Merry Christmas, indeed, professor John. Reading your essay beat my opportunity cost today, so I already read your essay. Maybe I'll reread it in a couple of days. As one of my astute ECON 101 students once said in his explanation of opportunity cost, "I didn't have anything better to do."
My initial reaction is that Carl Danner's hypothesis is that is an interesting elaboration of public choice theory and professor James Buchanan's descriptions of it as politics without romance. But I admit a high degree of predisposition.
I understood the article to say that it is inconsistent that the power company has to have programs to help poor people afford electricity, yet this isn't true for other industries. Grocery stores were not regulated into a fund to buy groceries for poor people. The phone companies are not required to fund programs to pay for phones for poor people. The petroleum industry isn't required to pay into a fund to help poor people with gasoline prices. (At least as far as I know, none of these industries have such regulations). But somehow the electric companies have to support this fund. I'm totally against "pick-and-choose" policies that force stuff on one business or set of individuals, but not others.
Another example of asymmetric treatment is Trump's proposals to not tax tips or overtime wages. Why should these income sources be set apart from taxation? Why not also income from passive rentals? Or income from a second job? Or income earned on Saturdays? Seems to me all income is income and should be treated equally and taxed equally. If we want to help people out by lowering their taxes, then lower taxes across the board (which also implies the govt quit spending so much frickin' money!!!).
Agree on Trump proposal to not tax tips/overtime. He was vote buying. But, it seems like he is slowly drifting to a good policy that Prof Cochrane wrote about, FairTax.org. Getting rid of the income tax and going to a straight consumption tax is a beneficial and good idea
Yes! I'm more in favor of consumption tax rather than income tax. Only problem I foresee is probable inability of politicians to add or change one tax and get rid of others.
"Econ 101 seems awfully stuck in a rut. A week of market perfection, with eyes rolled. Nine weeks of theoretical 'market failures' remediable by the all seeing benevolent regulator. "
I think you might be juuuuust a little out of touch with what is taught in econ 101. And perhaps at the undergrad level more generally.
I studied economics recently, and it was exactly as described. You receive a very superficial summary of market failures. The young students have no ideas, about how to think about an economic model in general, how economists arrived there. Then they immediately accept any alternative ideas, that sounds more realistic. Now i saw the literature they receive when starting economics at the moment and one of their first books to read is "sustainable economics", which looks like a collection of "does not hurt" statements, and no substance at all.
In democracies, there is an overarching public choice dynamic at play for virtually all government activities, including regulation. Voters choose representatives committed to redistributing resources from a small number of voters with many resources (the "top 1%," say) to many voters with fewer resources. if redistribution were not a goal, the market would resolve most inefficiencies, and there would be much less incentive for people to vote at all.
Hey I’m as classical liberal leaning as almost any, but your story doesn’t mesh with the real world.
There is of course some of what you say.
But besides multiple other problems, there is the pesky reality that in 2024 the rich people disproportionately support the party more committed to redistributing resources.
And it’s at least as true when you talk about the top 30% rather than just the top 1%.
Andy, you do realize the 1% wants you to be in poverty before they distribute any income to you? It's a means of control. Of course they vote for, and fund, Democrats. They are the party that wants Socialism. That failed experiment narrows class distinction even further. The 1% may end up the .25% and the rest end up with nothing but what's allocated to them.
As time deposits source is demand deposits, directly or indirectly via the currency route, or thru the bank's undivided profits accounts, the increase in time deposits depletes demand deposits, dollar for dollar. So, deregulation of interest rates forced the banks to pay for the deposits that the system already owned. How perverse.
One approach to this question is provided by Prof. Richard A. Epstein, Laurence A. Tisch Professor of Law at New York University, in his paper titled "Taxation, Regulation, and Confiscation", published in the "Osgoode Hall Law Journal", 1982, Vol. 20, No. 3.
<From the Introduction>
"It must be asked by what warrant, by what title, does the public policy analyst proceed on the implicit assumption that all entitlements lie within the public domain? At the very least the question deserves some sort of an answer because of the way in which the study of law and economics--even that of a conservative stripe--cuts against the ideals of limited government, individual liberty and private property, which, especially in the American context, have deep and powerful roots of their own. At the root of this conception is the persistent fear of abuse of power-that persons, clothed in official garments, will convert a limited delegated authority into an absolute source of power over others [fn. #1: See, e.g., Madison, The Federalist (New York: Holt and Co., 1898) at 54 (No. 10)].
"This fear is so pervasive that it colours our view of social institutions. Government is viewed not as an inherent kind of good, but as a necessary evil required to ward off the greater evils of aggression and despoliation by self-interested individuals. The task of constitutional theory, then, is to organize political institutions in ways to prevent the state from becoming an organized menace greater than the individual misdeeds that it is designed to control."
