How Government Increases Prices

“Wherever the real power in a Government lies, there is the danger of oppression.” — James Madison

The other day I went to Costco, one of those big box discount stores, with my wife to buy some groceries and household sundries. One of the items I needed were some light bulbs — the type that go into those ceiling fixtures and can be controlled with a dimmer switch. There were three choices available. One was a plain 65 watt bulb with one of those curly-cue CFL, mercury-laden bulbs inside of the larger bulb. This type was the least expensive at $4.00 per bulb. I used to buy three of the “old fashion” incandescent bulbs that were dimmable for $10.00 at Lowes. To buy a CFL bulb that was dimmable the price escalated to $17.00 for three bulbs. The most costly were the new LED bulbs that were going for $27.00 each.

While I was deciding on the bulbs to buy another fellow walked up and began perusing the selection of bulbs. He commented on the high cost of the bulbs and queried as to the high cost. Naturally I had to enter a dialog with him and explained that whenever government passes a law that forces you to buy one type of a technology over another it creates a monopoly for the serving technology and the consumer loses his freedom to choose. This is exactly what Bastiat meant when he wrote:

“Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole—with their common aim of legal plunder—constitute socialism.”

In essence Bastiat was telling us that when a government regulates business it creates a monopoly thus causing prices to rise for the consumer. This caused inflation, which affects the value of your money and cannot be considered as anything else but legal plunder.

I ended up purchasing the least expensive bulbs and continued on with my shopping noticing how prices have risen on almost everything across the board. Oh, the fellow I was talking with seemed not to have the slightest clue as to what I was telling him. He must have been an Obama zombie.

This plundering, initiated by government affects everything; food, clothing, fuel, education, and health care. Suppose you own a fruit stand and your largest selling item is apples. You have the biggest, most tasty, and competitively priced apples on the block and your customers flock to your stand for the apples You are serving you customers well selling them the apples at a 30% margin and making a profit to cover your direct and indirect costs. The government steps in and issues food stamps or EBT cards for apples. Now people buying your apples are not as concerned over the price as they used to be as the government is subsidizing their food costs. It takes an angel not to increase the price of the apples and their margin to 40% knowing his customers will pay more for his apples with their government provided money — money they have taken from others including you. This is how plunder works. As Bastiat stated in his second rule of plunder; “Everybody plunders everybody”

Now we come to one of the most egregious examples of government sponsored to date — higher education.

Federal student financial assistance programs are costly, inefficient, byzantine, and fail to serve their desired objectives. In a word, they are dysfunctional, among the worst of many bad federal programs.

These programs are commonly rationalized on three grounds: on the grounds that assuring more young people a higher education has positive spillover effects for the country; on the grounds that higher education promotes equal economic opportunity (or, as the politicians say, that it is “a ticket to achieving the American Dream”); or on the grounds that too few students would go to college in the absence of federal loan programs, since private markets for loans to college students are defective.

All three of these arguments are dubious at best. The alleged positive spillover effects of sending more and more Americans to college are very difficult to measure. And as the late Milton Friedman suggested shortly before his death, they may be more than offset by negative spillover effects. Consider, for instance, the relationship between spending by state governments on higher education and their rate of economic growth. Controlling for other factors important in growth determination, the relationship between education spending and economic growth is negative or, at best, non-existent.

What about higher education being a vehicle for equal economic opportunity or income equality? Over the last four decades, a period in which the proportion of adults with four-year college degrees tripled, income equality has declined. (As a side note, I do not know the socially optimal level of economic inequality, and the tacit assumption that more such equality is always desirable is suspect; my point here is simply that, in reality, higher education today does not promote income equality.) Just look at the complaints from the Occupy crowd when it comes to finding jobs “commensurate” with their degrees. It just isn’t happening. After all how many firms have need of a person with an advanced degree in women’s studies, political science, or phycology?

Finally, in regards to the argument that capital markets for student loans are defective, if financial institutions can lend to college students on credit cards and make car loans to college students in large numbers—which they do—there is no reason why they can’t also make student educational loans.

