Tag Archive for: economy

7 Things the Left Should Apologize For

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While attending a gathering of conservatives a few years ago in Washington, D.C., I was confronted by a far Left group conducting an amateur “ambush interview.” They demanded I opine on the comments of a number of 2012 Republican U.S. Senate candidates whom they found objectionable, and it was clear that they were seeking some sort of apology.

The Left loves to demand apologies from conservatives for grievances both real and imagined and, sadly, sometimes we play along with this ridiculous game.

The Left loves to demand apologies from conservatives for grievances both real and imagined and, sadly, sometimes we play along with this ridiculous game. I frequently wonder why conservatives don’t pay back the favor and demand apologies from the Left.

At the macro level, the Left should apologize to America for their continued allegiance to European-style welfare statism. At the micro level, they should apologize for their ongoing use of hateful division politics.

These two guiding ideologies of the Left have caused immeasurable poverty, misery and grief. Their intent to divide us is leading to concertina-wire-reinforced borders among the individual race, gender, and religious silos that they have chosen for us.

With the continued focus on the 2016 presidential elections we should start demanding apologies from the Left. Here are seven things the Left is largely responsible for which I’m demanding apologies before Election Day.

The death of four American patriots in Benghazi and the disgusting lies told to the families of the deceased…

  1. Sanctuary cities and the murder of Kate Steinle, by an illegal immigrant deported, an unforgivable five times.
  2. The ruthless political targeting of conservatives by the IRS to silence conservatives and advance the Left’s political agenda.
  3. The Obama economic “recovery,” where a tragic 1 in 5 Americans are now on some form of government welfare and over 90 million Americans are not working.
  4. The continuing destruction of the economies and education infrastructures of America’s once great inner cities by liberal governance.
  5. The massive health insurance premium hikes, outrageously high deductibles, and doctor and hospital restrictions imposed on middle class Americans by the disastrous Obamacare legislation.
  6. The death of four American patriots in Benghazi and the disgusting lies told to the families of the deceased, and to concerned American citizens, by the Obama administration afterwards.
  7. And, most importantly, the continued shredding of our Constitutional Republic, and what little faith we had left in our government.

Demand an apology from the Left for this, America deserves it.

EDITORS NOTE: This column originally appeared in the Conservative Review. The featured image of former Secretary of State Hillary Clinton testifying before Congress on Benghazi is courtesy by Bill Clark Roll Call CQ | AP Photo.

Global Coal Use Growing Faster Than Any Other Energy

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Over the last decade, global coal use grew by 968 million tonnes of oil equivalent. That is 4 times faster than renewables, 2.8 times faster than oil and 50 per cent faster than gas. That’s hardly justification for a requiem.

As Master of Oxford University’s Baillol College in the second half of the 19th century, Benjamin Jowett once submitted a contentious issue to a vote among Baillol’s dons and was displeased with the result. “The vote is 22 to 2. I see we are deadlocked.”

enegy sources global

Jowett was determined to ensure that empirical facts were not going to deny him the result he wanted.

When it comes to the coal industry, environmental campaigners and fellow travellers in the media are busy wishing away facts that don’t suit their arguments.

‘‘The end of coal’’ was the tag­line for a Four Corners’ “analysis” of the coal sector last night. It was Episode 14 of Series 3 of the Four Corners’ critique of the mining industry.

Consistent with the established practice, the conclusion of the piece was predetermined and the narrative arranged accordingly.

Facts were in short supply, wishful thinking was not. A trustee of the Rockefeller Foundation, which funds activist groups and co-funded the development of an Australian anti-coal strategy in 2011, was wheeled out as an objective observer.

So the release of BP’s 2015 Statistical Review of World Energy in recent days is timely. Although BP is no friend of coal, the report provides an objective analysis of developments in global energy.

Let’s test some of the anti-coal crusaders’ claims with some objective facts.

First, it is claimed that coal is a dying energy source and its use is being phased out. Not so. According to the BP Review, over the decade to the end of 2014, coal use grew by 968 million tonnes of oil equivalent. That is 4 times faster than renewables, 2.8 times faster than oil and 50 per cent faster than gas. That’s hardly justification for a requiem.

Second, investors are not walking away from coal. Yes, some universities and some funds have decided to divest some of their stocks in fossil fuels. That’s their prerogative. But the overwhelming majority have not and will not divest of coal stocks. Sure the share prices of coal companies fall during a commodity downturn due largely to oversupply. So do the share prices of oil companies and grain producers when prices fall in those sectors.

The empirical evidence suggests that interest in the sector from lenders and investors remains strong. One of the anti-coal movement’s own groups, Bankwatch, has complained that global financing for coal mining rose to $US66 billion in 2014, up from $US55bn in 2013 and a 360 per cent increase from 2005.

The third claim is that renewable energy is capable of replacing fossil fuels, including coal.

Not likely. In 2014, if the world had relied on renewable energy like wind, solar and biomass for primary energy, then the world would have had just 9 days of heat, light and artificial horsepower.

Fourth, campaigners claim that coal has no future in a low emissions world. Not true. New generation technologies are slashing CO2 emissions from coal fired plants by as much as 40 per cent. These high efficiency low emissions plants are being rolled out in China, Japan and elsewhere in Asia. And the first large scale carbon capture and storage coal plant in Canada has slashed its CO2 emissions by 90 per cent. The Intergovernmental Panel on Climate Change has estimated the cost of meeting global reduction targets will be 138 per cent higher without the deployment of carbon capture and storage.

The campaigners also claim that major consuming nations are turning away from coal. But the International Energy Agency predicts that China will add 450 gigawatts of coal fired power over the next 25 years. That’s 40 per cent larger than the entire US coal fleet. As the International Energy Agency has predicted, “China will be the coal giant for many years in the future”.

Energy starved India is also expanding its coal use and is expected to become the world’s largest coal importer in the next decade. The anti-coal crusaders are confused when it comes to India, which, by the way, still has 300 million people without access to electricity.

Their intellectual callisthenics are driven largely by their opposition to the Adani project in the Galilee Basin, which will export high-quality thermal coal to India.

First the campaigners argued that India’s power needs could be supplied by renewable energy. Really? Wind, solar and biomass accounted for 2 per cent of India’s energy needs in 2014. That’s about one week of India’s primary energy needs.

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My 2015 Commencement Address

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All manner of people are giving commencement speeches to students graduating from colleges and universities these days. It is doubtful that any will be remembered because the prospects of students depend in large part on the economy into which they are entering, the majors they pursued, their individual ambitions, and capacity for hard work. Then, too, there’s dumb luck which often plays a role.

For those graduating this year, my profound sympathy because the economy could not be much worse short of being declared an official Depression. Out of a total of 330 million Americans, there are currently 93,194,000 Americans who are not in the workforce because they can’t find a job or have given up looking. Even in the field of manufacturing—not something you studied for—the number of jobs have declined by 7,231,000, some 37% since manufacturing peaked in the U.S. in 1979.

U.S. economic growth rate has slowed to 0.2%. In short, it is virtually non-existent. So, with your diploma in hand, unless you majored in the sciences, math or engineering, you are not likely to join the workforce any time soon. Those of you who majored in social work, theatre arts, elementary education, and something called parks and recreation, are going to be at the bottom of the salary scale for the rest of your life.

Of the previous graduates from 2008 to the present who voted for Barack Obama, just 14% have real jobs. You have had the vast misfortune of being born just in time to live through the worst presidency in the history of the nation. If, in fact, you even know the history of the nation.

You are at a further disadvantage because the curriculums of the government schools you attended have been so distorted that you have been led to believe that the Founding Fathers were all slave-owning, white elitists when in fact, many opposed slavery, the labor source of their era, and would have abolished it. However they knew they could not get the Constitution ratified by the southern states if they did. It’s called compromising for a greater goal, the finest and currently the oldest functioning Constitution on Earth.

Depending on your race and sex, you have already been taught to blame anything that goes wrong in your life on whether you are white, black or Hispanic, male or female. If you want to know what’s wrong, look in the mirror and ask yourself what you are doing wrong or not doing right—dressing, manners, behavior, addictions, et cetera.

If you have been raised to believe in God and have spiritual values, you are likely to be mocked, though not necessarily to your face. While still the majority faith in America, Christianity is under attack from many directions, not the least of whom are homosexuals that constitute less than 2% of the population. Their attack on traditional (and biological) male-female marriage that has been part of every civilization going back five thousand years and more will degrade society in many ways.

For many of you, graduation means years of paying off huge loans for the privilege of picking up a degree that, as noted—short of science, math and engineering—will not yield a lot of income. This will impact your lifestyle including possibly having to move back in with your parents. It may mean putting off marriage and a family of your own for a while and your loans will affect being able to secure a mortgage on a home, but everyone is having problems doing that these days.

So, if all this looks and sound bleak, it is because it is. A real commencement speech should tell you the truth but most of them do not. They are generally filled with inspiring talk about the future.

