Category Archives: Big government is the problem

Where are the jobs?

Following up to last week’s post (read here). Although the constant cycle of supply and demand tends to make it unclear which process came first, in the end we can trace the inception point to supply. Supply that can be used to satisfy demand comes about through savings and so it is savings that ultimately is the source of jobs (employees are paid prior to sales). So, since the popular media tells us that corporate profits and cash on hand have never been higher, why is job growth so anemic?

There is actually a great deal of job creation (see chart), even at the height of the recession there were millions of jobs being created. Unfortunately, more were being destroyed. However, it is misleading to suggest there are few jobs being created. Further investigation of the chart reveals that  job growth rates have been trending downward for the last 12 years (no BLS data for this statistic exists prior to 1992). Why would this be?

Quarterly Job Creation & Loss as % of Workforce

 

1) Regulation: regulation hinders jobs in three ways: (a) it acts as a stealth tax by increasing dead-weight costs (for example, a report last year by the House Government Oversight and Reform Committee stated the Obama administration has established nearly 300 new regulations that will cost businesses an additional $60 billion each year), (b) it acts as a barrier to new firms that would otherwise compete with established firms either by criminalizing innovative ideas or imposing paperwork compliance costs that are disproportionately burdensome to smaller business and (c) in some cases it simply outlaws entirely certain types of business (see the Lacey Act as one example). To illustrate point B consider the following: where would Apple be today if Microsoft had encouraged regulations that required competitors to conform to their standards. It would be illegal for Apple to innovate and thus deviate from those “standards”… and we’d all be running Windows 95 while listening to our Zunes and the iPad would be mere fanciful sci-fi fodder. Because the computer industry is relatively unregulated, there has been tremendous innovation and growth. But in other heavily regulated sectors (health insurance, agriculture, automotive, etc.) there is little to no innovation because bureaucratic micromanagement simply does not allow it. Without innovation there is no growth and without growth there is no reason to have a new job.

2) Risk: Many of those in government condescendingly dismiss the idea that risk arising from unknown tax costs contributes to slow job growth. Their condescension is rooted in ignorance of the real world, a world where risk is a constant companion. But in the government’s ivory tower that companion is nowhere to be found. Their obliviousness to risk is apparent in the squandering of other people’s money on “good ideas” that ultimately fail and for which they have zero accountability. Although taxes were higher in the 1990’s, at least they were stable. Tax rates that vary year to year on the whim of Congress are more destructive than high taxes as people focus their energy on gaming the tax system rather than in pursuing productive goals.  Think of it like this: what if the final price for a car you bought today would not be revealed to you until 5 years from now. You would start your monthly payments now and at the end of 5 years you’ll either have it paid off or owe a whole lot more. How likely are you going to buy a car with that level of cost risk? Likewise, those with money to invest in new jobs also will wait until they can be certain of the final costs. Risk makes people cautious… unstable tax policies that increase financial risk will increase cautiousness.

Risk makes people cautious… unstable tax policies that increase financial risk will increase cautiousness.

3) Training: the stock bubble destroyed financial capital, however the housing bubble destroyed financial & human capital. Financial capital destruction can be swept under the inflationary rug through Federal Reserve printing press slight of hand, however there is no keystroke subterfuge that can wipe away the years people spent training and gaining experience in construction and related industries. In short, human capital was misallocated into the wrong sectors of the economy. The government operated a national multi-year housing circus financed with artificially suppressed interest rates and the implied moral hazard of “too big to fail”. People were attracted to that monetary opportunity like flies to honey. But then overnight the government flipped the switch and the circus went dark. Now the circus participants must spend years retraining. Training takes time.

Ultimately the market can heal itself if the price mechanism is left to operate free of government manipulation or interference (the mechanism whereby wages for high demand jobs will rise and thus attract people to train for those sectors). Propping up burst economic sectors or inflating new ones will only postpone the fever that ultimately is needed to cure the economy and restore healthy job growth.

A reply to objections raised against Educational Responsibility

My “Education” editorial prompted a rational and cogent response from David Land in the Morgan County Citizen. This is one of the reasons I began writing this column, to engage those with differing views in polite discourse free of the usual “Left-Right” rhetoric. Thank you David. I would like to respond to the issues raised.

should anything benefiting the individual be subsidized by the state?

First point: Education is a public good because it tends to benefit society; therefore society should subsidize it. Anything that benefits the individual can benefit society (because society is composed of individuals). This begs the question: should anything benefiting the individual be subsidized by the state? For example, automobiles permit a broader range of employment options and access to goods, so one could argue businesses should subsidize (through taxes) automobile purchases, as that would ultimately benefit those businesses that will have access to more employees and customers. But we don’t do that. Why? Because the free market responded to the demand for this valuable good, thus transforming the car from a luxury available exclusively to the wealthy into a luxury available to every sector of society.  The point is that while a K-12 education is now extremely costly (+$100,000) this would not be the case had there been a free market in education all along, the cost would be closer to an affordable $30,000 over 13 years and thus the argument over “who should pay for it” would vanish. Companies need educated workers, but workers need an education to get jobs. It’s a two way street in which two parties engage in a mutually beneficial exchange (labor <–> money) and there is no a priori reason to assert that party A must provide resources to party B in order that party B may meet the requirements of said exchange and thereby benefit both parties. If you want to buy my house should I be forced to lend you money because said purchase ultimately benefits me?