Despite the fact that the rationales for federal student financial assistance programs are very weak, these programs are growing rapidly. The Pell Grant program did much more than double in size between 2007 and 2010. Although it was designed to help poor people, it is now becoming a middle class entitlement. Student loans have been growing eight to ten percent a year for at least two decades, and, as is well publicized, now aggregate to one trillion dollars of debt outstanding—roughly $25,000 on average for the 40,000,000 holders of the debt. Astoundingly, student loan debt now exceeds credit card debt.

Nor is it correct to assume that most of this debt is held by young people in their twenties and early thirties. The median age of those with loan obligations today is around 33, and approximately 40 percent of the debt is held by people 40 years of age or older. So when politicians talk about maintaining low interest loans to help kids in college, more often than not the help is going to middle-aged individuals long gone from the halls of academia.

With this as an introduction, let me outline eight problems with federal student grant and loan programs. The list is not exclusive.

In this month’s issue of Imprimis, the monthly newsletter from Hillsdale College Richard Vedder, Professor of Economics at Ohio University writes about the unintended consequences of federal student aid.

“(1) Student loan interest rates are not set by the forces of supply and demand, but by the political process. Normally, interest rates are a price used to allocate scarce resources; but when that price is manipulated by politicians, it leads to distortions in the use of resources. Since student loan interest rates are always set at below-market rates, too much money is borrowed for college. Currently those interest rates are extremely low, with a key rate of 3.4 percent—which, after adjusting for inflation, is approximately zero. Moreover, both the president and Governor Romney say they want to continue that low interest rate after July 1, when it is supposed to double. This aggravates an already bad situation, and provides a perfect example of the fundamental problem facing our nation today: politicians pushing programs whose benefits are visible and immediate (even if illusory, as suggested above), while their extraordinarily high costs are less visible and more distant in time.

(2) In the real world, interest rates vary with the prospects that the borrower will repay the loan. In the surreal world of student loans, the brilliant student completing an electrical engineering degree at M.I.T. pays the same interest rate as the student majoring in ethnic studies at a state university who has a GPA below 2.0. The former student will almost certainly graduate and get a job paying $50,000 a year or more, whereas the odds are high the latter student will fail to graduate and will be lucky to make $30,000 a year.

Related to this problem, colleges themselves have no “skin in the game.” They are responsible for allowing loan commitments to occur, but they face no penalties or negative consequences when defaults are extremely high, imposing costs on taxpayers.

(3) Perhaps most importantly, federal student grant and loan programs have contributed to the tuition price explosion. When third parties pay a large part of the bill, at least temporarily, the customer’s demand for the service rises and he is not as sensitive to price as he would be if he were paying himself. Colleges and universities take advantage of that and raise their prices to capture the funds that ostensibly are designed to help students. This is what happened previously in health care, and is what is currently happening in higher education.”

This is exactly like the example of the apple stand I previously stated above. Dr. Vedder continues:

“(4) The federal government now has a monopoly in providing student loans. Until recently, at least it farmed out the servicing of loans to a variety of private financial service firms, adding an element of competition in terms of quality of service, if not price. But the Obama administration, with its strong hostility to private enterprise, moved to establish a complete monopoly. One would think the example of the U.S. Postal Service today, losing taxpayer money hand over fist and incapable of making even the most obviously needed reforms, would be enough proof against the prudence of such a move. And remember: because of highly irresponsible fiscal policies, the federal government borrows 30 or 40 percent of the money it currently spends, much of that from overseas. Thus we are incurring long-term obligations to foreigners to finance loans to largely middle class Americans to go to college. This is not an appropriate use of public funds at a time of dangerously high federal budget deficits.

(5) Those applying for student loans or Pell Grants are compelled to complete the FAFSA form, which is extremely complex, involves more than 100 questions, and is used by colleges to administer scholarships (or, more accurately, tuition discounts). Thus colleges are given all sorts of highly personal and private information on incomes, wealth, debts, child support, and so forth. A car dealer who demanded such information so that he could see how badly he could gouge you would either be out of business or in jail within days or weeks. But it is commonplace in higher education because of federal student financial assistance programs.

