Friedman Friday

Enjoy.

Blake

A Challenge to Republicans

I have found that many people are quick to throw stones at the other side, particularly those in the deep red South. If you are like me, I had just not been seriously challenged in my views or critically considered my views on policies such as the minimum wage all the way to using nuclear weapons and foreign policy. So, just wanted to throw a quick challenge to the Neo-Conservatives out there who condemn welfarism but embrace military interventionism. Well, the following excerpt is part of a letter from Don Boudreaux:

Most modern “liberals” believe that domestic economic problems are caused chiefly by unsavory characters – “business people” – who impose their destructive rule on masses of innocent workers and consumers yearning for more prosperity, and that the best solution to these problems is government force deployed using armies of regulators to subdue these bad guys and to keep close watch over them and their successors. Failure to intervene is immoral. These same “liberals,” though, believe that foreign problems are typically the result of complex forces that can be understood only poorly by American-government officials; it is naïve to suppose that even well-intentioned foreign intervention by Uncle Sam will not have regrettable unintended consequences.

Most modern conservatives believe that domestic economic problems are typically the result of complex forces that can be understood only poorly by government officials; it is naïve to suppose that even well-intentioned economic ntervention by Uncle Sam will not have regrettable unintended consequences. These same conservatives, though, believe that problems in foreign countries are caused chiefly by unsavory characters – “dictators” or “tyrants” – who impose their destructive rule on masses of innocent people yearning for more democracy, and that the best solution to these problems is government force deployed with armies of soldiers to subdue these bad guys and to keep close watch over them and their successors. Failure to intervene is immoral.

It is an interesting paradox introduced by Dr. Boudreaux that many people
tend to not think about. What both visions have in common is that there are
valid reasons to impose one's will on another. Both sides just disagree on the
reason to. Are the two intentions much different than each other? What do you
think?

Glad to return to the blog,
Blake

Beyond Intentions: Disabled and the Minimum Wage

Edition #1
I am beginning a series of posts on the blog that centers around the intentions of governmental policy vs. the actual results. We will be examining federal policy and issues that everyone knows really well and go "Beyond Intentions."

Thinking Rightly
Before I talk briefly about this subject, I want to make sure that I approach the sensitivity of the subject rightly. I know many people that have been disabled and have been blessed by their impact in my life. It always gives me comfort to know that if they believe in Christ, then the Bible teaches: the Lord Jesus Christ...will transform our lowly bodies so that they will be like his glorious body. (Philippians 3:20-21). What a great promise! So, in that mindset, I want to point out a part of the Federal Minimum Wage Law that I believe exposes the law for what it is: a law with good intentions but destructive consequences.

Minimum Wage and the Disabled
The minimum wage law signed by FDR in 1938 is pretty well known to most people; however, there is a particular provision of the law that provides an exemption for people with disabilities. The Columbus Dispatch brought this issue to my attention with this article. Thousands of adults with developmental disabilities such as autism work at jobs in Ohio that pay less than the minimum wage. Some work for $2.15 assembling auto parts and some sew table linens for 79 cents. A majority do not earn half of the minimum wage. This little known provision allows businesses to pay less than the minimum wage if the disability limits the worker's productivity. Comments from the article:

"It's immoral," said Curtis L. Decker, executive director of the National Disability Rights Network.

"This has been a godsend," said Ted Williams, whose autistic son earns a low wage at his job in Columbus

The debate comes down to this: Critics say low wages show that disabled workers are being exploited, but supporters say the pay rates reflect opportunities – that even the most disabled Ohioans are being given a chance to pursue work and build full lives.

The Question
What do you think? Are the disabled being exploited? Or, is the exemption giving them an opportunity that would not be there otherwise? Think about it: If an employer did have to pay a person who is disabled the minimum wage of $7.25, would they be hired? Or, would the employer opt to hire the young high school or college student who needed the money but could be more productive? As a result, are you, through the good intentions, pricing more disabled out of the market? Now, would less disabled workers be able to be work, build their lives, build their skills, and contribute greatly to society?

If you look at this situation and think that it would adversely affect the disabled, then good, we agree (ha ha). But, just as important, taking this argument to an extreme has revealed a principle. If a mandated floor prices disabled out of the market of employment, wouldn't it also price young, unskilled workers out of the market as well without disabilities. I made this point on a previous post on the blog:

The fact is that the minimum wage is hurting the very people that it was most intended to help. Instead of letting a low-skilled or uneducated person be employed at a rate to suit the employer like $5 an hour, they government has made that practice illegal and is forcing a business to employ them at $7.25 an hour, plus mandated fringes such as social security tax, health care, and unemployment insurance . The government is effectively denying low-income folks and teens an opportunity to gain experience and some cash flow that could lead to a more stable life and potential opportunities in the future.

