Tag Archives: United States

Manufacturing employment and the prime-age male LFP rate: What’s the relationship?

Recently I wrote about the decline in the U.S. prime-age male labor force participation (LFP) rate and discussed some of the factors that may have caused it. One of the demand-side factors that many people think played a role is the decline in manufacturing employment in the United States.

Manufacturing has typically been a male-dominated industry, especially for males with less formal education, but increases in automation and productivity have resulted in fewer manufacturing jobs in the United States over time. As manufacturing jobs disappeared, the story goes, so did a lot of economic opportunities for working-age men. The result has been men leaving the labor force.

However, the same decline in manufacturing employment occurred in other countries as well, yet many of them experienced much smaller declines in their prime-age male LFP rates. The table below shows the percent of employment in manufacturing in 1990 and 2012 for 10 OECD countries, as well as their 25 to 54 male LFP rates in 1990 and 2012. The manufacturing data come from the FRED website and the LFP data are from the OECD data site. The ten countries included here were chosen based on data availability and I think they provide a sample that can be reasonably compared to the United States.

country 25-54 LFP rate, manuf table

As shown in the table, all of the countries experienced a decline in manufacturing employment and labor force participation over this time period. Thus America was not unique in this regard.

But when changes in both variables are plotted on the same graph, the story that the decline in manufacturing employment caused the drop in male LFP rate doesn’t really hold up.

country 25-54 LFP rate, manuf scatter plot

The percentage point change in manufacturing employment is across the top on the x-axis and the percentage point change in the prime-age male LFP rate is on the y-axis. As shown in the graph the relationship between the two is negative in this sample, and the change in manufacturing employment explains almost 36% of the variation in LFP rate declines (the coefficient on the decline in manufacturing employment is -0.322 and the p-value is 0.08).

In other words, the countries that experienced the biggest drops in manufacturing employment experienced the smallest drops in their LFP rate, which is the opposite of what we would expect if the decline in manufacturing employment played a big role in the decline of the LFP rate across countries.

Of course, correlation does not mean causation and I find it hard to believe that declines in manufacturing employment actually improved LFP rates, all else equal. But I also think the less manufacturing, less labor force participation story is too simple, and this data supports that view.

America and Italy experienced similar declines in their male LFP rates but neither experienced the largest declines in manufacturing employment over this time period. What else is going on in America that caused its LFP decline to more closely resemble Italy’s than that of Canada, Australia and the UK, which are more similar to America along many dimensions?

Whatever the exact reasons are, it appears that American working-age males responded differently to the decline in manufacturing employment over the last 20 + years than similar males in similar countries. This could be due to our higher incarceration rate, the way our social safety net is constructed, differences between education systems, the strength of the economy overall or a number of other factors. But attributing the bulk of the blame to the decline of manufacturing employment doesn’t seem appropriate.

Why Do We Get So Much Regulation?

Over the past 60 or 70 years, levels of regulation in the United States have been on the rise by almost any measure. As evidence, in the year 1950 there were only 9,745 pages in the US Code of Federal Regulations. Today that number is over 178,000 pages. There is less information about regulation at the state level, but anecdotal evidence suggests regulation is on the rise there too. For example, the Commonwealth of Kentucky publishes its regulatory code each year in a series of volumes known as the Kentucky Administrative Regulations Service (KARS). These volumes consist of books, each roughly 400 or 500 pages or so in length. In 1975, there were 4 books in the KARS. By 2015, that number had risen to 14 books. There are many different theories as to why so much regulation gets produced, so it makes sense to review some of those theories in order to explain the phenomenon of regulatory accumulation.

Perhaps the most popular theory of regulation is that it exists to advance the public interest. According to this view, well-intended regulators intervene in the marketplace due to “market failures”, which are situations where the market fails to allocate resources optimally. Some common examples of market failures include externalities (cases where third parties are impacted by the transactions involving others), asymmetric information (cases where buyers and sellers possess different levels of information about products being sold), public goods problems (whereby certain items are under-provided or not provided at all by the market), and concentration of industry in the form of monopoly power. When market failure occurs, the idea is that regulators intervene in order to make imperfect markets behave more like theoretically perfect markets.