(6) As federal programs have increased the number of students who enroll in college, the number of new college graduates now far exceeds the number of new managerial, technical and professional jobs—positions that college graduates have traditionally taken. A survey by Northeastern University estimates that 54 percent of recent college graduates are underemployed or unemployed. Thus we currently have 107,000 janitors and 16,000 parking lot attendants with bachelor’s degrees, not to mention bartenders, hair dressers, mail carriers, and so on. And many of those in these limited-income occupations are struggling to pay off student loan obligations.

Connected to this is the fact that more and more kids are going to college who lack the cognitive skills, the discipline, the academic preparation, or the ambition to succeed academically. They simply cannot or do not master well much of the rather complex materials that college students are expected to learn. As a result, many students either do not graduate or fail to graduate on time. I have estimated that only 40 percent or less of Pell Grant recipients get degrees within six years—an extremely high dropout or failure rate. No one has seriously questioned that statistic—a number, by the way, that the federal government does not publish, no doubt because it is embarrassingly low.

Also related is the fact that, in an attempt to minimize this problem, colleges have lowered standards, expecting students to read and write less while giving higher grades for lesser amounts of work. Surveys show that students spend on average less than 30 hours per week on academic work—less than they spend on recreation. As Richard Arum and Josipa Roksa show in their book “Academically Adrift: Limited Learning on College Campuses”, critical thinking skills among college seniors on average are little more than among freshmen.

(7) As suggested to me a couple of days ago by a North Carolina judge, based on a case in his courtroom, with so many funds so readily available there is a temptation and opportunity for persons to acquire low interest student loans with the intention of dropping out of school quickly to use the proceeds for other purposes. (In the North Carolina student loan fraud case, it was to start up a t-shirt business.)

(8) Lazy or mediocre students can get greater subsidies than hard-working and industrious ones. Take Pell Grants. A student who works extra hard and graduates with top grades after three years will receive only half as much money as a student who flunks several courses and takes six years to finish or doesn’t obtain a degree at all. In other words, for recipients of federal aid there are disincentives to excel.”

If the Law of Unintended Consequences ever applied, it is in federal student financial assistance. Programs created with the noblest of intentions have failed to serve either their customers or the nation well. In the 1950s and 1960s, before these programs were large, American higher education enjoyed a Golden Age. Enrollments were rising, lower-income student access was growing, and American leadership in higher education was becoming well established. In other words, the system flourished without these programs. Subsequently, massive growth in federal spending and involvement in higher education has proved counterproductive.

Bastiat wrote about the Law of Untended Consequences in his 1850 easy on the “That Which is Seen, and That Which is Not Seen”:

“In the economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen: it is well for us if they are foreseen. Between a good and a bad economist this constitutes the whole difference—the one takes account of the visible effect; the other takes account both of the effects which are seen and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, at the risk of a small present evil.”

In summary the federal government with the support of the colleges, universities, and banks, have created a monopoly for the colleges and universities. As in any monopoly the institutions benefiting from the monopoly can do what they will to the consumer. In this case the consumers are the students and their parents. With ample government money available for student loans the colleges and universities have grown way beyond their rational size and scope. They construct new buildings and hire staff that for most cases are not needed to provide a liberal arts or technical education. They offer degrees in subjects that have meaning only if the graduate can work in some boutique organization or return to academia to teach the same courses to some other foolish students.

Today we need trained technical workers. Workers trained and skilled in auto and aircraft maintenance, computer aided design and drafting, manufacturing processes, and computer technology. These people can come from a variety sources including trade and vocational schools, for profit technical universities, and community colleges at a much lower cost than the 4-year university.

For the past 30 years the colleges and universities, with the encouragement of the federal government have been tipping off the consumer. With the ratio of debt to GDP rising nationally, and the federal government continuing to spend more and more taxpayer money on higher education at an unsustainable long-term pace, a re-thinking of federal student financial aid policies is a good place to start in meeting America’s economic crisis.

Has Barack Obama’s Regime Caused Progressivism To Decline?

"Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all. We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain." — Frédéric Bastiat (The Law).

