by Charles Kadlec
Published originally by Forbes.com on June 25, 2012
When the government issues the June employment report on July 6th, the one data point that will be missing is the number of jobs that have been lost – or never created – because of government regulatory, tax and monetary policies. Given that government spending and regulations now control more than 50% of the U.S. economy, these data may be the most important of all for understanding what is keeping the unemployment rate above 8%.
That may be about to change thanks to the just launched “Missed Jobs Report” on the Engage America web site. This report will use “crowdsourcing” to build a database of what until now has been the unseen job destruction caused by government policies. Engage America is a nonprofit organization that seeks to engage the public discourse on several core issues facing the American people, including the federal budget deficit, tax policy and Social Security. (Full disclosure: I collaborated on the development of the Missed Jobs Report and have a professional association with Engage America.)
The Missed Jobs Report is designed to overcome the basic problem that government reports, economists and journalists alike can only report what can be seen, leaving unreported all of the unseen impacts of government policies. Government spending and targeted tax rebates given to favored companies or industries are trumpeted by press releases and ribbon cutting ceremonies. But elected officials, regulators and companies rarely hold press conferences to announce job cuts attributable to specific government policies. And, the Fed has never owned up to the millions of jobs it has destroyed by its errant monetary policies. Yet, a great deal of the cost of government regulations and taxes are the jobs and opportunities that would have been created, but were never brought into existence, because of the actual or threatened increase in the burdens of government and monetary instability. Keep reading »
Sometimes small things suddenly provide insight into a big issue, making clear what we had perhaps only sensed before.
Such an event occurred for me when I was listening to sound bites fromPresident Obama’s speech to college students several weeks ago at the universities of North Carolina, Iowa and Colorado. There he was, the most powerful man in the world, open collar, no coat, appealing to a group that is vital to his hopes for re-election. Was he speaking of the ideals of theDeclaration of Independence, that all men are created equal, and of our unalienable rights to life, liberty and the pursuit of happiness? Was he appealing to the better side of those cheering students, encouraging them to embrace the Progressive mantra of creating a more just society?
Absolutely not! He was appealing to their narrow self-interest, their greed, if you will, by promising he would fight to keep the interest rates on student loans from doubling to 6.8% from 3.4%! There he was, offering to buy the students’ votes with a government subsidy, and the students, feeling empowered to feed off of their fellow citizens, offering to support him in turn with at least their cheers if not their votes.
It was so small, so demeaning of the Office of the President, of the man who spoke the words, and the audience who cheered him on.
What makes it worse is the lack of substance to the President’s pitch. When the Democrats took control of Congress in 2006, they voted to gradually reduce the rate on new Stafford loans, which are available to any student regardless of need, by 50%. The 3.4% rate took effect last August on all new loans. But because of the cost – an estimated $6 billion a year – the law called for a restoration of the 6.8% rate on new – not existing — loans in the 2012-13 school year.
Even the Washington Post Editorial Board opposes keeping the current, 3.4% interest rate:
One of those issues is the failure of federal loans, grants, tax credits and the like to actually make college more affordable. As it turns out, those citadels of the progressive milieu, colleges and universities, don’t walk their talk, but bend to the laws of supply and demand in the pursuit of their own self-interest.
According to the College Board, tuition at public and private four year colleges has gone up in constant, 2011 dollars faster than the growth in federal subsidies. Between 2006-7 and the school year now ending, public four-year colleges raised “published tuitions” (in 2011 dollars) by $1,800, or 27%, to $8,240 per year. The College Board calculates that after all of the subsidies are taken into account, “net tuition” for a student that qualifies for the maximum federal aid still went up $170, or 7%, to $2,490. Room and board, too, increased faster than inflation. As a result, in just the last five years, the total net cost of room, board, tuition and fees at four-year public colleges increased $1,250 (2011 dollars), or 12%, and this year totaled $11,380. Unsubsidized costs rose 20% to $17,130.
Obama acknowledged as much, saying: “It’s not enough just to increase student aid. We’ve also got to stop subsidizing skyrocketing tuition.”
But that’s just more talk. There is no evidence that he would go down the counter-productive path of imposing direct or indirect price controls on college tuitions, and in doing so, risk undercutting his support among college administrators and faculty.
The sad truth: Progressives have failed again to keep their promise of using the power of government to produce a more just society. Instead, the student loan program has made things worse, not better for its intended beneficiaries, especially those most in need.
