Who protects the consumer? Part Deux

Ralph Nader is a self-styled “consumer advocate” who back in the 1960s came to the attention of the public by publishing Unsafe at Any Speed, an attack on the Chevrolet Corvair. Unsafe at Any Speed was instrumental, unfortunately, in launching a massive expansion of government regulation of consumer goods, that is to say, of government bureaucrats telling adult free-born citizens which goods they shall or shall not be allowed to buy or sell.

Nader ran for president a couple of times, and we have a colleague who actually voted for him. One day at lunch our colleague was extolling his virtues, claiming that Nader had “done more for consumers than anybody.” We replied, “Really? More even than Thomas Edison?” We certainly thought our colleague’s assertion to be dubious, but we didn’t fully realize just how dubious until we recently re-read “Who Protects the Consumer?”, the seventh chapter of Free to Choose by Milton and Rose Friedman.

The Friedmans mention Nader at just a couple of different places in the chapter. The first involves the infamous Corvair. Our Dad actually owned a Corvair, purchased new in the early 1960s. Dad never encountered any safety issues, but in terms of mechanical reliability, the car was a lemon. In any event, the Friedmans on p.192 say the following.

Ralph Nader’s attack on the Corvair, the most dramatic single episode in the campaign to discredit the products of private industry, exemplifies not only the effectiveness of that campaign but also how misleading it has been. Some ten years after Nader castigated the Corvair as unsafe at any speed, one of the agencies that was set up in response to the subsequent public outcry finally got around to testing the Corvair that started the whole thing. They spent a year and a half comparing the performance of the Corvair with the performance of other comparable vehicles, and they concluded, “The 1960-63 Corvair compared favorably with the other contemporary vehicles used in the tests.”

The 1962 Chevy Corvair, an infamous subject of propaganda.

Nowadays Corvair fan clubs exist throughout the country. Corvairs have become collectors’ items. But to most people, even the well-informed, the Corvair is still “unsafe at any speed.”

Here “most people” includes our colleague, no doubt. But we do think it’s significant that the modern regime of consumer-product regulation was founded upon a case of pure malarkey. After all, if businesses were routinely harming consumers by carelessly selling harmful products, Nader and other advocates should have been able to motivate their agenda by finding a case of real negligence.

In reality, most of the harm to consumers is committed not by private business, but by government. For instance, we’ve heard self-styled consumer advocates on the radio going berserk over credit protection insurance sold by the credit card companies. The advocates might be right that the insurance does not provide full actuarial value but, after all, it costs only about $1 per month. Big deal, a $1 per month rip-off. Meanwhile, we ask ourselves, how much have we personally been harmed by, let’s say, Social Security? Not permitting us to save and invest our own money for retirement will end up costing us probably hundreds of thousands of dollars. Similarly, as Milton Friedman points out, consumer advocates curiously have little to say about tariffs and other trade restrictions, although they exact a substantial toll on consumers.

The Friedmans next mention Ralph Nader in connection with airline fares.

The case occurred in California, which is a large enough state to support several major airlines that fly solely within the state and as a result were not subject to CAB (Civil Aeronautics Board) control. Competition on the route between San Francisco and Los Angeles produced an intrastate fare that was much lower than the fare that the CAB permitted interstate lines to charge for the same trip.

The irony is that a complaint was filed before the CAB about the discrepancy in 1971 by Ralph Nader, self-proclaimed defender of the consumer….Nader could hardly have been under any illusions about how the airline case would be resolved. As any student of regulation would have predicted, the CAB ruling, later upheld by the Supreme Court, required intrastate companies to raise their fares to match those permitted by CAB.

So Nader’s complaint caused consumers to pay more, and it’s hard to believe that this result was inadvertent. Our colleague would have come closer to the truth if she had changed just one word–Nader has done more against consumers than anybody.

In the video (embedded below) accompanying the chapter, Milt takes us to Dayton(!), to recount the plight of Dayton Air Freight, a trucking company licensed by the Interstate Commerce Commission to truck freight between only Dayton and Detroit. At the time, the owners were struggling to get the ICC to license them for more routes. Fortunately, these licenses are no longer required, and the ICC has since been abolished, as has the CAB.