If shifting costs from an employee to their employer tends to drive wages down, why is it hard to accept that shifting costs from an employer back to the employee would not drive wages up?

Second point: In a free market business owners would never pass on the tax savings derived from elimination of subsidized public education. I do understand the basis for this objection: normally if a business has a good year or receives a tax cut there is no incentive to simply divide the surplus among all employees. However the situation I was describing is unique because it is a specific trade of funds, namely, the tax being cut is used for a known (earmarked as it were) cost of living for the majority of employees. So the incentives are different from that of a “normal” tax cut. If we understand the incentives then we can understand why most would raise wages and/or lower prices. Let us suppose we could wave a magic wand and eliminate all property tax and most state income tax overnight. Employees would now find themselves in the position of having to pay for their children’s education directly. Those formerly subsidized employees would jointly demand higher wages to approximate their net increase in costs. The incentive to comply for the employer is two fold: 1) maintenance of employee morale through a raise that employers can easily afford (for example, we could easily afford this as we pay over $60k/year into the school system) and 2) lack of rehiring options if a trained employee quits over wages…most potential replacements would be demanding the same higher wage. But let us assume for the sake of argument that no employers would give raises. What would be the result? Because most (99%+) employees with children would value their children more than anything else in their lives they would pay for their education first, thus decreasing their demand for discretionary goods and services. The decline in that demand would result in lowered revenue for those businesses, who would then in turn lower their prices (which they could afford to do out of the tax savings) in an attempt to attract back customers…this would thus make goods and services more affordable for everyone. Even if nominal wages ($) are static, real wages (purchasing power) increase as prices decline (price deflation). Because education costs could drop by as much as 2/3rds the overall effect is a net gain to the aggregate productive capacity of the economy. If you’re still skeptical, ask yourself this: Imagine the reverse, imagine that the government instituted a new “food tax” that supported a program that provided all food for all citizens, would we not expect wages to decline over time (e.g. if you spend $12,000/year less on food it makes it easier to accept a lower wage)? So if shifting costs from an employee to their employer tends to drive wages down, why is it hard to accept that shifting costs from an employer back to the employee would not drive wages up?

Wouldn’t we expect automobile ownership (that is, any luxury item) to be lower in Haiti?

Third point: Haiti as a real world example where a mostly private education system has failed. This is an interesting example, however it is an apples to oranges comparison that only underscores the expected market penetration of a luxury item in an impoverished country.  Education, while desirable and beneficial, is not essential to life and so it is economically classified as a luxury good. So are automobiles. If we were comparing automobile ownership between the US and Haiti wouldn’t we expect automobile ownership (that is, any luxury item) to be lower in Haiti? In fact they are: 12 vs. 808 per 1000 people. So if one luxury good has a low market penetration in a poor country wouldn’t we expect all other luxury goods to as well, including education? Using an impoverished country such as Haiti as an example of how the free market cannot provide education to all citizens is as fallacious as arguing that the private market in Haiti has been a failure in making automobiles available to all citizens and thus the only answer is a publicly subsidized automobile ownership program.

Fourth point: Children of the poor would suffer due to lack of educational opportunity. Poor children would not experience a lack of educational opportunities as schools would offer needs based scholarships (as private schools do today) and charitable organizations focused on education would quickly sprout up (funded by those who honorably believe it is their obligation). But let us assume again a worst-case scenario and that those in poverty could not go to school. Will they just lay down in the street and die? Of course not. If there is a demand, the market will respond. Perhaps home schooling co-ops might form. Perhaps businesses would charter trade-focused schools. One example of how the market can quickly and effectively provide a superior education to those in the low income spectrum was the destruction of the public school system in New Orleans by Hurricane Katrina. Charter schools were quickly legalized and the market responded with schools that have by every measure outperformed the old system (see video at 30:00 mark). The point is that the creative brain power of millions of people will find solutions to even the most challenging issues.

I could just as easily argue that public education was the cause of those countries’ poor GDP as I could argue that private education was the cause in Haiti.

Fifth point: Education drives productivity and since private education would result in fewer people being educated this would result in lowered US productivity. Again, private education would not result in fewer people being educated, but even if we assume for the sake of argument it is true it would not change the productivity of the US. Enhanced educational opportunities are not what drove the tremendous growth in the US, but rather are a result of it. It’s like saying “look at that wealthy guy with the fancy car… if I buy a fancy car then I can become wealthy too!” If we accept this assertion then we would expect in every country where there is public education we would find a GDP comparable to the US. But that is not what we see. There are numerous countries that have public education and a GDP near that of Haiti’s . Why would education be a determinant in GDP outcome in Haiti but not in these other countries? I could just as easily argue that public education was the cause of those countries’ poor GDP as I could argue that private education was the cause in Haiti. In point of fact, Cuba ranks above the US in the United Nations Education Index, so that alone should dispel any notion of education driving economic prosperity.

