The Truth About Media Bias
Every reporter has political beliefs
John StosselWhen I announced last week that I was leaving ABC for Fox, some readers complained about my "bias." I replied: "Every reporter has political beliefs. The difference is that I am upfront about mine."
Look at today's burning issue: President Obama's pledge to redesign 15 percent of the economy. Virtually every reporter calls his health care plan "reform." But dictionaries define reform as "improvement." So before they present any evidence, reporters pronounce Obama's plan an improvement. Isn't that bias?
The New York Times took its bias to an absurd length. Its page-one story on the big anti-big-government rally in Washington, D.C., referred to "protests that began with an opposition to health care. ..."
Apparently, in the Times reporter's and editors' view, opponents of the Obama health care plan oppose health care itself. (The online article was later changed.)
Economic-policy reporters usually present the views of supporters of new regulations as objective and public-spirited. For a contrary view, at best they'll ask a Republican or a representative of the regulated business, who is portrayed as self-serving. (Republicans tend to offer a watered-down version of the Democrats' proposals.)
A recent Bloomberg report on President Obama's plans to rewrite financial regulations is typical: "Obama has proposed new regulations overseeing the systemic risk posed by large financial institutions." The reporter quoted White House economic adviser Lawrence Summers in support of the plan. Although there are plenty of reasons to doubt that regulators are competent at judging systemic risk, no skeptical economist was quoted. Readers are led to believe the program is perfectly feasible.
Most reporting on the "stimulus" package has the same flaw. Just to call it "stimulus" is to editorialize, since the idea that government spending can truly stimulate an economy is at best doubtful. Many good economists say it can't be done. After all, the money is taken from somewhere else. But the economists rarely are quoted.
In addition, reporters seem to think they've done their job if they merely describe the intentions behind the proposed "reform." But the burden of proof should be on the sponsors of regulation and spending. They should have to make a convincing case that their new rules are superior to the free market. Who cares about intentions?
Fuel-efficiency standards, intended to save gasoline, give us less crashworthy cars, so more people die. Subsidies to American farmers destroy Third World markets. Fannie Mae and Freddie Mac encouraged shaky subprime mortgages and helped cause the housing and financial turmoil.
The long list of bad results that have emerged from well-intended regulation ought to dim reporters' enthusiasm. But it hasn't.
I admit that my guiding political and economic philosophy—libertarianism—now shapes my reporting, in this way: It prompts me to ask questions that others don't ask.
I don't claim to be the expert. But some of my colleagues who write about business know nothing about economics. Many are comically hostile to profit—they dismiss it as "greed" (although they bargain for the highest salaries possible).
On my former ABC blog, some people called me a biased "conservative."
"Your (sic) a shill anyways John. dont (sic) let the door hit you in the you know what."
I'm surprised that the self-described enemies of intolerance can't tolerate even one MSM reporter who doesn't share their statist premises. The interventionist state has been the status quo for generations, so I must be something other than "conservative." "Liberal" is what my philosophy used to be called. It's the statists who are the reactionaries.
Not all the blog comments were hostile:
"Congratulations. The mind boggles at the thought of giving free reign on air to someone who actually understands economics."
"Stossel challenges conventional wisdom, so I hope Fox lets him do that."
I assume Fox will. My points of view on things like immigration, nation-building, and the war on drugs differ from those of many at Fox, but libertarians like Judge Andrew Napolitano still seem to thrive there. The alleged "conservatives" are pretty tolerant.
I think they'll tolerate me. See you there next month.
John Stossel joins Fox News on October 19. He's the author of Give Me a Break and of Myth, Lies, and Downright Stupidity.
Choosing The Right College
There is so much for high school seniors and their parents to know about colleges that they not only need to get a lot of information but also need to make sure it is the right kind of information.
A number of college guides have useful information but, unfortunately, the best-known and most pretentious of these guides -- "America's Best Colleges"-- is grossly misleading.
There is no such thing as a "best" college, any more than there is any such thing as a "best" wife or a "best" husband. Who would be best for a particular person depends on that person.
Would we not consider it absurd if someone collected statistics on people and then used those statistics to rank individuals according to who would make the "best" wife or husband? Yet that is the approach "America's Best Colleges" is based on.
A college that would be best for a particular student could be a terrible place for that student's brother or sister. One of them might find West Point a great experience, while the other would fit in perfectly at Reed College-- and each might be miserable at the other institution.
Choosing the college that is right for a particular person is not about the rankings of institutions. It is about matching a student with an institution that can enable that person to flourish while there, and to graduate with an education that is a foundation for a fulfilling life in the years ahead.
Among the things you need to know about a particular college is whether it has a real curriculum or just a smorgasbord of courses, so that it is possible to graduate knowing nothing about history, economics or science, for example. Some of the most prestigious colleges in the country are places where you can graduate completely ignorant of such fundamental subjects.
What also matters is whether the intellectual atmosphere is one in which competing ideas are explored and debated, or one in which there is a prevailing orthodoxy of political correctness that a student can challenge only at the risk of being ridiculed by the professor, given a low grade or-- in some places-- suspended or expelled for violating a campus speech code by giving an honest opinion about things where an orthodoxy is imposed, such as issues involving "race, class and gender."
In short, what is important is not choosing the "best" college, according to some statistics that conceal the arbitrary choices behind the objective-looking numbers. What is important is choosing the right college for you.
The best of the college guides reflects that difference in its title-- "Choosing the Right College." Its latest edition has just been published. Like people, it has put on some weight over the years and its seventh edition is now 1,140 pages long. Unlike some of us, however, its additional weight is muscle rather than fat.
"Choosing the Right College" tells you whether there is or is not a curriculum at each of the colleges it covers and whether classes are taught by professors or by graduate students.
It also tells you whether the intellectual atmosphere is free or is hidebound with political correctness, and plagued by professors who think their job is to use the classroom as a place to sound off about their political ideology to a captive audience, even when the course is about chemistry or accounting.
"Choosing the Right College" also presents information on such things as black separatist organizations at Lafayette College, for example. Whether you are for or against such things, you need to know about them, in order to choose what you think is right for you.
Co-ed living arrangements are also discussed, including just how co-ed they are-- that is, whether males and females simply live in the same dormitory and/or share the same room and/or use the same bathrooms and showers. It also mentions some colleges where you don't have to live co-ed at all, if you don't want to.
If you want to get more than one college guide, there is also "Barron's Profiles of American Colleges" which has much more statistical detail and can be a useful supplment. But "Choosing the Right College" is a
must-- even if it is not carried in your local bookstore, and you have to order it on-line or from its publisher, ISI Books in Wilmington, Delaware.
