tag:blogger.com,1999:blog-53386792902387803322024-02-21T03:19:51.953-05:00EconoBlastDavid L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.comBlogger326125tag:blogger.com,1999:blog-5338679290238780332.post-86658911447541334922023-12-30T11:47:00.002-05:002023-12-30T11:47:31.186-05:00Why Has the FAIRtax Not Become Law?<span style="font-size: medium;"><span style="font-family: georgia;">I first learned about the Fair Tax and the Fair Tax Act in
2004 when I began teaching public finance Economics for the University of
Virginia’s College at Wise. In 2005, I authored an open letter to the President
advocating the Fair Tax, a letter that was co-signed by 80 professional
economists, including Nobel Prize recipient, Vernon Smith. The letter, which
can be read here (<a href="https://web.archive.org/web/20061015083330/http:/fairtax.org/PDF/Open_Letter.pdf">https://web.archive.org/web/20061015083330/http://fairtax.org/PDF/Open_Letter.pdf</a>)
was mailed by Americans for Fair Taxation to President George W. Bush, every
member of the House and the Senate, and every member of the President’s Advisory
Panel on Tax Reform. Since then, I have continued to advocate for passing the
Fair Tax Act, and every year I teach my public finance students about the bill.
</span></span><p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Even though many economists agree that a national retail
sales tax has great merit, most of them say they do not advocate for the Fair
Tax Act, because they think political reality dictates that it can never become
law. Some ask me why I waste my time. I tell them I do so because it’s the
right thing to do, even if they are right.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">In 1999, John Linder, Republican Congressman from Georgia, first
introduced the Fair Tax Act (H.R. 25).<span>
</span>From 1999 through 2022, some member of Congress has introduced substantially
the same bill, year after year for 23 years. </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Not only has the Fair Tax Act not become law, the bill has never
so much as made it out of The U.S. House Committee on Ways and Means to be
voted up or down by Congress. “The 435” have simply refused to give the Fair
Tax Act a vote for 23 years. We now have the true but entirely useless answer
to the question posed by the title of this essay. The real question remains.
The real question has two parts: (1) why has Congress refused even to vote on
the Fair Tax Act, and (2) why have “we the people” not insisted that Congress at
least vote on the bill.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Congress has not voted on the Fair Tax Act because the
leadership of both political parties do not want to relinquish the enormous
power Congress has and exercises through the U.S. Tax Code. “We the people” have
not insisted that Congress at least vote on the bill because we <a name="_Int_sm6fpbS2">advocates</a> of the Fair Tax Act have been ineffective in
persuading enough people to care about the enormously harmful travesty that simply
is the U.S. Tax Code. These are the simple, straightforward answers. But let’s
dig deeper.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Party leaders of Congress --- leaders of both parties --- know
well the enormous power they wield through the complicated, convoluted,
massive, eye-glazing provisions of the U.S. federal tax code. They know that no
one on planet earth is capable of understanding all the provisions of the Code,
which runs to tens of thousands of pages, and which expands every year. </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">They know that the Code gives powerful Members of Congress
what amounts to practically unlimited ability to help their friends and hinder
their foes, using what economists call “tax preferences” (a.k.a., tax
loopholes). They also know that “we the people” have always been placated by vows
every three to five years to “fix” and “simplify” the U.S. federal tax code. And
they know that most Americans feel helpless to do anything about it.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Every two years, a small handful of newbie Members of
Congress arrive in Washington DC, fully committed to their principles and to
their good intent to change America and make a difference. But within just a
few months, most of the newbies come to understand that if they don’t play ball
with party leaders --- and play by the well-established rules of “the swamp” ---
their chances of reelection are dim at best. So, play ball most do. One of the
chief tenants of the rules of ball playing is not to shake the federal income
tax tree. Get on board or get gone.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">And so it goes with Congress. If the Fair Tax Act is ever
the get an up or down vote, Members of Congress will have to be drug by the
electorate, kicking and screaming to do so. For just as Congress will never
vote for term limits for themselves, unless forced by voters to do so, they
will also never vote to relinquish the unimaginable power bestowed on them by
the U.S. Tax Code.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">“We the people” can and have sometimes drug Members of
Congress kicking and screaming to change the law of the land, but not through
ordinary law making. The process of ordinary, routine law making does not
permit we the people to have a full-throated voice. And yet, on rare occasions,
for truly important issues, “we the people” have accomplished the dragging via
amendments to the Constitution. Such occasions are rare, though, because without
leadership, “we the people” can accomplish very little. </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Some may object that we have the ballot box. We do, but the
ballot box is quite ineffective for changing the law of the land. The ballot
box merely allows us to replace a handful of scoundrels every two years with
what typically turns out to be a different handful of scoundrels. History
attests to this fact. Every two years the ballot box mostly returns 97 percent
of incumbents to Congress. The handful of newbies is small, indeed.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Without leadership, Congress will not be drug kicking and
screaming to abolish the U.S. Tax Code and to replace it with the Fair Tax Act.
Such leadership has not and will not likely be leadership of the Americans for
Fair Taxation or any other tax advocacy organization. Such leadership will
almost certainly have to come in the form of a candidate for President of the
United States, or at the very least, Speaker of the House.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Moreover, such leadership will not persuade “we the people”
to back the Fair Tax by using the litany of technical arguments already present
and easily found on the website, Fairtax.org. AFFT has done a marvelous job
explaining provisions of the Fair Tax Act. AFFT has also done a marvelous job
explaining how adoption of the Fair Tax would be beneficial for a very large
majority of American taxpayers. What we advocates of the Fair Tax have not done
well is force Congress to vote on the Fair Tax Act.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">In 23 years we have not convinced a candidate for President,
or convinced a Speaker of the House, to take up the gauntlet and lead “we the
people” to dragging Congress kicking and screaming to vote on the Fair Tax Act.
I believe that if Congress were forced to vote on the Fair Tax Act, the bill
would pass, which I believe is why party leaders of both parties have ensured for
23 years that no such vote was held.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">How could an effective leader accomplish the very difficult
goal of getting the Fair Tax Act passed? Not with charts and graphs; not with
tables of data; not with economic analysis of the prospects of faster economic
growth; not with explanations of how the “pre-bate” works to stave off the
inherent regressiveness of a sales tax. No; such information has long been
available, but to no avail.</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">An effective leader would use different tactics. That leader
would hammer home how enormously unfair the U.S. Tax Code really is for a large
majority of Americans. That leader would repeat over and over how tax
preferences favor small special interest groups. That leader would tell
real-world stories of how the massive underground economy evades taxation
altogether. <span> </span>That leader would show how
it is that the U.S. Tax Code favors the rich and powerful at the expense of average
taxpayers who have no power to avoid the burden of the income tax. That leader
would explain how annual and monthly changes to the implementation of the Code,
via the power of the bureaucratic IRS, do indeed retard economic growth by
keeping commerce in a continuing state of change and flux regarding tax law.
Businesses hate uncertainty. Changes to the U.S. Tax Code guarantee
uncertainty. </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">Never mind raising more money for more economic research. No
amount of economic research will persuade we the people to insist that the Fair
Tax Act be given a vote. As a professional economist who teaches public finance
economics and public choice economics, I assure you that economic research is
not capable of showing that the economy will grow faster, if only the Fair Tax
Act were to become law. Nor is economic research capable of showing that retail
prices will drop across the board by some percentage with adoption of the Fair
Tax Act. But let me not glaze over eyes with “econspeak.”</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">AFFT can and should do all it can to raise money to back
effective political leaders, political leaders capable of leading “we the
people” to insist that at the very least, the Fair Tax Act be given a vote by
Congress. AFFT can and should do all it can to raise money to pay for wide-spread
media ads calling for Congress to give the Fair Tax Act an up or down vote. </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;">If we advocates of the Fair Tax truly want the bill passed,
we must adopt different tactics. What we have done for 23 years has not worked.
</span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
<p class="MsoNormal"><span style="font-size: medium;"><span style="font-family: georgia;"> </span></span></p>
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{page:WordSection1;}</span></font></style>David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-13195073946124669462023-05-07T06:46:00.007-04:002023-10-24T09:18:43.842-04:00Defend the Supreme Court of the United States<p><span style="font-family: georgia;"><span style="font-size: medium;">Democrats and progressives now dominate nearly every leading political and cultural institution in America. They do so because they have learned from experience that Joe the rag man and his cousin Jill the Walmart cashier, and her cousin Janet the college history professor can be bought with free stuff. But there ain't no such thing as a free lunch. So why do people act as if there is?<br /> </span></span></p><p><span style="font-family: georgia;"><span style="font-size: medium;">Joe likes his EBT card; Jill likes the head of household earned income tax credit and the deductions for children in the income tax code; Janet likes the federal spending that subsidizes higher education. Of course, Joe, Jill, and Janet have a lot of friends who are also feeding at the federal trough, such as Frank the farmer, Tim the Tesla owner, Wayne the windmill farm owner, Dan the doctor, .... well, you get the picture. Fill out the other names yourself. Don't forget to include your own name. Mine is on the list, too. <br /><br />Democrats keep promising a free lunch, and Joe, Jill, Janet, Frank, Tim, Dan, Wayne and all the rest of us keep believing the impossible. Meanwhile, reported federal debt is 120% of GDP, and unfunded, yet required future federal spending already on the books tops $110 TRILLION. Annual GDP these days is about $27 trillion, so unfunded, yet promised federal spending for people who are alive right now and who will be owed that spending ("America must pay its debts," say Democrats regularly, with a sage-like, smug look on their faces) is more than four times annual GDP. That means if we took every dollar of income generated by every American for the next four years (a 100% tax rate on everyone), we still couldn't fund the promised and owed federal spending <i>already on the books</i>.<br /><br /><br />The most important exception to the opening sentence of this essay is the U.S. Supreme Court, which after many decades finally has a majority of originalist Justices. Those Justices are determined to follow the Constitution as it was written and ratified by the states. This is proving to be intolerable to Democrats and the press corps, who are unleashing a furious political attack on the current Court, especially Justices Clarence Thomas and Samuel Alito.<br /><br /><br />I have a co-worker who, when he doesn't get his way, accuses his coworkers of being biased and racist and retaliatory against him for his past bad behavior. Behavior of some journalists reminds me of this co-worker. The left no longer has its way, after several decades of having it all their way on the SCOTUS, so now they are assailing the most important institution in America, the SCOTUS, by attacking particular justices with entirely false allegations.<br /><br /><br />The behavior of journalists and Democrat politicians who are attacking the SCOTUS right now are in the same category as 2-year old children who throw a tantrum when they don't have it their way. They are in the same category as my co-worker who uses and abuses the wretched DEI doctrine that now permeates all of academia by filing complaints with the university's Equal Opportunity and Civil Rights office when he doesn't have it his way. <br /><br /><br />DEI, by the way, stands for diversity, equity, and inclusion. In actual practice in the nation's colleges and universities, the acronym should be written DIE, because in actual practice it delivers division, intimidation, and exclusion. Witness the recent treatment at the hands of Stanford University law school teachers and students of a judge who had been invited to speak. He was not included nor accorded equity. Several equally repugnant exclusions, which defy what the academy is supposed to be, have occurred at universities around the country in recent months and years.<br /><br /><br />Attacks against Justices of the SCOTUS must not be tolerated. That conclusion is the top, the bottom, and both sides of it. <br /></span></span></p><p><span style="font-family: georgia;"><span style="font-size: medium;">No sitting member of the SCOTUS was appointed without long, serious, and thorough vetting. Every member of the SCOTUS is honorable, honest, intelligent, reflective, and dedicated to preserving the integrity and purpose of the SCOTUS. Journalists and Democrats who assail any of the Justices are way off base. </span></span></p><p><span style="font-family: georgia;"><span style="font-size: medium;">It's up to We the People to tell them to shut up and sit down. They are trying to bring down the most important institution in America. We must not allow it.</span></span></p>David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-37287897929186682002022-03-18T01:00:00.000-04:002022-03-18T08:47:40.156-04:00Where Do We Go From Here?<p>I have a long-time friend whose political philosophy is somewhat left of my own. He has considerable confidence in government; I have next to none, knowing and teaching Public Choice economics, as I do. </p><p>He asked me a few days ago, after I had sent him the link to a Dan Mitchell blog article about statist political philosophy to be found (<a href="https://danieljmitchell.wordpress.com/2021/01/30/statism-in-five-images-2/" target="_blank">here</a>), "<span style="font-size: 12pt;"><span style="font-family: inherit;">Some funny ones. No compromise possible? How about half the government we have and twice the government Mitchell wants?</span></span>" I wrote back saying I didn't see how compromise is possible.</p><p>It's obvious to anyone who can still fog a mirror that citizens of the United States are deeply divided. Don't blame it on Trump. Trump was a manifestation of the division, not the cause of it. The left and the right in America have a fundamental difference in values and beliefs. In my experience, compromise is not possible, nor is it desirable, because it comes from such fundamental differences in values --- differences that we sometimes call "principles." We cannot and should not compromise on principles. I told my friend that I cannot and will not. He is still my friend, nonetheless.</p><p>If I am right, where do we go from here? "Boogaloo," as it is called on some of the mind-numbing social media platforms? Is a second American Civil War inevitable? </p><p>The violent riots throughout the summer of 2020 were trivialized and mostly ignored by main stream media. That fact is dauntingly sad, and yet another story to be told. The rioting continued on January 6th in our capitol. All Americans should denounce all the riots, and most do. The rioting is also manifestation of the great divide. They give more than a glimmer of the willingness and ability of far too many people to use violence in the name of their values and beliefs, people both on the left and on the right of the great divide.</p><p>I'm a veteran, and as such, I think I know a thing or two about our military. I believe that Boogaloo, were it to begin, would end quickly and badly for its perpetrators. The enormous firepower and technology, combined with the commitment and skill of the U.S. Army and Marines would quickly quash any "militia" that had the temerity to launch full scale Boogaloo. Know that. Armed conflict is not the solution to the great divide that now separates us.</p><p>Nonetheless, we could and may see continued violent protests --- protests that local police may be both unwilling and unprepared to quash. If we do see more violence, and if the violence becomes more frequent, the Biden administration will eventually become the owner of the violence. Perhaps even the in-the-tank-left media would begin to criticize, hard as that may seem to imagine. After all, the media will have to write and speak about something other than Trump, no?</p><p>Biden speaks of unity. Preposterous. We will have no unity, and we should have none, because each side of the great divide is cleaving to its principles. I know this first hand, because the great divide lives even within my own family, I am sad to say.</p><p>Where do we go from here? I see only one, quite imperfect solution. The United States must become again what the Founders intended, and what it was in the time of the founding. The United States must become again a federation of states. We are not now a federation of states, and we have not been, at least since 1913, when the progressive Woodrow Wilson presided over the birth of both the federal income tax and the Federal Reserve. Both are institutions of thievery, and both are anathema to a true federation of states.</p><p>I will not trace here the history of the loss of federalism in the United States, for others are far better equipped to do so and have done so already. But make no mistake, federalism is long gone. The Declaration and the Constitution have not been defended and honored since at least 1913. The United States comprises now a large, intrusive, central government that seeks to become ever larger and ever more intrusive, day by day, year by year.</p><p>If we returned to the principles and structure of the founding, each state could and likely would comprise a government that suits its residents. Citizens would be free to pursue life, liberty, and the pursuit of happiness as free people in some states, without the ham-fisted government preferred by other states.</p><p>As it was in the time of the founding, each state legislature would decide how much money to send the federal government to support our common defense against foreign aggressors. Each state would itself take care of its own defense against domestic aggressors. Gone would be the IRS and yes, the Federal Reserve, too. Gone would be the U.S. Federal Code, that compendium of oppression and intrusion into the lives of we the people. Gone would be the Administrative State and the career politicians who have made a life of compelling others unjustly. Gone would be the democratic cronyism that is empowered by the federal government and its operatives</p><p>With true federalism, each state would decide whether to have term limits for politicians, as some do now. Through their elected representatives, each state would decide how and how much to tax. No federal income tax would exist. Decisions of such importance could and should be pushed down much closer to we the people. The founders had it right; how did we the people allow it to become otherwise? Many causes, I suppose. But as I observed in my book <a href="https://www.amazon.com/dp/B00KD153G2" target="_blank">Morality and Capitalism</a>, there is something in many humans that likes a king.</p><p>Is it possible to return to the principles of the Declaration and the structure of highly limited central government, a government constrained and limited to enumerated powers, as the founders intended? I do not know, but I believe that if we cannot, we are fated to continue on the road to serfdom that F.A. Hayek taught us about, now so many years ago.