America, Our Debt-Ridden Nation

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Let’s look at just some of the latest news about the U.S. economy:

  1. According to the Treasury Department’s Bureau of Fiscal Services, the federal government paid $2,007,358,200,000—over $2 trillion—in benefits and entitlements in the 2013 fiscal year, October 1, 2012 to September 30, 2013. Most of the benefits, 69.7% came from non-means tested government programs that provide them to recipients who qualify regardless of income. That would include Medicare, Social Security, unemployment compensation, veteran’s compensation, and railroad retirement, to name a few.
  2. The total federal government spending in 2013 totaled $3,454,253,000,000—over $3.4 trillion—encompassing defense, highway and transportation costs, public education, immigration services, and government worker salaries, to name a few.
  3. An astonishing amount of that spending constitutes wasted taxpayer money. In July the Government Accountability Office (CAO) testified before Congress that federal agencies made more than $100 billion in improper payments in 2013. That is an amount comparable to the combined total budgets of the Coast Guard, U.S. Immigration and Customs Enforcement agency, Border Patrol, Secret Service, and the Federal Emergency Agency, et cetera. Improper payments result when people collect money from government programs for which they are ineligible.
  4. By August, the total U.S. federal debt had increased to more than $7 trillion during the five and a half years since Barack Obama has been President. That is more than the debt increased under all U.S. Presidents from George Washington through Bill Clinton—combined! More debt than was accumulated in the first 227 years from 1776 through 2003.
  5. During the time President Obama has been in office the number of unemployed reached 37.2%, a 36-year high for those 16 or older who do not have a job and are not actively seeking one. From December 2013 through May of this year, the labor participation rate had been at 62.8%. The last time the labor participation rate was that low was February 1978 when Jimmy Carter was President.
  6. As the nation sank deeper into debt by the end of 2012 there were 109,631,000 Americans living in households that were receiving one or more federally funded “means-tested programs”, more generally referred to as welfare. Combined with those receiving non-means-tested benefits and it added up to 49.5% of the population.

Money BombIt is always tempting to blame everything on the President and, despite the usual rebound from a recession that has occurred in the past, it has not occurred during his first term, nor into his second at this point. In fact, the latest data reveals that the U.S. economy shrank at a 2.9% annual rate during the first quarter of 2014. Its long-run average rate of growth has been 3.3%, but the highest since Obama took office was 2.8%.

According to the World Bank, in 2013 the U.S. Gross Domestic Product, the value of its goods and services, was $16,800,000,000,000. The federal, state and governments took their share via taxation on income and/or property. The rest was saved or spent by those either holding a job or receiving government benefits; very nearly half of the population old enough to be employed if there were jobs for them.

The problem that affects all of us is the imbalance of the U.S. budget where more money is going out than coming in. The difference is deemed the “deficit.” In order to pay bills, Congress has to agree to raise the limit on how much the nation can borrow.

Nick Dranias, the constitutional policy director for the Goldwater Institute, has come up with a proposal, “The Compact for a Balanced Budget”, and it was been published by The Heartland Institute, a free market think tank, in July.

As Dranias points out, “The U.S. gross federal debt is approaching $18 trillion. That figure is more than twice what was owed ($8.6 trillion) in 2006, when Barack Obama was a junior U.S. Senator from Illinois and opposed lifting the federal debt limit.” It represents more than $150,000 per taxpayer.

“What if states could advance and ratify a powerful federal balanced budget amendment in only twelve months, asks Dranias. His proposal is “a new approach to state-originated amendments under Article V of the U.S. Constitution.

Two states, Georgia and Alaska, are expected to establish a Balanced Budget Commission, an interstate agency dedicated to organizing a convention—before 2014 ends—to propose an amendment to achieve a balanced budget. The amendment would put “an initially fixed limit on the amount of federal debt.” It would ensure Washington cannot spend more than tax revenue brought in at any point in time, with the sole exception of borrowing under the fixed debt limit. It would force Washington to reduce spending long before borrowing reaches its debt limit, preventing any default on obligations; something threatening many other nations as well.

Suffice to say, the proposed amendment involves some complex elements and, if the Compact does not receive sufficient support from many more states than just the two that have signed on, it won’t see the light of day.

What the rest of us understand, however, is that federal spending is out of control at the same time as the amount of money it takes in is more than what it “redistributes.” Add in a sluggish economy, not growing at its usual rate, and you have a recipe for a lot of trouble ahead.

Republicans are usually credited with being more financially prudent. If true, we need to elect a Congress controlled by the GOP in November and a Republican President in 2016. If we don’t, all bets are off.

© Alan Caruba, 2014

CLICHES OF PROGRESSIVISM #19 – “Big Government Is a Check on Big Business”

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A myth runs through most of America today, and it goes like this: Big business hates government and yearns for an unregulated market. But the reality is the opposite: Big government can be highly profitable for big business.

Many regulations restrict competition that would otherwise challenge existing firms. At the same time, government institutions—many created during the New Deal—funnel money to the largest corporations.

When government regulates X industry, it imposes high costs that hurt smaller firms and reduce competition. Imagine that the Department of Energy imposes a new rule that dishwashers must be more energy efficient. Coming up with designs, retrofitting factories to produce these energy-efficient models, and navigating the forms and licenses around this rule might cost a dishwasher-producing firm thousands of dollars. An industry giant, with more revenue and sizeable profit margins, can absorb this cost. A small dishwasher factory that’s only a year or two old, with little revenue and less profit, cannot. The latter would have to shut down. That means less competition for the industry giant, enabling it to grow even bigger and seize even more market share.

Barriers to entry, such as expensive licenses, also cripple start-ups and reduce competition. The Progressive New Republic speaks favorably of how Dwolla, an Iowa-based start-up that processes payments and competes with credit card agencies, had to pay $200,000 for a license to operate. Rather than hire employees or build a better product to compete with its entrenched competition, Dwolla was forced to spend its first $200,000 on a permission slip. Dwolla could afford it; but how many less-well-funded competitors were forced from the market? How many were deterred from even starting a payment-processing business by this six-figure barrier to entry?

For big businesses, which often sacrifice agility for size, smaller competitors are a major threat. By limiting smaller competition, government helps the industry giants at the expense of everyone else. Barriers to entry can kill the next innovative firm before it can become a threat to its giant competition. When this happens, we don’t even know it: The killed-before-it-can-live company is a classic example of the “unseen” costs of regulation.

While regulations minimize competition, government entities subsidize big business. The Export-Import Bank, established in 1934 as part of the New Deal, exists to subsidize exports by U.S.-based firms. The primary beneficiaries? Large corporations. From 2009 to 2014, for instance, the Ex-Im Bank financed over one-quarter of Boeing’s planes. Farm bills, a key element of the New Deal that still exists today, subsidize huge farms at the expense of smaller ones. The program uses a variety of methods, from crop insurance to direct payments, to subsidize farmers. The program is ostensibly designed to protect small farmers. But 75 percent of total subsidies—$126 billion from 2004 to 2013—go to the biggest 10 percent of farming companies. The program taxes consumers to funnel money to large farms.

Nor are these programs unique. National Journalism Center graduate Tim Carney argues, “The history of big business is one of cooperation with big government.” In the time of Teddy Roosevelt, big meat packers lobbied for federal meat inspection, knowing that the costs around compliance would crush their smaller competitors. New Deal legislation was only passed with help from the national Chamber of Commerce and the American Bankers Association. The Marshall Plan, which subsidized the sale of billions of dollars of goods to Europe, was implemented by a committee of businessmen. President Johnson created the Transportation Department in 1966, overcoming resistance from shipping interests by agreeing to exempt them from the new rules. Costly regulations for thee, but not for me.

If Progressives want to see what free enterprise looks like, they need only look at the Internet. For the past 20 years, it’s been largely unregulated. The result? Start-ups erupt and die every year. New competitors like Facebook bring down existing giants like MySpace and are in turn challenged by a wealth of social media competitors. Yahoo was the Internet search king until two college kids founded Google. Google has been recently accused of monopoly status, but competitors like DuckDuckGo spring up every day.

Let’s imagine if the Internet—a playground of creative destruction—had been as subject to big government as brick and mortar businesses have been. Yahoo would have been subsidized. Facebook would have had to pay six figures to get a licensing fee, crushing college-kid Zuckerberg before he got started and preserving MySpace’s market dominance. Businesses that learned to play the lobbying game would have been allowed to write regulations to crush their competitors.

