DRI-131 for week of 8-16-15: Hillary on CEO Short-Termism: Three Views

An Access Advertising EconBrief:

Is the Purpose of Government to Eliminate All Sources of Discontent?

If we took every action taken by government at face value, we would be forced to conclude that its central purpose is to eliminate all sources of discontent. And that is exactly the goal set for it by a long-forgotten Labor Party parliamentarian in early 20th-century Great Britain. Is that really what motivates politicians and bureaucrats? Should it be?

Actions taken by state-government regulators in New York raise these questions. Earlier this month, state Attorney General Eric Schneiderman announced that retailer Abercrombie and Fitch was the most prominent of 13 companies to end a work practice known as “on-call scheduling.” The Attorney General (hereinafter, AG) cited pressure by his office as the motivating force behind the change. The practice requires workers to be “on-call” for work in the sense that they must be prepared to show up or stay home on very short notice of as little as one hour. As noted in The Wall Street Journal (“Abercrombie Agrees to End On-Call Scheduling,” 8/7/2015, by Lauren Weber), “workers whose shifts are canceled don’t receive pay, even if they had blocked out that time and made child-care  or other arrangements.”

Abercrombie’s general counsel, Robert Bostrom, described the company’s capitulation by stating that workers will henceforth receive their schedules one week in advance and can choose to receive word about additional shifts that become available on short notice. The new policy, intended to “create as stable and predictable a work environment as possible” for Abercrombie’s employees, will become effective in September in New York and eventually be phased in nationwide.

Why did the Attorney General of New York state choose to intervene in the work-scheduling policies of a baker’s dozen retailers? “Unpredictable work schedules take a toll on all employees, especially those in low wage sectors,” commented Schneiderman, adding that other companies should follow Abercrombie’s “important step.” In April, the AG had claimed that Abercrombie’s policy “potentially” broke a New York law. That law states that staffers who report for scheduled work must receive at least four hours’ pay at minimum wage even if sent home. (Several other states have similar laws.) As the Journal points out, the law was passed before the advent of text messaging and e-mail made it easy to reach most people on short notice. Despite its change of policy, Abercrombie admitted no violation of law.

To an economist, the regulatory action taken by the New York Attorney General’s office and the explanations accompanying it seem utterly inexplicable – unless we are willing to believe that the inherent purpose of government is to eliminate all sources of human discontent.

Why Oppose – That Is, Regulate – On-Call Scheduling?

AG Schneiderman has chosen to regulate on-call scheduling by issuing an unfavorable opinion of this particular work practice, then pressuring firms behind the scenes to drop it. The question is: Why?

According to the Journal, “a number of current and former Abercrombie store associates nationwide left complaints about the scheduling policy on the employer-review site “Glassdoor….” (Parenthetically, we should note that the ghastly use of “a number of” could denote anything from one to infinity and is the kind of elementary error that freshman journalism students are taught to avoid.) Let us stipulate that some workers find the practice of on-call scheduling objectionable. So what? Is the purpose of government to act as a sort of all-purpose complaint department? Or is there something unique, perhaps, about the situation of retail employees – or human labor in general – that requires complaints to be addressed by government rather than directed to management?

As a matter of fact, why don’t workers who find the practice of on-call scheduling objectionable adopt the great American solution open to all workers in a free society; namely, quit and find a different job with working conditions more to their liking?

The Great Fried-Chicken Dilemma

To clarify this problem, consider a much easier problem posed in a much more familiar context.

Consider the problem of consumers confronted with a product they don’t like. Suppose a diner visits a fried chicken restaurant and finds the main course unpalatable. Should the diner complain to management? Well, many restaurants encourage this; it may or may not produce a refund for the diner. Conceivably, it might even result in alteration of the restaurant’s recipe or staff. But chances are that the diner will simply shrug and go somewhere else. After all, there are untold numbers of competing fried-chicken restaurants.

Should we demand that the Federal Trade Commission monitor consumer websites for customer complaints and “crack down” on restaurants that sell “inferior” fried chicken? No, there are huge flaws with this approach to the problem of maintaining restaurant quality. One drawback is that consumer tastes in fried chicken differ; one man’s inferior chicken is another man’s delight. Requiring government to enforce a quality standard in fried chicken will inevitably result in the production of “government quality” fried chicken; that is, one kind of fried chicken that diners of all tastes will have to eat or else. In this case, “or else” means they will have to prepare their own fried chicken. Since they previously had that alternative but rejected it in favor of dining out, this clearly makes them worse off than they would be if they could find a fried chicken to their taste. Of course, we could pretend to solve this problem by having government set up a different quality standard for each different flavor of fried chicken – one for extra crispy, one for spicy, and so on. But this would only create a host of new problems. And it assumes that government is just as responsive to consumer desires as producers are in free markets, whereas our experience tells us that government is quite insensitive to the desires of constituents and tends to impose a “one-size-fits-all” standard on the public whenever it can.

Another obvious drawback is the vast number of fried-chicken restaurants and diners, which would force government to employ huge numbers of people and spend ungodly amounts of time checking out complaints. (Lack of resources also argues against having government set up multiple quality standards for fried chicken, since it would hardly have sufficient time and manpower to enforce one standard, let alone multiple ones.)

Still another drawback would be the inducement sellers would have to file complaints against their competitors. Not only would this tie up government resources in investigating bogus complaints, it would also imperil the workings of competitive markets. If sellers could use government as a tool in falsely branding their competitors’ products as inferior, this would vitiate the very purpose that regulation is intended to serve.

Just think about all the problems we don’t have because we don’t force government to regulate fried-chicken quality in free markets. We don’t have to worry about how many different flavors of fried chicken to allow – are regular, extra-crispy, spicy, and Cajun-style enough, too many or insufficient to satisfy us? Should the number vary in different cities? Counties? States? Regions? Should it change over time, and if so how often? We don’t worry about any of these things. In fact, we take the answers to these questions completely for granted without ever realizing that they might be a problem in the first place. The market takes care of the answers without any of us ever giving the matter a moment’s thought.

Upon consideration, we realize that the mere fact that somebody doesn’t like fried chicken at a restaurant doesn’t necessarily mean that a market failure calling for government regulation has occurred. It might simply mean that the consumer has tasted fried chicken prepared in one of the various ways that don’t suit him; he needs to visit a restaurant better suited to his tastes. Of course, this could be styled a failure of information, but it is certainly not clear that government regulation could have prevented it or could solve it for other consumers. Markets, not governments, are collators and transmitters of information.

If we tried hard enough, we might envision a role for government in such a situation. Maybe the consumer didn’t like the chicken because it was tainted by salmonella. But we have government regulation of health standards in restaurants and preparation standards in chicken plants – and salmonella cases still happen. In reality, markets solve the problem of food poisoning in restaurants by turning restaurants that serve tainted food into commercial pariahs – a disincentive that exceeds any penalty government offers.

The Great Fried-Chicken Dilemma offers vast insight into the problems of labor markets in general and the regulation of on-call scheduling in particular.

The Potential Efficiency Benefits of On-Call Scheduling

Neither Wall Street Journal article nor Attorney General Schneiderman – nor, for that matter, Abercrombie itself – said anything to suggest that the practice of on-call scheduling might actually be beneficial for retail sellers, for consumers and for workers themselves. That omission is startling. There was a reason why Abercrombie and 12 other retail businesses employed this business practice.

Every consumer has patronized a retail seller and knows that these businesses are sometimes bustling with business and sometimes nearly empty. At some point, every consumer has experienced the frustration of seeking a sales clerk in vain. Businesses strive to keep exactly the right number of staff on the floor – not too many, not too few. Depending on the particular good(s) sold, human labor may be the most expensive cost incurred by the business, so it behooves managers to manipulate their “inventory” of sales staff to best advantage.

