Tag Archives: PDF

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.

Freedom in the 50 States and Migration

In last month’s publication of Freedom in the 50 StatesWill Ruger and Jason Sorens point to net domestic migration as an indicator that Americans demonstrate their preferences for more libertarian states by where they choose to live. They explain, ”

In each case, the bivariate relationship between freedom and migration is positive. However, it is strongest for fiscal freedom and weakest for personal freedom.”

The authors go on to use regression analysis to control for some of the other variables that likely cause people to move from one state to another:

We also try a regression specification including state cost of living from 2000, as estimated by political scientists William D. Berry, Richard C. Fording and Russell L. Hanson.7 This is an index variable linked to a value of 10 for the national average in 2007, the last date for which a value is available. There is some concern that this variable is endogenous to freedom. For instance, it correlates with the Wharton land-use regulation variable at r = 0.67, implying that strict land-use regulation drives up the cost of living. It also correlates with fiscal freedom at −0.35, perhaps implying that taxation can also drive up cost of living.

Finally, we also try including growth in personal income from 2000 to 2007 from the Bureau of Economic Analysis, adjusted for change in state cost of living from Berry, Fording, and Hanson. This variable is even more clearly endogenous to economic freedom, as well as to migration (more workers means more personal income). Nevertheless, we want to put the hypothesis that freedom attracts people to the strictest reasonable tests.

With this more in-depth analysis, the authors find that the three types of freedom they study — fiscal, regulatory, and personal — are all positively associated with net migration (PDF p. 97). In particular, the relationship between land use regulation and migration strikes me as an interesting one. States with the strictest land use regulations prevent in-migration by disallowing new housing development. According to Census data, New York City grew by about 2-percent between 2000 to 2010, including natural growth and foreign immigration. This is a significant slowdown from the 1990s. While the Big Apple wouldn’t be expected to attract new residents through libertarian policies, it does offer many economic and cultural opportunities that people might value. Ed Glaeser explains that by preventing new development, city- and state-level restrictions have prevented more people from being able to move to New York City:

The high prices that persist in New York City suggest that the demand for city living isn’t falling. Case-Shiller data, which captures the metropolitan area rather than the city, shows that the New York area’s prices have risen by 67 percent since 2000 (32 percent in real terms), more than any metropolitan area in the sample except Los Angeles.

But the combination of economic strength and high prices need not lead to population growth if an area doesn’t build many more units. In that case, high housing demand leads only to higher prices — not more people.

[…]

The Bloomberg administration has worked hard to allow more building, but the recent Census numbers seem to suggest that a combination of slow growth and continuing high prices implies that New York’s barriers to building, such as a complex zoning code and ever more Historic Preservation Districts, are still shutting out families that would like to move to the city.

This is just one city-level example, but New York City demonstrates that locations with the strictest land use regulations are not just discouraging in-migration with policies that limit residents’ freedom, they are also preventing people from moving to their jurisdictions by restricting growth in housing stock.

Census Data on State Government Revenues

This morning, the US Census Bureau released the 2008 Annual Survey of State Government Finances showing — no surprise here — that state revenues were significantly down in 2008, while expenditures were actually up by an average of 6.7 percent. State debts nationwide total over $1 billion.

From the press release:

State governments took in nearly $1.7 trillion in total revenues in fiscal year 2008, a 15.8 percent decrease from 2007, according to new data on state government finances released by the U.S. Census Bureau. The largest share of those revenues came from taxes ($780.7 billion), which made up 46.5 percent. The decline was primarily because of a decrease in insurance trust revenue, which fell by $377.7 billion (72.7 percent).

[….]

Total state government expenditures increased 6.2 percent from fiscal year 2007, totaling slightly more than $1.7 trillion in 2008. Education ($546.8 billion), public welfare ($412.1 billion) and highways ($107.2 billion) represented the top three outlays, accounting for nearly two-thirds of all state government total expenditures.

A state-by-state table is available from the Census Bureau here in Excel format, or here from Neighborhood Effects here in PDF format.