Is Free Trade Dead?

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The Wealth Of Nations, Book IV Chapter II, pp. 456-7, paras. 11-12.

“By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?”

The Trump era will forever be distinguished by its notable shift away from free trade economic policies. Generating a resurgence passionate resurgence in the advocacy of protectionism. This rhetoric was salient even in the nascent period of the Trump phenomenon, dating back to his iconoclastic speeches on the campaign trail in 2015. Championing a quasi-neo-mercantilism that challenged the decades-long conventional wisdom of the Republican Party. This prevalent truism being that liberalized trade is a core component of any sound economic platform. Taking into account the modest reforms we saw under the Regan Administration. The wave of neoliberal trade policy continued through the 1990s with the bipartisan support of the NAFTA bill. It seemed as if the trend towards globalized trade was seemingly unstoppable. Until right-wing populism swept the United States indicating a change in public perception of moderately unfettered international free trade.

The Trumpian position on international trade dates back to the years of the NAFTA bill of the 1990s. Vocal high-profile opponents of the bill included columnist and former Presidential aide Pat Buchanan and Ross Perot. Expressing concern over the outsourcing of production and its direct impact on the American economy. Mainly, all of the U.S. workers have been displaced by outsourcing jobs to foreign countries. From a prima facie standpoint, this argument seems sound. However, after closer examination, it becomes quite clear that economically it is profoundly flawed. There is a moral dimension embedded in this argument because people do suffer from losing their jobs. The unfortunate economic vicissitudes of the American Rust Belt can be speculated to have been greatly impacted by the outsourcing of domestic labor.

On a deeper level, most of the variable causing the shift towards foreign production of goods has been engendered by faulty economic policies. Economic behavior is guided by the unwavering laws of economic exchange. Analogous to the laws of physics they cannot be indefinitely contradicted without serious repercussions. Since each economic agent acts in their self-interest they respond accordingly to government initiatives and laws that violate these immutable laws and informal laws guiding commerce. Domestic regulations laws governing minimum wage, production, transportation, and taxation become so onerous that firms become incentivized to move to manufacture abroad. While policies such as minimum wage laws are billed as means of improving the quality of life for low-skilled workers, it tends to have the opposite effect. Such measures only serve to benefit a few while harming many through increasing the unemployment rate. Raising the price floor for labor will impact profitability that leaves employers with a difficult choice. Either cut labor expenses through automation, outsourcing and working with a skeleton crew or succumb to bankruptcy.

Driving the shift to off-shore production is the comparative advantage that many countries have over the United States when it comes to manufacturing and other services. Classical economists such as Adam Smith and David Ricardo believed that it was more advantageous for each economic unit (whether it be an individual worker, firm, or national economy) to focus on the goods and services they produced most efficiently. In a sense comparative advantage logically extends the anything else that can be obtained through various trading partners.  For example, it is well known that Adam Smith was a big fan of Claret wine, a beverage fermented in France. The soil in Scotland is not generally unsuited to winemaking, therefore it would not be sensible to produce Claret in the United Kingdom. But Scotland does have climate amendable to the production of some of the world’s finest Single Malt whiskies.

The comparative advantage that countries such as China as over the United States are lower labor costs and fewer regulations. Due to measures such as minimum wage laws operating as price controls (functioning as a  price floor), they are bound to create disruptions in the labor market. Tempting producers to take actions such as outsourcing jobs to curtail losses. A sensible reaction to policies that effectively undermine the core purpose of prices. That purpose is to serve as a quantifiable signal that communicates the market supply and demand of a commodity. Suppliers and producers need to respond to the inflated value of labor accordingly to stay solvent. That unfortunately requires workers to be laid off and to find more affordable labor alternatives. To quote Milton Friedman manipulating prices is never a “free lunch”! The disutility of mandating a higher minimum is evident not only from the qualitative reason of human nature but also in quantifiable data. While estimates suggest that raising the national minimum wage to $15/hr would lift 900,000 Americans out of poverty. Simultaneously, such a change would also be projected to put 34 million Americans out of work. Demonstrating how the costs of raising the national price floor outweigh the minor benefits.

From a superficial standpoint, it is easy to label the competition of foreign as being the taproot of our economic woes. It makes for wonderfully succinct bumper sticker slogans that are catchy and fun to chant at rallies and protests. The protectionist approach of blaming others for our economic problems ignores the inherent issues with our domestic policies. Its restrictive regulations and high corporate tax rates drive businesses to go abroad. There was a lot of social currency in placing the blame on other countries for our inefficiencies in production during the Trump years. These admonishments of free trade are predicated upon economic fallacies and illusory thinking. For a politician, it is easier to play the blame game than to encourage innovation to stay competitive. It is also much quicker to mobilize crowds through economically illiterate bluster than to tell them to take control of their destiny.