Indeed, the ICC found no defenders even among the consumer advocates in the panel discussion at the end of the video. In fact, Kathleen O’Reilly of the Consumer Federation of America argued for “elimination” of the ICC and other agencies that “have the major purpose of economically propping up a certain industry.” She then attempted to draw a distinction between those agencies and the “watchdog” agencies that she favors. But what prevents her watchdog agencies from also being captured by whatever industry they regulate? After all, when the ICC was created in the late 1800s, it too was intended to serve as a consumer watchdog.

Back when we lived in Washington, DC, we knew a guy who worked for the Consumer Product Safety Commission, regulating children’s toys. As part of his job, the taxpayers paid for this guy to attend the big toy convention in New York, where toy makers introduced their newest products. While in New York, representatives of the toy companies would wine and dine him at fancy restaurants. Do you believe the toy companies picked up the tab for this guy solely for the pleasure of his company? Or do you think maybe they did so to buy his favor? And if so, how do you suppose they got the idea that his favor might be for sale? The regulator gets treated to a lobster thermidor, and as a result, some kid shoots his eye out with a dangerous toy.

Well maybe, but not likely. Because fortunately, what protects the consumer is not government bureaucracy. What protects the consumer is competition among sellers.

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Reminder: The Minimum Wage is Racist

The amazing Thomas Sowell, still writing a regular column at the age of 84, reminds us of the racist legacy of minimum wage laws.

It is not a breakthrough on the frontiers of knowledge that minimum wage laws reduce employment opportunities for the young and the unskilled of any age. It has been happening around the world, for generation after generation, and in the most diverse countries.

Thomas Sowell

Thomas Sowell


Low-income minorities are often hardest hit by the unemployment that follows in the wake of minimum wage laws. The last year when the black unemployment rate was lower than the white unemployment rate was 1930, the last year before there was a federal minimum wage law.

The following year, the Davis-Bacon Act of 1931 was passed, requiring minimum wages in the construction industry. This was in response to complaints that construction companies with non-union black construction workers were able to underbid construction companies with unionized white workers (whose unions would not admit blacks).

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum wage law, passed ten years earlier, irrelevant.

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years, and has ranged as high as over 50 percent.


Incidentally, the black-white gap in unemployment rates for 16-year-olds and 17-year-olds was virtually non-existent back in 1948. But the black teenage unemployment rate has been more than double that for white teenagers for every year since 1971.

In a free labor market, unhindered by the minimum wage, the equilibrium wage adjusts to equate the number of qualified job seekers with the number of available positions. In this case, the market is said to “clear,” and many employers will hire a capable black teenager rather than see a position go unfilled.

But if a minimum wage is imposed, the market no longer clears, and there results a surplus of labor. Employers have more qualified applicants than available positions. The same black teenager now finds himself competing for a single job with a white teenager. The employer might evaluate the two workers nearly equally, and would hire them both if only he had two positions. But with only one position available, he is forced to choose, and even the slightest degree of prejudice means that the black teenager doesn’t get the job. In this way, the minimum wage invites discrimination and greatly exacerbates the effects of employer prejudice.

Students take note. All your professors say that racial discrimination is morally abhorrent and that they would oppose any policy that increases discrimination. At the same time, most of them also support the minimum wage, and none of them perceives the contradiction.

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Who protects the consumer? (Updated)

The modern administrative and regulatory state–massive and intrusive–has its origins in the Progressive Era. And during that period, no book provided more political and ideological momentum for regulatory intervention than Upton Sinclair’s The Jungle (1906), a lurid account of alleged unsanitary conditions in the meatpacking industry. Sinclair’s account was fictionalized, and to some degree sensationalized, but it nonetheless provided the impetus for passage of the Meat Inspection Act, as well as the Pure Food and Drug Act. The modern regulatory state was off and running.