The future you are looking at along with everyone else is fraught with danger. That, however, can be said of every “future” that every American has faced since the nation was established. It took a shooting war with Great Britain just to have a nation and Americans have been engaged in wars large and small ever since.

The threat of Communism faced Americans after World War Two and generations previous to yours waited out and opposed the Soviet Union for nearly fifty years before it collapsed. Communism is still around however in China, nearby Cuba, Venezuela and other nations who suppress their people in the name of the utopian society they claim to have.

The more recent threat is the rise of Islamism, radical Islam as practiced and supported by a significant percentage of the world’s one billion-plus Muslims. It is a cult about Mohammed based on the total domination of the world. Divided between two sects, Sunnis and Shiites, when they are not killing each other, they are killing “infidels”, anyone who is not a Muslim.

It will fall to you and your fellow graduates to fix the nation’s problems and right now its biggest one is that the federal government is too large and we are collectively facing an $18 trillion debt that must be resolved because just paying interest on it makes doing anything else difficult at best.

All of the states are in debt as well as they struggle to pay the health benefits and pensions of civil service workers, active and retired. That often doesn’t leave much money for fixing potholes and other infrastructure needs.

Whatever problems you will encounter, keep in mind previous generations often encountered much worse, such as those in the 1930s during the Great Depression and in the 1940s who fought World War II, and those from the 1950s and 1970s who were called on to fight the Korean War and the war in Vietnam; more recently those who fought the war in Afghanistan and Iraq. Respect their sacrifices and their courage.

If you want to see the government grow even larger along with the debt, vote for Hillary Clinton. She’s still mentally and ideologically stuck in the 1990s, plus she has engaged in behavior that would get anyone else put in jail. You have a large choice among Republican candidates and eventually it will narrow to someone capable of tackling the future.

The best I can do is to wish you good luck. You’re going to need it.

© Alan Caruba, 2015

Are Markets Ruining Video Games? Or is intellectual property the real culprit? by MATTHEW MCCAFFREY

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Capitalism is ruining video games. So says game producer Lorne Lanning, creator of the Oddworld series, who recently sparked controversy by blasting economic developments in the gaming industry.

Lanning blames “capitalism” for gaming’s recent financial and artistic troubles, especially its emphasis on commercial success over artistic creativity. His basic claim is the same one levied against the film industry: major studios have been squeezing out their smaller competitors, taking advantage of market dominance to produce an endless stream of big-budget, artistically uninspiring sequels and spin-off franchises.

It’s unclear what Lanning (or anyone, really) means by capitalism, but he seems to be condemning the largely corporate world of game design and marketing. For instance, he mentions bureaucratic corporate structure, the quest for constant growth, and the need to appeal to mass markets as problems undermining the industry.

Several criticisms have been raised against Lanning’s claims.

First, he mainly seems upset about declining demand for the kinds of games he likes, so his arguments may be little more than sour grapes.

Second, markets produce to satisfy consumer wants, so if the artistic quality of games is low, isn’t that the fault of consumers’ tastes, rather than the market itself?

Third, without markets, there wouldn’t be a gaming industry. Markets increase productivity and make leisure possible, which in turn allows for the production of leisure goods like video games.

While there’s some truth to these criticisms, it’s important not to dismiss Lanning’s views as run-of-the-mill anti-market bias. In particular, we shouldn’t assume the game industry is a poster child for consumer sovereignty and healthy economic competition. In fact, what Lanning objects to sounds more like corporatism in the game industry than unregulated commerce; if so, it’s misguided to respond by defending game developers as heroic entrepreneurs or appealing to the wonders of the free market.

Lanning’s complaints may be justified, though he has misdiagnosed their cause: it’s actually regulation and a lack of markets that are hurting the game industry.

As it happens, major game studios have developed in ways we expect from firms artificially protected from competition: they’ve become less innovative, more risk-averse, and more focused on short-term gains. As Lanning puts it, in the gaming world, it’s not personalities and it’s not companies. It’s capitalism. So you get that [large] scale and now it gets more ruthless. These are public companies. This is Wall Street.

The analogy to Wall Street is telling, because the finance industry is at the heart of our heavily regulated and monopoly-privileged economy, and is probably the best example of what happens when government helps to eliminate market competition.

But what kind of intervention could be hampering competition in the gaming world?

One culprit is intellectual property (IP) law, which produces exactly the kind of problems Lanning is complaining about. Major studios spend a lot of money developing their IP, which they often license jealously. A case in point: Nintendo takes 40 percent of the ad revenue from YouTube videos featuring its games, a tactic that drives some creators away from their content.

Without noticing the irony, Lanning mentions several times the importance of retaining and nursing his own IP, all while protesting the sad state of small and medium-sized developers.

He may even have fallen prey to the anti-innovation incentive provided by IP, given that his recent projects have involved re-releasing classic titles rather than working on more ambitious (and uncertain!) projects. While IP law tends to favor the largest competitors, smaller firms can rely on it as well.

Ultimately, if developers want to pursue more artistic projects that appeal to smaller audiences, they need to take a step away from the one-size-fits-all corporate development supported by government regulation and toward genuine entrepreneurship and innovation.

If Lanning thought more about free exchange, he’d realize that markets produce exactly the kind of high-quality product he wants:

As craftsmen, our opportunity lies in finding the niches where we know our audience, we focus on it, we listen to it, we respect it, we treat it with some grace and … if you can keep mobilizing that audience, keep informing that audience, then how much is that worth?

It’s worth a lot. Yet, it’s markets that cater most effectively to diverse needs and niches, and it’s entrepreneurs who nurture value for consumers. Their success depends on it. We’re all better off when we turn our controllers over to the invisible hand.


Matthew McCaffrey

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

Some Basic Economic Truths

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During the summer of 1985 my oldest son, Mark, decided to leave his job as a chemistry teacher in a Silver Spring, Maryland, Catholic Boy’s High School to complete his Master’s thesis and his Doctoral work in Metallurgical Engineering at the University of Oklahoma.  With little money to finance the move, he was looking for ways to transport his wife; his five-year-old stepson, Chris; and his four month old infant son, David, from Washington, D.C. to Norman, Oklahoma.

Having recently retired from my job with a major oil company in suburban Philadelphia, I offered to help with the move.  So, on the appointed day I drove to Silver Spring and loaded every cubic foot of my trunk and my rear seat with some of their belongings.  As we headed west on Interstate 70, my son took the lead in a borrowed Mercury station wagon, with every cubic foot filled to capacity; my daughter-in-law followed close behind in their worn-out old Toyota, the baby strapped into a car seat beside her; and I brought up the rear with five-year-old Chris riding “shotgun” in the passenger seat beside me.

The trip across the country was not up to my usual standard for cross-country driving.  Since the Interstate highway from Indianapolis to St. Louis was completed, but unposted, I had always taken that to mean that they wanted me to use my own discretion.  As a result, I was accustomed to driving the 1.030 miles from Philadelphia to St. Louis in just under fifteen hours.  But on our trip in August 1985, from the D.C. area to St. Louis, it was drive two hours, nurse the baby, drive two hours, nurse the baby, and on and on.  Then, after a night’s rest in St. Louis we set out again the next morning for the last leg of our trip from St. Louis to central Oklahoma.

As we had lunch in a roadside restaurant in Joplin, Missouri, I remarked that we were just a few miles north of Camp Crowder, Missouri, where I spent the first week of my U.S. Army military career, and that I’d like to revisit the place sometime just to see if it was the same as it was in the summer of 1953.

That was the last word on the subject until we crossed the Missouri/Oklahoma state line fifteen or twenty minutes later.  It was then that young Chris said, “Grandpa, tell me about some of your war wounds.”

Not wanting to go into detail on how I was machine-gunned by a group of South Koreans in a “friendly fire” incident during basic training, I decided to tell him some stories about wounds I received when I was a boy, just a few years older than he.  So I proceeded to describe a long ugly scar I have on my right knee that I received when I was just ten or eleven years old.  When I had described the scar, Chris said, “Grandpa, how did you get that wound?”

I said, “Well, as I recall, my friends and I were at the local ballpark in my hometown, crawling around under the bleachers, when I knelt on a broken soda bottle.”  To which he replied, “What were you doing crawling around under the bleachers?”

I said, “We were looking for small change, nickels and dimes that people had inadvertently dropped while watching a softball game.”

“Why were you looking for nickels and dimes?” he asked.

To which I replied, “We wanted to buy some sodas.”

He thought for a moment, a puzzled look on his face.  Then he said, “Grandpa, you can’t buy a soda for five or ten cents.  Sodas cost sixty cents.”

Not when I was your age,” I replied.  “When I was your age we could by a soda for five cents.”

That came as a big surprise to him.  He said, “How did that happen, Grandpa?”

I said, “The Democrats did it.”

“The Democrats did it?  Why did they do that?”