According to a 2010 poll by the Gallup Polling Organization there are more conservatives and independents (moderates) than liberals or progressives. Conservatives have maintained their leading position among U.S. ideological groups in the first half of 2010. Gallup finds 42% of Americans describing themselves as either very conservative or conservative. This is up slightly from the 40% seen for all of 2009 and contrasts with the 20% calling themselves liberal or very liberal. The Gallup Report states:

“The 2010 results are based on eight Gallup and USA Today/Gallup surveys conducted from January through June, encompassing interviews with more than 8,000 U.S. adults. The 42% identifying as conservative represents a continuation of the slight but statistically significant edge conservatives achieved over moderates in 2009. Should that figure hold for all of 2010, it would represent the highest annual percentage identifying as conservative in Gallup's history of measuring ideology with this wording, dating to 1992.

The recent rise in conservatism's fortunes follows a decline seen after 2003; liberalism has experienced the opposite pattern. From 1993 to 2002, the ideological trend had been fairly stable, with roughly 40% identifying as moderate, 38% as conservative, and 19% as liberal. Before that, the presidential bid of independent candidate Ross Perot may have contributed to a heightened proportion of Americans (43%) calling themselves moderate in 1992.

The ideological orientation of Americans seen thus far in 2010 would represent a record-high level of conservatism (since at least 1992) if it is maintained for the full year. This follows an increase in the percentage of conservatives in 2009 that was fueled by heightened conservatism among independents, a pattern that continues today.”

I believe that this rise in conservatism and conservative thinking by so-called moderates is fueled by three factors: 1.) the increasing popularity of conservative talk radio, 2.) the Tea Party’s influence on American politics, and 3.) the overbearing government regulations and sky rocking national debt under the Obama regime. If you are unsure of where you stand on political spectrum click here to view a good description of what liberals and conservatives believe.

According to the Heritage Foundation, a conservative think tank, more people than ever before are reading the Constitution. Heritage is one of many organizations that offer copies of the Constitution for the asking at a mere $1.00 per copy.

The people of a nation that has experienced unprecedented peace and prosperity for an extended period of time are often lulled to sleep, believing there will never be an end to their good fortune. Many powerful countries throughout history have floundered and decayed as they gradually descended into chaos, not realizing the ultimate fate that awaited them. However, the United States has been granted an opportunity to escape this fate through what appears to be a long-term disaster potentially turning out to be its long-term salvation. That event is the election of Barack Obama as president.

Mark Levine wrote in his bestselling book Ameritopia:

“Plato’s Republic, More’s Utopia, Hobbes’s Leviathan, and Marx’s workers’ paradise are utopias that are anti-individual and anti-individualism. For the utopians, modern and olden, the individual is one-dimensional—selfish. On his own, he has little moral value. Contrarily, authoritarianism is defended as altruistic and masterminds as socially conscious. Thus endless interventions in the individual’s life and manipulation of his conditions are justified as not only necessary and desirable but noble governmental pursuits. This false dialectic is at the heart of the problem we face today.

In truth, man is naturally independent and self-reliant, which are attributes that contribute to his own well-being and survival, and the well-being and survival of a civil society. He is also a social being who is charitable and compassionate. History abounds with examples, as do the daily lives of individuals. To condemn individualism as the utopians do is to condemn the very foundation of the civil society and the American founding and endorse, wittingly or unwittingly, oppression. Karl Popper saw it as an attack on Western civilization. “The emancipation of the individual was indeed the great spiritual revolution which had led to the breakdown of tribalism and to the rise of democracy.” Moreover, Judaism and Christianity, among other religions, teach the altruism of the individual.

Of course, this is not to defend anarchy. Quite the opposite. It is to endorse the magnificence of the American founding. The American founding was an exceptional exercise in collective human virtue and wisdom—a culmination of thousands of years of experience, knowledge, reason, and faith. The Declaration of Independence is a remarkable societal proclamation of human rights, brilliant in its insight, clarity, and conciseness. The Constitution of the United States is an extraordinary matrix of governmental limits, checks, balances, and divisions, intended to secure for posterity the individual’s sovereignty as proclaimed in the Declaration.

