First, the facts: In the 2008 election cycle, the non-profit corporation Citizens United released a documentary largely antagonistic to Sen. Clinton. Citizens United planned a release for theaters as well as pay-per-view and DVD, but McCain Feingold limited advocacy for or against candidates during elections; even advertising the movie would have been illegal, yet the expenditure for the movie was entirely independent of the campaigns for or against Sen. Clinton, so there can be no charges of corruption, the official reason for campaign finance laws.

During arguments, the government claimed that any kind of broadcast communication that even mentioned a candidate’s name would be covered under the law. This includes advertisements for products. Remember the Obama Commemorative Plates going around a year ago? Illegal! The Kindle, Amazon’s electronic book, is also subject to the law. The Court also found that, by letting the laws stand, they would potentially allow Congress to ban books and other print media that mentioned candidates, and by setting a precedent that such action might be in principle permissible, lead to censorship in other ways. Even the blogosphere wasn’t immune, because express advocacy of candidates in an electronic form is technically illegal under McCain- Feingold. The government also argued that because “the First Amendment refers both to freedom of speech and of the press, there would be a potential argument that media corporations, the institutional press, would have a greater First Amendment right [than other groups].” This means, of course, that media corporations have potentially greater rights to free speech than everyone else, and true to the government’s word, mainstream media giants were exempted from the law.

The hysteria from the left, and even some nominal conservatives and libertarians, has been forthcoming in no short supply. They decry the fact that, by the Court’s decision, corporations will be allowed to influence elections. But what they are largely criticizing, corporate funding of elections, is still illegal. Corporations have been barred from direct contributions to campaigns for a century, and that facet of campaign finance law stands. The decision affirms the right to make independent expenditures and communications – a documentary, a blog, an advertisement. Corporations are still banned from directly contributing to campaigns, and so there can be no corruption – unless congressmen want to admit that as soon as someone says something nice about them they are obligated to dispense favors.

Their criticisms are based in a mindset that evades any consideration of what corporations are. A corporation is simply a voluntary association of individuals who combine their capital to undertake large expenditures and reduce individual liabilities. It does include for-profit corporations, certainly, but also non-profits, think tanks, and policy advocacy groups such as the ACLU, NRA, NARAL, Cato Institute, and Heritage Foundation. Why should individuals, speaking jointly under the aegis of an advocacy group, be prohibited from speaking via broadcast, such as when the ACLU was prohibited from advertising the names of candidates who had voted for warrant-less wiretapping and other invasive government powers? Why should free speech be taken so literally as to exclude dissemination of information by print and broadcast media? As Chief Justice Roberts stated, “The First Amendment protects more than just the individual on a soapbox and the lonely pamphleteer.” And, for the unconvinced who would still claim that a corporation, particularly a for-profit one, is a danger to democracy, consider what would happen to liberty in other areas if organization along corporate lines may be a justification for some restriction. We can have the right to practice religion – but not the right to build a church, which is often a corporate endeavor. You’re free to attend a private school, but you can’t incorporate to establish or maintain one. And you’re free to write about whatever you want on your blog, so long as you don’t use corporate-owned servers.

Logically, the kind of power the government granted itself, and many citizens have supported in the name of “clean politics”, makes any freedom or right currently protected vulnerable to harassment or outright denial by government. Large segments of the population believe nevertheless that for-profit corporations might unduly influence politics so that policies and candidates do not accurately reflect the public’s interests. They fail to take into account two very critical details.

First, corporations and unions do not speak with a uniform voice. While some corporations such as Wal-Mart supported Obama’s health insurance regulation proposals, others, such as Whole Foods, opposed them. Second, corporate shareholders are predominantly average Americans who own corporate assets by proxy, through investment firms who have been entrusted with this money to maximize shareholder wealth. Not only will it be against their self-interest to spend money lobbying for things investors may find controversial, a more plausible attempt to “seek rent” (create a policy good for the company and bad for everyone else) would be severely hamstrung by the fact that diverse portfolios would make such an act cause more self-injury than benefit.

President Obama’s response, and history, are particularly enlightening. He revealed his ignorance and poor taste by remarking in the State of the Union, “With all due deference to separation of powers, last week the Supreme Court reversed a century of law that I believe will open the floodgates for special interests…” The aforementioned ignorance of what McCain-Feingold actually says notwithstanding, it should be noted that the law is about seven years old – that’s a few short of a century, Mr. President. Shortly after the decision, he offered the following commentary: “With its ruling today, the Supreme Court has given a green light to a new stampede of special interest money in our politics. It is a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans. This ruling gives the special interests and their lobbyists even more power in Washington while undermining the influence of average Americans who make small contributions to support their preferred candidates. That’s why I am instructing my Administration to get to work immediately with Congress on this issue. We are going to talk with bipartisan Congressional leaders to develop a forceful response to this decision. The public interest requires nothing less.” This, from the man who accepted nearly $1 million from Goldman Sachs, more than any other contributor, as well as corporate and union contributions as a state legislator.

Mr. Obama’s objections, as far as can be ascertained, are not that corporate money will support a bad agenda. It is that it won’t support his agenda. He was quite fine with corporate funding from rent-seeking unions, insurance companies, and pharmaceutical companies supporting his ambition to tighten health care markets. He conveniently ignores the fact that such corporations would not be “[marshaling] power in Washington”, they would be presenting ads to the general public, and those ads would have to reveal who was funding them. Rather than spending money on lobbying Congress directly, the most they could do is denounce a congressman, and such ads would likely be ineffective since voters can easily establish a corporation’s self-interest in supporting a particular candidate or agenda. A corporation pushing an agenda antithetical to most Americans’ values cannot be successful, unless most Americans are ignorant and easily swayed – and if they are, what does that say about a man who wins a landslide electoral victory? Furthermore, as Obama himself should know from his presidential campaign, small donors and viral advertising through media like Facebook are far more effective than massive television ads.

Campaign finance regulation heavily favors incumbents, who have numerous legal provisions to protect them from competition for public visibility. For starters, they have name recognition. They can fund mailed advertisements (“newsletters”, “Washington Updates”) at taxpayer expense via the franking privilege. They can travel across their states at taxpayer expense. Incumbents often have more money than their challengers due to existing fundraising infrastructure. Yet the public is sold the nonsense that “the public interest requires no less” than these restrictions, and therefore entrenched politicians and interests.