</p><p>If it is possible to return to true federalism, we will require a leader who believes in liberty. We do not have one now, and have not had one for many years. We will require a leader who, like Ronald Reagan, had the spirit, the character, and the charisma to lead people who yearn to be free. We will require a leader who can call out the statist people who are government operatives of the federal government, either as bureaucrats of the Administrative State, or as its elected federal representatives. We will require a leader who can do that calling out with civility and persuasion. We will require a leader whose motives none suspect, whose character all can admire, whose experience draws on a full experience of life, not just the experience of politics.</p><p>We just had an election, some say. The people have spoken. And yet, the great divide stares us in the face. </p><p>Do not call me a conspiracy theorist, for I am not. But everyone knows that at least half the voters who voted in the 2020 election believe, rightly or wrongly, that the election was deeply flawed, another manifestation of the great divide. The election served only to deepen that great divide. I believe the 2020 election was a one off; I don't think we will see its form and processes repeated, thank goodness. I hope I am not wrong.</p><p>Who can be the leader to forge a path back to the founding principles? I don't know, but my telia philia, who lives in Texas believes that such a leader will emerge from the great divide. I truly hope he is right.</p><p><br /></p><p><br /></p><p><br /></p>David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com3tag:blogger.com,1999:blog-5338679290238780332.post-52382821319354476452021-10-30T14:19:00.003-04:002021-10-30T14:21:15.578-04:0025 of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)<div><span style="color: #383838; font-family: Montserrat; font-size: medium;"><span style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; caret-color: rgb(56, 56, 56);">If you never understood anything else from the social science of economics, but you truly understood the truth of the 25 quotes below, you will understand much of the truth that economics has to offer.</span></span></div><div><span style="color: #383838; font-family: Montserrat; font-size: medium;"><span style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; caret-color: rgb(56, 56, 56);"><br /></span></span></div><div><span style="color: #383838; font-family: Montserrat; font-size: medium;"><span style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; caret-color: rgb(56, 56, 56);">Excerpted from an article by Jon Miltimore, writing in FEE Stories</span></span></div><div><span style="color: #383838; font-family: Montserrat; font-size: medium;"><span style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; caret-color: rgb(56, 56, 56);">October 28, 2021 FEE.org</span></span></div><div><span style="color: #383838; font-family: Montserrat; font-size: medium;"><span style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; caret-color: rgb(56, 56, 56);"><br /></span></span></div><ol style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0); -webkit-text-size-adjust: 100%; box-sizing: border-box; font-family: Montserrat; font-size: 18px; margin-bottom: 1rem; margin-top: 0px;"><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The farmer and manufacturer can no more live without profit than the labourer without wages.” - David Ricardo</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The most basic question is not what is best, but who shall decide what is best.” - Thomas Sowell</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Nothing is more deadly to achievement than the belief that effort will not be rewarded, that the world is a bleak and discriminatory place in which only the predatory and the specially preferred can get ahead.” - George Gilder</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.” - F.A. Hayek</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.” - Thomas Sowell</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another.” - Carl Menger</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.” - Jean-Baptiste Say</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The disdain of profit is due to ignorance, and to an attitude that we may if we wish admire in the ascetic who has chosen to be content with a small share of the riches of this world, but which, when actualized in the form of restrictions on profits of others, is selfish to the extent that it imposes asceticism, and indeed deprivations of all sorts, on others.” - F.A. Hayek</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.” - Ludwig von Mises</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.” - Frédéric Bastiat</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.” -Henry Hazlitt</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.” - F.A. Hayek</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.” - Milton Friedman</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“All trades, arts, and handiworks have gained by division of labour, namely, when, instead of one man doing everything, each confines himself to a certain kind of work distinct from others in the treatment it requires, so as to be able to perform it with greater facility and in the greatest perfection. Where the different kinds of work are not distinguished and divided, where everyone is a jack-of-all-trades, there manufactures remain still in the greatest barbarism.” - Immanuel Kant</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“It is not true that Congress spends money like a drunken sailor. Drunken sailors spend their own money. Congress spends our money.” - Dr. Art Laffer</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The message from history is so blatantly obvious—that free trade causes mutual prosperity while protectionism causes poverty—that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer.” - Matt Ridley</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Love locally, trade globally.” - Russ Roberts</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The great danger to the consumer is the monopoly— whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him.” - Milton Friedman</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum-wage laws, trade-union wage pressures or other devices which seek to compel employers to pay them more than their [labor] is worth. The more likely outcome of such regulations is that the intended beneficiaries are not employed at all.” - James Tobin</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Nothing should be more obvious than that the business organism cannot function according to design when its most important ‘parameters of action’—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners.” - Joseph A. Schumpeter</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Failure is part of the natural cycle of business. Companies are born, companies die, capitalism moves forward.” - Thomas Sowell</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“The way to maximize production is to maximize the incentives to production. And the way to do that, as the modern world has discovered, is through the system known as capitalism—the system of private property, free markets, and free enterprise.” - Henry Hazlitt</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“A people averse to the institution of private property is without the first elements of freedom.” - Lord Acton</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments.” - Ludwig Von Mises</li><li style="box-sizing: border-box; color: #383838; margin-bottom: 18pt; overflow-wrap: break-word;">“Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands. In the meantime, their initiative and self-respect are destroyed.” - Charles G. Koch</li></ol><p><br class="Apple-interchange-newline" style="-webkit-text-size-adjust: auto;" /></p>David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-88326544042538720572021-02-20T18:09:00.005-05:002021-02-20T18:09:58.878-05:00What Economists Know about Prices<p>Prices that emerge in markets are signals wrapped up in an incentive. We can thank the economist Alex Tabarrok for stating this very old truth in a single, pithy sentence.</p><p>Thanks for the econ lesson, you say, but so what? The once-in-a-century cold snap that caused Texans grief last week is a great example of so what. Estimates of the damage caused by the power outages in Texas are in the billions of dollars.</p><p>Without price-distorting subsidies from politicians, all those wind turbines in Texas wouldn't have been built. And all those freezing Texans wouldn't have been freezing. And the billions in damages could have been avoided. </p><p>Hind sight, you say? Not really. It's an old story that's well known by economists. Benefits concentrated on a tiny subsidized few, with costs spread widely over a huge tax-paying majority. How hard will you work to keep someone from stealing ten cents a day from you? How hard will you work to keep a subsidy worth $1,000 a day coming your way? </p><p>Why did politicians subsidize the wind turbine industry to the point that as much as 30 to 40 percent of the Texas electricity grid is supplied by wind turbines on some days? Because politicians respond to popular sentiment; it's part of what keeps them in office. And because politicians also respond to money, which is another part of what keeps them in office.</p><p>Politicians are not dummies, regardless of what it looks like. They know which parade to jump in front of to stay in office. That parade goes by the name, "climate change." Politicians know they won't be blamed 100 years from now; everybody knows that we have to get rid of fossil fuels, right? Why not give the folks what they are clamoring for, and make some cash to boot?</p><p>K-street in DC spent a lot of money to get those subsidy dollars flowing. The beneficiaries of the subsidies made sure of that; dollars well spent. Politicians have nothing to worry about. People will forget about power outages in Texas by next week. Move along; nothing to see here.</p>David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com4tag:blogger.com,1999:blog-5338679290238780332.post-51394712727708320282020-03-22T09:09:00.001-04:002020-04-21T09:59:11.683-04:00An Open Letter to the President and Governors: Stop Killing Our Economy<div dir="ltr" style="text-align: left;" trbidi="on">
That we face incredible challenges over the next weeks and months is obvious. Events that ensure a world-wide recession have already happened. The only questions that remain are how deep and how long will the crippling of the world’s economies be.<br />
<br />
Since the onset of the COVID-19 crises, we have all been witness to extraordinary steps taken by the Federal government headed by the President, and by state governments headed by their Governors. Private businesses have been ordered to close normal operations. Schools have shut down. The governors of California and New York have ordered that citizens remain in their homes, except for “essential” activities. Other Governors have ordered less drastic actions, but may soon follow suit. In short, civil and commercial society is being ordered to shut down, all in the name of slowing the spread of COVID-19 and the loss of life the contagion may entail.<br />
<br />
Put aside all talk and thinking of who to blame. Put aside all talk and thinking of violations of the civil rights of Americans. There will be time enough for such talk and thinking after America emerges from this crises. Of critical importance now — right now without a day’s delay — you, the President and Governors of every state, must think clearly about what must be done to avert absolute catastrophe.<br />
<br />
The ordered shutdown of businesses and lockdowns of citizens must be lifted. Americans must be told that they can and should get back to work.<br />
<br />
I know this advice is contrary to what you are being told by epidemiologists and others whose expert credentials give them voice and credibility. These people are intelligent, well-meaning. They are no doubt correct about the contagion and how to “flatten the curve.” The problem is that flattening the curve by shuttering businesses and locking down citizens has unintended consequences that will be absolutely catastrophic for American citizens.<br />
<br />
Large modern economies are interconnected in unfathomable and incomprehensible ways. There are no “nonessential” businesses. No one, no collection of experts — regardless of intelligence and training — can know what goods and services to produce, how to produce them, or how much of them to produce. The information required to know resides in millions of individuals, each going about the business of making a living and making individual choices.<br />
<br />
Americans must keep working at whatever they do. We must not be told to “shelter in place.” If we are not allowed by the President and the Governors of states to do so, the human misery that will follow is unthinkable.<br />
<br />
I am unqualified by training or knowledge to predict the spread and mortality of COVID-19. But I am qualified by training and knowledge of economics and history to predict that even if the COVID-19 pandemic were as much a threat as the H1N1 pandemic was, it doesn’t matter — if we continue on the path of killing our economy and depriving individuals of the opportunity to go about their business, whatever their business is.<br />
<br />
Now, a silly story to illustrate my claim. Surely, production and distribution of food is essential; all would agree. Therefore, we must allow farmers to produce; we must allow food processing businesses to continue to operate; we must allow truckers to carry food to market; we must allow grocery stores to remain open so that people may buy the food.<br />
<br />
But surely we can and should require bars to close; we can and should require restaurants to close or serve only carry-out orders; we can require that computer technicians stay home; we can require auto mechanics stay home; we can require that office workers in corporate offices work from home; we can and should require that golf courses close; we can and should require that all “nonessential” activities cease. Surely we can and must, because we simply must slow the spread of COVID-19, so that fewer people will die of the comorbidities the virus will bring on.<br />
<br />
And then the unforeseen, unconsidered linkages and interdependencies of an economy kick in.<br />
<br />
A network technician cannot repair the digital network used by the Walmart distribution warehouse, resulting in a one day lag in deliveries to hundreds of Walmarts in a region of the country. The one day delay leads to even more panic buying from people who have every right to fear the next day. A fight breaks out in one of the affected Walmarts. Ten people are arrested and one man is so badly beaten he must be hospitalized.<br />
<br />
The mechanic sheltering in place in California does not do a repair on a truck broken down on I-5, which results in a load of pharmaceuticals going undelivered for two days. Tens of people suffer ill effects of not getting their medication; three people die.<br />
<br />
The nonessential office worker working from home for the ISP company, Spectrum, fails to see an email due to looking after her seven year old who is not in school. Unfortunately, the oversight causes thousands of others working from home to lose their Internet connection for eight hours. Ten of those who lost their connection also lose their streaming TV service and fail to see news warning them to take shelter in a tornado watch zone. All ten are struck by the tornado. Fortunately, only one dies.<br />
<br />
Multiply my silly little story by literally millions of similar incidents that can be imagined without end. None of us can think of but a handful of such fanciful stories and interconnections. But any good economist knows that the unrecognized, unseen interconnections number literally in the millions of millions for any modern economy.<br />
<br />
Mr. President and Governors of the fifty United States, please end the shutdowns and the sheltering in place orders. Instead, encourage all Americans to get back to work. Yes, the threat of COVID-19 is real. Yes, we will face risk. Millions of us might contract the virus; thousands might die. The epidemiologists do not know.<br />
<br />
Maybe this contagion will be as bad as the N1H1 outbreak was in 2009. No one really knows. But Americans face down far worse and more deadly risks every day. By now, most of us have learned that tens of thousands of Americans will die of flu this year. About 90 Americans died yesterday on our highways. And so it goes.<br />
<br />
Ultimately, the consequences of Americans not working and not functioning as a free society are going to be far worse than the risks posed by COVID-19.<br />
<br />
We know that some people are at great risk of dying due to the virus. We are all concerned about protecting these people. We have learned how to do that, thanks to instruction from the good people of the world’s public health institutions. We can and must do everything to shield those people from exposure to the virus. They can be and should be sequestered, with help from us all. Regardless, some of them will contract the virus, and they will die. Reality is not always kind; it is still reality.<br />
<br />
But we can know and must understand that shutting down our economy and sequestering ourselves is a certain path to catastrophe. Mr. President, Governors, I beg you to save us from that catastrophe.<br />
<br />
Friedrich A. Hayek won a Nobel Prize in economics teaching us this truth. In his words, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” He was talking about central planning of economies. Whether we recognize it or not, our experts are imagining that they can design an easier way out of the COVID-19 pandemic. They are well meaning, but they cannot.</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com4tag:blogger.com,1999:blog-5338679290238780332.post-63747638587110774192020-03-09T21:28:00.002-04:002020-03-10T10:42:53.824-04:00The Election of A Lifetime<div dir="ltr" style="text-align: left;" trbidi="on">
It is understatement to say that the November 2020 elections will be
momentous for America. Regardless of the outcomes, about half the politically
aware public will be outraged the day after the results are final. But more
important, America’s future will be shaped for generations to come.<br />
<br />
The lines of division among Americans are bright and important. Two major
factions comprise American society: the "never Trump" folks, and the
“thank-God-for-Trump” folks. Few Americans are indifferent. Never Trumpers despise
Trump beyond all reason. Thank-God-for-Trump folks absolutely adore what he has
accomplished so far, and they support what he promises to accomplish in the
future.<br />
<br />
It is also understatement to say that leaders in the Democrat Party and their
rank and file core are obsessed with removing Trump from office — if not by the
ballot box, by whatever other means possible. Additional impeachment attempts
are not out of the question, if the Democrats hold the House and Trump is
reelected. <br />
<br />
Why are Democrats so determined to depose Trump? Is it really the case that
Trump is such a despicable human being that he simply must be deposed? I have
friends and colleagues who say "yes, absolutely, yes." These friends
and colleagues tell me that Trump is loathsome, a racist, a liar, a hound dog,
and a cheat in business who in no way deserves to be wealthy. These people will
tell you that Trump is an “existential threat,” which appears to be one of
their favorite expressions.<br />
<br />
In years past, it's been popular for political pundits to say "it's the
economy, stupid." My hypothesis for explaining the extreme animus of Democrat leadership and the party faithful against
Trump is "it's the courts,
stupid." And even more to the point, "it's abortion, stupid."<br />
<br />
The Democrats understand completely that should Trump get to appoint even
one more Justice to the Supreme Court, never mind tens of additional federal
court judges, and God forbid two Justices, the future for Democrat ideological
preferences will be significantly dimmer for at least 30 to 40 years, if not
longer.<br />
<br />
More to the immediate threat for Democrats, they fear that Trump’s
reelection would almost guarantee the Supreme Court reconsidering Roe v. Wade. As
everyone knows and agrees, the issue of abortion is important, divisive, and
quite possibly irreconcilable.<span style="mso-spacerun: yes;"> </span><br />
<br />
The mad-dash impeachment foisted by the Democrats was a failed attempt to
forestall a potential third SCOTUS appointment <i style="mso-bidi-font-style: normal;">before</i> the November elections, in my opinion. With eight months to
go before the November 2020 elections, even now that possibility is still not
off the table. Can you imagine the turmoil and havoc that will ensue, should a
SCOTUS vacancy occur during the next six months?<br />
<br />
In my opinion, the probability is high and growing that Trump will be
reelected. If he is, the future of America depends critically on whether the U.S.