Sixth point: Uneducated masses being unable to secure jobs would turn to crime. The correlation between crime and education is real, but the assumed causal relationship is backwards: lack of education doesn’t make criminals, rather most of those with criminal proclivities are afflicted with a pre-existing condition: contempt for education (by either themselves, their families or culturally). Every criminal in our jails went through our public school system. Clearly a lack of educational opportunity played no roll in their current status.

If we had a non-monopolized private system of K-12 education then education would be one of those “luxuries” that all could enjoy, just as things that were once considered luxuries only for the wealthy are now commonplace (e.g. cars, cell-phones, ball point pens, air travel, air conditioning, etc). That’s what a free market does over time, it becomes more efficient at producing those goods and services in high demand until they become affordable for all. Affordability eliminates subsidization.

Better regulation through competition

Monopolies are bad. The supposed truth of that axiom is nearly universally accepted. Government demonstrates its adherence to this precept through such devices as anti-trust legislation. Curiously though, government itself is the biggest monopolist like entity. I say “monopolist like” because even the so-called monopolies of Standard Oil or AT&T could not force people to purchase their goods via legally imposed violent coercion. Government is monopoly at the barrel of a gun. So, if the truism that monopolies are bad is generally accepted, why is the public so willing to blithely accept the monopolist enterprises the government imposes on us? For some reason the public holds those in government to be members of a class of altruistic super humans that think only upon the betterment of society and never upon themselves, that they are selfless servants of their fellow man (angels?). To quote John Stossel, “Give me a break!” Those in government are humans, just like us, with the same weaknesses, foibles and strengths (witness the recent GSA convention debacle). They are not magically transformed upon taking an oath of office or employment within the government. To persist in such a belief is as delusional as believing in the Tooth Fairy or Santa Claus.

the public holds those in government to be members of a class of altruistic super humans that think only upon the betterment of society and never upon themselves

If all humans are the same, whether they are employed in “public” monopolies or private firms why do private firms consistently deliver better, more effective, more efficient and less expensive results? Competition. When private firms compete the ones that deliver what the customer wants survive, and the ones that can’t deliver do not. So when there are calls for less regulation or elimination of the FDA or EPA do not confuse that with a desire for actually no checks on safety and efficacy. Rather it is a call for a free and open market based regulation. In order to have such a free regulatory system, entities like the FDA and EPA must be stripped of their legal government backed authority so that all may engage in fair competition. The reason there are currently no other “FDA” like entities is that there is no incentive to start such a business. Why do so if your customers must use your competition? Without legal stricture, firms addressing the role the FDA plays in the market (insurance risk mitigation) would arise (just as Underwriters Laboratory did for electronics).

For example, if a company wants to produce drugs it may do so without any insurance or oversight. Those drugs would be quite inexpensive. Purchasers of those drugs would be trading an increased risk of deleterious effects for a lower price. The company is trading its competitive advantage of low price for the increased risk that it will be put out of business by the first lawsuit from an injured customer. So virtually all such firms would purchase insurance. Insurance companies, thus having an incentive to not pay out claims, would require their insured to be inspected (regulated) by any of a number of private drug regulators. Those drug regulators would likewise be legally liable, so they too (unlike the current FDA which has no accountability) would be highly motivated to do a good job. Those private regulators that are effective would grow due to their good reputation; those that do a poor job would disappear due to their poor reputation (and lawsuits). The FDA does a poor job but there is no mechanism to drive it out of business… they get more money when they do a bad job. Drug makers and insurers would preferentially use the regulators that approve and examine drugs quickly and effectively. So rather than waiting 10 years for a lifesaving drug we might only need to wait 1-2 years. Not only does this save lives but it dramatically lowers cost. The FDA is likely responsible for more deaths by the drugs it has kept off the market for too long then the bad drugs it let slip through. That is the unseen harm of government mandated legalized monopolies.

The market will never be perfect because it is composed of imperfect humans, but competition allows society to shed those imperfections, not some utopian concept of the selfless government servant who can do no wrong.

What does that “L” stand for again?

On July 31, 2012 there will be a statewide vote on whether to adopt yet another 1¢ sales tax (bringing us to 8%! ) This new tax is known as the “TSPLOST” (Transportation Special Purpose Local Option Sales Tax – authorized by the 2010 “Transportation Investment Act”). This SPLOST tax is unique from all prior SPLOST initiatives in that it represents the first step toward loss of local sovereignty. The TSPLOST breaks Georgia up into 12 “economic development” regions. It is the aggregate vote within each region that determines whether the tax is implemented. This multi-county vote aggregation is unique in the history of Georgia as it violates the central tenant of “home rule” written into the Georgia constitution. This means simply that even if one county is 100% opposed, if all the other counties in a region (see map of region here) are for it, then the tax will be imposed in all counties for the next 10 years (even in the ones that did not approve it). This is a disturbing precedent toward slowly shifting political power away from the local level and towards a more centralized authority. We see the same trend today with the states versus the central authority of the federal government. The parallels are uncanny. Just as the states send money for education or highways to the federal government only to have it redistributed back to the states in a non-proportionate manner we will see counties sending TSPLOT money to the state only to have the state send back less to some counties and more to others (see this file for details). Now some might argue that unequal distribution of tax receipts is endemic to any taxing scheme in a region, whether it be city, county, or state. That is quite true. However using the fact that our current tax system is unfair is a poor justification to continue using that same system at a new level.