This is the grand heritage to which every American citizen is born. It has been characterized as “the American Dream,” “the American experiment,” and “American exceptionalism.” The country has been called “the Land of Opportunity,” “the Land of Milk and Honey,” and “a Shining City on a Hill.” It seems unimaginable that a people so endowed by Providence, and the beneficiaries of such unparalleled human excellence, would choose or tolerate a course that ensures their own decline and enslavement, for a government unleashed on the civil society is a government that destroys the nature of man.

On September 17, 1787, at the conclusion of the Constitutional Convention in Philadelphia, Delegate James Wilson, on behalf of his ailing colleague from Pennsylvania, Benjamin Franklin, read aloud Franklin’s speech to the convention in favor of adopting the Constitution. Among other things, Franklin said that the Constitution “is likely to be well administered for a Course of Years, and can only end in Despotism as other Forms have done before it, when the People shall become corrupt as to need Despotic Government, being incapable of any other.”

Over the past fifty years, regardless of who was in the White House or in charge of Congress, no one has been able to halt the incessant spread of left-wing radicalism in the nation's institutions, as well as the exponential growth of a federal government with its tentacles increasingly intertwined in the day-to-day lives of all Americans. As long as the people remained largely disengaged, the potential damage to society as a whole and to the financial health of the country was unknown to the vast majority of the population.

Over the past three years, this indifference has begun to change as the reality of the nation's future and the motives and tactics of those on the left have come into focus. But that reality has come to the fore solely as the result of the aggressive implementation of left-wing policies by the current administration combined with a two-year Democrat supermajority in Congress which allowed the progressives to pursue their vision of America unopposed and unencumbered.

During this two-year period, ObamaCare was passed using unprecedented legislative trickery and political bribery. An extraordinary number of "czars" were appointed to enact policy in the dark of night and avoid oversight by Congress. A litany of grants and loans were given to political cronies ostensibly to develop green energy companies — many of whom have now declared bankruptcy.

Additionally, the regulatory agencies, such as the EPA, have issued a tidal wave of regulations geared to strangle the free market and centralize economic control in Washington. Three failed stimulus packages were passed, none of which came remotely close to creating the jobs promised. Since 2008, over $5 trillion in national debt has been accumulated with no end in sight, and financial insolvency a real possibility in the not too distant future.

The unplanned circumstance of a Democrat supermajority in Congress and a leftist president came about decades before the strategy of gradualism, begun in the 1930s, would have more easily achieved the same objectives. The primary aspect of this strategy was straight out of the socialist/progressive handbook. That is to create a demand for subsistence and dependence on a powerful central government under the mantra that a country so wealthy and prosperous owes its citizenry an ever-expanding social safety net, all the while subtly altering the historic relationship between the people and the government, as a greater percentage of the population would become dependent on the largess of those in control of government.

Additionally, beginning in the late 1960s, the left began to aggressively infiltrate the media, the entertainment complex, the education establishment, and government bureaucracies. The ultimate prize was the control of a major political party while indoctrinating the populace with anti-American and pro-socialist dogma. By the mid-1980s, they succeeded in dominating these sectors of the American ruling establishment, and as of 2008, they achieved control of the Democratic Party.

However, they have had less than thirty years, and only one generation to program with their failed and self-serving philosophy. That is why over 40% of the electorate still identifies as conservative while only 21% self-identify as liberal (moderates make up 35%). In fact, since 1992, conservative identification has increased from 35 % to 40%, while the liberal identification has increased only from 18% to 21%. Assuming that half of those who consider themselves moderates lean conservative, then conservative leaning moderates and conservatives combined would account for 58%-59% of the population, confirming that the United States is a right-of-center country. While these numbers may be encouraging to conservatives we must not overlook the fact that the 21% controls most of the media, academia, and the entertainment industry — this is the problem we face.

The basic character and beliefs of the majority of the American people have not been significantly altered. While the timing may have been in place to have Barack Obama elected president while pretending to be moderate, the timing to turn the United States into a bastion of socialism was not. The infiltration of the various institutions by the left and the creation of a preponderant dependent class have not been underway long enough to change the character of the majority of the population.