I believe this is a classic example of good intentions having destructive consequences. The poor and young workers have borne the brunt of the good intentions. I have included an interesting article about how the minimum wage began to help break down preconceived notions you've had. This is the issue that was the first domino to fall that turned me to liberty minded economic views. Good for me. Bad for anyone that has to listen to me, I guess.

Blake

A Brief History (Written in 1998)

Sixty years ago on June 25, 1938, President Franklin Roosevelt signed into law America’s first minimum wage: 25 cents an hour, rising to 40 cents an hour over the next seven years, which is equivalent to almost $5.00 in 1998 dollars. Today, many increases later, Senator Ted Kennedy of Massachusetts is pushing for yet another hike in the minimum wage. Now is a good time to reexamine the origins of this important law and its impact on the job market.

Once the original bill was passed, many economists and politicians predicted that more workers would be thrown out of work and that the Great Depression—already in its ninth year—would get worse. That’s exactly what happened and during the fall elections, Roosevelt lost an astonishing 80 House seats to the Republicans.

It turns out that Ted Kennedy’s Massachusetts is where the impetus for the minimum wage actually began. The working poor struggling to eke out a living were not the driving force behind the 1938 law. New England’s highly paid textile workers were.

During the 1920s and 30s, the American textile industry had begun to shift from New England to the South, where the cost of living was lower and where Southern workers produced a high quality product for lower wages. Politicians in Massachusetts, led by Senator Henry Cabot Lodge, Jr. and House leader Joseph Martin, battled in Congress for a law that would force Southern textile mills to raise wages and thereby lose their competitive edge.

Governor Charles Hurley of Massachusetts bluntly demanded that Southern wages be hiked so that "Massachusetts [would] have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state."

Southerners were well aware of what Massachusetts was attempting and they scuttled all minimum wage laws before Congress during 1937 and well into 1938. In doing so, they handed President Roosevelt his first major legislative defeat.

"Northern industries are trying to stop the progress of the South," Congressman Sam McReynolds of Tennessee observed, "and they feel if they can pass this [minimum wage] bill it will really be a tariff against Southern goods."

Southern congressmen joined those economists who argued that Congress couldn’t make a man worth a certain amount by simply making it illegal to pay him any less. They said that people whose skills and experience were worth less than whatever Congress decreed as the minimum wage would be priced out of the labor market. The Great Depression, they said, would get worse by Congress telling workers, in effect, "If you can’t find a job that pays at least the minimum, then you’re not allowed to work."

The desperate plight of unskilled workers trying to hold on to their jobs disturbed Congressman Carl Mapes of Grand Rapids, Michigan. "The enactment of this legislation," Mapes concluded, "will further increase unemployment, not reduce it. It is bound to increase unemployment unless all human experience is reversed." Mapes cited the case of a local minimum wage law passed in early 1938 in Washington, D. C. Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels.

Roosevelt’s political muscle eventually prevailed and the national law was passed, but Mapes’s prediction has proven to be prophetic. Over the years, steady hikes in the minimum wage have priced out of the market the most vulnerable workers, including blacks, teenagers, and women with limited skills. Also vulnerable have been workers with developing skills whose labor is not yet worth what the law says they must be paid.

The bias of minimum wage laws against disadvantaged minorities has been conspicuous ever since 1956, when the minimum wage shot up from 75 cents to $1.00 an hour. During the next two years, nonwhite teenage unemployment spiralled from 14 to 24 percent. The recent 1996 hike in the minimum wage to $5.15 an hour had a similar effect: unemployment among black male teenagers jumped from 37 to 41 percent almost immediately, at a time when the economy was doing well for almost everyone else. That’s why Milton Friedman, the Nobel Prize winning economist, once called the minimum wage "the most anti-black law on the books."

Data from President Clinton’s own labor department show that at least 20,000 jobs were eliminated by the 1996 hike. The Employment Policies Institute calculates that the real job loss was closer to 128,000.

Senator Kennedy would have us believe that hiking the minimum wage again would be good for Massachusetts, and that what’s good for Massachusetts is good for Michigan and the nation, too. That was wrong in 1938, and it’s still wrong sixty years later.



-Article Courtesy of Mackinac Center for Public Policy

Future of Education?

"Future of Education?"

I stumbled across this video while trying to distract my mind from working, and I was just enamored. Salman Kahn is a former analyst in hedge fund and began tutoring his cousins remotely over YouTube. It has turned into what many think to be the future of education (Bill Gates' words, not mine). More importantly, it also nestles nicely into the framework the world is beginning to make sense to me--economics, innovation, productivity, free markets, education, and the like.

Anyone interested in the educational model out there, take a look. The 20 mintues is well worth it. If not here is a brief summary. Enjoy.

