Category Archives: Current Comment

Rearden Metal

Posted on by sjcammenga
2

Michigan can feel like it’s full of shakers, but there are still many movers. In a scene that could be straight out of “Atlas Shrugged,” an amateur metallurgist in Detroit has created his own version of Rearden Metal called Flash Bainite. Flash Bainite has been proven at six ballistic testing labs to be pound for pound the strongest, most ballistically resistant, readily weldable metal known to man. The process produces steel that is 7 percent stronger than the other forms of steel and even some titanium alloys. In addition, it is more ductile than other steels, which allows it to crumple more before breaking and better absorb impacts. If it sounds like this incredible process would be too expensive to be viable, think again. The process to give steel this strength takes around 10 seconds and is more energy efficient and cheaper than traditional steel making. It is even environmentally friendly as it uses water instead of polluting oils or molten salt and only one Kwatt of energy. The best part is that this amazing metal was created by a DIY American’s ingenuity without an ounce of government funding for his tinkering. I want the first bracelet!

The second coming of Karl Marx

Posted on by pontoppidandk
1

By D. Pontoppidan, Summer Fellow at the Mackinac Center

Here is a letter I sent to the editor of the Financial Times a couple of days ago.

The second coming of Marx

Sir, on June 30 Ben Funnell engaged in editorial divination, channeling Karl Marx’s financial beliefs from the grave. In the pink pages of Financial Times, no less. Claiming that the benefits of economic growth go into the pockets of plutocrats and increases inequality, Funnell warned of impending revolution.

But what the rising Gini coefficients don’t explain, however, is that while the rich naturally gain most, everyone benefits from capitalism. A study from the U.S. Census Bureau published in 2003 examined various income groups in the years 1996-99. In this period, 38 percent of the people who were in the poorest fifth of the population climbed the social ladder. A similar study undertaken by the Sphere Institute in California, America’s largest economy, showed that out of 187,000 employees who were examined between 1988 and 2000, 80 percent who started in the poorest fifth had advanced socially.

Funnell mentions Société Générale’s study of the inflation-adjusted income of the highest-paid fifth of American earners in 1970, and that it has risen by 60 percent since then, while it has fallen by more than 10 percent for the rest. Actually, it islikely that the inflation-adjusted income of the highest-paid fifth of earners in 1970 is zero today. One earns the most money as one retires, and in the long run after, we all die as Keynes famously predicted.

While we are dead in the long run, we benefit in the short run. Take the mass distribution today of products that only a few years ago were luxury item: ipods, mobile phones, laptops, high speed internet connections and comfortable cars. All the result of financial innovation that is unique to the free market, and even in a financial crisis have not succumbed to a falling rate of profit as Marx would have had us believe.

Capture is part of regulation itself

Posted on by pontoppidandk
1

Here’s a letter I sent to the WSJ about a week ago

by D. Pontoppidan, Summer Fellow at the Mackinac Center

Thomas Frank [“Obama and Regulatory Capture, June 24] calls the present moment a time “for a ringing reclamation of the regulatory project.” To protect consumers, he argues, we need regulation, and better people in charge, lest we suffer from “regulatory capture,” a concept developed by the Chicago economist George Stigler.

I am reminded of another Chicago economist, Milton Friedman, who once recounted the history of the Federal Register, which records all matters concerned with regulatory agencies in the United States. From its inception in 1936, the Federal Register grew from 2,599 pages and six inches of shelf space to 36,487 pages in 1978, the year before Friedman’s book ‘Free to Choose’ was published, taking up 127 inches of shelf space – a veritable 10-foot shelf. Though the Federal Register was not even able to tell me the number of pages they publish today, they did inform me that they now published on a daily basis.

There are two myths at play in Frank’s article. One is that a lack of regulation was to blame for the financial crash. The second myth is that the answer to regulatory capture is to get better people into regulatory agencies. The whole point, however, of regulatory capture is that it is an inherent flaw in the system. To quote Stigler himself, “The state—the machinery and power of the state—is a potential resource or threat to every industry in the society. With its power to prohibit or compel, to take or give money, the state can and does selectively help or hurt a vast number of industries.” Leaving consumers free to choose on an open market seems a better way of punishing those who deal in bad products.

