Jeffrey Alan Miron

Milton Friedman, Libertarians, and Iraq

Tunku Varadajan's WSJ interview of Milton and Rose Friedman appeared while I was in France, and I did not get a chance to read it until last night.  I apologize for being late with my reactions, but they are still timely.

One thing that struck me was Milton's views on the Iraq invasion:

Mr. Friedman here shifted focus. "What's really killed the Republican Party isn't spending, it's Iraq. As it happens, I was opposed to going into Iraq from the beginning. I think it was a mistake, for the simple reason that I do not believe the United States of America ought to be involved in aggression."

I was pleased to see that Milton shares my view of the invasion.  I have been frustrated for the past several years that many libertarians endorse the invasion and offer an unpersuasive defense, along the lines of "Libertarianism endorses government and the use of force in self-defense, and the Iraq invasion passes this test."

This justification for the invasion is not persuasive.  Libertarianism holds that government intervention and the use of force can be good policy if motivated by self-defense, but that in no way endorses any given intervention.   There must still be good reason to think the benefits of intervention exceed the costs.

In the Iraq situation, the case for benefits-greater-than costs was weak.  Saddam had no incentive to use WMDs against the U.S. or its allies, since that would have caused an invasion and his removal.  And the expected costs of invasion were unquestionably substantial, including not only the resources used to conduct the invasion and occuption but any unintended consequences such as civil war.  So, the expected costs of invasion exceeded the benefits even in the worst case scenario where Saddam had WMDs.  And given the uncertainty that existed pre-invasion about the WMDs, the case for invasion on self-defense grounds was weaker still.

Non-libertarians make arguments for the invasion other than self-defense, such as nation-building and humanitarianism.  Libertarians are highly skeptical of such arguments, however, again because the benefits of intervention rarely seem to exceed the costs. The common endorsement of the Iraq invasion by libertarians is thus puzzling and disheartening.   Milton's comments in the interview are a welcome exception.

More on the interview tomorrow.

Politicians and Donuts

An article in today's Washington Post discusses the "donut hole" in the Medicare prescription drug benefit:

The program was designed to give all participants a certain level of insurance and to protect elderly and disabled recipients with chronic or catastrophic illnesses from huge prescription expenses. To afford those two goals, Part D's designers built in an annual period during which individuals have to pay for medicines themselves.

Under a standard plan this first year, Medicare handles 75 percent of drug costs after a deductible until the bill reaches $2,250. It does not kick in again until those costs total $5,100. After that, prescriptions are almost completely paid for. The very poor can get special subsidies.

Why does the program have this odd structure? In a word, politics.

The part of the program that is defensible is the coverage for catastrophic expenditures. A program limited to this goal does not necessarily generate more benefits than costs, but an intelligent case for such an intervention exists.  The argument is that private markets undersupply insurance due to adverse selection problems.

A prescription drug program that covered only catastrophic expenditures, however, would not provide benefits to most elderly.  So the politicans designing the system, who wanted to please their constituencies, included coverage for everyone up to the "donut" level.

This component makes no economic sense.   Remember that the poor already had prescription drug coverage through Medicaid, the health insurance program for the poor.  So coverage for Medicare recipients is a transfer to the middle class, not the poor.  And reimbursing Medicare recipients for low to moderate expenditures is not fixing a market failure in insurance markets.  Insurance is valuable for large, unpredictable events not regular, moderate expenses.

So the Medicare prescription drug benefit is expensive mainly for political rather than economic reasons.  And the program illustrates perfectly why laissez-faire can be better than intervention, even when a case for intervention exists.  Actual government interventions often bear little resemblance to any policy that has a reasonable justification.

Sausages

The old saw holds that politics and sausages are two things one should not watch being made.  I have seen people make sausages; I'll take that over politics any day.

In a triumph of expediency over principle, House Republicans have endorsed a bill that both raises the federal minimum wage and cuts the estate tax:

The House last night voted to boost the minimum wage for the first time in nearly a decade while also permanently slashing the estate tax, a coupling that GOP leaders calculated might garner enough Senate support to become law.

Principled advocates of small government should cringe at the prospect of such deals.   To begin,  nothing guarantees the "good" parts of these compromises (reduced estates taxes) survive longer than the "bad" parts (a higher minimum wage).  A future Congress might increase the estate tax without lowering the minimum wage.

