DRI-284 for week of 8-10-14: All Sides Go Off Half-Cocked in the Ferguson, MO Shooting

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All Sides Go Off Half-Cocked in the Ferguson, MO Shooting

By now most of America must wonder secretly whether the door to race relations is marked “Abandon all hope, ye who enter here.” Blacks – mostly teenagers and young adults, except for those caught in the crossfire – are shot dead every day throughout the country by other blacks in private quarrels, drug deals gone bad and various attempted crimes. Murder is the leading cause of death for young black males in America. We are inured to this. But the relative exception of a black youth killed by a white man causes all hell to break loose – purely on the basis of the racial identities of the principals.

The latest chilling proof of this racial theorem comes from Ferguson, MO, the St. Louis suburb where a policeman shot and killed an unarmed 18-year-old black man on Monday. The fact that the shooter is a policeman reinforces the need for careful investigation and unflinching analysis of the issues involved. The constant intrusion of racial identity is a mountainous obstacle to this process.

The Two Sides to the Story, As Originally Told

The shooting occurred on Saturday afternoon, August 9, 2014, in Ferguson, MO, where 14,000 of the 21,000 inhabitants are black and 50 of 53 assigned St. Louis County Police officers are white. The two sides of the story are summarized in an Associated Press story carrying the byline of Jim Suhr and carried on MSN News 08/13/2014. “Police have said the shooting happened after an [then-unnamed] officer encountered 18-year-old Michael Brown and another man on the street. They say one of the men pushed the officer into his squad car, then physically assaulted him in the vehicle and struggled with the officer over the officer’s weapon. At least one shot was fired inside the car. The struggle then spilled onto the street, where Brown was shot multiple times. In their initial news conference about the shooting, police didn’t specify whether Brown was the person who scuffled with the officer in the car and have refused to clarify their account.”

“Jackson said Wednesday that the officer involved sustained swelling facial injuries.”

“Dorian Johnson, who says he was with Brown when the shooting happened, has told a much different story. He has told media outlets that the officer ordered them out of the street, then tried to open his door so close to the men that it ‘ricocheted’ back, apparently upsetting the officer. Johnson says the officer grabbed his friend’s neck, then tried to pull him into the car before brandishing his weapon and firing. He says Brown started to run and the officer pursued him, firing multiple times. Johnson and another witness both say Brown was on the street with his hands raised when the officer fired at him repeatedly.”

The Reaction by Local Blacks: Protests and Violence

When a white citizen is shot by police under questionable circumstances – an occurrence that is happening with disturbing frequency – the incident is not ignored. But the consequent public alarm is subdued and contained within prescribed channels. Newspapers editorialize. Public figures express concern. Private citizens protest by writing or proclaiming their discontent.

The stylized reaction to a white-on-black incident like the one in Ferguson is quite different. Ever since the civil-rights era that began in the 1950s, these incidents are treated as presumptive civil-rights violations; that is, they are treated as crimes committed because the victim was black. Black “leaders” bemoan the continuing victim status of blacks, viewing the incident as more proof of same – the latest in an ongoing, presumably never-ending, saga of brutalization of blacks by whites. “Some civil-rights leaders have drawn comparisons between Brown’s death and that of 17-year-old Trayvon Martin.”

Rank-and-file blacks gather and march in protest, holding placards and chanting slogans tailored to the occasion. “Some protestors… raised their arms above their heads as they faced the police… The most popular chant has been ‘Hands up! Don’t shoot!'”

Most striking of all is the contrast struck by headlines like “Protests Turn Violent in St. Louis Suburb.” There is no non-black analogue to behavior like this: “Protests in the St. Louis suburb turned violent Wednesday night, with people lobbing Molotov cocktails at police, who responded with smoke bombs and tear gas to disperse the crowd.” This is a repetition of behavior begun in the 1960s, when massive riots set the urban ghettos of Harlem, Philadelphia and Detroit afire.

Joseph Epstein Weighs In

The critic and essayist Joseph Epstein belongs on the short list of the most trenchant thinkers and writers in the English language. His pellucid prose has illumined subjects ranging from American education to gossip political correctness to Fred Astaire. The utter intractability of race in America is demonstrated irrefutably by the fact that the subject reduced Epstein to feeble pastiche.

In his Wall Street Journal op-ed “What’s Missing in Ferguson, MO.”(The Wall Street Journal, Wednesday, August 13, 2014), Epstein notes the stylized character of the episode: “…the inconsolable mother, the testimony of the dead teenager’s friends to his innocence, the aunts and cousins chiming in, the police chief’s promise of a thorough investigation… The same lawyer who represented the [Trayvon] Martin family, it was announced, is going to take this case.”

But according to Epstein, the big problem is that it isn’t stylized enough. “Missing… was the calming voice of a national civil-rights leader of the kind that was so impressive during the 1950s and ’60s. In those days there was Martin Luther King Jr…. Roy Wilkins… Whitney Young… Bayard Rustin…. – all solid, serious men, each impressive in different ways, who through dignified forbearance and strategic action, brought down a body of unequivocally immoral laws aimed at America’s black population.”

But they are long dead. “None has been replaced by men of anywhere near the same caliber. In their place today there is only Jesse Jackson and Al Sharpton…One of the small accomplishments of President Obama has been to keep both of these men from becoming associated with the White House.” Today, the overriding problem facing blacks is that “no black leader has come forth to set out a program for progress for the substantial part of the black population that has remained for generations in the slough of poverty, crime and despair.”

Wait just a minute here. What about President Obama? He is, after all, a black man himself. That was ostensibly the great, momentous breakthrough of his election – the elevation of a black man to the Presidency of the United States. This was supposed to break the racial logjam once and for all. If a black man occupying the Presidency couldn’t lead the black underclass to the Promised Land, who could?

No, according to Epstein, it turns out that “President Obama, as leader of all the people, is not well positioned for the job of leading the black population that finds itself mired in despond.” Oh. Why not? “Someone is needed who commands the respect of his or her people, and the admiration of that vast – I would argue preponderate [sic] – number of middle-class whites who understand that progress for blacks means progress for the entire country.”

To be sure, Epstein appreciates the surrealism of the status quo. “In Chicago, where I live, much of the murder and crime… is black-on-black, and cannot be chalked up to racism, except secondarily by blaming that old hobgoblin, ‘the system.’ People march with signs reading ‘Stop the Killing,’ but everyone knows that the marching and the signs and the sweet sentiments of local clergy aren’t likely to change anything. Better education… a longer school day… more and better jobs… get the guns off the street… the absence of [black] fathers – … the old dead analyses, the pretty panaceas, are paraded. Yet nothing new is up for discussion… when Bill Cosby, Thomas Sowell or Shelby Steele… have dared to speak up about the pathologies at work… these black figures are castigated.”

The Dead Hand of “Civil Rights Movement” Thinking

When no less an eminence than Joseph Epstein sinks under the waves of cliché and outmoded rhetoric, it is a sign of rhetorical emergency: we need to burn away the deadwood of habitual thinking.

Epstein is caught in a time warp, still living out the decline and fall of Jim Crow. But that system is long gone, the men who destroyed it and those who desperately sought to preserve it alike. The Kings and Youngs and Wilkins’ and Rustins are gone just as the Pattons and Rommels and Ridgeways and MacArthurs and Montgomerys are gone. Leaders suit themselves to their times. Epstein is lamenting the fact that the generals of the last war are not around to fight this one.

Reflexively, Epstein hearkens back to the old days because they were days of triumph and progress. He is thinking about the Civil Rights Movement in exactly the same way that the political left thinks about World War II. What glorious days, when the federal government controlled every aspect of our lives and we had such a wonderful feeling of solidarity! Let’s recreate that feeling in peacetime! But those feelings were unique to wartime, when everybody subordinates their personal goals to the one common goal of winning the war. In peacetime, there is no such unitary goal because we all have our personal goals to fulfill. We may be willing to subordinate those goals temporarily to win a war but nobody wants to live that way perpetually. And the mechanisms of big government – unwieldy agencies, price and wage controls, tight security controls, etc. – may suffice to win a war against other big governments but cannot achieve prosperity and freedom in a normal peacetime environment.

In the days of Civil Rights, blacks were a collective, a clan, a tribe. This made practical, logistical sense because the Jim Crow laws treated blacks as a unit. It was a successful strategic move to close ranks in solidarity and choose leaders to speak for all. In effect, blacks were forming a political cartel to counter the political setbacks they had been dealt. That is to say, they were bargaining with government as a unit and consenting to be assigned rights as a collective (a “minority”) rather than as free individuals. In social science terms, they were what F. A. Hayek called a “social whole,” whose constituent individual parts were obliterated and amalgamated into the opaque unitary aggregate. This dangerous strategy has since come back to haunt them by obscuring the reality of black individualism.

Consider Epstein’s position. Indian tribes once sent their chief – one who earned respect as an elder, religious leader or military captain, what anthropologists called a “big man” – to Washington for meetings with the Great White Father. Now, Epstein wants to restore the Civil Rights days when black leaders analogously spoke out for their tribal flock. Traditionally, the fate of individuals in aboriginal societies is governed largely by the wishes of the “big man” or leader, not by their own independent actions. This would be unthinkable for (say) whites; when was the last time you heard a call for a George Washington, Henry Ford or Bill Gates to lead the white underclass out of its malaise?

In fact, this kind of thinking was already anachronistic in Epstein’s Golden Age, the heyday of Civil Rights. Many blacks recognized the trap they were headed towards, but took the path of least resistance because it seemed the shortest route to killing off Jim Crow. Now we can see the pitiful result of this sort of collective thinking.

An 18-year-old black male is killed by a police officer under highly suspicious circumstances. Is the focus on criminal justice, on the veracity of the police account, on the evidence of a crime? Is the inherent danger of a monopoly bureaucracy investigating itself and exercising military powers over its constituency highlighted? Not at all.

Instead, the same old racial demons are summoned from the closet using the same ritual incantations. Local blacks quickly turn a candlelight protest vigil into a violent riot. Uh oh – it looks like the natives are getting restless; too much firewater at the vigil, probably. Joseph Epstein bemoans the lack of a chieftain who can speak for them. No, wait – the Great Black Father in Washington has come forward to chastise the violent and exalt the meek and the humble. His lieutenant Nixon has sent a black chief to comfort his brothers. (On Thursday, Missouri Governor Jay Nixon sent Missouri Highway Patrol Captain Ron Johnson, a black man, heading a delegation of troopers to take over security duties in Ferguson.) The natives are mollified; the savage breast is soothed. “All the police did was look at us and shoot tear gas. Now we’re being treated with respect,” a native exults happily. “Now it’s up to us to ride that feeling,” another concludes. “The scene [after the Missouri Highway Patrol took over] was almost festive, with people celebrating and honking horns.” The black chief intones majestically: “We’re here to serve and protect… not to instill fear.” All is peaceful again in the village.

Is this the response Joseph Epstein was calling for? No, this is the phony-baloney, feel-good pretense that he decried, the same methods he recognized from his hometown of Chicago and now being deployed there by Obama confidant Rahm Emmanuel. The restless natives got the attention they sought. Meanwhile, lost in the festive party atmosphere was the case of Michael Brown, which wasn’t nearly as important as the rioters’ egos that needed stroking.

But the Highway Patrol will go home and the St. Louis County Police will be back in charge and the Michael Brown case will have to be resolved. Some six days after the event, the police finally got around to revealing pertinent details of the case; namely, that Michael Brown was suspected of robbing a convenience store of $48.99 worth of boxed cigars earlier that day in a “strong-arm robbery.” Six-year veteran policeman Darren Wilson, now finally identified by authorities, was one of several officers dispatched to the scene.

Of course, the blacks in Ferguson, MO, and throughout America aren’t Indian tribesmen or rebellious children – they are nominally free American individuals with natural rights protected by the U.S. Constitution. But if they expect to be treated with respect 365 days a year they will have to stop acting like juvenile delinquents, stop delegating the protection of their rights to self-serving politicians and hustlers and start asserting the individuality they possess.

The irony of this particular case is that it affords them just that opportunity. But it demands that they shed what Epstein calls “the too-comfortable robes of victimhood.” And they will have to step out from behind the shield of the collective. The Michael Brown case is not important because “blacks” are affronted. It is important because Michael Brown was an individual American just like the whites who get shot down by police every year. If Dorian Johnson is telling the truth, Brown’s individual rights were violated just as surely whether he was black, white, yellow or chartreuse.

Policing in America Today – and the Michael Brown Case

For at least two decades, policing in America has followed two clearly discernible trends. The first of these is the deployment of paramilitary equipment, techniques and thinking. The second is a philosophy is placing the police officer’s well-being above all other considerations. Both of these trends place the welfare of police bureaucrats, employees and officers above that of their constituents in the public.

To an economist, this is a striking datum. Owners or managers of competitive firms cannot place their welfare above that of their customers; if they do, the firm will go bankrupt and cease to exist, depriving the owners of an asset (wealth) and real income and the managers of a job and real income. So what allows a police force (more specifically, the Chief of Police and his lieutenants) to do what a competitive firm cannot do? Answer: The police have a monopoly on the use of force to enforce the law. In the words of a well-known lawyer, the response to the generic question “Can the police do that?” is always “Sure they can. They have guns.”

All bureaucracies tend to be inefficient, even corrupt. But corporate bureaucracies must respond to the public and they must earn profits. So they cannot afford to ignore consumer demand. The only factor to which government bureaucracies respond is variations in their budget, which are functions of political rather than economic variables.

All of these truths are on display in this case. The police have chosen to release only a limited, self-serving account of the incident. Their version of the facts is dubious to say the least, although it could conceivably be correct. Their suppression of rioting protestors employed large, tank-like vehicles carrying officers armed with military gear, weapons and tear gas. Dorian Johnson’s account of the incident is redolent of the modern police philosophy of “self-protection first;” at the first hint of trouble, the officer’s focus is on downing anybody who might conceivable offer resistance, armed or not, dangerous or not.

