Let’s Raise a Hand against Socialism

This past Friday a question was asked to the debating Democrat candidates for the presidency. George Stephanopoulos said, “Let me just ask, is anyone else on the stage concerned about having a democratic socialist at the top of the Democratic ticket?” 

No hands were raised. Then Amy Klobuchar briefly raised her hand, but peer pressure pushed her hand back down. Then, when called on, she points out that socialism is divisive. So she doesn’t call herself that, but many of her policies do.

Amy Klobuchar, second from right, raises hand
screenshot from here

So let me translate for you: Whoever the Democrats nominate favors a radical shift to socialism, which is incompatible with our US Constitution. The Democrat Party will support socialism—and are cavalier about a simple majority overthrowing our Constitution.

That means that they do not understand our Constitution.

Last September I mentioned a list of questions I use to reveal whether a candidate understands and supports the Constitution, or has something else—namely, tyranny—in mind. I’m using this list as I work on my choices in local Republican Primary races. I wish Democrats were using this list as well.

Socialism would affect all three spheres: political, economic, and social. But in its simplicity, socialism is the replacement of a free market with a government centrally controlled economy. So I’m going to look at just the economic questions today.

And, while all the Democrat candidates lean socialist, Bernie Sanders, the most openly avowed socialist, claims to have held the same beliefs for many decades, and he has a website proclaiming his plans. So we’ll use him to answer our questions today. Maybe this exercise will help us see whether socialism leads to prosperity or to poverty.

Bernie Sanders during last Friday's debate
AP Photo by Patrick Semansky found here

First question.

What do you believe is the optimum percentage of GNP that should be taken in taxes? And for the sake of discussion, let’s add, for what purposes should these taxes be spent? 

Here’s the short answer from Frank Sammartino, TaxPolicyCenter.com, concerning Bernie Sanders (2016 campaign): 

Presidential candidate Bernie Sanders proposes significant increases in federal income, payroll, business, and estate taxes, and new excise taxes on financial transactions and carbon. New revenues would pay for universal health care, education, family leave, rebuilding the nation’s infrastructure, and more. TPC estimates the tax proposals would raise $15.3 trillion over the next decade. All income groups would pay some additional tax, but most would come from high-income households, particularly those with the very highest income. His proposals would raise taxes on work, saving, and investment, in some cases to rates well beyond recent historical experience in the US.

I didn’t get an actual answer, other than, no matter who you are, you need to pay more. Upper rates could reach beyond historic—which means confiscatory (at which levels, no one willingly pays, so tax revenue actually goes down). And that money will be spent for non-governmental powers, such as a non-choice healthcare system takeover, federal government controlled education, forcing businesses to pay family leave or avoid hiring parents. Plus, incidentally, paying for infrastructure projects that might qualify as of interstate interest.

I went to Bernie Sanders’ campaign site. It didn’t help getting my specific questions answered. There is, however, an overall sense that, no matter how much government takes, it’s not enough—and we’ll just keep taking from the evil rich until we run out of spending ideas. So, how much should be taken in taxes? Probably upwards of 80% of GDP. 

Next question.

What do you believe is the government’s role in contributing to economic health? For example, if there is a sudden recession (as we were hit with in 2008), how should government react?

Let’s look at those 2008-2009 bailouts. Bernie Sanders was against them before he voted for them. His reasons for originally disapproving (besides their starting under a Bush administration) strike me as convoluted. But there’s a timeline from four years ago following debates against Hillary Clinton. You can see the FactCheck.org (not necessarily unbiased) analysis here. It looks to me as if, when he thinks about people being unemployed, maybe he’ll vote for a bailout, but if he thinks in terms of an evil large corporation or industry, he’s against helping them.

What about stimulating the economy? I think he thinks socialism will magically do that, even though it never has, and even though estimates are that his plans would decrease real income for wage-earners who happen to keep their jobs.

If you read the Constitution, however, you learn that government’s only role is safeguarding wealth; i.e., minting money, prosecuting theft and fraud, etc. As we’ve seen the last three years, the more government gets out of the way, the better the country’s economic health.

Next question.

What do you believe is government’s role in the distribution of income discrepancy between the poor and the wealthy?

This is a good question for Bernie Sanders. He has an ad in which people redefine freedom in terms of having all their worries taken away, paid for by magic, or by some enslaved taxpayer—he doesn’t say. No mention of government’s control over their lives when that happens, so that’s pretty disingenuous. But there’s more on his website:

Here’s what he says on "Taxes on Extreme Wealth":

·         Establish an annual tax on the extreme wealth of the top 0.1 percent of U.S. households.

·         Only apply to net worth of over $32 million and anyone who has a net worth of less than $32 million, would not see their taxes go up at all under this plan.

·         Will raise an estimated $4.35 trillion over the next decade and cut the wealth of billionaires in half over 15 years, which would substantially break up the concentration of wealth and power of this small privileged class.

·         Ensure that the wealthy are not able to evade the tax by implementing strong enforcement policies.

Even though he says he’s raising taxes only on those with accumulated wealth over $32 million, elsewhere he admits that everyone, even low-income earners, will pay higher taxes (that’s under his single-payer healthcare plan). So, let me translate. Tax on wealth means confiscation of wealth that taxes have been paid on in previous years.

Dr. Zhivago arrives home
screenshot from here

Remember that scene in Dr. Zhivago when he comes home to find his family mansion has been parceled out to multiple families, and he has been apportioned maybe a single room to use out of his whole house? That is socialism confiscating wealth. Government takes title if it deems you “own” too much. Bernie thinks he should be the one to decide whether you have earned more than you deserve—which goes against the Constitution’s mandate to protect wealth. He plans to steal it.