Thinking I’d impart a bit of economics wisdom, I said, “Well, the Democrats discovered many years ago that if they passed a law taking money away from people who have jobs and who work for a living, and give it to people who don’t have jobs or who don’t want to work, the people who get the free money will always vote for them on election day.  That helps to create what we call inflation and that’s why a soda costs a lot more than five cents today.”

This was obviously a new concept for him and I could almost hear the wheels turning in the seat beside me.  Finally, he said, “Grandpa, could the Democrats pass a law that would make candy free?”

I replied, “Sure they could.  But think about it… if the Democrats made a law saying that candy would be free, how long do you think the people who make candy would continue to make it?”

New concept; I could hear the wheels turning again.  Then he said, “Grandpa, am I a Democrat?”

I said, “Well, it’s too early to tell.  We’ll have to wait a few years to find out.”

Then he asked, “Grandpa, could the Democrats make a law that some candy would cost money and some would be free?”

I replied, “Yes Chris, the Democrats could make some candy free and others that would cost money.  But are you asking whether the Democrats could make a law saying that the kind of candy you like would be free and all the rest would cost money?”

A big smile crossed his face.  He nodded his head and said, “Yeah!”

I said, “You’re a Democrat.”

I’m happy to report that my step-grandson has turned out just fine, in spite of his Democratic leanings as a five-year-old.  He graduated from the University of Oklahoma with a degree in Economics and is now a successful executive with a major Oklahoma City bank.  But now, thirty years later, there is evidence that many who were as ignorant of basic economic principles as my grandson was at age five, are still burdened by the same economic illiteracy.

The proof of what I say can be found in the television commercials of a company called Lear Capital, Inc.  In their most recent TV ads they tout the current low price of silver, showing a two dimensional graph in which the abscissa, or x-axis, represents time, and the ordinate, or y-axis, represents the fluctuations in the price of silver.  If one were to believe the graph, the market price of silver during a significant time period represented on the graph dipped to less than the price of production.  In fact, that claim is made quite clearly in the Lear Capital voice-over.

When I saw the ad I couldn’t help but be reminded of my grandson’s attitude toward the candy market when he was just five years old.  The fact that a precious metals marketing firm would continue spending big bucks attempting to convince television viewers that mining companies are continuing to mine silver when the market price is less than the cost of production, is proof that there are some adults out there in TV land who still believe in the Tooth Fairy.

When I posed the hypothetical question to my grandson thirty years ago, asking him how long he thought candy manufacturers would continue to make candy if there was no profit in doing so, it never occurred to me that, some thirty years later, silver miners might be doing just that.

However, there is some empirical evidence that there are fewer consumers who might fall for that advertising scheme than we might think.  Another Lear TV ad that has run on a daily basis for many months proclaims that the first one-hundred callers to their 800 number will receive up to $500 worth of free silver… just for calling their number.  If, in fact, callers to that 800 number are actually given silver coinage, they could be given a silver ten-cent piece, just for their taking the time to listen to a sales pitch, and the marketer could still claim truth in advertising by hanging their hats on the words “up to.”

Nevertheless, it is frightening to think that Madison Avenue advertising firms have such a low opinion about the economic smarts of the American people that they would air such an insulting advertisement.  My step-grandson has discovered some important economic truths.  Apparently, some in the corporate world and on Madison Avenue have not.

Are Markets Myopic? The illusion of government looking out for the long term by ROBERT P. MURPHY

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We often hear that individual investors are myopic. They make decisions based on a relatively short time horizon, so forget about the long run. That’s why we need government officials to step in with regulations, as well as corrective taxes and subsidies, to guide the market toward long-term social goals. Or so the story goes.

Though this view of markets versus government is common, it has things exactly backwards: markets do contain sophisticated mechanisms for rewarding long-term planning, and democratic political institutions encourage extremely short-term thinking.

The fundamental institution for promoting proper planning is private property. The owner of a piece of property has an incentive to take actions that enhance its market value. For example, consider the owner of a giant tin deposit who must decide how rapidly to extract the resource.

Those who are naïve about the operations of a market economy might suppose that the greedy capitalist owner would “strip mine” the deposit as quickly as possible, channeling all of the accessible tin into projects serving the current generation while ignoring the needs of future generations. A moment’s reflection shows this is nonsense.

The greedy capitalist owner is at least vaguely familiar with the notion that tin deposits — unlike apples and wheat — do not naturally replenish themselves year after year. An extra pound of tin extracted and sold this year means exactly one fewer pound of tin that this deposit can yield in some future year. Once we realize that the greedy capitalist doesn’t want to maximize revenue but instead wants to maximize market value, it is obvious that he must take the future into account when making current decisions.

Specifically, to maximize the market value of his asset, the owner should extract additional pounds of tin in the present (putting the proceeds in a financial investment earning the market rate of interest), until the point at which he would earn a greater return by leaving the next pound of tin in the deposit, to be sold next year at the expected market price. For example, if tin is selling today at $8 per pound, and the interest rate on financial assets is 10 percent, then the owner would halt his operations if he ever came to confidently expect the price of tin next year to be $8.80 or higher. (I’m assuming the marginal costs of extraction and selling are the same, year to year, just to keep things simple. See this article for a more comprehensive explanation using oil.) Once he reaches this point, the best “investment” of his additional units of tin would be to leave them in the mine, “ripening” for another year.

Thus we see that a greedy capitalist would implicitly (and unwittingly) take into account the desires of consumers next year when making current production decisions. He would be guided not by altruistic concern, but instead by personal enrichment. We see the familiar pattern of market prices guiding even selfish individuals into promoting the general welfare. If for some reason tin were expected to be scarcer in the future, then its expected spot price in the future would be higher. This would lead owners to hold tin off the market in the present, thus driving up its price even today, in anticipation of the expected future price. Modern financial and commodities markets — with futures and forward contracts, as well as more exotic derivatives — refine things even more, drawing on the dispersed knowledge and different risk appetites of millions of people.

The critics of capitalism would probably complain again at this point, bemoaning the fact that the greedy owner was now “undersupplying tin” and gouging today’s consumers with artificially higher prices. But if so, the critics need to make up their minds: do we want the tin going to the present or to the future? There’s a finite amount of it to go around — that’s the whole (alleged) problem.

Notice that even if a particular owner of a tin deposit is diagnosed with terminal cancer, he still has an incentive to behave in this “efficient” manner. The reason is that he can sell the tin deposit outright. The market value of the entire deposit will reflect the (present discounted) future flow of net income derived from owning the deposit and operating it in the optimal manner indefinitely. If the owner ever thinks, Well, if I had 10 years left, I would run the operation in such-and-such a way, then that decision won’t change just because he only has one year left. Instead, he can sell the operation to the highest bidder, including people who do have 10 or more years left of expected life.

Thus, we see that contrary to the critics, a pure market economy contains sophisticated mechanisms to guide owners into acting as farsighted stewards of depletable natural resources. In complete contrast, political officials who control natural resources face no such incentives. Because they can’t personally pocket the revenues, or bequeath the asset to their heirs, political officials have the incentive to maximize thecurrent income from the natural resources under their temporary control, to the extent that they are guided by pecuniary motives.

Even here, it’s usually not the case that the government sells access to a resource in order to maximize current receipts. Rather, what often happens is that the government officials will give sweetheart deals to private interests (such as a logging company operating in a state-owned forest), allowing these officials to develop a business relationship that will benefit them after leaving government.

Private owners in a free-market economy have the incentive to maximize the long-term value of their property, which implicitly leads them to consider the desires of future generations. Democratically elected government officials, on the other hand, act as temporary custodians who will not personally benefit from maintaining the market value of the assets they control.

Rental car companies would be foolish to suppose that their customers will put the more expensive high-octane gas into their vehicles, even though the customers might do so if they personally owned the rental car. Yet, for some reason, millions of voters think that politicians with two-year terms will be more farsighted when it comes to economic resources than private shareholders will be.

ABOUT ROBERT P. MURPHY

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute. You can find him at http://consultingbyrpm.com/.

CLICHÉS OF PROGRESSIVISM #45 – “Robots and Computerization Cause Unemployment” by WENDY MCELROY

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“Report Suggests Nearly Half of U.S. Jobs Are Vulnerable to Computerization,” screams a headline. The cry of “robots are coming to take our jobs!” is ringing across North America. But the concern reveals nothing so much as a fear—and misunderstanding—of the free market.

In the short term, robotics will cause some job dislocation; in the long term, labor patterns will simply shift. The use of robotics to increase productivity while decreasing costs works basically the same way as past technological advances, like the production line, have worked. Those advances improved the quality of life of billions of people and created new forms of employment that were unimaginable at the time.

Given that reality, the cry that should be heard is, “Beware of monopolies controlling technology through restrictive patents or other government-granted privilege.”

