According to M.I.T. economist Jon Gruber, the Senate's tax on cadillac health plans is good policy because it

would reduce the incentives for employers to provide excessively generous insurance, leading to more cost-conscious use of health care and, ultimately, lower spending.

Gruber is right, and virtually every economist agrees. The ideal reform would combine increased taxation of employer-provided health insurance with offsetting reductions in personal or corporate income taxes.  Both changes would reduce distortions in the tax system and allow government to raise any given amount of tax revenue with a smaller negative impact on the economy.

But that does not mean government should expand spending, on health insurance or anything else. That is a logically separate question.

Libertarians are fond of noting that government projects can have unintended consequences; here's an example:

The reversal of the Chicago River a century ago, to send the city's sewage to the Mississippi River instead of into Lake Michigan, was hailed as an engineering marvel. Now Michigan is suing Illinois to potentially re-reverse the river to prevent the movement of voracious, invasive Asian carp into the lake.

Perhaps the right action now is to re-reverse the river, but perhaps that will have its own unintended consequences.  Any thoughts?

Besides, aren't carp good eating?   My grandmother made wicked-good smoked carp (using carp spear-gunned in Lake Erie by a neighbor at my grandparents' cottage).  Carp is a delicacy in Europe and Asia.

Think I'm kidding? Check out these carp recipes.

Milton Friedman would not be surprised by this story:

North Korean leader Kim Jong Il moved early this month to wipe out much of the wealth earned in the past decade in his country's private markets. As part of a surprise currency revaluation, the government sharply restricted the amount of old bills that could be traded for new and made it illegal for citizens to have more than $40 worth of local currency.

It was an unexplained decision -- the kind of command that for more than six decades has been obeyed without question in North Korea. But this time ... the markets and the people who depend on them pushed back.

Grass-roots anger and a reported riot in an eastern coastal city pressured the government to amend its confiscatory policy. ...

The currency episode reveals new constraints on Kim's power and may signal a fundamental change in the operation of what is often called the world's most repressive state -- a change driven by private markets that now feed and employ half the country's 23.5 million people, and appear to have grown too big and too important to be crushed, even by a leader who loathes them.

These events do not guarantee that North Korea will soon become a freer state, but they do suggest that economic freedoms help constrain oppressive government, which is precisely the point of Friedman's famous work.

U.S. promises unlimited financial assistance to Fannie Mae, Freddie Mac

I can think of two possible justifications.

The first is that society wants to promote particular ideas, values, individuals, or the like; think of the 4th of July or President's Day.  I find this defense problematic: the choice of holidays is a vehicle for thought control.

The second justification asserts that legal holidays solve a co-ordination problem by helping people take vacations at the same time as their friends and relatives.  This view has some merit, but a countervailing effect is that promoting specific vacation days generates crowding at airports, beaches, and so on.

So I do not see a convincing justification for government holidays, especially not those associated with religion.

Yes, I know I am a Scrooge.  My family has been telling me this for years.

While driving last night from Wellesley to Charlottesville, I was stopped for not having a working light over the rear license plate.

My wife said, "It makes sense to have such a rule; otherwise police could not read your license (at night)."

My response was, "Why do the police need to read my license plate (at night or otherwise)?  Why require license plates at all?"

The answer is presumably something like, "It helps police solve crimes." 

But how many?  Is it worth the cost of all those license plates?

The federal government will impose big fines starting this spring on airlines that keep passengers waiting on the tarmac too long without feeding them or letting them off the plane.

Airlines that let a plane sit on the tarmac for more than two hours without giving passengers food or water, or more than three hours without offering them the option of getting off, will face fines of $27,500 a passenger, the secretary of transportation announced on Monday.

Does this rule make sense?  At first blush it might sound reasonable, but let's think it through.

Without the rule, some planes that have been sitting for three hours leave soon after the three-hour point, while some sit on the tarmac for an extended, additional period.

The planes in the first category arrive at their destinations even later, becuase it takes time to get passengers off and back on the plance, and because the plane ends up at the back of the line for takeoffs.  Worse, some of these flights get cancelled.

So, sometimes the rule benefits passengers, sometimes it makes them worse off.

Does the Department of Transportation have any evidence that the welfare of passengers is higher, on average, under the rule?

No.  It has just pandered to customer annoyance and the press coverage of a few extreme incidents.  It has responded to what is seen (the long delays that occur without the rule) and ignored what is unseen (the canceled flights and delays that will result from the rule).

Bastiat is spinning in his grave.

Rebuffed this month by skeptical lawmakers when it sought finances to buy a prison in rural Illinois, the Obama administration is struggling to come up with the money to replace the Guantánamo Bay prison.

As a result, officials now believe that they are unlikely to close the prison at Guantánamo Bay, Cuba, and transfer its population of terrorism suspects until 2011 at the earliest — a far slower timeline for achieving one of President Obama’s signature national security policies than they had previously hinted.