Michael Moore's New Film "Capitalism: A Love Story"
Michael Moore's new film, "Capitalism: A Love Story" will be released next month. I've neither seen nor read reviews of the film, except for a short piece in the London Telegraph (9/6/09) titled "Michael Moore film calls capitalism evil." Aware of Michael Moore's previous films, I know that it will be at best a misleading story about capitalism. So let's do some defensive mental preparation, not about the film but what is and what is not capitalism.
Capitalism is an economic system characterized by private ownership and control over the means of production. The distribution of goods and services and their prices are mainly determined by competition in a free market. Under such a system the primary job of government is to protect private property, enforce contracts and ensure rule of law.
There has never been a pure free market capitalistic system just as there has never been a pure communist or socialist system, where there is government ownership of the means of production and each individual has equal access to society's resources. However, we can rank economies as to whether they are closer to capitalism or closer to communism or socialism.
If one ranked countries according to whether they were closer to the capitalistic end of the spectrum or the socialistic or communistic end, then ranked countries according to per capita GDP and finally rank countries according to Freedom House's "Map of Freedom in the World," he would find a pattern that is by no means a coincidence. The people in those countries closer to the capitalist end of the economic spectrum have far greater income and enjoy greater human rights protections than those toward the socialist and communist end.
According to the London Telegraph article, Moore's film features priests who say capitalism is anti-Christian by failing to protect the poor.
This is pure nonsense and revealed as such by asking, "If you're an unborn spirit, condemned by God to a life of poverty but allowed to choose the country in which to be poor, would you choose a country near the communist end of the economic spectrum or the capitalist end?" If you chose the United States, you'd find that according to the government surveys, the typical "poor" American has cable or satellite TV, two color TVs, and a DVD player or VCR. He has air conditioning, a car, a microwave, a refrigerator, a stove, and a clothes washer and dryer, and whether he has health insurance or not, he is able to obtain medical care when needed. Try to find that in Cuba, Russia, China or North Korea. If we buy into the nonsense of Moore's priests, the world's poor people are incredibly stupid. Whether fleeing legally or illegally, their destination country is likely to be closer to capitalism than their departure country.
Most of our country's serious problems can be laid at the feet of Congress and the White House and not at capitalism. Take the financial crisis. One-third of the $15 trillion of mortgages in existence in 2008 are owned, or securitized by Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Housing and the Veterans Administration. Banks didn't mind making risky loans and Wall Street buyers didn't mind buying these repackaged loans because they assumed that they would be guaranteed by the federal
government: read bailout by taxpayers. Under a capitalist system, financial institutions would not have been intimidated or encouraged into making risky loans and neither would they have been bailed out if they did so.
Social Security, Medicare and its coverage of prescription drugs have an unfunded liability that exceeds $100 trillion. When those roosters come home to roost, they will make the financial meltdown we've been though look like child's play.
Not withstanding all of the demagoguery, it is capitalism not socialism is that made us a great country and its socialism that will be our undoing.La recuperación dependería de una reforma estructural china
Beijing ya prometió más oportunidades de crecimiento para las empresas privadas
Por Andrew Batson
BEIJING—Mientras líderes del G-20 trabajan para fraguar una recuperación global duradera, una ficha clave del rompecabezas será si la economía China puede concretar una demanda doméstica real y sostenida sin depender tanto del estímulo gubernamental.
China ya está implementando algunos cambios, como la reducción de nuevos préstamos bancarios y la eliminación de más barreras regulatorias al crecimiento económico. A los pequeños negocios que crean la mayor cantidad de nuevos empleos se les han prometido nuevas oportunidades. Pero esta nueva ruta será más difícil de gestionar con éxito comparado con el intento inicial de conseguir un mayor flujo de dinero.
Ese estímulo consiguió aumentar rápidamente el crecimiento: la mayoría de los analistas espera ahora que el gobierno cumpla su objetivo de crecer un 8% este año.
![[China]](http://s.wsj.net/public/resources/images/OA-AY131_wsjamD_NS_20090923203932.jpg)
Pero tras inyectar grandes cantidades de crédito en la economía, más de US$1 billón (millón de millones) en lo que va de año, el gobierno de China debe asegurarse de que los inversionistas privados utilicen bien esos fondos. Estados Unidos y otros países también han instado a China a no reanudar su viejo patrón de crecimiento basado en la inversión y la exportación.
"Los diseñadores de políticas saben que se puede alcanzar un crecimiento del 8%, así que empiezan a pensar en reformas estructurales", dijo Lu Ting, economista para China de Bank of America-Merrill Lynch. "Si quieren que China crezca de manera más eficiente y más sostenible, deben lidiar con los intereses creados y deshacer los monopolios".
Sin dichos cambios, dijo, existe el riesgo de que un alud de nuevos préstamos bancarios acabe por financiar inversiones despilfarradoras que no harán mucho por fomentar el crecimiento. Los reguladores han tomado medidas para controlar los préstamos de corto plazo, que sumaron más de un tercio de los nuevos créditos durante el primer semestre, debido a temores de que parte de los fondos eran usados para especulación.
Funcionarios chinos están tratando de hallar un equilibro entre mantener la confianza en la recuperación y ajustar sus políticas a las nuevas condiciones. Han asegurado repetidamente al público chino que las políticas de estímulo se mantendrán. Pero el ritmo de los nuevos préstamos bancarios se ha reducido a 410.400 millones de yuanes (US$60.120 millones) en agosto, respecto a un promedio en el primer semestre del año de 1,2 billones de yuanes al mes (US$176.017 millones). El aumento del déficit presupuestario también se ha invertido de manera modesta en los últimos meses.
En comentarios públicos, los líderes chinos hablaron del futuro a largo plazo. "Nuestras políticas no deberían centrarse sólo en superar las dificultades de corto plazo, sino también, y de manera más importante, asegurar el desarrollo de largo plazo", dijo el Primer Ministro, Wen Jiabao, este mes.
En las últimas semanas, el gobierno de Wen ha anunciado reglas más liberales para el capital de riesgo, apoyo para sectores de servicios como el de tercerización, nuevos programas sociales para agricultores, así como alivios tributarios y una nueva junta bursátil para los pequeños negocios.
El gran papel que juega el estado chino en la economía podría poner coto a la nueva prioridad de otorgarles a las compañías del sector privado, no sólo a las entidades del gobierno, la capacidad y confianza de gastar de cara al futuro. El gobierno ya afronta críticas de que el estímulo ha desatendido a los pequeños negocios y el empleo.
