CPAC – a new theory of social change?

Several other bloggers have written about the 2013 CPAC conference, and all of the posts that I have read noted the growing divide in the ‘conservative’ movement. The divide between the several blends of what is loosely called ‘conservatism’ at CPAC is not something unique to this year; it has been evident at the last couple CPAC conferences. However, the divide is growing. Reforming the social stances of the mainstream conservative movement would be an extremely positive thing, but it will only be beneficial to the country if the reform includes a reformed theory of social change.

While it sure does feel great to be in a room full of people who love liberty, markets, and limited government, all cheering for a speaker who passionately and intelligently articulated the same positions we all believe, I’m not convinced that such an activity is a good use of time for creating positive social change. Conferences like CPAC certainly are inspiring and inspiring people to work hard, and helping them remember what they are working for is certainly beneficial, but it’s not enough to solve our country’s biggest problems or eliminate its biggest threats.

CPAC was filled with many grass rots organizers who want to inspire more volunteers to knock on more doors and make more phone calls. For these people, more energy and more manpower, is the route to social change. Meanwhile, the journalists and professors who think we can educate our way to a better world. However, there are also economists versed in public choice theory who tell a different story: actors respond to the incentives that the institutions and rules that constrain them create, and politics is no exception. It’s no mystery that politicians face plenty of incentives that consistently prove to lead them to maximize votes for themselves in lieu of acting in the best interest of our country.

Changing the incentives people face requires changing the rules under which they operate, but I didn’t hear much attention given to that at CPAC. Addressing the systematic problems in how our government function isn’t something that’s going to win the politicians a lot of votes- so it wasn’t discussed.

Spending time debating which camp will dominate conservatives is worthwhile, and reforming many of the clearly outdated, anti-liberty, old-camp ‘conservative’ stances are going to be beneficial to successfully competing with the left. However, our model of social change hasn’t proved very effective. Any reforming of the conservative base needs to be paired with a reformed model of social change that includes institutional reforms which change the incentives that politicians face and resolve the systematic problems that plague government today. How we do that- aka our theory of social change- is what needs to be given attention.