Just as businesses want to manage their inventory of sales staff optimally, so they also want to keep just the right amount inventory of goods on their shelves. For centuries, this was one of the biggest headaches facing the average business. Economists even identified the phenomenon called an “inventory recession,” caused by too many businesses simultaneously overestimating the need for future inventories and producing far more goods than were needed – only to find shelves and warehouses full to overflowing when consumer demand did not keep pace with expectations. Recent technological innovations in transportation, logistics and computers have allowed business to employ an inventory scheduling practice called “just in time” inventory management. This allowed businesses to postpone restocking until the last minute, letting them gauge demand much more accurately and avoiding the necessity for accurate long-distance forecasting of inventory needs.

If we view a retail business’s roster of employees as its staffing “inventory,” it is clear that on-call scheduling is a kind of “just-in-time” program for staffing. It allows retail managers to postpone determination of their final staffing schedule until the point when they can gauge the demand for retail staffing much more accurately. This allows them to avoid paying superfluous clerks when the store is virtually empty while having extra clerks on hand when demand is unexpectedly strong. It is crystal clear that on-call scheduling is potentially very beneficial for a retail business.

Moreover, it should be equally clear that on-call scheduling benefits consumers, too. This is a case where the interests of consumers and those of the business are directly aligned. Consumers want to have extra clerks on hand at busy times but don’t benefit much, if at all, from the presence of superfluous clerks in slack times. In the long run, competition between retail businesses will insure that the benefits of lower costs are passed along to consumers in the form of lower prices, so the efficiency gains from on-call scheduling really go to consumers, even though we associate the concept of business efficiency with productive advantage and gains to business owners.

What obviously failed to occur to AG Schneiderman, the Wall Street Journal and (from outward appearances) even Abercrombie and its spokesman is that on-call scheduling is also a potential source of benefits to retail employees. Just as consumers in our fried-chicken example derive benefits from product differentiation, so also may workers derive benefits from different terms of employment and work environments. Retail sales work is generally viewed as a form of low-skilled labor. Economists treat low-skilled labor as homogeneous; that is, as indistinguishable. But on-call scheduling allows workers the chance either to accept employment or, alternatively, earn a higher wage by competing on the basis of willingness to work – or forego work – on short notice. Since the decision to work for a particular employer is voluntary, nobody is forced to take this offer – just as no consumer is forced to eat fried chicken they don’t like. There are countless retail sellers, so workers who don’t relish the practice of on-call scheduling can work for a business that doesn’t follow the practice – just as consumers who don’t like one variety of fried chicken can patronize one of the many other competing brands extant.

So Why Regulate On-Call Scheduling?

On-call scheduling offers potential benefits to retail businesses, consumers and even to retail workers – just as different types of products offer potential benefits to consumers. Nobody is forced to endure on-call scheduling if they don’t like it, since the large number of retail businesses competing for workers gives workers a wide choice of employment – just as consumers have wide choices of different products and aren’t forced to put up with a particular brand. If it would be incredibly wasteful and a huge mistake to regulate brand variety and quality of consumer goods – and it would – wouldn’t it be just as big a mistake to regulate the practice of on-call scheduling for analogous reasons?

The answer is yes. There is no earthly reason for government at any level – municipal, state or federal – to regulate the practice of on-call scheduling. Only bad can come of it. The implication of AG Schneiderman’s actions is that government has a duty to prevent human beings within its jurisdiction from experiencing even momentary discontent. The AG must consider workers to be either too stupid to act in their own interest or too helpless to do so even if they had the wit to perceive it. Left unspecified, however, is how or where the AG acquired the superior wisdom and knowledge to substitute his judgment for those of the workers whose interests he claims to represent.

Free Markets vs. Regulation

We have shown that various ways of producing goods and services (such as utilizing on-call scheduling to staff retailing establishments) and various types of goods (such as different varieties and flavors of fried chicken) offer potential benefits to consumers. How is that potential actuated; that is, how do we cross the bridge from “potential” to “actual?”

Apparently, there are two ways. We can give the processes and products a trial in the free market and see how they work, keeping the ones that succeed and discarding the ones that fail. The failures will lose money for sellers because consumers will reject them, either because they do not like them or because they are too expensive. That makes it easy for producers to discard them. Alternatively, regulators can accept or reject them on an a priori basis. In order for this method to succeed, regulators must know as much about technology and costs as the producers of the affected goods and services do. Regulators also must know as much about consumers’ tastes and preferences as the consumers themselves do – as well as knowing what is “good” for consumers to consume in a physiological and moral sense. In other words, regulators must be well-nigh omniscient. (Where input markets are directly affected, as in this case, we can treat workers as the “consumers” of the relevant process.)

Put in this way, the choice is as clear as two-way glass. Free markets work vastly better and are less expensive than regulation. Given this, why do governments leap to regulate at every opportunity?

Why Governments Almost Always Choose Regulation

The New York State Attorney General chose to regulate on-call scheduling for a reason. Based on our analysis, we might suppose him to be perverse – deliberately choosing a result that makes everybody worse off than before. But that is not so. Economics tells us that somebody has to be better off, and the first place to look for the beneficiary or beneficiaries would be the AG himself and his sponsors and constituents.

The AG is a bureaucrat, a denizen of state government. He benefits when his domain grows larger and his power over it increases. When the number of firms he regulates increases, the AG’s power increases and his budget increases or, more properly, his basis for demanding a budget and staffing increase strengthens. When the AG’s office regulates the processes employed by retail firms, preventing them from using innovative means to compete with other firms, state government is cartelizing what would otherwise be a competitive market. The result of this will be less output and higher prices in the retail-sales sector. This creates a constituency of business owners and managers who are beholden to the AG and state-government politicians. (In the broad sense, this is what happened for over four decades when the old Civil Aeronautics Board cartelized interstate airline travel in the United States between the 1930s and 1978.)

Notice that the list of beneficiaries from regulation of on-call scheduling is small compared to the roster of potential beneficiaries from unregulated on-call scheduling. Regulation benefits government bureaucrats, workers and politicians directed involved with the affected industry, along with business owners who gain from market cartelization. It harms everybody else, most notably the consumers of the good involved and (in this case) almost certainly the workers affected as well. The gains of business owners are probably temporary, but the gains accruing to government will last as long as government regulation continues.

The best way to visualize the actions of government vis a vis markets is by thinking of government as entrepreneurship in reverse. Politicians and bureaucrats are always alert for opportunities to expand their domain. But whereas the invisible hand of competition and voluntary exchange insures that free-market entrepreneurship creates broad, mutual benefits, the coercive, visible hand of government subtracts net value from almost all of its interchanges with markets.

Is the Purpose of Government to Eliminate All Sources of Discontent?

Now we understand the heretofore inexplicable contention that the purpose of government is to eliminate all sources of discontent. How could anybody be so naïve as to think that government has the ability to remedy all unhappiness? Doesn’t the speaker realize that his statement is a recipe for fiscal insolvency? Writing a blank check to government is a fruitless quest for a non-existent nirvana.

Alas, the author of those words didn’t particularly care whether government actually succeeded in eliminating any discontent or not. He was not striving for universal bliss. Rather he sought an unlimited warrant for government intrusion in order to benefit his own special interest. The more power government has, the larger it grows. The larger it grows, the more its servants prosper. And the more the servants of government prosper, the more the rest of us suffer.


DRI-211 for week of 3-29-15: Which First – Self-Driving Cars or Self-Flying Planes?

An Access Advertising EconBrief: 

Which First – Self-Driving Cars or Self-Flying Planes?

As details of the grisly demise of Lufthansa’s Germanwings flight 9525 gradually emerged, the truth became inescapable. The airliner had descended 10,000 feet in a quick but controlled manner, not the dead drop or death spiral of a disabled plane. No distress calls were sent. It became clear that the airplane had been deliberately steered into a mountainside. The recovery of the plane’s flight data recorder – the “black box” – provided the anticlimactic evidence of a mass murder wrapped around an apparent suicide: the sound of a chair scraping the floor as the flight crew’s captain excused himself from the cabin, followed by the sound of the cabin door closing, followed by the steady breathing of the co-pilot until the captain’s return. The sounds of the captain’s knocks and increasingly frantic demands to be readmitted to the cabin were finally accompanied by the last-minute screams and shrieks of the passengers as they saw the French Alps looming up before them.