The Constitution is clear enough: “Congress shall make no law…abridging freedom of speech” (emphasis added). The Court, and common sense, tell us that spending is a necessary and constitutionally protected component of speech, because it purchases the medium by which the speech is conveyed.

The dissent, including Obama-appointee Justice Sotomayor, has demonstrated a woefully low level of respect for both the Constitution and the moral principles it embodies. On the other hand, we can be thankful for Justice Kennedy’s opinion standing for the majority. It is commendable for its support of free speech and free thought: “When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful…The First Amendment confirms the freedom to think for ourselves.”

Scott Brown’s victory in the Massachusetts special Senate election caught national attention as a political game-changer. In a state where only 11% of the electorate is Republican, Brown won against Democrat Martha Coakley with a solid margin. Remarkably, Brown did not campaign as a “moderate”, but as a candidate who would fiercely oppose Obama’s agenda.

Interestingly enough, both Obama and Brown reveal a stunning political reality: while “moderation” sounds more appealing than “extremism”, it is the “extreme” – the consistent – who actually win elections. He did so in a state used as a model for Obama’s health insurance regulatory scheme, a tragic irony for the left’s hubris and an indication that voters in that state are fed up with both the Democrats’ national agenda, and perhaps their own health insurance policies.

What’s really important about the election is the fact that it gives Republicans 41 seats in the Senate. While technically only a majority is needed to pass legislation or confirm appointments, Senate rules allow for unlimited debate. Democrat Strom Thurmond currently holds the record for longest speech, at 24 hours and 18 minutes, in a last ditch attempt to block the Civil Rights Act of 1957. If debate never stops, the Senate is unable to move to a final vote, and the legislation or confirmation cannot be passed. Under current Senate rules, 60 votes are needed for a “cloture motion” to stop debate and proceed to a vote. This means that a bill or confirmation can literally be talked to death, even if a majority would have supported it. With Brown as the 41st Republican Senator, a unified vote can block any legislation that does not have bipartisan support, meaning Democrats can no longer unilaterally force bad laws (additional health insurance regulations, “cap and trade”, etc) on the public.

Ultimately, though, the election doesn’t change the majority in the Senate, and Republicans will still be unable to advance their own agenda. What it does win is valuable time, allowing Republicans to hold out until the November elections. Then, voters across the country will instate a new House of Representatives and replace one third of the Senate. While many incumbents will remain, history and the current political climate indicate that the midterm elections will bring with them significant turnover, and Republicans running under a coherent agenda may be able to win back Congress.

Despite winning the Nobel Prize in Economics, Oliver Williamson’s name is often unrecognized among Berkeley’s student population – which is a shame because of the man’s tremendous insights and revolutionary approach to economics. His work defines the field of transaction cost economics, reshaping how we understand business practices and carry out regulations, particularly anti-trust regulations.
Williamson’s approach to economics is quite refreshing. Rather than the “rationalist” approaching economics with rigorous mathematics and thought experiments, Williamson is a devout empiricist with very little regard for untested theory and uncritical ideology. He described observing a conference in which the late Nobel Laureate Milton Friedman presented the results of the first empirical tests of Keynesian monetary theories such that Friedman “had the data on his side,” and was able to stand “against the whole world,” demonstrating the errors of Keynes’ theories using cold, hard data instead of elegant mathematics or debatable logical arguments. Williamson’s view of economics allows for the omission of rigorous mathematical models and demands a high degree of empirical validation – both, as he says, “breaths of fresh air” in the field. The approach has served him well, allowing him to analyze economic phenomena in a far richer context than can be examined by mathematical models, while his ivory tower colleagues generate theories divorced from reality.

The particular course of Williamson’s work was set while he was on leave in Warrick, where he read about an economist of the 1930’s – not Keynes – who influenced him greatly. That man, John R. Commons, took exception to what Williamson calls “the resource allocation paradigm,” the traditional view that characterizes firms as single actors responding to prices and demand schedules to produce and deliver the optimal quantity of goods and services. While this can often be useful, it reduces economics essentially to calculus problems, as any student in the Econ 101 series can attest to. This approach tends to dehumanize core issues and dismiss the rich context that gives rise to particular solutions to economic problems, hence Williamson’s criticism of the “firm as production function” model of economics.

Commons believed that the concept that economics should be founded upon was one that can find a way to combine “conflict, mutuality, and order.” The study of governance thus addresses the “means to infuse order, mitigate conflict, and realize mutual gain.” Commons, and Williamson, take this fundamental economic unit to be, not firms, but transactions. Unfortunately, Commons never found a way to give transaction costs what Williamson describes as “operational content”; Commons was unable to formulate a model, verbal or mathematical, and so was unable to give transaction cost economics sufficient momentum.

Central to Williamson’s work is a study of contracts. One aspect of this is the broken contract: someone simply does not cooperate, or there is an honest disagreement that can harm a party who made an investment that can’t be easily liquidated or redeployed – a characteristic he terms asset specificity, which has itself redefined how we think about economics. Traditional solutions to broken contracts include information disclosure rules and auditing to ensure more complete information and thus more appropriate contracts, or penalty clauses to discourage breach of contract. Says Williamson, “if push comes to shove, we get a special dispute system to arbitrate – not the courts – whose objective is to get back on track, not to extract wealth punitively.” Such an arbitration system produces order, deters conflict, and promotes harmony and mutual gain. Williamson describes this process as “a way to think about contracts in a constructive, not legalistic, way.”

To analyze contracts, we must be able to describe the organizations that make them. Both Chester Barnard and Friedrich Hayek described organization as a tool to facilitate adaptation. Barnard, a management theorist, took adaptation to mean deliberate, purposeful, and coordinated changes – the kind that define a “hierarchy,” or a heavily structured organization. Hayek, a Nobel prize-winning Austrian economist, instead framed adaptation within the context of relatively disorganized markets,  with signals such as prices communicating information that people adjust to autonomously to re-equilibrate the system and restore order.