Nowadays, many people, perhaps even most economists, have come to believe that the administrative and regulatory state has grown too burdensome and intrusive. But hardly anyone questions the particular regulations requiring federal meat inspections. In fact, meat inspection is considered so essential that Congress acted specifically to exempt meat inspection from the recent budget cuts mandated by sequestration. After all, nobody wants to eat tainted meat!

Indeed, given the seemingly obvious need for the government to inspect meat, anyone who expressed doubt about that necessity would be widely ridiculed as an anti-government crackpot. Here at Yet, Freedom!, our position on federal meat inspection is: Meat inspection? What meat inspection? A recent report reveals that federal inspectors aren’t even doing their jobs.

The Food Safety and Inspection Service’s (FSIS) enforcement policies do not deter swine slaughter plants from becoming repeat violators of the Federal Meat Inspection Act (FMIA). As a result, plants have repeatedly violated the same regulations with little or no consequence. We found that in 8 of the 30 plants we visited, inspectors did not always examine the internal organs of carcasses in accordance with FSIS inspection requirements, or did not take enforcement actions against plants that violated food safety regulations. As a result, there is reduced assurance of FSIS inspectors effectively identifying pork that should not enter the food supply…

Finally, we found that FSIS inspectors did not take appropriate enforcement actions at 8 of the 30 swine slaughter plants we visited for violations of the Humane Method of Slaughter Act (HMSA). We reviewed 158 humane handling noncompliance records (violations) issued to the 30 plants and found 10 instances of egregious violations where inspectors did not issue suspensions. As a result, the plants did not improve their slaughter practices, and FSIS could not ensure humane handling of swine.

Sounds like there’s little evidence that federal meat inspection makes much of a difference. And so here we have government failing even at its foundational regulatory task, the very first and highest-priority task assumed by the regulatory state over 100 years ago. If after all this time, government can’t manage to usefully perform meat inspections, what reason is there to believe that government can effectively carry out any of its other regulatory tasks? If government regulators can’t keep feces off a pig carcass, how can they usefully regulate markets for complex financial derivatives, or navigate the chinoiseries of 50 different state markets for health insurance? Of course they can’t, which is why the fact that the banking industry was the most regulated sector of the entire economy did not prevent the great financial crisis of 2008.

So are we therefore doomed to forever be exposed to tainted meat? Not inevitably, because what protects the consumer is primarily not government regulation, but competition. Remember when the New York city government fell several years behind schedule in performing restaurant inspections? Did that mean that NYC restaurants became noticeably less safe? Should people have avoided NYC eateries? No, because NYC has some 16,000 different eateries in competition, which insures good customer service, including safe food.

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The Petition of the IT Workers

The tech industry for some time now has been importing skilled ‘guest workers’ from places like India and China. This practice occurs under the H-1B visa program. This week, the Senate Judiciary Committee heard testimony from so-called experts opposed to H-1B.

[A] number of experts testified that the H-1B program, so sought-after by CEOs, is being abused to harm American workers.

Ron Hira, a Howard University professor and author of the book Outsourcing America, told the story of Southern California Edison, which recently got rid of 500 IT employees and replaced them with a smaller force of lower-paid workers brought in from overseas through the H-1B program. The original employees were making an average of about $110,000 a year, Hira testified; the replacements were brought to Southern California Edison by outsourcing firms that pay an average of between $65,000 and $75,000.

Uh-oh. Those displaced IT workers making $110,000 are upper middle class, and as we know, in today’s America you don’t f*ck with Upper Middle Class. So naturally, there’s significant political pressure right now to amend or abolish H-1B, including several petitions before Congress.

One petition claims that H-1B foreign workers are “easily exploited,” while another asserts that H-1B is the “result of Greedy companies trying to exploit lowly paid foreign workers.” (Capitalization of greedy in original.) In fact, a Google search of “H-1B” and “exploit” turns up nearly 1.6 million hits.

But hold it–$70,000 per year is low pay and “exploitation”? That’s considerably more than the median personal income in the U.S. Most people in the world can only dream of attaining that standard of living, and the vast majority of humans who ever lived could never even imagine it. Karl Marx would not have recognized this ‘exploitation.’