Actually, they are here already. Technological advance is an inherent aspect of a free market in which innovators seeks to produce more value at a lower cost. Entrepreneurs want a market edge. Computerization, industrial control systems, and robotics have become an integral part of that quest. Many manual jobs, such as factory-line assembly, have been phased out and replaced by others, such jobs related to technology, the Internet, and games. For a number of reasons, however, robots are poised to become villains of unemployment. Two reasons come to mind:

1.Robots are now highly developed and less expensive. Such traits make them an increasingly popular option. The Banque de Luxembourg News offered a snapshot:

The currently-estimated average unit cost of around $50,000 should certainly decrease further with the arrival of “low-cost” robots on the market. This is particularly the case for “Baxter,” the humanoid robot with evolving artificial intelligence from the U.S. company Rethink Robotics, or “Universal 5” from the Danish company Universal Robots, priced at just $22,000 and $34,000 respectively.

Better, faster, and cheaper are the bases of increased productivity.

2.Robots will be interacting more directly with the general public. The fast-food industry is a good example. People may be accustomed to ATMs, but a robotic kiosk that asks, “Do you want fries with that?” will occasion widespread public comment, albeit temporarily.

Comment from displaced fast-food restaurant workers may not be so transient. NBC News recently described a strike by workers in an estimated 150 cities. The workers’ main demand was a $15 minimum wage, but they also called for better working conditions. The protesters, ironically, are speeding up their own unemployment by making themselves expensive and difficult to manage.

Compared to humans, robots are cheaper to employ—partly for natural reasons and partly because of government intervention.

Among the natural costs are training, safety needs, overtime, and personnel problems such as hiring, firing and on-the-job theft. Now, according to Singularity Hub, robots can also be more productive in certain roles. They “can make a burger in 10 seconds (360/hr). Fast yes, but also superior quality. Because the restaurant is free to spend its savings on better ingredients, it can make gourmet burgers at fast food prices.”

Government-imposed costs include minimum-wage laws and mandated benefits, as well as discrimination, liability, and other employment lawsuits. The employment advisory Workforce explained, “Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer between $75,000 and $125,000. If an employer loses summary judgment—which, much more often than not, is the case—the employer can expect to spend a total of $175,000 to $250,000 to take a case to a jury verdict at trial.”

At some point, human labor will make sense only to restaurants that wish to preserve the “personal touch” or to fill a niche.

The tech site Motherboard aptly commented, “The coming age of robot workers chiefly reflects a tension that’s been around since the first common lands were enclosed by landowners who declared them private property: that between labour and the owners of capital. The future of labour in the robot age has everything to do with capitalism.”

Ironically, Motherboard points to one critic of capitalism who defended technological advances in production: none other than Karl Marx. He called machines “fixed capital.” The defense occurs in a segment called “The Fragment on Machines” in the unfinished but published manuscript Grundrisse der Kritik der Politischen Ökonomie (Outlines of the Critique of Political Economy).

Marx believed the “variable capital” (workers) dislocated by machines would be freed from the exploitation of their “surplus labor,” the difference between their wages and the selling price of a product, which the capitalist pockets as profit. Machines would benefit “emancipated labour” because capitalists would “employ people upon something not directly and immediately productive, e.g. in the erection of machinery.” The relationship change would revolutionize society and hasten the end of capitalism itself.

Never mind that the idea of “surplus labor” is intellectually bankrupt, technology ended up strengthening capitalism. But Marx was right about one thing: Many workers have been emancipated from soul-deadening, repetitive labor. Many who feared technology did so because they viewed society as static. The free market is the opposite. It is a dynamic, quick-response ecosystem of value. Internet pioneer Vint Cerf argues, “Historically, technology has created more jobs than it destroys and there is no reason to think otherwise in this case.”

Forbes pointed out that U.S. unemployment rates have changed little over the past 120 years (1890 to 2014) despite massive advances in workplace technology:

There have been three major spikes in unemployment, all caused by financiers, not by engineers: the railroad and bank failures of the Panic of 1893, the bank failures of the Great Depression, and finally the Great Recession of our era, also stemming from bank failures. And each time, once the bankers and policymakers got their houses in order, businesses, engineers, and entrepreneurs restored growth and employment.

The drive to make society static is a powerful obstacle to that restored employment. How does society become static? A key word in the answer is “monopoly.” But we should not equivocate on two forms of monopoly.

A monopoly established by aggressive innovation and excellence will dominate only as long as it produces better or less expensive goods than others can. Monopolies created by crony capitalism are entrenched expressions of privilege that serve elite interests. Crony capitalism is the economic arrangement by which business success depends upon having a close relationship with government, including legal privileges.

Restrictive patents are a basic building block of crony capitalism because they grant a business the “right” to exclude competition. Many libertarians deny the legitimacy of any patents. The nineteenth century classical liberal Eugen von Böhm-Bawerk rejected patents on classically Austrian grounds. He called them “legally compulsive relationships of patronage which are based on a vendor’s exclusive right of sale”: in short, a government-granted privilege that violated every man’s right to compete freely. Modern critics of patents include the Austrian economist Murray Rothbard and intellectual property attorney Stephan Kinsella.

Pharmaceuticals and technology are particularly patent-hungry. The extent of the hunger can be gauged by how much money companies spend to protect their intellectual property rights. In 2011, Apple and Google reportedly spent more on patent lawsuits and purchases than on research and development. A New York Times article addressed the costs imposed on tech companies by “patent trolls”—people who do not produce or supply services based on patents they own but use them only to collect licensing fees and legal settlements. “Litigation costs in the United States related to patent assertion entities [trolls],” the article claimed, “totaled nearly $30 billion in 2011, more than four times the costs in 2005.” These costs and associated ones, like patent infringement insurance, harm a society’s productivity by creating stasis and preventing competition.

Dean Baker, co-director of the progressive Center for Economic Policy Research, described the difference between robots produced on the marketplace and robots produced by monopoly. Private producers “won’t directly get rich” because “robots will presumably be relatively cheap to make. After all, we can have robots make them. If the owners of robots get really rich it will be because the government has given them patent monopolies so that they can collect lots of money from anyone who wants to buy or build a robot.”  The monopoly “tax” will be passed on to impoverish both consumers and employees.

Ultimately, we should return again to the wisdom of Joseph Schumpeter, who reminds us that technological progress, while it can change the patterns of production, tends to free up resources for new uses, making life better over the long term. In other words, the displacement of workers by robots is just creative destruction in action. Just as the car starter replaced the buggy whip, the robot might replace the burger-flipper. Perhaps the burger-flipper will migrate to a new profession, such as caring for an elderly person or cleaning homes for busy professionals. But there are always new ways to create value.

An increased use of robots will cause labor dislocation, which will be painful for many workers in the near term. But if market forces are allowed to function, the dislocation will be temporary. And if history is a guide, the replacement jobs will require skills that better express what it means to be human: communication, problem-solving, creation, and caregiving.

Summary

  • The use of robotics to increase productivity while decreasing costs works basically the same way as past technological advances, like the production line, have worked. Those advances improved the quality of life of billions of people and created new forms of employment that were unimaginable at the time.
  • Compared to humans, robots are cheaper to employ—partly for natural reasons and partly because of government intervention. Natural costs include training, safety needs, overtime, and personnel problems such as hiring, firing and on-the-job theft. Unnatural, non-market costs stem from cronyism dispensed by governments.
  • An increased use of robots will cause labor dislocation, which will be painful for many workers in the near term. But if market forces are allowed to function, the dislocation will be temporary.

For further information, see:

“Technology and the Work Force: Work Will Not End” by Donald Jonas

“Good Economists, Bad Economists, and Walmart” by Lawrence W. Reed

“The Birth of the Modern: World Society 1815-1830” by Raymond J. Keating

If you wish to republish this article, please write editor@fee.org.

ABOUT WENDY MCELROY

Contributing editor Wendy McElroy (wendy@wendymcelroy.com) is an author, editor of ifeminists.com, and Research Fellow at The Independent Institute (independent.org).

EDITORS NOTE: 

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. See the index of the published chapters here.

The Pursuit of Profit Is Pro-Social by Matthew McCaffrey

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A value-creating business is “social” whether it pursues an explicit social agenda or not.

You can’t throw a rock these days without hitting someone who’s talking about entrepreneurship and why we need to encourage more of it. In the public and private sectors — especially in higher education — innovation, enterprise, and entrepreneurship are buzzwords like never before.

A big beneficiary of this trend is the field of social enterprise. Unlike ordinary businesses, the conventional explanation goes, social enterprises use their commercial activities to promote a broader aim of human well-being rather than simple profit maximization. An example is Jamie Oliver using the restaurant business to provide culinary training to disadvantaged youth or sell food that encourages healthier living, even if doing so hurts the bottom line. Because of these kinds of expansive goals, social enterprises tend to be looked on favorably by business students, governments, and the media.

But while social enterprises certainly do create value, emphasizing “social” goals over profits can be misleading because it implies that traditional profit-seeking entrepreneurship fails to produce wide-ranging benefits for large numbers of people. Thinking of social enterprise as distinct from conventional business helps obscure the vital truth that profit seeking is not only compatible with increases in human welfare, it is probably the most powerful force for producing them ever devised.

