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Personhood Florida’s Pro-life PAC Endorses Over 65 Candidates for the 2020 Primary and General Election

Personhood Florida’s Pro-Life PAC has endorsed the following 65 Pro-life Candidates for the 2020 Primary and General Election:

2020 Federal ProLife Candidates

Race Party Name
US Representative – District 19 REP Dane Eagle

2020 State ProLife Candidates

Race Party Name
State Representative – Dist 27 REP Zenaida Denizac
State Representative – Dist 42 REP Fred Hawkins
State Representative – Dist 84 REP Eileen Vargas

2020 Brevard County ProLife Candidates

Race Party Name
City of Palm Bay Mayor NP Rob Medina
Republican State Committeewoman REP Kim Adkinson

2020 Citrus County ProLife Candidates

Race Party Name
Property Appraiser REP David Gregory
Superintendent of Schools REP Paul John Reinhardt
Supervisor of Elections REP Maureen “Mo” Baird

2020 Clay County ProLife Candidates

Race Party Name
Clerk of the Court REP David Coughlin
School Board District 2 NP Beth Clark
Superintendent of Schools REP Charlie Van Zant

2020 Flagler County ProLife Candidates

Race Party Name
Sheriff REP Rick Staly

2020 Indian River County ProLife Candidates

Race Party Name
Board of County Commissioners – Dist 3 REP Tim Zorc
School Board – Dist 3 NP Laura Zorc
School Board – Dist 5 NP Alla Kramer
Sheriff REP Charles Kirby

2020 Jackson County ProLife Candidates

Race Party Name
Superintendent of Schools REP Dallas Ellis

2020 Lake County ProLife Candidates

Race Party Name
County Commission District 1 REP Tim Sullivan
County Commission District 3 REP Kirby Smith
County Commission District 5 REP Josh Blake
North Lake Co. Hospital Board NE Seat 3 REP Ralph Smith
North Lake Co. Hospital Board NW Seat 5 REP Anita Swan
School Board Member District 2 NP Patricia Nave
School Board Member District 4 NP Betsy Farner
School Board Member District 4 NP Sandy Gamble

2020 Lee County ProLife Candidates

Race Party Name
COUNTY COMMISSIONER 1 REP MICHAEL J DREIKORN
PROPERTY APPRAISER REP MATT CALDWELL
SCHOOL BOARD 2 NON MELISA GIOVANNELLI
SCHOOL BOARD 3 NON BRIAN DIGRAZIO
SHERIFF NPA CARMEN MCKINNEY
SHERIFF REP JAMES A LEAVENS

2020 Manatee County ProLife Candidates

Race Party Name
Linda Ivell REP Republican State Committeewoman

2020 Marion County ProLife Candidates

Race Party Name
COUNTY COMMISSIONER – DIST 1 REP Mike Behar
COUNTY COMMISSIONER – 3 REP Bobby D. Dobkowski
COUNTY COMMISSIONER – 3 REP Jeff Gold
PROPERTY APPRAISER REP David Moore
PROPERTY APPRAISER REP Neil Nick Nikkinen
REPUBLICAN PARTY STATE COMMITTEEMAN REP John H. Townsend IV
REPUBLICAN PARTY STATE COMMITTEEMAN REP Randy Osborne
REPUBLICAN PARTY STATE COMMITTEEMAN REP William Richhart
SCHOOL BOARD – 1 NP Allison B. Campbell

2020 Martin County ProLife Candidates

Race Party Name
Property Appraiser REP Kelli Glass Leighton

2020 Okaloosa County ProLife Candidates

Race Party Name
County Commissioner, Dist. 1 REP Wayne Richard Harris
County Commissioner, Dist. 5 REP Richard Scott Johnson
County Commissioner, Dist. 5 REP Mel Ponder
Superintendent of Schools REP Ray Sansom

2020 Palm Beach County ProLife Candidates

Race Party Name
Republican State Committeewoman REP Cindy Falco-DiCorrado

2020 Pasco County ProLife Candidates

Race Party Name
County Commissioner – Dist 4 REP Gabriel (Gabe) Papadopoulos

2020 Santa Rosa County ProLife Candidates

Race Party Name
County Commissioner – Dist 1 REP Geoff Ross

2020 Sarasota County ProLife Candidates

Race Party Name
Sarasoto County Hospital Bd., At Large Seat 1 REP AUDIE ELIZABETH BOCK

2020 St. Lucie County ProLife Candidates

Race Party Name
City of Fort Pierce Commission, District 1 NP Kenneth Robinson
City of Fort Pierce, Mayor NP Donna Diehl Benton
City of Port St. Lucie, City Council District 2 NP David H. Pickett, Jr.
City of Port St. Lucie, City Council District 2 NP John Francis Haugh
County Commissioner, District 1 REP Betty Jo Starke
County Commissioner, District 5 DEM Fritz Masson Alexandre
School Board, District 4 NP Jason William Palm
School Board, District 4 NP Jennifer Anne Richardson
Sheriff REP Richard Williams, Jr.

2020 Volusia County ProLife Candidates

Race Party Name
County Council Member, District 3 NP Johan D’Hondt
County Council Member, District 4 NP Heather Post
Daytona Beach Commissioner Zone 4 NP Stacy Cantu
Edgewater Council District 4 NP Eric Rainbird
South Daytona Council Seat 4 NP Theodor Eric Sander
State Committeeman REP Santiago Avila, Jr.
State Committeewoman REP Debbie Phillips
State Committeewoman REP Maria Trent

2020 Walton County ProLife Candidates

Race Party Name
School Board – Dist 4 NP Jeri Michie
School Board – Dist 4 NP Marsha Winegarner

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The Cruelty and Carnage of the Minimum Wage: The Case of Tad by Jeffrey Tucker

Not having a job means not participating in the fullness of life.

If your goal is to ruin the lives of young and marginalized population groups, raising the wage floor to $15 an hour is a good plan. Already, much of the current problem with youth unemployment is due to the high minimum wage increases we’ve seen over the last eight years.

After all, the original purpose of the minimum wage was to disemploy undesirables. Not having a job means not participating in the fullness of life. It’s a big deal.

A wage floor of any sort traps people in the economic basement. The higher the floor, the larger the basement. Today, millions are rattling around down there, unable to find their way out. Millions more will find themselves there once all this legislation goes through.

I feel a particular frustration with this issue, and it’s not only because of the economics texts I’ve read.

My first real job was working maintenance at a department store. I was 15 (yes, I lied about my age; you could get away with that back then). My job was to clean toilets, crush boxes, pick pins out of the dressing room closets, wax the floors in the china shop, vacuum the place, and shine the glass.

It was a great job. I mean, truly great. I loved it because it was a hugely important job. If I didn’t clean the bathrooms well and replenish the toilet paper and towels, customers the next day might be grossed out and never come back. I played a big role in ensuring the profitability of this store.

My Coworker Tad

I especially loved my co-worker. His name was Tad. The department store would close, leaving just the two of us to have so much fun doing all this wonderful work. We would sing together, thrill to the danger of the wax machine, gross out at the mucky bathrooms, and just have that wonderful feeling that comes with having a real work partner.

You see, Tad was not a normal kid. He had some physical deformities. His face was oddly shaped and had what looked like a large stain on half of it. He couldn’t move around that well, really. I had to help him and assign tasks carefully. He was also mentally retarded. He spoke in a muffled way, and you had to be very clear about instructions.

But I tell you what, when he was happy, it made me happy. To see that big smile come across his face when I would praise the way he shined up a counter just gave me a huge lift. Every day I would try to find ways for him to be both delighted and productive. We were a wonderful team. I wanted it to stay this way.

One day, a poster appeared in the workroom. It was from the Department of Labor. The minimum wage was going up by 40 cents. Tad pointed the sign out to me. He said, “Look, we are getting a raise!”

I was a bit suspicious. I was pretty sure that the boss was the one who set the wage, not some weird distant government thing. I didn’t quite believe it was true. Still, I was happy that he was happy.

The next day, I showed up at the usual time after school. I was getting the mop ready, running hot water in the pail and prepared to do my thing.

Tad wasn’t there. I asked the boss, “Where’s Tad today?”

Well, he explained that he had hired Tad only because he was a boy he knew from church. He needed work. He knew that he would require a lot of help, which was one reason he was excited that I was able to work with him. In the end, he said, this was charity, because he knew that I could do the job by myself. It worked for us to be together so long as he could afford it. But this new minimum wage changed things. The store’s profit margins were very thin, and the wage requirement applied to the whole staff. So he had to make a hard decision.

The long and short of it: Tad had to be let go.

The Death of Tad

I was devastated. I stared at the Department of Labor sign again. Cursed thing! That sign just ruined a kid’s life. It stopped a great act of charity. And look what it did to me. I now had to work alone.

I suddenly felt guilty about my own job. I kept mine at his expense. And why? It was pure accident of birth.

Management left, the lights dimmed, and I heard the familiar click of the doors leading outside. I would have to clean alone today. I did all the tasks I had to. But there was no more music, no more laughter, no more clowning around, and no more beautiful smiles. Tad was somewhere else, probably at home, confused and sad.

I didn’t call him. I was too embarrassed and I didn’t know what to say. So I let our friendship go.

He died a few years later.

This is what the minimum wage means to me. So you can say that I have a vendetta. When the president announces that he is raising wages to make everyone better off, I can’t help but think of the millions of Tads that will lose that opportunity to do wonderful things in this world and with their lives.

Jeffrey A. TuckerJeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE and CLO of the startup Liberty.me. Author of five books, and many thousands of articles, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook. Email.

RELATED ARTICLE: The Minimum Wage Should Be Called the Robot Employment Act – Wall Street Journal

A Citizen’s Guide to Fixing The Federal Government

The majority of Americans have lost faith in and distrust the federal government. Currently, just 19% of Americans say they can trust the government always or most of the time, among the lowest levels in the past half-century.

What can citizens do to fix the federal government?

fixing federal government guide book coverJohn H. Ramsey has published “A Citizen’s Common Sense Guide For Fixing The Federal Government.” Ramsey presents the problems but more importantly offers common sense solutions to fix what is broken in Washington, D.C. Ramsey lists the most important problems facing the American people as:

  • 70,000 pages of tax code
  • Rampant Deficit Spending
  • 175,000 pages of regulations, many which are not authorized by law
  • Mismanaged Social Security and Medicare Funds
  • Improper Accounting that masks America’s true liabilities

Ramsey offers the following solutions implemented by “We The People”:

  • Tax Only to fund Government with no social engineering
  • Deficit Spending only in national emergencies
  • Tie regulations to law with fair Administrative Courts
  • Repay Social Security and Medicare. Manage as trust funds.
  • Use generally accepted accounting for government

Ramsey proposes a Constitutional Amendment to reign in the federal government.

Most Americans will agree with Ramsey’s analysis and his solutions for fixing the federal government. Some may not agree with his solutions. Creating a new amendment to the Constitution is fraught with dangers. Ramsey’s Constitutional amendment verbiage would be subject to the whims of Congress, those who are the root cause of the problem.

To the naysayers Ramsey responds:

I think there is enough impetus that a Constitutional Convention is probably going to happen. Our task therefore is to influence the outcome. Clearly, Congress may meddle but they cannot stop it.

My goal is to help to adopt an Omnibus Amendment to The U.S. Constitution requiring that our Federal Government:

Tax only to fund Government, with no social engineering. This could be accomplished either with a flat tax based on income or a Fair Tax on consumption. The key is to eliminate 73,000 pages of exceptions, deductions, and attempted social influences that have nothing to do with funding the government.

Deficit spend only in national emergencies; pay down existing debt. You didn’t comment on this but it is crucial that we enact an amendment that stops runaway deficit spending.

Tie regulations tightly to law with fair and impartial Administrative Courts. This provision would tie regulations more closely to the underlying laws which authorize them and would enable the courts to throw out regulations that exceed the specific authorization in law. Furthermore, currently Administrative Courts are the only recourse for citizens wishing to challenge particular regulations, but such Administrative Courts are staffed entirely by government employees who almost always rule in favor of the government. They are not independent and impartial which my Constitutional Amendment would require.

Repay money misappropriated from Social Security and Medicare and manage them independently as trust funds. Repayment of amounts “borrowed” from these funds would reduce the federal deficit by about $2.8 trillion, almost 15% of the total.

Use generally accepted accounting for the federal government. This requirement is simple but not easy, but it is essential because we simply do not know the extent of federal liabilities because they are accounted for improperly and inconsistently, and so much of the exposure is “off the balance sheet”.

There are other efforts being proposed to fix the broken federal government from eliminating the Sixteenth Amendment as proposed under the Fair Tax (H.R.25), to an Article V Convention and a Constitutional convention to impose term limits on the U.S. Congress recently approved by the Florida legislature.

All of these efforts are dramatic bottom up efforts and each has as its goal to fix an increasingly out of control federal government (legislative, administrative and judicial).

The American people have had enough of top down solutions, they hunger for a bottom up approach.

In that light, Mr. Ramsey’s is one of those solutions worthy of a closer look.