Senate remains in Republican control. Control of the House is less important. After
all, Republicans controlled both the Senate and the House during the first two
years of Trump’s first term, without delivering funding for Trump’s wall and
without repealing Obamacare.<br />
<br />
Nonetheless, should Republicans hold on to the Senate and also regain
control of the House (scenario 1 below), we might see repeal of Obamacare, reforms
to immigration policy, and extension of federal tax cuts passed and signed into
law in 2017.<br />
<br />
The U.S. Senate is arguably the most important and significant political
institution in America. It is so because the Senate confirms Supreme Court
Justices and federal court judges. And as we saw in February 2020, impeachment by the House is empty, if
the Senate does not convict. The significance of Supreme Court
appointments is clear enough, but federal court judge appointments are also
important. As we have seen during the past three years, federal court judges
can impede and hamper the President’s power of executive
orders. <br />
<br />
Decisions of the Supreme Court over the decades have utterly shaped the
America we live in today, and will do so in the future. For example, the high
court’s decisions concerning the Article 1, Section 8, Commerce Clause of the
Constitution (Gibbons v. Ogden, 1824, and Wickard v. Filburn in 1942) had
profound implications for subverting the limits of federal government power
intended by the Founders.<br />
<br />
In my opinion, it is U.S. Senate races that matter most come November, not
the presidential race. Election scenarios 1, 2, 7, and 8 below are remarkable because each keeps
the U.S. Senate in Republican control. Scenarios 1 and 2 are significant,
because Trump remains President and the Senate remains in control of Republicans.
Scenarios 1 and 2 mean the SCOTUS will become more originalist and constructionist,
and federal court judges will be replaced with moderates and conservatives,
instead of progressives.<br />
<br />
But scenarios 7 and 8 are also important, because a Republican controlled
Senate could and likely would seriously limit the ability of a Democrat
president to nominate successfully any but moderate candidates for the Supreme
Court and federal courts.<br />
<br />
<span style="mso-spacerun: yes;"></span><span style="mso-spacerun: yes;"></span><span style="mso-spacerun: yes;"></span><b style="mso-bidi-font-weight: normal;">President Senate House<span style="color: red;"> </span></b><br />
<span style="color: red;">1. R</span>
<span style="color: red;">R</span>
<span style="color: red;">R</span><br />
<span style="color: red;">2. R</span>
<span style="color: red;">R
</span><span style="color: blue;">D</span><br />
<span style="color: blue;">3</span><span style="color: red;">.
R </span><span style="color: blue;">D D</span><br />
<span style="color: red;">4.</span><span style="color: blue;">
</span><span style="color: red;">R</span><span style="color: blue;">
D
</span><span style="color: red;">R</span><span style="color: blue;"> </span><br />
<span style="color: blue;">5. D
D
D</span><br />
<span style="color: blue;">6. D</span><span style="color: red;"> </span><span style="color: blue;">D </span><span style="color: red;">R</span><br />
<span style="color: red;">7.</span><span style="color: blue;">
D </span><span style="color: red;">R R</span><br />
<span style="color: blue;">8. D</span><span style="color: red;"> R
</span><span style="color: blue;">D </span><br />
<br />
Everyone knows and agrees that independent voters will decide which scenario
we get in November 2020. In my opinion, the decisions of Democrat leaders Pelosi, Schumer, Schiff, and Nadler have made scenarios 1 and 2 more likely
outcomes of the November elections. Because independent voters have seen the
depths to which Democrat leaders have been willing to sink to depose Trump, right-of-center
Democrats and independents may well be in no mood to vote for Democrats, regardless
of the office in question.<br />
<br />
Democrat leaders pulled out all the stops in 2018 - 2020. The Kavanaugh confirmation
debacle, the nothing-burger Mueller investigation (brought about by a nefarious
FISA court warrant), followed by the failed impeachment proceedings, may well be
remembered negatively by voters in November 2020. <span style="mso-spacerun: yes;"> </span>No political actions have been beneath the
Democrats, precisely because the stakes for the Supreme Court and the federal
courts are so high. <br />
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David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com2tag:blogger.com,1999:blog-5338679290238780332.post-17861934780638276572020-01-26T09:01:00.000-05:002020-01-26T08:42:34.515-05:00How To Fix America's Health Care System<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-size: 14.0pt;"><span style="mso-tab-count: 1;"> </span>Problems with health care in America are
not failures of voluntary market exchange; they are failures of government
interference with voluntary market exchange. To fix the problems, eliminate
government interference with voluntary exchange in health care markets.</span>
<br />
<div class="MsoNormal" style="tab-stops: list .5in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .25in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate involvement of employers in health care altogether;
do this simply by removing from federal and state tax codes all tax
implications of health care goods and services, for both businesses and
individuals. Remove all tax deductions, tax credits, and tax preferences of any
kind that involve health care services or health insurance premiums; remove all
interactions between health care and the tax code. </span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .25in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate supply-side restrictions on health care.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Rely entirely on private voluntary exchange on the
supply side of health care markets.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate barriers to entry for hospitals, clinics, dental
schools, nurse training schools, and medical schools, including
"certificates of need," and government imposed restrictions on health
care training organizations.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate municipal, tax financed,
government-subsidized, tax advantaged hospitals and clinics.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Allow consumers to decide what levels of health care
training are sufficient for their health care needs.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 1.25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -.25in; tab-stops: list 1.25in; text-indent: -1.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Eliminate legal restrictions
on health care providers at all levels.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 1.25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -.25in; tab-stops: list 1.25in; text-indent: -1.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Eliminate government
licensure requirements for all levels of health care providers</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: 1.25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -.25in; tab-stops: list 1.25in; text-indent: -1.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Promote private certification,
like we see for Certified Public Accountants (CPA), Certified Financial
Planners (CFP), and Civil Engineering Certification (CEC). Neither federal nor
state governments would play a role in certification.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Rely on wide-spread information dissemination about
individual health care providers, hospitals, and clinics — similar to
nutritional content on food packages, Yelp for restaurant reviews, and Consumer
Reports for goods and services.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">f.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate 3<sup>rd</sup> party payer models that have
removed price competition from health care.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">g.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate Medicare, Medicaid, Veterans Administration hospitals,
and all other health care programs run by government.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .25in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate state boundaries for health insurance; allow
nationwide competition for whatever health care insurance markets emerge.
Eliminate restrictions of any kind on pricing and characteristics of health
insurance products.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .25in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">4.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Give low-income individuals and families means-tested
health care vouchers to purchase routine health care, similar to the SNAP
program. Pay for vouchers from general tax revenue.</span></div>
<div class="MsoNormal" style="margin-bottom: 12.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .25in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">5.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Eliminate patents for pharmaceuticals. Rely on
academic research to develop new drugs, as we largely already do. Academic
research is highly motivated by institutional prestige, not sales of drugs. We
have no evidence whatsoever that eliminating patents on drugs would reduce
research and production for new efficacious drugs in America, notwithstanding
loud protests to the contrary from the rent-seeking big pharma corporations. </span></div>
<div class="MsoNormal" style="tab-stops: list .25in;">
<span style="font-size: 14.0pt;"><span style="mso-tab-count: 1;"> </span>Implementing the 5-point plan outlined
above will lead to the following benefits for people in America:</span></div>
<div class="MsoNormal" style="tab-stops: list .25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">A.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Creation of market prices in health care. As noted by
professor Alex Tabarrok, of George Mason University, a market price is "a
signal wrapped up in an incentive" for both producers and consumers.
Without market prices, producers and consumers have no way to maximize economic
efficiency.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">B.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Reduction in the cost of health care across the board,
due to increased supply and reduced demand for health care services.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">C.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Increased supply of health care services, due to
removing supply-side restrictions put in place by government operatives who
have catered to rent-seeking health care providers.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">D.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Greatly reduced wait times in doctors’ offices and
hospital emergency rooms, as health care providers begin competing on price and
quality of service.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">E.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Much greater diversification of health care delivery
models, such as online diagnosis and service, walk in lab testing, online
diagnosis services, quick-service health care clinics, and other business
models that no one has yet even imagined (<a href="http://reason.com/archives/2014/09/30/supply-side-health-care-reform">http://reason.com/archives/2014/09/30/supply-side-health-care-reform</a>
). </span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">F.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Greatly reduced cost for routine health care services
that providers with much less training than an MD can provide with great
competence.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">G.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Lowest feasible cost for health care services across
the full range of health care services.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">H.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">The absence of government and its operatives from
health care markets, thereby improving economic efficiency and equity across
the board.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">I.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Elimination of the deadweight costs created by
subsidies, price controls, and supply-side restrictions. A greater number of
people will receive a greater quantity of health care with a higher quality and
benefit to individuals, at the lowest possible cost.</span></div>
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-->David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-44642778264945122512019-10-18T12:59:00.000-04:002019-11-25T12:47:05.415-05:0010 Questions and Answers about Health Care<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">1.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Is health care
different from other goods & services?<span style="mso-spacerun: yes;">
</span>If so, how?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Is health care a
public good?<span style="mso-spacerun: yes;"> </span>Definitely not, since</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">It is excludable; non-payers can be excluded.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">It is not jointly consumed; all of us do not consume
all that is produced.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">It is exhaustible; units of health care consumed by
Ben cannot be consumed by Betty.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iv.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">It does not have zero marginal cost in consumption; adding
another consumer requires additional production, and therefore, additional
cost.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>v.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">And yet, health care does generate a positive
externality in consumption, because most people are unwilling to ignore suffering
of others; therefore, we all gain value from the consumption of health care by
others; most people are willing to pay something for the health care of people
who unable to pay for their own health care.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Is health care
scarce?<span style="mso-spacerun: yes;"> </span>Definitely yes;</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">The quantity of health care available is insufficient
for everyone to have all they want without sacrificing something else they also
want.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Production of health care requires the use of valuable
land, labor, and capital, just like other valuable goods. The owners of the
land, labor, and capital used must be paid the opportunity cost of their
valuable resources, which makes the supply curve of health care upward sloping.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Because it is scarce, health care must be rationed
somehow; if not by willingness and ability to pay money, then what?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Do people "need"
health care? <span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Health care is not a single, homogeneous economic
good; health care ranges from a band aid and an aspirin to heart replacement
surgery.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">If some quantity of health care is needed, how much?
People do not need any particular quantity and quality of health care.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Substitutes for professional health care include
watching and waiting (human bodies have incredible recuperative abilities),
home remedies, and self care (although the possibilities for self care are substantially
limited by law).</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iv.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Different people want different amounts and qualities
of health care; people seek to maximize their own net benefit from consuming
health care, which means they attempt to find the quantity and quality for which
MPB=MPC.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>v.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Equal consumption of health care by everyone isn't possible,
and if it were possible, few if any would say equal consumption by all would be fair.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Is health care a
basic human right, regardless of ability to pay?<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">If so, who has the responsibility to provide health
care, since a right for one always implies a responsibility for someone else?
Do not say "society" has the responsibility, because
"society" is not a person, it is a collective noun.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">If so, how much health care and what quality of health
care does everyone have a right to? Do not say "enough to stay
alive," or "enough to be well," because neither is definable or
quantifiable.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Which economic
good is health care more like:<span style="mso-spacerun: yes;"> </span>cars or food?</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Health care is more like food, so why don’t we have
all the same public policy issues with food that we have with health care?</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Why don’t employers typically provide a "food
benefit” as part of their compensation to employees?</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Consider the cost of food per typical person for a
year compared to the cost of health care per typical person for a year. Why is
health care so expensive, compared to food? </span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iv.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Why do we not eliminate restrictions on the supply
side for health care?</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>v.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Is asymmetrical information a serious problem with
health care? Not really; asymmetrical information is far more serious with
automobiles.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">2.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">What are
justifications for government intervention and obstruction of voluntary
exchange in health care? Do the conventional justifications offered by
economists apply to health care?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Not market power; nothing besides government laws and
regulations keeps health care from being highly competitive.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Not externalities; even though most people are
sympathetic and willing to help others who are suffering, we have no evidence
whatsoever that not enough health care will produced without government
intervention. We have ample evidence to the contrary.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Not the public good argument; health care has none of
the characteristics of a public good.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Not the incomplete or asymmetric information problem;
consumers know more about health care than they do about their cars.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Certainly not economic stabilization.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">f.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">What about
equity, fairness, and justice?<span style="mso-spacerun: yes;"> </span>(is there
an efficiency-equity trade off with production or consumption of health care?)<span style="mso-spacerun: yes;"> </span>No more so than for any other economic good.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">3.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Does health care fit
the insurance model?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Yes, for catastrophic illness, we do have low
probability of high cost events, which are insurable events, but not for
routine health care. </span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in .75in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Health care insurance generates moral hazard, as does
any insurance.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">May influence eating choices (obesity, junk food), if
individuals do not have to bear the full cost of their choices.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">May influence life-style choices (lack of exercise,
smoking, speeding, riding motorcycles), if people do not have to bear the full
cost their choices.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .3in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .3in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">4.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Why are employers
involved in health care insurance; they aren't involved in home insurance or
car insurance?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">There is no philosophical or economic reason.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Employer involvement is an historical artifact of wage-price
controls during WWII, which kept employers from competing for employees using
wages.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">5.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Is asymmetric
information a serious problem with health care?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">No; in which economic good is information more
asymmetric:<span style="mso-spacerun: yes;"> </span>car repair or health care?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Are health care providers better judges of the marginal
benefit of health care than patients, and therefore better positioned to decide
the quantity and quality of health care someone should consume? </span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">For most goods and services, consumers can and do use
price as a principal source of information about value, cost, and relative
scarcity; but not for health care, because unit prices for health care services
are generally nonexistent; health care providers do not compete on price, and
prices generated by voluntary exchange in unfettered markets do not exist, due
to government intervention.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">If we don’t use prices (willingness and ability to
pay) to ration health care, then we also cannot use prices to give us
information about relative value and cost of health care compared to other
goods and services.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">If we don’t use voluntary exchange guided by relative
prices to ration health care, how can we expect that MSC will equal MSB? We
cannot.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">6.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">What's wrong with
third-party payments for health care?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Third-party payments are payments made to producers of
healthcare by someone other than the consumer of health care.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">For most insurable risks, insurance is not a third-party
payment system, since consumers generally pay for insurance they purchase
(e.g., auto insurance, property and casualty insurance, home insurance, life
insurance); but for health care, what is called "health care
insurance" is typically paid for by an employer or by tax payers.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">What economic outcomes can we expect from 3<sup>rd</sup>
party payment for health care?</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Excess demand for health care services.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Shortage of suppliers of health care services.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Rising cost of producing health care.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iv.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Rationing of health care using some criteria other
than price, e.g.,</span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Waiting in the doctors' offices and emergency rooms, </span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Denial of insurance claims,</span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Burdensome, bureaucratic procedures to get insurance
claims accepted,</span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Doctors who refuse Medicare and Medicaid patients, </span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Denial of medical procedures by review boards, and </span></div>
<div class="MsoNormal" style="margin-left: 1.0in; mso-list: l1 level2 lfo2; text-indent: -.25in;">
<span style="font-family: "symbol"; font-size: 14.0pt;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Limitations on eligible suppliers of health care
services (HMO, PPO). </span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">7.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">What behaviors
from employees can we expect, due to employers using health care benefits to
compensate employees?</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Employees will demand more health care benefits, due
to obfuscation of who is bearing the cost.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Low-wage employees typically won't be compensated with
health care benefits (e.g., employees of McDonalds), because.</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>i.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Health care is expensive as a percentage of low-income
workers’ wages</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>ii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Low-income workers don’t tend to stay with the same
employer as long as high-income workers</span></div>
<div class="MsoNormal" style="margin-left: .75in; mso-list: l0 level3 lfo1; mso-text-indent-alt: -9.0pt; tab-stops: list .75in; text-indent: -.75in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;"><span style="font: 7.0pt "Times New Roman";">
</span>iii.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Low-income workers need money, not health care
benefits, since they don’t get much income to pay for food and other goods and
services they want; in other words, low-income employees typically don’t want
part of their pay in the form of health care benefits.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Money wages of employees will not rise as fast as they
otherwise would.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">d.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Employees will consume health care services beyond the
point of MPB=MPC</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">e.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Employees may be less mobile, remaining in current
jobs to avoid loss of health care benefits</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">f.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Employees may
delay retirement to avoid loss of health care benefits</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">8.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">Can government somehow
achieve greater economic efficiency and equity by intervening in voluntary
exchange markets? In a word, no. In fact, the opposite is true.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .25in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">9.<span style="font: 7.0pt "Times New Roman";">
</span></span></span><span style="font-size: 14.0pt;">What does
economic logic tell us is the most efficient remedy, if we find someone who has
little ability to pay for health care, but we’ve decided that the person
deserves some minimum level of health care? Give the person some money or a health
care voucher.</span></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .3in .5in; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .25in; mso-list: l0 level1 lfo1; tab-stops: list .3in .5in; text-indent: -.25in;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">10.</span></span><span style="font-size: 14.0pt;">Can
the U.S. health care “system” be “reformed" from where we are now? Probably
not.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .25in .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">a.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">We have no reason whatsoever to believe that
government operatives will bring us greater efficiency or equity in health
care, compared to voluntary exchange.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .25in .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">b.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">There is no “system” that suspends human nature and
the laws of supply and demand, both of which apply to health care, just as they
do for car care and food care.</span></div>
<div class="MsoNormal" style="margin-left: .5in; mso-list: l0 level2 lfo1; tab-stops: list .25in .5in; text-indent: -13.5pt;">
<span style="font-size: 14.0pt;"><span style="mso-list: Ignore;">c.<span style="font: 7.0pt "Times New Roman";"> </span></span></span><span style="font-size: 14.0pt;">Voluntary exchange in competitive markets gives us as
much efficiency and equity as possible, provided we make provision for the rather
small number of people who are unable to pay for even modest health care
services.</span></div>
<div class="MsoNormal">
<br /></div>
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David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-74883630918570532572019-08-09T11:17:00.002-04:002020-01-19T12:14:13.202-05:00The 545<div dir="ltr" style="text-align: left;" trbidi="on">
Here is a <a href="https://www.orlandosentinel.com/news/os-ed-charley-reese-545-column-07111120110711-story.html" target="_blank">link</a> to an excellent article written years ago by Charley Reese. Every voting citizen of the United States should give this article a read and ponder its message carefully.</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-11455540228414023472018-04-11T16:54:00.002-04:002023-11-01T16:03:07.573-04:00Redistributing Income<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: georgia; font-size: small;"><style>
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As you may have noticed, one of the two major political
parties in the United States is all about redistributing income.<span style="mso-spacerun: yes;"> </span>According to supporters of that particular
political party, the distribution of income that results before redistribution
is not equal enough and is not fair.<span style="mso-spacerun: yes;">
</span>Consequently, much of the legislation supported by this political party
is designed to take income away from Peter (who evidently has more income than
would be fair) and give it to Paul (who evidently has less income than would be
fair).