Summary
At about the 8th minute, Khan describes the traditional classroom:

…homework-lecture-homework-lecture-homework-snapshot exam. And then whether you get a 70%, 80%, 90% or 95%, the class moves onto the next topic.

Even the 95% student, what’s that 5% that he missed?

That’s analogous to learning to ride a bicycle where I give you a lecture, give a bike to you for a couple weeks and then come back and evaluate you. You can’t quite stop, you can’t make left turns. You’re an 80% bicyclist. I put a “C” stamp on your
forehead and then I give you a unicycle.

You fast forward and you see smart students start to struggle because they have these Swiss cheese gaps that kept building.

This is a good point. The one-size fits all nature of the classroom lends itself to broad brushes and gaps that build and build on each other. In this world of specialization, customation, and your own pace, why still do it that way? We have coke machines that do that now. Who would of thought?

Khan continues:

Our model is learn math the way you learn anything. The way you learn to ride a bicycle. Stay on that bicycle.Fall off that bicycle. Do it as long as necessary until you have mastery.

Next, Khan articulates amazingly well a problem I have recognized with our education model, but have struggled to explain it:

The traditional model penalizes you for experimentation and failure, but does not expect mastery [e.g. time to move onto next subject even if you only
mastered 90% of the last one].

We encourage you to experiment. We encourage you to fail. But we do expect mastery.

Bingo. Communciate expectations, expect mastery, but allow flexibility.About 14 minutes in, Khan talks about the progress students make in his model vs. the traditional model.

When you go five days into it [learning a new subject], there are a group of kids who have raced ahead and a group of kids who are a little bit slower.

In the traditional model, you do the snapshot assessment. You say these
are the gifted kids and these are the slow kids. You say things like maybe
we should put them in different classes.

But, when you let every student work at their own pace, we see it over and over and over again, you see students who took a little bit extra time on one concept or the other, but once they get through that concept they just race ahead.

So the same kids you thought were slow six weeks ago, you now would think are gifted.

It makes you wonder if a lot of the labels that maybe many of us have benefited
from were really just due to a coincidence of time.

I believe these are penetrating points that cause us to turn the convential teaching model on its head. Technology and specialization have allowed for more choices. Kahn by introducing this model could spark some massive innoviation in the school systems.

The Money Ball

Most exciting to me is in the 11:30 mark as Kahn explains a teacher can walk in each day and visually observe the progress of each student. Look below:

Each row represents a student in the classroom and column the subject matter/module. As the teacher walks into the classroom for the day, he or she can see that "green" means they have mastered the topic (10 questions in a row correct), "blue" is working on it, and "red" means they are stuck. So, they teacher can best use the time and intervene on the red kids or get a green kid to be first in line to utor the red kid.

If it couldn't get any better, it does. Kahn states that he "wants to arm the educators with the most data that he possibly can just like you would in finance or any other sector." Look below:

What are they spending their time on? What questions are they missing? Where are they stopping in a session? A teacher has all the tools necessary to target problems and use technology to use her time most effectively.

Conclusion

So, I sometimes pretend to know way much more about education than I do. But, this is extremely interesting to me. Education should obey fairly the same laws of economics and response to incentives and circumstances. In Steve Moore's brilliant article in the WSJ on productivity gains and progress over the 20th century, he details the gains in productivity per worker in the private sector as nothing short of amazing over the past century. But, the output per government worker or teacher to be negative or far less. He explains:

Where are the productivity gains in government? Consider a core function of
state and local governments: schools. Over the period 1970-2005, school spending
per pupil, adjusted for inflation, doubled, while standardized achievement test
scores were flat. Over roughly that same time period, public-school employment
doubled per student, according to a study by researchers at the University of
Washington. That is what economists call negative productivity.

But education is an industry where we measure performance backwards: We gauge school performance not by outputs, but by inputs. If quality falls, we say we didn’t
pay teachers enough or we need smaller class sizes or newer schools. If
education had undergone the same productivity revolution that manufacturing has,
we would have half as many educators, smaller school budgets, and higher
graduation rates and test scores.

This is an interesting revelation. If education had followed the same path as technology grew in industry over the past century, we would have half as many educators, smaller budgets, and higher scores. Is education exempt from the regular laws the govern human progress, specialization, and economics? Many would argue so. I am not so sure. Here's to hoping that Kahn's work spreads like economic progress over the past century. Kids will be better off.