Many of those students will find themselves locked into a life of penury. Unlike all other debts, federal law prohibits college loans from being discharged in bankruptcy except in the case of “undue hardship.” Thus, politically correct indentured servitude is preferred to politically incorrect free markets where lenders are able to make judgments about an individual’s reliability and character before choosing to make a loan and risking the consequences of a default.
It didn’t have to be this way. An alternative to the federal loan program,United Student Aid Funds, was founded in the early 1960s by Richard C. Cornuelle. With funds solely from the private sector, USA Funds provided loan guarantees to banks to make it possible for college students who could not otherwise qualify for a loan to borrow money at a bank in their neighborhood with no collateral other than a promising academic record. By 1963, two-thirds of the nation’s banks were making low-cost loans to needy students whose college would simply stipulate he or she was likely to finish their course of study.
However, as Cornuelle explains in his classic book Reclaiming the American Dream, which advocated a vibrant “Independent Sector” to compete with the welfare state, the Johnson administration, perhaps sensing the danger of such a success, passed an education bill that vastly expanded the federal government student loan guarantee program. Ultimately, the federal government extended eligibility for guaranteed loans to the broad American middle class, successfully displacing the independent sector solution.
Which brings me back to the scene of the President of the United States in a campaign like swing to three universities to offer a phony benefit in exchange for the college kids’ cheers and votes. There he was, the man who embodies more than any other the Progressive desire to fundamentally transform America, revealing the ugly truth of his political philosophy. Stuttering through his lines, he was stepping to the beat of the power motive, trapped in a dance of corruption and deceit. Though he speaks of compassion, he acts through manipulation; though he speaks of fairness, he acts by appealing to greed.
I was left with the vision of a brutish society, where special interest groups gather under the Progressive banner of social justice to plunder one another; ruled by a governing elite who gain and maintain their power by appealing to the savage within each of us who would feed off the fruits of someone else’s labor. A small thing, the sound bites of the President of the United States speaking to college students; an important insight into the danger of the Progressive ideology to our dignity, our liberty, and our freedom to pursue happiness as we see fit.
by Richard Callahan
President Obama is out on the campaign trail visiting colleges, union plants and other venues, where he expects to receive a friendly welcome, to energize voters to support him in his quest for re-election. As part of his message, he is focusing on what he terms the one percent of the population, or more realistically, those successful, affluent people he claims do not pay their “fair share” of taxes in support of his government. He deceives the American people with mis-statements such as “Why else would he want to cut his own taxes while raising them for 18 million Americans” when referring to his presidential opponent who is one of the one percent.
If I were talented enough to be a member of that group he disdains, I would offer the following:
They like to refer to us as the one percent, the elite, the wealthy, the rich. Yes, we are the ones President Obama refers to as not paying our fair share. But, before disparaging us completely, there are a few things that need to be considered.
We have worked hard, raised our children and trusted our God. In school we studied English, history, the Constitution, math and science which enabled us to lead America into the technological age. We sacrificed with long hours at low or practically no pay, and sometimes initially failed and suffered heartbreak (Steve Jobs), to develop new and dynamic enterprises which created new good paying jobs and raised the standard of living for millions of Americans. Our companies are now the foundation of America’s economy and provide the employment which, without government interference, will fuel the future growth of the private economy, feed government coffers with more taxes and allow our country to prosper. Keep reading »
The “Occupy” movement, which the Obama administration and much of the media have embraced, has implications that reach far beyond the passing sensation it has created.
The unwillingness of authorities to put a stop to their organized disruptions of other people’s lives, their trespassing, vandalism and violence is a de facto suspension, if not repeal, of the 14th Amendment’s requirement that the government provide “equal protection of the laws” to all its citizens.
How did the “Occupy” movement acquire such immunity from the laws that the rest of us are expected to obey? Read entire article
This article originally was published by Forbes.com on May 7, 2012
Voters in Greece and France on Sunday voted decisively against the austerity policies of their governments – and for good reason. European austerity has failed, producing higher unemployment while doing little to repair the fiscal imbalances it was supposed to fix.
But why? The comments to my last week’s column: Austerity, And The Failure of the Governing Elite, revealed widespread confusion if not complete misunderstanding of why a policy that has been the focus of the governing elites in Europe, at the IMF, and in Washington, has gone so far awry.
Ever since the 1930s when classical economics allegedly could not explain sustained 20% plus unemployment and idle factories, we have been taught a government-centric view of the economy.
