The Wire

  • New tunnel, premium RV section at Talladega Superspeedway on schedule despite weather

    Excerpt:

    Construction of a new oversized vehicle tunnel and premium RV infield parking section at Talladega Superspeedway is still on schedule to be completed in time for the April NASCAR race, despite large amounts of rainfall and unusual groundwater conditions underneath the track.

    Track Chairman Grant Lynch, during a news conference Wednesday at the track, said he’s amazed the general contractor, Taylor Corporation of Oxford, has been able to keep the project on schedule.

    “The amount of water they have pumped out of that and the extra engineering they did from the original design, basically to keep that tunnel from floating up out of the earth, was remarkable,” Lynch said.

  • Alabama workers built 1.6M engines in 2018 to add auto horsepower

    Excerpt:

    Alabama’s auto workers built nearly 1.6 million engines last year, as the state industry continues to carve out a place in global markets with innovative, high-performance parts, systems and finished vehicles.

    Last year also saw major new developments in engine manufacturing among the state’s key players, and more advanced infrastructure is on the way in the coming year.

    Hyundai expects to complete a key addition to its engine operations in Montgomery during the first half of 2019, while Honda continues to reap the benefits of a cutting-edge Alabama engine line installed several years ago.

  • Groundbreaking on Alabama’s newest aerospace plant made possible through key partnerships

    Excerpt:

    Political and business leaders gathered for a groundbreaking at Alabama’s newest aerospace plant gave credit to the formation of the many key partnerships that made it possible.

    Governor Kay Ivey and several other federal, state and local officials attended the event which celebrated the construction of rocket engine builder Blue Origin’s facility in Huntsville.

5 days ago

Voting on economic policy

(Pixabay, YHN)

Every general election, voters decide ballot initiatives on social and economic policy. These often produce inconsistent results. Last November, Californians voted in favor of economic freedom while Florida voters increased the state’s minimum wage.

California consistently sits near the bottom of the Fraser Institute’s state economic freedom rankings (47th in 2020). Its economic policies have been driving out-migration. Land use and zoning restrictions render housing construction very difficult in California’s most popular cities, resulting in sky-high rents and home prices. According to Business Insider, average monthly rent for one-bedroom apartments in 2019 was $2,400 per month in Los Angeles and $3,600 in San Francisco.

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Some California cities have responded with rent control. Yet, high rents are merely a symptom of the government-created shortage. In November, California voters approved Proposition 21, rolling back many communities’ rent control powers.

California voters also gave ridesharing companies Uber and Lyft a reprieve. A 2019 state law required reclassification of independent contractors as employees. Uber and Lyft consider their drivers as contractors, in part to avoid costly mandated benefits for employees. The companies threatened to leave California and launched Proposition 22 to overturn the law.

Florida ranks second in Fraser’s 2020 state index, trailing only New Hampshire. Its minimum wage is currently $8.56 per hour, slightly above the federal minimum wage of $7.25. The initiative amended the state’s constitution to raise the minimum wage to $15 by 2026.

Voters in these cases bucked state lawmaking. This illustrates the influence of interest groups in representative democracy. Liberal interests dominate California’s legislature, while Florida’s state government is regarded as business friendly. Dominant interest groups can control the legislative agenda, passing or blocking laws contrary to voter preferences.

Would greater reliance on ballot initiatives improve economic policy then? Not necessarily, due to voters’ incentives. Economic policy referenda provide examples, I think, of what Geoffrey Brennan and Loren Lomasky term “expressive voting.”

A fundamental challenge public choice economics identifies for democracy is the small impact one person has on political outcomes. An individual casts one vote or speaks with one voice to elected officials. In a community of thousands (or a nation of millions), one vote or voice must statistically be unlikely to determine policy outcomes. Seventy-four million Americans voted for President Trump in November, yet Joe Biden will be their president.

By contrast, our marketplace choices are almost always decisive. If you go to McDonald’s and not Subway and then order a Big Mac, this is what you get. We decide which job to take and where to live.

The disconnect between political actions and outcomes has consequences. One is reducing turnout – why take the time to vote if it will not change an election’s outcome? Another is reducing voters’ incentive to learn about candidates or issues, what is called rational ignorance. Professors Brennan and Lomasky contend that people frequently vote to express their feelings. People might demonstrate their environmental concern by voting for recycling. Whether recycling truly improves environmental quality is a complicated question. But since one vote will likely not decide the referendum, expressing oneself costs very little.

Florida’s minimum wage hike looks very much like expressive voting. The economic effects of a minimum wage follow from how markets determine wages. Employee compensation depends on the value of production, or what is called the value of the marginal product. A business cannot to afford to pay a worker generating $10 an hour more than that. Competition for employees then pushes wages and salaries up to this level: a clinic paying nurses half the prevailing salary will have difficulty hiring.

Living on $10 an hour (or less) is undoubtedly challenging. Yet the problem is a lack of marketable job skills. Education, training and work experience can build job skills; raising the minimum wage improves no one’s skills.

Voting works best when citizens face clear alternatives. Elections are not good for soliciting feedback on complex questions. Inconsistent referendum outcomes should not be a surprise, and we should never read too much into the results.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 weeks ago

Public health mandates are political

(Pixabay, YHN)

Governments across the country have imposed numerous public health policies to control COVID-19. A prominent one has been requiring the wearing of masks in public; Alabama has been under a mask order since July. Americans have largely embraced masks. A recent Harris poll found that 93% of respondents at least sometimes (always) wore masks.

Nonetheless, Dr. Don Williamson of the Alabama Hospital Association recently expressed frustration over some Alabamians’ unwillingness to wear masks. He observed, “The election’s over. It should no longer be political.” Mask mandates apply the coercive power of government and politics consists of peoples’ actions to control government. Consequently, public health mandates are political.

The pandemic could have been addressed non-politically through voluntary responses. Consideration of this alternative highlights some effects of government mandates.

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Social interactions outside the spheres of politics and crime involve voluntary participation. Everyone who works or dines at a restaurant chooses to do so. Families choose to gather for the holidays. (The pressure we might feel to attend is not truly coercive, appearances notwithstanding.)

Gatherings for commerce or entertainment must happen somewhere. Property rights provide the source of voluntary response to a communicable illness. Property owners get to make decisions about its use.

Owners of the gathering spaces can and will put conditions on entry. Sports fans can be expelled from an arena for intoxication, throwing debris, or verbally abusing players or officials. The arena owners can also require mask-wearing.

Business owners want customers to continue patronizing their establishments and employees to continue working. Customers who do not feel safe will stay away. Fewer customers mean less revenue and ultimately less profit or rent for the owners.

When allowed to stay open by politicians, businesses have worked to protect their customers. Retailers reduced hours of operation to allow for extensive cleaning. Grocery stores disinfected shopping carts. Restaurants offered outdoor dining, takeout, and delivery. Some businesses tested their employees and required temperature checks and masks for customers.

Ticketmaster recently unveiled plans for concerts in the COVID-19 world. Fans will need either a vaccination or a negative test 24 to 72 hours prior to the event. Fans will have vaccination or test result forwarded to a third-party medical information provider. This third-party will verify a fan’s health eligibility to Ticketmaster, activating a digital ticket.

Not all businesses’ plans will work effectively, but each has an incentive to continually evaluate each element of their plan. Overall, we can be confident that businesses will choose wisely, as Forbes columnist John Tamny has emphasized repeatedly: “In a free society, there’s no such thing as a ‘do nothing’ response to anything that has the potential to kill.”

Some commentators fear that without a government plan we will have chaos in the market. Yet as economist Ludwig von Mises noted, markets offer a multitude of plans. Business owners will tailor their plan to their unique circumstances.

Each protection measure is costly, like turning away potential customers to keep an empty table between tables of diners. And customers might regard some protection measures as overly burdensome. Businesses have the incentive to protect and assure customers in the least costly way possible.

This process is not political because no one can coerce others for not complying with their requests. Businesses are free to adopt any protective measures they want. When one business discovers a way to protect customers and employees more effectively or at a lower cost, others can emulate this.

We would likely see a wide range of voluntary responses. Given the enormous difference in risk posed by COVID-19 across individuals – fatality risk differs by a factor of one thousand – some businesses and their customers will likely accept a high risk of exposure. Those most fearful would need to take more personal protective action without government coercion.

Wearing a mask to protect from COVID-19 is not political. Requesting guest to wear a mask is not political. But government public health mandates are political, regardless of whether issued by a Democrat or Republican.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

1 month ago

Who gets vaccinated first?

(Pixabay, YHN)

Vaccines from Moderna and BioNTech/Pfizer are nearing approval by the Food and Drug Administration (FDA). Politicians will now decide who will get vaccinated first. The Centers for Disease Control’s Advisory Committee on Immunization Practices has prioritized vaccination of medical personnel and nursing home residents. The rest of us will have to wait. Prices offer an alternative to political determination of access.

However distributed, ramping up vaccine production presents an enormous challenge. The BioNTech and Moderna vaccines both require two doses, so vaccinating all Americans would require over 600 million doses. Production must go from zero to tens of millions of doses per month while maintaining quality. The capacity constraint means that everyone cannot be vaccinated immediately.

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FDA approval represents a major element of political control. Congress has decided that Americans can only access medicines or vaccines deemed safe and effective by the FDA. Approval moves on bureaucratic time. Britain approved the BioNTech vaccine on December 1; the FDA’s review committee will not meet until December 10. Bureaucrats will not speed up even with over 1,500 Americans dying daily from COVID-19.

Markets would have no legal effectiveness requirement. We could seek out any vaccine or medicine for protection against COVID-19. Liability for unsafe medicines would make drug companies demonstrate safety. Drug companies would cover litigation costs using insurance and no insurer would cover sales without evidence of safety, something resembling the Phase I testing of two vaccines in April and May.

With a market, Americans could have gotten vaccinated back in June. Without evidence of effectiveness, initial purchases would likely have been paid out-of-pocket. Vaccinations would have cost “whatever the market will bear;” let’s say $10,000. Drug makers may have offered the first customers a money-back guarantee: test positive for COVID-19 within six months and get a refund.

The first persons vaccinated would then be tracked for evidence of effectiveness. Health insurers and employers (like hospitals) would require evidence, possibly including randomized control trials like those performed this fall, to pay for vaccinations. Insurers would likely require independent collection and examination of the evidence.

