Misrepresentations, Fallacies, and "Deregulation"

It is summer in Texas and that means that it is time for the annual chorus of voices decrying "deregulation" of the electric industry in the state. As an example, Bay Area Houston (BAH) declares that "Electricity deregulation has failed." While this certainly makes for attention grabbing headlines, it is a gross misrepresentation of the facts.

The most relevant fact being misrepresented is that the electricity industry is still heavily regulated in Texas. The web site of the Texas Public Utilities Commission states:

We are responsible for regulating certain services provided by telephone and electric utilities in Texas and for protecting utility customers.

The electric industry has been operating in a mixed economy--a mixture of freedom and government controls--since "deregulation" in 2003 (and long before that). Yet BAH blames "deregulation", that is freedom, for higher rates. He doesn't even consider the possibility that perhaps it is the government controls that have stifled innovation and led to higher rates.

Instead he provides an excellent example of the fallacy of post hoc. Since higher electric rates occurred after "deregulation" BAH concludes that it must be "deregulation" that is to blame. He conveniently ignores the controls imposed on utility companies that lead to higher costs--such as the fact that a company cannot generate, transmit, and sell electricity to consumers. A web site--PowertoChoose.com--owned by the Public Utility Commission states:

In the past, one company provided all parts of your electricity service (generation, transmission and distribution, and retail sales). With competition, these parts are separated into different companies.

Neither the PUC nor BAH tells us that the vertical integration that existed prior to "deregulation" was prohibited in the name of competition. In other words, the practices that allowed a company to operate more efficiently were banned by government fiat, and now the market is taking the blame.

The irony of the PUC's web site is that while promoting consumer choice it actively limits producer choice. Consumers are encouraged to shop electric retailers--to act on their own judgment. But producers who deem it economically practical to generate, transmit, and sell electricity cannot act on their judgment. The decrees of politicians and bureaucrats are imposed on the utility companies and the utilities take the blame when the results are not to the liking of the public.

Higher electric rates are not the result of "deregulation", but of continued government intervention. That BAH and his ilk don't see this isn't surprising. When they look at the government's failed monopoly on education they don't call for more freedom, but more taxpayer money and more government controls. When they looked at soaring health care costs they don't blame the mountains of regulations imposed on insurance companies and doctors, they demand more government controls. When the financial industry collapses they don't blame the 1,500+ regulatory agencies overseeing that industry, they declare that the industry isn't regulated enough.

BAH, who labels himself a "consumer activist", is unconcerned about producers. (And he isn't concerned about consumers either, or he would be advocating freedom for both producers and consumers.) He is concerned solely with needs, the needs of consumers:

[Consumers] need reliable energy, with long term contracts, no cancellation fees, and a fair and reasonable price. 

And when "deregulation" does not meet this need, government must intervene. Government must place more shackles on the producers of electricity so that consumers can have "reasonable" prices. However, BAH doesn't have the honesty to state this openly. Instead, this is what he offers:

A small group of citizens approached the City of Houston with an idea. The City has negotiation power resulting in a 5 year contract at 9 cents a kWh. The citizens asked the City to require their chosen provider to offer the same rate to the homeowners and businesses of Houston....

We believe this idea has merit. The City will not resell electricity or provide billing services or customer support. They will only negotiate a rate and require the provider to voluntarily offer the same rate to its citizens. [emphasis added]

What does it mean to "require the provider to voluntarily offer the same rate" to Houstonians. How do you require someone to act voluntarily? When government is involved, such requirements are backed by force. When an individual or business is forced to act a particular way, the action cannot be called voluntary. And this is the essence of BAH's position--he wants to use government coercion to satisfy the whims and demands of consumers. And he's not about to let facts or logic get in his way.

The Petition that Will Kill Jobs

The debate over the RENEW Houston petition drive is heating up. And some rational arguments are beginning to surface. Tory Gattis, for example, writes:

The biggest issue seems to be the open-ended developer impact fees.  These have been a major problem in other cities.  The argument seems reasonable - "make developers pay their fair share" - but that's not how they really work out in practice.  Politicians find it easy to tax new development because that doesn't upset most voters (some of the anti-growthers even promote it).  By raising the cost of new housing (often by many tens of thousands of dollars), it has an insidious secondary effect of raising the market price of all existing housing. 

While Gattis is undecided on the petition, his argument reveals how short-term thinking leads to long-term destruction. Current home owners of course, would generally love to shift their tax burden to others. Impact fees on developers would do this, providing home owners with tax relief today.

As Gattis notes, this drives up the cost of new housing, and ultimately, all housing. Home owners generally love this as well--at least when they go to sell their current home. But the cost of new housing quickly erodes much of their windfall. Worse yet, higher housing costs kill jobs and raises the cost of doing business. This ripples through the economy as individuals have less money to spend on everything else, killing more jobs and increasing the cost of living in general.

By the time these long-term consequences show up, few will make the connection to the impact fees forced on developers years before. And we will hear another chorus of voices demanding that government do something to fix the problems it created.

Privatization: The Solution to Houston's Water Problems

For some time it has been rumored that the city will need to raise water rates soon. Last week the city admitted that it is considering such a move. The Chronicle reported that rates could increase by as much as 14%. Councilman Ed Gonzalez was quoted:

The ultimate goal is to provide a sustainable water service for the community. It's one of the primary functions of city government. The system has been strained over the years. ... At this point I think we have to be open to everything.

Gonzalez is wrong on two counts. First, providing water service is not a function of government. Government's purpose is to protect individual rights, which means the freedom to take the actions necessary to sustain and enjoy our lives.

Second, the city won't be open to everything. I am very confident that the city will not consider privatizing the water system. And by privatizing I mean getting completely out of the water business--selling the assets and letting private businesses provide water service.

Water--like other utilities--is considered a "natural" monopoly. That is, the infrastructure required to provide water service is such that it makes more economic sense to have a single provider. In short, "natural" monopolies preclude a competitive marketplace.

Such arguments are based on numerous faulty perceptions about capitalism. One of those faulty perceptions is the need for competition in order to have a healthy marketplace. But competition is not an essential characteristic of capitalism--it is a by-product. The essential characteristic of capitalism is the recognition and protection of individual rights.

When men are free--when they are able to act on their own judgment without interference from others, so long as they respect the mutual rights of others--competition often does result. When men are free, they often identify a more efficient way to produce a product or service. When men are free, they often identify a better product or service. When men are free, they can act on that judgment by offering their products and services to others.

The proponents of "natural" monopolies claim that markets should perform a certain way, that there should be abundant competition. When the market fails to provide competition, they proclaim a market "failure" and insist that government must intervene.

That intervention invariably involves prohibitions on competition--if someone wishes to offer a competing service, he is prohibited from doing so. Which means, government prevents the very thing that it claims the market won't provide. Why then, are such prohibitions required?