WHY ARKANSAS’S ANTISCALPING LAWS SHOULD BE REPEALED

***written for and published by the Advance Arkansas Institute
http://advancear.squarespace.com/storage/antiscalping.pdf

WHY ARKANSAS’S ANTISCALPING LAWS SHOULD BE
REPEALED
By Alex Cartwright 3/7/13
(continued on other side)
Unlike many states, Arkansas law criminalizesticket scalping (selling
tickets above face value); lawbreakers can be fined up to $500.00. Although
defenders of the criminalization of scalping assert that it protects consumers, a
more compelling argument is that criminalization limits consumers’ choices and
transforms conduct that benefits all parties involved into a criminal offense.
Experience demonstrates that anti-scalping laws promote the very
consequencesthat entertainment performers and venues would want to prevent:
counterfeiting, fraud, and customer dissatisfaction. By prohibiting secondary sales,
policymakers have created an underground market with regrettable consequences:
* secondary sellers have moved their operations outside the state and
beyond the reach of Arkansas law;
* underground markets have encouraged counterfeiting,since the sellers
cannot be located;
* underground markets have encouraged fraud by unscrupulous vendors
who misrepresent the availability and quality of seats, and who fail to deliver
tickets to the buyer after purchase;
* underground markets have created consumer confusion that allows sellers
to misrepresent their identity on websites so as to mimic the identity of the venue,
performer, or agent and thus create higher prices for consumers.
Representative Doug House has recently introduced HB 1404, which
appears to be an attempt to address and eliminate the problems described above.
The passage of HB 1404, which would decriminalize ticket-scalping for any
“music entertainment event,” would improve the life of Arkansas consumers.
Sellersscalp tickets because the supply of tickets is scarce. Once that supply
has been purchased, tickets often appear for resale on the secondary market.
Consumers may choose to resell their tickets if a scheduling conflict arises or
simply because they are offered a price that is more attractive than attending the
event. In either case, reselling a ticket at a profit, even though buyers
conventionally think of tickets as their own property, is illegal in Arkansas. _______________________________________________________________
The Advance Arkansas Institute is a non-profit public policy research organization. Its publications are available at advancearkansas.org
For more information, please contact the Institute at (501) 588-4245 or advancearkansas@gmail.com
________________________________________________________________
Many object to anti-scalping laws on principle, pointing out that such laws
limit individual liberty and free trade between consenting adults. In addition to
such objections, there are harsh practical consequences to scalping’s
criminalization. Such laws burden government by requiring it to expend both
police and court resources on apprehending and prosecuting individuals engaging
in voluntary trade. Furthermore, consumers willing to pay a market price for
entertainment tickets don’t get to attend the shows they want.
Though the term “scalping” carries a negative connotation, ticket scalpers
provide a service that improves others’ lives: they lower the transaction costs of
buying tickets. Just as a delivery service could charge to deliver goodslike dry
cleaning or pizza, ticket scalpers spend time searching for tickets that consumers
want. Scalpers risk capital in purchasing tickets, and hope to resell them to
consumers: Roughly 30 percent of all concert tickets are sold on secondary
markets in the United States today.Consumers who don’t have the time or
knowledge to hunt for tickets to a popular entertainment event are typically willing
to pay a scalper for this service. The business of scalping entails risks along with
profits; ticket scalpers routinely make mistakes in their estimation of supply and
demand, getting stuck with tickets that they must sell at a loss or cannot sell at all.
Policymakers should note that outlawing ticket scalping does not eliminate
the market in tickets or the practice of scalping. Rather, it shifts transactions to an
underground sector of the economy. Underground markets present inherent risksto
the public. Because there are no legal protections in an illegal market, a ticket
vendor has a better chance to sell counterfeit tickets without punishment.
Furthermore, underground-market ticket scalpers cannot easily advertise that they
are selling tickets, because competition is dampened in underground markets.
Consequently, in an underground market, buyers are likely to pay higher prices;
state government loses too, given that underground markets are untaxed.
A common argument for outlawing ticket-scalping is that ticket scalpers
abuse consumers by selling tickets at prices above their face value; such sales are
allegedly not fair. But this argument -- that charging a high price for tickets is
wicked --seems almost self-refuting, given that it seems inherently unlikely that
anyone would buy a ticket to an entertainment event (or, indeed, any other luxury
good) if he or she thought the price of the ticket was genuinely unfair to the
purchaser. People have to buy necessities, but a ticket to a Justin Bieber concert is
a classic case of a luxury good.ther critics of the decriminalization of scalping object to allowing
secondary ticket markets on the theory that allowing tickets to be resold could lead
to automated computers, or robots, purchasing all available tickets before any
consumer is able to. The company with the robots, so the argument goes, is then
able to sell all the tickets to consumers at higher prices. As a general matter, there
is little or no reason to believe that a venue would regularly underestimate the
economic demand for the tickets it sells; therefore, it is unlikely that the venue
would permit a computer to buy all the tickets and generate profit that the venue
would have made. Many stores limit the quantity of an item that one consumer can
buy to account for this same problem. Using robotsto buy large quantities of
tickets should be illegal only if the ticket-selling institution prohibits the practice in
its terms of sale; there is no reason to believe that the public needs to be protected
from firms who want to price and sell their tickets in the manner they choose.
Of course, if businesses that sell tickets don’t want computers to buy tickets
and don’t have the power to prohibit them from doing so, then laws that outlaw
using robotsto buy tickets are arguably appropriate. Allowing robotsto have an
unfair advantage over human buyers and sellers does not suggest a fair trading
environment; however, eliminating that problem does not entail making ticketscalping illegal. Solving the problem of unfair robot purchasing would entail
making robot purchasesillegal. This problem appears nonexistent: As a general
matter, ticket-selling businesses appear quite eager to authorize the sale of tickets
over the Internet to anyone or anything which will pay those tickets’ cost.
Though some see the use of robot buying systems as a type of insider
trading, this analogy is confused. Insider trading takes place when one party
unfairly obtains information from a company “insider” (typically an employee)
about news that will move a stock price. The goal of insider-trading regulation is to
prevent fraud and to maintain public confidence in investment markets. These
policy goals are not applicable in the context of buying tickets to private-sector
entertainment events.
It is of course possible to imagine cases in which something like insidertrading regulation would be needed, such as a ticket-selling employee who secretly
accepts a bribe in exchange for granting preferential treatment or illegal rebates to
certain buyers. But such actions are already illegal in Arkansas. Similarly, there are
already prohibitions against the fraud and counterfeiting that some people allege
will result from elimination of the state’s anti-scalping laws. As a general matter,
advocates for limited government should resist the argument that it’s better for
concert venues if we keep things the way they are; this status quo argument ppears to be motivated by the desire to make taxpayers pick up the tab in what is
really a civil dispute between private parties.
Although some original ticket-sellers would prefer to maintain the status quo
(perhaps because the status quo allows them to shift some of their costs of doing
business onto the criminal justice system), there are several steps that original
ticket-sellers could take in order to protect their legitimate interests. For instance,
original ticket-sellers might print the terms of sale on each ticket, or issue tickets
only to named people or groups. A better alternative for these sellers would likely
be to take measures to facilitate the legal, above-ground consignment and resale of
tickets.
To summarize: Laws prohibiting ticket scalping make it illegal for
consumers to buy a ticket at a price they are willing to pay.An anti-scalping law
does not protect consumers: instead, it encourages underground-market activity
and restricts the public’s ability to attend the events they want. Outlawing
secondary markets for ticket sales makes consumers worse off, costs the state
foregone tax revenue, and creates the unlovely consequence of arenas with
unsold tickets and empty seats.
Alex Cartwright, the coeditor of the Advance Arkansas Institute’s Action
Plan for Arkansas 2013, will graduate from Hampden-Sydney College this May

