Thursday, July 05, 2007

Freedomnomics Chapter 3

Government as Nirvana

On page 83, Lott notes that “One of the most common methods of intervention is to encourage certain beneficial actions through subsidies.”

I want to say up front that I am no fan of subsidies, especially farm subsidies, which have been so abused as to completely eliminate all competition from family farms and has benefited only giant agri-business firms whose junk I try and avoid eating. As for manufactured goods, I believe in free market economics – they should live or die by it.

The only area where I am not in favor of economic Darwinism is the area of natural monopolies such as public utilities – here economic Darwinism leads to actual natural selection of people, where the wealthy get to live and the poor get to die. Public utilities such as a reasonable amount of water service, sewer, a reasonable amount of electricity per month, basic local phone service, garbage collection and possibly even basic dial-up internet should be available to the public regardless of ability to pay. These natural monopolies should be owned by local the local governments involved in their jurisdictions and run by independent boards of citizens not involved in the government. They should never be for-profit corporations, unless laws are passed making it illegal to cut off basic services to the poor due to inability to pay, as determined by local social service agencies, not the companies themselves. These services are basic necessities of life in this day and age and it is a crime against humanity to leave a family without them. These things or their equivalents have been free to human being throughout history, and should remain accessible to everyone regardless of socioeconomic status.

But all the makers of manufactured goods should live and die by the market. Corporate welfare is a gross misuse of our tax funds. Not to mention…

“If we subsidize a harmful activity, we end up encouraging it. If we tax a beneficial activity, we inadvertently discourage it.” (pg 84) By giving breaks to companies whose management and practice are harmful to US citizens best interests, those practices are used against them, as we saw with GE and other companies in the last chapter. US citizens should not be rewarding GE and its peers for removing the tax base from this country and damaging the self-sufficiency and economic strength of America.

Lott argues that: The late economist Milton Friedman noted a further complication in subsidizing products or practices that create social benefits: subsidies may not even be necessary because people often have enough individual incentive to do the desired action without any government intervention. Take Friedman’s example – education. Let’s assume by the time a student enters high school, his education has instilled in him positive values such as support for democracy and the avoidance of criminality. Perhaps this indicates that education should be subsidized, since more overall schooling benefits society by strengthening the general commitment to democracy and reducing crime. Yet, education also offers the private individual benefit of increasing a student’s future job prospects. As Friedman pointed out, we can get the social benefit of education without subsidizing it because students will attend school to obtain this personal benefit.

Hmmm…Where to start.

Ironically, I am against public schools, but for different reasons. But I will stick to arguing the point from his own example, rather than pointing out that public schools were established in the first place not to promote family values but to separate kids from their parents and remove those religious and philosophical values that were “unwanted” by the government. Those have ranged from specifically Catholicism to pacifists and now to faith in a creator of any kind, and moral philosophies that originate in religious writings of any sect. Those “Goals” also change over the years, sometimes in bizarre ways. Early public schools right up until the middle of the 20th century spent a lot of time teaching the constitution and insisting to the children that they had various rights. Now, if you go to the homeland security government page, someone who “insists too much on their constitutional rights” is considered a person worthy of surveillance and suspected of subversion of the government. I personally believe that parents should be able to choose school(s) for their child(ren) based on the child’s aptitudes, and the family’s religious, philosophical, social and political beliefs. Public education that takes as much money away from the parents as possible is here to stay precisely because this is the LAST thing the government wants.

But let’s look at the economic argument. Lott, by way of Friedman, says that the vast majority of students will see that they have an economic incentive to get an education, for job purposes. That might have been true in the past, but it is certainly not today. Our state, for example, has raised the legal “drop-out” age higher and higher until they are now flirting with the age of legal adulthood precisely because increasing numbers of kids – and even their parents - no longer see any benefit in education, and they drop out. It is clear to these kids that there are no longer any jobs available to them other than retail or food service, because the manufacturing plants where they would once has aspired to work are all gone to third world countries. Even so called white-collar jobs have downsized and just aren’t available. And not every kid is cut out to be a lawyer or doctor or accountant – indeed, they see their older siblings, aunts and uncles who have gone this route and are mired in student loan debt and are not in highly paid positions even with their college degree and are no better off than they themselves in the great scheme of things. Kids in inner city neighborhoods see that the only ones getting wealthy are the ones into crime, or the ones with sports careers – neither of which requires a college degree. The middle class kids see that only the children of the wealthy who can afford multiple extra-curricular activities and the equipment for them get into the best colleges. Unless they are naturally endowed with a high IQ, the average kid is not going to get into any ivy league university. So why work hard when the entrance requirements to State U. are only a C average? They know how much money they ALREADY HAVE is what makes the difference, not their future education. Those that have, get. Those that don’t have aren’t going to get – they see it every day. Their parents have lost their white-collar and blue-collar jobs and are now working two wally-world type jobs each and still can’t make ends meet – even with their college degree. Or worse, they can’t even do that because there are so many illegal aliens in their area who are willing to work for less than minimum wage for cash under the table that they or their parents can’t even get these jobs. So what’s the point?