When men are free, they often find innovative ways to provide the goods and services that consumers want and need. Entrepreneurs are far more creative and resourceful than any government bureaucrat could dream of being. As an example, consider the computer industry. The phenomenal advances made in computer technology have not resulted from government controls and regulations, but from freedom.

Admittedly, privatizing our water systems would be a complex undertaking. But building computers is also complex, and perhaps more so. We reap the practical benefits of the relative freedom in the computer industry--an abundance of choices and continually declining prices. The same benefits could be ours if we privatized our water systems.

Henry Paulson's Evasion

Former Treasury Secretary Henry Paulson conducted an interview with CNBC in support of his new book. While the press is using his memoir as ammunition to heap more abuse on Wall Street, Paulson inadvertently provides some illuminating insight into government regulators.

In the interview, Paulson admits that he did not know what to do when Lehman Brothers collapsed:

So I was just saying, `What do we do?' And I didn't have answers... But from that moment there I had no idea what to do, and I knew everyone was going to be looking to me for answers.

So as I say in the book, I stepped out of the room--and I just didn't want to do this in front of other people--took my cell phone out of my pocketbook and called my wife at home and just simply said, `Wendy, this is--this is really tough. I'm scared. People are looking at me. I don't know what to do. Pray for me.'

According to an article in the Washington Post, Paulson's wife told him:

You needn't be afraid. Your job is to reflect God, Infinite Mind, and you can rely on Him.

At this crucial point, Paulson was told to reflect the Infinite Mind. For those who say that philosophy is just pointless babble, this is philosophy in action. This is one of the most powerful men in the world trying to connect with the Absolute. When faced with a crucial decision, Paulson sought to find answers for this world by transcending this world.

At another point in the financial crisis, Paulson and his henchmen locked the leaders of the nation's largest banks in a room and told them that they could not leave until they "agreed" to take government money, even if they didn't want it. When faced with a crisis, Paulson literally resorted to faith and force.

Having abandoned reason--Paulson explicitly sought answers from the Inifinite Mind, rather than his own--Paulson had to resort to force. He could offer facts to convince the bankers to accept government money, for he had no reasons. And when a man abandons reason and this world, his only other means of dealing with others is brute force. He will lock them in a room and demand that they act as he dictates, or else.

Paulson has joined the chorus in calling for more regulations of financial institutions. Even though he, as one of the top regulators of those businesses, had no answers when called upon in a financial crisis, he wants to hand his equally clueless successors even more power. This is evasion on a massive scale.

That Paulson will not and cannot see the implications of his own statements is not surprising. He has abandoned principles, and thus, each event is an isolated occurrence:

I feel so strongly that, looking in hindsight, that the major decisions we made were the right ones. And we made them without a playbook, dealing with very, you know, unprecedented challenges, with imperfect tools to work with and in a really heated political environment. And they worked, because the system didn't collapse.

In the context of human action, "without a playbook" means without principles. Principles are precisely what provide us with a guide to action. Principles are what allow us to analyze specific situations, project the consequences of our actions, and determine the proper course of action. In the absence of principles, all one can do is pray and hope for the best. All one can do is act blindly and look at the consequences to determine if one made the "right" decisions.

To Paulson, his decisions were the right ones because "they worked"--because the system did not collapse. The fact that the federal government seized the opportunity to grab greater control over the economy and our lives means nothing to Paulson. His only concern was averting a complete financial collapse, and anything that would accomplish that ends was justified. Even if it means a greater disaster in the future--a disaster that Paulson cannot see, just as he could not see the disaster he was hired to prevent.

Distorting the Educational Market

An article in the Chronicle tells us that private, for-profit colleges are growing faster than their public counterparts. Some of this growth is being driven by the economy as many are seeking to bolster their resumes with a college degree. Military veterans make up another large portion of the student body.

Despite the dramatic growth, it's not clear that the schools are a good deal for many of their students — who are less likely to graduate and more likely to default on student loans than their counterparts at traditional schools — or a deal for taxpayers.

According to the article, students at for-profit schools get a disproportionate amount of financial aid from the federal government. For example, while 10% of college students attend for-profit colleges, they receive 20% of Pell grants, the main form of financial aid to college students. In addition, nearly 32% will default on his student loan, while only 9.8% of the students at a public, four-year college will do so.

The article concludes that the cause of this high default rate is unknown, but speculates that it may be because for-profit schools serve more low-income students than public colleges, the quality of such schools is lower, or both. Regardless, tax payers are left with the bill when students default.

As with home ownership, the federal government has declared it desirable for more Americans to obtain a higher education. To facilitate this goal, various programs have been established to provide financial assistance. As with programs and policies that encourage home ownership, many who could not otherwise afford to attend college can now do so--on the tax payer's dime. As we saw in the housing market, many incur more debt than they should, an action that is enabled by the government programs. The high default rate should not be surprising.

In the late 1970s I attended a for-profit college. Each term the school would be overflowing with new students, many of whom were from low-income families and receiving some kind of government financial assistance. Invariably, most of these students did not make it to the second term.

While I was quite satisfied with the education I received, in retrospect it appears that the school was more interested in selling dreams than an education. Recruiters could dangle the promise of a higher education coupled with government financial aid to attract those who would otherwise not attend college. I do not know the details of the financial aid, but I suspect that the school got its money (or a large percentage) whether the student graduated or not.

I do not mean this to slam for-profit schools. However, government financial aid is greatly distorting the market and providing an incentive to the schools to fill classrooms, rather than educate. Government aid provides an incentive to both the schools and the students to take actions that they would not--and in the case of students could not--otherwise. That is not a good deal for the students, and it certainly isn't a good deal for tax payers.

A Snowball Racing Downhill

Like a snowball rolling downhill, the Houston Hope program is picking up momentum and growing larger and more destructive. Mayor White has previously proposed that the city help consumers pay off their debt and and more recently he wanted to offer bribes to Realtors. Now he wants to pay developers to build houses. The Chronicle reports that the city will spend $620,000 to build 10 single-family homes.

One of the three council members to oppose the idea--Melissa Noriega--told the paper:

We can't afford certain kinds of luxury ideas, and this is a luxury idea. We're just giving money to developers to try to pull them into an area, and I'm just not comfortable with that at this time.

In other words, Noriega doesn't have a problem with the program as a matter of principle. Under different circumstances she is in favor of redistributing wealth. Under different circumstances she isn't opposed to "giving money to developers". Indeed, she told the paper as much:

Noriega said she could vote for the idea if it were part of a more robust multi-year housing plan.

To Noriega, the problem isn't that the city is stealing money from taxpayers to subsidize the housing costs of citizens, the problem is that the city isn't stealing enough. Subsidizing ten homes is wrong, but subsidizing 1,000 homes is something she could get behind.