Bootleggers and Baptists: XIV: Massachusetts Bans Menthol Cigarettes

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Introduction:

Legislators in Massachusetts recently passed a law prohibiting the sale of menthol cigarettes. The rationale behind this bold move, banning the sale of all flavored tobacco and vaping products. Presumably, to make tobacco products less alluring to children. The specific targeting of menthol cigarettes is slightly puzzling. This variety of cigarettes due have subtle flavoring of mint, it does not have the same degree of overt flavoring as a strawberry cigarette. In 2009, the FDA banned all flavored cigarettes excluding menthols. This prohibition was enforced under the Family Smoking Prevention and Control Act (FSPTCA). This act extended the ban to Kretek (colloquially known as a clove cigarette) cigarettes.  It is difficult to determine if methanol cigarettes were excluded from the 2009 legislation as a result of regulatory capture. Brands such as Kool, Salem, Newport, and so on have enjoyed immunity from the national ban.

All because the sale of menthol cigarettes is legal at the national level, does not mean that these products cannot be restricted at the state and local level. Case and point Massachusetts implementing a ban that included methanol cigarettes. Did the lawmakers in Massachusetts fully contemplate the consequences of this policy? Massachusetts is a relatively small state and borders several other states that still permit the sale of menthol cigarettes. Naturally, if a Massachusetts resident wants to buy a pack of Newports they just need to take a short drive to a neighboring state.  All because the Bay State’s government restricts the in-state sales through legislative fiat does not mean that smokers will not find alternatives.

Displaying the puritanical hubris of the Massachusetts state legislators. The state’s culture has long been a victim of its history. Outlawing the sale of Newports will not prevent people from smoking them. States such as New Hampshire and Rhode Island still selling menthol cigarettes will only serve to divert tax revenue away from the Bay State. Invariably, the state ended up shooting itself in the foot.  If the objective was to fill the coffers, Massachusetts provides every incentive to purchase cigarettes out-of-state. The state aggressively applies onerous taxes to tobacco products. Then takes it one step further and bars the sale of a tobacco product that is legal in every other state. Making it easy to suspect that these policies are not designed to generate state revenue. Rather operate as a confiscatory function.  A means of attempting to influence behavior through regulation and taxation. When it comes to victimless “crimes” these measures always fall short of the expected outcome.

The Baptists:

If we adhere to Bruce Yandle’s research on regulation, the Bootleggers and Baptists dynamic apply to this situation. The supposedly noble intentions of this law have created some passive beneficiaries. This benefit is obscured by the strong moral argument of banning menthol cigarettes to make smoking less appealing to kids. Regulation is never neutral or linear in its consequence. Health advocates, lawmakers, and the governor of Massachusetts are the Baptists. They obtusely champion this moral defense of this interdiction with no consideration of external consequences. Kids are not going to stop smoking cigarettes just because menthols are off the table. Only 36 percent of all brands of cigarettes are mentholated. It is highly unlikely that all underage smokers are reaching for menthols. This legislation places a burden on adults who actively choose to smoke mentholated brands. Adults are old enough to weigh the risks of smoking and should not be limited by legal restrictions. The Baptists in this scenario would claim that this is a small sacrifice for the greater good. However, shouldn’t it be the responsibility of the parents to thwart their teenager’s attempts to engage in the rebellious behavior of tobacco consumption?

The moral imperative of reducing teen smoking at all costs has a major blind spot.  If a child’s parents are willing to drive out-of-state to purchase mentholated cigarettes, couldn’t they just steal them from their mother or father?  The legal barrier of age restriction should pose enough of a bulwark to accessing tobacco products. If a minor opts to steal cigarettes or coax an adult to buy them a pack, what can you do? Any further action is either futile or unjustly punishes adults who possess the right to smoke. Adults also have the right to smoke whatever kind of cigarettes they desire, including flavored cigarettes. Investing tax dollars to enforce such an initiative is downright wasteful. Serves to penalize smokers and nonsmokers alike through a misallocation of their taxed income. The Baptist may be sincere in their efforts to curb youth smoking. Unfortunately, kids are still going to continue to smoke. Believing that this restriction is going to have any measurable impact is laughable. Everyone else pays the price for a policy that will not remedy the issue of youth smoking.

The Bootleggers:

There are two categories of bootleggers in this policy dynamic. On the microlevel, you have the state-line convenience stores that will see an influx in business. Even the grasp of the legislative body of Massachusetts cannot stifle the Invisible Hand! This operates on a similar principle as tribal smoke-shops. Since many do not apply state taxes to cigarettes, many non-Indians flock to the reservation to buy cheap-smokes. If Massachusetts bans, Newports, people will simple patronize establishments in New Hampshire and Rhode Island. Lawmakers such be all too aware of this phenomenon.  Considering  Rhode Islanders come in droves to Massachusetts towns on the state board to purchase alcohol. For the unacquainted among us,  Massachusetts does not have a sales tax on liquor.

