My reply is of general interest, as I think the legitimacy of "right-to-work" laws can be confusing. I wrote:
The idea that people have some kind of natural right to work for another person -- without regard for their employer's terms -- is completely ridiculous.
If my employer says that he's only willing to hire me if I cut my hair short, put in 10 hour days, donate money to ARI, or join a union, that's his right. And it's my right -- precisely because I'm a free person, not a slave -- to refuse employment under those terms.
To say that he is obliged to hire me, even though I don't meet his terms, would make him my slave.
That's why "right-to-work" laws are wrong. They are yet another violation of the right to contract -- in a misguided, typically conservative attempt to make existing pro-union laws more "fair." But in fact, freedom requires the repeal of those unjust pro-union laws -- not passing even more unjust regulations to "level the playing field" or "protect choice."
My view here is the definitive Objectivist position. In the June 1963 issue of The Objectivist Newsletter, Barbara Branden addressed the issue of "right-to-work" laws:
What is the Objectivist stand on "right-to-work" laws?
As advocates of laissez-faire capitalism, Objectivists are opposed to any legislation that abridges the freedom of production and trade. We are, therefore, opposed to the "right-to-work" laws.
The "right-to-work" laws prohibit employers and unions from contractually agreeing to and stipulating a closed and/or union shop. As such, these laws clearly represent an infringement of the rights of the parties involved; these laws rest on the principle that the government has the right to prescribe the terms of contractual agreements-which is a Statist concept. In a free society, an employer who voluntarily negotiates with a voluntary union, may sign any agreement with the union that he wishes. Although it is doubtful whether a closed and/or union shop agreement would ever be economically wise, that choice is the employer's to make. No one's rights are infringed by such an agreement; a worker does not have a "right" to a job with a given employer; if he does not or cannot meet the employer's terms, he is free to seek employment elsewhere.
Many "conservatives" champion "right-to-work" laws on the ground that today unions are so powerful they can virtually compel an employer's agreement to a closed and/or union shop. It is true that unions have such power. But they acquired it only by virtue of legislation, which had the effect of forcing men into unions whether they wished to join or not and of forcing employers to deal with these unions. Unions did not and could not achieve, in a free society, the monopolistic, destructive power they possess in today's "mixed economy." The guilty party is not unionism as such, but government controls.
The solution lies, not in passing new laws, but in repealing the laws that caused the disaster in the first place.
The defenders of freedom do not serve their own cause by trying to fight their battle on the enemy's terms, that is, by deciding that the solution to the evil of government intervention in the economy is more government intervention.
Palin called for "government strict oversight," implying that the problem was caused by a lack of such oversight, rather than the presence of foolish federal controls. ...
Biden's message is that the free market doesn't work, deregulation equals the free market, deregulation has failed, and government controls are the alternative to deregulation.
Unfortunately, Republicans often have used the term "deregulation" because they don't want to talk about the fundamental issue: individual rights. Because they don't favor individual rights. As Bush II has proved, Republicans (in general, not in every particular) are enthusiastic about government controls and political power.
The problem is that the term "regulation" is a package deal. "Regulation" means to make regular. Well, we want things to be regular, don't we, as opposed to irregular? For example, the Constitution grants to Congress the power "To regulate commerce with foreign nations, and among the several states..." Those of us of the individual-rights persuasion like to think of that clause as granting to Congress the ability to "make regular" trade; that is, to free it of state interference.
Government plays a crucial regulatory role. The proper role of government is to protect individual rights. In the sphere of economics, that means protecting property rights and the right to contract. It means fighting fraud. It means eliminating the initiation of force. In those functions, the government regulates -- makes regular -- the economy. Protecting individual rights is regulation.
But what Biden means by "regulation" is a host of federal controls that violate, rather than protect, individual rights. These rights-violating controls do not make the economy "regular;" they make it irregular and chaotic. For example, the federal controls that forced lenders to make risky loans are "regulations" of this sort. The mortgage crisis is a crisis not of the free market, not of the regulation of protecting individual rights, but of the "regulations" of government controls that violate rights of property and contract.
What we need is not some out-of-context "deregulation" or "regulation." What we need is a government that protects individual rights rather than violates them. That is the very definition of the free market. That is what Joe Biden condemns, and what Sarah Palin cannot even conceive.