Those in favor of this new tax rely on the same old hackneyed Keynesian fallacy that somehow public works projects magically pump up an economy… by forcing the taxpayer to spend money on roads and bridges and bike paths (dubiously justified) when they would have otherwise spent it on other goods or services. Road construction companies will be doing quite well (an additional $19 billion over the next 10 years) to the detriment of all other businesses that will see a decline in sales of $19 billion. At best it is a zero sum game, the only difference being that with the tax we are saying we think the government is more properly suited to know how to spend our money and without the tax we are saying we should decide how to spend our money.

Ok, so by now you’re asking, “Ok, Mr. Smarty pants, how should we fund transportation infrastructure?” – Well, I’m glad you asked! Transportation more than any other government monopolized “service” is a user based service for which assessing a service use fee is easily implemented and justifiable (if you use it, then pay for it). There are a number of ways to do this and I’ll list them in increasing order of their effectiveness in terms of fairly assigning cost to usage: gasoline tax, annual odometer tax, general highway tolls, “tiered” highway tolls (i.e. pay more to drive in less congested lanes), fully private roads (where the desire for profit drives new PRIVATELY FINANCED road construction). Any of these options would be better than a general sales tax because those who are on limited or fixed incomes and who do not drive much are being forced to subsidize large businesses and freight carriers who disproportionately utilize the “public” roadways. Taxing activity directly related to road usage at least makes an attempt to fairly assign cost to those that are using them. It is a step in the right direction and it is the step we must take lest we continue sliding down the slippery slope of nebulous centralized taxation for anything that seems like it might be “good.” Vote for local control and fiscal responsibility and vote NO on TSPLOST.

Rage against the machine

Imagine that you are a pioneer of the old west. Over many years you have worked hard to establish a home and a farm. Now imagine that a marauding gang of thieves has begun to harass you. They destroy your crops. They threaten your safety in order to extort money from you. When you are away they vandalize your home and poison your livestock. Year after year it continues. You are peaceful and do not resort to violence. You follow all legal remedies attempting to end the persecution, but it is all for nothing. Judgments in you favor are simply ignored. You soon learn the marauders in fact want what you have created; they want your land for their own use. You offer to sell it to them if only to end the nightmare. They refuse. They would rather scare you off so they can simply take what is yours.

Sounds pretty terrible? Surely this is a scenario for which we need government? Sadly, it is government itself that is the villain in this story. This story is true. It took place in our own backyard in Roswell, Georgia. The gang of marauders is none other than the local code enforcement office and police department of the city of Roswell. This is the story of Andrew Wordes (aka “the chicken man”) and his fight against an intransigent bureaucracy. When you battle an implacable foe something must eventually give.

The details of this story are sufficient fodder for a feature length film. To read a more detailed account please see this report or to hear the story in Mr.Wordes own words please listen to this. In synopsis: In December 2008 Andrew Wordes was cited by the Roswell zoning department for having chickens on his property (even though the ordinance specifically permitted such chicken husbandry). The mayor of Roswell actually stepped in to help but the city bureaucratic “machine” ignored all attempts at reason. Even former Governor Roy Barnes represented Mr. Wordes in his suit against the city (being a chicken farmer Mr. Barnes was partial to his plight). They won the suit against the city. In response the city rewrote the law so that he could only keep chickens if the city fixed a drainage problem that the city itself was responsible for: they refused to fix the problem. Then the harassment really began. He was constantly in court due to numerous petty citations (e.g. improperly stacked firewood). The city’s police department routinely waited outside his house in order to follow him and issue citations for minor infraction. The city (illegally) pressured his mortgage holder to foreclose on the mortgage. Someone poisoned all his chickens when he was away one weekend. He was jailed for 3 months for minor zoning violations (grading himself to try to fix the problem the city refused to fix) and while in jail had to file bankruptcy. While jailed his home was burglarized. He spent his life savings legally fighting every instance of this unwarranted harassment. On March 26, 2012 he was to be finally evicted. The police showed up and after multi-hour standoff he instructed them all to move back. Seconds later he lit the match that ended his life and engulfed his home in a fireball.

They pushed him to the edge. And for what? Turns out that the “Roswell 2030 Plan” includes a parks area that just so happens to be centered on his property. Imagine that. Perhaps the scariest part of this story is that even with the political clout of the mayor and a former governor on his side he remained helpless against the onslaught of harassment from those truly in power: the faceless machinery of the “state”. When even elected officials cannot help the average citizen in their fight against unelected bureaucrats we are well on our way on the road to serfdom.

