Smoking’s Bottom Line

When Michigan Gov. Jennifer Granholm approved a private-business smoking ban in late 2009, many restaurant and bar owners voiced concerns over its potential effect on their businesses. The owners feared that smokers would reduce the time they spent at eating and drinking establishments, thereby hurting the industry’s bottom line. Over a year later, the argument for repealing the ban grows stronger.

A 2010 report by the Michigan Department of Treasury attempted to measure the effect of the smoking ban by analyzing restaurants’ sales tax collections. While the study indicated that most eating establishments were not significantly affected by the smoking ban, the authors observed that the reduced tax collections at taverns with liquor was “potentially related” to the ban. Also decreasing after enactment of the ban were liquor sales at restaurants, tax collections from cigarettes and revenue from bar “Club Games,” such as Keno.

Ultimately, the report concludes, “The impact of the smoking ban has likely affected some establishments within each group far more than others.” Therefore, the best way to determine the economic effect of the smoking ban is on a case-by-case basis.

The website Tobacco Reviews interviewed Michael Moriarty, the owner of two bars in Lansing. One of his bars, Moriarty’s Pub, enjoyed an enhanced lunch crowd, which Moriarty attributed to the ban. At his other bar, Stobers Cocktail Lounge, however, the ban caused Moriarty’s usual clientele to stop coming in as frequently and consistently.

In an article in The South End, Tom Moore, owner of Lefty’s Lounge in Detroit, concurred that the ban has produced mixed results. In May, Moore noted that while some of his customers, such as professors from nearby Wayne State University, enjoy the smoke-free environment, he has also “lost a lot of neighborhood regulars who don’t come in as much — if at all.”

A new Michigan Public Broadcasting series titled “reWorking Michigan” recently produced a video in which several state restaurant owners similarly reflected on the smoking ban. Val Orlando, owner of City Limits Bowling in Mason, supports the ban, and he praised it in the video. Despite this, he admits: “It’s been a little bitter sweet. Our late-night, singles crowd kind of has suffered a little bit … they kind of left us.”

Nicholas Fata, who owns Champions Sports Bar and Grill in Holt, is more vocal about his frustration with the ban. Fata claims that his business is down 10 percent to 15 percent, and he’s laid off 10 employees as a result of losing his smoking crowd.

At first glance, these testimonials from restaurant owners seem contradictory. What they show, however, is that restaurants are not fungible; rather, they have unique menus, business models and clienteles. For example, Moriarty’s Pub in Lansing can attract a larger university crowd to offset the loss of smoking customers. Fata’s sports bar in Holt does not have this advantage, and its business has suffered.

In the end, aggregate data on the smoking ban’s economic effect misses the mark by overlooking restaurants that depend on smoking customers; these establishments lose revenue, lay off workers or even close.

Some contend that the negative health effects of second-hand smoke supersede concerns about restaurants failing. As Mackinac Center Senior Environmental Analyst Russ Harding has noted, however, studies connecting secondhand smoke to health ailments are inconclusive, and such arguments ignore the ability of customers to make their own health decisions by deciding whether to dine at restaurants that allow smoking.

Michigan should repeal its private-business smoking ban and return this decision-making power to restaurant owners. They — not policymakers in Lansing — can better determine what affects their bottom line.

A Political Romance

Here is a letter I recently sent to the Midland Daily News:

Imagine the excitement of wealthy health industry executives as they watch the progression of the healthcare bill through the political system. These executives have been paying lobbyists large sums of money in an attempt to pass healthcare reform and it’s all about to pay off. If the bill passes, it will require every single American to have health insurance resulting in a large increase in the demand for their health services.

An even larger increase in demand will result from a lack of rationing from the consumers. Under healthcare reform, consumers will have access to as many healthcare services as they can get their hands on at no additional costs to themselves. To top it off, a credible third party with deep pockets (government) will pick up the tab for all additional expenses. In short, health reform will offer guaranteed payments and increased revenues to already wealthy individuals working within the healthcare industry.

Some may read the paragraphs above and say that I have it all wrong; healthcare is a human right and the reform is all about helping those who are not fortunate enough to provide for themselves. If this is the thought passing through your mind, you are likely an extremely kind hearted individual who is unknowingly endorsing the plans of special interests. In order to understand why this is true, it is important to be able to distinguish between the actual political process and the theatrical performances that follow.

