Economic Fairness and the State of the Union

In his State of the Union address, President Obama called for various laws, regulations, subsidies, and tax code changes all designed to promote economic fairness in society. The day after his speech, results of the Bloomberg Global Poll were released indicating that a majority of international investors agree that income inequality is a grave problem for capitalism. While Tom Kane praised the President, claiming he promoted entrepreneurship, I agree a lot more with Anthony Gregory's assessment that the speech was another brief for statism.

While there is much that could be said going point by point through President Obama's address, I want only to address the theme of economic fairness that permeated the speech. One certainly cannot fault anyone for desiring to live in a society that embraces justice in economic relationships. Unfortunately, what the President could do most to promote actual economic fairness was not mentioned--a return to the free society undergirded by the institution of private property.

In a free society, people earn incomes by supplying a productive service, meaning a service for which someone is willing to pay more than enough to cover its cost. Workers get paid to the extent that they contribute to their employers' operations. Capitalists reap interest income for supplying present money in exchange for future money. Entrepreneurs reap profit income to the extent that they more successfully satisfy future consumer demand. In such a society, incomes are the fair return for serving somebody else. As Scripture indicates "the laborer deserves his wages" (1 Tim. 5:18). Also note what the master of the house says to the unhappy worker at the end of the parable of the vineyard in Matthew 20:1-16.

In our present economic system, however, there are numerous ways people can live off of others. Bankers are allowed to create money out of thin air and reap interest income by loaning it out, all the while subsidized by the Federal Reserve. Wall street investors are free to make larger and more risky investments and get bailed out by the state.

Those who receive subsidies from the government reap income due to their privileged status vis-a-vis the government and they do so at the expense of other people. The only way for the state to fund subsidies is through taxes, borrowing, or inflation or some combination of the three. All of these sources of funding results in wealth being redistributed from some citizens to others at the rather arbitrary desires of bureaucrats.

A return toward economic fairness and justice requires a return to a free society. A return to a free society requires a return to private property.

Prudent Wives, Shoveling Snow, and the Benefits of Capital

About a month late from the calendar's perspective, winter arrived in Western Pennsylvania. Last week we had our first stretch of snow that genuinely called for daily shoveling of the driveway. As I tackled the job, several thoughts successively went through my mind. I first was reminded of a verse in Proverbs and then again was struck by the great mundane benefits we reap from capital goods every day.

In the fall, realizing our need for another snow shovel because of some wear and tear on our old ones and our daughters both of the age to want to actually help scoop snow (go figure), my wife took it upon herself to purchase a new shovel. She brought home, it turns out, not just any shovel, but a new 27" Suncast Pusher with graphite blade and galvanized steel wear strip at the point of impact. It is outstanding! It is fifty per cent wider than our smallest shovel and cut my shovel time greatly. It is so amazing that shoveling the driveway has been turned from a chore into an opportunity for triumph over the elements. My wife made an excellent choice for which I am very grateful. As Solomon wrote, "House and wealth are inherited from fathers, but a prudent wife is from the LORD" (Proverbs 19:14).

I also quickly marveled at how we benefit from more and better capital goods while doing something as mundane as shoveling snow. It would be possible, after all, to clear my driveway without a shovel. It would take a tremendously long, cold, and tiring time, but it could be done. I could also have done it with one of our older and smaller shovels. That fact that my wife invested some of our savings in a newer, larger shovel greatly decreased my shovel time by greatly increasing my productivity. One more reminder that the truths of economics are manifest each day.

Intervention, Scarcity, and the Environment: It's Not Easy Being Green

I've come across a number of items related to economics and the environment recently. One of the overriding themes is that, because economic goods are scarce, all interventions into the economy, even for the sake of the environment, requires the bearing of costs.

David Bier contrasts the different perspectives on recycling by Newt Gingerich and Julian Simon and sides with Simon's position that we should "recycle only if it is worth it." It might not be worth it, because recycling is not free and in many cases, the costs may outweigh the benefits. This principle is also the theme of Roy Cordato's provacatively entitled classic, "Don't Recycle: Throw It Away!"

Word has also come that BP Solar, an huge alternative energy player that received a $7.5 million grant four years ago, has decided to exit the solar energy industry because it is unprofitable. It seems that there has been so much investment lured into the industry, in large part because of government subsidies, that prices have fallen to a point where firms are having trouble making it without continuing subsidies.

