Ship the Outsource Debate Overseas

Outsourcing (or offshoring) seems to be the political battleground of the week. Both presidential campaigns have launched into a finger-pointing offensive of claiming their opponent has contributed to the shipment of American jobs overseas. The outsourcing debate was sparked by an investigation into and a series of poltical attacks at Romney's activities at Bain. The Republican campaign retorted with recriminations regarding the handling of stimulus money.

While we'll leave the fact-checking to the newspapers, the entire debate is somewhat ridiculous, particularly from Romney's perspective—the supposed voice of economic reason during this electoral season. It is based on the ludicrous proposition that outsourcing jobs is an absolute negative for the U.S. economy. In simplistic political-speech, which assumes Americans are just too stupid to understand basic economics, the argument holds that when a company either hires a foreign company to perform a specific task or moves operations abroad that it is a unilateral loss for the domestic economy.

The first time I saw this "negative" ad from the Obama campaign, I could not help but think that the gist of the comments was true and Romney should proudly own it.

But such arguments ignore basic economic truisms that are taught in any introductory economics course. Trade, whether domestically or internationally, benefits everyone. The simple concept of comparative advantage—the situation in which one producer can produce a good relatively cheaper than its competitors—underpins this logic. By definition, every producer will have a comparative advantage, thus yielding an economic logic for specialization and trade.

In simple language, this is precisely what motivates outsourcing and offshoring. Other countries have a comparative advantage in labor. It is thus relatively cheaper for them to "produce" labor. Since they are comparatively better at labor, trade frees up American resources to do what we are better at (such as research and development). We can then, for instance, trade our research for their labor, creating products that benefit both sides of the transaction at a cheaper price. This specialization and trade helps both economies grow.

The real world is naturally more complicated (short-run costs of reallocating resources are very real), but the essence of the argument holds. Outsourcing and offshoring are good for the U.S. economy (if they are done without distorting effects of government meddling). But one must look at the entire effect, not just the outsourced job to appreciate this dynamic.

So how does outsourcing help? An outsourced job means that a domestic company can now get the work done for a cheaper price (it would not outsource the job if it was more expensive to do so). This frees up resources (money) to put to other uses. A company can either cut costs, passing along savings to consumers (maybe in an attempt to increase market share) who can then save or purchase more, or reinvest the saved money into expanding the business. In truth, both probably occur and both help grow the economy. As is usually the case, a growing economy creates new jobs, most likely in sectors in which the country has a comparative advantage.

If one thus looks at the economy on a holistic level, a cheaper input to production (cheaper labor abroad) will generally help an economy grow and create more jobs. A smart business leader, economist, or president will acknowledge that it is best to have the most efficient producer or worker do the job, regardless of national borders or any other consideration. Outsourcing is thus one piece of a broader economic puzzle, which allows an economy to operate at its highest and most efficient level.

But our politicians never try to explain this basic economic fact. Whether they think Americans are unable to comprehend such simple economics or are they beholden to special interests, both the left and the right seem to be stuck to a pseudo-protectionist argument. Arguably, much of this tenacity to the outsourcing-is-evil argument is due to political expediency. It is much easier, in a world of sound-bites, to make a a simple accusation of sending jobs to India, than explain an economic principle. But such expediency is damaging, not only by dumbing-down political discourse but by empowering certain groups to take-advantage of such language to further their own narrow desires (think unions and noncompetitive industries who want protection).


The Romney campaign would be wise to take a new angle in this debate. Much as New Jersey Governor Chris Christie does, Romney need to take an approach of separate, own, and educate. He needs to separate the fact from fiction, dismissing Obama's ridiculous conclusions about outsourcing, proudly own what he has done, and educate the people on why such actions are good. In other words, Romney has to stop looking like he is running from some greedy business transactions and start explaining how a smart economy works.

Such a change in tactic would not only benefit the United States by pushing our economic policy toward sound principles, but greatly help the Romney campaign. He'll regain the image of a responsible and educated economic steward, earn respect for standing up to smear campaigns and distortions of economic facts, make Obama look like the economic lightweight he is, and rise to a presidential level. It is a novel political strategy, but one that if properly employed will reap tremendous rewards for a candidate who is too often criticized for lacking a backbone.

A Fair Compromise?

The Obama administration seems to think it has a winning formula in its ill-handled contraception fiasco. Having previously refused to exempt religiously-affiliated organizations from providing contraception through their insurance programs, Obama claims to have accommodated these organizations with a new ruling. The new compromise purportedly exempts religiously-affiliated organizations, but not their insurance providers. Specifically, these institutions no longer need to provide healthcare plans that contradict their beliefs; however, the insurance provider is required to offer supplemental riders, free-of-charge, to any insured policyholders who want to have these services.

The "compromise" is, bluntly, asinine and economic nonsense. It is a political dressing-up of the same program, meant to confuse opponents through a veil of economic subterfuge. The Wall Street Journal outlined the argument well:

...[Y]ou almost have to admire the absurdity of the new plan President Obama floated yesterday: The government will now write a rule that says the best things in life are "free," including contraception. Thus a political mandate will be compounded by an uneconomic one—in other words, behold the soul of ObamaCare.
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Insurance companies won't be making donations. Drug makers will still charge for the pill. Doctors will still bill for reproductive treatment. The reality, as with all mandated benefits, is that these costs will be borne eventually via higher premiums. The balloon may be squeezed differently over time, and insurers may amortize the cost differently over time, but eventually prices will find an equilibrium. Notre Dame will still pay for birth control, even if it is nominally carried by a third-party corporation.

