Friday, 20 November 2015 13:30

Hendrickson's View

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Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. This article is republished from V & V, a website of the Center for Vision & Values.

Drill Now

High fuel prices have produced a tectonic shift in the United States' political landscape. Recent polls indicate a strong surge of support for Uncle Sam lifting government restrictions against domestic drilling for oil. Blocking the development of domestic energy resources was a luxury we used to be able to afford. At current prices, though, the calculus has shifted. The reasons for proceeding full speed-ahead with domestic drilling are compelling. They include:

1) Compassion toward relatively poor Americans. Those who oppose domestic oil production often are those who claim to champion "the little guy." They can prove the sincerity of their professions by permitting increased domestic production of oil, thereby exerting downward pressure on the market price of the fuel that consumes a growing share of Americans' incomes.

2) Reducing the merchandise trade deficit. For years, politicians left and right have decried the United States' enormous trade deficit. Since imports of oil now account for more than half of that deficit, one of the most effective policies for reducing it would be to produce more oil domestically.

3) Creating more jobs, especially high-paying blue-collar jobs. Why does the party that aspires to be known as the friend of labor suppress the creation of thousands of high-paying jobs for American workers?

4) Showing more respect to the rest of the world. There is something pathetic about the president of the United States traveling to Saudi Arabia to plead for them to increase production while we refuse to increase our own. Liberals are uncomfortable with any manifestation of American exceptionalism, yet aren't we practicing exceptionalism when we expect the rest of the world to produce our energy for us?

5) Increasing national security. Who benefits the most from today's astronomical oil prices? Ideologues reflexively point the finger at "Big Oil," but the major beneficiaries are the House of Saud -- the sponsor of Wahhabism -- and such mischief-makers as Venezuela's Chavez.

6) Keep taxes on middle class Americans from being raised. If fuel prices stay high, don't be surprised if Congress proposes new, costly Federal energy assistance programs for poorer Americans. Shades of agricultural subsidies and food stamps! Once again, the American taxpayer will take it on the chin twice -- first, by having to pay more for gas and heating oil as a result of government's suppression of domestic production; second, by tax dollars being channeled to those hurt most by those unnecessarily high prices.

The following objections to a pro-drilling policy are weak and clearly untenable under present circumstances:

1) Oil and gas wells are not aesthetically pleasing. True, but neither is human hardship. Are well-to-do "green" sentimentalists willing to see an occasional derrick in exchange for millions of poorer Americans gaining critical relief from high fuel costs?

2) An accident could occur. No fooling. But if we are going to outlaw risk, why not ban driving? Automobile accidents claim over 40,000 American lives annually. The environmentalist assertion that oil companies won't take sufficient precautions to prevent oil spills is a prima facie absurdity. Oil is valuable, and if American oil companies are half as greedy as their critics claim they are, then they will strive mightily to prevent spills which hurt them in two ways -- loss of valuable product and incurring the huge cost of cleanups. Those fearing oil spills should take heart from the fact that a thousand oil and gas wells were smashed by Hurricane Katrina, yet no spills occurred. Technology has improved.

3) Oil company profits are "obscene." Why discriminate against oil companies? We don't think twice when other businesses -- cell phone, beverage, retail, software, etc. -- earn greater profits when they provide more of what people want. If you really resent oil company profits, you should favor opening up drilling to all corners, because increased production puts downward pressure on prices and increased competition squeeze profit margins.

4) Increased drilling won't boost supply right away. True, but pointless. It is because people accepted this myopic premise years ago that we are in our present predicament. Let's do a better job of planning ahead. Future oil prices will be lower with increased supply than without it.

5) We need to develop alternative energy sources to replace oil. Okay, but what will we do if those technological breakthroughs don't occur as early as we hope? We will need affordable energy regardless, so it would be prudent to increase the supply of oil, just in case we find ourselves still needing it.

The time for drilling is now. Let's get on with it.

America's Debt Problem

Thrift used to be a virtue in America. In Asia, thrift remains a way of life -- for example, it is estimated that the average Chinese family's thrift rate is 30 to 40 percent -- which helps explain the rapid growth rates there.

