Tag: regulation

What Do The Economist’s Bloggers Think a Free Market Is, Anyway?

A correspondent for The Economist, whose initials are M.S., posts this on the Democracy in America blog:

[T]he new health-care-reform law passed in March is an entirely private-insurer, free-market-based reform. If someone were to refer to it as a “government takeover of the health-care sector”, that person would hold a factually incorrect ideological belief.

I wonder what convinced M.S. that the new health care law is an entirely free-market-based reform.  Was it the expansion of the government’s Medicaid program to another 16 million Americans?  Was it the 19-million-plus other Americans who will receive government subsidies to purchase private health insurance? Was it the new price controls that the law imposes on health insurance?  Or the price and exchange controls that it will extend to even more of the market?  Was it the dynamics those regulations set in motion, which will reduce variety and innovation in health insurance?  Was it the mandates that require private actors to spend their resources according to the wishes of the state?  Or the new federal regulations that will shape every health insurance plan in the United States, whether purchased through the employer-based market, the individual market, or the new health insurance “exchanges”?  Was it the half-trillion dollars of (explicit) tax increases over the next 10 years?  

I wonder what it is about this law that M.S. thinks is consonant with the principles of a free market.  Perhaps we have a different idea of what “free” means.

M.S. lists other “factually incorrect beliefs,” including:

that the Clinton plan would deny patients their choice of doctor, and that the health-care-reform bills in Congress at the time involved government “death panels” that could decide to withhold care from elderly patients on a cost-benefit basis.

I won’t dredge up the Clinton health plan.  But I have previously demonstrated that, when Sarah Palin claimed that President Obama wanted to give a government panel the power to deny medical care to the elderly and disabled based on cost-effectiveness criteria, the president had in fact proposed a panel with the power to do exactly that.

I agree with M.S. about this much: “once people are exposed to false information, it’s extremely difficult to convince them it’s false.”

Was There a Libertarian Golden Age?

Recently I wrote an article arguing that there never was a golden age of liberty and that in particular libertarians should not hail 19th-century America as a small-government paradise, at least not without grappling with the massive problem of slavery. Jacob Hornberger, author of an article that I criticized, responded in Reason, and I then responded here. Meanwhile, an interesting discussion took place on a email list of libertarian scholars, and I’m pleased to have gotten the permission of several participants to include some of that discussion here:

Aeon J. Skoble: The ideals of freedom which led to the tangible improvements [Boaz] mentions – I’m concerned that those ideals are eroding/have eroded.  Example: say you have a robust theory of rights, but your society denies rights to women.  That’s a contradiction, and the strength of your rights theory contains the foundation for protesting the injustice and remedying it.  But if you don’t even have a robust rights theory in the first place, there’s no foundation for complaining about lost liberty.  So my concern is that, all the good progress notwithstanding, liberty as an ideal is weaker than it once was.  One thing that’s widespread, e.g., is the constant conflation of positive rights and negative rights.  And at the same time that positive rights are being accorded the status of negative rights, negative rights are increasingly being viewed as encroachable.

David Mayer: In terms of economic liberty and property rights, Americans today are certainly far less free than they were a century ago, or even two centuries ago.  What was once a vast realm of human activity that American law left to individuals’ freedom of contract (the whole realm of business activity as well as personal life, in terms of what substances individuals may choose to ingest in their own bodies, the wages and hours they can work, whom they can hire or fire, to whom they can sell their property or refuse to sell their property, etc., etc.), has now been almost wholly subjected to the dictates of government, thanks to the rise of the 20th century regulatory / welfare state.  Business owners today (to pick one obvious category of Americans – arguably, the most important category, if as I do, you agree with Calvin Cooolidge’s maxim, “The business of America is business”) are certainly far less free today than they were 100 years ago (before the “Progressive” era), or 70 years ago (before the “New Deal revolution”), or 50 years ago (before the “Civil Rights movement” and the various federal anti-discrimination laws), or 20 years ago (before, say, enactment of the Americans with Disabilities Act) – or even a year ago (before enactment of the Democrats’ health insurance nationalization law).