<br /></span>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
Members of this political party also complain that the top
1% of income earners in the United States earn way, way too much more than 1%
of total income, and the lowest 20% of income earners earn way, way too much
less than 20%.<span style="mso-spacerun: yes;"> </span>Some people agree with
the claims of this political party; some people do not.<span style="mso-spacerun: yes;"> </span></span>
</div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
The word "fair" has no clear, settled
meaning.<span style="mso-spacerun: yes;"> </span>Yet, we all use the word as if
we all know exactly what it means.<span style="mso-spacerun: yes;"> </span>In my
judgment, the word "fair" cannot be used in any logical way in talking
about the distribution of income.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
Some people say that "fair" means
"equal."<span style="mso-spacerun: yes;"> </span>But it's hard to see
how equal income for engineers and restaurant servers could be thought fair by
anyone.<span style="mso-spacerun: yes;"> </span>Moreover, I've never met anyone
who thought engineers and restaurant servers should earn equal income.<span style="mso-spacerun: yes;"> </span>Some people say that "fair" means
"deserved."<span style="mso-spacerun: yes;"> </span>Perhaps, but if
so, what will we want to say "deserved" means?<span style="mso-spacerun: yes;"> </span>Does Tiger Woods deserve his enormous income,
just because he possesses athletic abilities particularly suited to hitting
golf balls into small holes?<span style="mso-spacerun: yes;"> </span>Does Bill
Gates deserve his enormous income, just because his mind is so structured that
DOS made sense to him for a computer operating system?<span style="mso-spacerun: yes;"> </span>Don't we all "deserve" prosperity?</span></div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
The distribution of income in the United States is unequal
because the capabilities of people are unequal and because all people do not
want the same goods and services.<span style="mso-spacerun: yes;"> </span>Equal
income cannot and will not come about in a society of people who have different
capabilities and who have different wants.<span style="mso-spacerun: yes;">
</span></span></div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
Attempts to redistribute income in the United States, which
have been ongoing on a major scale since the "War on Poverty"
initiated by President Lyndon Johnson in the early 1970s, have scarcely changed
the real distribution of income in the United States.<span style="mso-spacerun: yes;"> </span>Today, through a variety of transfer payment
programs, government transfers about $1 trillion per year from someone who
earned the income to someone who did not.<span style="mso-spacerun: yes;">
</span>The simple truth is that if somehow overnight, income were distributed
exactly equally among the nation's 125 million households, within just a few
weeks, income would once again be distributed unequally.<span style="mso-spacerun: yes;"> </span>Until people all have the same capabilities
and the same economic wants, the distribution of income will remain unequal.</span></div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
Human prosperity is not the same
thing as the distribution of income.<span style="mso-spacerun: yes;"> </span>As
an observable matter of fact, human prosperity around the world has been rising
dramatically over the past 250 years.<span style="mso-spacerun: yes;"> </span>Perhaps people would benefit by
focusing more on the causes of human prosperity and less on the distribution of
income.<span style="mso-spacerun: yes;"> </span>But try telling that to the
political party that favors redistribution of income.</span></div>
<div class="MsoNormal">
<span style="font-family: georgia; font-size: small;"><br /></span></div>
<div class="MsoNormal"><span style="font-family: georgia; font-size: small;">
P.S.<span style="mso-spacerun: yes;"> </span>I am personally
not a member of a political party.<span style="mso-spacerun: yes;"> </span>I am
not a partisan, so please don't disparage my simple observation of obvious truth
for political argument.</span></div>
</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-4165960273730729222016-12-19T14:23:00.000-05:002020-01-19T12:14:29.886-05:00Capital and Money Are Not The Same Thing<div dir="ltr" style="text-align: left;" trbidi="on">
The word "capital" is bandied about as if the word had a concrete, common, well understood meaning. But does it? <br />
<br />
For economists, capital is the third fundamental category of scarce resources --- as in land, labor, and capital --- categories that every faithful student of ECON 101 no doubt memorized. On this account, capital includes factories, equipment, and tools. On another account also used by economists, people are said to be investing in and building "human capital" when they go to college or invest time and money to learn new skills. On both accounts, capital is said to be the fundamental source of rising productivity of labor, without which, rising labor income is not possible.<br />
<br />
In financial contexts, the word capital most often seems to mean simply "money." On this account, capital is said to "flow" to its highest valued use, if markets are free, to flow between countries, if unrestricted by governments and their central banks, and to be the life blood and wellspring of economic growth and prosperity. Businesses are sometimes said to be "capital constrained" or "under capitalized." Countries are sometimes said to restrict capital outflows (e.g., China), or to attract capital inflows (e.g., America).<br />
<br />
Researching the etymology of the word, we find that an early meaning of the word "capital" is from the medieval Latin <i><span class="foreign">capitale</span></i>, meaning a "stock" of something. On this account, one could have capital in the form of grain, cattle, gold or just about anything of value --- including a stock of money. <br />
<br />
But on all accounts, the word "capital" really means something beyond simply money. To accumulate a stock of anything requires saving, as opposed to consuming or using up the thing. Hence, money can be capital, but not all money is capital. How so? Income that is saved in the form of money is capital. But newly created money --- which is to say money created from "thin air" by commercial banks and the Fed --- is not capital.<br />
<br />
The world is awash in money these days. But the world is not awash in capital. Is it mere coincidence that the substantial slowdown in growth of GDP in America over the most recent eight years correlates substantially with rapid growth in newly created money, much of which now resides in reserve accounts of commercial banks? Or is it a slowdown in accumulation of real capital --- which requires saving --- that better explains the slowdown in economic growth? <br />
<br />
A second early meaning of the word "capital," also from medieval Latin, is <i><span class="foreign">capitalis</span></i> <i>pars</i>, which designated the principal sum of a money loan. In medieval days the principal sum of a loan of money pretty much had to come from money saved. In those days, it was easy to understood that one could not borrow money that had not first been saved. Consequently, if one borrowed, one would typically be borrowing capital.<br />
<br />
Not so in today's world of commercial banking, central banks, and money created from nothing. So called "quantitative easing" does not create capital; it just creates new money. In the United States, the Fed purchased Treasury bonds with that money, enabling the federal government to continue increasing its spending.<br />
<br />
If some of that spending finds its way to you, you probably don't mind. And since none of that increased spending requires reduced spending by someone else, no worry, right? It's rather like a free lunch, right? Except, there ain't no such thing.<br />
<br />
Yes, here I am, beating an old dead horse once again. You can't borrow that which has not first been produced and saved, an idea I've written about before, <a href="http://econoblast.blogspot.com/2009/02/you-cant-borrow-what-hasnt-yet-been.html" target="_blank">here</a>. But you can borrow newly created money, which amounts to a kind of counterfeiting. Here's how it works.<br />
<br />
You deposit $1 in your bank account, say a dollar of income you earned by working. By law, the bank is allowed to lend 90 cents of <i>your</i> dollar to Tim. The bank must hold only about 10 cents in its reserve account with the Fed. Now you have $1 that you can spend, and Tim has 90 cents that he can spend. Where did the 90 cents of purchasing power come from? Thin air, as they say.<br />
<br />
You created your $1 dollar claim over goods and services by providing a service called labor. But Tim created no goods or services in return for his newly created command over goods and services. Does Tim's new claim on goods and services somehow seem bogus? You decide. <br />
<br />
When Tim spends the 90 cents, that 90 cents shows up in another bank pretty quickly. The second bank is allowed by the Fed to lend 81 cents to Bob. If you like math, you can see where this is going. If the banking system as a whole does all the lending its allowed to do, retaining only 10 percent of deposits in reserve, your original $1 deposit into the banking system can result in up to $10 additional money created from thin air.<br />
<br />
The federal government would consider it a grievous crime if Tim were to counterfeit 90 cents on his own and spend it, but it's somehow not a crime if the commercial banking system does what amounts to the same thing. To add insult to injury, the banking system earns interest on its loans of your dollar to Tim, Bob, and so on. If you have an interest bearing account with your bank, the bank pays a small fraction of that interest to you and keeps a larger fraction for the bank's owners.<br />
<br />
Through the magic of fractional reserve banking, people are able to borrow money that has not been saved by its owner. It's a kind of alchemy, seemingly generating something from nothing.<br />
<br />
Some folks worry that money creation from thin air will ultimately lead to price inflation. If it does, then the counterfeiting we call fractional reserve banking turns into outright theft, since price inflation robs you, the original owner of the $1, of purchasing power. If you had saved a dollar in 1913, the year the Fed was created, today that dollar would purchase perhaps 9 cents worth of goods and services at today's prices. You might be forgiven if that loss of purchasing power seems to you a little like theft of 91 cents of your saved dollar.<br />
<br />
When it is the federal government that borrows your $1, we get an even more insidious outcome. The federal government doesn't repay its debt, since it just creates additional debt to pay you back plus interest. Worse still, government acquires purchasing power over goods and services without taxing. If government is building roads and protecting us from foreign despots, that's okay by me. But of course, federal spending isn't limited to road building and national defense.<br />
<br />
Central banks around the world, especially the Fed, are making sure that the world is awash in money. But that money is not capital. It's just newly created claims over goods and services generated as if by magic from thin air. Some believe that central banks around the world have built a house of cards. Let us hope that the wind does not blow too hard in the coming months. <br />
<br />
<br /></div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-39724571702261810032016-02-25T15:52:00.001-05:002016-02-25T15:53:26.597-05:00The FairTax Is No Fantasy<div dir="ltr" style="text-align: left;" trbidi="on">
The editorial below was published originally in The Roanoke Times, April 10, 2006. With all the presidential candidates laying out their ideas for tax reform, one wonders why none of them are proposing the FairTax.<br />
<br />
<b>The FairTax Is No Fantasy</b> <br />
<br />
By David L. Kendall<br />
<br />
Kendall is professor of economics and finance at the University of Virginia's College at Wise.<br />
<br />
Some critics of the FairTax, HR 25, such as Christian Trejbal in his March 22 column, "FairTaxers pitch a fiscal fantasy," call it a fantasy and a crackpot idea. But benefits of the FairTax are no fantasy.<br />
<br />
If enacted as written, HR 25 would eliminate all federal income taxes for individuals and corporations. It would eliminate oppressively regressive payroll withholding taxes, now the cruelest burden on the working poor. The FairTax would replace all federal income and payroll taxes with a simple, progressive and efficient national retail sales tax.<br />
<br />
Because the FairTax would eliminate all individual tax returns, April 15 would be just another pleasant spring day. HR 25 would eliminate the Internal Revenue Service and its annual abuse of our Fourth and 14th Amendment rights. A small federal agency would be needed to administer the FairTax, but the IRS as we know it would be abolished.<br />
<br />
The FairTax would collect federal sales tax from every retail consumer in the country, including foreign visitors and even underground criminals, greatly enlarging the federal tax base. With a larger base, the average tax rate paid would go down, while the U.S. Treasury Department collects the same federal revenue.<br />
<br />
The monthly prebate paid to all households under the FairTax would not be a new entitlement program. The prebate would simply keep income in the hands of the people who earned it. The HR 25 prebate is to the FairTax what the personal exemption is to the income tax, just sooner and fairer.<br />
<br />
Recent studies estimate that the underground economy is about $1 trillion per year, all of it untaxed. That's tax evasion on a scale that simply could not happen with the FairTax. Significant evasion of the FairTax would require retailers like Wal-Mart, Kroger and your local dentist to help consumers avoid the sales tax; very unlikely. Potential tax evasion with the FairTax pales compared to the massive income tax evasion already happening.<br />
<br />
The FairTax would bring greater accountability and visibility to federal tax collection. All Americans would understand clearly how much federal taxes they pay. People could even plan for taxes they would pay in the future, removing the mystery we face now.<br />
<br />
With the FairTax, Congress would be compelled to be up front about tax increases. That's not the case now. When Congress changes tax law now, it takes years to sort out who won, who lost and how tax revenues changed.<br />
<br />
The FairTax offers still more. Eliminating the federal income tax would attract more foreign investment to the United States. It would also give U.S. firms incentives to keep new manufacturing capacity in the United States. That means more jobs and faster economic growth.<br />
<br />
Our federal tax code gives corporations enormous incentives to export jobs, money and manufacturing off shore. Studies suggest that replacing the federal income tax with a national retail sales tax could cause as much as $10 trillion to flow back into our economy from abroad to finance new plant and equipment. The long-run economic benefits for our children are obvious.<br />
<br />
Businesses and other organizations spend more than 6 billion hours each year complying with the federal tax code. That's time and expense wasted. Economists estimate that compliance costs top $250 billion annually. Although out of sight and mind, those costs are real, and consumers are paying them now.<br />
<br />
Through competition, the FairTax would compel businesses to lower retail prices. For corporations, taxes and compliance costs are like any other cost of doing business; they must be recovered in prices. With the FairTax, consumers would see retail prices drop by 20 percent to 25 percent.<br />
<br />
So, if the national sales tax were 30 percent, the retail cost of the $100 iPod shuffle plus tax would not be $130. Instead, it would be more like $80 plus a $24 sales tax. Because consumers would have their whole paycheck to spend, instead of their "after withholding" paycheck, the $104 iPod, including tax, looks pretty reasonable.<br />
<br />
The current federal income tax code is widely regarded by just about everyone as unfair, wasteful and mind-numbingly complex. It's time for dramatic, real change. It's time we demand that Congress pass HR 25.</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com1tag:blogger.com,1999:blog-5338679290238780332.post-58617331414582028112015-06-25T14:52:00.000-04:002015-06-25T14:52:00.794-04:00The Law Means Nothing in 21st Century America<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="http://www.cato.org/blog/supreme-court-validates-obamas-power-grab?utm_source=Cato+Institute+Emails&utm_campaign=5e3e19c725-Cato_Multimedia&utm_medium=email&utm_term=0_395878584c-5e3e19c725-141182533" target="_blank">Here</a>, Michael F. Cannon, an expert on the economics of health care and the provisions of the Patient Protection and Affordable Care Act (PPACA), remarks briefly on the June 25th, 2015 decision of the Supreme Court to allow the IRS and the Obama administration to ignore the law.<br />
<br />
<a href="http://www.theblaze.com/stories/2015/06/25/the-top-15-quotes-from-justice-scalias-dissent-in-king-v-burwell/" target="_blank">Here</a>, you may read a few succinct words from the dissent of Justice Antonin Scalia, who along with Justices Clarence Thomas and Samuel A. Alito Jr., voted to uphold the law, as written by Congress. Six justices, Sotomayor, Kagan, Ginsburg, Breyer, and Kennedy, and Chief Justice John Roberts, voted to ignore the words Congress specifically wrote into the Obamacare Act.<br />
<br />
Given the completely clear language of the Act, and given the well-known, express intention of Congress to deny Obamacare subsidies for citizens of states that chose not to establish their own exchanges (a provision of the PPACA that Congress fully intended to entice states to establish their own exchanges), today's Supreme Court decision in King v. Burwell makes a complete and absolute mockery of the rule of law and the Constitution of the United States.<br />
<br />