"How then do taxation and regulation fit into this sceptical view of government powers? Here we can start with the received wisdom that each is a close substitute for the other, and note that the differences between them all go to matters of detail and technique, rather than to basic principle. Now push that equivalence one step further. Regulation and taxation both may be used as instruments of confiscation, because both are the equivalent of the (partial) taking of private property. To understand this, it is necessary only to accept two propositions. The first is that the loss of any right in property is like a loss of property itself. To deny that proposition is to say that the state can take sticks in the bundle of rights one by one without compensation, when compensation would be required if the taking of the entire bundle were compressed into a single step. Here the central point remains obvious. It is insufficient to control the obvious abuses of outright confiscation if its close substitutes are left unregulated and uncontrolled."
"The second proposition is that the taking from many individuals at the same time does not insulate the state from the charge of a taking any more than it does a private individual. Thus murder is a wrong and so too is genocide. The thief is not purged because he has taken from all the members of a group instead of only one, and the unfortunate private defendant who runs down a busload of children cannot escape his liability because he has damaged many persons instead of one. The progression from the single to the many on the question of what constitutes a taking of property--in whole or in part--is itself a matter of simple summation. There is no subtle interaction of the parts which allow takings from many to be viewed as something else solely because they are directed to a large number of individuals at any given point in time."
<From the Conclusion>
"The purpose of this paper has been to draw attention to the question of which forms of government control should be regarded as within the domain of permissible policy choices, and which should be regarded as disguised confiscations. In dealing with this theme, it is quite clear that while all forms of regulation and taxation are subtle forms of the taking of private property, they are not necessarily confiscatory in and of themselves. Instead they are subject to two forms of justification: the police power and implicit in-kind compensation. ... The greater stakes of modem regulation give the issue a new urgency, but do not require any change in either the analysis or outcome. Unchecked confiscation, total or partial, is always inconsistent with the ideal of limited government."
<Citation>
Epstein, Richard A.. "Taxation, Regulation, and Confiscation." Osgoode Hall Law Journal 20.3 (1982) : 433-453.
Agree strongly that virtually all financial and insurance regulation is not "economically efficient". The entire canon should be rethought and redone. Obviously, insurance is done by the several states.....and I would lump in health insurance/health regulation too. Let's start with ending the AMA's union empathetic policies on limiting the number of doctors per specialty, and the restrictions on clinic/hospital building
suggests that the commandeering model originated in American foreign policy, starting under Clinton and being supersized under Bush II and Obama. The most clearcut example is the use of financial sanctions to combat money laundering, terrorism, and a list of other US foreign policy objectives that has metastasized over time.
The article uses the benign phrase "public-private partnerships" to describe this phenomenon, but in practice it is more analogous to a "mafia-private business partnership," where the sticks and carrots available to the government are used in order to get ostensibly private institutions (e.g., banks) to do the government's bidding.
This model can--and has been--extended to domestic policy, and directed at private citizens rather than foreign enemies. De-banking is a particularly notorious example. The censorship of social media is another.
How often has the Biden administration spoken of "whole of society" efforts? Frequently. Similarly it has used the anodyne "public-private partnership" phrasing. These speak to the pervasiveness of the commandeering model far beyond, say, electricity pricing in California.
Pinkoski's article suggests that the concept germinated in the soil of post-Cold Ward End of History and New World Order reveries and proved so fecund there that it has been transplanted to virtually every aspect of our lives.
You do realize there is almost no downside for America to help Ukraine? And the reason that is the case is because we are the biggest producer of oil and gas of country in history and thanks to Putin’s asinine military action we are the biggest LNG exporter and thus energy dominant!!
Bigger and more expensive homes should pay higher electricity rates because the owners can invest in more efficient HVACs and better insulation and windows and doors. Plus they should now have Powerwalls in order to take advantage of off-peak rates.
John, for Pete's sake, do you really want us to think about regulation on Christmas eve? Even for the Grumpy Economist that's a bit much.... :)
Thanks for all the great articles in 2024, Merry Christmas and Happy New Year! (And I look forward to reading this post in a couple of days...)
now do banking regulation
then antitrust
I can't run with the big dogs, so I'm gonna stay on the porch where it's safe
but I know BS when I see it, and I'm seeing a lot of it in banking, antitrust, and securities regulation
back to the porch
Merry Christmas, indeed, professor John. Reading your essay beat my opportunity cost today, so I already read your essay. Maybe I'll reread it in a couple of days. As one of my astute ECON 101 students once said in his explanation of opportunity cost, "I didn't have anything better to do."