For those who doubt, the proof of business’s collusion with big government is in the pudding. In 2014, a surprising number of libertarian-leaning men and women are in Congress. How has big business responded? K Street has spent millions of dollars working to replace laissez-faire advocates with those who are establishment-friendly. Sadly, cronyist businesses are fighting to keep free market advocates out of power.

A final note: I have criticized Progressives here, but the institution of big government, which enables businesses to hire lobbyists to write regulations or give themselves a subsidy, is the primary problem. The bigger government grows, the more powerful a tool it becomes for businesses prone to use it for private advantage. That’s not capitalism; it’s what one economist properly labeled “crapitalism.”

Julian Adorney
Economic Historian, Entrepreneur, Fiction Writer

Summary

  • Big Government and Big Business often play well together, at the expense of start-ups, little guys, and consumers.
  • Artificial, politically instigated barriers to entry make markets less competitive and dynamic, and make established firms more monopolistic.
  • A free market (true capitalism, not its adulterated “crapitalism” version) maximizes competition and, therefore, service to the consumer.

For further information, see:

“Of Meat and Myth” by Lawrence W. Reed
“Atlas Shrugged and the Corporate State” by Sheldon Richman
“Ending Corporate Welfare As We Know It” by Lawrence W. Reed
“The Rise of Big Business and the Growth of Government” by Robert Higgs
“Theodore Roosevelt: Big Government Man” by Jim Powell

ABOUT JULIAN ADORNEY

Julian Adorney is an economic historian, entrepreneur, and fiction writer. He writes for the Ludwig von Mises Institute and other websites. You can find his collected work at adorney.liberty.me.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Unicorn Governance by MICHAEL MUNGER

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Ever argued public policy with people whose State is in fantasy land?

Our problem is that we have to fight unicorns.

Unicorns, of course, are fabulous horse-like creatures with a large spiraling horn on their forehead. They eat rainbows, but can go without eating for years if necessary. They can carry enormous amounts of cargo without tiring. And their flatulence smells like pure, fresh strawberries, which makes riding behind them in a wagon a pleasure.

For all these reasons, unicorns are essentially the ideal pack animal, the key to improving human society and sharing prosperity.

Now, you want to object that there is a flaw in the above argument, because unicorns do not actually exist. This would clearly be a fatal flaw for the claim that unicorns are useful, if it were true. Is it?

Of course not. The existence of unicorns is easily proven. Close your eyes. Now envision a unicorn. The one I see is white, with an orange-colored horn. The unicorn is surrounded by rainbows (perhaps it’s time for lunch). Your vision may look slightly different, but there is no question that when I say “unicorn,” the picture in your mind corresponds fairly closely to the picture in my mind. So, unicorns do exist and we have a shared conception of what they are.

Problem: “the State” is a unicorn

When I am discussing the state with my colleagues at Duke, it’s not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA.

But their solution is, without exception, to expand the power of “the State.” That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least three hundred years.

Some examples help illustrate the point.

Edmund Burke  highlights the unicorn fallacy neatly. The problem is not bad people, or systems that need reform. Come the next election, we’ll have a Messiah! The next reform will lead to Utopia! No. No, we won’t, and no, it won’t.

In vain you tell me that [government] is good, but that I fall out only with the Abuse. The Thing! The Thing itself is the abuse! Observe, my Lord, I pray you, that grand Error upon which all artificial legislative Power is founded. It was observed, that Men had ungovernable Passions, which made it necessary to guard against the Violence they might offer to each other. They appointed Governors over them for this Reason; but a worse and more perplexing Difficulty arises, how to be defended against the Governors?

Adam Smith put it this way in The Wealth of Nations:

It is the system of government, the situation in which [people] are placed, that I mean to censure, not the character of those who have acted in it. They acted as their situation naturally directed, and they who have clamoured the loudest against them would probably not have acted better themselves.

Smith was talking about the employees of the East India Company in this passage. But the insight is a general one: the failure of a system of organization often arises from the incentives, the logic of action, or the inconsistencies, inherent in that system. The people who work in that system probably act in much the same way that other people would act if they found themselves in that system. So, while it’s true that one can imagine a State that works differently, there are no actual human beings who can work in that system and deliver what statists can imagine.

More recently, Ludwig von Mises and F. A. Hayek recognized the problem of unicorns rather deftly. In Epistemological Problems of Economics, Mises said:

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world … They wish to be free of a universe of whose order they do not approve.

Perhaps the most famous, and devastating, version of “skewer the unicorn” is Hayek’s, when he said in The Fatal Conceit that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The Munger test

In debates, I have found that it is useful to describe this problem as the “unicorn problem,” precisely because it exposes a fatal weakness in the argument for statism. If you want to advocate the use of unicorns as motors for public transit, it is important that unicorns actually exist, rather than only existing in your imagination. People immediately understand why relying on imaginary creatures would be a problem in practical mass transit.
But they may not immediately see why “the State” that they can imagine is a unicorn. So, to help them, I propose what I (immodestly) call “the Munger test.”

  1. Go ahead, make your argument for what you want the State to do, and what you want the State to be in charge of.
  2. Then, go back and look at your statement. Everywhere you said “the State” delete that phrase and replace it with “politicians I actually know, running in electoral systems with voters and interest groups that actually exist.”
  3. If you still believe your statement, then we have something to talk about.

This leads to loads of fun, believe me. When someone says, “The State should be in charge of hundreds of thousands of heavily armed troops, with the authority to use that coercive power,” ask them to take out the unicorn (“The State”) and replace it with George W. Bush. How do you like it now?

If someone says, “The State should be able to choose subsidies and taxes to change the incentives people face in deciding what energy sources to use,” ask them to remove “The State” and replace it with “senators from states that rely on coal, oil, or corn ethanol for income.” Still sound like a good idea?

How about, “The State should make rules for regulating sales of high performance electric cars.” Now, the switch: “Representatives from Michigan and other states that produce parts for internal combustion engines should be in charge of regulating Tesla Motors.”  Gosh, maybe not … In my experience, we spend too much time fighting with our opponents about their unicorns. That is, we claim that the unicorn/State itself is evil, and cannot be tamed in a way that’s consistent with liberty. The very mental existence of the unicorn is the target of our arguments.

The problem, of course, is that the unicorn they imagine is wise, benevolent, and omnipotent. To tell them that their imaginations are wrong is useless. So long as we insist that our opponents are mistaken about the properties of “the State”— which doesn’t exist in the first place, at least not in the way that statists imagine—then we will lose the attention of many sympathetic people who are primarily interested in consequences.

To paraphrase Hayek, then, the curious task of the liberty movement is to persuade citizens that our opponents are the idealistic ones, because they believe in unicorns. They understand very little about the State that they imagine they can design.

ABOUT MICHAEL MUNGER

Michael Munger is the director of the philosophy, politics, and economics program at Duke University. He is a past president of the Public Choice Society.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Florida Amendment 1: Danger — Wolves in Government Clothing

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videothumbnail-trailer1This past week I attended the film “The Florida Corridor Expedition: Everglades to Okefenokee” promoting the need for Floridians to spend an additional $19.5 Billion on land acquisition to expand wildlife corridors. The problem with the film is only one side was presented: The need to connect Florida’s wildlife corridors. What about the other side: Protecting private property rights of Floridians?

Wildlife corridors are non-taxable conservation lands where animals roam freely.

Although well done the film showed a trip from the Everglades to Georgia by a team of environmentalists (paid by tax dollars?). My question was how much land will be taken from Floridians to complete this dream and who’s dream is it anyhow? I fully understand and support reasonable conservation. I know that Florida has some of the most beautiful trails and Eco-systems in the world bringing millions of visitors each year but… There reaches a point when we realize humans and freedoms will be sacrificed to make this happen. Does that make sense?

Currently 40% of Florida is in some conservation scheme. In simple terms that means 40% of Florida is off the tax roles! Land in conservation pays no taxes to the community creating deficits made up by the community. Currently almost 65% of Broward and Miami-Dade counties fall in this category. Due to this lost revenue, these counties have the highest tax rates in the state.

The statement was made, “[T]he Amendment will not cost Floridians anything.” Audience question:

“If Doc Stamps are used to pay for this Amendment, what happens to the money Doc Stamps were supposed to fund programs for the poor and elderly?”

Their answer:

“50% of Doc Stamps were to be used for conservation but the money went into the general fund. We are asking for 33% so we are asking for less.” That answer makes no sense.

What difference does it make what pocket you are taking money from? if you are taking money designated for another program, like poor and elderly that program will have to find money some place else. The tax payer will be asked to now fund the poor and elderly or else.. If you say no, you will be demonized because you don’t like the poor and elderly. I asked:

If land will be taken from the tax roles and put into non taxable conservation programs, who will make up the lost revenue to the counties?”