How can Americans be anything but ashamed of our President and the six
members of the Supreme Court responsible for today's ruling? <br />
<br />
It's now completely clear that Americans live by the rule of a few privileged and powerful men instead of the rule of law, men who are able to ignore completely---evidently with impunity---the Congress of the United States and the laws it passes. Forget about the Constitution; it means nothing. Forget about laws passed by Congress and signed by the President; they mean nothing. Forget about liberty; forget about the principles of law and justice that once made America great.<br />
<br />
What now can this President and future presidents not do? What principles now limit the power of American presidents? What law cannot be broken, if the President chooses to break it? Evidently, the President of the United States can do whatever he wishes to do. Today is a very dark day in American history. <br />
<br />
<br /></div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com3tag:blogger.com,1999:blog-5338679290238780332.post-67514967936445733842015-05-01T08:59:00.000-04:002020-02-26T20:34:10.469-05:00Public Choice Economics<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="text-align: center;">
<b>Principles of the Economics of Public Choice</b></div>
<b></b><br />
• Public choice applies the methods of economics to the theory and practice<br />
of politics and government. The economics of public choice gives us useful<br />
insights into the nature of political decision-making.<br />
• Just as self interest motivates the choices people make, self interest also<br />
motivates the decisions people make in a social context. The Fundamental<br />
Hypothesis of Economics (FHE) applies.<br />
<br />
• Decision making in a social context (the so-called "public sector") is<br />
necessary for every society. But the fact that voluntary exchange markets<br />
may sometimes fail to yield efficient outcomes — or outcomes that someone<br />
considers fair — does not mean that government operatives will do a better<br />
job. Governments fail, too. Political decision making is not a dispassionate<br />
pursuit of the "public interest," if for no other reason, because nothing is in<br />
the interest of everyone.<br />
<br />
• What is in the "public interest" cannot be defined in a meaningful way,<br />
because we live in a world of multiple values. Different people have<br />
different values and different interests. We also live in a world of conflicting<br />
values. For example, which do you prefer; greater safety or greater freedom<br />
and opportunity? Arguments that depend on the notion of "public interest"<br />
are fundamentally flawed.<br />
<br />
• In the struggle between different interests, small groups with narrowly<br />
focused interests — what we often call special interest groups — have more<br />
influence in decision making than much larger groups such as consumers<br />
and taxpayers. Because enormous benefits can be won using the political<br />
process and the force of government, it is rational for special interest groups<br />
to spend large sums of money on lobbying for special privileges — an<br />
activity that economists call "rent seeking." Concentrated benefits paid for<br />
by widely dispersed costs give special interest groups outsized influence in<br />
political decision making.<br />
<br />
• The political institution of representative government (a.k.a., a republic)<br />
creates a political market for votes, in which legislators engage in what is<br />
called "logrolling" on behalf of the special interest groups that support<br />
politicians with money. Logrolling is politician A agreeing to vote for<br />
politician B's favored bill, in return for politician B agreeing to vote for<br />
politician A's favored bill, when in fact, neither politician likes the other's<br />
bill. With logrolling, special interest groups that want A's and B's bills<br />
benefit handsomely, while consumers and taxpayers absorb the cost.<br />
<br />
• In direct democracy, using mechanisms such as referenda, the majority<br />
voting rule that is commonly adopted allows a 51 percent majority of the<br />
voters to overrule 49 percent of the voters, and overrule up to 100 percent of<br />
the citizens who don't vote. In representative democracies, even smaller<br />
fractions of the population have greatly outsized influence, due to lobbying<br />
and the outcome of concentrated benefits received by special interest groups<br />
at the expense of widely dispersed costs levied across all taxpayers and<br />
slightly higher prices paid by consumers for goods and services.<br />
<br />
• Many economists and political scientists who study public choice agree<br />
that political decision making must be constrained by overarching<br />
constitutional rules. But as the American experience demonstrates, even a<br />
government that is supposed to be tightly constrained by constitutional rules<br />
and limited powers soon enough becomes a government that ignores<br />
constitutional rules. The power of concentrated benefits to the few, with<br />
costs widely dispersed across the many, is evidently difficult to impossible<br />
to impede. Regardless of written laws, we always have a government of<br />
men, not a government constrained by laws.</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-56813263023861809712015-04-13T16:51:00.001-04:002015-04-14T13:49:06.244-04:00Who Bears the Burden of the Income Tax on Corporations?<div dir="ltr" style="text-align: left;" trbidi="on">
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<b style="mso-bidi-font-weight: normal;">Who Bears the Burden
of the Corporate Income Tax?</b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
No other question in the arena of public finance is as
controversial as “who bears the burden of the corporate income tax.<span style="mso-spacerun: yes;"> </span>Economists who specialize in public finance
simply don’t know.<span style="mso-spacerun: yes;"> </span>So, if you encounter
an economist who says he does know, you will know you have found an economist
who says more than he knows!</div>
<div class="MsoNormal">
<br />
The first fact to get on the table right at the beginning is
that <i style="mso-bidi-font-style: normal;">only people pay taxes</i>.<span style="mso-spacerun: yes;"> </span>Corporations <i style="mso-bidi-font-style: normal;">remit</i> taxes, of course, based on income that they earn (a.k.a., net
income or profits), but that does not mean that corporations (which are not
persons) bear the burden of taxation of corporate income.<span style="mso-spacerun: yes;"> </span>By now in this course, we are familiar with
the difference between tax incidence and tax liability.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Whoever it is that bears the burden of taxation of corporate
income, those persons will get to spend (or save) less each year than they
otherwise would, if the United States did not tax income earned (a.k.a.,
earnings or profits) by businesses registered with the IRS as C corps.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>Only persons
from three broad categories could possibly bear the burden.<span style="mso-spacerun: yes;"> </span>They are (1) shareholders of a corporation
(owners of the corporation), (2) owners of the factors of production (land,
labor, and capital), which the corporation pays to use, (3) persons who buy
goods or services from the corporation (consumers).<span style="mso-spacerun: yes;"> </span>Consequently, I am absolutely certain that I
do not bear any burden of the income tax paid by GM, since I am not a
shareholder, I do not sell GM factor services that I own, and I do not buy GM
products.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Students of public finance will recall that people who have few options to
avoid a taxed activity (such as earning income or buying cigarettes or buying insulin) will end
up bearing all or part of the burden of any tax, regardless of who actually has legal
liability to collect and remit the tax.<span style="mso-spacerun: yes;">
</span>Economists say that such persons have “inelastic” demand (or supply)
curves for the activity.<span style="mso-spacerun: yes;"> </span>Perfectly
inelastic demand or supply curves result in complete bearing of the burden of a
taxed activity in which one engages.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So,
if I must work to live, and if the politicians tax wage income, then I will
bear nearly all the burden of a tax on my wages.<span style="mso-spacerun: yes;"> </span>On the other hand, if I am independently wealthy,
and the politicians tax wage income, I can avoid bearing part of the burden of
a tax on wage income by reducing the hours I work for pay, up to and including
not working for wages at all!</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I am really confident that shareholders bear the immediate
burden of a new or a raised tax on corporate income in the economic short
run.<span style="mso-spacerun: yes;"> </span>They do so because the corporation
will remit money to the government that would otherwise have gone directly to
shareholders equity (retained earnings) or would otherwise have been paid
directly to the shareholders as dividends.<span style="mso-spacerun: yes;">
</span>Following the imposition of a new or a raised tax, corporations will not
have time to raise the price of their products to shift the tax forward to
consumers, nor will they be able to shift the tax backward to employees by
reducing their wages and salaries, nor will they be able to shift the tax
backward to owners of land they are renting by negotiating a lower rent, nor
will they be able to reduce what they are paying for any other factor of
production.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="mso-spacerun: yes;"></span>But in the economic
long run (after people make all the adjustments to a new tax they care to
make), I think that consumers of goods and services sold by corporations bear
most of the burden of taxation of corporate earnings.<span style="mso-spacerun: yes;"> </span>I cannot be sure, though, because the lived
world does not allow economic researchers to conduct an experiment that can
appropriately hold everything else constant while we impose a new tax and
measure everyone’s income before and after the new tax, after an appropriate
amount of time has passed to allow everyone to make all the adjustments they
care to make.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="mso-spacerun: yes;"> </span>But we can be sure
that given enough time, shareholders (who are supplying capital to finance
activities of corporations) will reduce the quantity of money (capital) they
supply, if the rate of return to holding shares of corporations is lower than
the rate of return such savers (a.k.a., investors) can earn through some other
activity.<span style="mso-spacerun: yes;"> </span>Alternatives to holding shares
of stock in a corporation abound.<span style="mso-spacerun: yes;"> </span>One
can buy gold, paintings by Monet, farm land in the Midwest, corporate bonds,
silent partnerships in non-corporate forms of business, etc.<span style="mso-spacerun: yes;"> </span>Investors (a.k.a., savers) do not have to buy
shares of stock in <span style="mso-spacerun: yes;"> </span>C corporations in the
United States.<span style="mso-spacerun: yes;"> </span>Capital always flows to
the highest bidder (of equal risk), given enough time, just like water seeks
the lowest level.<span style="mso-spacerun: yes;"> </span>So, owners of capital
have options for avoiding the corporate income tax.<span style="mso-spacerun: yes;"> </span>It’s hard to imagine how shareholders will
end up bearing the burden in the economic long run.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What about employees of corporations?<span style="mso-spacerun: yes;"> </span>Can owners of a corporation (shareholders)
push the burden of the corporate income tax backward to its employees, by
reducing their pay (or by withholding future raises as inflation occurs)?<span style="mso-spacerun: yes;"> </span>Or, can employees just work somewhere else,
should owners of the corporation try to shift the tax?<span style="mso-spacerun: yes;"> </span>Do employees have options to avoid the
backward pushing?<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At this point, I want to point something out.<span style="mso-spacerun: yes;"> </span>Shareholders do not meet somewhere and vote
whether or not to try to shift the income tax levied against their
corporation.<span style="mso-spacerun: yes;"> </span>Moreover, employees have no
way of knowing whether their wages and salaries are not rising fast enough to
avoid getting some of the burden pushed back to them.<span style="mso-spacerun: yes;"> </span>The very language that economists use to talk
about shifting tax incidence is actually a little silly, since any tax shifting
that occurs is completely hidden from view and takes an unknown amount of time
to occur, if it does occur.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What about consumers who purchase the products of
corporations?<span style="mso-spacerun: yes;"> </span>In the economic long run,
can corporations simply raise their prices to shift the burden of their income
tax forward to consumers?<span style="mso-spacerun: yes;"> </span>I think that
corporations can and do just that.<span style="mso-spacerun: yes;"> </span>After
all, businesses must be able to recover all the costs of production, plus a
competitive profit to compensate owners of the business, in the economic long
run.<span style="mso-spacerun: yes;"> </span>Businesses that cannot cover all
the costs of production will quit producing, in the economic long run.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
From the point of view of a business owner, paying taxes is just
like paying the electric bill.<span style="mso-spacerun: yes;"> </span>Taxes can
be thought of as a slip of paper that says “you paid your taxes,” which slip of
paper is required to produce and sell, and which is just another cost of doing business.<span style="mso-spacerun: yes;">
</span>Consequently, I think that in the economic long run, prices of goods and
services produced by corporations adjust upward to include the complete burden
of the corporate income tax, thereby shifting the burden of the tax to people
who buy those products.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But, I will conclude by repeating that I cannot know
for sure, nor can any other economist.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></div>
</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-63414253859489088852015-03-12T17:22:00.000-04:002015-03-24T19:07:43.359-04:00What Is the Burden of Federal Debt?<div dir="ltr" style="text-align: left;" trbidi="on">
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<div class="MsoNormal">
<span style="font-size: small;"><span style="font-family: Times;">"We
owe it to ourselves" was the common refrain that I heard from my
professors as an undergraduate and graduate student about federal debt. Here are some questions that might help clear up whether growing federal debt is a serious problem.</span></span></div>
<ol start="1" type="1">
<li class="MsoNormal"><span style="font-size: small;"><span style="font-family: Times;">Does outstanding federal debt ever have to be repaid?</span></span></li>
<li class="MsoNormal"><span style="font-size: small;"><span style="font-family: Times;">If federal debt were repaid, who would do the paying,
and who would receive the payment?</span></span></li>
<li class="MsoNormal"><span style="font-size: small;"><span style="font-family: Times;">If federal debt does not have to be repaid, the U.S.
Treasury still has to pay interest to whoever holds Treasury bills and
bonds. What are the economic implications of interest on the
debt? Who bears the burden of paying the interest and who benefits
from receiving those interest payments?</span></span></li>
</ol>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">So far, federal debt has not been repaid.<span style="mso-spacerun: yes;"> </span>In fact, federal debt has been growing for
decades.<span style="mso-spacerun: yes;"> </span>You and I could not
continuously expand our debt, but the U.S. Treasury is different.<span style="mso-spacerun: yes;"> </span>Because Congress can tax and because the Fed
can create new money, the U.S. Treasury has a much larger capacity to repay
debt (if it had to) and to pay interest on outstanding debt (which it must do
to avoid default).<span style="mso-spacerun: yes;"> </span>As long as the real
economy continues to grow, federal debt does not have to be repaid, and it
seems quite unlikely at present that all federal debt will ever be retired by
repayment of principal.</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">If federal debt were repaid, repayment could come from only
two possible sources: (1) taxes collected in excess of federal spending and (2)
money creation.<span style="mso-spacerun: yes;"> </span>If taxes in excess of
federal spending were the case (a federal budget surplus), tax payers would be
the payers and holders of maturing Treasury bonds would be the recipients.<span style="mso-spacerun: yes;"> </span>I pay taxes, but I don’t own much in the way
of Treasury bonds, so I guess I would be a payer, not a receiver.<span style="mso-spacerun: yes;"> </span>How about you?</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">If federal debt does not have to be repaid, the Treasury
still has to pay interest on outstanding debt.<span style="mso-spacerun: yes;">
</span>Interest on outstanding debt can be paid from one of three sources: (1)
taxes collected in excess of federal spending, (2) money creation, and (3)
additional debt.<span style="mso-spacerun: yes;"> </span>Obviously, people who
own Treasury bonds are the beneficiaries of interest payments.<span style="mso-spacerun: yes;"> </span>It isn’t obvious at all who bears the burden
of making those interest payments.</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Tax payers are not currently bearing a burden to pay
interest on outstanding federal debt, because federal spending continues to
exceed tax collections.<span style="mso-spacerun: yes;"> </span>That fact means
that interest is paid through money creation (when the Fed buys U.S.