Fortunately, many opponents of this ruling have not been duped by President Obama's and Secretary of Health and Human Services Kathleen Sebelius's twisted logic. They correctly stand firm against the attempted gross encroachment into the private lives of individuals. GOP Presidential candidate Rick Santorum summed it up best, "It’s not about contraception.... It’s about economic liberty."

State of Class Warfare

Last night's State of the Union Address was rather dull. The President offered little in the way of anything new. He continued to spin his usual bombast and, while trying to portray himself as a cross-aisle conciliator, continued his divisive rhetoric and class warfare. He even went as far as to acknowledge (and failed to deny) that many might perceive his proposals and language from a polarizing perspective.

As the State of the Union Address and Obama's past record both indicate, class warfare is a key ingredient in the Left's worldview. It is a perspective that relies upon separating Americans into groups—classes—where the supposedly more fortunate have certain responsibilities to members of other classes. The Left tries to portray itself as the defender of the lower- and middle-classes, against the excesses of the uppermost classes. Accordingly, the Democrats attempt to cast the Republicans as defenders of the rich. Naturally, a dynamic develops, a divisiveness and a sort of warfare, of two-sides where the Democrats, from their perspective, try to claim the mantle of defending the average American against Republican-backed elite.

Unfortunately, this plot line is often successfully bought by the media and many in the electorate. But it unfairly distorts the Republican position. The Republicans (at least most) are not defending the rich, but are defending every American's right to own and keep their property.

This is an inclusive agenda. All Americans should be treated the same, regardless of one's income level. Each has the same claim to the product of his work or investment, whether labeled low-income, middle-class, or rich. In fact, the Republican ideology, if allowed, could completely do away with all of these labels. From the perspective of the government and its laws, there should be no class separations. All Americans should be afforded the same rights and should be treated equally under the law.

This stands in direct contrast to the Democratic worldview, which relies upon labels and divisiveness. The Left loves to classify and categorize individuals, grouping them by economic background, race, or other arbitrary division. Each group is then offered unique treatment, privileges, or responsibilities. This separates Americans and creates undue tensions between truly artificial groups.

Grievously, many accept this portrayal of American society. They cannot help but view America through this lens of autonomous and distinct groups, even though there are far more cross-cutting similarities among Americans than there are Balkanized group identities.

Nevertheless, many other Americans see through this distorted worldview. The low-income Republicans that many academics and pundits like to claim consistently vote against their economic interest are a prime example. It is not necessarily true that the so-called rural social conservatives choose social policy over economic interest. Instead many see the Republican economic position for what it is meant to be—a defense of every American's economic interests.

Whether one is rich or poor, it is in one's interest to have a system that believes that the product of each American's work is his or her own property. The government does not, as the Left likes to believe, have an a priori claim on one's income, thus graciously allowing individuals to keep the residual amount after "proper" [arbitrary] redistribution has occurred. Instead, our income and wealth are our own property and we have the right to do with it as we please. Taxes are to be paid to support the essential services that a government must provide, but these should be based on the proper needs of the system and our responsibilities as citizens to meet these needs, not on some arbitrary definition of "having too much."

Obama and the Democrats continue to distort this message, attempting to confuse Americans into believing that somehow some Americans owe something to others. This is simply not true, yet deeply divisive. Americans are in this together. We have one country in which we must share responsibilities and we should have one set of laws that treats everyone the same.

Government Questions Employer's Right to Require High School Diploma

Once again the government is slowly pushing its tendrils into the private sector. The Equal Employment Opportunity Commission (EEOC) has recently released a non-binding letter indicating that employers may be in violation of the American Disabilities Act (ADA) if they require a high school diploma as a prerequisite for employment. The letter, which as of now is only an informal expression of the EEOC's position and does not have the force of law, states:

[I]f an employer adopts a high school diploma requirement for a job, and that requirement “screens out” an individual who is unable to graduate because of a learning disability that meets the ADA’s definition of “disability,” the employer may not apply the standard unless it can demonstrate that the diploma requirement is job related and consistent with business necessity. The employer will not be able to make this showing, for example, if the functions in question can easily be performed by someone who does not have a diploma. 

Even if the diploma requirement is job related and consistent with business necessity, the employer may still have to determine whether a particular applicant whose learning disability prevents him from meeting it can perform the essential functions of the job, with or without a reasonable accommodation. It may do so, for example, by considering relevant work history and/or by allowing the applicant to demonstrate an ability to do the job’s essential functions during the application process. If the individual can perform the job’s essential functions, with or without a reasonable accommodation, despite the inability to meet the standard, the employer may not use the high school diploma requirement to exclude the applicant. However, the employer is not required to prefer the applicant with a learning disability over other applicants who are better qualified.

While fortunately not yet legally binding, the argument behind this letter continues a worrying trend of arbitrary government interference in the private sector. However, putting aside the incremental threat of government micromanagement of the economy, this policy has the potential for significant negative economic and social effects.