Their answer:

“If people move into the counties the county will have to provide more services like schools and police.”

New Mexico kid cages

Kid cages in New Mexico.

That made no sense. If people move into the counties, PEOPLE PAY TAXES and the tax base will improve. I asked Mr Bear, Panther and Alligator to pay their fair share of taxes but got NO answer. Let’s see how this program works in New Mexico at a wolf sanctuary.

Steve Foley from the California Report writes, “In parts of New Mexico children have no choice but to wait for their school bus inside of cages. These ‘kid cages’ are the result of government agencies abuse of the Endangered Species Act. The United States Fish & Wildlife Service has placed wolves in populated areas where they have become an economic burden for small business owners, infringed upon private property rights, burdened taxpayers with management costs, and placed fear in the hearts of those who have to deal with them on a daily basis.”

VIDEO: Wolves in Government Clothing

Ummm, people in cages while animals run free! Sounds like fun.

We are lucky in Florida. We get to see the results of some of these government policies and decide if we like the results before we amend the Florida constitution with yet another program that sounds great on paper but does not work in reality.

Does Florida need another slush fund scheme without oversight giving more money to groups dedicated to stealing your land? Florida is in the top 10 for political corruption. All groups supporting this amendment have ties to the United Nations. The UN believes that land should be held by the government not in the hands of ordinary people.

There is only one goal of the groups supporting this Amendment: ELIMINATE PRIVATE PROPERTY.

To learn more about Amendment 1 click on this link. 

Do You Pass The Israel Test?

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Would you believe us if we said that the best litmus test of any society’s success is its attitude towards Israel? Well, it’s true. As George Gilder explains, whether a society envies and resents Israel’s success or celebrates and tries to replicate it is indicative of that society’s progress. Countries that “pass” the “Israel Test” tend to rise. Those who don’t tend to sink.

Do you and does your society pass the “Israel Test”? In five minutes, find out.

George Gilder explains what the Israel Test is in this interesting video that might cause you to examine both your personal attitude as well as your society’s attitude towards those that achieve success. It is that age old battle between Envy and Admiration that often determines success and is the central divide in the world today. The part about water usage in Israel is fascinating because future wars will be fought over water rights as population growth strains water resources.

You may support Prager University by clicking here.

Which Strategy Really Ended the Great Depression? by Burton Folsom

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“World War II got us out of the Great Depression.” Many people said that during the war, and some still do today. The quality of American life, however, was precarious during the war. Food was rationed, luxuries removed, taxes high, and work dangerous. A recovery that does not make—as Robert Higgs points out in Depression, War, and Cold War.

Franklin Roosevelt recognized that the war only provided a short-term fix for the economy—and a very costly one at that. What would happen after the war—when 12 million troops came home and the strong demand for guns, bullets, tanks, and ships ceased?

Roosevelt envisioned a New Deal revival. He had created the National Resources Planning Board (NRPB) in 1939 and urged it during the war to plan for peacetime. The NRPB leaders believed that government planning was necessary to promote economic development. They consciously (and sometimes unconsciously) followed ideas popularized in 1936 by John Maynard Keynes in his bestselling book, The General Theory of Employment, Interest and Money.

Capitalism was inherently unstable, Keynes argued, and would rarely provide full employment. Therefore government intervention was needed, especially in recessions, to spend massive amounts of money on public works, which would create new jobs, expand demand, and rebuild consumer confidence. Yes, government would need to run large deficits, but economic stability was society’s reward. If government planners could manage aggregate demand through public works, the boom-bust business cycle could be flattened and economic development could be managed in the national interest. No more Great Depressions. Man could indeed be master of his economic future.

Before and during the war Keynes’s ideas swept through the United States and first transformed the universities, then the political culture of the day. With statistics in hand and a near reverence for government, the Keynesians were the new generation of planners. They wanted to remake society. Not entrepreneurs, but economists were needed to gather data, plan government programs, and regulate economic development. Paul Samuelson, for example, a 21-year-old economics student, was cautious at first, but then euphoric after Keynes’s book was published. “Bliss was it in that dawn to be alive, but to be young was very heaven,” Samuelson wrote. Other economists soon accepted Keynes, and by the 1940s his ideas dominated the economics profession. In 1948, Samuelson would defend Keynes by writing the best-selling economics textbook of all time.

Planning for Peace

Those on the NRPB were among the excited disciples of Keynes and economic planning. The war itself seemed to be evidence that government jobs had pulled the U.S. economy out of the Depression. Now the economists and planners needed to take the nation’s helm to plan for peace.

According to Charles Merriam, vice president of the NRPB, “[I]t should be the declared policy of the United States government, supplementing the work of private agencies as a final guarantor if all else failed, to underwrite full employment for employables. . . .” That idea launched what Merriam and the NRPB dubbed “A New Bill of Rights.” FDR would call it his Economic Bill of Rights. Included was a right to a job “with fair pay and working conditions,” “equal access to education for all, equal access to health and nutrition for all, and wholesome housing conditions for all.”

New Bill of Rights

FDR viewed this Economic Bill of Rights as his tool for guaranteeing employment for veterans (and others) after World War II. But it was more than a mere jobs ploy; it had the potential to transform American society. The first Bill of Rights, which became part of the Constitution, emphasized free speech, freedom of the press, and freedom of religion and assembly. They were freedoms from government interference. The right to speak freely imposes no obligation on anyone else to provide the means of communication. Moreover, others can listen or leave as they see fit.

But a right to a job, a house, or medical care imposes an obligation on others to pay for those things. The NRPB implied that the taxpayers as a group had a duty to provide the revenue to pay for the medical care, the houses, the education, and the jobs that millions of Americans would be demanding if the new bill of rights became law. In practical terms this meant that, say, a polio victim’s right to a wheelchair properly diminished all taxpayers’ rights to keep the income they had earned. In other words, the rights announced in the Economic Bill of Rights contradicted the property rights promised to Americans in their Declaration of Independence and in the Constitution.

FDR promoted his Economic Bill of Rights in his State of the Union message in 1944, but he died before the war ended. Shortly before his death, Senator James Murray (D-Mont.) introduced a full-employment bill into the Senate for discussion. The bill committed the government in a general way to provide jobs if unemployment became too high. Many leading Democrats and economists supported Murray’s bill. “In this session of Congress,” The New Republic reported, “one of the first bills to be introduced will no doubt be the full employment bill of 1945, designed to carry out item number one in the Economic Bill of Rights.” The Nation joined The New Republic in endorsing the full-employment bill. “Mr. Roosevelt’s program,” it concluded, “is squarely based on the best economic authority available. It is entirely consistent with the economic doctrines of the distinguished British economist Lord Keynes.”

On September 6, 1945, President Harry Truman gave a major speech in which he supported the Economic Bill of Rights, especially a full-employment bill. Most congressmen, however, rejected both. Rep. Harold Knutson (R-Minn.) said, “Nobody knows what the President’s full employment bill will cost American taxpayers, but the aggregate will be enormous.”

Instead, Knutson and many other congressmen favored cutting tax rates and slashing the size of government as the best measure to restore economic growth. Senator Albert Hawkes (R-N.J.) even argued that “the repeal of the excess-profits tax, in my opinion, may raise more revenue for the United States than would be raised if it were retained.” Hawkes proved to be prophetic. After vigorous debate Congress scrapped the Economic Bill of Rights and cut tax rates instead. American business then expanded, revenues to the Treasury increased to balance the federal budget, and unemployment was only 3.9 percent in 1946 and 1947. The Great Depression was over.

20121124_Folsom20121ABOUT BURTON FOLSOM

Burton Folsom, Jr. is a professor of history at Hillsdale College and author (with his wife, Anita) of FDR Goes to War.

“All We Need Is the Right People to Run the Government” by Melvin D. Barger

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It’s been a time-honored practice in America to “throw the rascals out” when things go wrong in government. This supposedly is merely the political version of what happens when the manager of a losing baseball team is replaced, or the chief executive officer of a failing corporation gets the axe.

Nobody should dispute the fact that government operations require capable, experienced people who know how to do their jobs. We’ve all probably had unpleasant bouts with incompetent public officials and clerks, and we wish they could be replaced.

But when government expands beyond its rightful limits, problems arise that have little to do with the competence and abilities of its officials and employees. The delusion that these problems can be solved by replacing officials only delays the day when people face the hard questions about what government should do and should not do.

