Don’t Repair Broken Bridges, Sell Them!

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bridges, company, Democrat, economics, government, philosophy, politics, private sector, Republican, roads, skagit river, socialism

        On May 23, 2013, a bridge which crosses the Skagit River in Washington State collapsed into the water below. This was a major thoroughfare on Interstate Five, which is the main north/south passage between California and Canada. The bridge carried an estimated 71,000 cars across it each day including billions of dollars in interstate and international truck cargo. The collapse of the bridge has caused massive interruptions in commercial and personal travel and could have been significantly more fatal. This incident is one which is not isolated to this particular bridge. As the President has pointed out for years in his appeals for more spending on infrastructure, our nations bridges are old and crumbling. The problem is that more spending will not fix our nation’s bridges. Our crumbling infrastructure is a systemic problem which is caused not by any particular lack of funding but rather by the socialist organization and operation of our nation’s roads and bridges.

        The Skagit river bridge was classified as “fracture critical” which means that if a single component is destroyed or badly damaged, the entire bridge is likely to collapse.  Does this make sense? In office buildings built by private companies we do not see fracture critical designs, they are built with multiple fail-safe mechanisms to prevent as much damage as possible in the event of unlikely accident or predictable weather. It is totally irresponsible for the government to allow bridges like this to exist. It is only by chance that this accident was not much more tragic. A 160-foot section of the bridge collapsed into the river below and only two cars happened to be on that section at the time of the collapse. Given that the Skagit River Bridge carries some 71,000 cars across it each and every day, had the timing been otherwise it would have been a horrific tragedy.

        The most heart-wrenching aspect of this tragedy is that it was not an accident and it could not be fixed by simply spending more dollars within the current framework. It is an institutional problem that cannot be solved. The government owns and operates most bridges and highways in this country so it should not be a surprise to anyone that most bridges in this country are classified as either structurally deficient or obsolete.

        A responsible taxpayer who pays all of his many taxes might be perplexed as to why in the world the federal, state, and local governments are unable to find enough money to maintain their own infrastructure. How can it be that after so much revenue is taken from the taxpayer, the government still does not perform its most basic functions? It is simply this: there is no incentive for bureaucrats to allocate enough money to these functions and there is no punishment for those who do not take the proper actions.

        If the Department of Transportation actually allocated enough money to fix and update bridges then they would only be able to demand an equivalent amount of money for the next year’s budget. If on the other hand they allocated less than the necessary amount of funds to keep bridges up to date, then the bridges will deteriorate and the government can justify higher taxes and bigger budgets by claiming that they do not currently have enough money. In addition there is a severe lack of disincentives against such behavior. No one in the government lost their job and no one in the government lost any money due to this multi-million dollar accident. The most unbelievable fact is that inspectors assured the public that there was nothing structurally wrong with the bridge. So even after the government inspectors have cleared a bridge, it is liable to crash into the river below if one single overhead strut is broken. This shows painfully that a lack of economic disincentive to perform poorly has disastrous consequences for those who rely on government managed bridges.

         If the solution is not better socialism then what should we turn to when our nation’s infrastructure is concerned? We must enter the free market. Imagine what the result would be if all of our nation’s bridges, currently owned and operated by the government, were sold to private companies. Imagine also that private companies were allowed to build new bridges when and where they saw fit. This would have fantastic implications for bridge safety, efficiency, and economic progress.

        As far as safety is concerned, private bridge owners would never build a bridge that could collapse because this would amount to a massive loss on investment. If a bridge owner were to build a bridge he would have to invest fifty million dollars to cover the up-front costs. This money would be made back over several years by collecting tolls of the drivers that used the bridge. If the bridge owner decided to use a bridge design like the ones the government classifies as “fracture critical” then he would face an enormous downside risk of losing his investment before he began to realize any profit. This would be uneconomical so bridge owners would instead choose to make bridges safer by designing them with the correct amount of structural redundancy and fail-safe measures so that they and their investment would be protected in the event of an accident.

        Another reason that bridges would be safer if they were privately owned is that, unlike the government, private bridge owners would be liable for any damages caused by negligence on their bridges. If a private bridge were to collapse, those injured or the families of those killed would be able to bring lawsuits against the bridge owner. This would be a huge disincentive as the prospect of dozens of multi-million dollar lawsuits would ruin a bridge owner or bankrupt a bridge company. When compared to the current system where no one can lose money and no individual or entity is ever held liable for mistakes or negligence, this obviously is a preferable alternative. This mix of profit incentives and disincentives would keep bridges safe and prevent negligence, ensuring that a privately-run system would be far less likely to have catastrophic failures such as the one seen on the Skagit River Bridge.

        In addition to gains in safety, introducing bridges to the free market would make crossing rivers a much faster and more hassle free experience. Everyone who has a bridge in their daily commute knows that during rush hour, bridges can be the slowest place to be. This is because in contradiction to driving on land where there are dozens of possible alternative routes, bridges are choke points where all of the traffic is funneled into a handful and in some cases just one route across a river. What would the profit incentive of being able to charge drivers a fee for crossing lead to in terms of increased efficiency?

        The first thing a profit incentive would do would be entice others to build more bridges. If there was only one bridge across a hundred-mile span of river that carried a large amount of traffic then other potential investors would want to build more bridges to capture some of the profit from those who need to cross. This would decrease traffic in general but rush hour traffic would still remain.

        The answer to rush hour traffic would be something called peak-load pricing. This is the concept of using higher prices during peak usage hours to incentivize customers to spread out their usage more thoroughly across time. For example if the fare to cross a bridge is normally three dollars, it could be increased to six dollars between the hours of 6am-9am and 4pm-7pm. This would mean that drivers who had the leisure of choosing when to cross the bridge would do so during non-rush hours and only those who absolutely had to drive during those hours would remain. If the problem still remained, bridge owners would simply raise the price until only the maximum amount of drivers still chose to pay the toll. The prices set per hour would be up to the bridge owner and would be adjusted according to the most recent and relevant traffic data so that the bridge owner could maximize the number of cars which crossed the bridge per hour in order to maximize his own profits. In this way the incentives of the owner are directly in line with the incentives of the customers. Both want as many cars as possible to cross the bridge in the shortest amount of time.

