Power & Market

What Governors Can Do

04/08/2020Jeff Deist

Which state has the courage to become the Sweden of the US, and take a different (read: better, freer) approach to coronavirus?

As of yesterday, five US states remain at least reasonably "open" in terms of their implemented measures to fight the pandemic. Arkansas, Nebraska, and South Dakota have no state orders in place closing businesses and forcing residents to stay home, while Iowa and North Dakota shut down "nonessential" businesses but have not issued stay-at-home orders.

Three states, Oklahoma, Wyoming, and Utah, have partial lockdowns in place.

The other forty-two states have varying orders in place, and some regions such as the San Francisco Bay area have issued their own stricter shutdown policies. Population-wise, nearly 95 percent of all Americans today live under some kind of restrictions on movement and business, decreed either statewide or by counties and cities.

There is a tremendous opportunity here for state and local politicians to distinguish themselves. South Dakota governor Kristi Noem in particular has been steadfast in resisting political pressure to order a statewide lockdown, and surely most Americans readily understand how sparsely populated Western states might approach a pandemic very differently than big urban cities.

What should that approach look like? Here are some broad brushstrokes: 

  • First, one brave governor (or county supervisor, mayor, etc.) gets the ball rolling by forming an impromptu coalition of states interested in staying open or reopening. Political pressure to go along with other states is strong, and the federal government has a long and sordid history of bullying states into compliance with national edicts using the carrot and the stick. The Trump administration thus far has been surprisingly reluctant to issue a nationwide shutdown, and governors looking for daylight should seize on this. They will need each other to stand against the tide—see, e.g., this broadside, against Noem.
  • Hold a press conference to announce the coalition, pick a marketable name for the effort (something like "South Dakota—Open for Business!"), and hold weekly calls open to media. Discuss conditions, options, and ideas, but make it clear that each state is wholly independent and that decisions are necessarily localized—this is not an interstate compact.
  • Announce guidelines, not orders, to citizens along these lines: people over seventy are strongly encouraged to self-quarantine in a strict manner. Those over fifty who have existing medical vulnerabilities to the virus are encouraged to do the same. Healthy people under fifty are welcome to return to daily activities but are strongly encouraged to wear masks (proven to be effective in several Asian countries). Of course many residents will self-quarantine regardless, and some businesses will choose to shut down regardless, per their individual choices. 
  • Reopen government courts, and set a deadline of sixty or ninety days hence for resumption of contract enforcement (including evictions). Ask the state bar association to set up statewide centers for landlords and tenants to meet and renegotiate—using realistic numbers—rental agreements. Hard-line landlords can go to court, and hard-line tenants can refuse payment, but evictions benefit neither party in the immediate term.
  • In stages, reopen public schools and universities based on local conditions. Hold parental votes online to determine whether each school district will continue online classes or revert to physical attendance.
  • Announce that restaurants, bars, and retail outlets are open as usual, with the strong caveat that provable cases of virus transmittal will be heard in state courts under a broad doctrine of premises liability. This will encourage the kind of measures by owners that have been seen in Taiwan and Singapore, ranging from using digital thermometers at store entrances to relentless scrubbing of surfaces in restaurants.
  • Immediately bid out a statewide insurance claims facility for coronavirus deaths so that in worst case scenarios families will be compensated for loss of loved ones. Insist that payments are retroactive to cover deaths prior to the bid, and use the model of airlines after crashes (quick payouts, little paperwork, claims personnel with good bedside manner). Payouts of $1 million would not be impossible to insure against in low-population states, where deaths likely will remain well under five thousand. Insurers themselves can go to the reinsurance markets, and insurance companies would have every incentive to test, treat, and take measures necessary to keep citizens alive. They would become de facto partners when it comes to securing medical equipment, hospital beds, and personnel. Insurance companies also would have a strong incentive, unlike politicians, to determine what constitutes death "from" the virus as opposed to death with the virus simply present in the body. Use bond revenue (discussed below) to cover premiums.
  • Immediately bid out to pharmaceutical companies for a supply of hydroxychloroquine, azithromycin, and other promising drugs. Eliminate unnecessary state restrictions on prescribing and dispensing such drugs, and consider making them available over the counter until infections subside. Distribute them widely across the state, and charge break-even (cheap) prices for generic versions.
  • Issue state bonds for sale to private equity investors, hedge funds, foundations, and individuals. Take a deep breath, and secure them with real estate owned by the state—make government, rather than taxpayers, sacrifice for once! Price them aggressively, with higher than market rates of interest (but not junk bond rates). Make these bonds nontaxable by the issuing state itself, both with respect to income and capital gains. Use the funds to provide insurance, medical equipment, hospital capacity, testing centers, and protective gear as needed.  
  • Encourage regional airlines, or major airlines serving the state, to relocate aircraft there and resume "domestic" flights (and/or flights between "open" states). 