Treasuries) and by issuing additional debt, which expands outstanding debt, of
course.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The real burden of federal debt is the value forgone by
using scarce resources in ways they would not have been used, aside from the
government’s borrowing.<span style="mso-spacerun: yes;"> </span>If government’s
use of those scarce resources also creates value, then what we are getting is a
transfer of value from Bobby to Annie, with maybe a net loss and maybe a net
gain.<span style="mso-spacerun: yes;"> </span>Transfers of value from one person
to another cannot be objectively measured to see if we got a net gain.</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">If government’s use of scarce resources did not create value
for anyone, but nonetheless caused a loss of value for someone, we end up with
inefficiency and a net loss.<span style="mso-spacerun: yes;"> </span>But most
government spending benefits someone, somehow, and once again, because
interpersonal comparisons of value are not really possible, we are hard pressed
to say much more.</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">If government control of scarce resources diverts resources
away from production of capital goods that would otherwise have occurred, it is
possible that growth of the real economy could be retarded.<span style="mso-spacerun: yes;"> </span>If growth of the real economy is retarded,
that reduces future consumption opportunities below what they otherwise could
have been.<span style="mso-spacerun: yes;"> </span>Economists who study this
phenomenon have been unable to reach what everyone takes to be conclusive,
persuasive evidence about this issue.<span style="mso-spacerun: yes;"> </span>In
other words, no one has been able to persuade lots of economists one way or the
other about whether government control of scarce resources has retarded growth
of the economy, although any number of economists make statements about it one
way or the other.</span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The expression “we owe it to ourselves” is pretty silly,
really.<span style="mso-spacerun: yes;"> </span>Some part of federal debt (about
40%) is debt held by private citizens of America.<span style="mso-spacerun: yes;"> </span>Interest payments on that internal net debt
amounts to a transfer of purchasing power to the owners of that debt.<span style="mso-spacerun: yes;"> </span>Although the payers of that interest are
Americans, as are the recipients of those interest payments, “we” are not
“ourselves.”<span style="mso-spacerun: yes;"> </span>In other words, growing
federal debt means growing transfer of purchasing power over goods and services
to people who lend to the federal government.<span style="mso-spacerun: yes;">
</span>So, even internally held federal debt may pose some issues about which
people will have normative opinions.<span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">For that part of federal debt that is held externally (by Japanese
citizens in large measure, and by other citizens of the rest of the world),
interest payments on U.S. federal debt enlarge their consumption
opportunities.<span style="mso-spacerun: yes;"> </span>But it is far from clear
that those interest payments reduce the consumption opportunities of
Americans.<span style="mso-spacerun: yes;"> </span>The evidence so far is that
the standard of living of nearly all Americans continues to rise. </span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">So, should we worry about growing federal debt?<span style="mso-spacerun: yes;"> </span>Yes, if the real rate of growth of our
economy is retarded, and no, if it is not.<span style="mso-spacerun: yes;">
</span>I am persuaded that we do not really know, but nearly everyone has a
normative opinion about the wisdom or stupidity (whichever it is) about growing
federal debt. <span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<div class="MsoNormal" style="mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<br /></div>
<div class="MsoNormal">
<br /></div>
</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-4969046582968476782015-01-23T15:43:00.000-05:002015-03-12T17:25:41.302-04:00Whither the Welfare State?<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://dl.dropboxusercontent.com/u/26374965/George%20Will%3A%20The%20harm%20incurred%20by%20a%20mushrooming%20welfare%20state%20-%20The%20Washington%20Post.pdf" target="_blank">Here</a>, George Will provides an accurate and succinct description of the growth of the welfare state in America over the past three or four decades. As usual, Mr. Will gets it right and offers entirely thoughtful comments.<br />
<br />
Unless I misread his intent, Mr. Will is less than happy about the growth of transfer payments now received evermore broadly by Americans who would not be considered "needy." Although I rarely find myself at odds with the ideas of George Will, I will offer a different perspective for explaining continuing growth in the welfare state in America and in other developed countries of the world.<br />
<br />
The American economy continues to grow at a modest pace (about 2% per year over the long haul), which is far more impressive than pundits seem to think. Our GDP weighs in at about $17 trillion per year, which is really a huge economy. China is second at about $9 trillion per year. Japan is third these days at about $5 trillion per year. <br />
<br />
Even a small rate of growth for something as large as the American economy generates impressive gains in income per household. Two percent of $17 trillion is about $340 billion. If that $340 billion were divided equally among the approximately 118 million households in America, just 2% growth in GDP per year would bring an additional $2,800 per year to each household. Or, examined on a 10-year period (which government types are fond of doing), a $31,500 increase in household income over the 10-year period, accounting for compound growth.<br />
<br />
Of course, annual gains in GDP are not earned equally across all 118 million American households. The widening gap between annual income of the top quartile and the bottom quartile of households in America is frequently the topic for hand wringing by those who call themselves progressives.<br />
<br />
Mr. Will writes in his essay,<br />
<blockquote class="tr_bq">
"America’s national character will have to be changed if progressives are going to implement their agenda. So, changing social norms is the progressive agenda." </blockquote>
He is correct, of course. But I propose that we all might as well get used to a sea change in America's national character and its social norms. Let me explain.<br />
<br />
In a word, "technology." The widening income gap between the top and bottom of the statistical income distribution in the United States (and in other developed countries) is pretty much a direct result of advances in technology, in my judgment.<br />
<br />
People who own income streams generated by creating technological advances (e.g., Bill Gates), or by owning income streams generated by astute use of technology (e.g., many IT employees across the nation), enjoy high and rising income. People who own only their labor, made evermore obsolete by advancing technology, suffer from low and falling income. Hence, the expanding income gap between those who benefit from advancing technology and those who don't.<br />
<br />
Tyler Cowan has written a book <i><a href="http://www.amazon.com/Average-Is-Over-Powering-Stagnation/dp/0525953736" target="_blank">Average is Over: Powering America Beyond the Age of the Great Stagnation </a></i> that explores many implications of the truth that advancing technology is making common labor obsolete for production of goods and services in our economy. But people who own nothing other than common labor services must somehow keep body and soul together.<br />
<br />
The answer is not "work harder," as any number of pundits on the right are wont to expound. Nor is the answer "get more education," as any number of politicians and academicians have advised. The simple truth is that an ever-rising number of people are not now capable of and will not become capable of inventing advanced technology, or becoming astute users of advanced technology.<br />
<br />
Advancing technology makes it ever more possible to produce greater quantities and better qualities of goods and services with less human labor. In the United States, our creation and use of advancing technology has already enabled us to transfer about 14% of annual GDP from people who earn it to people who did not earn it each year. Although many lament such expansive transfer payments, the amazing thing is that it is possible to make such transfers while the standard of living for the payers of those transfers continues to rise!<br />
<br />
Think for a minute of all the people who have jobs that literally could be done without. I can easily think of tens of people I know whose job falls into that category. Even what I do, which is teach economics and finance to college students, is quick on its way to falling into that category! Yes, even college teachers will be replaced in the fullness of time with advanced technology. <br />
<br />
On the one hand, advancing technology that permits a rising standard of living for everyone on the planet is a good thing. On the other hand, most of us will not be inventors of that technology, nor will we be astute users of it, which means that most of us will have declining work-based claims on goods and services as technology continues to advance. Yet, we will still want to eat, be clothed, be sheltered, and enjoy life.<br />
<br />
Yes indeed, America's national character and social norms will definitely have to change. They have been changing for decades, and they will continue to change. The challenge we and other developed countries around the globe face is how to live in a world of abundance --- a world in which advancing technology makes it possible for an ever-growing percentage of GDP to be transferred from those whose current job generated it to those who either have no job or who have a job that is unnecessary for generating goods and services.<br />
<br />
In my own insignificant corner of the world, I continue to add value by what I do because I have been an early adopter of computer technology throughout my teaching career. I became certified in online teaching, for example. I am a fairly astute user of technology. But, still, I am not safe. I can foresee the day when what I do will be unnecessary, due to a combination of clever computing and clever computer programming. Call it a fairly meager advance toward artificial intelligence, which I think is not far off.<br />
<br />
In a world of abundance --- a world in which scarcity of resources has been greatly attenuated --- we face a disconnect between work, income, and wealth. I grew up in an era when hard work and education led to higher income. I grew up in an era when social norms required attention to being a productive member of society. I grew up in an era when national character and social norms dictated that those who would not work hard and obtain an education <i>should not</i> earn much income.<br />
<br />
But what is one to do when what one can do has little productive value? Which of you reading this essay is capable of inventing advanced technology? Which of you is capable of even using advanced technology astutely? And what of technology that is literally just around the corner that we cannot yet even imagine. If you doubt that advancing technology is likely to be the rule, all you need to do is think about the technological advances that have occurred in just the most recent 50 years. David Hume was right in noting that the future is under no obligation to repeat the past. Still, I think the future of advancing technology will be very much like its recent past.<br />
<br />
Technology is advancing at an advancing rate. It's not even linear; it's exponential. Advancing technology is not a bad thing; it is a good thing. But we humans will have to figure out a way for the fruits of advancing technology to benefit all of humanity, not just the inventors and the astute users.<br />
<br />
I will close this essay with an analogy, one that some readers may find offensive, although no offense is intended. My dogs have limited intellectual capacity, even though they appear to have unlimited willingness to please. No amount of hard work or eduction will enable my dogs to learn algebra. If the material well-being of my dogs somehow depended on their learning algebra, they would be toast.<br />
<br />
I submit that George Will and any number of others who lament rising transfer payments in America and around the world may as well get used to a continuing rise. How else will the masses keep body and soul together? How else will most of us enjoy the rising abundance of real goods and services available to humanity?<br />
<br />
I confess that I have no good answers to the questions I just posed. But I think they are questions we must grapple with out in the open, because I absolutely believe that technology will continue to mitigate the ravages of scarce resources. I invite economists around the world to quit talking about scarcity and get on to the challenging business of creating economic theories that embrace abundance and the problems of income distribution in the face of rising abundance --- abundance that is the result of a very small number of persons, compared to the population of earth.<br />
<br />
I am a confirmed classical liberal, as readers of EconoBlast have surely noticed. I believe fervently in individual liberty. My recently published book, <a href="http://www.amazon.com/dp/B00KD153G2" target="_blank"><i>Morality and Capitalism</i></a>, is a testament to that fact. When I note that transfer payments in the
United States will be an ever-rising proportion of GDP, it is not
because I favor the progressive policies of the current federal
administration. I have not lost my way, but the path is getting harder to see. <br />
<br />
<br />
<br />
<br /></div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com9tag:blogger.com,1999:blog-5338679290238780332.post-73237721471652951982014-12-07T19:17:00.003-05:002015-08-06T15:51:57.161-04:00Why Is the Federal Budget Chronically in Deficit?<div dir="ltr" style="text-align: left;" trbidi="on">
<div dir="ltr" style="text-align: left;" trbidi="on">
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"> The federal government budget of the United
States is chronically in deficit.<span style="mso-spacerun: yes;"> </span>Almost
unimaginably, the federal deficit topped $1 trillion in each of the years
2009-2012.<span style="mso-spacerun: yes;"> </span>Total federal debt tops $17
trillion.<span style="mso-spacerun: yes;"> </span>Promised federal spending for
Social Security and Medicare exceeds projected tax collections by more than
$100 trillion!<span style="mso-spacerun: yes;"> </span>Since 1940, the federal
budget was not in deficit in only eight years.<span style="mso-spacerun: yes;">
</span>And in those years of surplus, highly questionable accounting was
usually involved.</span><br />
<br />
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">
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<br />
<div class="MsoNormal">
1) Why is the federal budget typically in deficit?</div>
<div class="MsoNormal">
2) What are the real costs and consequences of federal budget
deficits?</div>
<div class="MsoNormal">
3) What could be done to stop systematic deficits and
ever-expanding federal debt?</div>
<br />
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<div class="MsoNormal">
Democracy, combined with the political institution of
majority rule (let's call it MRD for short), has a built-in flaw.<span style="mso-spacerun: yes;"> </span>Under MRD, small minorities with much to gain
get their way against large majorities with only a little to lose.<span style="mso-spacerun: yes;"> </span>The problem is large, concentrated benefits
combined with small, dispersed costs.<span style="mso-spacerun: yes;">
</span>For example, wheat farmers in Kansas, who each have thousands of dollars
in benefits to gain from a wheat price support program, will lobby loud and
long for the program, but each of the rest of us, who each have only pennies to
lose if wheat support programs become law, will scarcely pay attention at all.<span style="mso-spacerun: yes;"> </span>Each of the rest of us won't spend our scarce
time and money to fight the farm bill handout to wheat farmers, funded by
federal expenditures.<span style="mso-spacerun: yes;"> </span>And so it goes
with every special interest.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
Politicians prosper and get reelected by handing out
benefits to supporters who finance campaigns.<span style="mso-spacerun: yes;">
</span>A wheat farmer in Kansas has every incentive to donate $1,000 to reelect
a politician who will vote for wheat price support.<span style="mso-spacerun: yes;"> </span>Each of the rest of us are quite unwilling to
donate $1,000 to elect a politician who will vote against the program.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Politicians also prosper and get reelected by voting for
laws and policies that produce highly visible short run benefits, but generate
costs that are mostly invisible, dispersed across millions of citizens, and
deferred to the distant future.<span style="mso-spacerun: yes;"> </span>The most
obvious and largest examples of this phenomenon is Medicare and the evolving
PPACA (a.k.a., Obamacare).<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Federal expenditures can be financed in just three ways:
taxes, borrowing, and money creation.<span style="mso-spacerun: yes;">
</span>Politicians' propensity to favor borrowing and money creation is no
mystery.<span style="mso-spacerun: yes;"> </span>By the way, borrowing is
deferred taxes; money creation is the most insidious, least visible, and most
widely dispersed form of taxing.<span style="mso-spacerun: yes;">
</span>Pernicious and growing federal debt—in America and around the
world—really poses no mystery at all.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The real costs and consequences of ever-rising federal debt
are ever-growing command of scarce resources by a small number of politicians
instead of by a large number of private individuals.<span style="mso-spacerun: yes;"> </span>In EconoBlast, we have often discussed how voluntary exchange (a.k.a., free markets), generate prosperity and
social coordination.<span style="mso-spacerun: yes;"> </span>We have also
learned how centralized control of scarce resources generates concentrated
benefits, dispersed costs, and prosperity for special interest minorities.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Systematic federal deficits and ever-expanding federal debt
could be stopped.<span style="mso-spacerun: yes;"> </span>I offer four proposals
that would end the problem.<span style="mso-spacerun: yes;"> </span>First, the
political institution of MRD could be replaced with SMRD—super majority rule
democracy.<span style="mso-spacerun: yes;"> </span>SMRD would require that no
law could be passed by Congress without a 4/5ths majority.<span style="mso-spacerun: yes;"> </span>Second, we could prohibit individuals from
serving more than a single term in Congress.<span style="mso-spacerun: yes;">
</span>Third, we could give Congress a budget constraint, stipulating that the
federal government cannot spend more than 20% of the average of the most recent
three years nominal GDP. Fourth, we could end creation of new money under the
direction of just seven people—the Board of Governors of the Federal Reserve,
replacing discretionary monetary policy with a money growth rule.</div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">With SMRD, very few if any laws could be passed
that concentrate benefits on small minorities, but disperse costs across the
rest of us.<span style="mso-spacerun: yes;"> </span>With single-term members of
Congress, special interest groups would lose their incentive to finance
campaigns for politicians who promise to butter the bread of the special
interest group.<span style="mso-spacerun: yes;"> </span>With a federal budget
constraint tied to GDP, politicians would have to make choices about how to
spend tax dollars, instead of deferring taxes with debt and money
creation.<span style="mso-spacerun: yes;"> </span>Finally, with a monetary
growth rule, the growth rate of the money supply would be limited to a rate
that makes inflation impossible and promotes wide-spread social cooperation
based on knowledge instead of deception.</span><br />
<br />
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"> If we the people do not have the persistence to insist on fundamental changes, such as the four proposed above, we should stop complaining and just get used to federal deficit spending with no end in sight. Each and everyone of us can enforce term limits simply by not voting for an incumbent politician, regardless of who it is. It's a start. </span><br />
<br />
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"> The other three fundamental changes I propose would require the help of Congress, and perhaps even constitutional amendments. But politicians who will serve but a single term might just become statesmen, instead of career practitioners of cronyism. It's worth a try. </span>
