Category: regulation

Compromise

We are a country of citizens with a range of views on how our community should guide and regulate our interactions. But we are all anchored in our commitment to our Constitution and its Bill of Rights. What is the nature of the compromises that enable us to live, work and flourish together?

Views on the proper role of government in supporting and improving our lives are dangerously widening. To simplify the discussion with stereotypes and not always appropriate labels I will characterize Republicans as more interested in individual freedom and Democrats as more interested in helping the poor. The two parties want both but there are clear differences in emphasis and approaches. “The great divide-who decides?”

Everyone wants to help families. But consider the difference in the approach of the Democrats with Bidens American Families Plan and the Republicans with Mitt Romney’s Family Security Act. Among many other benefits, Biden’s “plan will provide a government-paid family leave program for employees who need extended paid time off for family issues… will help working families by providing government-subsidized child care… [and] will provide free universal government-run preschool, which it claims will help children academically far into the future.” These would be run by the government or pursuant to detailed government regulations. “The American Families Plan will do more harm than good”

“Romney’s Family Security Act would replace the Child Tax Credit with a $3,000 yearly benefit per child — $4,200 for kids under the age of 5 — spread out in monthly installments that begin four months before a child’s due date,…” “Romney child care benefit democrats”

The overriding difference between Biden’s and Romney’s family plans is who makes the decisions about how the assistance is used. The same overriding difference can be seen in Democrat and Republican approaches to financing education. Charter schools and, even more so, tuition vouchers favored by Republicans leave the power of choice with parents rather than public school districts (government).  Democrats distrust the judgement of individual families to decide how best to use government assistance and want to impose conditions that insure (in their minds) that it is well spent.

How can these two conflicting approaches be reconciled? Each side will need to give up something to gain what is most important to them. Democrats want to help the poor. Republicans want to protect their freedom of choice. If Democrats are willing to give up their regulation and control of how their financial assistance is used (i.e., set aside their distrust of the poor’s ability to make wise decisions for themselves) and if Republicans are willing to give up their commitment to self-sufficiency that keeps the social safety net as small as possible, Democrats can gain a more generous safety net and Republicans can gain greater freedom of choice by coming together to enact a Universal Basic Income (UBI) in place of the large number of specific government controls assistance programs.  “Our social safety net”

In addition to allowing individual recipients to determine how best to use this assistance, two broad differences between a UBI and the existing approach stand out. The first is the difference in the financial incentive to work. Unemployment insurance, for example, ends when a recipient takes a job. Most welfare programs, such as food stamps, end when the recipient’s income increases beyond some minimal level. The incomes of many now helped by Covid-19 support programs will fall if and when they return to work. A UBI is paid to everyone whether they are working or not, so any extra income earned in any way adds fully to their income. There is no financial disincentive to work.

The second major difference is the lower administrative cost and greater simplicity of a UBI compared to those of the multitude of assistance programs with their qualification criteria that it would replace. Consider the administrative challenges faced when sending checks to those qualifying under the CARES Act as part of the Covid-19 assistance. Some intended recipients were missed. Some who were not meant to receive payments received them. It took time to set up the system of payments. But with UBI monthly payments are made to everyone without further question or investigation once they are enrolled in the system (most likely administered through the Social Security System).

My proposal would also replace all income taxes (personal and corporate) with a uniform consumption tax. This combination of UBI and consumption taxation would result in the financing of government that is progressive relative to income and would resolve the dilemma of how to tax companies operating globally. For more details see my earlier blog:  “Replacing Social Security with a universal basic income”

Democrats would gain more efficient and extensive help to the poor but would have to give up oversight and control over how that help is used. Republicans would increase their control over how they live, but would have to relax their insistence on self-sufficiency. This is a compromise whose time has come.

The Great Divide–Who Decides?

The American Constitution establishes a government of limited and enumerated powers to protect the property and safety of its sovereign citizens. There is a lot in that sentence so let me unpack it. Sovereignty in the United States resides in its individual citizens. We are responsible for our own lives and how to live them. But to ensure our ability to exercise our freedom in a broader community we gave up limited powers to our government, which are checked and balanced among the three branches of government (legislative, executive, and judicial). America has flourished under this arrangement of exceptional individual freedom.  “American Exceptionalism”

Our government is meant to provide the foundation and general rules for interacting with each other. It establishes the standard units of weights and measures, voltage, assignments of radio spectrum, rules of the road, etc. It defends us from aggression both foreign and domestic and administers the enforcement of contracts (courts). In short, it establishes the agreed framework in which we each take our own decisions about where to work, what to eat, and how to spend our free time within society. If we only surrender decisions (rules) that set and enforce the standards for our interactions with others, with minimal restrictions on our own behavior, our individual freedom will be maximized to our’s and our community’s benefit. America has flourished from our extensive individual freedom.

