The Liberal vs Libertarian Healthcare Stalemate

"There are two health policies that liberals and libertarians would both prefer to the status quo. The first is a free market plus redistribution for the poor. The second is bare bones, high-deductible national health care, with a free market for all add-ons.

The reason neither are likely to happen is mistrust. Liberals think that if they sign on for the free market plus redistribution, the redistribution won’t actually happen. Libertarians think that if they sign on for bare bones national health care, the cost will quickly increase." - via Bryan Caplan

The Inequality Debate

 A good friend of mine, recently turned lefty, has been harping on the income inequality tune lately. It's new to him, so he finds it quit convincing. We've been going back and forth on it now for some months (see here and here, for example) but he tried to address all of my arguments in one post. See here.

My response was too long for a single comment, so I broke it down into bits. I thought I'd post it here in full (with some minor typo and other corrections) for others to see as well. It's a good intro to the income inequality debate and the response to it from those that disagree.

You can start with his post here and my response is below.

Finally, a response. You have been harping the income inequality argument for some time now, and simply ignoring the responses that have come (see here and here, for recent examples). Lets discuss.

First, family size. You write, I'm told that the increase in inequality is due to the changing family structure. More single family homes. It's interesting that a lot of these responses I get come without evidence. It's just a claim that sounds plausible.

This is the wrong way to look at it Jon. Remember, it's not the right that is making the income inequality argument, it's the left. The reason you don't find a lot of responses controlling for family size is because frankly, there are few, if any solid ones. But that speaks ill of the left, not the right: after all, income inequality is their argument - their primary argument, in many ways - and the fact that they haven't taken the time to control for such basic differences speaks badly of their academic objectivity, wouldn't you say?

With that said, all you had to do was ask. Here is one, two, three, four, five, six, seven, eight and nine responses that deal directly with family size.  Remember, it's not just divorce rates and working hours that matter, it's also immigration and more importantly, the rise in single mothers and the age of the population that matters.

Second, total compensation. Were not just talking about 401k's here, were primarily talking about healthcare costs. And when you factor those in, almost all of the income inequality disappears. Cornell University professors Richard Burkhauser and Kosali Simon write in a NBER paper:

In this paper we take estimates of the value of different types of health insurance received by households and add them to usual pre tax post transfer measures of income from the Current Population Survey's March Annual Demographic Supplement for income years 1995-2008 to investigate their impact on levels and trends in measured inequality. We show that ignoring the value of health insurance coverage will substantially understate the level of economic well being of Americans and its upward trend and overstate the level of inequality and its upward trend. (emphasis mine)

But again, doesn't the dearth of studies that take into account health care costs and 401k's say something about the academic integrity of those that constantly put forth the income inequality argument (the economists, that is)? It's like they are cherry picking the data that most fits what they want to believe.

Third, consumption inequality. Then there are mitigating factors to income inequality. Income inequality just looks at the inputs to income but what about the outputs? In other words, instead of looking at wages, lets look at purchasing power. And when you do that, you see that the trend is the opposite:

Looking at trade data between 1994 and 2005, Broda and Romalis construct inflation rates for different income groups and find that rates for the richest outpaced rates for the poorest by about 4 percent over the period. Since income inequality between the top and bottom 10 percent of earners grew by about 6 percent, the different inflation rates among income groups wipes out about two-thirds of the rise in inequality.

This study is by two University of Chicago economists. This is how University of Chicago economist Steve Levitt (and author of Freakonomics) puts it:

Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

When people talk about inequality, they tend to focus exclusively on the income part of the equation. According to all our measures, the gap in income between the rich and the poor has been growing. What Broda and Romalis quite convincingly demonstrate, however, is that the prices of goods that poor people tend to consume have fallen sharply relative to the prices of goods that rich people consume. Consequently, when you measure the true buying power of the rich and the poor, inequality grew only one-third as fast as economists previously thought it did — or maybe didn’t grow at all.

What caused this dramatic drop in the prices of goods purchased primarily by the poor vs those by the rich? Levitt explains that as well:

Why did the prices of the things poor people buy fall relative to the stuff rich people buy? Lefties aren’t going to like the answers one bit: globalization and Wal-Mart!

China is able to produce clothes, electronics, and trinkets incredibly cheaply. Poor people spend more of their income on these sorts of things and less on fancy cars, expensive wine, etc. According to Broda and Romalis, China alone accounts for about half of their result....

MIT economist Jerry Hausman (who taught me econometrics in my first year of graduate school) and co-author Ephraim Leibtag have analyzed the impact of the entrance of a Wal-Mart superstore on local food prices.

Not only are Wal-Mart’s prices lower, but its entry also induces competitors to lower prices. The impact is much larger on the poor than the rich, both because the poor are more likely to shop at Wal-Mart and because they spend more of their income on food.

In other words, the two greatest forces in mitigating the impact of income inequality are precisely the other two things the left dislikes most: globalization via China and Walmart.

With that said, I don't want to leave the impression that I think there has been no increase in income inequality. I do believe that there has been in fact real inequality and it has been growing (and for precisely the same reasons economists generally believe: technology, greater division of labor etc). I just disagree with the magnitude and more so, the importance of it.

Fourth, culture. Much of the increase in income inequality is a result of cultural changes, specifically in marriage mating. Arnold Kling writes:

There is also another factor at work. A trend is underway in America for marriage to be increasingly “assortative.” That means children of well-educated parents tend to marry one another and the children of less educated parents tend to marry one another. This was less the case a few generations ago. For example, sociologists Christine Schwartz of the University of Wisconsin and Robert Mare of UCLA found that beginning in the early 1970s there was a striking “decline in the odds that those with very low levels of education marry up.” And they found that between 1940 and the late 1970s the likelihood that someone with only a high-school diploma would marry someone with a college degree dropped by over 40 percent.

Indeed, economists Betsey Stevenson and Justin Wolfers at the Wharton School at the University of Pennsylvania believe that a revolution in modern marriage has taken place. According to their view, two generations ago, a husband and wife married in order to share production, with the man working in the market and the woman working at home. Today, the husband and wife are both likely to work in the market, and they choose one another because they have similar tastes in consumption....

Stevenson and Wolfers point out that it may well have been the case a few generations ago that “opposites attract” and the production-based marriage benefited from differences in backgrounds and skills. Today, the consumption-based marriage benefits from the couple’s similarities. Thus, marriage becomes less a driver of mobility across income segments and more a driver of income inequality.

The full article, which I highly recommend, can be found here.

Fifth, the benefits of income inequality. Let's remember from our basic economics course that some income inequality is good. It serves as a signal mechanism to encourage more productive behavior, such as, getting an education. This is the basic argument that Gary Becker and Kevin Murphy of the University of Chicago make here.

Sixth, the irrelevance of income inequality.There are powerful arguments on why income inequality should be ignored. For example, here and here. But my favorite of em all, is the growing irrelevance of income inequality. Don Boudreaux explains:

But I here suggest that economic growth, even as it might generate ever-larger income inequality, increasingly renders these same differences in money income or wealth less and less relevant as a measure of differences in quality of life. Some examples:

- Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.

- Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.

- Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.

- The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.

The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.

Bill Gates has many more zeroes in the accounts of his finances than I have in the accounts of my finances. But I don’t see these. What is seen, what is experienced, what is palpable, as differences between Gates’s financial status and that of ordinary Americans is increasingly disappearing.

In other words, whats important here is economic growth, if you have that, income inequality matters less and less.

Update: Jon responds here. (Originally published: 12/16/2010)

An Introduction To Racial Tensions In Los Angeles

 So I hear there was yet another racial fight at Jefferson High School in LA recently. I always find it surprising how very few people know about the significant amount of racial tension that exists in LA. I guess after having lived there most of my life and knowing that everybody around me is aware of it, you just assume other people know as well. So, since I am finding out that very few people know what is going on, I thought I'd blog about it and give the readers of my blog a leg up on the status of LA. However, given that I am Mexican/American, I will primarily give the Mexican perspective on things, since that is primarily the side that I was most privy too.

First, some background. Gangs in Los Angeles (and by Los Angeles, I mean pretty much all of the LA area, like Compton, Watts, Harbor Area and valley) are 'segregated' along racial lines: the Crips and the Bloods (and there's also Piru, but they are considered bloods by most standards) are overall Black gangs, and the '13' are overall Latino (predominantly Mexican) gangs; all Latino gangs in Los Angeles are 13s, whether or not they get along. It basically refers to "Sur 13", meaning the 'south' of California, so all Latino gangs, south of say, Bakersfield, are considered 13s. Latino gangs in the broader California are further broken up between the 14s that control most of northern California and the 13s that control all of southern California. This split between the Latinos started a long, long time ago in prison, and since every Latino gangster in Los Angeles (except for one Latino gang, but they are by far the exception) belongs to the 13s, the 13s vs. 14s fights are usually handled in the prisons, when Latinos are mixed from the northern and southern parts of the state together.