Glenn Reynolds: I think that David’s piece is useful in another way:  If your narrative is one in which freedoms are always shrinking, and government always growing, it may tend to discourage people from working to make things better.  I see a lot of that kind of thing from people on the Right, and it irritates me no end.  I remember when the passage of the assault weapons ban was presented as just another downward ratchet in freedom, and yet now the gun issue is such that even lefty Dems are for the most part unwilling to touch it.  That, it seems to me, is an example of how freedom can expand even in the comparatively short term.

Steve Horwitz: The way I see this is that we’re trying to answer the question “Are we more free?”  To do so, we need to address both the “we” and the “free” pieces.  I read David as making two points:  1) We need to think carefully about the “we” and recognize, as we all have noted, the major gains in freedom for non-white, non-males (and maybe non-Christians too).  2) But he was also saying there are more freedoms in the calculus than the economic.  Even white men are freer along a number of dimensions than they were in the 19th century, when one takes the social realm seriously.  Some folks have noted those.

My own view is that one can look at this in the economist’s old tool:  the 2 x 2 matrix:

economic freedoms        social freedoms

White men           notable losses            good-sized gains

Others                       huge gains                    huge gains

I think by any accounting, the NW quadrant is smaller than the sum of the others.  We can debate over how much smaller, but if we could somehow aggregate these freedoms, I think there’s no question the total amount of freedom per capita is bigger today than “before.”

Mark LeBar: Speaking for myself, I don’t think it’s a matter of economic vs. other freedoms. If I were to put my finger on what I would say seems to me most significant in thinking the losses in NW swamp whatever gains there are elsewhere, I would say it has to do with the loss of respect for contract. That’s not to say there are no gains: as others have pointed out, 2 centuries ago I could not have contracted with women, or Africans, and to the extent non-whites and non-males have been accepted to the relevant moral community, that is indeed an expansion of my liberty as well as theirs. But, as I noted earlier, my authority to bind myself in ways that are not subject to veto by the state is a shadow of what it once was. I won’t enumerate the list again. But not only is that list much smaller, the rightfulness of the state to determine just how much smaller it may be continues to expand virtually without pause, as those on this list will need no reminder. I would say there has been a sea-change from the idea (however imperfectly implemented) that the flow of authority goes from individuals to the state, to just about exactly the opposite. And that is simply a catastrophic loss to liberty, not just for white males, but for everybody. It’s hard for me to see that there can be good reasons for rejecting either the claim that the authority relation is now generally seen as running the other way, or that that amounts to a massive loss of liberty. And I don’t see imminent prospects for broad change in those attitudes. Hence the pessimism.

David Olson: I think that perhaps I am missing something. In reading today’s exchange, I thought that people were working toward a consensus that had largely been reached and summarized by Steven’s email. But now Mark writes that liberty gains to everyone but straight white Christian males are swamped by the liberty losses to white males (and to hypothetical non-whites and females compared to the liberty they might have enjoyed if they’d had full equality 200 + years ago).

I’m very surprised by this statement. The logic of this would seem to lead to the proposition that it would be better if things were still as they were 200 years ago. Would anyone actually make that statement? If not, is there some value in addition to freedom that people are focusing on in deciding the question? (And let’s take medical and dental care advances out of the question to avoid skewing the answer.)

John Hasnas: I suspect that no one on the list would disagree with the assertion that between the time of the adoption of the Constitution and the present, the political and legal commitment to a government of limited, enumerated powers has greatly declined. I also suspect that no one on the list would disagree with the assertion that a vastly greater proportion of the population enjoys freedom from illegitimate political and legal restrictions and disabilities than was the case at the time of the adoption of the Constitution. Out of this universal agreement, we have managed to manufacture disagreement by asking a vague question that equivocates on the meaning of the word freedom; to wit, “Are we more free?”

It seems pretty obvious that to the extent that we are free, that freedom is much more widely distributed than in the past. It also seems pretty obvious that to the extent that there is less legal protection against the interference of the federal government with our activities, there is less freedom. Beyond this, the value of determining whether we are more “free” in some unspecified sense escapes me.

Aeon Skoble: Actually, I wasn’t asking “Are we more free?” – I conceded David’s claim that we were.  I was expressing some concern over whether the trend will continue positively or negatively, given that the positive and negative senses of freedom are so frequently conflated (not by members of this list, but in general, both in the academy and among the general public), and that in many quarters the very concept of freedom is in disfavor, and the idea that all rights are subject to encroachment by the state, which is more and more thought of as having limitless power.