But where exactly is the optimal boundary between our individual and community choices? Views vary about the answer and the resulting policies between those of us who want small government and those who want somewhat larger government. What are the pros and cons of each? The answer, of course, will depend on the specific issue, but I want to review the question more generally.

The benefit of being free to take our own decisions about something is that it better reflects our knowledge of our particular situation and our own tastes. We don’t make such decisions in a void, of course. We draw on our own knowledge and values (taught by our parents, schools, clubs, churches, friends, etc.). Thus, our inherited and learned culture plays a critical role in the quality of our choices. Our government can help as well by promulgating information (the state of knowledge) and/or setting standards for communicating relevant information (e.g., product labeling standards). It can also add to our knowledge by financing basic research that private firms have little or no financial incentive to undertake (as opposed to applying the knowledge gained from such research to the development of marketable applications).

We also expect government (in addition to family and community organizations) to provide help when we are financially unable to because of sickness or unemployment (the social safety net). Because America is a rich country, we expect our social safety net to be relatively generous. Here is an area were views start to diverge. If we continue to have confidence in the ability of individuals to make sensible decisions, the government should help financially but not override the recipient’s freedom to choose how to use it. This is the philosophy of a Universal Basic Income.  “Replacing Social Security with a universal basic income”

At the other end of this spectrum are those who think that in many instances government employees can make wiser and better informed decisions for us than we can ourselves. Thus, instead of money we are given food stamps. Instead of school vouchers we are provided with take it or leave it neighborhood schools. Instead of health information on food products to help our individual choice, some food and other products are banned all together, etc.

The benefit of the government taking decisions for us is that individual officials (sometimes referred to as bureaucrats) can devote more time to investigating the costs and benefits of choices and thus potentially take and impose better decisions than we can ourselves. Though that might be true “in principle,” government officials are less likely to know our particular situation and tastes. In addition, the laws and regulations adopted in Congress and by government agencies are influenced more by the interests of the subjects of their regulations (e.g., Facebook) than of their customers (us). In other words, the discipline on the behavior of private firms from market competition is weaker or totally absent on regulators.

The case of the military/industrial complex is well known. Only the government can effectively defend us from potential foreign aggressors, so we are forced to live with the inefficiencies (corruption if you like) of the near monopoly that defense firms enjoy that ensures that the DOD keeps buying their products. The B-2 stealth bomber cost $2,100 million per plane. The scandalous F-35, the plane no one wants, cost US tax payers $115.5 million per plane. But the real cost to us of the military/industrial complex is the cost in lives, equipment, and reputation of our forever wars that ensure that BAE Systems, Bell Helicopter, Boeing, Lockheed Martin, Northrop Grumman, Pratt and Whitney and a few others, keep receiving billions of tax dollars every year.

Another example of government vs individual decision making is provided by the Centers for Disease Control and Prevention (CDC) and the US Food and Drug Administration (FDA). We look to the CDC for the best scientific guidance on protecting ourselves from disease, such as Covid-19 and to the FDA to approve what drugs and vaccines we are allowed to have. During the past year the “scientific” information provided by the CDC was polluted by ill-informed political messages. Public confidence in government information plummeted and advice became sadly political. “Covid-19-why aren’t we prepared”

The FDA initially mangled the approval of Covid-19 test kits, delaying their availability, thus undermining the detect and trace strategy. “Covid-19-what should Uncle Sam do?”  Fortunately, it then relaxed its risk averse restrictions on drug approvals to grant emergency approval of several Covid-19 vaccines. As of May 7, 111 million American’s have been fully vaccinated with these vaccines, which have proved safe and effective. Many lives have been saved as a result.

Last month the FDA reverted to its more independent, scientific form when it temporarily suspended the use of Johnson and Johnson’s Covid-19 vaccine because of very rare blood clots. On April 13, the CDC and FDA issued a joint statement reporting that “As of April 12, more than 6.8 million doses of the Johnson & Johnson (Janssen) vaccine have been administered in the U.S. CDC and FDA are reviewing data involving six reported U.S. cases of a rare and severe type of blood clot in individuals after receiving the J&J vaccine.”   “Joint CDC and FDA statement on Johnson-Johnson covid-19 vaccine”  There were more than that number of such blood clots among those who had not taken the vaccine. This measure reflects government’s usual excessive risk aversion. If they do their job right (approving drugs that are safe and effective), few people notice, but if they make a mistake (thalidomide babies), they are in big trouble. So, the incentive is to be overly cautious. During the several weeks hiatus in administering the Johnson and Johnson vaccine more people died from Covid who might have been saved if they had received the vaccination, than from the rare blood clot.  The political issue, once again, is who should decide–government officials or individuals on the basis of information provided by the government (and others). “Beating covid-19-compulsion or persuasion and guidance”