Immigration is about something much more pure and sacrosanct than corporate profits.

But how are corporate profits any less sacrosanct than the salaries of IT workers? We know these folks will take a bit hit to their lifestyles and their retirement accounts if their salaries get reduced from $110,000 to $70,000. At the same time, however, other good people are struggling to save for retirement by adding corporate stock to their 401(k) plans. Those plans depend on those stocks paying dividends which requires the issuing firms to earn…wait for it…corporate profits. Why should IT workers be entitled to feather their nests at the expense of savers?

What the anti-H-1B petitioners are asking for is protection from free trade, plain and simple. And yet, for some reason, many commentators who are ostensibly free-trade are coming out against H-1B. Something about this issue strikes a populist chord and causes both conservatives and liberals to go full-on nationalistic. The comment sections of both liberal and conservative sites stand united in their vehement opposition to H-1B. Those opposed even include the normally free-market “Monty” who blogs about economics at Ace of Spades HQ.

You all know me as a free-trade and free-markets kind of guy, but on the issue of H1B Visas I find it hard to be dispassionate. I’ve made my living as a software engineer for nearly a quarter of a century now, man and boy, and I’ve seen up close the wreckage the H1B program has wrought on businesses and IT workers alike. Indian IT workers reduced to the status of indentured servants; American IT workers endlessly working under the sword of Damocles, waiting for the outsourcing axe to fall;

Hey, maintaining intellectual integrity is hard. That’s why we admire people who do it. Keep trying, Monty.

The way we see it, the moral and economic high ground cannot be occupied by people who are complaining that somebody else is willing to do the same job for less pay.

To preserve their $110,000 salaries, the American IT workers would have the foreign workers go back to their impoverished home countries where they might struggle to earn, what, $20,000 or $30,000 to do the same work.

The anti-H-1B argument comes down to this. They’re effectively saying that if two guys do the same work, it’s totally fair if one guy is paid $110,000 and the other only $30,000, but paying them both $70,000 is totally unfair.

Sorry, no sale.

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Federal Regulation Relies on ‘Secret’ Data

Milton Friedman used to challenge his audience to “name one government program that doesn’t do more harm than good.” Indeed, whether the program in question is Head Start, Fannie Mae, or even Social Security, an objective analysis seems to indicate that the overall costs exceed the benefits. But what about the regulatory state? What about those tens of thousands of pages of government regulations published in the Federal Register? The federal government claims explicitly that these regulations do more good than harm, in other words, that the benefits exceed the costs.

In fact, agencies like the EPA are required by law to do scientific cost-benefit analyses before issuing new regulations. So all those regulations are backed by science, right? Well, maybe not.

Yesterday, the U.S. House passed a bill, H.R. 1030, The Secret Science Reform Act. The purpose of the Act is “to prohibit the Environmental Protection Agency from proposing, finalizing, or disseminating regulations or assessments based upon science that is not transparent or reproducible.”

Secret Science? What is going on here?

We actually didn’t know anything about this issue until it was brought to our attention last summer by our friend Dan Sutter. It seems that most of the government’s claimed net benefits for the entire regulatory state rest on just two data sets that are old and kept secret by the government. Outside parties have not been able to obtain the data in order to verify the government’s conclusions. This is the so-called ‘secret science.’

The two data sets at issue are more than 40 years old: the Harvard Six Cities study and the American Cancer Society’s Cancer Prevention Study. The data sets are “decades out of date, much challenged and never released — even the EPA never saw the raw data — and were never independently verified.” Astonishingly, these two dubious data sets are what the government relies on to justify most of the alleged benefits of the entire federal regulatory state.

At forbes.com, Geoffrey Kabat offers an excellent overview of the ‘secret science’ problem.

The HSCS enrolled 8,111 adults in 6 US cities and followed the cohort for 14-16 years.  The CPS II used data on roughly 500,000 adults for whom air pollution data for metropolitan areas throughout the US was available and followed the cohort for 16 years.

