Voice For Liberty

Tag: Regulation

  • Kansas smoking ban opponents meet in Wichita

    A group primarily composed of business owners met in Wichita on Thursday to discuss the recently passed Kansas smoking ban and what might be done to overturn it or mitigate its damage to business.

    Phillip Bradley of Kansas Licensed Beverage Association briefed the group on the current status of the smoking ban and what types of action might be possible in the future.

    Bradley told the group that it’s nearly impossible to get a new bill through the Kansas Legislature at this time. The greatest chance for action is to have an amendment added to a bill that’s already in conference. He mentioned SB 454 as a possibility, adding that it’s being made into a “Christmas tree,” meaning that many interests are attempting to add to the bill.

    There are three issues related to the smoking ban that can gain traction with legislators, Bradley said. The first is that the state exempted state-owned casinos from the smoking ban.

    The second is the “ten foot rule,” which says that smoking is not allowed within ten feet of “any doorway, open window or air intake” of a building, except for those buildings (like state-owned casinos) that are exempt from the smoking ban. This is a problem for downtown areas or malls where businesses may be in close proximity to each other, and to sidewalks and outdoor patios where smoking is permitted.

    The third relates to treating similar classes unequally in the law. Private clubs that were in existence before January 1, 2009 can be exempted from the smoking ban. Private clubs formed after that date, however, are subject to the smoking ban.

    Bradley explained some of the difficulties involved in understanding legislative action. The so-called “gut-and-go,” for example, is where a bill that is passed by one chamber — say the Senate — is stripped of its content by the other chamber, the House of Representatives in this example. The original text of the bill is replaced with new text, which might refer to a totally different topic. The reformulated bill — passed by the House, even though it now refers to a totally new and possibly entirely different subject — goes back to the Senate as having already been passed by that body.

    Representative Brenda Landwehr, a Republican who represents parts of northwest Wichita and who is chair of the House of Representatives Health and Human Services Committee, addressed the group and offered advice as to how to influence legislators. She recommended personal telephone calls to legislators explaining how the smoking ban will impact their businesses. If legislators say studies show that smoking bans have no impact on business, she suggested callers ask legislators why the state exempted its state-owned casinos from the smoking ban. “People don’t understand the amount of money that bars bring to this state,” she added.

    Landwehr said that the state-owned casinos, being exempt from the smoking ban, are competition to already-existing bars near the casinos, both existing and those that may open in the future.

    She advised the group that legislators generally respond first to people who live in the district they represent.

    Ali Issa, owner of Heat Cigar and Hookah Lounge in Wichita, where the meeting took place, urged the group to take action. Expressing the concern that the smoking ban is harmful to business, he said “Our goal is to stay in business.” He urged the group to make calls to legislators and spread the message through social media like Facebook.

    A question asked by some business owners asked about the possibility of gathering signatures on petitions. As Kansas has no initiative and referendum process, it’s not possible to force votes on state laws through this process. Petitions, however, can powerfully express the sentiment of the public.

    It was mentioned that under a conservative Kansas governor — presumably Sam Brownback — the smoking ban might not survive. But Sheila Martin, a Hutchinson business owner and activist in the smoking ban issue, said that many people will be out of business by the time Brownback becomes governor in January 2011.

    The group plans to hold a public meeting soon to bring attention to this issue.

    A website has been established to support the efforts of business owners. It may be accessed at Kansas Right to Choose.

    Other coverage of this meeting is at Business group will fight state’s smoking ban.

  • Financial services reform consequences may not be unintended

    A financial services regulation bill could place many types of businesses under new regulations, even though they are nothing like banks or other companies typically considered to be in the financial services business.

    I had thought that this possibility might simply be an example of the unintended consequences of regulation. But after reading a Wall Street Journal article (Will Walmart Pay for the Next Bailout?), I’ve come to believe that these consequences — the spread of regulation to vast new sectors of industry — is, in fact, intended.

    Gregory Zerzan, the author, explains: “The current proposals for ‘financial’ reform are stalking horses allowing government intervention into virtually every facet of the U.S. Economy.” He explains that the Federal Reserve — if it believes a company poses a threat to the economy — could order the company to separate its businesses so that its financial dealings could be regulated as a bank holding company.