RELATED ARTICLE: Pitfalls to Abbott’s Call for Convention of States

Does Democracy Lead to Socialism? by B.K. Marcus

Presidential candidate Bernie Sanders has brought “democratic socialism” out of the shadows of fringe ideologies and into the spotlight of mainstream American politics. Nevertheless, many find Sanders’s self-description perplexing. Is socialism seriously still in play? Didn’t the horrors of the 20th century finally bury that ideological monstrosity?

No, that’s communism you’re thinking of. To quote the Democratic Socialists of America (DSA),

Socialists have been among the harshest critics of authoritarian Communist states. Just because their bureaucratic elites called them “socialist” did not make it so; they also called their regimes “democratic.”

If the communists weren’t really socialists, then what the heck does socialism mean?

The basic definition of socialism, democratic or otherwise, is collective ownership of the means of production. The DSA website says, “We believe that the workers and consumers who are affected by economic institutions should own and control them.”

But the DSA keeps the emphasis on democracy:

Democratic socialists believe that both the economy and society should be run democratically — to meet public needs, not to make profits for a few. To achieve a more just society, many structures of our government and economy must be radically transformed through greater economic and social democracy so that ordinary Americans can participate in the many decisions that affect our lives.

Socialism, then, as the democratic socialists understand the term, is just the logical consequence of the democratic ideal:

Democracy and socialism go hand in hand. All over the world, wherever the idea of democracy has taken root, the vision ofsocialism has taken root as well.

On this point, at least, many in America’s free-market tradition would agree.

Anti-democratic Anti-socialists

Ludwig von Mises may have been the most radical classical liberal in 20th-century Europe, but when he came to the United States, Mises found himself at odds with American libertarians who felt that his liberalism didn’t go far enough.

Some of these disagreements would strike most of us as highly abstract, such as the question of whether or not the philosophy of freedom is based in natural law or utilitarianism. But at least one practical point of contention was the issue of majoritarian democracy. Mises had defended both capitalism and democracy in his book Liberalism. American libertarians such as R.C. Hoiles and Frank Chodorov shared Mises’s appreciation of the free market but were far less sanguine about majority rule. The harshest language came from Discovery of Freedom author Rose Wilder Lane:

As an American I am of course fundamentally opposed to democracy and to anyone advocating or defending democracy, which in theory and practice is the basis of socialism.

It is precisely democracy which is destroying the American political structure, American law, and the American economy, as Madison said it would, and as Macauley prophesied that it would do in fact in the 20th century. (Letter from Lane to Mises, July 5, 1947; quoted in Mises: The Last Knight of Liberalism)

Why would Lane argue that democracy is “the basis of socialism”?

Majority Fools

Voting turns out to be a particularly bad way to make economic decisions. Mancur Olson’s book The Logic of Collective Action wouldn’t appear for another 18 years, but some version of his thesis was probably already familiar to Lane and her radical allies. Olson argues that majority rule separates the benefits and the costs of decision-making.

Elections aren’t just a poll of everyone’s opinion; they are organized campaigns by different groups fighting for their interests. A voter doesn’t go into the booth having studied the controversy in question. He or she brings to the polls an impression of an issue based on how different organized groups have presented their cause during massive advocacy campaigns prior to Election Day. Every such campaign is a case of a special-interest minority trying to persuade a voting majority.

And it’s not a level playing field, to borrow one of the political left’s favorite metaphors. Olson explains how the incentive for group action decreases as the size of a group increases, meaning that bigger groups are less able to act in their common interest than smaller ones. Small groups can gain concentrated benefitswhile the rest of us face diffuse costs.

The textbook example is sugar tariffs (“or what amounts to the same thing in the form of quota restrictions against imports of sugar,” as former Freeman editor Paul Poirot put it). Why is Coke sweetened with corn syrup in the United States and with sugar everywhere else in the world? Because sugar is cheaper everywhere else, while the US government keeps sugar artificially expensive for Americans. The protections responsible are a huge benefit to a small group of domestic sugar producers (and, as it turns out, also to corn growers) and a burden on the rest of us.

Ignore the corn-syrup issue for a moment and pretend that Coke is still made with sugar. Let’s imagine that government price supports make each can of Coke, say, 5¢ more than it otherwise would be. That difference adds up, but at the moment you’re buying the can of soda, it’s an irritation, not a hardship. Even if you bother to figure out how much extra money you have to spend on sweet drinks each year, the figure probably won’t be enough to stir you to petition the legislature to repeal the sugar lobby’s protections. In fact, the loss isn’t even enough to prompt you to learn the cause of the higher price.

That’s what economists mean when they talk about diffuse costs. (And the Coke drinker’s very reasonable cluelessness about the cause of his lost nickel is what economists call “rational ignorance.” See “Too Dumb for Democracy?” Freeman, Spring 2015.)

On the other hand, the sugar producers will make billions from lobbying and campaigning to explain why their favorite barriers are good for the economy.

Take this example and multiply it by all the special interests seeking government favors. Even if you do understand what’s going on, even if you know how this hurts the economy and consumers and yourself, it’s not like there’s ever one plebiscite, a big thumbs-up or thumbs-down for free trade in sugar. Every issue is addressed separately, and every issue faces the same logic of collective action we see in the case of the sugar. (And as with the case of sugar, where the corn industry has its own interests in promoting higher sugar prices, many issues have multiple special-interest groups with their own reasons for supporting socially harmful policies.)

Now replace agribusiness in this example with teachers unions or the AARP or anyone else who benefits from a government program, even if that program hurts the rest of us.

The democratic system is rigged from the outset to favor ever more interference from ever-bigger government. From this perspective, Rose Wilder Lane doesn’t seem quite so polemical for equating democracy and socialism.

Democratic Socialists for Crony Capitalism

But is big government the same thing as socialism? The DSA denies it. They insist that they prefer local and decentralized socialism wherever possible. How long an elected socialist would keep his hands off the bludgeon of central power is a reasonable question, and a chilling one, as is the question of how long asocialist democracy would honor the civil liberties that the DSA claims to support.

But even if we reject the DSA’s claims as either naive or fraudulent, there is still a compelling reason to reject the equation of big government and socialism.

Government doesn’t grow to serve the poor or the proletariat. Democracy spawns special interests, and special-interest campaigns require deep pockets. None come deeper than the pockets of established business interests.

Real-world capitalists, despite the rhetoric of the socialists, rarely support capitalism — at least not in the sense of free trade and free markets. What they too often support is government protection and largess for themselves and their cronies, and if that means having to share some of the spoils with organized labor, or green energy, or the welfare industry, that’s not a problem. Corporate welfare flows left and right with equal ease.

“Democratic socialists,” according to the DSA, “do not want to create an all-powerful government bureaucracy. But we do not want big corporate bureaucracies to control our society either.”

If that’s true, then democratic socialists should aim to reduce both the size of government and the scope of democratic decisions. Unfortunately, they’re headed in the opposite direction — and trying to drag the rest of us with them.

B.K. MarcusB.K. Marcus

B.K. Marcus is editor of the Freeman.

Yes, Students Are Customers, but the Customer Isn’t Always Right by Kevin Currie-Knight & Steven Horwitz

“College students are not customers. That analogy needs to die. It needs to be drowned in the world’s largest bathtub. It needs a George R.R. Martin–esque bloodbath of a demise.”

These are the strong words of education writer Rebecca Schuman in response to Iowa’s recent attempt to pass a law tying professors’ job security to their teaching evaluations. Such laws, Schuman and others think, are based on the misguided idea that students are akin to customers.

OK, So College Isn’t Like a Restaurant

To an extent, we agree with Schuman, but we think she vastly oversimplifies. In one way, it is hard to deny that students are customers. They (or someone acting on their behalf) pay for a service and, like customers in any other market, students can take their tuition money elsewhere if they aren’t satisfied.

Whether the educational experience was to the student’s “liking” may not be a good measure of the quality of the university’s educational services. 

On the other hand, as Schuman points out, college education looks quite different from many other businesses. Unlike restaurant patrons, for example, students are buying a service (education) that isn’t geared toward customer enjoyment. A good college education may even push students in ways they don’t enjoy.

Whether the tilapia was prepared to the patron’s liking is a good measure of the restaurant’s food. Whether the educational experience was to the student’s “liking” may not be a good measure of the quality of the university’s educational services.

Rather than this distinction being evidence for Schuman’s claim, however, it actually points out one of its flaws. She overlooks the fact that not all customers have the same sort of relationship with a business as we see in the restaurant industry, which serves as the only basis of her customer analogy.

Yes, colleges certainly have a different relationship with students than restaurants have with patrons. Patrons are there to get what tastes good and satisfies them for that specific visit. Students are (presumably) there to receive a good education, which may not instantly please them and may sometimes have to “taste bad” to be effective. (Most people who go to the dentist don’t find it immediately pleasurable, either, but, in the long run, they are certainly glad they went.)

No Pain, No Gain

We can think of three alternative business analogies for the university-student relationship.

First is personal training or physical therapy. Like university education, they involve services that aren’t geared toward immediate consumer happiness. To help a client achieve good results, a trainer often has to make the workout difficult when the client might have wanted to go easier. And good physical therapy often involves putting the client through painful motions the client would rather not undergo.

Yet, these businesses see their clients as customers and probably take customer feedback quite seriously. Trainers need to push customers past where they want to go, but this doesn’t mean trainers dismiss negative feedback.

Credible Credentials

Second are certification services, firms that provide quality assurance for other firms. Such providers may find themselves at odds with their customers when they withhold certification, but if the firm asking for certification really wants an assurance of quality for its customers, that firm will understand why its unhappiness at being denied isn’t a reason for the certifying organization to just cave to whatever its customers want.

Schuman suggests that if students are customers, the university must be a profit-grubbing business.

For example, a manufacturer of commercial refrigerators might seek certification from Underwriters Laboratories to prove to restaurant owners that its appliances have been independently tested and proven to hold food at safe temperatures that won’t sicken customers. If tests reveal that the fridges aren’t getting cooler than 50 degrees — far above food safety guidelines — the fridges won’t get certified.

Any certifying bodies that give in to pressure to certify all paying customers will end up being punished by the market when someone (a competitor? a journalist?) reveals that the company’s certification doesn’t really certify anything. Protecting the quality of the certification process is in everyone’s interest, even if it makes some of a certifier’s customers unhappy with particular outcomes.

College students may well be like the firms seeking a certification of quality, with employers and graduate schools being the analogue of their customers, who will only hire or admit “certified” students.

The Cheapest Product at the Highest Price?

A third analogy is the nonprofit organization. Schuman suggests that if students are customers, the university must be a profit-grubbing business, and since a “business’s only goal is to succeed,” a customer-focused university will “purvey… the cheapest product it can at the highest price customers will pay.”

But does viewing the people one serves as customers necessarily turn one into a business whose concern is to sell poor products at a high price rather than to provide a good service? Credit unions, art museums, area transportation services, and, yes, private K–12 schools are often organizations that don’t operate for profit and yet provide services directly to paying customers.

Nonprofit museums charge admissions and nonprofit ride services charge for rides; therefore, they serve paying customers. But this does not mean they aim to make the maximum profit possible, or in fact any sort of profit, by providing the lowest quality at the highest price. (Of course, we would take issue with Schuman’s characterization of even more traditional profit-seeking firms as aiming to sell junk at high prices, but we can leave that to the side for our purposes here.)

Schuman is wrong to think that if universities see students as customers, this must turn them into profit-driven businesses in this narrow sense.

Is the Customer Always Right?

For all that, we sympathize with some of the basics of Schuman’s argument. As college professors, we understand her concern over putting too much stock in student evaluations of teacher performance. Even if students are customers, they surely aren’t customers in the same way the restaurant patron is a customer. And a restaurant will not automatically treat every customer comment card as equally influential in changing how it does business. Some restaurant customers have unrealistic expectations or don’t understand the food service business, and restaurants often have to decipher what feedback to take seriously and what to disregard.

We suspect that Schuman’s confusion may result from universities and professors thinking that they are selling something different from what students may think they are buying. Students generally want the degrees that come from education, with education being the process to get the degree. Universities (and professors) sell knowledge and skills, and the degree is simply the acknowledgement that students have obtained that knowledge.

Professors may think that they are selling something different from what students think they are buying.

Good learning may be difficult and, in the short run, unpleasant. But for students aiming for a degree, it would be better to go through classes that are agreeable and aren’t too difficult. If this is right, you can see why there’d be a mismatch between how students think their education is going and how it may actually be going, and why the former may not be the best gauge of the latter.

With a restaurant, the customer and the seller both agree on what the product is: a good meal (and good restaurateurs will generally defer to what the customer wants). With personal training, it may be that the trainer’s job involves pushing customers past where they’d go on their own, but the trainer and customer do still generally agree on the service: the trainer helps customers achieve their goal of fitness.

We appreciate and share Schuman’s concern that universities not over-rely on student evaluations and the degree to which students find their educations pleasurable in a narrow sense. But the issue isn’t as simple as saying that, because professors’ job security shouldn’t come down entirely to student evaluations, students aren’t customers.