First, the policy can arguably cause undue economic burdens to employers and restrict their ability to recruit appropriate candidates. The possession of a high school diploma is often used as a filter to screen out less than desirable candidates. While, like any such screen, it will be imperfect—sometimes keeping out good matches and other times allowing bad candidates to move on to interviews or even employment—methods of filtering job applicants allows employers to reduce overhead costs and save resources. Employers will have a much longer and costly hiring process if they are forced to consider every applicant without the ability to employ screening techniques as they see fit.

Likewise, employers will be faced with growing costs related to litigation and preventative legal steps, such as developing rubrics to discern if "the diploma requirement is job related and consistent with business necessity." The policy will open the door to expensive legal battles and direct corporate resources from primary business operations to the legal department.

Such costs will, of course, be passed on to consumers or taken from employees paychecks—results that are not needed during tough economic times. Additionally, higher expenses related to hiring can lead to damage to the job market. Companies will become more hesitant to expose themselves to regulatory action or litigation by quickly entering the job market when, particularly, short-term needs arise. Any job market needs to be largely unencumbered—to facilitate easy hiring and firing and thus allowing employers and employees to rapidly find mutually beneficial arrangements. This policy will have the opposite effect on the job market.

These economic concerns are rivaled by the pernicious implications that this proposed policy has on the value of education. Many opponents cite that this will limit incentives to a high school education. This argument carries some weight. After all, if employers are limited in requiring a high school diploma, students will have less pressure to avoid dropping out. More jobs that do not require a diploma will be available and legal action will always be a viable route.

Inevitably, the social effects of devaluing education could yield unfortunate ramifications—handicapping an already flagging economy and continuing the dumbing-down of our relatively declining pool of human capital. America needs to increase its productivity and human capital; high school education is a first step in this process.

America does not need disincentives to high school education. It does not need to continue providing excuses for people to disavow personal responsibility. Nor does it need to invent ways to try to "protect" Americans against every conceived stroke of bad luck, injustice, or risk. What America needs is to increase productivity, allow economic forces to freely operate, and afford Americans the opportunity to face and overcome challenges—and sometimes also fail.

The Hypocrisy of OWS

NRO's Jim Geraghty points out just a touch of irony that exists in Occupy Wall Street (OWS). OWS cannot seem to avoid the fact that the very things it is supposedly protesting against, are essential aspects of human nature and society—characteristics even OWS cannot escape from demonstrating.

[The full text is not available online since it is an email newsletter, NRO's Morning Jolt. I have included the it below.]

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I'm just fed up with the greed of the rich and powerful, man, like those Occupy Wall Street organizers. The New York Post offers us a great belly laugh: "Even in Zuccotti Park, greed is good. Occupy Wall Street's Finance Committee has nearly $500,000 in the bank, and donations continue to pour in -- but its reluctance to share the wealth with other protesters is fraying tempers. Some drummers -- incensed they got no money to replace or safeguard their drums after a midnight vandal destroyed their instruments Wednesday -- are threatening to splinter off."

One occupier laments, "The other day, I took in $2,000. I kept $650 for my group, and gave the rest to Finance. Then I went to them with a request -- so many people need things, and they should not be going without basic comfort items -- and I was told to fill out paperwork. Paperwork! Are they the government now?"

You can hear the laughter at UrbanGrounds:

The obnoxious drummers are upset that their vandalized drums won't be replaced from the $500,000 in the general fund nor will they be getting funds for infrastructure (a shed) to keep them safe. The money collected is actually sitting in a bank, that's right a BANK! Isn't this motley crew opposed to banks AND capitalism? What bank and what is the name on the account? Is it an individual account or is it a corporate account? Is the person or group that the account belongs to registered and is making required filings? The Schadenfreude is strong in this one!

When the "Parasites On Parade" finally ends, and it will, some one or some small group is going to have a lot of "walking around" money, while the smelly masses who panhandled for it will be in the same sorry condition they were in before, blaming unknown individuals and corporations for all their troubles.

The Post also shares:

Filth-ridden Zuccotti Park is a breeding ground for bacterial infection loaded with potential health-code violations that pose a major risk to the public, an expert who inspected the area warned.

"It's like Walmart for rats,'' Wayne Yon, an expert on city health regulations, said yesterday.

"There's a lack of sanitation, a lack of controls for hot and cold water," Yon said. He saw at least 15 violations of the city's health code -- the type that would easily shut down a food establishment.

He noted the lack of lavatory facilities, as neighbors repeatedly complain about protesters defecating in the area and the stench of urine.

A.J. Strata wonders if the Occupy Wall Street crowd understands that they are inadvertent advertisements for why their vision of the world can't work:

So when I watch a tent city culture play government and cry for equality I see [it] for what it really is. Look at these people living in tents, calling one a kitchen and one a counsel center, fighting law enforcement while crime runs rampant amongst them. It's a sad joke!

What, am I supposed to trade in my upper middle class home I worked a life time to obtain, turn in my cars and motorcycle, give up all I have to go play communist commune in a park somewhere?