    Which companies could be subjected to this new regulation by the Federal Reserve? Zerzan explains:

    Despite non-binding staff explanations to the contrary, there is no mystery as to who is being targeted. Under the bill the Fed gets regulatory authority over bank holding companies with greater than $50 billion in assets, and “nonbank financial companies”. As the Fed already regulates bank holding companies the new twist is that non-banks become subject to Federal Reserve regulation for the first time. The language is unusually clear: if the new systemic risk regulator so chooses, any company engaged in routine business transactions can suddenly be deemed “financial” and subject to bank-like regulation. (emphasis added)

    In Wichita, several large companies could be impacted. The author mentions an “airplane manufacturer that holds customer down payments for future delivery” as an example of a company that could now be regulated by the Federal Reserve.

    Why is the legislation being considered? Zerzan explains that it’s partly based on the belief by some that the government can manage the economy, but there’s also an opportunity to generate new tax revenue:

    Why would the systemic risk regulator seek to make regular American businesses subject to bank-like regulation? No doubt in part it is the belief in some quarters that the government can stop financial crises from happening if only it has enough power and influence over the economy. Even among true believers the near-collapse of the highly regulated banking sector should call that article of faith into question. But there is a more practical reason to seek to turn Walmart, IBM, Boeing and other Fortune 500 companies into “financial” businesses. Under both the House bill and the Dodd legislation it is these companies that are to be taxed to pay for winding up a “too big to fail” firm. If a company gets deemed systemically risky it is on the hook for bailing out financial firms that took on too much risk. Such a regime is neither fair nor sensible from an economic perspective, but existing taxpayers’ money is already over-allocated; the Treasury needs the contents of new wallets to pay for the next crisis.

  • Financial services regulation could spread to non-financial industries

    Chairman of the Senate Banking Committee Christopher Dodd has introduced sweeping legislation to regulate the financial services industry. The bill, at 1,336 pages, would dramatically change the regulatory landscape for one of our most important industries and spread to other non-financial industries.

    The bill would create vast new regulatory powers for the Treasury Department. According to an interview with the Wall Street Journal, Senator Bob Corker says that “there’s no question that Treasury is pushing left,” indicating the Treasury’s Department’s desire for more regulatory power.

    In fact, Treasury Secretary Timothy Geithner is expected to deliver a speech today that calls for Congress to pass a bill with “real reforms.”

    Indication of interest in these regulations may be gauged by the fact that some 400 amendments to the bill have been offered.

    As with any regulation, especially a law designed to regulate a large and multi-faceted industry, unintended consequences are certain to arise. The Main Street Alliance, a coalition of leading U.S. manufacturers and business groups warned that many businesses that would not usually be considered financial institutions could fall under this regulation.

    The Dodd bill extends systemic risk regulation to “nonbank financial companies,” defined as any business substantially engaged in “financial activities.” Because the term “financial activities” is so broad and includes things like lending money and investing a company’s own assets, the bill could authorize the new systemic risk regulator to regulate manufacturers, retailers and other non-financial services businesses.

    Also: “We are concerned the new draft bill is so broad that larger manufacturers could be subjected to regulation by the Federal Reserve,” says Dorothy Coleman of the National Association of Manufacturers, a member of the Alliance.

    Dodd’s proposed regulation is a response to the financial crisis of 2008. Whether new regulation is needed in response to that crisis is one question. But as the Main Street Alliance wrote in a letter to the Senate Banking Committee: “We do not believe that it is the intent of Congress to impose a new regulatory regime on companies that had nothing to do with the financial crisis of 2008.”

    It should be noted that Dodd is not running for re-election this year. He faced declining poll numbers in his home state of Connecticut.

  • Health care about to get worse

    A good summary of the problems with American health care, and of what the future holds is from Competitive Enterprise Institute‘s Gregory Conko. In his piece Health Care Crisis About to Get a Whole Lot Worse he writes:

    Most of the problems in America’s health care system — high and rising prices, lack of consistent and reliable access for millions, rampant cost shifting, and an inability to distinguish between effective and ineffective services or between high and low quality, to name just a few — stem not from some supposed market failure, but primarily from existing government interventions in the market for health care and health insurance.

    One of the government interventions that leads to market dysfunction is the reliance on employers to provide health insurance for so many Americans. This happened because of government policy, not by accident. As a result, workers have little choice in their coverage, and some feel tied to their present jobs just for the insurance.

    Americans — some anyway — complain that health insurers will collect premiums for years, and then not pay when the covered become sick. There’s also not a vigorous market for health insurance for individuals, partly because the employer market swamps out efforts to sell to individuals or families.