We are on about QE10 but who knows what that is? And who is Counting?

Alexander C. Cartwright 

            There are currently plenty of ‘crises’ competing for government attention: we are facing the sequestration crisis, the ongoing debt/spending crisis, along with worries about Iran, North Korea, North Africa, and a domestic policy debate on gun control.  Government is failing the citizens on so many fronts that the Left had to celebrate the most recent unemployment rate and job creation numbers- even though this is the first time since taking office that unemployment has gone down on President Obama’s watch and the number of people who gave up looking for work was higher than the number of new jobs created.

            There is little to celebrate about the results of government action, and sadly, all the more reason to be concerned about the future. A short lesson in public choice economics can help us understand that strategies like calling for more or better leadership are nearly meaningless- what we need to do is look at the incentives that government officials face and consider the rules and institutions that give license to the behavior we see.

           

            Our President is probably so unwilling to cut spending and seems to unconcerned about the large level of debt we have, not only because he believes that government spending is an economically feasible way to stimulate an economy, but also because the federal reserve system’s own policies (setting interest rates low) make taking on debt very cheap.

            Of course, the President might have an incentive to consider policies addressing unsustainable spending level if there was a foreseeable end to the FED’s low interest rate policy. However, after quantitative easing (where the FED buys securities on the open market- effectively injecting money, created digitally, into the economy) rounds one, two and three, the FED announced that this once considered extraordinary measure would become regular policy.

            The FED announced that they would engage in quantitative easing every month until they become satisfied with the economy’s recovery. Monthly, quantitative easing has been taking place at the tune of $85 billion per month ever since September 2012. That puts us at about QE10 this month. Considering that new debt is ‘cheap’ and there is no clear end to the FED’s quantitative easing policy, the left doesn’t face much of an incentive to seriously consider a cut in spending. Only a little over 6% of the federal budget goes to paying interest on our debt and, despite taking on more debt, that number has declined in recent years due to low interest rates.  

            Quantitative Easing was a bad policy when it started, and it continues to be a bad policy, yet no one seems to be talking about the fact that we are on round ten. Instead of debating which policies should be cut first, when, and by how much, lets first make politicians are facing an incentive to cut them. One of the most obvious things we can do is ask why charging Washington bureaucrats, armed with lots of statistics, with the task of determining the money supply is a legitimate function of government, and ask why we should expect them to be able to determine the interest any better than they could determine the price of milk.

            Critics of this position will most certainly point to the current all time highs in the financial markets, as evidence of quantitative easing’s success. However, any gains realized by quantitative easing will not be permanent. As cheap money enters the economy, investors see profit opportunities- even though they know these price levels aren’t sustainable long term there is still an opportunity to make money. It’s hard to sit on the sidelines and watch everyone else profit in the short term, even if you are certain that the bubble will burst. The result is a prisoners-dilemma-like situation and the same risky investment behavior that encouraged the 2008 crash. Simply put, quantitative easing cannot last forever, and the costs that come with it- via financial markets and by incentivizing government to take on debt- will be steeper the longer it continues.