None of these ideas is particularly difficult to implement per se, but do any governors have the political will to do so? They should if they take an honest look at the landscape of a country that is coming unglued. Every day there is less and less to lose by trying something different. In a crisis, bold usually wins. So the choice at present appears to be bold freedom or bold tyranny.

Americans are reconsidering federalism and even nullification in an era of intensely polarized anti-Trump sentiment. The Left argues for soft secession in the form of "Bluexit" from the hated red states; conservatives such as Angelo Codevilla call for strategic defiance of the feds in what he terms a "Cold Civil War." Golden State governor Gavin Newsome even recently referred to California as a "nation-state," and why not? With 40 million people, a huge economy, tourism, Hollywood and Silicon Valley, ports and coastlines, and major universities, not to mention beaches, deserts, and mountains, the state easily could be an independent nation.

We were already in uncharted territory, but the coronavirus truly laid bare the deep and intolerable political divisions wracking our country. Governor Noem and others could begin the healing process now, literally and figuratively, by showing us a way forward without DC. The virus could be the catalyst for a new map of America.

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Quarantine Chronicles, No. 3: Political Decentralization

04/08/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of political decentralization, we recommend some of the following selections:

Long Reads:

Video:

Audio:

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Another Right Abolished by the Government's COVID Lockdown: The Right to a Speedy Trial

04/07/2020Ryan McMaken

The Sixth Amendment to the US Constitution says that all criminal defendants “shall enjoy the right to a speedy and public trial.” Many state constitutions also guarantee speedy trials, as do many state statutes.

Specifically, the Sixth Amendment states:

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury…and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.

In recent decades, this right has slowly grown more tenuous as the court system has grown increasingly overloaded in many areas by an ever increasing load of state and federal laws that bring grave penalties for the convicted. Defendants must wait long periods in some cases to get a court date.

As often happens with government mandates for permits, permissions, and hearings, court requirements that defendants stand trial are not met by the government with a willingness to actually provide the services necessary to allow compliance. That is, governments force us to submit to certain government procedures, but the government is unwilling to provide those procedures in a way that's timely or accessible.

But now that the wheels of "justice" are grinding to a complete halt, thanks to COVID-19 related shutdowns, the accused may now be waiting for trial indefinitely. Some US immigration courts, for instance, have declared that they won't be doing anything for a year:

The 9th Circuit Court of Appeals in San Francisco extended an earlier one-month emergency declaration for federal courts in San Diego and Imperial counties by a year to April 17, 2021, according to an order posted on the circuit’s website Friday. The court’s judicial council cited public-health concerns and governments declaring states of emergency.

The order suspends the federal Speedy Trial Act, which means anyone facing criminal charges will have to wait longer to exercise their constitutional right to a jury trial—including defendants already in custody. In San Diego and Imperial counties, a significant share of those federal cases involves immigration, drugs and U.S. Customs offenses, the council said.

The state of Kansas is denying speedy-trial rights at the whims of a single judge:

Less than two weeks ago, cases in Douglas County District Court were being set for trials, and other hearings delayed because some trials were already scheduled. But as state and local officials have gradually restricted further how many people can be in one place at one time in efforts to slow the spread of COVID-19, the courts can’t function normally.

Gov. Laura Kelly on Thursday signed into law a bill that expands the authority of the chief justice of the state Supreme Court to issue orders “to extend or suspend any deadlines or time limitations established by statute when the chief justice determines such action is necessary to secure the health and safety of court users, staff and judicial officers.”

North Carolina courts are closed.

In Colorado, a legislator demands the legislature close the speedy-trial "loophole." By "loophole" he means the law that insists that the government respect a defendant's rights or set him free.

But, as with the natural rights protected by other articles of the Bill or Rights—and similar texts found in state constitutions—there is no clause at the end which says "null and void in case of virus."

Naturally for defendants who are in jail awaiting trial—people who are still presumed innocent, mind you—long delays can destroy them both personally and financially. Delays can ruin careers and ruin marriages. They alienate children from parents. They impact the defendant's health.