    Contrast this situation with the market for automobile insurance. This is a product that is regulated, to be sure, but much more lightly than health insurance. It’s something that no employers purchase for their workers and their private cars. Instead, drivers have to seek out and purchase their own policies.

    And what is the result? There’s a thriving and competitive market for auto insurance. The pitchmen for two large companies — the quirky lizard and the exuberant Flo — are well known to television viewers. Auto insurance companies innovate to see who can produce products that meet the needs of consumers.

    Do auto insurance companies fail to pay claims, as it is alleged health insurance companies do? If an auto insurance company developed a reputation for not paying, customers would quickly and easily leave that company for others. That is a credible threat, as there is a competitive market for auto insurance. Those who feel they have been wronged by a health insurance company often have no alternative to turn to — there is no credible threat of taking one’s business to another company.

    One of the things that President Obama’s health care reform is designed to do is to create a marketplace for health insurance. But we don’t need more government regulation to accomplish that. Such government-sponsored effort is likely to fail. Less government intervention and less regulation, like in the market for auto insurance, would produce a result better for consumers.

  • Medical marijuana testimony presented in Kansas House committee

    This week the Kansas House of Representatives Health and Human Services Committee held an informational hearing on HB 2610. This bill would legalize the use of medical marijuana for certain debilitating medical conditions. Representative Gail Finney, a Democrat who represents parts of east Wichita, introduced the bill.

    An informational hearing means that the committee would take no action on the bill, so there would be no vote taken and no possibility that the bill would advance out of the committee to be considered by the entire House.

    There were two bills on the committee’s agenda before the marijuana measure. After these were dispatched, Representative Brenda Landwehr, a Wichita Republican and committee chairman, announced that she had to testify at another committee. Representative David Crum, the committee’s vice-char and an Augusta Republican, also had to attend a different committee meeting. In their absence, Representative Geraldine Flaharty, a Wichita Democrat, presided over the proceedings.

    Leading off the testimony, a woman from Augusta who suffers from multiple sclerosis said she wished for other drugs besides oxycodone and morphine to relieve her pain. In the past, marijuana gave her relief, she said, but now that she stopped using the drug, she has become worse, now barely able to walk. “But I’m too old to break the law,” she said.

    David Mulford of Hutchinson said he has suffered from both chronic pain and muscle spasms for 20 years. He said he has long-term experience with Marinol (a prescription pill form of the main psychoactive substance found in marijuana) and medicinal herbal cannabis.

    He quoted John Walters, former director of the White House Office of National Drug Control Policy, who said in 2002 that “The Center for Medicinal Cannabis Research is currently conducting scientific studies to determine the efficacy of marijuana in treating various ailments. Until that research is concluded, however, most of what the public hears from marijuana activists is little more than a compilation of anecdotes.”

    Mulford said that this research is now available, referring to a recent report from the Center for Medical Cannabis Research at the University of California. He said that this study found that herbal cannabis has benefits for individuals that do not respond well to current therapies. Medicinal cannabis was found to safe and effective, he said the study found.

    Marinol, while an important part of his treatment plan, does not provide the same benefits as herbal cannabis. He said he finds it difficult to believe that anyone would consider him a “faker,” using his illness as an excuse to get high. He said he needs to manage his health, and only that. “We must place patients above politics,” he added.

    Anthony Buckland told of how in the days before his daughter died from cancer at the age of 16, there were no non-narcotic drugs available for her to use. Cannabis, he said, would have helped control her nausea and increase her appetite, as well as controlling pain. The daughter did not want to break the law, which would have been necessary in order to use cannabis.

    Brian Leininger, an attorney from Overland Park who has experience as a district attorney and city prosecutor, spoke on behalf of Law Enforcement Against Prohibition (LEAP), an organization of former and current law enforcement officers, prosecutors, and judges who at one time had fought the war on drugs, but are now opposed to the prohibition of drugs. He said that marijuana is classified as a schedule 1 drug, meaning that it has no medical benefit, which he said is not true. Many far more dangerous and harmful drugs are not classified as schedule 1 drugs, and are prescribed regularly.

    He said that 14 states have approved cannabis for medical purposes. He urged the committee members to take a fair look at this legislation and vote for it when the times comes. “It’s the compassionate thing to do,” he added.