In fact, that’s the beauty of free-market enterprise: it’s social whether it pursues an explicit social agenda or not. Critics of government intervention often point out that good intentions don’t equate to good policies. Likewise, the absence of good intentions doesn’t equate to bad policy, and lacking a specific social goal doesn’t make entrepreneurs antisocial. Think of Adam Smith’s observation about the butcher, brewer, and baker, which reveals that commerce is social because it’s mutually beneficial, not because entrepreneurs necessarily have a larger agenda.

When a company like Uber charges a price for its services, it’s being social in the sense that it’s creating value for consumers, not just for itself. And the market is simply an elaborate network of voluntary exchanges in which buyers and sellers constantly make each other better off — which is why they do business to start with.

Free enterprise is therefore social enterprise, but the reverse is true as well: enterprise is social if and to the extent that it’s free. We are truly social when we choose our relationships and refrain from choosing our neighbors’. In a free market, the term “social enterprise” is redundant because it’s in the marketplace that human beings express some of their most fundamental social instincts. Buying and selling teach us about peaceful interaction for mutual gain — and reveal to us just how profoundly our well-being depends on our commitment to benefiting others.

However, if we choose coercion over peaceful cooperation, we abandon hope of a working social order. Any social enterprise worthy of the name is therefore hostile to economic intervention, because every intervention is a step away from social cohesion and toward conflict.

Unsurprisingly, the corporate state is the primary cause of antisocial tendencies in real-world enterprises. Take, for example, intellectual-property law. What could be more antisocial than prohibiting people from sharing ideas and using them to improve the welfare of others? Yet many who promote enterprise take it for granted that “protecting” ideas is an essential part of entrepreneurship.

This attitude hints at a broader institutional problem: the sort of enterprise supported by public rhetoric is rarely the kind of healthy economic activity that would be produced in a free economy. Instead, public support for enterprise tends to mean support for a few privileged ventures at the expense of others. Sadly, it’s common for governments the world over to emphasize the need for more entrepreneurship while simultaneously promoting policies that distort, penalize, or even outlaw it. That’s why it’s more important than ever to be wary of the different meanings attached to words like “social” and “enterprise” and how these useful terms come to be associated with harmful economic ideas.

If economics tells us anything, it’s that we can’t effectively promote enterprise without first abandoning the networks of privilege and regulation that undermine entrepreneurship and divert human talent into destructive practices. A vital step toward that goal is seriously considering the rhetoric we use to describe the market. Language radically alters perceptions of commerce and can make the difference between thinking of enterprise as zero-sum profit seeking or as the key to the countless benefits of peaceful exchange.

ABOUT MATTHEW MCCAFFREY

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

 

Obama Has Two More Years Left to Destroy the U.S. Economy

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As 2015 began the Journal Editorial Report on Fox News was devoted to having its reporters, some of the best there are, speculate on what 2015 holds in terms of who might run for president and what the economy might be. The key word here is “speculate” because even experts know that it is unanticipated events that determine the future and the future is often all about unanticipated events.

How different would the world have been if John F. Kennedy had not been assassinated? One can reasonably assume there would not have been the long war in Vietnam because he wanted no part of the conflict there. Few would have predicted that an unknown Governor from Arkansas would emerge to become President as Bill Clinton did. Who would believe we are talking about his wife running for President? That is so bizarre it is mind-boggling.

Most certainly, few would have predicted that an unknown first term Senator from Illinois, Barack Hussein Obama, would push aside Hillary Clinton to become the first black American to be nominated for President and to win in 2008. Despite the takeover of the nation’s healthcare system with a series of boldfaced lies, he still won a second term.

Obama now has two more years in which to try to destroy the U.S. economy; particularly its manufacturing and energy sectors. The extent to which he is putting in place the means to do that still remains largely unreported or under-reported in terms of the threat it represents.

Obama Says Planet is WarmingThe vehicle for the nation’s destruction is the greatest hoax of the modern era, the claim that global warming must be avoided by reducing “greenhouse gas” emissions.

A President who lied to Americans about the Affordable Care Act, telling them they could keep their insurance plans, their doctors, and not have to pay more is surely not going to tell Americans that the planet is now into its 19th year of a cooling cycle with no warming in sight.

To raise the ante of the planetary threat hoax, he has added “climate change” when one would assume even the simple-minded would know humans have nothing to do with the Earth’s climate, nor the ability to initiate or stop any change.

In 2015, the White House is launching a vast propaganda campaign through the many elements of the federal government to reach into the nation’s schools with the climate lies and through other agencies to spread them.

In particular, Obama has been striving to utilize the Environmental Protection Agency to subvert existing environmental laws and, indeed, the Constitution unless Congress or the courts stop an attack that will greatly weaken the business, industrial and energy sectors. It will fundamentally put our lives at risk when there is not enough electricity to power homes and workplaces in various areas of the nation. At the very least, the cost of electricity will, in the President’s own words, “skyrocket.”

Why doesn’t anyone in Congress or the rest of the population wonder why White House policies are closing coal-fired plants that provided fifty percent of our electricity when Obama took office and now have been reduced to forty percent? Did you know that more than 1,200 new coal-fired plants are planned in other nations with two-thirds of them to be built in India and China? We live in a nation that has such huge reserves of coal we export it.

The EPA attack on these plants is so illegal and unethical that one of the nation’s leading liberal attorneys, Laurence H. Tribe, who began teaching about environmental law 45 years ago, went on record to declare the EPA’s proposed Clean Power Plan is unconstitutional.

The plan is a regulatory proposal to reduce carbon emissions from the nation’s electric power plants. Tribe pointed out that a two-decade old Supreme Court precedent forbids the federal government from taking action to commandeer the powers of state governments by leaving them no choice but to implement it.

“The brute fact,” said Tribe “is that the Obama administration failed to get climate legislation through Congress. Yet the EPA is acting as though it has the legislative authority anyway to re-engineer the nation’s electric generating system and power grid. It does not.”

As 2014 came to a close, the Obama administration either proposed or imposed more than 1,200 new regulations on the American people.

Alex Newman, writing in the New American, calculated they will add “even more to the already crushing $2 trillion per year cost burden of the federal regulatory machine.” Not surprisingly, “most of the new regulatory schemes involve energy and the environment—139 during a mere two-week period in December, to be precise.”

“In all,” Newman reported, “the Obama administration foisted more than 75,000 pages of regulations on the United States in 2014, costing over $200 billion, on the low end, if new proposed rules are taken into account.” Just one, the EPA’s “coal ash” regulation, “is expected to cost as much as $20 billion, estimates suggest.”

Then add to that the EPA’s “ozone rule” that is estimated to cost “as much as $270 billion per year and put millions of American jobs at risk under the guise of further regulating emissions of the natural gas.” Released the day before Thanksgiving, “Experts also pointed out that the EPA’s own 2007 studies showed no adverse health effects from exposure to even high levels of ozone.”

These are just two examples of the regulatory strangulation of the nation’s economy and energy infrastructure.

This is Obama’s agenda for the remaining two years of his second and thankfully last term in office. Whether you know anything about the science of the climate or have ever even read the Constitution, the sheer disaster of ObamaCare should have told you by now that everything Obama has put in motion has had the single objective of destroying the nation’s economy in every possible way.

The voters have put Republicans in charge of both houses of Congress and their primary responsibility will be to reverse and repeal the damage of Obama’s first six years. The courts will play a role, but this is a job for our elected representatives.

© Alan Caruba, 2015

CLICHÉS OF PROGRESSIVISM #40 — “The Rich Are Getting Richer and the Poor Are Getting Poorer”

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Imagine you could go back in time 50 years. Suppose the reason you are doing so is to put policies into place that would ensure that the rich got richer and the poor got poorer. (Why anyone would want to do this is beside the point, but stay with me.) What policies would you set?

  1. You would want to price poor, unskilled people out of the labor market with an ever-increasing minimum wage;
  2. You would provide special favors, artificial competitive advantages, and taxpayer subsidies to the politically well-connected (i.e., those already rich);
  3. You would stifle new, small businesses with stacks of regulations and bureaucratic paperwork;
  4. You would (literally) pay people to stay in poverty, to be dependent on government, so that any work ethic would be suppressed and eroded.
  5. You would implement an erratic and largely inflationary monetary policy that erodes savings and creates destructive booms and busts.

All five of these in combination might do the trick. Throw up barriers to the progress of the poor, or pay people to stay poor, or rig the system so the rich and politically well-connected get artificial economic advantages and chances are, the poor will indeed get poorer and the rich will get richer.

By now you have probably noticed that every one of the policies above has been implemented to varying degrees since the Great Society. And yet the poor have still not gotten poorer in the United States.

According to professional skeptic Michael Shermer:

The top-fifth income earners in the U.S. increased their share of the national income from 43 percent in 1979 to 48 percent in 2010, and the top 1 percent increased their share of the pie from 8 percent in 1979 to 13 percent in 2010. But note what has not happened: the rest have not gotten poorer. They’ve gotten richer: the income of the other quintiles increased by 49, 37, 36 and 45 percent, respectively.

