Standing athwart the baggage carousel yelling enough!

I'm beginning to wonder if Senator Charles Schumer (D-NY) has even a tenuous grasp on reality. Via Senatus:

Senator Chuck Schumer (D-NY) “said he would introduce legislation that would prevent airlines from charging a fee for carry-on bags,” Reuters reports.

Schumer, a New York Democrat, said he would press the Treasury Department to issue an administrative rule that would define carry-on bags as a "reasonable necessity" to prevent airlines from imposing such charges, calling them a "slap in the face to travelers."

Schumer said if the Treasury Department cannot close what he dubbed a loophole in the law, he will introduce legislation that would mandate carry-on bags as reasonably necessary for air travel.

If there was ever a phenomenon that cried out, "I am not a market failure requiring government intervention," the practice of charging for carry-on bags was it.

Despite what Southwest airlines keeps telling you, bags do not fly free; they never have. If you think that in the good ol' days prior to baggage fees you were somehow sneaking one past the airlines by having them transport your luggage for free, you're kidding yourself. The cost of transporting the bag was part of the cost of your ticket. Any airline that couldn't figure out how to make sure of that, wouldn't be in business very long.

It seems to me baggage fees do two things: 1)They make travelers aware of the cost of transporting a bag. A cost that was always there, but hard for the average traveler to identify. 2) They make travelers who impose higher costs by traveling with more bags, actually pay those higher costs.

While this second feature is bad for people who like to travel with a lot of luggage, it's good for people that do not. In fact, prior to this, people who traveled lightly were subsidizing the ticket price of those who packed a lot of clothes. Has our entitlement mentality ballooned to such a size as to now include reduced cost airfare for the more sartorially inclined traveling public?

The negotiation between airlines and passengers over costs, including the costs of transporting luggage is absolutely no place for the government to inject itself. I simply can't think of any compelling rationale for a government intervention over a carry-on bag fee.

Eliminating the cost of transporting luggage from one destination to another would require a repeal of the laws of physics. Outlawing the practice of charging baggage fees may make the fees disappear, but you can count on the fact that travelers will continue to pay them in the form of higher ticket prices. To pretend otherwise is either an outright lie or a denial of reality so troubling that it may disqualify one from holding public office.

Extending Home Buying Credit Would be a Mistake

The $8,000 tax credit for first time home buyers is about to expire and there is a push in Congress to extend it. Simon Johnson and James Kwak in the Washington Post remind us of just how bad an idea this is:

The main argument for the tax credit is that it stimulates the economy and stabilizes the housing market. Seen purely as a stimulus, the tax credit is highly inefficient. The National Association of Realtors claims that the credit created 350,000 new sales; the Calculated Risk blog calculates that this means the government is paying $43,000 for every extra house sold

What some would call "stabilizing" home prices really just means keeping them at an artificially high level, but this simply can't go on forever:

This would be just the latest chapter in a long history of government policies to boost housing prices -- the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners.

This credit, the Cash For Clunkers program, the talk of a VAT with a delayed start all of these are touted as solutions to our economic woes. The reality is that these are nothing more than short term gimmicks whose distorting effects delay, but don't eliminate, the necessary adjustments to the economy. Most likely making those adjustments more painful in the process.

This Time Will Be Different. No Really, I Mean It.

I am going to keep this short. If it runs on too long, conditions are likely to change and the opening sentences of this blog may be outpaced by conditions on the ground.

A summary of the steps taken thus far to address our economic situation would likely be incomplete since it is highly likely that right now our policymakers are concocting another financial trick play. Imagine a schoolyard football game taking place in a marble hall rather than a sand lot. A game in which the players all wear Brooks Brothers suits and the plans are drawn up by the point and click of a mouse rather than in the dirt with a stick.

Paulson and Bernanke are loath to let a week (or sometimes even a few days) go by without unveiling and trying to implement some new tactic. They appear to be doing so in response to the incessant drumbeat from most corners of the populace to do something, anything. Even the previously unflappable President-Elect Obama has entered the fray this week (most likely to his detriment, and ours).

With every new policy prescription, press release, and public comment crafted to reassure a frightened public, it has become increasingly clear to me that government most likely will never be the answer to slumping economic growth nor will it be the mechanism to prevent these same circumstances from recurring in the future.

I realize that it is beyond fashionable and nearly mandatory for all members of the political-celebrity class to denigrate deregulation and frown upon free markets, but with a little reflection it would seem this anger is really misplaced. The fact of the matter is that since the Great Depression government intervention into the economic sector has increased, not decreased.

This increased presence has taken many forms. Taxation as a percentage of income, for instance, was about 12% in 1930. In 2008, it was about 31%. These numbers come from the Tax Foundation, click here for a link to the data.

The last 80 years have also seen a proliferation of law making. It is hard to quantify since it depends on what you count as a law, but I don't think anyone believes we are actually reducing and simplifying the rules that govern the US.

Also, look at how FDR's cabinet was about half the size of George W. Bush's cabinet. With much of the increase coming from the promotion to cabinet-level of the heads of various regulatory agencies which didn't even exist under FDR.

Then there are Fannie Mae & Freddie Mac. They were chartered then regulated by the federal government. That wasn't enough to keep them out of trouble so the government stepped in to bail them out. The fact that they haven't flourished under their latest incarnation should be a surprise to no one.

We've had Hoover trying to put chickens in our pots, a New Deal, a Fair Deal, crossed into a New Frontier, and created a Great Society. We even had President Ford try to whip inflation, as if it were some sort of playground bully. (I heard he waited by the White House flagpole until 3:30, but inflation never showed.)

One can try to tar the policies of Reagan, either Bush, or even some of Clinton's as being lax regulatorily. But a case for ours being a highly unregulated economy is simply not supported by the facts. It is almost indisputable that the last 80 years have constituted an increasingly complex interventionist regime and yet we still find ourselves in a state of financial crisis.

I'm reminded that at least once, insanity has been defined as doing the same thing over and over again but expecting different results. If that definition is correct, it is clear we have gone completely insane as a nation. At this point, I'm not sure what it will take to snap us out of it.