Tag Archives: Mercatus Center

Graduate School Opportunities Available Through Mercatus

One of the great parts of working at Mercatus is getting to interact with all of the bright and ambitious students that participate in our academic programs. Mercatus offers four unique graduate programs for students interested in political economy and public policy. The training and education that Mercatus provides are one of a kind.

As part of each program students get access to funding, practical experience, and a wide network of passionate, dedicated scholars. Many graduates from each program go on to develop successful careers in academia and public policy. Ninety-two percent of MA Fellowship graduates, for example, receive a job within 9 months of graduation. Whether you’re pursuing a Master’s, PhD, or law degree, there may be something for you at Mercatus.

The four programs and their details are below.  If you’re interested in learning more and applying, check out our website. Deadlines are right around the corner, with the PhD Fellowship deadline approaching at the end of this week.

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Mercatus PhD Fellowship

The PhD Fellowship is a competitive, full-time fellowship program for students pursuing a doctoral degree in economics at George Mason University. PhD Fellows take courses in market process economics, public choice, and institutional analysis and work on projects that use these lenses to understand global prosperity and change.

Students receive an award up to $200,000 (over five years) for full tuition support and a monthly stipend, as well as experience as a research assistant working closely with Mercatus-affiliated Mason faculty. The application deadline is February 1, 2018.

Mercatus MA Fellowship

The MA Fellowship is a tw0-year, competitive, full-time fellowship program for students pursuing a master’s degree in economics at George Mason University in preparation for a career in public policy. Fellows attend readings groups and career development workshops, spend at least 20 hours per week working with Mercatus scholars and staff, and complete a Mercatus Graduate Policy essay.

Students receive an award of up to $80,000 (over two years) for full tuition support and a monthly stipend, as well as practical experience conducting and disseminating research with Mercatus scholars and staff on pertinent policy issues. The application deadline is March 1, 2018.

Mercatus Adam Smith Fellowship

The Adam Smith Fellowship is a one-year, competitive fellowship program for PhD students at any university and in any discipline. The goal of this fellowship is to introduce students to a framework of ideas they may not otherwise encounter in their studies. Fellows meet a few times out of the year to engage in discussions on key foundational texts in the Austrian, Virginia, and Bloomington schools of political economy and learn how these texts may apply to their research interests.

Students receive a stipend up to $10,000 as well as travel, lodging, and all materials to attend workshops and seminars hosted by the Mercatus Center. The application deadline is March 15, 2018.

Mercatus Frédéric Bastiat Fellowship

The Frédéric Bastiat Fellowship is a one-year, competitive fellowship program for graduate students attending master’s, juris doctoral, and doctoral programs in a variety of disciplines. The goal of this fellowship is to introduce students to the Austrian, Virginia, and Bloomington school of political economy as academic foundations for pursuing contemporary policy analysis. Fellows meet a few times out of the year to engage in discussions on key foundational texts and interact with scholars that work on the cutting edge of policy analysis.

Students receive a stipend of up to $5,000 as well as travel, lodging, and all materials to attend workshops and seminars hosted by the Mercatus Center. The application deadline is March 15, 2018.

 

 

High-speed rail: is this year different?

Many U.S. cities are racing to develop high speed rail systems that shorten commute times and develop the economy for residents. These trains are able to reach speeds over 124 mph, sometimes even as high as 374 mph as in the case of Japan’s record-breaking trains. Despite this potential, American cities haven’t quite had the success of other countries. In 2009, the Obama administration awarded almost a billion dollars of stimulus money to Wisconsin to build a high-speed rail line connection between Milwaukee and Madison, and possibly to the Twin Cities, but that project was derailed. Now, the Trump administration has plans to support a high-speed rail project in Texas. Given so many failed attempts in the U.S., it’s fair to ask if this time is different. And if it is, will high-speed rail bring the benefits that proponents claim it to have?

