” to health care, or any other good or service, whether a person can afford it or not, it must diminish someone else’s rights, namely his rights to his earnings. The reason is that government has no resources of its own. Moreover, there is no Santa Claus or Tooth Fairy giving the government those resources. The fact that government has no resources of its own forces one to recognize that for government to give one American citizen a dollar, it must first, through intimidation, threats, and coercion, confiscate that dollar from some other American. In other words, if one person has a right to something he did not earn, it of necessity requires another person not to have a right to something that he did earn.

A better term for these new-fangled rights to health care, decent housing, and food is “wishes.” If we called them wishes, I would be in agreement with Clinton, Obama, McCain, and others. I also wish everyone had adequate health care, decent housing, and nutritious meals. However, if we called them wishes, there would be confusion and cognitive dissonance among people calling for socialized medicine. The average American would cringe at the thought of government punishing one person because he refused to make someone else’s wish come true.

For example, if I simply had a wish for a palatial house and a Rolls Royce in my driveway, and Congress told its agents at the IRS to take other people’s money to make my wish come true, I am sure the average American would be offended. Americans would find it easier to live with their consciences, and find congressional initiation of force against others more palatable, if it were alleged that I have a constitutional “right” to a palatial house and a Rolls Royce. After all the primary job of government is to protect rights.

We can evaluate the morality of rights versus wishes another way. Suppose someone initiated force to prevent another from exercising his speech rights and another stepped in to protect that person’s right to speak. Would the intervener be seen as a hero or villain? Most people would answer hero. Then suppose someone saw a homeless person in need of health care and did privately exactly what government does—initiate force to take someone else’s money to provide that homeless person with medical services. Would that person be seen as a hero or villain? Most people, at least I hope so, would see that person as a villain. That is, taking the rightful property of one person to give to another, to whom it does not belong, is considered theft, and it is theft even if the proceeds are used for selfless purposes. It is theft whether two people or 300 million people agree to taking another’s property.

Finally, charitable efforts to help one’s fellow man in need are noble. Reaching into one’s own pockets to help is praiseworthy and laudable. Reaching into someone else’s pockets to do so is despicable and worthy of condemnation.

Related posts:

1. The Pursuit of Happiness: Average Americans versus Environmentalists
2. When Wishes Become Rights
3. The Pursuit of Happiness – Economics for the Citizen

Think about several questions. Which oyster bed will yield larger, more mature oysters—a publicly owned or privately owned bed? Why is it that herds of cows are not threatened with extinction while buffalo were? Who will care for a house better—a renter or an owner? Finally, why are some societies richer than others?

The answer to each question has to do with the property-rights structure, whether property rights are held privately or communally. When property rights are held privately, the person who is deemed the owner has certain rights that he expects will be enforced. Among those rights are the right to keep, acquire, use, exclude from use, and dispose of property as he deems appropriate in a manner that does not infringe similar rights held by others. The owner also has the right to transfer title to the property and otherwise benefit from its use. When rights to property are held communally, such a bundle of rights does not exist. In general, the key difference between privately and communally held property rights is that individuals do not have the right to exclude others from use, and they do not have the right to transfer title.

Let us turn to our questions. In a publicly or communally owned oyster bed, everyone has a claim. For a person to assert his claim, he has to capture the oysters. This leads to overfishing because the person who tosses back an immature oyster does not benefit himself. He benefits someone else who will keep the oyster.

It’s a different story with a privately owned oyster bed. The owner need not capture the oysters in order to assert his claim and can allow the oysters to mature.

It’s the same principle with buffalo and other wildlife that’s publicly owned. However imperfectly, governments attempt to solve this property-rights problem with licenses, fishing and hunting seasons, and limits on catch and size. The difference in outcomes, based on the property-rights structure, is a no-brainer. As Thomas Sowell writes in Knowledge and Decisions, “It is precisely those things which belong to ‘the people’ which have historically been despoiled—wild creatures, the air, and waterways being notable examples. This goes to the heart of why property rights are socially important in the first place. Property rights mean self-interested monitors. No owned creatures are in danger of extinction. No owned forests are in danger of being leveled. No one kills the goose that lays the golden egg when it is his goose.”