Both studies showed that exposure to fine particle air pollution (that is, particles with a diameter of less than 2.5 microns, or PM2.5) was linked with increased mortality.  Their results provide the basis for most EPA regulations targeting air quality and have been used to make claims of large numbers of lives saved due to regulation.

However, the association observed in these studies was a weak one and raises a number of questions that have not been adequately explored.  First, the association of PM2.5 with mortality shows geographic heterogeneity – no such association is seen in the western US, where the climate is dry and PM2.5 make-up differs from that in the eastern US.

Second, the results of the studies have been presented in a way that focuses narrowly on PM2.5 and precludes putting the association in perspective relative to other predictors of mortality, including cigarette smoking, income, and other factors.

Third, reports from these two studies tend to cite only supporting studies and to ignore studies that have not found an association of PM2.5 with mortality.

These points have been presented in a thoughtful and temperate analysis by Stanley Young and Jesse Xia of the National Institute for Statistical Sciences.

It should also be mentioned that the prevailing view on the health effects of air pollution is set by a small group of researchers who both carried out the studies used by the EPA as the basis for regulation and are also involved in the implementation of EPA policy, giving the appearance of a closed loop.

Others have pointed out that using particle size as criterion for health effects is a crude approach, reflecting our lack of understanding of the effects of specific pollutants.

Sounds like the science is far from settled. Furthermore, there also seems to be a lack of transparency regarding the two data sets. The EPA even failed to comply with a subpoena from Congress to turn over the data. In a letter to EPA written two years ago, Sen. David Vitter and Rep. Lamar Smith allege that

Administration officials have repeatedly failed to respond to Congressional requests to make the underlying data publicly available.
When any information has been provided, it contains significant gaps that make full replication and validation of the studies’ original results impossible (not to mention independent reanalysis).

But beside the lack of transparency, the really amazing thing is that those two unverifiable data sets are what supports the bulk of the government’s claimed benefits for the entirety of the federal regulatory state.

From the Vitter-Smith letter:

As has been noted in multiple communications from Congress, federally-funded analyses of two well-known data sets – the “Cancer Prevention Study” and the “Harvard Six Cities Study”- are the basis for nearly all health and benefit claims from CAA [Clean Air Act] rulemaking in this Administration. Beyond EPA’s reliance on these data sets, this science also provides a disproportionate share of overall federal regulatory benefit claims.

As the White House Office of Information and Regulatory Affairs (OIRA) noted in their most recent report to Congress, nearly all of EPA’s claimed benefits – which represent between 60 and 81 percent of the estimated benefits for the whole federal government – are attributable to fine particulate matter (PM 2.5) – health associations derived from these two data sets.
In other words, this secret data is the lynchpin for a majority of the regulatory benefit claims made by this Administration for the entire federal regulatory enterprise. When you and the Agency make the claim that the CAA will generate $2.0 trillion in benefits through 2020 and that CAA benefits exceed costs by a ratio of 30-to-1, these undisclosed data are the origin of 85 percent these benefits. The recently-finalized NAAQS [National Ambient Air Quality Standards] for PM2.5 depended on this secret data for more than 90 percent (final rule) and 98 percent (proposed rule) of the total monetized benefits. [Emphasis added.]

So, to summarize:

1. Although dozens of federal agencies issue regulations with the force of law, the bulk of the claimed benefits (60-81 percent) comes from rules written specifically by the EPA.

2. But “nearly all” of EPA’s alleged benefits involve regulation of fine particulate matter, PM2.5.

3. The ‘science’ backing regulation of PM2.5 rests on two old data sets that EPA refuses to share, even when subpoenaed by Congress.

As readers of this site know, we are pretty cynical about how government operates, and so we’re not easily shocked by reports of government dysfunction or depredation. But we must confess that the possibility that most of the entire federal regulatory enterprise relies on two decades-old and secret datasets is something that we do find absolutely shocking.