        Both of these effects of higher safety standards and increased efficiency will have extremely positive economic effects because a significant amount of our domestic shipping in this country is in the form of trucking; speeding up traffic across the tens of thousands of bridges across this country will decrease shipping costs. In addition, the amount of gasoline wasted by cars and trucks idling in rush hour or choke point traffic jams on bridges will decrease almost to zero. This would stimulate the economy further by lowering demand — and therefore the price — of gasoline and other fuels.

        Some might object that they prefer to use bridges for free as they do now rather than have to pay a toll but this is misleading. To say that bridges are currently free is to miss the point entirely. While there is no direct cost that you pay when you cross a government run bridge, you have to pay for the extra gas spent sitting in traffic, the time spent sitting in traffic, and through taxes which are used to keep the bridges in the lackluster conditions in which we now find them. In either scenario a driver has to pay for bridges, the bridges that they get just happen to be much better when government turns the ownership and management over to private sector owners.

The theft called “taxes”

Strong Winds Blow Small Government Republicans Upside Down

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congress, conservative, Democrat, disaster relief, economics, federal, government, liberal, libertarian, Oklahoma, philosophy, Republican, Tornado

In the wake of the devastating tornado in Oklahoma early this week, some Republicans from Oklahoma have suggested that federal funding may be necessary to provide aid to help pay for the reconstruction of the damaged and destroyed homes and other buildings and infrastructure. Tom Coburn, a Republican Senator from Oklahoma has objected to federal aid which is not offset by other spending cuts but this is only because he believes that the FEMA budget will be more than enough to cover the expenses. This is reminiscent of the argument between New Jersey governor Chris Christie and house Republicans when the governor castigated those who were opposed to the sixty-billion dollar spending bill to help aid in the recovery after hurricane Sandy caused damage to the Northeast. Chris Christie, himself a supposed contender for the Republican presidential nomination in 2016, even rejected calls for the relief aid bill to be offset by cuts to other discretionary spending. These instances of demands for federal aid are odd coming from the party that claims the mantles of small government, constitutional government, and fiscal restraint because hurricane, tornado, flood, or any other disaster relief from the federal government is antithetical to all of these positions. When Republicans in the government advocate for spending money on disaster relief they shoot themselves in the foot by contradicting the principles they espouse and claim to believe in.

The Republicans show themselves to be no more than political animals when they forsake all of their supposed principles as soon as any adversity, in the form of a natural disaster, washes up on their shores. Nowhere in Article I, Section 8, the enumeration of powers, or anywhere else in the Constitution is disaster relief or emergency aid an authorized function of Congress. In plain language, this means that any legislation which appropriates such funds is unconstitutional. Being the party which so often wraps themselves in the holiness of the Constitution to justify their actions and differentiate themselves from the Democrats, it betrays serious questions of legitimacy and sincerity when they are so willing to take actions that are unauthorized by the United States’ founding document. They are thus guilty of the same charge which they ferociously aim at their Democratic opponents. This causes them to lose force when arguing against other unconstitutional legislation by discrediting them as Constitutional conservatives.

There are very negative side-effects when government taxes and borrows money to spend on disaster relief. This goes beyond the exorbitant spending bills that Congress specifically appropriates and includes the billions of dollars used by FEMA and other federal agencies in emergency scenarios. When an activity is subsidized, more of that activity results, this is a fundamental law of economics. By subsidizing aid to disaster victims, the federal government socializes the costs of individuals to live in areas which are susceptible to disasters in which they would not otherwise choose to live. If individuals were not supported by the taxpayers then they would not choose to live in such risky areas.

People living in these disaster prone areas would understand that if natural disasters occurred, they would be fully responsible for covering the costs which they imposed. The higher price and risk of losses would give most people to relocate to safer areas and in this way less money would be wasted and perhaps hundreds of lives would be saved. This is not to suggest that anyone should be prevented from living in dangerous areas if they so choose as no one should be interfered with if they are taking actions that do not harm others. If someone chooses to live in a higher risk area, that person should be the only one who is responsible for bearing the associated costs. Someone who lives in Pennsylvania should not be forced to subsidize flood insurance for people who live underwater in New Orleans or pay for tornado repair in a place that has become known as “tornado alley.” Individuals should be allowed to live anywhere they choose, so long as they alone bear the costs and rewards of their own choices.

Changing the economic considerations of people living in disaster prone areas altogether changes the questions that arise about what should be done to help disaster victims. One common objection to the argument against federal aid is that if it is not provided, those who are struck by disasters will be helpless to do anything for themselves, but we can see now that this is a false conclusion. The choice between disaster victims with federal aid and disaster victims without federal aid incorrectly frames the argument in a false dichotomy.Instead, when federal aid and support is removed, the incentive to make poor decisions is also removed and people will mitigate their own risk either by purchasing extensive insurance or simply moving to a safer location. This means that the only people who will remain in high risk areas are those who have enough money to sustain any losses that might occur in the event of a disaster.

A historical example of individuals locating according to subsidies comes from the frontier American West when the government granted plots of land to settlers who simply agreed to move out and cultivate the land. The frontier was a high risk area due the lack of established settlements, threat of confrontation with Native people, and isolation. The subsidies granted by the government incentivized settlers who would have otherwise remained in the established population centers to accept the risk of moving out west. Therefore if federal aid is removed, thenthe reverse effect will occur. If millions of people are not given the economic incentive to locate in high risk areasthen we will never again see the tens of thousands of poor and displaced victims after severe storms, as we saw in the aftermath of Hurricane Katrina.
Even more egregious is the charge that Republicans, in advocating federal aid for local disasters, are contradicting their entire (stated) legislative philosophy, which is that small government is the ideal and the “free” market is the best way to allocate resources, not government. By conceding that the federal government may be necessary in the case of disasters or other unplanned events, the Republicans throw their whole argument under the metaphorical bus. Once a Republican concedes that some resource allocation problems are just too much for the market to handle and they require the heavy hand of coercive government taxation to correct, they have given the big government wing of politics and society all of the ammunition that they need.