The steady breathing inside the cabin showed that the copilot remained awake until the crash.

As we would expect, the reaction of the airline, Lufthansa, and government officials is now one of shock and disbelief. Brice Robin, Marseille public prosecutor, was asked if the copilot, Andreas Lubitz, had – to all intents and purposes – committed suicide. “I haven’t used the word suicide,” Robin demurred, while acknowledging the validity of the question. Carsten Spohr, Lufthansa’s CEO and himself a former pilot, begged to differ: “If a person takes 149 other people to their deaths with him, there is another word than suicide.” The obvious implication was that the other people were innocent bystanders, making this an act of mass murder that dwarfed the significance of the suicide.

This particular mass murder caught the news media off guard. We are inured to the customary form of mass murder, committed by a lone killer with handgun or rifle. He is using murder and the occasion of his death to attain the sense of personal empowerment he never realized in life. The news media reacts in stylized fashion with pious moralizing and calls for more and stronger laws against whatever weapon the killer happened to be using.

In the case of the airline industry, the last spasm of government regulation is still fresh in all our minds. It followed in response to the mass murder of 3,000 people on September 11, 2001 when terrorists hijacked commercial airliners and crashed them into the World Trade Center and the Pentagon. Regulation has marred airline travel with the pain of searches, scans, delays and tedium. Beyond that, the cabins of airliners have been hardened to make them impenetrable from the outside – in order to provide absolute security against another deliberately managed crash by madmen.

Oops. What about the madmen within?

But, after a few days of stunned disbelief, the chorus found its voice again. That voice sounded like Strother Martin’s in the movie Cool Hand Luke. What we have here is a failure to regulate. We’ll simply have to find a way to regulate the mental health of pilots. Obviously, the private sector is failing in its clear duty to protect the public, so government will have to step in.

Now if it were really possible for government to regulate mental health, wouldn’t the first priority be to regulate the mental health of politicians? Followed closely by bureaucrats? The likely annual deaths attributable to government run to six figures, far beyond any mayhem suicidal airline pilots might cause. Asking government to regulate the mental health of others is a little like giving the job to the inmates of a psychiatric hospital – perhaps on the theory that only somebody with mental illness can recognize and treat it in others.

Is this all we can muster in the face of this bizarre tragedy? No, tragedy sometimes gives us license to say things that wouldn’t resonate at other times. Now is the time to reorganize our system of air-traffic control, making it not only safer but better, faster and cheaper as well.

The Risk of Airline Travel Today: The State of the Art

Wall Street Journal Holman Jenkins goes straight to the heart of the matter in his recent column (03/29-29/2015, “Germanwings 9525 and the Future of Flight Safety”). The apparent mass-murder-by-pilot “highlights one way the technology has failed to advance as it should have.” Even though the commercial airline cockpit is “the most automated workplace in the world,” the sad fact is that “we are further along in planning for the autonomous car than for the autonomous airliner.”

How has the self-flying plane become not merely a theoretical possibility but a practical imperative? What stands in the way of its realization?

The answer to the first question lies in comparing the antiquated status quo in airline traffic control with the potential inherent in a system updated to current technological standards. The second answer lies in the recognition of the incentives posed by political economy.

Today’s “Horse and Buggy” System of Air-Traffic Control

For almost a century, air-traffic control throughout the world has operated under a “corridor system.” This has been accurately compared to the system of roads and lanes that governs vehicle transport on land, the obvious difference being that it incorporates additional vertical dimensions not present in the latter. Planes file flight plans that notify air-traffic controllers of their origin and ultimate destination. The planes are required to travel within specified flight corridors that are analogous to the lanes of a roadway. Controllers enforce distance limits between each plane, analogous to the “car-lengths” distance between the cars on roadways. Controllers regulate the order and sequence of takeoffs and landings at airports to prevent collisions.

Unfortunately, the corridor system is pockmarked with gross inefficiencies. Rather than being organized purely by function, it is instead governed primarily by political jurisdiction. This is jarringly evident in Europe, home to many countries in close physical proximity. An airline flight from one end of Europe to another may pass through dozens of different political jurisdictions, each time undergoing a “handoff” of radio contact for air-traffic control between plane and ground control.

In the U.S., centralized administration by the Federal Aviation Administration (FAA) surmounts some of this difficulty, but the antiquated reliance on radar for geographic positioning still demands that commercial aircraft report their positions periodically for handoff to a new air-traffic control boss. And the air corridors in the U.S. are little changed from the dawn of air-mail delivery in the 1920s and 30s, when hillside beacons provided vital navigational aids to pilots. Instead of regular, geometric air corridors, we have irregular, zigzag patterns that cause built-in delays in travel and waste of fuel. Meanwhile, the slightest glitch in weather or airport procedure can stack up planes on the ground or in the air and lead to rolling delays and mounting frustration among passengers.

Why Didn’t Airline Deregulation Solve or Ameliorate These Problems? 

Throughout the 20th century, the demand for airline travel grew like Topsy. But the system of air-traffic control remained antiquated. The only way that system could adjust to increased demand was by building more airports and hiring more air-traffic controllers. Building airports was complicated because major airports were constructed with public funds, not private investment. The rights-of-way, land acquisition costs, and advantages of sovereign immunity all militated against privatization. When air-traffic controllers became unionized, this guaranteed that the union would strive to restrict union membership in order to raise wages. This, too, made it difficult to cope with increases in passenger demand.

The deregulation of commercial airline entry and pricing that began in 1978 was an enormous boon to consumers. It ushered in a boom in airline travel. Paradoxically, this worsened the quality of the product consumers were offered because the federal government retained control over airline safety. This guaranteed that airport capacity and air-safety technology would not increase pari passu with consumer demand for airline travel. As Holman Jenkins puts it, the U.S. air-traffic-control system is “a government-run monopoly, astonishingly slow to upgrade its technology.” He cites the view of the leading expert on government regulation of transportation, Robert Poole of the Reason Foundation, that the system operates “as if Congress is its main customer.”

Private, profit-maximizing airlines have every incentive to insure the safe operation of their planes and the timely provision of service. Product quality is just as important to consumers as the price paid for service; indeed, it may well be more important. History shows that airline crashes have highly adverse effects on the business of the companies affected. At the margin, an airline that offers a lower price for a given flight or provides safer transportation to its customers or gives its customers less aggravation during their trip rates to make more money through its actions.

In contrast, government regulators have no occupational incentive to improve airline safety. To be sure, they have an incentive to regulate – hire staff, pass rules, impose directives and generally look as busy as possible in their everyday operations. When a crash occurs, they have a strong incentive to assume a grave demeanor, rush investigators to the scene, issue daily updates on results of investigations and eventually issue reports. These activities are the kinds of things that increase regulatory staffs and budgets, which in turn increase salaries of bureaucrats. They serve the public-relations interests of Congress, which controls regulatory budgets. But government regulators have no marginal incentive whatsoever to reduce the incidence of crashes or flight delays or passenger inconvenience – their bureaucratic compensation is not increased by improved productivity in these areas despite the fact that THIS IS REALLY WHAT WE WANT GOVERNMENT TO DO.

Thus, government regulators really have no incentive to modernize the air-traffic control system. And guess what? They haven’t done it; nor have they modernized the operation of airports. Indeed, the current system meets the needs of government well. It guarantees that accidents will continue to happen – this will continue to require investigation by government, thus providing a rationale for the FAA’s accident-investigation apparatus. Consumers will continue to complain about delays and airline misbehavior – this will require a government bureau to handle complaints and pretend to rectify mistakes made by airlines. And results of accident investigations will continue to show that something went wrong – after all, that is the definition of an accident, isn’t it? Well, the FAA’s job is to pretend to put that something right, whatever it might be.

The FAA and the Federal Transportation Safety Board (FTSB) are delighted with the status quo – it justifies their current existence. The last thing they want is a transition to a new, more efficient system that would eliminate accidents, errors and mistakes. That would weaken the rationale for big government. It would threaten the rationale for their jobs and their salaries.

