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The Six Rules

Understanding basic economics means understanding how the world works. It allows one to peer through a lot of noise, haze, obfuscation and deliberate misdirects put out there by clever frauds. Nearly a quarter century (sigh) of studying economics has helped me boil things down to 6 economic maxims, which I have very creatively dubbed the Six Rules. I came up with none of these on my own, but have borrowed them from an assortment of giants upon whose shoulders I humbly stand, most notably Adam Smith, Thomas Sowell, David Ricardo, Milton Friedman and Friedrich Hayek. One or more of the Six Rules can be used to explain virtually anything you see happening, including things that don’t at first blush appear even remotely related to economics. Steven Levitt and Stephen Dubner, in their popular Freakonomics books, have done a decent job pointing this out (their premise being sound even if some of their conclusions are dubious). For the Six Rules to be of much use, however, a reasonably firm foundation in the basics, such as the laws of supply and demand, is necessary. As they demonstrate daily, such a foundation is by no means a given even among our most elite politicians and policymakers.
The Six Rules are, as follows:

1. RESOURCES ARE SCARCE, AND HAVE ALTERNATIVE USES. A “resource” in this instance means anything that has economic value (e.g., for which there exists at least one person in the world who is willing to give something else of value in exchange for it). “Scarcity” in the economic sense means there is more demand for something than there is supply. This is also the case for anything of value, and price is both the signal and the medium for bringing supply and demand into a state of equilibrium. Something with a price of zero will not be supplied because there’s no demand for it, and the fact that there’s no demand for it is the reason its price is zero. 

The second part of the sentence–that resources have alternative uses–means that every dollar used for X is rendered unavailable to use for Y. It is another way of saying resources need to be allocated or, if you prefer, that their use needs to be prioritized. This rule comes from Thomas Sowell’s indispensable Basic Economics, where it is used in tandem with what should possibly be a separate Rule on this list in itself: There are no "solutions," only trade-offs. Which is to say, in a world where resources are scarce and have alternative uses, there can be no solutions, only trade-offs. We simply can’t do everything, because resource scarcity requires their allocation in one way which necessarily precludes their allocation in an alternative way.

2. PEOPLE RESPOND TO INCENTIVES IN WAYS THAT ARE EXTREMELY PREDICTABLE. You’ll often hear economists refer to “perverse incentives.” When you hear that, it means people are responding to a law, policy or set of circumstances in the exact opposite manner as was hoped for or considered desirable. A commonly used example is a law that drives landowners to kill off an endangered animal the law intended to protect so they can avoid being deprived of the economic value of their timber or some other natural resource they would be able to exploit but for the animal’s presence. Such a law creates a perverse incentive against protecting endangered species. Whenever you hear a politician or pundit gassing about the “unintended consequences” of a law, you should call to mind this Rule. Look not at the intention behind the law–which is perfectly irrelevant–but at the incentives it creates and you’ll quickly conclude that people are responding to those incentives very predictably.


4. GOVERNMENT, MONOPOLIES, AND OTHER ENTITIES NOT SUBJECT TO MARKET DISCIPLINE ARE INVARIABLY ILL-MANAGED. When you can’t go out of business, there’s nothing to keep you in line. This is doubly true when you're playing with other people's money. Governments and monopolies routinely violate the other five Rules on this list and get away with it, which is why they tend to behave arbitrarily, capriciously and even irrationally. Other very large businesses–virtual monopolies–behave similarly. The bigger a big business gets, the more it behaves like government.

5. WITH THE EXCEPTION OF THOSE DESCRIBED IN RULE NO. 4, ECONOMICS IS NOT ZERO-SUM. Unless Bob robbed you at gunpoint, or had something you needed so desperately that you’d pay any price for it (the same thing as robbing you at gunpoint), Bob’s being rich is not the cause of you–or anyone else–being poor. People get rich by adding value to the economy, which increases the overall amount of wealth in circulation, not by impoverishing others. No Steve Jobs = no iPhones. No iPhones = You need to carry a camera, a video camera, a phone, a computer, a calculator, a calendar and some dozens of other objects around with you. You can’t have wealth without the rich. Moreover, if Mark Cuban didn’t have a private jet, nobody would be employed flying it, maintaining it and supplying parts and fuel for it. If there were no demand for private jets more generally, thousands of people up and down the supply chain required to build them would be out of the job. Rich people are the reason venture capital exists, which in turn is the only reason anyone is able to start businesses and create employment opportunities. We’d be living in caves subsisting on whatever we could grow or catch without them.