    Dan Dawdy presented information on the scientific aspects of cannabis and Marinol, the pill form of synthetic THC. One difference, he said, as that Marinol contains just one compound, while medical cannabis in herbal form contains 60 naturally-occurring cannabinoids. He told the committee that the fact that Marinol is ingested orally is a problem too, according to experts. Of the many cannabinoids in natural cannabis, several have been found to be medically useful.

    Dawdy explained: “We do not stop at one headache medicine or one cholesterol-lowering drug. Why not? It’s simple: one medicine doesn’t work for everyone, it doesn’t work in every situation, or for every need. … Even the best drugs don’t work for everyone.” He added that “I used to believe that cannabis was not medicine — it just made people not mind being sick.” But after seeing the medicine in action, he came to realize that medical cannabis has the ability to help many ill people improve their lives.

    Tom Ballard, who said he is a long-time resident of Kansas, spoke on the issue of cannabis dependency. He told the committee that “cannabis lacks the physical and psychological dependence liabilities associated with most other substances.” He said that only ten percent of those why try cannabis meet the clinical criteria for drug dependency, which is less than the 15 percent associated with alcohol use. He said that the majority of cannabis users who are in treatment programs are there as a condition of their probation, not their choice. “Prohibitionists disingenuously argue that these admissions to treatment justify the need to maintain cannabis’ illegal status when in reality it appears to be the policy and not the use that results in the commitment of cannabis users to treatment centers.”

    Ballard also addressed the effect of cannabis use on driving, saying that its effect on the ability to drive — compared to the effect of alcohol — is mild.

    Tyler Feeney said that we should be having hearings on this matter, not an informational session where the leadership of the committee — referring to Representatives Landwehr and Crum — is not present, saying that they “obviously don’t care.” The audience expressed its approval of this sentiment with applause and cheers. He said it’s a disconnect when legislators take money from the pharmaceutical industry, cigarette makers, and people who sell booze, but panic at the idea of marijuana. “14 other states have done this, and the apocalypse hasn’t hit yet.”

    He promoted medical marijuana as a way to help solve the state’s budget problem by earning revenue through its sale.

    Feeney urged the committee to hold a real hearing instead of this informational hearing, which he characterized as a waste of time. He thanked the committee members who were still present, as by this time, many committee members had left the room. Chairman Flaharty said that some members had other appointments, and that’s why they had left.

    Patrick Wilbur, Executive Director of Drug Policy Forum of Kansas, said it’s obvious that for some patients, cannabis is the best answer for them. Also, this bill does not endorse or legalize the recreational use of cannabis. He cited an ABC News/Washington Post poll that found that 81% of Americans endorsed the legalization of medical marijuana. “This is not a fringe issue. This is mainstream,” he said. The approval numbers are not as high in Kansas, he said, but there is still a solid majority of Kansans that support this.

    Cheryl Riley, founder and director of the Kansas Medical Cannabis Network, spoke about the evidence supporting the medical use of cannabis, stating: “Four decades of intensive research and clinical trials in Israel and elsewhere has proved beyond any doubt to rational minds that medical cannabis is indeed effective therapy for a wide array of medical conditions.” She noted that the American Medical Association has asked the DEA to reschedule cannabis so that clinical studies could be conducted.

    She also told the committee that many religious organizations have announced support for medical cannabis as a matter of human compassion.

    In written testimony supplied to the committee, Dr. Jon Hauxwell, a retired physician living in Hays, wrote: “Cannabis denialists rely on a derisive catch phrase, ‘medical excuse marijuana.’ Apparently we are to believe that the tens of thousands of people who can attest to the unique benefits of cannabis therapy when other drugs have failed, are simply deluded, or faking. This is cruel and cynical. One wonders how many of these patients the denialists have actually interviewed, and by what criteria they dismissed these affirmations as crazy or deceitful. These patients deserve compassion, not derision.”

    On the potential for abuse if Kansas legalizes medical cannabis, Hauxwell wrote to the committee: “As a licensed physician, I could legally prescribe or administer methamphetamine, cocaine, morphine, Oxy-Contin, and barbiturates. There are indeed some people who seek to divert these drugs for abuse. Doctors must be vigilant, and sometimes we get fooled. But we as a society have made a commitment: The abusers don’t get to call the shots. They will not be allowed to deprive legitimate patients of the right to the treatment they need.”

    Concluding his written testimony, Dr. Hauxwell explained that cannabis is safe, provides proven benefits, and is a valuable and necessary option for treatment:

    It is biologically plausible — and demonstrable — that cannabis safely offers a wide variety of benefits for health, benefits which have already been discovered and applied by patients across the world, and over centuries.