Once convinced of effectiveness, insurers would pay for vaccinations to save money, to avoid paying for policyholders’ COVID-19 care. Hospitals and nursing homes might vaccinate their employees to assure their customers.

Some might decry the wealthy getting vaccinated first, but they would provide a service to the rest of us. The price paid provides drug companies an incentive to ramp up production. They also serve as “volunteers” for testing effectiveness. And once we have evidence of effectiveness, insurers and employers will begin paying. Insurers and hospitals might pay a lot for vaccination — to keep high-risk policyholders healthy or protect high-risk nurses and doctors.

High market prices encourage production as quickly as possible without sacrificing quality. A person willing to pay $2,000 in January might only pay $500 for vaccination next July. Vaccine doses delivered sooner will be worth more.

The federal government will purchase at least 100 million doses of each vaccine. These payments will motivate production, yet government projects are often late and over budget. The president and Congress will scream if drug makers fail to deliver on schedule, but will this ensure timely delivery?

The United States is not the only country seeking vaccines. Political control means that our politicians could make Americans wait until healthcare workers across the globe are vaccinated. With markets, we must outbid others for vaccination priority. As a wealthy nation, we might seem advantaged in bidding, but rich persons across the globe will pay a lot too.

Neither prices nor politics involve magic, so producing the needed doses will take time. Would politics or prices be more effective at producing vaccines as quickly and safely as possible? Politics ultimately involves government bureaucrats procuring vaccines for us. While businesses do not always receive orders on time, bureaucrats will likely keep their jobs even if vaccines are delivered months late.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

1 month ago

Are we paying twice for COVID medicines?

(Pixabay, YHN)

Two vaccines appear highly effective against SARS-CoV-2, and remdesivir is helping doctors treat severe COVID cases. These products raise challenging questions regarding patents and government funding of research. If taxpayers fund a medical breakthrough, should we then have to pay for the medicine?

Consider Gilead Science’s remdesivir, which effectively treated COVID in a clinical trial. The National Institutes of Health (NIH) and the Defense Department funded the drug’s development. Public Citizen estimates that public funding totals at least $70 million. They argue that remdesivir should be priced at cost because taxpayers “should not have to pay twice” for it.

Before addressing this question, let’s consider the rationale for patents. Patents help ensure the funding of research producing knowledge. Medicines and vaccines are ultimately knowledge that a given combination of chemicals keeps us from getting sick or restores our health.

Research must be performed to generate new knowledge and is highly uncertain; experiments do not always yield breakthroughs. The prices of successful medicines and vaccines must cover the cost of all this research.

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Knowledge is challenging to market. Imagine trying to sell some new fact which nobody else knows. The first person buying this new fact can then sell it to others, undercutting the price you need to charge to recover your research costs. For a medicine, a chemist can analyze a sample to determine the formula, while scientists can reverse-engineer new products.

Patents provide inventors exclusive rights to their inventions for a limited number of years. The patent prohibits copying of the invention. Ideally the patent should be only long enough to encourage research, but calculations cannot be made with precision.

Both businesses and the Federal government fund research. The NIH spends $40 billion a year on medical research. Successful medical researchers typically must win NIH grants.

The public-private division of research is in principle along the line between basic and applied research. Business funding typically becomes available when knowledge is close to yielding a marketable product; this is applied research, or the development part of R&D. Basic research advances knowledge for knowledge’s sake. Although as fundamental breakthroughs percolate through society, people begin to recognize the practical applications, the commercial value of basic research is frequently too remote to attract investors.

We can see how taxpayers could “pay twice” for new medicines. If a new medicine were developed almost entirely through government funding, the company marketing the drug need profits to recover its negligible research expenses.

Most medicines though – and new products generally – require a mix of research and development. Even if the Federal government funds the basic research, a lot of work remains to yield a commercially valuable product.

The Moderna and BioNTech SARS-CoV-2 vaccines illustrate this. Both use messenger RNA vaccines, and the NIH funded the basic research on m-RNA. The breakthrough has offered enormous promise for 25 years but prior to 2020 no medicines on the market. Turning m-RNA into medicine involved further breakthroughs to encase bioengineered proteins in lipid nanoparticles. Moderna and BioNTech have done much of this last portion of the research.

What about the estimated $10 billion in Federal spending on COVID vaccines through Operation Warp Speed? This has covered the testing and production of vaccines. Manufacturing is distinct from the knowledge contained in a candidate vaccine, and patents reward knowledge creation.

Knowledge drives our prosperity. More important than the mix of public versus private sector research is the discovery of new knowledge. COVID-19 has revealed a very healthy global biomedical research industry. Remdesivir and other treatments have reduced the fatality rate among hospitalized patients by an estimated 70 percent since March. And researchers formulated two seemingly highly effective vaccines within weeks of the identification of the novel virus’ DNA.

Taxpayers should not have to pay twice for the same medicine. Yet politicians have protected health at enormous cost during the pandemic. Overpaying for effective vaccines or medicines is frustrating but preferable to going without.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

Dr. Daniel Sutter: Harvesting and selling votes

(Pixabay, YHN)

Joe Biden has won the presidential election, although President Trump alleges fraud. Mr. Trump, however, has not yet offered credible evidence of fraud. The current controversy involves “vote harvesting” and raises questions about the effect of selling votes.

Vote harvesting involves individuals collecting mail-in ballots from voters. Clearly, persons with limited mobility should receive assistance in voting, which relatives, legal guardians and election officials can generally provide. Harvesting involves other persons – including party officials – collecting ballots.

Harvesting creates a potential for misconduct. Altering or deliberately destroying ballots clearly constitutes fraud. Ensuring that legal voters cast ballots is not, however, fraud.

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Let’s assume that harvesting only enables registered voters to cast unaltered ballots. A harvester will likely learn which candidate a person voted for, effectively eliminating a secret ballot. How might this matter?

Introduction of the secret ballot reduced vote-buying by thwarting contracting for votes. If Candidate X wants to buy Jane’s vote, he will want to ensure that Jane does vote for him. A secret ballot prevents Jane from demonstrating that she voted for X, making X less willing to buy her vote.

Who is hurt if Jane willingly votes for Candidate X in exchange for $100? Not Candidate X, who happily pays for the vote, nor Jane, for whom $100 is worth more than the cost of voting for X. X’s opponent is harmed, but similarly to the harm suffered by Pepsi when someone buys Coke; we normally dismiss such “harm” from market competition. With a legal vote market, X’s opponent could also try to buy Jane’s vote.

People could also trade votes among themselves. As a resident of Troy, Alabama, I get to vote for local, state, and national offices. If I cared the most about local elections, I could trade my votes in national races for extra votes in city elections.

Elected representatives regularly “sell” their votes on bills. Vote trading among legislators is called logrolling. A representative from an agricultural state may trade her vote on an urban transportation bill for votes on a farm bill. Rural state residents might prefer that only the farm bill pass but accept the farm and transportation bills together as better than neither passing. Logrolling enables the building of coalitions.

We might object to political candidates buying our votes. But candidates already try to “buy” our votes, through campaign promises or ads on television and social media. The cost of ads makes candidates eager to make deals with campaign contributors. Negative ads often more effectively sway voters while slowly poisoning our political climate. Letting politicians pay for votes at least provides the voter a tangible benefit from political campaigns.

Vote-buying might involve contracts spelling out a candidate’s promises. Contracts could alert voters to inconsistent promises, like if a candidate signs deals to support and oppose gun control. Voters might have a legal remedy against candidates who renege on promises. Imagine if politicians had to pay us for breaking campaign promises.

What harm results from eliminating the secret ballot? Candidates and parties could use negative incentives – the loss of a job or government benefits and violence – in addition to buying votes. Furthermore, a political machine could refuse to prosecute their thugs while terrorizing their opponents.

I find a market for votes worth considering but do not favor eliminating secret ballots. I also believe that vote harvesting will be a temporary issue. Technology should soon allow electronic voting with biometric security at least as good as online banking. Only duly registered voters will cast ballots, and likely from home.

Improved voting technology could allow citizens to vote for ourselves as opposed to relying on representatives. States already rely on ballot referenda to enact or repeal legislation. Technology could let citizens vote to pass bills. Exploring the consequences of direct legislation will have to wait for a future day.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

The future of the American project

(Pixabay, YHN)

Former Vice President Joe Biden has won a narrow victory in the presidential election. President Trump, however, claims the election was stolen through fraud. In 2016, Hillary Clinton blamed her loss on Russian interference. The lack of legitimacy accorded to these election winners raises a question: Do Americans still want to be part of the same nation?

To answer, let’s consider what constitutes a nation. A nation is a set of institutions or rules, like the just completed election campaign. The rules also spell out the fundamental rights of citizens.

Citizens agree to live by a nation’s rules. Yoram Hazony writes in The Virtue of Nationalism, “Each institution teaches, persuades or coerces its members to act according to these fixed purposes and forms, abiding by accepted general rules and procedures, so that they can reliably act as a body, without each time having to be persuaded or coerced anew.”

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An institution or nation is strong when “the individuals identify the interests and aims of the institution as their own.” People will feel loyalty toward other citizens who embrace the rules. This means, as Mr. Hazony continues, experiencing the hardship and happiness of fellow citizens “as if it were [our] own.”

Today, liberals and conservatives view each other as “ignorant” and “evil.” Many supporters of Mr. Trump and Mr. Biden believe that election of the other would permanently harm America. The bonds of loyalty Mr. Hazony describes are dissolving, if they have not already dissolved.

Perhaps this should not surprise us.

Liberalism (or classical liberalism), as embraced by America’s founders, holds that government exists to serve citizens. America’s great contribution to the liberal experiment was founding a nation on the idea of freedom. Other nations had enjoyed freedom – England and the Netherlands during the 1700s and Athens, Rome and Venice previously – but were not founded on freedom.

The American idea was powerful enough to overcome our founding’s contradictions. The words Thomas Jefferson wrote – while owning slaves – were so profound that freedom was eventually extended to all.

The idea of freedom was relatively new in 1776. America’s founders carefully studied history and liberalism. They knew that freedom involved throwing off King George’s yoke and strictly limiting government power.

Over the past 250 years, at least two distinct visions of human freedom have emerged. One sees people as capable of self-governance. With rights of property, contract, association and speech – what are now termed “negative rights” – people, communities, and commerce will flourish.