I would never be one to advocate for taxation. However, if you are going to tax something you might as well do so in a manner that will generate some revenue. The true parties that benefit from this ill-advised law are the state governments of New Hampshire and Rhode Island.  In 2019, Massachusetts collected  $553 million in tax revenue from cigarette sales. That number is down by 9.7 percent as of the fiscal year 2020. The Department of Revenue projects that tax revenue will be down by  $93 Million in “FY 2021”. This large sum of money is filling the coffers of neighboring states.

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Do We Need Laws to Force Us to Wear Masks?

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Ever since the number of COVID-19 cases began to grow in the United States the debate over whether to mandate wearing masks in public has raged on. Frequently devolving into a debate over political ideology rather than a discourse based on hard science. Naturally, those who believe mask-wearing to be an effective precaution against spreading the virus favor compulsory laws enforcing this practice in public. However, could it be possible that people still opt to take precautionary measures even in the absence of fine or other penalties? Better yet, couldn’t owners of private institutions such as stores, restaurants, and entertainment venues implement their preventive measures as conditions of patronizing their establishment? After all, the incentives are present to want to avoid any unnecessary risks and to keep their customers healthy to ensure a steady stream of business in these uncertain times.

In the state of Arizona, the issue of mask-wearing mandates has been left up to the local governments.  Most municipalities have opted to require masks while occupying indoor venues at the risk of facing a hefty fine. Back in June the city of Phoenix purposed a $250.00 for individuals repeatedly refusing to wear a mask. The suburb of Chandler, Arizona imposes a fine of $100.00 or 30 days in jail for mask-related infractions. Residents and visitors in the towns and cities located in Pinal County are not subject to mask requirements but are strongly encouraged to wear masks. One would assume that in these communities that are immune from such restrictions that the image of bare-faced shoppers must be a ubiquitous scene in the local grocery store. Such an assumption would be incorrect.

Even in the absence of formal constraints, most stores require that all customers wear masks. Generally, posting a sign on the front door forewarning prospective patrons of this precondition. Not only are the stores and eateries of the communities of towns such as Maricopa, Casa Grande, and so on filled with mask-wearing customers, but many establishments are taking measures not required by any municipality in the state. Employees are constantly cleaning. The local grocery store has never looked more pristine. Frankly, many of these changes in the cleaning and sanitizing schedules of the local business are long overdue. These shrewd business owners are proactively responding to the potential concerns of their clients. Anticipating that customers may avoid doing business if masks are at their brick-and-mortar location they have elected to require masks. In addition to urging patrons to wear masks, they also are making concentrated efforts to increase sanitation efforts. Even placing markers indicating the presence of six-foot gaps to maintain social distancing. The smell of bleach and other disinfectant products fill the entryway of the grocery stores. The local Walmart is even wiping down and sanitizing the carts! A sight that few would have ever predicted a year ago. All these preventive steps are taken without any laws, penalties, or ordinances. Completely implemented through apolitical channels.  

This micro-level self-governance on the part of local business propitiators and franchisees demonstrates the power of profit and loss mechanisms. Due to the business owners having a stake in the company they own and operate it is in their best interest to put the customers first. If the customers are comfortable, happy, and healthy it will be mutually beneficial for both parties. The customer will continue to obtain the goods and services they need and want. Simultaneously, the stores and restaurants will continue to receive business which will keep them afloat. Establishments that are insensitive to the needs of their customers will invariably see a dip in sales. This would hold even if we were not amid a pandemic. The entrepreneur must adapt to the present climate. That may mean investing in more cleaning supplies and sanctioning mask-wearing requirements for their establishment. Business proprietors who do not respond to customer concerns about the virus will be effectively punished by market forces. Through a sullied reputation, lackluster sales, and even insolvency. While constrained by federal, state, and local laws business owners by their possession of the enterprise still retain an immense amount of authority to create the rules governing their store. Having the ability to formulate the policies that govern the direction of the business enables them to better serve their customers. Displaying how to profit loss mechanisms can direct precautionary measures even in the absence of laws.

Business proprietors responding to these market pressures is an example of polycentric decision-making.  A system where multiple “decision-making units” with some degree of independent action subscribing to the same set of rules. Filtering the development of safety measures through the government attempts to use a one-size-fits-all approach to the pandemic. Whereas, individual shop owners can tailor their precautions to the specific concerns of their regular customers. Versus obtusely applying rules that may not even be effective or pertinent to how COVID-19 is impacting the region. Direct customer input about the absurdity of funneling customer traffic through two entries instead of three, can be an example of ground-level adjustments that can be made through business owner governed safety procedures when compared to those that are government-sanctioned. Avoiding the red tape and lethargic process of passing legislation or town ordinances provides fluidity that is necessary in dynamic times. A fluidity that is lost in the typical overarching and top-down approaches that are generally favored in regulations.  