Before the mid-90s, there was the occasional Black person that belonged to a Latino gang and there was the occasional Latino that belonged to a Black gang. Some gangs, or so I've heard, even started out united as Black and Latino. Now, don't jump to the conclusion that I am saying that racial tension did not exist between Blacks and Latinos before the mid-90s, there was definitely racial tension, and a significant amount at that. It's just that it escalated after the early 90s.

Up until the mid 90s, gangs tended to kill ‘their own,’ meaning that Latino gangs fought amongst themselves and the same went for Black gangs. Yes, there was the occasional fighting that crossed racial lines, but that was more the exception than the rule. Black gangs were the same way, they were composed of Crips and Bloods/Pirus, blue and red, and tended to primarily fight each other. All Bloods and Pirus tend to get along with each other and unite to fight the Crips. Crips, on the other hand, fight against Bloods, Pirus and other Crips. So, even though there was a lot of fighting between Black gangs, they all tended to kill each other and there was limited fighting with Latino gangs.

In areas where the two groups are highly represented, such as South Central LA, Compton and Watts, the territory claimed by the two groups of gangs greatly overlapped, with each identifying almost the same particular area as their own, and both respecting each other. In several areas, the Latino and Black gangs intermingled a lot, with several Black and Mexicans speaking with the same accent and doing several of the same activities together (cock fighting, pit bull fighting, etc). Everybody just understood that each territory was their own with respect to their specific race. It was a weird system, but overall it worked and allowed the two races, usually neighbors to each other, to live together.

Also, prisons in California are extremely racial. In other words, all Latino gangsters hang out together, even if they were rival gangsters in the streets, and all Black gangsters hang out together, even if they too were rival gangsters in the streets. The Latino group is referred to as "La Eme," also known as the Mexican Mafia and 'Sur 13', and is composed of Latino gangsters from the streets, this is where the 13 comes from. To elaborate further, all Latino gangs in California are composed of two parts. The first, and some would say primary, is the fact that they are all 13s (the ones in southern California at least, the ones up north would be 14s), the second is their unique gang. So say you had Latino gang A and Latino gang B fighting each other on the streets, absolutely hating each other. When the members of these gangs go to prison, they are no longer gang A and gang B, they all become what they have in common, the 13 part of their gang. Their enemy now is not other rival gangsters, but other races. So say, for example, that you were Mexican and had a really close Black friend growing up, if you two were to meet in prison, you could not eat together, work out together, or associate with one another at all. Why? Because of your races, it's that simple.

However, in the early to mid 90s, La Eme started dictating orders from the inside. They would send representatives to hold meetings with the heads of the Latino gangs and order them to stop killing ‘their own’ and direct their anger to those of other races, namely Black people. Those who violated these rules and were sent to prison would be killed. And since La Eme controls the Latino side of the prisons, and all Latino gangsters that enter prison would by default become part of their ranks, thereby needing their protection and association, this was a threat taken very seriously.

Many people thought (myself included) that it would never work. How could two gangs that had hated each other for generations, that had spilled so much blood, all of the sudden act as if nothing has happened, simply because of racial ‘unity’ and ‘fear’. Sure, they've been doing it in prison, but in prison everything is more compact, more orderly, but not so on the streets. More importantly, some thought, how could Black and Latino gangs that had grown up together in overall peace now all of the sudden become arch enemies, just out of a call for unity and threats from Latinos in prison? At the time, I thought it extremely unlikely to take effect.

Well, with time, I realized that I was wrong. Soon after, the Latino gangs that for the past generations had been rivals, started communicating and socializing. It was an odd thing to see. On the other hand, racial tension between Blacks and Latinos started to mount. First, you would hear of a Latino gang that had already been fighting with a Black gang make the fight more racial, escalating the anger between the two. Then you would hear a different Latino gang start a new fight with a Crip or Blood gang, and other gangs do the same. The ones who bore most of the brunt of this change were those few Blacks that were in Latino gangs, and those few Latinos in Black gangs. If they entered prison, they would be killed for sure. For example, I knew a Black guy from a Latino gang that told me that when he entered prison, he would say that he was Puerto Rican, because the Blacks wouldn't take him, and without the Latinos to back him up, he would be defenseless.

Killings between the two races escalated so much that there was a point where just being Mexican, or just being Black, was reason enough to get killed by the other group.

In Compton, my hometown, Black vs. Latino type atmosphere created several killings between the two, where as the two had lived overall somewhat peacefully before - did drive by’s together, overall lived in the same neighborhoods with a live and let live philosophy - Blacks in Crips and Bloods, Mexicans in 13 gangs, the escalation afterwards was huge. I'm not saying that all Latino gangs started to fight all Black gangs. There were certain areas where the friendships remained, but it is undeniable that what La Eme did escalated the racial tensions to very high levels.

Some areas, especially the Latino areas that have fewer Black people, have prided themselves of riding as many Blacks as possible. It's almost an unspoken test of what Latino gang is tougher, the one that rids more Blacks being the tougher gang. Also, after a few couple years, Latino gangs started to fight each other again, with La Eme unable to control the hatred they always had towards one another, but the racial tensions between Blacks and Latinos remained, never returning to the previous levels. In addition to this, this racial tension has spread into general areas of life and is not restricted to gangsters. If you were to go to Jefferson High school, for example, and witness the fighting, you would definitely see Latino/Black gangsters being the primary fighters, but you would also see a significant number of non-gangster Latino/Black people fighting. It has become an overall strong dislike between the two at the fundamental level.

Moreover, everything I have said here is all pretty much common knowledge in LA, you don't have to be a gangster, or in many cases, even a teenager to know this. From the kids in middle school to the adults, everybody knows a good portion of what I have said here.

With that said, I don't want to give the impression that all Latinos or all Blacks in LA dislike each other. Certainly there are many many Latinos/Blacks that are perfectly fine with one another. In fact, things are actually better now than they were in the mid to late 90s, but I would attribute most of that improvement connected with the overall fall in gang activity. Nor do I want to give the impression that all Black gangs hate all Latino gangs, or that all gangsters are like this. This is just to give a general overview of the way gangs are, and how this has affected the culture at large.

Before I end, I want to give a few words on what I am always asked after I explain the LA situation, how do you go about solving the problem? I'll be the first to admit that I don't know. There are too many historical and cultural factors at play here for any one solution to solve the problem. I could give you a stronger list of things that I believe make the problem worse, than a list that will make the problem better. And, as one of the things on the list that makes the problem worse, I would put the media's inability to classify the situation as it is. This was not a fight between 'some students and other students', or between 'one gang and another,' this was a race riot, pure and simple. It is proof of the larger race-related problem that LA has, both historically and culturally, and to deny the obvious and hide it under the rug as if it's not, does nobody any good. (Originally Published: 05/04/2005)

Capitalism And Slavery

 

DON BOUDREAUX
DECEMBER 15, 2016
FREE MARKETS & CAPITALISM

Wrongheaded notions about the economy are always in high supply. Most calamitous was the idea that central planning outperforms the market. The pulverizing poverty and tyranny of the former Soviet Union, North Korea, and similar Workers’ Paradises have ended that particular illusion.

Other less disastrous but equally mistaken notions about the economy remain on the loose — for example, that tariffs promote prosperity.

But the most far-fetched myth that I’ve encountered recently is that the wealth of the modern Western world, especially that of the United States, is the product of slavery.

I first encountered this notion during a talk I gave in Toronto. I explained to the college-age audience how extraordinarily wealthy all of us are today compared to our preindustrial ancestors. I wanted them to understand the great benefits of capitalism. During the Q-&-A session, a young woman informed me that the wealth we enjoy today is the product of slavery.

At first I thought she was speaking figuratively, as in “workers under capitalism really are slaves.” Having heard such an argument before, I was half-expecting it. But no. What she meant is that the modern world’s prosperity is the product of the pre-20th-century enslavement of Africans in the Americas.

“But slavery ended in the United States in 1863!” I responded. “Look at all the wealth produced since then — telephones, automobiles, antibiotics, computers. None was built with slave labor.”

She anticipated my response. “Not directly. But the capital that made these innovations possible was extracted from slave labor. The wealth accumulated by slaveholders is what financed the industrialization that makes today’s wealth possible.”

I looked at her in raw disbelief. (Not a good strategy, by the way, for a public speaker.)