There is a reason, of course, that the right to a speedy trial—which goes back to clauses 39 and 40 of the Magna Carta—exists. Delaying justice is a common tactic of governments that really can't be bothered with respecting the rights of the accused. But as with so many liberties, this one is apparently to be ignored when some governors decide it to be so.

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Colorado County Says It Will Arrest All Tourists, Including People Who Own Property There

04/07/2020Ryan McMaken

In possibly the most draconian COVID-19 order I have seen, Gunnison County in central Colorado is closing off the county to everyone but full-time locals:

A public health order for Gunnison County was amended to prohibit all visitors, including non-resident homeowners from remaining in the county for the duration of the order.

The Public Health Director found that non-residents, visitors and non-resident homeowners from lower altitudes are at a greater risk for complications from COVID-19 infection than residents, who are acclimatized to the high altitude environment of Gunnison County, according to the order.

The county's top public health official also said in the order that that non-residents, regardless of whether they own a residence in Gunnison County, are imposing unnecessary burdens on health care, public services, first responders, food supplies and other essential services.

Visitors cannot stay unless granted an exemption or waiver by the Public Health Director. Those who violate this or any other portion of the public health order could face a fine of up to $5,000 and up to 18 months in jail.

The town of Gunnison is about a four-hour drive from Denver and is in a mountain valley where the temperature rarely reaches above the low 80s. There is a small four-year college there. The fishing on the Gunnison River is very good.

But they are apparently very unenthusiastic about visitors right now.

It is possible that county officials were inspired by Gunnison County's experience during the Spanish flu epidemic of 1918. At that time the county also closed itself off, and only a single resident died of the flu, which was quite an achievement.

At that time, though, it would have been a lot easier to close the town off, which was far more remote in 1918 than now. Today, US Highway 50, a major cross-state artery runs through Gunnison. This is no country road. Gunnison doesn't own it or fund it.

This leaves many questions unanswered. As the New York Post notes: "It’s unclear exactly how the order will be enforced." Indeed. Will truckers be arrested if they attempt to fill up with gas in town? Will owners of second homes there be arrested for attempting to drive to their own property? Moreover, the town's claim that its high altitude justifies the ordinance—because outsiders can't handle the lack of oxygen—is a bit sketchy. The altitude in the town of Gunnison is under eight thousand feet, which isn't very high for a resident of the Denver area, who would be used to an altitude of five to six thousand feet. But it may be that the primary target is foreigners and out-of-staters, most of whom are likely living at much lower elevations the rest of the year. It will be fun to see the extent of the county's tolerance for likely future lawsuits.

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How the Private Sector Is Fighting the Pandemic

In the race to develop a cure and treat COVID-19, many consider the state and its subsidiaries as the only institutions capable of adapting our current system to suit the epidemic. On the other hand, phrases such as “the private sector has no interest in humanitarian goals! It only seeks profit!” are uttered as justification for more state action.

To illustrate that the private sector can work for the common good, here are some initiatives that "greedy" capitalists have created to help with the fight against the novel coronavirus (and if they profit along the way, who can blame them?).

[RELATED: "The FDA Continues to Actively Undermine America’s Response," by Tho Bishop]

Turning Whiskey Into Hand Sanitizer

An item which has been highly demanded is hand sanitizer, and due to panic purchasing its price has risen a great deal or it has disappeared from shelves altogether in places where laws prevent vendors from raising prices.

However, in those places where prices have increased, this has pushed makers to increase production and supply the market with more of the product. Moreover, it has encouraged others to shift their production toward alcohol and hand sanitizer.

This is the case with distilleries. Instead of crafting bourbon and vodka, many are changing their schedules to produce hand sanitizer. They are giving it away for free to the local communities or selling it at a lower price, which helps them hold the fort during these difficult times. Even Bacardi, a famous rum producer, is allocating alcohol to the production of more than 1.7 million ten-ounce units of hand sanitizer.

Companies that make perfume are also entering the business. LVMH (LVMH Moët Hennessy – Louis Vuitton SE​) announced that it is going to convert its cosmetic factories to hand sanitizer production and distribute the product to thirty-nine hospitals in France.

Free Services

Special efforts are being made to guarantee that businesses and schools can continue their activities—at least in part. Google has made available features of Google Hangouts that were previously paid, such as video meetings of up to 250 participants and the ability to record calls and save them to Google Drive.