Blake

If Supermarkets Were Like Public Schools

Helpful analogy from our friends at Cafe Hayek:

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—"for free"—from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes. Of course, the quality of public supermarkets would play a major role in families' choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people—entitled in principle to excellent supermarkets—would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn't organize themselves efficiently to meet customers' demands. Responding to these failures, thoughtful souls would call for "supermarket choice" fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers' poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

Conclusion

Of course, this analogy pushes at the margins, but it sometimes it takes pushing to an extreme to reveal the principle. If it seems ludicrous for our vital goods and services to be allocated in the way described above, is it not also ludicrous to administer education in this manner? Groceries, goods, and services are in fact supplied much more effectively by competitive markets in response to consumer need. So, it isn't that I am inherently cynical with government, but I see the free-market as far surperior. It has a much better track record.

"Underlying most arguments against the free-market is a lack of belief in freedom itself." -Milton Friedman


Blake

The Choice of Two Futures: Chart Edition

The Chairman of the House Budget Committee has been talking to anyone who will listen about the "choice of two futures" that the we have. He has been giving this presentation here. We need to begin to understand the future we have built for ourselves.

These charts will illustrate what I believe are some serious, if not daunting, problems that face our country. The argument is not merely ideological, it is actuarial. As my one and only option for President in 2012 Mitch Daniels says, "If you disagree with me about this, you can meet me in the hall and make sure you bring a third-grade math book."

Federal Spending in Outlays

Many of these graphs need no caption, but really? Does anyone think this is sustainable? For those who do not want to cut, my only question is: how was life before 1970? If all of this spending is essential, then how did Americans live before we had this many outlays. Again, not just ideological, but this problem is actuarial.

National Debt

I am sure this will end well for us.

Federal Budget Projections w/o Changes

"I do not make jokes. I just watch on the government and report the facts." - Will Rogers

Defense Spending



This chart is something of note. If we are ever going to save this republic, then everything has to be on the table. Republicans won't even mention cutting defense spending. Well, that is why I am a conservative. Does it make sense to have a higher defense budget than the other top 25 nations combined? And 24 of them being our allies? We should cut our empire building and military spending and focus on defense.

Rise of Consumer Prices

This is the subject of a whole another blog post. But, since the creation of the Federal Reserve and the move from the Gold Standard, the dollar has lost 95% of its value. The dollar that you once held in 1913 is only worth a nickle today. You can dismiss it and say..."Well we have always had inflation!" Not true. Prices stayed flat for most of our history. Inflation is primarily a product of having a central bank and the printing of money that has occurred for close to 100 years now. Not only are we spending more, accumulating more debt, but prices are skyrocketing.

Government Dependence vs. Personal Savings

Lower interest rates of allowed Americans to borrow more and save less. But given the high correlation between rising entitlement income to personal saving, one can't help but wonder if Americans feel less compelled to save money as they can depend on the government more and more. It is an unsustainable course for us and for the State.

Broken Education System

Everyone who reads this blog knows this is probably my biggest public policy passion: education. Whenever I ask people how to fix education, people always respond with "more money." But, the facts just do not support it. The system must be changed before I would commit any more money to the education system. We have tripled our support to education and scores have remained flat. Minority graduation rates in many states across the country are below 50%. Why does anyone defend the status quo? We need a model based on freedom, choice, and competition.


One of the biggest fallacies of government is to judge programs by their intention and not their results. This is one of those cases.


Losing the War on Poverty






I do not disregard the need to have a safety net for the underprivileged--I just differ on the means. We have judged welfare and the war on poverty by its intentions rather than its results.

In early 60s, the American welfare state was still relatively small, consuming only 1.2 percent of U.S. gross domestic product (GDP). The American family was also still intact, with 93 percent of children born into stable families. But then President Lyndon B. Johnson’s War on Poverty happened. Forty-five years and $16 trillion later, thanks to big government, poverty is winning. Thanks to over $900 billion a year (over 5 percent of GDP) of spending on over 70 means-tested welfare programs spread over 13 government agencies, more than 40 million Americans currently receive food stamps, poverty is higher today than it was in the 1970s, and 40 percent of all children are born outside of marriage.


Out of Wedlock Births and Poverty

The breakdown of the state has coincided with the breakdown of the home. If we cannot reverse some of the dramatic trends amond the American family, we will much less happy and more broke. We need to promote marriage, take away the tax incentives that discourage marriage, and promote traditional values.

Conclusion

We have a choice between two futures. There is one that is obviously unsustainable that I have outlined here. Our founders were aware of this:

"Remember democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide."
-- John Adams, letter to John Taylor, April 15, 1814

Let's reverse course before it is too late.

Blake

A Debatable Chart

Not much to say here. Simply put:
Red Line= Passage of the Stimulus Bill
Green Line= Extension of Bush Tax Cuts

Feel free to form your on conclusions.....

Friedman Friday

What Will You Do?

So, I know you are disappointed that it's not our boy Milton in the video. But, It sets the stage nicely to highlight the best idea that he ever had: school choice.