6. PRICE FLOORS CAUSE SURPLUSES AND PRICE CEILINGS CAUSE SHORTAGES. All the time, every time, without exception. It’s important to remember this because politicians in particular are very fond of scoring points by attempting–successfully, more often than not–to convince people that through their peerless and indispensable genius, they’ve found a way to magically carve out an exception to this rule in this or that special case. Hasn’t happened, never will. Price ceilings on oil always–always–lead to oil shortages. Price floors on unskilled labor (the minimum wage) always lead to a surplus of unskilled labor, meaning higher unemployment for the unskilled, particularly if they are younger workers. The political gains to be had from convincing people that this basic economic maxim can be suspended in a particular instance are obvious and irresistible to politicians. Your job, as an informed voter, is to stop falling for this ruse. The laws of supply and demand are no different from the laws of physics: indifferent to our will and utterly immutable. Price is the mechanism by which the two drive each other, and price controls, whether floors or ceilings, are merely lies about fundamental reality. They’re feel-good fairy dust mixed with moonshine.



Aaaand it begins . . .

Clearly my only mistake was in failing to place enforceable bets on the question of when (not whether) this next troop deployment/campaign in the culture war would commence following SCOTUS's pulling of a heretofore unknown fundamental and universal right to gay marriage from its rectum. Then again, perhaps not, since admittedly even I was surprised at how quickly this came. It's as though one of the left's stormtroopers went rogue and jumped the gun. Either that, or it's a deliberate trial balloon put forth to gauge reaction. No matter.

Lefties, you’re about as opaque as pure mountain air, as cryptic as a skyscraper, as subtle as a mushroom cloud, as covert as a mountain range. Your repulsive totalitarian impulses never went anywhere, and are as strong now as ever. Sure you ditched the jackboots and the uniforms and toned down your rhetoric to distance yourselves from the Maos and the Kims and the Castros and make yourselves more marketable and mainstream. You're "walking through," as Alinksi would put it. But your core is eternal. You may expel tankerloads of greenhouse gas through your larynxes about tolerance, but your actual tolerance for real-world dissenting viewpoints is precisely zero. It’s your way or the highway, as ever it’s been. Your thuggery may be practiced with a smiling face and calm, placating, reasonable sounding, even pleading voice tones, but you’re the same thugs you’ve always been. And I’m calling you out.




I'll Take My Constitution Good and Dead, Thank You

I take serious issue with people who claim we should view our Constitution as a “living” document, e.g., one that must be interpreted afresh from time to time because the plain or obviously intended meaning of its provisions may no longer be “relevant” to modernity. 

My problem with that line of thinking is fairly straightforward, and really has nothing to do with any sort of reverent fealty to the document. Which isn’t to say I have no reverence or fealty to it, but that it’s neither perfect nor perfectable, as nothing devised by fallible human beings can ever be. But neither is it anywhere near as imperfect as those who breezily dismiss it as an antiquated charter more suited to a low-density, agrarian society would have us believe. Those who habitually overstate how “different” things are today, and maintain a dogged, if mostly unexamined insistence that the passage of a shade over two centuries has wrought such profound and lasting change to the fiber of the republic as to anachronise the document that produced its essential structure lack a grasp of human nature anywhere near so firm as that of the framers. The wisdom underlying our Constitution is as forceful and relevant now as always. Our charter acknowledges eternal human shortcomings and the need to limit government power accordingly. It was written by men educated in the classics and well-versed in the philosophical and metaphysical conundra perennially inherent to the human condition. In the broad sense, our Constitution is remarkably well-founded and wisely and adroitly conceived. This is why it has endured, and why those who would dismiss it merely for something as irrelevant as its age exhibit little depth of understanding of its great and lasting strengths. Times change. Technology and demographics change. Human beings . . . not so much.