For a lesson in what this means today, try this PragerU video: “Does Bill Gates Pay His Fair Share?” 

Also, Bernie’s in favor of re-lowering the estate tax to affect estates over $3.5 million. In other words, a small-to-medium-sized business cannot be passed down from one generation to the next, even if the next generation has been working in that business for years to make it successful—because Bernie says that would be unfair.

Again, instead of protecting wealth, he plans to take it and use it as he sees fit, because he thinks that’s more fair than having the person who earned the wealth decide what to do with it.

Next question.

What do you believe should be government’s role in charitable help to the poor and suffering?

Bernie believes some other taxpayer should pay for your healthcare, and that he should be able to decide what healthcare you’re allowed to buy, or what you must buy. And this would be $40 trillion added to the backs of working taxpayers.

He also believes some other taxpayer should be enslaved to work to pay for your education, whether that taxpayer has a college degree or not, because he thinks that’s fair. Plus, spending this $3 trillion will buy him younger voters. (My commentary, but his policy.)

He thinks government should enslave some working taxpayers to put government in the business of real estate, building housing that will be guaranteed at a low rate—because “the projects” have been such nice neighborhoods wherever they’ve already been tried.

He thinks government should enslave some working taxpayers to provide high-speed internet to every citizen, because (based on the history of the communications industry) he doesn’t see how a free market could ever innovate enough to provide those “needs.”

Government isn’t capable of charity. But Bernie feels very charitable with your hard-earned money. And you’re supposed to feel charitable when he demands that money from you.

Did we mention the $1.8 trillion Social Security expansion? Or the $16.3 trillion on a climate plan that will shut down the economy? Or the $30.1 trillion to guarantee every American a job paying $15 an hour plus benefits, working for the government if no one else hires them.  Remember, government doesn't create wealth, only spends it, so that money comes out of enslaved working taxpayers' pockets.

Next question.

What do you believe are the purposes and limits of the commerce clause of the Constitution?

I don’t see an answer to this on his website. He seems to believe the federal government has the right—even the calling—to step in wherever he, the great dictator, has the urge to. Under “Revitalizing Rural America” this includes farmers, foresteers (does he mean foresters?), and ranchers in whichever state they may reside. And he plans to enslave working taxpayers to “reinvest” in rural areas where entrepreneurs have not been willing to invest.

The commerce clause in the Constitution is to make sure commerce can flow state-to-state. To make sure South Carolina wouldn’t embargo against North Carolina goods, for example. That is all that was granted. Anything else is usurping ungranted power.

Next question.

What do you believe is the role of the Federal Reserve, and how/whether it is benefiting the economy?

Bernie is in favor of auditing the Federal Reserve. So am I. But he doesn’t want to limit Federal Reserve power. He just wants to stick it to Wall Street (where most Americans have retirement investments). He plans to use executive orders to adjust ATM fees, and grant banking powers to post offices. While he’s at it, he’ll add a per-transaction tax to “restrict rapid-fire financial speculation.” I think he doesn’t like day traders? He certainly doesn’t like investors using their capital—their surplus wealth—to invest in projects that could produce more wealth.

Whether the Federal Reserve is constitutional or not—that’s irrelevant to him, since he intends to ignore the Constitution anyway.

Should we be afraid to have a socialist at the top of the ticket in a presidential election? Yes. Not because he can’t be defeated—he will be. But because the debate shouldn’t even include throwing out our Constitution. A party that would put forth such a candidate should be denounced as treasonous against our United States.

At least we will be able to clearly see the contrast between those who love freedom, prosperity, and civilization—and the entire other party who love tyranny, poverty, and savagery.

A Lot of Broken Glass

There’s an economic example often used to illustrate, among other things, how government spending affects the economy. [See here and here.]

From Greg Mankiw's blog

In short, if a vandal breaks the glass display window of a bakery, it stimulates the economy: a glazier gets, say, $500 for the work and materials to replace the window. But what we don’t see is where that $500 would have been spent if the window had remained intact. Maybe the baker could have bought a new suit, and/or hired another worker in his shop. The suit tailor and/or the new employee are out that amount of money.

There is the seen and the unseen.

So, in the aftermath of Hurricane Harvey, here in Houston, we’re looking at an estimated $30-40 billion in metaphorical broken glass, or property damage. What is going to happen next? A lot of renovation and rebuilding. In fact, it will be a boom town for renovators. If they’re mobile enough, it would be prudent for such workers to move to Houston and set up shop for the next year or so. The same is true for drywall and flooring suppliers. And furniture sales. There’s $30-40 billion here, above and beyond what the economy needed before the storm.

Jobs galore! Isn’t this great?

Ask one of those families how they feel about it. Are they better off economically by spending money on flooring, drywall, and furniture replacement—after possibly spending money on hotels or apartment rent during the rebuild, along with clothing replacement and the expense of eating out—or would they have preferred to use their money in ways they had intended before the storm? Things like a new car, education, retirement savings, a vacation?

from the southern section of my neighborhood

Even those with insurance are likely to prefer their own plans for their money, rather than the storm-caused new plans.

People who are charitably giving sense this. They wish to mitigate the damage by volunteering labor, materials, money, or other help so that the cost to the storm victims is less severe.

Let’s take a look at the volunteer labor. The professional cost for mucking out a house—removing flooring, drywall, ruined furniture, and other debris, and then cleaning, drying, and preparing the walls and floor for rebuilding—before any rebuilding is begun, so, separate from those costs—is an estimated $16,000 per house.