There obviously isn't a silver bullet in education, but there is not a more indicative example of the failing system of education than this fact: We have the biggest economy in the world, yet ranked 20th out of 28 industrialized nations in education. Which one is built on free market? Which one looks more like the world?

Tinkering around the edges isn't going to vault us back to the top, but totally rethinking our entire system and building it up based on free market principles through vouchers will give us the best chance (blog from August on education).

This video asks the question: What will you do? Well, there is a Governor in Indiana named Mitch Daniels that has decided what to do. And, it is one of the many reasons I believe he should run for President.

Most Aggressive Education Reform Agenda in the Country

Mitch Daniels has the most impressive record of any governor in the U.S. at the moment, but for the first time, he is entering this Legislative Session with majorities in both houses. The main item on his agenda is the most transformative education initiatives in the country, and it is centered on Milton Friedman's idea of vouchers.

He is going to extend school vouchers to any child in low income or middle income families for them to attend the school of their choice-public or private. The state spends between $5,500 and $11,500 on educating each student each year depending on the county. Instead of our antiquated model of the state sending the money for education to the building, they will send it to the backpack. Students will no longer be relegated to failing schools just because of their geography; now they will get to use their money and direct their own future. Here are the specifics:

• Any child on low or reduced lunches will receive 90% of that districts per-student funding. He will be able to take that money to go to any school of his choice.
• A family of four making up to $80,000 a year will receive 50% of the funding
• A family of four making up to $100,000 a year will receive a voucher worth 25%.

Other reforms include:

• Increasing charter schools and their requirement
• Establishing a trigger system that allows parents to petition their school for conversion to a charter or new school
• Renegotiating collective bargaining agreements
• Introducing merit-based pay for teachers

Conclusion

I know that this post will likely cause a little negative feedback, but I welcome it. Yes, education starts in the home. Yes, I know you think it cannot be that simple. But, the education system at the present is a monopoly. The unions are holding innovation hostage, regulation has made it worse not better, and schools are measured by how many "ribbons' they have. The only method for breaking up a monopoly is through competition. We need to make schools compete for their students. Yes, bad schools, public and private, will fail. But, the good schools will be rewarded. Just like business.

It is their money. It is their future. Why not let them choose it?

Here are some links for your Friday:

In 15 Years, All Tax Revenue Will be Eaten by Entitlements, Interest

We are almost past the point of no return. In 15 years, there will be no tax money for education, research, welfare, defense, etc because of our debt and entitlement obligations. But, hey! At least Obama is serious about it. Maybe he will make a speech and it will be all better. Someone needs to lead.

How Much Did it Cost Us to "Create or Save" a Job from Stimulus? Answer: $223,000

It is not that the Stimulus didn't create jobs, because it did. It was just a really awful way of doing so. One question: How can you claim a job creation range of 1.3M to 3.5M? That is extremely vague.

I'm Not George Bush, Love Me! Ferguson Sums up Obama's Foreign Policy

This video is fascinating. Even the MSNBC anchors have no response. Even Christopher Hitchens can't understand this President's foreign policy in the Arab world. I guess he really does think he can drop in a make a speech in Cairo and everything is solved. I guess if Gaddafi would have legislated against unions, then Obama might have mentioned his name in the press conference.

Dem Rep. Gwen Moore: "Have Abortions or Eat Ramen Noodles"

I really do not know what to say here. We should let women have abortion because they would otherwise have to be poor and eat Ramen Noodles?

One of Worst Business Decisions of Decade: RIAA not Buying Napster?

In 2000, the Recording Industry Association of America had the opportunity to buy out Napster, who was at the time a growing, innovative music sharing site--before anyone ever heard of iTunes. Instead, they chose to be technophobic and file a lawsuit for piracy and filed a lawsuit. Of course they won the suit, Napster was shut down. Irony of ironies is that by suing and not buying they set fire to tens of billions of dollars and have put lots of artists worse off! The Music industry is down 45% from its 1973 baseline. Whoops!

A Watershed Moment: Government Unions vs. the Taxpayer

Who said it?

"It is impossible to collectively bargain with the government..."

It wasn't Ronald Reagan or Ron Paul, but George Meany the former Director of the AFL-CIO (the largest federation of unions) said this in 1959. FDR himself called the implications of government unionization as "unthinkable."

I want to preface this blog post by saying that I believe all employees of government around the nation are hard working and provide valuable service to this country. I believe that most of them are getting a bad name for what is happening in Wisconsin, but I do want to highlight the history and facts, as I see them, of government unions, their origins, and the objective implications.