Steve Horwitz: I agree with Aeon’s concerns.  One way to put it is, as I think Mark LeBar did earlier, even if it’s true that we are collectively (per capita) more free, those gains have come at the weakening of the sacredness of certain principles that affect everyone’s freedom, especially in the long run.  I too share the concern that the last two years have accelerated that process in very problematic ways.

Stephen Davies: There’s actually general agreement here with the broad argument David made but some mild disagreement over the (probably unanswerable) question of whether the aggregate of total freedom is greater or larger. That wasn’t the main thrust of David’s piece as I read it though, he was talking about the implications and consequences of the (clearly wrong imho) line that for liberty it’s been downhill all the way since the later 18th century. This is a common line as we all know and I think its really problematic. As David says it means you come over as indifferent to the undoubted gains made in some areas by various groups and so as only concerned with the position of one subgroup. This may well be wrong but impressions matter. This line also shows a deeply conservative sensibility and mindset. If you are libertarian in the sense of not liking large or expansive government but deeply conservative in other ways (e.g on questions of social hierarchy or relations between the sexes or family organisation) then you will feel that it’s been downhill for a long time. …

I think the real problem though with the approach David criticises is the way it leads you to behave with regard to current events. Basically you are going to see yourself as playing defence all the time and probably as fighting a losing battle against an inexorable tide of rising coercive statism. This means you will come over as angry, negative, and despondent, which are not attractive qualities. Also you will let the other side set the agenda and then respond to them rather than taking the initiative. This means you spend all your time criticising and attacking proposals that are liberty hostile instead of spending most of your time advocating positive liberty enhancing changes. …

Finally, if I could put my historian’s hat on for a minute. We need to distinguish between two different measurements - the size of government (as shown by its share of GDP) and it’s extent or range (as shown by the number of activities or areas of life that are considered to be its concern). In the first case there’s a clear growth (we’ve all seen the graph). Even there there’s Tyler Cowen’s argument that a 40% share of a really big GDP is less bad than a 15% share of a much smaller pie. In the second case there’s been considerable gains as well as losses. Religious belief, observance etc was once seen as the central concern of government. Now it’s a private matter. Governments used to concern themselves with things such as dress, diet and public interactions (under sumptuary laws) and intimate details of people’s sexual behaviour (through both church and secular courts). This is no longer true. OTOH there are clearly areas where there’s been a shift in the wrong direction such as mood altering substances and firearms or where there’s a danger of a bad movement (diet for example).

The following comments are prompted by Jacob Hornberger’s response in Reason.

Brad Smith: Hornberger notes that the concept of what it meant to be free was much broader in the 19th century (something Aeon also touched on).  True, some people were not free – but for those who were, the concept had much more meaning.  That’s why I think one can agree with both perspectives, that freedom has both gained and lost ground in important ways.

Implicitly, Hornberger notes the extent to which government was simply not a presence in the lives of most people.  The average free man could go days, weeks, or even months with no direct contact whatsoever with the government. Hornberger might also have noted that a free man didn’t need a passport to travel, or an operator’s license to drive his wagon, or a license plate for his horse.  In most cases, he didn’t need a building permit to add to his home.   Even laws that might be on the books (but were perhaps not so ubiquitous as many think) laid lightly on people – laws against prostitution, sodomy, polygamy and such.  A gay man in the 19th century might fear great social sanction if his predilections or activities became known, but the idea that the government would interfere with his activities was not really an issue at all, whatever the state code might say.  In the 19th century, one certainly didn’t need to license one’s pets, and one was never harangued by government sponsored advertising to properly cook your eggs or spend time with your children.  Today, for white men and for women and minorities, government permeates every aspect of our lives, essentially 24/7/365.

Even as we have expanded the blessings of freedom to more people, society’s concept of freedom seems to have narrowed tremendously, to where even many self described libertarians seem to think a 39% income tax bracket is pretty darn acceptable.  The boundaries of what it means to be free seem to have retreated, and to have retreated enormously.  Thus, even as more people have benefited from freedom, the long term outlook for freedom seems in many ways much more grim.