A very different example of government making decisions for us comes from our trade policy. Government imposed trade restrictions, often in the form of taxes on imports (so called tariffs), restrict our individual right to chose what we buy (or sell). While there may well be national security or other national interests that justify such interference, more often they simply reflect corruption (the financial favoring of one group or industry in exchange for votes). “Trade protection and corruption”  Former President Trump’s abuse of the national security excuse to tax Canadian steel imports provides a recent example.  “Tariff abuse”  Strangely, but no doubt for the same reasons, President Biden has not yet removed these damaging tariffs.  “Trump disastrous steel tariffs”

As a final example of our choice between government and individual decision making, consider President Biden’s American Families Plan, which provides $225 million in childcare subsidies. But rather than vouchers that can be used by families as they see fit, it finances government run childcare services. “Biden’s plan for government run childcare is exactly what most moms don’t want”  Sometimes government-run and controlled services are better than those we choose ourselves in the private sector (perhaps with government financial and/or information assistance). Not that many in my opinion. But, please let’s have a serious and informative discussion of the pros and cons of each.

Vaccine Passports

Discussions of the pros and cons of mandated lock downs to stop (or slow) the spread of Covid-19 often miss the most important point. The key factor in restraining the spread of a contagious disease (beyond vaccines, basic public health measures, etc.) is the behavior of each one of us. Given our respective risk preferences the question is whether we adjust our behavior sensibly to protect ourselves and others from infection? Our behavior may be responding to government mandates to close restaurants, theaters, and factories or it may be responding to information provided by public health experts on the nature of the risks and measures to mitigate them. In the latter case our experience and that of our neighbors will depend importantly on the quality of the information provided and our trust in its efficacy. Our individual choices allow responses that are more suited to the individual situation of each actor.  “The unnecessary fight over covid-19”

In short, if governments were to say, “do whatever you want, but these are the risks as we understand them,” people would not necessarily rush to the concert hall, or baseball game, or hop on a plane. “Sports fans live attendance poll”  Offices, factories, restaurants and entertainment venues must convince their workers and customers that they have taken reasonable steps to be safe from Covid-19 (or other risks). Thus, comparing the results (infections and economic output) of lock down with no (or mild) lock down countries is not the right test.

We need to focus attention on the quality of the information being provided to the public, the public’s trust of such information, and the efficacy of the measures being taken by those offering reasons to gather in public places to enhance its safety. Those who have had Covid-19 or who have been vaccinated for it face minimum risk of catching it (again) or of spreading it and can pretty safely attend public events. Thus, a trustworthy way of establishing that fact would be very useful. I carry my vaccine certificate wherever I go but they are relatively easy to counterfeit if it became useful to do so. Thus, the reason behind the various projects to develop so called vaccine passports (better named vaccine certificates) is obvious.

The technical design, including privacy protections, raise more issues than you might at first imagine, including establishing interoperability standards and access to public records. However, the position taken by Florida Gov. Ron DeSantis defies understanding by those of us who place our individual freedom in first place. He stated that: “We are not supporting doing any vaccine passports in the state of Florida…. It’s completely unacceptable for either the government or the private sector to impose upon you the requirement that you show proof of vaccine to just simply be able to participate in normal society.”  “Biden vaccine passports-DeSantis”  This is incredibly wrong. Restaurants now serving indoors already test our temperature before allowing us to enter. I visited my credit union in the IMF building in downtown Washington, DC today and they took my temperature as well. If gatherings are not convincingly safe, sensible people won’t attend. Countries requiring arriving passengers from other countries with a high incidence of Covid-19 infections to quarantine for two weeks would presumably wave that requirement for passengers with a credible vaccine certificate.

It is hard to imagine that the public accommodation clause of the Civil Rights Act of 1964 would require a restaurant to admit and serve a customer with a contagious disease. But there are privacy and other technical concerns with implementing a reliable certificate of a covid vaccine. “The next front in the pandemic culture wars vaccine passports” The benefits to the economy and our freedoms are significant enough to make the effort to overcome them.

The unnecessary fight over Covid-19

We American’s expect to be able to make our own choices about what risks we are willing to take. The limits on our behavior generally concern when it threatens to harm others. When state after state issued stay at home orders and mandated the closing of many businesses (restaurants and theaters, etc.) a year ago they violated this principle. Many people rebelled at this intrusion into their prerogatives, but sadly by often making foolish decisions of their own. Of course, those who contract a contagious disease, such as Covid-19, should be legally quarantined.  Otherwise, businesses and individuals should make their own decisions about how to respond to this pandemic on the basis of the best possible information about its risks and how to mitigate them. A role in which the government failed miserably.

As with economic decisions more generally, countries that give maximum scope to individuals about what to produce and/or buy have been far more prosperous than those in which more decisions are made centrally and imposed from the top (socialism). Among other things the CARES Act suspended debt payments (and associated defaults, bankruptcies, and evictions) for understandable reasons https://wcoats.blog/2020/04/11/econ-202-cares-act-who-pays-for-it/. However, it was part and parcel of centralized mandatory decision making and inferior to individual case by case decisions by lenders and borrowers (debt restructuring) and landlords and tenants (rent forgiveness or holiday or eviction). In normal times when a debtor is unable to service its debt, for purely profit maximizing reasons lenders evaluated case by case whether to allow temporary arrears (debt restructuring) or to invoke the default provisions of the loan (bankruptcy).

