Intercollegiate Studies Institute on Marquette Campus

The Intercollegiate Studies Institute is a conservative organization, both free market and traditionalist, that defines itself as follows.

The Intercollegiate Studies Institute (ISI) is a non-profit, non-partisan, tax-exempt educational organization whose purpose is to further in successive generations of college students a better understanding of the values and institutions that sustain a free and humane society.

Founded in 1953, ISI works “to educate for liberty” — to identify the best and the brightest college students and to nurture in these future leaders the American ideal of ordered liberty. To accomplish this goal, ISI seeks to enhance the rising generation’s knowledge of our nation’s founding principles — limited government, individual liberty, personal responsibility, the rule of law, market economy, and moral norms.

A conference on Alexis de Tocqueville, which will be coming up in just a few days, is typical of their activities.

We had lunch last week with the president of the Marquette chapter, Paco Nava, and he’s a sincere fellow committed to the values of the ISI. The organization is small on the Marquette campus, indeed Nava may be its only real activist. But it is a recognized student organization, and even a small cadre of students with some boldness and a sense of purpose can accomplish a lot. Any student who subscribes to the principles of the ISI ought to contact Nava. ISI might be the right organization at the right time and the right place.

School Choice from an Economics 101 Perspective

The Political Version

Health Care in Wisconsin: Roundtable This Thursday

Something that’s not too common in academia: a very balanced discussion on health care is coming up this Thursday.

Health Care in Wisconsin: Where Do We Go from Here?

A Roundtable Discussion

Thursday, February 14, 2008
9:00-11:00 AM

Marquette University
Alumni Memorial Union, Ballrooms A and B.

Roundtable Panelists:

Sen. Alberta Darling (Repub.), Wisconsin Senate

Sen. Jon Erpenbach (Dem.), Wisconsin Senate

Secretary Kevin Hayden, State of Wisconsin Department of Health and Family Services

Mr. Steve Martenet, President of Anthem Blue Cross-Blue Shield

David Riemer, J.D., one of the architects of Healthy Wisconsin and former Director of the Wisconsin Health Project

Mr. John Torinus, Chairman of Serigraph, Inc.

Dr. Nick Turkal, President and Chief Executive Officer of Aurora Health Care

Dr. Susan L. Turney, Chief Executive Officer and Executive Vice President of the Wisconsin Medical Society

Moderator: Mike Gousha, Marquette University Law School

This event is free and open to the public as well as the Marquette University community and other colleges and universities.

For more information, contact:
Dr. Susan Giaimo
Marquette University
Department of Political Science
Tel. (414) 288-3356 email: susan.giaimo@marquette.edu

Mortgage Bail-Out Piece in The Warrior

The student paper The Warrior this week ran an op-ed piece of ours on the supposed “crisis” around subprime lending and foreclosures.

Check it out here.

Sub-Prime Mortgages

It’s the current fad about how the financial sky is falling: the fact that many financial institutions have given mortgages to people with less that pristine credit at higher than prime interest rates.

This supposedly was an act of gross irresponsibility, since a downturn in housing prices has caused an upward spike in foreclosures.

It seems that large capitalistic corporations are damned if they do, and damned if they don’t.

Back in the 70s, there was a wave of conglomeration in which large corporations bought up other large corporations, often corporations whose business had nothing to do with that of the firm buying it.

This supposedly demonstrated the evils of American capitalism.

Then came the 1980s. The market struck back against the conglomerates. Corporate raiders bought up the conglomerates and sold them off in pieces. Given that the overgrown behemoths were often badly managed, they were worth more in pieces.

This, of course, was supposed to show the evils of American capitalism.

Then, of course, there was the sinister boom in “junk bonds.” Supposedly sleazy and unprincipled brokers sold bonds that were quite risky -- and had quite a high rate of return. The bonds were not sold to little grandmothers, but to sophisticated investors fully able to judge the risks.

But this too showed the evils of American capitalism.

Apparently, it’s sleazy and unprincipled to start a business when there is some risk involved, even if the people financing you are compensated for the risk they take.