The argument for building high-speed rail lines usually entails promises of faster trips, better connections between major cities, and economic growth as a result. It almost seems like a no-brainer – why would any city not want to pursue something like this? The answer, like with most public policy questions, depends on the costs, and whether the benefits actually realize.

In a forthcoming paper for the Mercatus Center, transportation scholar Kenneth Button explores these questions by studying the high-speed rail experiences of Spain, Japan, and China; the countries with the three largest systems (measured by network length). Although there are benefits to these rail systems, Button cautions against focusing too narrowly on them as models, primarily because what works in one area can’t necessarily be easily replicated in another.

Most major systems in other countries have been the result of large public investment and built with each area’s unique geography and political environment kept in mind. Taking their approaches and trying to apply them to American cities not only ignores how these factors can differ, but also how much costs can differ. For example, the average infrastructure unit price of high-speed rail in Europe is between $17 and $24 million per mile and the estimated cost for proposals in California is conservatively estimated at $35 million per mile.

The cost side of the equation is often overlooked, and more attention is given to the benefit side. Button explains that the main potential benefit – generating economic growth – doesn’t always live up to expectations. The realized growth effects are usually minimal, and sometimes even negative. Despite this, proponents of high-speed rail oversell them. The process of thinking through high-speed rail as a sound public investment is often short-lived.

The goal is to generate new economic activity, not merely replace or divert it from elsewhere. In Japan, for example, only six percent of the traffic on the Sanyo Shinkansen line was newly generated, while 55 percent came from other rail lines, 23 percent from air, and 16 percent from inter-city bus. In China, after the Nanguang and Guiguang lines began operating in 2014, a World Bank survey found that many of the passengers would have made the journey along these commutes through some other form of transportation if the high-speed rail option wasn’t there. The passengers who chose this new transport method surely benefited from shorter travel times, but this should not be confused with net growth across the economy.

Even if diverted away from other transport modes, the amount of high-speed rail traffic Japan and China have generated is commendable. Spain’s system, however, has not been as successful. Its network has only generated about 5 percent of Japan’s passenger volume. A line between Perpignan, France and Figueres, Spain that began services in 2009 severely fell short of projected traffic. Originally, it was expected to run 19,000 trains per year, but has only reached 800 trains by 2015.

There is also evidence that high speed rail systems poorly re-distribute activity geographically. This is especially concerning given the fact that projects are often sold on a promise of promoting regional equity and reducing congestion in over-heating areas. You can plan a track between well-developed and less-developed regions, but this does not guarantee that growth for both will follow. The Shinkansen system delivers much of Japan’s workforce to Tokyo, for example, but does not spread much employment away from the capital. In fact, faster growth happened where it was already expected, even before the high-speed rail was planned or built. Additionally, the Tokyo-Osaka Shinkansan line in particular has strengthened the relative economic position of Tokyo and Osaka while weakening those of cities not served.

Passenger volume and line access are not – and should not be – the only metrics of success. Academics have exhibited a fair amount of skepticism regarding high-speed rail’s ability to meet other objectives. When it comes to investment value, many cases have resulted in much lower returns than expected. A recent, extreme example of this is California’s bullet train that is 50 percent over its planned budget; not to mention being seven years behind in its building schedule.

The project in California has been deemed a lost cause by many, but other projects have gained more momentum in the past year. North American High Speed Rail Group has proposed a rail line between Rochester and the Twin Cities, and if it gets approval from city officials, it plans to finance entirely with private money. The main drawback of the project is that it would require the use of eminent domain to take the property of existing businesses that are in the way of the planned line path. Private companies trying to use eminent domain to get past a roadblock like this often do so claiming that it is for the “public benefit.” Given that many residents have resisted the North American High Speed Rail Group’s plans, trying to force the use of eminent domain would likely only destroy value; reallocating property from a higher-value to a lower-value use.

Past Mercatus research has found that using eminent domain powers for redevelopment purposes – i.e. by taking from one private company and giving to another – can cause the tax base to shrink as a result of decreases in private investment. Or in other words, when entrepreneurs see that the projects that they invest in could easily be taken if another business owner makes the case to city officials, it would in turn discourage future investors from moving into the same area. This ironically discourages development and the government’s revenues suffer as a result.