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Big Brother in Your Shower

The late, great William F. Buckley Jr. once said of his political opponents that they were people who want to “reach into your shower and adjust the water temperature.” Buckley was speaking metaphorically, but with every day that passes, the metaphor comes a bit closer to reality.

The Environmental Protection Agency (EPA) wants hotels to monitor how much time its guests spend in the shower.

The agency is spending $15,000 to create a wireless system that will track how much water a hotel guest uses to get them to “modify their behavior.”


“The proposed work aims to develop a novel low cost wireless device for monitoring water use from hotel guest room showers,” it said. “This device will be designed to fit most new and existing hotel shower fixtures and will wirelessly transmit hotel guest water usage data to a central hotel accounting system.”

The funding is going toward creating a prototype and market analysis for the device. The goal of the project is to change the behavior of Americans when they stay at hotels.

We’re frankly more interested in finding ways to stop Americans who work for the government from seeking to change the behavior of Americans who don’t.

The EPA also has a WaterSense program that challenges hotels to track their water use and upgrade their restrooms with low-flow toilets and showerheads.

We wouldn’t call low-flow an upgrade.

A “program that challenges hotels…” So what they’re saying is, ‘We’re from the government and we’re here to challenge you.’

The program also encourages “linen and towel reuse programs” in guest rooms.

Somehow, we thought that life in the 21st century would be better than this.

The EPA is concerned that the average shower, which lasts just eight minutes, uses 18 gallons of water, and has asked Americans to reduce their shower length by at least one minute.

By the way, reading the whole article makes it clear that the government is concerned not just with showering at hotels, but with Americans’ showers in general. Hotels are just the launching point for the government’s assault.

Is it just us, or is there something just a little creepy and disturbing about the fact that bureaucrats in DC are “concerned” with how much time you and I are spending in the shower? How is that an essential function of government?

Note also that the feds are already interfering with our showers by regulating the shower head to deliver a flow of no more than 2.5 gallons per minute. Not satisfied with limiting the flow, now they also want to limit the time. And the two variables are related. If only people could get more flow, they’d be able to finish up their showers in less time.

What’s next? Mandating a shower head with a timer that automatically shuts off the water after 7 minutes, even if you still have shampoo in your hair? The bureaucrats haven’t reached that point yet, but does anybody really believe that the bureaucracy would see any moral or constitutional objection to such a device?

Tyler W. Johannes, Ph.D., an associate professor in the University of Tulsa’s School of Chemical Engineering who is working on the project, told the Washington Free Beacon that the researchers hope to see the technology “adopted by all major hotels and used across the country.”

He said the device seeks to get hotel guests to limit their showers to seven minutes as a start.

Johannes and his team assumed the average hotel shower lasts 8.2 minutes, using 17.2 gallons of water per guest per shower.

“Initially our device/app seeks to get hotel guests to reduce their water use by 10 percent or to reduce their showers by about one minute,” he said.

It says a lot about the government’s priorities that they’ve got people working on stopping Americans from showering for that 8th minute, but nobody in the government is much concerned about rectifying the government’s own long-term fiscal gap of approximately $210 trillion.

Maybe the government should get its own house in order before worrying about what other people are doing in their bathrooms.

After all, this is a bureaucracy that employs people who spend their days porn-surfing because they don’t have enough work to do. And they have the chutzpah to tell Americans they shouldn’t be spending that 8th minute in the shower. Frankly, we’d all be better off if the bureaucrats just went back to their porn and left our showers alone.

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Buffett’s $1 Billion NCAA Bracket Contest Ends in Acrimony

I was looking to fill out my billion dollar brackets again this year and was surprised that I couldn’t find the link.  What happened?  Here is the story:

The media went into a tizzy last year when Warren Buffett’s Berkshire Hathaway, Yahoo and Quicken Loans teamed up to offer $1 billion to any person who correctly predicted the outcome of all 64 games in the NCAA basketball tournament.

Nobody won the pool last year — no one even guessed all 32 first round games correctly. But the only excitement this year is over lawsuits related to who generated the original idea, CNNMoney reports.