"¿Cuál es el objetivo de un crecimiento del 8%? Es mantener el empleo. Pero si uno considera muchos proyectos de inversión concretos, descubrirá que no tienen mucha conexión con el empleo", dijo Tang Min, subsecretario general de la Fundación de Investigación de Desarrollo de China.
Para que las compañías privadas aumenten el empleo, también tienen que poder invertir en nuevas oportunidades empresariales. Pero muchos sectores lucrativos en China están dominados por empresas estatales. Las firmas privadas se quejan de que están siendo desplazadas de los sectores del acero, la minería del carbón y el transporte.
El gobierno ha dicho que planea reducir las barreras a la inversión privada en algunos sectores.
Drugs and the border
El Paso's small step
Reform advocates want an honest and open debate on drug policy
Time to make it honest?IN JANUARY the city council in El Paso, Texas, decided to pass a resolution expressing support for its neighbour on the Mexican side of the border. In recent years Ciudad Juárez has become one of the bloodiest cities in the world, wracked by turf wars between Mexico’s vicious drug cartels. Beto O’Rourke, a young city representative, thought the resolution could say a bit more about America’s role in the violence. He added an amendment: the city of El Paso was calling for an “honest, open national debate on ending the prohibition of narcotics.”
The city council approved, on an 8-0 vote. That was unusual, says Mr O’Rourke, because normally they bicker over where to put a speed bump. But the resolution hit a speed bump of its own. The mayor vetoed it, saying that El Paso would be a laughing-stock. Silvestre Reyes, the city’s powerful representative in Congress, warned that if the council tried to override the veto it might be hard for the city to get its fair share of federal funding.
The mayor’s veto was sustained. But if the goal was to stimulate debate, the effort has not been wasted. This week the University of Texas at El Paso held a conference on the costs and consequences of America’s drug policy. Speakers pointed to the carnage in Mexico and the corruption and graft funded by a huge black market. They mentioned the hundreds of thousands of Americans in jail on minor drug offences, and the millions of children with at least one parent somehow yoked to the criminal-justice system. They spoke of the cost of enforcement, and the courts gummed up with trivial possession cases.
“To just deny that and say it’s all working—it’s morally wrong, it’s politically wrong, and some day it’s going to come back to haunt us,” said Howard Campbell, an anthropologist at the university. On the first day of the conference there were eight murders across the bridge in Juárez, including one beheading.
Around the country, various noises are suggesting that Americans are tiring of their 40-year war on drugs. In particular, people are becoming more critical of marijuana prohibition. A Zogby poll found in May that a narrow majority of Americans agreed it would be sensible to legalise marijuana so that it can be taxed and regulated. That is not a surprising result. The drug is widely available and mostly benign. Yet it is a highly profitable crop for the cartels, and in 2008 there were more than 750,000 arrests for simple possession.
Continuing the discussion will require political will, which is in short supply. Advocates of reform were heartened by Barack Obama’s choice for the head of the Office of National Drug Control Policy. Gil Kerlikowske was formerly the police chief in Seattle, where marijuana is officially low on the list of priorities, and he announced that he would stop talking about a “war” on drugs. But soon after that he announced that “legalisation” was neither in his vocabulary nor that of the president.
A handful of national figures have called for a debate on legalisation, including Arnold Schwarzenegger in California and Terry Goddard, the attorney-general of Arizona. Reform advocates pin their hopes on Jim Webb, a Democratic senator from Virginia, who has called for a commission on prison reform. But compared to debating the legalisation of drugs, that was a doddle.
America abroad
The quantity theory of foreign policy
Russia’s hint at sanctions on Iran looks like a win for Barack Obama. Elsewhere, problems are piling up
AT THE start of his presidency Barack Obama squared up to the issues of the day with breathtaking vigour. In America he set about rescuing the economy and reforming health care. Abroad, he charged into areas where George Bush had become bogged down—peace in the Middle East, relations with Russia, climate change, Iran’s nuclear programme and war in Afghanistan. This eagerness to transform everything at once was not just youthful ambition. After the sullen, uncompromising finish to the Bush years, Mr Obama’s logic seemed to be that a big agenda combined with softer, more engaging diplomacy could work in his favour. With each success, he stood to gather enough momentum to attack the next obstacle.
Eight months on, this quantity theory of foreign policy faces a test. In short order, starting on September 22nd, Mr Obama chaired talks between the president of the Palestinian authority and the Israeli prime minister; he set out his climate-change agenda at the United Nations (see article); he was to chair a security-council session on the spread of nuclear weapons; and then head to Pittsburgh for a G20 meeting on finance and the world economy. Last week he reversed a Bush-era decision, when he chose a missile-defence system against Iranian weapons initially based at sea rather than on land; and next week America will seek to persuade Iran to forswear any military nuclear programme. The hope is that America’s president emerges from this diplomatic decathlon able to show that his approach is working. The fear is that Mr Obama will find himself as frustrated as his predecessor was.
The velocity of diplomacy
Optimists can chalk up one victory, at least. On Wednesday Russia’s president, Dmitry Medvedev, said that he is more open to sanctions against Iran. Although both sides denied it, this looks very much like a reward for Mr Obama’s shift on missile defence—Russia loathed the Bush plan (see article). Elsewhere too Mr Obama has made gains. In three speeches in Prague, Cairo and Accra earlier this year, he used the full power of his rhetoric to win people over. Each time he portrayed America as a respectful senior partner rather than a domineering chief executive; he asked nations to take responsibility for their own destiny, and they loved it. He worked with China to get new sanctions on rogue North Korea. And he showed his mettle by asking Israel to stop building settlements on occupied land—in effect, a down-payment to get peace talks started.
Mr Obama can still stir the heart: witness his address to the UN on Wednesday. But on the hardest issues he is bumping up against some harsh realities. Rattled by Mr Obama’s demands, Binyamin Netanyahu, Israel’s prime minister, has now slowed the push for peace right down (see article). America, for all its talk, had little to offer the world on climate change this week: domestic legislation is stuck in the Senate and will struggle to pass unless Mr Obama gets behind it. Even Mr Medvedev’s words on sanctions may be hard to turn into deeds, if only because China opposes them and Vladimir Putin, who still holds the cards in Moscow, has sounded less keen.
Most gravely of all, Mr Obama is vacillating over Afghanistan, which has the power to break his presidency. He has called it a war of necessity, but voters are turning against the campaign. General Stanley McChrystal, the commanding officer, has made a strong case for more resources, both to fight the Taliban and to convince Afghans that the outside world will stay the course. Mr Obama says he needs to see a strategy before adding to the 21,000 extra troops he has already sent to the country, but that looks like a device to reassure American voters at a time when his domestic policies are in trouble. It sends an alarming message to wavering Europeans itching to pull out and to Afghans wondering whether to throw their lot in with the government or with the insurgents. If Mr Obama really does believe he must prevail in Afghanistan, then public doubts and delay will only make the task harder.