Yes, there is a danger in treating students the way restaurateurs treat patrons. But there is also danger in the other extreme: if we stop viewing students as customers in some sense of the term, then instead of treating them with the respect we generally see in the personal training and certification industries and among nonprofits, we risk turning universities into something more like the DMV.

Kevin Currie-KnightKevin Currie-Knight

Kevin Currie-Knight teaches in East Carolina University’s Department of Special Education, Foundations, and Research. His website is KevinCK.net. He is a member of the FEE Faculty Network.

 

Steven HorwitzSteven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

RELATED ARTICLE: This State Offered Free College Education. Here’s What Happened.

Policy Science Kills: The Case of Eugenics by Jeffrey A. Tucker

The climate-change debate has many people wondering whether we should really turn over public policy — which deals with fundamental matters of human freedom — to a state-appointed scientific establishment. Must moral imperatives give way to the judgment of technical experts in the natural sciences? Should we trust their authority? Their power?

There is a real history here to consult. The integration of government policy and scientific establishments has reinforced bad science and yielded ghastly policies.

An entire generation of academics, politicians, and philanthropists used bad science to plot the extermination of undesirables.

There’s no better case study than the use of eugenics: the science, so called, of breeding a better race of human beings. It was popular in the Progressive Era and following, and it heavily informed US government policy. Back then, the scientific consensus was all in for public policy founded on high claims of perfect knowledge based on expert research. There was a cultural atmosphere of panic (“race suicide!”) and a clamor for the experts to put together a plan to deal with it. That plan included segregation, sterilization, and labor-market exclusion of the “unfit.”

Ironically, climatology had something to do with it. Harvard professor Robert DeCourcy Ward (1867–1931) is credited with holding the first chair of climatology in the United States. He was a consummate member of the academic establishment. He was editor of the American Meteorological Journal, president of the Association of American Geographers, and a member of both the American Academy of Arts and Sciences and the Royal Meteorological Society of London.

He also had an avocation. He was a founder of the American Restriction League. It was one of the first organizations to advocate reversing the traditional American policy of free immigration and replacing it with a “scientific” approach rooted in Darwinian evolutionary theory and the policy of eugenics. Centered in Boston, the league eventually expanded to New York, Chicago, and San Francisco. Its science inspired a dramatic change in US policy over labor law, marriage policy, city planning, and, its greatest achievements, the 1921 Emergency Quota Act and the 1924 Immigration Act. These were the first-ever legislated limits on the number of immigrants who could come to the United States.

Nothing Left to Chance

“Darwin and his followers laid the foundation of the science of eugenics,” Ward alleged in his manifesto published in the North American Review in July 1910. “They have shown us the methods and possibilities of the product of new species of plants and animals…. In fact, artificial selection has been applied to almost every living thing with which man has close relations except man himself.”

“Why,” Ward demanded, “should the breeding of man, the most important animal of all, alone be left to chance?”

By “chance,” of course, he meant choice.

“Chance” is how the scientific establishment of the Progressive Era regarded the free society. Freedom was considered to be unplanned, anarchic, chaotic, and potentially deadly for the race. To the Progressives, freedom needed to be replaced by a planned society administered by experts in their fields. It would be another 100 years before climatologists themselves became part of the policy-planning apparatus of the state, so Professor Ward busied himself in racial science and the advocacy of immigration restrictions.

Ward explained that the United States had a “remarkably favorable opportunity for practising eugenic principles.” And there was a desperate need to do so, because “already we have no hundreds of thousands, but millions of Italians and Slavs and Jews whose blood is going into the new American race.” This trend could cause Anglo-Saxon America to “disappear.” Without eugenic policy, the “new American race” will not be a “better, stronger, more intelligent race” but rather a “weak and possibly degenerate mongrel.”

Citing a report from the New York Immigration Commission, Ward was particularly worried about mixing American Anglo-Saxon blood with “long-headed Sicilians and those of the round-headed east European Hebrews.”

Keep Them Out

“We certainly ought to begin at once to segregate, far more than we now do, all our native and foreign-born population which is unfit for parenthood,” Ward wrote. “They must be prevented from breeding.”

But even more effective, Ward wrote, would be strict quotas on immigration. While “our surgeons are doing a wonderful work,” he wrote, they can’t keep up in filtering out people with physical and mental disabilities pouring into the country and diluting the racial stock of Americans, turning us into “degenerate mongrels.”

Such were the policies dictated by eugenic science, which, far from being seen as quackery from the fringe, was in the mainstream of academic opinion. President Woodrow Wilson, America’s first professorial president, embraced eugenic policy. So did Supreme Court Justice Oliver Wendell Holmes Jr., who, in upholding Virginia’s sterilization law, wrote, “Three generations of imbeciles are enough.”

Looking through the literature of the era, I am struck by the near absence of dissenting voices on the topic. Popular books advocating eugenics and white supremacy, such as The Passing of the Great Race by Madison Grant, became immediate bestsellers. The opinions in these books — which are not for the faint of heart — were expressed long before the Nazis discredited such policies. They reflect the thinking of an entire generation, and are much more frank than one would expect to read now.

It’s crucial to understand that all these opinions were not just about pushing racism as an aesthetic or personal preference. Eugenics was about politics: using the state to plan the population. It should not be surprising, then, that the entire anti-immigration movement was steeped in eugenics ideology. Indeed, the more I look into this history, the less I am able to separate the anti-immigrant movement of the Progressive Era from white supremacy in its rawest form.

Shortly after Ward’s article appeared, the climatologist called on his friends to influence legislation. Restriction League president Prescott Hall and Charles Davenport of the Eugenics Record Office began the effort to pass a new law with specific eugenic intent. It sought to limit the immigration of southern Italians and Jews in particular. And immigration from Eastern Europe, Italy, and Asia did indeed plummet.

The Politics of Eugenics

Immigration wasn’t the only policy affected by eugenic ideology. Edwin Black’s War Against the Weak: Eugenics and America’s Campaign to Create a Master Race(2003, 2012) documents how eugenics was central to Progressive Era politics. An entire generation of academics, politicians, and philanthropists used bad science to plot the extermination of undesirables. Laws requiring sterilization claimed 60,000 victims. Given the attitudes of the time, it’s surprising that the carnage in the United States was so low. Europe, however, was not as fortunate.

Freedom was considered to be unplanned, anarchic, chaotic, and potentially deadly for the race. 

Eugenics became part of the standard curriculum in biology, with William Castle’s 1916 Genetics and Eugenicscommonly used for over 15 years, with four iterative editions.

Literature and the arts were not immune. John Carey’s The Intellectuals and the Masses: Pride and Prejudice Among the Literary Intelligentsia, 1880–1939 (2005) shows how the eugenics mania affected the entire modernist literary movement of the United Kingdom, with such famed minds as T.S. Eliot and D.H. Lawrence getting wrapped up in it.

Economics Gets In on the Act

Remarkably, even economists fell under the sway of eugenic pseudoscience. Thomas Leonard’s explosively brilliant Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era (2016) documents in excruciating detail how eugenic ideology corrupted the entire economics profession in the first two decades of the 20th century. Across the board, in the books and articles of the profession, you find all the usual concerns about race suicide, the poisoning of the national bloodstream by inferiors, and the desperate need for state planning to breed people the way ranchers breed animals. Here we find the template for the first-ever large-scale implementation of scientific social and economic policy.

Students of the history of economic thought will recognize the names of these advocates: Richard T. Ely, John R. Commons, Irving Fisher, Henry Rogers Seager, Arthur N. Holcombe, Simon Patten, John Bates Clark, Edwin R.A. Seligman, and Frank Taussig. They were the leading members of the professional associations, the editors of journals, and the high-prestige faculty members of the top universities. It was a given among these men that classical political economy had to be rejected. There was a strong element of self-interest at work. As Leonard puts it, “laissez-faire was inimical to economic expertise and thus an impediment to the vocational imperatives of American economics.”

Irving Fisher, whom Joseph Schumpeter described as “the greatest economist the United States has ever produced” (an assessment later repeated by Milton Friedman), urged Americans to “make of eugenics a religion.”

Speaking at the Race Betterment Conference in 1915, Fisher said eugenics was “the foremost plan of human redemption.” The American Economic Association (which is still today the most prestigious trade association of economists) published openly racist tracts such as the chilling Race Traits and Tendencies of the American Negro by Frederick Hoffman. It was a blueprint for the segregation, exclusion, dehumanization, and eventual extermination of the black race.

Hoffman’s book called American blacks “lazy, thriftless, and unreliable,” and well on their way to a condition of “total depravity and utter worthlessness.” Hoffman contrasted them with the “Aryan race,” which is “possessed of all the essential characteristics that make for success in the struggle for the higher life.”

Even as Jim Crow restrictions were tightening against blacks, and the full weight of state power was being deployed to wreck their economic prospects, the American Economic Association’s tract said that the white race “will not hesitate to make war upon those races who prove themselves useless factors in the progress of mankind.”

Richard T. Ely, a founder of the American Economic Association, advocated segregation of nonwhites (he seemed to have a special loathing of the Chinese) and state measures to prohibit their propagation. He took issue with the very “existence of these feeble persons.” He also supported state-mandated sterilization, segregation, and labor-market exclusion.

That such views were not considered shocking tells us so much about the intellectual climate of the time.

If your main concern is who is bearing whose children, and how many, it makes sense to focus on labor and income. Only the fit should be admitted to the workplace, the eugenicists argued. The unfit should be excluded so as to discourage their immigration and, once here, their propagation. This was the origin of the minimum wage, a policy designed to erect a high wall to the “unemployables.”

Women, Too

Another implication follows from eugenic policy: government must control women.

It must control their comings and goings. It must control their work hours — or whether they work at all. As Leonard documents, here we find the origin of the maximum-hour workweek and many other interventions against the free market. Women had been pouring into the workforce for the last quarter of the 19th century, gaining the economic power to make their own choices. Minimum wages, maximum hours, safety regulations, and so on passed in state after state during the first two decades of the 20th century and were carefully targeted to exclude women from the workforce. The purpose was to control contact, manage breeding, and reserve the use of women’s bodies for the production of the master race.

Leonard explains:

American labor reformers found eugenic dangers nearly everywhere women worked, from urban piers to home kitchens, from the tenement block to the respectable lodging house, and from factory floors to leafy college campuses. The privileged alumna, the middle-class boarder, and the factory girl were all accused of threatening Americans’ racial health.

Paternalists pointed to women’s health. Social purity moralists worried about women’s sexual virtue. Family-wage proponents wanted to protect men from the economic competition of women. Maternalists warned that employment was incompatible with motherhood. Eugenicists feared for the health of the race.

“Motley and contradictory as they were,” Leonard adds, “all these progressive justifications for regulating the employment of women shared two things in common. They were directed at women only. And they were designed to remove at least some women from employment.”

The Lesson We Haven’t Learned

Today we find eugenic aspirations to be appalling. We rightly value the freedom of association. We understand that permitting people free choice over reproductive decisions does not threaten racial suicide but rather points to the strength of a social and economic system. We don’t want scientists using the state to cobble together a master race at the expense of freedom. For the most part, we trust the “invisible hand” to govern demographic trajectories, and we recoil at those who don’t.

But back then, eugenic ideology was conventional scientific wisdom, and hardly ever questioned except by a handful of old-fashioned advocates of laissez-faire. The eugenicists’ books sold in the millions, and their concerns became primary in the public mind. Dissenting scientists — and there were some — were excluded by the profession and dismissed as cranks attached to a bygone era.

Eugenic views had a monstrous influence over government policy, and they ended free association in labor, marriage, and migration. Indeed, the more you look at this history, the more it becomes clear that white supremacy, misogyny, and eugenic pseudoscience were the intellectual foundations of modern statecraft.

Today we find eugenic aspirations to be appalling, but back then, eugenic ideology was conventional scientific wisdom.

Why is there so little public knowledge of this period and the motivations behind its progress? Why has it taken so long for scholars to blow the lid off this history of racism, misogyny, and the state?

The partisans of the state regulation of society have no reason to talk about it, and today’s successors of the Progressive Movement and its eugenic views want to distance themselves from the past as much as possible. The result has been a conspiracy of silence.

There are, however, lessons to be learned. When you hear of some impending crisis that can only be solved by scientists working with public officials to force people into a new pattern that is contrary to their free will, there is reason to raise an eyebrow. Science is a process of discovery, not an end state, and its consensus of the moment should not be enshrined in the law and imposed at gunpoint.

We’ve been there and done that, and the world is rightly repulsed by the results.

Jeffrey A. TuckerJeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.  Follow on Twitter and Like on Facebook.

Americans’ Incomes Are Unequal, But Mobile by Chelsea German

Americans often move between different income brackets over the course of their lives. As covered in an earlier blog post, over 50 percent of Americans find themselves among the top 10 percent of income-earners for at least one year during their working lives, and over 11 percent of Americans will be counted among the top 1 percent of income-earners for at least one year.

Fortunately, a great deal of what explains this income mobility are choices that are largely within an individual’s control. While people tend to earn more in their “prime earning years” than in their youth or old age, other key factors that explain income differences are education level, marital status, and number of earners per household. As Mark Perry recently wrote:

The good news is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g. staying in school and graduating, getting and staying married, etc.), which means that individuals and households are not destined to remain in a single income quintile forever.