Noriega's "logic" might seem twisted, but it is perfectly consistent with the moral premise underlying the Houston Hope program. If, as we are continually told, we have a moral duty to help those in need, then it is not acceptable to be so selective in extending that help. Until we help everyone in need we are falling short of that moral "ideal". So long as Houstonians accept the premise that one man's need is a claim on the life and property of others, no program will ever be sufficient--there will always remain someone in need.

This of course, will not stop city officials. Oblivious to the principles underlying their schemes, they merrily promote one boondoggle after another in the name of "quality of life", or "protecting neighborhoods", or economic stimulation.

While the city is facing a budget deficit and crime is increasing, city council finds it more important to throw money at feel good programs. Rather than protect our rights--including the right to spend our money as we choose--council would prefer to engage in give-aways like Houston Hope.

And while the city is selectively fighting development--such as the Ashby High Rise--it is simultaneously trying to encourage other development. It is using its muscle, and our money, to dictate and control what is built and where. City officials have a vision for Houston, and they will use whatever combination of coercion and bribery is necessary to create that vision.

City officials and their accomplices in the media love to point to the beneficiaries of their programs. KHOU for example, carried a story touting Houston Hope:

Gwendolyn Scott used the program to purchase a newly constructed 1,900-square-foot home for $110,000 after almost 20 years of apartment living.

She put $500 down, and her monthly mortgage note is $745.59. Through the home ownership program she received $37,000 in subsidy money, which came right off the price of her new home. That left the amount she had to finance at $73,000. She also qualifies for the federal government’s $8,000 new homebuyers’ tax credit.

What this story--and countless others like it--doesn't tell us is the negative impact these programs have on taxpayers. They don't tell us about the families that must continue to rent because their tax dollars are subsidizing Scott's home purchase. These stories tell us about the dreams that are magically fulfilled by government programs, but they don't tell us about the dreams that are shattered by those same programs. They don't tell us about the victims, and there are victims. Mayor White's program may be benefiting some, but it is also destroying the hope of many more.

The Politics of the Soccer Stadium

As the mayoral runoff approaches the home stretch, Annise Parker and Gene Locke are scrambling to demonstrate their economic illiteracy. While I doubt that either is doing so intentionally, their positions on the proposed soccer stadium for the Houston Dynamos show just how little they understand about economics (and the Constitution for that matter). A story in Sunday's Chronicle addresses the two candidates views on the stadium:

Gene Locke embraces a new professional soccer stadium for Houston as an engine of economic growth. Annise Parker holds it at arm's length while assessing its economic risk.

As Henry Hazlitt points out in Economics in One Lesson, government spending cannot foster economic growth. While government spending might create visible jobs--which candidates love to tout--the jobs that are destroyed or never created are ignored. These are the "invisible" victims that Locke and his counterparts conveniently ignore.

Every dollar spent by government must come from someone in the private sector. When money is taken from a business, that business has less to invest in its business, which means, its economic activity is stifled. As a result, it hires fewer employees, or purchases less equipment (which means less economic activity for its vendors), or even reduces the number of people it employees. When money is taken from individuals, they have less to save, invest, or spend on consumption, all of which also reduces economic activity.

For her part, Parker is straddling the fence. While she supports the city "investing" the $10 million committed by Mayor White, she is opposed to any more city tax dollars being put into the project. She does not oppose the city being involved in such projects, but only when it is not economically feasible, i.e., not practical. The story doesn't tell us how will she determine what is practical. But we can be certain that it will have nothing to do with the fact that building sports stadiums is not a proper function of government.

Parker has previously voiced support for the stadium, and she has not shied away from using government coercion to appease constituents. So it appears that her hesitancy in backing the stadium is purely political and not founded on principle. Which means, she could turn on a dime if doing so would bear political fruit.

Parker is trying to position herself as the fiscal conservative to counter Locke's backing from the business community. By painting herself as the watchdog of taxpayer money, she hopes to attract those who are fed up with government largess. But those of us who do think in principles can see beyond this smokescreen.

Parker has not suggested cutting a single program, and there are plenty that are ripe for taking a cleaver to them. However, doing so would alienate a handful of voters, and she is scratching for every vote she can get. And if that means engaging in hypocrisy, so be it.

The soccer stadium is hardly the biggest issue facing Houstonians. Light rail will be a far costlier boondoggle. But the entire issue illustrates the mentality that dominate modern politics. Soccer fans want a new stadium, and they want others to pay for it. The cost is more than the money being requested. In forcing taxpayers to finance another stadium, the cost includes the sacrifice of more of our freedom. And that, more than the money, is a cost we cannot afford.

Money Down the Drain

Back in February I proposed that the city privatize its water and sewer services. And by privatize I mean sell them--assets and all--to private companies. I do not mean psuedo-privatization, in which the city retains the assets and outsources operations. We now have more evidence of the city's mismanagement of those systems, and under the watch of our businessman mayor Bill White. (HT: houblog via blogHouston)

KHOU reports that city council is considering a rate hike for water and sewer services.

In a report to city council members Wednesday, White recommended hiring Dallas-based McKinsey, a private consulting firm, to examine ways to save money within the system before any rate hike.

“The important thing to do is to scrub the system,” White said. “Other big cities have been raising rates. We want to go through this process before we have a rate increase.”

When a system is spending more than it brings in, raising rates seems like a logical conclusion. And when your "customers" have no options you don't have to worry too much about losing them. The city has captive "customers", and the only repercussions to a rate increase are angry voters and more people needing assistance to pay their water bills.

Unlike a business, which must attract customers through voluntary consent, the city has a monopoly on the provision of water and sewer services in Houston. While the federal government pursues anti-trust charges against Microsoft and other companies, municipalities are allowed to engage in far more egregious "anti-competitive" activities. While private businesses cannot outlaw competition and threaten violators with prison time, the city government certainly can.

City council is looking for ways to turn the system around and break even. Interestingly, at least part of the answer is known:

White said the McKinsey study will also help the city trace another mystery: hundreds of millions of gallons of treated drinking water vanish from the city’s aging underground pipes every year, never reaching paying customers.

“Why do we produce more water than is consumed?” White asked. “There is a lot of lost inventory within this system. We’d better find out where it goes.”

Imagine a business that allowed so much lost inventory. Such a business would not be a business for long. A business has a financial incentive to identify the cause of lost inventory and take the actions necessary to stop that loss. A municipality has no such incentive, despite the proclamations of city officials to operate in a more business-like manner. The fact is, a municipality cannot operate like a business. Government is an agent of force; a business must obtain the voluntary consent of its customers. If the city truly wishes that water and sewer services be operated more like a business, then the only solution is to allow those services to be provided by businesses.