The legal brouhaha began in 2014, when SCA Promotions, a small sweepstakes company, sued Yahoo for allegedly reneging on a deal for a perfect bracket contest with SCA.

Yahoo countersued, charging SCA with giving confidential information to Berkshire when it sought insurance to pay the $1 billion in case a contestant beat the overwhelming odds against winning.

It goes to show that the best way to take the fun out of anything is to get the lawyers involved.

Six Lies about U.S. Schools (Bumped)

At thefederalist.com, Joy Pullmann puts together a good list of “Six Lies Most People Believe about U.S. Schools.” We have to agree in particular with lie number 1 on the list:  “America’s rich, suburban schools are high quality.”

The Global Report Card has recently layered specific, nationwide figures upon broader comparisons that have long demonstrated our mediocrity. Its authors give Beverly Hills as one example. It represents most affluent suburban districts, which Americans typically think contain great schools. But they don’t. “If Beverly Hills were relocated to Canada, it would be at the 46th percentile in math achievement, a below-average district. If the city were in Singapore, the average student in Beverly Hills would only be at the 34th percentile…” The schools everyone thinks are so great are only so because we compare them to our truly awful urban districts, rather than to actual peers.

Unfortunately, our own personal experience concurs with this assertion. We are constantly coming across students who attended allegedly good high schools but who nonetheless demonstrate a poor grasp of proper high school material. In one recent case, a student, while sitting in our office, related to us that his parents moved to the suburbs precisely so that he would not need to attend the awful Chicago city schools. But only moments later, this same student, while going over some economics problems, revealed a distinct lack of proficiency with middle school (not high school–middle school) level math.

Further evidence that suburban schools are deficient is the fact that, as reported previously on this site, the proportion of high-school seniors who test proficient in U.S. history is only 12%. For the figure to be this low there must be an awful lot of above-average students at above-average schools who are not learning what they’re supposed to.

Apparently, parents are either not willing or not able to judge their children’s schools on the basis of academic substance. It seems that parents judge the school “good” so long as the child seems reasonably happy, and the child doesn’t get pregnant, or victimized by crime, or fall in with the stoner crowd. Talk about defining success down.

We could say a lot more, but it’s usually better to let Milton Friedman do the talking. Here is Friedman’s classic video, “What’s Wrong with our Schools?”

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Who Writes the Regulations for Big Business?

The answer is Big Business. Big Business wants to be regulated, and they get the regulations they want. They write their own rules–rules that benefit them, typically by limiting competition.

The idea that government imposes regulations on Big Business against the wishes of Big Business is generally false. For instance, we knew a professor who asserted that it was a good thing that government imposed safety regulations on the auto industry. But the fact is that the landmark 1966 National Traffic and Motor Vehicle Safety Act was passed with the support of the industry. In fact, the regulations written under the Act were essentially drafted by the Automobile Manufacturers Association’s Safety Standards Committee. Notably, the AMA’s proposed rules were even stricter and more comprehensive than those the government eventually adopted.

October 17, 1966. The AMA submitted to the government a detailed series of proposed initial motor vehicle safety performance standards, covering nineteen items, prepared by the AMA’s Safety Standards Committee. Each of the proposals consisted of three basic parts-a brief description of the proposal followed by the proposed standard itself and a technical critique.
November 1, 1966. The AMA submitted ten additional proposals covering passenger cars and approximately 125 proposals for trucks, buses, and special-purpose vehicles.
It is interesting to observe that had government accepted these proposals as written, it would have achieved initial standards of greater severity and covering more aspects of performance than those it finally adopted.

The industry wanted to be regulated even more than the government wanted to regulate it.

Why would the auto industry impose these costly regulations on itself? Because the industry knew they could pass the costs on to consumers and, moreover, that the regulations would be relatively more costly for their Japanese competitors. A regulation that increases your own costs by 10% but your competitor’s by 20% will give you a competitive advantage.