According to the economist Thomas Sowell, whom Perry cites, “Most working Americans, who were initially in the bottom 20% of income-earners, rise out of that bottom 20%. More of them end up in the top 20% than remain in the bottom 20%.”

While people move between income groups over their lifetime, many worry that income inequality between different income groups is increasing. The growing income inequality is real, but its causes are more complex than the demagogues make them out to be.

Consider, for example, the effect of “power couples,” or people with high levels of education marrying one another and forming dual-earner households. In a free society, people can marry whoever they want, even if it does contribute to widening income disparities.

Or consider the effects of regressive government regulations on exacerbating income inequality. These include barriers to entry that protect incumbent businesses and stifle competition. To name one extreme example, Louisiana recently required a government-issued license to become a florist.

Lifting more of these regressive regulations would aid income mobility and help to reduce income inequality, while also furthering economic growth.

This post first appeared at HumanProgress.org.

Chelsea GermanChelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

Low-Skilled Workers Flee the Minimum Wage: How State Lawmakers Exile the Needy by Corey Iacono

What happens when, in a country where workers are free to move, a region raises its minimum wage? Do those with the fewest skills seek out the regions with the highest wage floors?

New minimum wage research by economist Joan Monras of the Paris Institute of Political Studies (Sciences Po) attempts to answer that question. Monras theoretically shows that there should be a close relationship between the employment effects of raising the minimum wage and the migration of low-skilled workers.

When the demand for local low-skilled labor is relatively unresponsive (or inelastic) to wage changes, raising the minimum wage should lead to an influx of low-skilled workers from other states in search of better-paying jobs. On the other hand, if the demand for low-skilled labor is relatively responsive (or elastic), raising the minimum wage will lead low-skilled workers to flee to states where they will more easily find employment.

To test the model empirically, Monras examined data from all the changes in effective state minimum wages over the period 1985 to 2012. Looking at time frames of three years before and after each minimum wage increase, Monras found that

  1. As depicted in the graph below on the left, those who kept their jobs earned more under the minimum wage. No surprise there.
  2. As depicted in the graph below on the right, workers with the fewest skills were having an easier time finding full-time employment prior to the minimum wage increase. But this trend completely reversed as soon as the minimum wage was increased.
  3. A control group of high-skilled workers didn’t experience either of these effects. Those affected by the changing laws were the least skilled and the most vulnerable.

These results show that the timing of minimum wage increases is not random.

Instead, policy makers tend to raise minimum wages when low-skilled workers’ real wages are declining and employment is rising. Many studies, misled by the assumption that the timing of minimum wage increases is not influenced by local labor demand, have interpreted the lack of falling low-skilled employment following a minimum wage increase as evidence that minimum wage increases have no effect on employment.

When Monras applied this same false assumption to his model, he got the same result. However, to observe the true effect of minimum wage increases on employment, he assumed a counterfactual scenario where, had the minimum wages not been raised, the trend in low-skilled employment growth would have continued as it was.

By making this comparison, Monras was able to estimate that wages increased considerably following a minimum wage hike, but employment also fell considerably. In fact, employment fell more than wages rose. For every 1 percent increase in wages, the share of a state’s population of low-skilled workers in full-time employment fell by 1.2 percent. (The same empirical approach showed that minimum wage increases had no effect on the wages or employment of a control group of high-skilled workers.)

Monras’s model predicts that if labor demand is sensitive to wage changes, low-skilled workers should leave states that increase their minimum wages — and that’s exactly what his empirical evidence shows.

According to Monras,

A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.

These new and important findings reinforce the view that minimum wage increases come at a cost to the employment rates of low-skilled workers.

They also pose a difficult question for minimum wage proponents: If minimum wage increases benefit low-skilled workers, why do these workers leave the states that raise their minimum wage?

Corey IaconoCorey Iacono

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

Catching Up with some Common Core Profiteers: Beyond the Project Veritas Videos

The Big Government-Big Education alliance has also had positive trickle-down effects for professors, who have benefited with publishing contracts and grants for their institutions.  The Bill and Melinda Gates Foundation, the biggest funder of Common Core, continues to support universities that help in implementing their education initiatives.  Professors hopped on the Common Core gravy train at the get-go. There was the curious fact that Bill Ayers gave a keynote address at the 2009 convention of the Renaissance Group, “a national consortium of colleges, universities and professional organizations” dedicated to teaching and education.  Now if we could only learn how much Bill Ayers was paid for that keynote speech in Washington in 2009.

James O’Keefe’s undercover videos reveal what activists have been saying for years: Common Core is a set of standards written not for the benefit of students, but to enrich crony capitalists, such as mega-curriculum companies, Houghton Mifflin-Harcourt, Pearson, and National Geographic Education.

The latest, the fourth video, records former Houghton Mifflin-Harcourt executive Gilbert Garcia describing the constant “politicking” among school board members and superintendents, and former Pearson employee Kim Koerber describing how the 2013 $1.3 billion contract for supplying I-Pads to the Los Angeles school district was “written for Pearson to win.”  After an FBI investigation into bid-rigging, Pearson, in 2015, agreed to pay the district $6.4 million in a settlement.

Pearson issued a statement calling remarks in the videos “offensive,” asserting that they do not reflect the values of the company’s 40,000 employees.

But the Big Government-Big Education alliance has also had positive trickle-down effects for professors, who have benefited with publishing contracts and grants for their institutions.  The Bill and Melinda Gates Foundation, the biggest funder of Common Core, continues to support universities that help in implementing their education initiatives.  To name a few, in November, the Foundation announced a grant of $34.7 million for “transformation centers” to improve teacher preparation programs on the campuses of the University of Michigan, Texas Tech University, and the Relay Graduate School of Education, as well as at the National Center for Teacher Residencies, and the Massachusetts Department of Elementary and Secondary Education.  That same month, a grant of $1,799,710 was awarded to “support collaboration between Vanderbilt [University] and the Tennessee Department of Education in the area of education research and improvement,” and $764,553 was awarded to the University of Florida for “teacher leader fellows.”

Professors hopped on the Common Core gravy train at the get-go, as I described in 2012, in my report for Accuracy in Media, “Terrorist Professor Bill Ayers and Obama’s Federal School Curriculum.” There was the curious fact that Bill Ayers gave a keynote address at the 2009 convention of the Renaissance Group, “a national consortium of colleges, universities and professional organizations” dedicated to teaching and education.  Of course, I made no claim that Ayers wrote the standards; I just noted that he appeared at this conference in Washington with then-Secretary of Education Arne Duncan, his under secretary, and a representative from Achieve, the company that orchestrated Common Core.  Ayers’s close colleague, Stanford professor Linda Darling-Hammond, led Obama’s education transition team and oversaw one of the two national Common Core tests.

Less well-known professors, who had bristled at the imposition of “standards,” suddenly began embracing Common Core standards.  This was the case with education professor Lucy Calkins and her colleagues at Columbia Teachers College, Bill Ayers’s alma mater, long a bastion of anti-testing/anti-standards.  These professors began writing teacher guidebooks, and presenting talks and workshops.  Since co-authoring Pathways to the Common Core, Calkins continues to do work for the publisher, Heinemann, a part of Houghton Mifflin Harcourt.  Her “Units of Study” curriculum is described by the publisher as a bestseller.  She also writes performance assessments, including the Grade 1 “Units of Study” in “Opinion, Information, and Narrative Writing.”  (Yes, students in first grade are expected to write op-eds.)  In a short video, Calkins explains her teaching philosophy that involves mini-lessons and group work.

In 2012, Marc Aronson, a lecturer in communications and information at Rutgers University, was advertising himself as a “Common Core Consultant,” speaker, and author.  Today, he describes himself on his personal website as an “author, professor, speaker, editor and publisher who believes that young people, especially pre-teens and teenagers, are smart, passionate, and capable of engaging with interesting ideas in interesting ways.”

Aronson apparently believes that pre-teens and teenagers are smart enough to weed out the lies in his Common Core-compliant middle school and high school textbook, Master of Deceit: J. Edgar Hoover and America in the Age of Lies.  As I noted in my report, Aronson presents the KGB-fabricated lies about the FBI director’s homosexuality as probable.  For the benefit of 11-year-olds, he posits that photographs of Hoover with his friend Clyde Tolson “might be seen as lovers’ portraits.”  The book is filled with sexual innuendo and dwells on such irrelevant details in order to ascribe motives to Hoover for his presumably unfounded fears about the communist threat.  The accompanying discussion guide is a masterpiece of disguise: as ideological questions bearing their own answers.

It is therefore not surprising that Aronson would now write an article in the School Library Journal casting a skeptical eye on O’Keefe’s undercover videos and asking readers to “consider the source,” as the subheading to the headline, “Is Common Core Just a Scam to Sell Books?” asks.  He distances himself from the sales executives but never directly names the “source” that one should “consider.”  (Innuendo seems to be his modus operandi.) The implication is O’Keefe.  Aronson admits, “As a nonfiction fan, author, and editor, I have a stake in this.”  He denies that his stake is in the rise in nonfiction sales that have come as Common Core standards have edged out literature in favor of “informational texts.”  No, Aronson fell “in love with the standards” when he first read them, “years before they had any impact on royalty statements.”

Aronson also claims to have served recently on the New Jersey team that evaluated that state’s English Language Arts (ELA) and Math standards.  Contrary to the executives’ statements captured in the videos, his “team” carefully examined the standards “one by one, grade by grade, and listened to extensive comments from teachers, administrators, parents, professionals, and business leaders.”  He claims that he saw “commitment, not greed.”

He presents a “guiding principle” that sounds very familiar to those of us whose eyes have glazed and brains have flopped like dying fish from the Common Core sales literature: “From the first, our guiding principle was this: What will someone awarded a high school diploma be ready for? The group looked at each educational stage and benchmark to consider what students would need to know to be ready for the next step, and the next, so that after graduation they would have the skill set to begin the next phase of their lives.”

Aronson’s team included comments by Amy Rominiecki, a Certified School Library Media Specialist, on behalf of the New Jersey Association of School Librarians, in their report. (He links back to her statement when she testified in support of Common Core.)  The Bill and Melinda Gates Foundation has also funded studies for the American Library Association (the parent organization of the American Association of School Librarians) on such things as Technology Access, training, and participation in the federal E-rate program.

Aronson attributes the continuing low performance of 12th graders in math and reading to economic inequality, stating, “If more students had more resources (social, emotional, financial, cultural, and technological), more would be ready to meet the challenges and opportunities that follow after secondary education.”

Of course, this author and educational entrepreneur has only the purest motives: “the children.”  Money may be important, “yet, there is a role for standards to play.” To that end, “as educators and communities who care about our nation’s youth, it is necessary we establish a path that’s best for as many students.”

Such bromides bring big bucks in the education world.  I am reminded of words by Bill Ayers at an education conference in 2013, something about being finite creatures hurtling through infinite space.  Now if we could only learn how much Bill Ayers was paid for that keynote speech in Washington in 2009.

EDITORS NOTE: This column originally appeared on the Selous Foundation for Public Policy Research website.

The House That Uncle Sam Built by Peter J. Boettke & Steven Horwitz

The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in.

In this essay, originally published December 2009, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.

Download the PDF.

Listen to the audio file (MP3).


Introduction

The theme of “The House that Uncle Sam Built: The Untold Story of the Great Recession of 2008” is that government policy, not a failure of free markets, caused the economic trauma we have been experiencing. We do not live in a free market. We live in a mixed economy. The mixture varies by industry. Technology is primarily free. Financial Services is primarily government. It is not surprising that the most government regulated and controlled segment of the economy, financial services, experienced the biggest problems. These problems were created by actions by the Federal Reserve combined with government housing policy (especially the government- sponsored enterprises – Freddie Mac and Fannie Mae). Misguided government interference in the market is the real culprit in laying the foundation for the Great Recession.

This paper provides a “common sense” and understandable outline of fundamental causes and cures. The analysis is based on long proven economic laws. Despite the wishes and hopes of politicians, economic laws are just as immutable as the laws of physics. If you jump off a ten story building, hitting the ground will not be pleasant. If the Federal Reserve holds interest rates below the natural market rate by rapidly expanding the money supply (“printing” money) as Alan Greenspan did, individuals and businesses will make bad investment decisions and there will be negative consequences to our long term economic well-being. There are no free lunches.

When a doctor misdiagnoses a disease, his treatment will likely make the patient sicker. If we misdiagnose the causes of the Great Recession, our treatment will reduce our long term standard of living. While the U.S. economic system is highly resilient, and we will likely have some form of economic recovery, almost every significant government policy action taken in response to the Great Recession will reduce the quality of life in the long term. Understanding that failed government policies, not market failure, caused our economic challenges is critical to defining the appropriate cures. Since government created the problem, i.e. caused the disaster, it is irrational to believe that more government is the cure. We owe it to ourselves and to our children and grandchildren to take these issues very seriously.