Financial innovation comes from trial and error

Posted on by pontoppidandk
1

By D. Pontoppidan*, Summer Fellow at the Mackinac Center

Here’s a letter I sent to the WSJ a couple of weeks ago:

We’ve recently heard of a new federal financial consumer agency which will have the power to scrutinize complex financial products, fit them with warning labels much like cigarettes or toys digestible by small children, and even ban them if they are deemed overly risky. Have we completely abandoned the belief in responsible consumers participating in the financial markets?

My primary concern is how financial innovation will come about in a situation like this, especially if the consumer agency becomes too strong. We all know innovation will not come from those monitoring the market, nor are innovative and bold new products likely to be viewed as safe or conventional when they emerge. I am reminded of the Japanese samurai who were paid in rice, and because of a series of bad harvests needed a stable method of converting their goods into coins. This in 1730 led to the establishment of the Dojima Rice Exchange, the world’s first futures exchange market. As it turned out, the system worked fairly well, and has since been implemented around the world. Other systems were flawed and failed. This process is known as creative destruction, and is how financial innovation is brought forth. Through trial and error. A market that includes everyone at all times and in all places, is better at testing and deciding on the value of financial products than a board of bureaucrats.

Robert Shiller, the Yale economist who predicted the financial meltdown, also suggested the expansion of a growing futures market based on the Case-Schiller indices that would measure house prices in large American cities. Such a market would be able to guide the direction of house prices much better than other systems, because it involves those who look for a rise as well as those who expect a fall. Similarly, we can imagine hedging against other macroeconomic factors such as inflation, interest rates and unemployment – the limits are endless. The question is, will financial innovation make it past the consumer protection agency?

*The author took a class on behavioral and institutional economics with Robert Shiller.

Freedom in Iran

Posted on by pontoppidandk
2

By D. Pontoppidan, Summer Fellow at the Mackinac Center

We’ve all seen what has been described as the “biggest unrest in Iran since 1979” unfold on television for the past week. What we haven’t seen, however, is the United States of America or President Barack Obama take an active stance in the conflict. So far, the world has heard very little from the leader of the free world in the matter of Iran.
This provides grounds for some thoughts over the foreign policy of the current party in power – the Democratic Party.

Historically, the Democratic Party was an interventionist party that believed in spreading freedom around the world. It would seem, however, that it has changed its principles radically since the failure of the Iraq war, and taken a more isolationist stance on foreign issues, which is a shame. As a European, and in particular as a Dane, I have always seen America as a historical liberator of oppressed peoples around the world. FDR to me was never the president of the Great Depression or the president of Social Security, but the president who gave the famous Garden Hose speech to persuade Congress to pass the Lend-Lease Act. FDR’s phenomenal leadership made it possible to persuade a largely isolationist country to lend military equipment, and later manpower, to European countries that defended themselves against the Axis powers. If not for the Democratic Party, I would have been speaking German today – not Danish. That counts for something in my book.

A few weeks ago, President Obama spoke at the 65th anniversary of D-Day and stated: “Friends and veterans, what we cannot forget — what we must not forget — is that D-Day was a time and a place where the bravery and selflessness of a few was able to change the course of an entire century”. This bravery was apparent in the men who died at the front fighting for freedom and democracy – but it was also part of the political leadership and the Democratic Party at the time. And just as it was then, it should be today.

Should we declare war on Iran? No. The price would clearly be too high to pay. But what about taking a stance for democracy? For the past week, the Iranian government has violently and brutally cracked down upon any dissent from peaceful protesters that have protested the disputed results of the Iranian Presidential Elections from June 12 2009. Protesters have been killed and assassinated, political prisoners have been taken, cell phones and internet connections have been shut down, and the Iranian people’s desire for free assembly and free speech is being grossly set aside. What we are seeing unfold is a victory for totalitarianism – not democracy. According to Der Spiegel, as many as 5.000 Lebanese Hezbollah militiamen have been recruited to fight the protesters, happily traveling the distance from Lebanon to Iran to destroy the spirit of democracy and keep an Islamic extremist in power.