A second vision views negative rights as insufficient. True human freedom requires liberation from the economic need, because otherwise, market forces dominate peoples’ lives. Positive or economic rights to healthcare, education, or a high paying job as fundamental.

Asking “Which vision is correct?” is unhelpful. For decades thinkers have detailed the arguments for these visions. Yet significant disagreement still exists and is likely to persist for the foreseeable future.

Without agreement on one vision, our government produces compromise. Democrats expand government marginally and Republicans trim back a little. But compromise produces a muddle, and I think a lack of progress toward their preferred vision drives much of today’s bitter polarization.

Ramming the policies to achieve one vision through provides one alternative to compromise. Yet without genuine consensus, this just fuels conflict. And it violates our liberal values. Liberalism began by recognizing that all lives matter, not just rulers’ lives. Forcing a vision of freedom on someone is absurd.

Religious freedom embodies the liberal ideal. Separation of church and state allows Americans to worship as they choose. We recognize that forcing someone to renounce or not practice their religion denies them their dignity.

Yet the rules necessary to achieve different visions of freedom are incompatible. People cannot have a right to own guns or to healthcare only when Congress assents. We either have rights or we do not.

When political theorists had one vision of freedom, one nation founded on the principle of liberty was enough. Fulfilling the American project with multiple visions require multiple sets of rules.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

2 months ago

The best way to fight COVID?

(The Great Barrington Declaration/Facebook, Pixabay, YHN)

Governments have used nonpharmaceutical interventions (NPI), or lockdowns, to contain COVID-19. But do NPI protect public health overall? A group of medical experts recently put forth “The Great Barrington Declaration” (named for the town where they met) advocating an end to society-wide lockdowns. Over 40,000 public health and medical professionals have signed onto the Declaration.

Lockdowns have enormous economic costs. The Declaration contends further that the net effect of lockdowns on public health is negative, as harms exceed COVID-19 illnesses avoided. The adverse health effects include “lower childhood vaccination rates, worsening cardiovascular disease outcomes, fewer cancer screenings and deteriorating mental health – leading to greater excess mortality in years to come.” Extending or reimposing lockdowns until a vaccine or cure is available “will cause irreparable damage, with the underprivileged disproportionately harmed.”

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The Declaration instead calls for “focused protection” for persons most vulnerable to COVID-19: “We know that vulnerability to death from COVID-19 is more than a thousand-fold higher in the old and infirm than the young.” Focused protection could limit COVID deaths while avoiding the lockdowns’ harms: “Those who are not vulnerable should immediately be allowed to resume life as normal.”

The effectiveness of NPI for COVID-19 is a question for medical doctors and epidemiologists. How can we make sense of experts’ disagreements?

We should first check the dissidents’ expertise. The economic and personal freedom costs of lockdowns make me predisposed to agree with anyone saying we can avoid a second lockdown, even a quack. The Great Barrington Declaration’s three authors credentials are as follows. Jay Bhattacharya is a professor at Stanford Medical School with an M.D. and a Ph.D. in economics from Stanford and research expertise on aging and vulnerable populations. Sunetra Gupta is a professor of theoretical epidemiology at Oxford with a Ph.D. from Imperial College whose research examines transmission of infectious diseases. Martin Kulldorff is a Harvard Medical School professor with a Ph.D. in operations research who works on monitoring disease outbreaks and the effectiveness of drugs and vaccines.

Citations also measure the quality of a scientist’s research. Important papers will influence subsequent research and be frequently cited. The Declaration’s authors’ Google Scholar citation counts are 9,600, 19,200 and 24,400 respectively. How do these totals stack up? They all outpace my 2,700 citations, a minimum qualification I would apply for expertise. Neil Ferguson, the lead author of numerous influential studies on COVID-19, has 33,600.

Credentials and citations are never a substitute for arguments, data, and analysis. But opponents of lockdowns have been dismissed as anti-science. The Great Barrington authors are very good scientists with relevant expertise.

Other health professionals have expressed skepticism about lockdowns. Sweden’s top public health officials doubted the value of NPI and never ordered a lockdown. Dr. Michael Ryan, director of the World Health Organization’s (WHO) Health Emergencies Programme, has praised Sweden’s handing of COVID. WHO COVID-19 special envoy Andrew Nabarro stated that lockdowns should not be the “primary means of control of this virus,” and were only justified as a temporary measure. A 2019 review of the effectiveness of NPI for the WHO concluded that “the overall quality of evidence was very low for most interventions.”

Expert disagreement is not a counsel for inaction. We often must act in the face of conflicting recommendations. Regardless of the policies ultimately decided on, we should respect disagreements over the desirability of using NPI for COVID-19.

We should be suspicious of anyone arguing that “science” tells us what we must do. As physicist Richard Feynman once said, “When someone says, ‘Science teaches such and such,’ he is using the word incorrectly.” Good scientists never seek to muzzle debate. As Professor Feynman said, “Science is the belief in the ignorance of experts.”

Economics counsels consider all the dimensions of life’s tradeoffs. Medical science should inform but not dictate our choices. We should vigorously debate whether lockdowns represent our most preferred course for dealing with COVID-19.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Dr. Daniel Sutter: A critical election

(Pixabay, YHN)

Americans face a crucial choice during and after this November’s presidential election. Perhaps more significant than the contest between Donald Trump and Joe Biden is whether we still believe in democracy. Americans increasingly see their political opponents as ignorant and evil.

Opinion polls mirror social media vitriol. An Axios poll found that about half of Democrats and Republicans described members of the other party as ignorant, with one in five labeling the others as evil. Sixty-one percent of Democrats described the GOP as “racist/bigoted/sexist.”

Fair, thoughtful and kind polled in single digits with each group. About one-third of Axios respondents – including half of liberal Democrats – would be “disappointed” if a close family member married someone of a different political affiliation.

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What we believe about others shapes our reaction to our differences. Do we respect or dismiss differences in food, sports, jobs, religion or politics? Do we recognize others as deserving to pursue their life goals? This perspective affects our social interactions.

Judging others as inferior underlies prejudice and hatred. Humans have too frequently viewed those of other races, religions, ethnicity, or sexual orientation as inferior or deficient. America’s major divide today is seemingly political. Seeing others not as persons but exclusively as part of an “inferior” group makes conflict more likely.

Two elements of societal interaction further encourage conflict. The first is the anonymity of the group. Social scientists and psychologists have long noted that people are more likely to hurt others when part of a crowd.

The second factor is a lack of interaction with persons from the other group. If groups sort themselves, people never have encounters which might undermine prejudices. Desegregating the military, schools, and universities allowed mixing and helped Americans recognize our common humanity.

Many observers have noted America’s enormous political sorting over the past several decades. The sorting has been both physical and informational. Conservatives and liberals increasing work at different jobs and live in different communities. And they get news and opinion from different sources with little constructive exchange between the viewpoints.

Both markets and democracy require tolerance and acceptance. Activity in markets is exclusively voluntary; others can always refuse our offers. We must accept someone’s choice to not do business with us.

In democracy, everyone, even those of the “inferior” group, can vote. The political and economic rights of all persons must be respected even after “we” win an election. We must tolerate criticism of our views. Everyone must remain free to participate in the next election campaign.

America’s growing political division is undermining tolerance. Polls reveal that about one-third of Republicans and Democrats believe it would be “at least a little justified for their side to use violence in advancing their goals” up sharply from 2017. Persons identifying as “very liberal” or “very conservative” are more likely to see “a great deal” of justification for violence after a loss this November.

Public choice economists like myself have identified many weaknesses of elections and representative democracy. We expect elections to carry too much weight in our political system. Public choice largely sympathizes with Winston Churchill’s famous observation that “democracy is the worst form of Government except for all those other forms that have been tried.” Elections help ensure that government serves the people instead of people serving the rulers. Voting deescalates political conflict; competing factions agree to settle their disputes with ballots, not bullets.

Today many Americans talk about crushing those they disagree with and imposing their political agenda. Perhaps people are merely talking smack as when playing sports or video games. If so, polls may overstate Americans’ mutual animosity.

The late Harvard political scientist Samuel Huntington observed that democracy has never collapsed in a wealthy nation. Yet researchers do not understand exactly how a peaceful and civilized nation descends into violence. Our biggest choice after November 3 may be whether we will test Professor Huntington’s thesis.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

Renewable fuels and ice cream

(Ben & Jerry's/Facebook, Pixabay, YHN)

Recently a group of businesses, including Ben & Jerry’s Ice Cream, called on insurance companies to stop supporting fossil fuels. Some state insurance commissioners are similarly pressuring the companies they regulate to cut ties. The immense consequences of ending fossil fuel use mean that this should require the unambiguous consent of the governed and not be imposed through some backdoor channel.

Insurance companies interact with energy in two ways. The first is through investments in oil, natural gas, and coal companies. The global insurance industry has $7 trillion in assets which they invest to help pay claims on insurance policies. Many financial firms face calls to divest from fossil fuels.

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Energy companies also require insurance. Investors will not invest in drilling, mining, shipping or refining fossil fuels unless operators are insured. A lack of coverage could halt the production of fossil fuels.

I believe in a voluntary society in which people enjoy freedom. People should be free to invest, including passing up lucrative opportunities they find objectionable. And we are free to can offer unsolicited advice to businesses, which they are free to ignore.

Freedom also means we can work for things not in our best interest. We should not have to justify our choices – in markets or the voting booth – to experts who overrule our choices if unimpressed with our rationale. People should be free to choose between values and financial self-interest.

The executives running Ben & Jerry’s can advocate for whatever they want. I suspect, however, that they have not realized that ending fossil fuel use would effectively end the ice cream business.

This might seem extreme as we could still have electricity for freezers from clean energy sources like wind and solar. Except that we could not. Producing wind turbines and solar panels uses lots of fossil fuels, as two reports from the Manhattan Institute detail.

Consider a 100-megawatt wind farm to replace a typical natural gas-powered generating plant. The wind farm uses 30,000 tons of iron ore, 50,000 tons of concrete and 900 tons of plastics for the turbine blades. Plastics are made from oil, and fossil fuels enable the mining of iron ore and production of concrete. Solar panels use rare earth minerals mined using fossil fuels.

Wind and solar only produce electricity when the wind blows or the sun shines; they are not “dispatchable.” Yet on the electric grid, power supplied must continually equal customer demands. We use fossil fuels as backup for wind and solar to keep our freezers full of ice cream running.