Restaurants that felt they could safely open with social distancing and other safety measures that would convince their customers to return should be allowed to do so. They should be free to decide whether requiring face masks when entering and walking about the restaurant would attract more customers than not doing so. Customers who were not comfortable in a restaurant that did not take these safety measure would not patronize them. The relevant government should decide whether to require them on public transportation, etc.  If you come to my house, be sure that you are wearing one.

The culture war we now witness over face masks and other aspects of appropriate public behavior with regard to Covid-19 was so unnecessary. The American government behaved like a parent dealing with children and many Americans responded by behaving like children. They didn’t choose not to wear face masks because they were convinced by medical data that they are not effective (most data shows that they are very effective). Rather they chose not to wear them because the government told them they must. Childish indeed. Almost a year ago I wrote that the government’s most effective role was to provide the best information available (and more was coming available every week) about the nature and risks of Covid-19 and how best to avoid or mitigate those risks. If restaurants felt that they could safely remain open, they would need to convince potential customers that they had taken measures to protect them from exposure to the virus. This was not the approach taken by the government and public trust in the statements of the government in recent years has been, to say the least, low.

I expressed these views almost exactly a year ago (March 31, 2020). I repeat that blog here:

Beating covid-19: Compulsion or Persuasion and Guidance

Australia and Facebook

As reported in Bloomberg: “Australia’s parliament passed a world-first law to force digital giants such as Facebook Inc. and Google pay local publishers for news content…. The legislation was passed Thursday and will ensure “news media businesses are fairly remunerated for the content they generate,…  ‘We look forward to agreeing to new deals with publishers and enabling Australians to share news links once again,’ [Nick Clegg, Facebook’s vice president of global affairs] wrote in a blog post dated Feb. 24.”  Got that???  Does this apply to content that Facebook generates or collects and shares or does it apply to news links Australians share? Perhaps both. Actually, I think that newspapers and other news sources pay Facebook to post their links. It’s called advertising.

But what about the links I post on Facebook and Twitter to articles in the Washington Post, WSJ, and Bloomberg (all of which I subscribe to)?  Facebook is the platform on which I post them. Is Facebook being asked to pay the Post and WSJ for my posts? What I do with what I buy from these news services should be between me and these services and should have nothing to do with Facebook. Should Word Press have to pay the sources I link in my blogs? Should AOL have to pay sources I send or link in my email? OK, OK, I am an older gentlemen and got my AOL email address over thirty years ago and I don’t want to change. !!!  Should the U.S. Postal service have to peak into my regular mail and pay for any source content that I might be sending someone? This is ridiculous and it should be opposed.   

Access to COVID-19 vaccines

In less than one year from learning of this virus, we now have two approved safe and effective covid-19 vaccines with at least one more on the way. Millions of doses have already been produced. This is a near miracle. Thank you pharmaceutical industry and the governments (and their tax payers) that are paying for it.

Getting the vaccine into our bodies is quite another thing. This has several elements. The first is distributing the vaccines to each state/county and site of vaccinations. The second (or first and a half) is staffing these sites with professions able to administer the shots with the necessary equipment (refrigeration, syringes and needles, etc.). The third is determining who can receive the shot this week and getting them to the right place. The need for these three elements has been known for as long as the need for a vaccine has been known. And officials have known the likely vaccines for at least half a year. But planning for delivering the vaccine to your arm (or the lack of it) has been totally botched.

Focusing on the United States, the federal government promised to vaccinate 20 million people by the end of the year (last week). “Of the more than 12 million doses of vaccines from Moderna Inc. and Pfizer Inc. with BioNTech SE that have been shipped, only 2.8 million have been administered, according to federal figures….  The federal government is sending vaccines to states based on their populations, and it has provided guidelines, but no rules, about how they should be distributed…. On Friday [Jan 1, 2021], Sen. Mitt Romney (R., Utah) criticized the vaccine rollout, saying in a statement that the lack of a comprehensive federal plan to be shared with states “is as incomprehensible as it is inexcusable.”  WSJ: Covid-19-vaccines-slow-rollout-could-portend-more-problems”

Priority

Beyond the above fiasco, it is necessary to determine the priority for receiving the shots and communicating that information to you and me.  As we have already seen it will take a while–many months–to vaccinate everyone even without the above mess. So, who should get them the first month and the second month etc.? I discussed this issue last May. https://wcoats.blog/2020/05/18/the-vaccine-who-gets-it-first/

One criterion for establishing inoculation priorities is to allocate the vaccines so as to maximize the lives saved. I suggest that a better criterion is to maximize the life saved. The difference between the number of lives saved and the amount of life saved can be explained with a simple example. If there is only one dose and it is given to an 85 year old woman otherwise in good health, she might live another healthy year. If given to a 40 year old nurse, he might live another 46 healthy years. In both cases only one life has been saved but in the second case much more life has been saved (46 years of life rather than only one). But this potentially understates the case for giving the jab (as the British call it) to the nurse. One nurse that has been immunized against covid-19 can safely treat more patients that have covid-19 thus saving even more lives and more life. An argument in the other direction of inoculating the elderly first is to flatten the curve (i.e., reduce the inflow of covid-19 patients into overflowing hospitals).