My issue with those who would discard or modify it frequently to suit what they perceive as changing times is that we already have–and always have had–a “living” Constitution, just not in the way they mean it. From its inception, it has been amendable if the body politic sufficiently wishes it to be so. There’s a perfectly unambiguous process set forth in Article V that spells out just how to do this. Amendments to the Constitution must be ratified by two thirds of the Senate and House, then by two thirds of state legislatures. 

Yes, this is a major undertaking–by design. Lives, fortunes, the dispositions of vast resources, how we define basic human rights and other implications too broad and numerous to list depend upon constancy in constitutional jurisprudence. It should never be amended for light or frivolous reasons, or moved in some direction or other by passing whims and fancies (as is done with quite ridiculous frequency to many state constitutions, such as Oregon’s). Still, the thing is far from impossible, given that in the 226-year history of the republic, it’s been done 18 times (there are 27 amendments, but the first 10–the Bill of Rights–were ratified all in one clatter). Not only is it not impossible, there have been periods in our history (1865-70, 1913-33, 1961-71) when it happened quite frequently. 

But most proponents of the “living” Constitution idea aren’t referring to this slow, deliberative, prudent process that ensures the overwhelming majority of citizens are solidly on board, and that a change so important as to call for amendment is more persistent than ethereal. Rather, they prefer to short-circuit the prescribed process by substituting the judgment of a very small number of elite lawyers in black robes for that of a supermajority of citizens and their elected representatives. It’s particularly ironic that the same people who place such sycophantic faith in unelected oligarchs to make the right decisions about what our Constitution “ought” to mean–particularly if their desired interpretation differs either from the obvious intent of the framers or English intelligently read–are, in other contexts, the first (and loudest) to scream about “elitism” and this or that policy being counter-majoritarian. 

They are also, of course, the same people who would tout something like Obamacare as the “settled law of the land” five minutes after its enactment, yet treat the 226-year-old Constitution as infinitely malleable. The whims of such unstable personalities can admittedly be challenging to keep up with.

“(A)rmed with an undisciplined mind, (I) focused only on attracting girls through the romantic pull of earnest, self-elevating liberalism.  I believed in stupid things, but only because those stupid things attracted stupid girls.  I call this the stupid loop.  And it’s what drives all young men into brief affairs with liberalism.  As well as acquiring Kanji tribal tattoos and urinary tract infections.”
–Greg Gutfeld (describing himself as a “confused freshman at Cal”)



The Chip Dock Anecdote

Yesterday I breakfasted with a friend who manages a dock facility which loads wood chips onto large vessels for trans-Pacific export. He related to me the following true anecdote of their recent dealings with some bit players in what has, over time, metastasized into the current colossus of officialdom of the once-great State of Oregon. It all started with a random visit from a water quality bureaucrat, whom we’ll call “Mr. River,” who noted—with the overblown alarm typical of the lesser martinets of environmental enforcement whose subject matter jurisdiction tends to be exceedingly narrow and of a significance entirely incommensurate with their excessive power—that there were no structures or procedures in place to stop any spilled chips near the edge of the dock from ending up in the river. None actually had, mind you, but they might just. Hence a feature that had gone unnoticed for decades instantly attained the significance of nuclear brinkmanship. Left unexplained were a couple of matters I may have pressed had I been present, such as how 100% natural wood chips made from the same trees that naturally occur along its banks would, by falling into the river and floating to the Pacific, threaten water quality. Doesn’t wood fall into the river every day, eventually becoming the driftwood the very hippies who empower chuckleheads like Mr. River use for sculpting objects d’arses? Nor would it have likely occurred to this pointless occupant of otherwise valuable space that, inasmuch as the dock operators own the chips they’re loading onto vessels, they already have every conceivable incentive to prevent as much of this valuable commodity as possible from being lost to the river.

No matter, for preventative measures needed to be taken to address this heretofore undiscovered problem of earth-shattering gravitas. So a construction crew spent an entire weekend, at considerable overtime expense, affixing sheets of plywood to the end of the dock to catch any wood chips that might otherwise end up turning the river into a the next Chernobyl. This averted the crisis to the satisfaction of Mr River.