Detractors will try to argue that the poorest quintiles have a smaller percentage of the overall pie. And that might be true, but the pie is much, much bigger. Would you rather have 50 percent of a million or 20 percent of a billion? Another way of putting this is: Would you rather be better off, even if that meant certain people were super well off? Or would you rather everyone were worse off, as long as everyone were relatively equal?

That the poorest among us are still, on balance, doing better today than they were 50 years ago is a remarkable testimony to what relatively free people and markets can do, even as governments put up roadblocks. So if the poor aren’t getting poorer, why do people say they are?

If one starts with the assumption that an equal distribution of wealth is the ultimate goal, then he or she is not terribly concerned with how much of that wealth is created to begin with. But some people, at least, understand that wealth has to be created and that when there is more wealth created the poorest among us will tend to be better off. The choice of starting points boils down then to whether one cares about distributing wealth evenly or growing overall wealth through productive activity.

One reason this particular cliché manages to hang around is that people generally take a static view of the economy. The idea is that wealth is like a giant pie, which neither grows nor shrinks, but gets carved up and distributed certain ways. So, some people end up with the false idea that the only way the rich can be richer is if part of the wealth pie is taken from the poor. From this they conclude justice demands a different distribution of the pie. Advocates of “meritocracy” believe the static pie should be divided according to talent and hard work. Advocates of “social justice” think the pie should be divided according to some concept of equality. Both are wrong, but the fundamental error is in thinking that wealth is a static pie to start with. It is not.

Wealth can better be imagined as a growing pie, or better, a growing ecosystem. Of course, wealth doesn’t always grow, but it tends to—as long as people have the incentives to be productive. Merit and hard work tend to be rewarded in this growing pie, but rewards more generally accrue to those who create value for others.

In other words, someone who works really hard might not be rewarded if no one finds his work valuable—say, a man who digs ditches and fills them up again. Likewise, work that might be considered meritorious in an obscure academic journal might not confer any earthly good on humanity outside of the journals’ four-person review committee.

Advocates of so-called social justice want the wealth pie to be divided according to an arbitrary and subjective abstraction like “fairness” or equal outcomes. But carving up wealth according to some nebulous concept of justice ignores the actual ecosystem in which people operate. In other words, such a concept ignores the behaviors, incentives and exchanges that encourage people to be productive—i.e. to generate wealth. By distributing from rich to poor, you end up paying poorer people to be less productive, while punishing more productive people. The distribution that would flow from people making more goods and services available to all is lost by degree, making everyone worse off. If taxation and redistribution for the sake of equal outcomes makes us all worse off than we would otherwise have been, how is this social justice?

Egalitarian concepts of social justice also ignore any moral considerations that might attach to how an unequal distribution might have come about. If growing overall wealth is about people creating different degrees of value for each other, and taking different risks, then the rewards of value creation will never flow equally. Some people will make more money than others, for example, whether it’s because they were smarter investors, cleverer innovators, or better organizers. The rest of us enjoy the fruits of those efforts, so we might want successful people to keep investing, innovating and organizing — even if that means they get richer. And we might want to acknowledge that they deserve what they have.

(Editor’s Note: Economist Thomas Sowell has said, “Since this is an era when many people are concerned about ‘fairness’ and ‘social justice,’ what is your ‘fair share’ of what someone else has worked for?” I often ask this question of a redistributionist in the presence of another person and ask the former to specifically tell me how much is his ‘fair share’ of what the other person in our presence has earned. I’m still waiting for a satisfactory answer.)

Those of us who are not as productive (or, politically well-connected, as the case may be) still enjoy remarkable abundance in relatively free societies. In the United States, for example, all quintiles have become wealthier overall, over the last 30 years.

It is also true that there are fewer desperately poor people around the world. In only 20 years, extreme global poverty has been cut in half.  That is a remarkable achievement—one that is attributable to policies of liberalization (freer markets) around the world, which progressive activists and egalitarians decry. In other words, those who say the poor are getting poorer are simply wrong. And there are hundreds of millions of people thriving today who can talk about how much better things have gotten.

Summary

  • Progressives should be honest and admit that the anti-free market policies they’ve promoted and achieved in the last half-century have disadvantaged the poor and conferred favors upon the rich and politically well-connected.
  • Amazingly, in spite of those policies, the poor overall are still better off than they were 50 years ago. Imagine the progress that might have happened had these policies not been in place!
  • Redistributing wealth is just slicing the pie differently, at the risk of shrinking the pie. It’s a static view of wealth, one that’s greatly inferior to a view of baking a bigger pie for everybody.

For further information, see:

“How the World is Getting Better” by Phil Harvey

“The World is Getting Better” by Sam Harris

“The Free Market: Lifting All Boats” by Don Mathews

“Dear Ultra-Rich Man” by Max Borders

“Free the Poor” by Julian Adorney

“The Quackery of Equality” by Lawrence W. Reed

If you wish to republish this article, please write editor@fee.org.

ABOUT MAX BORDERS

Max Borders is the editor of The Freeman and director of content for FEE. He is also cofounder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

(Editor’s Note: The author is director of content at the Foundation for Economic Education and editor of its journal, The Freeman.)

Please Protect Us from Santa Claus

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A modest proposal by David J. Hebert and Austin Middleton:

Dear Mr. President:

We applaud your valiant efforts to protect the American economy from the pernicious effects of cheap imports, but we fear you have overlooked one of the worst culprits.

Readily available goods for the consumer at reasonably low prices have been shown time and again to be toxic to domestic producers, who are the backbone of any advanced society. We urge you to expand your scope and protect us from someone your predecessors have neglected to stop: Santa Claus.

Every year on December 24, we struggle to fall asleep, anxious over the arrival of the villain known as Father Christmas. Santa’s crimes are not breaking and entering or stealing foodstuffs. No, Santa is guilty of the much more serious crime of destroying American jobs. Products imported from abroad and consumed domestically make Americans worse off. Every “gift” from Santa represents a reduction in measured American welfare; this is one of the fundamental assertions of national income accounting when calculating gross domestic product. In fact, the North Pole is worse than other countries, for the North Pole does not receive any goods produced for export from the United States. Thus, the US trade deficit with the North Pole is entirely one-sided.

American jobs lost due to Santa

Mr. President, using the methodology your own Council of Economic Advisors employed in evaluating the effect of the American Reinvestment and Recovery Act, where the volume of dollars spent by government equated jobs created or saved, we can estimate the employment impact the North Pole deficit has.

A recent Gallup poll reports that 77 percent of Americans identify as some sort of Christian and are therefore eligible to receive presents from Santa for good behavior. Crime-rate data published in the National Crime Victimization Survey, which gives a sense of the prevalence of naughty behavior, indicates that in 2013, there were 2,905 property crimes reported for every 100,000 people. Unreported crimes, however, are not reflected in these data, and Santa, of course, knows if you’ve been bad or good. As a means of attempting to capture this unreported bad behavior, assume that 90 percent of crimes go unreported, or that actual bad behavior is 10 times as common as the data suggest. This means that there are approximately 68,895,000 people who have been “good” for the year and are thus eligible for Christmas gifts.

Economist Joel Waldfogel’s groundbreaking analysis estimates that the average person receives $462 worth of Christmas gifts each year (in 1992 dollars), meaning that Santa takes away from us a potential $53 billion (2013 dollars) worth of economic activity. This is enough economic activity to employ another 1,193,000 full-time workers at the median household salary of $44,389. With the economy recently experiencing one of the worst downturns since the Great Depression, these jobs have never been more crucial to a nation’s recovery. But Santa’s economic terrorism does not stop there.

Santa as an anti-competitive monster

Recognizing the serious problems with monopolies, the US government passed a trilogy of bills (the Sherman Antitrust Act in 1890 and the Federal Trade Commission Act and the Clayton Antitrust Act in 1914) as a sort of last resort to counter the oppressive behavior of corporations, which tended to grow to an unreasonable size. History is rife with examples, from John D. Rockefeller and Standard Oil to Bill Gates and Microsoft, where the government successfully stepped in and corrected obvious market failures and improved the lives of all citizens.

“How does this apply to jolly ol’ Saint Nick?” you ask. His company has successfully integrated both vertically (Santa’s elves do everything in house, from production to distribution) and horizontally (while Santa is best known for making toys, he has expanded his empire into tablets, personal computers, and even automobiles, as recent car commercials attest). What’s more, he is also likely to be the single biggest violator of intellectual property rights in all of human history. Santa has an unfair advantage compared to other businesses, which must purchase their materials and shipping services from other companies.

This unfair business advantage has forced companies in the United States to kick off the holiday shopping season the day after Thanksgiving with a ritual known as “Black Friday.” In an attempt to capture what little of the market they can before Santa and his band of thieves dump toys, electronics, and other consumer goods on the world economy, some stores advertise sales as great as 50 percent off suggested retail price. This business practice is clearly unsustainable.