Recognizing the right of the Iranian people to have open, democratic elections as well as the right to protest peacefully against blatant electoral fraud would not be a hard thing for the United States to do, but it would be significant in providing a united stand against the corrupt Iranian regime. Echoing French President Nicolas Sarkozy, the United States could demand that the Iranian election results must be subject to immediate nullification, and that no international country should recognize the results until an international probe into the Presidential election’s process has been conducted. The United States could refuse to speak to President Mahmoud Ahmadinejad and thereby refuse to recognize him as leader of his country. Through the United Nations’ Security Council, a resolution could be passed imposing sanctions on Iran, or at least it could be attempted. And as a president widely seen by the world community as a symbol of hope and change, Barack Obama could attempt to unite the world just as he united his own country. The statement “Yes we can” did not go around the world because it was a smart campaign slogan. It went global because of its universality and belief in certain basic truths, as fundamental as those described in the Declaration of Independence. The belief that change can be achieved.

To recognize Mahmoud Ahmadinejad as President is to recognize violence and fraud as valid measures in a country that proclaims itself to be democratic but clearly is not. The Iranian election process, having been manipulated from the beginning, did not intend for Mr. Hossein Mousavi or any other possible reform candidate to win. We now have the chance, however, to help the Iranian people in ensuring a more prosperous future, and rise up against a totalitarian system. I recall the words of former U.S. President John F. Kennedy, who in his Inaugural Address stated: “Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty”.

Words of wisdom for the leadership of today.

The human factor in justice

Posted on by pontoppidandk
Reply

By D. Pontoppidan, Summer Fellow at the Mackinac Center*

Over at Cafe Hayek I stumbled on a letter to the editor in the Baltimore Sun from one Diane Schaub. She argues correctly that judges should not let their emotions cloud their judgment (“Why empathy is the enemy of justice,” June 14), but she is incorrect in asserting that impartiality and empathy are mutually exclusive in a court of law. On the contrary, in my own cases, I find there’s an important human factor in justice that we mustn’t forget. Empathy has a central role to play in measuring out the sentence, just as a judge who has knowledge of what it means to be disenfranchised or marginalized from society, or has experienced being the victim of a crime, can better understand testimony relating to such experiences (of which there is plenty in the criminal courts systems!). Applying such experience to one’s assessment of a case is only a strength.

Of course, judges should always be impartial, a process they undergo through applying culturally coded, ideological standards to manage their feelings and produce acceptable displays, e.g. by wearing robes and adhering to certain rules and practices. But should we really run away from that which makes us human in a court of law? The question is interesting and would certainly be excellent for a Philip K. Dick novel . Imagine we could calculate the optimum penalty for a crime through an econometric model. Would we then rather have computers presiding over cases in the future? I certainly wouldn’t.

* The author is a politically appointed lay judge to the District Court of Copenhagen, Denmark, and finishing an MA in Sociology.

Legalize drugs? How about alcohol!

Posted on by pontoppidandk
3

D. Pontoppidan, Summer Fellow at the Mackinac Center for Public Policy

Nicholas D. Kristof and others have argued that since war on drugs has been lost, drugs should be legalized. I cannot help but wonder where the debate over America’s absurdly high drinking-age has gone? In many ways it bears resemblance to the debate over marijuana.

In spite of a legal drinking age of 21, I know not one young person in America who has not broken this law more than once. Yet they are seen by the system as criminals. Similar to marijuana. In my home country of Denmark, where the legal drinking age was 15 while growing up, parents were able to take care of young people who got too drunk, and alcohol was tolerated. In America, it seems they just send them off the college and hope for the best. Again, alcohol in America is similar to marijuana, which young people hide from their parents who are left in the dark. And finally, it has struck me how much more widespread the drug culture is in America; perhaps because it is easier to get to than plain alcohol? Or perhaps because anyone who can get you alcohol illegally can get you other things as well!