Collecting my thoughts, I pointed out that slavery had been an ever-present institution throughout human history until just about 200 years ago. Why didn’t slaveholders of 2,000 years ago in Europe or 500 years ago in Asia accumulate wealth that triggered economic growth comparable to ours? Why is Latin America so much poorer today than the United States, given that the Spaniards and Portuguese who settled that part of the world were enthusiastic slavers? Indeed, the last country in the Americas to abolish slavery was Brazil — in 1888, a quarter-century after U.S. abolition. By American and western European standards, Brazil remains impoverished.

And why, having abolished slavery decades before their Southern neighbors, were Northern U.S. states wealthier than Southern states before the Civil War?

I don’t recall my young challenger’s response. I recall only that I was as little convinced by it as she was by my answers.

The fact is that slavery disappeared only as industrial capitalism emerged. And it disappeared first where industrial capitalism appeared first: Great Britain. This was no coincidence. Slavery was destroyed by capitalism.

To begin with, the ethical and political principles that support capitalism are inconsistent with slavery. As we Americans discovered, a belief in the universal dignity of human beings, their equality before the law, and their right to govern their own lives cannot long coexist with an institution that condemns some people to bondage merely because of their identity.

But even on purely economic grounds, capitalism rejects slavery because slaves are productive only when doing very simple tasks that can easily be monitored. It’s easy to tell if a slave is moving too slowly when picking cotton. And it’s easy to speed him up. Also, there’s very little damage he can do if he chooses to sabotage the cotton-picking operation.

Compare a cotton field with a modern factory — say, the shipyard that my father worked in as a welder until he retired. My dad spent much of his time welding alone inside of narrow pipes. If you owned the shipyard, would you trust a slave to do such welding• While not physically impossible to monitor and check his work, the cost to the shipyard owner of hiring trustworthy slave-masters to shadow each slave each moment of the day would be prohibitively costly. Much better to have contented employees who want their jobs — who are paid to work and who want to work — than to operate your expensive, complicated, easily sabotaged factory with slaves.

Finally, the enormous investment unleashed by capitalism dramatically increases the demand for workers. (All those factories and supermarkets must be manned.) Even if each individual factory owner wants to enslave his workers, he doesn’t want workers elsewhere to be enslaved, for that makes it more difficult for him to expand his operations. As a group, then, capitalists have little use for slavery.

History supports this truth: Capitalism exterminated slavery. 

The Increasing Invisibility of Income Inequality

by DON BOUDREAUX on MAY 9, 2004

Take a thoughtful libertarian and a thoughtful left-liberal for a latte, listen to them converse, and you’ll find agreement on a surprisingly wide range of issues. One issue, though, that will almost certainly not be agreed upon is the significance of income inequality. The left-liberal’s deep concern about this issue, and the libertarian’s (and conservative’s) relative unconcern about this issue is striking.

This issue is too big to grapple with fully over a leisurely latte (or in a blog post). But I here suggest that economic growth, even as it might generate ever-larger income inequality, increasingly renders these same differences in money income or wealth less and less relevant as a measure of differences in quality of life. Some examples:

– Inexpensive consumer electronics enable almost all Americans, even the poorest, to listen at their leisure to the world’s finest orchestras perform great music; contrast now with, say, 1880, when only the relatively rich could afford to hear great music – and only the superrich (by hiring their own chamber orchestras) could enjoy listening to such music whenever they wished.

– Today’s inexpensive Chevrolets and Kias are more reliable and better equipped than were top of the line Cadillacs of 40 years ago.

– Fifty years ago European vacations were a luxury enjoyed mostly by the rich and upper middle classes; today – chiefly because of inexpensive air travel – such vacations are within the means of a much greater proportion of the population.

– The clothing worn by wealthy Americans is virtually indistinguishable from the clothing of ordinary Americans; Bill Gates, Tom Hanks, and Laura Bush are not distinguished from the vast majority of Americans by their clothing. In both quality and quantity, clothing is nearly super-abundant in modern western society.

The further back you go in history, the greater were the material differences that separated rich from poor. Many of these distinctions were evident to the untrained eye (for example, the rich rode in carriages; the poor walked). Fewer of the distinctions today between rich Americans and middle-class Americans – even poor Americans – are as palpable, as salient, as stark, as were the distinctions of generations past.

Bill Gates has many more zeroes in the accounts of his finances than I have in the accounts of my finances. But I don’t see these; no one sees these. What is seen, what is experienced, what is palpable, as differences between Gates’s financial status and that of ordinary Americans is increasingly disappearing.

Blarney

by DON BOUDREAUX on JULY 6, 2005

Dear Mr. Ebnet:

You are "saddened" that Ireland is becoming economically prosperous. No, that’s not quite right (or fair of me): You are "saddened" because Ireland is losing its "identity" as its people cooperate ever more closely with more and more peoples from around the world in a process that improves their standards of living.

The sight of "foreign manufacturing plants" in Ireland burdens you with "oppressive melancholy." You regret that Gaelic is fading today everywhere as a spoken language, save in the western coast of Ireland – the part that remains poorest and that hasn’t yet been much affected by globalization.

You expressly hope that other countries don’t follow Ireland’s recent path, lest they lose their "identities."

Reading your letter reminds me of a conversation I had about five years ago with a friend – a dear and good friend – who just returned from her first trip to Ireland. She was disappointed because Ireland "looks a lot like America."

This American friend of mine wanted Ireland to be filled with cute little thatched-roof cottages inhabited by gentle peasant-folk tending their gardens, feeding their pigs, and looking about merrily in verdant meadows for four-leafed shamrocks. My American friend was appalled that the Irish share her taste for material wealth – for houses with solid roofs – for modern appliances – for automobiles and broad, smoothly paved roads – for shopping centers, airports, fusion-cuisine restaurants, and all the other blessings of a worldwide market.

Of course, my American friend didn’t quite see herself in this way. She simply didn’t see or think. To her – a middle-class American woman for whom material wealth is the norm – the expected opportunity to gaze first-hand upon simple peasants going about their peasant-ways in their peasant-clothes in their peasant-settings was almost something of a right. "How dare they not be as I expect them to be!" was her unsaid theme. "How dare they enjoy similar things to those that I enjoy! How dare their country look like mine! This unexpected set of affairs makes my vacation to Ireland less pleasant."

In other words, this friend of mine – like you, Mr. Ebnet – selfishly wants other people to be museum pieces for her enjoyment. You and she dislike signs of material progress in Ireland because you live in the United States, with ready access to an abundance of material wealth that the Irish are just now beginning to enjoy themselves.

You blithely wish that the Irish had remained poor so that you would have continued, during your visits from America, to luxuriate in their quaint languages and enjoy gazing upon Ireland’s natural vistas unaffected by advanced commerce.

And you want other peoples to reject the wealth that the Irish (and Americans) now enjoy so that they retain their "identities" – identities as poor, peasant-dominated societies.

Why should other people want to make these sacrifices for you, Mr. Ebnet? Are you willing to make like sacrifices for them? Are you, for example, willing to go off to live in the Minnesota woods in an unheated log cabin with no running water or electricity? No car? No supermarkets? After all, I’m sure that visitors to America would really appreciate gazing upon a true American pioneer, living just the way our great-great-grandparents lived.

If you’re not willing to take this step, Mr. Ebnet, please tell me why you expect the Irish and other peoples in places less affluent than the U.S. to do so? Or, at least, please explain why your selfish desires about how Ireland and other countries should look and sound deserve a hearing given that the people who live in these places obviously want more material prosperity.

Sincerely,

Don Boudreaux (whose grandmothers were born Teresa Flanagan and Estella Ryan)

Where Would General Motors Be Without the United Automobile Workers Union?

 04/19/2006 George Reisman

This is a question that no one seems to be asking. And so I've asked it. And here, in essence, is what I think is the answer. (The answer, of course, applies to Ford and Chrysler, as well as to General Motors. I've singled out General Motors because it's still the largest of the three and its problems are the most pronounced.)

First, the company would be without so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. Without the UAW, General Motors would simply have fired such workers and replaced them with ones who would do the jobs they were paid to do. And so, without the UAW, GM would have produced more reliable, higher quality cars, had a better reputation for quality, and correspondingly greater sales volume to go with it. Why didn't they do this? Because with the UAW, such action by GM would merely have provoked work stoppages and strikes, with no prospect that the UAW would be displaced or that anything would be better after the strikes. Federal Law, specifically, The National Labor Relations Act of 1935, long ago made it illegal for companies simply to get rid of unions.

