Wednesday, February 26, 2014

Is Government Worth its Weight in Salt?

A short, pithy read regarding the Governments handling of the snow storm crisis that occurred during the last several weeks. The article is titled, "Government Not Worth It Salt"

Tuesday, February 18, 2014

Externalities: What Are They?

While not recognizable to many based on this academic sounding name, externalities are a common problem that can occur in the "Free Market".  An Externality is a side effect or outcome of two parties performing an economic transaction. The Externality will impact others that are originally not members of the transaction. The most commonly known "externality" problem is pollution. An auto manufacturer can produce cars, yet the exhaust from the manufacturing plant can be emitted into the air.  It should be recognized that Externalities can be positive or negative. Many scholars and thinkers believe that Government intervention is the most effective means of mitigating negative externalities. Is this true? Dr. Bob Murphy goes into deeper detail in this video clip:

Sunday, February 9, 2014

Regulations, Regulations and Regulations

Both sides of the political spectrum love regulations, as they state the following:  "Regulations are good because they protect us from greedy capitalists", or they provide us this line, "We need to reduce regulations, but we need to keep regulations that make sense"? What?

Economic analysis demonstrates that regulations, if they are "good" or "bad", provide an additional cost in the economy. We are told that these regulations are needed to protect us from the "greedy capitalists". This line is rather odd considering that the larger corporations lobby Congress and HELP WRITE THE REGULATIONS! If you are skeptical, see who helped in the formation of Obamacare. 

These larger firms understand the economics behind this action: The increased costs of having regulations remove the smaller firms out of the marketplace, the larger ones can absorb the cost of these regulations. Of course, the larger corporations can afford to pay off the regulators to help avoid any punishment of any regulation violations.

Speaking of the costs:  If one takes the 2002 Sarbanes-Oxley regulation, the explicit economic costs are estimated to be around $1.4 trillion. This is simply one regulation, as there are many on the books.  How does $1.4 trillion benefit us?

Politicians love to trumpet that they want more jobs in the economy. The argument is typically about what marginal income tax rate is optimal for the "rich" and the "poor". While this polemic is being verbally volleyed from one sound bite to the next, no one addresses the egregious amounts of regulations that prevent capital formation.

In short, regulations create economic inefficiencies, as they add costs onto the actors in the marketplace. They simply should be reduced, or in many cases,eliminated.  One would think with the mounting levels of debt, the US. Government would relax many of these regulations.

More on Government Regulations

Here is a great article providing some economic analysis on the impact of Government regulations upon the Health Care sector in the United States Economy. Here is an excerpt from this article titled, "How Government Regulations Made Health Care So Expensive" :

"The lack of competition between hospitals and other health care institutions also limited cost control incentives placed on executives.  The lack of competition between both medical institutions and the doctors that control most of their spending could explain why hospital costs have been inflating twice as fast as even physician fees.  Hospitals are loaded with waste and inefficiency.  For example, a hospital stitch costs more than $500 today."

Yet, we are told that regulations benefit the citizens. What?