Other theories of regulation are less optimistic about the motivations of the different participants in the rulemaking process. One popular theory suggests regulators work primarily to help powerful special interest groups, a phenomenon known as regulatory capture. Under this view—commonly associated with the writings of University of Chicago economist George Stigler—regulators fix prices and limit entry into an industry because it benefits the industry being regulated. An example would be how regulators, up until the late 1970s, fixed airline prices above what they would have been in a competitive market.

The interest groups that “capture” regulatory agencies are most often thought to be businesses, but it’s important to remember that agencies can also be captured by other groups. The revolving door between the government and the private sector doesn’t end with large banks. It also extends to nonprofit groups, labor unions, and activist groups of various kinds that also wield significant resources and power.

The “public choice theory” of regulation posits that public officials are primarily self-interested, rather than being focused on advancing the public interest. Under this view, regulators may be most concerned with increasing their own salaries or budgets. Or, they may be focused primarily on concentrating their own power.

It’s also possible that regulators are not nearly so calculating and rational as this. The behavioral public choice theory of regulation suggests regulators behave irrationally in many cases, due to the cognitive limitations inherent in all human beings. A case in point is how regulatory agencies routinely overestimate risks, or try to regulate already very low risks down to zero. There is significant evidence that people, including regulators, tend to overestimate small probability risks, leading to responses that are disproportionate to the expected harm. For example, the Environmental Protection Agency’s evaluations of sites related to the Superfund clean-up project routinely overestimated risks by orders of magnitude. Such overreactions might also be a response to public perceptions, for example in response to high-profile media events, such as following acts of terrorism. If the public’s reactions carry over into the voting booth, then legislation and regulation may be enacted soon after.

One of the more interesting and novel theories as to why we see regulation relates to public trust in institutions. A 2010 paper in the Quarterly Journal of Economics noted that there is a strong correlation between trust in various social institutions and some measures of regulation. The figure below is an example of this relationship, found in the paper.

QJE trust

Trust can relate to public institutions, such as the government, but it also extends to trust in corporations and in our fellow citizens. Interestingly, the authors of the QJE article argue that an environment of low trust and high regulation can be a self-fulfilling prophecy. Low levels of trust, ironically, can lead to more demand for regulation, even when there is little trust in the government. One reason for this might be that people think that giving an untrustworthy government control over private affairs is still superior to allowing unscrupulous businesses to have free rein.

The flip-side of this situation is that in high-trust countries, such as Sweden, the public demands lower levels of regulation and this can breed more trust. So an environment of free-market policies combined with trustworthy businesses can produce good market outcomes, more trust, and this too can be a self-fulfilling, allowing some countries to maintain a “good” equilibrium.

This is concerning for the United States because trust has been on the decline in a whole host of areas. A Gallop survey has been asking questions related to trust in public institutions for several decades. There is a long-term secular decline in Gallup’s broad measure of trust, as evidenced by the figure below, although periodically there are upswings in the measure.

gallup trust

Pew has a similar survey that looks at public trust in the government. Here the decline is even more evident.

pew trust

Given that regulation has been on the rise for decades, a decline in trust in the government, in corporations, and in each other, may be a key reason this is occurring. Of course, it’s possible that these groups are simply dishonest and do not merit public trust. Nonetheless, the US might find itself stuck in a self-fulfilling situation, whereby distrust breeds more government intervention in the economy, worse market outcomes, and even more distrust in the future. Getting out of that kind of situation is not easy. One way might be through education about the institutions that lead to free and prosperous societies, as well as to create a culture whereby corruption and unscrupulous behavior are discouraged.

There are a number of theories that seek to explain why regulation comes about. No theory is perfect, and some theories explain certain situations better than others. Nonetheless, the theories presented here go a long way towards laying out the forces that lead to regulation, even if no one theory can explain all regulation at all times.