Is there such a system on the horizon? Yes, there is.

Free Flight and the Future of Fully Automatic Airline Travel

A 09/06/2014 article in The Economist (“Free Flight”) is subtitled “As more aircraft take to the sky, new technology will allow pilots to pick their own routes but still avoid each other.” The article describes the activities of a Spanish technology company, Indra, involved in training a new breed of air-traffic controllers. The controllers do not shepherd planes to their destinations like leashed animals. Instead, they merely supervise autonomous pilots to make sure that their decisions harmonize with each other. The controllers are analogous to the auctioneers in the general equilibrium models of pricing developed by the 19th century economist Vilfredo Pareto.

The basic concept of free flight is that the pilot submits a flight plan allowing him or her to fly directly from origin to destination, without having to queue up in a travel corridor behind other planes and travel the comparatively indirect route dictated by the air-traffic control system. This allows closer spacing of planes in the air. Upon arrival, it also allows “continuous descent” rather than the more circuitous approach method that is now standard. This saves both time and fuel. For the European system, the average time saved has been estimated at ten minutes per flight. For the U. S., this would undoubtedly be greater. Translated into fuel, this would be a huge saving. For those concerned about the carbon dioxide emissions of airliners, this would be a boon.

The obvious question is: How are collisions to be avoided under the system of free flight? Technology provides the answer. Flight plans are submitted no less than 25 minutes in advance. Today’s high-speed computing power allows reconciliation of conflicts and any necessary adjustments in flight-paths to be made prior to takeoff. “Pilots” need only stick to their flight plan.

Streamlining of flight paths is only the beginning of the benefits of free flight. Technology now exists to replace the current system of radar and radio positioning of flights with satellite navigation. This would enable the exact positioning of a flight by controllers at a given moment. The European air-traffic control system is set to transition to satellite navigation by 2017; the U.S. system by 2020.

The upshot of all these advances is that the travel delays that currently have the public up in arms would be gone under the free flight system. It is estimated that the average error in flight arrivals would be no more than one minute.

Why must we wait another five years to reap the gains from a technology so manifestly beneficial? Older readers may recall the series of commercials in which Orson Welles promoted a wine with the slogan “We sell no wine before its time.” The motto of government regulation should be “we save no life before its time.”

The combination of free flight and satellite navigation is incredibly potent. As Jenkins notes, “the networking technology required to make [free flight] work [lends] itself naturally and almost inevitably to computerized aircraft controllable from the ground.” In other words, the human piloting of commercial aircraft has become obsolete – and has been so for years. The only thing standing between us and self-flying airliners has been the open opposition of commercial pilots and their union and the tacit opposition of the regulatory bureaucracy.

Virtually all airline crashes that occur now are the result of human error – or human deliberation. The publication Aviation Safety Network listed 8 crashes since 1994 that are believed to have been deliberately caused by the pilot. The fatalities involved were (in ascending order) 1, 1, 4, 12, 33, 44, 104 and 217. Three cases involved military planes stolen and crashed by unstable pilots, but of the rest, four were commercial flights whose pilots or copilots managed to crash their plane and take the passengers with them.

Jenkins resurrects the case of a Japanese pilot who crashed hid DC-8 into Tokyo Bay in 1982. He cites the case of the Air Force pilot who crashed his A-10 into a Colorado mountain in 1997. He states what so far nobody else has been willing to say, namely that “last March’s disappearance of Malaysia Airlines 370 appears to have been a criminal act by a member of the crew, though no wreckage has been recovered.”

The possibility of human error and human criminal actions is eliminated when the human element is removed. That is the clincher – if one were needed – in the case for free flight to replace our present antiquated system of air-traffic organization and control.

The case for free flight is analogous to the case for free markets and against the system of central planning and government regulation.

What if… 

Holman Jenkins reveals that as long ago as 1993 (!) no less a personage than Al Gore (!!) unveiled a proposal to partially privatize the air-traffic control system. This would have paved the way for free flight and automation to take over. As Jenkins observes retrospectively, “there likely would have been no 9/11. There would have been no Helios 522, which ran out of fuel and crashed in 2005 when its crew was incapacitated. There would have been no MH 370, no Germanwings 9525.” He is omitting the spillover effects on private aviation, such as the accident that claimed the life of golfer Payne Stewart.

The biggest “what if” of all is the effect on self-driving cars. Jenkins may be the most prominent skeptic about the feasibility – both technical and economic – of autonomous vehicles in the near term. But he is honest enough to acknowledge the truth. “Today we’d have decades of experience with autonomous planes to inform our thinking about autonomous cars. And disasters like the intentional crashing of the Germanwings plane would be hard to conceive of.”

What actually happened was that Gore’s proposal was poured through the legislative and regulatory cheesecloth. What emerged was funding to “study” it within the FAA – a guaranteed ticket to the cemetery. As long as commercial demand for air travel was increasing, pressure on the agency to do something about travel delays and the strain on airport capacity kept the idea alive. But after 9/11, the volume of air travel plummeted for years and the FAA was able to keep the lid on reform by patching up the aging, rickety structure.

And pilots continued to err. On very, very rare occasions, they continued to murder. Passengers continued to die. The air-traveling public continued to fume about delays. As always, they continued to blame the airlines instead of placing blame where it belonged – on the federal government. Now air travel is projected to more-than-double by 2030. How long will we continue to indulge the fantasy of government regulation as protector and savior?

Free markets solve problems because their participants can only achieve their aims by solving the problems of their customers. Governments perpetuate problems because the aims of politicians, bureaucrats and government employees are served by the existence of problems, not by their solution.

DRI-219 for week of 11-23-14: A Columnist’s Dawning Recognition of Deadly Auto-Safety Regulation

An Access Advertising EconBrief:

A Columnist’s Dawning Recognition of Deadly Auto-Safety Regulation

We are familiar with investigative reports by reporters in print and broadcast media and, in recent years, online. We view these as the mechanism for regulating institutions not subject to the constraints of the marketplace. Government is chief among these.

This routine has accustomed us to casting the news media in the role of cynical watchdog, always looking for wrongdoing and too prone to suspect the motives of those it covers. Of course, we may suspect the press of pre-existing bias – in favor of Democrats, for instance. But for the most part, we believe that their interests are served by finding scandal, wrongdoing and malfeasance, because these things are news.

The possibility that the press itself may be naïve and complacent is the last one we consider. It should not be overlooked.

Air Bag Safety 

Wall Street Journal columnist Holman Jenkins has written a series of columns about auto safety and regulation. Many of them followed the regulatory travails of Toyota, which endured a prolonged crucifixion when its vehicles were ostensibly subject to a problem of “unintended acceleration.” Although it was all too clear that the problem was caused by drivers unwittingly depressing the accelerator instead of the brake pedal, the company was beset by the fable that a bug in the car’s computer code was causing cars to accelerate when they should be slowing. Despite the conspicuous lack of scientific evidence for this hypothesis – not surprising in view of its impossibility – Toyota eventually was forced to pay out hundreds of millions of dollars in settlement money to make the issue go away.

Having set a tone of skepticism toward regulators, Jenkins turned next to the recent disclosure by Takata that their air bags have displayed defects. Toyota and Honda have recalled over 8 million vehicles to replace the air bags. The defect (apparently caused by moisture entering the ammonium nitrate air filter of the air bag) breaks down the explosive tablets in the air bags, causing them to burn quicker and explode more violently than normal. In turn, this shreds the metal housing surrounding the tablets and sends a shower of shrapnel into the driver and front-seat passenger (if any).

Jenkins noted that the demand by federal automobile regulators that the companies recall millions more vehicles is suspiciously timed to coincide with the end of hearings on the response by Japanese automakers to the finding of defective air bags. He reserved his strongest note of skepticism, though, for the use of air bags as safety devices.