Which brings us to sub-prime mortgages.

It’s yet another case showing the evils of American capitalism.

Patrick McIlheran has some sensible observations on this. Quoting Megan McArdle:

To many people, of course, this cries out for regulations to keep the bankers from being stupid: force them to up their loan quality. This is likely to just replace one kind of error with another. Most people who got subprime loans are not in default, and I will be very, very surprised if the number of defaulters even gets near the 50% mark. Why would we want to cut off credit to the sensible majority who can meet their payments, in order to protect those who take out loans they can’t afford? There is no way to tell Class A from Class B--or believe me, the banks would already have weeded the latter group out.

It is characteristic of major economic problems that whatever problem you’re having now seems like the only problem worth solving, no matter what the cost. But the cost of denying credit to millions of people is very high--and tellingly, it will not be borne by any of the people who are advocating it.

And as Gary Becker has pointed out:

Some have proposed that families should not be allowed to get mortgages if they do not meet minimum standards of income and assets, even if lenders would be willing to provide mortgages, and would-be borrowers still want a mortgage after being informed of the risks. This proposal is a dangerous form of paternalism that denies the rights of both borrowers and lenders to make their own decisions. Moreover, it is ironic that only a few years ago, banks were being investigated for “redlining;” that is, for avoiding lending to blacks and other residents of poor neighborhoods.

And that, of course, was evidence of the evil of American capitalism.

When people contemplate widespread foreclosures and the failure of some large financial institutions, they seem to engage in the “burn and kill” fallacy.

The assumption seems to be that, if a large bank fails, the headquarters and all the branches will be burned to the ground.

And all the employees will be taken out and shot.

Likewise, when a property is foreclosed, it is somehow assumed that officials come out and burn it down, and shoot all the inhabitants.

The reality, of course, is much different. In the real world, the bank fails and is taken over by another bank (or other group of investors) who have been more prudent. The headquarters building still stands -- although it might be sold off and occupied by another business.

The employees may end up working for the firm that took them over, or at worst find new jobs.

The stockholders take a bath, however. But it’s highly unlikely they will end up on the street. They aren’t poor.

People who have defaulted on their mortages may have to move and find other housing -- although banks don’t like to foreclose, and will cut mortgage holders a fair amount of slack. But if you can’t manage owning, you might have to rent.

And then somebody else gets to buy your house. The prudent get rewarded, and the imprudent get punished. But they don’t end up on the street.

McIlheran puts it in the proper perspective with this Christmas observation:

All I know is that I just watched a movie in which the central character spent his wonderful life making dicey loans to subprime borrowers -- and he was unequivocally a hero for doing just that.

Globalization Helps the Poor

From Alvaro Vargas Llosa, and account of a conference he attended where leftists derided free trade.

MONTERREY, Mexico—Is global capitalism making the poor even poorer, or is it in fact rescuing millions of people out of their misery?

I recently had the chance to participate in a series of debates here about this issue organized by Foreign Policy magazine and Letras Libres, a Mexican cultural publication. Nothing I heard at that meeting changed my conviction that the glass is half-full despite the doomsayers who predict horrific calamities.

Ever since the Industrial Revolution, poverty has been significantly reduced throughout the world. Two hundred years ago, the average income per person worldwide was the equivalent of less than $2 a day; the figure is $17 today. This fact is relevant to the current discussion on globalization because, even though the information technology revolution, biotechnology, the emergence of new world players and outsourcing may give us the impression that we are in the midst of something entirely new, we are simply witnessing a new phase in the process of innovation that is the market economy—and this began a few hundred years ago.

The fact that 20 percent of the world’s population is extremely poor should not make us forget that millions of lives have improved dramatically in the last three decades. Illiteracy has dropped from 44 percent to 18 percent, and only three countries out of a total of 102 included in the U.N.’s Human Development Index have seen their socioeconomic conditions deteriorate. China’s economy used to represent one-26th of the average economy of the countries that comprise the Organization for Economic Cooperation and Development; today it represents one-sixth.