Are they nuts? Herman Cain wants to change the tax code and is getting nervous ninnies taking shots at him from all sides. These silly people in these occupy zones want to replace our entire society!

Good luck with that one.

Why Warren Buffett is Wrong on Taxes

Former chairman and CEO of American Express, Harvey Golub, writes on why Warren Buffett and Obama are wrong when arguing for higher taxes on the rich.

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

Golub highlights statistics that the top 3% of taxpayers pay nearly 50% of taxes.  He also cites the inefficient collection of taxes - namely due to tax breaks and loopholes given to all sorts of special interests - and inefficient expenditure of taxes - on wasteful and unnecessary programs - to drive his message home.  Golub concludes "Here's my message: Before you 'ask' for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money."


But while Golub's argument is fair, there is a more fundamental issue in his essay.  In refuting calls by some of America's wealthiest, including Buffett, for higher tax rates on the rich, he writes:

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

The issue here is one of coercion and choice.  Buffett might be right when he calls for the closing of loopholes that give special treatment to certain forms of income or certain individuals, but that does not translate into justification for increased tax rates.  If Buffett feels he owes something to the community, he is more than free to write a check to any institution he feels deserving - including the US Treasury.  However, to argue that tax increases on certain individuals are necessary, because one feels like he is paying too little, distorts the relationship between government and the individual in a dangerous manner.

Income is naturally the property of the individual who earned it.  The government only has the right to take from an individual in order to provide the appropriate services of the state.  In other words, government should minimize its burdens on individuals and should tax only to meet its essential and proper functions (what these functions are is a separate discussion but would include many tasks that cannot be provided by the private market, for instance, defense, security, certain infrastructure, establishing rules and laws, and other pure social goods).  Taxes are thus a pooling of individual property to provide for certain aspects of the common good.  In this manner, taxes could be perceived as establishing or investing in an institution (the government) that provides needed services that would otherwise be unavailable.  Accordingly, all should benefit from this system.

Buffett's and Obama's argument turn this conceptualization on its head, arguing that the appropriate level of taxes is rooted not in the need to pay for essential functions but in an arbitrary determination of what an individual should possess.  Under this understanding, income (or wealth) is not the natural property of the individual, but is awarded to them based on their need.  Any amount that surpasses this arbitrary definition of need does not rightly belong to the individual and must, to be fair, taken away.  Taxes are thus used to 'level the playing field'.  The individual, whether rich or poor, now lives at the goodwill of the state, allowed to possess only due to the graces of leviathan.  In fact, taken to the extreme this argument does not even require the government to provide anything.  If taxes are justified by taking 'excess' from those who have it, the government has achieved its goal of taxation (this is not to say the government does not have other goals) simply by taking the money.

Taxation is a tool needed for the government to achieve its proper functions.  It is not a goal unto itself.  To assume otherwise is to break down the very fabric of a capitalist, free-market, liberal society and sets dangerous precedents.  It is certainly appropriate to debate how tax burdens should be carried by different segments of society, but it is far too dangerous to allow such discussions to distort the purpose of taxation.  Taxes are a government's paycheck or its alms - not a tool for social engineering.

$15 Trillion in Hundreds

Here's an interesting graphic made by designer Oto Godfrey.  It shows what $15 trillion dollars (a little more than the national debt limit) would look like if stacked-up in hundred dollar bills.

$15 trillion USD

It's a lot of money, whether or not it dwarfs the Statue of Liberty, but the graphic puts it into an interesting perspective.

Redefining Poverty

There is a problem of definitions in American politics.  Although not a new phenomenon, it is unfortunately one that is rarely discussed.  In many instances, challenging the accepted political definition of certain words leads to harsh, acerbic, and often unwarranted attacks by those who wish to defend a political definition for their own partisan uses.

In a recent report, the Heritage Foundation has courageously taken a stand against the definition of one of these words - "Poverty".  The abstract to the full report states the following:

For decades, the U.S. Census Bureau has reported that over 30 million Americans were living in “poverty,” but the bureau’s definition of poverty differs widely from that held by most Americans. In fact, other government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. Some poor Americans do experience significant hardships, including temporary food shortages or inadequate housing, but these individuals are a minority within the overall poverty population. Poverty remains an issue of serious social concern, but accurate information about that problem is essential in crafting wise public policy. Exaggeration and misinformation about poverty obscure the nature, extent, and causes of real material deprivation, thereby hampering the development of well-targeted, effective programs to reduce the problem.

The report continues by discussing the standard of living experienced by most "poor" Americans and how high these are, both in historical comparisons and vis-à-vis other countries.  It makes the key argument that there is a need to separate the truly destitute (eg. those that chronically lack shelter, food, or clothing) from those that are just defined as poor.  Due to limited resources, this expansive definition of poverty has not only injured the truly destitute but provided for those that are arguably not needy.

The U.S. Census Bureau, which determines the poverty thresholds, bases their calculation of these thresholds on a 1963 study that looked at the Department of Agriculture's low cost food plan.  Surprisingly, it was not designed to reflect the daily needs of an individual or family.  "...[They] did not develop the poverty thresholds as a standard budget... a list of goods and services that a family of a specified size and composition would need to live at a designated level of well being." 