The Cost of Termination By Diana Hsieh @ 1:09 PM
What's the cost in weeks of pay of firing workers in various countries? The Economist has the chart. I'm definitely surprised that China is so much higher than France and Germany.
Microsoft's general counsel, Brad Smith, says that "if search is the gateway to the Internet . . . this deal [with Yahoo] will put Google in position to own that gateway and the information that flows through it" ("Top Lawyer Is Selected as U.S. Mulls Google Suit," Marketplace, Sept. 9). Why shouldn't they own it? They built it. Google is the most popular search engine because of the relevance and speed of its results; it is the dominant advertising platform because ads are more effective there than anywhere else. Google deserves its leading position and the rewards that go with it.
This case, like every other major antitrust case from Standard Oil to Microsoft, aims to punish a winning company for the crime of winning. This is a grave injustice to Google and will only harm the industry in the long run. Why place the ideal of "competition" ahead of the economic productivity that competition is supposed to promote?
It would be far more just, and better for the economy, to simply let the winners win.
John Allison to Retire By Diana Hsieh @ 7:56 AM
Wow, John Allison, the man who transformed BB&T from a small farm bank in eastern North Carolina to a highly profitable powerhouse in the southeast will retire at the end of the year. His right-hand man will be taking over the reins.
So what will he be doing?
When he retires, he said, he plans to work with the college programs he's helped start and maybe write a few books on the real-world consequences of different financial philosophies.
In a free market, specialty search engines could be entirely reasonable and appropriate if there is a demand for such a service. For instance, a search engine catering towards physicians might properly give different sorts of results than a search engine catering towards patients.
But the business model would only succeed if there were a subpopulation that had distinctive and significantly different search engine results preferences from the population at large, and the business could get them to become dominant users of their alternative search engine.
Otherwise you end up with problems like this:
Since search engines learn from what people are clicking on, RushmoreDrive had a small problem immediately after its launch: So many white members of the media were visiting the site that the results became skewed and turned up more "white" results...
The article also struck an odd note when it stated that Google's search results "alienate the rest of the population" (i.e., the non-caucasians). It's not clear to me that the term "alienate" is warranted.
Writer and wine critic Robin Goldstein created this fake restaurant (complete with realistic website and all) as a test to see if the magazine would simply pocket the $250 entrance fee and give out the Award, or if they would actually do some serious investigation of the restaurant before handing out their stamp of approval. He presented his results at the recent meeting of the American Association of Wine Economists. Here's more information on his methods.
So was the magazine acting fraudulently or in ignorance? And is it ethical for individuals or groups to use these sorts of deceptive methods to test the integrity of organizations which purport to offer a value to consumers by rating other businesses and products?
NoodleFoodler Letter to the Editor By Paula Hall @ 12:16 PM The Boston Globe let me get my two-cents' worth in on the issue of our mortgage crisis -- my letter to editor on the subject was published in its Sunday, August 3 edition. Here's the link, and the full text is reproduced below:
Let market prevail August 3, 2008
The Boston Globe finds it "astonishing" that the Fed has to force lenders to do what they used to do out of simple self-interest - lend only to credit-worthy applicants ("An addiction to borrowing . . .," Editorial, July 27). However, the editorial fails to examine how government regulation has perverted what is in banks' self-interest.
Our banking industry knows that it doesn't have to worry about the downside of lending to unqualified borrowers. Because of Fannie Mae, Freddie Mac, and the mandates of the Community Reinvestment Act, taxpayers ultimately foot the bill when borrowers can't pay back loans.
It wasn't always the case that banks could depend on the government using taxpayer dollars to pay for their bad decisions.
Government regulation made it in the self-interest of banks to try to sell credit to consumers without worrying about their ability to pay.
What is needed is not more regulation; we need to undo the damaging regulations that twisted lending incentives in the first place. Laws against fraud and other crimes are already available to punish dishonest practices. Government should cease economic regulation of banks, and let banks suffer the full economic consequences of the lending and investment mistakes they make.
I had always wondered how the electrical utilities evolved into their current dysfunctional state as quasi-governmental entities, and never understood why utilities didn't function more like private providers of essential goods (like grocery stores or airlines). Niles traces the history of the electrical utilities from the 1880's to the present time, and shows how the current problems with the electrical industry are the result of government interference with basic property rights from the very inception.