Aristotle said, “What is common to many is taken least care of, for all men have greater regard for what is their own than for what they possess in common with others.” What he is saying is that private property rights force people to internalize externalities, which is just a fancy way of saying that a person’s wealth is held hostage to his doing the “socially responsible” thing—wisely using the planet’s scarce resources. Private property rights induce the homeowner to take into account the effect of his current use of the property on its future value. That is why we expect a homeowner to give better care to a house than a renter. A homeowner has a greater stake in what a house is worth ten or 20 years later. An owner would more likely make sacrifices and take the kind of care that lengthens the usable life of the house. He reaps the reward from doing so, or pays the penalty for not doing so. Owners require security deposits against damage to make renters share some of their interests in the property.

Restriction on Profits

A completely ignored aspect of restricting private property rights is the restriction on the right to profits. Pretend you own a firm and you can hire one of two equally capable secretaries. The pretty secretary demands $300 a week, while the homely secretary is willing to work for $200. If you hired the homely secretary, your profits would be $100 greater. But what if there were a 50 percent profit tax? The tax would reduce your profit, thereby reducing your cost of discriminating against the homely secretary. Before the profit tax, the cost of discriminating against the homely secretary would be $100. After the profit tax, that discrimination would cost you only $50. Discriminating against the homely secretary would be consistent with the predictions of the law of demand: the lower the cost of doing something, the more people will do it. Hiring the pretty secretary would put the profits in a nonmonetary and hence nontaxable form. Wherever private property rights to profits are attenuated, we expect more choices to be made on the basis of non-economic factors, such as race and other physical attributes. That’s especially the case where there is no profit motive at all, such as nonprofit entities like government and universities.

One might find the previous statement puzzling knowing that government and universities have preferential hiring policies in favor of racial minorities. There is no puzzle at all. When it was politically expedient, government and universities were the leaders in discrimination against racial minorities. Now that it’s politically expedient to discriminate in favor of racial minorities, government and universities are in the forefront. For example, in 1936, there were only three black Ph.D. chemists employed by all the white universities in the United States, whereas 300 black chemists were employed by private industry. In government, blacks were only 1 percent of nonpostal civil-service workers in 1930. Interestingly, when blacks finally made their entry into white universities, much of it was in the moneymaking part of the university—sports.

Economic growth is affected by the property-rights structure. Several annual studies measure variables such as constitutional enforcement, freedom of contract, and the protection of property rights to compare the level of freedom across countries over time and estimate the relationship between freedom and prosperity. They unequivocally conclude that economic growth is positively related to the security of property rights. The 2007 edition of The Economic Freedom of the World found that nations in the top quartile of economic freedom have an average per-capita GDP of $26,013, compared to $3,305 for those nations in the bottom quartile. The top quartile has an average per-capita economic growth rate of 2.25 percent, compared to 0.35 percent for the bottom quartile. In some years, some countries in the bottom quartile experienced negative growth.

Even if private property rights did not produce greater wealth, prosperity, and efficient resource allocation, they would be morally superior to any alternative because they recognize the sanctity of the individual. As John Adams put it, “Property is surely a right of mankind as real as liberty,” adding, “The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.”

Related posts:

1. The Economics of Property Rights
2. Property Rights, American Constitutionalism, and International Human Rights Law
3. In the Absence of Private Property Rights

The preservation of free-market capitalism requires what philosopher David Kelley has called the entrepreneurial outlook on life, which he in part describes as “a sense of self-ownership, a conviction that one’s life is one’s own, not something for which one must answer to some higher power.” If we accept as first principle that each owns himself, what constitutes just and unjust conduct is readily discovered and does not require rocket science. Unjust conduct is simply any conduct that violates an individual’s ownership rights in himself when he has not violated those same rights of others. The latter phrase—when he has not violated those same rights of others—allows for fines, imprisonment, and execution when a person has infringed the ownership rights of others.