These foreign-policy setbacks carry potent risks for Mr Obama at home. The time-honoured way for a Republican opposition to undermine a Democratic president is to depict him as profligate with the nation’s treasure and careless of its security. The president needs to keep his momentum or he could find his own logic working against him. Failure and impotence in one area risk undermining his ambitions in the next. If Mr Obama is to avoid that fate, the world must be convinced that behind his ability to inspire lies a steely resolve.
Telecoms
The power of mobile money
Mobile phones have transformed lives in the poor world. Mobile money could have just as big an impact
ONCE the toys of rich yuppies, mobile phones have evolved in a few short years to become tools of economic empowerment for the world’s poorest people. These phones compensate for inadequate infrastructure, such as bad roads and slow postal services, allowing information to move more freely, making markets more efficient and unleashing entrepreneurship. All this has a direct impact on economic growth: an extra ten phones per 100 people in a typical developing country boosts GDP growth by 0.8 percentage points, according to the World Bank. More than 4 billion handsets are now in use worldwide, three-quarters of them in the developing world (see our special report). Even in Africa, four in ten people now have a mobile phone.
With such phones now so commonplace, a new opportunity beckons: mobile money, which allows cash to travel as quickly as a text message. Across the developing world, corner shops are where people buy vouchers to top up their calling credit. Mobile-money services allow these small retailers to act rather like bank branches. They can take your cash, and (by sending a special kind of text message) credit it to your mobile-money account. You can then transfer money (again, via text message) to other registered users, who can withdraw it by visiting their own local corner shops. You can even send money to people who are not registered users; they receive a text message with a code that can be redeemed for cash.
By far the most successful example of mobile money is M-PESA, launched in 2007 by Safaricom of Kenya. It now has nearly 7m users—not bad for a country of 38m people, 18.3m of whom have mobile phones. M-PESA first became popular as a way for young, male urban migrants to send money back to their families in the countryside. It is now used to pay for everything from school fees (no need to queue up at the bank every month to hand over a wad of bills) to taxis (drivers like it because they are carrying around less cash). Similar schemes are popular in the Philippines and South Africa.
Banking on it
Extending mobile money to other poor countries, particularly in Africa and Asia, would have a huge impact. It is a faster, cheaper and safer way to transfer money than the alternatives, such as slow, costly transfers via banks and post offices, or handing an envelope of cash to a bus driver. Rather than spend a day travelling by bus to the nearest bank, recipients in rural areas can spend their time doing more productive things. The incomes of Kenyan households using M-PESA have increased by 5-30% since they started mobile banking, according to a recent study.
Mobile money also provides a stepping stone to formal financial services for the billions of people who lack access to savings accounts, credit and insurance. Although for regulatory reasons M-PESA accounts do not pay interest, the service is used by some people as a savings account. Having even a small cushion of savings to fall back on allows people to deal with unexpected expenses, such as medical treatment, without having to sell a cow or take a child out of school. Mobile banking is safer than storing wealth in the form of cattle (which can become diseased and die), gold (which can be stolen), in neighbourhood savings schemes (which may be fraudulent) or by stuffing banknotes into a mattress. In the Maldives many people lost their savings in the tsunami of 2004; it hopes to introduce universal mobile banking next year.
Financial innovation has a bad reputation at the moment, because exotic derivatives were one of the causes of the credit crunch. But mobile money and other new ideas that could help the poor provide a useful reminder that financial innovation in itself is not always a bad thing.
Given all of its benefits, why is mobile money not more widespread? Its progress has been impeded by banks, which fear that mobile operators will eat their lunch, and by regulators, who worry that mobile-money schemes will be abused by fraudsters and money-launderers. In many countries mobile money has been blocked because operators do not have banking licences and their networks of corner-shop retailers do not meet the strict criteria for formal bank branches. And some mobile-money schemes that have been launched, such as one in Tanzania, failed to catch on. As recently as a year ago people wondered whether M-PESA’s success was a fluke.
Out of Africa, always something new
But in recent months there have been some more hopeful signs. Kenya’s success story has demonstrated mobile money’s potential, and its benefits are starting to be more widely appreciated. More enlightened regulators are no longer insisting that these services meet the rigid rules for formal banking. Some banks, meanwhile, have come to see mobile money not as a threat but as an opportunity, and are teaming up with operators. And phone companies have studied Kenya closely to learn how to establish and market a successful mobile-money scheme. MTN, Africa’s biggest operator, has launched a mobile-money service in Uganda in conjunction with Standard Bank; it appears to be doing well. MTN is fine-tuning its service in Uganda before rolling it out across Africa.
Banks and regulators elsewhere should take note. Instead of lobbying against mobile money, banks should see it as an exciting chance to exploit telecoms firms’ vast retail networks and powerful brands to reach new customers. Tie-ups between banks and operators will help reassure regulators. But they, too, need to be prepared to be more flexible. People who want to sign up for mobile-money services should not, for example, have to jump through all the hoops required to open a bank account. Concerns about money-laundering can be dealt with by imposing limits (typically $100) on the size of mobile-money transactions, and on the maximum balance. And inflexible rules governing the types of establishments where cash can be paid in and taken out ought to be relaxed.
Mobile money presents a shining opportunity to start a second wave of mobile-led development across the poor world. Operators, banks and regulators should seize it.
Truth to Power
A great many people have learned from Mises and Rothbard, but Lew Rockwell belongs to a much more select class: he has developed their thought in an original way. His essay, "The Economics of Discrimination," included in the present collection of Rockwell's speeches and articles, stands as an especially impressive contribution.
Through a well-known argument, Mises showed that interventions in the free market could quickly lead to full-scale socialism. Suppose, to take a familiar example, that the state institutes price controls on milk, in an effort to help the impoverished. The result will be a shortage, precisely the opposite of the program's aim.
What then is to be done? The interventionists can come to their senses and abandon their misguided interference. If they do not, they must proceed to further interventions.
To attempt to remedy the shortage, they may impose further controls. If the costs of production to milk retailers are lowered, will not the shortage disappear? Such efforts are of course futile, and planners must again confront the same choice as before: back to the free market or forward to more controls.
