Frédéric Bastiat

Today we celebrate the 211 anniversary of the birth of an unwavering promoter of free markets, Frédéric Bastiat.   Here are a few of his quotations:

The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else…Nothing enters the public treasury for the benefit of a citizen or a class unless other citizens and other classes have been forced to put it there…heavy government expenditures and liberty are incompatible…To be free, on one’s own responsibility, to think and to act, to speak and to write, to labor and to exchange, to teach and to learn—this alone is to be free.

This following paragraphs are from one of his essays:

On coming to Paris for a visit, I said to myself: Here are a million human beings who would all die in a few days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to try to comprehend the vast multiplicity of objects that must pass through its gates tomorrow, if its inhabitants are to be preserved from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, without being disturbed for a single instant by the idea of so frightful a prospect. On the other hand, eighty departments have worked today, without co-operative planning or mutual arrangements, to keep Paris supplied.

How does each succeeding day manage to bring to this gigantic market just what is necessary—neither too much nor too little? What, then, is the resourceful and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith, although his prosperity and his very life depend upon it? That power is an absolute principle, the principle of free exchange. We put our faith in that inner light which Providence has placed in the hearts of all men, and to which has been entrusted the preservation and the unlimited improvement of our species, a light we term self-interest, which is so illuminating, so constant, and so penetrating, when it is left free of every hindrance.

Where would you be, inhabitants of Paris, if some cabinet minister decided to substitute for that power contrivances of his own invention, however superior we might suppose them to be; if he proposed to subject this prodigious mechanism to his supreme direction, to take control of all of it into his own hands, to determine by whom, where, how, and under what conditions everything should be produced, transported, exchanged, and consumed? Although there may be much suffering within your walls, although misery, despair, and perhaps starvation, cause more tears to flow than your warm-hearted charity can wipe away, it is probable, I dare say it is certain, that the arbitrary intervention of the government would infinitely multiply this suffering and spread among all of you the ills that now affect only a small number of your fellow-citizens.

Further reading can be found at this link:

The Libertarian Heritage

A letter to Santa Claus

On 6/21/12 the Court of Justice of the European Union handed down a ruling on a labor law case involving department store workers in Spain.  The workers originally won their case in a Spanish court. The National Association of Large Distribution Businesses appealed to the Supreme Court in Madrid, which then asked the Court of Justice for a ruling on how to apply European law covering working times.  The decision by the Court of Justice of the European Union is explained in a 2 page press release at this link:

Court of Justice of the European Union - Press Release No 87/12

In summary the decision by the Court of Justice of the European Union is that any employee who becomes ill while on vacation will later be entitled to additional time off for the sick days that occurred during the vacation period. The exact language from the press release is as follows:

A worker who becomes unfit for work during his paid annual leave is entitled at a later point in time to a period of leave of the same duration as that of his sick leave.
That right exists irrespective of the point at which the incapacity for work arose.

Another passage of interest from the press release:

The Court points out that, according to settled case-law, entitlement to paid annual leave must be regarded as a particularly important principle of EU social law, a principle expressly enshrined in the EU Charter of Fundamental Rights. The right to paid annual leave cannot be interpreted restrictively.

The language in the press release echos a passage from the United Nations' Universal Declaration of Human Rights.   Article 24 pertains to vacation:

Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Jeanne Kirkpatrick, Ronald Reagan’s Ambassador to the U.N., once said the Universal Declaration of Human Rights was like “a letter to Santa Claus”.

It is unfortunate that the Court of Justice of the European Union was not able to find a way to apply this sick day policy to the 25% of Spanish workers who are unemployed.

Please keep this in mind when the USA is asked to contribute to a European bailout.

Discrimination against low skilled workers

The Cato Institute has published a Policy Analysis by Mark Wilson about Federal minimum wage laws. The complete analysis can be read at this link:

The Negative Effects of Minimum Wage Laws

These are some of the highlights of the analysis:

The competitive model has been most often used for evaluating the minimum wage. This is the basic textbook model that has been taught in university economics courses for decades. The core components of the model are a negatively sloped labor demand curve and a wage rate that clears the market and is not controlled by individual agents. In competitive markets, the imposition of a minimum wage provides a classic example of a government distortion that creates negative side effects in the marketplace.

The graph below shows a hypothetical competitive local labor market. The market demand curve for labor is DD, and the market supply curve is SS. Their intersection determines the competitive wage, Wc, with employment Ec.

If the minimum wage is set at Wm, employment is reduced to Em. The reduction in employment is smaller than the excess supply of labor (the distance AC). The excess supply of labor includes both a reduction in employment (fewer hours and job opportunities, or AB) along with a second component consisting of workers who are drawn into the labor market by the prospect of earning the higher minimum wage (BC). Although some of the workers who are drawn into the labor market (typically those with higher skills) may succeed in finding one of the minimum wage jobs, it comes at the expense of lower skilled workers who are shut out of the labor market. The excess supply of labor in this example is dispersed in several ways: a reduction in hours, fewer job opportunities, and a shift in employment from sectors covered by the wage law to sectors not covered, including the underground economy. The employment effects are typically the most pronounced in labor markets for low-skilled youth.

In the US economy, low wages are usually paid to entry-level workers, but those workers usually do not earn these wages for extended periods of time. Indeed, research indicates that nearly two-thirds of minimum wage workers move above that wage within one year.

Seventy years of empirical research generally finds that the higher the minimum wage increase is relative to the competitive wage level, the greater the loss in employment opportunities. A decision to increase the minimum wage is not cost-free; someone has to pay for it, and the research shows that low-skill youth pay for it by losing their jobs, while consumers also pay for it with higher prices.

While they are often low-paid, entry-level jobs are vitally important for young and low skill workers because they allow people to establish a track record, to learn skills, and to advance over time to a better-paying job. Thus, in trying to fix a perceived problem with minimum wage laws, policymakers cause collateral damage by reducing the number of entry-level jobs. As Milton Friedman noted, “The minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills".

Ten Thousand Commandments 2012

The Competitive Enterprise Institute has published its annual report on the cost of Federal regulation:

Ten Thousand Commandments 2012

Highlights of the Report:

• Estimated regulatory costs, while "off budget," are equivalent to over 48% the level of federal spending itself.

• The 2011 Federal Register finished at 81,247 pages, just shy of 2010’s all-time record-high 81,405 pages.

• Regulatory compliance costs dwarf corporate income taxes of $198 billion, and exceed individual income taxes and even pre-tax corporate profits.

• Agencies issued 3,807 final rules in 2011, a 6.5 percent increase over 3,573 in 2010.

• Of the 4,128 regulations in the works at year-end 2011, 212 were “economically significant,” meaning they generally wield at least $100 million in economic impact.

• 822 of those 4,128 regulations in the works would affect small businesses.

• The total number of economically significant rules finalized in 2011 was 79, down slightly from 2010 but up 92.7 percent over five years, and 108 percent over 10 years.

• Recent costly federal agency initiatives include the Environmental Protection Agency’s Mercury and Air Toxics Standards Rule and the Department of Transportation’s Fuel Economy Standards.

The Euro has struck an iceberg

As a prelude to the Greek national elections on 6/17/12 you can watch a video of UKIP leader Nigel Farage speaking in Strasbourg on 6/13/12 at the European Parliament.  He explains why the bailout of Spanish banks will seriously aggravate the euro crisis.

Dispelling myths that Europe 'had turned a corner', Farage warned of a 'looming, impending disaster'. Speaking of a 'total and utter failure' he said that the crisis had reached such severity 'you just couldn't make it up'.  Enjoy:

European Parliament 6/13/12