In my view there is a strong case for maximizing the life saved rather than the number of lives saved. We older people should not crowed out younger people who as a result of the vaccination might enjoy much longer lives, something we have already enjoyed. The case, in my view, is overwhelming for critical workers (healthcare workers, grocery store workers, delivery people, etc.) of all ages to receive priority. “Many states are following CDC guidelines to start with front-line medical workers and people in long-term care facilities, but not all. Florida Gov. Ron DeSantis on Dec. 23 extended eligibility to people aged 65 and older.  Because each county and hospital in the state implemented its own approach, many people didn’t know whether to call, log on or show up in person to secure a spot.” [Same WSJ article] 

 A single dose of Moderna and Pfizer’s vaccines “appears to provide strong protection against the coronavirus…. With supplies of the vaccines limited — and hundreds of millions of people waiting for inoculation — this leaves epidemiologists grappling with a complicated question. Should the nation vaccinate fewer people with the best protection possible, or provide twice the number of people with a single shot, covering more of the population but with slightly weaker protection?”  “Coronavirus-vaccine-single-dose-debate”

But if the government can get itself organized (I know that that asks a lot) the existing and rapidly expanding supply of vaccines can be administered in a relatively modest number of months after which the priority issue vanishes.

Information

Whatever your priority turns out to be, how do you know where and when to show up? Do you need a prescription or approval and if so where do you get it? My insurance company is sending regular updates on what I should do. My Maryland county (Montgomery) website has information on the priority phase they are in (phase 1 at the moment) and that is about all (probably because every dispensary–hospitals, doctor’s offices, CVS–sets its own rules). I plan to contact my Primary Care Physician (PCP) for instructions next month when the situation might be a bit clearer.  What should people without medical insurance or a PCP do?  I have visited Kenya many times with the IMF and suspect that they are doing a better job with this than we are. How and why is this such a mess?

Conflicts of interest in government

I want my government to be run as efficiently as possible for the benefit of all of us. Appointing people to run it with experience in what they oversee contributes to that objective. Conflicts of interest–serving the interests of friends and former associates rather than the interests of the general public –detract from that objective. Hiring bankers to supervise banks, for example, draws on those most knowledgeable about the banking risks needing supervision, but they are also the most vulnerable to conflicts of interest. What should we do about this dilemma?

President elect Joe Biden’s choice to run his Office of Management and Budget: “’Neera Tanden has spent the last decade raising money from the top companies and highest-net-worth individuals in the country, which is a bit at odds with what Biden pitched during the campaign,’ said Matt Bruenig, president of the People’s Policy Project, a left-wing think tank that accepts only small donations.”  On the other hand, “Tanden’s experience leading CAP, which publishes policy recommendations for many domestic and foreign issues, has given her the policy chops needed to lead OMB, Ettlinger said.” Michael Ettlinger, is director of the University of New Hampshire’s Carsey School of Public Policy and a former vice president for economic policy at CAP.  “Neera Tanden-Biden-OMB-CAP”

The authors of the above Washington Post article note with alarm that CAP (Center for American Progress) has received contributions from the likes of Facebook, Bain Capital, Blackstone, Evercore, Walmart, CareFirst BlueCross BlueShield, defense contractor Northrop Grumman and for-profit college operator DeVry Education Group. Though I have not checked, I would not be surprised to find the same author’s urging such companies to shift from seeking shareholder value to stakeholder value by making just such contributions.

How can we maximize the benefits while minimizing the risks of appointing experienced people to positions in government? Our constitution provides one element of a resolution of this conflict by dividing the legislative function from the administrative function between Congress and the White House.  The administration’s regulators are implementing the laws passed by Congress, which provides some checks and balances. Nonetheless, the programs and financing approved by Congress can potentially benefit the friends of congressmen and women. Boeing moved its headquarters from Seattle to Chicago and disbursed its manufacturing facilities from the Seattle area to as many congressional districts as possible to increase congressional votes for its projects not because of economic factors.