All readers of Mises will recognize the argument that I have just paraphrased from "Middle-of-the-Road Policy Leads to Socialism," but Rockwell has found an illuminating parallel to it. Mises's contention, he shows, applies also to laws that forbid discrimination. The 1964 Civil Rights Act, its proponents claimed, did not tell employers whom they could hire. It merely forbade them from refusing to hire someone on grounds of race and a few other categories.
But so taken, the law would inevitably have failed to achieve its purpose. What employer in his right mind would tell an applicant, "I'm rejecting you because I don't like people of your race"? The employer has only to invent a plausible excuse for rejecting those whom he dislikes, and he may discriminate as much as he wishes.
To block him, must not the state impose further restrictions? It will require employers to hire specific numbers of the groups it holds to be disadvantaged.
If an owner is forbidden to discriminate in hiring on grounds of sex or race, the government can only discover a violation of the law by looking at who is hired. This compels active discrimination against people on grounds of their sex and race. It is a zero sum game, where one person's winnings come from another's losses. (p. 100)
Rockwell's development of Mises's argument reflects his careful study of that great economist. Rockwell often calls attention to details not usually stressed. Everyone knows that Mises showed that economic calculation under socialism is impossible; but how many are aware that Mises was also a pioneering critic of socialized medicine?
Mises called attention to a crucial feature of systems that separate the benefits of medical programs from their costs. Rockwell summarizes his key insight in this way:
Because there is no clear line between sickness and health, and where you stand on the continuum is bound up with individual choice, the more medical services are provided by the State as a part of welfare, the more the programs reinforce the conditions that bring about the need to make use of them.… Socialized medicine must fail for the same reason all socialism must fail: it offers no system for rationally allocating resources, and instead promotes the overutilization of all resources, ending in bankruptcy. (p. 116)
Rockwell uses a detail in the work of Friedrich Hayek to make another point of vital importance in the struggle for the free market. Opponents of the free market sometimes disguise their plans. Claiming to be defenders of economic freedom, they promote schemes inimical to the free market. For instance, in Orwellian fashion, plans for control of trade by international bureaucracies come packaged as "free trade." Rockwell notes that Hayek warned against this threat:
As F.A. Hayek wrote in the neglected conclusion to his 1944 book, The Road to Serfdom: "If international economic relations, instead of being between individuals, become relations between whole nations organized as trading bodies, they will inevitably become the source of friction and envy." (p. 144)
To use Hayek against NAFTA is indeed a stroke that would have occurred to few.
But we have not yet reached the central theme of Rockwell's book. As our author sees matters, the principal threat to the market, and to freedom generally, is war. During a war, and in the period of preparation for it, the state seizes control of the economy, a state of affairs that at least in part continues even after the supposed emergency passes. (The classic account of this process is Robert Higgs, Crisis and Leviathan.)
One cannot rationally favor both the market and a bellicose foreign policy. As Rockwell puts it,
The framers intended to keep the US out of foreign wars. They understood that a government that goes in search of monsters to destroy will end up destroying its own people. The foreign-policy apparatus of today inflicts a horrible cost on the world. But the greatest cost of all — or at least the one that should matter to us most — is the cost to the liberty that is our birthright." (p. 157)
But, one might object, cannot a peace-loving nation sometimes be forced to fight? After the attacks of September 11, for example, what choice did the Bush administration have but to strike back at those who attacked us?
Rockwell rises to the challenge: though the attacks on the World Trade Center were a grievous wrong, the American response made matters much worse. How did the overthrow of the backward Afghanistan regime, in no way a threat to the United States, advance our safety? The perpetrators of the September 11 attacks remain at large, and since the triumph over the Taliban, we have since proceeded to a much more costly and futile war.
The right response to September 11 would have been for government's entire security apparatus to be dismantled, and to allow the airlines and other firms to provide their own security. But, of course, it had all the earmarks of a crisis, and history shows that crises are great opportunities for the State. (p. 138)
Rockwell's emphasis on war and its dangers derives in large part from Murray Rothbard, whose thought, along with that of Mises, underlies the entire program of the Mises Institute. Rothbard constantly stressed the imperative necessity of a peaceful foreign policy. The contrasting view, long favored by William Buckley and his National Review colleagues, which claimed to marry free-market economics and the warfare state, could not possibly succeed.
Rothbard's prescience won him few friends among conventional conservatives.
But what really did Murray in was not his conviction that the State was unnecessary, but his position on the Cold War. [Because of Rothbard's noninterventionism] Libertarians were said to be tacit supporters of the Sovietization of the world. (p. 398)
Rothbard's resolute views come as no surprise, but Rockwell once again presents readers with something unexpected. Mises also warned against the dangers of militarism. Rockwell cites a characteristically incisive passage from Mises:
Military Socialism is the Socialism of a state in which all institutions are designed for the prosecution of war.…
Standing preparedness for war is impossible if aims other than war influence the lives of individuals.… The military state is a state of bandits. (p. 195)
Militarism, then, is Rockwell's great enemy, and a free society his goal. But what, specifically, should defenders of a free economy support? Our author, following Mises and Rothbard, places great emphasis on the gold standard. Only a currency immune to government manipulation can save us from inflation, with all its attendant dangers. The needed separation of government and money can only be effected by resort to a commodity standard.
Why do the government and its partisans dislike the gold standard? It removes the discretionary power of the Fed by placing severe limits on the ability of the central bank to inflate the money supply. Without that discretionary power, the government has far fewer tools of central planning at its disposal. (p. 61)
A further advantage of sound money, Rockwell explains, is that the government cannot initiate business cycles through credit expansion.
Rockwell's powerful defense of the key tenets of Mises and Rothbard presents us with a paradox: The American Right once strongly supported both a noninterventionist foreign policy and the gold standard. The arguments in favor of these measures, as Rockwell has abundantly shown, have great force. Why, then, were the supporters of traditional American foreign policy unable to mount an effective resistance to interventionist "conservatives" and their neoconservative successors? Why has the gold standard become a lost cause, for many, abandoned for nostrums peddled from Chicago?
As Rockwell sees matters, the problems lie not in any deficiency in the arguments for correct policy. Quite the contrary, American conservatives placed little emphasis on argument. They often viewed logical thinking as doctrinaire; and, although Mises was widely admired, many on the Right viewed him as extreme because of the radical conclusions to which his rigorous thinking led him. And to reiterate, Rothbard, who rejected government and the Cold War altogether, was dismissed completely.
The point, once more, is not that the conservatives deployed bad arguments against the supposed extremism of Mises and Rothbard. Rather, they downgraded the role of reason as such; and this rendered ineffective their resistance to the Left.
In this connection, Rockwell cites the baleful influence of Russell Kirk.