Admittedly, these are some practical challenges in completely privatizing water and sewer services. The infrastructure requirements for such services lead many to believe that they are natural monopolies. In industries that lend themselves to this claim, such as utilities, our infinitely wise government has decided to create coercive monopolies by making competition illegal. While claiming that private, unregulated companies would gouge consumers, the government incompetently manages the resource and rapes consumers whenever it chooses.

But practical challenges are merely that--challenges. By privatizing water and sewer services, we will allow innovation. We will permit entrepreneurs to find new, better, and less expensive methods for delivering water to homes and businesses. More importantly, we will remove an artificial barrier to economic activity and an immoral infringement of individual rights.

When your water bill goes up, the proper response is not to complain to your councilman. The proper response is to demand that the city restrict itself to the protection of your rights. The proper response is to demand that the city get out of the water and sewer business. Until it does, you will continue to watch your money go down the drain.

Peter Brown's White Paper on the Economy

I've been pretty hard on Peter Brown during his run for mayor of Houston. Last week he did something that deserves some credit--he released a white paper that provides some details regarding how he would improve Houston's economy. That part is laudable. And it demonstrates just how destructive his ideas are.

The paper starts with what might sound like a good idea:

City government should do everything it can to play a supporting role and partner with the private sector to grow the economy. And that includes making the right investments and providing effective city services. But at the end of the day, government should get out of the way and let businesses do business. [emphasis added]

This last statement is certainly true, and it sounds appealing to any advocate of individual rights. However, as is often the case, if we dig a little deeper we discover that these words are nothing more than empty platitudes.

As mayor, Peter Brown will simplify, streamline and strengthen City regulations like the Chapter 42 development code to ensure they promote high-quality growth and encourage investment, while at the same time maintaining our quality of life.

How, you might ask, will city government "get out of the way" while simultaneously strengthening city regulations? The fact is, it won't. Tougher regulations and controls on developers is certainly not getting out of the way--it means more barriers to conducting business and more groveling at the feet of bureaucrats and politicians for those developers. Unless of course, they have the proper connections.

Brown wants to do more than simply dictate to developers. He wants to control the city's economy by creating an "Office of Economic Development and Job Creation". While he denies that this is economic planning, the facts say otherwise. Brown proposes to use city money to train workers:

Having identified targeted economic sectors for growth, job training and workforce development should reflect those priorities and focus on training workers for the fields where growth and jobs will be created. And vocational training efforts need to be expanded to provide opportunities for all Houstonians in the new economy.

While a trained workforce is certainly an important component of economic growth, it is not a proper function of government. By targeting specific "economic sectors for growth", Brown seeks to use government to promote certain industries. And who will pay for this favoritism? Those who are not in the targeted industries.

In other words, Brown will identify where he wants job growth to occur, and then will use the coercive power of government to encourage that growth. Businessmen and entrepreneurs in industries that Brown does not like will have to put their plans and aspirations on hold while Brown molds the city's economy according to his desires. And he makes it quite clear how he will accomplish this:

The City should employ a diverse array of economic recruitment tools and incentives to facilitate growth in Houston. These include tax abatements, enterprise projects and enterprise zones, tax increment reinvestment zones (TIRZs), and public-private partnerships – all designed to promote growth while protecting the quality of life.

Using a combination of carrots and sticks, Brown will wave the lure of tax abatements and other benefits to bribe developers. And if that doesn't work, he can use the stick of TIRZs--he can use tax money to spur development in certain areas, and force existing property owners to pay the cost. But this isn't the most ominous aspect of Brown's plan--he wants to use public-private partnerships to promote growth.

Consider the nature of such "partnerships". One side--the government--holds the ability to demand and dictate. The government can criminalize certain actions on the part of a private business. The government can force its "partner" to do anything it--the government--desires. This is the same type of "partnership" that exists between a shop owner and the street thug who demands protection money.

Brown has no intention of getting out of the way of businesses. He seeks more control over their operations through tighter regulations, job training, TIRZs, tax abatements, and a myriad other means. He wants to use the coercive power of government to protect our "quality of life" and grow our economy. By placing more shackles around our necks, his plans will accomplish neither.

Natural Monopolies: Principles and Application

Last week I wrote about a dispute between the city of Houston and CenterPoint Energy. One of the comments to that post defended the concept of regulated monopolies, arguing that the infrastructure costs would prevent competitors from entering the market. In addition, a new entrant into the industry would have to run power lines to each customer. What if property owners did not permit the new company to do this? What, it was wondered, would be my plan for addressing this issue.

There are several premises packed into this question, all of which are mistaken.

First, the assumption is that a new power company would attempt to service the entire city. This may or may not be true. There are many examples of companies entering a market in stages. As infrastructure is developed the company expands the area it services. As an example, Comcast has done this with service to businesses.

Second, the question implies that if one advocates a particular principle, one must also provide details of its practical implementation. The failure to do so, it is further implied, invalidates the principle.

This is a common error founded on the false alternative of skepticism or omniscience. If we do not know everything, then we cannot know anything. If I cannot provide specific, concrete details as to how a free market in electricity would operate then the entire principle of freedom is discarded.

The implementation of any principle can be highly complex. Many factors must be considered. In the case of electricity, factors such as the cost to generate power, the cost of running wires, projected market capture, and much more would need to be considered by a new power company. The new company would need to consider these factors in the context of its goals to determine how to act. Which brings me to my fourth point.

It is impossible to predict exactly what actions men will take when they are free. Unrestricted by arbitrary government regulations, innovation increases and previously unknown solutions are developed. In a regulated environment, electric providers are shielded from competition, and those who develop innovative solutions are prohibited from entering the market.

As one example, it has been suggested on HBL that small nuclear plants could be used to provide power for a neighborhood or community. By placing power generation close to the end user, many costs would be reduced. Such innovations are impossible in our current environment.

Finally, the question drops the context. Existing utilities have easements in which they can erect poles and run power lines. This fact would have to be considered in any transition to a free market in electricity. The rights of existing companies, property owners, and new companies would have to be identified, recognized, and protected.

The transition from regulation to freedom will not be as easy as throwing a switch. The process would likely need to be gradual, with some less than ideal steps along the way. As one example, and this is only an example, it might be necessary to require existing companies to share their poles with new companies, with compensation paid to the existing company.

The fact that I cannot provide specific details regarding a free market in electricity does not invalidate the principle that each individual has a moral right to his own life. Freedom allows individuals to act according to their own judgment, and I would not be so presumptuous as to claim that I know how others will act. But it sure would be fun to find out.

Natural Monopolies, Part 2

Yesterday I addressed some of the economic fallacies underlying the “natural monopoly” argument. Today I will address the moral premises that “justify” this egregious violation of rights.

The "natural monopoly" argument holds that certain services—such as electricity or water—are best provided by one entity. In such instances, the government grants a monopoly in a particular area and then regulates the industry in the "public interest". In granting the monopoly, the government prohibits competition.