Wind farms must be located at favorable wind sites, often far from cities. Building transmission lines to get power from wind and solar farms to our grids also uses fossil fuels.

Theoretically battery farms storing wind and solar power could eliminate fossil fuel backup generation. Companies like Tesla are currently innovating with such batteries. Yet producing batteries also requires fossil fuels; a battery capable of storing the energy in one barrel of oil requires 100 barrels of oil.

We will not have electricity powering freezers if we stop using fossil fuels entirely. With unreliable refrigeration, ice cream will melt between the dairy and our homes. The Green New Deal is either pointless or an enormous bait-and-switch. If the future resembles today with wind, solar and batteries, we will still be generating greenhouse gas emissions and allegedly catastrophic global warming. Alternatively, clean energy is a mirage luring us into a dark future.

People made ice cream using natural ice before electric freezers, so we may still occasionally have homemade ice cream. In the 1800s, an extensive industry harvested from northern ponds for storage in ice houses and shipment to the south in the 1800s. Maybe we will revive the ice trade.

Life and prosperity require energy. Ending the use of fossil fuels will dramatically change every aspect of modern life. Ben & Jerry’s should carefully consider what they wish for.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

The pandemic or the lockdown: Which has been worse?

(Pixabay, YHN)

COVID-19 has killed over 200,000 Americans while policies to stem the virus’ spread have caused enormous economic and societal harm. Any comparison must use a common metric, and economics uses dollars, even for human lives. No one can avoid placing a dollar value on saving lives; always choosing safety just places an infinite dollar value on life. Our only option is whether to evaluate tradeoffs.

Economists use the value of a statistical life (VSL) for policies regulating risk. The method uses the many choices people make in markets involving risks, like taking risky jobs. The VSL ensures that government decisions resemble our personal decisions.

Statistical lives are when the identity of the persons whose lives may be saved is unknown. Or as Nobel prize-winning economist Thomas Schelling wrote, when “The life you save may be your own.” An estimated 90 million Americans are in COVID-19 high-risk categories, so the pandemic involves statistical risk.

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A standard value for a statistical life, based on dozens of economic studies, is $10 million. People never make trades involving millions of dollars because the risks examined are small.

We can use years of life when the people at risk are younger or older than average. This approach uses expected years of life remaining at different ages. For example, life expectation is 69.2 years at age 10 and 9.2 years at 80, so the death of a child, which many people find particularly tragic, contributes more years of life lost. A standard value for a year of life is $300,000.

The COVID Tracker website reports 201,000 deaths through October 4 for a value of $2 trillion using the VSL. If instead we use statistical years of life (over 75% of deaths are among persons over age 65), the deaths have cost 2.7 million years of life, valued at $800 billion. We may wish to reduce this further due to COVID-19 co-morbidities. Many persons dying from COVID are already in poor health; for instance, an 80-year-old COVID-19 victim might only have three years of life remaining, not the average of nine years.

COVID-19 has resulted in over 400,000 hospitalizations. Estimates of the cost of hospitalizations range from $14,000 to $72,000. The higher figure yields a hospitalization cost of $30 billion. Illnesses not involving hospitalization have modest medical costs. For these plus the millions quarantining due to contact with COVID patients, the major cost is missed work time.

Now, let’s consider the policy measures. Government policies have led to the sharpest contraction on record. Unemployment reached almost 15 percent in April and is still more than double February’s rate and we have lost $650 billion in GDP.

The economic impact exceeds lost GDP because of consumer surplus, or the value people receive from consumption beyond the amount paid. Sports, entertainment, and recreation, all badly disrupted by the lockdown, generate high ratios of consumer surplus to expenditure. Lost consumer surplus almost certainly exceeds $200 billion.

For most children, the 2019-20 school year ended in March and many schools offered little online instruction. Working parents had to accommodate children not in school, increasing this impact. Expenditures for the lost quarter of the year provide one way to value the school disruption. Public schools enroll 50 million children and spend over $12,000 per student nationally, for a $150 billion loss from education.

Americans’ mental health has suffered enormously in 2020. Anxiety, depression and calls to suicide help lines are up sharply. News reports attribute numerous suicides and overdoses to COVID stress. The virus and the pandemic together, I think, have produced the mental health costs.

The costs of the pandemic and lockdown almost surely each exceed $1 trillion. What does this imply for a potential second lockdown? Our initial policy response was almost surely excessive; masks and social distancing have allowed businesses to reopen without overwhelming hospitals. We can contain the virus without the enormous costs to date.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

3 months ago

COVID insurance litigation madness

(Pixabay, YHN

The United States has witnessed unprecedented economic disruption due to COVID-19. State and local governments closed thousands of “nonessential” businesses. Now, businesses have filed over 1,000 lawsuits against their insurance companies to collect for COVID losses. What should we make of this litigation?

The businesses suing insurers include the NBA’s Houston Rockets, Minor League Baseball, clothes maker Ralph Lauren, the Century 21 retail companies and celebrity chef Wolfgang Puck. The suits seek coverage of lost revenue while closed from business interruption loss policies.

Business interruption coverage is generally a wise investment. Property insurance will cover tornado damage to the building and contents. Yet while closed, the business still must pay its loans. Interruption coverage is an important element of continuity planning.

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Insurance contracts cover many potential losses. Economists understand that contracts are often incomplete, meaning they will not cover every possible contingency. A failure to envision a circumstance is one reason contracts are incomplete. And sometimes the parties will decide that writing a provision for a very unlikely event is too costly.

A market economy needs a court system to resolve such contract disputes. Once a loss happens, insurance disputes are particularly likely. The policyholder will naturally read the contract as providing coverage while the insurance company will want to deny coverage.

Two factors suggest that insurance companies did not intend interruption policies to cover pandemic losses. First, insurers could never afford to cover every business loss. Interruption loss coverage usually requires physical damage, as this distinguishes tornadoes or fires from poor planning by the business. Second, after the SARS outbreak, the Insurance Services Office crafted a “virus and bacteria” exclusion for business interruption loss policies. Not all insurers adopted this language, but it suggests intent to not cover pandemic losses.

Numerous suits against insurers have already been dismissed, although courts in Missouri and New Jersey have allowed cases to go forward. Several state legislatures considered measures this year forcing insurers to cover COVID losses, suggesting that the exclusion was recognized. We can empathize with business owners who thought they were covered, but the exclusion seems valid.

Perhaps you might think that insurance companies should be less greedy and cover COVID-19 losses. Payment could help businesses suffering through no fault of their own stay open.

Such generosity would itself cause significant financial harm. The potential losses to insurers have been described as comparable to a Hurricane Katrina each month. Forcing insurance companies into bankruptcy to cover businesses’ losses might deepen the recession. Beyond this, a responsible insurance company must ensure it can pay customers’ potential claims.

The exclusion of certain categories of losses is common in insurance. Small risks are typically covered under “all hazards” coverage, but when a loss category becomes too large, insurers frequently exclude it from basic coverage. Policyholders can still get coverage by paying an extra premium.

Some industry experts have speculated that insurers may not wish to cover “virus and bacteria” interruption losses at all. This seems prudent. Insurance companies are businesses, not charities, and are ultimately in the trust business. We pay premiums every month and trust the company will have the resources to pay our claims. A company betrays this trust by writing additional coverage without charging adequate premiums.

Actuaries attempt to determine an adequate premium. Determining the adequate rate for pandemic losses seems particularly daunting given the governmental response to COVID-19. Insurers must answer: What is the probability of another pandemic like COVID-19? And will governments respond similarly to the next pandemic? This is as much an exercise in political prognostication as number crunching.

Several experts argue that the Federal government will have to offer pandemic insurance. This is a topic for another day. Given the poor job Washington has done with the National Flood Insurance Program, I am not enthusiastic about Federal intervention. But forcing insurance companies to risk bankruptcy by writing coverage on charity terms might be worse.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Socialism and economic education

(Pixabay, YHN)

Opinion polls consistently find that young Americans view socialism favorably. For example, in a recent Gallup poll, 49% of millennials and Gen Z’ers held a favorable view of socialism versus 32% of Baby Boomers. Does support for socialism indicate a need for more economic education in America’s high schools and colleges?

As an economics professor, I would certainly like more college students to take economics! States could emulate Texas’ requirement of a high school class in economics teaching the benefits of free enterprise.

Does learning about economics and markets necessarily reduce support for socialism? Or would economic education about markets just amount to indoctrination?

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Our views on most public policy questions mix information and values. By information, I mean facts about the world and testable predictions about cause-and-effect. Values refer to ethical evaluation of outcomes in the world.

Economics education should improve the information content of peoples’ policy views. I can use electricity without understanding electrical engineering and people can use markets without understanding how they work. The amazing coordination that occurs through markets, what economists call the “invisible hand,” should inform policy view. Markets allow people enormous freedom while delivering a rising standard of living.

Understanding how markets work does not require acceptance of the values of capitalism. Two people might agree on the effects of the minimum wage (reduced jobs and higher pay) and disagree on the policy’s desirability due to differing values.

Economic education could also teach young people what socialism meant historically. A hundred years ago socialism meant government ownership of the means of production (e.g., factories). Today politicians like Bernie Sanders and Alexandria Ocasio-Cortez primarily advocate a generous welfare state. They point to Scandinavian countries, not the Soviet Union, as examples of socialism that works.

In the 1930s and 1940s, economists debated whether bureaucrats could coordinate an economy as effectively as markets. Potentially bureaucrats could mimic markets by setting the same prices. In practice, political influence over price setting and the lack of a profit motive leads to inferior performance.

The position of modern socialists, I think, reflects this learning. The gains from substituting bureaucratic commands for prices are nonexistent and the U.S. Postal Service shows the limits of government production. Taxing a prosperous market economy to fund government spending better achieves socialist goals.

Scandinavian countries employ this approach, as the 2020 edition of the Fraser Institute’s Economic Freedom of the World Index demonstrates. Countries are score between 0 and 10 in five areas, with 10 representing more freedom, and the components to generate a country’s score. The U.S. ranks 6th with a score of 8.22; Hong Kong ranks first at 8.94. (The data do not reflect COVID-related spending and restrictions.)

Denmark, Finland, Norway, and Sweden rank from 11th to 46th, with scores ranging from 8.10 to 7.58. Venezuela, a more traditional socialist country, ranks last with a score of 3.34. Clearly, the Scandinavian countries resemble the U.S. far more than Venezuela.