Therefore, acts such as murder, rape, and theft, whether done privately or collectively, are unjust because they violate private property. There is broad consensus that collective or government-sponsored murder and rape are unjust; however, government-sponsored theft is another matter. Theft, being defined as forcibly taking the rightful property of one for the benefit of another, has wide support in many societies that make the pretense of valuing personal liberty. That theft, euphemistically called income redistribution or transfers, is often defended by lofty phrases such as: assisting the poor, the elderly, distressed business, college students, and other deserving segments of society. But as F. A. Hayek often admonished, “[F]reedom can be preserved only if it is treated as a supreme principle which must not be sacrificed for any particular advantage. . . .” Ultimately, the struggle to achieve and preserve freedom must take place in the habits, hearts, and minds of men. Or, as admonished in the Constitution of the state of North Carolina: “The frequent recurrence to fundamental principles is absolutely necessary to preserve the blessings of liberty.” It is moral principles that deliver economic efficiency and wealth, not the other way around. These moral principles or values are determined in the arena of civil society.

It is not broadly appreciated that the greater wealth produced by free markets itself contributes to a more civilized society and civilized relationships. For most of man’s existence, he has had to spend most of his time simply eking out a living. In pre-industrial society, and in many places today, the most optimistic scenario for the ordinary citizen was obtaining enough to meet his physical needs for another day. With the rise of capitalism and the concomitant rise in human productivity that yielded seemingly ceaseless economic progress, it was no longer necessary for man to spend his entire day simply providing for minimum physical needs. People were able to satisfy their physical needs with less and less time. This made it possible for them to have the time and other resources to develop spiritually and culturally. In other words, the rise of capitalism enabled the gradual extension of civilization to greater and greater numbers of people. More of them had more time available to read and become educated in the liberal arts and gain more knowledge about the world around them. The greater wealth allowed them the opportunity to attend to the arts, afford recreation, contemplate more fulfilling and interesting activities, and engage in other cultural enrichment that was formerly within the purview of only the wealthy.

Before the rise of capitalism a primary means to great wealth was through looting, plundering, and enslaving one’s fellow man. With the rise of capitalism it became possible for people to become wealthy by serving their fellow man. Men like Henry Ford and John D. Rockefeller of yesteryear, and men like Bill Gates and Steve Jobs of today, accumulated their great wealth in this way. The huge fortunes amassed by these men pale in comparison to the sum of the benefits gained by the common man.

For individual freedom to be viable, it must be a part of the shared values of a society and there must be an institutional framework to preserve it against encroachments by majoritarian or government will. Constitutions and laws alone cannot guarantee the survival of personal freedom, as is apparent where Western-type constitutions and laws were exported to countries not having a tradition of the values of individual freedom. The values of freedom are enunciated in our Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by the Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of happiness.” This value statement, serving such an important role in the rebellion against England and later in the establishment of the Constitution of the United States, was the outgrowth of libertarian ideas of thinkers like John Locke, Adam Smith, Wilhelm von Humboldt, William Blackstone, and others.

Societies with a tradition of freedom, such as the United States, have found it an insufficient safeguard against encroachment by the state. Why? Compelling evidence suggests that a general atmosphere of personal freedom does not meet what might be considered its stability conditions. As is often the case, political liberty is used to stifle economic liberty, which in turn reduces political liberty.<

Inadequate Explanations

The benefits of liberty and protected private property rights are often lost in discussions of how our blessings can be extended to the world’s poor nations. We often hear suggestions that it is natural resources, right population size, or geographic location that explains human betterment. The United States and Canada are population scarce, have a rich endowment of natural resources, and are wealthy. However, if natural resources and population scarcity were adequate explanations of wealth, one would expect the resource-rich and some of the population-scarce countries on the continents of Africa and South America to be wealthy. Instead, Africa and South America are home to the world’s poorest and most miserable people. A far better explanation of wealth has to do with cultural values that support liberty.