Florida’s Brightline might have found a way around this. Instead of trying to take the property of other businesses and homes in its way, the company has raised money to re-purpose existing tracks already between Miami and West Palm Beach. If implemented successfully, this will be the first privately run and operated rail service launched in the U.S. in over 100 years. And it doesn’t require using eminent domain or the use of taxpayer dollars to jump-start that, like any investment, has risk of being a failure; factors that reduce the cost side of the equation from the public’s perspective.

Which brings us back to the Houston-to-Dallas line that Trump appears to be getting behind. How does that plan stack up to these other projects? For one, it would require eminent domain to take from rural landowners in order to build a line that would primarily benefit city residents. Federal intervention would require picking a winner and loser at the offset. Additionally, there is no guarantee that building of the line would bring about the economic development that many proponents promise. Button’s new paper suggests that it’s fair to be skeptical.

I’m not making the argument that high-speed rail in America should be abandoned altogether. Progress in Florida demonstrates that maybe in the right conditions and with the right timing, it could be cost-effective. The authors of a 2013 study echo this by writing:

“In the end, HSR’s effect on economic and urban development can be characterized as analogous to a fertilizer’s effect on crop growth: it is one ingredient that could stimulate economic growth, but other ingredients must be present.”

For cities that can’t seem to mix up the right ingredients, they can look to other options for reaching the same goals. In fact, a review of the economic literature finds that investing in road infrastructure is a much better investment than other transportation methods like airports, railways, or ports. Or like I’ve discussed previously, being more welcoming to new technologies like driver-less cars has the potential to both reduce congestion and generate significant economic gains.

Pokémon Go Represents the Best of Capitalism

An article uploaded to Vox.com by Timothy Lee earlier this week, “Pokémon Go is everything that is wrong with late capitalism,”has caused quite a stir, since it was fairly critical of the “Pokémon Go economy.” Given the popularity of the game though (and our concern that some players would be alarmed that their lighthearted entertainment was somehow destroying the economy) we wanted to offer a different perspective to some of the points made in the article.

In fact, we think that Pokémon Go actually represents the best of capitalism. In less than a week the game has topped 15 million downloads and the 21 million active daily users spend an average of 33 minutes a day playing. That amounts to over 11.5 million hours of playing per day, and those numbers only look to increase. The app doesn’t cost anything to download and play, which means that Nintendo and Niantic (the game developer) are essentially giving away tens of millions of dollars of value to the eager players.

We know that’s a bold statement. But this is why it’s true: A person’s time is scarce and valuable. Every moment they spend playing Pokémon Go they could instead be doing something else. The fact that they’re voluntarily choosing to play means that the benefit of playing is more than the cost.

Economists call this “consumer surplus” – the difference between a customer’s willingness to pay for a good or service and the price that it actually costs. It’s a measurement of the dollar value gained by the consumer in the exchange. If a person was to buy a game of bowling for $5 that they value at $7, instead of playing an hour of Pokémon that they value at $3 for free, that person would lose out on value that would have made their life better.

So even if the average consumer surplus is only a measly dollar an hour, consumers are getting $11.5 million dollars of value each day. The fact that customers are buying special items to use in the game, spending upwards of $1.6 million each day, implies that the value players receive from the game is actually higher.

The article laments that local economies are harmed because people are turning toward forms of entertainment that don’t have high production costs, like movie theaters or bowling alleys that need expensive buildings or numerous employees selling buckets of popcorn. What the article misses is that the economic activity associated with traditional entertainment options represent the costs of providing the entertainment. The reality we have now is much better, since we not only gain the value of the entertainment, but we have the money we would have paid for it to purchase other things as well. It’s almost like getting something for nothing, and our lives – and the economy in general – are better as result.