- An increase in government spending adds to demand and therefore “stimulates”economic activity directly or through the magic of the “multiplier.” The Obama Administration, for example, argued that every dollar in its $787 billion stimulus bill would lead to $1.50 of additional output, and hence would keep the unemployment rate below 8%.
- Raising taxes on the rich can lead to more growth because those with high incomes do not spend all of their money, and besides, they can afford it.
- The budget deficit is the key fiscal variable. Austerity policies see little difference in the macro economic effects between reducing government spending and raising taxes on the private sector. Both reduce demand. To the extent a difference exists, tax increases are preferred because the government will spend all of the money it collects, while those taxed may have saved some of the money, thereby reducing consumer demand.
The problem with this government-centric view of the economy is that it treats the private sector as a mere appendage to government. From the vantage point of the individual worker or saver in the private sector, these same actions look quite different. Keep reading »
Capitalism is frequently blamed for many things it isn’t responsible for. This is simply a reality we defenders of free markets have learned to live with.
Among the accusations made against capitalism is that it is bad for women. A couple of weeks ago I discussed the gender wage gap, which is often claimed as an example of how capitalism causes discrimination against women. We hear other arguments about how it supports “patriarchy” and otherwise leads to women being treated as second-class citizens. In fact capitalism has done far more good for women than bad.
One of the best examples is the way capitalism has made possible women’s economic advancement, particularly their increased presence in the labor force. The steady increase in women’s labor force participation is perhaps the most important demographic fact of the last 100 years. By giving women their own source of income, capitalism has empowered them in a number of ways; for example, the changing dynamics of marriage has enabled women to get out of relationships they previously could not have left. Women’s economic independence has transformed the family in other ways as well. Read entire article
Who invented money? Who invented market prices? Who invented cities? What about language? The answer is: no one.
But wait! Don’t people spend money, set prices, build cities, and speak language? Yes, they do, but that doesn’t mean that they were originally the result of conscious human design or deliberate planning.
One of the most important discoveries if social philosophy is that the world is not divided into just two categories: Things that are natural and things that are manmade. That dichotomy sounds superficially reasonable. After all, we see a cloud floating in the sky, which is clearly natural; and we see a clock sitting on our desk, which is clearly the result of rational human design. But what about money, markets, cities, and language?
Well, if the only (mutually exclusive) categories we have are the “natural” and “manmade,” then whatever is not natural must be manmade. So money, markets, cities, and language must all be manmade, right?
Historically, social science–economics in particular–really was born with the realization that in addition to the natural and the manmade there is a third category. We refer to it today as “spontaneous order,” which is, to use a phrase that F.A. Hayek culled from Adam Ferguson (a contemporary of Adam Smith): “the result of human action but not of human design.” Read article
I wonder if the governing elite — and those who believe in government’s power to rule society — so dislike capitalism because they can take, nor be given, any credit for its success.
The market will take care of everything,” they tell us…. But here’s the problem: it doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ’50s and ’60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.
—President Barack Obama, Osawatomie, Kansas, December 6, 2011
Milton Friedman once said that every time capitalism has been tried, it has succeeded; whereas every time socialism has been tried, it has failed. Yet President Obama has oddly claimed that we’ve tried free-market capitalism, and it “has never worked.” This is rather remarkable. Since 1800, the world’s population has increased sixfold; yet despite this enormous increase, real income per person has increased approximately 16-fold. That is a truly amazing achievement. In America, the increase is even more dramatic: in 1800, the total population in America was 5.3 million, life expectancy was 39, and the real gross domestic product per capita was $1,343 (in 2010 dollars); in 2011, our population was 308 million, our life expectancy was 78, and our GDP per capita was $48,800. Thus even while the population increased 58-fold, our life expectancy doubled, and our GDP per capita increased almost 36-fold. Such growth is unprecedented in the history of humankind. Considering that worldwide per-capita real income for the previous 99.9 percent of human existence averaged consistently around $1 per day, that is extraordinary.
What explains it? It would seem that it is due principally to the complex of institutions usually included under the term “capitalism,” since the main thing that changed between 200 years ago and the previous 100,000 years of human history was the introduction and embrace of so-called capitalist institutions—particularly, private property and markets. One central promise of capitalism has been that it will lead to increasing material prosperity. It seems fair to say that this promise, at least, has been fulfilled beyond anyone’s wildest imagination. Yet people remain suspicious of capitalism—and more than just suspicious: as the Occupy Wall Street movement is only the latest to have shown, we seem ready to indict capitalism for many of our social problems. Why?