So, closure is not going to happen soon.  And the taxpayer will undoubtedly get stuck with a payoff to whatever U.S. locality ends up housing the Guantanamo inmates.   What will this have accomplished?

Nothing. The issue should never have been whether the U.S. closes Guantanamo.  I am not aware of a compelling reason to maintain this base, and I am equally unaware of a compelling reason to close it.

The crucial question has always been, and remains, what legal rules and procedures to employ for individuals designated by the federal government as enemy combatants?

The Bush administration's view was that the federal government could detain anyone, whether a U.S. citizen or not, whether captured on U.S. soil or not, indefinitely.  And that such detainees had no right to counsel, process, procedure, or anything.

That cannot be the right balance between protecting national security and safeguarding individual rights.   I can imagine a reasonable argument that says, "persons captured under such and such cirmcumstances, who might be a threat to national security, do not have the same rights as a standard criminal suspect." Perhaps this would mean trials held in secret, or under different rules of evidence, or something.  But anyone detained by the government must have some ability to protest his innocence.

So, I would have cheered Obama had he iniated a serious discussion of the appropriate rules and procedures for dealing with enemy combatants.  Instead, he focussed on the irrelevant question of whether to close Guantanamo.  By so doing he has given and aid and comfort to proponents of the extreme positions that he and his supporters claim to oppose.

As Congress prepares to give the Fed more regulatory power, and to expand financial regulation more generally, it is useful to review the Fed's track record as a regulator:

Foreclosures already pocked Chicago's poorer neighborhoods but the downtown still was booming as the Federal Reserve Bank of Chicago convened its annual conference in May 2007.

The keynote speaker, Federal Reserve Chairman Ben S. Bernanke, assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.

Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.

"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."

He was wrong. Five of the 10 largest subprime lenders during the previous year were banks regulated by the Fed. Even as Bernanke spoke, the spillover from subprime lending was driving the banking industry into a historic crisis that some firms would not survive. And the upheaval would shove the economy into recession.

After two decades, Congress has voted to lift a ban on federal funding of needle exchange programs. AIDS activists are cheering the move, saying it legitimizes needle exchange in the nationwide fight against HIV/AIDS.

This issue illustrates perfectly the cascade of unintended consequences that arises from misguided policies.  The root of the problem here is drug prohibition, because it fosters restrictions on the legal sale of syringes and, worse, raises drug prices, which encourages users to inject to get a big bang for the buck.

If needles were legally available without a prescription, many users would purchase them and avoid sharing dirty needles, even under prohibition.

And if drugs were legal, they would be far cheaper, so most users would consume via less risky methods than injection.

Government funding for needle exchanges, given current law, is compassionate and good for the public health.  Yet it puts government in the awkward position of funding an activity that many citizens find distasteful or even abhorrent.

So yet again, legalizaiton is the answer.

The number of gun permits issued in Massachusetts surged by more than 15 percent over the past two years, reversing nearly a decade of steady declines and marking a pronounced departure for a state known for its antigun sentiment.

The magnitude of the rise, evident in nearly every corner of the state, surprised law enforcement officials, and gun advocates and opponents alike.

What's the explanation for this surge?  Perhaps fear that Democrats would enact new gun control laws, perhaps just increased economic anxiety.  You tell me.

is making the security lines at airports sufficiently long that you have plenty of time to untie your shoelaces before you reach the conveyer belt.

Should the U.S. ban re-importation of medicines produced by U.S. manufacturers and then sold in other countries? This issue has arisen again as part of the health care debate, and it does not have an obvious answer.

The problem is that price controls on pharmaceuticals in countries like Canada cause prices for some drugs to be much lower abroad.  The difference is often large enough to generate a substantial incentive for re-importation.  This lowers profits for the U.S. manufacturer and reduces the incentive to develop new drugs.

If patent protection is important for innovation, then it seems to make sense to ban re-importation given the price controls imposed by other countries.

Yet I think the situation is more complicated.

First, the pratical issues involved in banning re-important are daunting.  To reduce the flow materially, the U.S. would have to ramp up scrutiny at border crossings and inspect a substantial fraction of packages delivered across borders.  More broadly, any attempt to impede trade in one product is likely to inhibit trade more generally.

Second, drug companies can reduce the risk of re-importation by refusing to sell their products in countries that insist on excessively low prices.

My hunch, therefore, is that U.S. policy should enforce patent protection within our borders, but if patent owners sell their products overseas, they assume the risks of re-importation.  I make no claim this policy is "optimal," but I suspect it is better than the alternative.

This position is even more compelling if in fact patent protection is not necessary to generate a reasonable amount of innovation.  David Levine at Washington University makes exactly this argument.   I am not yet convinced David is right, but he raises good objections to the claim that patent protection is benefical overall.

Over the objections of gambling opponents in Congress, the Obama administration has granted a request by US Representative Barney Frank to delay a long-scheduled federal crackdown on illegal Internet poker and casino sites.