To regulate Commerce…

To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes. US Constitution, Article 1, Section 8

This simple phrase (aka “the commerce clause”) has been a bone of contention almost since the day it was penned. Judicial interpretation was necessary as early as 1824. The conflict surrounding this clause speaks more to the general disagreement over the proper role of government rather than to an inability to properly interpret it. That is to say, no matter how one might restate this clause, each side would forever strain to interpret it to mean that which they wish it to mean. The key to understanding it is to not even try to interpret it, but rather to take the plain language at face value within the context of the document in which it is found. The US Constitution is a simple document with simple rules. To understand it, it is necessary to recall that the states were originally separate sovereign entities (that happened to owe allegiance to the British crown). Today we tend to think of states as nothing more than large postal codes, but that was not their original character, nor was that character changed by the Constitution (why join a union that requires you give up all your authority to the new central authority?) The citizens of those states believed they would be more secure by joining together (“the United STATES”) while still remaining sovereign within their respective borders. Whenever humans come together they need rules to define the relationship so everyone knows where they stand. That is all the Constitution does. It simply says: (Articles 1-3) there are three branches of government and here is what each can do (enumerated powers) and cannot do, (Article 4) here are the responsibilities of the states to each other and the responsibility of the government to the states, (Article 5-7) general housekeeping with respect to modifying and ratifying the document itself and matters relating to clarifying jurisdictional supremacy.

So, the commerce clause, taken in the context of being part of the rules that govern the relationships among the states, is simply saying that the federal government can do what is necessary (regulate) to prevent the states from interfering in commerce (trade). It simply supplants their prior authority with a single authority so that they would not be fighting amongst themselves in endless pissing matches over who has ultimate authority in relation to trade. To be clear, it is only the states and the federal government, not the citizens, which are governed by the Constitution. This makes sense if you think about it. The Constitution was written by the citizens (“We the People…”) in order to define the role and limits of the government they desired. Yes, the government may make laws that govern the citizens but only via the authority granted in the Constitution to make such laws. If there is no authority for a law in the Constitution then it is de facto “unConstitutional” no matter how “good” we might think it is. The problem occurs when the proponents of a law want to make it “Constitutional” by redefining and broadening terms used in the Constitution so as to facilitate an interpretation conducive to their desired goal.

One of the more egregious cases of twisted logic and Constitutional redefining came into play in the seminal case of Wickard v Filburn 317 U.S. 111 (1942). The Supreme Court found that Roscoe Filburn was engaged in interstate commerce and therefore fell under the jurisdiction of the Agricultural Adjustment Act of 1938, which granted the government authority to regulate agricultural output in order to maintain price “stability”. They found that he was growing “too much” wheat on his farm – even though the wheat was entirely consumed on his farm and was never sold – and thus he had no need to purchase additional wheat. The logic being that had he not grown “too much” he would have had to buy what he needed and such purchasing would have tended to increase the interstate demand and hence price for wheat. So, not buying something is, by government logic, equivalent to engaging in interstate commerce.

Based on this precedent one might conclude the current court has no choice but to rule in favor of the individual mandate of the PPACA as its supporters justify it upon putative commerce clause grounds, i.e. not buying insurance affects the price of insurance for everyone else. However, there is a subtle wrinkle here. Mr. Filburn was engaging in activity (growing wheat), which resulted in inactivity in another arena (buying wheat). In that case the government exerted its right to regulate his ACTIVITY of growing wheat, not his INACTIVITY of not buying wheat. The AAA said he could not grow more than such and such amount. It did not say he MUST buy wheat if he needs it or face a penalty. In the current case the government is asking the court to assert that the commerce clause goes even further than in Wickard v. Filburn and can grant the government authority to compel an individual to act (buy insurance). In other words, it now wants the authority to regulate inaction by redefining inaction as a type of action.

But whether the PPACA is overturned or not is not the important issue. The critical issue is the very nature of the Constitution. Article 1, Section 8 of the Constitution lists these things called “enumerated powers.” That means, it is a list of those actions, and only those actions, that Congress may undertake. If it is NOT on the list, they may not do it. It is improper to interpret the Constitution with a mindset of “Well if they didn’t want us to do that they would have specifically said so.” They did say so, if it is not enumerated it may not be done. But even disagreement over what the enumerated powers authorize is not so important. Reasonable people can disagree about the extent to which they think government should have certain authority. The important issue is that (hopefully) there will always be agreement that there must be some limits on government. The disagreements we have today are simply about where that point is, not whether or not it should exist.

If the Supreme Court finds that the commerce clause can be used to compel citizens to do or not do something because it might tangentially affect commerce, then there is in practice no limit whatsoever on the powers of Congress and it simply makes a mockery of the enumerated powers. It would make no sense for the framers of the Constitution to say “you can only do a, b, and c, and oh by the way you can also do anything else you can possibly think of.” Why would this remove all restraint from government powers? Think about it – whenever we are doing something we are also not doing a million other things. Government would now have the authority to identify the things we are not doing but that it thinks we should be doing and codify laws that compel us to do those things. How hard is it to imagine that in the midst of a new economic downturn Congress passes a Minimum Economic Activity Act which would require all citizens to spend a certain percentage of their income on goods and services in order to keep the economy going? Or how about a law requiring a minimum level of exercise, since not exercising makes us less healthy and that means rising health care costs. Congress would now have unlimited power to order us to do any number of things we aren’t doing. What’s to stop them? Inactivity is regulated by the commerce clause.