Those cynical of the arguments that favor market pressure over formal regulation underestimates the power of the invisible hand. In jurisdictions where there are no regulations in forcing mask-wearing store owners not only require masks but are going the extra mile to ensure sanitary conditions for their customers. Most skeptical of the market being able to push such strives towards private solutions to the COVID-19 outbreak tend to cite avarice on the part of business owners. Without formal regulations, most will skimp on investing in extra precautionary measures due to the additional cost of enacting such changes. The willingness to make such changes is what separates a prudent businessperson from a fool.  The long-run profits from investing more in meeting alleviating the concerns of your customers will quickly outpace the minor cost.  Making a refusal to independently adjust to these changes shortsighted.

Bootleggers and Baptists Part XII: Dual-Role Actors on Both Sides of Proposition 205 (Arizona, 2016)

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Back in 2016, election cycle Proposition 205 (Arizona) sought to establish a regulated market for recreational Marijuana. The measure failed to pass by a slim margin. Expounding upon the strategic flaws of the ballot question has already been thoroughly exhausted by local commentators.  What truly is interesting in retrospectively analyzing this failed legalization campaign was the coalition building. These strategic alliances were forged on both sides of the aisle.  Everyone from puritanical prohibitionists to cannabis aficionados teamed up with orthogonal allies to hedge their bets on achieving their desired policy outcome. Naturally the formulation of such coalitions invariable leads to Bootlegger and Baptists policy dynamics. By the very nature of regulations and policy decisions, someone stands to gain and someone stands to lose. Government action is never neutral. Even inadvertently a policy can provide a downstream benefit to an invested interest group. Sometimes these concentrated benefits are nontangible. Such as a positive public image or gaining notoriety. As the great moral philosopher, Adam Smith reminds social incentives to present us with powerful motives.

One of the more predictable opponents of legalization would be manufactures of prescription painkillers. Insys Therapeutic donated $500,000.00 to the 2016 opposition campaign in Arizona. Insys is a well-known producer of opioid-based medications. Their true motivations are somewhat puzzling.  Medical Marijuana was legalized back in 2010 which would have been a golden opportunity time for funding opposition. This could potentially be a strategic form of revenge. A thinly veiled attempt at settling a score with the Marijuana dispensaries that cost them business.  Why? Because the medical dispensaries would be among the first economic actors to enter the recreational market. It would take much in the way of resources to make a transition to selling both medical and recreational cannabis. In theory, this institutional form of retaliation would provide the benefit of instinct satisfaction to upper management within Insys. This theory assumes little to no economic benefit from this action.

An alternate theory could be Insys does finically benefit from keeping recreational Marijuana illegal. This move could signify a circuitous acknowledgment of the black-market for prescription painkillers. Whether big pharma wants to admit or not, recreational users do make up a portion of their profits. Their main customers need to operate as mid-level distribution. Either through an unscrupulous physician prescribing opioid narcotics to recreational users or through patients reselling the medications on the secondary market. Through going attacking recreational Marijuana they can protect their indirect profits made through the demand on the illicit secondary market.  Opioids are already in competition with alcohol, tobacco, kratom, Salvia Divinorum, and potentially marijuana. By eliminating a whole category of legal and accessible options they gain a slightly larger share of the quasi-legal American intoxicant market.

The question becomes whether this specific economic agent is a Bootlegger or a Baptist. They are unquestionably both. The company possesses some sort of murky incentive for keeping recreational marijuana illegal. Making them a Bootlegger. They assume the role Baptist when publicly justifying their generous donation to the counter-campaign. Citing the danger of marijuana to children. Also, expounding upon the dangers of ingesting substances that do not have FDA approval. All of these are arguments are laughable when you think about the pharmacological risks of the products Insys manufactures. Regardless, assuming good faith on the part of the firm, it is still a moral argument. Which may or may not be factually accurate. For this reason, they are a Dual-Role Actor.

In this scenario, there is another Dual-Role Actor that is on the other side of the fence. That would be the media. Numerous publications pick-up with this story and ran with it. Function as a Baptist through exposing the callous self-interest of pharmaceutical companies. This provides the appearance of a moral crusader who is attempting to reveal how big business attempts to manipulate the system. However, this public service is not done out of pure altruism. Media organizations are frequently willing to dispense with accuracy to be the first outlet to break a news story. Editors often do not focus on important stories but rather those that captivate their viewers/readers. Making news outlets more of a vehicle for entertainment than obtaining information. The best means of gaining and retaining viewership in an age where mainstream media is currently on life support is through sowing outrage.  Exploiting the public’s salient bias against corporations is a great means of generating click-bait worthy headlines.  Utilizing this tactic becomes much more imperative when your industry is presently clinging to life on a shoddy ventilator. The Schumpeterian gales are presently gusting. The creative destruction of alternative media is drawing many viewers away from FOX News and CNN.