If we were to rank countries according to: (1) whether they are more or less free-market, (2) per capita income, and (3) ranking in Amnesty International’s human-rights protection index, we would find that those with a larger free-market sector tend also to be those with the higher per capita income and greater human-rights protections. People in countries with larger amounts of economic freedom, such as the United States, Canada, Australia, Hong Kong, Japan, and Taiwan, are far richer and have greater human-rights protections than people in countries with limited markets, such as Russia, Albania, China, and most countries in Africa and South America. That should tell you something.

Related posts:

1. The Pursuit of Happiness ~ Rights Versus Wishes
2. The Defense of Our Civilization Against Intellectual Error
3. The Pursuit of Happiness ~ Honesty and Trust

The big Associated Press story for last October 11 was that “More than 650 economists, including five winners of the Nobel Prize for economics, called Wednesday for an increase in the minimum wage, saying the value of the last increase, in 1997, has been ‘fully eroded.’ ” Among these economists were Nobel laureates such as Kenneth Arrow of Stanford University, Lawrence Klein of the University of Pennsylvania, Robert Solow of the Massachusetts Institute of Technology, Joseph Stiglitz of Columbia University, and Clive Granger of the University of California, San Diego, who said that the real value of today’s federal minimum wage is less than it has been at any time since 1951.

Their statement went on to say, “We believe that a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.” Moreover they as­serted, “The minimum wage is also an important tool in fighting poverty.” These and other assertions amount to what might be seen as examples of economic malpractice.

While there is a debate over the magnitude of the effects, the weight of research by academic scholars points to the conclusion that unemployment for some population groups is directly related to legal minimum wages. The unemployment effects of the minimum-wage law are felt disproportionately by nonwhites. A 1976 survey by the American Economic Association found that 90 percent of its members agreed that increasing the minimum wage raises unemployment among young and unskilled workers. It was followed by another survey, in 1990, which found that 80 percent of econo­mists agreed with the statement that increases in the minimum wage cause unemployment among the youth and low-skilled. Furthermore,­­ whenever one wants to find a broad consensus in almost any science, one should investigate what is said in its introductory and intermediate college textbooks.­ By this standard, in economics there is broad agreement that the minimum wage causes unemployment among low-skilled workers.

The reasoning for this unemployment effect is quite simple. If Congress got its way, the current minimum wage is $5.85 an hour. The hourly wage is not the only cost of hiring a worker. There are also legally mandated fringe benefits such as employer payments for Social Security, Medicare, unemployment compensation, and worker-compensation programs at federal and state levels. These mandated benefits may run as high as 30 percent of the hourly wage. This makes the minimum hourly cost borne by the employer close to $8 an hour. Put oneself in the place of an employer and ask: Does it make sense for me to hire a worker who is so unfortunate as to have skills en­abling him to produce $4 worth of value per hour when he is going to cost me $8 an hour? Most employers would see doing so a losing economic proposition and not hire such a worker. Thus the minimum wage discriminates against the employment of the least-skilled workers. In our society, the least-skilled workers tend to be teenagers, particularly black teenagers.

I am embarrassed that so many members of my profession are willing to argue that the price of something does not affect the quantity taken of it. To use the jargon of our profession, the implication of their argument is that the demand curve for low-skilled labor has zero elasticity. I propose a test. Ask one of the 650 economists for a yes or no answer to the question of whether the demand curve for low-skilled labor has zero elasticity, or for that matter whether any good or service has a zero-elastic demand curve. I am hoping he will say no. But if no is the answer, ask how it can be said that increases in the minimum wage have no effect. He might respond that modest increases in the minimum wage would produce little or no unemployment effect. In other words, the demand curve has zero elasticity for relatively small increases in the minimum wage. Then ask whether he knows that demand curves are more elastic in the long run. That is, while employers might not respond immediately to higher wages, in the long run they will find substitutes such as automation, change production techniques, or relocate to a lower-wage country.