Keith E. Whittington: The overseer or master exercised lawful, violent coercive force over the slave on a daily basis and did so with the full support and backing, if necessary, of the government.  Moreover, “the government” (such as slave patrols) often consisted precisely of ad hoc groupings of armed civilians operating under the titular direction of a government official.  And the government wasn’t always willing to stand ready protect people from coercive private groups who wanted to enforce social conformity.  So, on the one hand, some prostitutes might be tolerated if they kept to themselves in the wrong part of town, but on the other hand abolitionist newspapers editors could have their houses burned down and Catholics and Protestants could find themselves becoming armed gangs and rioting to secure their respective neighborhoods.  No level of government had an expansive police force in the 19th century, but that just means that social order was generally maintained by other mechanisms.  It doesn’t necessarily mean that people were free from social order.

Mark LeBar: David is certainly right that slavery and the legal subordination of women are blights on the very institutions that were modeling liberty, and especially for those directly affected it is a gross mistake not to recognize what those changes in law and society mean in gains in liberty. But that is an observation that pretty much any decent person, libertarian or not, can be expected to make. There is a distinctiveness to the point of insisting, as Hornberger and Brad do, that the very liberty that is reaching to more people is radically constrained in many ways. We can grant, it seems to me, that many people are freer in significant ways than they once were, while insisting that the point of liberty itself is in danger of getting lost in the process. That, it seems to me, is a case that libertarians are uniquely in position to make.

Eugene Volokh: Prof. LeBar writes, that “what it means to be free is a shadow of its former self.”  But is that right, even as to white males?  Economic regulation, including of a sort that libertarians much oppose, is not a novel matter.  Neither is taxation (which, to be sure, is at a much higher rate than in the past, but I’m not sure that the precise rate is that much a part of “what it means to be free”).  Neither is regulation of trade.  Neither is restriction on freedom of association.  Neither is regulation of guns.  Neither is regulation of personal behavior; alcohol prohibition first emerged in the U.S., for instance, in the mid-1800s, and of course the regulation of sexual behavior was far greater in the past tan today.

What’s more, all these were favored, I think, by people who believed in freedom, which meant to them (as it does to many lovers of freedom today) freedom subject to at least some constraints aimed at protecting the freedom of others and at protecting the well-being of society.  Liberty has long been respected and fought for by Americans; but that the late 1700s and late 1800s were liberty-loving times doesn’t mean that the legal systems of that era were particularly libertarian as we libertarians would want them to be.  “We all declare for liberty; but in using the same word we do not all mean the same thing.”  I don’t think there’s been a past Golden Age of Liberty, in which freedom was generally accepted as meaning something far deeper and broader than what it means today, even for white men.

Steve Horwitz: I do think part of what’s going on here are two cross-cutting conversations.  Or at least two distinct claims.

1.  “Americans, on the whole, are freer than they were, say, 150 years ago.”

2.  “Government is more obtrusive in a moment-to-moment or day-to-day way than 150 years ago.”

I actually think both of these are true.  The enormous restrictions on the freedom of blacks and women (and others) of 150 years ago, though ultimately backed by the force of the state, did not require the state to be, as it were, “in their faces” on a moment-to-moment basis, as slavery and the second-class status of women were simply part of the institutional furniture (and often policed “privately” as Keith noted and as I noted about domestic violence in my earlier comments).

So it seems to me 1 and 2 are both true if one accepts that slavery and patriarchy don’t require the kind of constant and widespread, if small on each margin, government intervention we have in our own time.

We are collectively more free, I would argue, even though the underlying principles that assured the freedom of those who had such freedom 150 years ago have broken down significantly.

Keith Whittington: There is no doubt that you can run through statutes, court decisions and executive actions in the mid-19th century and compare the total to the mid-20th century and conclude that there is more overall government regulation in the latter than the former.  The latter is more voluminous and more detailed.  My only qualification/concern on this would be to note that while the 19th century regulation is less detailed it could be extremely intrusive (Sunday laws literally shut down all commercial, social and transportation activity in large parts of several states during parts of the 19th century) and that formal government activity was supplemented with informal private activity that was equally stultifying.  Without a robust vision of individual self-ownership, to borrow from Mark, that combination of social and governmental regulation could be extremely restrictive of anything we would want to recognize as individual liberty.  The battle for the idea of individual liberty, as well as the legal and social reality of it, was an on-going one throughout the 19th and 20th centuries, and I’m not confident how you net out the debits and credits.