Likewise Coursera has made its program Coursera for Campus available at no cost for universities whose activities were affected by COVID-19. It can be used to enroll students in more than 3,800 online courses from prestigious colleges and universities.

But not every worker can work from home. This is the case for those who work in a variety of services and specific types of shops. "Social distancing" places an enormous economic burden on such enterprises.

To help with this problem, Facebook has started a fund of $100 million to aid small businesses affected by the epidemic. Up to thirty thousand businesses in over thirty countries are eligible to receive help with rent costs, operational costs, and maintaining their workforces. Surely this will be a relief for many entrepreneurs.

The Private Sector Works for Both Private Gain and the Common Good

So far, we have only noted some cases of capitalists around the globe helping their communities and other nations with resources to fight the epidemic. However, we have set aside all the theoretical discussion involving the question of whether we should have a totally private healthcare system or a socialized one.

A case can be made—implicit in some parts of this article—that the state disturbs the workings of the healthcare industry. Government regulations have limited the supply of critical goods such as hand sanitizer, masks, and even food. Government-funded services do not scramble to supply goods and services the way that market firms do. After all, speed and service are the lifeblood of a private firm. This is why even if we abandoned the healthcare sector to the pursuit of profit the whole population would benefit. For any profit to be made, businessmen have to provide a valuable service to their customers. This even drives firms to lower prices while embracing innovation and research with an enthusiasm that government agencies lack.

Unfortunately, the role of private markets is becoming harder to see as government expands into more and more sectors. Everywhere, for example, states dominate the healthcare sector. Even in the US, considered by many the embodiment of capitalism, healthcare has ceased to be primarily a market endeavor. Yet even as government attempts to further crowd out the private sector, the social benefits of markets remain.

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Local Scolds Are Using This Crisis to Grow the Police State

My posts on social media lately have focused on national and international issues related to COVID-19. I occasionally cruise through posts from my neighborhood's Facebook page and Nextdoor.com and just throw up my hands. The local "Karens" are condemning people for traveling, looking for offending groups of more than three people to narc on to the local hotline, and calling for increased police patrols of the neighborhood, etc. The most fundamental of civil rights mean nothing to these people.

We are being careful in my household. We don't go out much. Fortunately, we have jobs that allow us to work from home. When we go out, we take precautions as recommended.

But the mostly upper middle-class residents of my neighborhood and others—at least the ones who have time for social media—are worked up into such a lather about this that they've forgotten that there are important things about our society other than avoiding getting sick.

We will all have to live in this society after the pandemic has passed. On a national scale, we will have to live with the powers government obtains during this crisis. Whatever powers they take won't all be given back (see Robert Higgs's "ratchet effect" and his book Crisis and Leviathan). And whatever powers government obtains won't all be used to effectively fight a pandemic—they will end up being used for political purposes, as the "stimulus" act should have amply indicated. People in government are no less selfish, no more ethical in their conduct, than the rest of us. And they don't always know what is best. Local information, often at the granular level of the household or individual, is vital but usually unavailable or ignored by officials in Washington, DC, or a state capital. Even if totalitarianism is an effective way to fight a pandemic—and I'm certainly not persuaded that it is—can anyone reasonably suggest that people granted such power will nobly and promptly relinquish all that power when the crisis has passed? Despotisms have arisen out of a fearful population in a crisis calling for government to rescue them.

On a more local scale, we're all going to be neighbors when this is over. In this crisis, a neighborhood should be growing closer, chatting (from a six-foot distance of course) with the people who live on our streets, picking up items from the grocery store for those whose risk of an outing is greater, or sharing a couple of extra rolls of TP. Instead, I'm seeing posts on Facebook calling for the arrest of kids in the neighborhood who dare to assemble in groups of more than three. Unqualified shaming of people who don't "stay home," when we really have no idea what the personal situation is that might result in venturing out. Calls for draconian policies from government that would have warmed Stalin's heart and that could severely impact neighbors. I'm not doing anything that would contravene current policy where I live. But I'm appalled at the instincts of some of my neighbors. The thought has already crossed my mind as I walk or run around my neighborhood—who among these people would inform on me if I appeared to be doing something that doesn't comply with a government order? Will they knock on my door and share their concern (from a six-foot distance) or just call the cops? (Is it paranoia if they have already publicly stated a desire to have people arrested?) Or worse—a few days ago an eighty-six-year-old woman died in a New York City hospital after being shoved by another patient who didn't like how close the elderly woman was standing. Will violence increase?