Bootleggers & Baptists Part: XI: CVS and Tobacco

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Back when I was a broke college kid and was still a tobacco consumer, few tobacco products provided a better value than Parodi cigars. Yes, they were machine-made. However, they were mechanically bunched and wrap with robust and smokey fire-cured Kentucky/Tennesse broadleaf tobacco. These rugged little stoogies wouldn’t get too far in a beauty contest, but they were solidly constructed. Mimicked the rustic tuscano cigars smoked in Spaghetti Westerns. There was only one brick-and-mortar locational locally that sold these drug-store treasures happen to be CVS. This all changed in 2014 when CVS elected to stop selling tobacco products altogether in the name of promoting health. Sure there was still the internet, with the complexities of shipping cigars across state lines (tax-wise and legally) it was far from an ideal option. I was far from the only one frustrated with this decision made by corporate. In 2015, CVS speculated a slight drop in sales was connected to the corporate ban on tobacco sales.

It is understandable for a firm to strive to convey a consistent message. There is a fair amount of hypocrisy in a healthcare store selling tobacco. Eliminating tobacco makes sense, only if you stop selling all the other unhealthy products sold at CVS locations. Examples ranging from soda, energy drinks, candy, and liquor. Also, one cannot forget powerful opioid narcotics. Granted, there is purportedly “safe” way to ingest such medications. Why not take a stand against the addiction crisis currently plaguing America if the company is so concerned about public health? Needless to say, there is certainly an asymmetry in CVS as a corporation’s advocacy for public health. Bringing the whole rhetoric of voluntarily choosing to stop selling tobacco into question. Even leading the incredulous skeptics among us to question the organization’s true intentions.

The murky intentions of CVS once again bring us back to the economist Bruce Yandle’s famous Bootleggers and Baptists hypothesis. In instances of this coalition-building dynamic, there are always the virtue signalers that provide us with the moral argument for a policy. The silent beneficiaries are known as the bootleggers. Individuals that purely advocate for the policy out of self-interest. Our Baptists in this scenario become apparent when you review the various organizations that provided praise to CVS for this move. Establishments such as the Massachusetts Medical Society and The Harvard School of Public Health. The Bootleggers benefiting from this shift in CVS’s business practices is clear as day, companies producing smoking cessation products. One of the most prevalent examples being Nicorette.

Where does CVS fall in the equation? Surely they either benefit from this change in-store policy or are expressing concern for public health?  I would argue CVS is an example of a dual-role actor. A dual-role actor in Bootleggers and Baptists coalitions are an economic agent or collective of economic agents that fill the role of Bootlegger and Baptist. They may have a genuine concern for the more implications of policy. However, they also simultaneously stand to gain from the purposed or implemented policy. For the sake of being charitable, let’s assume the initiative to improve “wellness” is sincere. Inconsistent, yet sincere. By exalting the virtues of not selling harmful products such as chewing tobacco, cigars, pipe tobacco, cigarettes, etc CVS claims the moral high ground, making them a Baptist. However, they also at the same time gain through accumulating social currency. From the standpoint of publicity, this is gold. The detrimental effects of tobacco use have been well documented and overall public perception of tobacco consumption is quite negative. These factors make tobacco low-hanging fruit in terms of formulating policy. Whether it is the internal policies of a private company or the stroke of a legislator’s pen, tobacco is an easy target. There is no quicker way to look like a hero than to stick it to Phillip Morris. However, why continue to sell soda and candy if you are concerned about fostering public health? Would the customer backlash be too strong? That said, it is difficult to quell my continued skepticism of CVS’s motives for this move. There is a high probability that CVS is operating as an advocate and a beneficiary.

My Response to Bruce Yandle

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Dr. Yandle,

 

I greatly appreciate your quick reply to my previous e-mail.  I apologize for taking so long to get back to you. As an amateur blogger, I will most likely continue to explore novel applications of the B&B dynamic, both in regulation and in the mundane day to day examples. Not only will this provide me with an endless array of topics to write about, but it will also increase my understand of the B &B theory. I have to say there is something about framing behavior in the Bootleggers and Baptists context that never gets stagnant.  It will make writing about regulation to be dynamic for years to come.

 

Above all I appreciate your encouragement, I will proceed to navigate my way through the murky and convoluted world of regulation. Fully acknowledging that most regulation (if any) does not benefit the general public. Rather, it serves as a form of rent-seeking that is barely noticed by the average voter/ taxpayer due to the costs being distributed through higher consumer prices or taxes. Before familiarizing myself with Public Choice Theory I was already skeptical of regulation. Through theories like the Bootleggers and Baptists dynamic, I now have better precepts for refuting the validity of ineffective and self-serving regulations.

 

Again, Dr. Yandle, I appreciate you taking the time to respond to me. I will continue to expand my understanding of the political decision-making process. An election year is a prime time to do so! There will be a multitude of living examples of Public Choice concepts coming to life.  Animated by the all too human and fallible nature of politicians and interest groups.  I just wish I had been aware of this economic school of thought back in 2016. Considering the impending cataclysm that many pundits were speculating in the wake of the Trump Presidency. Which I can only see as being a form of rent-seeking either from the standpoint of increasing viewership ratings or maintaining the credibility of political factions that the mass media finds to be more favorable. Then again, Trump is awful on trade. However, I am still waiting for the apocalyptic dystopian future many of our friends in the media predicted nearly four years ago. It would be nice to have a more economically laissez-faire president that holds individual rights in high esteem. However, due to invested interests, current public opinion, and the nature of American politics such wishes seem likely a lofty pipedream.