If it is conceded that the free market just can’t handle disasters, then the Republicans can no longer make their arguments from principle. From this perspective, they agree with Democrats and Communists alike that government does need to intervene in the market, they only disagree about the extent to which this should be true. Arguing about where the line should be drawn rather than arguing about fidelity to principles is an argument that is already lost. The reason is that the matter being discussed is now subjective and it is impossible to win a subjective argument without simply talking past the other side.

If Republicans were able to remain true to their principles of small, constitutionally limited government and free markets, they would be in a defensible position. They could argue effectively against the liberals and Democrats with charges of violating principles of the free market or the Constitution. However, once they themselves have accepted to reject their own principles and argue over arbitrary middling positions about how much those principles should or should not be violated, they have removed any sense of seriousness or truth from their own position and thus compromised any arguments they could otherwise make.

Making Schools Safer

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Democrat, free markets, government, gun control, guns, law, libertarian, Philosphy, politics, Republican, rights, schools

In the wake of the terrible tragedy that occurred at Sandy Hook Elementary School in Newtown, Connecticut, there have been many reactions in the media. The spectrum of acceptable opinion that has been established regarding possible ways to prevent criminal acts like this in the future apparently runs from Chris Matthews to Wayne LaPierre. Chris Matthews on his program Hardball wondered why we could not ban semi automatic weapons like we did fully automatic weapons in this country. Effectively Mr. Matthews is advocating taking people’s guns away, as many correctly fear. We were then treated to the specter of the NRA press conference exactly one week after the shooting in which the NRA Executive Vice President advocated placing armed security guards in every school and blamed the shooting not on guns saying that this was scapegoating but instead immediately proceeded to scapegoat the media, Hollywood, and the video game industry. When this is the spectrum of socially acceptable opinions, it’s time for a paradigm shift. The solutions that have been offered in the wake of this and other shootings are almost exclusively bad ones and most of which flagrantly violate the people’s rights in some way or another.

The gun lobby as well as commentators on the right have been quick to invoke the second amendment to The Constitution of the United States of America when arguing against the overwhelming urge for gun control following such a tragedy. The problem is that many have abandoned the freedom of association implicit in the first amendment of the very same Constitution of the United States.

The New Prohibition

The NRA, Rush Limbaugh, and Republicans in Congress are correct in their abhorrence of left liberals’ discussion about banning assault weapons or Chris Matthews mulling a ban on all semi automatic weapons on the grounds that these “solutions” violate an individual’s constitutionally protected right to bear arms as per the second amendment. This right has been established and affirmed by the Supreme Court in the recent case of DC vs Heller in 2008 as well as United States vs Miller in 1939.

The DC vs Heller case struck down a 1975 law prohibiting individuals from owning handguns in the District of Columbia as well as several provisions that required rifles and shotguns to either be unloaded and disassembled while in an owners house or to have a trigger lock installed. The Supreme Court held that both the ban on handgun ownership (except those registered prior to 1975) and the disassembling requirement for rifles and shotguns ran contrary to the 2^nd Amendment because they believed that inherent in the amendment was individual ownership of firearms for the purpose of self defense. The trigger lock and requirement of unloaded and disassembled rifles and firearms is obviously contrary to being able to use personal firearms for the purpose of self defense. If an individual in DC hears someone break into his apartment he has seconds to react to defend himself and his family but he needs several load and perhaps clumsy minutes to re-assemble and then load his rifle evincing the failures of such a policy from a self defense perspective.

One might object that the handgun ban does not violate a citizen’s 2^nd Amendment right to self defense due to the fact that someone does not specifically need a handgun for the purpose of self defense when instead they can use a rifle or shotgun. The Supreme Court took their cue on overturning the handgun ban from the 1939 case of US vs Miller which upheld that the types of firearm that can be possessed by citizens are those which are commonly used. This precludes things like machine guns and rocket launchers but clearly allows for handguns rifles and shotguns.

On a more fundamental level, if gun ownership is looked at from a basic property rights perspective then it is clear that individuals should be allowed to own any and as many guns as they want. If Alf buys a gun, be it a handgun, assault rifle, shotgun, or even machine gun, he has not violated any ones rights, he has only exercised his own. There is nothing violent or harmful about voluntarily purchasing a firearm of any kind, the same goes for owning or possessing said firearm. It follows that because purchasing, owning, and possessing a firearm do not violate anyone else’s rights and are all well within a person’s natural right to private property, none of these activities should be made illegal in any way.

Note that this understanding of property rights does not necessarily preclude gun regulations such as background checks, permits, licenses, etc. It only precludes regulations that ban the purchase, ownership, or possession of such guns. Proponents of gun control will protest to this reading of rights by saying that something must be done to protect the children in our schools as well as movie goers and all the others who have been killed or irreparably harmed in some other way by gun violence and they are absolutely right.

Something must be done but unfortunately the answer does not lie in restricting access to guns. Liberals, of all people, should know that prohibition does not work as they have been opposed to the war on drugs on those grounds for decades. As with illegal drugs, making guns in general or a certain type of gun illegal will not make them magically disappear. Most of the honest law abiding citizens will obey the law and no longer carry or possess the illegal guns but the criminals (those who we are worried about killing people) will not abide by these laws, as per the definition of being a criminal.

Another problem with gun restrictions is one of social justice. Who is really sent to prison on gun control violations, just looking at the numbers we can tell that it isn’t the psychopathic murderers who commit atrocities. In general it is poor African Americans who bear the burden of this policy. The percentage of those incarcerated for gun control violations who are African American is 49.6 percent. ¹This should raise eyebrows seeing as the African American population in this country is a mere 13 percent and of the recent mass shootings, in Columbine, Fort Hood, Virginia Tech, Aurora, and Sandy Hook, none of the killers were black. Clearly imprisoning poor black people who are using firearms to defend themselves in crime ridden neighborhoods has not been an effective method of stopping mass murderers in upper middle class communities.

A Question of Rights

So in our search for an answer we return to the far right represented by Wayne LaPierre, the CEO and Executive Vice President of the National Rifle Association who made a speech one week after the tragedy. Given his position, tirelessly defending gun rights for Americans, many would assume him to be an ardent supporter of individual rights in general. To the detriment of gun rights agitators everywhere, this could not have been further from the truth. LaPierre, after ironically casting blame on many other industries for violent murders, settled on one solution for protecting America’s children from further violence. He proposed that the federal government immediately appropriate whatever funds necessary to station an armed police officer in each and every school across the country. Alternatives floated included training teachers or principals to carry and use a handgun, all along the same lines.