Their reliance on markets is even greater than this. The Scandinavians lag the U.S. in the size of government component because they choose more government spending and higher taxes. On the other four areas – property rights, money and inflation, international trade, and regulation – the Scandinavians match the U.S., with Denmark averaging one third of a point higher on the other areas. The nations where socialism “works” are largely market economies.

If market forces and not politics determine prices, wages, and salaries, an economy can continue to prosper. High taxes will reduce prosperity some; when the government taxes away half (or more) of incomes, people will work less hard. Exactly how much high taxes and government-paid health care, college, and housing reduce prosperity is an empirical question.

Socialism today does not mean what it did a century ago. This is fine and arguably reflects economic education. Economic education may additionally ensure that young Americans know that the countries so many socialists admire rely on prosperity generated by market economies.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Cheating, trust and prosperity

(MLB Network/YouTube, YHN)

The Houston Astros played at the Los Angeles Dodgers last weekend for the first time since the revelation of Houston’s sign-stealing during their 2017 championship season. The biggest offseason story led to the firing of Astros manager A.J. Hinch and general manager Jeff Luhnow and two other managers. Yet, according to a saying, “If you aren’t cheating, you aren’t trying.” When does the pursuit of self-interest imperil trust and prosperity?

During 2017, Houston used electronic surveillance to view the catcher’s signs and signaled the batter by banging on a trash can. The Astros defeated the Dodgers that year in the World Series. The Dodgers and their fans have not taken the news of cheating kindly. Earlier this season, Dodgers pitcher Joe Kelly was ejected and suspended for throwing at Astros batters. Fans with trash cans (who can’t attend games this year) greeted the Astros’ bus at Dodger Stadium, and a plane circled the stadium with a banner.

Major League Baseball’s response though is somewhat puzzling. Pitchers and catchers use complicated signs to keep a runner on second base from stealing signs. Coaches and players cover their mouths to guard against lip reading. Some actions to gain competitive advantage are part of the sport.

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Standards regarding conduct to gain advantage have changed over time. In the 1970s and earlier, pitchers would throw at batters who “got too comfortable” at the plate. After back-to-back homers, the next batter would likely be brushed back.

When does the pursuit of competitive advantage become cheating, and how does this matter for business and economics? Is there any reason to expect people to follow rules except when in their self-interest?

Economics assumes that people act in their self-interest. As Adam Smith put it, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.”

Professor Smith, though, also understood that people can follow rules due to moral and legal force, and even in conflict with narrow self-interest. Most of us do not shoplift because we believe this is wrong. We do not pay for merchandise only after we determine we could not get away with stealing.

Voluntary rule-following is enormously valuable. Still, we generally use a mix of prevention and voluntary rule-following. Stores take measures to combat shoplifting but do not strip search all customers. Shoplifting costs retailers around $20 billion annually, a significant but manageable total.

Business dealings employ a similar approach. Contracts give parties an incentive to perform as specified. But business is also conducted on a handshake basis. Parties expect each other to resolve problems, not merely rely on the exact terms of a contract.

Crime can be viewed as a type of cheating with enormous costs. America employs one million police officers and 750,000 security guards to control crime and incarcerates 2.3 million persons for their misdeeds. Expenditures on security devices like cameras, bars, and alarms increase the cost further. The costs of crime would be enormously lower if more people would never steal.

The flip side of cheating is trust. Trust that others in business will not cheat or steal is enormously important for prosperity. Business loans will not exist if investors fear that every new business is a scam. Lending occurs only within families in low-trust societies, which generally remain poor.

Good rules for games and laws for business benefit all parties and broadly align rule-following with self-interest. In games, good rules produce challenging competitions exhibiting skill which players and fans enjoy. In business, good laws support value-creating economic activity. Punishing rule-breakers reinforces the self-interest in following the rules.

Playing by the rules or following the law is enormously valuable. I cannot explain why Major League Baseball tolerates normal sign-stealing yet punished the Astros so harshly. Yet wherever we draw the line, crossing the line erodes the trust on which our prosperity depends.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

4 months ago

Same story, different day

(Good Morning America/YouTube, YHN)

The police shooting of Jacob Blake in Kenosha just months after the death of George Floyd sparked new protests. The video appears to clearly show another excessive and unnecessary use of force. What can we do to enact the reforms needed to curb police misconduct?

Numerous sound reforms have been offered. Secrecy laws protecting officers’ duty records could be relaxed to stop hiding officers with multiple misconduct complaints. The ability of police unions to protect the bad apples to the membership’s detriment could be curbed.

We could also reduce the number of laws the police must enforce. An officer never knows when an encounter could become life-threatening. Consequently, officers might misinterpret erratic or nervous behavior as threatening or mistake a cell phone for a gun. Research by economists shows that likelihood of deadly violence in a police encounter does not depend on a subject’s race; the greater rate of minority deaths stems from more frequent stops and arrests. Systemic racial bias appears to be in the types of activities criminalized.

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Lawmakers could also end qualified immunity, the doctrine under which government employees cannot be sued for doing their jobs. Only where courts create exceptions do government officials face civil liability. Qualified immunity has protected a prison guard who tased an inmate in his cell and a cop who shot a child while trying to shoot a non-threatening dog.

Civil suits provide an alternative to criminal prosecution. Prosecutors are reluctant to file charges against officers and jurors often give police the benefit of the doubt. Lawsuits would make cities pay for bad cops like Derek Chauvin, who had over a dozen complaints against him before he killed George Floyd.

The bigger challenge is enacting reforms. Politicians dutifully promise change after each high-profile case. The lack of change fuels the frustration we have witnessed this summer, reflected in the slogan, “No justice, no peace.”

Ours is a government “by the people,” so what responsibility do we bear then for police misconduct? I study public choice economics, which examines how the information and incentives of votes, politicians and bureaucrats together produce policy. One important insight is how citizens individually do not decide outcomes. No one changes an election with their vote or can induce lawmakers to pass a bill by writing a letter. How exactly citizen sentiment drives government policy is complicated; there is no switch to flip to enact police reforms.

The week following Jacob Blake’s shooting offered two paths toward reform. The first is increasingly violent protests. Of course, most protesters over the past three months have not engaged in violence. A clear line can be drawn; as Democratic presidential nominee Joe Biden said recently, rioting, looting and setting fires is not protest.

Does a failure of politics as usual justify violent protests? This question is more philosophic than economic. I can offer two observations. Many Minneapolis businesses burned this summer were owned by recent immigrants from Ethiopia and Somalia. The owners were not part of any inner power circle, if you happen to believe that inner circles run things. And violence exacerbates the fears of crime and demands for “law and order” which lead to disregard of police misconduct.

Boycotts staged by players in the NBA, WNBA, NHL and MLB offer a second path. Several prominent NBA players reportedly favored boycotting the rest of the season. I find sports boycotts a better alternative. They send the message that normal life will not continue without meaningful reforms without destroying small businesses which families rely on for their livelihoods.

The average sports fan is not part of any inner power circle, and sports are providing emotional sustenance during the COVID-19 pandemic and recession. Are sports boycotts therefore unfair? Perhaps, but team owners and their corporate partners likely have significant political influence. And inconvenienced sports fans should remember that George Floyd will never watch another game.

The excessive use of force by the police is ultimately done on our behalf. To disown the acts of rogue police officers, we must accept that life cannot be normal until reforms occur.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

No more ridesharing?

(Pixabay, YHN)

Ridesharing companies Uber and Lyft almost exited California last week over a dispute regarding their drivers’ legal status. In 2019, the California legislature passed Assembly Bill 5 (A.B. 5) making the companies’ drivers employees and not independent contractors. A judge stayed an August 20 compliance deadline. Politicians’ efforts to restrict contractors could arrest the development of the sharing economy, hurting us all.

All work in a market economy must be voluntary. I must induce assistance I would like from others, which usually involves paying them money. If I run a business and want a task done repeatedly, we might formalize this into employment, as governed by law.

Voluntary employment makes both parties better off. Suppose I paid someone $50 to rake leaves. (This is a hypothetical, as I live to rake leaves.) I would prefer to pay the money to doing the work myself, and the person doing the work must prefer the $50.

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Our national, state and local governments pass laws regulating employment. The laws impose payroll taxes, regulate wages (minimum wages and overtime pay), require workplace safety, and mandate benefits family leave and health insurance.

A business will only hire an employee if she generates enough value to cover the full cost of employment. Mandates and taxes make hiring employees more costly, reducing employment and potentially forcing businesses to close.

Employers would voluntarily offer many government-mandated benefits. Managerial economics recommends offering fringe benefits and improved job conditions valued by workers more than they cost to provide. If Walmart made cashiers work a six-hour shift without any breaks, hourly pay would likely have to be significantly higher. And some mandated benefits, like parental leave, will benefit some workers and not others.

The law offers independent contractors, with many fewer mandates, as an alternative to employment for businesses to hire for short term or limited positions. People can also put together “gigs” as independent contractors for several different employers to earn a living.

Not surprisingly, businesses try classifying workers as contractors instead of employees to avoid mandates and taxes. California’s A.B. 5 attempts to rein this in. In addition to Uber and Lyft drivers, A.B. 5 significantly affects free-lance writers.

Many people see greed behind classifying employees as contractors. One of sponsors of A.B. 5 wrote, “California is home to more millionaires and billionaires than anywhere else in the United States. … One contributing factor is we have allowed a great many companies … to rely on a contract workforce, which enables them to skirt labor laws [and] exploit working people.” Owners get rich while impoverishing independent contractor workers.

There’s a problem with this narrative, however, namely that Uber and Lyft lose money. Uber has set records for losing money, including $5.2 billion in the second quarter of 2020. Of course, losses for the stockholders do not mean that some executives have not been well-compensated.

I think that more frequently businesses with thin margins turn to contractors because they cannot afford employees. Analysts estimate that reclassifying drivers as employees will increase Uber’s and Lyft’s labor costs by 20 to 30 percent. This is particularly burdensome in the sharing economy, which requires innovative was to utilize idle resources. Ridesharing uses drivers’ personal vehicles and available time to provide rides when demanded. While some people drive for Uber and Lyft full-time, the companies bring thousands of cars into service for a few hours a week.

Sharing businesses benefit us all. Economic studies document declines in drunk driving after Uber and Lyft begin operating in cities. Grocery shopping and delivery services like Instacart have helped Americans stay safe during COVID-19. The cost of government mandates on employees can prevent the unlocking of this potential value.