Thanks to the relentless expansion of government, however, these questions are being asked the world over, with surprising solutions in some cases. There is growing criticism of government operations and regulations. There is also a rush to “privatize” many services. Though privatization moves are being made for economic reasons rather than to restore liberty, they still appear as hopeful signs.

The most important reason for limiting government to its rightful peacekeeping functions is to preserve and promote liberty. If this is done, people working singly or in groups will eventually find wonderful ways of dealing with the many human problems that government promises to solve, and meeting the human needs that government promises to meet. But as we now know, problems and needs continue to grow while the government colossus has created dangers, such as mountainous public debt and group conflicts that threaten us all and seem beyond solution. These problems worsen no matter who seems to be running things in government. Even people who used to have almost religious faith in the powers of government are becoming disillusioned as its clay feet become more exposed.

A second dilemma with excessive government is that it must always be run bureaucratically. Bureaucracy can be a maddening thing for people who have been accustomed to the speed and efficiency of market-driven services. When confronted with bureaucratic actions that displease us we tend to blame the officials in charge and call for their replacement.

But unless the officials we want replaced are completely incompetent, rooting them out is usually a waste of time and effort. As Ludwig von Mises explained many years ago, bureaucracy is neither good nor bad. Bureaucratic management is the method applied in the conduct of administrative affairs, the result of which has no cash value on the market, though it may have other values to society. It is management bound to comply with detailed rules and regulations fixed by an authoritative body. “The task of the bureaucrat is to perform what these rules and regulations order him to do,” Mises explained. “His discretion to act according to his own best conviction is seriously restricted by them.”

Thus bureaucracy is good (and inevitable, but easily excessive, and even ridiculous and unresponsive much of the time) when it is applied in public operations such as police departments, military forces, and records bureaus. But it becomes oppressive and deadly when it is imposed on business enterprises and other human activities. As Mises shrewdly saw, the evil in bureaucracy was not in the method itself. “What many people nowadays consider an evil is not bureaucracy as such,” he pointed out, “but the expansion of the sphere in which bureaucratic management is applied.”

Mises then contrasted this bureaucratic system with business management or profit management, which is management directed by the profit motive. Managers, driven by the need to stay profitable (which is to say, to keep costs below income), can be given wide discretion with a minimum amount of rules and regulations. And customers will quickly let them know whether the business is providing proper goods and services and prices which customers consider favorable.

This profit-driven system has its opponents, of course, and this creates problems and frictions for entrepreneurs who want to compete for our business. Some opponents fear the new competition, while others deplore the entrepreneurs’ use of resources. And one of the most effective ways of hampering entrepreneurs is to put them under either limited or total government regulation and control—that is, replacing profit-driven management with at least some degree of bureaucratic management.

So what we have in today’s world is a great deal of government with additional regulation and control of private business. There is lots of grumbling about the fact that “the system doesn’t seem to be working,” but nobody is likely to fix it. At election time, glib office-seekers promise to reform the system and “get the country moving again.” This doesn’t happen, and general dissatisfaction is growing.

And there still seems to be a persistent delusion that “putting the right person in charge” will fix the problem. One favorite government response, when conditions worsen in an area, is to appoint a “czar” with special powers to bring everything together with businesslike efficiency. We have had numerous “czars” to control energy and prices, and one was recently named to deal with health reform. However highly touted, these czars soon turn out to be no more effective than the Russian rulers who gave rise to the term.

Another common fallacy, a favorite idea with pro-business political administrations, is that government operations will work better if capable business executives are found to head them. But as Mises perceptively noted, “A former entrepreneur who is given charge of a government bureau is in this capacity no longer a businessman but a bureaucrat. His objective can no longer be profit (generating more value than cost), but compliance with the rules and regulations. As head of a bureau he may have the power to alter some minor rules and some matters of internal procedure. But the setting of the bureau’s activities is determined by rules and regulations which are beyond his reach.”

Some people thrive in this sort of work and turn out to be excellent bureaucrats. They are the right people to run government operations when government is limited to its rightful peacekeeping functions. But if our purpose is to preserve and promote liberty while seeking the benefits of a market-driven economy, we’ll look in vain for reasonable answers and solutions from government—no matter who runs it. We are slowly learning this lesson, though at great cost. We should, of course, continue to follow the time-honored American practice of “throwing the rascals out” when elected officials are performing badly. But in today’s world, the officials we’re criticizing might not be rascals at all, but just conscientious people trying to do jobs that shouldn’t have been created in the first place.

Melvin D. Barger

Summary

  • As government grows, it creates more and more systemic and intractable problems.
  • Profit management and bureaucratic management are two very different things. The former seeks to generate more value than cost while the top priority of the latter is the promulgation and implementation of rules and regulations.
  • The bigger government becomes, the more calls you hear for “reform,” which may suggest there’s something inherently defective about the political system that prevents its practitioners from ever getting things right from the start.
  • Running government “like a business” is a popular rhetorical point but essentially an illusion that fails to recognize the deep differences between profit-driven business and rule-driven government.

For further information, see:

“No More Czars, Please” by Lawrence W. Reed
“What’s So Bad About Big Government Anyway?” by George C. Leef
“Hayek Was Right: The Worst Do Get to the Top” by Lawrence W. Reed
“The Economy Needs More Planning—Central Planning, That Is” by Lawrence W. Reed
“Can Government Manage the Economy?” by James L. Payne

EDITORS NOTE: This essay by Ohio businessman and writer Melvin D. Barger appeared in the 1994 edition of FEE’s book, Clichés of Politics, edited by former FEE trustee Mark Spangler. His citations of Ludwig von Mises all come from Mises’s 1945 book, Bureaucracy. The featured image is courtesy of FEE and Shutterstock.

U.S. Congress Acts to Replenish Israel’s Iron Dome

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Israel’s war on its 25th day saw a UN- brokered 72 hour humanitarian cease fire dissolve in less than 90 minutes after going into effect. An IDF team was ambushed  by Hamas commandos emerging  from a tunnel near the Rafah frontier.  Two IDF soldiers were killed in the suicide attack. The Hamas bomber killed himself and two other Hamas fighters were killed in the ensuing fire fight. Unfortunately, a young 23 year old IDF 2nd Lieutenant Hadar Goldin, was captured by the remaining Hamas fighters in the tunnel attack. His status and whereabouts are not known. The IDF retaliated with artillery and aerial bombardment on Rafah.  IDF forces in Rafah spread a search for the missing officer.  Hamas rockets returned with a vengeance to rain down on southern Israel.  An estimated 65 Palestinian civilians were killed in the Israeli retaliation.

The death toll to date in Operation Protective edge is 1,500 Palestinians,an estimated one third of whom are believed to be Hamas fighters, 63 IDF soldiers and three Israeli civilians.   At a White House Press conference President Obama condemned the kidnapping and Hamas’ violence requesting the immediate unconditional release of the kidnapped IDF officer.  Noting that this was the sixth breach of a truce by Hamas, Obama said that  made prospects “challenging”  for any possible cease fire and that both sides should restrain actions that might result in further civilian casualties.

Israel may have won a media battle for the moment because of Hamas’ duplicity.  Operation Protective Edge is turning out to be one of the toughest actions for Israel reminiscent of the October War of 1973.  During that War with Egypt, President Nixon ordered the replenishment of tank and aircraft parts flown directly from the US to Israel.  In Operation Protective Edge in 2014, Israel requested replenishment of the Tamir anti-rocket missiles and ammunition, the later from the US War Reserve Stock in Israel.  Secretary of Defense Hagel had requested $175 million for Iron Dome in an Emergency Supplemental Appropriation.  Subsequently, the request was increased to $225 million by US Senate Appropriations Committee led by Chairwoman Sen. Barbara Mikulski (D-Maryland).

In an impassioned speech on the Senate floor on July 30, 2014, Mikulski told of receiving a letter from a friend who had made aliyah to Israel, She and her husband, a Professor at Hebrew University, live in Ashkelon near the border of Gaza in southern Israel. Her friend told of the daily rain of rockets that sent her and her husband scampering to find shelter in less than two minutes with the sounding of a wailing red alert siren.  Her friend said that Iron Dome was their only protection from death from the skies sent from Gaza.  Senator Mikulski then noted that Hamas has launched over 2,700 rockets.  The nine Iron Dome Batteries had intercepted 515 of them aimed at Israeli population centers for an effective shoot down rate of 90 percent. She further noted that each Tamir anti-rocket missile in the Iron Dome System costs $50,000 to produce. Do the math; the 515 interceptions cost $25,750,000. Mikulski noted that Israel had developed Iron Dome at a cost of $1 billion. The US has provided previous funding of $900 million for this defensive anti-short range rocket system. Earlier this year Congress had appropriated $235 million for further Iron Dome research.

