Obamacare, Strike 2

A federal judge in Florida has ruled that Congress does not possess the power to compel all citizens to purchase health insurance, as mandated under Obamacare.  This is the second ruling by a federal judge invalidating the personal mandate.  Two other judges have ruled it constitutional.  We're heading towards a full count and a trip to the Supreme Court.

This is a positive development, and gives me hope that there are in fact real limits to federal power.

Click here for the story (very brief): http://news.yahoo.com/s/ap/20110131/ap_on_bi_ge/us_health_overhaul_1

Mr. Smith, please....

I love it when CEO’s write op-ed pieces urging our government to do this or that.  It’s as if the only thing standing in the way of (insert CEO’s special interest) is legislation from Washington.  I also love it, after suggesting government intervention, the same CEO swears that “I am not someone who tends to advocate increased government involvement in the private sector. But…”  Really?! 

 

Mr. Smith, CEO of FedEx, is advocating for a transition from petroleum-based vehicles to electric vehicles.  Why, you ask?  Mr. Smith reported that FedEx has experimented with electric delivery vehicles and found them to decrease (operating) costs 70 to 80%.  What Mr. Smith really wants is for government to subsidize and put in place the electric vehicle-charging infrastructure so FedEx can benefit from it.  In fact, the only thing standing in our way according to Mr. Smith is “a bill to promote electric vehicles”.  Sounds benign enough.

 

My suggestion to Mr. Smith is simple and straightforward: if you find electric vehicles to be more economical than their gas counterparts, let FedEx fund the necessary infrastructure.  Please don’t enlist the help of Uncle Sam.  Convincing Washington to pass a bill to solve your problem will only deprive me of a choice. 

 

Mr. Smith (and all other CEOs) – Please don’t advance your firm’s interest in Washington at the expense of my liberty.

To Raise or Call a Bluff

The Treasury is urging (begging) Congress not to toy with our country’s cherished AAA bond rating and to raise the debt limit soon.  Current projections have the Treasury reaching the statutory limit within the next 30-60 days.  Once that point is reached, the Treasury cannot issue new bonds to raise cash.  It would have to cash-flow and prioritize spending, or default.

The debt ceiling is Congress’s check on the executive branch.  The Treasury manages the country’s financial matters, issuing bonds in the capital markets to raise cash to fund operations.  This cash pays federal employees salaries, including Soldiers and Marines; it pays for interest on outstanding debt; and it pays doctors for treating seniors receiving care under Medicare.  Because the government spends more (much more) than it takes in, it issues bonds for cash.  Without this ability, it would have to operate much like we do – within our means.  The nerve!

So, Treasury is up on Capitol Hill, hat in hand, urging congressional leaders not to play politics with the debt level, because Armageddon awaits should Congress not act.  My money says Congress will blink and raise the debt limit, but I wonder what would really happen if they didn’t’.  Would we default or would Treasury make the necessary adjustments?

Two Types of People

Thomas Sowell's column on Monday reminded me of a world view that I find quite useful. I like it because it gives a picture of the type of person one should be, without giving a lot of particulars. There are two types of people in the world: creators and consumers. No one is exclusively one or the other, since everyone creates to some extent, and everyone (must) consume to some extent. So it really is a story of net creating or consuming.

Net creators add more to the world than they take out. There are several obvious examples, like Bill Gates, or Larry Ellison, or the Steves of Apple, or Larry and Sergey of Google. Many examples abound; in fact most people are net creators. If they weren't, the world would not have progressed to the point it has.

But net creators don't always (or only) create new consumer goods or capital goods. Some net creators add to the psychic benefit people derive from certain activities. In a way, this can be considered a consumer good. Football, for example - many people enjoy watching football in its own right. Others enjoy hearing a good sermon at their church, so that the priest provides a psychic benefit.

Net creators put more value into the world than they take out. Net consumers are the opposite: they take without giving. Fortunately such people are the minority. One need not dwell for too long before thinking of a few examples in one's own life. Furthermore, one might suggest football players are net consumers, if you don't enjoy football. I think there's merit there - such that sports stadiums shouldn't be financed by public funds - but that's neither here nor there right now.

My main message here is a moral one. I believe we have a duty to be net creators, to the extent we are mentally and physically capable. My only argument for this, aside for "Protestant ethic" stuff, is the logical opposite: imagine a world of net consumers. Can you?

Nullify Obamacare?

Yep, you read that correctly.  Several states, including my beloved Texas, are proposing to nullify the federal legislation known as Obamacare.  Texas is going a step further and imposing penalties and possible jail time for any individual seeking to enforce any federal, statute, law, or regulation related to the Act.  Wow. 

The big question is: can a state nullify Congressional acts?  Perhaps the answer to this question isn’t so distant.  Should the courts rule Obamacare constitutional, expect Texas and many other states to march ahead with nullification efforts.  These, too, will be tested by the courts, and the outcome could be contentious.

There must be a limit to federal power; the tenth amendment recognizes this fact.  And I don’t trust the federal government to say when that limit has been reached, because the plutocracy in Washington isn’t in the business of relinquishing power.