Williamson is dissatisfied with choosing either of the two views, as each has strengths and weaknesses that make them more suited to certain contexts than others. His work attempts to characterize these governance structures and determine which one makes transactions more efficient, in which contexts, and why.

He is also quick to point out the range of phenomena the transaction-cost and governance approach to economics can explain. Williamson’s work has touched economic and administrative issues such as credit versus equity financing – redeveloping finance in constructive ways – to anti-trust laws and business regulations – providing information on the contexts in which these laws don’t work, and suggesting alternative strategies that promote harmony and mutual gain.

His work in anti-trust alone has forced countries across the globe to rethink what economic ends they pursue and how they do so. Williamson, as the Special Economic Assistant to the head of the Anti-Trust division within the US Department of Justice, noted how classic economic theory did not appropriately respond to monopolies; the DoJ had, in his mind, “the wrong perspective.” After Williamson, vertical integration (where a company owns all stages of production, such as a power plant owning a railroad line and a coal mine) is no longer itself a justification for anti-trust suits. He showed how this arrangement in fact stabilizes and lowers prices by making supply more consistent and efficient. He has also criticized anti-trust leveled at companies whose sole fault is that they are big, regardless of their efficiency. As economist Thomas Sowell observed, even 100% market share does not make a monopoly – the company has to be doing things directed at keeping the competition out, and selling more for less isn’t a legitimate claim for “anti-competitive” business. The notion that we should have competition for competition’s sake has only resulted in wasted resources and losses to consumers.

His work in the anti-trust field has even led to the reconsideration of how we evaluate the monopolistic nature of companies. In one such memorable case, large oil companies had contracts with each other to buy and sell from each other in particular regions. When one oil company ran a shortage in one area, a second company would supply the necessary oil from its surplus. The first would then supply the second oil at another region. At first this seems to be a scheme to keep the little guy out and entrench the large oil producers. But internal company memos defended the policy by indicating that small suppliers characteristically have minimal investments in a given region, increasing the likelihood that they will not be able to fulfill long term contracts, thereby increasing the volatility of supply and prices. The “monopolistic” actions of the company were in fact intended simply to promote order in the marketplace, to the benefit of both consumers and the economy at large. Empirical evidence like this has at least partially restored the presumption of innocence in the legal system, even (and especially) for business.

Perhaps most importantly, Williamson has demonstrated that decentralized, voluntary associations are viable “governance structures” and that government management of the economy is often neither necessary nor desirable. For all of his many achievements over the course of his long and distinguished career, Oliver Williamson deserves to be saluted.

The entire protest movement is rife with contradictions. Shouting “Who’s University, Our University,” they prohibit other students from using the university facilities. Claiming a “right” to education – meaning a right to force someone to pay for their education – they infringe upon other students’ true right to education – the right to undertake a course of study with the consent of both the student and educator. In the course of their protest, they disrupted over 100 classes, affecting nearly 4,000 students. While they decry the university and legislature depriving students of their imagined rights, they seek amnesty for violating the real rights of thousands of students. And when it comes time to actually assert their demands, the issue of fees is nowhere to be found; instead, the university is pelted with demands not to allow Panda Express near campus. The protesters are right — a question of priorities, indeed.

The actions of the occupiers was a trespass, pure and simple. Each one is guilty of intentionally interfering with the operation of the university, obstructing and intimidating innocent civilians, and refusing to leave when asked. The university’s response has been rather predictable: negotiate with the protesters and attempt to come to a peaceful solution. This has proven far less than satisfactory. They employed negotiators such as Professor George Lakoff, who told the protesters that they could “come out, no handcuffs, no arrests, just a misdemeanor equivalent to jaywalking.” Lakoff, a leftist linguistics professor who has developed a reputation for “framing” (euphemizing) issues, once more showed his talent for lying to achieve his ends – the penalty for trespassing is up to six months of prison and a $1,000 fine. The fact that the university would employ him in this, or any, capacity, reveals their terrible intellectual dishonesty and shortsightedness (more on this anon).

The conflict did finally end when the police pushed through the crowd, arrested the offenders, and cited each of them with trespassing. But this is what they ought to have done from the outset – the protesters had every right to protest outside the building, but none to occupy it, and none to obstruct foot traffic (One protester said “Students are no different from police – you respect the police barricade, you respect the student barricade”, showing an inability to differentiate from a barricade meant to restore order and protect rights and one intended to sow chaos and infringe on rights). The right to free speech and assembly does not entail the right to deprive others of their rights. There are those who will point to videos of “police brutality,” which include striking protesters with batons and shooting particular protesters with rubber bullets. Such reports mischaracterize police brutality, which refers to capricious, unwarranted, and excessive use of force by the police. This was not the case in this situation: protesters were ordered to stand aside to allow the police into Wheeler to make their lawful arrests; failure to comply with such an order is a felony with a penalty of up to four years in prison. Police officers’ use of force was provoked by protesters’ obstruction of legitimate arrests, and cannot be considered excessive given the offense, especially within the context of existing law.

Yet the university, rather than defended the legitimate police action, apologized for it. Chancellor Birgenau wrote in an open letter to the campus community, “Many of you have written to us expressing concerns that police action at Friday’s demonstration in front of Wheeler Hall showed brutality toward individuals who did not appear to be presenting any imminent threat… We truly regret the incidents that brought physical and emotional injury to members of our community.” The university seems to believe that the proper role of the police is to nurture protesters’ emotions rather than advance justice and protect rights. Taking it even further, the university dropped the charges against Wheeler’s occupants, letting them walk away from an incredibly damaging and disruptive affair without penalty.

The university imagines it is somehow smoothing ruffled feathers and calming a tense situation. Their actions are worse than a trade of justice for order. The Monday following the occupation, protesters rallied around Wheeler, with organizers shouting that the resolution of the conflict had nothing to do with good-faith university negotiations, but merely that the police realized that if they did not let the protesters off, “shit would go down.” “It showed that we have power, as a force!” cried the same organizer. The tone and content of these statements indicates that these protesters are more interested in being rabble than advocating their agenda with civility, and that in the long term, the university is working to encourage rather than minimize the disruptions.

If the protesters really wanted to have their concerns addressed, they would do better to approach the issue civilly and rationally. If the university wished to educate students effectively in an orderly environment, they would do better to serve justice and rights rather than the malicious caprice of intellectually arrested students.

