Sunday, June 29, 2014

An addendum to my earlier post about opinions and legislation

Yesterday I wrote a piece about respecting opinions. I think that it is unclear whether opinions and legislation are the same thing and when opinions cross over towards legislation they may no longer warrant the same respect. I am reasonably confident that everyone believes this to some degree and any disagreement is just a matter of  degree rather than principle.

For example, if Congress passed a law criminalizing privately owned newspapers because the stories written about them hurt their feelings, I doubt, though I could be wrong, that most people would simply respectfully agree to disagree with them. My prediction is that their would be mass protests, likely some name calling, and general "rude" behavior occurring. And I do not see anything wrong with that. Shutting down privately owned newspapers is a big deal and politicians who would do that (and actually do that in some places) deserve all the scorn heaped upon them.

I use this as an example because I feel the same way about flag burning as many people do about criminalizing privately owned newspapers. Others may not feel as strongly as I do about people having the right to burn an American flag if they wish, but if they agree with me about the newspaper story we are only talking about a matter of degree, not principle. I think free speech is free speech, no matter how mundane the topic or offensive the speech.

That being said, I would like to reiterate that I enjoy a good debate about ideas and I think people should respect other people's opinions in so far as they remain opinions. When does an opinion cross that line? That is a difficult question and I am not sure that there is an indicator that can be used in all situations. But some opinions, like banning newspapers, probably deserve to be shouted down.

John Stuart Mill has a good passage in On Liberty that I think is appropriate for this discussion:

"...the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinion of others, to do so would be wise, or even right. These are good reasons for remonstrating with him, or reasoning with him, or persuading him, or entreating him, but not for compelling him, or visiting him with any evil in case he do otherwise." (my italics)

Saturday, June 28, 2014

Are opinions and legislation the same thing?

There is belief on both sides of the political aisle that the discourse in this country is more partisan than ever. In fact, many claim that it is downright nasty, with name calling and people shouting down those they disagree with. I am not sure if discourse is any more uncivil today than in the past (I think far too often an ignorance of history makes it appear that we are living in a unique time) but I do think that there should be an open debate about ideas and that people can agree to disagree in a polite way.

That being said, there comes a point when what your opponent says is no longer just their opinion, but instead crosses a line and turns into proposed legislation. Economists can respectfully disagree on the effects of a minimum wage, or taxation, or tariffs/quotas. But disagreeing over dinner is not the same thing as disagreeing over policy that has the force of the government behind it. I will respectfully disagree with economists who claim that a minimum wage does little damage to low skilled workers. But when that same economist takes his or her opinion and tries to make it law I will strongly disagree with them. That is because as an opinion it can cause no damage, but as a law it can cause the exact harm to low skilled workers that I believe it does. In that case I feel that I have a moral obligation to try and prevent that damage from occurring.

To say that each of us should be respectful of different opinions seems to apply when each of our opinions are just that, opinions. Once people try to make their opinions laws, laws that use the government monopoly on legitimate force to be executed, those opinions can actually cause real harm to people. For example, we can agree to disagree with someone who has the opinion that theft is OK, or murder, or rape in so far as they DO NOT ACT ON IT. We can think that they are a terrible person, but we as a society do not throw them in jail for their thoughts, and rightfully so. But as soon as they act on those opinions they have crossed a line and when they do actual harm to others society punishes them accordingly.

Many opinions cause similar harm once they become laws. The opinion that marijuana should be illegal is one thing. I disagree, but people can have that opinion. But taking that opinion and turning it into a law e.g. the drug war causes incredible harm to real life people. It is difficult to respect the laws that have followed from people having that opinion because those laws have led to thousands of deaths and incarcerations, destroying families and entire communities along the way.

As another example, many people do no think that American citizens should be able to burn the American flag. I disagree with them, but we can have different opinions on that topic. But the minute someone who has that opinion seeks to make it illegal to burn a flag it becomes more challenging to simply agree to disagree. While some civility should remain, people who resort to the use of government to sanction their opinion are in a way suppressing the opinion of others in so far as the dissenting opinion can no longer be carried out. Once it becomes illegal to burn a flag it can no longer be done sans punishment.

I think that people should politely agree to disagree and that civil discourse is important for a well functioning society. But when opinions cross the line into legislation there is a gray area as to how those "opinions" ought to be treated. Do they deserve the same tolerance as opinions that do not have government force behind them? Or can they be demonstrated against, shouted down, protested against, etc.? History is full of examples of opinions that became laws and then were eventually repealed after people protested against them. Is it always necessary to wait for an opinion to become a law before it is protested against or shouted down? I am not sure that it is, though that is a difficult issue.

