regulation


I had a relatively low stipend-ed internship last summer. For the upcoming summer, I will be in a similar situation. I am fine with it. Both of my respective employers were/are happy to have me on board. A potential problem? Such work – it is work – comes out to being paid below minimum wage. Some say that unpaid internships or low-paid internships should violate minimum wage laws.

Consider the outcomes if unpaid or low-paid internships were deemed illegal. Just as I would propose in a normal labor market, the wage would go up but the number of positions would go down. Forget about what minimum wage laws are designed for or who they are targeted at when the legislation is passed; these laws could be applied to internships.

Now, in this scenario I am happy to work for the think tanks at the given benefits they give me. The think tanks are happy to employ me at the given benefits. Such an arrangement is inherently victimless. I think this situation illustrates that not only can minimum wage laws have adverse and unintended consequences on the poor, but such legislation intrudes on my ability to bargain with an employer and engage in labor I deem personally beneficial. We’ll see how it shakes out.

Way back, Carson talked about how people generally make up their minds on certain issues before even hearing the two sides of an argument. People will furthermore only hear what they want to hear – and what they want to hear is what agrees with them. I think the issue of guns, and gun control more specifically, is a great example of this. Although one court case is trying to change the image of the gun rights issue, guns carry a stigma with a lot of people that they will probably never be able to shake off.

I grew up in a neighborhood where guns were pretty much non-existent. In fact, I can’t think of anyone from my childhood who owned a gun. We lived in a safe neighborhood where self-protection wasn’t an immediate concern (though this incident in Wilmette did get national attention) and not many hunters were around. As a result, I grew up kind of thinking guns were creepy – and still kind of do. Guns are for redneck Southerners, gangbangers, animal-torturing lunatics, and/or general weirdos. Guns have no place in a society made up of educated, law-abiding citizens. Or at least, so I believed.

I think this impression of guns sticks with a lot of people. Guns are weird and unnecessary and having gun control legislation- or maybe even the complete ban on guns – makes the world a better place. But once I tried to look at gun rights and gun control objectively, I started to realize that gun control is pretty damn stupid. Gun control has a few aims, among them:

  • Stop criminals from getting guns.
  • Stop innocent children accidentally killing themselves from guns around the house.

Stop criminals from getting guns. Does gun control really do this? There are more than 10,000 laws about gun ownership and purchasing on the books. Is one more really going to stop bad guys from getting them? In fact, gun control can even help to fund organized crime. Gun control is somewhat of a Prohibition on guns. Like Prohibition of alcohol or drugs, organized crime – gangs, the mob – profit by supplying hard to get or illegal items. Criminals commit crimes, by definition. Why would they care to respect laws regarding gun control?

We often hear of horror stories involving children who wandered into their parents closet and then shot themselves by accident. But how often does this really happen? Steven Levitt, of Freakonomics fame, is often cited for his quote that “If you own a gun and have a swimming pool in the yard, the swimming pool is almost 100 times more likely to kill a child than the gun is.” Basically, yeah, guns kill kids. So do bath tubs, toasters, and scissors.

Ok ok. I know gun ownership is a much more complicated subject than what I just laid out. In the end, it is essentially a cost-benefit analysis (if we are only looking at the matter on utilitarian grounds) of the good gun ownership does in crime deterrence versus the bad it does by widening access. But, I’ll just say briefly that looking at statistics and studies that compare states with right to concealed weapons and states without, I believe that gun control does more harm than good. John Lott’s book More Guns, Less Crime is a great synopsis.

For the time being, rather than get into a detailed debate on gun control, I want to focus on a specific court case going on now. Rather than being a hunter or redneck, Otis McDonald is just an old dude who lives in a bad Chicago neighborhood. For the sake of time, let’s analyze gun control as it applies to Otis’s situation. Otis lives in a neighborhood full of crime and gangs. He is often threatened outside his house in broad daylight for apparently doing nothing wrong. Otis wants a gun to protect himself.

Gun control advocates would say that rather than give Otis a gun, we should work harder to take the guns away from the people that are making Otis feel unsafe. I think that the situation at hand makes that solution impractical. Like I said before, preventing those fiends from getting guns would be impossible unless we had a police state. Like alcohol during Prohibition or drugs now, people always find a way to get their hands on stuff the want. The people who bother Otis, especially.