Economic Freedom, Growth, and What Might Have Been

Economists are obsessed with growth. And for good reason. Greater wealth doesn’t just buy us nicer vacations and fancier gadgets. It also buys longer life spans, better nutrition, and lower infant mortality. It buys more time with family, and less time at work. It buys greater self-reported happiness. And as Harvard economist Benjamin Friedman has argued, wealth even seems to make us better people:

Economic growth—meaning a rising standard of living for the clear majority of citizens—more often than not fosters greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy.

For much of my lifetime, brisk economic growth was the norm in the United States. From 1983 to 2000, annual growth in real (that is, inflation-adjusted) GDP averaged 3.67 percent. During this period, the U.S. experienced only one (short and mild) recession in the early ‘90s. The era was known among macroeconomists as the “great moderation.”

But starting around the turn of the millennium, things changed. Instead of averaging 3.67 percent growth, the U.S. economy grew at less than half that rate, 1.78 percent on average. To see the effect of this deceleration, consider the chart below (data are from the BEA). The blue line shows actual GDP growth (as measured in billions of chained 2009 dollars).

The red line shows what might have happened if we’d continued to grow at the 3.67 percent rate which prevailed for the two previous decades. At this rate, the economy would have been 30 percent larger in 2015 than it actually was.

This assumes that the Great Recession never happened. So to see what would have happened to GDP if the Great Recession had still occurred but if growth had resumed (as it has in every other post-WWII recession), I calculated a second hypothetical growth path. The green line shows the hypothetical path of GDP had the economy still gone through the Great Recession but then resumed its normal 3.67 percent rate of growth from 2010 onward. Under this scenario, the economy would have been fully 8 percent larger in 2015 than it actually was.

screen-shot-2016-09-16-at-11-31-02-am

(Click to enlarge)

So what happened to growth? One answer is economic freedom—or a lack thereof. Just yesterday, the Fraser Institute released its annual Economic Freedom of the World report. Authored by Professors James Gwartney of Florida State University, Robert Lawson of Southern Methodist University, and Joshua Hall of West Virginia University, the report assesses the degree to which people are free to exchange goods and services with one another without interference. As Adam Smith might have put it, it measures the degree to which we live under “a system of natural liberty.”

As the chart below shows, economic freedom was on the steady rise before 2000. This coincided with modest deregulation of a few industries under Carter and Reagan, tax cuts under Reagan and Clinton, free trade deals, and restrained growth in the size of government. But from 2000 onward, U.S. economic freedom has been in precipitous decline. This coincides with major new financial regulations under both Bush II and Obama, significant growth in government spending, and a steady erosion in measures of the rule of law.

screen-shot-2016-09-16-at-11-33-15-am

(Click to enlarge)

As I’ve noted before, the research on economic freedom is quite extensive (nearly 200 peer-reviewed academic studies use economic freedom as an explanatory variable). Moreover, meta-studies of that literature find “there is a solid finding of a direct positive association between economic freedom and economic growth.”

Perhaps the two charts have something to do with one another?

 

 

More competition can lead to less inequality

Wealth inequality in the United States and many European countries, especially between the richest and the rest, has been a popular topic since Thomas Piketty’s Capital in the 21st Century was published. Piketty and others argue that tax data shows that wealth inequality has increased in the U.S. since the late 1970s, as seen in the figure below from a paper by Emmanuel Saez—Picketty’s frequent co-author— and Gabriel Zucman.

top-0-1-income-inequ

The figure shows the percentage of all U.S. household wealth that is owned by the top 0.1% of households, which as the note explains consists of about 160,000 families. The percentage fell from 25% in the late 1920s to about 7% in the late 1970s and then began to rise. Many people have used this and similar data to argue for higher marginal taxes on the rich and more income redistribution in order to close the wealth gap between the richest and the rest.

While politicians and pundits continue debating what should be done, if anything, about taxes and redistribution, many economists are trying to understand what factors can affect wealth and thus the wealth distribution over time. An important one that is not talked about enough is competition, specifically Joseph Schumpeter’s idea of creative destruction.