While the Census Bureau's "poverty thresholds" are only used for statistical purposes, the Department of Health and Human Services (HHS) further complicates issues by setting forth "poverty guidelines" for administrative purposes.  While these are generally based on the Census Bureau's numbers they are modified for various programs (for instance scaled up by some percentage).  These guidelines are what are used in most welfare programs.

Arguably both the Census Bureau's and HHS's definitions are exceedingly arbitrary.  As the Heritage report empirically supports, far too many are able to achieve substantial luxuries while nevertheless being deemed poor by the government.

A secondary source of definitional challenge comes from politicians who often use the term "poverty" in a relative sense.  A relative definition of poverty signifies that poverty is determined by some distance from a measure of "middle-class" - for instance the median income. This necessarily implies that the problem of poverty can never be solved, unless all incomes become very narrowly distributed around a median income.  Taken to its logical conclusion, in some perverse world, poverty could easily be eradicated by evaporating the wealth of the richest in a country without any concomitant change in the position of the poorest. By thus diminishing the "wealth gap," relative poverty would no longer exist. Obviously such a precept is laughable - no state would be better off by removing wealth from society - but it nevertheless is the natural conclusion of a doctrine of relative poverty.  In reality, "relative poverty" is nothing but a euphemism for "income inequality."

Instead, poverty should be measured in relation to what a person needs to achieve certain necessities, such as food, shelter, and clothing. By using an such an absolute measure, poverty is defined by essential characteristics not an arbitrary statistical formulation or relative comparison. This is undoubtedly a more just definition of poverty and puts the state in a better position to provide resources to alleviate poverty. It also provides proponents of the welfare state with a better position from which to defend the need for state assistance in eradicating poverty.

[By claiming the American definition of poverty is wrong, one does not mean there are not people who truly are in need, nor that there are not those who are truly poor in America.  But it does imply that a changed definition can have significant implications for welfare policies.]

It is to be expected that vested interests will attempt to avoid any discussion, let alone any changes to the definition of poverty.  Expansive definitions of poverty allow numerous constituents (particularly but not exclusively of the Democrats) to gain benefits at the expense of others.  It is unlikely that recipients of handouts (whether low- or high-income) will be willingly to abdicate their lucrative positions.  This is unfortunate and unfair.  In such times of economic difficulty and budgetary disorder it is necessary to carefully study if our current definitions and resulting policies have stepped beyond what is appropriate and into the realm of social and economic largess.

Arguably, much of our welfare state has become a system of wealth redistribution rather than a social safety net.  This is not so much a critique of the concept of the welfare state but of its abuse to fulfill abstract notions of social justice.  As Heritage points out, our working definition of poverty has become one much more about "income 'inequality'" than one of need.  This has arguably caused the state to venture far outside of its appropriate bounds and has indubitably contributed to our expanding fiscal woes.  According to the authors of the study, "President Obama plans to make this situation worse by creating a new 'poverty' measure that deliberately severs all connection between 'poverty' and actual deprivation... giving the President public relations ammunition for his 'spread-the-wealth' agenda."  A redefinition of "poverty" to more accurately reflect individuals' needs may not only help alleviate America's budgetary problems but allow a misappropriation of the system to revert to its moral underpinnings.

Technology Isn't The Problem

Russell Roberts, professor of economics at George Mason University and research fellow at Stanford's Hoover Institution, writes a strong critique in the Wall Street Journal of Obama's foolish attacks on technology.  He quotes Obama's comments blaming technological change as a structural issue and cause of job losses.

There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers.... You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate.

This argument, as Roberts successfully explains, it complete bunk.  Productivity increases are the backbone of a successfully growing economy.  Such increases free up resources to be used in new industries, thus raising the standard of living for everyone.  Roberts argues that,

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Roberts' economic argument is sound and history bares out his logic.  Tellingly, despite years of technological progress, unemployment rates have fluctuated around a band of 2.5% to a little over 10%.  If Obama's assertion that technology causes job losses and hurts the economy is correct, we would arguably see much greater unemployment, particularly as our history progressed.  After all, millions have left the agricultural industry, for instance, over the US's relatively short history.

The attempt to link technology growth and jobs loss is not only poor economics but down-right bad for the future of our country.  We already see this problem rampant in the discussion over free trade.  By confusing the masses, these arguments only help special interests gain from the loss of the country.  Technology, like trade, helps everyone in the long-run.  While some may be hurt in the short-run transition, there are far better and more efficient ways to help them than by criticizing or tampering with technological growth.

Obama and other politicians (this happens all too frequently on both sides of the aisle) should think before they whip out the rhetoric - it only serves to distract, "miseducate", and ultimately drive our country down the wrong policy paths.

Race, The Welfare State, and Economics

The Wall Street Journal ran a very poignant interview with Walter Williams, a black economist at George Mason University, on the impact of the welfare state, racism, and the growth of government.  Mr. Williams most salient point is best summed up in a quote, "The welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do... And that is to destroy the black family." 

Williams makes a powerful argument - one that needs to be made more often by the Right.  The so-called nanny state hurts even those it supposedly benefits.  If such an argument is convincingly sold to the voters, it will do much to scale back the expansive growth of government.