A widespread consensus is that capitalism might be necessary to deliver the goods but fails to meet moral muster. By contrast, socialism, while perhaps not practical, is morally superior—if only we could live up to its ideals. Two main charges are typically marshaled against capitalism: it generates inequality by allowing some to become wealthier than others; and it threatens social solidarity by allowing individuals some priority over their communities. Other objections include: it encourages selfishness or greed; it “atomizes” individuals or “alienates” (Marx’s term) people from one another; it exploits natural resources or despoils nature; it impoverishes third-world countries; and it dehumanizes people because the continual search for profit reduces everything, including human beings, to odious dollar-and-cent calculations.
The list of charges against capitalism is long. But some of the charges are not as strong as might be supposed. Take community. Capitalism gives us incentives to trade and associate with people outside our local community, even complete strangers, not on the basis of our love or care for them but out of our own—and their—self-interest. So capitalism enables people to escape the strictures of their local communities. But is that bad? Read complete article
by Charles Kadlec
No organization can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings. Peter Drucker
European austerity has failed — fiscally, economically and politically. Even more, austerity is a failure of the governing elite who continue to flail about, believing in their self-anointed right to “manage the economy” and plunder the private sector to keep their power and their government-centric world alive.
The implications for the U.S. are clear: the so-called “balanced-approach” to reducing the federal budget deficit with a combination of tax increases and spending cuts advocated by the Obama Administration, its supporters, and a handful of conservative Republicans –would reduce growth and do little to reduce America’s chronic fiscal imbalance.
The combination of tax increases and spending cuts has been a disaster throughout Europe. The poster child is Greece, which under the auspices of the elites in Europe and the IMF, imposed a series of austerity measures in exchange for additional loans from other European governments and the IMF. After three years of such measures, Greece defaulted on 200 billion euros of outstanding debt through a debt restructuring in which bond holders in present value terms lost more than an estimated 70% of the value of their bonds. Keep reading »
Categories: Economic Policy Tags: Austerity, Charles Kadlec, Christina Romer, Economic Liberty, Europe, Friedrich von Hayek, Governing Elite, Government Spending, Greece, Illinois, Peter Drucker, Sovereign Debt Crisis, Spain, Tax policy
Christina Romer Knows Tax Hikes Will Kill the Recovery — Charles Kadlec, Forbes.com
A powerful analysis by President Barack Obama’s first Chair of his Council of Economic Advisers (CEA) indicates the President’s proposed tax increases would kill the economic recovery and throw nearly 1 million Americans out of work. Those are the extraordinary implications of academic research by Christina D. Romer, who chaired the CEA from January 28, 2009 – September 3, 2010. In a paper entitled: “The Macrcoeconomic Effects of Tax Changes” published by the prestigious American Economic Review in June 2010 (during her tenure at the White House), she stated: “In short, tax increases appear to have a very large, sustained, and highly significant negative impact on output.”
Although Dr. Romer’s analysis is full of equations and econometric jargon, the clarity of her conclusions are a fatal indictment of the Obama Administration’s demand for tax increases. In what may be the first time since David Stockman’s “Trojan Horse” comment regarding the Reagan tax rate cuts, a high White House Official has completely undermined her own Administration’s policy while serving. Had this happened during a Republican administration, a la Stockman’s Atlantic interview, it would have been Page One news. “Obama To America: Drop Dead.”
The AER paper, co-authored with her husband and fellow UC Berkeley Professor, David H. Romer, examines the impact of tax increases and reductions on U.S. economic growth for the period 1945 to 2007. One of the innovations in the paper is its focus on “exogenous” changes in taxes, that is changes in taxes that were meant to either increase the rate of economic growth (not simply offset a recession), such as the Kennedy, Reagan and Bush tax cuts, or to reduce the budget deficit, such as the Clinton tax increase. Excluded were “endogenous” tax changes that were purely countercyclical, such as the 1975 tax rebates, or were used to “offset another factor that would tend to move output growth away from normal”, such as the tax increases to finance the Korean war and the introduction of the payroll tax to finance Medicare.
“The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.”
Wow! That’s about as strong a statement as you will ever read in a paper published in the AER.
The Romers’ baseline estimate suggests that a tax increase of 1% of GDP (about $160 billion in today’s economy) reduces real GDP by 3% over the next 10 quarters. Keep reading »