In the middle fifties, as a consequence of Russell Kirk's book Conservative Mind, the word "conservative" came to describe anyone who was a nonsocialist skeptic of federal policy.…
In Kirk's hands, conservatism became a posture, a demeanor, a mannerism.… And if there was a constant strain in Kirkian conservatism, it was opposition to ideology, a word that Kirk demonized. This allowed him to accuse Mises and Marx of the same supposed error.
In fact, ideology means nothing more than systematic social thought. Without systematic thought, the intellectual shiftiness of statist impulse gets a free ride. (p. 395)
Free Economy and Social Order
[First published January 11, 1954]
Most of us, and all of us most of the time, deal with the market economy as a definite type of economic order, a sort of "economic technique" as opposed to the socialist "technique." For this view, it is significant that we call its constructional principle the "price mechanism." Here we move in the world of prices, of markets, of supply and demand, of competition, of wage rates, of interest rates, of exchange rates, and what not.
That is, of course, right and proper — as far as it goes. But there is a great danger of overlooking an important fact: the market economy as an economic order must be correlated to a certain structure of society, and to a definite mental climate which is appropriate to it.
The success of the market economy wherever it has been restored in our time — most conspicuously in western Germany — has resulted, even in some socialist circles, in a tendency to appropriate the market economy as a technical device capable of being built into a society which, in all other respects, is socialist.
The market economy then appears as part of a comprehensive social and political system which, in its conception, is a highly centralized colossal machinery. In that sense, there has always been a sector of market economy also in the Soviet system, but we all realize that this sector is a mere gadget, a technical device, not a living thing. Why? Because the market economy as a field of liberty, spontaneity, and free coordination cannot thrive in a social system which is the very opposite.
That leads to my first main proposition: the market economy rests on two essential pillars, not on one alone. It assumes not only the freedom of prices and competition (whose virtues the new socialist adepts of the market economy now reluctantly acknowledge), but rests equally on the institution of private property. This property must be genuine. It must comprise all the rights of free disposal without which — as formerly in Nationalist Socialist Germany and today in Norway — it becomes an empty legal shell. To these rights must be added the right to bequeath property.
Property in a free society has a double function. It means not only that the individual sphere of decision and responsibility is, as we have learned as lawyers, demarcated against other individuals, but it also means that property protects the individual sphere against the government and its ever-present tendency toward omnipotence. It is both a horizontal and a vertical boundary. And it is in this double function that property must be understood as the indispensable condition of liberty.
It is curious and saddening to see how blind the average type of socialist is vis-à-vis the economic, moral, and sociological functions of property, and even more that particular social philosophy in which property must be rooted. In this tendency to ignore the meaning of property, socialism has made enormous progress in our time. Traces of this may be discovered even in modern discussion on the problems of enterprise and management, which sometimes give the impression that the property owner is the "forgotten man" of our age.
The Role of Private Property
The intellectual constructions of "market socialism" are a good example of how the most serious fallacies ensue if we overlook the functions of private property. These fallacies can already be demonstrated on the level of ordinary economic analysis. But I wish to suggest that it is the whole social climate, the form of life, and the habits of planning for life which matter.
There is a definite "leftist" ideology, inspired by excessive social rationalism, as opposed to a "rightist," conservative one, respecting certain things we cannot touch, weigh, or measure but which are of sovereign importance. The real role of property cannot be understood unless we see it as one of the most important examples of something of much wider significance.
It illustrates the fact that the market economy is a form of economic order that is correlated to a concept of life and a socio-moral pattern which, for want of an appropriate English or French term, we may call "buergerliche" in the wide sense of this German word, which is largely free of the disparaging associations of the adjective "bourgeois."
This buergerliche foundation of the market economy must be frankly acknowledged. All the more so because a century of Marxist propaganda and intellectualist romanticism has been astonishingly and alarmingly successful in spreading a parody of this concept. In fact, the market economy can thrive only as part of and surrounded by a buergerliche social order.
Its place is in a society where certain elementary things are respected and are coloring the whole life of the community: individual responsibility; respect of certain indisputable norms; the individual's honest and serious struggle to get ahead and develop his faculties; independence anchored in property; responsible planning of one's own life and that of one's family; thriftiness; enterprise; assuming well calculated risks; the sense of workmanship; the right relation to nature and the community; the sense of continuity and tradition; the courage to brave the uncertainties of life on one's own account; the sense of the natural order of things.
Those who find all this contemptible and reeking of narrow-mindedness and "reaction" must be seriously asked to reveal their own scale of values and to tell us what kind of values they want to defend against communism without borrowing ideas from it.
That is only another way of saying that the market economy supposes a society which is the opposite of a "proletarianized" one, the opposite of a mass society — with its lack of a solid and necessarily hierarchical structure, and its corresponding sense of being uprooted. Independence, property, individual reserves, natural anchors of life, saving, thrift, responsibility, reasonable planning of life, all these are alien to such a society. They are destroyed by it, at least to that extent that they cease to give the tone to society. But we must realize that these are precisely the conditions of a durable free society.
The moment has come to see clearly that this is the real watershed of social philosophies. Here the ultimate parting of ways takes place, and there is no getting around the fact that the concepts and patterns of life which clash against each other in this field are decisive for the fate of society, and that they are irreconcilable.
Once we admit this, we must be prepared to see its significance in every field and to draw the corresponding conclusions. It is indeed remarkable to see how far we all are already drawn into the habits of thinking of an essentially unbuergerliche world. That is a fact which the economists also ought to take to heart, for they are among the worst sinners.
Enchanted by the elegance of a certain type of analysis, how often we discuss the problems of aggregate savings and investments, the hydraulics of income flows, the attractions of vast schemes of economic stabilization and of social security, the beauties of advertising or installment credits, the advantages of "functional" public finance, the progress of giant enterprise and whatnot, without realizing that, in doing so, we take for granted a society which is already largely deprived of those buergerliche conditions and habits which I described.
It is shocking to think how far our minds are already moving in terms of a proletarianized, mechanized, centralized mass society. It has become almost impossible for us to reason other than, in terms of income and expenditure, of input and output, having forgotten to think in terms of property. That is, by the way, the deepest reason for my own fundamental and insurmountable distrust in Keynesian and post-Keynesian economics.