If globalization is so good, why is it that leftist activists -- including the “social justice” crowd around Marquette -- don’t like it?

The reason is simple. It’s the market helping the poor. It’s global business, and not government bureaucrats, nor political activists nor multinational organizations that are creating the benefits.

Thus the process is going on without the transfer of a massive amount of power to the people with whom the “social justice” crowd identifies.

And truth be told -- although they would never admit it, even to themselves -- those folks would rather that poor remain poor than for the poor to prosper in a way that doesn’t increase their power.

France: Economy Mired in a Statist Morass

You know that a free market economic philosophy has become dominant when even a Mainstream Media organization like the Associated Press blames the economic woes of a nation on government control.

But that’s what the wire service did in a report on France.

PARIS - Clusters of migrant workers mount the train’s crowded carriages, leaving their families and filing across the border to work at jobs more plentiful and lucrative than at home.

These hungry young men and women are not from lands riven by war or financial ruin, but from France — one of the world’s richest countries, and straining to stay that way.

Their knapsacks bear laptops or bottles of champagne, and their transport of choice is the Eurostar train, zipping them beneath the English Channel to London, a city radiating growth and opportunity.

The French workers are leaving an economy that is treading water while those of developing nations, and other wealthy ones, speed ahead. They’re fleeing a land once seen as a symbol of superior quality but that now even the French are convinced is in decline.

Half of French households live on less than $1,990 in income per month. Unemployment hasn’t fallen below 8 percent since 1984. Public debt has quintupled since 1980 to fund a welfare state that more people depend on for survival. Imports are spiking and fueling a ballooning trade deficit. France was among the top 10 richest countries per capita a generation ago — today’s it’s slipped to 17th place.

France is now on the cusp of change, choosing a new president who will be expected to yank the state-dependent economy out of its doldrums — but probably won’t. None of the candidates to replace conservative Jacques Chirac in the first round of elections April 22 appears to be a French Margaret Thatcher who would force profound and painful reform.

Fresh ideas

Some of the freshest economic ideas are coming from Francois Bayrou, a champion of the average guy riding on disillusionment with the left-right paradigm. Bayrou, polling in third place, would allow businesses to hire two employees free of payroll taxes and social charges for the first five years — a shocking proposition here. But he would govern by consensus, a formula certain to bury bold reform.

Across the spectrum, jobs are question No. 1 for French voters mulling their presidential choices.

“I’d like to live in France. But I don’t want to work there,” said Nicolas Boutry, whose family lives on the French Riviera but who works for a London bank.

“In France you either search eternally for a job, or you stay eternally in a job,” he said.

Strict French labor laws are dubbed “worker-friendly,” yet millions can’t find work. Industries decamp to countries like China where hiring is cheaper and easier. Job seekers leave for countries like Britain with more job openings.

It would take major upheaval in France’s labor markets to draw people like Boutry home. A dramatic solution, too, is needed for the chronically unemployed and for the minorities in French housing projects, where riots broke out in 2005 and up to half of young people are unemployed.

A generation ago, debt-laden, strike-suffering Britain looked enviously at France, which boasted lavish worker protections and paid its state-run businesses to innovate.

History, however, favored free markets. Thatcher’s unpopular economic reforms in the 1980s left Britain better placed to benefit from fast-changing labor markets and accelerated capital movements.

“We should not be afraid today to be inspired by what works. The British model managed to create a society of full employment, peaceful and confident in the future,” wrote Pascal Boris of France’s BNP Paribas bank, who heads a group of French executives in Britain.

Bono: Capitalist Exploiter

From the free market Ludwig von Mises Institute, an account of how a certain rock singer and premier moralist actually behaves.

Bono and his wife, Ali Hewson, have been traveling the globe endorsing their new clothing line, Edun. This clothing line promises to create Fair Trade–like principles which respect the workers who make the clothes and pass on the workers’ story.