    Denialists maintain that even if cannabis does treat a variety of medical conditions, it is unnecessary because these conditions can be treated with currently available drugs.

    However, these drugs often have side-effects more disabling than cannabis, or don’t work well for some individuals. If these drugs are already adequate, we could make at least two predictions: One, no other new drugs will ever be introduced to treat the conditions cannabis can treat, because they too would be “unnecessary.” And two, no cancer patient will ever again tell her oncologist “I’m not going to take any more radiation and chemo. I know what that means, but I’d rather die than go through that again.”

    Written testimony presented at this hearing is available at Informational Presentations on Kansas Medical Marijuana Act. A USA Today article that references Representative Finney and the Kansas bill is Slowly, states are lessening limits on marijuana. A recent poll that shows support for medical marijuana in Kansas is Survey USA News Poll #16266.

  • Kansas news digest

    News from alternative media around Kansas for March 5, 2010.

    Teacher Tenure Under Review In Effort to Reduce School Costs

    (State of the State KS) “A House committee heard testimony on a bill Wednesday that would lengthen the period of time public school teachers must work to five years before eligible for tenure.”

    KPERS Committee Considers Early Retirement for Employees To Save Money

    (State of the State KS) “The House KPERS committee considered a bill Tuesday that would encourage early retirement for some government workers to save costs.”

    Kansas Democrats Focus on 2010 Elections at Washington Days

    (State of the State KS) “Kansas Democrats gathered to celebrate and campaign at Friday and Saturday’s Washington Days in Topeka.”

    Smoking ban proponents pull out bag of tricks to get bill passed, casino exemption included

    (Kansas Liberty) “In the near future, Kansas residents will be forced to comply with a statewide smoking ban, which has received the support of both chambers of the Kansas Legislature. Today, the House voted 68-54 to concur with the conference committee agreement reached between select members of the House and the Senate.”

    Day-care bill puts too much government in the home, opponents say

    (Kansas Liberty) “Tammi Hill, owner of the Peace of Mind Home Child Care Center in Olathe, has been brought to tears of frustration over a new piece of legislation which is currently in the Senate Public Health and Welfare Committee. Senate Bill 447 would create several new restrictions for day care providers, including regulations on how long children can take using the bathroom, how long a provider can speak with a parent, and how long a provider can spend with any inspector that may drop by the ensure the care center is in compliance with regulations.”

    Cigarette tax increases reported to bring negative outcomes

    (Kansas Liberty) “Americans for Prosperity-Kansas has launched a new web page dedicated to informing Kansas residents about how an increased cigarette tax could cost the state revenue, instead of bringing in additional revenue as suggested by the Democrats.”

    Wichita School Board Attempts to Explain Budget, Seeks Priorities

    (Kansas Watchdog) “About 400 people attended a Board Night Out at Wichita’s West High School Monday evening. A similar number attended another forum at Wichita’s Southeast High School. USD259 Wichita Board of Education President Barbara Fuller, board member Lanora Nolan and Superintendent John Allison attended the West High gathering and offered their assessments of the decisions facing the district because of the ongoing state budget crisis.”

    Tiahrt, Others Exonerated in Ethics Probe

    (Kansas Watchdog) “The Associated Press is reporting that Kansas Congressman Todd Tiahrt has been exonerated in an ethics probe of his connections with defense lobbying firm PMA and its clients. The probe found no violations by Tiahrt or five other members of the House Defense Appropriations Subcommittee. The late John Murtha (D-Pa.) topped the list of who received large donations from PMA Group and its clients and steered earmarks to PMA clients.”

    Kansas revenues sag deeper into crisis territory

    (Kansas Reporter) “TOPEKA, Kan. – February’s $71 million tax collection shortfall dropped Kansas revenues for the month deeper into budget crisis territory, legislative researchers reported Thursday.”

    Kansas’ bid for federal school money rejected

    (Kansas Reporter) “TOPEKA, Kan. – Kansas’ first round application for a slice of $4.35 billion in new federal education stimulus money has been rejected, but education officials say they plan to try again in a second round next June. The Kansas State Department of Education said it learned Thursday that it is not among 16 finalists selected to receive grants under the Obama administration’s Race to the Top plan for educational reform.”

