Vox recently published an article claiming that Charles Koch is right and Bernie Sanders is wrong about how the economy is rigged. Both agree that there are laws that unfairly favor some financially over others. Sanders often claimed during his campaign that the rich have used their money to lobby for laws that favor their interests over those of everyone else. Meanwhile, Charles Koch has condemned excessive regulation and restrictions on economic freedom that allow the few to bend laws in their financial favor against the many. In looking at the real problem in the economy, Charles Koch’s analysis of the problem comes closer to the truth.
In the Old Testament there are 613 commandments. Apparently, God deemed those to be enough to regulate almost every aspect of the lives of his people for thousands of years. You could read all of them in less than 30 minutes.
The American federal government, however, is not so succinct. There are over 1 million restrictions in the federal regulations alone (i.e., not counting the statutory law). And thousands more are added every year.
Each year the Competitive Enterprise Institute puts out annual survey — Ten Thousand Commandments — that reveals the size, scope, and cost of federal regulations. Here are some highlights from the 2016 edition:
Does your boss require you to be pleasant and cheerful? Do they expect you to maintain a positive workplace environment? Are you being asked to conduct yourself in a manner that is conducive to effective working relationships?
If so, your company may be violating your rights.
In their employee handbook its employee on “Workplace Conduct”, the wireless carrier T-Mobile included the clause:
Employees are expected to maintain a positive work environment by communicating in a manner that is conducive to effective working relationships with internal and external customers, clients, co-workers, and management.
In a lawsuit against the company, a group of employees included the claim that the undefined phrases “positive work environment” and “communicating in a manner that is conducive to effective working relationships” are ambiguous and vague, and would “reasonably chill employees in the exercise” of their right to unionize.
“Most of economics can be summarized in four words: ‘People respond to incentives,’” says economist Steven E. Landsburg. “The rest is commentary.”
When governments create a regulation, they are creating an incentive for individuals and businesses to respond in a particular way. But the people who create the regulations — government regulators — also respond to incentives.
As Elon Musk, the CEO of Space X and Tesla Motors, explains,
There is a fundamental problem with regulators. If a regulator agrees to change a rule and something bad happens, they can easily lose their career. Whereas if they change a rule and something good happens, they don’t even get a reward. So, it’s very asymmetric. It’s then very easy to understand why regulators resist changing the rules. It’s because there’s a big punishment on one side and no reward on the other. How would any rational person behave in such a scenario?
What just happened?
On Tuesday the Supreme Court temporarily blocked the Obama administration’s effort to regulate emissions from coal-fired power plants. The vote was 5-to-4, with the court’s four liberal members dissenting, to put a temporary halt on the implementation of an Environmental Protection Agency (EPA) rule change.
Why is this significant?
As the New York Times notes, the Supreme Court had never before granted a request to halt a regulation before review by a federal appeals court:
“It’s a stunning development,” Jody Freeman, a Harvard law professor and former environmental legal counsel to the Obama administration, said in an email. She added that “the order certainly indicates a high degree of initial judicial skepticism from five justices on the court,” and that the ruling would raise serious questions from nations that signed on to the landmark Paris climate change pact in December.
In negotiating that deal, which requires every country to enact policies to lower emissions, Mr. Obama pointed to the power plant rule as evidence that the United States would take ambitious action, and that other countries should follow.
What was the EPA rule change?
In June 2014, the EPA issued a proposed rule change on “emission guidelines for states to follow in developing plans to address greenhouse gas emissions from existing fossil fuel-fired electric generating units.”
Specifically, the EPA is proposing state-specific rate-based goals for carbon-dioxide emissions from energy producers (mostly from 600 coal-fired power plants) and setting guidelines for states to follow in developing plans to achieve new state-specific goals.
Is this is an important change?
It was once a common practice of saloons in America to provide a “free lunch” to patrons who had purchased at least one drink. Many foods on offer were high in salt (ham, cheese, salted crackers, etc.), so those who ate them naturally ended up buying a lot of beer.
In his 1966 sci-fi novel, The Moon Is a Harsh Mistress, Robert Heinlein used this practice in a saloon on the moon to highlight an economic principle:
“It was when you insisted that the, uh, young lady, Tish—that Tish must pay, too. ‘Tone-stopple,’ or something like it.”
“Oh, ‘tanstaaﬂ.’ Means ‘There ain’t no such thing as a free lunch.’ And isn’t,” I added, pointing to a FREE LUNCH sign across room, “or these drinks would cost half as much. Was reminding her that anything free costs twice as much in long run or turns out worthless.”
“An interesting philosophy.”
“Not philosophy, fact. One way or other, what you get, you pay for.”
While the phrase “there ain’t no such thing as a free lunch” didn’t originate with Heinlein, he did help to popularize the concept. It’s an important economic concept that is often overlooked, particularly when it comes to policy issues. A couple of years ago, in regards to, when Obamacare, economist Thomas Sowell asked, “do you seriously believe that millions more people can be given medical care and vast new bureaucracies created to administer payment for it, with no additional costs?”
Over at Think Christian, I take a look at the Chan Zuckerberg Initiative and derive a lesson from Jesus’ interaction with the rich young man in Mark 10.
A basic lesson we can take from the decision to organize the initiative as an LLC rather than a traditional non-profit corporation is that pursuing social good is possible in a wide variety of institutional forms. A for-profit incorporation doesn’t preclude a main, or even primary, purpose aimed at social good. Just as non-profit status doesn’t by itself guarantee charitable effectiveness, for-profit incorporation doesn’t by itself indicate egoistic or self-centered goals.
Benedict XVI, in his encyclical letter Caritas in veritate, discussed a hope for “hybrid forms of commercial behaviour to emerge, and hence an attentiveness to ways of civilizing the economy. Charity in truth, in this case, requires that shape and structure be given to those types of economic initiative which, without rejecting profit, aim at a higher goal than the mere logic of the exchange of equivalents, of profit as an end in itself.”
There are, in fact, a wide variety of incorporation options available, including the relatively new L3C, a low-profit form of the LLC. As Zuckerberg puts it, the reason to go with an LLC was that it in their judgment it allows the initiative to “pursue our mission by funding non-profit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.”
Some have intimated that Chan and Zuckerberg are being hypocritical and self-serving, and that all this is about ultimately making Facebook more powerful. But if you read the original letter, you can see quite clearly what their intent is. Forms of the word “investment” occur 7 times in the letter. Words like “give,” “charity,” and “philanthropy” are either absent or understated. It was the reportage surrounding the announcement that interpreted the initiative primarily as traditional charity, philanthropy, or altruism.
The point here is that true service of others doesn’t need to be entirely disinterested, as if investing or even giving requires simple abdication of responsibility. In fact, the traditional understanding of self-interest as selfish interest in the self is flawed. Self-interest is better understood as comprising the interests of the self, which can be quite narrow or quite broad.
All this is not to say that the substance of the initiative itself is praiseworthy or condemnable. We’ll need to see a lot more than the rough sketches and outlines that are apparent thus far to make anything more than provisional judgments about the prudence of various projects. But looking at the Chan Zuckerberg Initiative from the perspective of the formal decision to incorporate as an LLC, I think we can find a lesson about creative ways of approaching our attempts to civilize the economy.