We may have a long way to go before the restrictions on our activities begin to be loosened rather than tightened. Stress is building. Most of us are worried about getting sick, or having a family member get sick. Many households are struggling financially. Family members who don't get along well at the best of times are living together in a pressure cooker environment. Parents are trying to shepherd children through online schooling. Some employees are trying to adjust to working from home and are worried about the future of their employers. People are already reaching a breaking point.

In the face of all this stress and anxiety, a commitment to civil and peaceful relationships with neighbors is even more important. Let's think before we condemn neighbors for not "social distancing" enough, and have polite conversations to persuade those who disagree. And let's refrain from calling on the social institution whose primary distinctive is the use of force to induce compliance. After calling the cops on our neighbor or our neighbor's kid—or advocating policies that render our neighbors jobless—we will still have to live around each other.

We have an opportunity to build relationships with those around us who have perhaps been ignored for years. Let's not squander that opportunity by looking for chances to narc on each other. That means you, Karen.

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How to Make Hand Sanitizer Reappear on Store Shelves

04/03/2020David Cusimano

As grappling with COVID-19 has required rapid and difficult decisions by world leaders to protect the public, it has been easy to overlook some of the lessons basic economics can teach us about prices. I taught economics for several years, and this topic that we covered in the first few sessions of each semester comes to mind as I watch today’s events unfold.

Prices serve a far more important role than simply telling us how much cash we need to part with in order to receive a good or service. They form the backbone of the entire market system. Individual market actors deliver critical products around the world more effectively than any third party–directed effort ever could. And they can do that only because of prices.

Prices act as signals to entrepreneurs of what value society is placing on particular resources at any given time. So, if society wants more iPhones, then the prices of the inputs to make iPhones will increase, thereby allowing the raw materials required to be directed to that purpose. Industries creating products with less value to society can’t pay as much for those raw materials, and thus they don’t get them. In times of crisis, our focus shifts from studying how prices direct resources to iPhone production to the more critical function of rationing—who does and doesn’t get food, fuel, and medical supplies.

The political consensus is that prices should be prevented from fluctuating in times of crisis. Although these policies are often well intentioned, they remove the critical signals needed by those on both the supply side and the demand side to make decisions in the best interest of society.

Consider hand sanitizer, the price of which has been increasingly scrutinized during this crisis. People around the world have been hoarding it, making it difficult or impossible to find in some areas. Nervous citizens quite naturally understand the importance of this product and want to make sure they have plenty of it. With prices forced to remain low, those who can get to the stores fastest have little economic incentive to not stock up. Those who aren’t as swift (who coincidentally make up a large portion of those who would be most at risk should they contract COVID-19) are left with empty store shelves. Once hand sanitizer is out of stock, those who really need it can’t purchase it—at any price. Even if a desperate person deems fifty dollars per bottle a lower cost than the cost of contracting the virus, they have no options. Our well-intentioned anti-price-gouging policies have left them with nothing.

And because producers who might currently be supplying ethyl alcohol for other, less needed uses (such as alcoholic beverages) aren’t able to be compensated for the expense of converting their plants or abandoning their existing customers, many of them aren’t able to shift gears—even if they might like to in the name of helping society in a critical time.

The inevitable outcome is the emergence of a black market as desperate buyers and sellers attempt to skirt the rules and transact anyway. A basic supply and demand graph shows us that black market prices are higher than those the market would have arrived at. Our attorney generals then run around making criminals out of people who were attempting to serve the needs of the community, and no one wins.

If, however, we allow the price to fluctuate freely, two good things happen. Those who are able bodied and make it to the stores first will have some challenging decisions to make. When faced with hand sanitizer at twenty dollars per bottle that was previously only two dollars, they will be a lot less likely to clean the shelves out. They will be much more likely to grab only the amount their families need, thereby leaving additional supply for those who come behind them.

In addition, producers of alcoholic beverages will quickly notice that prices of hand sanitizer are rising. They will find it more profitable to supply hand sanitizer than beverages and rapidly convert their production. This increase in production will not only increase the amount of hand sanitizer available in the world, but also mitigate the rise in prices. Even enterprising suppliers who might appear to be exploiting the situation at the consumer’s expense are sending vital signals to other suppliers that they need to start ramping up production.