Frank sought the six-month reprieve so he could keep working on a pet issue: legalizing online gambling.

The best part of the story is this:

You won’t find the chairman of the House Financial Services Committee at a poker table or roulette wheel, as Frank doesn’t gamble. But he said he does not want the government telling people what to do with their own money.

Frank (who happens to be my congressman) is absolutely right about this.  Too bad he does not want to let people keep more their own money in the first place.

The Obama administration is again pressing banks to increase lending, explicitly sugesting that banks "owe" the country because of the bailouts.  Chief administration economist Larry Summers, for example, said Sunday:

“We were there for them and the banks need to do everything they can to be sure they’re there for customers across this country,” Summers said in an interview on ABC’s “This Week” program.

Similarly,

President Obama pressured the heads of the nation’s biggest banks on Monday to take “extraordinary” steps to revive lending for small businesses and homeowners, drawing a firm commitment from one large bank to make more loans and vaguer assurances from others.

This kind of jaw-boning, with its implicit threats, is one crucial negative of the bailouts, and it will contaminate policy for a long time. 

It is true that the banks benefited from taxpayer largesse.  But they presumably have a reason now for their limited lending: they do not see profitable lending opportunities.  If the administration bludgeons them into increasing credit, the banks will end up making bad loans that ultimately fail, creating yet another excuse for bailouts.

We made one huge mistake: the bailout.  We should not compound it with another mistake: interfering with private lending decisions.   Instead, we must lest the recovery take its course.  And we should recognize that one reason for the slow recovery is private sector concern about incessant government meddling.

Britain’s financiers and entrepreneurs are quitting the UK at a rate of 10 a week to avoid Labour’s new 50% taxes.

The burgeoning exodus threatens to deepen a £178 billion black hole in the public finances and leave middle-class voters with higher taxes for years to come, figures obtained from Companies House reveal.

The number of directors of British businesses registered as living in the low-tax centres of Jersey, Guernsey or the Isle of Man has risen by almost 500 to 6,729 in the past 12 months.

The British Virgin Islands is also a popular destination, with 615 directors of UK companies now based in the Caribbean tax haven — an 18% rise on a year ago.

Utterly predictable.  But at least Jersey is prospering.

With unemployment stuck around 10 percent, President Obama has pledged "to take every responsible step to accelerate the pace of job growth." Here's a thought: Instead of trying to "create" jobs by tweaking this tax break or increasing that spending program, why not stop doing things that destroy jobs?

The author of that incredibly sensible view, Charles Lange of the Washington Post editorial staff, suggests three specifics:

End federal protectionism and price supports for sugar.

Repeal the Davis-Bacon Act. ... This law requires employers to pay the "prevailing" local wage on federally funded projects.

Reduce the federal minimum wage.

And if we start thinking this way, we can find other good examples.  For example, we could eliminate professional licensure in medicine, law, and other occupations.

"I mean, honest, you can't blame the Salahis for going where they're not invited.  I mean, isn't that our foreign policy?"

From the Times of London:

Nursery-age children should be monitored for signs of brainwashing by Islamist extremists, according to a leaked police memo obtained by The Times.

In an e-mail to community groups, an officer in the West Midlands counter-terrorism unit wrote: “I do hope that you will tell me about persons, of whatever age, you think may have been radicalised or be vulnerable to radicalisation ... Evidence suggests that radicalisation can take place from the age of 4.”

The police unit confirmed that counter-terrorist officers specially trained in identifying children and young people vulnerable to radicalisation had visited nursery schools.

Like public health care, Canada’s tight gun-control laws help distinguish the country from its powerful neighbor to the south. But as Canadians commemorated the 20th anniversary of one of the country’s most notorious shooting sprees on Sunday, their Parliament was on course to eliminate one of its most significant gun-control measures.

A long-gun registry, which requires the registration of rifles and shotguns, emerged largely from public revulsion over the massacre in 1989.

What should libertarians think about gun control laws, like long-gun registration in Canada, that inconvenience purchasers but do not, by themselves, prevent responsible persons from owning guns?

My view is that the direct costs of such laws are small, but so are the direct benefits.  It is possible that registration occassionally allows police to solve a crime or remove a gun from an unstable situation, but the number of such instances is rare.   Thus, it is hard to get excited about such laws, for or against, if one considers only their direct impact.

The crucial question is slippery slopes.  If mild controls like registration or background checks pave the way for more serious laws - bans on some or all guns - then in my judgment mild laws cause substantial harm.

What does the evidence say about slippery slopes?  Most countries had no gun control laws a century ago, and their initial laws were "mild."  Yet over time gun control has expanded enormously, and in some countries it amounts to virtual prohibition.   This is consistent with slopes being slippery.

Given this, and my view that mild laws rarely generate direct benefits, I oppose all gun control laws, including mild ones.