In essence, Barack Obama's presidency coupled with the left-wing dominance of the Democratic Party with a congressional supermajority occurred too early in the history of the nation for the left to achieve their objectives.

Yet the overreaching by the Obama administration has continued even after the resounding defeat in 2010, when the Republicans gained control of the House of Representatives, as Barack Obama is now governing by use of executive orders and recess appointments in contravention of the Constitution. Obama's and the Democrats' indifference to the rule of law and the future of the country has not only awakened the people, but also placed the fate of the American left in jeopardy.

Thus, panic has begun to set, as it is now dawning on the American left that there is a very real possibility that Barack Obama will be defeated in November; the Republicans may well control both houses of Congress by a significant margin; and the odds that the Supreme Court could declare their landmark accomplishment, ObamaCare, unconstitutional have risen dramatically. If Obama loses and the Republicans control Congress, then the last chance for the progressives to achieve their socialist utopian dream will be gone forever. They are now retreating to the only political strategy they know: fear and intimidation.

The digital storm troopers of the left, Media Matters and MoveOn.org among others, have been dispatched to shut down the alternative media by any means possible. They harbor a particular animus against talk radio, as chronicled by Jeffrey Lord in the American Spectator. The effort to incite societal upheaval through racial intimidation has been and will be further escalated. Class warfare and its attendant demonstrations, rallies, and riots will be pushed to a level never experienced in the United States. There will be no moral or ethical limits to the lies, vitriol, and demagoguery the nation will be put through over the next seven months.

The late Austrian free-market economist Ludwig von Mises described the leftist method of operation as "fanatical and intolerant." It works, he said, this way:

“Socialism works on the emotions o stifle the voice of reason by awakening primitive instincts.”

Bastiat expressed similar views over 100 years ago when he stated:

"These socialist writers look upon people in the same manner that the gardener views his trees. Just as the gardener capriciously shapes the trees into pyramids, parasols, cubes, vases, fans, and other forms, just so does the socialist writer whimsically shape human beings into groups, series, centers, sub-centers, honeycombs, labor-corps, and other variations. And just as the gardener needs axes, pruning hooks, saws, and shears to shape his trees, just so does the socialist writer need the force that he can find only in law to shape human beings. For this purpose, he devises tariff laws, relief laws, and school laws."

Bastiat went on to state in his essay The Law:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it."

The hallmark of the conservative and Republican opposition over the past fifty years has been passivity with an over-emphasis on civility. The left is counting on the same in this election cycle, as they intend to overwhelm and intimidate not only their Republican opponents, but the Tea Party movement and the populace as a whole.

While those in the conservative movement and the Republican Party cannot stoop to the level of the Democrats, Barack Obama, and the left, they must stand up and go toe-to-toe with their adversaries and understand that the vast majority of the American people are not sympathetic to the end-product of progressive policies. However, if the Republican Party campaigns as it has over the past five decades, Barack Obama could win an unnecessarily close election despite all the factors arrayed against him.

Therefore, every political accusation has to be answered with a forceful rebuttal; every lie told must be called a lie, and not some polite euphemism; everyone who tells a falsehood or fabricates an anecdote out of whole cloth must be called a liar. There must be a constant drumbeat of focused talking points used by all candidates for public office and their supporters reminding the electorate of the failures of Barack Obama and the Democratic Party as well as the long-term impact of these fiascos. Charges of racism, homophobia, misogyny, et al. should be dismissed with Ronald Reagan's famous line — "There they go again" — and then ignored, as this tactic is now threadbare from overuse.

Whoever wins the Republican presidential nomination and those running for the House of Representatives, the Senate, and governorships must be determined to win their elections at any cost and without reservation or so-called "civility."

The citizens of the United States have been granted an unprecedented window on a future as envisioned by the American left. That prospect must be rejected by soundly defeating Barack Obama and the Democratic Party in November thus ending the progressive era in America.