What does all this have to do with the racial identities of the principals? Absolutely nothing. Oh, it’s barely possible that officer Wilson might have harbored some racial animosity toward Brown or blacks in general. But it’s really quite irrelevant because white-on-black, white-on-white and black-on-white police incidents have cropped up from sea to shining sea in recent years. Indeed, this is an issue that should unite the races rather than dividing them since police are not reluctant to dispatch whites (or Hispanics or Asians, for that matter). While some observers claim the apparent increase in frequency of these cases is only because of the prevalence of cell phones and video cameras, this is also irrelevant; the fact that we may be noticing more abuses now would not be a reason to decry the new technology. As always, the pertinent question is whether or not an abuse of power took place. And those interested in the answer to that question, which should be every American, will have to contend with the unpromising prospect of a police department – a monopoly bureaucracy – investigating itself.

That is the very real national problem festering in Ferguson, MO – not a civil-rights problem, but a civil-wrongs problem.

The Battle Lines

Traditionally, ever since the left-wing counterculture demonized police as “pigs” in the 1960s, the right wing has reflexively supported the police and opposed those who criticized them. Indeed, some of this opposition to the police has been politically tendentious. But the right wing’s general stance is wrongheaded for two powerful reasons.

First, support for law enforcement itself has become progressively less equated to support for the Rule of Law. The number and scope of laws has become so large and excessive that support for the Rule of Law would actually require opposition to the existing body of statutory law.

Second, the monopoly status of the police has enabled them to become so abusive that they now threaten everybody, not merely the politically powerless. Considering the general decrease in crime rates driven by demographic factors, it is an open question whether most people are more threatened by criminals or by abusive police.

Even a bastion of neo-conservatism like The Wall Street Journal is becoming restive at the rampant exercise of monopoly power by police. Consider these excerpts from the unsigned editorial, “The Ferguson Exception,” on Friday, August 15, 2014: “One irony of Ferguson is that liberals have discovered an exercise of government power that they don’t support. Plenary police powers are vast, and law enforcement holds a public trust to use them in proportion to the threats. The Ferguson police must prevent rioting and looting and protect their own safety, though it is reasonable to wonder when law enforcement became a paramilitary operation [emphasis added]. The sniper rifles, black armored convoys and waves of tear gas deployed across Ferguson neighborhoods are jarring in a free society…Police contracts also build in bureaucratic privileges that would never be extended to other suspects. The Ferguson police department has refused to… supply basic information about the circumstances and status of the investigation [that], if it hasn’t been botched already, might help cool passions… how is anyone supposed to draw a conclusion one way or the other without any knowledge of what happened that afternoon?”

The Tunnel… and the Crack of Light at the End

The pair of editorial reactions in The Wall Street Journal typifies the alternatives open to those caught in the toils of America’s racial strife. We can play the same loop over and over again in such august company as Joseph Epstein. Or we can dunk ourselves in ice water, wake up and smell the coffee – and find ourselves rubbing shoulders with the Journal editors.

DRI-291 for week of 7-27-14: How to Debate Bill Moyers

An Access Advertising EconBrief:

How to Debate Bill Moyers

In the course of memorializing a fellow economist who died young, Milton Friedman observed that “we are all of us teachers.” He meant the word in more than the academic sense. Even those economists who live and work outside the academy are still required to inculcate economic fundamentals in their audience. The general public knows less about economics than a pig knows about Sunday – a metaphor justly borrowed from Harry Truman, whose opinion of economists was famously low.

Successful teachers quickly sense that they have entered their persuasive skills into a rhetorical contest with the students’ inborn resistance to learning. Economists face the added handicap that most people overrate their own understanding of the subject matter and are reluctant to jettison the emotional baggage that hinders their absorption of economic logic.

All this puts an economist behind the eight-ball as educator. But in public debate, economists usually find themselves frozen against the rail as well (to continue the analogy with pocket billiards). The most recent case of this competitive disadvantage was the appearance by Arthur C. Brooks, titular head of the conservative American Enterprise Institute (AEI), on the PBS interview program hosted by longtime network fixture Bill Moyers.

Brooks vs. Moyers: An Unequal Contest

At first blush, one might consider the pairing of Brooks, seasoned academic, Ph D. and author of ten books, with Moyers, onetime divinity student and ordained minister who left the ministry for life in politics and journalism, to be an unequal contest. And so it was. Brooks spent the program figuratively groping for a handhold on his opponent while Moyers railed against Brooks with abandon. It seemed clear that each had different objectives. Moyers was insistent on painting conservatives (directly) and Brooks (indirectly) as insensitive, unfeeling and uncaring, while Brooks seemed content that he understood the defensive counterarguments he made in his behalf, even if nobody else did.

Moyers never lost sight of the fact that he was performing to an audience whose emotional buttons he knew from memory and long experience. Brooks was speaking to a critic in his own head rather than playing to an alien house whose sympathies were presumptively hostile.

To watch with a rooting interest in Brooks’ side of the debate was to risk death from utter frustration. In this case, the only balm of Gilead lies in restaging Brooks’ reactions to Moyers’ sallies. This should amount to a debater’s handbook for economists in dealing with the populists of the hard political left wing.

Who is Bill Moyers?

It is important for any debater to know his opponent going into the debate. Moyers is careful to put up a front as an honest broker in ideas. Brooks’ appearance on Moyers’ show is headlined as “Arthur C. Brooks: The Conscience of a Compassionate Conservative,” as if to suggest that Moyers is giving equal time in good faith to an ideological opponent.

This is sham and pretense. Bill Moyers is a professional hack who has spent his whole life in the service of the political left wing. While in his teens, he became a political intern to Texas Senator Lyndon Johnson. After acquiring a B.A. degree in journalism from the University of Texas at Austin, Moyers got an M.A. from the Southwest Baptist Theological Seminary in Fort Worth, Texas. After ordination, he forsook the ministry for a career in journalism and left-wing politics, two careers that have proved largely indistinguishable for over the last few decades. He served in the Peace Corps from 1961-63 before joining the Johnson Administration, serving as LBJ’s Press Secretary from 1965-67. He performed various dirty tricks under Johnson’s direction, including spearheading an FBI investigation of Goldwater campaign aides to uncover usable dirt for the 1964 Presidential campaign. (Apparently, only one traffic violation and one illicit love affair were unearthed among the fifteen staffers.) A personal rift with Johnson led to his resignation in 1967. Moyers edited the Long Island publication Newsday for three years and he alternated between broadcast journalism (PBS, CBS, back to PBS) and documentary-film production thereafter until his elevation to the presidency of the SchumanCenter for Media and Democracy in 1990. Now 80 years old, he occupies a position best described as “political-hack emeritus.”

With this resume under his belt, Moyers cannot maintain any pretense as an honest broker in ideas, his many awards and honorary degrees notwithstanding. After all, the work of America’s leading investigative reporters, James Steele and Donald Barlett, has been exposed in this space as shockingly inept and politically tendentious. Journalists are little more than political advocates and Bill Moyers has thrived in this climate.

In the 1954 movie Night People, Army military intelligence officer Gregory Peck enlightens American politician Broderick Crawford about the true nature of the East German Communists who have kidnapped Crawford’s son. “These are cannibals…bloodthirsty cannibals who are trying to eat us up,” Peck insists. That describes Bill Moyers and his ilk, who are among those aptly characterized by F.A. Hayek as the “totalitarians in our midst.”

This is the light in which Arthur Brooks should have viewed his debate with Bill Moyers. Unfortunately, Brooks seemed stuck in defensive mode. His emphasis on “conscience” and “compassion” seemed designed to stress that he had a conscience – why leave the inference that this was in doubt? – and that he was a compassionate conservative – as opposed to what other kind, exactly? Thus, he began by giving hostages to the enemy before even sitting down to debate.

Brooks spent the interview crouched in this posture of defense, thereby guaranteeing that he would lose the debate even if he won the argument.

Moyers’ Talking Points – and What Brooks Should Have Said

Moyers’ overall position can be summarized in terms of what the great black Thomas Sowell has called “volitional economics.” The people Moyers disapproves of – that is, right-wingers and owners of corporations – have bad intentions and are, ipso facto, responsible for the ills and bad outcomes of the world.

Moyers: “Workers at Target, McDonald’s and Wal-Mart need food stamps to survive…Wal-Mart pays their workers so little that their average worker depends on $4,000 per year in government subsidies.”

Brooks: “Well, we could pay them a higher minimum wage – then they would be unemployed and be completely on the public dole…”

Moyers: “Because the owners of Wal Mart would not want to pay them that higher minimum wage [emphasis added].

 

WHAT BROOKS SHOULD HAVE SAID: “Wait a minute. Did you just say that the minimum wage causes higher unemployment because business owners don’t want to pay it? Is that right? [Don’t go on until he agrees.] So if the business owners just went ahead and paid all their low-skilled employees the higher minimum wage instead of laying off some of them, everything would be fine, right? That’s what your position is? [Make him agree.]

Well, then – WHY DON’T YOU DO IT? WHY DON’T YOU – BILL MOYERS – GO BUY A MCDONALD’S FRANCHISE AND PAY EVERY LOW-SKILLED EMPLOYEE CURRENTLY MAKING THE MINIMUM WAGE AND EVERY NEW HIRE THE HIGHER MINIMUM WAGE YOU ADVOCATE. SHOW US ALL HOW IT’S DONE. DON’T JUST CLAIM THAT I’M WRONG – PROVE IT FOR ALL THE WORLD TO SEE. THEN YOU CAN HAVE THE LAUGH ON ME AND ALL MY RIGHT-WING FRIENDS.

[When he finishes sputtering:] You aren’t going to do it, are you? You certainly can’t claim that Bill Moyers doesn’t have the money to buy a franchise and hire a manager to run it. And you certainly can’t claim that the left-wing millionaires and billionaires of the world don’t have the money -not with Tom Steyer spending a hundred million dollars advertising climate change. The minimum wage has been in force since the 1930s and the left-wing has been singing its praises for my whole life – but when push comes to shove the left-wing businessmen pay the same wages as the right-wing businessmen. Why? Because they don’t want to go broke, that’s why.

WHY IT IS IMPORTANT TO SAY THIS: The audience for Bill Moyers’ program consists mainly of people who agree with Bill Moyers; that is, of economic illiterates who do their reasoning with their gall bladders. It is useless to use formal economic logic on them because they are impervious to it. It is futile to cite studies on the minimum wage because the only studies they care about are the recent ones – dubious in the extreme – that claim to prove the minimum wage has only small adverse effects on employment.

The objective with these people is roughly the same as with Moyers himself: take them out of their comfort zone. There is no way they can fail to understand the idea of doing what Moyers himself advocates because it is what they themselves claim to want. All Brooks would be saying is: Put your money where your mouth is. This is the great all-purpose American rebuttal. And he would be challenging people known to have money, not the poor and downtrodden.

This is the most straightforward, concrete, down-to-earth argument. There is no way to counter it or reply to it. Instead of leaving Brooks at best even with Moyers in a “he-said, he-said” sort of swearing contest, it would have left him on top of the argument with his foot on Moyers’ throat, looking down. At most, Moyers could have limply responded with, “Well, I might just do that,” or some such evasion.

Moyers: “Just pay your workers more… [But] instead of paying a living wage… [owners] do stock buy-backs…”

Brooks: [ignores the opportunity].

WHAT BROOKS SHOULD HAVE SAID: “Did you just use the phrase ‘LIVING WAGE,’ Mr. Moyers? Would you please explain just exactly what a LIVING WAGE is? [From here on, the precise language will depend on the exact nature of his response, but the general rebuttal will follow the same pattern as below.] Is this LIVING WAGE a BIOLOGICAL LIVING WAGE? I mean, will workers DIE if they don’t receive it? But they don’t have it NOW, right? And they’re NOT dying, right? So the term as you use it HAS NOTHING TO DO WITH LIVING OR DYING, does it? It’s just a colorful term that you use because you hope it will persuade people to agree with you by getting them to feel sorry for workers, isn’t it?

There are over 170 countries in the world, Mr. Moyers. In almost all of those countries, low-skilled workers work for lower wages than they do here in the United States. Did you know that? In many countries, low-skilled workers earn the equivalent of less than $1,000 per year in U.S. dollars. In a few countries, they earn just a few hundred dollars worth of dollar-equivalent wages per year. PER YEAR, Mr. Moyers. For you to sit here and use the term “LIVING WAGE” for a wage THIRTY TO FIFTY TIMES HIGHER THAN THE WAGE THEY EARN IS POSITIVELY OBSCENE. Don’t you agree, MR. MOYERS? They don’t die either – BUT I BET THEY GET PRETTY HUNGRY SOMETIMES. What do you bet – MR. MOYERS?

WHY IT IS IMPORTANT TO SAY THIS: The phrase “living wage” has been a left-wing catch-phrase longer than most people today have been alive. Its use is “free” because users are never challenged to explain or defend it. It sounds good because it has a nice ring of urgency and necessity to it. But upon close examination it disintegrates like toilet tissue in a bowl. There is no such wage as a wage necessary to sustain life in the biological sense. For one thing, it would vary across a fairly wide range depending on various factors ranging from climate to gender to race to nutrition to prices to wealth to…well, the factors are numerous. It would also be a function of time. Occasionally, classical economists like David Ricardo and Karl Marx would broach the issue, but they never answered any of the basic questions; they just assumed them away in the time-honored manner of economists everywhere. For them, any concept of a living wage was pure theoretical or algebraic, not concrete or numerical. Today, for the left wing, the living wage is purely a polemical concept with zero concreteness. It is merely a club to beat the right wing with. It is without real-world significance or content.