It is, indeed, highly significant that Keynes attained fame mostly for his trite and cynical remark that "in the long run, we are all dead." And it is even more significant that so many contemporary economists have found this dictum particularly spiritual and progressive. But let us remember that it only echoes the slogan of the Ancien Regime in the eighteenth century: Apres nous le deluge. And let us ask why this is so significant. Because it reveals the decidedly unbuergerliche, the Bohemian spirit of this modern trend in economics and in economic policy. It betrays the new hardboiled happy-go-luckiness, the tendency to live from hand to mouth, and to make the style of the Bohemian the new watchword for a more enlightened generation.
To incur debts becomes a positive virtue; to save, a capital sin. To live beyond one's means, as individuals and as nations, is the logical consequence. But what else is this than Entbuergerlichung, deracination, proletarianization, nomadization? And is not this the very opposite of our concept of civilization which is derived from civis, the Buerger?
Muddling through from day to day and from one expedient to another, to boast that "money does not matter" — that is, indeed, the opposite of an honest, disciplined, and orderly concept and plan of life. The income of people living on these lines may have become buergerliche, but their style of life is still proletarian.
A Growing Concept
It is clearly impossible in the space of a short article to study the impact of all this in all the important fields. I have discussed it in regards to private property. It is further very disquieting to see how this concept has permeated more and more the economic and social policies of our time. One major example is the Mitbestimmungsrecht (codetermination — the right of workers and trade-union representatives to participate in the administration of industrial enterprises and thus to take over some functions of proper ownership) in West Germany.
To give an illustration: the director of a large power plant in Germany tells me how silly he felt the other day when, in wage negotiations with trade-union officials, he had to deal with the same men who, at the same time, sit beside him at meetings of trustees of the power plants themselves. He adds that the structure of enterprises in West Germany approaches more and more that which Tito seems to have in mind. And that is happening in the very country which is considered today the model of a successful restoration of the free market economy!
Another example of this gradual dissolution of the meaning of property, and of the corresponding norms, which can be observed in many countries, is the softening of the responsibility of the debtor. By lax legal procedure with regard to execution and bankruptcy, this, more often than not, amounts — in the name of social justice — to the expropriation of the creditor. It is hardly necessary to recall, in this connection, the expropriation of the hapless class of house owners by rent control, and the effects of progressive taxation.
Let us apply our reflections to another most important field: money. Let us recognize that respect for money as something intangible is, like property, an essential part of the social order and of the mentality which are the prerequisites of the market economy.
To illustrate my case, I want to tell two stories which I take from the financial history of France. At the end of 1870, Gambetta, the leader of the French Resistance after the defeat of the Second Empire, left the besieged capital in a balloon for Tours to create the new republican army. In his desperate need for money, he remembered that his admired predecessors of the Revolution had financed their wars by printing and assignats. He asked the representative of the Banque de France to print for him a few hundred million notes. But he met with a flat and indignant refusal. At that time, such a demand was considered so monstrous that Gambetta did not insist. The Jacobin firebrand and all-powerful dictator yielded to the determined No of the representative of the central bank who would not accept even a supreme national emergency as an excuse for the crime of inflation.
A few months later, the socialist revolt known as the Commune occurred in Paris. The gold reserves and the plates of the notes of the Banque de France were at the mercy of the revolutionaries. But, badly in need of money and politically unscrupulous as they were, they strongly resisted the temptation to lay their hands on them. In the very midst of the flames of civil war, the central bank and its money were sacrosanct to them.
The significance of these two stories will not escape anyone. It would, indeed, be harsh to ask what has become of this respect for money in our time, not least of all in France. To restore this respect and the corresponding discipline in money and credit policy is one of the most important conditions for the durable success of all our efforts to restore and maintain a free economy and, therewith, a free society.
Is Emergency Care a Failed Market?
Is Emergency Care a Failed Market?
In response to my recent article on health-insurance mandates, I received many emails from readers who argued that mandates, as unappealing as they may be, are necessary to prevent market failure in emergency medical services.
Specifically, they argued that there is a "free-rider problem" in emergency care because individuals are currently able to visit the emergency room (ER) without insurance or the means to pay, receive care, and then skip out on the bill. Such free riders force the hospital to either accept the losses or spread the costs to other patients. Therefore, the readers reasoned, there is a market failure in that health insurance is under-demanded and ER care is over-demanded, increasing health care costs and dumping them onto those consumers who do purchase insurance and pay for their visits.
As accurate as this common depiction of the symptom is, however, it misdiagnosis the disease. The free-rider problem in ER care is not a market failure, but a government failure. The Hippocratic Oath notwithstanding, hospitals only accept all patients irrespective of their ability to pay because they are required to by government regulations. These laws, which are in place in countries around the planet, result in a simple welfare scheme whereby the costs of the uninsured are transferred to insured patients. With this reality in mind, it is easy to see that the free-rider problem in ER services is not a market failure, but rather a government failure.
A Libertarian Alternative
How, then, would truly free-market hospitals handle patients who are now free riders? There is every reason to expect that these uninsured, mostly low-income people would be treated more humanely and with greater dignity than they are in the current quasi-socialist system.
Without government regulations on their payment collection methods, hospitals would be free to offer more flexible prices and payment options, and to negotiate contracts with individual consumers. Those patients with little financial leverage would be able to form creative payment plans, and those without any savings or insurance could even contract to pay for their services with labor.
Furthermore, in a truly free market for medical care, even patients who intentionally try to skip payments and thus dump the costs on others cannot. This is because, in the absence of supposedly compassionate hospital legislation, to admit oneself or someone else to emergency care is to agree to the terms and conditions of service at that hospital — most importantly, to pay for treatment.
Thus, in the libertarian society, checking out without arranging payment would constitute a violation of contract, and therefore these malicious free riders would be held accountable. In the current situation, however, such predatory patients are subsidized by others in the name of social compassion.
Another advantage of contractual enforcement of payment for ER services on the free market is that it removes hospitals from financial responsibility for those patients who are admitted to the ER by another party while incapacitated. Which party will be held responsible for the hospital bill in each case would be decided by negotiation between the two parties and perhaps even by court arbitration. Which party eventually pays is not important for this matter, though; what matters is that the hospital will be paid either way, and that other patients will no longer be stuck with the bill.
Now that we've seen that the free rider problem does not exist in a free market for medical care, we can address other readers' concern that the profit-driven market process is unsympathetic to the suffering of those patients who are truly unable to pay in any way and can't afford market insurance, but who shouldn't simply be left to suffer.
The Market for Free Riders?
To argue that the market discards those it regards as undesirable is to both ignore the prevalence of private charity and deny the existence of the entire public-relations industry. Indeed, setting socialist doctrines aside, we can see that affectionate treatment of the poor and downtrodden is actually a very profitable endeavor.