We can’t all make livings taking in each other’s laundry, as the old midrash goes. There has to be jobs that actually create things of value – physical things, new things - in order to increase wealth. And those jobs are leaving these shores as fast as they can.

Lott continues on page 86 concerning the economic problem of “free riders.” This is what happens when people benefit, for free, from something somebody else finances. He gives the example of radio’s early days: In hindsight, it’s hard to believe that private radio almost died in its infancy because people couldn’t figure out how it could make money. And it’s a good thing that the government decided not to turn radio into a subsidized enterprise, since it is highly unlikely that the state would have distributed payments as efficiently as advertisers do.

The problem with this was illustrated recently on the Oprah Winfrey show, in the wake of the Don Imus scandal. Oprah bravely called for radio stations that play rock, rap and hip-hop music to stop playing songs that degrade women in any way. They declined, ever so politely and in very round-about language. The problem, of course, is that smut sells, and our culture wants to hear how women are… well, I won’t even go there. I don’t want this blog to be x-rated. Let’s charitably say “put on earth for the sole and express purpose of entertaining men” and leave it at that.

Now, as someone with student loans up to my eyeballs myself, I can’t always afford to contribute to our local NPR affiliate every spring during their fund-raising. But I do listen to it frequently – because not everyone in the world likes smut. There are two NPR stations here, one classical (the one I listen to most often) and one jazz (which I also like). If these had to rely on advertisers, neither one would survive long. You might say, “So what?” The “so what” is that there is an entire generation of kids out there (other than mine) who don’t know that there is any kind of music available other than smut. Our society needs to keep alive its history and minority options, neither of which will be preserved in the tyranny of “popular music.” Some things do need to be subsidized, and classic radio is one of them. The fact that the smut-lovers far outnumber the classical-lovers doesn’t mean classical or jazz has no value to society.

I had to think a bit about this line, on page 88: …government spending is inherently inefficient because those who actually pay for most government services are not the ones who determine how the money is spent. Well, in Lott’s world of fair elections not influenced by wealth, that should not be the case. Out here in the real world, it’s only true because CEO’s etc. make 200x what their average employee makes. So the people would be paying more of a fair share if they were receiving a fair share of the company’s profits.

Also: taxes are coercive – you can’t refuse to pay taxes because the government is paying more for something than you value it. Again a tricky point, but who does the work of government? Contractors and organizations of various kinds. And do the contractors/organizations do everything they can to inflate their own profits at the taxpayer’s expense? Of course they do – the best interest of the nation is not on their radar. So whose fault is it that a project that should only cost x amount of dollars in the competitive market costs the government 2x or 3x? Again, those private firms and organizations that receive the government’s money. It’s not government itself that is the problem – it’s the greed of the governed.

On page 89 Lott says “The federal government is aiding and abetting patters of living that are unsustainable and draining significant resources.” Yes, that is true of allowing people to rebuild on flood plains and other disaster-prone areas. But who built the homes and businesses in sensitive areas to start with? Private developers. Who is pushing the sprawl in this country? Private developers. Who designs these neighborhoods in such a way that they are not just unsustainable but idiotic – completely ignoring peak oil, climate change, and even basic household economics? Private developers, and their good friends the banks and mortgage companies that work with them. No government involvement here – yet this will prove to be “the largest mis-allocation of resources in the history of this planet,” as James Kunstler says, precisely because the government left “the market” to its own devices. People are apparently too now-oriented (which sounds a lot more charitable than “stupid”) to consider their own long-term best interests. That’s government’s job, and it’s been doing far too little of it, not too much.