Does that charitable giving deprive the economy of money? Technically, it would deprive those particular professionals of money they might have made. But there is a time issue involved. Suddenly there is a shortage of companies that do this service, since in non-storm times such needs are limited to broken pipes or other hit-and-miss personal disasters. And it’s assumed that a home needs to be cleared and aired out as quickly as possible. Any home that remains waterlogged and growing mold for 30 days is likely to be a total loss.

We’re at day 19 today. Some houses are still underwater. But this time issue is why, anywhere the water has receded enough for homeowners to return, you see the debris piles along the streets. They want to give their home the best chance possible for a successful rebuild.

Volunteers are spending their time. But we’re assuming they’re spending out of their surplus. So they’re not short-changing the economy by failing to earn during those volunteer hours. Anyone who would prevent the volunteer neighbor-helping-neighbor work would be doing nothing for the available workers in that field, since they have more work than they can do already. But they would be condemning those homeowners to total loss.

So I think we can agree volunteer work after a disaster is a community good.

While we’re talking about giving, there are plenty of places to give to charity, for anyone who wishes to alleviate some of the pain. Among those that send all donations directly to those in need:

·         Rebuild Texas Fund, which Governor Abbott has endorsed.

·         J. J. Watt Foundation, which has raised $33.5 million, but will be ending fundraising Friday, September 15, at 5:00 PM.

·         LDS Humanitarian Services, which has already provided 22 truckloads of supplies in Houston, including equipment for all those Mormon Helping Hands to use. (We are still housing the generator they provided during Hurricane Ike, for use in our congregation. We shared it with neighbors on both sides during the eight days we were without power.)

Additionally, a number of people have set up GoFundMe sites, to raise money for specific people. In this kind of grassroots arrangement, you know the money you send goes directly to those who need it. I know the people involved in these two:

·         Derrick Campos Family in Houston 

·         Harvey Recovery—Tom Tidwell 

I’ve mentioned Derrick’s story and shared his photos in the past couple of weeks. He lives not far from me. Here'e Derrick talking about coming to be willing to accept this help:

   

The Tidwells live in Port Arthur. I’ve been friends of their extended family since my first year of college. Both families ended up being rescued by boat and face a long recovery. There are going to be many many others in similar situations. But I know any donation you can afford would be well spent on these families.

Back to our economic discussion. One of the reasons central planning is always a bad idea for economics is that the central planners can’t know what the needs of the individual are. They can’t make better decisions than the people earning the money and deciding how to spend it. They can’t see the unseen—the economic choices that are lost when one choice is made rather than another.

Government has its role: protection of life, liberty, and property. But its economic role is mainly to get out of the way. If only!

One way the private sector has managed disaster recovery in the past is insurance. I read this helpful note earlier today:

Most of the money from previous Texas hurricanes has come from private insurance. And, in some ways, this process of rebuilding restores a balance in the economy. For the past couple of decades, almost all homeowners have paid for insurance but few people make a claim. Most of that money sits on the balance sheet of big insurance companies to pay out future claims, and those companies often invest those dollars on Wall Street and real estate. That’s all fine—good, healthy commerce.

Now the time has come for the flow to go the other way. Big insurance companies will be paying out money to settle insurance claims, and most of that will go to working class Americans who will rebuild damaged property. Demand for labor will rise, as will wages, as the money starts to flow. The tilting of the economy away from physical labor toward the financial sector will reverse – maybe only temporarily, but it will still reverse.

In other words, insurance money has been in the economy all along; this disaster just changes where it is put to work for a while. It has given many homeowners and businesses a chance to get back to their previous economic track more quickly than if they hadn’t been putting money toward insurance all along.

What about government money? If it’s there, we’ll take it. But this same author says something that maybe ought to be obvious but isn’t:

Of course, if the federal government decides to give away money, I suppose people will sign up for it. But this madness eventually needs to end. The federal government is broke, and insisting that folks in Kansas or Vermont pay for a hurricane in Houston is silly on the face of it. This is not an invading army we’re talking about here. It’s a really bad storm. The Constitution doesn’t contain the words “storm,” “weather,” or “insurance.” Why are we continuing to twist its meaning to make Congress and the President look like heroes? If they want to help, let them help with their own time, talent, and treasure. Like the rest of us.

But we also don’t want to be suckers. If Washington DC decides not to help Houston, they should end it for everyone in the future. Which they should, in my opinion.

I’ve had good things to say about Houston Mayor Sylvester Turner during the past few weeks. But earlier this week, he kind of wiped out all that good will. He decided that now is a good time to add an 8.9% property tax hike to all Houston property owners. Rates will be charged at pre-storm property values—even though those values may have plummeted because of storm damage. Why? Because, to a Democrat, paying for government is paramount.

What will the citizens get for this? Not protection from this storm or future storms. Not greater fire and police protection. Not better roads or infrastructure. Nothing but the dubious satisfaction of getting city government fully funded before they even get back into their own damaged homes.

Was there a cost to the city caused by the storm? Yes. It was far less than it would have been without good engineering and planning, based on past storms. But shouldn’t the city economize, as the citizens have to, rather than burdening people who are already suffering financially?

Again, it’s that short-sighted economic view that sees only a chosen segment of society—in this case, city government. If we can get Houston back on its feet, and rebuilt, and economically humming along in its normal healthy way, wouldn’t that benefit the city well enough?

I’ll note that Harris County, a government entity that is larger than any local government entity in the US except possibly the City of Los Angeles, has decided to economize, rather than burden the people.