Second, without the UAW, GM would have been free to produce in the most-efficient, lowest cost way and to introduce improvements in efficiency as rapidly as possible. Sometimes this would have meant simply having one or two workers on the spot do a variety of simple jobs that needed doing, without having to call in half a dozen different workers each belonging to a different union job classification and having to pay that much more to get the job done. At other times, it would have meant just going ahead and introducing an advance, such as the use of robots, without protracted negotiations with the UAW resulting in the need to create phony jobs for workers to do (and to be paid for doing) that were simply not necessary.

(Unbelievably, at its assembly plant in Oklahoma City, GM is actually obliged by its UAW contract to pay 2,300 workers full salary and benefits for doing absolutely nothing. As The New York Times describes it, "Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.")

Third, without the UAW, GM would have an average unit cost per automobile close to that of non-union Toyota. Toyota makes a profit of about $2,000 per vehicle, while GM suffers a loss of about $1,200 per vehicle, a difference of $3,200 per unit. And the far greater part of that difference is the result of nothing but GM's being forced to deal with the UAW. (Over a year ago, The Cincinnati Enquirer reported that "the United Auto Workers contract costs GM $2,500 for each car sold.")

Fourth, without the UAW, the cost of employing a GM factory worker, including wages and fringes, would not be in excess of $72 per hour, which is where it is today, according to The Post-Crescent newspaper of Appleton, Wisconsin.

Fifth, as a result of UAW coercion and extortion, GM has lost billions upon billions of dollars. For 2005 alone, it reported a loss in excess of $10 billion. Its bonds are now rated as "junk," that is, below, investment grade. Without the UAW, GM would not have lost these billions.

Sixth, without the UAW, GM would not now be in process of attempting to pay a ransom to its UAW workers of up to $140,000 per man, just to get them to quit and take their hands out of its pockets. (It believes that $140,000 is less than what they will steal if they remain.)

Seventh, without the UAW, GM would not now have healthcare obligations that account for more than $1,600 of the cost of every vehicle it produces.

Eighth, without the UAW, GM would not now have pension obligations which, if entered on its balance sheet in accordance with the rule now being proposed by the Financial Accounting Standards Board, will leave it with a net worth of minus $16 billion.

What the UAW has done, on the foundation of coercive, interventionist labor legislation, is bring a once-great company to its knees. It has done this by a process of forcing one obligation after another upon the company, while at the same time, through its work rules, featherbedding practices, hostility to labor-saving advances, and outlandish pay scales, doing practically everything in its power to make it impossible for the company to meet those obligations.

Ninth, without the UAW tens of thousands of workers — its own members — would not now be faced with the loss of pension and healthcare benefits that it is impossible for GM or any of the other auto companies to provide, and never was possible for them to provide. The UAW, the whole labor-union movement, and the left-"liberal" intellectual establishment, which is their father and mother, are responsible for foisting on the public and on the average working man and woman a fantasy land of imaginary Demons (big business and the rich) and of saintly Good Fairies (politicians, government officials, and union leaders). In this fantasy-land, the Good Fairies supposedly have the power to wring unlimited free benefits from the Demons.

Tenth, Without the UAW and its fantasy-land mentality, autoworkers would have been motivated to save out of wages actually paid to them, and to provide for their future by means of by and large reasonable investments of those savings — investments with some measure of diversification. Instead, like small children, lured by the prospect of free candy from a stranger, they have been led to a very bad end. They thought they would receive endless free golden eggs from a goose they were doing everything possible to maim and finally kill, and now they're about to learn that the eggs just aren't there.

It's very sad to watch an innocent human being suffer. It's dreadful to contemplate anyone's life being ruined. It's dreadful to contemplate even an imbecile's falling off a cliff or down a well. But the union members, their union leaders, the politicians who catered to them, the journalists, the writers, and the professors who provided the intellectual and cultural environment in which this calamity could take place — none of them were imbeciles. They all could have and should have known better.

What is happening is cruel justice, imposed by a reality that willfully ignorant people thought they could choose to ignore as long as it suited them: the reality that prosperity comes from the making of goods, not the making of work; that it comes from the doing of work, not from the shirking of it; that it comes from machines and methods of production that save labor, not the combating of those machines and methods; that it comes from the earning and reinvestment of profits not from seizure of those profits for the benefit of idlers, who do all they can to prevent the profits from being earned in the first place.

In sum, without the UAW, General Motors would not be faced with extinction. Instead, it would almost certainly be a vastly larger, far more prosperous company, producing more and better motor vehicles than ever before, at far lower costs of production and prices than it does today, and providing employment to hundreds of thousands more workers than it does today.

Few things are more obvious than that the role of the UAW in relation to General Motors has been that of a swarm of bloodsucking leeches, a swarm that will not stop until its prey exists no more.

It is difficult to believe that people who have been neither lobotomized nor castrated would not rise up and demand that these leeches finally be pulled off!

Perhaps the American people do not rise up because they have never seen General Motors, or any other major American business, rise up and dare to assert the philosophical principle of private property rights and individual freedom and proceed to pull the leeches off in the name of that principle.

It is easy to say, and also largely true, that General Motors and American business in general have not behaved in this way for several generations because they no longer have any principles. Indeed, they would project contempt at the very thought of acting on any kind of moral or political principle.

One of the ugliest consequences of the loss of economic freedom and respect for property rights is that it makes such spinelessness and gutlessness on the part of businessmen — such amorality — a requirement of succeeding in business. Business today is conducted in the face of all pervasive government economic intervention. There is rampant arbitrary and often unintelligible legislation. There are dozens of regulatory agencies that combine the functions of judge, jury, and prosecutor in the enforcement of more than 75,000 pages of Federal regulations alone. The tax code is arbitrary and frequently unintelligible. Judicial protection of economic freedom has not existed since 1937, when the Supreme Court abandoned it, out of fear of being enlarged by Congress with new members sufficient to give a majority to the New Deal on all issues. (Try to project the effect of a loss of judicial protection of the freedoms of press and speech on the nature of what would be published and spoken.)

Any business firm today that tried to make a principled stand on such a matter as throwing out a legally recognized labor union would have to do so in the knowledge that its action was a futile gesture that would serve only to cost it dearly. And a corporation that did this would undoubtedly also be embroiled in endless lawsuits by many of its stockholders blaming it for the losses the government imposed on it.

But none of this should stop anyone else from speaking up and making known his outrage at what the UAW has done to General Motors.

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author's web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His book is available through Mises.org, Amazon.com, and on his web site. See his Mises.org Daily Articles Archive and read his interview in the Austrian Economics Newsletter. You can contact him by mail. To comment on this piece, go to the blog.

Politics And Immigration

 Give me your tired, your poor,

Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me
I lift my lamp beside the golden door.
—Verse engraved on the base of the statue of liberty

Readers of my blog know that I am overall very pro-immigration. I have a strong belief that immigrants are a net plus, both for this country and for the immigrants themselves. In economics, there are hardly ever such win-win situations as there are with immigration and our country.

One of my biggest pet peeves is, when discussing politics and my views on immigration, for someone to automatically refer to my immigration views as ‘liberal’, or to imply that I am not conservative on immigration issues. The reason this bothers me so much is because immigration is much more complicated than simply reducing it to a liberal/conservative or Democrat/Republican issue, and frankly, I don’t think a pro-immigration view is a liberal tenet, rather it’s more of a conservative tenet. I have refrained from discussing this topic before because it is one of those topics where it is very difficult to explain and the likelihood that someone will read into my posts what I did not mean is high. So up until now, this has been a conversation I usually only bring up over a few beers with friends. However, because of the rise of the minutemen and President Bush’s immigration plan, I have decided to write on this and explain exactly why I think immigration is more a conservative issue.

The Real Public Service

The Real Public Service

Thomas Sowell
|
Posted: Jun 01, 2010 12:01 AM

Every year about this time, big-government liberals stand up in front of college commencement crowds across the country and urge the graduates to do the noblest thing possible-- become big-government liberals.

That isn't how they phrase it, of course. Commencement speakers express great reverence for "public service," as distinguished from narrow private "greed." There is usually not the slightest sign of embarrassment at this self-serving celebration of the kinds of careers they have chosen-- over and above the careers of others who merely provide us with the food we eat, the homes we live in, the clothes we wear and the medical care that saves our health and our lives.

What I would like to see is someone with the guts to tell those students: Do you want to be of some use and service to your fellow human beings? Then let your fellow human beings tell you what they want-- not with words, but by putting their money where their mouth is.

You want to see more people have better housing? Build it! Become a builder or developer-- if you can stand the sneers and disdain of your classmates and professors who regard the very words as repulsive.

Would you like to see more things become more affordable to more people? Then figure out more efficient ways of producing things or more efficient ways of getting those things from the producers to the consumers at a lower cost.