John Allison, Chairman, BB&T

The House That Uncle Sam Built

The man who parties like there is no tomorrow puts his body through an “up” and a “down” course that looks a lot like the business cycle. At the party, the man freely imbibes. He has a great time before stumbling home at 2:00 a.m., where he crashes on the sofa. A few hours later, he awakens in the grip of the dreaded hang- over. He then has a choice to make: get a short-term lift from another drink or sober up. If he chooses the latter and endures a few hours of discomfort, he can recover. In any event, no one would say the hangover is when the harm is done; the harm was done the night before and the hangover is the evidence.

The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in.

In this essay, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.

There is no better way to understand a crisis that began in the housing sector than to begin by thinking about a house.

A house must be built on a firm, sustainable foundation. If it’s slapped together with good intentions but lousy materials and workmanship, it will collapse prematurely. If too much lumber and too many bricks are piled on top of a weak support structure, or if housing material is misallocated throughout the house, then an apparently solid structure can crumble like sand once its weaknesses are exposed. Americans built and bought a lot of houses in the past decade not, it turns out, for sound reasons or with solid financing. Why this occurred must be part of any good explanation of the Great Recession.

But isn’t home ownership a great thing, the very essence of the vaunted “American Dream”? In the wealthiest country in the world, shouldn’t everyone be able to own their own home? What could be wrong with any policy that aims to make housing more affordable? Well, we may wish it were not so, but good intentions cannot insulate us from the consequences of bad policies.

Politicians became so enthralled with home ownership and affordable housing – and the points they could score by claiming to be their champions – that they pushed and shoved the economy down an artificial path that invited an inevitable (and painful) correction. Congress created massive, government-sponsored enterprises and then encouraged them to degrade lending standards. Congress bent tax law to favor real estate over other investments. Through its reckless easy money policies, another creation of Congress, the Federal Reserve, flooded the economy with liquidity and drove interest rates down. Each of these policies encouraged too many of the economy’s resources to be drawn into the housing sector. For a substantial part of this decade, our policy-makers in Washington were laying a very poor foundation for economic growth.

Was Free Enterprise the Villain?

Call it free enterprise, capitalism or laissez faire – blaming supposedly unfettered markets for every economic shock has been the monotonous refrain of conventional wisdom for a hundred years. Among those making such claims are politicians who posture as our rescuers, bureaucrats who are needed to implement the rescue plans and special interests who get rescued. Then there are our fellow academics – the ones who add a veneer of respectability – trumpeting the “stimulus” the rest of us get from being rescued.

Rarely does it occur to these folks that government intervention might be the cause of the problem. Yet, we have the Federal Reserve System’s track record, thousands of pages of financial regulations, and thousands more pages of government housing policy that demonstrate the utter absence of “laissez faire” in areas of the economy central to the current recession.

Understanding recessions requires knowing why lots of people make the same kinds of mistakes at the same time. In the last few years, those mistakes were centered in the housing market, as many people overestimated the value of their houses or imagined that their value would continue to rise. Why did everyone believe that at the same time? Did some mysterious hysteria descend upon us out of nowhere? Did people suddenly become irrational? The truth is this: People were reacting to signals produced in the economy. Those signals were erroneous. But it was the signals and not the people themselves that were irrational.

Imagine we see an enormous rise in the number of traffic accidents in a major city. Cars keep colliding at intersections as drivers all seem to make the same sorts of mistakes at once. Is the most likely explanation that drivers have irrationally stopped paying attention to the road, or would we suspect that something might be wrong with the traffic lights? Even with completely rational drivers, malfunctioning traffic signals will lead to lots of accidents and appear to be massive irrationality.

Market prices are much like traffic signals. Interest rates are a key traffic signal. They reconcile some people’s desire to save – delay consumption until a future date – with others’ desire to invest in ideas, materials or equipment that will make them and their businesses more productive. In a market economy, interest rates change as tastes and conditions change. For instance, if people become more interested in future consumption relative to current consumption, they will increase the amount they save. This, in turn, will lower interest rates, allowing other people to borrow more money to invest in their businesses. Greater investment means more sophisticated production processes, which means more goods will be available in the future. In a normally functioning market economy, the process ensures that savings equal investment, and both are consistent with other conditions and with the public’s underlying preferences.

As was made all too obvious in 2008, ours is not a normally functioning market economy. Government has inserted itself into almost every transaction, manipulating and distorting price signals along the way. Few interventions are as momentous as those associated with monetary policy implemented by the Federal Reserve. Money’s essence is that it is a generally accepted medium of exchange, which means that it is half of every act of buying and selling in the economy. Like blood circulating in the body, it touches everything. When the Fed tinkers with the money supply, it affects not just one or two specific markets, like housing policy does, but every single market in the entire economy. The Fed’s powers give it an enormous scope for creating economic chaos.

When central banks like the Federal Reserve inflate, they provide banks with more money to lend, even though the public has not provided any more savings. Banks respond by lowering interest rates to draw in new borrowers. The borrowers see the lower interest rate and believe that it signals that consumers are more interested in delayed consumption relative to immediate consumption. Borrowers then begin to invest in those longer-term projects, which are now relatively more desirable given the lower interest rate. The problem, however, is that the demand for those longer-term projects is not really there. The public is not more interested in future consumption, even though the interest rate signals suggest otherwise. Like our malfunctioning traffic signals, an inflation-distorted interest rate is going to cause lots of “accidents.” Those accidents are the mistaken investments in longer-term production processes.

“I want to roll the dice a little bit more in this situation toward subsidized housing.” – Barney Frank, 2003

Eventually those producers engaged in the longer processes find the cost of acquiring their raw materials to be too high, particularly as it becomes clear that the public’s willingness to defer consumption until the future is not what the interest rate suggested would be forthcoming. These longer-term processes are then abandoned, resulting in falling asset prices (both capital goods and financial assets, such as the stock prices of the relevant companies) and unemployed labor in sectors associated with the capital goods industries.

So begins the bust phase of a monetary policy-induced cycle; as stock prices fall, asset prices “deflate,” overall economic activity slows and unemployment rises. The bust is the economy going through a refitting and reshuffling of capital and labor as it eliminates mistakes made during the boom. The important points here are that the artificial boom is when the mistakes were made, and it is during the bust that those mistakes are corrected.

From 2001 to about 2006, the Federal Reserve pursued the most expansionary monetary policy since at least the 1970s, pushing interest rates far below their natural rate. In January of 2001 the federal funds rate, the major interest rate that the Fed targets, stood at 6.5%. Just 23 months later, after 12 successive cuts, the rate stood at a mere 1.25% – more than 80% below its previous level. It stayed below 2% for two years then the Fed finally began raising rates in June of 2004. The rate was so low during this period that the real Federal Funds rate – the nominal rate minus the rate of inflation – was negative for two and a half years. This meant that, in effect, banks were being paid to borrow money! Rapidly climbing after mid-2004, the rate was back up to the 5% mark by May of 2006, just about the time that housing prices started their collapse. In order to maintain that low Fed Funds rate for that five year period, the Fed had to increase the money supply significantly. One common measure of the money supply grew by 32.5%. A lot of economically irrational investments were made during this time, but it was not because of “irrational exuberance brought on by a laissez-faire economy,” as some suggested. It is unlikely that lots of very similar bad investments are the resut of mass irrationality, just as large traffic accidents are more likely the result of malfunctioning traffic signals than lots of people forgetting how to drive overnight. They resulted from malfunctioning market price signals due to the Fed’s manipulation of money and credit. Poor monetary policy by an agency of government is hardly “laissez faire”.

What About Housing?

With such an expansionary monetary policy, the housing market was sent contradictory and incorrect signals. On one hand, housing and housing-related industries were given a giant green light to expand. It is as if the Fed supplied them with an abundance of lumber, and encouraged them to build their economic house as big as they pleased.

This would have made sense if the increased supply of lumber (capital) had been supported by the public’s desire to increase future consumption relative to immediate consumption – in other words, if the public had truly wanted to save for the bigger house. But the public did not. Interest rates were not low because the public was in the mood to save; they were low because the Fed had made them so by fiat. Worse, Fed policy gave the would-be suppliers of capital – those who might have been tempted to save – a giant red light. With rates so low, they had no incentive to put their money in the bank for others to borrow.

So the economic house was slapped together with what appeared to be an unlimited supply of lumber. It was built higher and higher, drawing resources from the rest of the economy. But it had no foundation. Because the capital did not reflect underlying consumer preferences, there was no support for such a large house. The weaknesses in the foundation were eventually exposed and the 70-story skyscraper, built on a foundation made for a single-family home, began to teeter. It eventually fell in the autumn of 2008.

But why did the Fed’s credit all flow into housing? It is true that easy credit financed a consumer-borrowing binge, a mergers-and-acquisitions binge and an auto binge. But the bulk of the credit went to housing. Why? The answer lies in government’s efforts to increase the affordability of housing.

Government intervention in the housing market dates back to at least the Great Depression. The more recent government initiatives relevant to the current recession began in the Clinton administration. Since then, the federal government has adopted a variety of policies intended to make housing more affordable for lower and middle income groups and various minorities. Among the government actions, those dealing with government-sponsored enterprises active in mortgage markets were central. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are the key players here. Neither Fannie nor Freddie are “free-market” firms. They were chartered by the federal government, and although nominally privately owned until the onset of the bust in 2008, they were granted a number of government privileges in addition to carrying an implicit promise of government support should they ever get into trouble.

Fannie and Freddie did not actually originate most of the bad loans that comprised the housing crisis. Loans were made by banks and mortgage companies that knew they could sell those loans in the secondary mortgage market where Fannie and Freddie would buy and repackage them to sell to other investors. Fannie and Freddie also invented a number of the low down-payment and other creative, high-risk types of loans that came into use during the housing boom. The loan originators were willing to offer these kinds of loans because they knew that Fannie and Freddie stood ready to buy them up. With the implicit promise of government support behind them, the risk was being passed on from the originators to the taxpayers. If homeowners defaulted, the buyers of the mortgages would be harmed, not the originators. The presence of Fannie and Freddie in the mortgage market dramatically distorted the incentives for private actors such as the banks.

The Fed’s low interest rates, combined with Fannie and Freddie’s government-sponsored purchases of mortgages, made it highly and artificially profitable to lend to anyone and everyone. The banks and mortgage companies didn’t need to be any greedier than they already were. When banks saw that Fannie and Freddie were willing to buy virtually any loan made to under-qualified borrowers, they made a lot more of them. Greed is no more to blame for these bad mortgages than gravity is to blame for plane crashes. Gravity is always present, just like greed. Only the Federal Reserve’s easy money policy and Congress’ housing policy can explain why the bubble happened when it did, where it did.

Of further significance is the fact that Fannie and Freddie were under great political pressure to keep housing increasingly affordable (while at the same time promoting instruments that depended on the constantly rising price of housing) and to extend opportunities to historically “under-served” groups. Many of the new mortgages with low or even zero-down payments were designed in response to this pressure. Not only were lots of funds available to lend, and not only was government implicitly subsidizing the purchase of mortgages, but it was also encouraging lenders to find more borrowers who previously were thought unable to afford a mortgage.

Partnerships among Fannie and Freddie, mortgage companies, community action groups and legislators combined to make mortgages available to many people who should never have had them, based on their income and assets. Throw in the effects of the Community Reinvestment Act, which required lenders to serve under-served groups, and zoning and land-use laws that pushed housing into limited space in the suburbs and exurbs (driving up prices in the process) and you have the ingredients of a credit-fueled and regulatory-directed housing boom and bust.

All told, huge amounts of wealth and capital poured into producing houses as a result of these political machinations. The Case-Shiller Index clearly shows unprecedented increases in home prices prior to the bust in 2008. From 1946-1996, there had been no significant growth in the price of residential real estate. In contrast, the decade that followed saw skyrocketing prices.

It’s worth noting that even tax policy has been biased toward fostering investments in housing. Real estate investments are taxed at a much lower rate than other investments. Changes in the 1990s made it possible for families to pocket any capital gains (income from price appreciation) on their primary residences up to $500,000 every two years. That translates into an effective rate of 0% versus the ordinary income tax rates that apply to capital gains on other forms of investment. The differential tax treatment of capital gains made housing a relatively better investment than the alternatives. Although tax cuts are desirable for promoting economic growth, when politicians tinker with the tax code to favor the sorts of investments they think people should make, we should not be surprised if market distortions result.

Former Fed chair Alan Greenspan had made it clear that the Fed would not stand idly by whenever a crisis threatened to cause a major devaluation of financial assets. Instead, it would respond by providing liquidity to stem the fall. Greenspan declared there was little the Fed could do to prevent asset bubbles but that it could always cushion the fall when those bubbles burst. By 1998, the idea that the Fed would always bail out investors after a burst bubble had become known as the “Greenspan Put.” (A “put” is a financial arrangement where a buyer acquires the right to re-sell the asset at a pre-set price.) Having seen the Fed bailout investors this way in a series of events starting as early as the 1987 stock market crash and extending through 9/11, players in the housing market had every reason to expect that if the value of houses and other instruments they were creating should fall, the Fed would bail them out, too. The Greenspan Put became yet another government “green light,” signaling investors to take risks they might not otherwise take.