The phenomenon has been proven time and again over many generations, and no product or service to date has been exempt—no matter how urgent the crisis. The invisible hand is still at work. Markets provide more products than any other delivery method and the most just form of determining who gets them. In a time of crisis, instead of abandoning their most beneficial feature, perhaps we should lean on them more.

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How Minimum Wage Laws Have Made the Job Search Worse for So Many

04/02/2020Jacob Maichel

Generally I think people who advocate for minimum wage laws mean well but likely have a fundamental misunderstanding of the topic. Pleas for a living wage are not new by any means. Saint Thomas Aquinas believed that commodities (farm products) should demand a fair price and that workers should be paid a sufficient income to support themselves. In his time period, however, this was unachievable, as the majority of people lived very minimally and often survived on their own food production. The idea of a "just wage" or "living wage" really saw a resurgence of popularity during the Industrial Revolution. Social reformers of the time believed that it would be more beneficial for children to be in school, rather than working for low wages in dangerous conditions. This belief led to the creation of the first minimum wage laws in the country.

Minimum Wage Laws as a Limit on Total Labor

In 1912 Massachusetts passed the first minimum wage laws the US had ever seen, although it was only pertinent to women and children. The law was passed largely in response to a fear that unskilled workers who were paid low wages were taking the jobs of adult men. The idea behind the law was that by forcing employers to pay unskilled workers similar wages to skilled ones employers would opt for the latter, protecting the working man from competition. Many states followed Massachusetts's example, but these laws were short lived as the United States Supreme Court ruled them unconstitutional for violating the principle of freedom of contract. The repeal of these laws was largely ignored as the country prospered in the 1920s. High demand for workers, coupled with tightened immigration restrictions, allowed for competition within the market to allow wages and working conditions to naturally improve with no coercion from outside forces.

In 1929 the unemployment rate in the US was roughly 3.14 percent compared to 24.75 percent in 1933. As wages across the nation began to decrease, the desire for a guaranteed minimum wage again resurged. Unfortunately, the underlying justification for the laws seemed to shift from getting children out of the workforce to instead guaranteeing a "living wage" to those who were employed. What is misunderstood about this situation is that even though many with jobs were making less, if wages had remained where they had been in the 1920s many more people would have been without a job. In 1933 the New Deal's National Industrial Recovery Act (NIRA) promised a minimum wage. This was largely a failure, as it only increased the wages of unskilled workers, who already struggled to find gainful employment, not the wages of skilled workers, who already were paid above the minimum wage. Rather than stimulating recovery, it appears to have made it harder for unskilled laborers to find work. The NIRA lasted only two years before it was deemed unconstitutional as well, in 1935. It was replaced by the Fair Labor Standards Act in 1938. and since then the US has had a minimum wage.

The Fair Labor Standards Act did not immediately impact the labor market in a significant manner. Once the US began to militarize in the 1940s, the wartime economy increased wages far above the minimum. It remained this way until 1956, when Congress significantly increased the minimum wage and authorized the US Department of Labor to conduct surveys to increase employer compliance. Teenagers have always had a higher unemployment rate than adults, but after 1956 there was an incredible proliferation of teen unemployment, illustrated in the graph below.

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Teenagers typically have the least marketable skills other than the unique value they possess as low-wage workers. Without this advantage, many lost their jobs to more skilled laborers in the short term and the long-term impact of automation is has started to be realized more and more.

Perhaps more alarming is the power that these minimum wage laws grant employers to discriminate in hiring. As wages increase and businesses reduce their workforces, this creates a surplus of individuals looking for employment. Economist Thomas Hall in Aftermath: The Unintended Consequences of Public Policies explains very clearly that discrimination is very difficult when the amount of applicants is similar to the amount of job vacancies in the market. As this surplus increases, it empowers employers to increasingly choose employees based on personal preferences, including race. Historically, black teens have had a higher unemployment than their white counterparts, but after the 1956 wage increases it became much worse. This can be seen in the following graph depicting the difference in unemployment rates among black and white teenagers before and after the 1956 wage increases.

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It's ironic that labor unions and politicians that call for higher minimum wage laws forget why they were enacted in the first place: to force unskilled laborers (largely children) out of the workplace. This has greatly impacted the most vulnerable groups of workers, namely teenagers, and steals valuable experience that they need to be successful in gaining future work. Although many people who support these laws have good motives, the road to hell is surely paved with good intentions. Supporting these laws seems good in theory; in practice they not only promote a slew of dangerous outcomes, but can explicitly allow racist hiring behavior.