 

P.S.: I also enjoyed your essay The Next Fifty Years: Optimistic or Pessimistic?, published in The Independent Review. Working from home has eliminated my 45-minute commute back and forth from work. Leaving me with more time for reading and research, last quarter I subscribed to the print edition of  TIR. That was a novel and interesting study you conducted. I am not sure if I have the faith to say the next fifty-years will be promising. I certainly believe that material comfort and convenience will only continue to exponentially improve with innovation. In terms of moral development, it is difficult to say. While technology has provided us with a lot of positive developments it has also been correlated with social decay. A steady decline in civility and decorum. Then again, correlation does not necessarily equal causation, having the third-variable problem rearing its ugly head. I could potentially be unfairly singling out the technology. The COVID-19 epidemic seems to have only compounded this issue as people are staying home and becoming more atomized. Don’t get me wrong, as a Classical Liberal/ Libertarian  I am all for individual rights. However, the paradox becomes as people become more individualistic they drift away from the private institutions that previously held communities together (such as church, I am personally not religious, but I have nothing against religious observance). The surrogate that fills this vacuum almost always ends up being government.  As we become more individualistic our affairs end up becoming more collectivistic. I want to remain hopeful that the human species flourishes not only materially but morally and socially. As a society, we need to figure out how to reconnect again.

 

Thank you again for your time Dr. Yandle,

 

Peter C. Clark.

 

 

Bruce Yandle’s Reply

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Yesterday, I received a response from the legendary Public Choice scholar, Dr. Bruce Yandle. There were three main takeaways from his response to my e-mail. Even through e-mail communications, Dr. Yandle exhibits all of the decorum and humility you would expect from a southern gentleman. It truly is a privilege as a nonacademic to be able to have such an exchange with one of my intellectual heroes.

 

 

Takeaway #1- He was Humbled by the Fact that His Theory Was So Influential Upon My Thinking

 

I was slightly surprised that he was humbled by the impact his theory has had on my thinking. He was particularly humbled by the fact that I find his theory to be a powerful means for explaining the world. I could not agree more. The Bootleggers and Baptists’ paradigm is not relegated purely to the sphere of politics and regulation. As he mentioned in his response you start to notice examples everywhere once you are familiar with the concept. That speaks volumes of the conceptual transcendents of the theory. Making all the more brilliant observations. Above all, I am glad that Dr. Yandle was able to see that his theory has influenced others. That it is a “living idea” not just a sterile postulation that is confined to dusty economic textbooks. But a profound theory that explains the world how it is. Not imposing value judgments of what should be.

 

It should also be noted that he did see some sound reasoning in equating  Bootleggers and Baptists to the Id and Superego. He also alluded to Adam Smith’s Theory of Moral Sentiment, citing that both roles also paralleled Smith’s” the man within the breast” and the “impartial spectator”.

 

 

Takeaway #2- Dr. Yandle conceptually finds the prospect of a Dual-Role Actor to be valid.

 

Dr. Yandle stated that he like the term “Dual-Role Actor” and agrees with it as a premise. Using the example of how Donald Trump as addressed immigration policy for how many times politicians fall into this category. Utilizing arguments around reducing crime from the standpoint of the moral high road. Then in the next breathe stressing the point of how immigrants take jobs from American citizens. Simultaneously appeasing the Bootleggers and Baptists  Making Trump’s clumsy balancing act a pure example of a “Dual-Actor” paradigm. He assures me that I am correct in my assumption that the B&B dynamic does not explain the origin of these coalitions, but rather the details of the occurrence.

 

Takeaway #3- Keep Writing and Thinking About Regulation.

 

Dr. Yandle also encouraged me by stating “I wish you well and hope that you will keep thinking and writing about regulation”. That is a suggestion I will certainly follow!

Letter to Bruce Yandle: Dual Role Actor Dynamic: Bootleggers and Baptists

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Dear Dr. Yandle,

 

Throughout the pandemic, I have been reading more journal articles on Public Choice Theory.  I would have to say that now I am a convert. Previously being a layperson who was fond of the Austrian School. While there are many captivating concepts expressed in the Public Choice literature, the concept of Bootleggers and Baptists has so far been my favorite. In my opinion, the depth of your observations in this conceptualization extends beyond oddball coalitions and the transactional aspects of regulation. The Bootlegger and Baptists dynamic provides us with candid commentary on the nature of regulation.  Raising the important question of who stands to benefit from this law passing? Making the moral considerations for advocacy of specific law questionable. Does the benefit secured by implementing more safety regulations outweigh the decrease in market competition? As you have mentioned in previous interviews and podcasts, many of these costly measures end up acting as means for established producers to gain greater market share while circumventing anti-trust laws. The smaller businesses simply cannot afford to comply with the new and onerous requirements.