Companies in the sharing economy are experimenting with innovative ways to create value. These experiments use labor very differently than in manufacturing or retail. Reducing government-imposed burdens may be a better way to get more Americans hired as employees than disrupting the sharing economy.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Can we reclaim our freedom?

(PIxabay, Wikicommons, YHN)

Governments have implemented a range of unprecedented policy measures to slow the spread of the SARS-CoV-2 virus. Whether “non-pharmaceutical interventions” have slowed infections or produced health benefits exceeding their enormous cost are important questions. Today, I will consider whether these emergency measures will permanently diminish our freedom.

The policies of the COVID-19 lockdown were not without historical precedent. Cities closed restaurants during the 1918-1919 Spanish Flu pandemic, quarantines have been imposed, and schools occasionally close due to the seasonal flu. Yet, stay-at-home orders confining persons who are neither sick or have been exposed to the sick are unprecedented, as are open-ended business closures and checkpoints at state borders.

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I do not mean that the current restrictions on life will never be relaxed. When the COVID-19 pandemic ends, either through an effective vaccine or treatment or we reach herd immunity, sports and concerts will resume and schools will fully reopen.

Economic historian Robert Higgs laid out the “Ratchet Effect” of crises on the growth of government in “Crisis and Leviathan.” The crises of the 20th Century, most significantly the two world wars and the Great Depression, massively reduced our rights and freedoms. Freedom was compromised by World War I’s draft and the internment of Japanese-Americans. The draft was not to defend against invasion or rebellion, as during the Civil War, but to fight on another continent. Internment jailed citizens without probable cause of participation in espionage.

Economic freedom took an even greater beating. Washington ran the economy largely by command during the wars. The Great Depression’s state foreclosure moratoriums and Franklin Roosevelt’s abandonment of the gold standard obliterated the Constitution’s contracts clause. Since the 1930s, government has had virtually unfettered discretion to regulate business.

The Ratchet Effect does not deny the reality that government shrinks after a crisis. President Harding slashed spending and taxes in the early 1920s, and markets began directing most economic activity again after World War II. Government just never goes back to its prior size and never relinquishes powers first exercised during an emergency, remaining permanently larger.

Explaining the Ratchet Effect is harder than it appears. One seemingly easy answer is that politicians never give up power. Yet this does not quite suffice. How did we manage to ever restrain power-hungry politicians, and how does the crisis rob us of this ability? The crisis might let the government genie out of the bottle, but how did we ever get the genie in the bottle?

The government might remain larger after the emergency because citizens recognize the value of previously prohibited powers. Americans might want a government capable of the Manhattan Project to tackle societal problems and challenges. We have a ratchet, but only small government libertarians will object.

Will Americans demand our freedoms of travel, association, religion, and commerce back after COVID-19? And if so, will we regain our freedoms?

Professor Higgs’ thesis offers little optimism. “The great danger,” he writes, is of crises “depriving us at all times of the very rights the Constitution was created to protect.” Libertarians widely accept Higgs’ thesis and consequently deny that conditions ever require emergency action. Law professor Richard Epstein projected in March that COVID-19 would produce perhaps 50,000 deaths globally with perhaps 2,500 in the United States.

Political economists I believe do not fully understand all the ways citizens can constrain politicians. In America most people voluntarily comply with most laws, from stop signs to income taxes; governments relying exclusively on coercion seem weak. We can vote politicians out of office and bring them to justice for breaking the law. If we better understood the enforcement limits on government, we might realize how to put the genie in its bottle.

“Crisis and Leviathan” provides a solemn warning for the post-COVID world. To reclaim our freedoms, we must to insist on clearly defined limits on our governments’ ability to declare public health emergencies.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

Dr. Daniel Sutter: Patents, profits and pandemics

(Pixabay)

Knowledge is the basis of economic prosperity, and the knowledge contained in a COVID-19 vaccine or cure would be enormously valuable. We have traditionally relied on patents to reward innovation, but an alternative exists that could be appropriate for vaccines during pandemics.

Patents reward knowledge creators with a temporary monopoly. Monopolists generally charge high prices, so patents let inventors recover the costs of research and development plus earn a profit. Patents helped spur the Industrial Revolution, demonstrating their effectiveness.

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Over 160 candidate COVID-19 vaccines are in development, with more than a dozen in human trials. Our patent system has succeeded: investors funded scores of teams of smart medical researchers. The danger exists, however, that price controls may be applied to a COVID-19 vaccine, making investors less likely to fund future vaccine research.

Patent purchases date back to France in 1839. A government patent purchase rewards the inventor immediately, as opposed to over time with profits on sales of the product. A fair price should reflect profits over the life of the patent, adjusted downward to reflect the immediate payout and for uncertainty about profits.

I advocate buying promising vaccines’ patents before testing for effectiveness, so the purchase price need not cover the cost of the Food and Drug Administration (FDA) approval. Economic theory suggests that patent purchases should incentivize research as effectively as patents.

The FDA approval process now represents the major challenge for the candidate vaccines. The process involves three phases. Phase I tests the vaccine on a small group of subjects to ensure safety and antibody production in subjects. Phases II and III involve tests on first several hundred and then several thousand persons to establish effectiveness. This lengthy process is why many believe a vaccine could not be on the market until 2021.

The 1962 Harris-Kefauver Amendments authorized FDA regulation of the effectiveness of new drugs. The rationale is fear that pharmaceutical companies will sell ineffective drugs to an unsuspecting public for profit using manipulative advertising.

This prospect seems particularly frightening with COVID-19. Absent regulation, many desperate Americans might pay thousands of dollars for an alleged vaccine. An ineffective vaccine could worsen the illness as “vaccinated” persons resumed normal activities.

A significant body of research by economists demonstrates that reputation works surprisingly well in the market for drugs. Hospitals and insurance companies police manufacturers’ bogus claims. Many free-market economists, including me, believe Harris-Kefauver should be repealed. FDA regulation endures because many Americans deeply fear deceitful profiteering.

Let’s take this fear seriously and remove the potential for profit from approval of a COVID-19 vaccine with patent purchases. Purchases will reward medical researchers for their work devising candidate vaccines. The federal government could then devise an expedited testing process, recognizing that each day a vaccine is delayed during a pandemic can cost thousands of lives. We need not fear corporate profit-seeking influencing the effectiveness evaluation.

We could hold an expedited approval “tournament” for several candidate vaccines, with selling the patent to the federal government a condition for inclusion. Eliminating profit might also make human challenge testing more acceptable.

In human challenge tests, researchers intentionally expose subjects to the virus after inoculation. The control group receives only a placebo and is thus deliberately infected with a deadly virus. I believe informed consent makes this acceptable, but others may view a drug company profiting from control group deaths as immoral.

Patent purchases should also ensure a vaccine’s affordability. All drug makers could access the formula without paying royalties, so a vaccine’s price should reflect only the normally modest cost of ingredients and manufacture. Competition will keep a vaccine’s price in line with cost. A company charging $500 for a vaccine which costs only $100 will get priced out of the market.

I see patent purchases as a win-win situation. Medical researchers get compensated, rewarding of knowledge creation. An expedited approval process could quickly identify an effective vaccine. And an effective vaccine should be as affordable as possible.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

5 months ago

The source of our prosperity

(Pixabay, YHN)

Our world is more prosperous than ever, or at least was before the economic disruption from COVID-19. The ongoing search for a vaccine or cure illustrates how knowledge is the source of prosperity. For an even more prosperous future, we must ensure that people have the incentive to create and apply knowledge.

Economists and historians have offered explanations for prosperity, or what economic historian Dierdre McCloskey terms “the Great Enrichment.” Rich and poor countries clearly differ in levels of physical capital – the existence of machines, factories, computers, and robots which make labor, our ultimately most limited resource, more productive. When over 90% of humans grew and gathered food, little labor was available for producing clothes, homes or cars, to say nothing of writing books, painting works of art, or composing music.

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Investing in physical capital requires saving. Tom Hanks’ character in “Castaway” could not spend a day fashioning a spear to catch fish more effectively unless he had food to eat on that day. Saving is having consumption goods available when desired. Investing also requires secure property rights; a world with too much theft, by either bandits or governments, is destined to by poor.

Yet tools and factories require knowledge. Agricultural labor is estimated to have become at least a thousand times more productive since humans first started planting crops. Some innovations – like shovels, plows and tractors – involve better tools for tasks always done. Drought-resistant seeds and pesticides require applying abstract knowledge from plant biology.

Medical researchers are racing to find a vaccine for COVID-19. The race has likely concluded; we had over 160 candidates at the end of June, with 14 in human trials. I find it highly implausible that none of the 160+ candidates will prove successful. (I knocked on wood after writing these words to avoid jinxing the vaccines.)

This represents enormous knowledge production capacity. SARS-CoV-2 is a new virus, not a variant of influenza for which we could modify the existing vaccine. Researchers needed something brand new. The development of so many candidates so quickly suggests we may be on the cusp of a new golden age of vaccines.

Historically, we have ensured adequate compensation for knowledge production through the patent system. Knowledge has some characteristics making marketing difficult. Chemists can break down a new drug and engineers could reverse-assemble a flying car. Thus, any person who “buys” knowledge can resell it. Patents give the inventor a temporary legal monopoly on use of the knowledge.

The patent system works, as the machines and products of contemporary society prove. The 160-plus candidate SARS-CoV-2 vaccines prove that patents work for medicines. Investors have paid the salaries of scores of teams of medical researchers.

The patent’s monopoly allows the charging of prices to recoup the cost of investment in research (including for products and drugs which never pan out) and reward investors with profits. The chemicals in many drugs are not incredibly expensive; the value resides in the knowledge that these chemicals fight illnesses and save lives. High prices are a feature and not a flaw of the patent system.

Insurance coverage relieves individuals of the burden of high drug prices, yet this just burdens employers, Medicare and Medicaid. Exorbitant prices for life-saving drugs and vaccines also strike many people as morally objectionable price gouging.

This makes price controls for a potential COVID-19 vaccine attractive. In the near term, price controls will likely yield benefits. Once the investment in developing a safe and effective has been made, the vaccine will not be pulled from the market even if the price is set very low. The cost of price controls will be many fewer vaccine candidates for the next new virus to afflict humanity.

An alternative can avoid the monopoly prices of patents while still encouraging knowledge production. The alternative would also, I think, be appropriate for an expedited approval process during a pandemic. But the details will have to wait for next time.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Should we trust experts?