This is the core of economic growth – decreasing the scarcity of goods and services that limits our lives. The article makes it seem as if economic growth comes from simply spending money. This view can lead us astray because it ignores the importance of entrepreneurs, whose role is critical in the creation of new products and services that improve everyone’s well-being.

Pokémon Go is actually a great example of this. The game developers and their investors thought that they could make something that customers might like and they took the entrepreneurial risk to create the game without the certainty that it was going to be a success. Obviously, it was a good gamble, but I’m sure that even they are amazed at the results. Imagine if the game development funds had been used to build a couple of bowling alleys instead. Wow. What fun.

Think of what would have been lost to society if entrepreneurs didn’t have the funds and the freedom to take that gamble. And their success has spawned a sub-industry of “Poképreneurs” who are selling drinks and providing rides to Pokémon players. Economic growth – and our increased social well-being – depends on this kind of permissionless innovation.

In short, Pokémon Go represents the very best of capitalism because it’s premised on voluntary exchange – no one is forced to download the game, players can stop playing at any time they like, and if they value the special items available in the game store they can buy them to enhance their fun. Furthermore, the entrepreneurs who had the foresight and the guts to dare to make the world a better place are being rewarded for their accomplishment. Most importantly, that success only comes about because they have made people’s lives better in the process. That’s something Team Rocket could never learn to do.

About the Authors:

Michael Farren is a Research Fellow in the Study of American Capitalism at the Mercatus Center at George Mason University. He’s a proud member of Team Instinct, because he likes a challenge.

Adam A. Millsap is a Research Fellow in the State and Local Policy Project at the Mercatus Center at George Mason University. No team will allow him to join, because all he can catch is Pidgeys.

*The title and opening sentence of this article has changed since it was originally published.

Post-Katrina HUD funding has underwhelmed in Gulfport

Hurricane Katrina made landfall 10 years ago and devastated much of the gulf coast. In the immediate aftermath of the storm, both public and private aid flooded into the effected areas. Not all of this aid was effective, and my colleagues at the Mercatus Center have meticulously analyzed what worked, what didn’t, and how the region was largely able to get back on its feet.

One project that is still being scrutinized is the Port of Gulfport Restoration Program. In 2007 the Mississippi Development Authority (MDA) requested that $567 million of federal Housing and Urban Development (HUD) funds be diverted to the newly created Port of Gulfport Restoration Program. Prior to Katrina there were 2,058 direct maritime jobs at the port, and the 2007 plan submitted to HUD projected that there would be 5,400 direct, indirect, and induced jobs once the restoration project was complete in 2015. In return for the money the administrators promised HUD that at least 1,300 jobs would be created, and HUD Secretary Julian Castro was recently in Gulfport to check on the progress that has been made. As is typical with HUD projects, the actual progress on the ground has not lived up to the hype.

In September of 2014, nine years after Katrina, the port employed only 814 people. This was well short of even the 2,348 jobs predicted by 2010 in the original 2007 plan. Ignoring the fact that jobs are a poor metric for judging economic development – labor is a cost, not a benefit – the project has failed to live up to the promise made to federal taxpayers who are footing the bill.

HUD funding has a long history of failure. Billions of HUD money has poured into cities such as Detroit and Cleveland since the 1970s with little to show for it. Moreover, any successful HUD story is really just the result of transferring economic activity from one place to another. The $570 million being spent in Gulfport came from taxpayers all over the country who could have spent that money on other things. Moving all of that money to Gulfport caused small declines in economic activity all over the country, such as less investment in local businesses and/or lower demand for local goods and services. These small declines are hard to see relative to the big splash that $570 million in spending creates, but they are real and they do affect people.

Large, federal spending projects rarely live up to their hype and usually waste resources. Local citizens using local assets are often much more effective at revitalizing devastated communities. There are lessons to be learned from Hurricane Katrina, and at the top of the list is don’t expect too much from federally funded programs – they are usually not up to the challenge.