It seems to me that if America wants to understand its failure at combating drugs, it must begin with its desire to regulate the most basic form of consumption: drinking.

Mackinac Center Current Comment :: 6 August 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Today’s Current Comment is this week’s Michigan Education Digest from Michigan Education Report.  The most interesting story is about how a bill has recently been rushed through the legislature to allow Detroit Public Schools to maintain their ‘first-class’ status.  The bill also opens up room for more charter schools, though, and teachers throughout Detroit are expected to protest this fact later this month.

Both the special ‘first-class’ status and the possible expansion of charter schools are significant, although for different reasons.  The special status should be removed from Detroit Public Schools because, while it is the largest district in the state of Michigan, it is not different in kind from the others.  It is still a school district, teaching children basic tenets of math, science, literature, history, social science, and the arts.  True, many students are fairing very poorly there, but the extra funding and attention the ‘first-class’ label brings will not solve the problem.  The possible expansion of charters school, on the other hand, should be applauded, because it might help the ailing district.  They are no magic bullet, but they are a step in the right direction.  Charter schools open up another avenue for competition that forces schools to put education before union contracts or teacher salaries.

I am certain that many skilled and committed teachers are part of the Detroit Public Schools, and charter schools leave them with nothing to fear.  In fact, these teachers will most likely be better off with the charter schools than without.  Those who do have a reason to protest this new opening for charter schools are teachers who are not actively engaged in the art of teaching. But, for students, losing teachers who are not passionate about education in order to gain teachers who are can only be a good thing.

Four other stories can be found in the Digest this week, so take a few moments and check it out.

Mackinac Center Current Comment :: 1 August 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Today’s Current Comment is an article by Lorie Shane over at Michigan Education Report.  In it, Shane talks about the No Child Left Behind Act, how Michigan continues to perform, and how the act is changing.  While the article is very good, it does not mention what I think are some key points.

First, the NCLB Act, as well as the entire federal Department of Education, is unconstitutional.  The United States Constitution specifically states that those things which are not explicitly delegated to the federal government in the Constitution are to be left entirely to the states’ decision.  Education is not specifically delegated in the U.S. Constitution, thus, it is the responsibility of the states to provide and regulate public education.  While the Michigan Department of Education is probably needed, the U.S. DOE certainly is not.

This constitutional provision illustrates an important concept in the U.S. theory of government that is often neglected: federalism.  The United States is just that – a group of states operating in cooperation.  Each state is to be largely independent in the development of laws, bureaus, and customs.  The federal government, in turn, is to provide for those specifically granted powers of the federal Constitution which the founding fathers did not believe easily accomplished by states acting disparately.  The federal government has grown much more powerful than is provided for in our theory of government, and the states, and their citizens, have suffered accordingly.  Federalism is a strong idea, reminiscent of the marketplace, and one to which we should draw attention more often.

Another point worth mentioning is that strong school choice is a much more effective regulator than the NCLB Act.  Leaving the ever-present possibility that students will leave if the education their school provides is not satisfactory, schools have a direct incentive to improve and educate well.  One of the most effective reforms for NCLB, then, would be to abolish it and move all the folks at the state level who have worked to ensure their schools are performing well to working full-time to initiate powerful school choice measures like a tuition tax-credit.

Teaching the youth of the United States is an incredible responsibility.  To do so poorly is an incredibly tragedy.  We must work to reform the educational systems not only of Michigan, but of state, providing a model for the world of how effective education policies can change the future of a nation.

Mackinac Center Current Comment :: 29 July 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Today’s Current Comment was written by Jack McHugh.  He writes about the tax climate in Michigan and how increasing the tax burden for an already stumbling economy is a poor idea.  Fundamentally, McHugh reminds readers that economics is the study of people and their decision-making.  So, when the legislators in Michigan’s congress choose to enact higher taxes, businesses who were planning to move into Michigan decide not to come after all.  Families who were barely scraping by before the tax hike simply cannot make it anymore, so they move away.  People are not static objects, but thinking, feeling subjects.  Changing the rules of the game, by increasing taxes for example, changes the very way people play the game itself.  The same old game becomes an entirely new and different game.  But, new may not necessarily mean better.

