Muckraker or Special Pleader?

titan-chernowIn “A Brief History of Media Muckraking”, the Wall Street Journal’s Amanda Foreman traces the contributions of “reform-minded journalists from Ida Tarbell to [Bob] Woodward” and a few others who spilled newspaper ink writing about abuses of power by the private and the public sector.

Obviously a fan of the progress made during the Progressive Era (“the golden age for crusading journalism”), Ms. Foreman, like virtually everyone who shares that political view, gets some key facts wrong and misses the big picture when it comes to thinking about the origins of reformist spirit.

Foreman credits Ida Tarbell’s History of the Standard Oil Company (1904) and her earlier series of articles published in McClure’s magazine with helping push the federal government into initiating antitrust action against the Standard Oil “trust”, which ultimately led the U.S. Supreme Court to order the company’s dissolution in 1911. Here, Foreman mistakenly says that the dissolution order was issued under “the 1911 Sherman Anti-Trust Act” (the Sherman Act was passed and signed into law in 1890).

More seriously, Ms. Foreman does not mention that Ida Tarbell was far from being a disinterested observer of John D. Rockefeller, Sr.’s allegedly anticompetitive business practices. Ida’s brother William was treasurer of the Pure Oil Company, a major rival of Standard Oil; he supplied possibly biased information to his sister and helped vet her articles for McClure’s. Ida also nursed a longstanding grudge against the company, blaming Rockefeller for ruining her father’s business as a maker of the wooden barrels used early on to transport crude oil from the field to refineries. Replacing wooden barrels with railroad tanker cars and underground pipelines was one of Rockefeller’s many cost-cutting innovations, which drove down the prices of kerosene to final customers and ended the then-looming shortage of whale oil, but made wooden barrels obsolete.

Information about those and other personal axes Tarbell had to grind is readily accessible in Ron Chenow’s Titan, his monumental biography of John D. Rockefeller, Sr.—a volume I have relied on heavily in my own work, in collaboration with Michael Reksulak and others, on the origins and effects of the government’s case against Standard Oil (our most recent contribution to that literature is “Tarring the Trust”).

One interesting, still unexplained, consequence of Tarbell’s and the Justice Department’s antitrust attack on Standard Oil is that Rockefeller’s wealth tripled (to almost $1 billion) soon after the company was broken up. I hesitate to call this “crony capitalism”. It nevertheless is another example of how progressive ideas backfire, achieving results that were perhaps “unintended”, but the actual effects of the dissolution could have been, as George Stigler taught us long ago, the intended effects.

Sweatshops: Misunderstood Paths Out of Poverty

41IeZrEszcL._SY344_BO1,204,203,200_The collapse of a garment factory in Bangladesh’s Rana Plaza last year killed more than 1,100 workers and reignited an international movement calling for the regulation of so-called sweatshops in the developing world. Unfortunately, the activists often try to promote better working conditions the wrong way because they overlook the harm that boycotts and costly regulations impose on factory workers. They also fail to recognize the positive role that low-wage factory jobs played in the West’s rise from poverty.

“Poor countries today would be better served if anti-sweatshop scholars and activists had a better understanding of how the historical process played out in wealthy countries,” Independent Institute Senior Fellow Benjamin Powell writes in the Summer 2014 issue of The Independent Review.

Before workplace safety regulations were enacted, textile and apparel factories with poor working conditions were economic springboards to prosperity in what is now the developed world, Powell explains. Sweatshops contributed to economic development for about 100 years in the United States (and 30 to 60 years longer in Great Britain), but they eventually closed down largely because the progress they helped foster made them obsolete: by contributing to capital accumulation in the West, the sweatshops helped shift the demand for labor toward higher-productivity jobs. In addition, the rising prosperity meant that fewer and fewer workers were willing to take lower-wage jobs with less-desirable workplace conditions.

Other countries, particularly in East Asia, followed the path out of poverty pioneered by the West—a trail paved with low-wage factory jobs, property-rights enforcement, a market price system, and economic freedom. One difference, however, is that they often attained in only two generations the same general living standards that it took the United States and Great Britain several generations to reach. Sadly, activists who fail to heed this history lesson inadvertently act to hold down workers in the developing world struggling to make ends meet.