As Ali Hewson says with an interjection from Bono, “It’s making people aware of the story of clothes . . . do you really want to put on something that’s made — with despair.”[1]

Bono promises to have decent working conditions and to abstain from employing child labor.

According to the factory manager in Lesotho, Thabang Kholumo, the wages paid are 600 rand (currently $87.68) a month. This is a little over 50 cents an hour assuming a 40-hour work week.

Surely these are twice that of other factories in the area? Not so. The country of Lesotho has minimum-wage laws by profession. According to a report highlighting current labor market conditions in Lesotho on the Global Policy Network website,[2] the minimum wage for trained sewing machine operators is 650 maloti ($94.80) a month.[3]

Unless there were specific fluctuations in the currency price at the time of Thabang Kholumo’s information, Bono would have been paying below the minimum wage allotted for textile workers. In any event, he doesn’t seem to be paying more than the required minimum.

And further:

Thabang Kholumo reveals that 125 female employees make 3,000 items a day. These items retail for $50-$300! A pair of Edun jeans will cost you a pricey $275. You can do the math for yourself. One pair of jeans $275 and one month of work $87.68 in Bono’s “sweatshop.”

According to Bono’s mistaken economic theories, he is no champion of the poor in his own factory. These wages are incompatible with the message Bono and Ali are trying to portray. Bono speaks about creating a new business model that can be emulated by other companies. In fact, he is doing what others are doing and have done for a very long time, and it is good for everyone.

So Bono is paying workers a wage that is -- by American standards -- wretched, and making a ton of money off them.

So that makes him evil, right?

No, he’s paying a wage that looks very good compared to the subsistence agriculture to which his workers would otherwise be relegated.

And work like Bono is providing is a necessary stage in the economic development of Lesotho. You don’t go directly from subsistence agriculture to Silicon Valley high-tech industries.

Bono may be paying below-minimum wages today, but that will not last as the productivity of his employees improves. One thing that would speed up this process is even more foreign “sweatshop” investment, which would stimulate competition for Lesotho’s labor force even more. Countries like Lesotho need more sweatshops, not fewer. Perhaps Bono can persuade some of his multimillionaire entertainment industry friends to invest with him.

To say that Bono’s factory is something special would not be truthful. The Edun clothing line is doing well, and is employing hundreds of people. That’s great. It’s called capitalism.

But what Bono is is a hypocrite. Much like Al Gore’s buying carbon offsets to support his lavish lifestyle, there is nothing wrong with what he is actually doing.

What is odious is his self-righteous moralizing.

Campus Speaker on Globalization of Textiles

An announcement via e-mail:

The Marquette Economics Association
and
The Center for Global and Economic Studies
present
Professor Pietra Rivoli, author
The Travels of a T-Shirt in the Global Economy
Wednesday, February 14th
3:00 p.m.
Conference Center, Raynor Library
(reception to follow immediately afterward)

It seems the next big push by the campus leftist activists is some sort of “anti-sweat shop” policy at Marquette (so that the people who feel self-righteous drinking “fair trade” coffee can feel equally self-righteous about wearing sweat shirts and t-shirts sold by Marquette).

We don’t know whether we will agree with Rivioi in toto (unlikely), but her view will doubtless be much more nuanced and realistic than the prevailing anti-sweat shop moralism.

Los Angeles Times: Politicians Unfairly Targeting Wal-Mart

Not all the liberal mainstream media gets completely bent out of shape about the giant retailer headquartered in Arkansas.

From a recent editorial in the Los Angeles Times.

Targeting Wal-Mart again

Maryland tried to single out Wal-Mart with a healthcare law. But a federal court told the state to back off.

WHAT DO Johns Hopkins University, Northrop Grumman Corp., Giant Food Inc. and Wal-Mart have in common?

Answer: They are the four biggest private employers in Maryland. Yet last January, when the Maryland General Assembly passed its Fair Share Health Care Fund Act, requiring companies with more than 10,000 Maryland employees to spend at least 8% of their total payroll on workers’ health insurance costs, it did something interesting. Though all four qualified under the law, legislators ensured that only one — Wal-Mart, the super-villain of documentary films, watchdog websites and countless news investigations — would have to obey it.