Worse, endorsing minimum wage hikes means small government advocates have conceded the moral high ground.  Minimum wages are a badly targetted method of helping the poor (see Greg Mankiw's most recent blog).  The estate tax is bad policy on both efficiency and equity grounds (see Greg Mankiw's earlier blog).   Thus the compromise is doubly evil: it endorses a policy that seems to help the poor but probably hurts them; and it implies the estate tax is an evil "pro-rich" policy that must be balanced with a "pro-poor" policy.

The problem, of course, is that many Republican politicians are politicians first and small government advocates second (if then).  That is understandable given the realities of self-interest, but it is also sad.

Kielbasa anyone?

Matthew Yglesias on Israel and Lebanon

Matthew Yglesias explains much better than I did why Israel's attack on Hezbollah is not in Israel's self-interest.  He begins as follows:

It's usually best in the American context to keep one's criticisms of Israel polite and measured, but there are times when it's better to be blunt in the hopes of achieving clarity. Israel's current war in Lebanon is strategically blinkered and morally obtuse. The idea that the United States or American Jews like me should support it out of friendship is akin to the notion that a real friend would lend a car to a drunk buddy after the bartender confiscates his keys. I understand why the Israeli government and public think this war is a good idea, but they're simply mistaken.

Note that Yglesias' article is already a few days old; subsequent events have only added support to his arguments.

Tenure and Libertarianism

An undergraduate journalism student from Iowa called me recently to say he had read an article of mine on tenure and was puzzled by my views. My article defended tenure, and this student found that position inconsistent with libertarianism.  This is a reaction I have heard many times.

In fact, tenure and libertarianism are in no way inconsistent.  Libertarianism is a view on what policies the government should impose on society.  Tenure is a particular type of employment contract that universities choose to adopt.  If the market supports universities that employ tenure, that is perfectly fine with libertarians.

On the question of whether tenure makes sense for universities, I refer the reader to my earlier piece.  It begins as follows:

An increasingly contentious issue in academia is the  tenure system, which awards lifetime employment to faculty who have demonstrated sufficient proficiency in research, teaching, and service. Critics note that tenure does not exist outside academia, and they conclude that the degree of job security it offers must therefore be excessive. These critics also observe that even the most substantial teaching loads involve only a few hours per week of class time during about 30 weeks per year. Thus, these critics charge that tenured faculty receive an extraordinary level of compensation relative to the effort required.

Those who defend the tenure system believe tenure is essential to academic freedom, meaning the ability of faculty to teach and research the topics they find promising without fear of retribution. These supporters believe that without tenure, political views would play a large role in who is retained and who is not; they also believe faculty need job security to encourage risk-taking in teaching and research.

I argue here that the standard criticisms of tenure are off the mark and based in part on a flawed understanding of academia. At the same time, I suggest that the standard defense of tenure is unpersuasive; indeed, tenure potentially stifles the innovation and creativity it allegedly protects. I do conclude that tenure plays a valuable role in the operation of most colleges and universities, but for a reason quite different from those usually advanced in its defense.

Abortion and Parental Notifcation Laws

Laws in many states require minors to obtain parental notification / consent before obtaining an abortion.  Many abortion opponents claim, however, that minors can easily cross state lines to circumvent these laws.  Thus,

The Senate voted yesterday to make it a crime to take a pregnant minor to another state to obtain an abortion without her parents' knowledge, handing a long-sought victory to the Bush administration and abortion opponents.

The bill would help about three dozen states enforce laws that require minors to notify or obtain the consent of their parents before having an abortion. It would bar people -- including clergy members and grandparents -- from helping a girl cross state lines to avoid parental-involvement laws. Violations could result in a year in prison.

This law is wrong-headed because it attempts to impose a unified abortion policy everywhere. Most states already have parential notification / consent laws, but the details, severity, and degree of enforcement vary widely. This hetergeneity is a reasonable compromise. 

Abortion is an issue where imposing one policy on the entire country is disastrous.  There are passionately held positions at both ends of the spectrum, yet most of the population falls squarely in the middle.   Imposing policy at the federal level generates polarization and acriminony that is desctructive of a civil society.  Leaving abortion policy to the states allows for different outcomes in different places, which means a broad fraction of the population can feel its views have at least been heard.

Federalism and the Takings Clause

The "takings clause" of the 5th Amendment to the U.S. Constitution states:

Nor shall private property be taken for public use without just compensation.

This phrase has generated enormous controvery over the years, as I discussed in an earlier blog.  And Supreme Court jurisprudence on the issue has been muddled at best.

Now states are entering the fray:

With 50,000 acres of lakes, lava flows and otherworldly rock features that offer a peek into central Oregon’s geologic tumult, the Newberry National Volcanic Monument is one of the more theatrical of the nation’s protected natural wonders.