My initial reaction is that Carl Danner's hypothesis is that is an interesting elaboration of public choice theory and professor James Buchanan's descriptions of it as politics without romance. But I admit a high degree of predisposition.
Why does one theory being true in some cases preclude the possibility that other theories are true in other cases?
Or, to quote Scott Sumner: "Why not both?"
I should be clearer. All these stories are useful at some times or others.
I understood the article to say that it is inconsistent that the power company has to have programs to help poor people afford electricity, yet this isn't true for other industries. Grocery stores were not regulated into a fund to buy groceries for poor people. The phone companies are not required to fund programs to pay for phones for poor people. The petroleum industry isn't required to pay into a fund to help poor people with gasoline prices. (At least as far as I know, none of these industries have such regulations). But somehow the electric companies have to support this fund. I'm totally against "pick-and-choose" policies that force stuff on one business or set of individuals, but not others.
Another example of asymmetric treatment is Trump's proposals to not tax tips or overtime wages. Why should these income sources be set apart from taxation? Why not also income from passive rentals? Or income from a second job? Or income earned on Saturdays? Seems to me all income is income and should be treated equally and taxed equally. If we want to help people out by lowering their taxes, then lower taxes across the board (which also implies the govt quit spending so much frickin' money!!!).
Agree on Trump proposal to not tax tips/overtime. He was vote buying. But, it seems like he is slowly drifting to a good policy that Prof Cochrane wrote about, FairTax.org. Getting rid of the income tax and going to a straight consumption tax is a beneficial and good idea
Yes! I'm more in favor of consumption tax rather than income tax. Only problem I foresee is probable inability of politicians to add or change one tax and get rid of others.
"Econ 101 seems awfully stuck in a rut. A week of market perfection, with eyes rolled. Nine weeks of theoretical 'market failures' remediable by the all seeing benevolent regulator. "
I think you might be juuuuust a little out of touch with what is taught in econ 101. And perhaps at the undergrad level more generally.
I studied economics recently, and it was exactly as described. You receive a very superficial summary of market failures. The young students have no ideas, about how to think about an economic model in general, how economists arrived there. Then they immediately accept any alternative ideas, that sounds more realistic. Now i saw the literature they receive when starting economics at the moment and one of their first books to read is "sustainable economics", which looks like a collection of "does not hurt" statements, and no substance at all.
They also need to have a heavy dose of Coase Theorem intertwined into them. If you didn't get that, please understand it
In democracies, there is an overarching public choice dynamic at play for virtually all government activities, including regulation. Voters choose representatives committed to redistributing resources from a small number of voters with many resources (the "top 1%," say) to many voters with fewer resources. if redistribution were not a goal, the market would resolve most inefficiencies, and there would be much less incentive for people to vote at all.
Hey I’m as classical liberal leaning as almost any, but your story doesn’t mesh with the real world.
There is of course some of what you say.
But besides multiple other problems, there is the pesky reality that in 2024 the rich people disproportionately support the party more committed to redistributing resources.
And it’s at least as true when you talk about the top 30% rather than just the top 1%.
Andy, you do realize the 1% wants you to be in poverty before they distribute any income to you? It's a means of control. Of course they vote for, and fund, Democrats. They are the party that wants Socialism. That failed experiment narrows class distinction even further. The 1% may end up the .25% and the rest end up with nothing but what's allocated to them.
Would you say that regulations are better thought of as restrictions?
This would avoid the conflation, in the minds of many, with the idea that "regulations" are "regular" and hence legitimate.
This is a good linguistic point. Every regulation is a restriction -- good or bad.
As time deposits source is demand deposits, directly or indirectly via the currency route, or thru the bank's undivided profits accounts, the increase in time deposits depletes demand deposits, dollar for dollar. So, deregulation of interest rates forced the banks to pay for the deposits that the system already owned. How perverse.
As required reserves were eliminated, transaction deposits doubled relative to time deposits. Thus, velocity accelerated.
Regulating CO2 emissions is much higher cost than taxing them.
"How should we think about regulation?"
One approach to this question is provided by Prof. Richard A. Epstein, Laurence A. Tisch Professor of Law at New York University, in his paper titled "Taxation, Regulation, and Confiscation", published in the "Osgoode Hall Law Journal", 1982, Vol. 20, No. 3.
<From the Introduction>
"It must be asked by what warrant, by what title, does the public policy analyst proceed on the implicit assumption that all entitlements lie within the public domain? At the very least the question deserves some sort of an answer because of the way in which the study of law and economics--even that of a conservative stripe--cuts against the ideals of limited government, individual liberty and private property, which, especially in the American context, have deep and powerful roots of their own. At the root of this conception is the persistent fear of abuse of power-that persons, clothed in official garments, will convert a limited delegated authority into an absolute source of power over others [fn. #1: See, e.g., Madison, The Federalist (New York: Holt and Co., 1898) at 54 (No. 10)].