The actual political process goes something like this – Special interests have a strong desire to extract money from the public purse. Unfortunately, extracting money from the public purse is a tricky process – No one ever approaches the government and says “I need $1 million dollars because I’m a good person and I deserve it.” Besides, special interests are much too sophisticated for such a request. Instead, they pay lobbyists and politicians (through campaign contributions) to ask for the same thing in a slightly different way. As soon as the payments have been made, the theatrical performances ensue. All of a sudden, lobbyists and politicians are saying “We need to pass bill X to protect the middle class.” What remains unmentioned is the $1 million that ends up in the pockets of special interests as a result of bill X.

The benefits of bill X are then mentioned in the media which excites regular citizens, causing a few of them to become activists. These activists are generally the kind hearted individuals mentioned earlier who unknowingly become the frontmen for special interests. The activists then go out on the streets and inform other people of the bill’s merits. Once the bill passes into law, the special interests pocket a portion of the loot for themselves and distribute the remainder to the political party and politicians who helped pass the bill. When another opportunity presents itself, a portion of the loot is spent to hire more lobbyists to begin yet another cycle.

This cycle will continue until the public at large stops romanticizing over the theatrical performances of politicians and realize what actually happens within the political system. With this knowledge, the endorsement of healthcare reform by several prominent politicians will be “no more surprising than that a hog would gorge itself when presented with a trough of food and be about as appetizing to watch.”*

Kurt Bouwhuis

*Andrew P. Morriss, Letter to the Financial Times, Oct. 14, 2008.

Case against the Minimum Wage

Here is an article that I found from Dan Smith. It is about all the negative effects of minimum wage laws. It is really interesting to see how the laws hurt wages of young workers, that minimum wage laws generally hurt blacks, and increase job turnover. Those are just a few of the negatives that are listed on the site. Check it out and see why the minimum wage should be abolished.

Swarms of Poisonous Insects

Here is a great letter to the editor by Don Boudreaux:


13 October 2009

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Reporting on the Obama administration’s enthusiasm for government regulation, you report that “In a move designed as much for symbolism as effect, the new chairman of the Consumer Product Safety Commission dispatched all 100 agency inspectors across the country last month to enforce a law that requires special drains on swimming pools to prevent children from entrapment.  The agency shut down more than 200 pools.  The new regulators display a passion for rules and a belief that government must protect the public from dangers lurking at home and on the job” (“A Vigorous Push From Federal Regulators,” Oct. 13).

Symbolism indeed.

The symbol I’m reminded of is the Declaration of Independence.  Words that Thomas Jefferson used to denounce King George III apply with equal force and justification Mr. Obama: “He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”

Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030

Dynamic Interventionism

complex_network_managementKurt Bouwhuis, Mackinac Center Intern

One would have to put forth much effort to find a year in history in which any government lessened in size.  A significantly less amount of effort would have to be applied to find any government that increased in size in the same year.

There are several reasons for the steady growth of government – Among them is mans natural pursuit of power, concentrated benefits and dispersed costs, increases dependence on government, politicians tailoring their efforts to please the median voter, etc…  One reason that is often overlooked is what I would like to call dynamic interventionism.  Dynamic interventionism can be thought of as intervention in market “a” breeding interventions in markets “x,y, and z.”

A simple example from the United States today can help illustrate this point.  Suppose I am a politician who advocates free immigration on principle.  I may not decide, however, to vote for free immigration under the United States current political structure because immigrants tend to use government benefits and drain taxpayer money.  The same benefits that alter my voting pattern on immigration may also make it more difficult to empirically speak of the merits of private charity (as it is being crowded out by government charity).

In short, the more government grows, the more justification there is for government to grow.

Capture is part of regulation itself

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

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.

Legalize drugs? How about alcohol!

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.

Reams of Regulation

In their commentary released Wednesday on the Detroit News website, Wayne Crews and Ryan Young summarized the shocking results of Crews’ Ten Thousand Commandments, his annual report on federal regulations. 

Businesses spent $1.17 trillion in 2008 to comply with federal regulations. The government spent another $49.1 billion to enforce them. The total spent on regulation is right up there with Canada’s entire 2006 gross domestic product of $1.265 trillion.

The 2008 Federal Register weighed in at 79,435 pages, an all-time record. More than 60 agencies passed 3,830 new rules last year. The federal regulatory pipeline now has 4,003 rules at various stages of implementation. Of those, 783 affect small businesses.