As housing prices began to rise, and in some areas rise enormously, investors saw opportunities to create new financial instruments based on those rising housing prices. These instruments constituted the next stage of the boom in this boom-bust cycle, and their eventual failure became the major focus of the bust.

Fancy Financial Instruments – Cause or Symptom?

Banks and other players in the financial markets capitalized on the housing boom to create a variety of new instruments. These new instruments would enrich many but eventually lose their value, bringing down several major companies with them. They were all premised on the belief that housing prices would continue to rise, which would enable people who had taken out the new mortgages to continue to be able to pay.

Mortgages with low or even nonexistent down payments appeared. The ownership stake the borrower had in the house was largely the equity that came from the house increasing in value. With little to no equity at the start, the amount borrowed and therefore the monthly payments were fairly high, meaning that should the house fall in value, the owner could end up owing more on the house than it was worth.

“If it ain’t broke, why do you want to fix it? Have the GSEs ever missed their housing goals?” – Maxine Waters, 2003

The large flow of mortgage payments resulting from the inflation-generated housing bubble was then converted into a variety of new investment vehicles. In the simplest terms, financial institutions such as Fannie and Freddie began to buy up these mortgages from the originating banks or mortgage companies, package them together and sell the flow of payments from that package as a bond-like instrument to other investors. At the time of their nationalization in the fall of 2008, Fannie and Freddie owned or controlled half of the entire mortgage market. Investors could buy so-called “mortgage-backed securities” and earn income ultimately derived from the mortgage payments of the homeowners. The sellers of the securities, of course, took a cut for being the intermediary. They also divided up the securities into “tranches” or levels of risk. The lowest risk tranches paid off first, as they were representative of the less risky of the mortgages backing the security. The high risk ones paid off with the leftover funds, as they reflected the riskier mortgages.

Buyers snapped up these instruments for a variety of reasons. First, as housing prices continued to rise, these securities looked like a steady source of ever-increasing income. The risk was perceived to be low, given the boom in the housing market. Of course that boom was an illusion that eventually revealed itself.

Second, most of these mortgage- backed securities had been rated AAA, the highest rating, by the three ratings agencies: Moody’s, Standard and Poor’s, and Fitch. This led investors to believe these securities were very safe. It has also led many to charge that markets were irrational. How could these securities, which were soon to be revealed as terribly problematic, have been rated so highly? The answer is that those three ratings agencies are a government-created cartel not subject to meaningful competition.

In 1975, the Securities and Exchange Commission decided only the ratings of three “Nationally Recognized Statistical Rating Organizations” would satisfy the ratings requirements of a number of government regulations.Their activities since then have been geared toward satisfying the demands of regulators rather than true competition. If they made an error in their ratings, there was no possibility of a new entrant coming in with a more accurate technique. The result was that many instruments were rated AAA that never should have been, not because markets somehow failed due to greed or irrationality, but because government had cut short the learning process of true market competition.

Third, changes in the international regulations covering the capital ratios of commercial banks made mortgage-backed securities look artificially attractive as investment vehicles for many banks. Specifically, the Basel accord of 1988 stipulated that if banks held securities issued by government-sponsored entities, they could hold less capital than if they held other securities, including the very mortgages they might originate. Banks could originate a mortgage and then sell it to Fannie Mae. Fannie would then package it with other mortgages into a mortgage-backed security. If the very same bank bought that security (which relied on income from the mortgage it originated), it would be required to hold only 40 percent of the capital it would have had to hold if it had just kept the original mortgage.

These rules provided a powerful incentive for banks to originate mortgages they knew Fannie or Freddie would buy and securitize. The mortgages would then be available to buy back as part of a fancier instrument. The regulatory structure’s attempt at traffic signals was a flop. Markets themselves would not have produced such persistently bad signals or such a horrendous outcome. Once these securities became popular investment vehicles for banks and other institutions (thanks mostly to the regulatory interventions that created and sustained them) still other instruments were built on top of them. This is where “credit default swaps” and other even more complex innovations come into the story. Credit default swaps were a form of insurance against the mortgage-backed securities failing to pay out. Such arrangements would normally be a perfectly legitimate form of risk reduction for investors but given the house of cards that the underlying securities rested on, they likely accentuated the false “traffic signals” the system was creating.

“I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families. Some may think that’s a stretch. I don’t think it is. I think it is realistic. I know we’re going to have to work together to achieve it. But when we do, our communities will be stronger and so will our economy. Achieving the goal is going to require some good policies out of Washington. And it’s going to require a strong commitment from those of you involved in the housing industry.” – President George W. Bush, 2002

By 2006, the Federal Reserve saw the housing bubble it had been so instrumental in creating and moved to prick it by reversing monetary policy. Money and credit were constricted and interest rates were dramatically raised. It would be only a matter of time before the bubble burst.

Deregulation, a False Culprit

It is patently incorrect to say that “deregulation” produced the current crisis [See Appendix A]. While it is true that new instruments such as credit default swaps were not subject to a great deal of regulation, this was mostly because they were new. Moreover, their very existence was an unintended consequence of all the other regulations and interventions in the housing and financial markets that had taken place in prior decades. The most notable “deregulation” of financial markets that took place in the 10 years prior to the crash of 2008 was the passing during the Clinton administration of the Gramm-Leach-Bliley Act in 1999, which allowed commercial banks, investment banks and securities firms to merge in whatever manner they wished, eliminating regulations dating from the New Deal era that prevented such activity. The effects of this Act on the housing bubble itself were minimal. Yet, its passage turned out to be helpful, not harmful, during the 2008 crisis because failing investment banks were able to merge with commercial banks and avoid bankruptcy.

The housing bubble ultimately had to come to an end, and with it came the collapse of the instruments built on top of it. Inflation-financed booms end when the industries being artificially stimulated by the inflation find it increasingly difficult to buy the inputs they need at prices that are profitable and also find it increasingly difficult to find buyers for their outputs. In late 2006, housing prices topped out and began to fall as glutted markets and higher input prices due to the previous years’ race to build began to take their toll.

Falling housing prices had two major consequences for the economy. First, many homeowners found themselves in trouble with their mortgages. The low- or no-equity mortgages that had enabled so many to buy homes on the premise that prices would keep rising now came back to bite them. The falling value of their homes meant they owed more than the homes were worth. This problem was compounded in some cases by adjustable rate mortgages with low “teaser” rates for the first few years that then jumped back to market rates. Many of these mortgages were on houses that people hoped to “flip” for an investment profit, rather than on primary residences. Borrowers could afford the lower teaser payments because they believed they could recoup those costs on the gain in value. But with the collapse of housing prices underway, these homes could not be sold for a profit and when the rates adjusted, many owners could no longer afford the payments. Foreclosures soared.

Second, with housing prices falling and foreclosures rising, the stream of payments coming into those mortgage-backed securities began to dry up. Investors began to re-evaluate the quality of those securities. As it became clear that many of those securities were built upon mortgages with a rising rate of default and homes with falling values, the market value of those securities began to fall. The investment banks that held large quantities of securities were forced to take significant paper losses. The losses on the securities meant huge losses for those that sold credit default swaps, especially AIG. With major investment banks writing down so many assets and so much uncertainty about the future of these firms and their industry, the flow of credit in these specific markets did indeed dry up. But these markets are only a small share of the whole commercial banking and finance sector. It remains a matter of much debate just how dire the crisis was come September. Even if it was real, however, the proper course of action was to allow those firms to fail and use standard bankruptcy procedures to restructure their balance sheets.

“I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under.” – Barney Frank, 2008

The Recession is the Recovery

The onset of the recession and its visible manifestations in rising unemployment and failing firms led many to call for a “recovery plan.” But it was a misguided attempt to “plan” the monetary system and the housing market that got us into trouble initially. Furthermore, recession is the process by which markets recover. When one builds a 70-story skyscraper on a foundation made for a small cottage, the building should come down. There is no use in erecting an elaborate system of struts and supports to keep the unsafe structure aloft. Unfortunately, once the weaknesses in the U.S. economic structure were exposed, that is exactly what the Federal government set about doing.

One of the major problems with the government’s response to the crisis has been the failure to understand that the bust phase is actually the correction of previous errors. When firms fail and workers are laid off, when banks reconsider the standards by which they make loans, when firms start (accurately) recording bad investments as losses, the economy is actually correcting for previous mistakes. It may be tempting to try to keep workers in the boom industries or to maintain investment positions, but the economy needs to shift its focus. Corrections must be permitted to take their course. Otherwise, we set ourselves up for more painful downturns down the road. (Remember, the 2008 crisis came about because the Federal Reserve did not want the economy to go through the painful process of reordering itself following the collapse of the dot.com bubble.) Capital and labor must be reallocated, expectations must adjust, and the economic system must accommodate the existing preferences of consumers and the real resource constraints that producers face. These adjustments are not pleasant; they are in fact often extremely painful to the individuals who must make them, but they are also essential to getting the system back on track.

When government takes steps to prevent the adjustment, it only prolongs and retards the correction process. Government policies of easy credit produce the boom. Government policies designed to prevent the bust have the potential to transform a market correction into a full-blown economic crisis.

No one wants to see the family business fail, or neighbors lose their jobs, or charitable groups stretched beyond capacity. But in a market economy, bankruptcy and liquidation are two of the primary mechanisms by which resources are reallocated to correct for previous errors in decision-making. As Lionel Robbins wrote in The Great Depression, “If bankruptcy and liquidation can be avoided by sound financing nobody would be against such measures. All that is contended is that when the extent of mal- investment and over indebtedness has passed a certain limit, measures which postpone liquidation only tend to make matters worse.”

Seeing the recession as a recovery process also implies that what looks like bad news is often necessary medicine. For example, news of slackening home sales, or falling new housing starts, or losses of jobs in the financial sector are reported as bad news. In fact, this is a necessary part of recovery, as these data are evidence of the market correcting the mistakes of the boom. We built too many houses and we had too many resources devoted to financial instruments that resulted from that housing boom. Getting the economy right again requires that resources move away from those industries and into new areas. Politicians often claim they know where resources should be allocated, but the Great Recession of 2008 is only the latest proof they really don’t.

The Bush administration made matters worse by bailing out Bear Sterns in the spring of 2008. This sent a clear signal to financial firms that they might not have to pay the price for their mistakes. Then after that zig, the administration zagged when it let Lehman Brothers fail. There are those who argue that allowing Lehman to fail precipitated the crisis. We would argue that the Lehman failure was a symptom of the real problems that we have already outlined. Having set up the expectations that failing firms would get bailed out, the federal government’s refusal to bail out Lehman confused and surprised investors, leading many to withdraw from the market. Their reaction is not the necessary consequence of letting large firms fail, rather it was the result of confusing and conflicting government policies. The tremendous uncertainty created by the Administration’s arbitrary and unpredictable shifts – most notably Bernanke and Paulson’s September 23, 2008 unconvincing testimony on the details of the Troubled Asset Relief program – was the proximate cause of the investor withdrawals that prompted the massive bailouts that came in the fall, including those of Fannie Mae and Freddie Mac.

The Bush bailout program was problematic in at least two ways. First, the rationale for such aggressive government action, including the Fed’s injection of billions of dollars in new reserves, was that credit markets had frozen up and no lending was taking place. Several observers at the time called this claim into question, pointing out that aggregate new lending numbers, while growing much more slowly than in the months prior, had not dropped to zero.

Markets in which the major investment banks operated had indeed slowed to a crawl, both because many of their housing-related holdings were being revealed as mal-investments and because the inconsistent political reactions were creating much uncertainty. The regular commercial banking sector, however, was by and large continuing to lend at prior levels.

More important is this fact: the various bailout programs prolonged the persistence of the very errors that were in the process of being corrected! Bailing out firms that are suffering major losses because of errant investments simply prolongs the mal-investments and prevents the necessary reallocation of resources.

The Obama administration’s nearly $800 billion stimulus package in February of 2009 was also predicated on false premises about the nature of recession and recovery. In fact, these were the same false premises which informed the much-maligned Bush Administration approach to the crisis. The official justification for the stimulus was that only a “jolt” of government spending could revive the economy.

The fallacy of job creation by government was first exposed by the French economist Bastiat in the 19th century with his story of the broken window. Imagine a young boy throws a rock through a window, breaking it. The townspeople gather and bemoan the loss to the store owner. But eventually one notes that it means more business for the glazier. And another observes that the glazier will then have money to spend on new shoes. And then the shoe seller will have money to spend on a new suit. Soon, the crowd convinces them-selves that the broken window is actually quite a good thing.

The fallacy, of course, is that if the window was never broken, the store owner would still have a functioning window and could spend the money on something else, such as new stock for his store. All the breaking of the window does is force the store owner to spend money he wouldn’t have had to spend if the window had been left intact. There is no net gain in wealth here. If there was, why wouldn’t we recommend urban riots as an economic recovery program?

When government attempts to “create” a job, it is not unlike a vandal who “creates” work for a glazier. There are only three ways for a government to acquire resources: it can tax, it can borrow or it can print money (inflate). No matter what method is used to acquire the resources, the money that government spends on any stimulus must come out of the private sector. If it is through taxes, it is obvious that the private sector has less to spend, leading to losses that at least cancel out any jobs created by government. If it is through borrowing, that lowers the savings available to the private sector (and raises interest rates in the process), reducing the amount the sector can borrow and the jobs it can create. If it is through printing money, it reduces the purchasing power of private sector incomes and savings. When we add to this the general inefficiency of the heavily politicized public sector, it is quite probable that government spending programs will cost more jobs in the private sector than they create.