Tuesday, June 24, 2014

Lobbying, rent seeking, and opportunity cost

I watched this video today narrated by Milton Friedman about lobbying politicians and it got me thinking about how lobbying for special favors, a form of rent seeking, crowds out productive activities. In fact, Friedman talks about that at the end of the video where he mentions that lobbyists (and bureaucrats for that matter) could be doing other more productive things if the government was unable to hand out money to special interests.

If the government didn't control so much money, money that they can hand out as favors to special interest groups, the demand for lobbying would decrease. This would decrease the wages for lobbyists, all else equal, and would lead some lobbyists to pursue other occupations.

This brings me to opportunity cost. Successful lawyers and lobbyists are likely on average very bright people. The best lobbyists would still likely stay lobbyists since it's hard for me to envision a wold in the near future with no special interests, but the less skilled lobbyists would not be needed. These lobbyists might instead choose to go be engineers, teachers, scientists, doctors, accountants, or any other skilled profession.

The lower wages for lobbyists, all else equal, increases the relative cost of becoming a lobbyists. Specifically, it increases the opportunity cost, since if a person becomes a lobbyist they cannot be a doctor, accountant, or perhaps an economist. By choosing to be a lobbyist they have  forgone the opportunity to earn a living doing something productive in the community. A decrease in the wages of lobbyists makes these other careers relatively more attractive.

This would be good for America because we would have more bright people working to produce goods and services that people actually want instead of competing for government handouts, handouts that are created by taxing workers who are already producing stuff that people want. The world is a better place when more people are creating stuff that other people voluntarily buy than when people are competing in a zero sum game for government handouts.

Thursday, June 19, 2014

What's the difference between Greenville, SC and Dayton, OH?

Other than the fact that one is in South Carolina and the other is in Ohio, Dayton and Greenville are very similar, yet also very different. Having spent a lot of time in both areas I have seen and experienced both the similarities and differences.

First, let me point out the similarities. Both metropolitan statistical areas (MSA) have approximately 850,000 people as of 2010. Both have an international airport within a 30 minute drive of their downtown area. Both have a private, 4 year university located in their city limits; Furman University in Greenville and the University of Dayton in Dayton. Both cities are also near much larger research universities; Clemson University is 45 minutes from Greenville and Dayton is similarly close to the University of Cincinnati, as well as Miami University and Wright State University. Each city also has several community/technical colleges nearby; Greenville Technical College and Tri County Technical College for Greenville and Sinclair Community College for Dayton.

Each city also has a large automotive presence. Dayton was the birthplace of Delco Electronics, later a subsidiary of General Motors, the company that made the first practical automobile self starter. Delco operated several manufacturing plants making various automobile parts in and around Dayton. The Dayton MSA also had a large General Motors plant located in Moraine, OH. 

The Greenville MSA is home to a large BMW plant as well as the North American headquarters of the tire company Michelin. Clemson University also has a large automotive research center located in Greenville.

Both cities are built on a river that flows through their downtown. The Reedy River flows through Greenville and the Great Miami River flows through Dayton. Each city has a Class A minor league baseball team with a downtown stadium. The Dayton Dragons play in Fifth Third Field in Dayton while the Greenville Drive play in Fluor Field in downtown Greenville.

Each city has other popular amenities as well. Greenville has an arena for conferences, concerts, and athletic events called the Bon Secours Wellness Arena. Dayton has UD Arena located near downtown. Each city also has a performing arts venue for off-Broadway plays, symphonies, and smaller concerts. Greenville's is called the Peace Center and is located downtown while Dayton's is called the Schuster Center and is also located downtown.

Despite all of these similarities, a walk through the downtown of each city reveals some striking differences. Greenville's Main St. is full of shops and restaurants. On the weekends people are everywhere; walking dogs, meeting for meals, hanging out at Falls Park, or going to or from a baseball game. The sidewalks are wide and pedestrians feel safe walking along Main St. and the popular side streets well into the evening. Greenville's downtown walk score from is a 77 and it is classified as very walkable, meaning most errands can be done on foot.

The scene in Dayton is quite different. The main downtown is still largely unused on the weekends, especially along the river. There are very few shops, bars and restaurants except for those around the University of Dayton and a small section of the city known as the Oregon District. After a baseball game most fans simply return home since the area around the stadium lacks bars and restaurants to congregate at, either to celebrate a win or mourn a loss. Dayton's downtown walk score is an 81 and is also classified as very walkable. This is evidence that the infrastructure is in place for Dayton to be as vibrant as Greeville but for several reasons it has not lived up to its potential.

I plan on conducting an economic analysis comparing and contrasting Dayton and Greenville and the graph below reveals the trend that got me interested in doing so. It also confirmed what I have seen with my own eyes.