Charles Jones, a professor at Stanford, has discussed the connection between profits and creative destruction and their link with inequality. To help illustrate the connection, Mr. Jones uses the example of an entrepreneur who creates a new phone app. The app’s creator will earn profits over time as the app’s popularity and sales increase. However, her profits will eventually decline due to the process of creative destruction: a newer, better app will hit the market that pulls her customers away from her product, erodes her sales and forces her to adapt or fail. The longer she is able to differentiate her product from others, the longer she will be in business and the more money she will earn. This process is stylized in the figure below.

firm-life-and-profit2

If the app maintains its popularity for the duration of firm life 1, the entrepreneur will earn profits P1. After that the firm is replaced by a new firm that also exists for firm life 1 and earns profit P1. The longer a firm is able to maintain its product’s uniqueness, the more profit it will earn, as shown by firm life 2: In this case the firm earns profit P2. A lack of competition stretches out a firm’s life cycle since the paucity of substitutes makes it costlier for consumers to switch products if the value of the firm’s product declines.

Higher profits can translate into greater inequality as well, especially if we broaden the discussion to include wages and sole-proprietor income. Maintaining market power for a long period of time by restricting entry not only increases corporate profits, it also allows doctors, lawyers, opticians, and a host of other workers who operate under a licensing regime that restricts entry to earn higher wages than they otherwise would. The higher wages obtained due to state restrictions on healthcare provision, restrictions on providing legal services and state-level occupational licensing can exacerbate inequality at the lower levels of the income distribution as well as the higher levels.

Workers and sole proprietors in the U.S. have been using government to restrict entry into occupations since the country was founded. In the past such restrictions were often drawn on racial or ethnic lines. In their Pulitzer Prize-winning history of New York City, Gotham, historians Edwin G. Burrows and Mike Wallace write about New York City cartmen in the 1820s:

American-born carters complained to the city fathers that Irish immigrants, who had been licensed during the war [of 1812] while Anglo-Dutchmen were off soldiering, were undercutting established rates and stealing customers. Mayor Colden limited future alien licensing to dirt carting, a field the Irish quickly dominated. When they continued to challenge the Anglo-Americans in other areas, the Society of Cartmen petitioned the Common Council to reaffirm their “ancient privileges”. The municipal government agreed, rejecting calls for the decontrol of carting, as the business and trade of the city depended on in it, and in 1826 the council banned aliens from carting, pawnbroking, and hackney-coach driving; soon all licensed trades were closed to them.

Modern occupational licensing is the legacy of these earlier, successful efforts to protect profits by limiting entry, often of “undesirables”. Today’s occupational licensing is no longer a response to racial or ethnic prejudices, but it has similar results: It protects the earning power of established providers.

Throughout America’s history the economy has been relatively dynamic, and this dynamism has made it difficult for businesses to earn profits for long periods of time; only 12% of the companies on the Fortune 500 in 1955 were still on the list in 2015. In a properly functioning capitalist economy, newer, poorer firms will regularly supplant older, richer firms and this economic churn tempers inequality.

The same churn occurs among the highest echelon of individuals as well. An increasing number of the Forbes 400 are self-made, often from humble beginnings. In 1984, 99 people on the list inherited their fortune and were not actively growing it. By 2014 only 28 people were in the same position. Meanwhile, the percentage of the Forbes 400 who are largely self-made increased from 43% to 69% over the same period.

But this dynamism may be abating and excessive regulation is likely a factor. For example, the rate of new-bank formation from 1990 – 2010 was about 100 banks per year. Since 2010, the rate has fallen to about three per year. Researchers have attributed some of the decline of small banks to the Dodd-Frank Wall Street Reform Act, which increased compliance costs that disproportionately harm small banks. Fewer banks means less competition and higher prices.

Another recent example of how a lack of competition can increase profits and inequality is EpiPen. The price of EpiPen—a medicine used to treat severe allergic reactions to things like peanuts—has increased dramatically since 2011. This price increase was possible because there are almost no good substitutes for EpiPen, and the lack of substitutes can be attributed to the FDA and other government policies that have insulated EpiPen’s maker, Mylan, from market competition. Meanwhile, the compensation of Mylan’s CEO Heather Bresch increased by 671% from 2007 to 2015. I doubt that Bresch’s compensation would have increased by such a large amount without the profits of EpiPen.