            Improving government performance requires improving the rules and institutions that make up government and changing the incentives that government actors face. Even though central banking and macroeconomics are complicated, our Central Bank gives license to much of the government behavior that makes our society less prosperous, and incentivizes much of the government behavior that is undesirable. The FED’s complexity should not insulate it from criticism. Price fixing, central planning, and manipulating the money supply, have never led to a just and prosperous society and the Federal Reserve is no exception. 

Yes, a minimum wage comes with costs, but is it worth it?

Yes, a minimum wage comes with costs, but is it worth it?

            After President Obama called for raising the minimum wage to $9.00 in the most recent State of The Union address, a wealth of debate has exploded around the issue. Most Economists agree that basic economics shows how raising the minimum wage leads to increased unemployment. Despite the costs that a higher minimum wage places on employers, an increased minimum wage will nevertheless put more money in the hands of some workers. Even though there is plenty of literature about the negative effects of a minimum wage, there is little on if and when a minimum wage is justified, which under certain economic conditions, it is.

             Even though we typically think about the minimum wage as the lowest hourly rate that businesses are allowed to pay their workers, it is also the lowest price workers are allowed to accept for their labor. Thus, a minimum wage effectively prohibits the workers whose labor is worth the least- the poor in society- from freely entering into contracts with employers.

            However, economic theory can show us how putting restrictions on employers’ ability to freely contract with employees can be beneficial in the case of a monopsony. The economic tern ‘monopsony’ describes a situation in which one buyer faces many sellers. If a labor market were a monopsony, there would only be one buyer of labor (a firm) and many sellers of labor (individuals). In other words, a monopsony in the labor market would exist if there were one employer and all potential workers didn’t have any other options to work for that employer.

            Under a monopsony, because of the lack of competition, the one employer is able to lower wages to the point that his employees are barely better than being self-sufficient. In this situation, where workers have no other option, and where competition for the best labor does not exist (since such competition would require more than one firm) a minimum wage could led to a net increase in welfare since raising the wage rate won’t necessarily lead to more unemployment; the one employer could still find it profitable to keep all his employees even with a minimum wage.

            A good free-market-fundamentalist would be quick to point out that a minimum wage may not be necessary under a monopsony because unsatisfied workers could leave the employer and become self employed. One could be self-employed by being an entrepreneur of some sort- investing in an idea or in his own labor. However, where a monopsony exists it is almost undoubtedly the result of a government granting such a business monopoly power on the market because it would be profitable for a rival firm to come into that market, break the monopsony, a pay slightly higher wages to obtain the best labor. Those who live under a government who pass laws allow a monopsony to exist are not likely to be governments that protect property rights very will, which makes entrepreneurial activity and investment very risky if not doomed to fail, so self employment is, in effect, not a viable alternative.

            Luckily, in the United States, no labor market can be characterized as a monopsony. Entrepreneurship is taking place constantly and we have a government with hundreds of years of legitimacy that does a better of job a protecting property rights then most countries. Thus, even after considering when a minimum wage could theoretically help, we can conclude that we are still not in a position to benefit from rising, or even maintaining, the minimum wage.

            While it would be extremely convenient to be able to improve the lives of the worst off in our society by mandating a higher minimum wage, raising the minimum wage will effectively force employers to reduce the amount of low skilled workers they have.

            Many advocates of a minimum wage argue that the increase to $9.00 per hour would greatly help reduce poverty. However, those advocates should instead advocate a minimum wage of $20.00 per hour or even $500.00 per hour since these wages should help the poor even more. Those who concede, and correctly so, that a minimum wage of $20.00 or $500.00 per hour would be economically destructive, cannot deny that a $9.00 minimum wage will cause adverse economic effects without yielding gains for anyone.

            Those advocates of the minimum wage need to meet the burden of proving that given all of the costs of such a policy, it is the best way to reduce poverty. There is little evidence to support that. In fact, firms and the poor would be much better off if firms payed an extra a tax on profits that could be directly given to the poor rather than having to work around a policy that directly impacts their business model and prohibits willing and able citizens from being able to enter the workforce.

            The, political, benefit to raising the minimum wage is its simplicity- people can understand the concept, but the economic results will certainly be negative. If the price of something rises, people will consume less. Legislation won’t be able to avoid this economic reality- even when it comes to the minimum wage. The minimum wage hurts all actors in an economy- especially the very poorest, marginalized and least skilled, who receive the lowest wages. The minimum wage will make the very people it aims to help worse off; it is the epitome of bad economic policy.