A Brief History of Government Unions

Trade Unions began as way for workers to collectively organize for better pay and working conditions in the private sector in the late 19th Century. As late as the 1950s, there were no unions for government workers. This made sense in many eyes because unions primarily were disgruntled over lack of a share of the overall profit from greedy business owners and over the odious conditions they claimed companies made them work under to turn a greater profit. So, why would government workers, who are paid by the taxpayer, need a greater share of profits or have any complaints on working conditions? The government is supposed to be made up of the intelligent and compassionate right? Isn't that why we have ceded so much power and decision-making to them over the last century? However, as they say: "that dog just doesn't hunt." Government workers do not create profit--they merely negotiate for more of your tax money.

But, as the private union movement began to grow, it was pushed in NYC and eventually to the White House. In 1962, John F. Kennedy signed into law the ability for government workers to unionize and bargain for benefits. Since that time, the number of workers engaging in private sector unions has been diminishing as workers participating in public sector unions has increased.

With only 6% of private employees now engaged in unions, the unions are becoming desperate to keep their power, dues, and money flowing. It is being accomplished through the rise of almost 38% of the government being unionized. A practice that as "unthinkable" by FDR has now become the biggest source of campaign money, organizing power, and drag on the changing the budget of the nation.

The Biggest Sham: Taxpayer Dollars

One of the biggest scandals of the government employee unions is the way it influences campaigns through your tax dollars. If I was to donate to a certain candidate during an election cycle, then that is perfectly legal, often applauded to be engaged in the political process. Hey, it's my money I can do with it what I want. Well, what if I took 100 dollars from your pocket and gave it to that same candidate? Would that be legal and applauded? Absolutely not! That would be stealing. Well, this is precisely what has happened in government employee unions and the government since they were allowed to bargain collectively in 1962. Here are some facts:

2010 Election Cycle Numbers from Three Biggest Unions:

• American Federation of State, County, and Municipal Employees (AFSCME) gave 87 million to candidates running for election. The most of any company, organization. 99.5% went to Democrats. 0.5% to Republicans.


• Service Employees International Union (SEIU) gave 44 million.


• National Education Association (NEA) gave 40 million. 96% to Democrats
  
  

Giving an estimated 250 million in volunteer time and door-to-door activity, it is very substantial. This activity would be wholly appropriate if it was their money, but it's not theirs-it is yours! It is wholly inappropriate and unwise to have collective bargaining for union members because negotiations are made with no regard for the taxpayer. The union bosses are using your taxpayer dollars to support and funnel money to candidates that will in turn increase their wages, increase their time off, and give them more benefits. Is there any wonder that all of the pension liabilities and wages are unsustainable? Is it any wonder why 160 Billion of 800 Billion Stimulus package was given to save government worker jobs for two years when only 3% was given to infrastructure?

With that history and reasoning as our backdrop, let's talk about the state of the nation and Wisconsin.

What's Happening in the Nation?

Since the beginning of the recession, the private sector has lost 7.2 million jobs while the Federal Government has gained 98,000 jobs. A 6% drop compared to a 3.5% increase. Government employees nationwide now, according to the Bureau of Economic Analysis, make double the average salary of the private sector. 120,00 vs. 60,000 average. Federal workers making over $150,00 make up 3.5% of workers compared to 0.4% in 2005. The number of employees making over $100,000 has doubled under this president. Important point to remember: those salaries are paid through the taxes generated by the private industry employees.

What's Happening in Wisconsin?

All of the implications of public sector moment have come to fruition at Madison, Wisconsin. A bill put forward by the Governor has the votes for passage, but the 19 Democratic Senators have left the State for over a week avoiding the vote. If only conservatives had done this on the health care debate!

The facts of the present in Wisconsin:

• State Employees contribute less than 1% on average to their pensions compared to virtually no pensions in the private sector.
• Average compensation for public school teacher is $89,000 for 180 calendar day school year.
• Employees contribute % on average to health premiums when the national average is 25% (I pay 25%).

The facts of Gov. Walker's proposal:

• State employees to contribute 5.8% on average.
• State employees to contribute 12% on average to health premiums-still half of national average.

The most controversial measure of the bill to reign in spending in Wisconsin with the government unions and the source of most contention is the alterations to the collective bargaining agreement. Under current "fair share agreements," a government worker who does not want to join the union must still have $500 to 1,000 deducted from their paycheck to go to the union. So, Gov. Walker now makes this issue voluntary and will no longer allow unions to deduct dues right out of paychecks involuntarily. Also, he gives them the ability to negotiate for wage increases and so forth, but anything about normal inflation or stand procedure must go to the taxpayer for a referendum. It shifts the balance of power back into equilibrium, so the ultimate funder of the government employees has a say-so in the bargaining process.

Remember that in a given year there is a defined amount of tax dollars to be distributed to infrastructure, Medicaid, education, and government jobs. So, every dollar we spend on top of what is necessary is stealing money away from children on Medicaid or an increase in taxes on you. The alternative in Gov. Walker's budget would be to kick 200,00 children off Medicaid or fire 5,000+ government workers. Or do they not understand the words of the Honorable Winston Churchill: "I contend that for a nation to tax itself to prosperity is like a man standing in a bucket trying to lift himself up by the handle."