Letting firms and workers compete in the marketplace fosters economic growth and can help dampen inequality. To the extent that wealth inequality is an issue we don’t need more regulation and redistribution to fix it: We need more competition.

Ignoring the adverse effects of the minimum wage may cost taxpayers billions

Today the Obama administration issued a statement calling for a ‘First Job’ funding initiative to connect young Americans with jobs.

The statement laments how difficult it is for young people to find employment and emphasizes how important a first jobs is for future career success:

“After the worst economic crisis of our lifetimes, the United States is in the midst of the longest streak of private-sector job growth in our history, with more than 14 million new jobs created during the past 70 months. But for too many young people, getting a first job—a crucial step in starting their career—is challenging.

When a young person struggles to get their first job, it can have a lasting negative impact on her lifetime income as well as her motivation, pride, and self-esteem.”  

I brought up this same issue 3 months ago in a previous blog post that highlighted the differences in teenage unemployment across cities. And unsurprisingly there are substantial differences – in 2012 teenage unemployment was over 45% in Atlanta and only about 26% in Houston.

So what’s the proposal? A $5.5 BILLION grab bag of grants, skills investment, and direct wage payments to put young people to work. Naturally, the most obvious solution to the teenage unemployment problem is never mentioned – eliminating the minimum wage. In fact, nowhere is it hinted at that the minimum wage may be contributing to teenage unemployment, despite several recent studies affirming this theory.

From a 2013 study:

“Thus, for older workers, the two effects offset one another, and there is little impact on their long-term employment rate. For teenagers, the extra reduction in hiring implies that their employment rates decline. The results are very similar for males and females.”

From a 2015 study:

Using three separate state panels of administrative employment data, we find that the minimum wage reduces job growth over a period of several years”

From a 2015 study:

We find that a higher minimum wage level is associated with higher earnings, lower employment and reduced worker turnover for those in the 14–18 age group. “ (My bold)

From a 2015 study:

I apply the estimator to estimate the impact of the minimum wage on the employment rate of teenagers. I estimate an elasticity of -0.10 and reject the null hypothesis that there is no effect.”

This glaring omission is unconscionable in light of the abundant evidence that the minimum wage harms the least skilled, least experienced workers, which includes teenagers.

As a Prof. David Neumark stated in a recent WSJ op-ed:

“…let’s not pretend that a higher minimum wage doesn’t come with costs, and let’s not ignore that some of the low-skill workers the policy is intended to help will bear some of these costs.”

An all too common occurrence in US policy is that government intervention causes a problem that the government then tries to solve with additional intervention, completely ignoring the possibility that the initial intervention was the source of the problem. In this case, price controls at the bottom of the labor-market ladder have prevented young people from getting on the first rung, so now the government wants to wheel over a $5.5 billion dollar stool to give them a boost.

While this series of imprudent events is not surprising, it’s still frustrating.

Would cutting Ex-Im’s ties to the U.S. Treasury amount to “unilateral disarmament”?

Before winning this year’s World Cup championship, Germany faced a dilemma during its qualifying match against the United States. Both teams could ensure their advancement in the tournament by colluding to do nothing. If they tied, both would advance. If one of them won, the other might not advance. However, neither could ensure that the other would cooperate. And as a result, they were both forced to compete.

This situation, known a “prisoner’s dilemma,” is one that manifests itself in all sorts of situations, frombusiness to politics to World Cup qualifying games.

It also helps explain where we find ourselves with the Export-Import Bank,or “Ex-Im,” a federal agency tasked with subsidizing U.S. exports. The bank’s charter is set to expire in a few months, and some are making the case that it should be reauthorized to help U.S. manufacturers “compete internationally” by“leveling the playing field.” This is simply another prisoner’s dilemma playing out in the real world.

That is my latest, coauthored with Chris Koopman, at US News.