That's what a man named Sam Walton did when he created Wal-Mart, a boon to people with modest incomes and a bane to the elite intelligentsia. In the process, Sam Walton became rich. Was that the "greed" that you have heard your classmates and professors denounce so smugly? If so, it has been such "greed" that has repeatedly brought prices down and thereby brought the American standard of living up.

Back at the beginning of the 20th century, only 15 percent of American families had a flush toilet. Not quite one-fourth had running water. Only three percent had electricity and one percent had central heating. Only one American family in a hundred owned an automobile.

By 1970, the vast majority of those American families who were living in poverty had flush toilets, running water and electricity. By the end of the twentieth century, more Americans were connected to the Internet than were connected to a water pipe or a sewage line at the beginning of the century.

More families have air-conditioning today than had electricity then. Today, more than half of all families with incomes below the official poverty line own a car or truck and have a microwave.

This didn't come about because of the politicians, bureaucrats, activists or others in "public service" that you are supposed to admire. No nation ever protested its way from poverty to prosperity or got there through rhetoric or bureaucracies.

It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader.

Those who have helped the poor the most have not been those who have gone around loudly expressing "compassion" for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about.

The wonderful places where you are supposed to go to do "public service" are as sheltered from the brutal test of reality as you have been on this campus for the last four-- or is it six?-- years. In these little cocoons, all that matters is how well you talk the talk. People who go into the marketplace have to walk the walk.

Colleges can teach many valuable skills, but they can also nourish many dangerous illusions. If you really want to be of service to others, then let them decide what is a service by whether they choose to spend their hard-earned money for it.

I LOVE Diversity

 I absolutely love it. Here is a recount of my day today...

I arrived at work to find my Indian/Canadian office mate in the office, we chatted a little about martial arts and what not, than I immediately went to the lab to do some work. As soon as I arrived in the lab, I started talking to an Iraqi friend, this friend is from northern Iraq, and overall supports the war in Iraq. He is always up to date on all the news, and fills me in on what it's like to be in Iraq. Today's topic of choice was the movie I let him borrow, Voices of Iraq, he hadn't watched it yet, as I was interested in his perspective on the movie.

Soon after that, I bumped into another friend at work, a native of Canada. This is a friend that I have long economic conversations with. He grew up amongst anarchists (damn Chomsky!!) and has leanings towards communism (yikes!!!). Needless to say, I immediately proceeded to talk about the wonders of Capitalism. Today's topic was some books I had recommended him (Friedman, Sowell, and Hazlitt). He is a smart cat, with a huge heart, it won't be long before he connects the dots.

Later, I chatted with a different Indian friend, not my old house mate, but a friend that is part of my group at work. We chatted about work stuff here and there, but overall touched on the topic of colonization (Queen Elizabeth, give them their Diamond back!!!) and what it does to a country. Nothing too long, just simple conversations.

I than headed to class (UCSD) with my other office mate (it's a big office, ok!!), who I have known since I started college, and who happens to be a Vietnamese refugee. His father, after the USA withdrew from Vietnam, was imprisoned for 10+ years for fighting with the USA for South Vietnam. President Reagan (may he rest in peace) went to Vietnam, and gave every family that had a family member imprisoned for a certain number of years (can't remember the exact number, I think it was 2 or 3 years) for fighting with the USA, free passage to the United States. My friend came, worked for a few years, saved saved and saved. Eventually enrolled into college, while still waking up at 4 amish to deliver newspapers, and graduated top of his class (I was second :-( ). He is now one of the top Engineers at our company. Imagine, with no help but his own will and dedication, in fact, there were many times where he had to go out of his way to support him and his father. Yet he did it, with no complaints and nothing but love and joy for this country. He never stops telling me how absolutely horrible it is to live under a communists regime, and always reminds me how lucky I am to be in the United States (God Bless America!!).

Upon arriving at school, I got the updates from our (school) lab partners. There are five of us, myself, my Vietnamese work mate, two foreign exchange students from Iran, and one Sikh from India (btw, Turbans in the USA pretty much means Sikh NOT Muslim). We chatted a bit, and than headed back to work.

When I got back to work, another friend of mine was in the (work) lab. This is another Mexican/American friend who, like myself, speaks fluent Spanish. When I was younger my dad used to give me a 'coscoron' everytime I spoke English to someone who you could clearly tell spoke Spanish better, and it's no different with this friend. I don't care how many people are around that don't know Spanish, when me and him communicate it is always in Spanish (Remember the Treaty Of Guadalupe Hidalgo, before giving me an English Only lecture ;) ). Sometimes we talk about his kids, who btw, were raised by him and his wife of SEVERAL years (they were married very early, both are natives of Mexico). His oldest son just completed, at age 25ish, his Masters in Electrical Engineering from UCSD and now works for Nokia (making BIG bucks), and his eldest daughter is a public school teacher, his second oldest daughter is getting her bachelors degree at UCSD in Physics. Yeah, you heard that right, I am very proud (on a side note, my 13 year old sister is very good at math, I have high hopes for her, more news in a few years)!!!

While walking down the hall, I chatted with a white friend, about another Chinese friend who had been in a bicycle accident. Everything is ok, he will be back to work on Monday.

After this, I came home and chatted with my white roommate about this upcoming weekend. You see, I have friends coming over this weekend, mostly old college friends, but some friends I knew outside of college. As a matter of fact, I have a very close college white friend of mine driving from San Jose as we speak, he is due to get here at 3am in the morning. Who is coming you say, well if everything works as planned, it should be possibly two black guys, two white guys, four Mexican guys, two Cubans, and a guy from Peru. And those are just the ones staying over my place. I invited some friends from work, friends from school, and just friends that live in San Diego (Oso and Derek, you guys are invited too).

All in one day. I haven't even started talking about how my meetings at work are...It's almost a mini United Nations (except we get things done, and don't steal from the poor).

For all the crap some people give to California, this is certainly not part of it. This is the America I've known, the America I love, and the America that makes this country great. Sometimes I think it is even better than all the hot women here (ok, you're right, the hot women are better, but it's a close second). And it is very enriching.

With that out of my system, see you all on Monday, I got some partying to attend too.

PS: I also got A LOT of work done in the blank spots above...don't want anybody getting the impression... (Originally published: 1/21/2005)

Environmental Progress vs Economic Growth

 Many people try to frame environmental debates as debates between those who care about the environment and those who simply do not. This is not an accurate picture.

The tug of war between environmentalists and 'non-environmentalists' is not a tug of war between those who care for the environment vs those who do not care for the environment. It is between the environment vs economic growth and personal income (be it in the form of more money in your pocket or having a job).

I can not think of one contentious environmental law that doesn’t either harm economic growth or people's pocket book. For example, if you want to place higher taxes on gas, something that John Kerry was very fond of, that would disproportionately hurt my friends back in Compton than people in San Francisco. Why? Because the poorer you are, the more those extra cents a gallon matter. Or think of emission regulations, like those here in California. If those place a burden on companies, who bears the brunt of those burdens? Not the rich CEOs, but the people at the bottom of the economic ladder. For example, if the company decides to leave California because the restrictions are so high, that hurts primarily those w/ less economic capital, those that have less experience and education to bargain with. They lose that job, and they will have a much harder time getting another job than me and my Engineering friends. Or assuming the company doesn’t leave, say those regulations cost the company some extra money, hurting their bottom dollar, who are the first to go? Not the CEOs, but those at the bottom. In addition to personal income, economic growth is also (severely) restricted. Estimates say that it would cost us as much as $150 billion a year to transfer to a more environmentally regulated system.

This is especially evident when you look at underdeveloped countries. The last thing underdeveloped countries need is environmental regulations. At such low levels of economic growth, the first thing they are concentrating on is economic growth and feeding their children. This is the primary reason that underdeveloped countries are usually left out of environmental treaties.

This is primarily why the most pro-environmental people tend to be wealthy. All them Hollywood liberals, for example, are a lot less concerned with economic growth and bottom dollars than the poor. Or, for example, if you were to take a sample of the Sierra Club members, you would see that they are largely upper-income city dwellers (and tend to be anti-immigration, but that is a story for another day). This is why you see limousine liberals much more pro-environmentalist than say, inner city liberalism. Inner city liberals, being on the lower end of economic growth and income, tend to benefit more from the other side of that tug of war.

Of course, both sides are important. We need to preserve the environment and encourage economic growth and care for the poor. The question is where in the middle do you draw the line? The poorer you are, the more you want the line to the right; the richer you are, the more you want the line to the left. Conservatives/Republicans tend to err on the side of economic growth (and, indirectly, personal income for the poor), while liberals/Democrats tend to err on the side of the environment, both ideally wanting the best of both worlds. (Originally Posted: 5/11/2005)

More Hispanics Needed In The Sciences

 Caution, rant to follow...