Not, however, to the satisfaction of the fisheries bureaucrat, “Mr. Fish,” who turned up some weeks later and asked the facility manager—ever so politely—if he’d obtained the required permitting for the plywood chip-catcher contrivance. “A permit for what, exactly?” the manager asked in earnest.

“Well, technically that’s an extension of your dock, which requires a permit because you’ve increased the amount of shaded area over the water. That concerns fisheries because increased shaded area gives predatory fish a larger place to lurk in wait of prey fish swimming by, which they ambush,” replied Mr. Fish.

The manager assured Mr. Fish he’d set upon the permitting process in the instant, but that just wouldn’t do. No, Mr. Fish insisted—albeit, again, ever so politely—he would need to tear out the plywood in the interim because the continued existence of the unsanctioned dock extension was actually a criminal offense that could result in the assessment of fines and even possible jail time for the dangerous malefactors responsible were it not immediately remedied, no matter that it would ultimately be permitted without too much hassle or delay (at least by government standards). When the manager protested that it had been costly to install, would be costlier still to remove and reinstall, and that the whole exercise was in any case undertaken at the insistence of yet another state official, Mr. Fish scratched his head thoughtfully and at length determined that perhaps the installation of electric lights under the dock might serve as adequate mitigation.

As my friend related the story, I felt myself transforming into one great varicose vein, as is my propensity upon being regaled with such tales. These are common conversational fodder among people in my circle—those who actually do or make things for a living, and who are interminably pestered by the regulatory state for having the effrontery to employ people, contribute meaningfully to the economy and otherwise serve a generally useful purpose. My facial tick kicked into high gear as cold fury set in at the thought of self-important, overblown clerks unfit to manage a corner taco stand arbitrarily pushing around productively occupied men of industry and substance in futile desperation to justify the former’s existence. Yet on reflection the story emerges as a teachable moment on at least a couple of particulars, to wit:

1. You WILL go through the proper channels.  At English common law, which formed the basis for the Anglo-American common law for the first 150-odd years of the nation’s existence, there were very few behaviors legally recognized as crimes. These included a handful of felonies—crimes punishable by more than a year of imprisonment—such as murder, rape, burglary, arson, treason and the like, and a scattering of misdemeanors, these being crimes punishable by a term of imprisonment of not more than a year. Moreover, virtually all crimes were of the malum in se variety—actions prohibited and punishable because they were inherently wrong, as compared to malum prohibitum—things which are punishable not because they are necessarily wrong, but merely because they are prohibited. The mania to make laws more statutory and to grow the regulatory state begat an explosive growth in malum prohibitum proscriptions beginning around the New Deal era and exploding in the 1960s and 70s. Hence one now often hears libertarian types like me grousing about how it is possible in this age to quite inadvertently commit a half-dozen felonies before lunch in a given day.

An interesting offshoot of malum prohibitum mania has been the evolution of a new, hybrid category of offense which, since it doesn’t yet have a name, I’ll here dub malum prohibitum sine patior—actions which are neither inherently bad nor prohibited, but for which a permit is required and there shall be hell to pay and no pitch hot if it isn’t obtained. My Latin is all of a piece with my Serbo-Croatian, so it’ll have to do until someone straightens me out. It is here that the true Orwellian malarkey goes into warp drive. Never was it even implied in the least, for instance, that the chip dock operators would be denied the ultimate ability to affix the plywood to their privately owned dock that is attached to privately owned real estate. They just failed to secure the proper permit, and some vacuous dullard somewhere had actually adjudged failing to obtain a permit for something (1) not even prohibited, and (2) for which most people of ordinary knowledge and experience would not even realize a permit was required, to be a serious enough breach to warrant criminal liability.