Delaware Senate votes to bail out three casinos

Delaware’s state senate has voted to redirect $10 billion in economic development funding to bail out three gambling casinos. The measure now goes to the House. Two reasons the casinos are failing: increased competition from Maryland and Pennsylvania and having to share a large chuck of revenue with the state. Lawmakers admit the bailout is only a “Band Aid,” and not enough to salvage the operations.

Supporters defend SB 220 as a jobs protection measure. But the real incentive is more likely the revenues involved. Lottery receipts are the fourth largest source of Delaware’s revenues at about 7 percent of the total bringing in $277 billion in 2013, right behind Income taxes, Franchise taxes, and Abandoned Property.

The casinos are certainly in trouble. According to Delaware Newszap.com Dover Downs Gaming & Entertainment saw a $1 million loss in Q1 2014 and is $46 million in debt. During that same first quarter the casino paid the state $16 million in revenue.

Revenue sharing between the state and the casinos has grown more onerous over the past 20 years. In 1997, the casino claimed 50.2 percent of the revenue and the state took 25.2 percent. In 2009, that split reversed, with the state claiming 43.5 percent of revenues and the casino keeping 37.8 percent.

The incentive for the bailout is fairly clear though the economic thinking is convoluted. Why not reduce the tax rate instead? Economist James Butkiewicz at the University of Delaware notes that as a voluntary tax it’s easy revenue and the state doesn’t have to raise taxes elsewhere.

But do casinos deliver for state coffers and economies?  Economists Douglas Walker (whose field is casino economics) and John Jackson find that while lotteries and horse racing tend to increase state revenues, casinos and greyhound racing tend to decrease it. Using recent data, Walker and Jackson find casinos have a positive economic impact. There are many other things to consider when thinking about the effects of casinos. As state creations there is ample opportunity for corruption and regulatory capture. Walker and Calcagno find just such a link in their paper in the journal Applied Economics (Dec 2013), “Casinos and Political Corruption in the United States: A Granger Causality Analysis.” And as a recent article by the WSJ notes oversaturation of casinos on the East Coast has also triggered an interstate “war” for revenues. Delaware’s gaming revenues are down 29 percent since 2011. A Delaware Casino Executive laments that the business model they are using is simply, “unworkable.”

 

 

 

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.

FDR’s Failed Thanksgiving Experiment: Benefiting Big Business, Dividing a Country

Nothing is free from the threat of political favoritism.  Not even the holidays.  And, as it turns out, Thanksgiving actually fell prey to it for a few years under Franklin Delano Roosevelt.

But first, a bit of Thanksgiving History.  At the request of the first Federal Congress, President Washington issued a proclamation naming Thursday, November 26, 1789 as a “Day of Publick Thanksgivin [sic].”  Subsequent presidents followed Washington by issuing their own Thanksgiving Proclamations.  However, the dates and months of the proclamations varied.  Eventually, under Abraham Lincoln, Thanksgiving was set to be regularly commemorated each year on the last Thursday of November. Franklin and Eleanor (FDR Bio, part 1)

In 1939, the last Thursday in November fell on the last day of the month.  As a result, President Franklin D. Roosevelt issued a Presidential Proclamation moving Thanksgiving to the second to last Thursday of November.

Why did Roosevelt see the need to move Thanksgiving?

The Huffington Post’s Sam Stein and Arthur Delaney explain that “Roosevelt was responding to pressure from retail lobbyists who worried that Christmas shopping would lag because Thanksgiving was set to fall particularly late that year, on Nov. 30.”

In fact, Stein and Delaney note:

Lew Hahn, general manager of the Retail Dry Goods Association, sent a message to Secretary of Commerce Harry Hopkins that although he didn’t dare bring this to the president’s attention, a late Thanksgiving might have a ‘possible adverse effect on the production and distribution of holiday goods.’

Hopkins told Roosevelt anyway, and the president, sensitive to the needs of business, moved the date of the holiday.