“The faulty Takata air bags are connected to five deaths in 13 years, which is a tiny fraction of the deaths known to be caused by air bags working as designed [emphasis added]. When the Takata mess is cleaned up, we’ll still be left with a highly problematic safety technology.”

What’s this? Air bags themselves cause automobile-occupant deaths? They’re supposed to prevent deaths, not cause them. This is surely news to the general public, which is why Jenkins continues with a brief chronology of air bags’ journey from industrial infancy to ubiquity. “Washington began pushing automakers to install air bags in the 1980s, and ever since Washington has been responsible for research that confirms that air bags save hundreds of lives a year. These studies, though, credit air bags with saving people who were also wearing seat belts, when considerable evidence indicates seat belts alone do the job.”

“These studies also assume that deaths in collisions where air bags deployed are always attributable to the collision, never [to] the air bag.”

Jenkins does not mention that the push for air bags coincides with a federal push for mandatory wearing of seat belts. The first state law that required the wearing of a seat belt meeting federal specifications – essentially, a three-point seat belt buckling over the lap but also including a shoulder restraint – was passed in 1983. States received seven-figure federal bounties for passing a mandatory seat-belt law and achieving an estimated compliance beyond a specified rate.

“A 2005 study by Mary C. Mayer and Tremika Finney published by the American Statistical Association tried to correct for these errors and found that the clearest effect of air bags was an increased risk of death for unbelted occupants in low-speed crashes. Likewise, a 2002 study of 51,000 fatal accidents by University of Washington epidemiologists found that air bags (unlike seat belts) contributed little to crash survivability.”

“[Thus] air bags began as simple bombs buried in the dashboard designed to protect the typical non-seat belt wearing accident victim – the typical unbelted victim being a 170-pound teenage male. In 1997 came the reckoning: Air bags designed to meet the government’s criteria were shown to be responsible for the deaths of dozens of children and small adults in otherwise survivable accidents.”

This is the key point in Jenkins’ chronology, the point at which the reader’s eyebrows shoot up and he shakes his head in disbelief. Dozens of deaths? Adults and children? How did I miss the public furor over this? After all, when one or two people die owing to an automobile defect that a company knew about or should have known about, all hell breaks loose. In fact, the history of government suppression of unfavorable air-bag performance goes back decades. But Jenkins makes no mention of this; instead, he moves on.

“Since then, air bags have become ‘smarter,’ with computers modulating their deployment depending on type of crash, passenger characteristics and whether seat belts are being worn. Undoubtedly the technology has improved but still debatable is whether the benefits outweigh the risks and costs. Air bags remain one of the biggest reasons for vehicle recalls – and no wonder, given that these devices, which are dangerous to those who manufacture them and to those who repair vehicles, are expected to go years without maintenance or testing and then work perfectly.”

“Because, in the minds of the public, not to mention in the slow-motion videos on the evening news, air bags are seen as gentle, billowy clouds of perfect safety, yet another problem is the potential encouragement they give motorists to drive more aggressively or forgo the hassle of buckling up.” Now Jenkins has driven himself and his readers into water over their heads and is stalled. His column will drown unless it is rescued promptly. He has made a strong case that air bags are inherently unsafe, but is now suggesting something else – a different source of harm from their use. The fatal stretch of water was entered with the words “…yet another problem is the potential encouragement they [air bags] give motorists to drive more aggressively or forgo the hassle of buckling up.” This requires the services of a professional economist.

The Economic Principle of “Risk Compensation”


People tend to increase their indulgence in risky activities when they perceive that the safety of those activities has been enhanced. Risk should be treated just like any other consumption good – when the price of risk goes down, we should expect people to purchase more of it.

The first of the previous two sentences would meet with the approval of most people. The second would not. Yet from the economist’s perspective they might be interpreted as saying the same thing. A space shuttle is currently being readied for commercial use by tourists; wouldn’t we expect tourists to be more enthusiastic about it when improvements in launch and flight safety reduce the risk of death and serious injury for passengers? Still, we would expect there to be an appreciable risk of space travel for the indefinite future, wouldn’t we? When improvements in contraception result in better prophylactics, don’t we expect people to have sex more often, despite the fact that they still run a risk of contracting a sexually transmitted disease?

In 1975, economist Sam Peltzman published a seminal article in the Journal of Political Economy. He analyzed the effects of a series of government-mandated safety devices introduced beginning in the mid-1960s. His analysis suggested that the net effect on safety was approximately zero. Peltzman offered two explanations for this surprising result, the most plausible of which was that requiring the use of seat belts by drivers causes some people to take more driving risk than they would have if they had been driving beltless. This additional driving risk produced more accidents. While the increased use of safety devices tended to produce fewer injuries and fatalities among automobile occupants, the increased number of accidents also implicated non-automobile occupants such as pedestrians, motorcyclists and bicyclists. These additional injuries and fatalities tended to offset the injuries and fatalities saved by the use of seat belts, so that the comparative end result in driving statistics such as “fatalities per million miles driven” was a wash.

Over the succeeding forty years, this kind of outcome became proverbial throughout the social sciences, not just economics. In 2006, Smithsonian Magazine published an article summarizing the powerful effect that Peltzman’s work has had on the world. His ideas are grouped under the heading of “risk compensation,” an evocative term that implies that we satisfy our appetite for risk by compensating for added safety by “purchasing” more risk.  The principle has been observed in nations around the world, among adults and children, in activities ranging from driving to playground behavior to sports. Famous economist N. Gregory Mankiw, former Chairman of the President’s Council of Economic Advisors under President George W. Bush, blogged about “Sam Peltzman, who taught us all that mandatory seat-belt laws cause drivers to drive more recklessly.” Mankiw dubbed the relevant principle the “Peltzman Effect,” making Peltzman one of a select group to have a scientific principle named after him.

Despite the scientific status of risk compensation and the Peltzman Effect, Holman Jenkins shows no sign of having heard of it. He speaks of the “potential encouragement” offered by air bags to more aggressive driving by motorists as if he had just exhumed a Stone Age cave and stumbled upon a rectangular version of the wheel therein. And he applies the principle to air bags with no apparent awareness of its equal applicability to seat belts.

The Perils of Mandatory Safety


“By now,” Jenkins laments, “those of a certain age remember that Detroit was the villain that opposed putting explosive devices in their vehicles, plumping instead for mandatory seat-belt laws (which, amazingly, certain safety groups opposed).” No economist is surprised that Detroit opposed the idea of being forced to increase the cost of production by providing a safety benefit that (a) consumers didn’t want and (b) didn’t work, which would (c) expose them to endless litigation as well as threaten them personally. Seat belts were several orders of magnitude less expensive and the loss of freedom to consumers did not represent a business loss to automobile companies.

Jenkins’ failure to understand the opposition to mandatory seat-belt laws is astonishing, though, since it is based on the very same principle that he just invoked to oppose air bags. There is a lot to be said for seat belts when provided as a voluntary option for consumers. There is everything wrong with mandatory seat-belt laws because they encourage (force?) risk-loving drivers to obey the law by buckling up, then to fulfill their love of risk by driving more aggressively – and to do this as a substitute for going unbuckled in the first place. An unbuckled risk-lover is a driver who is himself bearing the risk he chooses to run. A buckled-up aggressive driver is a risk lover who is imposing the risk he chooses to run on other drivers – and pedestrians and cyclists – who may be more risk averse. This is bad theoretically because it is economically inefficient. Economic inefficiency is bad in the practical sense because it misaligns cost and benefit. In this case, it allows risk lovers to benefit from the risks they run but imposes some of the costs on other people who don’t benefit because they are risk-averse individuals who didn’t want to run those risks in the first place.

The practical side of all this has been seen is various ways. New Hampshire is the only state that hasn’t passed a mandatory seat-belt law in the interval since the mid-1980s. It has poorer-than-average weather and topography, so we would expect to it to have worse-than-average traffic-fatality results, all other things equal. Since traffic-safety expert predicted that mandatory seat-belt laws would usher in traffic-safety nirvana by reducing fatalities hugely, we would expect to find that New Hampshire highways had become a veritable slaughterhouse – if mandatory seat belts were the predicted panacea, that is.