Glen Whitman: Might it be helpful to ask why so many libertarians and conservatives want to say that America used to be more free than it is now?

Aside from sheer misplaced patriotism (which I’m sure is a big piece of the story), I think it comes from the desire to have an answer to the question, so often posed by statists, “When has a laissez-faire system ever worked?”  Rather than saying, “I’m advocating an untested idea,” we’d like to be able to say, “Yes, laissez-faire has indeed worked.”

And is that really wrong to say?  I think that with respect to specific issues, we can say that (a) the U.S. was freer before, and (b) somehow the country didn’t go to hell in a handbasket.  We can say, for instance, that drugs used to be largely legal and we didn’t become a nation of useless addicts.  We can say that labor markets functioned without extensive regulation.  (Of course, blacks and women were often excluded from those markets – but I’d say the markets functioned *despite* their exclusion, not because of it.)  We can say that there wasn’t a welfare state, and private charities and mutual aid societies did a fine job of helping those who fell on hard times.

None of which refutes David’s point.  Some groups were markedly less free, and everyone was less free in certain ways.  But that doesn’t mean we can’t sometimes point to history as a guide, which I suspect is what we really want.

Stephen Davies: I think Glen makes an important point here. Quite apart from the argument about how to quantify or compare different restrictions on liberty at different times and in different areas of lie is the question of rhetoric. Why present the story of liberty in the US as one of a decline from a golden age rather than as a story of slow growth in a positive direction or (my own favourite) one of decline in some areas and growth in others? Apart from the reason he gives I think one reason is the dominance of the jeremiad as a form of political argument. This isn’t confined to libertarians of course, in fact it seems sometimes that every political persuasion thinks things are going to the dogs. I think it’s a bad strategy however as well as being questionable.

I do think Mark and Aeon are on to something however in saying that there’s been a decline in the ideal of self-government or at least in the degree to which it’s articulated and the extent to which it’s understood as a complex idea rather than just a matter of doing your own thing. It was a much thicker concept in times past partly because it was associated with lots of other ideas of psychology (the notion of character) and sociology for example - there was a strongly held idea that you couldn’t be fully self-governing or independent if you were not economically self supporting and so the idea of freedom was tied in with all sorts of other ideas.

If you look outside the US, Dicey made the argument towards the end of the nineteenth century that there’d actually been a movement away from intrusive paternalistic regulation in the earlier nineteenth century followed by the growth of a new kind of intrusive state action after the later 1880s. He ralated this to public opinion which for him meant widely held but often unarticulated notions, beliefs and understandings on the part of the population at large or at least the politically active part of it. This kind of account makes more sense to me, particularly if you combine it with an approach that says that while freedom may have increased for some groups it declined for others and that at any one time it was growing in some areas of life while being in recession elsewhere. Complicated and messy but that’s history for you.

Loren Lomasky: To the extent that a consensus emerges in preceding comments it’s that the losses of liberty to white males over the past century or two are juxtaposed against liberty gains for people of color, women, some marginalized others.  Enjoying somewhat less than a genuinely full consensus is the proposition that on the liberty ledger the minuses of the former class are outweighed by the pluses of the latter.

Because the balance seemed so patent to me, I’ve said nothing previously.  I now wish to add, though, that it is far from obvious that even establishment white males suffered a liberty deficit over this period, and that not just because of gains with regard to social freedom but even with regard to core economic liberty.  Each of the following is an enormous gain for liberty:

1) The capacity to pursue one’s ends with willing others by forming corporations without any need of special legislative grants;

2) Rights of workers to associate freely with each other in pursuit of economic advancement  (unions, etc.)

3) Military services now performed by paid professionals who volunteer for the job rather than via a draft.

I could go on, but these themselves are not trivial.  Each is orders of magnitude more significant on the plus side than, say, Obamacare is on the negative.  An enormous number of state actions piss me off, but not to the extent that they blind me to the evident truth that the history of the United States since 1776 is a history of liberty in ascendance.