A century ago, the sociologist Max Weber credited the so-called "Protestant work ethic," combining thrift with hard work as the engine of America's economic preeminence. How times have changed! While many Americans are thrifty, many are not. The political divide of blue-state and red-state Americans is replicated in an economic division between red-ink and black-ink personal finances.

The gross totals of debt in the United States are, well, gross. Private debt owed by Americans is nearly $14 trillion -- approximately the size of our Gross Domestic Product. Corporate debt exceeds $6 trillion. Uncle Sam's official debt is $9.4 trillion. If one includes unfunded liabilities for Social Security, Medicare, and who-knows-what, then you can add several more multiples of GDP to our total national indebtedness.

What explains this mountain of debt? Primarily, it reflects an attitudinal shift, the gradual supplanting of the ethos of deferring present gratification by an ethos of "enjoy now, pay later." This ethos, so evident in the spectacle of millions of Americans drowning in nearly a trillion dollars of high-interest credit card debt, is manifest at the macroeconomic level in our country's public polices. The massive debt of the federal government is the costly result of special-interest politics, enabled by the evolution of our political system from a constitutional republic, strictly limited in its powers, to a nanny-state democracy that redistributes wealth and tries to be all things to all people. Voters like politicians who spend money to their benefit, but detest politicians who tax them, and so all the political incentives lead toward deficit spending and ever-increasing debt.

The federal government is partly to blame for corporate debt, too. By imposing multiple taxes on businesses, including up to 35 percent of corporate profits, Uncle Sam and state governments have decreased the ability of businesses to self-finance improvements and expansions. Combined with the policy of making business debt tax-deductible, federal tax law has increased the incentives for businesses to borrow.

On the individual level, besides the credit-card junkies, many Americans have more debt than savings, primarily due to mortgages on their houses. How many Americans realize that a 30-year mortgage on a house at 6-percent interest results in eventually paying the lender more than twice the sales price of the house? In China, by contrast, 80 percent of houses are paid for in cash, freeing those homeowners from having to pay a significant portion of long-term income to a lender.

One reason why so many Americans buy houses on credit is, once again, the incentive created by tax laws. Those laws discourage savings by taxing interest, dividend, and capital-gain income, and encourage borrowing by making mortgage debt tax-deductible. But there is an additional, more insidious factor: inflation. The ongoing depreciation of the dollar, caused by ever-increasing government spending and the replacement of a gold standard by fiat money, discourages thrift while encouraging debt. After all, why save dollars, if those dollars are going to lose purchasing power? And why not go into debt, since you will probably be able to repay those debts with cheaper dollars?

There are signs, though, that America's debt burden has reached a critical stage. As U.S. debt has escalated, domestic economic growth has become increasingly sluggish, despite surging global growth and marvelous technological breakthroughs. Each dollar of debt in 1960 produced 64 cents of GDP growth, but four decades later, each dollar of debt generates only 15 cents of GDP growth. We're getting less bang for our borrowed buck than ever before. The marginal productivity of debt is trending toward the point of accomplishing absolutely nothing.

All debts eventually are settled. The honorable way is for debts to be repaid with money that has retained its purchasing power or assets of comparable worth. There are two dishonorable ways of retiring debt: repudiate it outright and default on repayment, or repay it with depreciated currency. Since the federal government is the largest single debtor and authorizes a Federal Reserve-controlled money monopoly, it will determine which of the three approaches to debt will prevail. Of these three, I see no possibility of Uncle Sam ever having the political will to repay debts the honorable way; nor do I anticipate outright repudiation, which would plunge the world into depression, maybe even war. That leaves the entrenched decades-long trend of dollar depreciation as the most likely course. The government will continue to overspend, the Fed will continue to inflate, and dollar-holders will continue to repay debts in depreciating dollars until creditors no longer accept those shrinking dollars.

Debt and its Siamese twin -- dollar depreciation -- likely will continue in the U.S. until the whole financial system and monetary regime arrive at some cataclysmic denouement.