(Pixabay, YHN)

Experts in public health and epidemiology have driven policymaking during the COVID-19 pandemic. How much should we trust experts? Critics dismiss Republicans who voice distrust of experts as anti-science. Yet even experts know very little about complex economies and societies.

Frustration with experts does cross party lines. New York’s Democratic Governor Andrew Cuomo recently remarked of experts’ forecasts of hospital usage, “They were all wrong.”

The “Wisdom of Crowds” argument, wonderfully explained by James Suroweicki, provides a first reason for doubt. Numerous seemingly poorly informed opinions can be remarkably wise. Mr. Suroweicki relates a story from British scientist Francis Galton about a contest at a country fair in 1906. Nearly 800 people paid sixpence to guess the weight of an ox (after being slaughtered and dressed); the average was only one pound off.

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The theory of efficient financial markets illustrates another reason for skepticism. An old joke was that darts thrown at the stock page were as reliable as a broker’s recommendations. Why? Stock prices quickly incorporate all available information. With all information priced, a stock price is as likely to go up as down. The market can be consistently beaten only with inside information.

The central planning of socialism represents the most thorough application of expertise to an economy. Proponents thought that “scientific” socialism would replace the chaos and waste of the market with rationally ordered economic activity. Only a handful of economists in the 1930s and 1940s, notably Ludwig von Mises and Friedrich Hayek, argued coherently that socialism would fail.

Socialism failed in part due to the different nature of truths in the physical and social sciences. Truth in the physical sciences in general and timeless: water freezes at 32 degrees Fahrenheit and boils at 212 degrees. Truth in economics depends on time and place. Are trains the best way to travel between American cities? True in the latter half of the 1800s, but now flying and driving dominate.

Another factor is the subjective value of goods and services, meaning based on the wants, needs and desires of consumers. Goods are valuable because people will pay money for them. People differ greatly in their wants and needs, making it nearly impossible to predict what will be valuable, as pet rocks from the 1970s and the variety of videos on YouTube with millions of views illustrate.

Experts are disadvantaged on economic questions. Truths cannot be learned from a textbook, may not hold everywhere (or anywhere tomorrow), and depend on idiosyncratic consumer preferences.

The other part of the argument against socialism is the miraculous degree of coordination in markets. Thousands of products from around the world are available in a grocery store without preordering a week in advance. The times we can’t get what we want, like the recent toilet paper shortage, stand out.

By contrast, central planning in the former Soviet Union produced empty shelves. People would wait in line for hours to buy goods. Russians would join lines without even asking what people were waiting for.

No one would hold a high school dance without a committee to plan the event. Yet the market economy has no one in charge, no one with the power to command others. Coordination occurs voluntarily and is called spontaneous order. And the market does not merely repeat what was done yesterday, it offers improvements too. No one ordered Mark Zuckerberg to start Facebook, he just decided to try.

Politicians rely on experts to devise policies because America has, in Abraham Lincoln’s words, a government “for the people.” In America, restrictions on our freedom can be justified only if they make us – as opposed to the rulers – better off.

Politicians consequently seek out the experts willing to justify policies. Economists who do not understand economic knowledge, subjective value and spontaneous order will offer unrealistic claims about how government will improve our lives. Such experts exhibit what Professor Hayek called, “The Fatal Conceit.” We should not trust experts who are unaware of the limits of their expertise.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Rethinking medical care

(Pixabay, YHN)

Governor Ivey imposed a statewide mask mandate last week as Alabama’s intensive care units (ICUs) approached capacity. We have experienced unprecedented restrictions on freedom to prevent COVID-19 from overwhelming our healthcare system. The COVID pandemic will hopefully lead us to recognize that healthcare is an economic good.

Economists would identify a lack of hospital or ICU beds or ventilators as a shortage: the quantity people demand exceeds the supply. Shortages occur occasionally in markets, like the recent toilet paper shortage. Shortages can become permanent with government controls, as with apartments under rent control or basically everything in the former Soviet Union.

Shortages though do not normally lead to restrictions on freedom. The toilet paper shortage and the 1970s gas shortages (due to government price controls) certainly affected our lives. People curtailed driving, and long lines at gas stations were a pain. Yet states did not close businesses or issue stay-at-home orders to limit driving.

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Furthermore, no argument for freedom I know of says that people should be free only when certain goods are plentiful. The Declaration of Independence and the Bill of Rights are not void when hospitals are full. Yet in recent months, governments have prevented church services and funerals.

The difference stems, I think, from an economic confusion. We view healthcare as an objective good, not in subjective terms as we do other goods and services. The objective good fallacy rationalizes other government interventions into healthcare.

Subjectivity as used by economists means from the perspective and values of the subject (the consumer). Goods have value because we will trade our time, effort, or money for them. This makes voluntary exchange in markets possible. Consumers’ willingness to give up things of value for food, clothing or televisions gives suppliers an incentive to produce them.

Economics does not try to explain why people value certain things. And markets do not require justification of these values to anyone.

By contrast, we view healthcare objectively, or independent of subjects’ perceptions. Healthcare has an objective element; life or death is an objective fact. An elixir will not cure cancer just because we believe that it does.

This objective element, however, does not eliminate subjective value. Whether a car provides transportation is objective. The value people get from cars is largely subjective; driving a Corvette is not merely about getting from point A to point B.

The misperception that medical care is an objective good makes it seem like experts, namely doctors and bureaucrats, can efficiently ration it. Doctors determine the medicine or treatment needed to restore a person’s health. This illusion provides the rationale for Certificate of Need laws imposed by Alabama and other states. Under these laws, healthcare providers must get permission from state regulators to open a new hospital or clinic; experts decide what we “need” to avoid wasteful excess capacity. And objectivity means we must justify our desire for medicines to a doctor.

Shortages in markets are rare and short-lived, but capacity constraints affect many goods. Airplanes and hotels have fixed numbers of seats and rooms and can sell out. Markets manage such constraints through contracts. If you arrive at a hotel without a reservation, you might be out of luck; non-refundable reservations will guarantee you a room.

Our expert-driven system treats hospitals and ventilators as open access resources. This means that hospital beds are simply made available when someone is sick. We do not rely on contracts to determine access in the event of crowding.

Concierge medicine illustrates how markets might handle access to equipment. These doctors’ wealthy customers pay enough to ensure they have access to facilities when needed; I’m sure concierge doctors obtained ventilators as COVID-19 spread. While we might view this as hoarding or preferential access, I see it as empowering customers over experts.

Healthcare officials trampled our freedom to prevent excess demand for ICU beds. We would never consider stay-at-home orders to prevent the overcrowding of flights. If we find restrictions on freedom due to healthcare shortages intolerable, we should start thinking about medicine as a subjective good.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

The freedom to speak and criticize

(Pixabay, YHN)

Harper’s magazine recently posted a letter signed by over 150 leading authors, journalists and public intellectuals calling for greater support for freedom of speech. The letter criticized the intolerance for opposing views frequently exhibited on Twitter and social media. Does the freedom to criticize speech threaten the free exchange of ideas?

Signers included David Brooks, Noam Chomsky, Malcolm Gladwell, Salman Rushdie, Gloria Steinem and Matt Yglesias. To quote from the letter, “The restriction of debate, whether by a repressive government or an intolerant society, invariably hurts those who lack power and makes everyone less capable of democratic participation. … We need to preserve the possibility of good-faith disagreement without dire professional consequences.”

A society organized for the benefit of people as opposed to the glory of rulers requires freedom for people to think, voice their ideas, and engage with others. Our rational faculties require critical exchange. And limiting government requires freedom to criticize our leaders.

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Some commentators have criticized social media censorship by companies like Facebook, Twitter and Google while others want more active removal of offensive content. The censorship claim is technically false, as only governments truly censor, whether through prior restraint to prevent publication of views or punishments for speech.

Is freedom from government coercion sufficient, or can the actions of private individuals neutralize freedom of expression? Negative reactions to the Harper’s letter ultimately turn on these questions.

Third parties can illegitimately chill speech, as Harper’s signatory Salman Rushdie can attest to. His 1988 novel The Satanic Verses was considered blasphemous by Muslims; Iran’s Ayatollah Khomeni issued a fatwah on – or order to Muslims to kill – Mr. Rushdie, who spent a decade in hiding. In January 2015, armed gunmen killed 11 employees at the offices of the French radical magazine Charlie Hedbo over offensive content.

Criminal acts are unacceptable. We will not have free exchange if violence is the price of speaking. Are other forms of outrage over or criticism of speech acceptable?

Some must be. People who found Mr. Rushdie’s book offensive should be free not to buy it. The writing of letters by newspaper readers or television viewers demanding that certain columnists or reporters be fired also seems acceptable.

Social media mobs seem more adept at getting offenders fired than letter writers ever were. A parallel for today’s events might be the Hollywood blacklist during the anti-communist McCarthy era. While Senator McCarthy and the House Committee on Un-American Affairs exercised government power, the blacklist was private reprisal. The entertainment industry feared public backlash from employing actors, actresses, directors or writers seen as communists or communist sympathizers.

Is there anything different and more dangerous about social media? For one, social media permanently records peoples’ misstatements and offensive actions. An inappropriate Halloween costume lives forever on Facebook or Instagram and cannot be denied. Furthermore, social media outrage organizes at warp speed compared to the letter-writing campaigns of yesterday.

Yet social media critics cannot fire businesses’ employees; they prevail only by persuading business managers of the merits of their complaints. I may think that businesses respond too quickly and overreact to social media outrage. As an economist, I recognize that business leaders know the challenges they face much better than I do.

Consider the recent resignation of CrossFit founder and CEO Greg Glassman in the wake of his criticism of protests over George Floyd’s death at the hands of Minneapolis police. Was his company “taken” from him unjustly? Not necessarily; the financial harm he caused was real. Reportedly 1,000 of the company’s 14,000 gyms ended their affiliations in response, and Reebok severed a decade-long licensing deal. CrossFit is privately held, but investors sought to make money, not lose due to Mr. Glassman’s comments.

Loss of one’s ability to earn a livelihood is a harsh penalty likely to chill speech, both now and during the Hollywood blacklist. Ultimately, however, social media protests only succeed by persuading others that someone’s speech is offensive. Persuasion and criticism are part of life in a voluntary society.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

A victory in court for school choice

(Pixabay, YHN)

The U.S. Supreme Court recently delivered a “big win” for school choice and religious freedom. School choice enables competition, which economists find generally improves the quality of goods and services. I believe that this result will apply to education, and specifically public schools.