As I listened to my chip dock friend with murder blazing deep within my soul, I was taken back to another anecdote—which I will recount here in a purely factual manner absolutely devoid of hyperbole—of some years earlier involving another friend who had foolishly endeavored to drain a pond without first performing the obligatory monkey dance for his Sovereign Lords. The pond, mind you, was 100% man-made, and 100% contained within the boundaries of his privately owned property. One day he decided that there might be a higher and better use for the land occupied by the pond than a place of happy fornication for mosquitos and ditch carp and for trespassing local anglers to deposit litter, so he set about draining it. No sooner had it been drained than the local environmental enforcement commissars caught wind of the project and insisted that he needed a permit to do it. When he pointed out that the pond was already drained and asked whether he could be issued a permit that would apply retroactively, they looked at him as though he’d told them he just finished a delightful lunch of boiled baby and declared that, no, he would first be required to refill the pond, then obtain the necessary permit before he would be allowed to drain it again. By now, dear reader, you’ll probably be less than shocked to learn that a separate permit would also be required to refill the pond, which actually proved more difficult still to obtain than a drain permit. All of these things he ultimately did, although it must have taken a heavy dose of elephant tranquilizers to restrain him from gutting and decapitating the officials where they stood.

Implicit, of course, in the very notion of private property is the ability to do what one wishes with it so long as one does not unreasonably interfere with others’ use and enjoyment of theirs. Refraining from creating a “nuisance” to neighbors was the only requirement of private property owners at common law, before the juggernaut of environmental regulations descended upon us all. Hence in what has been, depending how one looks at it, 239 years (since the Declaration) or 226 years (since ratification of the Constitution) of this nation’s existence, we’ve come full circle back to private property existing only nominally, and at the sufferance of the sovereign, rather than being an unalienable right affirmed in multiple clauses of our Constitution.

2.  Officials of the regulatory state are utterly ignorant of economics, don’t know the first thing about cost/benefit analyses or the balancing of harms, and wouldn’t care a damn even if they did. Another thing that sets us libertarians to grumbling is the cost—largely hidden—of the regulatory state, and this anecdote serves as a small yet useful illustration. There have been voluminous studies and articles produced these past couple of decades attempting to pin down this cost—Google “regulation cost to United States economy” or similar query language and you’ll get a list as long as your arm. Suffice it to say it’s enormous, usually starting off around $100 billion per annum and, depending upon the metrics and variables analyzed, often doubling that. For obvious reasons, it’s not something altogether easy to track, since costs of the sort imposed at the whim of the Mr. Fishes and Mr. Rivers of the world as a result of their random drop-in visits aren’t recorded in any central database.

Regardless of the exact manner in which these regulatory costs are imposed, the common thread is the lack of any sort of requirement on the part of regulators—particularly those operating at ground level as compliance officers—to conduct a cost/benefit analysis, determine the best balance of harms (or make an evidence-based establishment of whether any harm is, in fact, occurring in the first place) or to in any other way take the economics of their often random and at times entirely unpredictable mandates into account. In an inversion of the ordinary dealings between state and citizen, the onus will be on the regulated party to prove the regulator is out of bounds. You will either incur the cost to comply, or incur great expense challenging their edicts, which challenge will likely fail as a result of mechanisms built into the various adjudicatory processes that stress “deference” to the “experts” employed by regulatory agencies in any grey area. And the greyness tends to be far more vast than the standards that are specific and quantifiable. The imposition of costs which must, after all, be borne using real money based solely on a compliance officer’s say so, and without any prior determination of liability through the sort of structured procedure designed to sort out such things, should strike anyone critically examining the situation as essentially the deprivation of property—money—without anything resembling due process. The Fifth and Fourteenth Amendments are now toothless tigers, at least where the cost of regulatory compliance is concerned.

In the present case, Mr. River demanded the construction of a costly (and apparently illegal) structure based on the possibility that chips might fall into the river, and was able to coerce compliance without producing any sort of proof that any had, that harm would have resulted even if they had, and certainly without any requirement that he consider the cost. Mr. Fish was likewise able to require the chip terminal operators to expensively chase their tails without producing any sort of proof that a few square feet of extra shade over a river nearly a quarter mile wide would have any measurable effect on fish, or that prey fish haven’t figured out how to steer wide of shaded areas. All sorts of costs, zero due process.

Short of violent insurrection, I should think tarring and feathering a few Mr. Fishes and Mr. Rivers is long past due. It shouldn’t take much more than a handful of these for the rest of them to get the message—at least for a while.