Fortunately, the mayor must go through the city council, with a final vote in mid-October. It may be that the people can be vocal enough to convince the city that now is not the time to force storm-weary citizens to cough up an additional $100 million in taxes.

So, when there’s proverbial broken glass, that temporarily helps the window repairman. That’s the seen benefit. But unseen are all the lost uses for that money. I hope we can soon get back to letting the people who earned it decide how to spend it.

Commerce and Philanthropy--Two Sides of the Same Coin

Hillsdale College has an economic symposium going on right now (Sunday through Tuesday), on “Money: History and Controversies.” They have two speakers each evening, with live streaming, and apparently viewable later, because I didn’t get to it until late Sunday evening.

The lecture series is found here.

The one I watched already was Steve Forbes, “How the Destruction of the Dollar Threatens the Global Economy,” which is also the title of a book by Forbes. It was 45 minutes on monetary policy, followed by Q&A. Forbes suggested that, if you ever feel trapped between other passengers on an airplane and want a little extra room, just start a conversation on monetary policy—people will give you a wide berth. It’s not the most enthralling of topics. Nevertheless, he managed to keep it pretty interesting.

There was a large segment in favor of returning to the gold standard, and how that would work. Son Economic Sphere has told me in the past that gold is subject to market forces, and therefore not an ideal basis for money. However, I found Forbes’ logic fairly compelling. I don’t know enough to be able to reproduce the arguments both ways, but I do realize that monetary stability depends on the money supply exactly matching the creation of wealth, which it represents.

Forbes’ thinks that, while not ideal, gold is as stable as anything we have. If we set the price at, say, $1100 per ounce, then when it rises above that, we know money should be slightly looser (more dollars printed). If it goes under the price, then it should be slightly tighter (fewer dollars printed). Maybe so.

He pointed out that, since gold is an element, we don’t lose it. Whatever has been mined up to this point in history is still gold. It can be reforged, reformed. You might have bits of gold in a ring that was first used by ancient Egyptians. Gold is firm but malleable. It’s compact. In other words, there are reasons it has so frequently been used as money.

But what most got my attention was the final question and answer, which I’ve typed up below. It was positive and hopeful, which I think we can use.

Q: When Carter became president, inflation shot up to 18%. We thought we had joined the ranks of the banana republics. Then Reagan became president, and I thought, finally we have turned a corner; we are no longer on the road to serfdom. Now, 20, 30 years later, we are still firmly on the road to serfdom[i]. So even if we get a Reagan again, will it make any difference? Because, afterwards we’ll still go back to walking down the road to serfdom?

A: Steve Forbes: Question about how, after Reagan, could we be in the mess that we’re in today? And part of the answer is, we did not have then what you might call the base of intellectual understanding and ideas and advocates that we have today, that we did not have 35 years ago. And in terms, even among Republicans 35 years ago, there was sort of the feeling that government should play a real big role. And, yeah, we shouldn’t have inflation; we should cut tax rates. But they didn’t take it to the next step.

I think now, morally, people are beginning to realize that if you believe in free markets, you can’t just say they work. You also have to make the moral case for free markets. And that’s still a big task in front of us. That’s why I wrote a couple of books on it. Others are doing it. Numerous have done it for a number of years.

In essence, you succeed in free markets by meeting the needs and wants of other people. Even if you lust for money, you don’t get it unless you provide something that someone else wants.

Now, sometimes, as Steve Jobs said, when he was asked once, “Do you do marketing surveys?” and he famously replied, “No, because people don’t know what they want until we show them.” That’s part of entrepreneurship. You’ve tried something new; you don’t know if it’s going to work. People suddenly may discover they couldn’t live without it.

But, meeting the needs and wants of other people. And just keep in mind, philanthropy and commerce are often portrayed as polar opposites: you succeed in commerce; you make up for your sins by giving it away to philanthropy. They’re not polar opposites; they’re two sides of the same coin—meeting the needs and wants of other people. Different ways to do it, but same objective, which is why the US, the most commercial nation ever invented, is also the most philanthropic nation in the world.

Two sides of the same coin. We have to make that moral case.

There’s a lot more understanding of economics. There’s a lot more understanding about free markets today than there was 35 years ago, 60 years ago, 80 years ago. Now we know, more and more, that when you get these big economic crises, it’s not a sudden failure of free market or outbreak of greed. It is massive government policy error.

Now, I just want to say, it doesn’t excuse wrongdoing in free markets, or wrongdoing by bankers or anybody else. But, human nature hasn’t changed in thousands of years. People’s ability to do bad things preceded Adam Smith. Believe me, just look at the Bible, this is something that predated Adam Smith.

So, it’s a very good question. But now I think we are setting the foundation where, we get a good president, good. But what we want is understanding, as Hillsdale has tried to do, where even if you get a total mediocrity, the accepted wisdom is: Constitution, free markets, having a moral basis of a free society. When that happens, you don’t have to depend on a Reagan. When you have that kind of consensus. So we’ve got to get the consensus right, and not be dependent on particular outstanding individuals.

I highlighted that section near the end, because that got my attention. It coincides with my Spherical Model theory, that the political, economic, and social spheres interrelate. The goals are freedom, which we get from abiding by the US Constitution; prosperity, which we get from free markets (not to be confused with crony capitalism); and civilization, which we get from a moral people living moral lives, which includes strong families to pass along the way to civilization.

I like seeing evidence that we can make progress toward these things. Economically speaking, I think he is right that the understanding is getting through. When I was in college, I was blessed with free market teachers; they were somewhat rare in the late 70s. But now, with so much data to back it up, free market is the most likely kind of economic education you get in college. I’ve observed that change over the past decade and a half. So the hope seems real.