 

The insights into the self-serving quiddity of regulation aside, conceptually the Bootleggers and Baptists dynamic has been proven to be very versatile. It can be applied to just about any policy position and is applicable even outside the realm of political decision-making. I have seen countless examples of unlikely bedfellows teaming for a shared objective at work. The possibilities for application are seemingly endless and can even be applied to traditionally apolitical institutions.

 

It is the very versatility of the Bootleggers and Baptists concept that entices me to come up with novel applications of the theory. Leading me to the question why cannot the Bootlegger and Baptist be the same individual or group? An actor can possess multiple motives for the same action, the same could be true for advocacy of various regulations.  An individual actor or a group of actors could have a sincere moral concern but also simultaneously stand to gain from the regulation. This is not to say that the ratio of moral concern and self-interest is equal. For the individual actor or group self-interest or moral concern may take primacy over the other set of incentives and motives. If the individual or group provides a moral argument and is concurrently a silent beneficiary, they are both a Bootlegger and a Baptist. Regardless of the degree to which they qualify for either category.

 

I adorn this potentially novel observation with the title of a “Dual-Role Actor Dynamic”. Whether we examine the advocacy of a single economic agent or the collective action of a group there is the potential of Dual-Role dynamic. Even getting as granular as the level of an individual actor there is the potential for alignment of incentives and motives. In a sense, the individual is combining their self-interest and moral concerns into one action. Expressing an internal agreement between their moral convictions and self-interest. The best analogy that can be made is if the psychoanalytical stratifications of consciousness, the ID and Superego,  wherein complete unison. The proverbial devil and angel on our shoulders decided to shake hands signifying a truce. All because our selfish and moral motives are in agreement. In a group setting, the collective action is merely an aggregate of each group member’s own moralistic and selfish inclinations.

 

Recently, I believe to have found a real-life example of a “Dual-Role Actor Dynamic” in the domain of ballot access laws. After reviewing a few legal papers detailing the issue, I began to realize many of the moral arguments for stringent requirements also were silent beneficiaries. In theory, moral arguments such as shielding voters from frivolous candidacies, confusion, and political instability may be sincere. However, they are being made almost entirely by legislators, bureaucrats, and public officials affiliated with one of the major parties in the United States. Their moral concerns may be merely a thinly veiled-cloak to obscure blatant self-interest. Due to my inability to test the veracity of the sincerity of the invested interests advocating for stricter laws, I will have to take their claims at face value. While these invested interests purportedly feel a duty to protect the voter and maintain the integrity of democracy they still stand to gain. By imposing heavier burdens upon third-party candidates it redirects votes that would go to minor party candidates towards the two major parties. Effectively leaving the political duopoly in the United States intact. Making these advocates potentially Dual-Role Actors.

 

Dr. Yandle, I am aware you are very busy and most likely have a lot of other projects in the works. That being said, I appreciate you taking the time to read my letter. I understand that I am a far cry from a professional economist, however, any constructive feedback would be greatly appreciated. Even if my expansion of the Bootleggers and Baptists dynamic is conceptually flawed it was still an engaging intellectual exercise to grapple with this idea conceptually.

 

 

Thank you again, professor, for your innovative contribution to political economy,

 

Sincerely,

 

Peter C. Clark.

 

 

Bootleggers & Baptists- Part I- Gun Control Act of 1968

alcohol barrel basement beer
Photo by Pixabay on Pexels.com

 

 

 

Introduction:

 

There is a tendency to assume that regulation is implemented for the betterment of society. Consumer protection measures and other regulations are seen as necessary for the common good. Safety laws typically require amendments to product design which would result in costly alterations. Ironically, there are some unlikely beneficiaries of safety regulations.

As economist Bruce Yandle came to find out while working as for the Federal Trade Commission.  To his surprise, many industry representatives actually were on board with these regulations. They were even concerned that that government agencies would abolish these laws. Yandle found this to be quite counter-intuitive many safety regulations impede efficiency (Yandle, 1983, p.2) [1]. The true benefit of such restrictions was the reduction in competition (Yandle, 1983, p.2) [2]. Larger corporations would be able to financially withstand the new safety requirements.  For smaller companies, these restrictions operate as a barrier to entry. Regulations can put severe hardships on small businesses that have a cartelization effect [3]. Eliminating competition without even violating the Sherman Antitrust or the Clayton Act.