[rant]I am taking two upper division courses at UC San Diego, Device Physics and Active Circuit Design. I know a lot of the material already from my undergrad, but I am planning on getting my masters in EE from there, so I figured a refresher would be good.

These are typical undergrad courses, ones that have to be taken by all engineers. The classrooms are big, holding 100+ students in an auditorium type setting. So you get to see what the average Engineering/Science class looks like. One of the first things I noticed when I started the class was how few Hispanics there are. Out of all the students in the classroom, I have not found one who looks Hispanic. Granted, not all Hispanics look alike, and there may be Hispanics who aren’t easily recognized as Hispanic. But it’s a clear fact that the majority in the classroom are Asian and White. I think I saw one black person.

I truly have a love for the sciences, and no disrespect to the liberal arts majors, but I am always bothered when I hear about a Hispanic who did well in high school and has the potential to succeed and yet decided to major in Chicano Studies or some degree like that. I always think its such a waste (especially since those majors are heavily biased towards the liberal philosophy, but that’s another topic). Why not enter a field where Hispanics are underrepresented, a field that has the most real world application, and a field that encourages math and science? Ok, I grant you that knowing where you came from is also good, but I think Chicano Studies and the like should be hobbies, or maybe minors at most, but definitely not your primary area of study.

I have three younger brothers and sisters still living at home. My two youngest brothers are only five and seven so I am just getting started with them. But my sister, she is thirteen now and is already showing a very strong understanding of math. She is top of her class despite having parents that don’t speak English very well. My dad doesn’t even have an elementary level education. I’ve taken it upon myself to encourage this side of her and to foster her love for math and the sciences. I am also doing the same for my little brothers.

I encourage all my fellow Hispanics out there to do the same. Encourage your kids to study the sciences. To study majors that heavily deal with math. Majors like all forms of Engineering, Economics, Chemistry, and Biology. Read up on important people in the sciences and talk positively about their accomplishments. Find local science functions going on around the neighborhood. If you can’t find one near your neighborhood, drive out of your way to go to one. You’d be surprised how much that affects a child’s view. For example, when I was younger, I was going down the wrong path in life and I remember seeing my dad up late studying. He came to this country from Mexico with no education whatsoever, but he is such a hard worker that his company offered him the chance to go to school and learn diesel mechanic stuff, therefore giving him the opportunity to get a job that would pay him almost double his salary. He jumped at the chance, and when he first tried to register at City College they turned him down. Arguing that with his lack of education, and bad English, he wouldn’t survive. My dad protested until they agreed to let him have a chance. So for the next six months my dad would start work at 6am, go to work until 4pm, than go to school until 10pm, come home and study until 12 or 1 in the morning, continuously, day after day. He would translate each line with his Spanish/English translator, or would have me translate it for him. To make a long story short, he got C’s his first semester, B’s his second, and straight A’s since then. He spent the next two years in City College, with all but the first two semesters getting straight A’s. Granted he didn’t take any GE course, all the courses he took were related to diesel mechanic, but with what he had to work with, it is still amazing what he was able to accomplish. To get back to my point, seeing my dad do that had a huge impact on my life. It taught me the value of education and gave me the will to do it. When I was going through a rough time in my life I registered in college and soon rose to the top of my class, not because I am the smartest kid in the class (I wasn’t), but because I had a desire to study and a willingness to give it my all. Looking back I don’t think I would have done it without my dad’s experience. So even though it can be hard and you may know very little about math, it is still very possible. What makes a kid get good grades is more dependent on the values and ethics you teach your son/daughter, than on actual help you give him in class.

So I plead with all Hispanics reading this blog. Push your kids into the sciences, start at a young age, and encourage them to continue. We need more Hispanics in the sciences.

Ok, rant over. [/rant] Time to get back to studying... (Originally posted: 10/09/2004)

What Does Exploitation Mean?

 It is often heard that transnational corporations are evil for 'exploiting' underdeveloped countries 'cheap labor' by opening up businesses there and if only corporations would stop their 'exploitation', the economies in those countries would improve.

Matt McIntosh, writing in Tech Central Station disagrees and in the process explains some economic principles:

Let us say that I am poor and you are wealthy. I live a harsh life of bare subsistence farming, while you make several thousand dollars per day as a business owner in the widget industry. One day you hire me to make widgets for you at a rate of $1 per widget, which you then sell to make a profit of $2 per widget. Which of us has benefited the most from this exchange?

If you answered that it must be you, this is wrong. It's true that you are still much, much better off than I am in absolute terms, and that in dollars, you have gained more than I have. But considering our relative starting points and the basic fact of diminishing marginal utility, this transaction has benefited me more than it has benefited you. Simply put, the principle of diminishing marginal utility states that each extra unit of a good provides less subjective benefit to an individual than the last one did: an extra dollar means much, much more to a pauper than to a millionaire. Thus I get much more subjective utility from the extra dollars I now have than you do from the extra dollars you have.

McIntosh continues on to explain why the word 'exploitation' only makes sense in economically ignorant majors like Chicano Studies but has practically no meaning in the actual study of poverty reduction, economics.  (Originally published: 7/13/2006)

Why Increasing University Subsidies Does Not Help The Poor

 Recently here in California Governor Arnold Schwarzenegger was taken to task for reducing government subsidies to California Universities. The argument went that government subsidies help reduce University costs, which in turn helps reduce tuition, and since the poor would have a hard time paying higher University tuition, government subsidies are a boom for the poor.

While I can understand the motivation behind this argument, frankly, the argument was never very persuasive to me. For one, the majority of people that attend these Universities, especially the elite ones like the UC system, Stanford, and USC, are not poor people, but the upper and middle class. Yet since the subsidies come from tax revenue, tax revenue that can be used to help all citizens, very poor, poor, and middle class, subsidizing Universities is a method that takes from everybody but primarily helps the upper class and middle class. In the end, becoming a very inefficient way to decrease income inequality.

Second, there is no guarantee that subsidizing Universities will result in cheaper tuition for the poor. For example, Harvard, probably the highest subsidized University in the country, either by government subsidies or by direct gifts from former students, has one of the worse records of cheaper tuition for the poor. Hispanic Business writes:

Until recently, Harvard University has been perhaps the most glaring example of an elite college's failure to welcome low-income students. With an endowment of $25.9 billion -- far larger than that of any other university in the U.S. or abroad -- Harvard clearly has the resources to educate the poor.

Yet only about 10% of its undergraduates are eligible to receive federal Pell Grants, which are usually awarded to students from families earning less than $40,000 a year. At Amherst, 15% of the students get Pells, and President Anthony Marx is aiming to boost that to 25% of future classes.

But now, Harvard's controversial president, Lawrence Summers, is on a campaign to give low-income students far greater representation at America's most prestigious university. "If Harvard is only for the children of those who have been successful, we will lose the social mobility that has always been America's strength," argues the former U.S. Treasury Secretary. "I'd like Harvard to look as much like America as possible."

How far has this program gone? Hispanic Business continues:

GUARDED OPTIMISM. Harvard's program has only been in place for one full admissions cycle -- for the class that entered Harvard in September, 2005 -- but Summers and Fitzsimmons are encouraged. Last fall's entering class had 299 students from families earning less than $60,000 a year vs. 246 the year before -- an increase of 22%.

Imagine that, with a school as rich as Harvard, with a school with as many resources as Harvard, and more importantly, with a school that gets so much free money from government subsidies and private donors, Harvard could only find 299 students - and that an increase of 22% from the following year - from families earning less than $60,000/year. In addition, since the hard left at Harvard has run out Larry Summers, the founder of the program, the problem might get worse not better.

Subsidizing Universities to help the poor is analogous to having the government subsidies upper end department stores like Nordstroms and Bloomingdales in an effort to make products cheaper for the poor. A method that not only doesn't accomplish its goal very efficiently, but when it does help make products cheaper, it does so primarily for the benefit of the rich and middle class, not the poor.

Shawna Rasul, a student at the UCLA School of Law, learned this lesson the hard way, in a letter to the editor of the Daily Bruin she wrote:

I got an e-mail from the chancellor Thursday morning that gleefully described how UCLA has managed to raise $3 billion – more money than any other institution of higher education ever!

That's truly impressive, and from now on, I will hear "$3 billion" every time I walk into the lobby of my UCLA apartment building that looks like an abandoned home-improvement project.