I was particularly interested in his account of the California "deregulation" fiasco of 2000-2001. Diana and I lived in San Diego at that time, so we experienced this crisis of skyrocketing costs and rolling blackouts first-hand. However, I couldn't make sense of the newspaper accounts at the time, which generally blamed the "free market" for the problems. (For a typical portrayal of the events, this Wikipedia entry on the "California Electricity Crisis" is a good example of the conventional wisdom).
Fortunately, Niles is able to reduce this complex topic to its essentials, using property rights as the unifying theme. As an industry analyst, he has tremendous knowledge of the history, and is able to communicate it clearly to a lay audience. And besides offering a critique of the current system, he also articulates a positive alternative vision of a free market electrical system in which property rights are genuinely respected, and the benefits it could bring to producers and consumers alike.
Because his article is the featured free article, it is available to both subscribers and non-subscribers. So read the whole thing.
(On a personal note, I had the pleasure of meeting Ray Niles at the OCON 2008 conference a few weeks ago, and found him to be a thorougly intelligent, articulate, and pleasant dinner companion.)
"Common Carrier" Craziness By Paula Hall @ 12:38 AM
The common law doctrine of "common carrier" would be funny if it weren't so stupid. In effect, the common carrier doctrine operates by designating a service as indispensible, and then destroying that service.
A New York Times article discusses the doctrine in the context of the debate over the advisability of "net neutrality," which is "the idea that Internet access providers like Comcast should not be allowed to favor some uses of their networks over others."
[The chairman of a net neutrality advocacy group] said the issues at stake go back to the common-law concept of a common carrier, which defined certain businesses — from blacksmiths to ferries — as so essential to commerce that their owners could not discriminate against any paying customer.
The 'Lectric Law Libraryfleshes out what it means to "not discriminate," in the classic application of the doctrine to a transportation provider:
1. To carry passengers whenever they offer themselves and are ready to pay for their transportation. They have no more right to refuse a passenger, if they have sufficient room and accommodation, than an innkeeper has to refuse a guest.
What's funny is that no-one seems to follow this policy to its logical conclusion. Let's say a common carrier does routinely refuse to provide service to certain individuals or a class of individuals. If the carrier is profit-seeking, the refusal to provide service will rest on the profitability of that refusal, or else some other carrier will enter the business to provide service to the denied individuals. Under the common carrier doctrine, such "discriminating" carriers would have to be punished, in proportion with the severity and persistency of their discrimination. Eventually, one or all of the following three things will occur: 1) common carriers will cease to be profitable as a result of increasing fines, and go out of business, 2) punishment of carriers will escalate to forcibly shutting noncompliant carriers down, or 3) no-one will undertake common carrier trades. Either way, the doctrine must have the effect of eliminating the businesses designated as common carriers.
If all of the above is true, then why, you may ask, do we still have common carriers? It is because we have a mixed economy. In a free economy, all property is privately owned, including all businesses. In a mixed economy such as ours, internet service providers such as Comcast can do business only if they are first licensed by the government. Once licensed, they enjoy a near-monopoly, with the ability through incumbency and lobbying to prevent other potential providers from entering the field.
So, we now we have the following perversion of incentives: a government policy of violating property rights (the common carrier doctrine) becomes a weapon by which those whose rights are violated (like Comcast) keep competitors out of the field by force. That is, the system is set up so that it is possible to make money by giving up your rights, so long as you thereby gain the power to violate the rights of others.
Ironically, this policy is supposedly designed to protect consumers. But it is consumers who lose in the end. Licensed common carriers have little incentive to provide good service at a good price, because consumers have no choice but to deal with them. So under common carrier policies, consumers must either 1) purchase overpriced and inferior services, or 2) face the complete unavailability of those services. There's a way to describe a policy like this. It's called "stupid."
Actually, there's a better way to describe the common carrier doctrine. Wrong.
Southwest Airlines Secrets of Success By Paul Hsieh @ 1:44 PM
I like Southwest Airlines quite a bit, so I was interested to see this article describing their plans for expansion at a time that other airlines are reeling from rising fuel costs:
Its competitors among the network carriers -- American, United, Delta, Continental, Northwest and US Airways -- are shrinking passenger capacity by more than 10 percent and grounding hundreds of aircraft starting in the fall. Southwest will add a handful of daily flights. It will take delivery of another dozen aircraft next year and still plans to grow by 2 to 3 percent.