    Kansas tax committee sends $169 million increase to House

    (Kansas Reporter) “TOPEKA, Kan. – Kansas House Taxation Committee members reluctantly voted Tuesday to raise $169 million in new taxes by requiring homeowners and renters to a pay 5.3 percent sales tax on their water, electric and natural gas bills that are now tax-exempt.”

    Costly Kansas tax credit needs more money, panel told

    (Kansas Reporter) “TOPEKA, Kan. – A controversial business tax credit once flagged as a drain on Kansas’ budget needs more money to help create jobs in Kansas, backers told a Kansas House Taxation committee Wednesday. Opponents, however, argued that removing a state lid on Kansas Historical Preservation tax credits, which last year were lopped by more than half their previous levels, would perpetuate the inefficient use of taxpayer money and give the recipients an unfair advantage over competitors who aren’t similarly subsidized.”

    Foster care system criticized, defended

    (Kansas Health Institute News Service) “Sadie Carpenter said no one ever told her why she and her husband weren’t allowed to adopt their great granddaughter. Marilyn Dilley said she and her husband were never told why they couldn’t adopt a boy they’d cared for as foster parents.”

  • Chemical safety bill testimony heard

    This week the United States Senate Committee on Homeland Security and Governmental Affairs heard testimony on S.2996, titled “Continuing Chemical Facilities Antiterrorism Security Act of 2010.” This bill would extend the effective date of current chemical security regulations until 2015.

    In the House of Representatives, a bill has passed that contains provisions for Inherently Safer Technology (IST). The Senate bill does not contain these provisions.

    IST regulations seek to force companies to replace existing methods and raw materials with those deemed to be safer. But the legislation may not produce its intended effect. Stephen Poorman of the Society of Chemical Manufacturers and Affiliates stated in his written testimony: “Inherent safety is a superficially simple but truthfully very complex concept, and one that is inherently unsuited to regulation. Any IST mandate is bound to create situations that will actually increase or transfer overall risks.”

    His testimony gave three examples of where a change to a process mandated by IST would actually increase the overall risk. For example, a process might use a toxic catalyst. Eliminating the use of the catalyst would mean the company has to increase the temperature and pressure of the process, two factors that work to increase risk. The end result might be a process with more risk than the original process.

    In her opening remarks, Senator Susan M. Collins gave another example of how IST might force more hazardous trucks on highways:

    According to one water utility located in an isolated area of the Northwest, if Congress were to force it to replace its use of gaseous chlorine with sodium hypochlorite, then the utility would have to use as much as seven times the current quantity of treatment chemicals to achieve comparable water quality results. In turn, the utility would have to arrange for many more bulk chemical deliveries, by trucks, into the watershed. The greater quantities of chemicals and increased frequency of truck deliveries would heighten the risk of an accident resulting in a chemical spill into the watershed. In fact, the accidental release of sodium hypochlorite into the watershed would likely cause greater harm to soils, vegetation and streams than a gaseous chlorine release in this remote area.

    IST regulations and mandates would also be very expensive, forcing manufacturers and even local water utilities to increase their prices, all for something that may not reduce risk. Furthermore, as Sen. Collins remarked, “The increased cost of a mandatory IST program may force chemical companies to simply transfer their operations overseas, costing American workers thousands of jobs.”

    Testimony is available on the committee’s hearing page. More information on this topic is available on this site at Chemical facility anti-terrorism standards.

  • Importance of economic freedom explained in Wichita

    Yesterday Robert Lawson appeared in Wichita to deliver a lecture titled “Economic Freedom and the Wealth and Health of Nations.” The lecture explained how Lawson and his colleagues calculate the annual “Economic Freedom of the World” index, which ranks most of the countries of the world in how the “policies and institutions of countries are supportive of economic freedom.” The conclusion is that economic freedom is a vital component of well-being, income, health, and both personal and political freedom.

    Robert LawsonRobert Lawson

    The Economic Freedom of the World annual report is available in its entirety at FreeTheWorld.com.

    Lawson started his lecture by noting two methods of organizing an economy. There’s the way of Adam Smith, in which liberty, private property, and free trade are paramount, and government is to have a limited role. The other way is that of Karl Marx, where society would be planned and controlled by a central authority according to a national strategy.

    Lawson said he became interested in measuring freedom as a way to investigate the truth of the claims of Smith and Marx. By collecting data about economic freedom, we could learn more about which system — economic freedom or planned economies — works best.