As the chart shows, both the Greenville and Dayton MSA now have approximately the same amount of people. But they have arrived at their present populations by very different paths. Greenville has been growing consistently since 1950 while Dayton has stagnated since 1970. Surely this cannot only be due to the weather differences between the two MSAs. I plan on analyzing the causes more over the next few months and I will post my results as I find them.

Tuesday, June 17, 2014

Which branch of the U.S. government is most powerful?

As any third grader can tell you (I hope) there are 3 separate but supposedly equal branches of government in the American political system: the executive, the legislative, and the judicial. Woodrow Wilson, the 28th president of the U.S. and also a doctor of political science, wrote his dissertation in 1885 on the American political system. It is titled Congressional Government, and in it Wilson wrote that "There is always a center of power...within any system of government." In Wilson's opinion that center of power was Congress and its many committee leaders.

I bring this up because I wonder what Wilson would say about the American political system today. I doubt that he would say the center of power lies with Congress. It seems to me that today the executive branch holds most of the power. Obama is constantly issuing executive orders (see a list here), though at only 168 so far he is still far short of reaching FDR's total of 3,522 or even Woodrow Wilson's total of 1,803. Of course FDR and Wilson were two of the most, if not the most, intrusive, meddling presidents of all time.

Reading Wilson's dissertation you get the sense that Congress' power to stymie the president annoyed him. His use of executive power backs this up. I think that many of the presidents since Wilson, including Obama, feel the same way. But in my opinion what is most unfortunate is that many of the modern Congress's let the president get away with this modern power grab. Congress often abdicates of their responsibilities to act as a check on executive power. Instead of acting together to reign in the use of executive power, the party not sitting in the oval office complains while the party in the oval office cheers. Both parties are myopic, the one thinking that it is great that their leader is acting unilaterally to promote their goals and the other tacitly going along with it under the realization that at some point their guy (or gal) will be in the oval office wielding the same power.

Congress deserves all of the scorn heaped upon them by the public. They fail to do their job and then whine to the media about how the other side won't play nice. They are ridiculous and childish and I hope all of them are voted out in November. I have no expectation that their replacements will be any better, but perhaps the whiny voices of the new members of Congress will be slightly less annoying.

Wednesday, June 4, 2014

Cities that want to thrive should lower their regulation costs

In an earlier post I talked about the catch 22 of revitalizing a struggling city. Cities can try to attract employers in the hopes of luring employees i.e. new residents, or they can try to attract new high skilled residents in the hopes of luring employers. Both of these approaches have their problems.

In my opinion cities should be focused on creating a good business environment for all potential employers, not just those they target with special incentives. They can do this by decreasing the amount of regulation and taxes businesses face. This is not just another call for government handouts to businesses. Even liberals realize that jobs are important for keeping people out of poverty. Every dollar that is earned by someone is one less dollar they need in government transfers. That is also one less dollar the government itself needs to raise through taxes.

Businesses want to make a profit. They do that by selling a product or service that people are willing to pay them for. We can represent a businesses profit function like this:

Profit = (Price x Qty) - (wages x labor) - (rent x capital) - (regulation costs + taxes)

The above equation shows that the residual left over after a business has sold their product for a particular price and then paid their workers, their capital costs, their regulation costs, and their taxes is their profit. Cities have control over the taxes and the regulation costs. If they lower them companies will make more money, all else equal.

In particular I think regulation is one of the biggest burdens to new business formation and it is also an easy thing to decrease. Many liberals are against decreasing taxes because they think the government should be doing stuff to help people. I disagree with them and think that the stuff the government does is often wasteful, but let's just go with that for now. Cities can also decrease the regulatory burdens new businesses face.

Mandatory inspections, licensing, lot requirements, zoning rules, building requirements etc. all add to the costs of doing business. If the city is doing these things and charging the businesses for the cost of these "services" there should be no reduction in city revenue if they are slowly phased out, or at the very least minimized. That is because the cost of an inspection to a business should be equal to the cost the city bears in providing that inspection. If that is true then eliminating it does not impose any costs on the city.

I am not sure how many cities actually do this but they should. I don't think cities should look at inspections and licenses as revenue generating activities. When that happens cities become reluctant to eliminate unnecessary regulations because they rely on the profit those regulations make them. City governments are supposed to provide public goods and mitigate externalities. They should not be profit making entities.

I think that city governments that focus on their core purpose will be more successful in the future because they will create a business environment that is good for all businesses, including start ups. Entrepreneurs can create the next great industry in a lot of different places, and cities that focus on creating a good environment for entrepreneurs have a better chance of become the center of the next great agglomeration economy. Cities with low regulatory burdens are attractive places for entrepreneurs, who often do not have the political clout of established business owners and thus find it harder to navigate the red tape often thrown up by crony politicians. I plan on doing more research on this in the future and will share my results.