Another element of protection is the adherence to transparent bidding and contracting standards when awarding government business to private firms. When designing the taxes to finance government, economist push the principle of economic neutrality (not favoring one market activity over another). Though the tax reforms of 2017 (the so-called Tax Cuts and Jobs Act of 2017) made our income taxes more neutral, many special subsidies remain in our tax laws and the special interests that benefit lobby hard to keep them. “Next up-tax-reform”  “Tax reform and the press”

But regulation potentially offers the most corruptive powers of government to deliver favors to the private sector. We benefit from regulations that help keep products and working conditions safe. But it is easy for regulations to slide into protecting incumbents from competition from challengers. This is a pronounced feature of professional licensing. “Cato: Professional Licensure and Quality”

In short, keeping government activities in the service of the public interest is challenging and requires constant vigilance. By far the most effective approach is to tightly limit government involvement in the economy to the minimum truly necessary for a well-functioning free society. Hire people with the experience to know what they are doing and to do it efficiently but limit the government’s role in the economy to what only government can effectively do.  In establishing the legal and regulatory foundation for private economic activity, limit it to the essentials–the foundation–so that the superstructure can be competitively built by innovative private individuals.

Our national defense is clearly a necessary government responsibility. Thus the “military/industrial complex” is and will remain a problem. The incentives for this industry are particularly dangerous because these firms benefit from the wars we have been fighting all over the place.  It is rather like keeping off those extra pounds that those of us who enjoy good food must struggle with eternally. It is a never ending battle, but losing it would be the death of us.

Unions vs the Gig Economy

Americans largely support and benefit from a political/legal environment conducive to individual freedom and active entrepreneurship.  However, within that broad consensus, views vary over how large and prescriptive the role of government and mandatory bodies should be.  Should only doctors, lawyers, plumbers and hairdressers licensed by the state be allowed to provide their services?  Few things capture this difference more clearly and dramatically than whether cab drivers must be employees of the cab company or can work as little or as much as they chose as independent contractors– company employees or gig workers (uber drivers).

Licensed professionals, like union members, can help promote and certify a minimum standard of training and confidence. But historically they have also sheltered their members from competition. Unions provide a number of services to their members, but their overriding purpose is to confront employers with a united front from workers on wages and working conditions. They understandably exist to serve the interests of their members.  While the commercial success of the companies’ union workers work for is also in the interest of these workers in the long run (if companies are not profitable they cannot provide jobs and/or good wages) it is more remote from workers’ immediate interests.

Gig workers are independent contractors who individually agree with an employer (such as Uber or Lyft) on wages, hours, and working conditions. In fact, Uber and Lyft drivers decide on their own, hour by hour whether and when to work. Their financial reward rests more directly on satisfying their customers.  The brand name Uber or Lyft must also insure a minimum standard of service to their riders (quality and cleanliness of the car and honesty and politeness of the driver, etc.). https://wcoats.blog/2014/12/18/free-markets-uber-alles/

The incentives confronting union workers and gig workers thus differ. Union works, in the first instance, by confronting their employers seeking better working conditions and pay (wages and benefits) while gig workers are competing with other drivers to please their customers. The results can be mixed but the difference between a ride with a yellow cab driver and a Lyft driver can be rather dramatic. I never had a yellow cab driver leap out of the spotlessly clean car to open my door saying: “I hope that you enjoyed your ride.” But while Uber and Lyft provide us with better and cheaper rides, they also provide drivers with more and better options of when and where they work.  Some want to work only a few extra hours after a regular job. Some choose to put in long hours when in need of extra money. Like most transactions in a free market both drivers and riders benefit–its win, win.

My experiences with unions have not been good. My father was a Shell Oil union member.  His union went on strike long ago when my mother was pregnant with my younger brother. After a few months on strike it was growing obvious (according to my father) that it would end soon in failure from the union perspective. The union bosses feared that my father and others would return to work before the union had formally given up. They came to our house and told my pregnant mother that it would be quite unhealthy for her if my father returned to work.

While a student at the U of C Berkeley I had taken jobs for three summers with Shell Oil, one of the perks they give their workers’ children. Two summers were roustabouting in the oil fields of Kern County, California with regular Shell employees who never spoke of labor relations with the company. Instead they talked about their families and non-work activities.  The middle of the three summers with Shell, I was assigned to the supply yard behind Shell’s Kern County headquarters. I assisted the one employee there who loaded pipes and other oil field equipment onto trucks that then delivered the equipment to the fields I had worked in the summer before. Much of the time the two of us just hung out there waiting for the next truck, very unlike digging ditches to repair leaking pipes as I had done the previous summer in 112-degree summer heat. We drove around in the small portable crane used for loading the trucks. The entire time my “companion,” an avid union member, complained about how Shell Oil was exploiting us. After a few weeks I dreaded having to be around him.

After my brother and sister and I were out of the house my mother went back to school, first to finish high school and then to college and a teaching degree. She became a highly successful grammar schoolteacher who specialized in taking on (and taming) problem students. She complained frequently at the attitude and self-protective behavior of the teachers’ union members that was far more interested in protecting mediocre teachers than in teaching students.  Michelle Rhee only turned around the education system in Washington DC when she was able to break the strangle hold of the teacher’s union.