However, not everyone was interested in moving the holiday for the benefit of big retailers.  Small businesses wrote to the President, explaining:

[W]e have waited years for a late Thanksgiving to give us an advantage over the large stores, and we are sadly disappointed at your action, in this matter.  Kindly reconsider and oblige thousands of small retail storekeepers throughout this country.

Ultimately, 32 states issued proclamations moving Thanksgiving to the second to last Thursday, while 16 states refused to change and proclaimed Thanksgiving to be the last Thursday in November.   For two years, the United States had two Thanksgivings.  The President and part of the country celebrated it on the second to last Thursday in November.  The rest of the country celebrated it a week later.

After two years, and four Thanksgivings, Congress put an end to the confusion by setting a fixed date for the holiday.  In 1941, the House of Representatives passed a resolution declaring “the last” Thursday of November to be Thanksgiving Day.  The Senate amended the resolution to read that it be celebrated on “the fourth” Thursday, to take into account those years when there are five Thursdays in November.  On December 26, 1941, Roosevelt signed the resolution, thereby establishing the modern Thanksgiving Holiday.

Did Roosevelt’s “Franksgiving” experiment work?  Not exactly.  Stein and Delaney write that the Commerce Department found that expected expansion of retail sales never occurred.  In the end, they note, Roosevelt conceded that the economic benefits of moving Thanksgiving had not been worth the struggle.

Enjoy your Thanksgiving turkey.  Just think, at one you time, you could’ve done it twice.

Should Regulation Prohibit Self-Penalizing Behavior?

Last weekend, a guy ordered the “Sourtoe Cocktail” at a hotel bar in Dawson City in the Yukon.  The drink is garnished with a real (preserved) human toe. The patron downed the drink, deliberately swallowed the toe, then paid the bar a $500 fine for swallowing the toe.

sour toe

Photo credit: Philippe Morin/CBC

This is the kind of anecdote that would prompt health and safety advocates in that less-civilized country south of the border (the United States) to call for a new regulation — probably one prohibiting the use of human body parts in cocktails. In my humble opinion, the story is a good example of why it’s a waste of government’s time to regulate against behavior that carries its own penalty.

In fact, there’s a double penalty in this case. First is the yuk factor.  I wouldn’t order a drink with a toe in it, much less swallow the garish garnish.  Second is the monetary fine imposed by the bar. And the bar subsequently raised the fine to $2500, since now the establishment has to pull a backup toe out of mothballs. (Presumably that’s the one on the plate of salt in the photo.)

That double-whammy already ensures that swallowing a toe in one’s drink will be a rare occurrence. Yet there is still some risk that it will happen again; a precautionary approach would suggest that a new regulation is indeed needed unless the drink can be proven absolutely safe.

The tale of the Sourtoe Cocktail is a fanciful (but real) example of self-penalizing behavior that is (apparently) not yet prohibited by the Canadian government. The U.S. government, however, has seen fit to enact regulations prohibiting much more mundane behavior that carries its own penalty.

For example, consider energy efficiency standards for appliances used by consumers and businesses. These standards effectively ban the sale of appliances that cost more to operate because they use more electricity or gas. Energy efficiency can have environmental benefits, but in many cases, most of the benefits the government claims for energy efficiency standards come in the form of lower energy bills for the users. In other words, the decision to buy a less-efficient washing machine, furnace, or refrigerator carries its own penalty in the form of higher energy costs.

The Department of Energy’s proferred justification for these regulations is that consumers harm themselves by placing too low a value on the future energy savings. That’s a debatable point that Ted Gayer and Kip Viscusi have amply dealt with in a recent study supported by the Mercatus Cetner and published in the Journal of Regulatory Economics. My colleague Sherzod Abdukadirov listed a bunch of regulations that employ similar logic in his recent post.

Even more questionable is the regulation regarding commercial washing machines that I reviewed for the Mercatus Regulatory Report Card. The Notice of Proposed Rulemaking for this regulation seriously argued that greedy, profit-oriented businesses would leave money on the table by refusing to invest in cost-saving, energy-efficient washing machines that would generate a high rate of return due to the energy savings!

With all the ways people find to harm each other, do we really need regulators to police behavior that carries its own penalty?