A Moral Example of Salami Slicing By Greg Perkins @ 12:47 AM
Remember that technique which showed up in the plots of movies like Superman III, Hackers, and Office Space, where someone would change bank software to take fractions of cents from transactions like interest payments and funnel them all into one account? Nobody misses a fraction of a cent -- but given enough transactions over time, the sum can really add up! That's what they call "Salami Slicing."
Of course it is stealing in cases like that, but the same idea of accumulating vast numbers of tiny values that are hardly noticeable could legitimately pay off, too.
Consider this fact about driving your vehicle: left turns often require waiting for oncoming traffic to clear, taking a little more time and gas on average than right turns do. Now, this doesn't make all that much of a difference to most of us (just like the above fraction of a cent we may or may not get in interest from the bank) -- but if you have a fleet of 90,000 big brown trucks that follow the routes you schedule for them each day to deliver packages, then adjusting your software to minimize left turns could really add up!
Last year, according to Heather Robinson, a U.P.S. spokeswoman, the software helped the company shave 28.5 million miles off its delivery routes, which has resulted in savings of roughly three million gallons of gas...
That's some serious scratch, especially with the price of gas today! I love it -- kudos to the brain at UPS who saw and brilliantly exploited this little fact.
Try this on for size: they have produced genetically-modified organisms that "feed on agricultural waste such as woodchips or wheat straw [...and] excrete crude oil." Isn't that outrageously cool? So much for the "finite supply of fossil fuels."
Oh, and the guys pulling this off have a nice angle aimed at those who are out to destroy industrial civilization:
What is most remarkable about what they are doing is that instead of trying to reengineer the global economy -- as is required, for example, for the use of hydrogen fuel - they are trying to make a product that is interchangeable with oil. The company claims that this "Oil 2.0" will not only be renewable but also carbon negative -- meaning that the carbon it emits will be less than that sucked from the atmosphere by the raw materials from which it is made.
So if they go big with this, we get to enjoy the resulting cognitive dissonance in the guys who consider the invention of the internal combustion engine the low point of human history. Sweet.
Employers frequently complain about the cost of health benefits for employees and retirees. The shareholder proposal would not require companies to provide health benefits for employees, but asks top corporate executives to view the issue in a broader context, as a question of social policy.
"We are doing what we can as shareholders," said the Rev. Michael H. Crosby, a 68-year-old Capuchin priest who has had discussions with nine companies on behalf of 20 Roman Catholic orders this year. "We come out of a religious tradition, but we are not engaged in a messianic enterprise. We are one voice among many seeking equitable access to health care for all."
Despite the fact that many have argued that these sorts of statements have no place in shareholder debates, the Securities and Exchange Commission has ruled that these resolutions must be included on the ballot.
I thought there were two noteworthy points:
First, the convergence of interests between religious activists and causes favored by the secular left previously described in this earlier New York Times article from October 28, 2007 is accelerating.
Second, the trend towards inappropriate shareholder activism is also accelerating. Yaron Brook discussed this issue in more detail in his excellent course, "The Corporation" given at the 2007 OCON Conference.
...What motivates these activists is not the wellbeing--i.e., the wealth--of fellow shareholders, but an anti-profit, anti-capitalist social agenda. It is they who call for corporate "social responsibility"--the idea that executives and shareholders should sacrifice money-making for the sake of sundry "stakeholders." This is incompatible with the purpose of business and with the responsibility of corporate leaders to maximize shareholder wealth.
...But far from fighting government controls, shareholder "activists" fight to hand control over American corporations to government--or to organizations controlled indirectly by politicians, such as public pension plans. Indeed, this is already beginning, prompting many businesses to flee to the relative safety of private ownership--i.e., being owned and run by professionals--so that they can continue to maximize their wealth.
These activists are using the leverage and power of productive men and women running corporations to force them to advocate for government policies that will strangle the ability of such individuals to keep producing. I don't think we'll be seeing the last of this particular tactic.
It also means that whenever issues like this arise, pro-capitalism stockholders of corporations should make sure that their voices are also heard when it comes time for a shareholder vote.