More recently we have seen yet again the destructive role of police unions in protecting bad cops in connection with the death of George Floyd in Minneapolis. “Police-unions-minneapolis-kroll” Much has been written about how deals with police unions has thwarted needed reforms in policing. There seemed to be broad nonpartisan support for such reforms before the “defund the police” nonsense killed it.

But there is a surprising bit of good news from the election earlier this month beyond replacing Trump.  In California, for example, the state was attempting to apply a law regulating employment (AB-5) to contract Uber and Lyft drivers, demanding that they be treated as employees rather than contractors. This would have destroyed Uber and Lyft’s business models and was strongly opposed by them and their drivers. “California’s Public Utilities Commission said in an order Tuesday [June 9, 2020] that Uber and Lyft drivers are “presumed to be employees” under AB-5, the state’s new gig work law.” “Uber-Lyft-drivers-declared-employees-by-California-regulators”  California voters rejected this union effort to kill the market for gig drivers.

As The Wall Street Journal put it: “Democrats and unions in California are shell-shocked. Voters last Tuesday rejected a referendum that would have allowed racial preferences in state hiring and college admissions, defeated a massive business property tax hike, and rescued tens of thousands of gig economy jobs.” https://www.wsj.com/articles/californias-progressive-thumping-11605136309?st=ra1kvgf2okxr35j&reflink=article_email_share

The following description of Proposition 22 appeared on California ballets:

PROP 22

EXEMPTS APP-BASED TRANSPORTATION AND DELIVERY COMPANIES FROM PROVIDING EMPLOYEE BENEFITS TO CERTAIN DRIVERS. INITIATIVE STATUTE.

SUMMARY

Put on the Ballot by Petition Signatures

Classifies app-based drivers as “independent contractors,” instead of “employees,” and provides independent-contractor drivers other compensation, unless certain criteria are met. Fiscal Impact: Minor increase in state income taxes paid by rideshare and delivery company drivers and investors.

WHAT YOUR VOTE MEANS

YES A YES vote on this measure means: App-based rideshare and delivery companies could hire drivers as independent contractors. Drivers could decide when, where, and how much to work but would not get standard benefits and protections that businesses must provide employees. 

NO A NO vote on this measure means: App-based rideshare and delivery companies would have to hire drivers as employees if the courts say that a recent state law makes drivers employees. Drivers would have less choice about when, where, and how much to work but would get standard benefits and protections that businesses must provide employees.

Proposition 22 passed with a 58.6% majority in a state that rejected Donald Trump by a wide margin (64% for Biden and 34% for Trump). This result is consistent with what I hope is true, namely that a majority of voters voted against Trump rather than embracing the more government dominated management of our lives promoted by the “socialist” wing of the Democratic party. With the more skillful and predictable management of a Biden administration and a Republican controlled Senate to block any excessive expansions of government, we might be lucky enough to keep the good measures taken over the past four years (tax reform, reduction of excessive regulations, strengthening the courts, and no new wars) and get rid of the anti-market, protectionist, executive overreach, and internationally disruptive measures of an ineffective and dishonest bully.

Are Venture Capitalists racists?

Shifting sovereignty from Kings to the people, was the beginning of human flourishing. In the United States, in its constitution the people returned only those powers to their government necessary to protect their wellbeing. The right to and protection of ones honestly acquired property is an essential aspect of this arrangement. This includes, of course, the right to invest our property anyway we choose.

Venture capitalists are those wealthy people who choose to take great risks in the prospect of large gains by investing in “startups” that have not yet established their profitability.  Put differently venture capitalists are prepared to finance an unproven idea/product/service that might gain public approval, i.e. might become profitable, though most of them fail.  As consumers we have benefited enormously from goods and services my parents never would have even imagined that a few wealthy investors took a chance on.

So the idea that the government might need to enact laws to insure that a venture capitalist’s investments do not reflect racial bias is shocking at several levels. “In the clubby world of venture capitalists, who spent $130 billion in the United States last year and helped anoint the world’s four most valuable companies and countless other successful start-ups, there is effectively no legal backstop that ensures people of color have an equal opportunity to share in its wealth creation.”   “Black-entrepreneurs-venture-capital”

First of all is the right of these investors to their property. They can give it all to their daughters if they want to.  Marxists and other egalitarians reject such a right but that would throw away the whole basis of the wealth our capitalist system has created that Marxists would like to redistribute.  But I want to focus on why capitalism minimizes the role of bias in our economic decisions.  This was explored long ago by Nobel Lauriat Gary Becker in his famous 1976 book on the Economics of Discrimination.