Putting aside the relative merits or lack thereof as to whether or not this would make children any safer, we must review the issue of armed guards at all of our public schools nationwide, whether they be police, private security guards, teachers, or principals. What is a parent to do if they are opposed to guns in every way and do not want their children exposed to them once the government approves the funds and the guards are in place? This violates a parent’s right to freedom of association granted by the first amendment and made explicit by the Supreme Court in the case of NAACP vs Alabama. Parents, along with all individuals, have the right to associate or not associate with anyone that they choose for any reason. In the case of the parent child relationship these rights extend to the parent in whom they want their children to either associate or not associate with. In this way if LaPierre’s suggestion were enacted, now the school has violated the rights of many parents who do not want their children exposed to guns at all. The same applies to government mandated guards in movie theaters or anything of this sort as moviegoers may not want the exposure to guns either.

A Free-market Solution

We are still left with the puzzle of how to make children safer in our nation’s schools. The answer is total privatization of schools and removal of federal gun free zones regulations. Privatization of schools will allow for consumers, that is parents with children attending school, to decide what the proper level of safety will be.

They would do this by the free market mechanism of profit and loss. In any given location, there will be multiple schools within a reasonable distance that students might attend. This will mean that different schools will be in competition with one another to attract the dollars that students (or their parents) will pay to attend. One aspect among many on which they will compete is safety. If one school is reputable for its safe environment, it will attract more customers than a school in which crime is prevalent and violence has or may occur. This will lead safer schools to make profits while less safe schools take losses. Over time the less safe schools will either go out of business and be bought out by the safer schools, thus making them safer or will have to adopt policies and practices that make them as safe or safer than the safest schools. By the invisible hand of the market, school owners working to earn as much profit as they can will act to make our nation’s children as safe as possible.

Faced with the question of what methods schools will use to keep students safe the answer is that no one can know. One could speculate that they might allow guns to be freely carried in schools, as Rick Perry envisions, or they might maintain bans against guns (effectively mirroring the current gun free school zones regulations). They might put in place metal detectors, or cameras, or gates. They might even have LaPierre’s armed security guards or teachers or principals. The point is that whatever occurs will have been caused not by arbitrary government laws but by the market selecting the most effective methods. A school owner in a free market system would choose whatever set of rules and regulations he or she thought would best satisfy the consumer’s desire for safety. Consumer’s would vote with their dollars on whatever amount of safety they thought was necessary. And all consumers would be able to freely choose to send their students to an environment that they are comfortable with.

The reason that public schools having armed guards is a violation of the right to free association but private schools doing the exact same thing is not is due to a crucial difference in the way that public and private entities interact with individuals. In the case of a public school, children that live within a certain diameter of a school are forced by law to go to that school. If a policy is put in place that a school or all schools in the case of a federal law must have armed guards, a student attending such a school has no recourse. They are forced to associate with the armed guards. In the case of private schools, there is no force involved. On the private market, all interactions are voluntary. This means that if a parent sends their child to a particular school, then they will sign a contract with the school which would outline what security measures will be taken.

Not only does the market allow for exclusively voluntary interactions but it allows for everyone’s preferences to be satisfied. If people wanted to send their children to schools in which guns were freely carried, such a school would be offered. For others who would prefer to have their children attend school in a gun free zone, this would also be an option. Both of these extremes and many moderate combinations in the middle would be available to the extent that they are demanded by consumers in the market for education. This is much more flexible than the public system we currently live under of take it or leave it.

It must be conceded that even the power of the free market system will not reduce violent deaths in schools or anywhere else to zero. This is because consumers will not want it. If a school was held in a bomb proof, bullet proof bunker with all the students and teachers physically restrained and no one allowed in or out during the school day then we might be able to achieve zero violent incidents. Conversely if guns are allowed to be carried and shot inside school buildings and access to school grounds is controlled in no way then violent deaths would certainly go up. The point is that neither of these extremes is likely to be selected by the market. The trade off we are here presented with is one between security in the former and freedom in the latter example. No parent would want their son or daughter in either of these institutions but instead they would pick the appropriate tradeoff of security versus freedom that they desire for their children.

Gun control in the sense of making certain weapons illegal to peacefully possess does not work, it prevents law abiding citizens from possessing high powered weapons but leaves them in the hands of criminals making society more dangerous in general. Gun control laws also have a disparate effect on poor and minority groups, almost half of those arrested under gun laws are African Americans. Gun control is unjust but forcing a police state on our children in the public schools is not the answer either. The best solution that will not violate people’s rights is a private free market system of schools in our country. Ending public education would not lead to zero deaths in our nation’s schools but it would lead to the fewest amount of deaths possible by maximizing safety through the market process. It is the only way to ensure that our children sleep soundly at night without allowing the government to trample our constitutionally protected rights to private property and freedom of association. Instead of a government managed solution to this issue where the federal government tries a one size fits all policy that will violate rights and leave many cracks to slip through, perhaps this time we can give freedom a chance by turning to voluntary interactions on the free market.

1http://blog.independent.org/2012/12/21/who-goes-to-prison-due-to-gun-control/
Anthony Gregory’s fantastic article about the disparate effects of gun control laws on different racial groups can be seen here.

Minimum Wage, Maximum Poverty

Tags

Democrat, economics, employment, libertarian, minimum wage, politics, poverty, public policy, Republican, unemployment

The Progressive movement is often thought of as having made fantastic improvements to our standard of living in the US during the 20th century. This claim is completely false, as is evident from its application to the federal minimum wage law. The minimum wage has been hailed as a great triumph for the poor and a sign of how civilized our society has become. Increases to the federal minimum wage are often passed by comfortable margins and there are no congressmen or senators who have openly opposed the minimum wage or argued for its abolition in recent memory; to do so would be political suicide. The minimum wage is often seen as one of the great safety nets for the poor working class in this country. Unfortunately, the truth is much different.

The minimum wage law does not need to be changed, it is not set too high, it does not need more exceptions, it simply needs to be abolished. Most believe that this argument is made on behalf of the capitalists and wealthy business owners. In fact, the opposite is true. The minimum wage should be abolished if we are to show true compassion to the poor. The minimum wage hurts exactly the group of people that it is supposed to protect.