It is naïve to comfort oneself with the thought that just because today no one is abusing that power we have nothing to worry about.

 

Playing the “roads” card

Tax discussions invariably devolve to a point where one side finds it necessary to resort to the “roads” card. The assumption with this rejoinder is that “roads” are a major and necessary function of government. Setting aside the “necessary” aspect for now, let’s address the “major” assumption. At first glance it would seem something as ubiquitous as roads must carry a heavy cost burden: they are everywhere after all. But first glances are seldom correct. Let’s look at the numbers. In the state of Georgia the FY2012 budget allocates a mere 0.03% of the budget to transportation. The proposed Federal FY2012 budget allocates only 2.8% to transportation. Hmmmm… how can this major function of government be such a minor expense? The US contains approximately 4 million total miles of all road types. We could repave all of it EVERY YEAR and it would only cost roughly $400 billion (1/10th of the budget).

Tax discussions invariably devolve to a point where one side finds it necessary to resort to the “roads” card.

As I’m sure most are aware, the GA Department of Transportation has been busy around town the past few weeks, most notably with the repaving of the Hwy. 441 Bypass. This is a prime example of resource misallocation. This repaving was not necessary. I drive this stretch everyday. There was not a thing wrong with it and believe me I know bad roads! I lived in Indiana for several years where the roads were subjected to snow, ice and salt. They were rough, pot-holed and frost-heaved. They were only repaved when the cost of annual maintenance exceeded the cost of repaving. Our “old” Georgia roads would be the envy of any Hoosier! Why are we doing this? Jobs. The seen. We see the workers working; certainly this is good for the economy? What we don’t see are the jobs not created, the goods not purchased, all because present (taxes) or future (progeny taxation) funds have been redirected towards work that wasn’t even necessary.

Yes, roads need to be maintained, but absent any economic incentives (prices) bureaucrats have no way to efficiently allocate resources. Resources (money) get allocated based on personal whims and connections. I have no doubt somewhere in Georgia there are some beat up old roads that do need work (Fieldcrest Lane in east Morgan comes to mind!) but they are not political priorities.  Politicians waste money on pet projects and then have the audacity to put their hat in hand the following year asking for even more so they can accomplish what they failed to do the first time. And we give it to them, because we’re too busy with our own lives to care. We hear the President pontificate on our crumbling infrastructure. Nobody bothers to as ask why governments, the supposed stewards of our roads and bridges, were not setting aside funds all these years to properly maintain these depreciating assets. That’s what any good business does (good meaning one that does not go bankrupt due to mismanagement). With our revolving door governmental representation there is no accountability; 236 years of “the next guys problem” is the legacy we are left with. Concentrated benefits and diffuse costs perpetuate the problem.

So yes, we all love a nice new smooth road, but let’s consider the cost, in the end someone must pay. Let’s not spend money we don’t have.

Freedom from hard choices is no right

The testimony by Sandra Fluke before a House Democratic Steering and Policy Committee on February 23 sparked a firestorm from the right which precipitated an avalanche of rhetoric from the left. As with most “controversies” both sides miss the point entirely as they would rather try to denigrate their opponent by casting them as being in opposition to the simplistic two word slogan each chose to rally behind (“women’s health”, “religious freedom”).

To the Right: This is not about religious freedom or any kind of “attack” on religion. The issue is one of freedom period. Freedom means not having the government force choices on people.

To the Left: This is not about women’s health or reproductive rights. Lack of insurance coverage does not proscribe someone from obtaining those services particularly in this case where the cost is nominal relative to other monthly consumer expenses. If government wanted to actually help women they could do so by rolling back regulations and allow contraceptive pills to be sold over the counter – this would dramatically drive costs down by removing an unnecessary barrier to a safe and common drug.

The case Ms. Fluke makes is not novel. Her argument is the one used by all those who perceive the world to be misbehaving. The thought flow is this: 1) Some aspect of the world is not behaving as I want therefore (2) I will co-opt the power of the state to force my worldview on those that are not currently conforming to it. Both sides do it: minimum wage laws, blue laws, drug laws, vice laws, business regulation, etc. They are all the same: force Party A to behave as Party B desires. The Orwellian justification for such interference? Freedom. But in this government double-speak world, freedom doesn’t mean being free from forceful influence, rather it means exerting forceful influence on some in order that others may have the freedom from making hard choices. The justification of force rests on the false proposition that individuals are trapped (lacking in freedom) by their circumstances and thus are not free. The irony is that the entity which claims to guard our freedom (government) is the only entity that truly has the power to restrict freedom. Ironically, government restricts the freedom of some and justifies its actions by falsely claiming the party against which it aggresses is guilty of the very thing it itself is doing. The truth is that (within the limits of government restrictions) we do still have choice. Exercising that choice is not always easy, but it can be done. To suggest one has no choice because some choices are difficult is to suggest we have no free will and thus no accountability i.e. “I’m not responsible for my actions because I simply followed the choice-path of least resistance – I had no choice.”