    Lawson defined economic freedom as consisting of free markets, private property and personal choice; freedom to trade both within a country and foreign trade; freedom to enter markets; and security of property and the rule of law. He said that there is a role for government in this system to protect property rights and provide basic infrastructure, but the role of government is limited.

    Measuring economic freedom is complex and multidimensional. Data comes from 141 countries using 42 components that are grouped into five broad areas: size of government, including expenditures, taxes, and enterprises; legal structure and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labor, and business. Ratings are on a scale from zero to ten, with ten representing the most freedom.

    Some of the components of the ranking are based on objective data, while some are subjective, perhaps from a survey. Lawson said that the report and book detail the methodology used in creating the index.

    The result is that Hong Kong ranks as most economically free country. Singapore is second, which Lawson said poses a problem. Singapore is economically free, but it is not politically liberal in terms of civil liberties. There is a strong positive relationship between political freedom and economic freedom, but there are exceptions like Singapore.

    The United States ranks sixth. Sweden is ranked fortieth, which is still in the upper quartile of countries. Lawson said that while Sweden has a reputation as a welfare state, the U.S. and Sweden are not all that different. Taxes in Sweden are about 50 perfect higher than ours, and Sweden has many more labor regulations, but otherwise the countries are similar.

    The big differences in the world, Lawson said, are between countries like the U.S. and countries like Venezuela and Zimbabwe.

    China is ranked eighty-second, below the midpoint. Lawson said that China is a problem to rank, having Shanghai which is relatively free, and then outer provinces which are still tightly controlled and repressive.

    Russia ranks eighty-third, right below China. Some of the former Soviet republics like Estonia are doing well, but the Ukraine has made little progress towards freedom.

    India ranks eighty-sixth. It is not an economically free county, but is more free now than in the past, Lawson said.

    To show how economic freedom impacts the lives of people, Lawson used a series of charts that showed the impact of economic freedom on various measures.

    Economic freedom is very important in determining the incomes of people. The countries in the highest-ranking quartile of the economic freedom index have a per-capita income of $32,443. For countries in the lowest quartile the income is only $3,802. Economic growth rates are higher in the freer countries, too, although the difference is not as great as with income.

    Lawson said that a frequent criticism of free economies is income inequality. He showed a chart presenting the share of income earned by the poorest ten percent in each country, grouped by quartile. There is very little difference between the groups. “It doesn’t really matter what kind of economic system you have — free market or not — it does not correlate in any way with income inequality. It’s simply not true that market economies, in general, are more unequal.”

    A follow-up, Lawson said, is that if you are poor, where do you want to be? The answer is in the economically free countries. The per-capita income of the poorest ten percent in the least economically free countries is $896, while in the most economically free it is $9,105.

    Life expectancy is also positively correlated with economic freedom, ranging from 59.40 years in the least-free countries to 79.12 in the most-free countries.

    Is there a relationship between economic systems and the environment? Lawson showed a chart showing that the free countries do better in a measure of environmental performance.

    Lawson said that political rights and civil liberties are also strongly associated with economic freedom, the example of Singapore notwithstanding. India is another exception, being a fairly liberal democracy but ranking low in economic freedom.

    Speaking about the United States, Lawson said that the numbers are likely to go down in the future. While the U.S. ranks above the world average, its measurement of freedom has been declining since 2000. At the same time, the rest of the world is on an upward trend. “It’s no longer accurate to say the United States is among the very top tier in the economic freedom index,” Lawson said, adding that he blames George Bush for this. The decline is partly due to the increasing size of government, but the largest cause of the decline is in the area of property rights. This area is measured largely by surveys asking people how they feel about property rights in America. The perception, Lawson, said, is that the security of property rights are on the decline.

    A question from the audience asked about reliance on foreign aid. Lawson replied that the economic freedom index methodology doesn’t include foreign aid. But there has been research done using the index and foreign aid, which concluded that countries get more foreign aid when they do worse on the index. Furthermore, after receiving more foreign aid, countries do worse in the index.

    A question about the cost of living in countries was answered by the use of purchasing power parity.

    Responding to a question about deficits, Lawson said that the size of government deficits doesn’t enter into the index calculations. The amount of government spending is part of the index, however. Lawson said that Milton Friedman argued that it wasn’t very important to freedom whether the government runs deficits. The size of government spending is important, Friedman said, with the method of financing the spending much less important.

    A question revealed that health care doesn’t play a part in the index calculations, as the composition of spending is not a factor. If the U.S. government decides to spend more on health care, its rating will probably decline, as government spending is in the index.