Watch this Senate Appropriations video of Sen. Mikulski’s floor speech:

But there was a catch, the Emergency Supplemental Appropriations bill (S. 2648), besides funding replenishment of Iron Dome included other funds.  There were  funds for Emergency Humanitarian Crisis caused  deluge of unaccompanied minors flooding our Southern Borders and funding to combat wildfires out West.  That is known as “Christmas treeing” in the argot of Congressional legislative legerdemain.  That was objected to in a statement by the Zionist Organization of America, who urged Israel supporters to contact Senators and Senate Majority Leader Harry Reid to sever the legislation, in fear that the Republican minority would reject the packaged Supplemental Appropriations bill.

According to the Washington Jewish Week, that warning by the ZoA may have worked. On Thursday night, July 31st, the Republican minority  blocked the packaged legislation by a vote of 50 to 44.

On Friday morning, August 1st, the Supplemental Appropriations of $225 million for replenishment of the Iron Dome System was passed by unanimous consent by the Senate, virtually assuring passage by the House. The only addition was funding to combat wildfires in the US West.  The Times of Israel reported that Friday night, August 1st, the House passed the Iron Dome Emergency Supplemental by an overwhelming vote of 395 to eight, with four Republicans and Four democrats voting against it.  House Speaker John Boehner  was quoted saying:  “Israel is our friend and Israel’s enemies are our enemies.” The bill now goes to President Obama for his signature.

Perhaps, a motivation for Congress to act quickly before the August recess was the Hamas violent rejection of the 72 hour truce.

The Iron Dome system, development arrangements and funding between Israel and the US are tied into the overall missile defense umbrella that includes Iron Dome, David’s Sling and the Arrow II and III anti-ICBM systems. See our NER article, The Iranian Missile Threat (August 2011).

The Israel  developer Rafael designed and built its existing “Iron Dome” defense system with funding from the US.  However, the critical need now is to replace the Tamir missiles already fired.  That led Israel to approach Massachusetts company Raytheon to help expand its missile defenses. According to a report in The Boston Globe, the venture would be likely to succeed because:

Raytheon’s contracts with Israel would indirectly help the US economy recoup some of the nearly $1 billion in US aid that enabled Israeli designers to develop the Iron Dome system in recent years. The Obama administration requested $175 million for Israel’s Iron Dome in the 2015 budget, and that amount has been doubled by congressional defense committees. The House measure required that much of that money be spent on US components, which is likely to be beneficial to Raytheon.

This is all related to the structure of US aid to Israel, comprised largely of loans and buy backs. This would contribute to the buy-back program.

The Iron Dome is not the entire missile shield – it is one layer of it. It is only intended to tackle missiles with ranges between 2.5 to 43 miles. The second layer is David’s Sling, or “Magic Wand,” which targets ballistic missiles and medium-range rockets, unmanned and manned aircraft, cruise missiles and guided weapons in the 43 to 155 mile range. This layer has been under development with Raytheon and has, from all accounts, been very successful in tests. It is slated for operation later this year. The third layer is the Arrow missile system which will be used to bring down long-range ballistic missiles. The Arrow system uses the two-stage Arrow 2 interceptor with a fragmentation warhead to destroy an incoming target. This is unlike the Tamir, which only knocks the missile out of the sky, but doesn’t destroy the warhead, according to an MIT Professor Ted Postol in a recent MIT Technology Review report. Its successor, Arrow 3, is also a two-stage interceptor and destroys an incoming threat with an exoatmospheric kill vehicle. This generation uses a “hit-to-kill” approach instead of a fragmenting warhead. It will expand the engagement range up to potentially four times.

There was one note of lunacy courtesy of the United Nations, Human Rights Council related to Iron Dome. FoxNews reported:

The United Nations slammed Israel for possibly committing war crimes in its fight against Hamas — and then backed that accusation by suggesting the Jewish nation ought to be sharing its Iron Dome defensive technology with the very terror group it’s fighting.

U.N. High Commissioner for Human Rights Navi Pillay, a Southern African Judge of Tamil Indian origin,  said to members of the media at an “emergency” meeting of the U.N. Human Rights Council that Israel was falling short in its duty to protect citizens in the Gaza Strip from getting killed by its rockets.

Ms. Pillay also condemned the United States for helping to fund the Iron Dome for Israel, but not granting any such accommodations to those in Gaza.

Ms. Pillay is delusional that Israel would provide its protective missile shield to Hamas. That would completely seal the destruction of the Jewish state. Perhaps she ought to trying living in Ashkelon for a day to experience what Senator Mikulski’s friend has to live through, but for the protection of Iron Dome.  But this is the UN Human Rights Council presided dominated by Human Rights violators.

EDITORS NOTE: This column originally appeared in the New English Review. The featured image is of Israeli children looking at the Israeli military′s Iron Dome defense missile system, designed to intercept and destroy incoming short-range rockets and artillery shells, deployed in Gush Dan, the Tel Aviv metropolitan area, on November 17, 2012 (AFP Photo / Roni Schutzer.

RELATED VIDEO: Shaping Tomorrow Together: Iron Dome

Spontaneous Overflow: Usury and the birth of money by Sarah Skwire

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Ben Jonson: To Penshurst (1612)

Thomas Carew: To Saxham (1640)

Robert Herrick: A Panegyrick to Sir Lewis Pemberton (1613–1634)

Downton Abbey and its nonfictional counterpart Highclere Castle have inspired a new rush of interest in the elegance and beauty of the English manor house. These aristocratic country homes have been subjects of fascination from the first, and there is even an entire genre of poetry dedicated to describing them and the way of life that centers on them. It will come as no surprise to fans of Downton Abbey orManor House or any of Jane Austen’s novels that, alongside all the pastoral beauty, there are some interesting economic issues at play in these poems. When we read them we are taken right into a debate about charity, responsibility, and disparities in wealth.

When G. R. Hibbard defined the country house poem genre in his 1956 article, “The Country House Poem of the Seventeenth Century,” he argued that the idea of sponte sua was central to these poems. Sponte sua, as he put it, means that “The things of nature … find their proper end and pleasure in being put to use.” In the country house poems, this trope is evidenced by the (often literal) voluntary self-sacrifice of fish, birds, and beasts in order to serve as food for the residents of the country house. While the sponte sua trope is sometimes subtly portrayed with images of endlessly fruitful trees, ever-full roasting spits, or horns of plenty, it is never absent. And it is, I think, at its most economically interesting when it is at its most explicit, as it is in Ben Jonson’s “To Penshurst” and Thomas Carew’s “To Saxham.”

Jonson writes:

The painted partridge lies in ev’ry field,
And for thy mess is willing to be kill’d.
And if the high-swoln Medway fail thy dish,
Thou hast thy ponds, that pay thee tribute fish,
Fat aged carps that run into thy net,
And pikes, now weary their own kind to eat,
As loth the second draught or cast to stay,
Officiously at first themselves betray.
Bright eels that emulate them, and leap on land,
Before the fisher, or into his hand.
And Carew, emulating him, gives us:
The pheasant, partridge, and the lark
Flew to thy house, as to the Ark.
The willing ox of himself came
Home to the slaughter with the lamb,
And every beast did thither bring
Himself, to be an offering.
The scaly herd more pleasure took,
Bathed in thy dish than in the brook.

Many critics have seen the sponte sua trope as a way of preserving order. Nature is here to serve man. But I want to suggest another function for these passages. They give the country house poet yet another way to engage in the apparently endless early modern debate over Aristotle’s comments about money in thePolitics.

The most hated sort [of money-making], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term usury [τ?κος], which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of making money this is the most unnatural.

Regardless of whether Aristotle is “right” about money, early modern poets seized on the vivid imagery of breeding and birth offered in the passage and replicated it throughout the sixteenth and seventeenth centuries. Aristotle is speaking specifically of money and of the unnaturalness of increasing it, as it is not—like animals or plants—naturally given to increase itself. The natural things—birds, fish, plants, etc.—that are so productive and self-sacrificing in the country house poems should not be, speaking strictly logically, open to this Aristotelian charge of unnatural reproduction. But one of the most pressing concerns of the country house poem is finding ways to praise the wealthy in a time of great economic instability and inequality. In times such as those, possession of even the most “natural” forms of wealth can leave one open to severe critique, no matter how irrational.