Conclusions

Our 2 million plus government workers are very good people and deserve our support and our praise. However, our nation has been living outside its means for long period of time and must face the reality of diminishing tax receipts and increasing entitlement and pension obligations that threaten our economic future. The taxpayer and the ballot box has been circumvented by the government unions and have influenced massive hiring, raises, and lavish pension benefits for state employees that cannot continue. Gov. Walker's proposal returns the balance of power of the government back to the people who fund it. We should stand with him.

In the words of Walter Williams in regard to excessive taxation: "When you legalize theft, it pays for everyone to participate. Those who don't will be losers."

For the last 40+ years, the taxpayers have been the losers. This is watershed moment for the country. This is a chance to even the scorecard.


Update: An Indictment of Baby Boomer Generation
Ruth Anne Baily makes a scathing indictment of the Greatest Generation's self indulgence in this article. The irony of ironies here is that these decisions seem so distant from our generation, but will indeed have the greatest impact. In the short term, a blockage of the Governor's bill will cause him to lay of between 5,000 and 12,000 workers. The irony is that due to union contracts and the "last in-first out" agreements, the layoffs will fall overwhelmingly on the youngest workers in the field--our generation. In the long term, we will continually be saddled with a debt that we refuse to confront. We have the choice to dictate terms today, but the bond markets and creditor nations will not be so kind in the future. Here is a favorite ad of mine from across the pond. "Dad's none, Mum's eyes, Gordon Brown's debt."

Seems to me that my pick for President has always been ahead on this issue. He delivered a prophetic speech to Butler University's Commencement on the indulgence of his generation.
"We were the me-generation. We have consumed more and spent more than any other generation... We had a blast, now enjoy cleaning up our mess!" My man Mitch is right. Let's start cleaning it up in Wisconsin.

Blake

Whimsical Wisconsin Madness

Turns out I have had plenty of opinions about current events lately, but I haven't had much free time to lay pen to paper and get those opinions out in the open. So today, while I sit at home in honor of Presidents Days, I wanted to say something about Collective Bargaining for public employees and hopefully beat Blake to the punch.
First, let me admit that for all the negatives that some want to throw at unions, they have done some good, albeit in the private sector. Unions can be thanked for child labor laws, the 40 hour work week, and even weekends off among other things. I don't want to get into private unions though and I don't want to debate the positive and negatives of private unions, I want to address public unions.
Public Unions really make no sense at all. Why might you ask? Because the public votes for the government officials. There is a terrible conflict of interest when the public unions can vote in their favored politician and then that politician can work to funnel money and benefits to that union. I work in the private sector, and unless I go buy a sizable amount of stock, I have no say in who my boss is, the public sector does, they have elections for their top bosses. So again, what I want to harp on is Conflict of Interest, the root of the problem. The issue in Wisconsin that is causing the largest uproar right now is not so much that the public employees might have to pay a little more towards pensions and health care, its the loss of collective bargaining. The ability for a group of professionals to combine their individual voices together to create a group that has more power than each individual on their own, or in reality, a group that gives up their individual voices in favor of a small group of leaders who speak on their behalf. But again, this group already has something that their private sector counterparts don't have, a vote. In no way is taking away collective bargaining taking away the voice of public employees, it is simply fixing the conflict of interest that has corrupted the government and will limit the power of public unions over elected officials. It will stop the abuses that have allowed politicians to buy votes with public money. Public union members already have a voice, getting rid of collective bargaining is not taking away their right to be heard, it is fixing a problem in the system that unfairly allocates funds from the tax payers to those with the most powerful unions. I am all for the public sector employees and what they do for this country, and I believe that they should be compensated for their work, I have no problem paying taxes that goes towards their paychecks. I do have a problem when the system is corrupted and unions and elected officials have the ability to collude and dictate policy in a nondemocratic fashion.
That's all I got, see you again in another 3 months or so.

Friedman Friday (Sort of)

Walter Williams weighs in. It is easy to throw this term around-without really knowing what it means.

Can ObamaCare Really Reduce the Deficit? Give Me $1B.

Critics say repealing ObamaCare will increase the defict. Well, tell me if you agree with this: Send me a check for $1B from the Government. Finance it with $3B in tax increases. Ta-dah! The government keeps $2B and "reduces the deficit." Same logic with ObamaCare. $500B in taxes plus $500B in cuts in Medicare finances 900B+ in new spending. Ta-dah! Deficit reduction.