So what is Otis to do? Call the police whenever people threaten him? Come on. That might take 15 minutes and by that time he’s either dead or the threatening people have scattered. Giving Otis a gun – or, at least convincing the troublemakers that Otis might legally have a gun – is a deterrence in itself. Right now, only the troublemakers have guns. They know they have the upper hand. Law-abiding citizens have nothing to defend themselves but the police. The possibility of Otis owning a gun and its deterrent effects is seen by right to carry concealed weapons laws. If people are allowed to carry concealed weapons on the street, not every citizen will buy a gun; but if criminals know that some people are packing heat, it definitely will make them think twice about robbing just anybody. I think the proof is in the pudding (pictured here) for the effects of something like this when one looks at statistics.

I know gun control is a complicated issue. I don’t mean to say that Otis’s situation is the only kind of situation in the battle over guns rights and gun control. However, it does beg the question: what is someone in Otis’s position – a black, blue-collar, septuagenarian – to do to protect himself?

Economies are complex systems, so actions that individuals, and especially governments, take often have unforeseen effects.  Here is Air America reporting on recent credit card reforms in Australia:

In 2003, after years of lobbying from merchants, the Australian central bank cut Visa and MasterCard’s interchange fees in half. Those lower fees cost the credit card giants about 1 billion Australian dollars.

But banks and credit card companies are famous for their ability to find new revenue streams, and soon they turned to consumers to make up the difference. Australian banks cut credit card perks and shrunk rewards programs, like frequent-flier miles. They ramped up interest charges and raised annual fees.

The new law passed Down Under also made it possible for merchants to impose surcharges on transactions made with a credit card and even though their interchange fees had been cut in half, many Australian companies began do to just that. In some cases, these new fees exceeded the old ones.

It would be great if the US Congress would study the Australian example as it considers passing additional reforms to supplement the CARD act from last spring.  I hope that we can at least avoid the brain dead economic free-lunchism  of an interest rate cap, which is unfortunately but unsurprisingly being pushed by my own state’s junior senator, Bernie Sanders, who has proudly been ignoring basic economics ever since the people of Burlington were foolish enough to elect him mayor in 1981.

I am writing in response to Carson’s post that was a reply to a comment loyal Upset Patterns reader Joe wrote, mostly in regards to the further reply by Joe and Benji regarding the inequality of service amongst rich and poor patients.

I just got back from the wonderful city of Stockholm after flying on the extremely low-fare airline Ryanair. Ryanair sucks. If the name you book your ticket with is one letter different from your passport, they make you buy a new ticket. Every bag you check costs at least ten pounds. They fly to airports embarassingly far away from the advertised city destinaton (I took a two hour bus from the airport I flew into to get to Stockholm’s city center). There are no complimentary refreshments. If you find yourself particularly parched or hungry for whatever reason, you get screwed over by insanely expensive food sold on the plane. The interior is tacky and completely plastered by advertisements. Their website is so annoying to navigate. They also play sucky music every time the plane lands and sing something along the lines of “Wow, another Ryanair flight, on time!” Oh yeah, and, they might even start charging for bathroom usage – particularly bad for this bladderly-challenged blogger. But Ryanair’s roundtrip flight cost me about a fifth of what it would have cost me to fly with an airline like British Airways or KLM.

I’ve said before that I’m not completely convinced that ending medical licensure is the best idea. But I think it is an irrelevant argument that poor people might get Wal-Mart brand care while rich people get Mayo-clinic style care. If we decided that everyone should get Ritz-Carlton quality healthcare via shutting out lower-quality doctors through licensure, poor people would inevitably be the ones hurt the most. Ryanair might suck, but it’s better than having the only option be flights filled with non-necessities. The more expensive airlines actually do call for regulation that would effectively negate Ryanir’s cheapness (see: bootleggers and baptists). If there were no Ryanair or Easyjet, everyone would have to pay 500 dollars to fly from Edinburgh to Stockholm. As bad as Ryanair might be, shouldn’t the option of an uncomfortable yet cheap flight be there? The last time I checked, they were the only airline to have actually grown in Europe during the current economic times, showing that they must be doing something right (especially for people on tighter budgets).