The Parable of the Candle Maker and the CFS Light Bulb

“We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion, particularly because he has for that haughty island a respect that he does not show for us.” — Frederic Bastiat, 1845

In 1845 Frederic Bastiat published a satirical letter to the French Parliament decrying the unfair competition the sun presented to the makers of candles and other means of artificial lighting. In his letter Bastiat lays out a quite clever and satirical case fir the banning of natural light so the French candle makers and producers of tallow, oil, resin, alcohol and almost every other item connected with the production of artificial lighting

In his letter Bastiat proposes that the French Parliament pass laws and tariffs against the sun so a certain aspect of French manufacturing will gain a completive edge over its competition — in other words legal plunder. Bastiat proposed:

“We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

Be good enough, honorable deputies, to take our request seriously, and do not reject it without at least hearing the reasons that we have to advance in its support.

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honor of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

We anticipate your objections, gentlemen; but there is not a single one of them that you have not picked up from the musty old books of the advocates of free trade. We defy you to utter a word against us that will not instantly rebound against yourselves and the principle behind all your policy.

Will you tell us that, though we may gain by this protection, France will not gain at all, because the consumer will bear the expense?

We have our answer ready:

You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.

Indeed, you yourselves have anticipated this objection. When told that the consumer has a stake in the free entry of iron, coal, sesame, wheat, and textiles, ``Yes,'' you reply, ``but the producer has a stake in their exclusion.'' Very well, surely if consumers have a stake in the admission of natural light, producers have a stake in its interdiction.

But,' you may still say, “the producer and the consumer are one and the same person. If the manufacturer profits by protection, he will make the farmer prosperous. Contrariwise, if agriculture is prosperous, it will open markets for manufactured goods.'' Very well, If you grant us a monopoly over the production of lighting during the day, first of all we shall buy large amounts of tallow, charcoal, oil, resin, wax, alcohol, silver, iron, bronze, and crystal, to supply our industry; and, moreover, we and our numerous suppliers, having become rich, will consume a great deal and spread prosperity into all areas of domestic industry.

Will you say that the light of the sun is a gratuitous gift of Nature, and that to reject such gifts would be to reject wealth itself under the pretext of encouraging the means of acquiring it?

But if you take this position, you strike a mortal blow at your own policy; remember that up to now you have always excluded foreign goods because and in proportion as they approximate gratuitous gifts. You have only half as good a reason for complying with the demands of other monopolists as you have for granting our petition, which is in complete accord with your established policy; and to reject our demands precisely because they are better founded than anyone else's would be tantamount to accepting the equation: + x + = -; in other words, it would be to heap absurdity upon absurdity.

Labour and Nature collaborate in varying proportions, depending upon the country and the climate, in the production of a commodity. The part that Nature contributes is always free of charge; it is the part contributed by human labour that constitutes value and is paid for.

If an orange from Lisbon sells for half the price of an orange from Paris, it is because the natural heat of the sun, which is, of course, free of charge, does for the former what the latter owes to artificial heating, which necessarily has to be paid for in the market.

Thus, when an orange reaches us from Portugal, one can say that it is given to us half free of charge, or, in other words, at half price as compared with those from Paris.

Now, it is precisely on the basis of its being semi gratuitous (pardon the word) that you maintain it should be barred. You ask: “How can French labour withstand the competition of foreign labour when the former has to do all the work, whereas the latter has to do only half, the sun taking care of the rest?'' But if the fact that a product is half free of charge leads you to exclude it from competition, how can its being totally free of charge induce you to admit it into competition? Either you are not consistent, or you should, after excluding what is half free of charge as harmful to our domestic industry, exclude what is totally gratuitous with all the more reason and with twice the zeal.

To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labor than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!”

Bastiat’s letter, while satirical, makes the point of how laws can be used to help one industry over another at the expenses of the consumer (the people). Bastiat calls this legal plunder. In his book, The Law, Bastiat states:

Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few—whether farmers, manufacturers, ship owners, artists, or comedians.”

Enter the debate over the regulation of our lives by requiring us to buy and use CFL light bulbs — those curly-cue, mercury filled, sourced of artificial light made in China and mandated by Congressional dictate.