To suggest one has no choice because some choices are difficult is to suggest we have no free will and thus no accountability i.e. “I’m not responsible for my actions because I simply followed the choice-path of least resistance – I had no choice.”

Absent outside interference our collective choices would transparently reshape the world to be the one we collectively desire rather than the one that a minority who has co-opted government is able to impose on us. If employees don’t like working conditions they can all quit and thus that company will change or go out of business. If we don’t like ABC Co we can all stop buying their products and they will either change or go out of business.  Think this can’t work? Witness Apple, routinely criticized by Greenpeace for years, they have now made changes to their products that earn them kudos by that same group. Additionally they have responded to criticism of working conditions in their Chinese manufacturing partners by joining the Fair Labor Association.

Her testimony only serves to highlight that not choosing is a choice. Her first argument centered on cost in an attempt to elicit feelings of sympathy for the plight of these women and married couples who cannot afford contraception. “Women … have no choice but to go without contraception,” she says. Wrong. They have a choice and they made their choice. Their choice was that they value other goods and services (e.g. cell phone, internet, dining out, cosmetics, latest fashions, subscriptions, etc.) more highly than contraception or paying for an individual policy that does offer contraceptive coverage. And that’s ok. We all have our own value scale of prioritizing how we spend our money. The problem is expecting someone else to foot the bill for the thing you want but put at the bottom of your value list. You’d look pretty stupid if you decided to forego your cell phone plan in order to pay for contraception but then insisted your auto insurance provide free cell service. But somehow if the reverse is done it is ok? Requiring insurance coverage for voluntary routine expenses is simply government-mandated subsidization (those not engaging in an activity paying for those that do). Claiming it is “free” is disingenuous. Nothing is free, those costs are simply passed onto all policyholders.

In a further attempt to elicit sympathy for the “high cost” of contraceptives she then overstates the cost burden with a little slight of hand. She claims $3,000 is the total 3-year cost (3 years is standard for law school and is what we must assume since she does not specify the time frame) and that cost is “practically an entire summer’s salary” IF one is on a “public interest scholarship”. Setting aside for a second the irony of complaining that the free money one is being paid to go to school is in insufficient to pay for this other thing you think should also be free, we see that what she is saying is that the TOTAL cost of $3,000 over 3 YEARS is a disproportionately large percentage of 1 YEAR of stipend salary. That’s like saying the $30,000 I spend in electricity over 10 years is 100% of my 1 year salary and thus that undue burden is justification for me to expect someone else to pay for it.

Her next appeal is to evoke outrage in the listener by citing extreme examples as though they are the norm. But again the example backfires if one actually considers what she is saying. The examples include multiple stories wherein women who had a true medical need for contraceptive pills were denied coverage and thus negative consequences ensued because they weren’t willing to buy the pills on their own. If it was medically necessary, then yes, of course it should have been (and in most cases is) covered. But tales of insurers trying to avoid paying claims is nothing new. What is new is her revelation about the complete lack of priority these women gave to this supposedly essential medication. As mentioned previously, if it was really that important they could have reorganized their priority scale so that they did not go without the medication they needed. The figures cited ($83-$100/month) are quite inflated over actual contraception costs ($20-$50) but even these inflated figures are “doable” by even someone making minimum wage. It’s not like the pills are $10,000/month.

Lastly she then paints a false dichotomy of it being wrong that a woman would have to choose between a “quality education and our health” in response to the question of “You knew what Georgetown’s policy was when you came there – if you don’t like it, go somewhere else.” So, apparently there are no other non-Catholic laws schools in the entire country that are on parity with Georgetown in terms of quality? I guess she’s never heard of Yale, Stanford or Duke. But to answer the question she did not answer: Yes, she was aware of Georgetown’s policy prior to coming there, but rather than accept the consequences of that choice she’d rather the government step in and force her will upon those running the school.

Insurers should be free to offer plans that have contraceptive coverage and plans that don’t. Consumers should be free to choose whichever plan they want. And employers should be free to offer or not offer whatever insurance they want. That’s what freedom is, the freedom to make your own decisions, even if it is a hard one.

Now, enjoy this little video done by Reason.tv 😉

Off budget

This is rather scary. Using figures directly from the IRS we see than in 2008 (the latest year for which there are figures and which represents most accurately pre-recession income since the recession did not start until the very end of the year) the total personal income was $8.3 trillion. Further we see that the income for all corporations in 2008 was $0.9 trillion for a total of $9.2 trillion. Due to the down economy it would not be expected to be significantly greater than that value by 2013. Obama’s proposed 2013 budget is $3.8 trillion.

In other words the President believes it is entirely justified that the federal government alone consume $41 out of every $100 earned.