* * *

Meet the Old Sweatshops: Same as the New, by Benjamin Powell (The Independent Review, Summer 2014)

Out of Poverty: Sweatshops in the Global Economy, by Benjamin Powell

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin W. Powell

The Independent Review: Please be sure to take advantage of our special offer of your choice of a FREE book when you renew or order a new subscription online.

[This post first appeared in the July 29, 2014, issue of The Lighthouse. For a free subscription to this weekly newsletter of current affairs, public-policy analysis, and event announcements, enter your email address here.]

Ban Government—Not Sweets—in Schools to Combat Bureaucratic Obesity

12050387_SIn recent weeks states have been grappling with a host of unintended consequences stemming from new USDA regulations affecting food and beverages available in schools. Chocolate milk was a near casualty in Connecticut. Earlier this month one Washington state school district threw in the towel and banned birthday cupcakes in classrooms. Instead of baked treats, students can share gifts of pencils with their classmates instead, according to school officials.

Just weeks after the new food rules went into effect on July 1, schools in 12 states are working their way around them. As the National Journal reports:

Twelve states have established their own policies to circumvent regulations in the Healthy, Hunger-Free Kids Act of 2010 [here] that apply to “competitive snacks,” or any foods and beverages sold to students on school grounds that are not part of the Agriculture Department’s school meal programs, according to the National Association of State Boards of Education. Competitive snacks appear in vending machines, school stores, and food and beverages, including items sold at bake sales.

Georgia is the latest state to announce an exemption to the federal regulations, which became effective July 1 for thousands of public schools across the country. Its rule would allow 30 food-related fundraising days per school year that wouldn’t meet the new healthy nutritional standards. ...

Tennessee also plans to allow 30 food-fundraising days that don’t comply with federal standards per school year. Idaho will allow 10, while Illinois is slowly weaning schools off their bake sales, hoping to shrink them from an annual 36 days to nine days in the next three years. Florida and Alabama are considering creating their own exemption policies.

Under the new regulations, there are some exemptions for school fundraisers (p. 7), including allowing state education agencies to define what constitutes “a limited number “of school fundraisers (p. 39).

However, it’s worth considering why the USDA has any authority over foods offered outside of its school lunch and breakfast programs (p. 8), and why it has the power to ban fundraisers foods that compete with its meals to be sold during breakfast or lunch time (p. 41). As the school year approaches, expect more news reports about absurd policies resulting from this latest government intrusion into schools.

Maintaining a healthy weight is a goal we can all share, but burying schools, students, and parents in tons of red tape is no way to combat obesity. Perhaps the best way to shed some pounds at school is to shrink the federal government’s involvement back down to its constitutional size.

Are Lawsuits Ending or Mending Teacher Tenure?

teacher-tenure-largeLast month Los Angeles Superior Court Judge Rolf M. Treu handed down a landmark decision in Vergara v. California. A group of student plaintiffs supported by a Silicon Valley entrepreneur argued that state tenure laws violated the State Constitution, kept bad teachers on the job, and deprived them of a quality education.

A similar lawsuit is making its way through the State Supreme Court in New York and other state courts across the country, according to the New York Times:

Challenges to teacher tenure laws are moving to the courts since efforts in state legislatures have repeatedly been turned back. Critics of the existing rules say tenure essentially guarantees teachers a job for life. According to the New York suit, only 12 teachers in New York City were fired for poor performance from 1997 to 2007 because of a legally guaranteed hearing process that frequently consumes years and hundreds of thousands of dollars in legal fees. ...

In New York, teachers can earn tenure after a three-year probationary period, which city school officials can extend for another year, and often do. That represents one big difference with California, where teachers can win tenure after 18 months, and even before being certified.

Larry Sand, a retired teacher and president of the California Teachers Empowerment Network explains that even if an anticipated Vergara appeal by the California Teachers Association fails, a new law will have to replace the stricken one. One may already be in the works based on a pending Los Angeles legal settlement, Reed v. the State of California. Seniority-based teacher layoffs, also referred to as last-in, first-out or LIFO, disproportionately affected teachers in 45 of LA’s poorest schools, since the newest teachers are often assigned to schools where more experienced teachers don’t want to work (a longstanding teacher union practice).