Given this, it is madness to allow your debate opponent the use of this club. Take the club away from him and use it against him.

Bill Moyers: “Wal Mart, which earned $17 billion in profit last year…”

Arthur Brooks: [gives no sign of noticing or caring].

WHAT ARTHUR BROOKS SHOULD HAVE SAID: “You just said that Wal Mart earned $17 billion in profit last year. You did say that, didn’t you – I don’t want to be accused of misquoting you. Does that seem like a lot of money to you? [He will respond affirmatively.] Why? Is it a record of some kind? Did somebody tell you it was a lot of money? Or does it just sort of sound like a lot? I’m asking this because you seem to think that sum of money has a lot of significance, as though it were a crime, or a sin, or special in some way. You seem to think it justifies special notice on your part. You seem to think it justifies your demanding that Wal Mart pay higher wages to their workers than they’re doing now. And my question is: WHY? Unless my ears deceive me, you seem to be making these claims on the basis of the PURE SIZE of the amount. You think Wal Mart should “give” some of this money to its low-skilled workers – is that right? [He will agree enthusiastically.]

OK then. Here’s what I think: WHY DON’T YOU, MR. MOYERS? [He will pretend not to understand.] I MEAN EXACTLY WHAT I SAID. WHY DON’T YOU DO IT, MR. MOYERS, IF THAT’S WHAT YOU BELIEVE? [He will smile or laugh: “Because I’m not Wal Mart, that’s why.] BUT YOU ARE, MR. MOYERS. OR YOU CAN BE. ANYBODY CAN BE. FOR THAT MATTER, THOSE WAL-MART WORKERS WHOSE WELFARE YOU CLAIM TO CARE FOR SO MUCH CAN BE, TOO. ALL YOU HAVE TO DO IS BUY WAL-MART STOCK. IT TRADES PUBLICLY, YOU KNOW.

IF YOU THINK WAL- MART SHOULD GIVE ITS MONEY AWAY, THEN BUY WAL-MART STOCK, TAKE THE IVIDENDS YOU PAY YOU AND GIVE THE MONEY AWAY TO WHEREEVER YOU THINK IT SHOULD GO. AFTER ALL, ONCE YOU BUY WAL MART STOCK…NOW YOU’RE WAL-MART. YOU OWN THE COMPANY. AT LEAST, YOU OWN A FRACTION OF IT, JUST LIKE ALL THE OTHER OWNERS OF WAL-MART DO. YOU WANT WAL MART TO GIVE ITS PROFITS AWAY? OK, GIVE THEM AWAY YOURSELF. WHY SHOLD THE GOVERNMENT WASTE MILLIONS OF DOLLARS IN BUREAUCRATIC OVERHEAD IN ACCOMPLISHING SOMETHING THAT YOU CAN ACCOMPLISH CHEAP FOR THE COST OF A DISCOUNT BROKERAGE COMMISSION?

And you can deduct it from your income tax as a charitable contribution…MR. MOYERS.

As far as that’s concerned, as a matter of logic, if Wal-Mart’s workers really agree with you that Wal-Mart is scrooging away in profits the money that should go to them in wages, then the workers could do the same thing, couldn’t they? They could buy Wal-Mart’s stock and earn that share of the profit that you want the company to give them. It’s no good claiming they don’t have the money to do it because they’d not only be getting a share of these profits you say are so fabulous, they’d also be owning the company that you’re claiming is such a super profit machine that it’s got profits to burn – or give away. If what you say is really true, you should be screaming at Wal-Mart’s workers to buy shares instead of wasting time trying to get the government to take money away from Wal-Mart so some of it can trickle down to the workers.

Of course, that’s the catch. I don’t even know if YOU YOURSELF BELIEVE THE BALONEY YOU’VE BEEN SPREADING AROUND IN THIS INTERVIEW. I don’t think you even know the truth about all three of those companies that you claim are so flush with profits. To varying degrees, they’re actually in trouble, MR. MOYERS. It’s all in the financial press, MR MOYERS – which you apparently haven’t read and don’t care to read. McDonald’s has had to reinvent itself to recover its sales. Wal-Mart is floundering. Target has lost touch with its core customers. And the $17 billion that seems like so much profit to you doesn’t constitute such a great rate of return when you spread it over the hundreds of thousands of individual Wal Mart shareholders – as you’re about to find out when you take my advice to put your money where you great big mouth is – MR. MOYERS.

WHY IT IS IMPORTANT TO SAY THIS: The mainstream press has been minting headlines out of absolute corporate profits for decades. The most prominent victim of this has been the oil companies because they have been the biggest private companies in the world. Any competent economist knows that it is the rate of return that reveals true profitability, not the absolute size of profits. Incredibly, this fact has not permeated to the public consciousness despite the popularity of 401k retirement-investment accounts.

Buying Wal-Mart stock is just another way of implementing the “put your money where your mouth is” strategy discussed earlier. If Bill Moyers’ view of the company were correct – which it isn’t, of course – it would make much more sense than redistributing money via other forms of government coercion.

The Goal of Debate

If you play poker and nobody ever calls your bluff, it will pay you to bluff on the slightest excuse. In debate, you have to call your debate opponent’s bluffs; otherwise, you will be bluffed down to your underwear even when your opponent isn’t holding any cards. Arthur Brooks was just as conservative in his debating style as in his ideology – he refused to call even Moyers’ most ridiculous bluffs. This guaranteed that the best outcome he could hope for was a draw even if his performance was otherwise flawless. It wasn’t, so he came off poorly.

Of course, he was never going to “win” the debate in the sense of persuading hard-core leftists to convert to a right-wing position. His job was to leave them shaken and uncomfortable by denying Bill Moyers the ease and comfort of taking his usual polemical stances without fear of challenge or rebuttal. This would have delighted the few right-wingers tuned in and put the left on notice that they were going to be bloodied when they tried their customary tactics in the future. In order to accomplish this, it was necessary to do two things. First, take the battle to Bill Moyers on his own level by forcing him to take his own advice, figuratively speaking. Second, clearly indicate by your contemptuous manner that you do not respect him and are not treating him as an intellectual equal and an honest broker of ideas. People react not only to what you say but to how you say it. If you respect your opponent, they will sense it and accord him that same respect. If you despise him, this will come through – as it should in this case. That is just as important as the intellectual part of the debate.

In a life-and-death struggle with cannibals, not getting eaten alive can pass for victory.

DRI-312 for week of 6-15-14: Wealth and Poverty: Blame and Causation

An Access Advertising EconBrief:

Wealth and Poverty: Blame and Causation

Among the very many cogent distinctions made by the great black economist Thomas Sowell is that between blame and causation. Blame is a moral or normative concept. Causation is a rational, cause-and-effect concept. “Sometimes, of course, blame and causation may coincide, just as a historic event may coincide with the Spring equinox,” Sowell declared in Economic Facts and Fallacies. “But they are still two different things, despite such overlap.”

Unfortunately, blame has overtaken causation in the public perception of how the world works. This is bad news for economics, which is a rational discipline rather than a morality play.

Economic Development

There is a specialized branch of economics called economic development. Not surprisingly, its precepts derive from the principles of general economic theory, adapted to apply in the special case of areas, regions and nation states whose productive capabilities rise from a primitive state to advanced status.

The public perception of economic development, though, is that of a historical morality play. Developed Western nations in Europe engaged in a practice called “imperialism” by colonizing nations in South America and Africa. Then they proceeded to exploit the colonial natives economically. This exploitation not only reduced their standard of living contemporaneously, it left them with a legacy of poverty that they have been subsequently unable to escape. Only government aid programs of gifts or loans, acting as analogues to the welfare programs for impoverished individuals in the Western countries, can liberate them and expiate the sins of the West.

The idea that moral opprobrium attaches to acts of national conquest has a considerable appeal. The conventional approach to what is loftily called “international law” – or, more soberly, “foreign policy” – is that military force applied aggressively beyond a country’s own international boundaries is wrong. But the impact of wrongful acts does not necessarily condemn a nation to everlasting poverty.

In fact, world history to date has been overwhelmingly a tale of conquest. For centuries, nations attained economic growth not through production but through plunder. Only since the Industrial Revolution has this changed. It is worthwhile to question the presumption that defeat automatically confers a legacy of economic stasis and inferiority.

That is why we must distinguish between blame and causation. We may assign blame to colonizers for their actions. But those actions and their effects occurred in the colonial era, prior to independence. Cause-and-effect relationships are necessarily limited to relationships in the same temporal frame; the past cannot hold the present prisoner. Even if we were to claim that (say) inadequate past investment under colonization is now responsible for constraining present economic growth, we would still have to explain why current investment cannot grow and eventually stimulate future economic growth.

Great Britain was the world’s leading economic power during the 18th and 19th centuries. She conquered and held a worldwide empire of colonies. She must have commanded great wealth, both military and economic, in order to achieve these feats. Yet Great Britain herself was conquered by the Romans and spent centuries as part of the Roman Empire. The “indigenous peoples” of the British Isles (perhaps excluding the Irish, who may have escaped the Roman yoke) must have recovered from the pain of being subjugated by the Romans. They must have overcome the humiliation of bestowing upon William the title of “Conqueror” after his victory at Hastings in 1066. They must – otherwise, how else could they have rebounded to conquer half the world themselves?

Great Britain’s legacy of military defeat, slavery and shame did not thwart its economic development. It did not stop the British pound sterling from becoming the vehicle currency for world trade, just as the U.S. dollar is today. If anything, Great Britain and Europe prospered under Roman domination and suffered for centuries after the collapse of the empire.

Germany has been an economic powerhouse since the 19th century. It survived utter devastation in two world wars and calumniation in their wake, only to rise from the ashes to new heights of economic prominence. Yet its legacy prior to this record of interrupted success was a history of squabbles and conflict between regional states. They, too, were subjugated by Rome and arose from a long period of primitive savagery. Why didn’t this traumatize the German psyche and leave them forever stunted and crippled?

It is hard to think of any nation that had a tougher road to hoe than China. True, China was the world’s greatest economic power over a millennium ago. But centuries of isolation squandered this bequest and left them a medieval nation in a modern world. As if this weren’t bad enough, they reacted by embracing a virulent Communism that produced the world’s worst totalitarian state, mass famine and many millions of innocent deaths. At the death of Mao Ze-Dong in 1976, China was a feeble giant – the world’s most populous nation but unable to feed itself even a subsistence diet. Yet this legacy of terror, famine, defeat and death failed to prevent the Chinese from achieving economic development. Less than 40 years later, China is a contender for the title of world’s leading economic power.

It is certainly true that some countries in Africa and South America were colonized by European powers and subsequently experienced difficulty in raising their economic productivity. But it is also true that there are “countries mired in poverty that were never conquered.” Perhaps even more significantly, “for thousands of years, the peoples of the Eurasian land mass and the peoples of the Western Hemisphere were unaware of each other’s existence,” which constitutes a legacy of isolation even more profound and enduring than any residue left by the much shorter period of contact between them.

Economists have identified various causal factors that affect economic development much more directly and clearly than military defeat or personal humiliation suffered by previous generations. Most prominent among these are the geographic factors.

Mankind’s recorded history began with settlements in river valleys. A river valley combines two geographic features – a river and a valley. The river is important because it provides a source of water for drinking and other important uses. Rivers also serve as highways for transportation purposes. Finished goods, goods-in-process and primary inputs are all transported by water. In modern times, with the advent of swifter forms of transportation, only commodities with low value relative to bulk travel by water. But throughout most of human history, rivers were the main transportation artery linking human settlements. Oceans were too large and dangerous to risk for ordinary transportation purposes; lakes were not dispersed widely enough to be of much help.

If we contrast the kind and quality of rivers on the major continents, it is not hard to see why North America’s economic development exceeded that of Africa. Not only is North America plentifully supplied with rivers, but its largest rivers, the Mississippi and the Missouri, tend to be highly navigable. Its coastline contains many natural harbors. Africa’s rivers, in contrast, are much more problematic. While the Nile is navigable, its annual floods have made life difficult for nearby settlers. The Congo River’s navigability (including its access from the ocean) is hindered by three large falls. The African coastline contains comparatively few natural harbors and is often difficult or impossible for ships to deal with – a fact that hindered international trade between Africa and the outside world for decades. The Congo is the world’s second largest river in terms of water-volume discharged; the Amazon River in South America is the largest. Yet the tremendous hydropower potential of both rivers has hardly been tapped owing to various logistical and political obstacles.

Valleys contrast favorably with mountainous regions because they are more fertile and easier to traverse. Sowell quotes the great French historian Fernand Braudel’s observation that “mountain life lagged persistently behind the plain.” He cites mountainous regions like the Appalachians in the U.S., the mountains of Greece, the RifMountains in Morocco and the ScottishHighlands to support his generalization. Not only do both Africa and South America contain formidable mountain barriers, their flatlands are much less conducive to economic development than those of (say) North America. Both Africa and South America contain large rainforests and jungles, which not only make travel and transport difficult or impossible but are also hard to clear. As if that weren’t a big enough barrier, both continents face political hurdles to the exploitation of the rainforests.

South America differs from its northern neighbor particularly in topography. The AndesMountains to the west have traditionally divided the continent and represented a formidable geographic barrier to travel and transportation. One of the great stories in the history of economic geography is the tale, told most vividly by legendary flier and author Antoine de Saint-Exupery in his prize-winning novel Night Flight, of the conquest of the Andes by airline mail-delivery companies in the formative days of commercial North America, the flatlands of South America do not consist primarily aviation.

Climate has similar effects on economic development. A priori, temperate climate is more suitable for agriculture and transportation than either the extremes of heat or cold. Both Africa and South America contain countries located within tropical latitudes, where heat and humidity exceed the more temperate readings typical of North America and Europe. Indeed, Africa’s average temperature makes it the hottest of all continents. While North America does contain some desert land, it cannot compare with northern Africa, where the Sahara approaches the contiguous U.S in size. The barrenness of this climate makes it less suitable for human habitation and development than any area on Earth save the polar regions. Speaking of which, subarctic climates can be found on the highest mountain regions on each continent.