No matter the judgment of entrepreneurs and businessmen, they cannot enter the industry. If they develop new technology or believe that they can operate more efficiently, they are prevented from offering their innovations. If they can raise the necessary capital and secure the voluntary agreement of all parties (such as property owners), government decree prohibits individuals from using their property as they choose.

At one time the "natural monopoly" argument was used to justify restrictions on telephone service and to award monopolies in cable service. Today, consumers have multiple options in both industries. New technology allowed the provision of these services in a manner that was not and could not be anticipated by government officials. Because men were left free to act on their own judgment, they were able to offer alternatives despite the claims of "natural monopoly" proponents.

One of the claims in defense of the regulation of “natural monopolies” is that a sole service provider could raise prices to an outrageous level, that is, become a “coercive monopolies”. Ayn Rand addressed such phenomenon:

A “coercive monopoly” is a business concern that can set its prices and production policies independent of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant.

The necessary precondition of a coercive monopoly is closed entry—the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises. Without government assistance, it is impossible for a would-be monopolist to set and maintain his prices and production policies independent of the rest of the economy. For if he attempted to set his prices and production at a level that would yield profits to new entrants significantly above those available in other fields, competitors would be sure to invade his industry.

Even if a business were able to gain 100% of a market, it would still be subject to the threat of competition. It could not force consumers to purchase its goods and services. Ignoring this fact, government has responded to these fictitious coercive monopolies by establishing actual coercive monopolies.

In the process, the government violates the rights of consumers and businessmen. Consumers have no choice in their service provider—they are not free to contract with whom they choose. Businessmen are not free to act on their independent judgment. Both are strangled by regulations enacted in the “public interest”.

Since there is no such entity as “the public”--“the public” consists of all individuals—any appeal to the “public interest” ultimately means that the interests of some individuals are to supersede the interests of other individuals. Such appeals declare that some men must sacrifice their interests for the benefit of others, and that sacrifice will be enforced at the point of a gun. It is a gross perversion to believe that one man’s welfare can or should be achieved through coercion.

In the end, “natural monopolies” are anything but natural. They defy economic facts. More fundamentally, they defy man’s nature and his moral right to live according to his own rational judgment.

Natural Monopolies, Part 1

It is frequently argued that certain services--particularly utilities--are "natural monopolies", which Wikipedia explains as:

In economics, a natural monopoly occurs when, due to the economies of scale of a particular industry, the maximum efficiency of production and distribution is realized through a single supplier.

Natural monopolies arise where the largest supplier in an industry, often the first supplier in a market, has an overwhelming cost advantage over other actual or potential competitors. This tends to be the case in industries where capital costs predominate, creating economies of scale which are large in relation to the size of the market, and hence high barriers to entry; examples include water services and electricity. [links removed]

This argument has plausibility, until one actually looks at reality. It is founded on economic fallacies and moral perversions.

Certainly it is true that many of the services considered "natural monopolies" require substantial investment in infrastructure. But so do many industries, such as Internet service providers, television, and retail chains. Yet, despite the investment required to launch a new business or expand one's market, each of these industries has an abundance of competition.

The fact is, the investment required is seldom an impediment to providing a service or starting a new business that has the potential to make investors a lot of money. The capital markets--whose purpose is to identify promising business ideas--will gladly direct the necessary financing to any business that is judged to offer profits. A cursory examination of the Wall Street Journal demonstrates this fact almost daily.

There may be instances in which only one business provides a particular service in a specific geographic area--a small town that can only support one drug store is a common example. However, the threat of future competition acts as a regulator on what that business will charge. If it attempts to raise prices to an outrageous level, it will attract competitors. The same holds true of any product or service.

Economically, the “natural monopoly” argument amounts to: Since it costs a lot to build the necessary infrastructure in an industry, government will do everyone a favor and prohibit anyone from even trying. In short, government knows what is best. Rather than allow anyone to be innovative and act on his own judgment, government will declare the issue resolved once and for all.

If this is true of “natural monopolies”, why isn’t it true of other industries? If government can decree that some services are best provided by one entity, then what is to stop government from making a similar decree regarding all industries? The principle of economies of scale is not limited to power lines or water mains.

The enormous material prosperity enjoyed by Americans is the result of freedom—of men acting without interference from others. Thirty years ago, innovations like satellite television and cellular phones were unknown. Had the government decreed the infrastructure requirements for these industries to be too expensive, we would not enjoy the choices we have today.

The economic fallacies underlying the “natural monopoly” argument are not the most important reason for opposing government intervention. Tomorrow I will look at the moral premises that serve as the foundation for these violations of rights.

We Need Another Texas Revolution

The Economist has an article detailing the economic success of Texas and how it is weathering the recession. (HT: Houston Strategies) While the article paints a generally positive picture of the state, one paragraph is particularly interesting:

His [state senator Eliot Shapleigh] statistics are a lot less rosy. Texas has the highest proportion of people lacking health insurance of all 50 states; the third-highest poverty rate; the second-highest imprisonment rate; the highest teenage-birth rate; the lowest voter turnout; and the lowest proportion of high-school graduates. Mr. Shapleigh is not surprised that these figures are so terrible: Texas spends less on each of its citizens than does any other state. Being a low-tax, low-spend state has not made Texans rich, though they are not dirt-poor either; their median income ranks 37th among the 50 states.

Certainly, most of these statistics are nothing to brag about. But neither are they an indictment on the state government, as Mr. Shapleigh would have us believe. Health insurance, teenage pregnancies, and education are not proper concerns of government.

What caught my eye, and is worth bragging about, is the fact that Texas spends less on its citizens than any other state. In other words, Texas has not built a mammoth welfare state within its borders. Which means, more than other states, the state government is not in the business of redistributing wealth. While the article implies that this is a bad thing, this is a large part of the reason that the state's economy has done well. Texas is home to more Fortune 500 companies than any other state and its unemployment rate in May was 2.3% below the national average.

Businesses and individuals move to Texas because economic opportunities abound. With fewer regulations and no state income tax, individuals are free to pursue their dreams without begging for permission to the extent demanded in other states.

The quote cited above states that the median income in Texas ranks 37th in the nation. While this is an interesting statistic, it is very misleading because it says nothing about the purchasing power of that income. According to the Missouri Economic Research & Information Center, Texas ranks 8th in the nation for the lowest cost of living. Even though Texans earn less, their money goes much further.

To concretize this last point, according to CNNMoney.com an annual income of $50,000 in Houston is the equivalent of an income of $62,343 in Chicago, $68,385 in Seattle, $73,430 in Boston, and $81,133 in Los Angeles. While this is a city-to-city comparison, money clearly goes further in Houston than other major cities.