Espinoza v. Montana Department of Revenue involved 2015 legislation allowing tax-deductible contributions for scholarships to private, non-profit schools. The Montana Supreme Court struck down the act in 2018 as an unconstitutional use of public funds for religious purposes, including any school or college controlled by a church. Montana’s constitutional provision is a “Blaine Amendment” dating to the 19th century to prohibit state aid to parochial schools; 37 states, including Alabama, have Blaine Amendments.

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The constitutional issues involved were the First Amendment’s separation of church and state and religious discrimination in government policy. Chief Justice John Roberts’ majority opinion found the Blaine Amendment discriminatory: “A State need not subsidize private education. But once a State decides to do so, it cannot disqualify some private schools solely because they are religious.”

The Montana Supreme Court struck down the entire school choice program based on the Blaine Amendment. Although Montana’s legislature could have enacted a scholarship program applying to only non-church private schools, this would have significantly restricted parents’ choice. According to the Institute for Justice, which litigated Espinoza, Blaine Amendments are often used to block school choice. Only a narrow interpretation of Alabama’s provision allowed the Alabama Accountability Act to withstand challenge.

Separation of church and state is wise constitutional doctrine. Still, I do not see the scholarships as violating separation of church and state. The public “dollars” involved are taxes foregone. Church-affiliated schools often operate at a loss, so tuition scholarships will not yield profits to support other activities and presumably provide enough education to qualify as schools.

George Mason law professor Ilya Somin offers an illustrative comparison. No one worries that tax exemptions for religious charities or police and fire protection for churches constitute state support for religion. Tax deductions for scholarships do not establish a state religion.

Church-affiliated schools provide a variety of education consistent with their doctrine and moral teachings. The goal of school reform should be, as economist John Merrifield emphasizes, a diverse menu of options to suit students’ varied learning styles and parents’ values. Church-affiliated schools accomplish this.

School choice policies will make Americans more equal. Affluent Americans, who can afford private school tuition, have long enjoyed school choice.

American higher education features school choice. Alabamians can attend any of the state’s 14 four-year universities or more than 30 two-year colleges at in-state tuition rates. These institutions offer diverse educational options. Two-year colleges offer vocational programs and inexpensive core classes. Four-year universities include one modeled after a liberal arts school, large and small campuses, and numerous online degrees. Federal student aid and loans help make private colleges affordable.

By contrast, K-12 public schools require students to attend their assigned school. After paying taxes to support government schools, many families cannot afford private school tuition. The economic case for public education stresses ensuring all students can afford schooling, which school choice accomplishes.

Choices unleash quality-enhancing competition. Some of America’s best public schools are in affluent suburbs where districts must compete for students because parents can afford private schools. It is tempting to attribute suburban districts’ quality spending, but statistics show otherwise. In 2018, Baltimore city schools spent $250 less per pupil than Montgomery County (Maryland) and $1,000 more than Fairfax County (Virginia) in suburban Washington, two of America’s most affluent counties.

In time school choice will force beneficial changes in public school curriculum. Currently, the curriculum is a political football which both parties seek to control. Teachers educate children in classrooms; politicians in Montgomery or Washington shape learning only through bureaucratic controls forcing a curriculum on local schools. School choice will empower parents to find schools that help their children learn. To successfully compete for students, control will need to be devolved to schools and teachers, which I see as a very good thing.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

6 months ago

Herds and the policy response to COVID-19

(YHN)

Governments implemented strict policies to stem the spread of the novel coronavirus. The widespread response suggests that governors and presidents saw COVID-19 as an unprecedented public health threat. Or did it? The economics of herding suggests possibly not.

The “Wisdom of Crowds,” also the title of James Suroweicki’s excellent book on this subject, implies this interpretation. Experts in each state reviewed knowledge on the virus, its potential lethality, and vulnerabilities of their state. Each lockdown decision provides evidence of a perceived threat.

Independent, informed evaluations represent our best way to approach the truth. The argument is not that voting establishes truth; experts can be wrong even if they all agree. The consensus of experts is more likely to be correct.

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The policy response could reflect other factors. We should remember that safety is a luxury good; as people and nations become wealthier, we spend more on safety. The potential for say 100,000 deaths from a pandemic will be far less acceptable today than 50 years ago. Yet crowds are not always wise; the “Madness of Crowds” is another possibility. The independence of expert judgments affects whether we gain wisdom or create a herd.

Training in public health affects experts’ independence. Experts in any field receive years of specialized, intensive training, in law school, graduate school, or medical school. Academic disciplines have a dominant paradigm or way of making sense of the world. Different public health experts may share the same way of thinking and make the same mistake on COVID-19.

“Information cascades” pose another problem, often seen in business. A group of managers assembles to discuss opening a new retail store. After independently assessing the merits and demerits, most of the managers see the new store as a mistake. Yet the first manager argues that the new store will be wildly successful, and the others agree. After the store fails, the managers all recall their initial misgivings.

What happened? Each manager knows her personal assessment of the venture could be wrong and revises her assessment based on others’ opinions. Managers do not want to appear incompetent – the only one unable to see the new store’s great value.

The visibility of errors also matters. There’s (allegedly) a saying among investment advisors that “no one ever got fired for recommending IBM.” Suppose an advisor recommends a stock no one else likes. If correct, the advisor’s clients make lots of money. If wrong, the advisor will need to find a new job. By making the same common recommendation, no advisor signals below average investment acumen.

An economy or business needs to encourage occasional deviations from the herd. We need contrarian investors and thinkers. In markets, profit rewards correct contrarians. And some people are naturally contrarian. As Henry David Thoreau wrote, “If a man does not keep pace with his companions, perhaps it is because he hears the beat of a different drummer.”

Does the policy response to COVID-19 reveal herding? The policies involved – business and school closings, stay-at-home orders – are called nonpharmaceutical interventions (NPI). NPI have their critics; a 2019 World Health Organization review found the evidence for the effectiveness most “limited.”

A divergence of opinion suggests herding was unlikely. If proponents of NPI won out in debate, this suggests that governors and presidents found them more promising. Vigorous debate usually improves decisions.

Our elected executives, I think, face a bias to action, worsened by the 24-hour news cycle and running tallies of COVID-19 cases and deaths. Yet the nearly 50 million jobs lost since March are also highly visible. Our inability to observe deaths without a lockdown ironically makes the benefits appear larger; perhaps millions have been saved.

Eight states never issued stay-at-home orders and nations like Sweden eschewed lockdown policies, so we have not witnessed complete herding. More likely the bias to take action resulted in excessive policies, and lockdowns imposed too early in some states.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

7 months ago

Defund the CDC

(YHN)

The Centers for Disease Control and Prevention (CDC) have made numerous mistakes during the COVID-19 pandemic. Mission creep at the CDC has left America vulnerable to a communicable disease. We need a new agency solely dedicated to battling infectious diseases.

Let’s start with the mistakes. A lack of early testing let the outbreak spiral out of control. Some have criticized the CDC for not using a German test approved by the World Health Organization (WHO). I will give the CDC a pass here because the CDC is required to develop a test for the U.S. during pandemics. Contamination of the test kits, however, falls squarely on the CDC, a mistake resulting from a breach of basic protocols.

Another miscalculation was preparing only 200 test kits. Although each kit could test 700 specimens, this was still extremely limited capacity to contain an easily transmissible virus.

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The CDC equivocated and eventually flipped its position on masks. Throughout March, the agency claimed that only the sick or persons caring for the sick should wear masks. Dr. Anthony Fauci recently confirmed that this deliberate misinformation was intended to reserve masks for health care workers but was still misinformation.

Recently, The Atlantic reported that the CDC has been combining blood and nasal test results. Blood serum antibody tests only show that a person has had COVID-19 at some point. As a result, the case reports being watched so carefully as states reopen may include older cases.

Some commentators blame the CDC’s failures on Trump administration budget cuts. Yet as the Cato Institute’s Chris Edwards demonstrated, proposed cuts were never enacted; the CDC budget has remained steady (adjusting for inflation) since 2010 with a 12% increase in employees.

The CDC has spent money and time on efforts unrelated to infectious diseases. This is the essence of “mission creep,” or an expansion of tasks beyond an agency’s core competency. Bureaucrats seek out new tasks for additional funding, and sometimes Congress orders an agency to study something. As Cato’s Mr. Edwards writes, “How is CDC Director [Dr. Robert] Redfield supposed to remain alert to emerging epidemics when he is also supposed to manage programs on tiny teeth, colon cancer, opioids, child abuse, diabetes, workers’ compensation, lead-based paints, mold in buildings, and lifting heavy objects on construction sites?”

States imposed draconian “nonpharmaceutical interventions” (NPI) to slow COVID-19. Evidence demonstrating these policies’ effectiveness was very limited. A 2019 WHO review observed, “The evidence base on the effectiveness of NPIs in community settings is limited, and the overall quality of evidence was very low for most interventions.” Furthermore, “much of the evidence base is from observational studies and computer simulations.”

The role of computer models deserves further discussion. Computer models produced the “worst-case” scenarios predicting 1.7 million to 2.2 million deaths in an unconstrained pandemic and claiming that measures like closing schools and shutting down business could avoid most of these deaths. The projections were based on assumptions, not evidence, that NPIs would reduce interactions between people.

Lockdown policies might not reduce interactions due to offsetting personal actions. For example, children not interacting at school may interact instead at parks, day care centers, or malls. Grandparents’ taking on babysitting duties could potentially increase transmissions to the elderly. Evidence from actual school closings would be required to validate assumed reductions in interactions.

Instead of researching vaping and gun violence, the CDC could have extensively examined NPIs. We did not need to take a shot in the dark with polices that cost 40 million American jobs.

Limited government not only keeps government within its proper scope, it avoids mission creep and ensures that critical tasks get done well. Governments generally underprepare for rare events like disasters and pandemics. This makes an agency focusing exclusively on communicable diseases invaluable.

After the COVID-19 pandemic is behind us, we should seriously consider replacing the CDC with an agency focused exclusively on infectious diseases. Other CDC functions (like collecting vital statistics) can be moved elsewhere within the Department of Health and Human Services. We need an approach to ensure preparedness for the next pandemic.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.