The economic toll taken by geographic barriers to trade can be visualized as akin to taxes. Nature is levying a specific tax on the movement of goods, services and people over distance. The impact of this “transport tax” can extend far beyond the obvious. As Sowell points out, the languages of Africa comprise 30% of the world’s languages but are spoken by only 13% of the world’s population. The geographic fragmentation and separation of the continent has caused cultural isolation that has produced continual fear, hatred, conflict and even war between nations. The civil war currently raging between Sunni, Shiite and Kurd is the same kind of strife that T.E. Lawrence sought to suppress during World War I almost a century ago. Thus, an understanding of basic geography is sufficient to convey the severe handicap imposed on most countries in Africa and South America compared to the nations of Europe and North America.

Political Economy

It is certainly true that geography alone placed Africa and South Africa behind the economic-development 8-ball. Still, each continent does contain a share of desirable topographies and climates. History even records some economic-development success stories there. Argentina was one of the world’s leading economic powers in the 19th century. Not only was its national income ranked among world leaders, its rate of growth was high and growing. Its share of world trade also grew. Today, its status is dismal, exactly the reverse of its prior prosperity – its GDP is barely one-tenth of ours. But it was not conquered by a colonial power, nor was it “exploited” by “imperialism.”

Argentina won its independence from Spain well before it rose to economic prominence. Unfortunately, its political system gradually evolved away from free-market economics and toward the dictatorial socialism epitomized by Juan Peron and his wife, Evita. This produced inflation, high taxes, loss of foreign trade and investment and a steady erosion of real income.

Elsewhere in South America, economic evolution followed a similar course, albeit by a different route. Most countries lacked the same experience with free markets and institutions that lifted Argentina to the heights. Even when independence from colonial rule brought republican government, this quickly morphed to one-party rule or military dictatorship. Although the political Left insists that South America has been victimized by capitalism, South America’s history really reeks of the same “crony capitalism” that reigns supreme in the Western nations today. This means authoritarian rule, unlimited government and favoritism exerted in behalf of individuals or constituent groups. Moreover, erosion of property rights has weakened a key bulwark of free-market capitalism in the West today, just as it did throughout the history of South America.

In Africa, the situation was even worse and has remained so until quite recently. After crying out for independence from colonial oppressors, native Africans surrendered their freedom to a succession of dictators who proved more oppressive, brutal and bloodthirsty than the colonizers. Now, with the rise of the Internet and digital technology, Africans at last possess the ability to exist and thrive independently of government. They also can overcome the costs of transacting to protest against dictatorship.

The importance of markets and institutions can be divined from a roll-call of the most successful countries. Great Britain, Japan, Hong Kong, Singapore and Scandinavia are all small countries that lack not only size but also abundance of natural resources. One thing that Africa and South America did possess in quantities rivaling that of Europe and North America was resource wealth. But the ability to turn resources into goods and services requires the other things that Africa and South America lacked: not only favorable geography and climate, but also favorable institutions, laws and mores. Even in North America, the U.S. had all the favorable requisites, while Mexico lacked the legal and institutional environment and Canada lacked the favorable geography and climate.

Viewed in this light, it is not chauvinism to invoke a principle of “American exceptionalism;” it is just clear-eyed analysis. The country that later became the United States of America was blessed with ideal geography and climate. While it faced aboriginal opposition, that was much less fierce than it might have been. Great Britain’s colonial stewardship allowed the colonies to develop economically, albeit in a restricted framework. Moreover, the colonists developed a close acquaintanceship with British laws and institutions. This proved vital to the eventual birth of the American Declaration of Independence and Constitution. The U.S. was indeed the exception when it came to economic development because it faced few of the obstacles that hampered the development of almost all other countries. Coupled with the most favorable constitution ever written for free markets and a century and a half of virtually free immigration, the result was the growth of the world’s greatest economy.

Culture

Through the ages, historians have accorded culture an increasing emphasis in their studies. Oddly, though, it has seldom been linked to economics in general and almost never to economic development in particular. Yet even a cursory glance suggests it as an explanation for some of what otherwise would stand as paradoxes.

India has long ranked as the “phenom” of economic development – perennially expected to bust loose to assume its rightful place among the world’s economic powerhouses, and perennially a disappointment. As a legacy of centuries of colonial rule by Great Britain, it inherited a cadre of well-trained and educated civil servants. The world’s second-largest population provided a ready source of labor. The country did not lack for capital goods despite the abject poverty of most of its citizens, thanks to British investment. What, exactly, was holding India back?

The political left supplied its standard answer by attaching blame for India’s poverty to its “legacy of colonialism.” Movies like Gandhi portrayed British behavior toward Indians as beastly and sanctified Gandhi’s policy of passive resistance within a framework of civil disobedience. These answers were less than complete, however. They did not explain how the U.S., also a British colony and occasional victim of British beastliness for a century and a half, was able to succeed so brilliantly while India failed so dismally. Nor did they explain why India failed while employing the same socialist economic policies that England had incubated throughout the early 1900s before installing them at home just before granting India’s independence.

India’s adoption of socialism was the political complement to its cultural reverence for poverty, created and nurtured by Gandhi. India could hardly have picked a worse symbol for hero worship. Fortunately, India’s independence was delayed until after World War II, in which India refused to embrace Gandhi’s pacifism and participated significantly in her own defense and that of the Eastern theater. Then, after independence, India continued to stoke regional hostilities with neighbors China and Pakistan in subsequent decades, ignoring Gandhi’s views in the one context in which they might have done some good. Meanwhile, the country’s steadfast unwillingness to adopt a commercial ethic, root out public corruption and eradicate traditional taboos against the unhindered opposition of markets foreclosed any possibility of real economic growth.

If there was ever a culture that seemed impervious to economic growth, it was India’s. Even China never seemed such a hopeless case, for Chinese who emigrated became the success story of Southeast Asia; clearly Chinese institutions were holding up economic development, not her culture. Well, India’s cultural head is still buried in the sands of the past, but her institutions have changed sufficiently to midwife noticeable economic growth beginning in the late 1990s.

Foreign Aid and Foreign Investment

Two great myths of economics relate to foreign aid and foreign investment. For decades, intellectuals and governments sang the praises of foreign aid as a recipe for prosperity and cure for poverty. Alas, institutions like the World Bank and International Monetary Fund – both of which were created for completely unrelated purposes – have failed miserably to promote economic development despite decades of trying and billions of dollars in loans, grants and consulting contracts.

The failures have been particularly glaring in Africa, where real incomes were the lowest in the world throughout the 20th century. In retrospect, it is not easy to figure out why international aid should have succeeded in raising real incomes. After all, one of the signature measures employed by newly independent regimes in Africa and South America was to expropriate wealth owned by foreigners through nationalization. This raised the incomes of government officials and their cronies but did not raise real incomes generally. As Sowell observes, “there is no more reason to expect automatic benefits from wealth transfers through international agencies than from wealth transfers through internal confiscations.” And indeed, “the incentives facing those disbursing the aid and those receiving it seldom make economic development the criterion of success.” Aid agencies simply strive to give money away; host governments simply strive to get money. And that is pretty much what happened.

Lenin developed a theory of imperialism to explain why capitalism did not succumb to revolution on schedule. When the declining profit from capital threatened their viability, capitalists would turn to the less-developed nations, where their foreign investment would earn “super profits” at the expense of the host peoples. Unfortunately, his theory was overturned by experience, which showed that capitalists in developed countries invested mostly in other developed countries. (Today’s neo-Marxism has returned full-circle to the exploitation theories of original Marxism with the newly popular theory of French economist Piketty. His theory postulates a return to “capital” that is greater than that from investment in labor, which promotes a greater level of (hypothesized) inequality in income and wealth. Having failed to sell a theory of inequality based on a declining rate of profit, the Left is switching tactics – the return on capital is too high, not declining.)

The real recurring example of successful “foreign investment” has come through immigration. Welsh miners have come to the U.S. and mined successfully. Chinese entrepreneurs have migrated throughout Southeast Asia and dominated entrepreneurship in their adopted countries. Jews have migrated to countries throughout the world and dominated industries such as finance, clothing, motion pictures and education. German workers helped Argentina become a world leader in wheat production and export. Indian immigrants have become leading entrepreneurs in motels and hotels in the U.S. Italian and Lebanese immigrants migrated to Africa and the U.S. and achieved entrepreneurial success in various fields. Yet, ironically, immigration has typically been opposed by natives in spite of the consistent benefits it generates.

Causation, not Blame

History is a record of strife and conflict, of conquest and submission. At one time or other, practically every people have been conquered and subjugated. Colonial status has sometimes been disastrous to natives, as with some countries colonized by Spain in the Age of Exploration. Sometimes it has been relatively beneficial, as it was in the early stages of the American colonies. Often it turned out to be a mixed bag of benefits and drawbacks. But economic development has never been either guaranteed or foreclosed by the mere existence of a colonial past. Economic logic lists too many causal factors affecting development for us to play the blame game.

DRI-248 for week of 1-26-14: Economics as Movie ‘Spoiler’: Some Famous Cases

An Access Advertising EconBrief:

Economics as Movie ‘Spoiler’: Some Famous Cases

Motion pictures evolved into the great popular art form of the 20th century. In the 21st century, many popular cultural references derive from movies. One of these is the “spoiler” – prematurely revealing the ending of a book, play, movie or presentation of any kind.

Economists sometimes experience a slightly different sort of “spoiler.” Their specialized understanding often defeats the internal logic of a presentation, completely spoiling the author’s intended effect. Movies are especially vulnerable to this effect.

The casual perception is that our attitude toward movies is distorted by the high quotient of improbably beautiful and talented people who populate them. While it is true that physical beauty has always been highly prized by Hollywood, it is also true that plain or even ugly people like Wallace Beery, Marie Dressler, Jean Gabin and Rodney Dangerfield have become champions of the movie box office. The locus of unreality in movies has actually been the stories told.

Movies are best regarded as fairy tales for adults. They over-emphasize dramatic conflict and exaggerate the moral divide between protagonist and antagonist. It is difficult to find a real-world referent to the “happy ending” that resolves the typical movie. Protagonists are all too often “heroes” whose actions exceed the normal bounds of human conduct. In recent years, this tendency has escalated; veteran screenwriter William Goldman has complained that movie protagonists are now not heroes but “gods” whose actions exceed the bounds of physics and other natural laws.

In this context, it is hardly surprising that movie plots have sometimes ignored the laws of economics in order to achieve the stylized dramatic effects demanded by the medium. Since public knowledge of economics is, if anything, less well developed than knowledge of natural science, these transgressions have generally gone unremarked. Indeed, the offending movies are often praised for their realism and power. Thus, it is worthwhile to correct the mistaken economic impressions left by the movies, some of which have found their way into popular folklore.

In each of the following movies, the major plot point – the movie’s resolution – rests on an obvious fallacy or failure to apply economic logic.

Scrooge (U.S. title: A Christmas Carol) (1951)

We know the plot of this most classic of all Christmas tales by heart. Victorian businessman Ebenezer Scrooge, famed miser and misanthrope, abhors the spirit of Christmas. He is visited by three ghosts, emblematic of his youthful past, his empty present life and the lonely, friendless end that awaits him in the future. Their guidance awakens him to the waste of his single-minded pursuit of material gain and rejection of personal affection and warmth. He realizes the cruelty he has visited upon his clerk, the good-hearted family man, Bob Cratchit. Most of all, he keenly regrets the fate of Cratchit’s crippled son, Tiny Tim, who seems doomed by Cratchit’s poverty.

Having witnessed Scrooge’s emotional reformation, the audience is now primed for the crowning culmination. On the day after Christmas, Bob Cratchit shows up at Scrooge’s office, a bit late and encumbered by holiday festivities. Fearfully, he tiptoes to his desk, only to be brought up short by Scrooge’s thunderous greeting. Expecting a verbal pink slip, Cratchit receives instead the news that Scrooge is doubling his wage – and that their working relationship will be hereafter cordial. Tiny Tim’s future is redeemed, and the audience has experienced one of the most cathartic moments on film.

Unless, that is, the viewer happens to be an economist – in which case, the reaction will be a double take accompanied by an involuntary blurt like “I beg your pardon?” For this is a resolution that just simply makes no sense. In order to understand why, the first thing to realize is that the scriptwriter (translating Charles Dickens’ timeless story to the screen) is asking us to believe that Bob Cratchit has heretofore been working for half of what Scrooge is now proposing to pay him.

In the 17th and 18th centuries, historical novelists like Charles Dickens played the role played by filmmakers in the 20th century. They brought history alive to their audiences. Ideally, they stimulated further study of their subject matter – indeed, many famous historians have confessed that their initial stimulus came from great storytellers such as Dickens and Dumas. But many readers searched no further than the stories told by these authors for explanations to the course taken by events. Dickens was an exponent of what the great black economist Thomas Sowell called “volitional economics.” In this case, for example, the wage paid by Scrooge and received by Cratchit ostensibly depended on Scrooge’s will or volition, and nothing else. No role existed for a labor market. Cratchit was not a partisan in his own cause, but rather a passive pawn of fate.

This is not a theory likely to commend itself to an economist. Scrooge and Cratchit are working to produce services purchased by their customers. Who are these? Well might you ask, for neither Dickens nor the filmmakers chose to clutter up the narrative with such extraneous considerations. Yet it is this consumer demand that governs the demand for Scrooge’s output, which in turn values the productivity of Cratchit’s work. In a competitive labor market, the market wage will gravitate toward the marginal value product of labor; e.g., the value of Cratchit’s product at the margin translated into money with the aid of the market price for Scrooge’s services. And in crowded London, there is no doubt about the competitive demand for the low-skilled labor provided by Bob Cratchit. That is what attracted the Bob Cratchits of the world to London in the first place during the Industrial Revolution.