David Mayer: Albert Venn Dicey’s Law and Public Opinion in England in the Nineteenth Century does indeed identify a “golden age” for liberty, in (roughly) the middle third of the 19th century, when (according to Dicey’s analysis) classical liberal ideas were the dominant opinion (in terms of public policy).  That was a “golden age,” in Britain, because it was sandwiched in between (again, according to Dicey’s analysis) a period of “Old Tory” paternalism (the early 19th-century, continuing from the 18th century) and a period of “collectivism,” or socialism (with the rise of the late-Victorian-era welfare state in Britain, in the last third of the 19th century and continuing into the 20th century).

U.S. history is quite different.  We were founded as, essentially, a classical liberal nation:  the American Revolution was based on “radical Whig” ideas – the same ideas that so influenced British public policy during its classical liberal reform period (for example, many of the mid-18th-century radical Whigs who were friends of American independence – men like John Cartwright – were also leaders in the Parliamentary reform movement, culminating in the Reform Act of 1832).  But, as I have written elsewhere (see my essay on “Completing the American Revolution” (my Atlas Shrugged 50th anniversary essay) in Journal of Ayn Rand Studies, Spring 2008) the American “liberal” revolution of 1776 was far from complete.  Sure, we founded government explicitly on the protection of individual rights, and we instituted written constitutions to help limit the power of government (a huge advance in the history of world “political science”).  But, of course, as David and other participants in this discussion have noted, we did not consistently implement the “new science of politics” implied by the principles of 1776:  not only did we retain the institution of slavery and denied full legal equality to women but, in many ways, we retained in the law (mostly in the English common law as received and only slightly modified in American law) much of the older, paternalistic role of government that England had had for centuries and that had been brought over to the English colonies in America.  (One simple example:  the notion that government may regulate prices of businesses “affected with a public interest” – a concept from English law (one that in the early 17th century was used by apologists for royal absolutism to justify various kinds of economic regulations by the King’s government) not only survived in early American law but was used by the U.S. Supreme Court, in its 1877 decision in Munn v. Illinois, to justify government fixing of maximum rates for certain businesses – and ultimately, in the 20th century, to justify all sorts of needless government licensing and other restrictions on businesses.)

So, it’s quite true (as several participants in the discussion have noted) that there’s not been really any single “golden age” for liberty in the history of the United States.  Depending on how you measure it (by the size of government, the magnitude of taxes and spending, or the variety of forms of “legal paternalism,” for example), or what aspect you’re focused on (“economic” liberty versus “personal” liberty, for example, notwithstanding the artificiality of that distinction), or whose liberty you’re focusing on (business owners versus workers and/or consumers, men vs. women, whites vs. blacks, native-born Americans vs. immigrants, etc.), there’s no clear pattern:  liberty (as a whole) is at once on the ascendance, on the decline, and staying about even, in the American “mixed bag” of freedom/paternalism.  But (if I might be permitted to return to the main point of my original post) there’s little doubt that government regulation of business – government interference with the free market – at all levels, and especially at the national level, has been steeply rising, and thus a very important aspect of liberty (economic freedom) has been steeply falling, since the rise of the “progressive” regulatory/ welfare state in the early 20th century.  That part of American history (the past century or so) most closely resembles the age of “collectivism,” or socialism, that Dicey identified in Britain in the latter third of the 19th century.

SEC vs. Goldman Sachs: Legislation by Demonization

The Obama administration thinks it has discovered the perfect formula to cram legislation through in a hurry:  Demonize some prominent firm within an industry you plan to redesign, and then pass a law that has nothing to do with the accusation against the demonized firm.  They did this with health insurance and now they’re trying it with finance.

With health insurance, the demon was Anthem Blue Cross Blue Shield of California, which Obama accused of raising premiums by “anywhere from 35 to 39 percent.” Why didn’t some curious reporter interview a single person who actually paid 39% more, or quote from a letter announcing such an increase?  Because it didn’t happen.  Insurance premiums are regulated by the states, and California wouldn’t approve such a boost.  Yet the media’s uncritical outrage over that 39% rumor helped to enact an intrusive, redistributive health bill that has nothing to do with health insurance premiums (which remain regulated by the states).

Today, the new demon de jour is Goldman Sachs, a handy scapegoat to promote hasty financial rejiggering schemes  The SEC’s suspiciously-timed civil suit against Goldman looks as flimsy as the last month’s health insurance story.  It also looks unlikely to win in court.