Pro-Market versus Pro-Business

Within political arenas, there is a distinction that is far too often overlooked: pro-market vs. pro-business. Republicans, at least the fiscal conservatives, tend to call themselves pro-market. They speak in terms of supporting the market, free-trade, competition, and business. Democrats, in turn, disparage the concept of being pro-market and criticize Republicans for really being bosom buddies with Big Business.

The difference between the two concepts is often muddled, but is in reality very simple. Being pro-market is expressing a commitment to the economic principles of a free-market and competition. It represents the support of an economic system that allows Adam Smith’s “invisible hand” to perform the majority (certainly more modern economics allow for greater government interaction) of economic production and distribution. The principles accept that truly free-markets operate best with minimal government interference and maximum individual liberty.

In contrast, being pro-business is an expression of support for one type of player with the market. The interests of these players sometimes coincide with the interests of the market and sometimes do not. Rather than supporting a principle or idea, those who are pro-business are indebted to partisan interests.

As most are aware, the majority of Democrats are neither pro-market nor pro-business. Instead, generally they correctly criticize the concept of pro-business and incorrectly, although quietly, eschew the concept of pro-market. Many Democrats chose to follow policies that fit a more socialist (in the ideological not the disparaging sense of the far right) economic model. In other words, they prefer active government management of parts of the economy in terms of both production and distribution of wealth.

In contrast, Republicans often claim to be pro-market. While often successful in this pursuit, unfortunately many Republicans devolve into the realm of pro-business. This is most clearly represented when Big Business or cronies of certain senators get market-distorting tax incentives or other perks of their position (E.g. antitrust exemptions).

In truth, it is difficult for a politician to be truly pro-market. Commitment to a principle is always complicated when faced with electoral constraints. Politicians need money and voter support and thus need to give incentives, whether in the form of providing money or perks, to their supporters. This causes elected officials, who are inclined to support an ideology, to compromise their beliefs when the electoral rewards are greatest. The most committed pro-market candidate can quickly devolve into a pro-business shill when he realizes the realities of Washington.

This is true because, aside from a few academics and bloggers, the market has no real constituency. Being pro-market means that and individual must sometimes support business, sometimes support labor, sometimes support consumers, and sometimes just sit back and do nothing. Pro-market leaders will inevitably be forced to make decisions that upset either their financial or electoral supporters – a politically unwise proposition.

Despite the obvious difficulties, the pro-market framework is truly what is best for America. Being pro-market reduces the role of government to one that simply ensures that markets operate efficiently and competitively. It means that when one player, be it government, union, or company, gains too much power it is prevented from abusing its position. In practice this means supporting policies that prevent consolidation of power (anti-union and anti-monopolization) and facilitating the free flow of information.

At the end of the day this not only minimizes the size and cost of government but allows each player within the market to pursue its self-interest in a fashion that maximizes its own and societies worth. In contrast, the pro-business mentality artificially distorts the market by giving special privileges to some members of society. While potentially difficult to implement, pro-market policies should be the foundation of the Republican platform.

The State of the Perpetual Campaign

“We can’t wage a perpetual campaign.” So said President Barak Obama in a State of the Union address that was arguably another stump speech in a long-line of campaign speeches. The address was mainly an attempt at resetting his presidency to a time, a little over a year ago, when the President was popular and perceived he had a mandate to govern. Rather than drastically alter his direction, Obama emphasized a number of trends that have been unvarying cornerstones of the past year, namely populism, an anti-Washington sentiment, and the call for more government.

His populist stance was evident throughout the speech. While he admirably accepted some responsibility and admitted to gaffes, he largely played to the misgivings of the masses. He continuously bashed Wall Street and banks, targeting bonuses and the bailout. He said, “[W]e all hated the bailout. I hated it….”  Even while appealing to the grand notion of bipartisanship he attempted to separate ‘the people’ from the ‘elite’ by, for instance, offering an end to capital gains taxes, but only for small businesses.

This populism is rather disingenuous and anti-intellectual, as most populism is, and will only serve to foment fault-lines in American politics. All of America is responsible for the economic meltdown, not just Wall Street. By refusing to indict the average citizen for his mistakes alongside Wall Street, Obama is reinforcing a culture that dismisses personal responsibility.

The second major theme was the continued attempt to portray himself as an outsider to Washington. His repeated mantra was “Washington has been unable or unwilling to solve any of our problems.” It is a time-tested tactic for campaigners to portray themselves as outsiders. America habitually wants new visions and ideas and elected Obama a year ago largely based on this successfully transmitted message.

However what worked during his ‘real’ campaign will largely fall on deaf ears now. After a year in office, Obama is Washington. He said this much when castigating his party for their failures, “To Democrats, I would remind you that we still have the largest majority in decades, and the people expect us to solve problems, not run for the hills.”

Obama’s insistence on railing against Washington is interesting to say the least. It shows that he has yet to fully leave the campaign trail. From his perspective, this should be worrying as America has shown that it does not appreciate this politicking. America wants a president that leads not one that is on the campaign-trail.

The final major theme was his insistence on Big Government. Roughly two-thirds of his speech focused on the economy and rightly so. However, his entire approach of a paternalistic big government saturated his rhetoric. While his healthcare discussion was moderated, his language elsewhere continued the same cadence that drove the healthcare issue during the first year.  A prime example of this misguided economic policy was his discussion on college affordability. He stated:

And let's tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.