Illegal labor practices

Santa has managed to grow his empire through perhaps the most nefarious of means: child and slave labor. According to the critically acclaimed 1994 documentary The Santa Clause, starring Tim Allen, Santa has been using child elf labor since the beginning of his operation. Will Farrell’s 2003 documentary, Elf, confirms that once a worker becomes a part of Santa’s conglomerate, he or she is bound there for life, as we see when Santa personally comes to New York City to collect the rogue elf, Buddy.

Further, the working conditions of Claus’s cadre of elf labor are unknown. We do, however, know from NASA and the National Geospatial Intelligence Agency’s geothermal imaging of the North Pole that no significant thermal activity exists. This means that elves lack basic necessities like lighting and heat; it also means that their work must be done by hand. Forced to endure six months of night, the elves’ working conditions fail every reasonable standard set by the Fair Labor Standards Act of 1938. The United States has historically led the charge of correcting these practices elsewhere, which has had the demonstrable effect of improving people’s lives worldwide. Yet, Mr. President, you and Congress refuse to act in this situation, leaving elves perpetually impoverished.

Bypassing border control

Santa’s ability to penetrate the woefully unmonitored Canadian border highlights the potential threat of other undocumented immigrants’ entry. The US Customs and Border Protection division of the Department of Homeland Security, sharing responsibility with the Federal Aviation Administration (FAA), has proven incapable of securing entry into the country and collecting the duties levied by law on all imported goods. Despite the tracking of Santa’s whereabouts each year by the North American Aerospace Defense Command (NORAD), nothing has been done to protect our borders from this scoundrel. We must agree, though, that attempting to capture Santa may be a moot point, as he has been estimated to travel in excess of 650 miles per second, which no current military technology can keep up with.

Recommendations

The fact of the matter, Mr. President, is that all foreign producers have a degree of Santa in them from a domestic perspective. Foreign producers sell us goods and services, and while they do not do so at zero price like Santa, they still charge a lower price that our domestic counterparts are either unwilling or unable to match. Unlike Santa Claus, however, these foreign producers send us their “gifts of good cheer” 24 hours a day, 365 days a year. What’s more, they do not restrict their gift giving to any particular religious group, but instead offer their gifts to all the boys and girls regardless of religious affiliation.

We therefore urge you to be logically consistent: either recognize every foreign producer that sends exports to the United States as if they were like Santa Claus, celebrating their efforts at enriching our lives, or recognize that Santa is simply another foreign producer, and condemn his activity as destroying American jobs.

ABOUT DAVID J. HEBERT

David Hebert is an Assistant Professor of Economics at Ferris State University. His interests include public finance and property rights.

ABOUT AUSTIN MIDDLETON

A lifelong resident of Northern Virginia, Austin Middleton is a PhD student of the history of economic thought specializing in Adam Smith’s political philosophy at George Mason University.

The Minimum Wage Poison Pill

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As we approach the 2014 General Election, with president Barack Obama set to occupy the White House for two more years, the stakes are higher than ever. As usual, Democrats across the country focus on phony issues, such as a Republican “War on Women,” the widening income gap between the rich and the non-rich, and bogus claims of being champions of the middle class.

In terms of domestic policy, they express support for the “middle class,” while doing everything in their power to turn America into a two-class society: the very rich… whose wealth they only wish to plunder… and the very poor, who, in return for an endless array of government handouts, will be expected to do nothing more than to pull the Democrat lever on Election Day.

In foreign affairs, they express outrage over the gruesome crimes of radical Islam… such as the recent beheading of an Oklahoma City woman by a radical Muslim co-worker… yet they oppose any and all effort at what they see as “racial profiling.” They find moral equivalency between the anti-Christian genocide of radical Islam throughout the Middle East, and the bombing of a Birmingham, Alabama abortion clinic in years past.

They express support for high quality public education, but the teachers unions… who own a controlling interest in the Democrat Party… dictate that Democrats oppose any and all voucher proposals, causing the greatest damage to the hopes of minority parents who want to see their children receive a quality education. They ignore the fact that throwing more money at public schools does nothing to increase the quality of a public school education. Instead, at the behest of the teachers unions, they demand that class sizes be reduced, that new school buildings be constructed, and that teacher salaries be increased… all the while regaling their low-information voter base with the cynical lie that Republicans want to “cut benefits to kids.”

They express a desire for the budget discipline of the 1990s… a direct result of Ronald Reagan’s “trickle down” economic policies and the election of a Republican Congress… and they support the notion of cutting the deficit in half, while supporting every new spending scheme hatched by liberal social planners. (In their 2000 platform, they announced that Democrats would entirely eliminate the public debt by the year 2012. Clearly, they had not heard of Barack Obama.)

While expressing a desire to curb the influence of lobbyists, they attempt to convince low-information voters that Republican administrations are dominated by lobbyists for business interests. Yet, no previous administration has been as heavily staffed and influenced by special interests as is the Obama administration. And while they express strong support for an electoral system that is “accessible, auditable, and accurate,” they insist that every attempt to curb vote fraud is nothing more than a Republican scheme to oppress the black vote.

On the healthcare front, they express a desire to provide healthcare insurance for 30-40 million uninsured, to improve the access to and quality of healthcare for all Americans, to substantially reduce the cost of healthcare for everyone, and to do it all without increasing the number of doctors, nurses, and hospitals. Like president Barack Obama, they see no contradictions in any of this. These are obviously people who would promise, with a straight face, that they could stuff 10 lb. of (excrement) into a 5 lb. Bag. All we need to do to make these magical things happen is to elect more Democrats to public office.

Democrats want to use the tax code to discourage the outflow of jobs overseas. Yet they have no problem with the fact that the United States has the highest corporate tax rate of any developed nation. They express a desire to cut taxes for every working family, including those who pay no federal or state income tax, but they exclude tax relief for the “millionaires” who are expected to provide good-paying jobs for the poor and the middle class.

And finally, while fast food workers go on strike demanding a $15.00 per hour minimum wage, a 107 percent increase, Democrats prescribe a poison pill for the U.S. economy with a proposed increase in the federal minimum wage standard from $7.25 cents per hour to $10.10 per hour a 39.3 percent increase. In doing so, they scoff at studies which show that, for each 10 percent increase in the minimum wage, 1-2 percent of jobs in the nation simply go away. For unskilled entry-lever workers, each 10 percent increase in the minimum wage results in a decrease of 4-5 percent in the number of entry-level jobs available… the jobs most often held by teens, the poor, and the unskilled.

According to a recent report by the Bureau of Labor Statistics, a majority of those who worked at minimum wage jobs in 2013 were 24 years old, or younger, while only 0.8 percent, less than one in a hundred, of those 24 years old, or older, work for a minimum wage.

Minimum wage increases are major job-killers. According to a 2014 report by the non-partisan Congressional Budget Office, an increase in the minimum wage from the current $7.25 per hour to $10.10 per hour would reduce the total number of jobs available by approximately 500,000. For the most part, these are the jobs currently held by all those fast food workers who fill the streets, demanding a $15 per hour minimum wage. And if those who clamor for a $15 per hour minimum wage are anxious to learn what happens to a job market with a minimum wage of that magnitude, they won’t have to wait long. In early June 2014, the Seattle city council voted to increase the minimum wage in that city to $15 per hour, the highest in the nation.

A report by the National Restaurant Association (NRA) tells us that, of every dollar of revenue coming into restaurant cash registers, approximately 33 percent goes to salaries and wages. The remainder of that dollar of revenue goes to cover the cost of food and beverages, other costs of doing business, and a small net profit for the owner. According to NRA statistics, the profit margin of restaurants varies, depending on the size of the average check per patron. Those with average checks under $15 per person… e.g., McDonalds, Burger King, Taco Bell, etc… produce average profit margins of 3 percent, while those with checks of $15 to $24.99… e.g., The Olive Garden, Red Lobster, The Cheesecake Factory, etc… produce profit margins of roughly 3.5 percent, the highest in the industry.

According to a recent report by Gingrich Productions, a good measure of the impact of minimum wage laws can be found in the European experience. Among those countries with no minimum wage… Austria, Germany, Sweden, and Switzerland… the median unemployment rate is just 5.2 percent, while the median jobless rate stands at 11.1 percent in countries with minimum wage laws… more than twice that of those without minimum wage laws.

But there is a much larger issue than the question of whether we should have a statutory minimum wage of $10.10 or $15 per hour… an issue that Barack Obama and congressional Democrats are not anxious to talk about. I refer to the question that more and more minimum wage workers are asking themselves, which is, “Why should I work 40 hours a week at $10.10 per hour, when I can earn more by staying at home and living off the public dole?”