Administration plans $53 Billion in High Speed Rail Investments

Investment in rail sounds good to the ears. But, is a fantasy. Only intellectuals could ignore the record of failure in the U.S. 41 out of 44 routes run by Amtrak lost money last year. Taxpayers subsidized $32 for each Amtrak passenger. Every billion we spend is one less billion spent on health care, decreased taxes, or deficit reduction.

Man-made CO2 Emissions are 3.4% of All CO2 Emissions

So, let me get this straight: Greenhouse gases make up 2% of all gases in the evironment, CO2 is 3.6% of those gases, and man originated 3.4% of the total of CO2 emissions. Whew. So, let's redistribute tons of money to combat this problem of .002% of all gases.

These 15 Quotes put it pretty well.

An Interesting Take on the Egyptian Situation by Ron Paul

Once you start leaning Libertarian, do you ever go back? I will admit I am already conservative-libertarian in economics, but am I starting to walk to plank in foreign policy? Nevertheless, the situation in Egypt is facsinating. A couple sound articles on the Egypt situation here and here.

At any rate, enjoy the links. Hope to keep the blog rolling more in the future.

Blake

Why are the Shelves Empty?

Introduction

So, if you live in the MS, AL, or GA areas, I am sure you know that there is a winter storm coming. You have either seen it on the news or been called by your mom or member of you family to let you know--I am sure you can guess I am the ladder. However, you prepare for an emergency or crisis, I am sure you have been told by your parents or someone to do one thing: Go get water, gas, food, etc. Of course, there could be frozen water lines, roads that cannot be traversed, or empty shelves at the grocery. This is only natural right?

Well, I was sitting around thinking about going to the store, and a question hit me: why all the lines and empty shelves when it comes to gas and groceries during an emergency?

This is a question that I hope to address in this post.

Price Gouging

In the wake of Hurricane Katrina, Attorney General Jim Hood received thousands of complaints of "price gouging" by stores, hotels, and gas stations that were charging far higher prices than usual during this coming emergency. In Florida, it is illegal for a private company to charge much more during an emergency than the average price over the previous 30-day period. I know what you are thinking.. Right on! Finally, a government intervention that I can get behind. Companies shouldn't be able to "gouge" us when it comes to gas or other essentials.

What if I was to tell you that it is precisely because these "good intentioned" laws are in place that our shelves of bottled water are empty, gas lines form, and people develop hysteria.

Role of Prices

What role do prices play in an economy? What are they for? Well, prices are not arbitrary number plucked out of the air. Prices are determined by a seller in order to recover their costs and force buyers to restrict how much they demand. When either the supply or demand of a product changes, the price of that product necessarily changes. The willingness and ability of buyers and sellers to trade in an open market established what a particular price should be. But, the wisdom of the state changes these facts in an emergency.

Consider a gas station convenience store along a relatively isolated highway after a hurricane. If the price of gas rose extremely high—to the market price of $10—people would only take as much of the expensive gas as they felt they needed, leaving spare gas for others. But if the price is set artificially low at current $3, those that arrive first will fill their tanks “just to be safe.” The same applies for the goods inside the store. Those first on the scene would take, say, five boxes of cereal apiece at a price of, say, $5. But if, due to scarcity, the price of the cereal box instead rose to, say, $95, each customer would likely take only one box. And just because the price increases does not mean that only the rich could afford the cereal. Poorer people could afford the first $95 box they really needed more easily than the rich could afford a second, third, or fifth box they don’t really need. Government-imposed price ceilings cause goods to become unavailable, whereas supplies would otherwise be available at some price.

Examples:

• 1973-Nixon imposed price controls on oil--Gas lines result
• 2000-California Gov. Gray Davis refused to lift controls on electricity--blackouts result
• All rent control schemes
  

So, in a disaster area like the one MS experienced during Katrina, people are encouraged to take more than they need because the price is artificially low--thus resources are wrongly allocated. You see the same effects in bubbles when you couple a lower than market interest rate set by the Fed during recession, leading to easy money and a flow of capital into markets like dot.coms and housing that eventually pop. But, prices also provide an incentive for capital to flow into markets in positive way. Profit can always provide incentives for entrepreneurs to provide needs while making money. However, suppliers with the resources outside the affected areas most needed to help Mississippians are forbidden because of the artificially low price to not brave the elements, added risk, and looters because there is no incentive to gain profit. Therefore, the very people that the state is trying to help end up becoming victims of "good intentions."

Conclusion

The laws of economics are simple. Just remember: price ceilings cause shortages and price floors cause surpluses (empty water bottle shelves vs. minimum wage laws and higher unemployment among young workers). Trust the free market. It will always produce far better results than central planners in Jackson or D.C.

So, as you stand in line for gas during the winter storm or stare blankly at the empty shelves of water this weekend, just remember it is all courtesy of our government's "good intentions."

Check out this cameo from our AG :)

Blake