Now this sounds noble and, on the surface, profound. After all, every America should have access to college and most understand the heavy load from student loans. However, if one spends a few seconds considering the ramifications of the plan the economics simply fail.

For starters, if debt is forgiven it means someone has to cover the costs. There seem to be three options – the taxpayer, the lenders, or the schools. If it falls on the lenders, well they simply will stop lending. No business will be willing to operate at a loss and so such a plan will reduce available loans. If it’s the taxpayers, well we all know the problems there. If the schools have to shoulder the burden it will reduce the quality of education as schools would be forced to cut programs, salaries, and other expenditures. Alternatively, it would give schools incentives to only admit those who could pay their own way, thereby restricting access to universities (particularly the elite) to the rich.

Likewise, Obama’s plan could create a perverse incentive for individuals to get frivolous degrees. Higher education is an investment in one’s future. While many enjoy learning, a higher degree should generally only be pursued if it offers a positive return. Such a program would encourage people to complete degrees that have little bearing on their career paths. While this is certainly noble and learning is a paramount value, it should not be done at the expense of demolishing our education system.

This is but one example of the administration’s warped economic perspective. Obama, while often pure in aims, far too often attempts to correct the symptoms rather than address the underlying problems. It is economically unwise to expand government in order to force changes in the price one pays without addressing the underlying cost of the product. This backward economic principle only serves to grow government and exacerbate problems.

However, despite the many flaws of the address, credit must be given where it is due. Obama did make a number of strong points and called for some positive changes. First he stated, “We need to make sure consumers and middle-class families have the information they need to make financial decisions.” The flow of information is a principal aspect of free competitive markets and should be applauded. Second, he called for off-shore drilling and the construction of nuclear plants (amongst other proposals) both which will create jobs and promote energy independence. Third, Obama invited both parties to offer ideas for healthcare reform. He stated, “But if anyone from either party has a better approach… let me know.” Hopefully this is not mere rhetoric and the Republicans will take advantage.

Obama has work to do. Hopefully, he can step up as a leader, dismiss the big government, partisan, and populist focus of his administration and end his political campaign. He seems to have learned some lessons from the past year, and particularly Massachusetts, but he is not quite there yet.

What Are They Thinking?!! – Socializing and Destroying Our Economy

On Friday, the House voted to give the government sweeping control over pay in the private sector. This plan continues the radical-leftist Congress’s assault on free enterprise and the capitalist system. Essentially the bill, H.R. 3269, prevents large companies from rewarding their employees in ways that may cause excessive risk taking. What excessive risks are is undefined.

Such a power grab greatly hampers the abilities of companies to structure their businesses according to what works best. While companies certainly have, and will continue, to make mistakes, there is no reason to assume that the government can make better decisions. In fact, there is much reason to believe that government interest does not coincide with what is best for a company. Governments have a whole host of groups that they must pander to; including, constituents, lobbyists, party members, and others.

Government meddling in corporate business strategy can only lead to bad situations where politics trump good business sense, sapping initiative and dampening the industrious and innovative American spirit. In such instances, the government role is inefficient, impractical, and downright foolish. It brings politics into a realm where they don’t belong. The very motivation for greater government involvement is completely imbued with political motivations. Such bills are precisely motivated by the populist rage that the Congressional Democrats are nurturing and harnessing, rather than any objective logic. Destroying the fictitious ‘fat-cat Wall Street’ apparently wins votes, even if it hurts the very Americans who cry for blood.

The damage that this bill could cause is foreshadowed by the government’s meddling in the relationship between Citigroup and one of its prime breadwinners, Andrew Hall. Hall, who runs a division of Citigroup called Phibro, which often earns a large chunk of revenue for the company, is admittedly a well compensated man (he owns a castle). He is now demanding a contractually committed bonus of $100 million. Citigroup, which received a lot of taxpayer cash through the bailout, is under immense pressure to renege.

The tensions in this are obvious. However, whether he is right or wrong, Hall, and his massive amounts of revenue, will leave Citigroup if his contract is not upheld. Citigroup is naturally in a tough position– stuck between the same populist anger that is pressuring the government and a large capital outlay that may reap future rewards. This tough decision is only complicated by the presence of government decision makers who, motivated by reasons not necessarily in line with Citigroup’s financial success, can severely influence what happens.

Proponents argue that government intervention is necessary to mitigate excessive risk taking on Wall Street. However, the excessive risk taking that this bill attempts to eradicate, is the very same excessive risk taking that Congress has helped build into the system. The financial bailout and other such programs encourage risky behavior. After all, if one knows one will not have to suffer the consequences, one will be more likely to take risks. When the suffered consequences do not match the risk level it encourages individuals to have a surplus of hazard. The bailout encourages just that.

Congress is in the process of establishing such a backwards system. If a system cushions the consequences of missteps, it simultaneously encourages missteps to be taken. Ultimately, people and institutions need to be able to feel the pinch in order to learn to avoid behavior in the future. The only alternative to eradicate risk is to have one party dictate every action– compensation, production, consumption. This is a failed political system often called communism.