Democrats in particular have bristled at the term, arguing that they are not “nationalizing” health care, but are simply providing a “government-run public option”. But socialism means more than government owning an industry outright. Socialism is a politico-economic system in which costs – and decision-making – are spread across society. The current “reforms” socialize costs and economic decisions, and the proper term for that is socialism. The least that “reformers” can do is have the intellectual integrity to call it as it is. But whatever the merits or demerits of their prolific labels, Republicans on the whole have not been anywhere near as vocal in promoting a positive agenda – that is, assessing the real problems in the health care system and offering a solution.

The first step is to recognize that many of the problems in our health care system have nothing to do with the federal government. In fact, the Congress has no constitutional authority to legislate anything related to health care. The sources of many of our health care system’s problems are at the state level: state legislators and insurance commissioners have imposed controls harassing insurers, health co-ops, charities, group practitioners, and doctors. If real reform is the objective, state government is where the lion’s share of the work is. If health care becomes a federal issue, the only practical effects will be that the federal government becomes more involved in local issues, reducing the responsiveness of the medical system, increasing administrative costs, and diminishing individual freedom.

Medicine is one of the only professions without transparency in billing; medical providers do not list the prices for their services before consumers buy them, so consumers do not have the necessary information to make proper choices. Improving visibility would ensure that people’s decisions to buy health care reflect economic realities.

One of the greatest improvements that could be made in insurance, as bad as it sounds, is to allow insurance companies to discriminate. Government requires that insurance companies use “community pricing”, which means that individuals must pay the same for insurance regardless of their risk categories. Age, gender, ethnicity, hobbies, employments, drug use, diet, exercise, and many other factors influence which health problems a person is likely to have, but insurance companies’ discrimination between these real health factors is legally forbidden. Young individuals with healthy lifestyles thus have artificially high insurance costs. This prices many of them out of the insurance market, leaving them uninsured and so further increases the price for others. As far as insurance markets are concerned, discrimination is a good thing. Insurance is a financial instrument for spreading unpredictable, catastrophic loss. If someone is known to be high risk, it makes no sense to pool them with low risk individuals because prices will not reflect costs, and the market will not function effectively. When insurance markets are free to discriminate among real risk categories, prices for each group more accurately reflect their real economic costs, and prices, on the average, fall.

Because the elderly and unhealthy are effectively subsidized by community pricing, they benefit greatly when this policy is a universal requirement. The core of the “individual mandate” to buy health insurance is not “individual responsibility” for each individual’s costs, but is an attempt to force those who are disadvantaged by community pricing to subsidize those who benefit, regardless of the real costs for either group, and with flagrant disregard to the consequences, both personal and economic, of such an action.

Licensing laws in insurance have prevented doctors from using innovative, low-cost payment plans for medical services to the poor. They have also prevented extremely effective Christian community groups from formalizing their pooling of medical expenses under a contract; thereby denying them market presence and reducing their efficiency and service. Doing away with these laws would create an environment in which insurers, doctors, co-ops, and charities can devise new, efficient services and introduce more competition in the insurance industry.

Medical licensing has also contributed greatly to the expense of medical care. By forbidding anyone other than a licensed provider from giving medical care, the government and the American Medical Association together restrict the number of doctors, reducing supply and driving up prices. It also leads to “gold plating” of medical care, where doctors must be present to diagnose and treat ailments, even when a nurse, technician, or pharmacist is perfectly competent to judge and implement the appropriate treatment. This does more than cause consumers to spend money needlessly: it also consumes more of the doctor’s time, resulting in lower quality and greater costs to those who need the doctor’s attention most. Perhaps the worst effect is when there is no doctor present at all, where paramedics or technicians might have been present to give aid, but were not due to licensing laws that impeded their training or employment. There is no way to calculate this hidden cost. Removing medical licensing laws would instantly increase medical supply and reduce costs in both wealth and human life.

Of course, safety in medicine is valuable. Instead of paternalistic licensing laws that presume consumers are incompetent to choose their medical providers, we could just as well have certification – a government or private organization (such as a university) verifying that a prospective doctor had the skills necessary to his work. Citizens would be able to base their judgments accordingly, rather than being preemptively prohibited from choosing a doctor without the right piece of paper.

Eliminating minimum benefits packages would do a great deal to improve the health care system. Every state has laws requiring insurance companies to cover certain expenses in all their plans, from chiropractors to in vitro fertilization to alcohol and drug rehabilitation. Sometimes these laws also require that the insurance have a low-deductible to reduce out of pocket expenses (but increase premiums). These laws are sold to the public under the guise of giving people some degree of security. But the same people must pay for that security, whether they consider it worth it or not. Pre-natal care and rehabilitation are of no use to a single teetotaler, and requiring him to pay for it will only drive up the cost, either reducing his standard of life or driving him out of the insurance market altogether. Eliminating these minimum benefits packages would allow individuals to purchase only the coverage they want.

Once states have removed their counterproductive insurance regulations, there will be far fewer barriers to interstate trade, which is limited due to the number and variety of state regulations. If these regulations are both minimized and standardized, over 1,000 insurance providers will be able to expand their markets to the entire nation, breaking apart local monopolies and bringing competition to urban areas, which are currently dominated by a select handful of insurers. The federal government can do its part to abolish existing federal limitations on interstate financial services such as insurance.

The federal government can also improve health care through our international trade relations. Although businesses in the United States are the primary innovators in medical technology and pharmaceuticals, we pay the highest prices, in part, because other countries impose price controls. However, price controls do not actually lower costs; they are simply efforts to avoid paying them. American consumers must pay artificially high costs to pay for development of new drugs, while foreigners pay little more than the cost of manufacture. Allowing drug reimportation from these countries will effectively import their price controls, but only to the extent that pharmaceutical companies choose to sell to such countries. This will pressure pharmaceutical companies to reject other countries’ controls, making foreigners responsible for the real cost of drugs if they wish to benefit from the advances of American medicine. Such a move would greatly increase economic freedom around the globe while lowering our medical expenses.