Obamacare Architect Warned That Tax Credits Would Be Available Only in States with Exchanges

ObamacareScreenHartWebHalbig versus Burwell is the famous lawsuit that claims that Obamacare federal health-insurance exchanges cannot pay tax credits to health insurers. The plain language of the law is that only state-based Obamacare health-insurance exchanges can channel these tax credits. The real champions of this argument are Michael Cannon and Jonathan Adler of the Cato Institute, who recently encapsulated their argument in the Wall Street Journal.

The question is still unsettled. Last week, two different Circuit Appeals Court panels came to different conclusions: The DC Circuit agreed that the subsidies could go only to insurers in state exchanges; while the 4th Circuit ruled that they could go through federal exchanges too.

The Obama administration is horrified that the Supreme Court could decide that it is illegal to subsidize insurers in federal exchanges. Most states have declined to set up their own exchanges. Further, some of those that did are closing up shop.

So, imagine the surprise when a researcher at the Competitive Enterprise Institute dug up a 2012 video of Jonathan Gruber, who earned about $400,000 from taxpayers as the “architect” of Obamacare, stating the obvious:

“What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits...”

Of course, Mr. Gruber is now trying to wriggle out of his previous comments. Read the whole story at the CEI blog.

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.


A Hundred Years of War

WWImontage2One hundred years ago today, Austria-Hungary fired the first shots of World War I, sparking its conflict with Serbia. Gavrilo Princip, a Bosnian Serb, had assassinated Archduke Franz Ferdinand. Mutual defense agreements ensured that the political clash did not remain regional. Austria-Hungary got support from Germany, the Ottoman Empire, and Bulgaria. Serbia found allies in Britain, France, Belgium, Greece, Romania, Italy, Russia, Portugal, Montenegro, Japan, Brazil and the United States. The global war likely qualified as the worst bloodbath the world had yet to see, certainly in such a short duration. Fifteen million or more died in less than five years. Tens of millions were wounded, displaced, or orphaned. Disease spread. The international trade and exchange that existed before the war never fully recovered.

World War I was a low point for liberties within the United States, once America finally got engaged in the battle. People went to prison for criticizing the military or opposing the draft. Surveillance of the citizenry and crackdowns on dissent became normal. Domestic regulation and taxation skyrocketed. Almost nothing that happened during the New Deal did not have some precursor in Wilson’s wartime domestic governance. There was hope for the United States becoming freer and freer in the early 20th century. World War I altered that picture dramatically. Almost everything the federal government has done in the last century has roots in the 1910s.


More States Abandoning the Sinking Common Core Ship

pare_o_nucleo_comum_podre_ao_poster_do_nucleo-r5b1ed5648bc64059ad8ab6f0498fd5db_a4ndz_8byvr_324Barbarians at the gate.” That’s what Arizona Superintendent of Public Instruction John Huppenthal called opponents of Common Core national standards several weeks ago. His remarks are symptomatic of just how far elected officials within and outside Arizona have strayed from our Constitution, which doesn’t even contain the word “education.”

Supporters claim Common Core will provide a consistent, clear understanding of what students should know to be prepared for college and their future careers. On the contrary, many experts serving on Common Core review committees warn that academic rigor was compromised for the sake of political buy-in from the various political interest groups involved—including teachers unions.

Unsurprisingly, the curriculum is being used to advance a partisan political agenda, showcasing one-sided labor union, ObamaCare, and global warming materials, along with more graphic, adult-themed books under the auspices of promoting diversity and toleration. But the politicization doesn’t stop there.


A Hell of a Pinpoint Operation

30024012_SSecretary of State John Kerry was right to call Israel’s Operation Protective Edge against Hamas “a hell of a pinpoint operation” in an apparently private comment that had the hallmark of a diplomatic move aimed at putting pressure on Tel Aviv. Except that he was referring ironically to the military aspect of the operation, and it is the political aspect that truly expresses the “pinpoint” nature of what Israel is doing—without the irony.