Despite the rather upbeat portrayal of Texas, the article concludes that the future may not be so positive:

A committee on education appointed by Mr. Perry [the governor] concluded in January that “Texas is not globally competitive” and gave warning that it “faces a downward spiral in both quality of life and economic competitiveness”.

The other, even more important, reason to expect change is internal. In 2004 Texas became one of only four states in America where whites are no longer in the majority. On recent trends, Hispanics will be the largest ethnic group in the state by 2015. Since they tend to vote Democratic, this has big implications for Texas’s political make-up and for national politics. And an increasingly assertive Hispanic caucus, in an increasingly Democratic state, also seems sure to demand better schools and health care for the people it represents...

This trend will take Texas in the direction of California--more social programs, more regulations, and higher taxes. It could spell the demise of Texas as an economic powerhouse. But this isn't a racial issue; it is an issue of individual rights. And individual rights apply to all individuals--white and black, Anglo and Hispanic, male and female, gay and straight, young and old.

More than most states, Texas has respected and protected individual rights, and this has served Texas well. It will continue to do so, but only if Texans demand that the government refrain from succumbing to the lure of trading votes for robbing the productive members of the state. To do that, Texans must reject the premise that they are their brother's keeper, that morality consists of service to others. If Texans wish to remain the envy of the nation, they must embark on a new revolution--a moral revolution. They must declare their moral right to their own life, their own liberty, their own property, and the pursuit of their own happiness. They must embrace rational egoism and all that it implies.

Electric "Deregulation" Double-Speak

It's June in Houston, and it's hot. Which means, it's time for State Rep. Sylvester Turner to issue his annual call for the state utility commission to prohibit any utility from shutting off power to a customer who doesn't pay his bill. While most utilities have voluntarily programs that they institute during the summer, this isn't good enough for Turner:

What we don’t need to see happen is we don’t need to have news stories of seniors or critical care customers who are in the hospital or dying because of the heat and then we decide to step in and do something.

But what we do need to see, according to Turner, is government coercion used against power companies. What we do need to see is a business forced to provide service to those who cannot pay for it.

Lest I sound like some kind of ogre, I spent two weeks after Hurricane Ike without electricity. So I have some idea of what it is like to be without air conditioning--it is not pleasant. Granted, the weather was somewhat cooperative and I did have a generator, but these provided only partial relief.

Turner has long been an advocate of using coercion against utilities for the alleged benefit of low-income citizens. He is certainly not alone in that regard. In 2007 Mayor Bill White appeared at a town hall meeting with Turner. White--like most politicians of his ilk--distorted the facts for political purposes:

They say there is competition. But there is not. That's a rip-off. You cannot have a situation where there are really two major monopolies and nobody regulates them without someone ripping you off.

White would like us to believe that "deregulation" is the same thing as an absence of regulation. He would like us to believe that a loosening of controls is the same thing as the removal of controls. The fact is, despite "deregulation" utility companies in Texas remain regulated. Consider this statement from the web site of the Texas Public Utilities Commission:

We are responsible for regulating certain services provided by telephone and electric utilities in Texas and for protecting utility customers.

I agree with White that a rip-off is occurring. But who is the victim? Who is the perpetrator? And if a monopoly does exist, what is the nature of that monopoly and how did the utilities achieve that status?

White and Turner would have us believe that consumers are the victims of the "unregulated" utilities, despite the fact that utilities are regulated. They would have us believe that politicians of their sort are truly concerned about the welfare of consumers. They would have us believe that government intervention can solve the problems created by government intervention.

Coercive monopolies cannot exist without government intervention--only government can prohibit entry into an industry. As Ayn Rand wrote:

Every coercive monopoly was created by government intervention into the economy: by special privileges, such as franchises or subsidies, which closed the entry of competitors into a given field, by legislative action.

If power companies are a monopoly, it is because of government intervention. (For an excellent expose on the history of utilities, see Raymond Niles' article in The Objective Standard.) Despite the platitudes of White and Turner, it is government intervention that gives utilities their monopoly status. And government intervention continues to plague the industry, regardless of claims to the contrary.

If White and Turner are truly concerned about the plight of low-income citizens, then they would not misrepresent the state of the industry. They would not make claims that are blatantly false. They would not ignore their own role in driving up the cost of electricity.

The solution--as in every industry--is not more government regulations and controls. The solution is to recognize the rights of electricity providers to use their property as they choose. The solution is to truly deregulate--to remove all restrictions on the provision of electricity.

Houston: The City I Love, Part 4

Housing and Development
While many clamor for the government to do something about our congested freeways, they conveniently ignore evidence that demonstrates how the free market provides options to individuals without violating rights.

The absence of zoning in Houston has allowed developers and builders to respond to changing market conditions with relative ease. They can change land-use to its most efficient purpose without wading through mountains of red tape and groveling at the feet of bureaucrats.

One of the remarkable features of Houston is the fact that the city has multiple business districts—downtown, Greenway Plaza, the Galleria, and the Energy Corridor are just a few. Where other cities force businesses into specific areas—often downtown—Houston has largely allowed the market to determine where businesses locate.

This fact provides significant relief on transportation. Rather than forcing all workers to commute to the center of the city, many work in other areas of the city. Rather than all roads leading to downtown, many lead to other areas of the city.

This allows employees options not found in other cities. A resident of The Woodlands or Kingwood can work in Greenspoint and significantly reduce his commute. A resident of Katy can work in the Energy Corridor and do likewise.

The development of these business centers did not occur because of government mandates. They were built because businesses and developers saw a need and found a way to satisfy it. They did not need government planning, controls, or regulations to tell them that it made sense to build outside of the central business district. They relied on their own judgment, and that of their investors.

Just as freedom in land-use has provided multiple options in regard to the location of businesses, and hence employment, freedom in land-use has also provided many options in regard to housing. Recognizing that many Houstonians desire shorter commutes, developers have transformed many downtown buildings into lofts and other housing. They have converted lots with single-family homes into multiple town homes, which eloquently illustrates how the market responds when it is left free.

The price of land has risen dramatically inside The Loop in response to greater demand for housing in that area. Using this land for a single-family home makes little economic sense—the cost for a home would be out of reach for most Houstonians. However, if a particular lot is used to build four single-family town homes, the cost of the land per unit is greatly reduced. New housing can be built much more affordably. And the greater density of the housing meets the increased demand. This is what has happened in Rice Military, the Heights, Montrose, the Museum District, and many other areas of the city.

Again, developers did this without mandates from the city government. They acted according to their own independent judgment, in response to the market. And in fact, in some instances—such as the Ashby High Rise—they have been opposed by the city government.

In short, where individuals have been free to act according to their own judgment in the pursuit of their own values, everyone has benefited. Where government has imposed restrictions and prohibited such freedom—such as transportation—everyone has suffered.