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Lebanon's Debt Crisis Has Destroyed the Nation's Economy

04/02/2020Mario Keyrouz

On October 17, 2019, civil protest erupted in Lebanon. The reason for the eruption was a proposed tax on the popular WhatsApp app.1 The tax served as only a spark to ignite the uprising. Over the years the economy of Lebanon has been steadily worsening. Of course, the usual suspect is the state, and the preferred method is interventionism.

Economic Conditions

Although there is no reliable data to track the unemployment rate in Lebanon, at a certain point in 2018 the president himself stated that the unemployment rate was about 46 percent. He attributed this high number to the grave economic situation and to Syrian refugees.2 According to the IMF, the debt-to-GDP ratio is projected to grow to about 185 percent in 2024.3 The official conversion rate of the US dollar to the Lebanese pound is about USD 1 dollar for LBP 1512.5, but in reality as of March the rate at which people are exchanging is USD 1 for LBP 2700.

During the first days of the civil protests, banks shut down and blocked depositors' access to their funds. They then moved to set some severe withdrawal limits on dollar accounts. Some banks have set a limit of USD 600 a month. Although there have been no severe limitations on accounts in Lebanese pounds, as of March 1 I am no longer allowed to spend more than fifteen dollars per month for international transactions using my debit card. Yes, you read that correctly! Fifteen dollars per month. And to top it all, the first sovereign default in Lebanon’s history took place on March 9. Much can be said regarding the current Lebanese economic conditions. But It is self-evident that Lebanon is currently undergoing the worst financial crisis since its independence. Not even during the civil war (1975–90) did people witness such a financial crisis. It could be that during the civil war the state was much more powerless than now and wasn’t able to intervene in the economy as much as it is now.

Public Debt

Between 1993 and 2018, Lebanon’s public debt increased from $4.2 billion to $85 billion4—a debt that has been forced on the Lebanese people, and the burden of which Lebanese citizens have been dealing with for years. To put things into perspective—and this is from the IMF report:

Because of the large public debt, interest payments exceeded 9 percent of GDP. Tax revenues in 2018 were lower than forecast, with all tax revenue categories disappointing in the slow economy except taxes on income and profits.5

Consequences of the State’s Actions

I could go on discussing the awful policies and actions of the Lebanese state. I could give a very accurate description of its anatomy, which is an abomination. But what I would like to shed light on is the forgotten youth of Lebanon. How long is it going to be before the economy recovers? Is it still possible for a young Lebanese to build a better future for himself? Can all the young Lebanese who emigrated ever hope to come back? Existential crises, as bad as they already are for young individuals, have been made worse by the Lebanese government. Future Lebanese generations will inherit a debt that cannot be repaid. The state has robbed us of our prosperity.

Hope Remains

Despite everything that has happened, there’s still some hope for the youth of Lebanon. Lebanese have learned a lot from the past few months. It has become self-evident that the government of Lebanon holds too much power and is too centralized. Traditional political parties in charge of the government have had their popularity diminish dramatically. And the best thing is that some Lebanese have been resorting to cryptocurrency as a way to bypass the bank and transfer money. Above all, I truly hope that in the future Lebanese people will aim to reduce the concentration of power that the state holds.

  • 1. "Lebanon: WhatsApp tax sparks mass protests," Deutsche Welle, Oct. 10, 2019, https://www.dw.com/en/lebanon-whatsapp-tax-sparks-mass-protests/a-50880357.
  • 2. "Lebanon's president says unemployment is at 46 percent. Is it true?," StepFeed, Apr. 4, 2018, https://stepfeed.com/lebanon-s-president-says-unemployment-is-at-46-percent-is-it-true-7375.
  • 3. H. Plecher, "Lebanon: National debt in relation to gross domestic product (GDP) from 2014 to 2024," Statista, Nov. 13, 2019, https://www.statista.com/statistics/455257/national-debt-of-lebanon-in-relation-to-gross-domestic-product-gdp/.
  • 4. Rouba Chbeir and Marwan Mikhael, "A Historical Analysis of Lebanon’s Public Debt" (Blominvest Bank, 2019), p. 2.
  • 5. 2019 ARTICLE IV CONSULTATION—PRESS RELEASE, p. 5
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Quarantine Chronicles, No. 2: Praxeology

04/01/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of praxeology, we recommend some of the following selections:

Long Reads:

Video:

Audio:

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