A 2013 Cato Institute study tells us that, in 33 states and the District of Columbia, welfare benefits pay more than the current $7.25 per hour, while in 13 states, welfare benefits pay more than $15 per hour. In Hawaii, for example, the pre-tax “salary” of stay-at-home welfare recipients is $60,590 per year, or $29.13 per hour when compared to a 40-hour work week, while in Washington, DC, the hourly rate for just staying at home is $24.43 per hour. At the lower end of the spectrum among states where sloth is more lucrative than honest toil, the hourly rate for stay-at-home welfare recipients in South Carolina is $10.53 per hour… 43 cents more than the $10.10 minimum wage proposed by Democrtats.

So what do we do to fix the problem?

Instead of catering cynically to the poorest of the poor as a political constituency, as Democrats do, we should be asking exactly how an individual in this, the land of opportunity and economic freedom, can still be working at a minimum wage job when he/she is 24 years old, or older. That circumstance can only be explained by pointing out that a great many people simply make very bad choices in their lives.

But Democrats are clearly more interested in purchasing a “nanny state” constituency than they are in doing what is necessary to really help people lift themselves out of poverty. As one writer, Charles M. Blow, has said, “Much of what happens in Washington occurs at the intersection of political advantage and earnest intentions.”

What is clear is that we cannot perpetuate a system in which it is more lucrative to take a welfare check than it is to earn an honest living. In order to throw off the bonds of that insanity our options are only two. First, one might ask, why not raise the minimum wage to $25 or $30 per hour so that those who work can earn more than those who don’t, or won’t? The answer is, a $25 or $30 minimum wage would literally wreck whatever is left of our fragile economy and price us completely out of world markets.

The one remaining option is to do what we did in the mid-90s when a Republican-controlled Congress forced a Democrat president, Bill Clinton, to sign what was called “welfare-to-work” legislation, requiring those on public assistance to also find honest employment. The country experienced real economic growth, balanced budgets, and a pay-down in the national debt.

The choice is ours. What was done in the 1990s can be done again. But in order to do that we must first have a president who understands at least a “smidgen” about the intricacies of the U.S. economy. That means that our first priority must be to rid ourselves of Barack Obama, sending him back to his Kenyan roots where he can actually learn a thing or two about micro-economics.

RELATED ARTICLES:

Wages and the Free Market, Part 1 — Dispelling labor market myths with theory and data

Wages and the Free Market, Part 2 — Innovation Is the Lifeblood of a Healthy Economy

Raise the Minimum Wage? A Socratic Dialogue

Happy Capital Day? Why not? by Lawrence W. Reed

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Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

Capital can refer to either the tools of production or the funds that finance them. There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture funding behind him. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.

Harmony of Interest

This is not class warfare. I’m not “taking sides” between labor and capital. I don’t see them as natural antagonists in spite of some people’s attempts to make them so. Don’t think of capital as something possessed and deployed only by bankers, the college-educated, the rich, or the elite. We workers of all income levels are “capital-ists” too—every time we save and invest, buy a share of stock, fix a machine, or start a business.

And yet, we have a “Labor Day” in America but not a “Capital Day.”

Perhaps subconsciously, Americans do understand to some extent that those who invest and deploy capital are important. After all, most people would surely have an easier time naming the “top ten capitalists” in our history than the “top ten workers.” We take pride in the kids in our neighborhoods when they put up a sidewalk lemonade stand. President Obama continues to be roundly excoriated for his demeaning remark, “You didn’t build that; somebody else made that happen.”

Bad Eggs

That’s not to say there aren’t bad eggs in the capitalist basket. Some use political connections to get special advantages from government. Others cut corners, cheat some customers or pollute a stream. But those are the exception, not the rule, in a society that values character. Workers are not all saints either—who among us doesn’t know of one who stole from his employer, called in sick when he wasn’t, or abused the disability or unemployment compensation rules? Those exceptions shouldn’t diminish the importance of work or the nobility of most workers.

Like most Americans, I’ve traditionally celebrated labor on Labor Day weekend—not organized labor or compulsory labor unions, mind you, but the noble act of physical labor to produce the things we want and need. Nothing at all wrong about that!

But this year on Labor Day weekend, I’ll also be thinking about the remarkable achievements of inventors of labor-saving devices, the risk-taking venture capitalists who put their own money (not your tax money) on the line and the fact that nobody in America has to dig a ditch with a spoon or cut his lawn with a knife. Indeed, what could possibly be wrong about having a “Capital Day” in odd numbered years and a “Labor Day” in the even-numbered ones?

Labor Day and Capital Day. I know of no good reason why we should have just one and not the other.

EDITORS NOTE: This article first ran on September 3, 2012.

larry reed new thumbABOUT 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.

Witnessing a Failed Presidency

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When we elect someone—anyone—to the office of President, it is only natural that we attribute great political skills, intellect, and judgment to that man. We want to believe we have selected someone with the ability to do what must be done in a dangerous and very complex world.

This may explain why Presidents who have presided in times of war are more highly regarded than those that have not. Washington brought the nation into being by patiently pursuing a war with Great Britain, Lincoln saw the Civil War to a successful conclusion, preserving the Union

The last century offered two world wars and several lesser ones, Korea and Vietnam. Voters put Franklin D. Roosevelt in office in 1933 and then kept him there until his death in 1945 just before the conclusion of World War Two. They had no wish to disrupt his conduct of the war with anyone else. It fell to Harry Truman to wrap up World War Two and to pursue the Korean War to repulse communist North Korea’s invasion.

The Vietnam War had its genesis in the JFK years, but it was Lyndon Johnson who committed to it with a massive influx of infantry and massive bombing, neither of which was able to deter the North Vietnamese from uniting the nation. Having lied the nation into the war LBJ concluded at the end of his first term which he had won in a landslide that he should not run again given the vast level of unhappiness with the conflict.

The failure to respond in a strong way to the Iranians who took U.S. diplomats hostage left Jimmy Carter with a single failed term in office. Neither domestically, nor in the area of foreign affairs did he demonstrate strength or much understanding.

After 9/11 George W. Bush used U.S. military strength to send a message to the world in general and al Qaeda in particular. By the end of his second term, a completely unknown young Democrat emerged as the Democratic Party candidate for President by campaigning on a promise to get out of Iraq and offering “hope and change.”

AA - Going from bad to worseBarack Hussein Obama captured the imagination of the voters. He was black and many Americans wanted to demonstrate that an African-American could be elected President. He was relatively young, regarded as eloquent, and seemed to project a cool, self-composed approach throughout his campaign.

The only problem was that he lacked a resume beyond having been a “community organizer.” He had graduated from Harvard Law School, but all of his academic and other public records had been put under seal so they could not be examined. Twice he ran against relatively lackluster, older men who did not possess much charisma, if any.

In his first term, his “stimulus” to lift the economy out of recession was a trillion-dollar failure. By his second term, however, the singular first term “achievement” was the passage of the Affordable Patient Care Act—Obamacare. When finally ready to enroll people it instantly demonstrated technical and policy problems. Obama began to unilaterally make changes to the law even though he lacked the legal power to do so.

The war in Iraq whose conclusion he had ridden to victory in 2008 and 2012 came unraveled and the Syrian civil war in which he had resisted any involvement metastasized into a barbaric Islamic State that seized parts of Iraq and northern Syria.

Halfway through his second term, it was increasingly evident that Obama did not want to fulfill the role of the Presidency to provide leadership in times of foreign and domestic crisis.

On August 28 Gallup reported “Americans are more than twice as likely to say they “strongly disapprove” (39%) of President Barack Obama’s job performance as they are to say they “strongly approve” (17%). The percentage of Americans who strongly disapprove of Obama has increased over time, while the percentage who strongly approve has dropped by almost half.”

His passion for golf became noticeable in ways that went beyond just a bit of vacation time. The time he spent fund raising seemed to be more of a priority than dealing with Congress. Not only did he fail to develop strong political working relations with members of his own party, his churlish talk about the Republican Party began to grate on everyone.

Though no President cares much for the demands of the press, they play an essential role in a democracy. His administration went to extremes to close off access to its members and by striking out at the press in ways that turned it from one that had gone out of its way to support him in the first term to one that actively, if not openly, disliked him in the second.

One characteristic about Obama had become glaringly obvious. He lies all the time. He lies in obvious and casual ways. In politics where one’s word must be one’s bond, this is a lethal personality trait. He dismissed the many scandals of his administration as “phony.”

Given the vast implications of what is occurring in the Middle East, in Ukraine, and elsewhere around the world his response was to interrupt his golf game to give a short speech and then return to the greens. In a recent press conference he said he has “no strategy” to address the threat that ISIS represents.

What Americans have discovered is that they have twice either voted for (or against) someone with fewer skills and even less desire to do the job for which he campaigned. This lazyness combined with his radical liberal politics have finally become obvious even to his former supporters.

His statement that he had no strategy to deal with the threat of the Islamic State and that it was perhaps too soon to expect one to have been formulated has led to the conclusion that he was far less intellectually equipped to be President than many had thought.

Now he must be endured and survived.

© Alan Caruba, 2014

EDITORS NOTE: The featured image was taken by the AP on May 12, 2014 of President Obama speaking during a press availability in the Oval Office of the White House in Washington.

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