Even at first glance, the arguments supporting the minimum wage are specious. Many argue that the minimum wage will help the poor by setting a floor on wages and raising those on the bottom of the income scale to a more acceptable level. The analogy used is that setting or raising the minimum wage will raise the tide of wealth and lift the poorest members of society up with it. A more accurate analogy would be that the tide will indeed rise but the poor will be left to drown beneath it.

The most obvious objection to the concept of the minimum wage as able to raise the wealth of the least well off in society is, if this is really how it works, why stop at such a low level? Indeed some left liberals contend that the minimum wage doesn’t go far enough and in some cities still leaves those who earn in it in poverty. They advocate for a so called “living wage,” which is a minimum wage that is indexed to the minimum amount necessary to “survive” in a specific locale. The concept of a “living wage” carries with it its own logical absurdities but I will limit my objections to those which also apply to the general minimum wage for brevity’s sake.

The current federal minimum wage is only $7.25, with some states having it slightly higher than this. But if the minimum wage really has the ability to raise the wages of those on the bottom of the socioeconomic scale, then why should we only give them $7.25? Why shouldn’t we push their wages up to eight dollars an hour, or ten dollars and hour, or one hundred dollars an hour? By that reasoning, such a method could ensure that everyone is rich. The answer to why no one is advocating a one hundred dollar minimum wage lies in the core concept of how wages are determined and betrays the fact that wages are prices which are set by supply and demand just like any other. They cannot be manipulated by government without causing severe market distortions.

If a private company is deciding whether to hire an additional worker, it will consider two factors: how much additional revenue will be raised by the additional worker and how much the additional worker will cost, namely his wage. The amount of revenue that the worker adds to the firm is known as that worker’s “marginal revenue product” or how much additional revenue that worker produces. So if a company is receiving $1000 an hour in total revenue before hiring Joe and then after hiring Joe the company receives $1007 an hour then Joe’s marginal revenue product is equal to seven dollars an hour.

Over time, Joe’s wage will tend to move toward the value of his marginal revenue product, that is, he can expect to be compensated nearly as much money as he earns for the company. Let’s assume an MRP of seven dollars for Joe, and let’s say that he is hired at the wage of five dollars an hour. This means that the company that hires Joe is making two dollars of profit on Joe’s labor every hour that he works. This is a situation that can not last in the long term in a free market system because the forces of competition. Competition from Joe’s employer’s competitors will tend to raise Joe’s wages. Joe’s wages will move up until they reach seven dollars per hour because a competing firm would be willing to pay Joe the wage of six dollars per hour and thus bid him away from his current employer, while still making a profit of one dollar per hour. Although it is only a single dollar increase per hour, in the long run Joe will make several thousand more dollars over a year’s time. Then either his original employer or still another employer could offer him the wage of $6.50, and so on and so forth until his wage reaches his level of productivity or seven dollars per hour. At any wage level between five and seven dollars, another employer will have a profit incentive to offer Joe a higher wage because in that wage range he is producing more than he costs the company in wages. The threat of losing Joe to competitors will force Joe’s employer to raise his wages over time to keep him there.

Now suppose that some traditional advocates of the poor come in and decide that Joe is being exploited at the wage of five dollars an hour and decide to provide him with a just amount of remuneration: ten dollars an hour. It is argued that this will help Joe and other workers like him by giving him enough money to survive on. So will Joe now be twice as rich? Unfortunately not; that isn’t how it works.

If Joe is already working at five dollars an hour and a minimum wage of ten dollars is imposed, the company that hires him will lose money. This is because Joe’s Marginal Revenue Product is only seven dollars an hour, this means that the most revenue that Joe can earn for the company is seven dollars an hour. If he earns the company seven dollars an hour but the company is forced by law to pay him ten dollars an hour, the company would lose three dollars each hour that Joe works. For this reason the company is forced to either fire Joe or face bankruptcy.

In this way, instead of raising the wages of those at the bottom of the income scale, the minimum wage law takes jobs away from the poor and forces them further into poverty. The effect of this law has been no less than devastating to the members of society that it was devised to help. Rather than helping them it takes their only method of advancing their economic position away from them. There is a reason that lower skilled workers have much higher unemployment rates than highly skilled workers: they cannot work at the right price.

In May 2011 the unemployment rate for individuals with a bachelor’s degree or higher was 4.5%, the unemployment rate for people with a high school degree was 9.5%, and the unemployment rate for individuals with no high school degree was 14.7%. This should not be. Although it would make economic sense for less educated people to be paid less because they can perform fewer skills, it does not follow that they should have a higher rate of unemployment. The fact that they have fewer skills does not change the fact that even poorly educated people can perform many functions including manual labor and some clerical work.The problem is that jobs have shifted in the direction of more skilled labor because it is no longer profitable to employ low skilled laborers at the higher prices imposed by the minimum wage.

Without going into too much detail-because this subject could easily be the topic of its own piece-the minimum wage has had detrimental effects on the African American community. On average, African Americans tend to be less educated than whites, that is, a lower percentage of the population holds higher education degrees.¹ The reasons for this are many, and the trend has been declining over time, but it remains a fact and this fact translates into many African Americans-on average-having lower Marginal Revenue Product than the general population as MRP is positively correlated to education. This leads to the problematic effects of minimum wage legislation harming this community disproportionately. This point is strengthened by the fact that the black unemployment rate, which in the late 1800s and early 1900s was roughly the same as the white unemployment rate, is now double the white unemployment rate and has been since the introduction of minimum wages in the 1930s.²

Objections to the minimum wage are based on a deep misunderstanding of labor markets and fail to account for empirical observations of current wage levels among members of the workforce. The most popular argument states that if the minimum wage were removed, employers would take advantage of employees by paying them a few dollars and then exploiting them to the greatest extent possible. Thus, without the minimum wage we would be thrust back into the early days of the industrial revolution, when employees worked long hours for less than a dollar an hour. Such an argument implies that employers will exploit their workers by paying them less than they are worth.