<br />
<span style="font-family: "Cambria","serif"; font-size: 12.0pt; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "MS 明朝"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"> </span>
</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-75410387628015986572014-06-01T12:13:00.000-04:002020-02-26T20:33:40.343-05:00Inflation Explained in Plain English<div dir="ltr" style="text-align: left;" trbidi="on">
<b>What is Inflation?</b><br />
<br />
Price inflation is a sustained increase in the weighted average of prices for all goods and<br />
services. Inflation in the United States has generally been positive, not zero or negative. <br />
<br />
We use price indexes to measure the rate of change in the average money price level. Three<br />
widely used price indexes are the Consumer Price Index (CPI), which measures the average<br />
price of a defined set of consumer goods, the Producer Price Index (PPI), which measures the<br />
average price of a defined set of producer goods and services, and the GDP Deflator, which<br />
measures the average price of all goods and services for the entire economy.<br />
<br />
We construct a price index based on a well defined basket of goods and services. For example,<br />
the CPI is defined for a basket of goods and services typically bought by consumers. We<br />
calculate the average money price of the set of goods as a weighted average. We use expenditure<br />
shares of goods in the basket of goods and services for the weights. The weighted average price<br />
for the basket of goods and services can be compared over time to measure the rate inflation.<br />
Any particular measure of inflation may be broadly defined or more narrowly defined, depending<br />
on the definition of the basket of goods and services included in the price index.<br />
<br />
<b>Effects of Inflation</b><br />
<br />
If everyone could correctly forecast the rate of inflation (clearly not possible), and if adjustments<br />
to anticipated inflation were costless (also clearly not possible), then inflation might not be much<br />
of a problem. But unanticipated inflation always creates gainers and losers in the economy.<br />
Some people like inflation; others don’t. Here is a list of effects that inflation may cause.<br />
<br />
• Uncertainty about future purchasing power of money can retard economic activity in<br />
general. Think about how difficult it is to plan for the future if the purchasing power of<br />
your dollars keeps changing and you can’t accurately forecast how much it will change.<br />
It’s rather like trying to measure a distance when the length of a meter or a yard stick<br />
keeps changing in unanticipated ways.<br />
<br />
• Redistribution of wealth:<br />
<br />
* Inflation can redistribute income away from people who are on fixed incomes,<br />
such as pensioners, toward people whose income will adjust upward with<br />
inflation, such as current workers.<br />
<br />
* Unanticipated inflation can redistribute wealth away from those who lend to those<br />
who borrow. But if borrowers and lenders can correctly anticipate future inflation,<br />
the nominal rate of interest they negotiate will include an inflation premium, such<br />
that Nominal interest rate = Real interest rate + expected rate of inflation<br />
<br />
• Changes in Exchange Rates: If the U.S. rate of inflation were higher than the rate of<br />
inflation in Japan, the value of the dollar will tend to fall relative to yen, other things<br />
unchanged, which means the dollar-yen exchange rate would be rising and it would take<br />
more dollars to buy one yen in the foreign exchange market. Of course, many other<br />
factors affect exchange rates, so relative rates of inflation are not the whole story of<br />
changes in exchange rates. Unanticipated changes in exchange rates can cause changes in<br />
trade flows between countries. When the dollar loses value compared to the yen,<br />
Japanese companies import more goods and services from United States producers. U.S.<br />
companies import less Japanese goods and services from Japan. Some people will like<br />
those changes, others will not.<br />
<br />
• Shoe leather costs: These are costs incurred by households and businesses trying to<br />
protect themselves from loss of purchasing power of money. An example would be<br />
spending time hunting for a checking account that pays a higher daily rate of interest on<br />
demand deposits.<br />
<br />
• Menu costs: These are costs incurred by firms that must advertise or post new prices as<br />
inflation occurs. Advertising and posting are not free.<br />
<br />
• Relative Price Distortions: Some prices in an economy are “sticky,” which means they<br />
change more slowly than others during an inflationary episode. If all money prices (a.k.a.<br />
nominal prices) don’t rise at the same rate during inflation (and they certainly don’t), then<br />
relative prices will be distorted by inflation, causing distorted impressions of relative<br />
value. Such distortions can cause households and business to make different economic<br />
choices than they would make in the absence of inflation.<br />
<br />
• Tax Bracket Creep: Inflation pushes some people into higher income tax brackets (since<br />
money incomes also rise with inflation), raising their marginal tax rates even though their<br />
real income (a.k.a., inflation adjusted income) may be unchanged. People who believe<br />
that Congress should control more of the nation’s GDP probably like this effect. People<br />
who believe that the Congress already controls too much of the nation’s GDP probably<br />
don’t.<br />
<br />
<b>What Causes Inflation?</b><br />
<br />
The answer to this question has been debated long and loud among economists and non-economists. Before we begin to think about this question, let’s be sure we understand that inflation is a sustained increase over time in the weighted average of all money prices. So, if the money prices of oil and health care are rising, but all other money prices are staying the same or even falling, that is NOT inflation, even though the newspapers will doubtlessly call it inflation.<br />
<br />
To begin to think about what causes inflation, think first about whether we could have inflation<br />
in an economy that did not use money. Clearly, such an economy could not have inflation, since<br />
all exchange of goods and services would occur through barter, and all things bartered would be<br />
real things. We would not even have money prices in such an economy. So, by definition, we<br />
could not have a sustained increase in the average of all money prices! Relative prices (i.e.,<br />
“real” prices), by the very idea of what we mean by the term “relative prices,” cannot possibly all<br />
rise at the same time. The statement “a rise in all relative prices” simply has no meaning. Don’t<br />
think about it too long, since it has no meaning. This line of reasoning should convince you that<br />
inflation is “always and every where a monetary phenomenon,” just as Nobel laureate Milton<br />
Friedman said. Although a complete understanding of inflation is a bit more complicated,<br />
Milton Friedman’s observation is a good place to start.<br />
<br />
Since inflation is always a monetary phenomenon, we will want to think about the supply of<br />
money and the demand for money to understand what causes inflation. In other words, we will<br />
want to think about how much money there is compared to how much money people want. If<br />
more money exists than people want, people make behavioral adjustments. The same is true if<br />
less money exists than people want.<br />
<br />
When we talk about money, the term “demand for money” does not mean demand to spend<br />
money. Just the opposite. Demand for money means demand to “have and hold” money in an<br />
inventory (such as in your wallet or in your bank account). That’s just the opposite of spending<br />
money. We all want to spend lots of money; maybe even an unlimited amount of money in the<br />
aggregate. But none of us want to hold an unlimited amount of money in our wallet or in our<br />
bank account or even in our saving account. Keep this point clearly in mind; the demand for<br />
money is a demand to have and hold money in an inventory, not a desire to spend money.<br />
<br />
If the quantity of money that exists is equal to the quantity of money that people want to hold as<br />
an inventory of money, then the average money price level will not tend to be changing either up<br />
or down. Put another way, if the quantity of money that exists equals the “demand” for money,<br />
then the weighted average of all MONEY prices would not be changing, even though some<br />
RELATIVE prices might be changing. Remember, inflation is about rising MONEY prices, not<br />
about a rising relative price for one or even many goods or services.<br />
<br />
Let MS denote the quantity of money in existence in our economy. Remember that the quantity<br />
of money for the most part includes currency in circulation (the money in your wallet) plus<br />
demand deposits (i.e., balances in checking accounts of all kinds), and savings accounts that can<br />
quickly be converted to demand deposits without loss of value. Let MD denote the quantity of<br />
money we demand (i.e., how much money we want to hold in inventory, not spend). If<br />
MS = MD, then the average of all money prices will not tend to be rising or falling. The reason<br />
this result is so is that no behavioral tendencies would be present that would cause all money<br />
prices to either fall or rise. The supply and demand for money would be in equilibrium. So, as<br />
we will see below, inflation is the result of a disequilibrium condition.<br />
<br />
If MS > MD, then people have more money in their inventories (i.e., wallets and bank accounts)<br />
than they want to hold. Keep in mind that people have to hold all the money that exists. If you<br />
decide you have more money in inventory than you want, what will you do? To keep from<br />
holding the money you don’t want, you will either buy something, destroy the money, or give it<br />
to someone else. Guess what most people do?<br />
<br />
They might buy a good or service, or they might buy a financial asset, such as a stock or a bond. But they will buy something instead of continuing to hold money they don’t want to hold. In the aggregate, as lots of people try to buy something at the same time, they will collectively be bidding up the money prices of the stuff they are trying to buy, since there is no immediate increase in the amount of stuff they are trying to buy. That means we have behavior that will tend to cause money prices of lots of stuff to rise, even if the relative prices of stuff are not changing (which would be the case if all money prices are rising by the same percentage).<br />
<br />
As the average price level rises, the quantity of money that people want to hold in inventory begins to rise, simply because people will need more money at the ready to transact expenditures they want to make—expenditures that now take more money, because money prices are higher. If the quantity of money in existence didn’t keep rising, eventually the inflation would stop when the quantity of money people want to hold had risen enough that the quantity of MS equals the quantity of MD. All the money in existence must be held by someone, so it is quantity of MD that adjusts to restore equilibrium, if the quantity of MS is not changing.<br />
<br />
If MS < MD, then people do not have as much money in inventory (i.e., in their wallets or their<br />
bank accounts) as they would like to have. If you decide you do not have enough money in<br />
inventory, what will you do? You can’t create money yourself. Bottom line; you will sell<br />
something to get money or you will refrain from buying so much stuff so you can hold on to the<br />
money you already have. Such actions would increase the average quantity of money you hold<br />
in inventory over time. In the aggregate, lots of people will be trying to sell assets they own, or<br />
they will be refraining from buying stuff that’s for sell. That creates downward pressure on lots<br />
of money prices of goods and services in the economy, and the weighted average of all money<br />
prices begins to decline or at least doesn’t grow as fast. <br />
<br />
As an empirical matter (i.e., historical data show it), aggregate demand for money is a rather<br />
stable proportion of real aggregate production (which is the same thing as real aggregate income.<br />
The adjective “real” means just what you think it does; it’s real, not just a nominal or monetary<br />
phenomenon. Think of it this way. If the money price of a cheeseburger is $2, then the nominal<br />
value of the cheeseburger is $2 x 1 cheeseburger = $2. But the real part is just 1 cheeseburger.<br />
So real aggregate output is a measure of real stuff that gets produced. The terms “real output”<br />
and “real income” refer to the enormous pile of real stuff that we produce in a year. The terms<br />
“nominal output” and “nominal income” refer to money value of that enormous pile of stuff,<br />
valued at current money prices.<br />
<br />
Certainly, as real output rises with population growth and improvements in technology of<br />
production, the demand for money does tend to rise. But the demand for money does not tend to<br />
rise or fall over the long term if real output is not rising. In other words, people don’t usually<br />
just wake up one morning and suddenly want to hold larger inventories of money unless their<br />
real incomes are rising. Short-term fluctuations in the demand for money can and do occur, but<br />
they tend to offset one another over time. For example, if you are planning to buy a house, you<br />
might hang on to a larger inventory of money for a while, but after you buy the house, you don’t<br />
want that larger inventory of money any more. The long-term secular trend for growth in MD is<br />
due mainly to rising aggregate output.<br />
<br />
If you are following this reasoning, it should now be clear that a sustained rise over time in the<br />
weighted average money price across all goods and services must be due to sustained growth in<br />
MS that is greater than growth in MD, causing MS > MD to persist over time. For that to happen,<br />
the quantity of MS must keep growing, since the quantity of money demand will be also be rising<br />
as the average price level rises. If whoever it is that controls the supply of money (that would be<br />
the Fed in the United States) keeps increasing MS faster than MD is increasing, the average price<br />
level keeps rising. That outcome is what we call price inflation.<br />
<br />
Now, some people might want to split hairs and argue that we COULD have other forces that<br />
causes MD to fall (causing MS > MD even though MS is not rising) or cause MD to rise at a rate of<br />
growth less than the prevailing rate of growth in real aggregate output while the monetary<br />
authority is increasing MS at the rate of growth of real aggregate output, either of which would<br />
also result in MS > MD and thus inflation. While that COULD be the case, in the lived world,<br />
that doesn’t happen much, and it certainly doesn’t happen in a sustained way over long periods<br />
of time.<br />
<br />
Bottom line—inflation is caused by the quantity of money growing faster than real aggregate<br />
output. The next question would be why does the Fed cause MS to grow faster than the trend rate<br />
of growth in real aggregate output? It is the Fed that controls what we call the monetary base<br />
(currency+banknotes and coins+ commercial banks' reserves with the central bank), which<br />
means the Fed controls MS. Again, some people might want to split hairs and argue that the Fed<br />
doesn’t have absolute control of MS (for a variety of technical reasons we can’t get into here),<br />
but again, while that COULD be the case, in reality, that doesn’t happen much, and it certainly<br />
doesn’t happen over a sustained, long period of time. Simply put, the Fed controls the quantity<br />
of MS and its rate of growth over time.<br />
<br />
So why does the Fed cause the quantity of money to grow so fast that we get inflation? That’s a<br />
question about motives of particular people (notably, the people that comprise the Fed’s Open<br />
Market Committee, which is led and influenced by the Chair of the FOMC, Janet Yellen, just<br />
now in 2008).<br />
<br />
Like everyone else, the Fed cannot accurately predict the rate of growth of real aggregate output.<br />
The Fed certainly cannot predict short-term fluctuation in real aggregate output—things like<br />
hurricane Katrina or 9-11—even if it could predict the long-run trend. If the Fed overestimates<br />
the rate of growth of real aggregate output persistently, then it might cause MS to grow too fast.<br />
So, the Fed simply might make mistakes. But mistakes should be short-run mistakes, not<br />
persistent mistakes that get repeated year after year. If inflation were simply the result of<br />
mistakes, we would expect to see both inflation and deflation over the long term. We don’t; we<br />
see only inflation over the long term.<br />
<br />
The Fed also does not want to cause deflation because falling prices are generally not seen as a<br />
good thing by producers and sellers of goods and services, or by workers who would see their<br />
wages decline if we had persistent deflation. This predisposition may be mostly a psychological<br />
thing, a type of money illusion, but still, it generates a bias at the Fed toward a low rate of<br />
inflation instead of a low rate of deflation. Getting a zero rate of inflation most of the time might<br />
just be too difficult to achieve, so the Fed may opt for a low rate of inflation—somewhere<br />
between 2% and 3% per year.<br />
<br />
The Fed may be forced by fiscal policy (i.e., spending and taxing decisions made by Congress<br />
and approved by the President, if not vetoed) to cause the quantity of money to grow too fast to<br />
keep inflation at zero. If Congress spends more than it collects in taxes (which is particularly<br />
likely during times of war, and has been a matter of fact over the past 50 years), then where does<br />
the money to finance federal spending come from? The answer has often enough been “from the<br />
Fed.”<br />
<br />
If the Fed refuses to create the new money to accommodate too much deficit spending conducted<br />
by Congress, what would happen? Interest rates would start rising as Congress borrows more<br />
and more in excess of what households want to lend. The U.S. Treasury can sell all the bonds it<br />
wants to sell, if the rate of interest promised is high enough. Ultimately, loanable funds must<br />
come from saving of households or from money creation (after all, where else could loanable<br />
money come from?). If interest rates rise, businesses will borrow less to finance new plant and<br />
equipment, since the cost of borrowing (i.e., the cost of renting someone else’s money) is higher<br />
at higher rates of interest. As businesses spend less on new plant and equipment, real aggregate<br />
output either grows slower or even declines. That’s called a recession. So, the Fed may decide<br />
the best course of action is to accommodate excessive federal deficit spending by creating money<br />
faster than the rate of growth of real aggregate output. That causes inflation, of course.<br />
<br />
Okay, now I’m going to tell you a less charitable reason the Fed might grow MS faster than the<br />
rate of growth in real aggregate output. Banks make money through the process of money<br />
creation. The more money the Fed allows banks to create, the more money banks make. Does<br />
that suggest a possible bias?<br />
<br />
Is it a good thing or a bad thing that the Fed causes inflation? Well, that’s a normative question.<br />
You’ll have to decide that for yourself. The Fed has done a pretty good job over the last decade<br />
and a half of keeping inflation low and stable. Some folks think higher bank profits is a fair<br />
price to pay for the Fed keeping inflation low and predictable.<br />
<br />
Some people have even less charitable explanations for why the Fed causes persistent, enduring<br />
inflation. Edward Griffin’s The Creature from Jekyll Island presents a particularly disturbing<br />
explanation. Murray Rothbard’s What Has the Government Done to Our Money presents more<br />
reasonable, but still less charitable explanations. Read them both when you can find the time;<br />
they’re out there on the web and easy to find for zero price.<br />
<br />
Bottom line: the growth rate of money supply compared to money demand is the only real<br />
explanation of persistent, enduring inflation. In the United States, the Fed controls the long-term<br />
rate of growth of the money supply. The long term rate of growth of money demand is virtually<br />
the same as the long-term growth rate of real output.<br />
<br />
Draw your own conclusions. If you like inflation—and you might, if you are one of the<br />
winners—you’ll be a fan of the Fed. If you realize, though, that since the Fed’s creation, the<br />