Repealing Blue Laws By Paul Hsieh @ 8:10 AM
What happens when various "blue laws" (i.e., laws restricting commercial retail activity on Sundays) are repealed? According to this study:
Repealing America's blue laws not only decreased church attendance, donations and spending, but it also led to a rise in alcohol and drug use among people who had been religious...
The economists used data from the General Social Survey on religious attendance and from the Consumer Expenditure Survey to show a very strong reduction in religious attendance and a decline in religious contributions once the blue laws were repealed. They found no change in other charitable activity, [MIT economist Jonathan] Gruber notes.
Interestingly enough, the former church-goers also went out and did more things on Saturday nights.
MCMINNVILLE, Tenn. - High gas prices have driven a Warren County farmer and his sons to hitch a tractor rake to a pair of mules to gather hay from their fields. T.R. Raymond bought Dolly and Molly at the Dixon mule sale last year. Son Danny Raymond trained them and also modified the tractor rake so the mules could pull it.
T.R. Raymond says the mules are slower than a petroleum-powered tractor, but there are benefits.
"This fuel's so high, you can't afford it," he said. "We can feed these mules cheaper than we can buy fuel. That's the truth."
And Danny Raymond says he just likes using the mules around the farm. "We've been using them quite a bit," he said.
Brother Robert Raymond added, "It's the way of the future."
What could better concretize the damaging economic effects of government regulations strangling energy production than this return to mule power? If such exists, I can't think of it!
For a brief sketch of just some of those government regulations restricting the supply of oil, see Alex Epstein's recently-published op-ed on Investigate Big Congress, Not Big Oil.
Coffee Capitalism By Paul Hsieh @ 12:50 PM
As everyone knows, the market for coffee products in the Seattle area is fiercely competitive. The quest for customers have led one entrepreneur to develop the "sexy espresso stand":
Espresso drive-through stands with bikini- and lingerie-sporting baristas are popping up from Monroe to Edmonds. In the past year, at least six of these java joints employing provocatively dressed young women have opened in the county. A few owners of these roadside stands say business is so brisk, they're hiring more employees and have plans to open new locations.
...Sometimes wearing little more than pasties and bikini bottoms, the scantily clad baristas at Wheeler's stands have scores of well-tipping customers.
This adds new meaning to the term "fair trade coffee"... (Via Neatorama.)
Nationalizing the Oil Industry? By Diana Hsieh @ 12:22 PM
Just when you thought American politics couldn't get any worse, Maxine Waters threatens to nationalize the oil industry, if consumer prices aren't to her liking:
Of course, Maxine Waters wouldn't ever support the genuine cure for high energy prices, namely the elimination of government controls on drilling for and refining oil, as well as on other forms of energy like coal and nuclear power. As any semi-conscious student in a microeconomics class knows, such controls constrict supply and drive up prices. But nevermind that mumbo-jumbo. Maxine Waters has a different kind of plan: oil company executives must find some way to magically violate the basic laws of economics -- or else!
Rocky Twyman has a radical solution for surging gasoline prices: prayer.
Twyman -- a community organizer, church choir director and public relations consultant from the Washington, D.C., suburbs -- staged a pray-in at a San Francisco Chevron station on Friday, asking God for cheaper gas. He did the same thing in the nation's Capitol on Wednesday, with volunteers from a soup kitchen joining in. Today he will lead members of an Oakland church in prayer.
Yes, it's come to that.
"God is the only one we can turn to at this point," said Twyman, 59. "Our leaders don't seem to be able to do anything about it. The prices keep soaring and soaring."
Gas prices have been driven relentlessly higher this year by the bull market for crude oil, gasoline's main ingredient. A gallon of regular now costs $3.89, on average, in California, while the national average has hit $3.58.
To solve the problem, Twyman isn't begging the Lord for any specific act of intervention. He is not asking God to make OPEC pump more oil. Nor is he praying for all the speculative investors to be purged from the New York Mercantile Exchange, where crude oil is traded. Instead, he says anyone who wants to follow his example should keep it simple. "God, deliver us from these high gas prices," Twyman said. "That's all they have to say."
Ah yes, giving recommendations to God would be the sin of pride, I suppose.
However, as an omniscient being, God must be already perfectly aware of the high price of gas. As an omnipotent being, he must be capable of lowering gas prices. Since he's all-benevolent, he wouldn't allow gas prices to remain as they are if that was an evil. Ergo, high gas prices must be all for the best.