Here’s the link to the Texas bill on nullification.

http://www.capitol.state.tx.us/BillLookup/Text.aspx?LegSess=82R&Bill=HB297

Me and Murray Sittin' in a Tree

...reading about e-con-o-meee.

Over the past few months, I've come to understand that Murray Rothbard is quite a controversial fellow within the Austrian school. Nevertheless, Peter Boettke, whose work I greatly respect, suggests anyone wanting to grasp the fundamentals of the Austrian school of economics should read Human Action and Man, Economy, and State. The former written by Ludwig von Mises (O Captain! My Captain! of the Austrian school) and the latter written by Rothbard. Mises thought Rothbard's work was very good, it seems. Anyway, the way I read Boettke's recommendation is that he thinks MES is a more accessible version of Human Action. So, I started with MES. I still have a day job, after all.

As I'm trained in the neoclassical version of economics, the first thing I should note about MES, and the Austrian school generally, is their unique (in the post-Marshallian/Hicksian/Walrasian world of economics) methodology. Known as "praxeology," the Austrian approach is characterized by verbal logic. Most economic theory nowadays is characterized by symbolic logic (math).

I'm not fully comfortable with the verbal approach, because of two things. First, obfuscation is easier, including confusing yourself. It takes an especially clear mind and lucid writing to do pure theory using words only. Plus, it's harder for the reader, since each word matters a great deal, and there's plenty of room for misunderstanding. Second, it makes the Austrian school more dismissable (made up a word!) because they haven't bought the membership into the club by having really difficult mathematics.

Now there is a lot to cover in Rothbard, so I'm going to begin and end this post by giving the foundational idea of Austrian economics, that shouldn't be the least bit controversial. The foundation of any social science is and must be: humans act. All events that occur in the world are due to individual actions. No government, no country, no society, no group, acts. Only individuals. That is critical, but like I said, uncontroversial from an economist's point of view.

The next point that is critical: humans act according to subjective value scales. If I buy a rake that costs $15, that means that to me the rake is worth at least $15, plus the irritation of having to go to the store to buy it, and the gas I use up. A rake is a capital good, so actually the value of the rake is the present value of the future usefulness of the rake to me. But it still is a subjective value: how important is it for me to clean the leaves off my lawn? (Not really at all, but my wife thinks it's a huge deal.)

So that's it for now: humans act according to subjective value scales.

From Bad to Worse

George Will pens an excellent article in the Washington Post about the growing scope of Washington’s legislative reach.  He refers to it as a hubris; a misguided sense by our current leaders that every social problem can be solved by federal legislation, which always comes at a cost to our liberty. 

Will goes on to say the problem will only grow worse.  Washington, although you wouldn’t know it, operates with limited resources.  Those resources are going to shrink even as the area of responsibility continues to grow.  This inevitably leads to bad government – government overpromising and under delivering.

Washington needs to vastly scale backs its efforts to solve every social problem that comes along.  The hubris needs a dose of reality.  The question is, will Washington listen.

Here’s a link to the Post article: http://www.washingtonpost.com/wp-dyn/content/article/2011/01/19/AR2011011905000.html

On Education

Brad asked me for my thoughts on compulsory education. My first instinct is to say: there's no such thing. Allow me to expand. Education is the process of learning stuff. You might become educated in physics, or fist fighting, or fishing, or phlebotomy. What is true of any type of learning is that the student must engage voluntarily in learning. To compel someone is to force them to do something. Since learning is voluntary, compulsory education is a logical contradiction.

Does that I mean I think all those kids being forced to sit in classrooms every weekday are an illusion? No sir. What I'm saying is those kids who don't want to be there are learning by accident, not by intent, if they're learning at all. Certainly I didn't do much learning at school - most of it occurred on my own, after school. I was several grade levels ahead in reading, simply because I read numerous books that were a few (and then many) years ahead of my "age."

In some ways, then, compulsory schooling is like prison - it's just warehousing the youngsters for a time. If schooling were not compulsory, would parents really not see to educating their children? I find an answer in the affirmative to be nonsense. Yes, there are some neglectful parents who would not send their children to school or otherwise see to their education. But then concerns over education would be secondary to concerns over the children's welfare generally (adequate food, no abuse, etc.). And, anyway, those youngsters that are badly off can't learn anyway, without proper nutrition or a safe environment at home.

Without compulsory schooling, the ability to develop new ways of educating children would be unlocked. Here's an option: get 10 families together to hire one person to educate the children of the 10 families. On average, this would be 20 children. Let's say they compensated the educator at the top end of the national primary school educator pay scale: around $50,000. That's $5000/family for a year of dedicated attention. Sounds pretty good to me. And that's just off the top of my head.

Certainly some families would find it beneficial to home school their children. This would be my preference, if I had children. There's an enormous amount of resources out there to help parents educate their own young. And, I don't see why brick-and-mortar schools would not still be useful. There are certainly some who benefit from a structured environment.