These consequences are the byproduct of what Dr. Yandle has dubbed the Bootleggers and Baptists effect.  It is the phenomenon in public policy where improbable coalitions are formed to achieve the same goal. This analogy is drawn from Baptists wanting to prohibit liquor sales on Sundays for moral reasons. The bootleggers in tandem supporting this restriction due the eliminating the competition of legitimately licensed bars and liquor stores (Yandle, 1983, P. 2-3) [4]. Bootleggers are able to advocate for their own self-interest under the aegis of the moral concerns of the Baptists. Forming a dynamic where moral concerns provide cover for those who can enrich themselves. As the Bootleggers are criminals and laws are not a deterrent for them. A law banning liquor sales on Sundays will deter law-abiding alcohol vendors. Leading to us to question who the true beneficiaries are of any zealously petitioned regulation.

 

This essay will be the first installment of a continuous series of real-life applications of this theory. Considering the wide breadth of practical examples there will be many essays to come. The first essay will be dedicated to the impact of the 1968 Gun Control act.

 

Who are the Baptists and who are the Bootleggers:

Baptists: Gun control Baptists

Bootleggers: Domestic gun manufacturers

 

Parameters of the 1968 Gun Control Act: 

This specific piece of gun control legislation was popularly believed to be in direct reaction to the civil unrest of the turbulent 1960s. Political press mounted after the assassinations of high profile political figures. Including president John F. Kennedy and  civil rights activist Martin Luther King Jr [5]. The fervor to pass gun control laws only was compounded by a series of inner-city riots that occurred throughout the course of the decade [6]. Some commentators have even hinted towards gun control measures in the 1960’s being racial bias [7]. More extreme civil rights advocates such as the Black Panthers were well known for regularly carrying semi-automatic rifles.

 

Slain public figures and the raucous carnage of urban riots superficially like an appropriate context for restrictions on gun ownership. After all, the outcry for gun control laws came out of concern for the safety of the public. However, was this 1968 law evenly applied to all gun makers and vendors? Not exactly. The legislation tended to skew in favor of domestic gun manufactures. Dating back to the late-1950’s domestic gun companies in New England’s “gun valley” expressed to local politicians concerns over foreign competition (Newhard, 2015, P.2) [8]. Blatantly exposing the desire stifle competition from foreign producers. Much of the gun control rhetoric of the 1960s was pointed at imported guns. The emphasis that Lee Harvey used an Italian mail-order purchased rifle to kill JFK (Newhard, 2015, P.4) [12]. Complaints of “surging” numbers of cheap guns being imported into the United States. Blurring the line between genuine concern for public safety and protectionism.

 

Beyond the salient nature of the protectionist proclivities of U.S. gun makers, there is also some evidence that the legislation was disproportionately angled at foreign gun producers. It can be argued that there were some asymmetries the parameters of enforcement in the 1968 bill. Restrictions were established for vendor licensing, mail-order arms purchases, and the sale and transportation of imported weapons (p.4-8) [9]. Heavier licensing fees were directed at mail-order gun vendors (Newhard, 2015, P.2) [10]. Many may argue that placing such restrictions on mail-order sales were worth the price of keeping firearms out of the hands of children. Such a stance ignores the implicit benefit of domestic producers. Mail-order prior to the internet was the main avenue for obtaining European rifles and pistols. Making more difficult to purchase anything from Beretta but guns from Ruger could easily still be bought brick and mortar.

 

It can be speculated that shortly after the bill was signed that there may have been deliberate delays on the approvals of gun importation licenses. The bill was signed into effect in October 1968  and gun dealers had a deadline of December 15th (Newhard, 2015, P.5)[11]. Anyone versed in economic-behavioral patterns or just plain common sense could foresee the litany of vendors racing to get their licenses prior to the law passing. Despite the upsurge in requests for licenses, government officials dragged their heels when it came to approving them. It was suggested at the time to be a means of preventing a “flood of foreign handguns” into the country prior to the enactment of the new law. This circuitous form of bureaucratic activism did more to hurt small firearms dealers than did promote public safety.  Small-time foreign gun dealers found it easier to stop selling guns than continue to comply with the new laws (Newhard, 2015, P.4) [13].

 

Final Thoughts on the Dynamics of this B&B Dynamic:

This example is a classic example of ignoring the incentives of invested interests.  I would argue that this is a defining feature of most Baptists and Bootleggers relationships. On one side you have the advocates compelled by moral convictions. Who unwittingly provides the veiling moral cover for the self-interested bootleggers. If the bootleggers ever directly advocated for the policies that benefited them without the moral smokescreen they would be derided by the average voter.  Doing so under the guise of the common good the story changes.

The example of the 1968 Gun Control Act touches upon a point made by Bruce Yandle back in 1983, there is a demand for regulation. There is an economic dimension to the supply and demand of regulation produced by the government. When there is a profound increase in market competition many major companies favor regulation. Yandle cites technological changes, demographic changes, significant changes in factor costs, and new information as being factors swaying the demand for regulation (Yandle, 1983, p.3-4) [14]. Often there are anti-competitive consequences of imposing new safety regulations. Time and money are required to adapt business practices to the contingencies of compliance. This will often be devasting to small businesses.