Every time I look at the holes in the drywall and the 1970s renaissance carpeting, I'll think about the $3 billion.

When I cautiously take the elevator up to my floor and notice that the permit expired 14 months ago, I will wonder about those $3 billion. When I pay my $24,000 in student fees (which recently went up another $1,500), the $3 billion will be on my mind. While I'm pounding the pavement looking for a full-time job because the mid-year tuition increase has left me without the ability to pay my rent and bills this semester, I will reflect on the $3 billion.

But excuse me if I don't pop open a bottle of champagne and throw a party – I can't afford it.

This is why you won't find me on the picket lines asking for more funding for Universities, and instead find me squarely on the side of those who reduce University funding and instead find efficient means to help the poor pay for college tuition.

Update: Harvard economist Jeffrey Alan Miron writes on the same thing and seems to agree with my conclusion as well, his post here.

Update: Richard Vedder of the Center For College Affordability And Productivity has more. (Originally posted: 3/6/2006)

The Liberal Mind

 I just finished reading through a three part series named Pilgrim's Egress, which is an unfolding of some of the events in Duke University's Political Science Professor, Michael Munger's, life.

Throughout this account, Professor Munger sheds light on the liberal mindset and some of its psychological makeup. This is important coming from Professor Munger, because he is speaking from the lions den itself. It is an undeniable fact that academia, especially in the social sciences, is dominated by liberals. So Professor Munger, being a Duke University Poli Sci professor, comes from a unique perspective of being right in the heart of liberalism.

I want to post some quotes that I thought were particularly telling. However, I hope this doesn't give the impression that this is all Pilgrim's Egress is about, it is not. It is a definitely worth reading and should be read in full/completely. Especially the section on his Cuba trip, and the Economic critique of that country. But for those who are just passing by, here are some interesting quotes,

You have to realize that the idea of political correctness, as opposed to its archenemy, political incorrectness, lies behind the bland smile of many otherwise decent liberals. There really is a right, and a wrong, view. Right is what they believe; wrong is anything else. If they are tolerant, it is the same kind of patronizing tolerance that keeps them from correcting one of their yowling whelps in a restaurant. They give the child time to work on his issues, and he’ll come to the right conclusion on his own. But don’t be confused—the tolerance the politically correct Left shows is not the kind of respect that implies, or even allows, an exchange of views. They are right, and you are wrong, and only an idiot would disagree. (You are the idiot, by the way.)

And what exactly is this view that completely unites liberals? Professor Munger explains,

The very idea of “political correctness,” then, is the product of two certainties that intertwine in the minds of the intellectual Left. The first certainty is the moral superiority of planned economies, and education systems, with equality of income and the absence of opportunity for social differentiation through effort or excellence.

The second is the inevitability of historical “progress” toward this goal, as societies evolve and improve. Together, these two certainties constitute a dynamic teleology, with both moral and historical force. To be politically correct, then, is not simply to pay lip service to current fads of speech or fashion, such as what name to call a minority group to avoid insulting its most sensitive members. Political correctness is the sense that there is a right side in history, and people on the other side are evil, delaying progress and misleading the gullible masses.

And some interesting insights into the psyche of liberals,

The academic Left needs to see itself as being outré, oppressed, the “Other” in the society in which it lives. If the Left thought of itself as conventional, and established, two things would happen. First, they would actually be responsible for the problems and inadequacies of American university education, rather than the rebels trying to make things better against overwhelming odds. Second, they would be overcome by unhappiness on a grand scale. Many people on the Left require a sense of “otherness” to be able to survive psychologically. Intellectual laziness and moral bankruptcy are not very attractive. Better to be beaten down and discriminated against by “the man.”

The academic Left, as a religious community, doesn’t like people at all. They have rarely spoken to, or met, anyone who doesn’t fully share their views. The series of educational and employment choices that lead to a career in the humanities or social sciences nearly guarantee a kind of isolation and groupthink that is self-perpetuating.

But Leftists often hate dealing with persons personally.

The idea of engaging with a nonacademic, someone unaware of Foucault’s genius, is very upsetting. Professors love the working class, as a big lumpen proletariat in need of assistance, by force if necessary, but professors find the idea of actually working appalling. Stands to reason: if you spend your time caterwauling about how deadening working must be, you have to believe that workers are the walking dead.

The idea of moral progress is irresistible, crack cocaine for the intellectual. Various projects, from the reform of institutions to reforming the minds of citizens, are constantly hatched and chattered about. In spite of the disasters that always result (Mao’s “Cultural Revolution,” Lyndon Johnson’s “Great Society,” Pol Pot’s reeducation camps, and Hillary Clinton’s health care “reforms”), educated people are always convinced that things should be, and could be, better.

And why is it that the liberals keep holding onto beliefs that have repeatedly failed, time and time again, Professor Munger writes,

Austrian economist Ludwig von Mises said this really cool thing in Epistemological Problems of Economics. He said:

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world...They wish to be free of a universe of whose order they do not approve.

And that’s what socialist “theory” is: an alternative universe, a happy place where laws of economics (resources are scarce, producing things takes work, governments cannot create value), and possibly even physics (all roads should be downhill, because in my mind that would be better), don’t apply.

And that my friends is the central problem of why facts don't sway liberals. They keep pursuing this utopia that they will never find.

To summarize, I think Eric Hoffer said it the best when describing the intellectuals,

"A ruling intelligentsia, whether in Europe, Asia or Africa, treats the masses as raw material to be experimented on, processed and wasted at will." (Originally posted: 07/25/2004)

Liberals View Of Minorities

 Walter Williams has an article detailing his experiences working with liberals, and how, in his opinion, they view minorities (he gives blacks as examples, but it could be applied to all minorities). He writes,

On occasion, when the question-and-answer session began, I'd tell the press, "You can treat me like a white person. Ask hard, penetrating questions." The remark often brought uncomfortable laughter, but I was dead serious. If there is one general characteristic of white liberals, it's their condescending and demeaning attitude toward blacks.

According to a Washington Times story (July 14, 2004), Democratic hopeful Sen. John Kerry, in a speech about education to a predominantly black audience, said that there are more blacks in prison than in college.

"That's unacceptable, but it's not their fault," he said. Do you think Kerry would also say that white inmates are faultless? Aside from Kerry being factually wrong about the black prison population vs. the black college population, his vision differs little from one that holds that blacks are a rudderless, victimized people who cannot control their destiny and whose best hope depends upon the benevolence of white people.

In a liberals mind, minorities are a group of people that can not make it on their own, a people that needs the assistant of liberals, through government, to come out of poverty. A group of people that should be graded on a whole different scale. Whether its affirmative action(handicap points?) or in behavioral problems, minorities are held to a lower standard.

The conservative on the other hand, views minorities quite differently, Walter Williams writes,

On July 23, President Bush gave a speech to the National Urban League. Unlike so many other white politicians speaking before predominantly black audiences, Bush didn't bother to pander and supplicate. He spoke of educational accountability and school choice and condemned high taxes, increased regulation and predatory lawsuits. He defended the institution of marriage. He didn't see blacks as victims in need of a paternalistic government to come to our rescue. He saw blacks needing what every American needs -- an environment where there's rule of law, limited government and equality before the law.

It's always been my contention that the conservative vision shows far greater respect for blacks than the liberal you-can't-make-it-without-us vision.

Same here Walter Williams. (Originally published: 08/04/2004)

Two Ways At Looking At The Same Thing - Slavery In America

 I remember when I was younger, my mom used to always tell me that there are three sides to every story: his, hers, and the truth. Throughout the years what she said has been shown to be true over and over again. There is no greater example of this than the history of slavery in the United States.

Nobody doubts that the United States, for a good portion of its history, participated in one of the worse acts in human history, slavery. This is the 'true' part of the story. This is the part that has the facts behind both his side of the story and her side of the story. However, how it gets interpreted, and what it says about the United States are two very different, I would even say, opposite conclusions.

You have 'her side' of the story, the one we're all familiar with, that says that this fact demonstrates that the United States is inherently racist. It claims that because of this part existed in the history of the United States, the members who trace their roots to those generations should be ashamed, some even go as far as saying that they should pay 'reparations' for what they have done. This past is forever engrained in her image, and determines how she looks at all aspects of the United States history and future.

Than you have 'his side' of the story that says that a part of the history that has been left out shows a greater picture. Yes, the United States participated in slavery, but the portion that is often left out is that so did practically every other race, religion and continent. Slavery has been a part of human history for as long as history has been recorded. And every group has participated in one way or the other. Christians, Atheists and Muslims all had a big hand in it, so did the vast majority of cultures. Bernard Lewis, emeritus professor at Princeton University, writes "The institution of slavery had indeed been practiced from time immemorial. It existed in all the ancient civilizations of Asia, Africa, Europe, and pre-Columbian America. It had been accepted and even endorsed by Judaism, Christianity, and Islam, as well as other religions of the world." In fact, the name slavery comes from the word Slavic, because of the frequent enslavement of Slavs in central Europe.