Now consider banking regulation. In the wake of the financial crisis of 2008, there was a popular outcry for the government to assert more control over the big banks. The resulting Dodd-Frank Act of 2010 was the most significant banking legislation enacted in many years. Some people might be sufficiently deluded to believe that Dodd-Frank was intended to diminish the power of the big banks and to finally put them in their place. But while the legislation was still being crafted, the U.S. Treasury sent a draft of the bill to the Congressional banking committees. Treasury inadvertently forgot to delete from the document an electronic watermark. It was the watermark of a prominent law firm used by the big banks. The big banks had written the bill.

We discussed all this with our students in class just yesterday. Then this morning we picked up the dead-tree Wall Street Journal and on the front page, above the fold, was an article entitled “Boeing Helped Craft Own Loan Rule.” Seems that Congress wanted the government’s Export-Import Bank to tighten its lending rules. Ex-Im responded by letting its biggest corporate client–Boeing–write the new rule.

WASHINGTON—When the Export-Import Bank sought to respond to critics with tighter rules for aircraft sales, it reached out to a company with a vested interest in the outcome: Boeing Co., the biggest beneficiary of the bank’s assistance.

For months in 2012, according to about 50 pages of emails reviewed by The Wall Street Journal, the bank worked with Boeing to write rules that would satisfy critics in Congress and the domestic commercial airline industry—while leaving most sales of Boeing’s airplanes to foreign carriers unscathed.


The previously unreported documents, obtained through an open-records request, show how the two sides swapped ideas, drafts and data on sales of wide-body airplanes. Ex-Im Bank officials pushed their Boeing counterparts for information. Boeing suggested changes to the bank’s draft proposal.

They reveal an extraordinary level of coordination between public officials and corporate executives.

The cooperation between Big Business and government is real, but we suspect it’s not so extraordinary. It’s more like standard operating procedure.

The requirement didn’t specifically include aircraft purchases, but Delta Air Lines Inc. and some lawmakers wanted the bank to include them in the rules, too.

That’s when Boeing and Ex-Im Bank started discussing how the rule should be written. Many of the emails between the bank and Boeing deal with the guidelines the bank was creating to determine which aircraft transactions would trigger the additional review.

The collaboration appears to have worked. In the nearly two years since the rule went into effect, no Boeing sales have been nixed as a result.

No wonder a Senator back in 2008 called the Ex-Im Bank “little more than a fund for corporate welfare.” That was Senator Barack Obama.

We wrote more here about the enormity that is the Export-Import Bank.

Gotta love all those naive liberal voters who believe their politicians are gonna ‘stick it’ to Big Business.

It is to laugh.

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End the Ethanol Rip-Off

Robert Bryce, writing in the New York Times, knocks one out of the park:

WITH the collapse in global oil prices, members of Congress are once again pushing to raise the federal gasoline tax, with the proceeds going to new roads, bridges and other infrastructure projects. While some in Congress might be averse to a tax increase of any kind, they might find it more palatable if it came packaged with a tax cut.

Fortunately, there is a perfect option, a hidden levy that has benefited a small group of farmers and manufacturers in a handful of states: the corn ethanol tax.

The tax is hidden because, on paper, it appears as a clean-energy mandate. Federal law currently requires fuel retailers to blend about 13 billion gallons of corn ethanol per year into the gasoline they sell to the public, making the gas more expensive. This year, that mandate, known as the Renewable Fuel Standard, will impose about $10 billion in additional fuel costs on motorists.

Congress created the Renewable Fuel Standard in 2005 with several goals in mind: energy security, rural economic development and environmental protection. But the indirect environmental costs involved, including growing, harvesting and processing corn into fuel, are significant. Ethanol diverts corn from the food supply, driving up food costs; it promotes inefficient and harmful land-use strategies; and it can damage small engines. But a more fundamental problem is its high cost when compared with conventional gasoline.

It really is amazing that there is bipartisan consensus about promoting a fuel that costs more than gasoline, gets lousy fuel efficiency, damages engines, raises food prices, and causes environmental damage to boot.  It may be time to get rid of the Iowa Caucuses.