Also on page 89 Lott says “some blame the bankruptcies seen during the savings and loan crisis of the 1980’s on the extremely low prices charged by the government for deposit insurance at risky banks.” Of course it had nothing to do with the flaky loans given out by the S&Ls. Just like the current mortgage market meltdown has nothing to do with the flaky adjustable rate loans given out by the banks and mortgage brokers in the last five years, right? And we all believe this, right? It is silly to blame one so very small factor in such a multi-faceted crisis. Lott doesn’t say he does, but using this argument shows either a lack of perspective or desperation for an example, I don’t know which.

The next subject Lott tackles is eminent domain – here for some bizarre reason he does a complete 360 and instead of supporting “the market’s” right to their property, he seems to support the idea that corporations should be able to have the government come in and take it from you against your will. He says, on page 90: Suppose a developer needs to tear down the houses on an entire block in order to build a skyscraper. Ummmm, “needs?” Excuse me? “Needs?” A single hold-out could stymie the project. Eminent domain seeks to solve this problem by forcing owners to accept the “fair market value” of their property…for private development projects if the local authorities determine that the projects will benefit the wider community. No developer NEEDS to take your house – they WANT to take your house against your will. That is not a “need.” That is greed run amok – “I have the right to make money on your property against your will.” Excuse me? Government has no business seizing property for private developers.

Communism, anyone? Hello? Where is the vaunted free-market here? I don’t see it. All I see is a CEO getting his government buddies to steal homes from people who DON’T WANT TO SELL THEM. That’s not free-market economics. That’s fascism. Why is Lott not condemning the practice of violating the free market here? He’s supposedly not in favor of subsidies, but this is one of the biggest whoppers of a subsidy there is. If the government then turned around and seized a factory or a refinery to turn it over to a competing business for private development, why, Lott and his ilk would have a collective apoplexy. That’s “interfering in the free market.”

Sounds almost, I don’t know, class, maybe – hypocritical?

Lott then goes on to describe diversified stock holdings. Now, a disclaimer. I am out of the stock market – since it has done nothing but lose money when measured by purchasing power of real goods.





On page 95, though, Lott notes that: …33 percent of IBM’s stock and 50 percent of Intel’s stock were owned by institutions that held stock in both companies… and ditto for Microsoft and Apple. On page 96 he concludes: The overall benefits we gain from stock diversification are another example of the market acting freely when it’s left alone. To this I have two comments. The situation as it is cannot be described as “free market competition” when the effects of these arrangements is to rig the game so that it doesn’t matter which companies are having trouble. How is that in the best interests of the buyer of the stock or the consumers of their products? As for those supposed “benefits,” this is just an example of CEOs collaborating to make money no matter what happens to their company. Smart for them, but not a benefit for us in any way.

Now we get to a real philosophical problem. On page 97, Lott notes that: …Government owned companies are frequently motivated by EXTRANEOUS FACTORS such as maximizing employment, state owned firms can make much more credible threats of predation. {Emphasis added.}

While I’m not in favor of government ownership or operation of non-basic-service industries, what I want to draw your attention to is the phrase “extraneous factors.” Apparently, the idea of having an optimally functional economy in which everyone has adequate living-wage employment in order to participate is “extraneous” to Lott. It’s also “extraneous” to most CEOs in this country. What it isn’t “extraneous” to is national security, economic security, and the best interests of the citizens and laborers in this nation. I want you to understand this: the very basis of the market of anarchy is profit to the corporate AT ALL COSTS. This is, simply put, absolutely immoral in the extreme.

Lott’s example of the National Weather service is particularly telling. Here in my state, we have the largest percentage of F4 and F5 tornados of any state in the union – yet Lott thinks that access to weather data should not be free to anyone, it should be provided by private firms who charge for it. (page 98)

On page 99 Lott complains that: …the ability to charge below-cost prices thanks to government subsidies gives public schools an enormous advantage over private universities. Amazingly, Lott seems to ignore his own previous example in the chapter that private K-12 schools can provide services to their students at half or 1/3 the price of public schools [because they are subsidized by the religious/social/philosophical sect that runs them, which he neglected to mention] and his own words that an education is something everyone should aspire to, regardless of income level. How most people would ever get to college if all schools charged ivy league prices I have no idea.

Then he says that: Post offices worldwide are notorious for adopting predatory tactics against private competitors. True to a point, but really, now. Do we really believe that their 2-3 day “express” delivery [read the fine print: they DON’T guarantee overnight delivery] is even in the ballpark with Fed Ex? No. When Fed Ex decided to offer not-quite overnight delivery, they were leaving their core constituency. Ditto UPS. They should stick with fragile or large packages. The problem is private companies want to expand into areas other than those they were originally created to serve. Postal delivery is a necessary service which again should not be for-profit or charge people the highest price the market will bear. It’s a good thing the USPS has existed and continues to do so. In this day and age, communication and the ability to pay bills should not only be available to the wealthy – not to mention that the USPS can at least be trusted not to suddenly go out of business and leave your mail sitting in a warehouse somewhere while the case winds its way through bankruptcy court.