In his book Eco-nomics, Richard Stroup uses the case of the 2000 Los Alamos, New Mexico fire to explain that along with any benefits to be had from environmental regulation, there come costs. Stroup recounts how, during the 1990s the Forest Guardians sued the federal government to cease logging in the national forest in New Mexico. In 2000 there was a fire that destroyed most of the forest the advocacy group wanted to preserve. The fire was so devastating because little thinning out of small trees had occurred the previous decade because of lobbying by environmental groups.

As Stroup notes,

It’s one thing to be passionate about protecting the environment. It’s another thing to be successful at it. Many laws have been enacted in the United States to clean up pollution or preserve natural beauty, but many of them have unintended consequences. They don’t save the species they were supposed to. Or they don’t clean up the rivers as Congress intended. They end up costing a lot of money, often creating large government bureaucracies that can’t seem to achieve the goals that seemed within reach when the agency was formed or the law was passed.

None of the above should be taken to imply that we are not to care about the environment. It is simply to not that all of our actions, including environmental regulation, incur costs. As Kermit sang, "It's Not Easy Being Green."

Amity Shlaes on the Meddling Fed

Readers of this blog know that the negative consequences of Federal Reserve driven inflation is a not infrequent topic for discussion. Amity Shlaes, columnist for Bloomberg, has just identified another way Ben Bernanke's Fed policy makes things worse. In her words Bernanke "tarnishes trust" with a new case in point being a white paper authored by the Fed Chairman. In the paper, Bernanke calls for banks to essentially rewrite mortgage rules in numerous ways in mid-stream, so that reducing borrower burden trumps the right of banks to foreclose.

Shlaes also nails a very important point.

The more general problem is that the Fed -- the bank, in game terms -- has been playing so prominently in the first place. Even if the new paper is only recommending what other authorities have already said, its very publication represents another signal from the Fed that it will keep its hand perpetually and unpredictably in the game, even in periods of recovery like the current one. Monopoly works best when the bank has no discretion: It pays $200 as you pass Go, and otherwise mostly keeps quiet.

Finally Shlaes rightly concludes that the Federal Reserve needs to just get out of the housing market and out of the "rest of day-to-day commerce." The more the Fed meddles, the longer the market is hampered. The longer the market is hampered, the longer it will take to get back on the path to true recovery.

Announcing My Events Page

I have created an Events page that lists upcoming appearances where I will be lecturing or presenting papers. It will be permanently linked along with my other pages. You can access it by clicking on Events.

America's Youth Embrace the Entitlement Culture

Over my years teaching economics students at the undergraduate and graduate levels, I have become more and more convinced that our youth and their parents are getting ripped off by the government school system. In terms of academic skills, it is apparent that, while we have trained high school students in America to memorize and regurgitate facts very well, they by and large not instructed in logic and critical thinking and very few of them receive any instruction in writing research papers anymore.

Not surprisingly, they are getting shortchanged as well regarding economic reality. While there are, I think, increasing numbers of economics classes being taught, they either are not sound or not pervasive enough to counter disastrous economic thinking on the part of the masses.

Today's illustration of this dismal state of affairs comes to us by Jack Chambless, Professor of Economics at Valencia College in Florida. He is interviewed about an essay about the American dream he asks his introductory economics students to write.



Although this is not necessarily a scientific survey of all principles of microeconomics students, it is a revealing picture of how well we have trained our youth to embrace the entitlement culture. It is no longer considered wrong to live off someone else. Such a world-view, of course, is contrary to the Christian ethic of property and rejects Paul's admonition that we should do honest work with own own hands, so that we may provide for our own families and also have something to share with others in need (Ephesians 4:28; 1 Timothy 5:8).

My thanks to Steven Yates for alerting me to this interview.

Economists' Arguments for Government Arts Subsidies

One of the chapters in my dissertation was an analysis of government arts funding, focusing on the National Endowment of the Arts. A good portion of that chapter was devoted to critiquing arguments I found in the economics literature that sought to justify government arts subsidies from an economic (that is not ethical) perspective. I worked that section into an article that was recently published. "Economists' Arguments for Government Arts Subsidies" appears in the Spring 2011 (Vol. 3, No. 1) issue of the  Regent Journal of Law and Public Policy.

As I write in my introduction,

Economists have offered several arguments in favor of government subsidies for the creation and distribution of art, many of which rely on allegations of market failure . . . these arguments are reviewed and critiqued, and the author concludes that no satisfactory economic justification for government arts funding has yet been offered.

Unfortunately an on-line version of the article is not yet available.