My objection to ending medical licensure comes not from an inevitable inequality in care but from the possibility of wreckless medical practices. As a few commenters pointed out, it is the imperfect information regarding doctors and the vast differences between medical practice and other industries that make me skeptical about treating medicine like a purely competitive market. On the other hand, people need to consider these things in regards to this topic:

  • Is the current AMA certification effective in preventing doctors from doing bad stuff?
  • Could the current AMA certification system give people a false sense of security?
  • Could a doctor’s reputation be a better method of communication about quality than arbitrary standards?
  • Does shutting lesser-qualified (in a really strict objective how-many-degrees-do-you-have sense) doctors out of the market help the poor by protecting them from malpractice more than it hurts them from higher prices?

For the first question, I’d say no. There are very incompetent doctors practicing and stricter licensure standards or malpractice rules will probably do very little to improve this. For the second, I’d say yes. When people see that a doctor is certified by the AMA, they probably assume that they are competent and good and don’t hesitate looking around for other doctors or considering performance history. For the third question, I’d say more “yes” than most people would think. Think of ebay. People’s trust in a seller is based completely on a seller’s reputation/rating. Ebay is an extreme, I know. But what about restaurants or general establishments around town? Do they stay in business because the government decides they are “worthy” of it or because repeated business tells other people that there may be something good about the product they are selling?

The fourth one is really just to exercise your brain and I don’t think it can be measured quantitatively at all, unfortunately. For those of you familiar with statistics, think of Type 1 and Type 2 errors. In theory, both are equally harmful. Certifying a doctor that shouldn’t be certified is just as harmful as not certifying one that should be. Is it possible that the current system commits the latter more than people think? I think so.

This is where I think my proposed middle ground, though perhaps not completely thought out, comes into play. The presence of medical licensure means that it is illegal for people who aren’t certified by the AMA to practice medicine. As much as you might trust me to give you some sort of exotic aroma therapy medicine or fix your back, I can’t because of legal hinderances. I think this is crap, just like I think that if someone is near death, they should be able to take whatever experimental drug they want – regardless of whether it is approved by the FDA. If anything, AMA licensure should be a sign of confidence from some entity – not necessarily government-run – that a doctor meets certain standards. The sign of confidence would be akin to a hotel being rated by some tourist’s association or ebay’s good seller ratings. But it should not be a legal requirement. Such rules are a complete infringement on the right of people to engage in voluntary exchange.

I meant to respond to this a while ago, but a bunch of things came up, so I’m just now getting around to it.  But anyway, here goes.  In W. Jerome’s post on reducing health care costs, commenter Joe said,

We should stop requiring that people get drivers licenses to be able to drive. The government costs in running DMV’s and driver education programs are completely unnecessary. Driving accidents continue to occur even though so called “licenses” are issued every day.

I’m kidding. I’m just pointing out that you are completely neglecting the concept of safety standards in the name of capitalism and competition. The point is that standards and licensing procedures must be constantly reformed and changed as new problems arise, but never completely done away with. It seems that system you propose would result in a class based system of doctors where the rich get “gold star” doctors and the poor get doctors that by today’s standards would be completely illegitimate.

I realize you probably have a good point to make here, but you must understand the ridiculousness of the idea of a medical free for all.

First of all, comparing drivers licenses to medical licenses just doesn’t make sense. When you drive, you have very little control over whom you are sharing the road with. Having a lot of people driving around without the basic driving skills you need to get a drivers license would make driving more dangerous for everybody. It’s completely different for doctors. If there’s a bad doctor, anybody can choose not to go to her. When we drive, we can’t choose whether or not to interact with inept drivers; when we shop for medical services, we can choose to avoid inept doctors. Now, this doesn’t show that medical licenses don’t make sense and drivers licenses do. It just shows that, in certain respects, medical licenses need to be justified on different grounds than drivers licenses.

As W. Jerome said in his post, I tend to be skeptical of medical licensing. The state-enforced monopoly on medical certification creates artificial scarcity in the medical profession and prohibits a lot of voluntary transactions. Doctors have to go through an enormous amount of training to get their MDs: undergraduate pre-med courses, four years of medical school, residency. Buying services from anybody with this much training is enormously costly. And for many complicated medical procedures, this makes sense. Your really do need tons of training to perform brain surgeries. But for many tasks that doctors commonly perform, this amount of training seems unnecessary. Do you really need eight years of undergrad and graduate training to prescribe drugs, set broken bones, and diagnose basic illnesses? But the American Medical Association actively tries to limit the ability of non-MDs, such as nurse practitioners, to do these things. This results in higher health care costs and huge rents for doctors.