Our freedom, prosperity, and civilization are in trouble, but there’s reason to hope we can make the changes necessary to get them back. He’s right that we’ll need to defend the morality of free markets, that economy depends on meeting the needs and wants of people both through commerce and philanthropy—which requires a morally good people.

We need to express that viewpoint better. My writing here is an attempt toward that end. (See “Anything Evil about Capitalism, Part I, Part II, Part III. For the longer list of my economic posts see Best of Spherical Model Part II and More of the Best Part III.) 

---

[i] He is referring to the classic book The Road to Serfdom, by Friedrich Hayek, which details the dangers of attempting to control the economy.

Unfair Egalitarianism

Suppose you have a race, a straight 500 meters, let’s say. No curve on the track. No differences from one lane to another. Everything equal. Until some says, “On your marks, get set, go!” Some short time later someone finishes—before all the others. Someone else finishes second, another finishes third, and so on until you get to the slowest runner. Is that fair?

Would we even run races if the outcome was skewed so that all runners crossed the finish line at the same moment? What would be the point?

Some runners are innately faster. Some are faster on certain days, but maybe not every day. Some will get faster with more practice and training. It’s that possibility that inspires us to try again, try harder, prepare harder. Because winning a race feels good. Doing better than you did before feels good, even if you don’t win.

There was a short time early in parenting when I bought the line about avoiding competition. Our tee-ball league did not count runs. It had everyone on the team bat, and then the inning was over. But our little Economic Sphere knew better how to make it meaningful.

First of all, if you’re batting last, you might as well run all the bases, because they were going to take you off the field anyway—and the likelihood of anyone that age doing what it takes to get you out was small. And then, you could count outs made when you’re in the field, and you could count runs when your team is up to bat. It became a complicated mathematical process for a six-year-old, but it worked. He also learned that you probably couldn’t count on your teammates to catch a throw, so you might want to run and make the out yourself.

One historic day he caught a fly, ran to a base to tag a runner, and then ran to another base to catch another runner—triple play, single-handed. Not all the parents were amused (“He’s not a team player”). But our little economist knew that not all players were alike, and he wasn’t going to pretend that they were. Why even play if the outcome is determined and it’s unrelated to performance? Instead, just make up your own game, and play to win.

I was thinking about disparity again, as I listened to the most recent Uncommon Knowledge interview. Host Peter Robinson interviewed Richard Epstein, who is a constitutional law professor, and a libertarian thinker, with a recent book out, called The Classical Liberal Constitution. The discussion covered a number of topics, but the first six minutes of so answers questions about disparity of income. While there are things I can’t agree with libertarians on, usually on economics we’re in agreement. They want a free-market, which is how you get prosperity in the Spherical Model.

Richard A. Epstein
on Uncommon Knowledge
July 1, 2015

So I’ve included below the transcript of some of their discussion:

Peter Robinson: I want to turn to the Supreme Court in a moment. But first, the meta-issue of the day: inequality. Wage stagnation for the middle class for some decades, but an increase in household income for the wealthiest 1% of American households over the last 35 years—I looked this up—of 275%. And I found this quotation from my friend Richard Epstein: “Inequality can be a wonderful force for innovation.” Explain yourself.

Richard Epstein: Well, I have to explain two things. First, the disparities, and then the second point. There are two ways in which you can solve the inequality question. One of them is you can take from the rich and hope to give to the poor. The first half of the program always work. The second half always goes astray.

The other thing that you could do is, you could try to eliminate the various barriers which prevent the middle class and lower income people from moving up. And those are not macro policies having to do with financial situations in the Federal Reserve. It essentially means unlocking the employment relationship, by getting rid of all things that the proponents of equality have put into place.

PR: Such as?

RE: Minimum wage laws make it harder for unskilled workers to get their first job, which makes it impossible for them to get their second job. Anti-discrimination laws make it harder to hire minority people, because it’s more difficult to fire them. Strong unionization gives various kinds of wage increases to a select group of individuals, but it shuts out large numbers of other workers.

What you have to do in these things is completely deregulate the labor markets. What will happen is, in a competitive market, as productivity increases, wages will start to increase, and that will be sustainable, because the persons paying the money are getting something that’s worth it.

Are there going to be excessive returns to capital? The answer is no, because of the competitive process. What’s happened here is all the last six years we’ve been running the progressive program, and that program has essentially resulted in real decline in income at the median level of about 4% or 5%, depending on how you count these sorts of things. It is a direct consequence of the way in which we have been doing this.

Now that’s the practical answer. Now, the theoretical question is really very different. It’s, do we mind about inequality as an abstract matter? And the answer is, suppose the two of us started at 10, and I find a way to go to 20 and you only go to 11. We’ve increased the inequality, and we’ve increased the wealth of both people. Technically amongst the economists, that’s a social improvement. But according to the egalitarians, and there’s (it’s) really a terrible situation, because the gap has gone from zero to 9. You don’t want to get yourself into that frame of mind.

Now why is it that it turns out that the gaps in a market system run that way? This has to do with the problem of incentives. What happens is if somebody comes along and creates something that gives enormous value to everybody else, they may move up one or two units, and that person may move up a billion dollars. But you think we’re going to be better off in a world without a Steve Jobs or an early Bill Gates, on the grounds that their money is going to go to waste now that they have it? Whereas everybody else is going to be denied the many apparatuses that they’ve been able to produce?

PR: Let me be sure I understand the Richard Epstein position. Two points, both of which are pretty arresting in … Let’s put it this way, they’d be arresting if you saw them in the New York Times.