If the assumption were true that without laws, employers would pay their employees even less than they are worth, why don’t employers today pay all of their employees as little as they legally can? If employers acted as advocates of the minimum wage assume they should, then they would all currently pay their employees the minimum wage. This fails every empirical test. Lawyers, doctors, construction workers, manufacturing plant workers, even many people that work in retail today all earn more than the minimum wage. This would not be possible if employers acted in the way that they are imagined to by supporters of the minimum wage.

The reason that employers don’t act in this way is because of the competitive effect that was described previously. If the minimum wage law were removed tomorrow, the only people who would be paid less than the current minimum wage are those who produce less than $7.25 per hour. Any other workers who produce more would be still be paid an amount equal or nearly equal to their MRP. If an employer tried to pay his workers less than they produced they would either be offered a job by another employer or the worker would seek employment at another firm. The profit incentive of both prospective employers and the employee ensure that this will happen.

Another objection to the claim that we should abolish the minimum wage is that paying workers less than a certain level of subsistence is immoral because it will leave them in poverty. What is worse, a job that pays three or four dollars an hour or no job at all? Can we really claim to advocate for the poor as their guardians by preventing them from accepting a job at a lower wage than society deems is necessary? No one would force the poor to accept low wage jobs, but we should allow them to make their own choices. If it is true that no job at all is better than one that pays three or four dollars an hour then let the poor make that decision for themselves.

This advocacy for preventing workers from accepting low wages is based on economic illiteracy at best and special interest concerns at worst. The poor are currently in dire straights; the depression of 2008 has hit them especially hard and they are still feeling its effects four years later. It is immoral to prevent people who want to work from voluntarily making arrangements to do so. Preventing the poor and starving from working for any reason should be seen for the morally reprehensible policy that it is. We need to repeal minimum wage laws so that the poor can find jobs in order to better their situation without having to rely on the charitable or tax induced contributions of others. If we repealed the minimum wage laws, less-educated people could regain their ability to compete in the work force by out-competing skilled laborers on price of labor. African Americans would see their unemployment rate plummet and establish parity with Caucasian and national employment rates which would make great strides to end racial disparities in wealth. Repealing the minimum wage is one of the most effective and expedient anti-poverty measures that could be enacted in our country today and it is one that is long overdue.

1The 2010 census numbers for bachelor’s degrees can be found at the census bureau’s website http://www.census.gov/compendia/statab/cats/education.html

2A brilliant discussion of the racial disparities of the impact of minimum wage laws by economist Walter Williams can be found here http://townhall.com/columnists/walterewilliams/2011/05/11/minimum_wages_discriminatory_effects

All Voters Were Not Created Equal

Tags

Democrat, libertarian, philosophy, politics, rational ignorance, Republican, vote

Let’s examine the shocking implications of a study done by Just Facts a public policy think tank. For reference, the study can be found here: http://www.intellectualtakeout.org/blog/fact-based-poll-reveals-fictions-believed-voters. The study polled participants by asking them twenty questions, two of which were used to establish their political identity, and the other eighteen were objectively verifiable facts about different public policy questions pertaining to current issues. The study then compiled the answers, and calculated what percent of respondents answered the each question correctly, further breaking the results down by political affiliation. An example of one of the questions asked; “Do you think the federal government spends more money on social programs, such as Medicare, education, and food stamps … or does the federal government spend more money on national defense, such as the Army, Navy, and missile defense?”

This study shows that an astonishing proportion of voters are grossly misinformed about many of the relevant political issues in this year’s election cycle. Out of the eighteen questions asked, only four were answered correctly by a majority of respondents. Also notable is the drastic difference between Romney voters and Obama voters on some of the questions. These factors should make us reconsider being such staunch advocates of democracy After all how good is it for everyone to have a say, when people are not only ignorant but in fact wrong about the facts surrounding important policy issues?

The partisan divide on some of the questions was dramatic as well as quite telling. Question 10 reads, “Some policymakers are proposing that individuals be allowed to save and invest some of their Social Security taxes in personal accounts instead of paying these taxes to the Social Security program. In your view, do you think such proposals generally improve or harm the finances of the Social Security program?” The correct answer that they provide is that it Social Security’s finances would be improved. The correct answer was, “given by 25% of all voters, 5% of Obama voters, and 47% of Romney voters.” Democrats claim they don’t want to cut seniors’ benefits but are always averse to privatization schemes when they are proposed with regard to entitlements. The fact that only five percent knew that privatization proposals would improve the program’s finances and thus mitigate the necessity of cutting benefits to seniors demonstrates that Democrats as a whole are woefully uninformed in this area due to economic misconceptions.

On the other hand, while Republicans were much more aware regarding social security, still less than half of them knew the correct answer. This shows that while Republicans may be less ignorant than Democrats on matters of economic policy, they are both still relatively ignorant. It’s not exactly confidence inspiring that of the members of the party that espouses these privatization schemes, most members sampled did not even know that their preferred policy option was beneficial.

On the flip side we have Question 2 which reads, “Do you think combined federal, state, and local taxes now consume a larger portion of the economy or a smaller portion of the economy than they did 10 years ago?” The correct answer was a smaller portion. The correct answer was given by, “19% of all voters, 38% of Obama voters, and 6% of Romney voters.” So now we have a mere six percent of Romney voters responding correctly and we can see how their views would have been infected by partisan propaganda. Romney continued to talk about how tax rates were too high, although he then marginalized his position by saying any cuts he made would be revenue neutral. It seems that Romney voters were led to believe that taxes were currently irregularly high by the constant push for lower taxes.

Once again it is informative that although Obama voters outperformed Romney voters by more than thirty percent, they still were far from having a majority of respondents giving the correct answer. This is almost perplexing since Obama harped so frequently on revenues being too low to sustain our “need” for government spending.

The concept of democracy is one that is held in high esteem in our society. We value it as one of our founding principles so much so that it has become a hallmark of American political society. In light of this study, assuming its results are representative of the voting population as a whole, should we think twice about how blindly we value democracy in our political society today?