But how would you know the difference between good and bad medical care providers under a health care system without licensing?  Well, for one, the internet makes it much easier to get information about things like this.  Right now, I can go to Google Maps, search for restaurants and other businesses, and find user generated reviews.  There’s no reason why this couldn’t exist for medical care.  I think one reason that it currently doesn’t is that our state-enforced medical licensing system creates a false sense of security among health care consumers.  The fact that the government guarantees the quality of licensed doctors makes it so that the consumer doesn’t have to worry about it as much (although consumers probably still should worry, because we have plenty bad doctors providing care despite the government guarantee).  Having a strong consumer feedback system would give medical care providers a strong incentive to give high quality service.  All that said, there probably is still a place for government regulation of medical care provision, but I think that we would be better off if we moved to a system with lower entry barriers where a body other than the AMA determines licensing standards.

In the sequel to Freakonomics, titled Superfreakonomics, the authors have a chapter on global warming. I haven’t read it yet so I can’t give a fully educated opinion. But one can pick up a few facts from the blogopshere.

Essentially, the authors of the book, Levitt and Dubner discussed some creative solutions to global warming as an alternative to massive carbon taxes or imposing a cap and trade system. One approach is this:

The hose-in-the-sky approach to global warming is the brainchild of Intellectual Ventures, a Bellevue, Wash.-based firm founded by former Microsoft Chief Technology Officer Nathan Myhrvold. The basic idea is to engineer effects similar to those of the 1991 mega-eruption of Mt. Pinatubo in the Philippines, which spewed so much sulfuric ash into the stratosphere that it cooled the earth by about one degree Fahrenheit for a couple of years.

So why did Levitt and Deubner get so much criticism in the blogosphere? They prefaced the chapter with a few pages that seemingly understated global warming’s potential cost and even referred to the often-overhyped instance of scientists warning of “global cooling” in the 1970s. In fact, not many scientists actually believed global cooling was coming and the reports of such are cited nowadays by global warming deniers as reason to doubt current climate science. Because of this, the authors understandably lose some credibility.

But people like Ezra Klein, Paul Krugman, and others, I think, mistakenly dismiss everything Levitt and Dubner say about solutions to global warming. Innovative solutions like geo-engineering might possibly be a more effective way to control the world’s temperature rise and/or live with the consequences, as Bjorn Lomborg’s Copenhagen Consensus concluded.

From what I can tell, Levitt and Dubner don’t deny global warming or the need to do something about it. They only give solutions that involve neither total government takeover of industry nor intrusion into the intricacies of people’s lives. For this, they are considered intellectually bankrupt. While they may have misrepresented the climate science out there, I still think that people need to consider alternative solutions to global warming a little more seriously.

Read Dubner’s response to many of the criticisms here.

I know, it might sound weird coming from someone who really doesn’t like taxes, especially taxes that are passed-off as “well-intentioned”. The British government is calling for a raise in taxes on motorists to cut carbon emissions and I personally support the move.

Taxes on gasoline are an economically justified and effective way of correcting a harmful externality (CO2 emissions) by accounting for the social cost of gasoline consumption. A gasoline tax, for this purpose – and not for the purpose of raising revenues – is an example of a Pigouvian tax.

A Pigouvian tax – named after Arthur Pigou and championed most recently and enthusiastically by Greg Mankiw – is a tax that corrects externalities by making it more costly to participate in the said action. Pigouvian taxes are meant to be revenue neutral by being enacted side-by-side with an equivalent tax cut in another area.

Whether this proposal by the British government is a Pigouvian tax or just an outright tax increase remains to be seen. As long as it is Pigouvian, I throw my hesitant support behind it.

Like sweatshops, we should do our best not to support companies that use child labor. Right?

I’ve previously brought up my belief that sweatshops are a positive force for the people that work in them. Similarly, I believe that international activism aimed at ending child labor practices are not only misguided, but actually make the conditions of children even worse off.