Obama on the Attack and the Destruction of Healthcare

Obama’s artifice and politically motivated smears in his recent comments regarding healthcare are despicable. The President is not only putting undue pressure on an already delicate issue, but using scare tactics for political expediency. His attempts to cram through ‘reform’ and socialize America’s healthcare system are terrifying to say the least.

In remarks given Monday, he launched an all out partisan attack on Republicans. He preyed on emotional fears of a failing healthcare system and attempted to portray the respectably cautious Republicans as pawns of vested interest and the status quo. Obama continued his misguidance on Tuesday, again attempting to portray Republicans as the bad guys.

This is not only unfair, but patently disingenuous. As Obama points out, everyone acknowledges the system is in need of overhaul. However, the current Democrat-led plans are disastrous. Republicans, such as Bobby Jindal, are proposing alternative and better solutions which the Democrats wish to ignore.

The bottom line is that, as discussed here before, the public option is an utter sham. While Obama’s claim that “[i]f you like your current plan, you will be able to keep it. Let me repeat that: If you like your plan, you'll be able to keep it,” might be technically true, it glosses over the economics of the public option. Because a public option ultimately rests on the shoulders of the taxpayers, it can (and will) operate in a grossly inefficient fashion.

Any shortfall in profitability will be picked up by the taxpayer. This will allow the public option to avoid cost reduction. Managers of the public plan will be able to simultaneously undercut private insurers and avoid having to reduce costs. If America is concerned about inefficiencies in the private sector, just wait until the government gets into the business. Obama, with an unequivocal Freudian slip, admitted this: “The reforms we seek would bring greater competition, choice, savings, and inefficiencies [sic] to our health care system…”

It is unfortunate that the Democrats in Congress backed by the increasingly disingenuous Obama feel the need to cram a broken fix upon a broken system. It is even more frightening that they are attempting to cloud the scene with false economics and political sleights-of-hand. What we need is a well thought out, economically efficient plan, that corrects the flaws in the current system. Hopefully, America will wake up and halt the pending utter destruction of our healthcare system before it is too late.

Environmentalism is a Luxury

In a time when global warming ceaselessly graces the front pages of the few remaining newspapers and is continuously hawked by the talking heads on twenty-four hour news networks, we are experiencing one of the coldest summers to date. (See Bloomberg News http://www.bloomberg.com/apps/news?pid=20601103&sid=as8EdCaoN0dQ). While the debate over the existence of global warming is largely and correctly closed, there are still many areas of debate that are still open and undecided. For instance, the extent of man's role in causing global warming, and hence his ability to mitigate it, is still open to discussion.

While such issues are being discussed at the margin, there is at least one issue that has been all together ignored. Most Americans, particularly the limousine-left of Hollywood, fail to see that environmentalism is a luxury. This missing concept is the source of much of the misunderstandings and failures to communicate with Third World countries. It also lies at the crux of disagreement between business and environmentalists.

Many environmentalists would dismiss such an argument on its face. The radical environmentalists argue that curbing global warming is a need. If we fail, the argument goes, so will our planet. Whether this is true or not and whether or not man actually has the capacity to make change is irrelevant and misses the key point. First of all, even by the most radical environmentalist standards there is little chance that those who are alive now will experience any catastrophic effects from global warming. Even in worst case scenario, it is our children or grandchildren that will be directly affected by our actions. While most people care about providing for our children, it is difficult if not impossible to claim that such forward planning is a need.

Secondly, most environmentally friendly actions cost money. Only recently have a significant number of such behaviors (such as purchasing CFLs) been proven to be the more cost effective option. This can, in part, explain the recent take-off of the pro-environment movement. Unless a behavior is the more cost effective option, individuals will need some ulterior incentive to spend their money.

This is often the case in modern America. Even when environmentally friendly actions are less cost effective, many Americans are willing to pay a premium for the products. A few extra cents for organic food or organic dry cleaning is worth it to those who can afford it. In other words, environmental consumers are gaining an indirect value from the organic or environmentally friendly product. At a minimum this value is simply ‘a good feeling’. If these products do not actually help the environment, the only value obtained is the cognitive notion that one is ‘helping the environment’. Alternatively, if these products do help the environment, then the extra money spent buys that same good feeling and helps avoid some environmental damage.

However, most people in the world cannot afford this extra premium. For them, the value of that good feeling or even the value of saving the environment is much lower than the extra cost. A rich New Yorker may be willing to pay double for his eggs if they are organic. The poor subsistence farmer who can barely scrape together a solid meal has no interest in ‘organic’ eggs. This is precisely why environmentalism is a luxury. More well-off individuals, and countries, can afford to pay more. They are able to pay for the benefits that they reap from being environmentalists. Whether these benefits are real or simply cognitive is irrelevant.

The failure to understand environmentalism through this lens drastically hampers political understanding. It explains why industrializing countries, such as China, are unwilling to change emissions standard; and subsequently why many Americans do not want to become uncompetitive by leading the way. It also explains why the Hollywood elite can justify buying hybrid Hummers and private jets (or explains Al Gore’s copious consumption of electricity in Tennessee). In order to accurately develop environmental policy, our leaders need to incorporate this understanding into their decision making process.