Two possibilities suggest themselves. Either Bob Cratchit was working for half of his marginal value product previously and is only now being elevated to that level, or Scrooge is now proposing to pay Cratchit a wage equal to twice Cratchit’s marginal value product. The first possibility requires us to believe not only that Cratchit was and is a complete idiot, but that henot Scrooge as Dickens clearly implies – is responsible for Tiny Tim’s tenuous medical situation. After all, all Cratchit had to do was step outside Scrooge’s firm and wander off a block or two in order to better his circumstances dramatically and pay Tiny Tim’s medical tab without having to bank on Scrooge’s miraculous reformation. Cratchit was guaranteed a job at slightly less than double his then-current wage by simply underbidding the market wage slightly. But he inexplicably continued to work for Scrooge at half the wage his own productivity commanded.

Alternatively, consider possibility number two. Scrooge is now going to pay Cratchit a wage equal to twice his (Cratchit’s) marginal value product. If Scrooge insists on raising his price commensurate with this wage hike, he will go out of business. If he keeps his price the same, he will now be working for much less net income than all the other business owners in his position. (See below for the implications of this.)

There is no third possibility here. Either Cratchit was (is) crazy or Scrooge is. And either way, it completely upsets Dickens’ cozy suggestions that all’s right with the world, Scrooge has restored the natural order of things and everybody lived happily ever after.

Of course, Scrooge may have accumulated considerable assets over the course of his life and business career. He may choose to make an ongoing gift to Cratchit in the form of a wage increase, as opposed to a bonus or an outright transfer of cash. But it is important to note that this is not what Dickens or the filmmakers imply. The tone and tenor of Dickens’ original story and subsequent films adapted from it unambiguously suggest that Scrooge has righted a wrong. He has not committed a random act of generosity. In other words, Dickens implies – absurd as it now clearly seems – that possibility number one above was his intention.

It is clear to an economist that Dickens has not provided a general solution to the problem of poverty in 19th century England. What if Scrooge were the one with the sick child – would his acquisitive ways then be excusable? Dickens makes it clear that Scrooge’s wealth flows directly from his miserliness. But if miserliness produces wealth and good-heartedness promotes poverty, economic growth and happiness are simply mutually exclusive. After all, the message of the movie is that Scrooge promises to reform year-round, not just one day per year. Henceforward, when approached by collectors for charity, he will refuse not out of meanness but out of genuine poverty, his transformation having stripped him of the earning power necessary to contribute to charity.

In actual fact, of course, Scrooge never existed. Neither did Cratchit. And they are not reasonable approximations of actual 19th-century employers or workers, either. But these figments of Dickens’ imagination have been tragically influential in shaping opinions about the economic history of Victorian England.

The Man in the White Suit (1951)

This comedy from England’s famed Ealing Studios (the world’s oldest movie studio) is justly famous, but for the wrong reasons. It highlights the inefficiency of British socialism and the growing welfare state, but its fame derives from its plot highlight. Inventor Alec Guinness worms his way into the R&D division of a local textile business, where he develops a fabric so durable that it will never wear out. Instead of gaining him the wealth and immortality he craves, it gains the opprobrium of the textile owners, who fear that the fabric will ruin them by cutting replacement sales to zero. They block his efforts at production and the film ends when his formula is revealed to contain a flaw – which he may or may not ever get the chance to de-bug, since he is now a pariahin the industry.

The film is often cited as an example of how big business prevents new technology from empowering consumers – that is, it is cited as if it were a factual case study rather than a fictional movie. Actually, it is a classic example of the failure to deploy economic logic.

Would a textile firm find it profitable to produce an “indestructible” fabric of the sort depicted in the film? Certainly. The firm would achieve a monopoly in the supply of fabric and could obtain finance to expand its operations as necessary to meet the immediate demand. In practice, of course, such a fabric would not really be indestructible in the same sense as, say, Superman’s costume. It would be impervious to normal wear but would suffer damage from tearing, fire, water and other extreme sources. Changes in fashion would also necessitate replacement production. Nevertheless, we can safely grant the premise that the invention would drastically reduce the replacement demand for fabric. But that would not deter an individual firm from developing the invention – far from it.

The film depicts textile firms striving in combination to buy out the inventor. Perhaps overtures of that kind might be made in reality. They would be doomed to failure, though, because in order to afford to pay the inventor’s price the firms would have to compensate the inventor for the discounted present value of the monopoly profits available in prospect. But in order to raise an amount of money equal to those monopoly profits, the firms would themselves have to be monopolists willing to mortgage their future monopoly profits. Textile companies may enjoy legislative protection from foreign competition in the form of tariffs and/or quotas, but they will still not possess the kind of market power enabling them to do this, even if they were so predisposed. Thus, both of the movie’s key plot points are undermined by economic logic.

This reasoning explains why there is so little proof for longstanding allegations that large corporations buy off innovators. While it will often be profitable to acquire competitors, it will normally be prohibitively expensive to buy and suppress revolutionary inventions. The value of a competitive firm reflects its competitive rate of return. The value of a revolutionary innovation reflects the value of a (temporary) monopoly, heavily weighted toward the relatively near future.

The Formula (1980)

The Formula was one of the most eagerly awaited movies of its day because it starred two of the most legendary stage and screen actors of all time, Marlon Brando and George C. Scott. It also boasted a topical plot describing a conspiracy to suppress a secret formula for producing synthetic gasoline. Who was behind the conspiracy? None other than “the big oil companies” – in the 1970s and 80s, as today, the oil companies were periodically trotted out as public whipping boys for the adverse effects of public policies on energy prices.

The film begins during World War II with the escape into Switzerland of a German military officer carrying secret documents. In the present day, Scott plays a homicide policeman investigating the grisly murder of his former supervisor. The decedent was working abroad for a large oil company at the time of his death, and his boss (Brando) reveals that his duties included making payoffs to Middle Eastern officials. Scott’s character also learns about the existence of a formula for conversion of coal into petroleum, supposedly developed secretly by German scientists during World War II and used by the Nazis to fuel their war machine.

Scott’s character seeks the killer and the formula for the remainder of the film. Each successive information source is murdered mysteriously after speaking with him. Eventually he learns the formula from its originator, who tells him that the oil companies plan to suppress it until its value is enormously enhanced by the extinction of remaining petroleum reserves. Brando’s character blackmails Scott’s character into relinquishing the formula and the film ends with the understanding that it will be suppressed indefinitely. The world is denied its chance at plentiful oil and the oil companies enforce an artificial oil shortage.

Novelist Steve Shagan also wrote the screenplay, but it should be noted that the version of the film released to theaters was the result of a conflict with director John G. Avildsen. Although no claim was advanced about the veracity of events depicted or information presented, the audience is clearly invited to take the film’s thesis seriously. Alas, history and economics preclude this.

The film makes much of the fact that Germany was able to conduct military operations around the world for a decade despite having no internal source of petroleum and only tenuous external sources. Germany must have had the ability to manufacture synthetic fuels, we think; otherwise, how could she have waged war so long and effectively?

The premise is sound enough. Germany’s oil refineries in the Ruhr Valley were perhaps the leading military target of Allied bombings; both crude and refined oil were in critically short supply throughout the 1940s. And there really was a “formula” for synthetic fuel – or, more precisely, a chemical process. But the film’s conclusion is all wrong, almost banally so.

The Fischer-Tropsch process was invented by two German scientists – not in World War II, but in 1925. It was not secret, but rather a matter of public knowledge. German companies used it openly in the 1930s. During World War II, when Germany had little or no petroleum or refining capability, the process provided about 25% of the country’s auto fuels and a significant share of other fuels as well. After the war, the process traveled to the U.S. and several plants experimented with it. In fact, it is still used sparsely today. Possible feedstocks for conversion into petroleum are coal, natural gas and biomass.

The reason that few people know about it is that it is too expensive for widespread use. Biomass plants using it have gone broke. Natural gas is too valuable for direct use by consumers to waste on indirect conversion into petroleum. And coal conversion wavers on the edge of commercial practicality; just about the time it begins to seem feasible, something changes unfavorably.

In real life – as opposed to reel life – the problem is not that secret formulas for synthetic fuels are being hidden by the all-powerful oil cartel. It is that the open and above-board chemical processes for conversion to synthetic fuel are just too darned expensive to be economically feasible under current conditions.

Erin Brockovich (2000)

Erin Brockovich is the film that sealed the motion-picture stardom of Julia Roberts by earning her an Academy Award for Best Actress. It was based on events in the life of its title character. Erin Brockovich was an unemployed single mother of three who met liability attorney Ed Masry when he unsuccessfully represented her in her suit for damages in a traffic accident. She took a job with his firm interviewing plaintiffs in a real-estate settlement against Pacific Gas & Electric.

In the course of her interviews, Brockovich claimed (and the film portrayed) that she unearthed a laundry list of diseases and ailments suffered by the 634 plaintiffs, who were residents of Hinkley, CA. These included at least five different forms of cancer, asthma and various other complaints. Brockovich was surprised to learn that PG&E had paid the medical expenses of these residents because of the presence of chromium in the drinking water, despite having assured the residents that the water was safe to drink. Eventually, Brockovich interviewed a company employee who claimed that corporate officials at PG&E were aware of the presence of “hexavalent chromium” (e.g.; chromium from multiple sources) in the drinking water and told employees in Hinkley to hide this information from residents. The whistleblower had been told to destroy incriminating documents but kept them instead and supplied them to Brockovich.

The film does everything but accuse the company of murder in so many words. It reports the jury verdict that awarded the Hinkley residents $333 million in damages. (The standard contingency fee to the law firm is 33%.) Brockovich received a $2 million bonus from her delighted boss. The film received a flock of award nominations in addition to Roberts’s Oscar, made a pile of money and got excellent reviews.

However, a few dissenting voices were raised in the scientific community. Scathing op-eds were published in The Wall Street Journal and The New York Times by scientists who pointed out that little or no science backed up the movie’s claims – or, for that matter, the legal case on which the movie was based.

It seems that the only scientific black mark against hexavalent chromium was lung cancer suffered by industrial workers who inhaled the stuff in large quantities. In contrast, the hexavalent chromium in Hinkley was ingested in trace amounts in drinking water. The first law of toxicology (the science of toxicity) is “the dose makes the poison.” Ingestion allows a substance to be attacked by digestive acids and eliminated via excretion; inhalation would permit it to be absorbed by organs like the lungs. Ironically, lung cancer wasn’t among the varieties identified by Brockovich.

What about the lengthy list of cancers grimly recited in the movie? Doesn’t that constitute a prima facie case of wrongdoing by somebody? No – just the reverse. As the scientists pointed out, biological or industrial agents are normally targeted in their effects; after all, they were usually created for some very specific purpose in the first place. So the likelihood of one agent, like hexavelent chromium, being the proximate cause of various diverse cancers is very remote. In any town or city, a medical census covering a reasonable time span will produce a laundry list of diseases like the one Brockovich compiled.

Economics provides equal grounds for skepticism of the movie’s conclusions. The movie imputes both wrongdoing and evil motives to a company. Somewhere within that company, human beings must have harbored the motives and committed the wrongs. But why? The standard motivation behind corporate wrongdoing is always money. The monetary category involved is normally profit. Presumably the imputed rationale would run somewhere along these lines: “Corporate executives feared that admitting the truth would result in adverse publicity and judgments against the company, costing the company profits and costing them their jobs.” But that motivation can’t possibly have applied to this particular case, because PG&E was a profit-regulated public utility.

Public-utility profits are determined by public-utility commissions in hearings. If a utility earns too much profit, its rates are adjusted downward. If it earns too little, its rates are adjusted upward. For over a century, economists have tried but failed to think up ways to get utility managers to behave efficiently by cutting costs. Economists have even argued in favor of allowing utilities to keep profits earned in between rate hearings, hoping that managers will have an incentive to cut costs if the company could actually keep profits in that scenario.

But here, according to the filmmakers, PG&E executives were so fanatically dedicated to safeguarding profits that the company couldn’t keep anyway that they were willing to knowingly poison their customers. They were willing to risk losing their jobs and going to jail (if their deception was uncovered) to guard against losing their jobs for loss of profits that were never going to be gained or lost in the first place. No economist will swallow this.

If the filmmakers had an explanation for this otherwise insane behavior, they didn’t offer in the movie. And without a scientific case or an economic motive, it is impossible to accept the film’s scenario of corporate conspiracy at face value. Instead, the likely motivational scenario is that PG&E executives didn’t confess their crimes and beg forgiveness because they had absolutely no scientific reason to think they had committed any crimes. They didn’t warn Hinkley residents about “known dangers” because they didn’t know about any dangers. They didn’t need to admit the presence of chromium in the drinking water because everybody already knew there were trace amounts of chromium in the drinking water. But they certainly weren’t going to advertise the presence of non-existent dangers for fear that somebody would seize the opportunity to make a legal case where none really existed.

Movies are Fairy Tales for Adults

The moral to these cases is that movies are fairy tales for adults. Given that, the absence of economic logic in the movies is not hard to fathom. How much economic logic did we learn from the fairy tales we heard in childhood?

This is not to indict movies – or fairy tales, either. We need them for the emotional sustenance they provide. Fairy tales help cushion our childhood introduction to reality. Movies help us cope with the wear and tear of daily life by recharging our emotional batteries.

But we must never confuse the fairy tale world of movies with the rational world in which we live. Our ultimate progress as a species depends on our reliance on markets, rational choice and free institutions. Of necessity, movies operate according to the visual logic of dramatic action. We expect reel life to liberate us from the conventions of real life and this is why movies seldom make economic sense.