So I've gone from denying that education can ever be compulsory to alternatives to the status quo in schooling. In a nutshell: to the extent parents have been able, they have seen to getting their children educated. We are rich enough as a people that now children needn't work at all so can focus on their education exclusively. I think that not working is a mistake, but that's another post for another day. So compulsion is useless nonsense. But I bet teachers unions would disagree with me.

No Post of My Own, But I Agree with Mauzy

Mauzy on the Middle Class

Public Education

Should I be forced to pay for public education even though I don’t have kids?  A friend recently posed this question to me, and I haven’t found a compelling enough reason to answer him in the affirmative. It’s an interesting question, and it perhaps implies that public education would suffer should only childbearing parents bear the cost burden of education.  If this implication is correct, I wonder how this came to be.  Nevertheless, let’s assume that this is the case, and let’s see if we can work through this.

Part of me wants to believe the benefits of publicly funded education outweigh the costs.  Society is better off if our kids can read, write, add, and subtract.  Highly educated societies are shown to be more productive, healthier, and wealthier.  Therefore, I do think compulsory publicly funded education does offer some credible benefits.

I can think of a few negatives of this scenario.  First, just as my friend proposed – should folks with zero kids subsidize those with kids?  Seems immoral of the state to confiscate money from Joe to help pay for Suzie’s kids sans Joe’s consent.  If you find this okay because Joe’s money is going for education, suppose the state confiscated Joe’s money to subsidize senior citizens nursing home care (or any other activity the state desires).  I’m sure there are other objections, but this one rates high.

Now let’s pretend education isn’t publicly funded, but directly through user fees.  Folks aren’t taxed in advance by the state, so everyone starts whole.  Those well-off parents who value education will put their kids in school.  I want to believe this is the majority of cases.  Now, what to do with the margins.  Some folks will be unable to afford school, but charities such as non-profits and churches can offer scholarships to many of these.  I’m sure other philanthropic ventures would be created to assist the needy.  No need for state intervention through taxation.

Under this scenario, I believe education would look very different.  First, it would be slimmer, focusing more on teachers/students and less on administration.  Would a school bus armada exist?  Not sure, but not to the extent we have now.  School sports would take on a different shape too.  Maybe we wouldn’t have school-sponsored sports.  

I’m sure there are some problems I have overlooked.  We can talk about them as they are brought up (this of course assumes someone will read this and take time to comment).  On balance, I believe the potential for higher quality education exists under this scenario.  However, I’m sure the administrators and teacher’s union beg to differ.

Evil Profits?

I have a friend, who, while claims to support free-markets, doesn’t like firms profiting from cancer and other medical treatments.  He claims firms (primarily big pharma) should not reap billions while ordinary folks suffer from such a horrid disease.  He conjures up images of the CEO of Ely-Lily making millions in salary and bonus and self-righteously decries this to be morally reprehensible.  I must say the media has also done a good job of promoting this same mindset, that the profiteering of medicine can somehow be wrong.  I disagree.

Profits are signals.  [i]Profits tell us where our resources are used most effectively.  If Merck is reaping economic profits in the pharmaceutical industry, it’s a signal that society values this activity, and other firms will seek to enter this market.  (Note that government regulations and other barriers to entry can restrict access, but imagine for a moment these restrictions are minimal.)  As more firms enter (competition) and additional products are brought to market (additional supply), economic profit will decline.  In truth, government intervention can cloud profit signals, thus allowing firms to earn economic profit beyond what they would normally earn.  The pharmaceutical industry may reside in such a marketplace.

What my dear friend falsely believes is that if government reduces big pharma’s profits through taxes or regulations, that human suffering would decline.  This just isn’t so.  Profits allow for the development of new drugs.  Profits allow big pharma to hire researchers, scientist, and chemists to develop medications to extend our lives and to ease our suffering.  Reducing Merck’s profits would have the opposite effect, and society would be worse off, not better.

Profits are not evil.  They are incentives to firms and individuals to keep doing what they do best.  As Adam Smith said in Wealth of Nations, “It is not out of the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self interest.”

---

[i] Baye, Michael R., Managerial Economics and Business Strategy

Why is America Rich?

I recently watched a John Stossel episode, and he posed this very question: why is America rich?  And we are rich, especially when measured by world standards.  Even our poor are well off, compared to the poor of Haiti, Zimbabwe, and Afghanistan.  Depending on whose data you rely, the United States come in at 6^th (IMF data), 5^th (World Bank data), and 8^th (CIA World Factbook).

But why?  Why do we enjoy such a high standard of living compared to the rest of the world?  The answer is property rights.

Where you find clearly defined and well-enforced property rights, you will also find the basic ingredients for wealth creation.  The ability to borrow against your property, the property you own, is the fuel that feeds our engine of economic growth.  The banker need collateral before loaning you the money to start your own business, and often times that collateral is our property.  But, there may be other reasons for our prosperity.

What other reasons can you offer to explain why America has fared so well?  We’re a relatively young country, and we’ve come a long way quickly.  Why?  What is our secret to wealth creation?