Three ways states can improve their health care markets

I have a new essay, coauthored with two of my former students, Anna Mills and Dana Williams. We just published a piece in Real Clear Policy summarizing it. Here is a selection of the OpEd:

Liberals, conservative, and libertarians agree on the goals: Patients should have access to innovative, low-cost, and high-quality care. And though another round of federal reform may be years off, a number of state-level changes can move us closer to a competitive and patient-centered health-care market, making it possible to realize these shared aspirations.

In a new paper published by the Mercatus Center at George Mason University, we identify three areas for reform: States can eliminate certificate-of-need laws, liberalize scope-of-practice regulations, and end the regulatory barriers to telemedicine.

And here is our longer essay.

How Complete Are Federal Agencies’ Regulatory Analyses?

A report released yesterday by the Government Accountability Office will likely get spun to imply that federal agencies are doing a pretty good job of assessing the benefits and costs of their proposed regulations. The subtitle of the report reads in part, “Agencies Included Key Elements of Cost-Benefit Analysis…” Unfortunately, agency analyses of regulations are less complete than this subtitle suggests.

The GAO report defined four major elements of regulatory analysis: discussion of the need for the regulatory action, analysis of alternatives, and assessment of the benefits and costs of the regulation. These crucial features have been required in executive orders on regulatory analysis and OMB guidance for decades. For the largest regulations with economic effects exceeding $100 million annually (“economically significant” regulations), GAO found that agencies always included a statement of the regulation’s purpose, discussed alternatives 81 percent of the time, always discussed benefits and costs, provided a monetized estimate of costs 97 percent of the time, and provided a monetized estimate of benefits 76 percent of the time.

A deeper dive into the report, however, reveals that GAO did not evaluate the quality of any of these aspects of agencies’ analysis. Page 4 of the report notes, “[O]ur analysis was not designed to evaluate the quality of the cost-benefit analysis in the rules. The presence of all key elements does not provide information regarding the quality of the analysis, nor does the absence of a key element necessarily imply a deficiency in a cost-benefit analysis.”

For example, GAO checked to see if the agency include a statement of the purpose of the regulation, but it apparently accepted a statement that the regulation is required by law as a sufficient statement of purpose (p. 22). Citing a statute is not the same thing as articulating a goal or identifying the root cause of the problem an agency seeks to solve.

Similarly, an agency can provide a monetary estimate of some benefits or costs without necessarily addressing all major benefits or costs the regulation is likely to create. GAO notes that it did not ascertain whether agencies addressed all relevant benefits or costs (p. 23).

For an assessment of the quality of agencies’ regulatory analysis, check out the Mercatus Center’s Regulatory Report Card. The Report Card evaluation method explicitly assesses the quality of the agency’s analysis, rather than just checking to see if the agency discussed the topics. For example, to assess how well the agency analyzed the problem it is trying to solve, the evaluators ask five questions:

1. Does the analysis identify a market failure or other systemic problem?

2. Does the analysis outline a coherent and testable theory that explains why the problem is systemic rather than anecdotal?

3. Does the analysis present credible empirical support for the theory?

4. Does the analysis adequately address the baseline — that is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?

5. Does the analysis adequately assess uncertainty about the existence or size of the problem?

These questions are intended to ascertain whether the agency identified a real, significant problem and identified its likely cause. On a scoring scale ranging from 0 points (no relevant content) to 5 points (substantial analysis), economically significant regulations proposed between 2008 and 2012 scored an average of just 2.2 points for their analysis of the systemic problem. This score indicates that many regulations are accompanied by very little evidence-based analysis of the underlying problem the regulation is supposed to solve. Scores for assessment of alternatives, benefits, and costs are only slightly better, which suggests that these aspects of the analysis are often seriously incomplete.

These results are consistent with the findings of other scholars who have evaluated the quality of agency Regulatory Impact Analyses during the past several decades. (Check pp. 7-10 of this paper for citations.)

The Report Card results are also consistent with the findings in the GAO report. GAO assessed whether agencies are turning in their assigned homework; the Report Card assesses how well they did the work.