Too Big to Bail By Diana Hsieh @ 7:19 AM
I really enjoyed Alex Epstein's "video op-ed" explaining "how the government's 'too big to bail' policy encouraged financial institutions to make billions of dollars in bad subprime investments."
The text version of the op-ed is available on the Ayn Rand Institute web site, but it's just soooo much better to hear Mr. Epstein speak that fabulous line about "government bailout crack"!
Trader Joe’s, Behind the Scenes By Diana Hsieh @ 5:29 PM
I love Trader Joe's -- so much so that the lack of TJ's in Colorado is my only serious regret about leaving California. I'm still enjoying the care package of Trader Joe's goodies that Paul and I mailed ourselves while in Maryland visiting my parents. Consequently, I could enjoy this BusinessWeek article on the business model of the chain: Trader Joe's Recipe for Success. The tagline reads, "By limiting its stock to specialty products at low prices, Trader Joe's sells twice as much per square foot than other supermarkets." I'm not surprised. Supermarkets are a mixed bag of good stuff and crud, but Trader Joe's is chock full of delights!
(Yes, Paul and I do mail ourselves a care package from Trader Joe's whenever we visit a place blessed with the store. That's just how much we miss it.)
If your goal is to fix the genuine problems in our health care system, then you MUST advocate FREE MARKET reforms. Eliminate the tax incentive for employer-provided health care. Eliminate all mandates and other regulations on health insurance. Eliminate regulations on medical providers. Gradually eliminate welfare programs.
A few days ago, I received the following e-mail inquiry about the implications of that paragraph in particular. It said:
Do you advocate eliminating most or all business and financial regulations in addition to the medical regulations mentioned above? If objectivism and the business/economic beliefs of Ayn Rand were to be law of the land, for lack of a better phrase, how would such a government prevent abuses by businesses and protect the consumer's rights from being trampled on?
Those are excellent questions. I'll answer them briefly here, and I hope that others will chime in with more in-depth analysis in the comments.
Yes, I do advocate the repeal of all business and financial regulations. However, that does not imply that the law has no proper function to serve in markets. In the purely capitalist economy that I advocate, the legal system serves an indispensable role: it protects the rights of all people, particularly the rights of property and contract. If a business engages in false advertising, fails to deliver the contracted-for goods, or knowingly sells dangerously defective products, then individuals should be able to resort to the courts to remedy the violation of their rights.
In contrast, when the government establishes regulations "prevent abuses by business" and "protect consumer's rights," then it is actually violating the rights of both producers and consumers, not protecting them. Regulations violate everyone's rights to acquire, use, and dispose of their property as they see fit. Regulations violate everyone's rights to contract for mutually agreeable terms. In essence, regulations use government force to prevent people from acting according to their own best judgment. That's morally wrong and practically disastrous.
If I'm dying of cancer with three months to live, the FDA forbids me from taking a promising experimental drug because it's not yet been proven "safe" and "effective." As if that matters: I'm dying! Supposedly, FDA regulations exist to protect me, the consumer.
If I lack work experience, minimum wage laws forbid a business from hiring me except for more than I'm actually worth. So I'm forced into unemployment, even though I'd be happy to gain experience and reputation as a good worker by working for less than minimum wage for a time. Supposedly, minimum wage laws exist to protect me, the worker.
If I'm a good cook looking to start a small catering business, I would be stopped dead in my tracks by the myriad regulations required to serve food and liquor. So my potential consumers have to pay more for their catering because the cost of entering the market is so high, even if they'd rather hire me. Supposedly, those health regulations exist to protect my consumers.
Government regulations of business preemptively punish all producers as would-be criminals. They treat all consumers as helpless dolts unable to choose wisely. They grant government bureaucrats unlimited power over our lives. That's not good, to say the least.
The proper approach is to (1) punish only actual instances of force and fraud in the market, (2) treat adults like the rational creatures they are, (3) limit government power to only protecting individual rights. To do that would require eliminating all government regulation of business -- and that's why I advocate doing so.
(Yes, philosophy can be a fine major. No, I don't think that this graph says much about long-term earning potential. Many philosophy majors go to law school, and that has a good effect on long-term earnings. It's philosophy graduate school that kills a person's earning potential!)