In the eyes of James R. Miller, who owns a doughnut hole of private land inside the monument, all that volcanic energy just below the surface makes the big caldera a perfect place for a pumice mine and power plant.

And under a landmark property rights law enacted by Oregon voters two years ago, Mr. Miller now says the government must allow him to go ahead with his development or pay him $203 million in compensation.

The article explains that Oregon's new law forces the state to compensate owners when land-use regulations "take" their property.   Idaho and Washington have similar measures on their fall ballots.

These actions show again the potential for sensible things to happen at the state level if federal policy does not interfere.  So far only Oregon has adopted this kind of takings protection.  But perhaps Idaho and Washington will follow suit.   And if a few more states join in, that will pressure still more states to consider similar policies.

Israel, Lebanon, and Hezbollah

Israel is defending its attacks on Hezbollah and Lebanon as self-defense.  By itself, this defense is not controversial.  Hezbollah agents entered Israel, killed Israeli citizens, and captured two Israeli soldiers.  Few citizens of any country would object to the use of force by their own governments in a similar situation.

The two important questions, however, are the following: 

1. Is the magnitude and nature of Israel's response in the best interests of Israel?

2. What U.S. policy is in the best interests of the U.S.?

Since I am not an Israeli, I do not take a stand on what Israel should  do.  As an outisde observer, however, my guess is that Israel's current strategy is not in its own best interests.  Hezbollah is not being destoryed, merely displaced.  This means Hezbollah can return to Lebanon or survive elsewhere.  And since Israel's actions strike many Lebanese and others in the Middle East as excessive, the current attacks are an excellent recruitment tactic for Hezbollah.   Thus Israel's chosen path is unlikely to produce long-term security for Israeli citizens.

On the question of U.S. policy, my view is that the U.S. should do nothing.  Yes, I mean nothing.  No visits by Condoleeza Rice to the Middle East.  No statements supporting Isreal or criticizing Israel.  Nothing.  This is my view on all foreign policy issues unless events outside the U.S. have serious and imminent consequences for the U.S.   The situation in Israel / Lebanon does not qualify.

Negative Consequence #9: Thought Control

A final consequence of government intervention is thought control. By their existence, interventions take a stand on important issues. Worse, many control the information that people receive about which interventions make sense.

The potential for thought control is most obvious for policies like education or funding of research, but it applies broadly.  Economic regulation takes a stand on how markets work; taxing corporations perpetuates a view that inanimate objects, not people, pay taxes;  redistributing income takes a position on self-reliance; campaign finance regulation and estate taxation endorse particular views of wealth accumulation. And so on.

Thus government cannot intervene without perpetuating particular views about how society should be run, about who should be the winners and losers, and about what is good or bad. If this were done by benevolent, competent people, the negatives might be small, but that is unlikely. People are people. Some policy makers have good intentions, some do not.  And even those with good intentions make mistakes. So putting control over ideas into the hands of a few is fraught with potential for disaster.

Many non-libertarians regard this last point as ridiculous exaggeration; they see no evidence that countries like the U.S. are slipping toward Big Brother and “1984.”

I hope they are right, but I fear they are wrong.  Government now intervenes far more extensively than it has in the past, and people have come to accept a larger and larger role for government.  This intervention affects every aspect of economic and social life. If this trend continues, I forecast that even advocates of intervention may rue the day we started down the slippery slope.

Negative Consequence #8: Reduced Self-Reliance

A broad range of policies sends the message that people are too dumb to make reasonable decisions on their own. There are undoubtedly people who might benefit from advice, or from sensible rules, or from being protected from themselves. But policies that attempt to protect people from themselves risk reducing self-reliance more generally.

Laws against false and misleading advertising are one example.  Some business do attempt to swindle their customers.  But prohibiting false and misleading advertising gives people an excuse not to worry about this issue.  Government enforcement of the ban is highly imperfect, however, so many questionable claims occur every day.  Thus unless people use common sense they can easily be misled despite existing law.

Numerous other policies also reduce self-reliance: prohibitions on “bad stuff” like drugs; nutritional guidelines; regulation of decency content on television; safety regulation; food labeling laws; and licensure restrictions for doctors and lawyers.

Government intervention therefore promotes the false message that people do not need to think for themselves because the government has taken care of it.  No matter how large government becomes, however, it cannot be everywhere or make every decision. So unless people use common sense, or rely on private institutions that provide good rules of thumb, they will make many bad decisions or be taken advantage of in many situations.