DRI-269 for week of 11-10-13: How Business Views Competition

An Access Advertising EconBrief:

How Business Views Competition

Every profession must endure the distortions resulting from the misshapen lens of public perception. Veteran economists know the specialized meaning of terms like “competition” and “efficiency.” They know the attitudes and mental habits formed by businessmen. And they know what happens when the mind of the businessman is forced to coexist with the vocabulary of economics. What happens is that the businessman perceives economics through the subjective prism of his own wants and expectations. This produces a view that is wrong in predictable ways.

By appreciating how intelligent, single-minded businessmen go wrong, we can better calibrate our own understanding with the truth. Recent published examples provide excellent case studies in the pathology of business misunderstanding of economics.

iK9 – Establishing “Standards” for the Detection-Dog Market

The current (11/4/2013) issue of Bloomberg Business Week tells the story of iK9, a detection-dog business started by a man named Tim Dunnigan. In the article “The Bomb Squad: Building an Empire on a Dog’s Nose,” author Josh Dean explains Dunnigan’s attempt to build a security firm around the olfactory talents of bomb-sniffing dogs.

Detection-dogs use their highly advanced sense of smell to locate everything from explosives to drugs to malignant tumors in humans. Their talent is inborn but requires extensive training and direction. Most of this training is done by individuals working alone or within small businesses, but one of the largest institutions devoted to this purpose is Auburn University’s Canine Detection Research Institute. This subsidiary of the university’s veterinary research school trains some 200 teams of dog and handler every year for corporate and government clients. Associate Director Paul Waggoner has perhaps the best view of the dog-detection market.

“Detection-dog training has been a vocation where most of the knowledge has been handed down in master-apprentice manner. That’s led to a lot of unproven ideas and ways of doing things,” Waggoner observes. “It’s still a young field,” a “trust-me” kind of business.

It’s no wonder, then, that “the detection-dog marketplace is fragmented, and no one knows for sure how large it is,” according to Josh Dean. Estimates range from $400 million to $700 million. So far, the big-ticket buyers have been government and the military, with private security a distant third. In principle, though, “any high-traffic location or corporate headquarters is vulnerable” to the threat of terrorism or criminal activity, so “the potential market is immense.” On the other hand, the service is quite expensive. Effective security requires round-the-clock surveillance and dogs need constant care and supervision. Demand has fluctuated wildly, skyrocketing after the 9/11 attacks and the Boston Marathon bombing but nosediving in between.

Tim Dunnigan’s business plan calls for reaching $200 million in revenue as quickly as possible. He projects about $300,000 in annual revenue from each dog-and-handler team, so his game plan requires employing hundreds of dogs and trainers. Competing in the marketplace poses special problems because the scope for cost-cutting is minimal; any reduction in quality could be fatal to the firm’s competitive position.

What is Dunnigan’s strategy for rising to this competitive challenge? According to author Dean, it would seem that Dunnigan is instead planning on cutting competitors down to his size. “As much as anything, Dunnigan’s strategy seems to be to raise the industry’s profile anddemand that anyone offering canine detection adhere to standards that have yet to be formalized [emphasis added]. One challenge, he says, is that ‘everybody thinks his technique is the best.'”

It is worthwhile noting that even the federal government – thus far the leading purchaser of detection-dog services – has so far feared to tread the line of standardization. “Detection dogs are such a freewheeling business that a U.S. government training standard does not exist among the many departments deploying them in the field,” Dean admits. The watchword of government is coercion and compulsion, so at first glance Dunnigan seems foolish for rushing in.

In a free market, Dunnigan is at liberty to promulgate whatever standards he chooses – for his own firm. He can advertise them in accordance with his inclinations and financial resources. He can contrast them with those of his competitors – or with those they lack.

But the phrase “demand that anyone offering canine detection adhere to standards” has a sound that is both familiar and worrisome to the veteran market watcher. It smacks of the classic American business strategy: get the government to suppress your competition. In this case, it would mean that Dunnigan is lobbying for passage of industry regulations that a fragmented industry of smaller operators would find costly and cumbersome. After all, they don’t have the resources of a CDRI or Auburn University to call upon. These regulations would raise costs in a highly competitive, low-margin industry. (“You wouldn’t believe how thin our margins are,” complains Paul Stapleton, son of the founder of MSA Security, pioneering private-security dog-detection firm and New York-market leader.) In turn, that would drive some firms out of business and reduce the supply of services, raising price for the remaining firms.

To the average person – the man or woman on the street, untrained in economics – a call for standards sounds innocuous and even praiseworthy. All of us have grown up hearing the phrase “the XYZ industry is not regulated by the government” used synonymously for “this industry is inhabited by dishonest, unscrupulous bastards who will take your money and your life without a second’s hesitation.” But to an economist, the “demand for standards” is seen in its true light – as a demand for regulation that will restrict competition at the consumer’s expense and for the benefit of one or a few firms in the industry.

Were we to summarize this rhetorical pathology, it would read as follows: “In order to protect buyers from being exploited by sellers, who may or may not possess mysterious means of providing this new and valuable service, standards of performance must be set. Obviously, these must be set by government because…because…well, because that’s just the way things are done. As a would-be leader in this field, I demand that government step in and set standards to save all of us sellers from succumbing to our own shortcomings.”

Evil Street Vendors

The great economist and multi-disciplinary theorist Thomas Sowell has specialized in exposing the logical shortcomings of conventional rhetoric. One of his most incisive exposes has been of the “powerful powerless” – groups of the lowly and disenfranchised whose economic prospects are customarily suppressed on the contradictory grounds that they somehow possess unfair advantages over ordinary people. Street vendors are charter members of this unfortunate fraternity.

The conventional case against street vendors was argued in a recent letter to The Wall Street Journal (11/11/2013). The author, one Jerome Barth, represents a New York business group called the 34th Street Partnership.

“The Journal has steadfastly defended street vendors in the past…It should follow from common free-market rules that this position is sound. However, in the case of street vending, it isn’t.” This stance is a backbone of the rhetorical practice known as “special pleading.” Free markets and competition, it grants, are wonderful things. They work beautifully – except in my particular case/industry/country/state/city/neighborhood. My case is special, exceptional. Why? Well…er…uh…because it’s mine.

“Street vendors are not necessarily the sign of a good economy or a good downtown. They are messy actors who usually have very poor aesthetics and offer a very uniform product of relatively low quality – when it isn’t counterfeit.” No doubt Mr. Barth would take strong exception if somebody referred to his colleagues in collective terms – “the 34th Street Partnership are sloppy businessmen with questionable ethics.” But he does not hesitate to herd all or most street vendors into one corral and brand them with the same iron. They don’t merely offer a uniform product; they offer a very uniform product! (In political rhetoric, nothing succeeds like excess.)

Of course, we all know that you just can’t trust vendors who sell uniform products of relatively low quality, like McDonald’s, White Castle, Wal Mart and Dollar Store. But it isn’t enough that the street vendors be pigeonholed as specialists in inexpensive, homogeneous goods – no, they must be stigmatized as crooks, counterfeiters. This is just another way of saying: “The customers of street vendors are complete idiots, since they cannot detect forgeries of the simplest, least complex goods; instead, they not only fall for the fakes but apparently keep coming back for more!” And since the customers of street vendors are the same people who patronize the downtown shops of the 34th Street Partners, Mr. Barth is stigmatizing his own customers and those of his colleagues.

“Further, they [street vendors] seldom follow rules, often don’t pay taxes, often exploit workers and leave messes behind.” Throughout the world, street vendors are the lowest of the low among businessmen. Often their net worth travels with them in the cart or wagon that dispenses their wares. The working capital with which they purchase tomorrow’s inputs is gained from today’s sales. But in Mr. Barth’s telling, these powerful powerless wield powers unknown to mortal businesses. They ignore laws, evade taxes, exploit workers – does this mean that a one-man hot dog vendor acting as entrepreneur exploits himself acting as laborer? Meanwhile, Mr. Barth would have us believe that police are the powerless ones. In reality, the police typically act in concert with Mr. Barth and colleagues to roust street vendors on the slightest pretext. Of course, nobody disputes that street vendors should pay taxes and respect property rights, and they possess no special rights or immunities that would prevent this.

“…The great retail places of the world…don’t have street vending or…limit it to products that enhance the street experience and have difficulty paying for storefronts (flowers, newsstands, shoeshine).” The criterion “products that enhance the street experience” is utterly subjective; it allows would-be cartels like the 34th Street Partnership to restrain trade and restrict competition while holding up a fig leaf of pretense by allowing vendors as long as they don’t compete with incumbent merchants. Any downtown habitué knows that flower stands, newsstands and shoeshine parlors do sometimes operate behind storefronts; this is merely the pretext under which the cartels grant them the special privilege denied to competing street vendors.

If there is even a tiny grain of truth in Jerome Barth’s case against street vendors, it would have to crystallize around the issue of spillover costs resulting from a transient vendor who cannot be traced and braced for costs of cleanup. Presumably, this was the rationale for Atlanta’s awarding a franchise rather than allowing open competition among street vendors (“…in the case of Atlanta’s concession of street vending to a single group. namely General Growth Properties”). However dubious this example and this practice may be, it serves to demolish whatever remains of Mr. Barth’s argument against street vending.

The outlines of this second anti-competitive rhetorical pathology are as follows: “Free markets are wonderful for everybody else, but not for me because my case is special. I am the helpless victim of invidious, evil forces beyond the reach of normal market competition. The law must suppress these competitive forces or they will destroy me. (The fact that these powerful evil forces consist of people who are otherwise the most powerless people in society is a paradox that I do not choose to address or even recognize.)”

It’s the Gypsy (Cab) in My Soul

Although both of the first two examples are recent, the attitudes displayed therein have been around for many years. A classic case amalgamating the two rhetorical stances involves the “gypsy” cab business. Gypsy (illegal) cabs operate throughout the world. Taxicabs are heavily regulated around the globe and gypsy cabs are linked to regulation the way pilot fish are attached to whales.

In its paradigmatic form, taxi regulation limits the number of taxis allowed to operate within a political jurisdiction and also prescribes the specific fare structure the taxis are allowed to charge. In effect, the governmental body regulating taxis functions as a cartel that blocks entry of new firms into the market. This limitation places an upward bound on the amount of taxi service that taxi consumers can receive, thereby bolstering the high price set by the regulators. In turn, this allows monopoly profits to be earned on the supply side of the market. Whether the beneficiaries of those profits are taxi firm owners or drivers or somebody else depends on various factors, some of which we will elaborate below.

New York City is the classic case of taxicab regulation resulting in monopoly profits and the proliferation of gypsy cabs. Beginning with the Haas Act in 1937, operators of New York City taxicabs were required to purchase medallions as emblems of licensure. During World War II, 1,794 of the original 13,566 medallions were returned to the city by entering servicemen. That left 11,772 outstanding medallions – a total that has not increased since then.

Meanwhile, the demand for taxicab service in perhaps the most tightly concentrated population in America continued to increase. There was no way to legally increase the size of the taxicab fleet and no way to legally raise the price of service. Thus, waits for service became intolerably long. Service to poorer neighborhoods deteriorated disproportionately, especially to ghetto communities where the risk of robbery and injury to drivers was thought to be higher. Eventually, local residents responded by reallocating private passenger vehicles to the service of commercial passenger transportation; they installed meters, top lights and lettering identifying the vehicle as a taxicab. These gypsy cabs found a plentiful market for their services inside the ghetto and even ventured into the larger community in search of business.

Sometimes private vehicles were conscripted to serve as livery vehicles or jitneys. In principle, livery vehicles are defined as for-hire transportation vehicles engaged via telephone or appointment only and not responsive to street hails. In practice, though, this distinction gradually blurred and the unmarked livery vehicles became de facto taxis. Individuals who contracted with grocery stores to provide exclusive “car service” for shoppers became the modern-day prototype for jitneys. With very few exceptions, these too have traditionally been illegal in America but have been tolerated by authorities beset by complaints about poor taxi service.

Why not simply open up the taxi business for competition? In New York City, the monopoly profits available in the taxi market have been reaped by owners of the medallions. Although it is the drivers who pocket the money derived from the high taxi fares, the value of those monopoly profits is capitalized into the price paid for the medallion. (The medallion is legally transferable, so a retiring driver can cash in his or her investment by selling the medallion to a prospective entrant into the business. The price of medallions fluctuates; it has often reached six figures over the years.) If the city were to suddenly allow free entry into the taxi business, the market value of those 11,772 medallions would suddenly fall to zero – and 11,772 medallion-holders would raise hell when their capital asset suddenly evaporated in their hands. Obviously, New York City politicians fear the volume of this outrage more than they welcome the more moderate gratitude that would flow in from taxicab consumers.

The official rationale for taxicab regulation dates back roughly a century, when the automobile was young and taxis competed with buses and streetcars. City government wanted to protect buses and streetcars from the competition of taxis. But they couldn’t very well say that they wanted to deny taxicab consumers the transportation services vital to their well-being. Instead, they used the same sorts of arguments that survive to this day in the official pamphlets and websites that warn against gypsy cabs.

A famous 1969 New York Times piece warned its readers that, by riding in a gypsy cab, “…you may be putting yourself in the care of a murderer, a thief, or even a rapist [!]. The gypsy driver, by the very fact that he solicits on the street, is at least a crook, but he may have big ideas which include you.” Of course, the inherent contradiction implied by this characterization is never broached. The very thing that makes the gypsy cab attractive is the possibility of earning money by transporting passengers. In order to do this, the vehicle must be made both conspicuous and distinguishable. But driving a big yellow vehicle marked with a number is not conducive to the successful commission of a crime, since it makes its driver both highly visible and easy to trace.