RE: Yes. Astonishing.

PR: Position number 1 is, you don’t care about inequality per se. You don’t care how big this gap is, as long as the person down here is moving up. The gap could… You really don’t care about the pattern of distribution as long as those least privileged are making progress.

RE: And they are only going to make progress in an open market.

If we were to get back on the right track, to have a free market, change for the better can happen quickly. But the political and social impediments that keep us going ever southward toward national poverty need to change to make that possible.

As we look for new leadership, make sure whoever gets your vote stays out of the frame of mind that worries about disparity rather than the freedom to allow innovation and growth to happen.

To Secure These Rights

“After theology—economics is the most important science to study

because the two things that impact everyone are God and the market.”[i]

 

The political, economic, and civilization spheres interrelate. If you've come across this blog, maybe you already know that.

In case you’re not aware, Hillsdale College is offering yet another free online course. It’s Constitution 101 again, but with new lectures. Sort of like taking the same class again, with different teachers, so you pick up different details.

Already they have lecture nine available, but I’ve been going through at my leisure and recently listened (and then re-listened) to lecture 5: “To Secure These Rights: Economics, Religion, and Character.” Here at The Spherical Model, the connection between economics and social behavior was bound to perk my interest.

The lecturer is Thomas G. West. This section of the lecture begins about 29 minutes in:

It seems strange to us that a political society whose purpose is to secure life, liberty and property, should concern itself with citizen character. Harvey Mansfield formulates the paradox nicely. “Liberty and virtue are not a likely pair. At first sight, they seem to be contraries, for liberty appears to mean living as you please and virtue appears to mean living not as you please but as you ought.” But, morality is not something that government can choose either to concern itself with or to ignore. The moral law, in the founders’ view, is not intentioned with or supplemental to the natural law theory. It is its foundation. The founders tended to equate the moral law with the law of nature.

A large part of this final portion concerns maintaining the family, the basic unit of civilization:

The connection between laws on sex and marriage and government’s duty to secure the natural rights of all is today probably less well understood than almost anything else in the founding. These laws all had one main object: to encourage people to get married and stay married. The integrity of the family was believed to be necessary to the protection as well as the happiness of human beings: men, women and children alike. The love of married parents for their biological offspring was judged the most reliable motivation for the sometimes unpleasant duties of providing suitable care for children.

Although it was written some years after the founding, an 1836 essay by Joseph Storey, who was appointed to the Supreme Court by President Madison, sums up the founders’ view very nicely. “Marriage is an institution which may properly be deemed to arise from the law of nature. It promotes the private comfort of both parties. It promotes the private comfort of both parties. It tends to the procreation of the greatest number of healthy citizens, and to their proper maintenance and education…. It promotes the cause of sound morals by cultivating domestic affections and virtues.”

This next portion concerns the definition of marriage today:

This older, child-centered view of marriage has been replaced, in our time, with a sentimental, romantic love view. The idea of same-sex marriage makes perfect sense in a world where marriage has effectively been redefined as a partnership of people who love each other and who feel justified in splitting up if love happens to fade. As marriage collapses throughout the western world, children’s support comes increasingly from more productive men coerced by the state into transferring money either by court-ordered child support or by taxation that funds welfare and other benefits, to less productive mothers who choose to live apart from their children’s fathers.

Professor West doesn’t claim that legislation has redefined marriage; it’s more a matter of pop culture changing the definition through propaganda, and then pushing legal institutions to “stay with the times.” Anyone who says, “Wait, what’s wrong with the definition we’ve had all along,” they get accused of hate and bigotry. The cost for giving in is the decay of the very basic necessary building material of society.

I have a major portion of  the family section of The Spherical Model that relates to the ways of dealing with the results of sex outside marriage, if society is to maintain the integrity of the family. It is helpful, of course, if laws support the family, but it is more essential for families, extended families, churches, and communities, to encourage the correction of behavior, so that the value of family is maintained. And also so that the damage to society from family decay is not transferred onto the larger society.

Professor West describes the founders’ approach to be similar. Laws and policies might seem harsh today, but in reality, harshness only applied when “the misbehavior became open and notorious.” Loving, caring friends and family are better at encouraging valued behavior than threat of legal punishment. But underneath both private and public policy was an understanding of how essential family strength was to economic prosperity and happiness in society.

As I was writing this today, I came across information about a documentary coming to theaters this weekend, called Irreplaceable, about the economic and social value of fathers in the home. Is it time to re-define marriage downward? Not unless you want more poverty and unhappiness for the foreseeable future. Here's the three-minute trailer:

 

---

[i] Deacon Patrick Moynihan, Head of LCS [Louverture Cleary School], comments on the importance of teaching economics in Haiti; the quote comes from http://thpspeaks.org/post/81769904394/economics-breaking-the-vicious-cycle-through-education . I found this quote in  Harvard Economics Professor Greg Mankiw’s blog 4-9-2014, http://gregmankiw.blogspot.com/2014/04/sentence-of-day.html .

The Fifty-Year War

This past week marked the fiftieth anniversary of the start of a war. That’s a long war. That’s almost my whole lifetime, and more than the whole lifetime of nearly everyone born post-baby boom.

War is kind of an intense thing to be going on for half a century. Normally it’s an armed conflict between states or peoples. But in his 1964 State of the Union Address, Pres. Lyndon Johnson used the term as a fired up way of saying  we don’t like poverty and we ought to eradicate it. We’re waging war on a concept or condition.

LBJ signing Equal Opportunity Act
photo from Wikipedia

So how’s that going for us? Can we pause in the hostilities at the 50-year mark to measure how we’re doing? What would success in a war on poverty look like? We need some definitions.