The most ludicrous part of the statement by the 650 economists is “The minimum wage is also an important tool in fighting pov­erty.” This assertion does not even pass the smell test. There are miserably poor people in the Sudan, Bangladesh, Ethiopia , and many other places around the globe. Would any of these economists propose that the solution to world poverty is a high-enough minimum wage? Whether it is Ethiopia or the United States, poverty is not so much a result of being underpaid as being underproductive. Congress can legislate that a worker be paid a certain amount. Congress cannot legislate that a worker be more productive and cannot legislate that a particular employer hire a particular worker.

There is another effect of legally mandated wages that often goes unappreciated. It can be seen in a couple of statements supporting the minimum wage. For example: “There is no job reservation left in the building industry, and in the circumstances I support the rate [minimum wage] for the job as the second best way of protecting our white artisans.” “A year later,” wrote G. M. E. Leistner and W. J. Breytenbach in The Black Worker of South Africa, “[the same person just quoted] stated that he would be pre­pared to allow black artisans into the industry provided that minimum wages were raised from Rand 1,40 to at least Rand 2,00 per hour and if the rate-for-the-job [equal pay for equal work] was strictly enforced.”

Preferred Tool of Racists

Both statements were made by the secretary of South Africa’s avowedly racist Building Workers’ Union, Gert Beetge. Why would South Africa’s racist unions support minimum wages for blacks? The answer is easy. Mandated wages are one of the most effective means of pricing one’s competition out of the market, and historically, mandated wages have been one of the most effective tools in the arsenal of racists everywhere. I am not arguing that those 650 fellow economists of mine have the same intentions as a racist South African union, but the intentions behind a policy may have little or nothing to do with the effects of that policy.

My hypothesis for this otherwise inexplicable behavior is not that my fellow economists are untrained in the effects of minimum wages. My hypothesis is that they know that most workers earn more than the minimum wage. They also know that even the worker earning the minimum wage does not earn it for long. Therefore, increases in the minimum wage will negatively affect only a small portion of the workforce. Moreover, they know that not having a job does not mean starvation, at least not in America. Welfare is a substitute for not being in the job market. Thus supporting the minimum wage might be their attempt to appear compassionate. Seemingly uncompassionate people like me do not make it onto the brie, tofu, and champagne circuit.

Related posts:

1. Minimum Wage, Maximum Harm
2. Raising the Minimum Wage Will Do No Harm? It Just Aint So!
3. The Minimum Wage: An Unfair Advantage for Employers

It’s the miracle of the market and prices that gets the job done so efficiently. What’s called the market is simply a collection of millions upon millions of independent decision-makers not only in America but around the world. Who or what coordinates the activities all of these people? Rest assured it’s not a bakery czar.

There are a number of ways to allocate goods and services—deciding the who, what, how, and when of production and consumption. They include: first-come-first-served, gifts, violence, dictatorship, or lotteries. When it’s the price mechanism that performs the allocation function, we realize efficiency gains absent in other methods. The price mechanism serves as a signaling function. Prices rise and fall, reflecting scarcities and surpluses. When prices rise as a result of higher demand, this acts as a signal to suppliers to expand output. They do so because whenever the price exceeds the costs of production, they stand to gain. They ship the goods to those with the highest willingness to pay.

Let’s look at just one of the baker’s needs—flour. How does the wheat farmer know whether there’s a surge in demand for bakery products? The short answer is that he doesn’t. All he knows is that millers are willing to pay higher wheat prices, so he’s willing to put more land under cultivation or reduce his wheat inventory. In other words, prices serve the crucial role of conveying information. Moreover, prices minimize the amount of information that any particular agent involved in the process of getting flour to the baker needs in order to cooperate.