I am certain that no one reading this would be satisfied with a surgeon performing open heart surgery on them if they weren’t too knowledgeable about the procedure. Or a mechanic who was knowledgeable about how to fix cars in 25% of cases to perform their auto repair services. So why in the world do we allow people who are so ignorant of the details of relevant policy issues to make decisions that will affect the country by voting for politicians whom will represent us? Why should we let someone who knows nothing about the effectiveness or lack thereof of private school voucher programs vote as to whether or not our children should be allowed to receive vouchers? Why should we allow the poor to be devastated by economically illiterate liberals who impose forced unionism and the minimum wage in the name of helping the poor? Why should we let those who know nothing of tariffs vote to make all of our consumer goods needlessly more expensive?

This problem persists due to a term known as rational ignorance. A voter is said to be rationally ignorant with regards to a specific issue when the costs of educating themselves on an issue outweigh the potential benefit to doing so. In national and even statewide politics, this is almost always the case. If a voter is considering an issue (say the minimum wage) and how they should vote based upon it, the benefit of educating themselves as to all of the possible benefits or problems associated with the policy are negligible because at the end of the day they only have one vote out of millions (750,000 in the case of house races). The cost however can be quite burdensome. If they don’t get formal schooling on the subject they will at least have to sacrifice some of their own time to study the issue. Instead they listen to what their party and the Superpac television ads tell them about politicians and issues and that is what they base their decisions off of. This is why most voters remain ignorant on many issues, because it is rational for them to do so.

Some would propose as a remedy for this tenuous situation, that we simply improve our national public education curriculum by including lessons on many of our nation’s current issues or that we simply have government funded, “non-partisan” commercials on television to explain issues in their proper context. Or perhaps pamphlets could be handed out to all voters when they register. This type of solution seems exceedingly dubious to me on a number of fronts.

To narrow it down to a single reason, I believe that no matter how much the government tries to subsidize education on political issues, it would not be enough to overcome the rationality of ignorance from the perspective of the individual voter. No matter how much the government tries to lower the cost for the individual, it will still require time and effort that most voters will not believe is worth it

The only workable solution is that we should push for limiting the amount of power and scope that the government, and by extension voters, have. If we reduce the functions of the government to the greatest extent, then voters will not have to try to learn about thousands of different areas of policy and specific proposed laws and regulations and executive actions. By severely limiting the government we can end the tyranny of ignorance that we currently live under.

The Republicans’ Fight For Relevance

Tags

Democrat, elections, libertarian, peace, philosophy, politics, Republican, ron paul, war

In the last few weeks since the election some pundits and politicians on the left have pointed to the defeat of Mitt Romney and the beating back of Republicans in congress as an indicator of a bleak future for the Republican party. I myself am not quite so pessimistic about the prospects of the Republican party because it seems like the two party system will force Americans to sway back and forth between one terrible party and the other. That being said, I am rather encouraged by the responses that all of these doomsayers have elicited. It seems like many on the right, while disagreeing that the Republican party is no longer an effective political party, do agree that some structural changes need to be made in order to allow for better prospects in future elections. After all, Republicans have lost the popular vote in five of the last six presidential elections.

 

The question that remains is, in what way should it be changed?Should it be more conservative? Should it be more moderate? Should it pander to Hispanics or Women or some other minority? In my estimation, all of these prescriptions miss the mark. Republicans are running around looking for a winning strategy when indeed it has been under their noses for at least the past five years.

In her November 23rd article on US News and World Report,http://www.usnews.com/news/blogs/ballot-2012/2012/11/23/ron-pauls-strengths-may-provide-gop-roadmap-to-successRebekah Metzler introduces the Republican party to the political dynamo that is Dr. Ron Paul the Republican Congressman from Texas. Metzler contends that despite the fact that both of Congressman Paul’s bids for the Republican nomination have been unsuccessful, he may yet hold the key to future wins for his party. Metzler identifies three specific policy areas that Ron Paul stood for that propelled him to beat all of his Republican challengers with the 18-29 year old demographic in many states by overwhelming margins during the primary season and suggests that if the Republican party as a whole moved toward these positions they would be on more solid ground in the years to come. The three policy areas she outlines are his Anti-War stance which included a large scale rollback of the military presence world wide, his stance on auditing and then ending the federal reserve system which enjoys a government granted monopoly on printing money, and his federalist approach to social issues which included leaving things like abortion, marijuana policy, and gay marriage to the states rather than trying to find a one size fits all solution at the federal level.

I have to agree with Metzler about his anti war and federalist social issue approach but would beg to differ regarding end the fed. I’ll start with my disagreement by saying that I don’t think the younger demographic, nor minorities in general are particularly concerned with US monetary policy. I don’t think monetary policy is a popular issue with almost any demographic except, perhaps, trained economists. While I think that his role in educating the population on this issue has been an incredible breakthrough, at this point it still does not seem like a major issue. While it may or may not be sound economically for the Republican party to abolish the Federal Reserve Bank in the future, it is probably politically almost inconsequential.
On the other hand I think Metzler hits the metaphorical nail on the head when she explains Paul’s support from the youth demographic in reference to his anti war and federalist social policy positions. New members, or prospective members of the Republican party have grown up for most of their lives during constant warfare. They have seen the nation’s resources dwindle and thousands of America’s heroes be slaughtered in two wars that many feel have gone on longer than they should. Americans are weary of the wars and looking for change, which is partially what allowed Barack Obama to win by such sweeping margins in 2008 as he was the supposed peace candidate. Now after the first term of the administration, many feel betrayed by the continued waging of war. In 2008 Ron Paul was the only candidate for the Republican nomination who opposed the Iraq War. Similarly in 2012, the Congressman provided the only dissent among a flock of hawks with regard to Iran.

 

Some pundits opined that this alone was the reason for President Obama’s win despite the atrocious state of the economy, the American people just didn’t want another war and Mitt Romney seemed poised to give it to them. If the Republican party taken the hints of Congressman Paul’s success and moved away from the perpetual war ideology of the Bush administration, they could have made up some lost ground with younger voters and possibly anti war liberals. Even if it wasn’t enough to win this year it would have set the Republicans up for growth over the next two years if they had positioned themselves as the party of peace.

  Social issues were a big player in this years election. From the exaggerated (if not entirely fabricated) “war on women” to gay rights to drug prohibition, Republicans took a hit on social issues this year. While trying to shore up the protestant base, they may well have scared off enough women and youth voters to cost them the Presidency and certainly some seats in the Senate and House. Here again the Republicans could have made up ground with women, minorities, and younger voters if they had moved in the direction of Ron Paul.