In every market, firms of all sizes expend resources to maintain a positive public image. There are few actions better received by a community than healing and treating their vulnerable and disabled at a discounted or zero price. As such, it is absolutely foolish to believe that hospitals would not take in such customers for treatment.
In fact, if we examine the nature of prices and income differentials closely, we arrive at another instance of destructive government intervention. Price discrimination of almost every form is illegal in almost every market, and health care is certainly no exception.
Price discrimination may feel unfair, but if allowed by law it can lead to much more efficient market outcomes and higher market quantities of all goods and services. Using price discrimination, hospitals would be free to provide additional and cheaper services to low-income consumers without decreasing the price for high-income consumers.
Price discrimination would benefit the hospitals as well, because they would not only increase the quantity of services they perform and add potentially loyal new customers, but would also be able to increase the price of services to their high-income patients without losing their business.
Viewing the converse of this market outcome, then, we can observe that laws against price-fixing necessarily decrease quantities of goods and services, and squeeze marginal consumers out of the market. In the health care market, this means that those who are most in need of low-cost care are forced out of the market in the name of social justice.
In contemplating competition between medical service providers, we can deduce that the market will indeed treat people who are now free riders with dignity, but that those consumers will no longer actually be free riding on others. Instead, they will provide a valuable good to society — namely, the satisfaction that comes with supporting others in their time of need. While it may seem strange to think of this as an economic good, it certainly is, as evidenced by consumers' willingness to forgo other forms of consumption in favor of charity.
While caring for these patients would still redistribute costs to other consumers, it would do so only to the extent that these paying consumers would tolerate it by continuing to purchase care and services. That is to say that consumers' choices between competing hospitals' services would, just as in any market, force those hospitals to provide equilibrium quantities of charitable care.
This efficient market quantity would therefore be determined by the charitable inclinations of insured and higher-income patients. And in a truly libertarian market, which would lack taxes, we can say that these individuals would inarguably be more giving of their own income.
Perhaps the best feature of the free-market process in a libertarian health market is that it would allocate charitable funds to their best use. In our emergency services case, this axiom of market behavior implies that hospitals will spend their charity budgets on the most destitute and impoverished patients.
Whereas government funds are allocated according to political cronyism and electoral opportunism, free-market hospitals will always attempt to maximize the benefit to their public image — nothing more than profit maximization — by providing for those patients who are most in need.
Conclusion
With rigorous examination, we can see that emergency medical services function like any other market, and that the free-rider problem is the result of a government failure. Furthermore, we can safely expect that the free market would treat the most deserving of these free riders more humanely than does the supposedly compassionate central health administration.
Wednesday, September 23, 2009
Video: Obama Defies Dictionary Definition of Taxation
by LukeAmerica2020President Obama and ABC News’ George Stephanopoulos had a minor debate Sunday (September 20th) over whether the president’s health care plan includes a tax increase, leading the host to look up the Merriam-Webster dictionary definition of taxes. (video below)
In the interview, Stephanopoulos pressed the president on his plan to require people to purchase health insurance.
“Under this mandate, the government is forcing people to spend money, fining you if you don’t. How is that not a tax?” asked the host.
Obama responded, “No, but … but, George, you … you can’t just make up that language and decide that that’s called a tax increase.”
Stephanopoulos then offered the dictionary definition, “A charge, usually of money, imposed by authority on persons or property for public purposes.”
Sarah Palin’s Facebook Popularity Continues to Climb
by LukeAmerica2020
With more than 875,000 fans following her political commentary closely on Facebook, Sarah Palin trails only President Barack Obama as the most popular politician on the social networking site. She has gained 60,000 new followers since we reported her soaring popularity exactly four weeks ago today. Amazingly, she is expanding her high-profile posture in political debates armed only with a notebook computer and an Internet connection.
Palin has used her Facebook page to comment on health care, energy policy, and tort reform. She’s also highlighted other causes, such the celebration of Constitution Day and the commemoration of the eighth anniversary of the 911 terrorist attacks.
Meanwhile, as the audience of the so-called mainstream media slips into statistical insignificance and the circulation of left-leaning printed media plummets, President Obama has pledged to do the Sunday political talk show circuit on ABC, CBS, NBC, CNN, and even Univision.
In stark contrast, talk radio, Fox News, and Sarah Palin have been growing record audiences of fiscal conservatives (independents, libertarians, and republicans) who are concerned about big government growth. Clearly, conservative media outlets are presenting a message that resonates with the once silent majority.
Moreover, most media outlets have downplayed the huge attendance in the 912 March on DC. Was it 10,000? Was it 75,000? 1.2 million? 1.7 million? 2 million? For President Obama and his “mainstream media”, it must be like arguing over exactly how many drops of water are in the tidal wave that is bearing down on you! But, of course, if you oppose big government growth, you must be a “racist”, “a right-wing terrorist”, or a “member of an angry mob”.
STEPHEN MOORE
As legend has it the famous Laffer Curve was first drawn by economist Arthur Laffer in 1974 on a cocktail napkin during a small dinner meeting... attended by the late Wall Street Journal editor Robert Bartley and such high-powered policy makers as Dick Cheney and Donald Rumsfeld. The Laffer Curve helped launch the Reaganomics Revolution here at home and a frenzy of tax rate cutting around the globe....
The theory is really one of the simplest concepts in economics. Yet its logic continues to elude the class-warfare lobby whose disbelief is unburdened by the multiple real-life examples which validate its conclusions. The idea is that lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and thereby will often lead to more tax revenue collections for the government rather than less....
Last week the Congressional Budget Office released its latest report on tax revenue collections. The numbers are an eye-popping vindication of the Laffer Curve and the Bush tax cut's real economic value. Federal tax revenues have surged in the first eight months of this fiscal year by $187 billion. This represents a 15.4% rise in federal tax receipts over 2004. Individual and corporate income tax receipts have exploded like a cap let off a geyser, up 30% in the two years since the tax cut. Once again, tax rate cuts have created a virtuous chain reaction of higher economic growth, more jobs, higher corporate profits, and finally more tax receipts.
This Laffer Curve effect has also created a revenue windfall for states and cities. As the economic expansion has plowed forward, and in some regions of the country accelerated, state tax receipts have climbed 7.5% this year already.... New York City... finds itself more than $3 billion IN SURPLUS....
Let's say a company is selling sodas for $1.50 and making $1.25 profit per can. Then I come in as the new CEO and order prices lowered to $1.00 per can. Now, our profit margin will go down, but what happens to our sales volume? It goes up, and once it goes up enough our total profit will exceed the total profit the company would have achieved by keeping prices the same.
Just consider taxes "prices."
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