As Washington Post columnist Sebastian Mallaby explains, “This is a non-scandal. The securities in question, so-called synthetic collateralized debt obligations, cannot exist unless somebody is betting that they will lose value.”  In such a zero-sum contest, big investors who went long knew perfectly well that other investors had to be taking the other side of the bet.  Goldman lost $90 million by betting this CDO would go up; John Paulson went short.

Columnists have moralized about the unfairness of the short investor (Paulson) negotiating the terms of this deal with a long investor, ACA Management, which had the last word. This too, notes Mallaby, “is another non-scandal.  An investor who wants to bet against a bundle of mortgages is entitled to suggest what should go into the bundle. The buyer is equally entitled to make counter-suggestions.  As the SEC’s complaint states clearly, the lead buyer in this deal, a boutique called ACA that specialized in mortgage securities, did precisely that.”

Like the earlier fuming about Anthem California, this new SEC publicity stunt is likewise irrelevant to the pending legislation.  Congress hopes to get standardized derivatives traded on an exchange. But synthetic collateralized debt obligations dealing with a customized bundle of securities could not possibly be traded on an exchange, and would therefore be untouched by reform.

Losses sustained by a few financial speculators on one exotic derivative had nothing to do with starting a global recession in December 2007 or the related financial crisis of September 2008. The core of the latter crisis was mortgage-backed securities per se, yet Goldman was only the 12th largest private MBS issuer in 2007.  Fannie Mae and Freddie Mac were and are the biggest risk; any reform that excludes them is a fraud.

The SEC’s dubious civil suit against Goldman is a wasteful diversion at best. It has nothing to do with the Obama administration’s suicidal impulse to impose more tough regulations and taxes on banks to encourage them to lend more.

[Cross-posted at NRO’s The Corner]

Ending the Black Market in Low-skilled Labor

Alex Nowrasteh and Ryan Young of the Competitive Enterprise Institute make the case for immigration reform in an especially appealing way in a fresh op-ed this week in the Detroit News.

In a commentary article titled, “Fix immigration rules to crush black market,” they dissect a well-meaning but flawed Obama administration effort to fix the dysfunctional H-2A visa program for temporary farm workers. Instead of fine tuning an unworkable law, Nowrasteh and Young advocate liberalization:

That means making H-2A visas inexpensive, easy to obtain, and keeping the related paperwork and regulations to a minimum. That means no minimum wage hike. No costly background check requirements. People rarely break laws that are reasonable and easy to obey.

When legal channels cost too much in time and money, people will turn to illegal channels every time. That’s how the world works. Getting rid of immigration’s black market begins with admitting that fact.

Hear, hear.

When Regulators Attack

No, that’s not the name of a new TV series. We should be so lucky.

It’s actually a good description of the government’s approach to tobacco.

Instead of letting adults make up their own minds about costs and benefits of risky choices (which includes most things in life, such as crossing a street and eating a cheeseburger), nanny-state officials have decided to investigate menthol-flavored cigarettes. And since the Food and Drug Administration has been given authority over the tobacco industry and since the FDA’s supposed purpose is to ensure drugs are “safe and effective,” that almost certainly means this latest campaign will lead to either further restrictions on free speech or outright bans.

Here’s a blurb from the Wall Street Journal:

Congress last year added the tobacco industry to the FDA’s regulatory mix and today a panel of health experts making up the agency’s new Tobacco Products Scientific Advisory Committee is kicking off a two-day meeting. First on the agenda: how menthol flavoring in cigarettes affects smokers’ habits. Small wonder that menthol is getting early attention, says the New York Times, which notes menthol butts account for almost a third of the $70 billion U.S. cigarette market.

After more meetings, the advisory panel will send recommendations to the FDA, which could eventually decide to ban menthol products or take steps to curtail their marketing.

One can only wonder how far down the slope we will slide. There already are attacks against fatty foods and sugary soft drinks. Both provide pleasure to many people, but that no longer means much in Washington. Will regulators, either at the FDA or elsewhere, eventually decide that anything linked to obesity must be regulated and/or taxed?