Nervousness over this kind of critique of wealth certainly explains the country house poem’s focus on the comparative modesty of the country houses that are being praised. From Jonson’s “Thou art not, Penshurst, built to envious show,” to Carew’s “the architect/Did not with curious skill a pile erect/Of carved marble, touch, or porphyry/But built a house for hospitality,” the country house poem is laden with assertions that these houses, though large, are not grand or showy. They are built in the proper fashion and of the proper size to fulfill the duties of hospitality that their owners are obligated to perform.

Piled on top of these assertions about the appropriately modest use of wealth in the country house are reassurances that the constructing of these houses causes harm to no one.  Penshurst is reared with “no man’s ruin, no man’s groan/There’s none that dwell about them wish them down.” And when Herrick writes his Panegyrick to Sir Lewis Pemberton, he carefully notes, “No widow’s tenement was rack’d to gild/ or fret thy ceiling, or to build.…” This is wealth and beauty that is consciously separated by the poet from concerns about inequity.

But the country houses do much more than simply fail to cause distress. In an attempt to alleviate (not eliminate) the inequalities of wealth for which they are so explicitly not responsible, they actively nourish those around them through continual acts of charity. Penshurst is laden with “free provisions, far above/The need of such whose liberal board doth flow/With all that hospitality doth know!” Saxham, in winter, would have been surrounded by starving neighbors “If not by these preserved/Whose prayers have made thy table blest/With plenty, far above the rest.” Pemberton’s home welcomes “the lank stranger and the sour swain/Where both may feed and come again.”

All of this sounds really great. But there are problems.

These poetic statements about modest display of wealth, about labor-free and cost-free construction, about effortless and continual charity are made amid the context—nicely outlined by critics like Hugh Jenkins and Kari Boyd McBride—of great social and economic disruption as well as an increasing willingness and need for the landed gentry to engage in that most shocking of occupations, trade. This means that possessing the kind of superfluity detailed in these poems, the kind of superfluity necessary to engage in a near-continual outpouring of charity, is suspect. To have so much one must have been hoarding, or grinding the faces of the poor, or participating in shameful commerce. There has been—and here comes Aristotle again—simply too much increase, too much muchness, for everything to be quite natural and honest.

And it is here that we return to sponte sua. Because in this troubling context what sponte sua does is to make superfluity entirely natural. The fish, birds, game, and plants not only reproduce entirely of their own free will, they give themselves up to be used charitably in the same way. This means that, while the owners of the country houses can still retain spiritual and moral credit for acting charitably—they did not, after all, keep all this excess to themselves—they are simultaneously excused from any taint of work or trade or Aristotelian unnaturalness that might otherwise lurk behind the level of wealth required for this level of hospitality. If the fish leap into the net, the birds fly into the house, and the ox and lamb offer themselves for slaughter, the owners of these houses serve merely as a conduit for this natural outpouring. They have not undertaken to produce it.

What is going on here, I think, is a poetic attempt to address concerns about the unnaturalness of wealth, excess, and profit—and possibly even trade and commerce in general—by creating an aggressively natural image of them as a response. The irony is that the hypernatural images of sponte sua aren’t natural at all. It is entirely against nature for an animal to sacrifice itself willingly in order to provide humans with food. These are the contorted positions produced by valuing charity in a time when it could be seen as morally suspect to try to create the superfluity of money and goods that are necessary in order to perform charity.

20121127_sarahskwireABOUT SARAH SKWIRE

Sarah Skwire is a fellow at Liberty Fund, Inc. She is a poet and author of the writing textbookWriting with a Thesis.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Tragedy of the Healthcare Commons: The Affordable Care Act contributes to an already unsustainable situation by D.W. MacKenzie

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Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the healthcare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor-supply issues. Give the mounting difficulties with and growing concerns about the ACA, it is worthwhile to reconsider the main issues regarding this program.

The Congressional Budget Office (CBO) recently published a report examining some of these problems. It contains nothing new. Many commentators have discussed the projection of lower labor-force participation. Obamacare subsidies will allow lower-income Americans to work less. People do in fact work less if their costs are shared. The tendency of people to withhold work from collective undertakings is known among economists as a tragedy of the commons.

Reduced labor-force participation means both lower total tax revenue and higher spending on government benefits. The CBO’s long-term forecasts report serious imbalances between tax revenues and federal spending. Federal deficits are projected to remain high, but “manageable,” for about a decade.

The costs of entitlements, along with regular budget items (defense and non-defense), are relevant to any discussion of the ACA’s affordability. The retirement of the baby boomers, though, will result in steadily rising costs for older entitlement programs. Taxpayers are already legally responsible for a national debt of $17 trillion (which  will hit $20 trillion by the time Obama leaves office). Interest payments on the national debt are low for the time being, but they won’t stay that way forever. The Medicare trustees have admitted to a long-term deficit of $34 trillion, but independent estimates run much higher. Social Security has an unfunded liability of more than $12 trillion. These costs pile on top of the current regular budget of $3.5 trillion, not to mention projected growth in this budget. Taxpayers are also responsible for the ACA’s cost overruns. Section 1342 of the ACA makes taxpayers responsible for bailing out insurance companies if the need arises.

Taxpayers are legally obligated to finance all of the above-mentioned expenditures, debts, and unfunded liabilities. People who believe in individual liberty reject the idea that people are morally obliged to fund ever-rising Federal expenditures. But the dispute over whether American taxpayers should fund projected federal spending is rendered academic by the fact that younger Americans will not be able to afford to pay for all of it. The commons created out of the New Deal and the Great Society is collapsing.

Economist Larry Kotlikoff estimates that average rates of taxation would have to rise 56 percent to cover projected increases in federal expenditures. Kotlikoff’s estimate may be high, but even a lower figure would leave Americans in dire financial straits. Taxpayers simply will not be able to fund all projected increases in all current federal programs. Bond investors will not finance our rising national debt in unlimited amounts. The ACA’s increased spending and lower labor-force participation, on top of these increases, makes national bankruptcy that much more likely.

National bankruptcy is not inevitable. The U.S. government is heading toward bankruptcy superficially because politicians have failed to set rational budget priorities, and fundamentally because citizens expect far too much of the public sector. The ACA was created out of concern that financial considerations bar access to healthcare to many people. And Americans do spend a large percentage of national income on healthcare.

The good news is that “we” have a substantial amount of leeway to save money on healthcare. Data on the overall effectiveness of public healthcare spending is clear, but not nearly as well known among voters. For example, The RAND Corporation conducted a health insurance experiment from 1974 to 1982, which showed that making healthcare “free,” or available at no personal marginal cost, does lead people to buy more. Much of this extra healthcare is inappropriate or largely unneeded, however. When people pay for more of their healthcare out of pocket, they tend to waste less money. The RAND study concluded, “In general, the reduction in services induced by cost sharing had no adverse effect on participants’ health.” Many other studies cast doubt on the effectiveness of providing healthcare at no private cost. According to another study, “Medicare enrollees in higher-spending regions receive more care than those in lower-spending regions but do not have better health outcomes or satisfaction with care.” Studies of people with health savings accounts (HSAs), as compared with people with plans like PPOs, show HSA holders control premium inflation better than their PPO counterparts.

Having people pay deductibles or bear other out-of-pocket costs causes us to economize on healthcare. Health insurance pools risks and creates a type of commons, whether done privately or publicly. The private commons of insurance companies does, however, have limits. Private insurance companies deny some types of coverage, depending on how much insurance people contract for in the first place. In other words, private insurance is not an open commons—it specifies the extent to which each policy holder can draw out of the insurance pool.

Public insurance programs lure people in by promising more benefits than private insurance plans offer. Yet public programs ultimately run into the basic problem of scarcity. The ACA pushes people out of very basic insurance plans into plans with higher levels of coverage, but excessive coverage is a major source of high healthcare costs. Americans spend a sizable portion of GDP on health expenses (17.9 percent in 2011). The overconsumption of healthcare by overinsured Americans is both a major source of excessive costs and a cost that can be cut with little adverse effect.

The tendency of people to waste money in open-access healthcare financing is simply going to produce another tragedy of the commons. Too few young people have been signing up at Healthcare.gov because younger Americans are mostly smart enough to avoid paying into a commons. Americans are signing up mainly because they expect to draw subsidies out of this commons.

Problems with managing a commons in healthcare financing are serious. Once someone enters into a life-threatening medical condition, they and their family will want every possible available step taken to save this person—provided that “someone else” pays. Passing costs onto someone else is, aside from being morally dubious, unworkable in the aggregate because we are each “someone else” to everyone else.