“This [Government Sponsored Housing] is one of the great success stories of all time…” Chris Dodd, 2004

The Japanese experience during the 1990s is telling. Following the collapse of their own real estate bubble, Japan’s government launched an aggressive effort to prop up the economy. Between 1992 and 1995, Japan passed six separate spending programs totaling 65.5 trillion yen. But they kept increasing the ante. In April of 1998, they passed a 16.7 trillion yen stimulus package. In November of that year, it was an additional 23.9 trillion. Then there was an 18 trillion yen package in 1999 and an 11 trillion yen package in 2000. In all, the Japanese government passed 10 (!) different fiscal “stimulus” packages, totaling more than 100 trillion yen. Despite all of these efforts, the Japanese economy still languishes. Today, Japan’s debt-to-GDP ratio is one of the highest in the industrialized world, with nothing to show for it. This is not a model we should want to imitate.

It is also the same mistake the United States made in the Great Depression, when both the Hoover and Roosevelt Administrations attempted to fight the deepening recession by making extensive use of the federal government and only made matters worse. In addition to the errors made by the Federal Reserve System that exacerbated the downturn that it created with inflationary policies in the 1920s, Hoover himself tried to prevent a necessary fall in wages by convincing major industrialists to not cut wages, as well as proposing significant increases in public works and, eventually, a tax increase. All of these worsened the depression.

Roosevelt’s New Deal continued this set of policy errors. Despite claims during the current recession that the New Deal saved us from economic disaster, recent scholarship has solidly affirmed that the New Deal didn’t save the economy. Policies such as the Agricultural Adjustment Act and the National Industrial Recovery Act only interfered with the market’s attempts to adjust and recover, prolonging the crisis. Later policies scared off private investors as they were uncertain about how much and in what ways government would step in next. The result was that six years into the New Deal, unemployment rates were still above 17% and GDP per capita was still well below its long-run trend.

In more recent years, President Nixon’s attempt to fight the stagflation of the early 1970s with wage and price controls was abandoned quickly when they did nothing to help reduce inflation or unemployment. Most telling for our case was the fact that the Fed’s expansionary policies earlier this decade were intended to “soften the blow” of the dot.com bust in 2001. Of course those policies gave us the inflationary boom that produced the crisis that began in 2008. If the current recession lingers or becomes a second Great Depression, it will not be because of problems inherent in markets, but because the political response to a politically generated boom and bust has prevented the error-correction process from doing its job. The belief that large-scale government intervention is the key to getting us out of a recession is a myth disproven by both history and recent events.

The Future That Awaits Our Children

Commentators have had a field day adding up the trillions of dollars that have been committed in the Bush bailout, the Obama stimulus, and the administration’s proposed budget for 2010. The explosion of spending and debt, whatever the final tab, is unprecedented by any measure. It will “crowd out” a significant portion of private investment, reducing growth rates and wages in the future. We are, in effect, reducing the income of our children tomorrow to pay for the bills of today and yesterday. Large government debt is also a temptation for inflation. In order for governments to borrow, someone must be willing to buy their bonds. Should confidence in a government fall enough (China, notably, has expressed some reluctance to continue buying our debt), it is possible that buyers will be hard to come by. That puts pressure on the government’s monetary authorities to “lubricate” the system by creating new money and credit from thin air.

So, even if the economy gets a lift in the near-term from either its own corrective mechanisms or from the government’s reinflation of money and credit, we have not recovered from the hangover. More of what caused the Great Recession of 2008 – easy money, regulatory interventions to direct capital in unsustainable directions, politicians and policy-makers rigging financial markets – is not likely to produce anything but the same outcome; asset price inflation and an eventual “adjustment” we call a recession or depression. Along the way, we will accumulate monumental debts which accentuate the future downturn and saddle us with new burdens.

Unless we can begin to undo the mistakes of the last decade or more, the future that awaits our children will be one that is poorer and less free than it should have been. With politicians mortgaging future generations to the tune of trillions, running and subsidizing auto and insurance companies, spending blindly and printing money hand- over-fist – all while blaming free enterprise for their own errors, we have a great deal to learn.

As Albert Einstein famously said, doing the same thing over and over again and expecting different results is the definition of insanity. The best we can hope for is that we learn the right lessons from this crisis. We cannot afford to repeat the wrong ones.

“The basic point is that the recession of 2001 wasn’t a typical postwar slump…. To fight this recession the Fed needs more than a snapback… Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Paul Krugman, 2002

Appendix A: The Myth of Deregulation

Appendix B: Government Interventions During Crisis Create Uncertainty

Appendix C: Suggested Readings

Cole, Harold and Lee E. Ohanian. 2004 New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis, Journal of Political Economy 112: 779-816.

Friedman, Jeffrey. 2009. A Crisis of Politics, Not Economics: Complexity, Ignorance, and Policy Failure, Critical Review 21: 127-183.

Higgs, Robert. 2008. Credit Is Flowing, Sky Is Not Falling, Don’t Panic, The Beacon, available at http://www.independent.org/blog/?p=201.

Marenzi, Octavio. 2008. Flawed Assumptions about the Credit Crisis: A Critical Examination of US Policymakers, Celent Research, available at http://www.celent.com/124_347.htm

Prescott, Edward and Timothy J. Kehoe (Editors). 2007. Great Depressions of the Twentieth Century, Minneapolis. Federal Reserve Bank of Minneapolis.

Taylor, John. 2009. Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Stanford, CA: Hoover Institution Press.

Woods, Thomas. 2009. Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, Washington, DC: Regnery.

Biographies

Lawrence W. Reed is president of the Foundation for Economic Education – www.fee.org – and president emeritus of the Mackinac Center for Public Policy.

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY. He has been a visiting scholar at Bowling Green State University and the Mercatus Center at George Mason University.

Peter J. Boettke is the Deputy Director of the James M. Buchanan Center for Political Economy, a Senior Research Fellow at the Mercatus Center, and a professor in the economics department at George Mason University.

John Allison served as the Chief Executive Officer of BB&T Corp. until December 2008. Mr Allison has been the Chairman of BB&T Corp., since July 1989. He serves as a Member of American Bankers Association and The Financial Services Roundtable.

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Peter J. BoettkePeter J. Boettke

Peter Boettke is a Professor of Economics and Philosophy at George Mason University and director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. He is a member of the FEE Faculty Network.

RELATED ARTICLE: Housing Policies That Led to 2008 Collapse Still in Place, Says Freddie Mac Economist – PJ Meda June, 2017

3 Kinds of Economic Ignorance by Steven Horwitz

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also requiretheoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven HorwitzSteven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

Government Caused the ‘Great Stagnation’ by Peter J. Boettke

Tyler Cowen caused quite a stir with his e-book, The Great Stagnation. In properly assessing his work it is important to state explicitly what his argument actually is. Median real income has stagnated since 1980, and the reason is that the rate of technological advance has slowed. Moreover, the technological advances that have taken place with such rapidity in recent history have improved well-being, but not in ways that are easily measured in real income statistics.

Critics of Cowen more often than not miss the mark when they focus on the wild improvements in our real income due to quality improvements (e.g., cars that routinely go over 100,000 miles) and lower real prices (e.g., the amount of time required to acquire the inferior version of yesterday’s similar commodities).

Cowen does not deny this. Nor does Cowen deny that millions of people were made better off with the collapse of communism, the relative freeing of the economies in China and India, and the integration into the global economy of the peoples of Africa and Latin America. Readers of The Great Stagnation should be continually reminded that they are reading the author of In Praise of Commercial Culture and Creative Destruction. Cowen is a cultural optimist, a champion of the free trade in ideas, goods, services and all artifacts of mankind. But he is also an economic realist in the age of economic illusion.

What do I mean by the economics of illusion? Government policies since WWII have created an illusion that irresponsible fiscal policy, the manipulation of money and credit, and expansion of the regulation of the economy is consistent with rising standards of living. This was made possible because of the “low hanging” technological fruit that Cowen identifies as being plucked in the 19th and early 20th centuries in the US, and in spite of the policies government pursued.

An accumulated economic surplus was created by the age of innovation, which the age of economic illusion spent down. We are now coming to the end of that accumulated surplus and thus the full weight of government inefficiencies are starting to be felt throughout the economy. Our politicians promised too much, our government spends too much, in an apparent chase after the promises made, and our population has become too accustomed to both government guarantees and government largess.

Adam Smith long ago argued that the power of self-interest expressed in the market was so strong that it could overcome hundreds of impertinent restrictions that government puts in the way. But there is some tipping point at which that ability to overcome will be thwarted, and the power of the market will be overcome by the tyranny of politics. Milton Friedman used that language to talk about the 1970s; we would do well to resurrect that language to talk about today.

Cowen’s work is a subversive track in radical libertarianism because he identifies that government growth (both measured in terms of scale and scope) was possible only because of the rate of technological improvements made in the late 19th and early 20th century.

We realized the gains from trade (Smithian growth), we realized the gains from innovation (Schumpeterian growth), and we fought off (in the West, at least) totalitarian government (Stupidity). As long as Smithian growth and Schumpeterian growth outpace Stupidity, tomorrow’s trough will still be higher than today’s peak. It will appear that we can afford more Stupidity than we can actually can because the power of self-interest expressed through the market offsets its negative consequences.

But if and when Stupidity is allowed to outpace the Smithian gains from trade and the Schumpeterian gains from innovation, then we will first stagnate and then enter a period of economic backwardness — unless we curtail Stupidity, explore new trading opportunities, or discover new and better technologies.

In Cowen’s narrative, the rate of discovery had slowed, all the new trading opportunities had been exploited, and yet government continued to grow both in terms of scale and scope. And when he examines the 3 sectors in the US economy — government services, education, and health care — he finds little improvement since 1980 in the production and distribution of the services. In fact, there is evidence that performance has gotten worse over time, especially as government’s role in health care and education has expanded.

The Great Stagnation is a condemnation of government growth over the 20th century. It was made possible only by the amazing technological progress of the late 19th and early 20th century. But as the rate of technological innovation slowed, the costs of government growth became more evident. The problem, however, is that so many have gotten used to the economics of illusion that they cannot stand the reality staring them in the face.

This is where we stand in our current debt ceiling debate. Government is too big, too bloated. Washington faces a spending problem, not a revenue problem. But too many within the economy depend on the government transfers to live and to work. Yet the economy is not growing at a rate that can afford the illusion. Where are we to go from here?

Cowen’s work makes us think seriously about that question. How can the economic realist confront the economics of illusion? And Cowen has presented the basic dilemma in a way that the central message of economic realism is not only available for libertarians to see (if they would just look, or listen carefully to his podcast at EconTalk), but for anyone who is willing to read and think critically about our current political and economic situation.

The Great Stagnation signals the end of the economics of illusion and — let’s hope — paves the way for a new age of economic realism.

This post first appeared at Coordination Problem.

Peter J. BoettkePeter J. Boettke

Peter Boettke is a Professor of Economics and Philosophy at George Mason University and director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. He is a member of the FEE Faculty Network.

RELATED ARTICLE: 5 Reasons Why America Is Headed to a Budget Crisis

LAWSUIT: ‘Neither the Courts nor Government Can Determine What Is a Sin’

The Thomas More Law Center (TMLC), a national public interest law firm based in Ann Arbor, Michigan, yesterday, filed a friend of the court brief in the case of Zubik v. Burwell, in support of seven non-profit organizations including the Little Sisters of the Poor who claim they cannot comply with the Department of Health and Human Services’ mandate (“HHS Mandate”) because even the so called “accommodations” make them actively complicit in the sin of abortion.  TMLC’s brief asserts that the Court is not the arbiter of sacred Scripture and, therefore, cannot determine whether or not an act constitutes a sin; it can only determine whether the government’s penalties for refusal to complete the sinful act are a substantial burden on religious liberty.

Thomas More Law Center Files Brief in Supreme Court Declaring Neither Court Nor Government Can Determine What Is a Sin

Richard Thompson, President and Chief Counsel of TMLC, portrays this case as a potential turning point in American legal history, stating, “The HHS Mandate is a monumental attack on religious liberty.  If this appeal is lost, the government becomes the head of every religious denomination in the country by its assumed authority to determine what is in fact a sin.”

The HHS Mandate requires religious non-profit organizations to participate in a government scheme to provide free contraceptives, including abortion causing drugs and devices (abortifacients), to their employees or face monumental fines that would result in closing the doors of most non-profit organizations that object to the HHS Mandate.

However, the HHS Mandate allows non-profit organizations like the Little Sisters to receive a so-called accommodation from directly providing free contraceptives and abortifacients to their employees.  The accommodation  requires the non-profit organizations to either (1) fill out a form as notice of their objection to contraceptives and abortifacients and provide that form to their insurers, which includes language instructing the insurers to provide free contraceptives and abortifacients to the women in the non-profits’ health plans, or (2) write and send a detailed letter to HHS with all of the information necessary to notify the non-profits’ insurers of their newfound obligation to provide free contraceptives and abortifacients to the women in the non-profits’ health plans.