The next step for both state and federal governments is to end tax exemptions for fringe benefits. This system was originally the product of World War II’s price controls, which forbade paying workers more than a certain amount. To circumvent the price controls, companies gave their employees fringe benefits like health care, which tax laws do not consider income. These benefits are income, however, just not income that employees have control over. This lack of control, combined with the employer’s standardization of health insurance plans, significantly reduces efficiency – people don’t get the insurance they want and are willing to pay for, they get the insurance they’re given. Furthermore, employer provision of health insurance leads to the disastrous situation in which a worker simultaneously loses his job and health coverage, ensuring that an ailing worker’s layoff will mean financial catastrophe. It also means that people go without coverage for the duration of their unemployment, so that an ailment that develops during the unemployment becomes a “pre-existing condition” that insurance companies will refuse to cover. By simultaneously reducing the personal tax rate and removing these exemptions, employers would drop their insurance plans while raising workers’ wages, allowing them to enjoy the same standard of living while obtaining their insurance independently of their employers. Since consumers, not their employers, would be buying the insurance, they would be able to select a plan that better meets their individual needs, giving them the opportunity to buy more or less coverage as they see fit. And it would increase the portability of insurance, so consumers would be able to take their insurance with them even if they move or change jobs, so consumers would never need to go without coverage.

Drug costs could be easily reduced by reducing the scope of the FDA, whose benefits have not justified its costs. One of the proudest achievements of the FDA was the blocking of thalidomide, which was marketed as a remedy for morning sickness in Europe and caused terrible birth defects. The ban, combined with the disaster in Europe, was taken as evidence that the FDA was doing its job well, but for every thalidomide, there are many legitimate, effective drugs that have been kept off the market or abandoned, and many diseases that have long gone ignored, their cures never researched in the first place. Even the “harmful” drugs currently banned by the FDA are not necessarily bad. Thalidomide has uses that extended beyond morning sickness: since it prevents angiogenesis – blood vessel formation – it can arrest the growth of some cancers. It can also be used as a remedy for skin conditions, including leprosy, and diseases such as macular degeneration.

The FDA adds hundreds of millions of dollars and about a ten year delay to the marketing of new drugs. The expense means the drugs that are researched are ones which are intended for huge segments of the population, and even if a drug is exceptionally effective for other diseases, it is abandoned simply because the number of people it reaches is minimal. The cost of the FDA is far more than the billions lost in the approval process – it includes the very real cost in human lives from the reduced research efforts of pharmaceutical companies and the death toll of terminally ill patients that could have benefited from experimental drugs that were blocked from the general public during their development phase. An overhaul of the FDA’s regulations, including limiting its power to keep drugs off the market, would stimulate research efforts, providing consumers with more effective medicines for a greater number of diseases, make many drugs available for immediate use, and drastically reduce the cost of medicine.

Opponents of this will point out that unscrupulous companies will put harmful drugs on the market and advertise them as beneficial; this is fraud, and can be prosecuted as such, rather than creating an arbitrary regulation that pushes out beneficial drugs at the same time.

One of the more overlooked issues is the corporate income tax. One of its consequences is that charities must devote considerable time and expense to demonstrate their nonprofitable, secular, charitable nature to the IRS. Some charities undoubtedly find the expense to be greater than they value assisting others, and are thus artificially barred from their charitable activities. Those that do still exist become less efficient in providing charity because some of their wealth and effort is devoted to satisfying the IRS rather than fulfilling their mission. As far as real corporations are concerned, the corporate income tax is one of the most economically damaging taxes around, especially considering its low revenue. This tax is passed on to consumers, increasing medical costs by a substantial margin. Removing the corporate income tax would end some anti-charity policy bias and significantly reduce insurance, pharmaceutical, and practitioner costs.

Finally, Medicare and Medicaid should be phased out due to the sheer number and proportion of problems. Proponents point to the fact that Medicare and other socialized health care systems are more efficient by virtue of the fact that they do not seek profits and have lower administration costs. But since they do not seek profits and have their losses subsidized, they have no incentive to be efficient or control costs. Benefits are administered on a fee-for-service basis and has no ability to deny low value, inefficient services. Nor is their administration really less costly. Their claims are computerized and automatically approved without human oversight, lowering nominal costs but giving rise to rampant fraud: unscrupulous individuals can easily charge to Medicare with little possibility of detection. A former fraud investigator in New York estimated fraud for the state was about 40% of all charges. This cost greatly exceeds any potential benefit of reduced administrative costs. Furthermore, Medicare draws almost $200 billion annually from the general fund, indicating that premiums and Medicare-specific taxes are insufficient to cover its expenses. If a cost is paid through taxes, it has not decreased; it is simply hidden from consumers. The economic damage stemming from Medicare taxes, supplementary taxes, borrowing, and the administration of taxes, is often ignored in considering Medicare’s economic footprint. Studies show that the “deadweight loss” of Medicare – the extent to which Medicare hurts our economy – amounts to about one third of every dollar spent on the program. Medicare and Medicaid chronically undercompensate physicians, leaving them to refuse to serve the elderly or to shift their costs to the privately insured, driving the expense of private insurance up and availability down.

Still, proponents of the system claim that it is an astounding success, as measured by the number of elderly who are enrolled in it. This conveniently omits discussion of the relative costs involved, and of the fact that under current law, the elderly must enroll in Medicare or lose their Social Security benefits. This is an injustice on a titanic scale: the elderly are to be taxed over 14% of their entire life’s income for literally no benefit, unless they restrict their choice of medical care and impose a greater tax burden on younger generations. If the elderly are forced into Medicare, the number of elderly enrolled is meaningless.

If a gradual abolition of Medicare and Medicaid proves to be politically unfeasible, at the very least Congress could enable the elderly to opt out and authorize administrative reforms that would add oversight and reduce fraud.

The effect of these reforms will be to have prices reflect economic realities, extending coverage and reducing average costs. Consumers would have greater freedom of contract, giving them a more portable, flexible, and efficient insurance. They would also benefit from increased supply of medical professionals, technology, and pharmaceuticals. Most importantly, these proposals recognize every person’s inalienable right to his own life, which is more than can be said of current reform efforts.