There are many costs associated with government intervention into the healthcare industry: administrative and regulatory compliance costs, elevated costs of litigation and court rulings, lobbying costs, costs of perverse incentives. The perversities associated with treating health as an open-access and politicized commons have, along with other, government spending programs, created an unsustainable fiscal situation. The unaffordability of the Affordable Care Act leaves us with two main options: Congress can repeal the ACA immediately through the legislative process, or we can all wait for the repeal process of national bankruptcy.

ABOUT D.W. MACKENZIE

D. W. MacKenzie is an assistant professor of economics at Carroll College in Helena, Montana.

Florida Senator Bill Nelson blames border crisis on budget cuts that he voted for in 2011

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Senator Bill Nelson (D-FL) responded to a constituent about the growing crisis on America’s Southern borders and the influx of illegals into cities and towns across the United States and in Florida.

Nelson responded on July 28, 2014 stating:

I’ve received your correspondence about the recent surge of undocumented children crossing the U.S. border.

Part of the reason we’re seeing this influx is an increase in violence associated with the drug cartels and people fleeing the region as a result. And part of the reason we’re seeing an increase in violence with the cartels is forced budget cuts made to the U.S. drug interdiction efforts. What we’re dealing with the children at the border is one of the consequences.

The law requires that we locate the families of these children and try to send them home unless they qualify for asylum. I’ve spoken with the administration and have been told that is what they plan to do.

As always, I appreciate hearing from you and will keep your views in mind. If you have any other concerns, please do not hesitate to contact me again.

Sincerely,
Bill Nelson

Senator Nelson blames the increased violence along the border and the influx of “undocumented children” on “budget cuts made to the U.S. drug interdiction efforts.” What is noteworthy is that Senator Nelson voted for The Budget Control Act of 2011 (S 365) that is cutting these very drug interdiction funds. Senator Marco Rubio voted against S 365.

Nelson is blaming the crisis on something that he and Congress created – sequestration.

Senator Nelson then states these children will be sent home “unless they qualify for asylum.” He assures his constituent “I have spoken with the administration and have been told that is what they plan to do.” However, on July 30, 2014 Fox News’ White House correspondent reports:

President Obama is considering executive actions to reduce the number of illegal immigrant deportations, including issuing work permits to some of the estimated 11 million illegal immigrants currently in the U.S., according to a published report.

The Wall Street Journal, citing a White House official, reported that an announcement on any executive action is expected to take place soon after Labor Day. The paper also reported that the president began considering such an action after congressional Republicans said that they would not take up immigration reform during this session.

Obama has already exempted from deportation approximately 500,000 illegal immigrants who were brought to the U.S. as children. The Journal reports that any new action could expand the protections to their parents or other illegal immigrants, such as those whose children have become U.S. citizens, who have been in the U.S. for a certain amount of time, or who have gainful employment.

Read more.

It appears that Senator Nelson is lying to his constituents about what is happening, why and who is to blame? What do you think?

Interested readers may send a message to Senator Nelson, using the form on his website:  http://www.billnelson.senate.gov/contact-bill.

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Fraud in the Florida Department of Economic Opportunity

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According to Jesse Panuccio, Executive Director of the Florida Department of Economic Opportunity (DEO), “A core principle of the state’s economic development incentive program is that businesses are paid based on verified performance, meaning no tax dollars are paid until job creation or capital investment numbers are audited and confirmed to protect taxpayer investment.”

Since 2011 Department of Economic Opportunity has awarded $269,114,050 in incentives. In 2011 Florida businesses were paid $32,901,728 and created 2,292 confirmed jobs. That is at a cost of $14,355 per job created. According to the U.S. Department of Labor, Bureau of Labor Statistics, Florida employs 7,453,230 people, with a mean hourly wage of $19.78 and an annual wage of$41,140. For the cost (taxation) of three incentives one average wage job could have been created by Florida businesses.

But are incentives paid based upon verified performance? Is using Florida’s tax payer dollars to create jobs a role for government?

Director Panuccio is working to stem the bleeding in a lawsuit involving John Textor the former CEO of Digital Domain. Senator Christopher L. (Chris) Smith (D-FL District 31) is asking questions about the role played by the department and the Economic Development Council in funding Textor and Digital Domain. But is Senator Smith asking the right questions?

Senator Smith wrote to Governor Rick Scott about Digital Domain. Director Panuccio, replying to Senator Smith on behalf of the Governor, wrote:

As for the specific concerns in your letter, first, please allow me to address the forthcoming lawsuit against those associated with the Digital Domain Media Group. In 2009, the Office of Tourism, Trade, & Economic Development (“OTTED”) – predecessor agency to the Department of Economic Opportunity (“DEO”) – distributed tens of millions of taxpayer funds to Digital Domain. As noted in the 2013 Inspector General Report (Report Number 2013-11), the usual state regulatory processes governing the award of such funds were circumvented. In 2012, Digital Domain filed bankruptcy and laid off all of its employees – thereby breaching the grant fund agreement. DEO has filed a notice of claim against Digital Domain in the bankruptcy proceeding. DEO has also hired outside counsel to identify any and all legal action available against the principals of Digital Domain and any other individuals or entities involved in wrongdoing related to this deal. DEO is committed to recouping all monies owed to the state, including approximately $20 million in incentive funding.

Panuccio concludes with, “In short, Florida’s economic development system is working better today than at anytime in the past – an opinion shared by economic-development professionals across the state and nation.  We follow the law, we protect taxpayer money, and we get results.  Florida’s economy has turned around thanks to Governor Scott’s leadership.  We appreciate your support of our efforts. ”

What is missing from this entire conversation between Senator Smith and Director Panuccio: Is there a role for government in economic development and if so, what is it?

Many believe government has no role in funding, via incentive programs, business. These “incentive programs” are described as “crony capitalism” and “corporate welfare” by Main street Americans. In April U.S. Senator Mike Lee (R-Utah) gave a thoughtful speech (watch the below video) warning of “America’s crisis of crony capitalism, corporate welfare, and political privilege.”  The victims are every day folks, “the poor and middle class” excluded by government “from earning their success on a level playing field.” Senator Lee noted, ““Big government isn’t just inefficient, it’s fundamentally unfair.”

Mark Shousen, writes, “In his classic work, The Spirit of the Laws (1748), Montesquieu expressed the novel view that the business of moneymaking serves as a countervailing bridle against the violent passions of war and abusive political power. ‘Commerce cures destructive prejudices,’ he declared. ‘It polishes and softens barbarous mores . . . . The natural effect of commerce is to lead to peace.’ Commerce improves society: ‘The spirit of commerce brings with it the spirit of frugality, of economy, of moderation, of work, of wisdom, of tranquility, of order, and of regularity.’”

Government does just the opposite. Digital Domain is a prime example of the Florida Department of Economic Opportunity creating “destructive prejudices.”

Perhaps it is time to rethink the need for this Florida Department? For you see the only thing that creates a job is profit. Government does not create wealth, it takes it and redistributes it. Corporations are at their best when they cater to their customers, and at their worst when they lie in bed with government. Can you say corporate prostituting themselves to government?

Adam Smith wrote, “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”

AGENDA: Grinding America Down

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All American citizens who hold their FREEDOM dear, and support family values should watch the below listed video entitled “AGENDA: Grinding America Down.”   We’ve received thousands of E-mails each week for 5 years; “AGENDA: Grinding America Down” is one of the most significant presentations we’ve viewed over these past 5 years.

Before you watch “AGENDA: Grinding America Down”, please watch this 19 second video:

The video is about the values you want to ensure your children & your extended family members benefit from, it supports the different religious faiths that provide the foundation upon which human values are based, it’s about supporting the members of the US Armed Forces—many of whom gave their last full measure of devotion in order to defend the Republic—it is mainly about the FREEDOMS accorded to all American citizens in the US Constitution by the Founding Fathers.

AGENDA: Grinding America Down

Using Obama’s own words, when he said that he fully intends to “fundamentally transform” our 238 year old Republic; we now have witnessed his true goal to create a Socialist State by any means necessary.  By repealing President Clinton’s requirement that welfare recipients must work for financial aid from the government, over the past 6 years, Obama has managed to enroll a record number of Americans and illegal immigrants in government welfare program with 40 million on food stamps, and millions of new recipients on the disability rolls.