In other words the President believes it is entirely justified that the federal government alone consume $41 out of every $100 earned. When you add in state and local taxes then all government spending consumes at least half of all income from the entire economy. Half. And we aren’t even paying for all of it right now. The 2013 budget has a deficit equal to 100% of all corporate income ($0.9 trillion). Obviously corporations can’t be taxed at 100% so clearly the bulk of the eventual tax increases will be from the $8.3 trillion in personal income rather than from a paltry $0.9 trillion in corporate income. Since we can assume that Obama will continue the current tax policy whereby 50% of all Americans pay no income tax that means the income taxes on everyone else (people and corporations alike) would necessarily have to double to close the gap. Double. Have any other expenses in your life doubled in the last year? Didn’t think so. And for those that believe everything government does is so essential we (or rather “they”) must simply be willing to fork over one out of every two dollars that we earn then consider this: From the founding of this country until the passage of the 16th Amendment in 1913 the government got by just fine with no income tax and consuming only 3% of GDP  as tax revenue from other sources. For 125 years somehow this country did not succumb to anarchy, chaos or mass starvation while operating on a mere 3% of GDP. Today 3% of GDP would be a budget of only $0.4 trillion (1/10th the current budget). That budget is entirely “doable” today if government was only concerned with its core focus of defense and judiciary. If 90% of that $0.4 trillion were devoted to national defense it would equal the defense budget we had in 2000. I don’t recall any outcries of America being woefully militarily vulnerable in 2000.

In closing I’d like to share a simple yet hard hitting illustration of this countries’ current budget problems. This has been going around the Internet recently and is really an excellent way to relate to the enormous sums of money discussed (numbers modified to reflect 2012 values).

US Budget 2012 (http://goo.gl/Ad9CD)

• United States Tax Revenue:              $2,468,599,000,000

• Federal Budget:                                $3,795,547,000,000

• New Debt:                                        $1,326,948,000,000

• National Debt:                                $15,400,000,000,000

• Recent budget cut:                               $38,500,000,000

Remove 8 zeros and pretend it’s a household budget.

• Annual family income:                                         $24,686

• Money the family spent:                                      $37,955

• New debt on credit card:                                      $13,269

• Outstanding debt on credit card:                         $154,000

• Total budget cuts:                                                   $385

There are only two candidates proposing any kind of serious budget cuts to solve this nightmare. Ron Paul, Republican and Gary Johnson, Libertarian ($1 trillion and $1.3 trillion respectively in 1 year, not 10 years). We finally have a real opportunity to fix this. Let’s not blow it.

Playing the odds…

Is insurance gambling? It feels like we have “won” if we suffer a loss and it is covered. In point of fact, insurance is not gambling. In gambling you start in a position of low probability of a loss (money safe and secure in your wallet) but move to a high probability of loss (once you lay your money down the odds are very good you will lose it). You move from a “more-sure” to a “less-sure” state. With insurance, however, you move from a “less-sure” to a “more-sure” state. Without insurance you have a non-zero chance of a bad event occurring (less-sure state) that will result in a loss, but with insurance you have reduced that non-zero chance of a loss to zero – so you have moved from a less-sure position to a more-sure position.

Health insurance in its current form (laden down by numerous government mandates) is not insurance anymore but rather is simply prepaid consumption.

Likewise the insurance carrier is not gambling because they actuarially know for a given number of insured that they will experience losses of $x/year, so they simply set rates high enough to ensure all claims can be paid and they can still make money and thus build up a reserve for those years where the predictions are off. Insurance costs scale directly with the likelihood and magnitude of a covered loss. That’s why a several million dollar liability policy can be had for only a few hundred dollars per year but a health insurance policy costs several hundred dollars per month and pays only a fraction of what the liability policy would pay. Health insurance in its current form (laden down by numerous government mandates) is not insurance anymore but rather is simply prepaid consumption.

For an event to be insurable it must be statistically unlikely (e.g. theft, fire, being sued, etc). Health insurance covers events that are statistically guaranteed (routine exams, drugs, contraception, pregnancy, etc). Why are routine events 100% covered? Government mandates. For example, as we have all learned recently, Obamacare requires 100% contraception coverage. <sarcasm> Apparently women who desire contraception are unreasonably barred from obtaining this essential human right due to a burdensome $30/month cost barrier </sarcasm> and so it is mandated that all of society must subsidize this cost. This and many other mandates drive up cost. A catastrophic health policy would be relatively inexpensive. For example last year I investigated the cost of a non-group health plan for my family and discovered that simply removing pregnancy coverage cut the cost of the policy in half! But a group plan cannot remove this coverage and thus most pay for a coverage they can never use. As an employer I’m not even allowed to offer more than three health plans. Why? Government mandates.

Individualized prepaid consumption (saving) is an effective method to address intermittent but regular events. However aggregated and shared prepaid consumption is a terrible method. It has the effect of actually raising costs. In order to understand this, just imagine that we had “food insurance”. The premium would be equal to the total of all money spent on food in a given time frame divided by the population. For some the premium would be more than they would have spent on their own. In those cases there would be an increase in consumption (so as not to get short changed). That increase in consumption increases demand, and hence prices. Additionally, the “food insured” won’t be directly paying for any of their food thus they’ll have no inclination to restrict their intake (why buy ground beef when you can get grade A sirloin). This overall increase in demand will drive up prices. Insurable events can’t be “over consumed” because they rarely occur. Prepaid events can be over consumed because they occur regularly and thus there is ample opportunity. Just imagine what would happen to auto insurance costs if the government mandated that it had to cover the cost of oil changes, brake pads, and other routine maintenance.