The GAO report contains a lot of useful information, and the authors are forthright about its limitations. GAO combed through 203 final regulations to figure out what parts of the analysis the agencies did and did not do — an impressive accomplishment by any measure!

I’m more concerned that some participants in the political debate over regulatory reform will claim that the report shows regulatory agencies are doing a great job of analysis, and no reforms to improve the quality of analysis are needed. The Regulatory Report Card results clearly demonstrate otherwise.

Embrace Change

Kaiserin_Maria_Theresia_(HRR)Whenever someone suggested a new innovation or an improvement, Empress Maria Theresa had a favorite response: “Leave everything as it is.” As the sovereign of most of central Europe during the 18th Century, the Habsburg Empress epitomized absolutist rule, claiming that her powers had no limit.

But as her statement demonstrates, she clearly understood that her powers were limited by new and disruptive innovations. Her husband, Holy Roman Emperor Francis I understood this as well. Daron Acemoglu and James Robinson relate that when an English philanthropist suggested some social reforms for the benefit of Austria’s poorest, one of Francis’s assistants replied: “We do not desire at all that the great masses shall become well off and independent….How could we otherwise rule over them?” (A&R, 224).

This is why these Habsburg rulers did everything they could to stand athwart innovation. As Acemoglu and Robinson put it:

In addition to serfdom, which completely blocked the emergence of a labor market and removed the economic incentives or initiative from the mass of the rural population, Habsburg absolutism thrived on monopolies and other restrictions on trade. The urban economy was dominated by guilds, which restricted entry into professions. (A&R, 224).

Francis went so far as to block new technologies. For instance, he banned the adoption of new industrial machinery until 1811. He also refused to permit the building of steam railroads. Acemoglu and Robinson inform us that:

[T]he first railway built in the empire had to use horse-drawn carriages. The line…was built with gradients and corners, which meant that it was impossible subsequently to convert it to steam engines. So it continued with horse power until the 1860s. (A&R, 226).

Unfortunately, history is replete with examples of despots who stood in the way of innovation. In Russia, Nicholas I enacted laws restricting the number of factories and “forbade the opening of any new cotton or woolen spinning mills and iron foundries.” (A&R, 229). And in the Ottoman Empire, sultans banned the use of printing. So stultifying was the effect that “well into the second half of the nineteenth century, book production in the Ottoman Empire was still primarily undertaken by scribes hand-copying existing books.” (A&R, 214).

The centuries and the miles that separate us from these episodes give us some objectivity and allow us to see them for what they are: the naked exercise of government force to obstruct innovation for the benefit of a few entrenched interests. But how different are these episodes, really, from the stories we read in today’s newspapers? Are they all that different from New Jersey’s refusal to allow car companies to sell directly to consumers? Are they any less silly than the anti-Uber laws cooked up by a dozen U.S. cities? We like to think that our own political process is more enlightened but right now, federal, state and city policy makers are working to block the development of promising innovations such as wearable technologies, 3D printing, smart cars, and autonomous vehicles.

book-cover-smallFor a thoughtful and forceful discussion of what might be called the anti-Maria Theresa view, everyone should read Permissionless Innovation by my colleague Adam Thierer. It is a well-researched and well-argued defense of the proposition that our default policy should be “innovation allowed.” You can find Kindle and paperback versions on Amazon. Or you can check out the free PDF version at the Mercatus Center. For a nice overview of his book, see Adam’s post (and video) here. Please read it and send (free) copies to any modern-day Maria Theresas you may know.

Markets Fail and Governments Do Too

We often hear that markets fail when it comes to preserving the environment, so government regulation is needed to protect natural resources from the ravages of capitalism. But what happens when government regulations themselves get in the way of innovative ideas that move us towards a cleaner and more environmentally sustainable future?

This is exactly what happened in Logan City, Utah when the local government built a small hydropower turbine and ran into a nightmare of regulatory red tape that led to large cost overruns and far more time committed to the project than was originally anticipated. In the end, the project was delayed four years and ended up costing twice as much as planned.