Becker’s basic point is that if your economic decision is influenced by racial or sexual or any other non-economic bias it will cost you money, i.e. you will make less than you otherwise would have.  If you hire a man when a woman was better qualified, he will contribute less to your company’s income than would have the woman, thus you pay a financial price for your bias. The same is true if you hire a white person when a black one was better qualified, etc.

The purpose of venture capitalist investments is to make a bundle by funding the next great idea. Most will fail but one or two turn into Facebook, or Amazon.  It may well be that a venture capitalist systematically under rates the potential of black entrepreneurs, i.e. that he suffers racial bias.  But in that case he will be less successful in his investments.  Capitalism will punish him for his prejudices and diminish his importance as a venture capitalist because it will diminish his wealth. None the less, an Irish venture capitalist may well bias her investments toward fellow Irishmen and a black venture capitalist may risk an extra break for a fellow black. But the profit motive of capitalism will discourage departures from objective evaluations of investment prospects.

The idea that a law should forbid or discourage racial or sexual bias when venture capitalists decide in what to invest is without merit.  Moreover, it is hard to imagine what such a law would look like and/or on what basis a government bureaucrat would overrule and direct the placement of a private investor’s chose of investments.

To peak briefly at the other–entrepreneurial–side of the equation, the unbiased opportunity provided by capitalism has attracted many foreigner entrepreneurs to our shores.  Steve Jobs (Apple, NeXT, Pixar), who was adopted at birth, was the son of Joanne Schieble who was Swiss-American and Abdulfattah “John” Jandali who was Syrian.  Steve Wozniak, Apple cofounder, was the son of Polish and Swiss-German parents.  Sergey Brin cofounder of Google/Alphabet escaped from the Soviet Union.  The famous architect, I.M. Pei, immigrated from China.  “How-12-immigrant-entrepreneurs-have-made-america-great”

The order to reopen–who gives it?

Like all of us, President Trump is eager to reopen the economy. Does he have the authority to do so or do state governors? Fortunately, neither can force us to start eating out again, or return to our offices. We remain a country where those decisions rest with each of us individually (or jointly with your boss with regard to returning to your office, shop or factory). That means that those parts of the economy that have shut down will get going again when the affected businesses have taken measures to protect their customers and employees sufficient to regain their customers’ trust that they are safe places to visit. But as I argued last month, that should always have been the basis of social interactions.  “Beating-covid-19: Compulsion-or-Persuasion-and-guidance”

The broad-based, blunt instrument of sheltering at home unless your activities are vital (says who?) is imposing staggering damage to the economy.  The best way to minimize that damage is to restore public trust as quickly as possible that those with it are being isolated and treated.  A blanket shut down of non-essential activities is not the best approach. Each of us in our personal situation can better determine where we feel safe to go than can a government agency.  However, some of us will not give sufficient weight to the dangers of exposing our friends and the general public to the disease if we might have it.  Public policy should educate the public to the dangers of covid-19 and how best to protect ourselves and should minimize the financial incentive to continue working when sick. State coercion (mandatory quarantines) should only be applied to those testing positive for the virus.  This approach will allow all firms and stores to operate whose employees and customers judge them to be safe and will give businesses maximum incentive to make themselves safe.

Covid-19 will be around for at least another year or two until an effective vaccine is available and then distributed to more than 60 percent of the world population. The most effective way to contain its spread in the interim is to undertake widespread, quick, and accurate testing and to quarantine those who test positive with efficient contact tracing.  Adding the newly available tests for antibodies indicating immunity to the virus will identify those who are no longer susceptible to acquiring or spreading the disease. They should be safe in public.  Other corona viruses have created immunity in those who have had them and SARS-CoV-2 is expected to do the same, though this has not yet been established.

The U.S. has belatedly increased its testing for the virus. Initially it impeded the development and supply of test kits. As of April 16, the U.S. has tested 10,266 people per million while Germany has tested twice that. The U.S. by that date had 105 deaths per million while Germany had less than half that.  The Food and Drug Administration (FDA) should get out of the way and allow profit seeking entrepreneurs to flood the market with test kits.  The government should focus its (our) money on a large increase in testing for the virus and quarantining those testing positive and those they contacted and should offer significant financial prizes for an effective vaccine and for the development (or discovery) of effective treatments. Unlike patents as an incentive, this will encourage collaboration and knowledge sharing among those attempting to develop treatments.

On April 16 President Trump outlined guidance for the phased reopening of closed businesses and activities that is consistent with the approach outline above.  The government’s traditional public health role is important. But much more discretion should be given to individual case by case judgements about risks and entrepreneurial initiatives about remedies rather than broad based government edicts.

We will not return and cannot be required to return to the public square until we believe it is safe to do so. Individual shops and firms have a financial incentive to find convincing approaches to being safe and will get there quicker than even the best-intentioned government official issuing instructions and mandates. The government has an important role to play in fighting this virus and facilitating our return to normal life, but it should remove impediments it often creates to the private sector’s management of the related risks and the huge and unnecessary damage it imposes on the economy.