Houston: The City I Love, Part 2

Property Rights and Economic Prosperity

More than any major city in America, Houston respects the property rights of its citizens. On three separate occasions Houstonians have rejected zoning—the most egregious violation of property rights prevalent in America.

The right to property means the right of use and disposal of material values. Ownership means the right to use one’s property as one judges best, in the pursuit of one’s own values. It means that one may use his property without interference from others, so long as he respects their mutual rights.

Zoning removes this right and subjects land-use to the control of government officials. Zoning requires the property owner to seek permission to use his property.

Land-use regulations have a significant impact on the affordability of housing. As I wrote in the Spring issue of The Objective Standard:

There is a direct correlation between freedom in land-use and economic prosperity. For example, University of Washington professor Theo Eicher found that Seattle and Washington State’s land-use regulations have increased the cost of a $450,000 median home in the city of Seattle by $200,000, even taking into account inflation and demand. That is a 44 percent increase. That $200,000 results in the typical Seattle homeowner paying an additional $1,100 a month in principal, interest, property taxes, and other charges that would not exist were it not for these rights-violating land-use regulations. The steep cost of zoning has made home ownership virtually impossible for a large percentage of Seattle’s residents.

A report issued by the Federal Reserve Bank of Dallas acknowledged that Houston’s low housing prices are largely the result of its relative respect for property rights:

Houston and other metros such as Dallas and Atlanta that have relatively more permissive development policies have lower housing prices than more restrictive places do.

At $155,800, Houston’s median house price is the third lowest among the 12 largest U.S. metropolitan areas and is less than half the average for these cities. Houston’s median price is lower than even the national average, which includes inexpensive rural areas.

By comparison, the median house price in metropolitan San Francisco, where zoning laws and building codes are very strict, is $825,400.

In other words, where land-use controls and other regulations on building are most restrictive, housing is more expensive, and often outrageously so. The consequences of these controls are not limited to home ownership—they impact the cost of doing business, and indeed the cost of living.

The absence of restrictive land-use controls in Houston allows developers to use land for its most efficient purpose. They can respond to the demands of the market, rather than the dictates of politicians and bureaucrats. They are free to act according to their own judgment, rather than pander to the whims of government officials.

Land-use regulations do not occur in a vacuum—they are usually accompanied with other controls on businesses and individuals. The mentality that embraces controls on land-use also embraces controls on other activities. Those who think it proper to dictate how their neighbors use their property do not limit themselves to land-use—virtually all activities are fair game. And with these controls come inefficiencies and additional costs. The end result is a higher cost of doing business, higher housing costs, and less economic activity—that is, job loss.

It is not a mere coincidence that those states with the most severe controls on economic activity are also the ones experiencing the most severe hardships during this recession. Just as freedom leads to economic prosperity, controls lead to economic stagnation and decline.

Those who want Houston to be like other cities—whether it is light rail, or more parks, or more land-use controls—cannot have it both ways. They cannot emulate the stagnant and decaying cities of the Rust Belt by enacting more controls and expect to escape similar consequences. They cannot expect us to embark on massive government projects and avoid the inevitable taxation that must result. They cannot expect us to enact the causes of economic collapse and yet avoid that outcome.

Don't Sweat the Small Stuff 22

A Texas Tea Party
On April 15 the Houston Tea Party will be held across from the downtown post office. On tax day the post office is like a magnet for the media, who seem to love filming individuals in their misery.


I will be lugging 150 copies of Atlas Shrugged, and hundreds of copies of pamphlets such as "Man's Rights" and "Health Care is Not a Right" to distribute to beleaguered taxpayers and protesters. The photo shows what a pyramid of 150 copies of Atlas looks like. I am claiming the world's record for the largest pyramid of Atlas Shrugged ever built. If you have never read Atlas, here is why you should.

The fun begins at 4 PM. If you would like to meet me, drop me a note and I will tell you where I hope to set up shop.


Intellectual Activism
I often encounter individuals who wonder what one person can do to combat the ideas that dominate our culture. Given that our Founding Fathers set a wonderful example, a quote from Samuel Adams (HT: HBL) is fitting:

It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds.

I can personally attest to the truth of this statement. In the early 1990s I led a small group of intellectual activists in fighting a zoning ordinance in Houston. We wrote pamphlets, letters to the editor, OpEd articles, gave talks, and expressed our ideas anywhere and everywhere we could. Less than a dozen of us had a profound impact on the debate, as other opponents to zoning ultimately adopted many of our arguments.


Moral of the story: Speak up when and where you can. You never know who might be listening.


Are We Being Taken for a Ride?
KHOU reporter Jeremy Desel informs us that Metro is telling us one thing, and the Feds another:

On March 4, the Metro Board voted on a contract with the Parsons Group to design, build and operate four new Light Rail lines.

The cost for the North Line would be $387 million, and the cost for the Southeast Line would be $441 million.

But...

According to letters dated on March 23 from Metro to the Federal Transit Administration, Metro indicated that the current net project cost estimate would be $896 million for the North Line and $911 million for the Southeast Line.

Apparently, Metro wants to play it "safe" with local taxpayers, but if they can rape and pillage some poor slob in Toledo, or our grandchildren, that is fine. In other words, deliver the goods to the locals and let somebody else pay for it. That's not leadership. That's cowardice and dishonesty. The folks in Toledo and everywhere else are thinking the same thing, and when the bill comes due it ain't gonna be pretty.

The More Things Change...
A report commissioned by the Texas Public Policy Foundation has concluded that the federal stimulus package will cost jobs in Texas (HT: Houston Conservative):

The report concluded that the federal stimulus package would reduce net business output by 2.5%, which would translate into between 131,400 and 171,900 additional job losses in Texas.

When FDR tried the same thing it didn't work. But as they say, those who don't learn from history...

Culturally, philosophy is the prime mover. Philosophy provides man with a comprehensive view of life, and if that view is wrong and irrational, everything he looks at will be tainted. He will look at history and focus on non-essentials, accept superficial explanations, or most likely, both. And then he will proceed down the same path as his predecessors, oblivious to the abyss into which he is about to walk.

Don't Sweat the Small Stuff 20

Visualizing $1 Trillion
If you have not seen what $1 trillion looks like, this site has an impressive visual presentation. As they say in Washington, a trillion here, a trillion there, and pretty soon you are talking serious money.


Taking the Risk (and fun) Out of Life
The growing trend to ban everything that poses a risk, such as tanning beds, reminds me of some of my childhood experiences. During my pre-teen years, I spent countless hours recklessly climbing trees, engaging in various daredevil activities on bicycles, and other assorted mischief. I no longer remember how many times I fell out of a tree, or flew over the handle bars of my bike, or otherwise inflicted large bumps, bruises, and gashes on my body.