The bill should be opposed simply because it is illegal. The Constitution of the United States declares, in no uncertain terms, that “No State shall…coin Money; emit Bills of Credit…” The State of Missouri had once attempted to issue an interest-bearing certificate that could be used in payment of state taxes; this policy was struck down by the Supreme Court as an unconstitutional bill of credit. For California to do the exact same thing indicates our legislature’s ignorance of both the legal framework they should be intimately familiar with and the critical importance of rule of law in legal, social, and economic stability.

No doubt there are those who defend AB 1506, and other unconstitutional acts, by asserting that in a crisis environment we ought to do “what works” rather than “what’s legal”. This interpretation of a constitution as a “living document” in fact ensures that it is a dead document, a piece of paper outlining no principles, no objective standards, and no rights. This sort of “pragmatism”, far from doing what works, undermines everything that enables the system to work. Without objective standards in law, every action becomes arbitrary, and no one can rely on a stable, objective government. The government cannot protect rights when rights are a matter of convenience instead of a matter of principle.

The political consequences of the bill are, however, far more than undermining “abstract” legal principles such as rule of law: this bill actively encourages the growth of the state, and its debt. When bonds can be used as payment, they become in effect money that bears interest. Every citizen would thus have an economic incentive to convert their cash into government bonds, propping up a fundamentally insolvent government. Not only would this exacerbate the state’s fundamental problem, debt financing, it would give the state a cash infusion that would allow it to enforce ever more regulations on our economy and our personal choices. Thus, a bill intended to ensure that bondholders can recover the money they put into the state treasury will in fact put the state in worse financial condition, all the while enabling it to become more intrusive in citizens’ daily lives.

There are considerable economic consequences as well. The aforementioned increase in regulations can only serve to further disrupt a fragile economy. The US has enough experience with economic bubbles causing great pain that we ought not to rush into another one. And since this would make bonds become more liquid – they could be converted to money more easily – the state will run into problems when its bond rating decreases. In such a case, citizens will be unwilling to hold bonds; some will be attempting to sell or use the bonds they hold, while others will refuse to buy bonds due to the increased risk. This means that the state will periodically have fiscal crises where many people try to redeem bonds and the state will be unable to issue replacements.

AB 1506 will do far more harm than good. If the legislature truly wishes to reduce debt, protect bondholders, and strengthen the economy, its only reasonable course of action is to cut taxes, regulations, and spending.

Common understanding has it that doctors, insurers, and pharmaceutical companies make “excessive profits”, and “money off other people’s misfortune, misery, and sickness”. These claims are totally unjustified. “Making money off people’s misery” implies that medical providers are making people sick, when they are in fact improving people’s health. This claim is the logical equivalent of a farmer “making a profit off someone’s hunger” or an architect “making a profit off someone’s homelessness”. The fact is that all of these people work to give us longer, happier, and more fulfilling lives. Fundamentally, profits indicate value added, the contribution made to human life. A person who makes no profits would be producing wealth and consuming it at the same rate; not only would his standard of living stagnate, he would lose permanently his time and effort. The truth is that human beings cannot exist without profiting on their capital and labor. As George Will stated on This Week regarding pharmaceutical companies making profits, “Good! They should be!”

Furthermore, criticisms of profit ignore that every person has an opportunity cost: every person’s time, effort, and money has an alternative use. If there were no profits in insurance or medicine, there would be no one to provide these valuable services, for the simple reason that they would do better to work in another field. High rates of profit are inducements for people to undertake risky, long term investments. Pharmaceutical companies spend hundreds of millions of dollars and about ten years to certify one drug. Before that can be done, they must explore tens or hundreds of other compounds for effectiveness and safety. Due to the time and risk involved, relatively high rates of profits for some drugs is necessary to compensate pharmaceutical companies for the losses on their research, development, and certification.

Besides, why should insurance companies, pharmaceutical developers, or doctors be any less entitled to profits than farmers, authors, or software developers? Assuming transactions occur in a free market (meaning no one can be forced to buy or sell anything against their wishes), a company’s profits mean that it is producing goods that people want, at prices they are willing to pay. In a free market, if a product is too expensive, consumers can go elsewhere, or refuse to buy the product. Profits can only be a problem in cases where people are not able to make their own spending choices, such as when there are government mandates that everyone must buy a particular product.

Reformers often claim that people have a “right” to health care. But rights are sanctions on freedom of action, not on material goods. The right to property does not mean someone must be provided with property, it means the property is his to keep once he earns it. The right to life does not mean that someone must be furnished with the necessities of life; it means that he is free to obtain and keep them. There is no right to the life or property of another person, except to the extent that they voluntarily agree. Health care cannot be a “right”. To do so sets up a conflict in which one person’s right to health care conflicts with another’s right to life, whether the doctor’s time and effort, a neighbor’s wealth, or an insurer’s freedom of contract. The “right to health care”, properly understood, is only a small part of the broader right to free trade – the right to trade our wealth and effort with others on mutually agreeable terms.

Some try to evade this moral issue by simply requiring that each person pay for his health care. That would be fine, except that t operates on the premise that health care is an absolutely necessary expense in all cases, one that supersedes all others. Asserting that no one should have to choose between utility bills and medical bills, they make the choice for him, by mandating that he pay for health insurance or care. The reality is that the world has limited resources, and people must economize in all purchasing decisions, even health care. That means prioritizing needs, including putting non-medical goods and services ahead of health care when the situation calls for it. Part of freedom to choose means the ability to choose (and pay for) nothing, when that is appropriate.

Still, some are still convinced that funding health care is a moral obligation that justifies force, if necessary, to get third parties to reject economic realities and pay. Theirs is a benevolent dictatorship, but a dictatorship nonetheless. The implications of this are far more than an economically inefficient health care system. It would demand treating others as rights-less beasts of burden, with no claim on their lives, time, or wealth. What could one possibly expect society to look like where every person is either a threat to one’s life or a potential victim from which to expropriate wealth? Should we force some to pay for others, or force some to work for others? In other words, should we condemn some to serfdom, others to slavery, in the name of brotherly love?