According to (a rather biased) Wikipedia piece on the War on Poverty, the poverty rate in 1964 was 19%. Post-recession levels in 1980 were 15%, and “post-recession” levels in 2010 were still 15%. Sounds like poverty is pretty much still with us.

It would be helpful to know how they defined those percentages, so we compare apples to apples. Poverty in general (according to my favorite decades-old Webster’s dictionary) “implies a lack of the resources for reasonably comfortable living.” It goes on to describe a few related terms:

·        destitution and want imply such great poverty that the means for mere subsistence, such as food and shelter, are lacking;

·        indigence, a somewhat euphemistic term, implies a lack of luxuries to which one was formerly accustomed;

·        penury suggests such severe poverty as to cause abjectness, or a loss of self-respect.

Poverty, then, means bad economic conditions, but you can define the range of conditions in your own mind. There’s some argument, therefore, about measurement. But if the war had been won, wouldn’t we know it without any quibbling about numbers?

In a successfully waged War on Poverty, what changes would we see?

·        Destitution would have disappeared. Homelessness, at least for anyone for more than a few days, would be unheard of.

·        The lowest earners would suffer less indigence; they would have food and shelter, and in some climates heat and electricity and plumbing would be considered a given in any shelter.

·        And opportunities for improving one’s condition would be open to all.

We still have homelessness. Probably more than we did at the start. Some of that has to do with the change in policy for care of the mentally ill. So let’s set that aside for the current discussion.

As for indigence, that thing about heating and air conditioning and plumbing—that’s pretty much true. It wasn’t true for the middle class in 1964. My house always had heat and electricity, but we didn’t get even a window air conditioner until the mid-1970s. Some places still may not have air conditioning for the poor, but nearly all middle class homes have it, in most climates. Whatever the percentage, typically the poor have shelter with electricity, including air conditioning, and also have a phone, a television, probably a computer and a car. That would have described a relatively affluent middle-class household at the start of the war.

So does that mean the war succeeded? Again, that depends on whether what was done in the war brought about the positive outcomes. Did the War on Poverty do it, or was there enough economic freedom to bring about the progress despite government policy? That’s what’s hard to measure.

We definitely have more distribution of money to the poor, by way of tax policy, welfare programs, and various social programs. A transfer of about $20 Trillion. (The most expensive war ever—anywhere!) It continues at a rate of about $1 Trillion a year. Typical receipts from government programs for a family of four exceed $20,000 a year. I think it’s safe to say the amount of money spent on this war is more than adequate to eradicate poverty, if money transfer could solve it.

LBJ said the purpose was to “give a hand up, not a handout,” to give everyone “a fair chance to develop their own capacities.” There’s a civilizational value premise mixed in here. It is that the reason individuals are poor is their lack of opportunity, an unfairness that society can be blamed for: class bias, racism, etc. The poor are not to be blamed, and are powerless to change their situation without society (defined here as government) intervening on their behalf. So what the War on Poverty presupposes is: If people are poor, then using government to transfer money to them will eradicate poverty.”

In logic, if you start with the wrong premise (the “if” statement), you will get the wrong answer (the “then” statement). So, “If people are poor, it is not their fault but the fault of society, so society can and should pay to make amends.” But what if people are poor, in part or in whole because of their choices? What if they fail to take advantage of educational opportunities? What if they fail to work hard when there are work opportunities? What if they fail to manage their resources and run out of essentials like food and clothing because they impulse purchase entertainment or nonessentials? What if being told they are powerless makes them believe it is so?

In other words, if individuals have some part in determining their income level, then does the War on Poverty (the huge mix of policies and programs) encourage wiser behavior, or does it mitigate the pain of natural consequences, and thereby encourage unwise behavior?

A principle in the Spherical Model is that, wherever government oversteps its proper role, the unintended consequences will typically bring exactly opposite results than the stated goal. If the War on Poverty is a misguided interference, it won’t in general help people overcome obstacles to upward economic movement, but will instead get people stuck.

In the freedom/free enterprise/civilization that works beautifully whenever it’s tried, you have a way to teach people in poverty how to succeed in overcoming their indigence. You have families and churches that teach honesty, work ethic, and service. And you have charity to help the truly needy, who are known by those connected with them.

In government interference such as a War on Poverty, you have handouts that enable failure to work, and you encourage family decay.

We know that strong families contribute significantly to economic success. Alongside the War on Poverty, we have had a growing decay of family. We don’t have a growth in married two-parent families in poverty and staying there; we do have a tremendous increase in single-parent families, which are more likely to be in poverty and stay there. LBJ started with an out-of-wedlock birthrate of 8%, and 25% among blacks. A half century later, those rates are 40% overall, and 73% for blacks. If we knew no other statistic, we would know that this meant a failure to win the War on Poverty. Even if current outcomes looked good, poverty-tending families in astoundingly increased numbers would guarantee poverty for generations.

There needs to be a War on Family Decay. But, since we can’t afford failure in a war with so much at stake, let’s keep government out of it.

Economic Schools of Thought

The Q&A session for this past week’s Economics 101 class (free online from Hillsdale College) included some definitions of three basic economic schools of thought. I refer to these fairly frequently, so I thought maybe it would be useful to have a short lesson defining them. We’ll look at these: Keynesianism, the Chicago School, and the Austrian school.

When we say “school,” we aren’t referring to a brick-and-mortar institution; we’re referring to a way of thinking. Those who agree with and follow those ideas “belong to” that school of thought. The schools aren’t necessarily mutually exclusive. Two of these three are proponents of the free market.