And now that government is going to pick up the tab for an even larger share of health costs, how long before the politicians use obesity-related costs as a major justification for further efforts to control our private lives? Maybe some day we will have a Federal Health Police to enforce daily exercise mandates? I better stop now before I give them any ideas.

Annals of Unhelpful Polling: Internet Access Edition

A new BBC poll is garnering plenty of press attention for its striking finding that 78% of global respondents believe that Internet access “should be a fundamental right of all people.” Fascinating!  Except… what exactly does that mean?

The obvious problem here is that, at least as it’s worded in English, the question is ambiguous between two equally plausible readings.  Especially when juxtaposed with another question about whether the Internet should be regulated by government, it could be understood as asking whether there’s a fundamental negative right to be free to use the Internet – to read and communicate free of government censorship or other onerous barriers.  That’s probably how we’d interpret a parallel question about whether people had a “fundamental right” to “access” information via newspapers or books.

Many folks, though, seem to be reading it as a measure of support for a fundamental positive right to be provided with (broadband?) Internet access. And that just seems a bit silly, frankly. There’s a decent case to be made that it’s desirable for governments that can afford it to make some kind of public Internet access available to citizens who can’t.  You can even imagine that, a few years down the line, some states in the developed world might have moved so heavily toward interacting with the public online that it would become more or less necessary for full political equality.  But a basic human right? Something that governments are “violating fundamental rights” if they don’t do? It’s not just that I don’t believe this; I have trouble imagining that much of anyone literally thinks so.  A few of my friends at Free Press, maybe, but 4/5 of the world’s population?  Color me dubious.

I’ll confess being startled at the response to a much less ambiguous question: A global majority agreed that “the Internet should never be regulated by any level of government anywhere.” While I find this pattern of responses congenial enough, I can’t take it much more seriously.  After all, what falls under the category of “regulation of the Internet”?  Censorship, of course, which I expect is what most people immediately thought of.  But in reality, of course, there are a whole panoply of laws and rules that at least arguably “regulate” the Internet in some sense, some of which even I would approve of. I have many, many issues with the Digital Millennium Copyright Act, for instance, but there’s nothing wrong with the idea that there should be a basic protocol that provides both a safe harbor for service providers hosting user content and a mechanism for complaining about copyright-infringing or libelous or otherwise tortious material.  Probably there are other “regulations” I’d approve too, but I’d have to sit and think about it for an hour to even enumerate all the different kinds of rules that might be considered to “regulate the Internet” in one way or another.

Because it’s at least not susceptible to such dramatically divergent readings, this response might be more useful as a kind of big-picture attitude check. But the reality is that almost none of the respondents can really mean it because even someone steeped in tech policy would have to sit and think about the question for a half hour to really get a grip on what it entails. Or might entail. If the BBC were engaged in some kind of serious social science, they probably would have worked up better questions.  But of course, that’s not the business they’re in.  They’re in the business of asking the sort of question that will let them run exciting headlines that get re-tweeted and drive page views. And 100% of respondents in my poll of myself agree they’ve succeeded.

A Campaign Finance Lesson

The Washington Post offers an instructive campaign finance story this morning. The essence of the story: employees of banks and brokerage houses contributed more to candidate Barack Obama in 2008 than to his rival John McCain. A lot more in fact: such employees gave almost twice as much to the current president at they did to the Arizona senator.

Now, however, President Obama is attacking the banks and Wall Street for greed and selfishness, not to mention for ruining the economy. Moreover, Obama is proposing curbs on Wall Street pay and heavy regulation of banks. It would appear, in other words, that contributions don’t buy many favors with this administration.

But the story goes deeper. Wall Street is now shifting its contributions to the GOP.  That’s not surprising. In fact, being an intelligent man, President Obama must have known his attacks on Wall Street might deprive his party of contributions. Yet, he went forward with the attacks and proposed laws.

Why? In the coming election, contributions will matter a lot less than votes. Obama thinks his attacks on Wall Street will cast the Democrats as the party of “us” against the detested “them.” The votes gained will greatly outweigh the donations lost. The currency of politics is votes in the market for election.

The next time someone tells you that donations are “legalized bribery,” ask them why Obama took $18 million from Wall Street and gave them in return endless abuse and hostile legislation.

Quid pro quo, indeed.