Furthermore, paying for others through taxes leaves no room for justice. It makes “need”, as such, a claim on the lives of others. Regardless of the ailment, the person, or their actions, their need becomes a mortgage on the lives of everyone around them. If one wishes to help others but leave room for freedom and justice, one ought to support voluntary charity, not coercive government. The money spent on charity is spent only to the extent that people recognize both a need and their willingness and ability to pay for it, meaning it is non-sacrificial. People voluntarily give up their property for values they perceive are higher, whether their particular neighbors or the abstract values of community and goodwill towards man; they are not forcibly deprived of property they cannot afford to lose, for the benefit of individuals and objectives they disagree with, as in government provision of services. There is no question of whether someone deserves help or not, and the bonds of community are strengthened by this local, personal attention rather than a centralized, impersonal bureaucracy. Plus, the additional oversight makes each dollar less wasteful, as people who donate to charitable causes want to see their money having maximal effect. To those who say voluntary charity cannot be sufficient: a majority of voters must support an action before it can be implemented politically, and this by itself suggests that a majority would be willing to help others voluntarily.

If reformers place any value on freedom or individual rights, they must honor these principles. If they do not, they risk
sacrificing their health care along with their liberty.

A few years ago, the City of Oakland passed Measure DD, which permitted the city to issue about $200 million worth of bonds, the revenues being used to fund “safe parks and clean water”. A recent regatta hosted at Lake Merritt showcased the benefits derived from the spending.

The tour begins with the streets, approaching the boathouse. The sidewalks were renovated, narrowed considerably to make room for “multi-use” dirt paths for the benefit of cross country runners. Of course, few people actually use these “multi-use” paths – casual pedestrians always used the concrete, and the runners often aren’t willing to jog in the mud caused by the Bay’s frequently wet weather when there’s solid concrete one step away.

On entering the boathouse, two remarkable traits stand out immediately: first, that it doesn’t have enough bays to store all the boats at the club, and second, that there’s a rather large restaurant dominating much of the space. Clearly, money that could have gone to a boathouse’s essential function of storing boats was instead redirected toward something else. And sure, the restaurant has little to do with “safe parks” or “clean water”, but it contributes to the ambiance, so we like it anyway.

The inefficiency and impracticality demonstrated here are not uncharacteristic of government projects designed by committee with borrowed cash. Not only is there no coherent principle behind the project, each interest group can requisition its own favored expenditure, because no one feels compelled to think about how it is to be paid for. Unfortunately, since it’s paid for with bonds, the spending is not only wasteful, but also comes with some unpalatable strings attached. Because bonds are issued by governments, they can only be repaid with more taxes – the original spending, plus the interest. As it turns out, bonds make sense only where there is a budget surplus. Taking out bonds during deficit years leads to an endless spiral of taking out debts to service other debts, as we can see in the state’s budget. The spending must also be on infrastructure, which has a positive economic return, rather than amenities, which everyone likes but are a net drain when financed by borrowing. Of course, this kind of thinking lacks popularity; being against “safe parks” and “clean water” is like being against motherhood. A final consideration is the payback period relative to the lifespan of the project. If the payback period is Measure DD’s 46 years, everything the bond paid for will be replaced before the obligation is repaid, and that replacement will cost money too. Is that to be financed with bonds as well?

Perhaps more important than the mundane, practical issue of how projects like this are paid for is the question of whether it is appropriate to have such spending in the first place. How is it appropriate for the public to subsidize bays for private boats that the overwhelming majority of citizens will never row or paddle in? That money could be better and more equitably spent by individual private citizens than a grandiose “public project”. Similarly, how is it appropriate to use taxpayer money to subsidize a restaurant? Even if the restaurant was profitable enough by virtue of its waterfront location to repay its share of the expenses, what justifies the confiscation of some citizens’ wealth for the benefit of the users of the restaurant, and what justifies the artificial advantages granted to the restaurant at the expense of its competitors?

There’s not much of a solution possible for this particular measure, since it has already passed and the bonds will be issued and repaid over the next 40 or so years. At the very least though, citizens should learn two simple rules that will make them more prosperous and free: have a realistic plan for how to pay for all the nice things there are to buy, and keep the public public and the private private. Tangling the two together in any fashion just causes trouble.

Normally when I read, write, or even think about economics, my mind is full of nothing but glee. To illustrate: I have, on more than one occasion, stayed up past 3 AM to discuss monetary policy with friends – for fun. Economics 1 is a prerequisite for all subsequent economics courses (although it is possible to take the “Econ 2” and “Econ 3” variants of essentially the same course), and was taught last semester by Martha Olney. It is one of the few regrettable exceptions to my opinion of the subject. Professor Olney sets the standard, not only for gross incompetence and dereliction of duty, but for corruption of young minds with misinformation and political indoctrination.

To put it bluntly, Professor Olney does not teach good economics: her lectures regularly contradict the research and theories of even Nobel Laureates, without offering any justification or qualifications. As an example, she has asserted that spending, as such, stimulates the economy. The professor seems to be confusing cause and effect: fundamentally, the economy is shaped by production; it is self-evident that production must come before consumption. People spend because there is wealth (something to buy); wealth does not exist by virtue of someone spending. If it did, many African and Latin American countries would be wealthier than the US. Such a claim is the logical equivalent of saying “eating your cake causes you to have it”. She goes on to make such nonsensical assertions as “rising corn prices causes inflation”, to which Nobel Laureate Milton Friedman would retort, “Inflation is always and everywhere a monetary phenomenon” (in short, inflation causes rising corn prices, not the other way around). She has also claimed that “Inflation and unemployment are correlated in the long term”, a view that directly led to the “stagflation” of the 1970s and one specifically contested by many Nobel Laureates for decades. Edmund Phelps won the Prize in 2006 for demonstrating conclusively that the two are not correlated. And let’s not forget this little gem: “Key assumption of Keynesian Model: GDP changes ONLY WHEN there are unplanned changes in inventory holdings”. In other words, economic growth occurs more or less randomly – producers don’t make more of anything or sell things faster, they just have unexpected inventory changes. The Industrial Revolution? The productivity boom of the 90s? Just “unplanned changes in inventory”. Even her definitions are patently false: she asks the difference between a normative statement (an opinion) and a positive (factual) one, with this example: Government spending is always better for the economy than tax cuts (Her answer: positive).