I usually tried to hide these injuries from my mother, for fear that she would prohibit me from participating in the offending activity. Somehow, I once managed to hide a fractured nose. Despite my seemingly constant attempts to hurt myself, I survived with little more than a few scars and a slightly crooked nose. And I was much better for the entire experience.

While I agree that some limits should be imposed on children, those restrictions are the responsibility of parents, not the government. In the process of "protecting" children legislators are enslaving adults (as well as those children when they ultimately become adults) and taking the fun out of life.


A Different View on AIG
Wendy Milling has an excellent article at Real Clear Markets on AIG. (HT: Freedom is the Solution)

The common interpretation of the downfall of AIG is so popular that it has become accepted as unquestionable, if not axiomatic. The paradigm is as follows: AIG executives were compromised by greed. This led them to take reckless risks with their capital in an unregulated atmosphere. These risks eventually became a house of cards as the executives who did not really understand their newfangled products continued to pump them out beyond the point of prudence. When the housing bubble burst and the mortgage defaults began, the house of cards collapsed and the company was stuck with bad bets. As a result, AIG became insolvent...

But what if this paradigm is completely and totally wrong?

Wendy then demonstrates why this paradigm is wrong and who the true culprits are. The article is definitely worth reading.


Could She Do This Today?
Heroes of Capitalism carried the story of Marion Donovan this week. In 1946 the young mother tired cloth diapers quickly soaking through and began work on a plastic diaper cover. When she perfected that invention, she then began working on a disposable diaper, which she eventually sold to the inventor of Pampers.

When my wife read this story, she wondered what government regulations would have stalled, impeded, or even prevented the invention of disposable diapers today? Environmentalists would oppose it for filling landfills. Cloth makers would oppose it for threatening their market (and then demand a federal bail out). Minorities would demand race specific diapers. And the poor would demand a federal disposable diaper program.

When Prudence is Declared Imprudent

Via HBL comes the story of East Bridgewater Savings Bank. The FDIC recently gave the bank a "needs to improve" rating because it hasn't been lending enough money.

“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.

FDIC examiners also faulted East Bridgewater for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages.

At a time when taxpayers are on the hook for trillions of dollars to bail out irresponsible businesses, the government is penalizing East Bridgewater for being too responsible. The bank has no delinquent loans or foreclosures. The bank even managed to make a small profit in 2008, while the industry as a whole was losing $26.2 billion in the fourth quarter alone.

But this isn't good enough for regulators--they consider East Bridgewater stingy because it refuses to engage in the same reckless behavior of its colleagues.

As Richard Salsman writes:

Besides a desire for re-election, shared by all politicians, at root the Obama Administration wants individuals and firms to become more dependent on government. That requires not merely a more intensive redistribution of wealth to the needy (whether needy people or needy firms), but also programs and plans that might proliferate the ranks of the needy, even if that requires turning otherwise healthy people and firms into unhealthy, needy ones.

When the Bush Administration first offered "assistance" to financial institutions, they made an offer that literally couldn't be refused. They forced healthy banks, as well as those in trouble, to take the money. The Obama Administration is taking this even further.

In an industry that is increasingly dependent on the government, East Bridgewater stands as a refutation of government policies. So long as East Bridgewater is allowed to act according to its judgment, it will provide concrete evidence that prudent lending practices are not only possible, but actually good for business. This of course, doesn't fit with Obama's agenda.

Forcing East Bridgewater to loosen its lending standards is about destroying independence:

Independence is the recognition of the fact that yours is the responsibility of judgment and nothing can help you escape it—that no substitute can do your thinking, as no pinch-hitter can live your life—that the vilest form of self-abasement and self-destruction is the subordination of your mind to the mind of another, the acceptance of an authority over your brain, the acceptance of his assertions as facts, his say-so as truth, his edicts as middle-man between your consciousness and your existence.

The destruction of independence is in full-swing. Whether it is forcing financial institutions to take government money against their judgment, or pressuring AIG employees to return their bonuses, or forcing Detroit to make "green" cars, or forcing East Bridgewater to alter its lending practices, the trend and the purpose is to prohibit individuals (and businesses) from acting according to their own judgment. The purpose is to penalize the prudent for the benefit of the imprudent. The purpose is to vest power and control over the lives of individuals in the hands of politicians and bureaucrats.

Truth in Advertising

The Federal Trade Commission (FTC) enforces "truth in advertising" rules. According to the FTC web site, the following rules apply to advertising:

• Advertising must be truthful and non-deceptive;
• Advertisers must have evidence to back up their claims; and
• Advertisements cannot be unfair.

The site goes on to say that an ad is deceptive if it contains or omits information that:

• Is likely to mislead consumers acting reasonably under the circumstances; and
• Is "material" - that is, important to a consumer's decision to buy or use the product.

Finally, the site states that an ad or business practice is unfair if:

• it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
• it is not outweighed by the benefit to consumers.

Using the above criteria, it would seem that the FTC could stay extremely busy simply prosecuting politicians. For example, consider this statement from Rep. Barney Frank made during hearings on Freddie Mac and Fannie Mae in 2003:

I think it is clear that Fannie Mae and Freddie Mac are sufficiently secure so they are in no great danger... I don't think we face a crisis; I don't think that we have an impending disaster... Fannie Mae and Freddie Mac do very good work, and they are not endangering the fiscal health of this country.

As we all know, a few years later these two government sponsored enterprises had to be bailed out because of bad loans. Frank's statement in 2003 was made in response to warnings by the Bush administration that Freddie Mac and Fannie Mae were heading towards financial problems. Frank denied this truth in 2003, and he subsequently argued for more government intervention into the housing market. His "advertising" was not true, it was misleading and material to the government's subsequent actions, and it resulted in substantial harm to taxpayers. Yet rather than be prosecuted for false advertising, Frank has been rewarded with more power.

Consider Mr. Thompson’s Barry Obama's promises to cut the taxes of 95% of Americans. He could confiscate all of the income of the top 5% of American earners, and still not have enough money to fund his spending proposals. The numbers don't add up, and yet Barry won't be prosecuted for false advertising.

In Houston, zoning advocates have long said that tougher land-use regulations are necessary to attract businesses and fuel job growth, and to protect property values. Yet Houston--the city without zoning--led the nation in job creation in 2008. We did not experience the devastating effects of the housing bubble--our property values remained relatively stable. The facts belie the promises made by zoning advocates, and yet they won't be prosecuted for false advertising.

Politicians are largely immune from the laws that they impose on everyone else. They can make grandiose promises, and when those promises fail to materialize they get a free pass. They can make statements which deny the facts and they respond by casting aspersions on their political opponents. They can advocate proposals that cause immense harm to taxpayers. They can engage in the types of distortions that would get a businessman thrown in jail forever, and they simply get re-elected. They hold businessmen to impossible standards, and impose none on themselves. And that is the truth.