One would suppose that the prospect of traveling with crooks, rapists and murderers would deter prospective passengers of gypsy cabs, but evidence supports the conjecture that gypsy cab operations were and are “flourishing,” to borrow the characterization of black economist Walter Williams. Various estimates have been made of the gypsy cab influx within New York City. One Taxi and Limousine Commission chairman put forward the figure of 15,000, which would have made the gypsy cab business larger than the licit medallioned fleet.

This suggests that gypsy cabs are, in the aggregate, more beneficial than legal cabs. Throughout New York City, but especially in the ghettos and low-income areas, people dependent on commercial transportation are willing to use unauthorized means of transport rather than wait for hours on authorized transport that may never arrive. More pithily put by Wikipedia: “Passengers sometimes find illegal cabs to be more available, convenient or economical than licensed cabs.” Gypsy cabs are often cheaper than licensed cabs in absolute terms. If one thinks of a time delay in obtaining a cab as a form of higher price – foregoing time otherwise available for work or leisure, just as paying a money price entails foregoing alternative consumption goods or saving that could be enjoyed – gypsy cabs are clearly the lower-priced alternative to licensed taxicabs. Consequently, it is the legal taxicab industry that most assiduously demonizes gypsy cabs through propaganda such as that in the quoted New York Times piece above.

Seldom has reality been so at odds with rhetorical pretense as in the taxicab business, where the conventional thinking is bereft of any economic content. Expressing the conventional view compactly would yield something like this: “Crooks are people who violate the law. Gypsy cab drivers violate the law. Therefore, gypsy cab drivers are crooks. Crooks rob, rape and kill people. Therefore, gypsy cab drivers also rob, rape and kill people. You should be happy to wait hours for a licensed cab and pay its sky-high fare rather than risk robbery, rape and death in a gypsy cab.” As with the other rhetorical pathologies we exposed, this one is utterly without redeeming social value. It serves the interest of the taxi cartels and bureaucrats and nobody else.

Business and Competition

These few examples point to a great American truth. American business is devoted to the principles of free enterprise – but not to their practice. American business loves competition – for its rivals. The best way for a business to avoid facing competition is by removing competitors. The best way to remove competitors is by making them illegal or, alternatively, passing laws and regulations making it too costly for them to operate.

DRI-334 for week of 5-5-13: Economics and Geography: The Case of Africa

An Access Advertising EconBrief:

Economics and Geography: The Case of Africa

Economics is the social science dealing with human choice. Geography is the physical science that deals with the above-ground features of the Earth’s surface. The two are seldom mentioned in the same breath. Yet they work hand-in-hand. The subject matter of geography forms the objective physical, structural parameters with which economics must cope. Geography’s brute facts can mold, shape and manhandle economics to a stunning degree. No better example could be cited than the effect of Africa’s geography on its economic history.

The Geographic Dimensions of Sub-Saharan Africa

The continent of Africa encompasses a geographic kaleidoscope. The “Africa” of popular imagination and special economic interest lies to the south of the Sahara – the world’s largest desert whose land area exceeds the size of the continental United States. Sub-Saharan Africa stretches to the tip of the Cape of Good Hope, north of the Antarctic Ocean. It abuts the Indian Ocean to the east and the Atlantic Ocean to the west.

The adjacency of oceans on three sides suggests that African economic history should be a tale of international maritime trade. Just the opposite – although at least three important trade lanes developed between Africa and the rest of the world, international trade was not a tremendous engine of economic development and growth in Africa. The noted economist Thomas Sowell found the source of this apparent paradox in two geographic drawbacks. First, winds and ocean currents near the African coast were (and are) among the world’s trickiest and most variable. Throughout most of world history, the expertise necessary to cope with them was absent.  Second, the African coastline was and is mostly smooth and shallow, thus unsuitable for harbors. Ships had to anchor offshore and transfer cargo by boat – a time-consuming, cumbersome and costly method. This gave rise to one of the great economic-historical ironies, noted by Sowell: As a large fraction of world international trade passed back and forth from Asia around the Cape of Good Hope to the New World, it passed within hailing distance of the African sub-continent – but seldom stopped.

It is hard to overrate the importance of these factors for Africa’s economic development. (And while for most other purposes we would need to analyze African economic development by separating the continent into its constituent nations, this geographic analysis is better conducted by treating the sub-continent as a unitary whole.) These days, many people treat foreigners and foreign trade as unwelcome intruders in economic life, but throughout human history international trade has been the key to a better life for most people and nations. Many of the great nations, from Rome to Greece to Carthage to Phoenicia to Egypt to the modern European nations, were either trading civilizations or encouraged trade beyond national borders. Trade allows nations to consume a broader range and larger volume of goods than they individually produce. It also increases the amount, scope and accuracy of human knowledge. When deliberately imposed from within, trade deprivation is a form of self-starvation.

In Africa’s case, the effects of geography are directly analogous to those of anthropogenic taxes and quotas. Those effects were not limited to the coastlines. They were even more pronounced in the interior. To appreciate their effects, we can compare them with the effects of geography on economic development here in the U.S.

From the arrival of Europeans in North America just prior to and after 1600, rivers were the transportations arteries of choice for north-south (and some east-west) travel. Barge, keelboat and canoe were media of transport. Cities sprung up at the confluence of rivers and at convenient landing points. Today, the history of the nation’s major cities is writ in their rivers. Despite the plethora of new transport media, ranging from planes to trains to automobiles, river transport is still an important secondary source of freight transportation for goods whose ratio of bulk to value is high.

Africa has always has even more and bigger rivers than North America. But they have been a much smaller boon to her economic development, which has been drastically curtailed compared to that of the New World.  The problem has been that African rivers are often unnavigable. Hard-core movie fans are familiar with the 1951 film The African Queen, starring Humphrey Bogart and Katharine Hepburn. The movie follows the adventures of a hard-drinking, World-War I era ship’s captain and a spinster missionary who set out on a long river journey aimed at locating and sinking a German steamer in Central Africa. The two must traverse the length of the unnavigable UlangaRiver (also called the Bora) to reach the Kenyan lake where the steamer resides. The formidable river hazards they surmount form the basis of the movie’s plot. These include rapids, plagues of swarming insects, river animals such as hippos, inclement weather and the river itself – which eventually becomes so choked with reeds and vegetation that they have to climb in the water and pull their weatherbeaten old tub of a tiny craft through the muck. Hollywood films are legendary for mangling the truth, but in this case the screenwriter (and novelist C.S. Forester, on whose book the film was based) hit the nail on the head.

In addition to above-mentioned hazards to navigation, African rivers suffer the drawback that African geologic structure is often mesa-like – plateaus followed by sharp dropoffs that form a falls. (Indeed, sharp changes in altitude hinder mobility on land as well as water over most of the continent.) The result is navigational nightmare; traversing a falls is not merely awkward but downright dangerous. The Zaire River is 2,900 miles long and contains a volume of water second only to that of the legendary Amazon River. But the Zaire’s succession of falls and rapids prevent entering ships from getting very far. This is typical – according to Sowell, “no river in sub-Saharan Africa reaches from the open sea to deep into the interior.” We must travel up the Mediterranean coast to the Nile to find a river that stretches inland. While the 1,500-mile total length of navigable water in the Zaire is impressive, this is not a continuous stretch, but is rather comprised of many discontinuous stretches. For several centuries, a map maker attempting to travel the river’s entire length would have had to make repeated portages across land to bypass the unnavigable parts of the river. This was typical of Africa’s waterways.

When water transport is unavailable or infeasible, animals are the historical second-best means of transporting people or goods. In the U.S., oxen and horses pulled wagons and carried travelers on the westward migrations beyond the original 13 colonies. African settlers made similar attempts to employ draft animals but were thwarted by the tsetse fly, an insect pest that carries disease that is deadly to animals. Animal populations were so ravaged that human beings often stepped in as beasts of burden. The stereotypes of African males as jungle bearers on safari and females carrying loads on their heads were born of this necessity. But the tropical climate was not much friendlier to humans. In the 20th century, some 90% of all deaths from malaria occurred in sub-Saharan Africa.

Bacteria tend to flourish in the tropics because of dampness. Oddly enough, the moisture content is favorable to disease organisms but less so to agriculture. Even though total rainfall seems adequate, the boom-or-bust pattern of rainfall – torrential rains alternating with sizable periods of drought – is hard on soils. Drought bakes and hardens soils, enabling heavy rains to wash them away. This destroys valuable nutrients, damaging agricultural prospects. The use of fertilizers was long hindered by the dearth of animals – yet another point of unfavorable contrast with North America, where animals were a plentiful source of fertilizer.

While it is true that not all regions of sub-Saharan Africa suffered all these deficiencies simultaneously, virtually all areas suffered at least one of them. Normally, when some areas produce some things but sorely lack others, trade can make up for this by allowing each area to specialize in its comparative advantage good and trade a surplus of its good for the other things it lacks. But when transport between areas is absent or highly costly, the value of trade is greatly reduced.

The effect of transport costs is exactly analogous to that of a specific tax. Suppose that it costs $10 to transport a good from point A to point B. This drives a wedge between the price paid by the buyer of the good (located at B) and the price received by the seller (at A). This holds true regardless of who pays the transport costs; in fact, the welfare of buyer and seller are unaffected by the identity of the taxpayer. Suppose, first, that the buyer is responsible for paying the tax and that the final market price is $90. That means that the buyer pays $100 (the $90 market price plus the $10 tax) and the seller receives the market price of $90. Alternatively, suppose that the seller is responsible for paying the tax. We previously established the buyer’s willingness to pay $100 for the same quantity of the good – this time the buyer pays it all to the seller instead of paying $90 to the seller and $10 to the government (collected at the sales counter by the seller). Now the seller receives a larger market price of $100, instead of the $90 market price in the first example. But the seller must subtract the $10 tax paid to the government, so the seller nets only the same $90 as before. In both cases, the buyer pays $100 net and the seller receives $90 net. In public finance, this is called the equivalence theorem. But the same logic applies to transport costs. Both tax and transport costs deter economic activity because they reduce the gain to the seller and increase the sacrifice made by the buyer.

Transport costs are ubiquitous. But they loom especially large in Africa. In African economic history, transport costs have been a figurative cross borne on the shoulders of the African citizen. They have severely limited both international and intranational trade.

African Trade

Northwestern Africa, including what eventually became the countries of Nigeria and Ghana, was least disfavored by nature and accordingly hosted several relatively prosperous civilizations. Because prospects for interior trade with other African nations were so poor, these nations increased their real incomes by regional warfare and international trade. Their higher standard of living allowed them to produce weapons of war with which to subjugate their neighbors and reduce their citizens to slavery. The Niger River provided one of the few navigable water routes leading to the ocean, which facilitated the export of slaves to Europe and the West Indies, whence they were often re-exported to North America.

Slaves were one of the few African export items because a slave was a very valuable capital good, capable of earning a decades-long stream of income for its owner. This future stream of income could be estimated, discounted to a present value using an interest rate and sold for a purchase price that capitalized that future stream of income into a current capital gain for the seller. This made it worthwhile to incur the sizable costs of transporting imprisoned slaves across a vast ocean. Consequently, the Nigerian coast acquired the appellation of the “slave coast.”

Another profitable export of this region was gold, which was mined in Ghana. Gold was (and still is) used for limited industrial and decorative purposes, but its primary value lies in its scarcity and acceptability as a medium of exchange and store of value. Investors bid up its price whenever money loses its value in exchange. Even today, the world’s entire physical stock of gold would fit into a single sanitary landfill. Mined gold resembles dust. This means that gold has an extremely high value relative to its physical bulk – the perfect kind of good to overcome the barrier erected by high transport costs. It is not surprising, then, that the Ghanaian coast acquired the nickname of the “gold coast.”

The third of Africa’s famous “coasts” was its “ivory coast,” located to the west of Ghana in Northwest Africa. The ivory was obtained from the tusks of African elephants, hunted to near extinction because private ownership of elephants was mistakenly forbidden. (In the late 20th century, those African nations that experimented with allowing private ownership of elephants saw dramatic increases in elephant populations and successful control of poaching.) Ivory was greatly prized for a myriad of uses and elephants were extant only in Africa and India. Thus, elephant tusks also attained a high value relative to their substantial bulk.

Overall, this represented an incredibly meager showing for one of the world’s largest continents and populations. At the most, it produced prosperity for small African regions for limited historical periods. The slave trade was outlawed in the 19th century and this edict was policed by the British navy. The ivory trade was a self-limiting business, plagued by its illegal status and the short-sightedness of officialdom. Gold mining is limited by the stinginess of nature and the expense of extracting gold from the ground.

Alternative Explanations for Africa’s Lagging Economic Development

Africa has long been the poster child for the failures of economic development in the Less Developed Countries, or what was formerly called the Third World. Most of the blame for this failure was placed on the fact that, for comparatively short historical time periods, many African nations were colonies of European countries.

On general direction, this seems an odd position to take. The theory of colonial immizeration – if it can be called that – apparently assumes that colonizers gained by withdrawing resources from colonies in some way analogous to that in which, let’s say, an embezzler gains by withdrawing funds from a successful company. But that misconceives not only the basic nature of trade between nations but also the stylized relationship between colonizer and colonized.

There is a theory that colonizers gained by imposing unfavorable terms of trade on their colonies and by substituting less efficient trade relationships for those that colonies would otherwise have developed with the rest of the world. But even if we subscribe to this, it does not imply that colonizers wanted to prevent or retard economic development in their colonies. Presumably, just the opposite was true, since development would enable the colonies to produce more and better goods for the colonizer to acquire via biased trade. And in fact, colonizers expended vast sums of time and money on attempts to promote development in the African colonies. If they failed, their failures seem small in comparison to the spectacular failures achieved by Western economists and development agencies like the World Bank and the International Monetary Fund after World War II.