Instead, New Hampshire traffic statistics have improved to near the top of the national rankings despite its singular lack of a mandatory seat-belt law. New Hampshire should be the poster-state for mandatory seat-belt laws; instead, it is the smoking gun that points to their guilt. This fact has gone completely unremarked in the national news media, which is probably why Holman Jenkins hasn’t noticed it.

But there is no excuse for Jenkins’ failure to notice the slowing improvement in nationwide traffic statistics that occurred along with the installation of air bags and mandatory seat-belt laws. The rate of fatalities per million vehicle miles driven has been falling since the 1930s and the growth of modern automobiles, highways, safety methods, signage and improved quality control in production and repair. The federal highway safety bureaucracy makes a point of announcing the yearly fatality data because it usually represents a recent low point. What they fail to announce is the slowing rate of decline. Indeed, recently fatalities have actually risen in spite of the poor economy and less auto travel.

Jenkins apparently considers himself daring for suggesting that air bags are counterproductive and should be eliminated. He cites the myriad of safety innovations that have come on line in the last few years: automatic lane-violation warning devices, automatic skid-correction devices, automatic collision avoidance and braking sensors, automatic stabilizers and design features that direct crash energy away from passengers. “One imponderable is how much faster progress might have been without the bureaucracy’s forced diversion of industry capital to air bags … Each stride tilts the calculation away from having an IED in the dashboard as a net benefit to motorists, bringing closer the day when a new safety innovation will be announced: an air bag-free vehicle.”

Actually, Jenkins’ repudiation of air bags and reaffirmation of mandatory seat belts puts him about 45 years behind the times – about where we stood before Sam Peltzman wrote in 1975. Jenkins deserves credit for daring to break out of the regulatory mindset by opposing air bags, something other journalists have failed to do. That indicates the intellectual depths to which the downward market spiral of journalism has taken us.

What Jenkins should be doing is calling for abolition of the Department of Transportation, not air bags. Consider this: According to Jenkins’ own logic, the DOT mounted a nationwide campaign for mandatory seat-belt laws while also insisting upon mandatory air-bag installation in vehicles. But this is crazy. Using the language of game theory, we would say that the presence of air bags “dominates” seat-belt use, making it superfluous. With an air bag, one of two things happens: the air bag deploys as intended – in which case the passenger is protected in the accident – or the air bag explodes – in which case the passenger is maimed or killed. Either way the seat belt is superfluous. Wearing a seat belt doesn’t add protection if the air bag works and doesn’t protect against shrapnel if the air bag explodes. There is also a third possibility: the air bag might explode prematurely, killing or maiming the passenger even though there is no accident. And the seat belt is superfluous in this case as well.

Although shouldn’t be too hard on Holman Jenkins, we shouldn’t feel bound by his intellectual limitations or his inhibitions. Now that we know that both mandatory air bags and mandatory seat-belt laws are abominations enacted in the name of automobile safety, what are we to make of a federal-government safety bureaucracy that insists upon them even after their demonstrated failures? And with the technology of self-driving cars a demonstrated reality, what are we to think when that same bureaucracy is distinctly reluctant to allow it to proceed?

Why Does DOT Tend to Hinder Rather Than Promote Automobile Safety?

The heading for this section will anger many readers. The conventional view of federal regulation has been described by the late Nobel laureate James Buchanan as the “romantic” view of government. Roughly speaking, it is that government regulators act nobly and altruistically in the public interest. Upon very close examination, the term “public interest” will be found so vague as to defy precise definition. However, this is advantageous in practice, as it allows each user to define it according to his or her individual desires – it makes the theory of government into a sort of fairy-tale, wish-fulfillment affair. No wonder this approach has survived so long with so little clear-eyed scrutiny! Everybody is afraid to look at it too hard for fear that their fondest dreams will go up in smoke. And indeed, that is what actually happens when we try to put this theory into practice.

Suppose we depart from this sentimental approach by inquiring into the incentives that confront bureaucrats in the Department of Transportation (DOT). First, ask what happens if DOT develops an innovative safety technology that saves the lives of consumers. Let’s say, for example, that they develop an improved seat belt, such as the three-point seat belt which turned the failed two-point lap belt into a viable safety device. Will the individual researcher(s) in DOT get a bonus? Will he or she (or they) patent the device and earn substantial royalties? Will they become famous? The answers are no, no and no, respectively. Thus, there are no positive incentives motivating DOT to improve automobile safety.

On the other hand, suppose DOT does just the opposite. Suppose it actually worsens auto safety. Indeed, suppose DOT does exactly what the political Left routinely accuses capitalist businessmen of doing; namely, kills its “customers” (in DOT’s case, this would be the consumers who are the ostensible beneficiaries of regulation).

What an irritating, outrageous question to pose! We all know that government regulatory agencies exist to protect the public, so it is unforgivably irresponsible to suggest that they would actually kill the people they are supposed to protect. But – let’s face it – that is exactly what Holman Jenkins is implying, isn’t it? He never has the cojones to blurt it out, but the statements that “Washington has been responsible for research” and “air bags designed to meet the government’s criteria were shown to be responsible for the deaths of dozens of children and small adults in otherwise survivable accidents” don’t leave much to the imagination, do they? As it happens, there is plenty more dirty linen in the government’s closet that Jenkins leaves unaired.

As long as everybody else is as deferential (or as cowardly) as Jenkins, the general public will not link government with the deaths in the way that private businesses are linked with the deaths of consumers. When more consumers die, what happens is this: government benefits. DOT uses this as the excuse to hire more people, beef up research and spend more money. Larger staffs and bigger budgets are the bureaucratic equivalent of higher profits, but this differs from the private-sector outcome in that higher profits are normally associated with better outcomes for consumers while, if anything, the reverse is true of bureaucratic expansion in government.

Suppose DOT were to recommend that we proceed at breakneck speed to adopt driverless cars in order to eliminate virtually all of our current 30,000+ annual highway fatalities. Suppose the agency even brings about this outcome within just a few years. There would be little or nothing left for the agency to do; it would have succeeded so well that it would have innovated itself out of existence. No wonder that DOT is dragging its feet to slow the acceptance of driverless cars!

In the private sector, there is an incentive to solve problems. In government, there is never an incentive to solve problems because that will usually leave government with no excuse to exist, to grow and expand. When a private firm solves a problem, it makes a big pile of money that it can use to expand or enter some new line of business – even if the solution to the problem leaves it with no reason to continue producing its current product. There is no government analogue to this reward and consequently no incentive for government to succeed, only incentives for it to fail. Indeed, there are even incentives for it to do harm. And in the arena of automobile safety, that is exactly what it has done.

Just to reinforce the point, let’s generalize it by broadening our evidentiary base beyond federal regulation. Earlier we cited various numerous safety improvements that are being incorporated piecemeal into automobiles by the major auto companies: lane-violation detection, automatic braking, collision avoidance and others. Driverless cars include all of these and more besides. The state of California has recently passed regulatory legislation forcing all driverless cars to allow a human driver to “take over in an emergency;” e.g., bypass the sensors that govern the driverless car’s actions. But every one of the safety improvements listed was designed expressly to produce mistake-proof behavior by the car in various emergency situations. In other words, the regulatory legislation has the effect of defeating the safety purpose of the driverless car. Oh, some nobler, more romantic rationale is advanced, but that is the effective result of the law.

The case of the DOT is not unique at the federal level either. Hundreds of thousands of corpses could attest to the harm the FDA has done by blocking the approval of new drugs. Many economists could, and have, detail the harm done to competition by application of the antitrust laws ostensibly designed to preserve and protect it.

Economists are the real investigative reporters. Most of the time, their tools consist of logic and arithmetic rather than confidential informants and leaked documents. But when it comes to exposes, their stories put those of journalists in the shade.

DRI-312 for week of 9-29-13: Suppose They Gave a Government Shutdown and Nobody Cared?