So it is not slavery that makes the United States unique, since it was actually practiced by every race and color and for every reason imagineable. In fact, a good portion of African slaves were sold to Europeans by Africans themselves. So undoubtedly, all people making the charge that the United States is racist have somewhere in their history, some roots in slavery, both being enslaved, and being the slave owners. So what is it that makes America unique, if it's not in having slaves? Thomas Sowell hints at it when he writes,

...nowhere in the world was slavery a controversial issue prior to the 18th century.

People of every race and color were enslaved -- and enslaved others. White people were still being bought and sold as slaves in the Ottoman Empire, decades after American blacks were freed.

Everyone hated the idea of being a slave but few had any qualms about enslaving others. Slavery was just not an issue, not even among intellectuals, much less among political leaders, until the 18th century -- and then only in Western civilization.

Among those who turned against slavery in the 18th century were George Washington, Thomas Jefferson, Patrick Henry and other American leaders. You could research all of 18th century Africa or Asia or the Middle East without finding any comparable rejection of slavery there.

Deciding that slavery was wrong was much easier than deciding what to do with millions of people from another continent, of another race, and without any historical preparation for living as free citizens in a society like that of the United States, where they were 20 percent of the total population.

It is clear from the private correspondence of Washington, Jefferson, and many others that their moral rejection of slavery was unambiguous, but the practical question of what to do now had them baffled. That would remain so for more than half a century.

In 1862, a ship carrying slaves from Africa to America, in violation of a ban on the international slave trade, was captured. The crew were imprisoned and the captain was hanged in the United States -- despite the fact that slavery itself was still legal in both Africa and the U.S. at the time.

What does this tell us? That enslaving people was considered an abomination but what to do with millions of people who were already enslaved was not equally clear.

That question was finally answered by a war in which one life was lost for every six people freed. Maybe that was the only answer. But don't pretend today that it was an easy answer -- or that those who grappled with the dilemma in the 18th century were some special villains, when most leaders and most people around the world at that time saw nothing wrong with slavery.

So the United States isn't unique in having slaves, the United States is unique in fighting against slavery. Yet little of this is mentioned in 'her side' of the story.

Furthermore, if you factor this into the fact that the United States is the most pro-immigration country in the world, you arrive at opposite conclusions than those arrived at by 'her side' of the story.

So the United States, when looking at the big picture, is not the 'racist' country it is made out to be, but the exact opposite. Compared to other countries in the world, it is one of the most open, unracist countries in the world. And its about time 'his side' of the story gets told more. (Originally published: 10/17/2004)

Paradigms Of Poverty

 If you put three economists in a room together one liberal, one conservative, and one libertarian and discussed minority poverty and its causes, how would the discussion unfold? After many years of reading about this topic from various sources, I have come to believe that the break down would look something like this.

The liberal economist would focus more on external causes - institutional racism, racism in general, and the overall affects society has on those in poverty. The solutions to poverty should be immediate and tend to be monetary in nature - so you get welfare, government programs, and lower taxes for the poor.

The conservative economist would focus more on internal causes - the breakdown of the family, the divorce rate, drugs, and overall cultural influences. The solutions to poverty should be long term and tend to focus more on changing the culture - so you get things like Bush's faith based initiatives, changes in the welfare system so that it doesn't reward divorce and occasionally something as creative as this.

Thomas Sowell summarizes the conservative economist well when he wrote:

The greatest dilemma in attempts to raise ethnic minority income is that those methods which have historically proved successful — self-reliance, work skills, education, business, experience — are all slow developing, while those methods which are direct and immediate — job quotas, charity, subsidies, preferential treatment — tend to undermine self-reliance and pride of achievement in the long run.

With this in mind, it is easy to see why many conservatives dislike affirmative action.

Up until now the conservative and liberal economist both had a place for government in solving the problems of poverty - whether the problem was internal or external, racial or cultural, government played a role. The libertarian, on the other hand, would have none of this. The libertarian solution to poverty would involve much less (many would argue none at all) government assistance. Though the solution (significantly limited or no government interference) is the same among libertarians, they have strong disagreements among themselves as to why that solution is optimal.

Soft libertarians will argue along the same lines as conservatives, stating that government interference is innately inferior to a free market at solving problems since no matter how you structure the assistance, it will always have a negative affect on culture and promote destructive behavior. So in the end, government assistance is like a dog chasing its tail only that with each spin of the dog the poverty gets worse and the costs more expensive. In addition, a soft libertarian sees a strong state and a strong family as incompatible. If you increase one, you will reduce the other.

For example, Arnold Kling, writes:

Most Western nations have created a cycle of dependency with respect to single motherhood. Government programs, such as welfare payments or taxpayer-funded child care, are developed to "support" single mothers. This in turn encourages more single motherhood. This enlarges the constituency for such support programs, leading politicians to broaden such programs.

He quotes approvingly, this post from Phillip Swagel on social security:

"It is convenient for us who are young to forget about old people if their financial needs are taken care of...But elderly people want and need attention from their children and grandchildren...This, then, is the ultimate trouble with the government spending other people's money for the support of one part of the family. Other people's money relieves us from some of the personal responsibility for the other members of our family. Parents are less accountable for instilling good work habits, encouraging work effort...Young people are less accountable for the care of particular old people, since they are forcibly taxed to support old people in general." (p. 116-117)

Since the family is better suited to deal with these problems than an impersonal state, in the long run this results in a reduction in efficiency and increase, not decrease, in poverty. It is this aspect of government interference that soft libertarians are attune to. For examples of solutions to poverty proposed by soft libertarians read this, this and this.

Hard libertarians, on the other hand, are in a category all on their own. Like libertarians in general, they share the belief that government has a very limited role to play in solving poverty but they take it one step further - in addition to cultural forces, they include IQ. From my reading of the literature, this breaks down into two somewhat independent parts. The first is the strong correlation IQ has with success. The second is the link between IQ and race.

The first point, the strong correlation of IQ with success, seems to be generally accepted. For example, Greg Mankiw, professor of economics at Harvard comments on a paper discussing this very thing:

Among a group of adopted sons, which is a better predictor of high education and high earnings?

(a) Having highly educated biological parents.
(b) Having highly educated adoptive parents.

According to results in a new study of Swedish data from Anders Björklund, Markus Jäntti, and Gary Solon, the answer is (a).

The results in this paper seem broadly consistent with those of Dartmouth economist Bruce Sacerdote, who examines a completely different data set in which adopted children were assigned randomly to parents.

In both papers, nature is stronger than nurture for determining the educational attainment of adopted children, although both nature and nurture have some role. And in both papers, nature completely dominates over nurture for determining income.

Nobody is arguing that IQ is everything, only that it is the strongest predictor of income, much more so than any other single data point you can provide. Hard libertarians will take this one step further and connect it to race, arguing that poverty in the United States, to a large degree, mirrors differences in IQ. For example, why are blacks and latinos disproportionately represented at the lower income levels? Hard libertarians would argue that it's because blacks and latinos are disproportionately represented at the lower end of the IQ spectrum. For more on this and how it influences the role of government programs, see this, this, this, this, this, this, this and this.

The last link discusses what impact IQ should have on government programs. The link states:

Does it matter that IQ matters? Of course! An investment in education that looks extremely profitable if you don't control for IQ could easily be a big waste of money. The reason: If you don't control for IQ, you are giving education a lot more credit than it deserves. To say "Let's focus on the things we can change" dodges the hard truth: After you adjust for what you can't change, the things that you can change may give you very little bang for your buck.

Thus, IQ is highly policy-relevant after all. The left-wing ideologues who damn anyone who even thinks the letters "IQ" are actually on to something: IQ research does turn out to be a rationale for "right-wing" laissez-faire policies. The more IQ matters, the more likely it becomes that existing government policies are a waste of money - and that you would get a bigger payoff by doing less - or maybe nothing at all.

There are several arguments, convincing IMHO, one can make against hard libertarians (Thomas Sowell, most notably, making the strongest one, see here) though admittedly I have not spent much time looking closely at the disagreements (yet). My point here is not to say who is right and who is wrong, to defend one and criticize the other, only to outline, as best as I can, what the differences are in assumptions between the various schools of thought. For even when you get all of the economics correct, the initial preferences are still very different and shape a good portion of the debate. (Originally published: (11/30/2007)