Like sweatshops, children work in relatively harsh conditions because their better alternatives stink. If you take away the best alternative, you don’t make those people better off my ‘taking a stand’. You put them into even worse conditions. Such was the case when, as Oxfam documented, a closing of a “sweatshop” caused a large majority of the young women employed to go into prostitution. Sweatshops are horrible, but is prostitution better? (Read the article by Ben Powell to get a full argument in support of sweatshops.)

In America, we like to think that all children have the right to education and that kids shouldn’t have to work, especially in horrible conditions. But picture America 200 years ago (or maybe even more recently than that). Kids were working all around the country. On farms, in factories, in daddy’s blacksmith shop, etc. This was because, at the time, America hadn’t reached a stage of economic development where those families could afford to forfeit their child’s free labor so that they could get an education. Only later, when America experienced tremendous economic growth, did families have the luxury of sending their kids to school instead of using their labor for working. In short, economic growth – though sometimes slower than we have patience for – is the true remedy for improving working conditions, not labor laws.

These arguments might not seem persuasive. You might be saying “sweatshops are just one of those things I know are wrong. How can you justify these cruel practices?”

I bring up this topic because a recent article linking international activism against child labor with decreasing conditions for the people that activism is aiming to help. To sum up, when we lower the demand for the products that these children are producing, their wages and conditions consequently decrease. Why is this, and why is there nothing that we can do through interventions like boycotts and legislation? Again, I suggest reading Ben Powell’s essay.

One can argue, as I have, that imposing any sort of regulation or tax on foods deemed “unhealthy” is unjustified. But what if legislation is passed that just forces businesses to display calorie counts and other nutrition information? I’d argue against that, but even if one argues in favor of such rules, the bottom line of the legislation should be whether it works or not.

In July 2008, New York City began requiring chain restaurants to list calorie counts on their menu boards. The first study of this mandate’s impact, published online yesterday by the journal Health Affairs, suggests that, contrary to the highly optimistic projections of its promoters, it has not led New Yorkers to consume fewer calories. In fact, the researchers found that the average calorie count for meals at fast food restaurants (McDonald’s, Burger King, Wendy’s, and KFC) rose by 2.5 percent in New York after the mandate took effect while remaining essentially unchanged in Newark, the comparison city.

…In any case, it seems clear that menu mandate boosters have exaggerated this policy’s power to make people thinner. The New York City Department of Health and Mental Hygiene predicted the menu regulations would stop 150,000 people from becoming obese and prevent 30,000 cases of diabetes over five years. The California Center for Public Health Advocacy claimed menu labeling would result in a weight loss of nearly three pounds a year per fast food consumer. Such results are hard to achieve if people do not actually eat less.

I’m not too surprised by these findings. I have always thought that American’s ridiculous obesity rate and general unhealthiness isn’t due to lack of information but instead due to general cultural behavior. I find these laws to be similar to the ones mandating warning about how smoking causes death/cancer on cigarette packs. Who doesn’t know, at this point, that cigarettes are bad for you? Similarly, who doesn’t know the unhealthiness of a Big Mac? And, are the people who are really concerned about counting daily calories going to be eating at fast-food joints anyways?

In my ongoing work to understand the financial crisis through a communication lens, a colleague of mine suggested this piece by law professor Jeffrey Lipshaw.  Near the beginning of the paper, he notes that

Regulation needs to have an epistemological modesty about it, a certain lack of presumptuousness, all of which is belied by disciplines that think that complex causes can be reduced to (a) simple and singular utility function (rational actor economics), (b) complex functions that can actually model the world’s almost infinite contingency (behavioral economics), or (c) an after-the-fact ascription of blame (law).

Though it is not in a language most would use, Prof. Lipshaw nails it.  The words and arguments that we use to describe the crisis are themselves cognitive shortcuts, we will never be fully able to capture the complexity.  Consequently, our ability to prevent another financial crisis or future financial crises through regulatory measures (which is also subject to these oversimplifications) is also suspect.

And yet, it seems that people are blaming deregulation for the meltdown, which has been eliciting a pro-regulation policy response.  Hopefully cooler heads will prevail, but given some of the proposals by the Obama administation, my fears are not completely assuaged.

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