Three ways in which the solution is the problem
Just in case anyone was still curious as to why my blog is called “The Solution is the Problem,” I’ve decided to show a few examples from the recent news. If people begin to think of policies not in terms of what they are supposed to do, but instead in terms of what they actually will do despite the best intentions of their proponents, I will be a happy Socrates.
First, an article from Smart Money about how college aid makes college more expensive. Though there has long been much conjecture about a causal connection, there is only a little evidence. I find it entirely plausible that more government college aid causes college to become more expensive, and the data are continuing to mount:
Federal aid for students has increased 164% over the past decade, adjusted for inflation, according to the College Board. Yet three-quarters of Americans and even a majority of college presidents see college as unaffordable for most, and that sentiment has been steadily spreading, the Pew Research Center reports.
…If subsidies puff up buying power and shift prices higher, as economics courses teach, could federal aid for college help create an affordability problem? After all, the federal government began spending more on college aid with the Higher Education Act of 1965 and the full funding of Pell Grants in 1975. Since 1979, tuition and fees have tripled after adjusting for inflation. That’s much faster than the increase for real estate and teacher pay.
…After adjusting for differences among schools, the authors find that Title IV-eligible schools charge tuition that is 75% higher than the others. That’s roughly equal to the amount of the aid received by students at these schools.
Studies like these suggest that if one goal of government is to make college affordable, aid should become more thoughtful instead of merely more plentiful.
Today’s second topic comes from a Reason article called “Drug Warriors Encourage Mexican Meth Makers to Sharpen Their Chemistry Skills.” Recall that the safe and effective nasal decongestant pseudoephedrine was federally limited and tracked some seven years ago to combat meth.
Seven years later, Jacob Sullum helpfully points out that, although pseudoephedrine was never required to make meth anyway, the upshot of the law has been the emergence of a Mexican black market.
The prevalence of meth production in Mexico was driven home this month when authorities reportedly seized 15 tons of meth on the outskirts of the city of Guadalajara, a known stronghold of Sinaloa cartel leader Joaquin “El Chapo” Guzman.
“This is a cyclical drug. If you pass a precursor bill it goes down, and then it comes back up again,” Maxwell said. “The lesson on this is that we can’t congratulate ourselves for doing away with pseudoephedrine. People keep looking for other recipes.”
The results have been interesting to say the least. First, the pseudoephedrine ban has led to an increase in meth making using other ingredients. It has pushed much production over the border, which has in turn fostered more violence in what is basically a war-torn country. It has led to increased border patrol costs. It has raised the price of meth, making addicts more desperate and possibly driving more crime. It has emphatically not reduced the use of meth.
Oh, and it makes it much harder for the vast majority of innocent Americans to deal with the common cold.
Bang up job so far, drug warriors. I’d say you’ve probably lost the drug war when people are posting directions for the synthesis of useful pseudoephedrine from the much more common and less-effectively controlled meth.
This is really just the latest in a series of government actions designed to protect people from the risks of their investment decisions, whereupon one quickly finds that, without risks, there are no rewards.
At last, the government is proposing new rules, which are supposed to make MMFs less risky. The funds would have to raise new capital, and some minor withdrawal limitations would be imposed on customers. They would also have to offer a floating net asset value instead of the current “guarantee” that if you deposit a dollar, you’ll always get at least that dollar back.The last is all by itself disastrous for these funds, whose main attraction is that they act like bank accounts. As for the rest, in a normal interest rate environment, this would be onerous. But with interest rates as low as they are, there’s no way for MMFs to absorb the hit by offering a lower return; it looks to me as if the interest rate would probably have to be negative. Which is to say, your MMF would actually be charging you for the privilege of giving you their money.If passed as proposed, the rules would seemingly put the MMFs out of business.