purchasing power of a U.S. dollar has fallen from 100 cents to a bit less than 9 cents, and if you<br />
understand who got the benefit of that decline in purchasing power (mostly government and its<br />
operatives), you might not be a fan of the Fed.<br />
<br />
Can you hear your nest egg shrinking? It’s an ugly sound. With inflation averaging just 3% per<br />
year, the purchasing power of every dollar you save will fall to 50 cents in just 26 years. But<br />
that purchasing power isn’t just vanishing; it’s being usurped by someone—real persons. Who?<br />
You now know enough to figure that out for yourself.<br />
<br />
Copyrighted by David L. Kendall, 2008</div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-13855295546183445882014-02-05T12:08:00.001-05:002020-12-19T15:55:10.878-05:00Minimum Wage Again? You Must Be Kidding<div dir="ltr" style="text-align: left;" trbidi="on">
Below is a reprint of an article that appeared originally in the Austin Business Journal, way back in 1995. Later, in 2007, I updated the article, because the drums were beating yet again to raise the minimum wage. Unbelievably, here we are once again with many people pushing an increase in the minimum wage.<br />
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Times New Roman"; font-size: 14pt; mso-bidi-font-family: "Times New Roman";">Raising the Minimum
Wage:<span style="mso-spacerun: yes;"> </span>Who Benefits, Who Loses?</span></b></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">by David L. Kendall</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">January 26, 2007</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">In 1964 I turned 15 and landed my first real summer job
washing dishes in a restaurant.<span style="mso-spacerun: yes;"> </span>Somehow,
I got the job over several others who also wanted it.<span style="mso-spacerun: yes;"> </span>My first wage was 80¢ an hour—45¢ below the
$1.25 federal minimum wage that year.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">It might take an army of lawyers to figure out whether my
employer was breaking federal law by not paying me minimum wage.<span style="mso-spacerun: yes;"> </span>But legal or not, I was thrilled to work for
80¢ an hour.<span style="mso-spacerun: yes;"> </span>That summer I learned a lot
about holding a job, personal responsibility, and forgoing summer fun with my
friends.<span style="mso-spacerun: yes;"> </span>I even got a raise to 90¢ an
hour after the first month.<span style="mso-spacerun: yes;"> </span>More
important, I earned about $385 over the summer, an enormous sum for me at the
time.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Franklin D. Roosevelt sponsored the first federal minimum
wage legislation with the National Industrial Recovery Act of 1937.<span style="mso-spacerun: yes;"> </span>The Supreme Court declared that act
unconstitutional.<span style="mso-spacerun: yes;"> </span>But undeterred, one
year later Congress legislated a federal minimum wage of 25¢ an hour in the
Fair Labor Standards Act.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">The 1938 act covered wage earners only in industries
involved in interstate commerce.<span style="mso-spacerun: yes;"> </span>But
over the years, Congress amended the law to increase the federal minimum wage
and to extend its reach.<span style="mso-spacerun: yes;"> </span>Federal minimum
wage law now applies to about 70 percent of the work force.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">The drums are beating again in Washington to raise the
federal minimum wage from its current level of $5.15 per hour to $7.25.<span style="mso-spacerun: yes;"> </span>With House Speaker, Nancy Pelosi as chief
drummer, several legislators and pundits are claiming the moral high ground for
wanting to raise the federal minimum wage.<span style="mso-spacerun: yes;">
</span>Supporters argue that $5.15 is not a “living wage,” and therefore, the
moral, ethical thing to do is raise it.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">But is raising the minimum wage the moral high ground?<span style="mso-spacerun: yes;"> </span>Should those who oppose the minimum wage hang
their heads in ethical shame?<span style="mso-spacerun: yes;"> </span>Who will
benefit and who will lose?<span style="mso-spacerun: yes;"> </span>A closer look
and a little reasoning may be helpful.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Myth Number One—unless forced by law to pay higher wages,
businesses will exploit workers, forcing them to accept a low wage.<span style="mso-spacerun: yes;"> </span>The truth is that fewer than 7 million
workers—about 5 percent of the workforce—received wages below $7.25 in 2005.<span style="mso-spacerun: yes;"> </span>Conclusion:<span style="mso-spacerun: yes;">
</span>most wage earners receive wages higher than minimum wage, even though no
law requires it.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Employers are willing to pay more than minimum wage because
they are in business to earn profit.<span style="mso-spacerun: yes;">
</span>Just as most people are willing to pay costs to earn
income—transportation, lunch, and day care expenses, for example—businesses are
willing to pay costs to earn income too.<span style="mso-spacerun: yes;">
</span>In fact, businesses are willing to pay workers whatever wage will
maximize profits.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">But willing or not, employers are not able to pay workers
more than they’re worth.<span style="mso-spacerun: yes;"> </span>The wage
workers are worth per hour in business depends on the value of goods or
services they produce, and how much they are able to produce each hour.<span style="mso-spacerun: yes;"> </span>Fortunately, a huge majority of workers in
America produce goods or services each hour that can be sold for far more than
minimum wage.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">My employer during the summer of 1964 was a good, kind
man.<span style="mso-spacerun: yes;"> </span>But he was also in business for a
living.<span style="mso-spacerun: yes;"> </span>Owning and running a restaurant
was how he and his family earned their income.<span style="mso-spacerun: yes;">
</span>Like any other business—small or large—he had to cover all his costs of
doing business, including a profit for his family’s income.<span style="mso-spacerun: yes;"> </span>Otherwise, he would soon have been out of
business.<span style="mso-spacerun: yes;"> </span>He paid me what I was worth
that summer.<span style="mso-spacerun: yes;"> </span>Had he been forced to pay
me minimum wage, the cost to his business would have been about $600 for the
summer instead of $385.<span style="mso-spacerun: yes;"> </span>Would he have
hired me if the law had required him to pay me more than I was worth?<span style="mso-spacerun: yes;"> </span>Plain sense suggests no.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Myth Number Two—minimum wage law helps the poorest, least
advantaged workers in society.<span style="mso-spacerun: yes;"> </span>Belief in
this proposition may explain why so many Americans favor raising the minimum
wage.<span style="mso-spacerun: yes;"> </span>Much closer to the truth is that
the minimum wage helps one set of “have nots” at the expense of another set of
even poorer “have nots.”<span style="mso-spacerun: yes;"> </span>A simple
example helps explain why.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Suppose that a company is now paying $5.15 an hour for 400
hours of labor supplied by 10 workers, each working 40 hours per week.<span style="mso-spacerun: yes;"> </span>Suppose also that the business is paying 100
other workers various amounts more than minimum wage.<span style="mso-spacerun: yes;"> </span>Raising the minimum wage to $7.25 an hour
would increase this company’s weekly wage bill for the 10 minimum-wage workers
from $2,060 to $2,900, an increase of $840. How will the hypothetical business
respond?<span style="mso-spacerun: yes;"> </span>Let’s consider several options:<span style="mso-spacerun: yes;"> </span>(1) raise prices to consumers, (2) accept
lower profits, (3) reduce wages of workers who earn more than minimum wage, or
(4) lay off some minimum wage workers.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Most employers have no ability to “pass it on” to
consumers.<span style="mso-spacerun: yes;"> </span>If businesses could raise
their product prices anytime they wished, why wouldn’t they already have used
their hypothetical market power to increase profits?<span style="mso-spacerun: yes;"> </span>Raising price to consumers, other things
unchanged, has a predictable outcome—a drop in sales. Our hypothetical business
can ill afford to lose sales.<span style="mso-spacerun: yes;"> </span>After all,
its weekly costs of doing business are up $840, due to the increase in minimum
wage.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">What about accepting lower profits?<span style="mso-spacerun: yes;"> </span>This option seems reasonable to
some—particularly to people who think “profit” is a four-letter word.<span style="mso-spacerun: yes;"> </span>But keep in mind that profit is someone’s
income.<span style="mso-spacerun: yes;"> </span>Is it any more reasonable to
expect employers to accept lower incomes by decree of law than it would be for
you or me to accept lower wages or salaries?<span style="mso-spacerun: yes;">
</span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Which brings us to the third option, reducing wages of
workers who already earn more than the new $7.25 minimum wage.<span style="mso-spacerun: yes;"> </span>Are you and I ready to be one of those
workers?<span style="mso-spacerun: yes;"> </span>Paying some workers less than
they’re worth to allow paying other workers more than they’re worth isn’t
really much of an option.<span style="mso-spacerun: yes;"> </span>Remember, what
a worker is worth has nothing to do with the worker as a human; only that
worker’s worth as a producer of goods or services.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">That leaves option four.<span style="mso-spacerun: yes;">
</span>Our hypothetical company can keep its weekly wage bill from rising by
reducing its use of minimum-wage labor by about 116 hours per week.<span style="mso-spacerun: yes;"> </span>Which workers would lose their jobs if the
company chooses this option?<span style="mso-spacerun: yes;"> </span>They will
likely be the least skilled, least productive workers.<span style="mso-spacerun: yes;"> </span>Arguably, they will also be the poorest,
least educated, least advantaged people—those most in need of even a low-paying
job—whether it’s a “living wage” or not.<span style="mso-spacerun: yes;">
</span>If low income is bad, no income is worse.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">How will real companies all across the nation respond to a
higher minimum wage?<span style="mso-spacerun: yes;"> </span>Companies who can
do so will raise prices to consumers, but competition at home and abroad will
severely limit that option.<span style="mso-spacerun: yes;"> </span>In the short
run, business owners may absorb the increased wage bill through profit
reductions.<span style="mso-spacerun: yes;"> </span>But in the long run, stockholders
and entrepreneurs must earn a normal profit or they move their capital resources
elsewhere.<span style="mso-spacerun: yes;"> </span>In the long run, higher labor
costs will not be paid for with reduced profits.<span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Wages of workers already earning more than minimum wage will
certainly not decline.<span style="mso-spacerun: yes;"> </span>Oddly as it may
seem, raising the minimum wage tends in the long run to increase wages of
skilled, experienced workers.<span style="mso-spacerun: yes;"> </span>Faced with
a higher minimum wage for unskilled labor, companies demand even more skilled
labor.<span style="mso-spacerun: yes;"> </span>It’s really just sensible
economics.<span style="mso-spacerun: yes;"> </span>A higher minimum wage for
unskilled labor makes skilled labor relatively cheaper, other things
unchanged.<span style="mso-spacerun: yes;"> </span>Savvy business owners always
want to use more of a productive input that becomes relatively cheaper—and less
of inputs that become relatively more expensive.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">In the end, once business firms make long-run adjustments to
a higher minimum wage, workers who aren’t worth the higher minimum wage to
their employers will lose their jobs.<span style="mso-spacerun: yes;">
</span>Minimum wage legislation does not and cannot force employers to hire
workers who are not worth the legal minimum wage.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Who gains and who loses if Congress raises the minimum wage
to $7.25 and hour?<span style="mso-spacerun: yes;"> </span>Supporters in
Congress clearly gain by doing what appears to be a highly visible “good.”<span style="mso-spacerun: yes;"> </span>Some voters like the idea of guaranteeing
higher incomes to low income earners.<span style="mso-spacerun: yes;">
</span>But the good comes at the expense of others in the labor force who earn
even lower incomes.<span style="mso-spacerun: yes;"> </span>The losers are
generally willing, hardworking people with the poorest educations, the lowest
skill levels, and the least ability to help themselves.<span style="mso-spacerun: yes;"> </span>Fortunately for Congress, the harm done is
evidently out of sight to most Americans.<span style="mso-spacerun: yes;">
</span>Better still for Congress, the losers don’t make campaign contributions,
and many of them seldom vote.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">Workers who lose jobs or cannot find jobs that pay the
higher minimum wage will have even poorer choices than they had before the
increase.<span style="mso-spacerun: yes;"> </span>They may retreat to the
welfare rolls, or they may find a job that can legally pay them less than
minimum wage.<span style="mso-spacerun: yes;"> </span>Most will choose a job—or
perhaps two jobs—that pay less than minimum wage, because most are self-respecting,
hard working people.<span style="mso-spacerun: yes;"> </span>But if unskilled,
inexperienced workers cannot get in on the ground floor, it’s even less likely
that they will make it to the second floor.</span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";"><span style="mso-spacerun: yes;"> </span></span></div>
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<span style="font-family: "Times New Roman"; font-size: 12pt; mso-bidi-font-family: "Times New Roman";">If a higher minimum wage could somehow transfer income from
wealthy “haves” to disadvantaged “have nots,” then raising the minimum wage
might be defensible on moral, ethical grounds.<span style="mso-spacerun: yes;">
</span>At least it would be debatable.<span style="mso-spacerun: yes;">
</span>But to use the force of law to take from really poor “have nots” to
benefit slightly better off “have nots” may not be what most people would call
ethical behavior.<span style="mso-spacerun: yes;"> </span>It no doubt depends on
how you look at it, but perhaps there is no moral high ground available to
supporters of a higher minimum wage. </span></div>
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David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com1tag:blogger.com,1999:blog-5338679290238780332.post-81095634346731557212013-12-07T15:23:00.000-05:002013-12-12T18:44:56.318-05:00Be Happy! The World Is Getting Better<div dir="ltr" style="text-align: left;" trbidi="on">
Gloom and doom is just about all we get from the media and most pundits. Take heart! The world really is getting better. <a href="https://drive.google.com/file/d/0BxNdCjYLNVrORFh0RDh0cThCME0/edit?usp=sharing" target="_blank">Here</a>, in an interview with Russ Roberts, Joel Mokyr of Northwestern University explains why.<br />
<br />
The audio file referenced above will take about an hour to listen to, but it's worth your time. It's just an ordinary mp3 file, so download it to you smart phone and listen to it while you're commuting. </div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-79880865675768531252013-12-02T12:35:00.000-05:002014-05-18T18:47:32.281-04:00Fighting Povety in America<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://drive.google.com/file/d/0BxNdCjYLNVrOTEZrNUFfbWNFS3M/edit?usp=sharing" target="_blank">Here</a>, Michael Tanner reports a startling fact: <br />
<br />
<blockquote class="tr_bq">
In total, the United States spends nearly $1 trillion every year to fight poverty. That amounts to $20,610 for every poor person in America, or $61,830 per poor family of three.</blockquote>
Don't you suppose that just about any poor family of three would be tickled silly to have $61,830 in income per year? Why don't we just give the poor the money and dispense with the 126 federal welfare programs that currently require bureaucrats to administer? </div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-39381951405462354792013-11-21T12:53:00.000-05:002013-12-02T12:14:59.324-05:00Money Illusion<div dir="ltr" style="text-align: left;" trbidi="on">
<a href="https://drive.google.com/file/d/0BxNdCjYLNVrOdFVadDk5bHNqRWs/edit?usp=sharing" target="_blank">Here</a>, Philipp Bagus offers a crystal clear explanation of how the Fed and other central banks around the world are systematically misleading millions of people to believe that all is well. All is not well.<br />
<br />
By monetizing federal debt (so-called "Quantitative Easing" to the tune of $85 billion per month), the Fed is "papering over" past attempts to borrow something that had not yet been produced and saved (albeit with digital paper instead of real pictures of dead U.S. presidents).<br />
<br />
Regular readers of EconoBlast need no reminder of the impossibility of borrowing something that has not actually been produced and saved. New comers to EconoBlast can read all about it <a href="http://econoblast.blogspot.com/2009/02/you-cant-borrow-what-hasnt-yet-been.html" target="_blank">here</a>.<br />
<br />
What does the future hold for Americans who are members of the Baby Boomer generation? Will the financial claims many of us hold (stocks, bonds, savings accounts, and just plain money) have real purchasing power over the next two or three decades when we Baby Boomers expect to spend those claims on real goods and services?<br />
<br />
Sadly, much of the financial wealth we Baby Boomers take ourselves to hold could turn out to be an illusion. Just as Philipp Bagus reminds us in the article linked above, we cannot consume our financial wealth. We can consume only real goods and services.<br />
<br />
Will our economy produce the real goods and services we Baby Boomers financial claims are supposed to allow us to purchase? The Fed is doing just about all it can get away with to make that possibility vanishingly small. Please read the Bagus article linked above. He's already explained it clearly, so I won't bother repeating his words.<br />
<br />
Against all odds, I remain optimistic that our economy will produce the real goods and services necessary to honor the financial claims of Baby Boomers. I remain optimistic in spite of the misguided policies of the Fed and our federal politicians.<br />
<br />
I believe that technology will save us from ourselves, just as it has always done in the past. Give the audio file you will find <a href="https://drive.google.com/file/d/0BxNdCjYLNVrOWmlYaVZZeHVRNFk/edit?usp=sharing" target="_blank">here</a> a listen. Put simply, advancing technology will almost certainly make America's $17 trillion federal debt irrelevant! That distinct possibility is no excuse for the self-serving actions of the Fed and federal politicians, but it is nice to know.<br />
<br />
In the nearby future, the combination of artificial intelligence, nano technology, and technologies not yet heard of will mitigate the scarcity of real goods and services so dramatically that most people living on planet Earth will enjoy a very high standard of living --- without working.<br />
<br />
Some people think that not having to work will destroy society. Other people (like me) do not think so. Not having to work to keep body and soul together will be wonderful, not a scourge. Am I just a fool with a dream? You decide. Listen to the audio file linked above before you decide. </div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0tag:blogger.com,1999:blog-5338679290238780332.post-84422999824479286772013-11-14T11:12:00.000-05:002013-12-02T12:15:57.573-05:00King BHO?<div dir="ltr" style="text-align: left;" trbidi="on">
Hot off the Wall Street Journal<br />
<br />
<br />
<blockquote class="tr_bq">
White House to Allow Cancelled Health Plans to Continue, Official Says<br />
The White House will allow insurers to continue plans that have been cancelled, a Democratic official said.<br />
<br />
The proposal may dissuade Democrats from backing House GOP legislation slated for a Friday vote. President Obama is scheduled to deliver remarks on the health law at 11:35 a.m.</blockquote>
<br />
<br />
Here's a question. I thought the Patient Protection and Affordable Care Act (roll over George Orwell) was an act of Congress. Since when in America is the President empowered to make up ad hoc provisions of a law at will?<br />
<br />
<br /></div>
David L. Kendallhttp://www.blogger.com/profile/16272267770395417058noreply@blogger.com0