 

What is different about Congressman Paul is that he did not flip flop like Mr. Romney by suggesting that Republicans should take whatever position wins more votes at a given time, instead he has taken the principled tenth amendment position. On issues such as gay marriage, drug laws, and abortion Congressman Paul said that despite what he personally thought, these were issues that should be left to the states to decide, as per the Constitution. If Texas wants to outlaw gay marriages, legalize marijuana, and place restrictions on abortions while Massachusetts prefers to allow gay marriages, only allow medical marijuana and place no restrictions on abortions then why shouldn’t they each be allowed to?

 

Instead of trying to find a one size fits all policy to enact at the federal level that will certainly oppress a vast minority, why not allow for fifty different sets of rules and allow for state governments to compete? Certainly this will still leave some disgruntled minorities as all democracies do but at least minority opinions would have the option to move to a state with more preferable laws. This is how Republicans can outflank Democrats on social issues without having to equivocate on long held traditional conservative principles. This position, perhaps more than any other is one of the best options Republicans have to secure the youth vote for the party of limited government. This allows youth voters who subscribe to free market economics principles to side with the Republican party without having to hold their nose and vote for social positions that they find abhorrent to their own personal beliefs.

   While it’s hard to say what would have happened had Congressman Paul been able to secure the nomination this year, it is a certainty of politics that no party can maintain itself without attracting voters from the next generation. While the Republican party may have snubbed Ron Paul, if they want to maintain relevance as a major party, they will still need his voters. The policies that have been outlined and championed by Congressman Ron Paul provide the best guide to future success for the Grand Old Party.

Can the Rich Balance the Budget?

Tags

economy, free markets, libertarian, politics, rich, taxes

     Let’s examine an article posted on the liberal leaning website “The Daily Beast” in which Michael Medved describes an unanswered question about the coming fiscal cliff and what solutions Republicans and Democrats should strive for http://www.thedailybeast.com/articles/2012/11/24/the-unanswered-question-what-about-clinton-era-spending-rates.html
     Medved aptly points out that among all this talk by Democrats and President Obama specifically about returning to Clinton era levels of taxation in order to reflect Clinton era prosperity, they are neglecting a crucial feature of the Clinton economy. Namely, much lower levels of government spending as a percentage of GDP. Medved shows that let alone increasing income tax rates on the top bracket, even if we were to raise all of the rates to their pre Bush levels, the budget deficit would still be nearly $1 trillion. Medved brings up the fact that at the end of the Clinton era that Democrats and indeed many Republicans wish to return to, government spending as a percentage of GDP stood at 20.6% whereas at the end of President Obama’s first term spending as a percentage of GDP stands at 24.3%.

     The facts that Medved outlines betray the real culprit behind our nation’s current fiscal crisis and it isn’t a few millionaires who aren’t paying their “fair share.” As it turns out the real story is much less cartoonish. Obama has taken advantage of the flaws of democracy and rule of the majority by inventing a scapegoat to blame the nation’s ills on. By targeting the infamous “1 percent” the President knows that he has a winning strategy for the simple, if not painfully obvious, reason that most people are not part of the “1 percent.” Much is made of public opinion polls that show overwhelming support for raising tax rates on the top 1 percent of income earners but this should seem rather odd. Of course most people are in favor of others paying for the benefits that they themselves receive. No headline would ever read, “New poll shows overwhelming support for free stuff at others’ expense” but the rational observer can see that this is essentially the same thing.

     By drawing attention to the red herring of rich who don’t pay their fair share, the President was able to distract from the real cause of our current crisis, skyrocketing government spending. Historically, tax revenues have hovered around 20 percent of GDP so with the Obama administration rounding out its first term with spending levels upwards of 24 percent of GDP we can see that spending and not revenue, is the biggest problem in this equation. In our current period of stagnant growth of less than 2 percent, spending at these levels can be described as clearly unsustainable.
      So where should we start? Should we get rid of PBS like Mitt Romney suggested during the campaign? Eventually yes because public broadcasting is nowhere authorized by the constitution but to suggest this as part of a “solution” to our nation’s fiscal crisis is naive if not stupid. The spending cuts should come from the sectors of government that spend the most money. The military is a certain venue for some real cuts. Many conservatives have fallen prey to Keynesian thought by arguing that cutting military spending will lead to job losses. While this is directly true in that it will cause specific people to lose their jobs, the resources freed up will be put to more efficient use in the private sector and overall employment will not be negatively affected. Jobs lost in the military will be compensated by jobs created in other, more productive areas of the economy. The Department of Defense, CIA, FBI, NSA, DHS, and all of the other “defense” agencies are government agencies just like the EPA, DOE, DOI, etc. Government is wasteful and inefficient no matter what its purpose so if we need to cut all the favored agencies of the left, then we can certainly cut those agencies on the right. The other major area that needs to see cuts is the entitlements. We could balance the budget this year by raising taxes and cutting defense and other discretionary spending but the entitlements would still be out of control. As of this posting the unfunded liabilities of our country, including social security, medicare, medicaid are more than $121 trillion or more than 7 times the value of our entire economy! No amount of tax increases on the rich or anyone else will ever be able to solve this problem. As disliked and demonized as Paul Ryan’s plan to privatize Medicare was, privatization may be the only way for us to maintain these entitlements at all for our aging society short of continuing to reduce benefits and increase taxes indeterminately into the future. In every single instance, privatization makes services cheaper, and more efficient and at this point is probably our only option.

      Whatever happens in the next few months as Republicans and Democrats go back and forth and offer and counter offer we can be sure that very little progress will actually be made. But it is my hope that now that election season is over, maybe we can stop pretending that the disaster that is our federal deficit is the fault of a few millionaires.

Opening Thoughts

Tags

economics, free markets, libertarian, politics, ron paul

The purpose of this site is to spread the news but often people see the news as having a left or right “bias.” My intent for this site is to inspect current events news stories and not only pare back the left or right bias but further to explain it from  a common sense point of view. This site will cover subjects including history, politics, economics, and markets from a libertarian, free market perspective in order to offer an alternative to the often expounded false paradigm of left versus right.