Another oft-cited villain in African non-development is authoritarian political institutions. Doubtless, the fact that Africans exchanged colonial masters for home-grown despots in case after case is not only ironic but tragic, in view of the appalling human toll taken by famine, executions and all-around misery. But the question here is: Is despotism per se responsible for the lack of economic development in Africa? There is a very well-established relationship between political freedom and economic freedom, but the causality seems to run mostly in one direction – from economics to politics, not vice-versa. It seems reasonable to think that more democratic institutions would lead to fewer executions and political imprisonments and less repression in Africa. But Western nations have proven that democracy is fully compatible with economic serfdom and penury.

One of the most objectionable theories of African economic development is racial. It ascribes Africa’s development failures to the genetic inferiority of a predominantly black population. Since this theory offends current sensibilities, it seldom receives serious discussion. A dispassionate examination would cite, among other objections, the economic and intellectual success that the same genetic strains have achieved elsewhere in the world. Indeed, one of the most compelling counterarguments was played out in southern Africa itself, where the successful competition of poor black workers forced dominant white minorities to impose apartheid in order to protect white incomes. The same scenario was played out in the American South under the Jim Crow laws. If blacks are inferior in some economically meaningful sense, why do whites so often need the law to enforce economic protection against black competition?

That last example should click on the light of realization in our minds. Africa seems to be an object lesson in how badly a free market is needed. The African continent is home to less than 10% of the world’s population but over one-third of its languages. This cultural indicator reeks of economic and cultural isolation. In an America blessed with plentiful natural resources, navigable rivers, hospitable climate and a century’s worth of relatively benign colonial stewardship, some sort of economic development was virtually inevitable. Our experience with free markets was a huge bonus that made us the world’s leading economic power. Scandinavia, with its added advantages including complete cultural homogeneity, needed free markets even less. But nothing less than free markets would have sufficed to bring economic development to the Dark Continent.

Free markets do not work miracles; they merely permit the best to be made from available opportunities at any particular point in time. They also provide the widest scope for innovation and technological advancement over time. When nature has dealt you an inferior hand of cards, you can only make the optimal draw, then play those cards for all they are worth. Freedom and free markets are that optimal strategy for economic development.

Today, there are stirrings of economic development in Africa, as there are in longtime development laggards like China and India. The Economist has reported on the ability of individual African fishermen to use cellphones to check the market prices of their daily catch. At long last, technology is beginning to improve the bad hand that Africans have been dealt. Technology has been working its wonders for a couple centuries in the West. Now free markets are bringing them to the poorest of the poor in the heart of Africa.

DRI-365 for week of 4-14-13: The Pattern of the Anointed Strikes Again, Part Two

An Access Advertising EconBrief:

The Pattern of the Anointed Strikes Again

The previous EconBrief related “The Pattern of the Anointed” – the social theory of the great black economist Thomas Sowell. This pattern describes the perverse cycle of crisis, policy solution, result and response by the dominant elite, who consider themselves anointed to dictate the course of our lives. Not only do the big-government solutions prescribed by the anointed fail to alleviate the perceived crisis, but they actually make the situation worse.

To add insult to injury, we subsequently learn that the crisis never existed in the first place. The unfortunate circumstances represented as a crisis in desperate need of federal-government intervention were really an improving situation – which federal intervention worsened.

Sowell elaborated three classic case histories of the Pattern, each taken from the rise of big government in the 1960s: the War on Poverty, the ubiquity of sex education in public elementary and secondary schools and the Warren Court’s “criminal rights” revolution of the 1960s and early 70s.

Alas, the Pattern is alive and well and thriving in the United States today. A current, ongoing example is provided by the regulatory and legislative jihad against “distracted driving.”

Background: Annual Driving Fatalities in the United States

For nearly a century, one of the leading causes of accidental death each year in the United States has been motor-vehicle accident. In 2011, over 30,000 people lost their lives from this cause. Statistics from 2012 are slow coming out, but extrapolation based on third-quarter figures suggest that last year saw the first rise in motor-vehicle deaths since 2005. This would also result in an increase in the fatality rate, calculated as the average number of deaths per 100 million vehicle miles traveled. This would be regrettable under any circumstances but it is extremely puzzling in historical context.

The trend in highway fatalities has been level or downward since 1988, with only small increases and an overall decline from about 47,000 yearly deaths to about 32,000. Evaluating in terms of fatalities per 100 million vehicle miles traveled – a much more accurate measure of driving safety – the trend is even more striking. In 1921, this figure stood at 24.1. By 2011, it had fallen to 1.05. The trend over that 90-year period was sharply downward, a few increases being interspersed with steady declines. (The most accurate measure of all is fatal accidents per 100 million miles traveled, but this figure is often unavailable.)

This context is what makes 2012 so startling. Previously, we had a very long and relatively continuous period of declining deaths and steadily improving safety. Then in 2012 we have an abrupt interruption and reversal of this trend just as it had reached an apex. Even more unlikely, the increase in fatalities came during a time of economic adversity, when people drive less and fatalities normally decline. Explaining the trend is hard enough; explaining the reversal is even harder.

Still, an economic detective has instinct and experience to go on. Long-term beneficial trends are usually the outcome of free markets. Sudden downturns into decline usually showcase the visible hand of government at work.

The “Crisis”

The reality of driving safety forms the backdrop against which government pushed a crisis agenda with driving safety as its rationale. That agenda was pursued on two fronts. The first was professional.

When the Obama administration came to power in 2009, it inherited a revamped plan for trucking-safety regulation called “Comprehensive Safety Analysis.” Since it was due to take effect in 2010, it acquired the shorthand tag CSA 2010. In the event, full implementation of CSA 2010 was delayed until 2011. Ostensibly, it was designed to improve trucking safety by more thoroughly evaluating motor carriers and truck drivers utilizing modern statistical techniques.

CSA 2010 had two predecessors, “SafeStat” and SAFER. SafeStat included data on accidents and moving violations based on state and local enforcement. Unfortunately, the data was questionable; enforcement and terminology varied widely between jurisdictions. SAFER employed date from compliance reviews conducted on the basis of random samples. While this improved the quality of the data, it left most carriers unscrutinized and ignored outside data. Federal regulators felt that neither of these two systems produced results reliable enough to allow the public to gauge the safety of motor carriers or drivers.

CSA 2010 applied a statistical approach by considering all data on all carriers and drivers. It developed a statistical data base and assigned safety ratings to companies and drivers. (The former were released to the public, the latter made available only to companies.)

In addition to CSA 2010, the Department of Transportation urged companies to test drivers for health conditions such as sleep apnea. Its avowed aim was to rid the industry of unsafe companies and unsafe drivers. The tacit premise behind this push was that market competition was not equal to this task.

The second prong of the government’s safety approach was pointed toward the general public and given the label “distracted driving.” Two forms of behavior have been singled out for condemnation as uniquely distracting to drivers of motor vehicles – the use of cellphones and texting.

The campaign against cellphone use by drivers accelerated markedly with the accession of the Obama administration. DOT Secretary Ray LaHood vowed to ban cellphone use in cars. So far, bans on cellphone use by all drivers have been legislated by 10 states in the U.S. and the District of Columbia. School-bus drivers have been denied the use of cellphones in 19 states and D.C. Texting bans have been even more popular, gaining legislative approval in 39 states and D.C. Bans for teenage drivers only have passed in 5 states. School-bus drivers have been forbidden to text in 3 states.

While cellphone research has distinguished between the distraction afforded by dialing and conversing, the impact of the distinction on the public debate is unclear. The greater restrictions placed on texting may reflect this. The really remarkable outgrowth of research, though, is the devastating effect it has had on the government’s position.

The Results: Once Again, the Pattern’s Effects are Perverse

Thomas Sowell pointed out that the results of the Pattern of the Anointed are doubly ironic: Not only is the supposed crisis giving rise to government action non-existent, but the results of the action actually make the situation worse.

In this case, we have seen that no driving safety crisis existed. Over the long term, both highway fatalities and fatalities per 100 million miles have been declining steadily as long as the data have been collected. In the short term, deaths have been falling since 2005 and the fatality rate has been falling for over 15 years.

What is more, these declines have been occurring alongside the growth in driver distractions that supposedly constituted the crisis. According to one of the most reliable sources of highway safety data, the Insurance Institute for Highway Safety, as of June 2012, cellphone subscribership was up 240% since June 2002 and 32% since June 2009. The 2.3 trillion minutes of cellphone use constituted an 18% increase since June 2009. Text messages were 9 times greater in number than in June 2007.

If cellphone use and texting are a driver distraction – and research suggests at least some support for this – why didn’t this distraction cause the fatality rate to increase, or at least halt its decrease, during this decade? Perplexing as this question might be to the anointed, it cannot begin to compete with the next one.

Research also shows that cellphone bans have been effective in reducing cellphone use. In at least one state (New York), fatalities even fell after its cellphone ban. But neither cellphone bans nor texting bans were effective in reducing fatalities; in fact, they increased fatalities compared to states with no bans. Since fatalities have been falling for decades even before the bans, it is no good to simply assume that the bans caused further declines. The only basis for evaluation is to compare results after the bans in states with bans and without them. These comparisons shows that the bans were never effective and were actually counterproductive – or, more precisely, the post-ban comparisons were unfavorable to the states where bans were in place.

Shifting focus to trucking regulation, we find similar results. When trucking regulation was so ineffective that regulators refused to certify the SafeStat and SAFER databases for public use, highway fatality rates fell continuously for over a decade. When the Obama administration oiled up its regulatory CSA 2010 machine and sent it out onto the road to improve trucking safety, fatality rates went up abruptly in the year (2012) after the new regime went into effect.

The Pattern of the Anointed strikes again!

What’s Going On?

As previously noted, it’s easy to explain the perversity of this pattern by citing historical precedents and comparing the relative merits and historical record of free markets and government. It’s a little harder, however, to diagram the nuts and bolts of a process that would explain this particular case.

For example, it is not entirely clear what accounts for the long-term trend toward improving safety and declining fatalities. Could this be explained by (say) seat-belt use or protective highway barriers? No, and not just because these things came along long after the trend was underway. Motor-vehicle accidents (crashes) have declined along with fatalities – from well over 600 million in the mid-1990s to just above 500 million today, for example – and factors reducing the severity of the crash’s effects would have no effect on this aspect of driving safety.

Certainly we can identify some factors involved. Better road design and signage have obviously made a difference. In the 1930s, vehicle-equipment failure accounted for over 30% of official accident causes, whereas today that figure is around 2%. But these cannot account for the steady, continuous declines we have seen. Demographic factors should be important; the baby-boom generation may have had some responsibility for a five-year period of upward blips in the fatality rate starting in the early 1960s, for example. But we should also note that this coincided with the federal government’s first big regulatory push for auto safety, so we cannot rule out the Pattern for the Anointed as the prime mover in this period.

Many observers feared that CSA 2010 would cause fearful attrition in the ranks of truck drivers. Estimates among industry professionals ranged from 3-20%, with 5-8% forming a consensus view. The COO of Werner Enterprises was quoted as saying that two of his best drivers, with 7.4 million accident-free miles between them, would be classified as “unsafe” under the CSA guidelines. How could this be?

In formulating its statistical risk evaluation, CSA includes all violations on the driver’s and carrier’s record. In addition to serious moving violations, it includes minor technical violations like late submission of logs and late reporting for drug tests, even when no negative repercussions result from these violations.

These kinds of things make up a part of the regulatory burden placed on the industry by the Obama administration. The fact that the profession of truck driver faces a future limited by the advent of driverless vehicles puts a two-way squeeze on the trucking industry. On one side, older drivers are being squeezed out by regulation. On the other side, the influx of youth that would ordinarily be forthcoming from driving schools and new entrants to the labor force is not forthcoming because the handwriting on the wall has warned them against a career as a truck driver. The pool of drivers is made up of the least attractive applicants, resulting in a case where the best, most experienced drivers are exiting and a less attractive crop of applicants is replacing them. We can hypothesize that this has affected driver safety unfavorably.

While the perverse effects of cellphone and texting bans are less easily explained, one possible answer lies in the evasive measures taken by drivers seeking to avoid detection. Concealing the communication device decreases the ease of use and increases the time and attention diverted from driving itself, thereby detracting from safety and promoting accidents. In this regard, we should recall that texting is heavily practiced by the youngest drivers. Research with drug use has firmly established the “rebound effect” – wherein young drug users deliberately reject laws and admonitions intended to control their behavior – as an important motivation. The rebound effect may be behind the perverse effects of texting bans as well.

Free Market vs. Government – Again

The phenomenon of “distracted driving” may seem like the fad of the month, but it has been with us as long as the automobile itself. When radios became standard equipment in passenger automobiles rather than merely optional extras – that is, in the 1940s – accidents caused by drivers tuning their car radios and changing channels were highly publicized. Car radios were viewed in some circles as a triviality and a luxury that was not worth the price – e.g., a potential loss of life.

Gradually, radios became an accepted part of driving an automobile, although radio never quite outran the stigma of being a potential distraction. In this vein, we should recall the example of taxicab drivers, who for decades utilized two-way radios in their cabs as a means of communicating with their companies to receive passenger-trip assignments and other duties. Cab drivers routinely learned to listen to their taxi radio while driving and talking with passengers, and to talk to their dispatcher to acknowledge receipt of messages and communicate important information of various kinds. The degree of distraction faced by today’s drivers seems mild compared to that endured by yesterday’s taxi drivers, who nevertheless seem to have caused comparatively little harm to life and property.

Taxicab drivers learned to cope with distractions because they had to, not because they were ordered to by government. They developed their own sets of coping mechanisms to suit their own talents and personalities. They responded incrementally, as they were allowed to by free markets. Government orders, in contrast, do not allow us the flexibility to cope. That is a big reason why markets work so much better than governments.

Somewhere, Thomas Sowell is nodding his head at this latest proof that the Pattern of the Anointed is still weaving its fabric of failure through our lives.