 

Keynesianism

John Maynard Keynes was a British economist who put forth a theory in the 1930s, purporting that government intervention could accomplish full employment and reduce the impact of business cycles.

There’s a 3-minute video intro to lecture 7 of the Hillsdale Econ 101 course, which explains the Keynesian model.

 

In the actual lecture Professor Gary Wolfram charts out the theory on a supply and demand curve. In the real world, there’s typically a gap between the number of potential employees and the number actually hired. Even in full employment, that’s around 3-4% (which was declaimed as too high all the way through the Bush administration, but has been double to triple that—or worse, depending on your measures—all the way through the Obama administration, while the same people keep claiming the economy is improving. So, one thing about statist/Keynesians is that government intervention is a good thing, to be taken on faith, regardless of measurable evidence.) Keynes’s theory is contained in his main work, The General Theory of Employment, Interest and Money, published in 1936.

Keynes's magnum opus

Keynesianism claims that government spending—any government spending—results in economic growth. (Read my Glass Breaking Fun.) That’s why you see such “growth” in Washington, DC, the past few years, while the rest of the country struggles. The DC growth is because government is literally trying to grow the economy by hiring people to do whatever (metaphorically digging holes and filling them in)—without noticing that any money for that purpose is taken from what could be spent to innovate or invest in the non-government real economy. It is Keynesianism that claims the way we got out of the Great Depression was by spending our way out because of WWII.

Keynesianism is most popular with people who want increased government power, so it’s not surprising that it was championed by such politicians over the past near century. However, as Keynesian theories have been implemented, empirical evidence of their failures has led more and more economists to leave that school of thought and take another look at the free market schools. However, Keynesianism resurged in 2007-2008, with what is now referred to as the Great Recession, which continues apace with ongoing government interference. Hmm.

One of the most prominent Keynesian economists still claiming Keynes was right is Nobel Laureate Paul Krugman, who is widely published and consistently wrong.

 

The Austrian School

Contemporary with Keynes were Ludwig von Mises and Friedrich Hayek, who are usually considered the two main Austrian economists. Ludwig von Mises, who is generally considered the original Austrian theorist, immigrated from Europe in 1940, ahead of the advance of the Nazis, landing in New York; he taught at NYU for most of the remainder of his life. He considered himself a classical liberal—that is, “liberal” in much the way our founders were; he believed in limited government and free markets among a moral people. Mises is often cited by libertarians today, although I’m not sure he completely fits in their world.


Ludwig von Mises
photo from Wikipedia

My personal view is that, on the Spherical Model, Mises is western hemisphere (most local control that can be managed for any given issue), but also northern, where laws protect people’s God-given rights to life, liberty, and property. Libertarian theory tends to encompass the entire western hemisphere, including the below-the-equator belief that government should have no role, and free market should rule, even including addictive drugs and sex trade. (See Why I’m Not Quite a Libertarian.)

Friedrich Hayek, who won the Nobel Prize in Economics in 1974, wrote The Road to Serfdom, which should be required reading for any educated individual. Hayek was a follower of Mises. While friendly with Keynes personally, Hayek disagreed with his theory. (Meanwhile, Keynes read Hayek’s book and said he agreed with it entirely.) When he left Austria, Hayek taught  in Britain for some time before ending up at the University of Chicago. Much of his work describes business cycles. Some of what he demonstrated was that government interference actually causes business cycles—both lengthening and intensifying the pain. Without the interference, the market serves to correct itself, with just minor dips and quick corrections. When there is a shortage of labor, the economy self-corrects by raising pay rates, until there is equilibrium. When there is a surplus of labor, the economy self-corrects by lowering pay rates, until there is equilibrium. He favors trust in the free market and government restraint.

Friedrich A. Hayek
photo from Wikipedia

Henry Hazlitt, another Austrian commentator, wrote a point by point rebuttal of Keynes’s The General Theory, called The Failure of the New Economics. The Austrians looked more at innovation and various movements from equilibrium, accepting that those are not necessarily negative things to be avoided.

 

The Chicago School

The Chicago school of economics usually refers to Milton Friedman, and also his wife, Rose Director Friedman. Thomas Sowell, a former Marxist who later studied in Chicago under Friedman, is probably included.

Friedman is a free-market economist. He is against government intervention. The difference between his work and the Austrians is more a matter of focus than disagreement. The Austrians look at movement from one cycle to the next. The Chicago school examines the conditions that exist at equilibrium. They look at government intervention, what it does, and why it always goes wrong: the information needed is unknowable, the timing will always be late. And government interference obscures the market signal: producers get incorrect signals about whether to produce long-term capital products or short-term consumer products—or producers fail to get a signal, because of uncertainty in the market, and therefore hold back production until there is clarity (what we’re seeing in the market now). Some of the “interference” is control of the money supply, and the Chicago school looks closely at that.

Milton Friedman
photo from Wikipedia

All of these theories deal with macroeconomics—the movement of the economy as a whole—rather than microeconomics, which is the study of why individuals make the economic decisions they do. If there is a basic macroeconomic principle for government it should be “first, do no harm.” The argument “Well, we have to do something,” is wrong; doing nothing is always an option and often the best one. Government is not responsible for the economy; government’s only economic role is preservation of rights—enforcing contracts, protecting property rights, settling disputes over property claims, and possibly standardize monetary units (although Wolfram actually discusses the suggestion of privatizing money supplies, which is an interesting idea).

Less government interference, beyond its limited role, always leads to greater prosperity. Imagine the economic prosperity we would be experiencing if government had refrained from interfering this past century.