This abstract from a recent working paper from the Mercatus Center describes what happened:

In 2004 Logan, Utah, saw the opportunity to place a turbine within the city’s culinary water system. The turbine would reduce excess water pressure and would generate clean, low-cost electricity for the city’s residents. Federal funding was available, and the city qualified for a grant under the American Recovery and Reinvestment Act. Unfortunately, Logan City found that a complex and costly federal nexus of regulatory requirements must be met before any hydropower project can be licensed with the Federal Energy Regulatory Commission. This regulation drove up costs in terms of time and money and, as a result, Logan City is not planning to undertake any similar projects in the future. Other cities have had similar experiences to Logan’s, and we briefly explore these as well. We find that regulation is likely deterring the development of small hydropower potential across the United States, and that reform is warranted.

This wouldn’t be the first time that regulations have led to perverse environmental outcomes. To prevent these problems in the future, agencies need to take better account of the expected costs and benefits of their rules before finalizing them. For example, recent analysis by myself and my colleague Richard Williams shows that agencies only rarely estimate dollar values for both benefits and costs of their regulations.

Another improvement would be for agencies to consider more flexible approaches when regulating. For example, the Occupational Safety and Health Administration recently proposed a rule to reduce silica exposure for workers. The rule requires businesses to consider gas masks or other personal protection equipment only as a last resort. Other methods of controlling silica dust, like enclosing work areas or using sprays and vacuums, should be considered first. These methods are likely to be more burdensome than asking workers to wear a gas mask. The agency should consider offering more flexibility to businesses and workers if it wants to relieve some unnecessary burden in its proposed rule.

Of course it’s true that markets can fail. But it’s important to remember that governments often fail too. Only an approach that considers both market failure and government failure can illuminate the best course of action when addressing a serious social problem like environmental degradation. Furthermore, until regulators start acting more like the experts we expect them to be, government is likely to fail just as much, if not more often, than markets.

Come Study at George Mason University

It is hard to believe but it’s been about 15 years since I attended my first Institute for Humane Studies weekend seminar at Claremont McKenna College. I can still remember the challenging conversations and stimulating lectures, especially those by Jeffrey Rogers Hummel and Lydia Ortega, both of San Jose State.

The most exciting idea I walked away from that weekend with was this: it’s possible to make a career out of advancing liberty.

From I.H.S. I learned about George Mason University. After doing quite a bit of research and attending a Public Choice Outreach Conference at GMU, I became convinced that the best thing I could do to set myself on the path of a career exploring the ideas of liberty was to get a graduate degree in economics from GMU. I eventually got my doctorate at GMU and now I have the best job in the world at the Mercatus Center.

George Mason University School of Public Policy 3351 Fairfax Drive Arlington (VA) 2013If you, too, have ever thought about such a career, now is the time to act on it. Here are a few opportunities:

The PhD Fellowship is a three-year, competitive, full-time fellowship program for students who are pursuing a doctoral degree in economics at George Mason University. It includes full tuition support, a stipend, and experience as a research assistant working closely with Mercatus-affiliated Mason faculty. It is a total award of up to $120,000 over three years. The application deadline is February 1, 2014.

The MA Fellowship is a two-year, competitive, full-time fellowship program for students pursuing a master’s degree in economics at George Mason University and interested in gaining advanced training in applied economics in preparation for a career in public policy. It includes full tuition support, a stipend, and practical experience as a research assistant working with Mercatus scholars. It is a total award of up to $80,000 over two years. The application deadline is March 1, 2014.

The Adam Smith Fellowship is a one-year, competitive fellowship for graduate students attending PhD programs at any university, in a variety of fields, including economics, philosophy, political science, and sociology. Smith Fellows receive a stipend and attend workshops and seminars on the Austrian, Virginia, and Bloomington schools of political economy. It is a total award of up to $10,000 for the year. The application deadline is March 15, 2014.