    A question asked how it can be that China and India are growing very rapidly, but still rank low in the index. Lawson answered that it’s the change or increase in the index that has been important for these two countries. There has been great change in both countries. “It takes only a tiny bit of relaxation to see a flourishing of growth in both China and India.” He added that both countries need to continue their reforms in order to maintain their rates of economic growth.

    Lawson added that regulation, not taxation, is the biggest threat to prosperity and economic freedom in America.

    Lawson’s lecture was sponsored by the Gilder Lehrman Institute of American History and underwritten by The Fred C. and Mary R. Koch Foundation.

  • Regulation has not lessened, instead it has harmed us

    Last week’s Wichita Eagle featured an op-ed by Brad Beachy, who is co-chairman of Wichita Democracy for America. Several of the claims made by Beachy deserve examination. In particular, Beachy blames free markets as the cause of our current economic problems: “The Great Recession we’re in now started in late 2007, after several years of deep tax cuts and major repeals of government regulation in the financial market.”

    Let’s look at regulation. Not everyone agrees with Beachy’s claim of major repeals of regulation in recent years. The liberal Time Magazine wrote this assessment of George W. Bush’s regulatory legacy about a year ago:

    The only major piece of regulatory legislation enacted during the Bush years was the Sarbanes-Oxley Act, which dramatically increased regulation of corporate financial disclosures. The really big regulatory changes being pointed to now as possible culprits for the crisis date back to Bush’s predecessors: Bill Clinton, Ronald Reagan, even Jimmy Carter and Gerald Ford. So the popular Democratic refrain that “Bush-era deregulation” is to blame for our troubles is a little hard to square with the evidence. What is true is that most Bush-era financial regulators were less than enthusiastic about the very act of regulating, and that Bush’s “ownership society” push glossed over a lot of potential dangers. Bush didn’t cause the financial regulatory breakdown, but he didn’t jump in to fix it either.

    The housing crisis played a large, perhaps dominant role in the current recession. So let’s look at what were the causes of that to see if deregulation played a role.

    Last October John A. Allison, chairman and former CEO of BB&T Corporation, the nation’s 10th largest financial-holding company, presented a lecture at the 30th annual Economic Outlook Conference at Century II, produced by the Center for Economic Development and Business Research (CEDBR) at Wichita State University. His lecture, titled “The Financial Crisis: Causes and Possible Cures” provided valuable insight into the causes of the problem we’re in.

    Allison said “Only government can make a mistake of this magnitude possible.” Government and its regulators, in this case the Federal Reserve System, the Federal Deposit Insurance Corporation, the housing policymakers Freddie Mac and Fannie Mae, and the Securities and Exchange Commission, were the proximate cause of the problem, and prevented natural market corrective forces to work.

    At the Federal Reserve, management of our nations’ money supply is a problem. “The huge level of federal debt we have today would not be practical if the government did not own the monetary system,” Allison said.

    FDIC insurance of bank deposits leads people to invest in banks without regard to the risk the banks take. It also made the “pick-a-payment” mortgage possible, where each month a homeowner may owe more than the month before.

    Freddie Mac and Fannie Mae exist to promote housing ownership, and they promoted it far above the natural rate of home ownership. Their actions also made the subprime mortgage possible.

    The credit rating agencies sanctioned by the SEC — S&P, Moody’s, and Fitch — are given a monopoly over the issuance of ratings, and they failed in their duty.

    Before the innovations of Freddie Mac and Fannie Mae, savings and loan banks would originate mortgages locally and then hold them locally. Now, the model is “originate and sell,” Allison said. These government regulations made the mortgage broker origination model viable, and led to huge profits, until the bubble burst.

    So when Beachy asks “Why does the unseen hand of the marketplace, in its infinite wisdom, give million-dollar bonuses to the CEOs of mortgage institutions who drive their companies into bankruptcy” we have to answer it’s not the marketplace that did this. It was government policy and regulation, developed over the last few decades, that led to this situation. Our financial system operates in nothing resembling a free market environment.

    By the way, Beachy starts his op-ed questioning the motives of those he criticizes, in this case the Americans For Prosperity Foundation: “Billionaire David H. Koch presides on the foundation’s board of directors and has funded the organization with millions of dollars.” If motives are reason for criticism, we ought to note that Beachy — an employee at a government-owned and run institution — has a self-interest in keeping the government spending gravy train flowing.