Israeli Prime Minister Bibi Netanyahu’s precise target is the alliance between Fatah—led by Mahmud Abbas, the president of the Palestinian Authority—and Hamas, formed in April after seven years of conflict in the occupied territories. His strategy has always been to make unviable any Palestinian entity (let alone the possibility of sharing the same land with the Arabs under equality before the law). His tactics are at the service of that strategy. All he needs is to gain time until the “fait accompli” makes things irreversible. Operation Protective Edge serves that purpose.

Netanyahu knows three things work in his favor. The nature of Hamas, an organization that has engaged in terrorism, makes the atrocities arising from the land, air, and naval attacks easy to justify with the argument that the Palestinians use civilians as shields and that leaving their capability intact will expose Israelis to rockets. The tragic Jewish history confers impunity on Tel Aviv’s authorities: criticizing Israel can easily be construed as anti-Semitism. Finally, no U.S. administration can afford, domestically, to really distance itself from Tel Aviv.

Let’s remember how we got to Operation Protective Edge. In July 2013 the Obama administration launched a Middle East initiative and set a nine-month deadline for Israel and the Palestinians to reach an agreement. But the Israelis continued to expand the settlements (thousands of permits for new units were issued). When the deadline was near, Netanyahu reneged on his commitment to free hundreds of prisoners. He got the response he wanted from Abbas, who gave up and engaged in unilateral initiatives aimed at conveying the impression that the Palestinian Authority, which gained observer status at the UN in 2012, is a state in process. It was only a matter of time before an incident would trigger violence in Gaza, which houses not only Hamas but also a wing of the ruthless Islamic Jihad.


How to Pay for the Next Sovaldi?

9288299_SImagine a pill that could cure cancer with one course of therapy or reverse an inherited, deadly disease. If it cost $1 million, could you access it?

This was the question asked at a recent panel discussion held by the American Enterprise Institute. The panel discussed a couple of new proposals to finance new medicines that come at a high price. Because these medicines address the needs of only a small number of patients, manufacturers contend that prices need to be high to make the investment worthwhile.

One proposal was put forward by Scott Gottlieb, MD, (of the American Enterprise Institute) and Tanisha Carino (of Avalere Health). They put forward a redefinition of spending on specialty drugs as capital investment rather than consumption spending. This is because, for example in the case of Sovaldi, the expensive upfront costs of the drug are more than paid for by dramatically reducing costs over the next twenty or thirty years for a patient who might otherwise require a liver transplant.


Is Medicaid Crowd-Out the Only Effect of Obamacare?

MedicalSymbol2Medicaid “crowd-out” is the hypothesis that enrolling more people in Medicaid will cause some people to drop private coverage in favor of Medicaid. The rate of crowding out may reach 60 percent.

Now, courtesy of the Robert Wood Johnson Foundation (RWJF), we have evidence that the entire effect of Obamacare so far is to crowd out private coverage. RWJF’s new report (“First Observations Around the Affordable Care Act”) further confuses the consequences of Obamacare on coverage and access to care. This is not the RWJF’s fault: The emerging evidence on Obamacare is a jumble of contradictions. In this instance, the report insists that physicians saw no increase in patient demand after Obamacare, as demonstrated in Figure 2. More sophisticated metrics showed that the complexity of patients’ needs also did not increase after Obamacare.

However, there was a significant increase in Medicaid patients as a share of patients seen. In states that expanded Medicaid, this proportion increased by one-quarter, from 12.3 percent to 15.6 percent, and barely budged in states that did not expand Medicaid. Both of these findings contradict other evidence that Obamacare patients consume many more specialty drugs than non-Obamacare patients; and that many states that did not expand Medicaid also experienced a (smaller) increase in Medicaid dependency than states that expanded the program.

Nevertheless, if the RWJF report trumps this earlier evidence, we are left with an equally disturbing conclusion: Obamacare did not increase access to medical services at all, it merely replaced privately paying patients with taxpayer-funded patients. And need we remind you that at the beginning of June, almost three million Medicaid applications had not been processed?

* * *

For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.