What if politicians thought that flour prices were too high and enacted flour price controls in the wake of a surge in demand for bakery products? Would wheat farmers put more land under cultivation? Would millers work overtime to produce more flour? The answer is a big fat no because what would be in it for them? The result would be flour shortages, but the story doesn’t stop there because mankind is ingenious about getting around government interference. If there were flour price controls, we’d see black markets emerging—people buying and selling flour at illegal prices. That’s always one effect of price controls. Another would be the corruption of public officials who know about the illegal activity but for a price look the other way.

In 302 the Roman emperor Diocletian decreed “there should be cheapness,” declaring, “Unprincipled greed appears wherever our armies . . . march . . . . Our law shall fix a measure and a limit to this greed.” The predictable result of Diocletian’s food price controls were black markets, hunger, and food confiscation by his soldiers. Despite the disastrous history of price controls, politicians never manage to resist tampering with prices—that’s not a flattering observation of their learning abilities.

Little Economic Sense

In five short articles there’s no way to even scratch the surface of economic knowledge. I’ll simply end the series highlighting a few popular sentiments that have high emotional worth but make little economic sense. I use some of these sentiments as a teaching tool in my undergraduate classes.

Here’s one that has considerable popular appeal: “It’s wrong to profit from the misfortune of others.” I ask my students whether they’d support a law against doing so. But I caution them with some examples. An orthopedist profits from your misfortune of having broken your leg skiing. When there’s news of a pending ice storm, I doubt whether it saddens the hearts of those in the collision-repair business. I also tell my students that I profit from their misfortune—their ignorance of economic theory.

Then there’s the claim that this or that price is unreasonable. I used to have conversations about this claim with Mrs. Williams early on in our 46-year marriage. She’d return from shopping complaining that stores were charging unreasonable prices. She’d then ask me unload a car trunk full of groceries and other items. Having completed the chore, I’d resume our conversation, saying, “Honey, I thought you said the prices were unreasonable. Are you an unreasonable person? Only an unreasonable person would pay unreasonable prices.”

The long and short of it is that the conversation never went over well, and we both ceased discussions of reasonable or unreasonable prices. The point is that at whatever price a transaction is made, it represents a meeting of the minds of both buyer and seller. Both viewed themselves as being better off than with the next alternative—not making the transaction. That’s not to say that the seller wouldn’t have found a higher price more pleasing or the buyer wouldn’t have wanted a lower price.

Parents’ Admonition

How about your parents’ admonition that “Whatever’s worth doing is worth doing as well as possible”? Taken at face value, that’s not a wise admonition. I tell my students, often to their surprise, that it might not be worth it to try to get the best grade possible in economics. Let’s look at it. Say they have biology, physics, English, and economics classes. They work their butts off in economics, earning an A, but spending so much time studying economics takes time away from other classes, and they wind up earning an F in biology, a C in physics, and a D in English. That makes for a semester grade-point average of 1.75. They’d be better off, in terms of grade-point average, if they spent less time studying economics, maybe earning a C, and allocating more time to biology and English, thereby earning a C grade in all their subjects. They’d have a higher grade-point average (2.0) and wouldn’t be on academic probation.

Then there’s “You can never be too safe.” Yes, you can. How many of us bother to inspect the hydraulic brake lines in our cars before we start the engine and head off to work? Doing so would be safer than simply taking for granted that the lines were intact and driving off. After all, prior to launching a space vehicle, the people at NASA make no similar mechanical assumptions. They go through extensive multiple checks of all systems, taking nothing for granted. Erring on the side of overcaution is costly, and so is erring on the side of undercaution, though for a given choice, one might be costlier than the other.

Related posts:

1. The Pursuit of Happiness – Economics for the Citizen
2. Economics for the Citizen, Part III
3. Economics for the Citizen Part II