Why Mandating Higher Quality is Regressive

Lately, a lot of attention has been given to the fact that millions of Americans are seeing their health insurance plans cancelled as a result of the Patient Protection and Affordable Care Act (aka Obamacare). Some pundits have gone so far as to argue this is a good thing. The cancelled plans, the logic goes, were lower in quality than the plans being offered in the new government health insurance exchanges. Many people will end up paying more for the replacement plans, but since the new plans cover a wider variety of health services, they are better off, right?

Actually, no. Imagine if the same logic were applied to automobiles. I drive a 2003 Toyota Matrix. Would I be better off if my current model was banned and I was forced to buy a brand new Ferrari instead? The President made a similar comparison in a recent press conference when he said:

We made a decision as a society that every car has to have a seat belt or air bags. And so you pass a regulation. And there’s some additional cost, particularly at the start, of increasing the safety and protections, but we make a decision as a society that the costs are outweighed by the benefits of all the lives that are saved. So what we’re saying now is if you’re buying a new car, you got to have a seat belt.

If the President’s comparison were appropriate, people would be able to keep their current plans, and might only have to add a new feature or two when they buy a new plan. Instead, people are being dumped from their current coverage and forced into the government run exchanges where they are being forced to buy all kinds of options they don’t want or need. Some might get a subsidy to help with the purchase, but this is still like forcing everyone to buy a Ferrari when all they really want is their trusty old Honda Accord.

Sure, if I had to buy a new Ferrari, it might have all kinds of amazing features that my current car lacks. But I would also have a lot less money to spend on other things that I value a lot more, like my monthly gym membership, or taking my girlfriend out to a nice restaurant on occasion. If banning low quality goods and services is so good for consumers, why not extend this logic even further? Why not ban row boats and force people to buy yachts instead? Imagine how much better dressed Americans would be if we banned all of the clothes sold at Target and Walmart and only allowed people to purchase Christian Dior or Armani!

The problem with this logic is that quality is what economists call a “normal” good. A normal good is something people demand more of when their income rises. By contrast, an “inferior” good is something we demand more of when our income falls. Think macaroni and cheese dinners or sneakers from Payless, for example.

There’s nothing inherently “inferior” about an inferior good. Rather, people with lower incomes often prefer to trade off quality in exchange for a lower price. This is a perfectly rational decision. Since people demand more quality as income rises, banning lower quality products, like catastrophic only health insurance coverage, is actually banning the products that lower income people prefer. And it’s not just the poor who make tradeoffs between price and quality. (For example, I know for a fact that one of my more senior colleagues at the Mercatus Center buys most of his clothes at Walmart!). When prices rise in response to the mandated improvement in quality, the preferences of the poor are ignored and their options limited. As such, each individual must decide for him or herself what the right balance is between quality and price.

Once this becomes clear, one has to wonder who a lot of regulations are really designed to serve. For example, the FDA recently announced it will be setting standards for the production of pet food. Are regulations like this designed to cater to the preferences of the poor, who probably opt for the 79 cent can of cat food? Or are they more in line with the preferences of people who already buy organic food for their cats, people who might not mind paying a little extra to ensure that their pet food has met the new standards set by the FDA?

Mandating rearview cameras in automobiles is regressive for the same reason. This item was originally found mostly in luxury cars, but, thanks to market innovation, these cameras are rapidly becoming commonplace features in cars, all without government regulation.

One of the benefits of the market system is that when a new product is first introduced, the wealthy often pay a lot for it. Over time, the kinks in the product are worked out, and prices fall as the new technology becomes more affordable. Eventually, low income people can afford the product as well, but each consumer must decide for herself when the price has fallen sufficiently to make the purchase worthwhile.

Banning low quality items may seem like a noble way to protect consumers, but not when that removes lower-priced options for those consumers who have the fewest resources to spare. Rather than forcing consumers to buy luxury items, regulatory agencies should respect consumer preferences, especially the preferences of the poor.