Another way to communicate this truth is to realize that institutions are important.  Why?  Well, they are important because they can enforce rules and rules are important.  Why?  Well, rules are important because they create incentives, and incentives are important.  Why?  Well, incentives guide people’s behavior, and understanding how people act is the goal of economics.

For the most part, though, the problem is not in the institution itself.  Government, by most people’s account, is a valid institution with a legitimate place in society.  There are problems, though, with the rules.  The current rule set that governs Michigan residents, its current laws, are creating the wrong incentives.  They are, for instance, encouraging people to stay away from Michigan business and even to leave if they are already here.  Economic growth cannot happen this way, no matter how many tax credits are granted to filmmakers or other specialty enterprises.  Instead, these poor rules must be repealed, and different rules must be established to govern the game of Michigan’s economic health.  Remember though, that we might not need as many rules as we have currently.  We need just enough to create the right incentives, and no more.  In fact, creating extra incentives will only serve to make the game less fun for everyone involved.

Michigan needs serious revision to the rules governing the game, and until that happens, situations such as the one outlined by Jack McHugh in his Current Comment will only become more and more depressing.  The solution is simple, even if it may be hard to exercise the restraint to implement.  It is worth it though, for the millions of grateful people who will make Michigan prosper for decades to come.

Mackinac Center Current Comment :: 28 July 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Jack McHugh writes today’s Current Comment about the proposed Reform Michigan Government Now amendment’s streamlining for Michigan’s budget.  He concludes that the amendment ends up saving the state approximately one-twentieth of one percent of its operating budget.  This amount is almost laughable compared to the hype the proposal has received for its reform and “downsizing” of state government.  McHugh includes further details, as well as his own recommendations, in the Current Comment, so check it out.

Mackinac Center Current Comment :: 24 July 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Trying Liberty’s Kurt Bouwhuis wrote today’s Current Comment at the Mackinac Center, which is actually a modified version of his previous post, Thoughts of Michigan’s Unemployment Rate.  In it, Bouwhuis shows that the official explanations for Michigan’s high unemployment, an influx of young labor and high gas prices, simply do not hold up under scrutiny.  Instead, he proposes that it is government interventions which are wreaking havoc on Michigan’s economy.

Mackinac Center Current Comment :: 22 July 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Mackinac Center Director of Communications Michael Jahr announces the succession of current President Lawrence Reed by current Executive Vice President Joseph Lehman.  Also available at the Mackinac Center website is the recording of a radio interview Reed & Lehman did with Frank Beckmann on 21 July 2008 to publicize the change, effective 1 September 2008.  Reed will become the Center’s President Emeritus and will simultaneously serve as the new president of the Foundation for Economic Education (FEE).  Congratulations to both Reed & Lehman!

Mackinac Center Current Comment :: 17 July 2008

Posted on by jsrule
Reply

<>< Josh Rule : : 2008 MCPP Intern

Director of the Mackinac Center’s Property Rights Network, Russ Harding has an incredible Current Comment today.  Incredible in the sense that I can hardly believe that what He is writing is true, but I do not deny that it is.  It seems that yet another state agency in Michigan is trying to shape Michigan’s economy to its own desires through central planning.  The Michigan Economic Growth Authority (MEGA) has been doing this type of central planning since 1995, and during that time Michigan has continued to fall further and further behind, economically.  I am not saying that  MEGA caused the state’s economic woes, but they certainly have not helped to prevent or remediate them.

Yet, MEGA is not the culprit here.  Instead, it is the Department of Environmental Quality.  Someone in the department “dedicated to protecting human health and to preserving a healthy environment” has decided that the best way to protect & preserve is to selectively choose which businesses are best in which parts of the state and deny access to others based on primarily social reasoning.  Truly, this development is a dangerous one, but to find out precisely why, I encourage You to go ahead and read Russ Harding’s Current Comment.