This week, the U.S. 4th Circuit Court of Appeals upheld an industry group’s challenge to the Maryland law, saying that it is preempted by the 1974 ERISA Act, a federal law that sets minimum standards for employee benefits plans. Although the court made a kind reference to Maryland’s “noble purpose” (in trying to offload some of its swelling health coverage costs), it made clear that Wal-Mart faced substantial losses.

The Fair Share Act could hardly have been more clear in its intent to punish Wal-Mart specifically, and unfairly. The act was passed — over the veto of then-Gov. Robert L. Ehrlich — in an atmosphere of widespread public revulsion at the retailer’s practices of discouraging unions and stinginess with benefits. Similar laws are on the books or under consideration in New York and Minnesota; and the super-retailer has certainly received its share of targeted legislative grief from city councils all over Southern California. But the Maryland law was so blatantly targeted at Wal-Mart as to amount to a “bill of attainder” — a legislative act pronouncing a person guilty of a crime. Such acts are prohibited by the Constitution.

. . . [T]he fate of the Fair Share Act demonstrates how easy it is for a statewide experiment to run afoul of federal regulations, even if that experiment is about solving a problem rather than aiming public opprobrium at a popular target.

Nothing so rallies the biases of the trendy left as Wal-Mart. Not only does it offend the political biases of the leftists (opposition to unions, support for school choice), but even more importantly it inflames their cultural biases.

But you don’t make sound public policy by asking: “Who is it that we really, really hate, and what can we do to hurt them.”

Politicians and Drug Companies

From Fox News, an explanation of the effects of political threats on innovation in the drug industry.

For a while there it seemed like there wasn’t much a pill couldn’t cure.

Everything from high cholesterol to “erectile dysfunction” to something that I really thought was a joke when I first heard about it: “Restless Leg Syndrome” (which sounds a bit more dignified with its “RLS” acronym).

But you may have noticed that the number of breakthrough pharmaceuticals for serious illnesses is decreasing. And the question is … why?

Well, Hillary Clinton is one answer. George Bush is another. Politicians scare the hell out of drug companies, almost as much as trial lawyers. And when drug companies get scared, they don’t spend as much on research. They hoard their cash, as rainy-day funds for lawsuits and lobbyists. Pfizer has $13 billion; Johnson & Johnson of New Brunswick, N.J., $15 billion; Merck, based in Whitehouse Station, N.J., $9 billion; and Madison, N.J.-based Wyeth, $8 billion. Swiss drug-maker Roche Holding AG has $17 billion.

But why are drug companies scared of politicians? Because politicians get off on controlling things ... like prices. And when you begin to fiddle with prices, ripple effects go all the way down the supply chain to the point of origin.

For pharmaceuticals, the point of origin is the laboratory, where new drugs are created.

It takes many years to create a breakthrough drug like, say, Lipitor. The payoff is enormous — Pfizer has sold about $12.2 billion worth of Lipitor. But the cost of Lipitor’s development was enormous, too. Politicians focus just on the payoff, saying these drug companies don’t deserve all that cash. But without the huge incentives of striking it rich, would any company have spent so much time and money developing a drug like Lipitor?

For politicians, incentives don’t matter. For the folks who actually invest their own time and money on things, incentives are all that matters.

The issue here is hardly a new one. Since the era of democracy in ancient Greece, politicians have sought to curry favor with voters by confiscating the property of those who have a lot and distributing it to political supporters.

In other words, politicians like Hillary have been around for close to 2,500 years.

Of course, politicians won’t admit they are confiscating property. Rather they will talk about “reforming the patent system” or price controls on drugs or having the government “negotiate prices” with the drug companies (with the intentions of using governent’s monopoly purchasing power to drive down drug company profits).

The Founders of this country were acutely aware of this problem, and thought they had designed a political system to deal with it. Assuming President Bush is willing to veto any confiscatory legislation, they will be proven right.