And I’m wondering where Lott gets the idea that just anybody in this country should be allowed to build rockets and things like that. (page 100-101.) Dearbornistan, anyone?

Lott seems to think that the government is itching to get into the market for Brittany Spears CD’s or Ronco chicken broilers. That is simply not the case. The government should be (and usually is) only concerned about those industries that serve a clear and compelling public function. That some profit-driven industries would like to keep control of things that should never have been in their purview in the first place is nothing but greed and power mongering. They aren’t interested in serving the people. They’re interested in fleecing the people.

Lott’s next topic is professional licensing, the modern version of guilds. Again I’m a bit baffled by his somewhat schizophrenic reasoning. Yes, they are deliberately designed to keep some people out – usually the incompetent ones. And I don’t see any shortage of dentists, doctors, or cosmetologists – in fact, it is clear the market is oversaturated for most “licensed” professionals. A realtor shortage? Not in this country.

And it’s terribly amusing that Lott apparently thinks that teaching to the test is “bad” in elementary school but somehow “good” when it comes to your doctor. I sure hope he doesn’t get any illness not covered on the exam. After all, Lott doesn’t think they should have to spend all that time on “educational requirements” such as rotations in other specialties and what-not.

Lott’s next point (page 105) is one I have some sympathy toward – I, too, am banned from getting a full-time job teaching in public high schools because I have not taken the required number of years of “teacher training” courses. Most states require either an undergraduate degree in education or 2-3 years of training classes before a person can be certified as a public school teacher (in this state it’s a Masters in Education either completed or in progress) These regulations discourage a lot of capable people from entering the profession.

That is absolutely true – but it’s not because the government wants it that way, it’s because the teacher’s union wants it that way. They don’t want competition. They are the ones who give the recommendations for minimum requirements to the government, and the government defers to them for political reasons, not educational ones. Lott himself admits this down near the bottom of the page, when his interviews revealed that it was the ABA and the AMA that put forth these mandates for the government to rubber-stamp. Why should teachers be any different?

On page 107 he concludes: The real justification for minimum time limits in school for aspiring professionals is that current professionals don’t want too much new competition. OK, so what does government have to do with that? Earlier in the chapter Lott complained that the decision makers in government rarely had real-world experience with the things they were regulating. Here he complains that sometimes they defer to those who do.

Last, but not least, I presume, is the subject of smoking bans. I have some experience with this, since our metropolitan area adopted a smoking ban for public restaurants and bars about 4 years ago. I am glad to see that Lott admits (page 107) that not all government regulation is bad, especially in regards to the issue of pollution in general. He agrees that they are “legitimate” but apparently doesn’t notice that GATT and other “free-trade” treaties ignore them and even contradict them, and encourages CEOs to move to avoid them, all in the name of “the market.” Go figure.

But somehow his rather backhanded support doesn’t extend to smoking bans, even though cigarette smoke is the worst regularly occurring indoor pollutant that exists. He says: Restaurants that don’t satisfy their customers on these issues will quickly go out of business. Not a single business in this are went out of business when the smoking ban was enacted. And they all had the option of becoming “private clubs” instead of public restaurants, but none did. In the market, Lott opines: They are responding to competitive pressures and customer preferences. If that were the case, there would have been at least one completely smoke-free restaurant in this county prior to the ban, because there are plenty of people like me who are allergic to smoke or just don’t like to smell it and would have patronized such a restaurant. The restaurant association cried that they would lose tons of business if the smoking ban were put in place – they didn’t care about the health of their patrons, as long as they didn’t die on the spot from food poisoning. They wanted to cater to the wishes of what they thought of as their “core constituency” regardless of how stupid it is to breath in toxins on purpose and how dangerous it is to innocent bystanders. Sometimes, “the market” isn’t willing to do what’s best for it in the long run. That’s where government needs to step in.

The final comment in the chapter about government was this: As Milton Friedman famously pointed out, “Nobody spends somebody else’s money as carefully as he spends his own.”

Whose money do you think the corporations are spending? Every dime of corporate money is “somebody else’s money.”

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