An Access Advertising EconBrief:

Suppose They Gave a Government Shutdown and Nobody Cared?

Midnight on Tuesday, Oct. 1, 2013 is the deadline for the shutdown of the federal government. That is the start of the new federal fiscal year. The U.S. Constitution specifies that Congress must authorize spending by the executive branch. Strange as it seems to a country by now inured to executive and regulatory high-handedness, the government cannot legally initiate operations by writing checks on its own hook. Fiscal delinquency, delay and deceit have long been the hallmarks of Congressional action, so it seems only fitting that Congress has failed to agree on the spending authorizations for departments that would get the federal government up and running in the New Year. And this year’s calendar offers a special treat, since the Oct. 17 deadline for default looms on the horizon as the next bureaucratic drop-dead date for civilization as we know it.

Amid the breathless media countdown to Armageddon, a sober pause for introspection is in order. How big an emergency is the federal-government shutdown, really? What underlying significance does a government shutdown have? How did we reach this position? Has the underlying economic significance of our situation been correctly conveyed by commentators and news media?

OMG! The Federal Government is About to Shut Down! Oh, Wait, Time for Vacation…

The attitude of Congressional representatives toward the prospect of government shutdown might best be compared to that of college students facing final exams. The exam schedule is announced at the beginning of the semester; indeed, it is printed in the course catalog distributed at registration. The course syllabus carefully explains the importance of the final to the student’s grade. The student knows the format of the exam, its location and exact time of day.

So, having had nearly four months to prepare and all the advance warning anybody could ask for, students are well versed, confident and unruffled in the waning days of the semester, right? On the night before the exam, they spend a short time reviewing basic ideas before retiring to get a good night’s sleep, to arise refreshed and eager to meet their task on final-exam day, don’t they? And they pass the exam with flying colors?

No, students generally seek out any excuse to avoid studying the material – and excuses emerge in profusion. As time passes and the semester ages, the knowledge of their approaching fate weighs on students’ minds, producing a buildup of anxiety and kinetic energy in their bodies. This demands an outlet, and late semester is a popular time for beer busts and other recreational modes of escape. The waning days before the final exam are spent in frantic efforts to complete course work and accomplish several months’ worth of study in a few days. The culmination of this crash program arrives on execution eve, when the students cram as many isolated facts as possible into their brain cells, relying on short-term memory to pinch-hit for solid comprehension. The surprising success rate of this modus operandi is owed less to its inherent effectiveness than to the grade inflation that has overwhelmed higher education in recent decades.

Anybody who expected their Congressional representative to behave in a more mature, sensible fashion than a college underclassman has been bitterly disillusioned by experience. Consider this latest example of budget brinkmanship.

The end of the fiscal year is not a national secret. Congress has known all year it was coming. The issues dividing the two major parties were well-known from the first day; ObamaCare has been a dinosaur-sized-bone of contention since its proposal and passage in 2010 and shocking reaffirmation by the Supreme Court in 2011. There was ample time to resolve differences or remove the legislation as a political roadblock to process.

As the year wound down, it became increasingly clear that opponents were eyeball to eyeball, each waiting for the others to blink. Now it was August, with only two months left in which to stave out a shutdown. When the going get tough, the tough… go on vacation – which was exactly what Congress did, for five weeks.

For the last week, leaders like Senate Majority Leader Harry Reid (D-Nevada) and Republican Ted Cruz have suddenly come alive with frantic last-ditch efforts. Each side has crafted and passed proposals (in the Democrat-controlled Senate and the Republican House) that the other side has torpedoed. At this writing, we are down to the last-minute cramming… but it should not escape notice that Sen. Reid was not too appalled by the prospect of shutdown to leave town the weekend after superintending the defeat of Rep. Cruz’s proposal in the Senate.

A few of the more cynical commentators have observed that we have been down this road before without careening off the highway and down a mountainside into oblivion. One set of talking points refers to this as our third experience with actual shutdown, but this is far from true. In fact, the federal government has survived 19 previous shutdowns – 17 since 1977 alone, according to the Congressional Research Service. Most have lasted a few days; the most recent (and famous) one in 1996 lasted for 21 days. So much for the artificially contrived atmosphere of urgency surrounding this one, which has been another production of political theater brought to you by your national news media.

Is There a Point to the Shutdown? If So, What is It?

It should be obvious that the hype surrounding the shutdown is phony. Even if we make allowances for the timing coincidence of the fiscal-year dividing line and debt-ceiling deadline, the attention paid to the shutdown is out of all proportion to its real effects on American well-being. But even though the shutdown may be relatively innocuous in its effects, that does not make it a good idea. What does it accomplish – ostensibly or actually?

It goes without saying that detractors of the Tea Party and the Republican Congressional leadership foresee nothing good coming of the shutdown. Since these are the people who got America into the mess that now plagues it – or stood by while that happened – we can disregard their opinions.

If there is an overriding goal of those who drove the events leading to the shutdown, it is opposition to ObamaCare. This opposition has taken the form of attempts to “defund” it; that is, to deny the Obama Administration the money necessary to implement the program. Were this successful, the program would remain on the books de jure as law, but would be repealed de facto by the lack of funds to run it. The most direct means taken to achieve this end is by passing a spending authorization bill containing a rider that defunds the Affordable Care Act. The problem with this measure is that the President will never sign this bill; ObamaCare is the signature legislation of his presidency.

Plan B of the defunders has been to replace that defunding rider with one that delays implementation of ObamaCare provisions for individual citizens by one year. This is directly analogous to the delay instituted by the Obama administration itself for businesses; in effect, it simply gives private individuals the same one-year reprieve given to employers by the President himself. This measure not only has the virtue of symmetry but also of fairness and logistical convenience. It is not clear why the bill should be delayed for businesses and not for everybody else. The state exchanges that would enable individuals to acquire health insurance are not up and running anyway in several states, so this would give the system more time to iron out the kinks. And this delay is entirely legal, being instituted by the Congress and submitted for Presidential signature; the business delay was a flagrantly illegal action imposed by Presidential fiat.

But President Obama is not about to agree to this compromise measure, either. He knows that the longer ObamaCare is postponed, the longer opposition will have to build and the longer its defects will have to become manifest. Once in place, a national system this massive and bureaucratic will be almost impossible to dislodge if only due to the inertia that will set in. The President only delayed applying its business provisions out of direst necessity; everybody was so unprepared that imposition would have led to complete fiasco. So Obama wants to get half of ObamaCare going while the going is good – or at least feasible.

Republic Speaker of the House John Boehner is already confronted by panic in the ranks. Republican representatives have hardly faced the first unfriendly fire from the news media – accusing them of irresponsibly jeopardizing the welfare of the nation for their own petty political purposes – before bolting for cover. Boehner’s queries as he gives them the flat of his sword are: What is this all about if not standing on principle against the President’s program? If we can’t work for the repeal of a terrible law as soundly unpopular as ObamaCare, when will we ever oppose the President? If now isn’t the time to stand firm against policies that are spending the country into the ground and destroying the heritage of our children, when will a better time come around? Over 30 years ago, President Ronald Reagan asked: If not now, when? Well, we didn’t do it then. If we don’t reform the budget now, when?

And those are indeed the relevant questions. Most Republicans oppose ObamaCare, all right; they have enough political courage to stand up against a law when the polls proclaim it heavily unpopular. But ObamaCare is merely the tip of the spending iceberg; the entitlement programs lie jutting beneath the surface waiting to scuttle the most unsinkable of reformers. There is no sign of Republicans boarding icebreakers, kissing wives and children goodbye and signing on for the duration of the voyage to clear the sea lanes of entitlements.

And Now for Some Opinion Completely Different

Holman Jenkins of The Wall Street Journal is a commentator not noted for his sunny optimism. Nevertheless, his take on the federal-budget stalemate is decidedly more upbeat than others commonly bruited. “What if, 10 years ago, Greece had made itself a laughingstock, sacrificed its credibility, brought shame on itself – all phrases used against Washington this week – by shutting down its government because certain legislators saw ideological and electoral rewards to be gained from making a fuss over unsustainable spending? Greek TV hosts would have shouted ‘Athens is broken!'”