The government calls a regulation “economically significant” if it costs $100 million or more. One hundred and eighty such rules came onto the books in 2008, costing the economy at least $18 billion. This is an increase of 13 percent over 2007, which in turn was up by 14 percent from the year before.

Assuming copy paper thickness, that would make the Federal Register approximately 25 feet thick.

In a recent article for the Acton Institute Oskari Juurikkala weighs the costs of regulation.

When an external intervention is perceived as controlling and not respecting the rightful autonomy and reasonableness of the person, extrinsic motivation tends to crowd out intrinsic motivation. When people feel that they are being forced to act in a certain way, their behavior becomes more extrinsically guided.

The question is whether government regulation crowds out the intrinsic motivation that drives business.  I think 25 feet of solid paper is enough to crowd any desk. 

Adam Rule – MCPP Intern

You Better Not Oppose Regulation

Kurt Bouwhuis, Mackinac Center Intern

scary11scary2These screen shots were pulled off of the CNN website.  I am hoping “held accountable” means nothing more than questioned.  It seems odd to say that if you oppose regulation, you should be held accountable.  What if it were proven that regulation caused our financial crisis?  Should those who advocated regulation be held accountable?

That Darn Free Market


Kurt Bouwhuis, Mackinac Center Intern

“What we’re seeing — even before Obama is sworn in — is a changing of the guard, so the new folks are ready to take charge on Day One.

Some Republicans have predictably begun to grumble about the size of the stimulus package, but here’s a question: What would you in the GOP do differently? Would you continue the deregulation that got us into this mess? And didn’t you folks break the bank over the last couple of years? Aren’t even some of the most conservative economists now advising spending as a way to get ourselves out of this hole?” – Gloria Borger

Placing political labels to the side, I have two main issues with this short excerpt from an article titled Obama Takes Ownership of the Economy by Gloria Borger.  First off, did deregulation cause this “crisis”?  Second, you are not an economist at all if you believe more spending will get us out of this mess.

When blaming deregulation and the free market, it makes me think of a recent post from Cafe Hayek: “By “free market”, they must mean politically driven lending practices, price fixing in labor markets, price supports in agriculture, tariffs in steel trade, illegals relegated to permanent underclass, artificially low interest rates, government enforced monopolies, and fake money.” – Seanooski

Market regulation will never work effectively.  Why?  Because there is a relatively small number of regulators trying to control a relatively large group of individuals.  This leaves a small body of knowledge trying to outsmart a large body of knowledge.  Additionally, there are some individuals that understand the framework of regulation far better than the regulators.  What is the result?  Individuals will “break” the system.

inside-man-2006Think of it this way:  Suppose I have to design a security system to protect the world’s largest diamond.  I hire the best security design team to constantly design and update the security system.  Will I ever complete a system that is 100% safe?  Absolutely not!  Why?  Because there are individuals (who are most likely smarter than my top notch design team) working on a way to break the system and obtain the diamond.  Regulation in the market works in the same fashion.

“Economists” think spending will get us out of this mess…  What got us into this mess?  Among over regulation and a failing monetary policy, I would have to say borrowing money from foreigners and spending it all on consumption.  In the past, the United States would borrow money to save and invest.   We would then invest our savings in capital to increase our future production.  Recently, the United States borrows money to consume things like buying a new car, remodeling the kitchen, etc…  If we want the economy to be productive in the long run, we must allow the market to fall into a recession where we begin to save and invest rather than consume.

Additionally, CONSUMPTION DOES NOT CREATE ECONOMIC GROWTH.  How do businesses expand?  They borrow money from investors to build capital.  INVESTMENT CREATES ECONOMIC GROWTH.  The economy will not benefit from the government borrowing or printing money to offer consumers another stimulus package.  All this does is encourages the same consumption that got us into this mess.  We cannot expect foreigners to keep producing goods and services for free.  Although it’s a tough job to consume all these wonderful goods, perhaps we should try producing them.

In vino veritas?

Lauren Ruhland, MCPP science editor and 2008 summer intern

Michigan’s current law prohibiting out-of-state vinyards from shipping wine directly to consumers fell afoul of the state Supreme Court, which ruled in September that the law is unconstitutional because it discriminated between Michigan and non-Michigan wineries.  How did your lawmakers respond?  Not by opening up the market and letting consumers choose between a wide range of grape-derived alcoholic beverages.  Instead, they’ve drafted a bill to prohibit all wine deliveries, whether the vendor is within or outside Michigan.  It’s expected to reach the floor just in time for the holiday season.