Apart from simply being bad economics, her pronouncements are leading students to support policies that will have disastrous consequences. Her advocacy of simply printing and distributing more money will no doubt lead to inflation, which tends to paralyze economic activity and encourage poor, even wasteful, investments. At the same time, she admits in her lectures that she is unfamiliar with monetary policy; rather than becoming familiar with it, she simply states that “Greenspan had his way” and that a “fiscal solution is needed, not a monetary solution” (indicating her ignorance of the connection between the two, as well as Mr. Greenspan’s role in the problem). Furthermore, she expresses no support for the rule of law and sanctity of contracts that form a fundamental basis for free markets and prosperous economies.

As if misinforming the students who pay her salary were not enough, she takes class time to politically indoctrinate students, even forcing them to agree with her political views for the sake of a grade. Case in point: her final exam, which she has kindly uploaded to the Internet for your benefit. From the beginning of the exam, she presumes that the students in her class support Barbara Boxer. In her third and fourth point, her questions are phrased in such a way that presumes a particular answer. “Why should the government subsidize business and consumer purchases of green technology?” and “How will that spur an economic recovery?” presume that it is both practical and economically sound to distort markets, and morally appropriate to force individuals to adopt some third-party’s values in their decisions. The idea that forcing people to pay for something that is not economically viable – a fact that is demonstrated by the “need” for subsidies for products to hit the market – will somehow help the economy is nonsensical. Points five and six are loaded questions, written so that students cannot assert a view opposing hers. She implicitly dismisses the summary destruction of large corporations with tremendous economic influence and the reduction of consumer choice and competition in the marketplace as potential reasons not to support subsidies, while indicating that there are long term benefits to “green technology” (with the implication that the costs are less than the benefits, which is possible but by no means certain). Accepting these implicit premises makes it logically impossible to oppose, or even express neutrality toward the subsidies she proposes.

From there, she asks what defines recession and recovery, and how the housing bubble and credit crisis contributed to the recession. At this point her questions’ intent is deniable and arguably innocent. From her lectures, she expects an answer reflecting her view that the housing bubble was caused by “corporate greed”, rather than policies in Congress and the Federal Reserve that created perverse incentives to grow an already overlarge housing bubble. She specifically dismisses tax policies (such as the deductibility of mortgage payments from taxation) and regulations such as Sarbanes-Oxley (which economists have criticized for causing an amount of economic damage on the order of $1 trillion) and the Community Reinvestment Act (which mandated subprime mortgages) as “Republican talking points”, dismissing as “partisanship” the numerous critiques of these policies even when many of those critiques were from all corners of the political spectrum. She even dismisses any concern about the moral hazard caused by Fannie Mae and Freddie Mac’s implicit government guarantee, and the de facto monopoly in mortgage lending made possible by it, which magnified a market correction into a market collapse. At the same time, she admits that her knowledge is largely limited to “what she reads in the papers”, particularly the San Francisco Chronicle, a newspaper for which she is a writer.

Martha Olney’s control over students’ introduction to economics, combined with her deliberate misinformation to advance her political agenda, colors their political views and renders them incompetent to assess even elementary economic problems. She presents these views as gospel, without any discussion of alternative (and sounder) theories, nor even a pretense at objectivity.

The tenure system exists for the purpose of protecting academics with unconventional views from censure by vindictive administrators, and thus redeems its many faults by protecting academic freedom. But academic freedom and academic standards are not in conflict, regardless of whatever Professor Olney’s abandonment of her contractual obligation to properly educate those students in her classes might suggest.

California and other governments have traditionally used a particular group of policies to control the economic and human losses due to droughts. Among the most common are water conservation programs, or direct rationing, as was seen in the South in the recent past. Currently, California’s government is seeking to redirect water to needy areas and construct water facilities such as reservoirs to boost future capacity. Boosting supply and decreasing demand are the obvious solutions to the water problem in California, but one has to wonder if the government’s approach is actually the most effective, on practical or moral grounds.

The drought problem is exacerbated by California’s inane policy of allowing construction in dry, fire-prone areas, and then providing disaster protection to those who take advantage of such opportunities at extreme public expense. While there is a legitimate need for government-funded fire protection, the current trend socializes the extreme costs incurred by building in such areas, ultimately costing the taxpayers in addition to the risk-takers. Aside from the obvious injustice and inefficiency of such a situation, this encourages construction in dangerous areas by increasing moral hazard – the tendency of people who are protected from loss to make poor decisions. This compounds the problem and its associated costs over time.

In an ideal situation, the water available would be able to move to its most valued use. Yet the policy favoring only some groups, such as farmers, with lower prices, discourages efficient water use and hinders the adoption of more economically viable practices, preventing those who need or value water most from obtaining it. Such low prices do not reflect low costs – they are merely an indication of a refusal to pay costs. Being able to grow orchards in the desert is a marvel of human ingenuity, but only at the detriment of those who could have produced more with the water, or from those who have a greater need to consume it. Outright rationing has a similar effect, in that it prevents efficient allocation of resources. Here, individuals are prohibited from trading for water, at any price. The economic and human consequences are easy enough to see: those who need water the most are desperately unable to obtain it.

One of the most distressing outgrowths of our water policy has been the establishment of “water czars” responsible for the allocation of water resources and the development of infrastructure. The fundamental premise rationalizing the existence of such administrators is that the general public has gotten to the point where we cannot manage the most basic of our own affairs – acquiring the necessities of life – and would have “someone who can get things done” rather than the freedom to pursue our own lives in a manner consistent with our own several values. This moral corruption is among the first steps down Hayek’s Road to Serfdom. If we are to remain a society of free individuals, we must accept that individuals should act by their own will, for their own purposes, and not by the micromanagement of our most fundamental needs by bureaucrats.

To be truly sincere about providing scarce water to those who need it most, we must have a system of ascribing value and need, determining costs, and ensuring the cooperation of many individuals. The only system capable of doing this is a free marketplace. When prices accurately reflect scarcity and need, cost and benefit, individuals can use these price signals to coordinate supply to those who benefit most while realistically assessing and paying for the costs incurred by that supply. The public of California, and of other states with scarce water supplies, would be best served by adopting the most basic principles of freedom to the satisfaction of its most fundamental need.