Yesterday by a vote of 233 to 193 Congress failed to repeal the law mandating the use of the CFL bulb. The vote fell 52 votes short of the two-thirds required to repeal the legislation with some Republicans siding with the Democrat minority. Fox News reported:

“The House of Representatives voted to preserve a scheduled phase out of incandescent light bulbs Monday evening.

The Better Use of Light Bulbs (BULB) Act, would have rescinded efficiency standards for incandescent bulbs included in a 2007 energy bill.

233 members voted yes and 193 cast nay votes. But the House required a supermajority to approve this particular package. In this case, it would have needed 285 yea votes to pass.

Rep. Rob Bishop (R-UT) voted present.

The measure gained support after the 2010 elections, as tea party Republicans seized on the prohibition as an example of government overreach.

The bill's sponsor, Rep. Joe Barton, R-Texas, says that the increased efficiency standards have the government picking winners and losers in the lighting market.

"To take off the market something that's cheap, effective, and average use costs two or three cents a week to use seems to me to be overkill by the federal government," Barton said of the move away from incandescent bulbs. Supporters of the bill also claim that the compact fluorescent light (CFL) bulbs designed to replace incandescent bulbs are too expensive and don't work as well as their 19th century competitor. "Here's the bottom line, those of us at a certain age, under a compact florescent bulb, we don't look as good as an incandescent bulb," said Rep. Michael Burgess, R-Texas, "The American people should be able to choose what type of light bulb they use in their home. They should not be constrained to all the romance of a Soviet stairwell when they go home in the evening."

The Obama administration issued a statement announcing its opposition to the repeal, saying it would "result in negative economic consequences for U.S. consumers and the economy."

The statement of administration policy issued by the Office of Management and Budget cited Department of Energy figures that say the law "could collectively save U.S. households nearly $6 billion in 2015 alone." That's because even though CFL bulbs cost more off the shelf, they last longer and use less energy than incandescent bulbs, and could ultimately save the consumer money over the light's lifetime.

This reasoning is no different than Bastiat’s parable of the candle maker. All of these CFL bulbs are made in China and have dramatically risen in price since the ban on the traditional incandescent bulb was enacted in 2007.

Democrats were quick to point out that the bulb ban wasn't their idea. "Our current (Energy and Commerce) Chairman Mr. (Fred) Upton (R-Mich.) introduced the bill to set the standards. Our former Speaker Dennis Hastert (R-Ill.) supported it along with many other republicans, and finally President George W. Bush signed these standards into law," noted Rep. Mike Doyle, D-Penn.

Rep Mike Doyle is correct, but no matter who sponsored this egregious legislation makes no matter. It is just another example of one faction of society enacting legal plunder on another faction for political or financial gain.

As James Taranto writes in the Wall Street Journal:

"It's a common refrain among those who lust to increase government's size and power: Every failed measure justifies more of the same. Poverty programs make it harder to escape poverty? We need more poverty programs! Racial preferences heighten racial division? We need more racial preferences! And a diversity manual for every janitor in the country! When ObamaCare ends up driving the costs of medicine up and the quality and availability down, you can bet the people who created that monstrosity will claim it failed only because it didn't go far enough. Let's generalize this into the First Rule of Liberalism: Government failure always justifies more government.”

This is one more example of government regulating our lives in the name of some common good or social cause. We, the people, must be allowed to make choices on the light bulbs, or any other thing we want to buy, based on our needs, financial resources or any other reason we wish to use. If these bulbs are better, last longer or save on our energy bill the people can make that choice based on the ability of the manufacturer to sell their product. It’s no different than buying an automobile, TV set, computer or health care insurance based on our personal preferences, needs and ability of pay for it. Some people may wish a $80,000 luxury car while others want a pickup truck, SUV or small, compact economy vehicle — it’s their choice to make.

Bastiat writes about the seen and not seen aspects of a government imposed economic mandate:

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

Every U.S. based maker of incandescent light bulbs has closed their doors and jobs have been lost to the makers of the CFL bulbs in China. It’s just another way for the law to plunder one segment of the population in favor of another. The government mandate to use CFL bulbs will ultimately allow the manufacturers of these bulbs to raise their prices and pay no attention to the quality of the product. This is the result of any monopoly that is protected by the law.