Obama has been framing traditional US work ethics as the foolish belief that President Ronald Reagan once supported, with President Reagan’s thesis that anyone can lift themselves up by their bootstraps being the promise that always has been America and the success that comes about from hard work.  In order to “fundamentally transform America”,  Obama in his speeches and his bloated bureaucracy has been working to replace President Reagan’s well held belief  in American’s work ethic, that contributed to the most successful economy in the history of mankind with something that has never worked in any country in history.  Obama wants to replace American work ethic with the Marxist principal that government must distribute the wealth created by hard working Americans to those who have little interest in working.  Obama wants to more heavily tax the top 10% of successful American earners who already pay 68% of all the taxes in the nation each year (the bottom 50% of earners in America pay 3% of all the taxes).

Obama’s unrelenting attack on the Second Amendment and the right of American citizen’s to bear arms, and the protections accorded all American citizens by provisions of  the Second Amendment that is under relentless assault by the Obama administration.  Obama’s use of the IRS to suppress the rights of conservative Americans who were trying to exercise their right to participate in a national presidential elections should have a special Prosecutor assigned, but Holder refuses to appoint one.   Obama is also using Holder’s Justice Department to prevent states from issuing voter IDs to endure American citizens only vote once, in the last presidential election 7 million voters voted in two states; voter fraud was not controlled; the fear of rampant voter fraud looms large in the November election.

AGENDA Grinding America Down graph

For a larger view click on the chart

The Obama administration will eventually meet with serious and widespread “unorganized” opposition from American citizens because of his violation of Federal Laws, Immigration Laws, and provisions of the US Constitution.   The  Obama administration has been preparing for possible citizen’s unrest, by creating heavily arming federal police force swat teams in the Capital Police Force, Park Police, DHS, the Wildlife Service, the Marshal Service, in the IRS, the Postal Police, the Department of Defense Police, the Federal Protective Service, the Secret Service, and Obama ‘s National Police Force authorized & funded by the Obamacare Law, while providing DHS with armored vehicles, and purchasing excessive amounts of ammunition (more than the US Army and the US Marine Corps uses each year in training their personnel).

The most important Congressional election in 238 years will be held in about 3 months, we encourage you to support the endorsed Combat Veterans For Congress listed in the attachment.  They have the courage to stand up to bureaucratic excesses, will work to rein in the out of control spending by irresponsible members of Congress & the Obama administration, and will protect and defend the US Constitution.

Former Congressman Allen West: “America At Its Best”

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Former Congressman and retired U.S. Army Lieutenant Colonel Allen West’s full “America At Its Best” speech from the Western Conservative Summit in Denver, Colorado.

[youtube]http://youtu.be/CNXADfiQUR8[/youtube]

Cliches of Progressivism: Rich People Have an Obligation to Give Back by Lawrence W. Reed

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For a society that has fed, clothed, housed, cared for, informed, entertained, and otherwise enriched more people at higher levels than any in the history of the planet, there sure is a lot of groundless guilt in America.

Manifestations of that guilt abound. The example that peeves me the most is the one we often hear from well-meaning philanthropists who adorn their charitable giving with this little chestnut: “I want to give something back.” It always sounds as though they’re apologizing for having been successful.

Translated, that statement means something like this: “I’ve accumulated some wealth over the years. Never mind how I did it, I just feel guilty for having done it. There’s something wrong with my having more than somebody else, but don’t ask me to explain how or why because it’s just a fuzzy, uneasy feeling on my part. Because I have something, I feel obligated to have less of it. It makes me feel good to give it away because doing so expunges me of the sin of having it in the first place. Now I’m a good guy, am I not?”

It was apparent to me how deeply ingrained this mindset has become when I visited the gravesite of John D. Rockefeller at Lakeview Cemetery in Cleveland a couple years ago. The wording on a nearby plaque commemorating the life of this remarkable entrepreneur implied that giving much of his fortune away was as worthy an achievement as building the great international enterprise, Standard Oil, that produced it in the first place. The history books most kids learn from these days go a step further. They routinely criticize people like Rockefeller for the wealth they created and for the profit motive, or self-interest, that played a part in their creating it, while lauding them for relieving themselves of the money.

More than once, philanthropists have bestowed contributions on my organization and explained they were “giving something back.” They meant that by giving to us, they were paying some debt to society at large. It turns out that, with few exceptions, these philanthropists really had not done anything wrong.

They made money in their lives, to be sure, but they didn’t steal it. They took risks they didn’t have to. They invested their own funds, or what they first borrowed and later paid back with interest. They created jobs, paid market wages to willing workers, and thereby generated livelihoods for thousands of families. They invented things that didn’t exist before, some of which saved lives and made us healthier. They manufactured products and provided services, for which they asked and received market prices.

They had willing and eager customers who came back for more again and again. They had stockholders to whom they had to offer favorable returns. They also had competitors and had to stay on top of things or lose out to them. They didn’t use force to get where they got; they relied on free exchange and voluntary contract. They paid their bills and debts in full. And every year they donated some of their profits to lots of community charities that no law required them to support. Not a one of them that I know ever did any jail time for anything.

So how is it that anybody can add all that up and still feel guilty? I suspect that if they are genuinely guilty of anything, it’s allowing themselves to be intimidated by the losers and the envious of the world, the people who are in the redistribution business either because they don’t know how to create anything or because they simply choose the easy way out. They just take what they want or hire politicians to take it for them.

Or like a few in the clergy who think that wealth is not made but simply “collected,” the redistributionists lay a guilt trip on people until they disgorge their lucre—notwithstanding the Tenth Commandment against coveting. Certainly, people of faith have an obligation to support their church, mosque, or synagogue, but that’s another matter and not at issue here.

A person who breaches a contract owes something, but it’s to the specific party on the other side of the deal. Steal someone else’s property and you owe it to the person you stole it from, not society, to give it back. Those obligations are real and they stem from a voluntary agreement in the first instance or from an immoral act of theft in the second. This business of “giving something back” simply because you earned it amounts to manufacturing mystical obligations where none exist. It turns the whole concept of “debt” on its head. To give it “back” means it wasn’t yours in the first place, but the creation of wealth through private initiative and voluntary exchange does not involve the expropriation of anyone’s rightful property.

How can it possibly be otherwise? By what rational measure does a successful person in a free market, who has made good on all his debts and obligations in the traditional sense, owe something further to a nebulous entity called “society”? If Entrepreneur X earns $1 billion and Entrepreneur Y earns $2 billion, would it make sense to say that Y should “give back” twice as much as X? And if so, who should decide to whom he owes it? Clearly, the whole notion of “giving something back” just because you have it is built on intellectual quicksand.

Successful people who earn their wealth through free and peaceful exchange may choose to give some of it away, but they’d be no less moral and no less debt-free if they gave away nothing. It cheapens the powerful charitable impulse that all but a few people possess to suggest that charity is equivalent to debt service or that it should be motivated by any degree of guilt or self-flagellation.

A partial list of those who honestly do have an obligation to give something back would include bank robbers, shoplifters, scam artists, deadbeats, and politicians who “bring home the bacon.” They have good reason to feel guilt, because they’re guilty.

But if you are an exemplar of the free and entrepreneurial society, one who has truly earned and husbanded what you have and one who has done nothing to injure the lives, property, or rights of others, you are a different breed altogether. When you give, you should do so because of the personal satisfaction you derive from supporting worthy causes, not because you need to salve a guilty conscience.

Lawrence W. Reed
President
Foundation for Economic Education

Summary

  • The innocent-sounding phrase, “I want to give back,” far too often implies guilt for having been productive or successful.
  • If you earned your wealth through free and voluntary exchange, don’t let others get away with making you feel guilty just because you have it.
  • The people who really should “give it back” are those to whom it doesn’t belong or who took it from others in the first place.
  • For further information, see:

“On Giving Back” by George C. Leef: http://tinyurl.com/lqd3lo6

“Give Up on Giving Back?” by Sandy Ikeda: http://tinyurl.com/or7jhh3

“Giving Back” by Steven Horwitz: http://tinyurl.com/pwqjqzw

20130918_larryreedauthorABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: Versions of this essay have previously appeared in FEE’s journal, The Freeman, under the title, “Who Owes What to Whom?”

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

The antecedents to this collection are two classic FEE publications that YAF helped distribute in the past: Clichés of Politics, published in 1994, and the more influential Clichés of Socialism, which made its first appearance in 1962. Indeed, this new collection will contain a number of essays from those two earlier works, updated for the present day where necessary. Other entries first appeared in some version in FEE’s journal, The Freeman. Still others are brand new, never having appeared in print anywhere. They will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org until the series runs its course. A book will then be released in 2015 featuring the best of the essays, and will be widely distributed in schools and on college campuses.

See the index of the published chapters here.