"This fear is so pervasive that it colours our view of social institutions. Government is viewed not as an inherent kind of good, but as a necessary evil required to ward off the greater evils of aggression and despoliation by self-interested individuals. The task of constitutional theory, then, is to organize political institutions in ways to prevent the state from becoming an organized menace greater than the individual misdeeds that it is designed to control."
"How then do taxation and regulation fit into this sceptical view of government powers? Here we can start with the received wisdom that each is a close substitute for the other, and note that the differences between them all go to matters of detail and technique, rather than to basic principle. Now push that equivalence one step further. Regulation and taxation both may be used as instruments of confiscation, because both are the equivalent of the (partial) taking of private property. To understand this, it is necessary only to accept two propositions. The first is that the loss of any right in property is like a loss of property itself. To deny that proposition is to say that the state can take sticks in the bundle of rights one by one without compensation, when compensation would be required if the taking of the entire bundle were compressed into a single step. Here the central point remains obvious. It is insufficient to control the obvious abuses of outright confiscation if its close substitutes are left unregulated and uncontrolled."
"The second proposition is that the taking from many individuals at the same time does not insulate the state from the charge of a taking any more than it does a private individual. Thus murder is a wrong and so too is genocide. The thief is not purged because he has taken from all the members of a group instead of only one, and the unfortunate private defendant who runs down a busload of children cannot escape his liability because he has damaged many persons instead of one. The progression from the single to the many on the question of what constitutes a taking of property--in whole or in part--is itself a matter of simple summation. There is no subtle interaction of the parts which allow takings from many to be viewed as something else solely because they are directed to a large number of individuals at any given point in time."
<From the Conclusion>
"The purpose of this paper has been to draw attention to the question of which forms of government control should be regarded as within the domain of permissible policy choices, and which should be regarded as disguised confiscations. In dealing with this theme, it is quite clear that while all forms of regulation and taxation are subtle forms of the taking of private property, they are not necessarily confiscatory in and of themselves. Instead they are subject to two forms of justification: the police power and implicit in-kind compensation. ... The greater stakes of modem regulation give the issue a new urgency, but do not require any change in either the analysis or outcome. Unchecked confiscation, total or partial, is always inconsistent with the ideal of limited government."
<Citation>
Epstein, Richard A.. "Taxation, Regulation, and Confiscation." Osgoode Hall Law Journal 20.3 (1982) : 433-453.
DOI: https://doi.org/10.60082/2817-5069.1983
https://digitalcommons.osgoode.yorku.ca/ohlj/vol20/iss3/2
Agree strongly that virtually all financial and insurance regulation is not "economically efficient". The entire canon should be rethought and redone. Obviously, insurance is done by the several states.....and I would lump in health insurance/health regulation too. Let's start with ending the AMA's union empathetic policies on limiting the number of doctors per specialty, and the restrictions on clinic/hospital building
This article
https://www.firstthings.com/article/2024/11/actually-existing-postliberalism
suggests that the commandeering model originated in American foreign policy, starting under Clinton and being supersized under Bush II and Obama. The most clearcut example is the use of financial sanctions to combat money laundering, terrorism, and a list of other US foreign policy objectives that has metastasized over time.
The article uses the benign phrase "public-private partnerships" to describe this phenomenon, but in practice it is more analogous to a "mafia-private business partnership," where the sticks and carrots available to the government are used in order to get ostensibly private institutions (e.g., banks) to do the government's bidding.
This model can--and has been--extended to domestic policy, and directed at private citizens rather than foreign enemies. De-banking is a particularly notorious example. The censorship of social media is another.
How often has the Biden administration spoken of "whole of society" efforts? Frequently. Similarly it has used the anodyne "public-private partnership" phrasing. These speak to the pervasiveness of the commandeering model far beyond, say, electricity pricing in California.
Pinkoski's article suggests that the concept germinated in the soil of post-Cold Ward End of History and New World Order reveries and proved so fecund there that it has been transplanted to virtually every aspect of our lives.
You do realize there is almost no downside for America to help Ukraine? And the reason that is the case is because we are the biggest producer of oil and gas of country in history and thanks to Putin’s asinine military action we are the biggest LNG exporter and thus energy dominant!!
Bigger and more expensive homes should pay higher electricity rates because the owners can invest in more efficient HVACs and better insulation and windows and doors. Plus they should now have Powerwalls in order to take advantage of off-peak rates.