These notification requirements trigger the non-profits’ insurers to provide free contraceptives and abortifacients to the women in the non-profits’ health plans. This notification requirement makes the non profits complicit in the provision of a service that they find sinful, thereby causing them to sin themselves.

TMLC’s brief argues, supported by a long line of Supreme Court precedent, that neither the government nor the Supreme Court can determine whether an act does or does not violate a person’s religious beliefs.  Rather, the Supreme Court must accept the non-profits’ assertions that the notification requirement is indeed against their religion.  To accept otherwise is to supplant the Church and the Bible with the government, allowing the Supreme Court and the government to interpret tenants of faith.  This slippery slope would subject all religious exercise to the whim of the government’s approval.

 Excerpts from TMLC’s Amicus brief:

  • “This Court has already determined that the fines for noncompliance with the HHS Mandate impose a substantial burden on employers. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2776 (2014). The ultimate question, therefore, is whether compliance is actually against the Petitioners’ religion. This is something that is for Petitioners to determine, not the Court.”
  • “The Court is not the arbiter of sacred scripture and cannot determine whether the notification form and letter are attenuated enough from the provision of contraceptives that they do not substantially burden Petitioners’ religion. Delving into this inquiry requires the Court to interpret Petitioners’ religious beliefs on the morality of the different levels of complicity with sin. Thomas v. Review Bd. of Indian Employment Security Div., 450 U.S. 707, 718 (1981).  Therefore, the Court can only determine whether Petitioners are being compelled to do something that violates their faith—here, filling out the notification form or writing a notification letter to HHS, both of which trigger the dissemination of contraceptives and abortifacients to their employees in connection with their employee health plans.”
  • “While women have a right to obtain contraceptives, see Griswold v. Connecticut, 381 U.S. 479, 485-486 (1965), this does not mean they have a right to free contraceptives and abortifacients. Moreover, this right certainly does not mean that a person has the right to obtain contraceptives and abortifacients—either directly or indirectly—from their employer at the expense of pillaging the employer’s religious liberty.”

Click here to read TMLC’s entire 19-page brief  

TMLC, representing thirty-six plaintiffs including six religious non-profit organizations, has filed twelve lawsuits challenging the illegal aims of the HHS Mandate.

Brazil Is the New Greece by Tyler Cowen

At 70% of GDP, public debt is worryingly large for a middle-income country and rising fast. Because of high interest rates, the cost of servicing it is a crushing 7% of GDP. The Central Bank cannot easily use monetary policy to fight inflation, currently 10.5%, as higher rates risk destabilising the public finances even more by adding to the interest bill. Brazil therefore has little choice but to raise taxes and cut spending.

Too often, at the popular level, there is a confusion between “austerity is bad” and “the consequences of running out of money are bad.”

Sophisticated analysts of fiscal policy do not make this mistake.

By the way, here is a long study of how Brazilian fiscal policy has been excessively pro-cyclical.

And how is Brazilian output doing you may wonder?

By the end of 2016 Brazil’s economy may be 8% smaller than it was in the first quarter of 2014, when it last saw growth; GDP per person could be down by a fifth since its peak in 2010, which is not as bad as the situation in Greece, but not far off.

Two ratings agencies have demoted Brazilian debt to junk status. Joaquim Levy, who was appointed as finance minister last January with a mandate to cut the deficit, quit in December.

Any country where it is hard to tell the difference between the inflation rate — which has edged into double digits — and the president’s approval rating — currently 12%, having dipped into single figures — has serious problems.

Don’t forget this:

Since the constitution’s enactment, federal outlays have nearly doubled to 18% of GDP; total public spending is over 40%. Some 90% of the federal budget is ring-fenced either by the constitution or by legislation.

Constitutionally protected pensions alone now swallow 11.6% of GDP, a higher proportion than in Japan, whose citizens are a great deal older. By 2014 the government was running a primary deficit (ie, before interest payments) of 32.5 billion reais ($13.9 billion).

Brazilian commodity prices have fallen 41% since their 2011 peak, so I say Ed Prescott has earned his Nobel Prize right there.

The first underlying article/op-ed also is from the Economist. Without intending any slight to their other recent issues, the January 2-8 issue is one of their best in a long time. (I am very pleased to have bought it in advance at the airport rather than waiting to get to my copy back at home.)

This post first appeared at Marginal Revolution.

Tyler CowenTyler Cowen

Tyler Cowen is an American economist, academic, and writer. He occupies the Holbert C. Harris Chair of economics, as a professor at George Mason University, and is co-author, with Alex Tabborak, of the popular economics blog Marginal Revolution.

The Barbarianism of Paternalism by Aaron Ross Powell

Lots of people do lots of things I wish they wouldn’t. And lots of people don’t do lots of things I wish they would. In fact, I’m rather certain the world would be a better place for me and people just like me if more people were willing to go along with my desires and tastes, instead of stubbornly pursuing their own thing.

Take drinking tons of soda. For the life of me, I can’t figure out why people consider sugar water a multiple-times-a-day beverage. It’s like wanting to pour chocolate sauce on everything, or eat brownies with every meal. In short, to my sensibilities, it’s gross. And it’s way less healthy than drinking water — which tastes a whole lot better, too.

Part of being civilized — arguably most of being civilized — is recognizing that different people do things differently and that such differences deserve respect. Respecting difference means allowing behaviors we find disagreeable, provided those behaviors don’t cause us harm. This covers big stuff like religious toleration — those people of other faiths sure do eat weird things and have a funny way of talking, but that’s their business — to, yes, even the dreadful behavior of drinking half-a-dozen Cokes a day.

Of course, civilized people aren’t prevented from making their opinions known. I just did, with my quips about soda, and if I happen to see you drinking one, I’m free to tell you what I think. (Though I risk coming across as an officious jerk if I’m not careful.) What civilized people don’t do is hit each other with clubs over such differences.

That’s why the paternalism Sarah Conly offers three cheers for in the pages of the New York Times amounts to a rah-rah for barbarism. Conly, an assistant professor of philosophy at Bowdoin College and author of Against Autonomy: Justifying Coercive Paternalism, wants those upstanding chaps of the NYPD to flex their might to stop Americans from getting so fat.

To support her preference for state interference, Conly turns to the great classical liberal John Stuart Mill.

In his great work, On Liberty, Mill advances the “harm principle” as a crucial limit on the authority of the state:

The only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinions of others, to do so would be wise, or even right.

Which sounds pretty bad for the soda ban. But not so fast, Conly says. She tells us Mill endorsed preventing our freely chosen actions “when we are acting out of ignorance and doing something we’ll pretty definitely regret. You can stop someone from crossing a bridge that is broken, he said, because you can be sure no one wants to plummet into the river.”

From that, she gets to the idea that, because people underestimate the dangers of drinking lots of soda, they’re (often/usually) acting out of ignorance when they drink it, and so we’re justified in at the very least making it much more difficult for them to consume the stuff in bulk.

But read the full passage from Mill:

If either a public officer or any one else saw a person attempting to cross a bridge which had been ascertained to be unsafe, and there were no time to warn him of his danger, they might seize him and turn him back, without any real infringement of his liberty; for liberty consists in doing what one desires, and he does not desire to fall into the river.

Nevertheless, when there is not a certainty, but only a danger of mischief, no one but the person himself can judge of the sufficiency of the motive which may prompt him to incur the risk: in this case, therefore (unless he is a child, or delirious, or in some state of excitement or absorption incompatible with the full use of the reflecting faculty), he ought, I conceive, to be only warned of the danger; not forcibly prevented from exposing himself to it.

It seems Conly left out the bit about such interference requiring first “no time to warn him of his danger.” Nor does she seem at all bothered by the important limit that, “when there is not a certainty, but only a danger of mischief, no one but the person himself can judge of the sufficiency of the motive which may prompt him to incur the risk.”

Even accounting for the cognitive biases — which Conly says, if only he’d known about them, would’ve led Mill to support soda nannyism — it’s difficult to square the harm caused by a large Coke with the imminent danger and certainty of effect needed to override the harm principle.

In fact, a great deal of On Liberty seems perfectly aimed at exposing the immorality of Conly’s paternalism. She should’ve read not only the rest of that passage, but also the rest of On Liberty. Mill warns of an increasing inclination to stretch unduly the powers of society over the individual, both by the force of opinion and even by that of legislation: and as the tendency of all the changes taking place in the world is to strengthen society, and diminish the power of the individual, this encroachment is not one of the evils which tend spontaneously to disappear, but, on the contrary, to grow more and more formidable.

The disposition of mankind, whether as rulers or as fellow-citizens to impose their own opinions and inclinations as a rule of conduct on others, is so energetically supported by some of the best and by some of the worst feelings incident to human nature, that it is hardly ever kept under restraint by anything but want of power; and as the power is not declining, but growing, unless a strong barrier of moral conviction can be raised against the mischief, we must expect, in the present circumstances of the world, to see it increase.

This “mischief” results from that urge to have others prefer the same thing we prefer, to have others behave the way we behave. But, like I said above and like Conly seems to forget, civilization means recognizing the primacy of individual choice, even choices we think silly.

There is no reason that all human existences should be constructed on some one, or some small number of patterns. If a person possesses any tolerable amount of common-sense and experience, his own mode of laying out his existence is the best, not because it is the best in itself, but because it is his own mode.

Human beings are not like sheep; and even sheep are not undistinguishably alike. A man cannot get a coat or a pair of boots to fit him, unless they are either made to his measure, or he has a whole warehouseful to choose from: and is it easier to fit him with a life than with a coat, or are human beings more like one another in their whole physical and spiritual conformation than in the shape of their feet?

If it were only that people have diversities of taste, that is reason enough for not attempting to shape them all after one model. But different persons also require different conditions for their spiritual development; and can no more exist healthily in the same moral, than all the variety of plants can in the same physical, atmosphere and climate.

The same things which are helps to one person towards the cultivation of his higher nature, are hindrances to another. The same mode of life is a healthy excitement to one, keeping all his faculties of action and enjoyment in their best order, while to another it is a distracting burthen, which suspends or crushes all internal life.

Such are the differences among human beings in their sources of pleasure, their susceptibilities of pain, and the operation on them of different physical and moral agencies, that unless there is a corresponding diversity in their modes of life, they neither obtain their fair share of happiness, nor grow up to the mental, moral, and aesthetic stature of which their nature is capable.

Is drinking large sodas a way of life, though? Conly mocks the idea: “Large cups of soda as symbols of human dignity? Really?” But consider that if you drink 32 ounces of Coca-Cola, you’ll rack up 388 calories. A 20-ounce Iced White Chocolate Mocha from Starbucks has 500. Both aren’t good for you, but the Mocha’s worse. The difference is that the kinds of people who want to use government to save ignorant Americans from the harms of soft drinks are the kinds of people who prefer an Iced White Chocolate Mocha to a Coca-Cola.

That Conly calls for a ban on Cokes and not Mochas indicates that what really bothers her is the behavior of those low-brow folks who slam giant soft drinks, but not so much the worse behavior of the middle-class and educated who just can’t start the day without a latte. About this tendency to use ourselves as the moral yardstick, Mill noted, “our idea of improvement chiefly consists in persuading or forcing other people to be as good as ourselves.”

So the real trouble is people aren’t acting like Conly — or the majority Conly imagines agrees with her — would like them to. Thus it’s time to call in the law. To which Mill says this:

A theory of “social rights,” the like of which probably never before found its way into distinct language — being nothing short of this — that it is the absolute social right of every individual, that every other individual shall act in every respect exactly as he ought; that whosoever fails thereof in the smallest particular, violates my social right, and entitles me to demand from the legislature the removal of the grievance.

So monstrous a principle is far more dangerous than any single interference with liberty; there is no violation of liberty which it would not justify; it acknowledges no right to any freedom whatever, except perhaps to that of holding opinions in secret, without ever disclosing them: for the moment an opinion which I consider noxious, passes any one’s lips, it invades all the “social rights” attributed to me by the Alliance.

The doctrine ascribes to all mankind a vested interest in each other’s moral, intellectual, and even physical perfection, to be defined by each claimant according to his own standard.

To which Conly likely offers another three cheers. Especially when the individual rights she wants violated in the name of social rights are so, well,dumb. “As irritating as it may initially feel, the soda regulation is a good idea,” she writes. “It’s hard to give up the idea of ourselves as completely rational. We feel as if we lose some dignity. But that’s the way it is, and there’s no dignity in clinging to an illusion.”

Writing in The Subjection of Women — regarding a different group then burdened with the charge of irrationality — Mill had this to say about a Conly-style disregard for personal choice: “The yoke is naturally and necessarily humiliating to all persons, except the one who is on the throne, together with, at most, the one who expects to succeed to it.”

Conly may cheer the power of the throne, but the civilized among us should not.

This essay first appeared at Libertarianism.org.

Aaron Ross PowellAaron Ross Powell

Aaron Ross Powell is a research fellow and editor of Libertarianism.org.