Instead, as Jenkins knows only too well, Greece went sleepily on its corrupt, lazy, insouciant way, only to collapse in a heap nearly a decade later. Meanwhile, Americans today “all shake a fist at Washington, denouncing its irresponsibility because politicians are ‘playing politics’ with the debt ceiling and government shutdown.” But “then again, politics is how we govern ourselves. It’s better than despotism not because each moment is a model of stately order and reason, because America is a diverse, fractious society. The only way it works is by the endless grinding out of political compromises amid shrieking and making threats and turning blue.”

Jenkins anticipates the typical facile rejoinder. “The usual suspects at this point will be stamping their feet and insisting the U.S. isn’t Greece, as if this is an insight. No country can borrow and spend infinite amounts of money, and no political system is immune to the incentive to keep trying anyway. Herein lies the real point that applies as much to Washington as to Athens.”

“It would be nice if today’s fight were genuinely about the future. Oh, wait, that’s exactly what the ObamaCare fight is about. By trying to stop a brand new entitlement before it gets started, in a country already palpably and indisputably committed to more entitlement spending than it wants to pay for, those radical House Republicans aren’t trying to chop current spending amid a sluggish recovery (however much one begins to doubt that pump-priming from Washington is the solution the economy needs). Those terrible House Republicans aren’t trying to force colleagues to commit painful votes to take away established goodies from established voting blocs – votes that neither Republicans nor Democrats have the slightest yearning to cast.”

“Those disgraceful House Republicans have made the fight exactly about the long term. Where’s the grudging approval from our Keynesian friends who constantly say immediate spending must be protected and reform saved for the long term?” Again, Jenkins knows full well that Keynesian economics is no longer a putatively consistent set of theoretical propositions; it is now a policy admonition in search of a theory and for sale to any political sponsor willing to fork over lucrative, visible jobs to Keynesian economists.

“Not only will there by more such shutdowns,” Jenkins predicts. “What passes for progress each time will be tiny – until it’s not. The 2011 sequester, which caused critics to engage in choruses of disapproval and the S&P to downgrade U.S. debt, set us on a path to today’s modestly smaller current deficits. This week’s peculiar fight may be resolved by a near-meaningless repeal of ObamaCare’s self-defeating medical-device tax – a teensy if desirable adjustment, having no bearing on the deficit tsunami that begins when the baby boomers start demanding their benefits.”

Jenkins’s peroration combines elements of Churchill and Pericles. “We are at the beginning of the beginning. Yet the birth pangs of entitlement reform that will one day inspire the world (as we did with tax reform in ’80s) may be what we’re witnessing.” Hence the title of the column: “Behind the Noise, Entitlement Reform.”

Too Little, Too Late

Holman Jenkins’s vision is seductive, but unconvincing. Its visceral appeal lies in its pragmatism and its familiarity. Pragmatism is the great American virtue. We have grown up learning to accept and adapt to incremental change. Surely the changes necessary to cope with the downsizing of the welfare state will be just one more set of adjustments – painful but bearable. How many times have we heard Cassandras prophesy doom? How many times has it appeared? This is apparently the comforting set of rationalizations that insulates us from the truth of our situation.

Unfortunately, there is no reason to believe that a long series of small changes will be both timely and sufficient to our purpose. Not only has the Obama Administration’s fiscal policies shifted the velocity of fiscal decline to warp speed, but its monetary policies have changed our major problem from financial crisis to monetary collapse. Financial crisis is something that both individual countries and world systems recover from. Monetary collapse can lead to the destruction of a nation’s economy and the end of the civil order. We not only have to change our ways, we must reverse course by 180 degrees. And do it quickly.

It seems that Jenkins envisions entitlement reform from the austere perspective of an actuary contemplating the future of a program like Social Security. Tut-tut, the actuary admonishes, this program will be bankrupt in another 20 years or so. Well, in 20 years, a solid plurality of Wall Street Journal readers will be dead or near death. Quite a few will be financially independent of the program. Most of the rest view 20 years hence as imperceptibly distant – ample time to recover from the financial improvidence of youth.

But the real crisis on our trip planner is not actuarial. Social Security affects it long before it actually becomes insolvent because its unfunded status will be factored into the calculations of bond traders, credit-rating agencies and interest-rate setters. We may or may not be at Jenkins’s “beginning of the beginning,” but we are certainly not standing in the starting blocks in terms of debt. Government at every level is in hock up to its hairline. The private sector has been making a valiant effort to deleverage – and for its pains has caught hell from Keynesian economists who lecture us about the evils of saving in the middle of a recession. (Just prior to the Great Recession, the same people were decrying our “consumption binge” and running public-service ads begging us to save more.) American banks have trillions loitering in excess reserves, just spoiling for the chance to torch the value of the dollar at home and abroad. Foreign holders of dollars and dollar-denominated assets are dying for a convenient chance to unload them. Business forecasters need binoculars to view the upside potential of U.S. interest rates. And when interest rates skyrocket, interest payments on the federal debt will crowd out practically everything else on the docket, making the budget wars of today look like Sunday-school theology debates. The endpoint of this process is monetary collapse, when the U.S. dollar is abandoned as a medium of exchange, unit of account and store of value.

Oh, and just in case the foregoing doesn’t fill you with a sense of dread, there’s the little matter of international “currency war” to ponder. During the Great Depression, many nations used monetary expansion to deliberately trash the value of their own currencies. Their aim was to make their goods look cheap to foreigners, thereby hiking their number and value of their exports and increasing employment in their export industries. Since their depreciated domestic currency would also buy fewer imports, this would supposedly encourage the citizenry to buy fewer goods from abroad, thereby increasing domestic employment in import-competing industries. This game plan is well-known to economic historians as the “beggar thy neighbor” strategy. Its inherent flaw is that it can work if, and only if, only one nation employs it. When all or most nations do it simultaneously, the effects cancel each other out in the currency market and the only result is that international trade evaporates – which is roughly what did happen during the Depression. Since international trade is a good thing which makes practically everybody better off, its virtual elimination was a disaster for everybody. And guess what? The rest of the world, watching Ben Bernanke and the Fed at work creating money like there’s no tomorrow, may well suspect the U.S. of trying just this tactic. Whether they’re right or wrong is beside the point, since it is their belief that will determine whether they retaliate by starting a trade war that mimics the devastation of the 1930s.

It is barely possible that Congress might embark on a program of haphazard, gradual deficit reduction a la Jenkins. But a thoroughgoing reform of the process is not in the cards. Thus, the danger is not a collapse caused by a government shutdown. The danger is a collapse caused by the failure to shut the government down. It is government at all levels that has turned itself into a machine for spending citizens’ money to benefit employees without providing substantial benefits to the citizens. Since there is virtually no competition for government services, there is little or no way to gauge whether any government good or service is worth what we have to pay to get it. So government just keeps rolling along, like Old Man River, carrying us all along with the flow.

The mass delusion afflicting America is cognitive dissonance. Most of us agree with Jenkins that no government can increase spending indefinitely. Yet we do not admit that this requires our government to actually cut spending for the purposes that (we believe) benefit us – or, at least, we do not admit this necessity in our lifetime. The same people who normally consider government to be intrusive, inept and unproductive magically reverse their position 180 degrees and assume that government is efficient and productive when pursuing their pet project, benefitting them and saving the world from their latest hobgoblin. This is the politico-economic equivalent of William Saroyan’s lament that everybody had to die but he had always assumed that an exception would be made in his case.

The dissonance is actually three-sided. We fail to recognize not only its quantitative dimension but also its qualitative side – government’s utter failure to solve problems and produce things of value. Thus, the real entrenched constituency for big government is not its ostensible beneficiaries – the poor, downtrodden, minorities and such. It is the bureaucrats and their minions, who collect paychecks but whose real net contribution to the social product is negative.

Until this dissonance is dispelled, it is idle to blame politicians for acting true to form.