Thank You, Alexander Sozhenitsyn

News of the passing of Russian author Alexander Solzhenitsyn on August 3rd brought me a flood of memories. Although I never met Mr. Solzhenitsyn, he had a profound effect on my life. He also had a great impact on the world. The adage "the pen is mightier than the sword" was rarely truer than in the case of this man.

Solzhenitsyn entered my life during graduate studies in literature at Oxford. In January, 1974, my tutor, the great Miltonian scholar Archie Burnett, assigned Solzhenitsyn's One Day in the Life of Ivan Denisovich as my first-week assignment. Less than two years earlier, I had considered myself a socialist, maybe a Communist. After reading this book, I forever closed the door on my youthful flirtation with Big Government.

The novel -- a microscopically detailed account of the miserable daily grind of inmates in Soviet penal labor camps -- was autobiographical. The author had spent eight years in such a camp. His offense? After fighting in the Red Army for several years in World War II (and serving well, having received two citations for bravery), Solzhenitsyn sent a letter to a friend that included criticisms of Stalin's strategy. In the suffocating police state that was the Soviet Union, Communist Party hacks monitored people's mail -- even letters written by decorated patriots -- and treated any indiscreet comment about Stalin as a "crime against the state."

The sheer power of One Day . . . is unforgettable. The vivid word pictures painted by the author make it obvious why he won the Nobel Prize in literature. Solzhenitsyn's genius in storytelling lay in his willingness to let events speak for themselves. His narration was calm, understated. Here was unvarnished, unembellished truth, relentlessly yet matter-of-factly exposing unspeakable cruelties routinely committed by an inhuman regime. Thousands of those labor camps (dubbed "the Gulag Archipelago" by Solzhenitsyn's trilogy of the same name) were still in operation in the 1970s and 1980s, but that didn't stop many liberals in the West from remaining active apologists for the Soviet Communists.

Solzhenitsyn was a polarizing figure everywhere. In his native country, he received honors for Ivan Denisovich and several other stories that Soviet leader Khrushchev regarded as conveniently anti-Stalinist. However, after Khrushchev was deposed and replaced by Brezhnev, Solzhenitsyn and his dedication to truth-telling caused him to be deemed a threat to the Soviet system, and he officially became a "nonperson," his works unpublishable in his own country. Thankfully, though, a couple of manuscripts (notably, his novels The First Circle and Cancer Ward) found their way to the West, where they were published and highly acclaimed. After he won the Nobel Prize in 1970, and with the help of western diplomatic pressure, the Soviet rgime deported Solzhenitsyn from his beloved Russia in 1974.

In the West, Solzhenitsyn became a hero to anti-Communists while enraging liberals. One liberal professor stridently told me that Solzhenitsyn belonged in an insane asylum -- a telling remark, since the Soviets themselves used insane asylums as a preferred place of imprisonment for dissident intellectuals. But for those of us who were not infatuated or deluded by Soviet propaganda, Solzhenitsyn was an invaluable fount of information about Soviet Communism. He opened our eyes to reality, writing and telling us about the USSR's economic backwardness -- of most hospitals lacking hot water, of widespread shortages, of awards being given for new factories that didn't even exist. He wouldn't let the West forget about the ongoing violations of every human right by the secret police, nor about the horrors of the gulag. Like some biblical prophet, he warned us that evil, when left unhandled, only grows more aggressive, and that we needed to resist and withstand evil, not appease it. Ronald Reagan took that message to heart, boldly calling the Soviet empire "evil" while pursuing policies that bravely and consistently countered Soviet aggression until the evil empire imploded.

Despite his anti-Communism, Solzhenitsyn wasn't a conservative in the American sense -- far from it. My master's thesis explored his economic beliefs, which were anything but free-market. Alexander Solzhenitsyn shared Adam Smith's initials; like Smith, Solzhenitsyn's father died before his birth, so they were both single children raised by devoted mothers, and like Smith, he was a great writer. However, when it came to trusting the "invisible hand" in economics, Solzhenitsyn did not.

Alexander Solzhenitsyn was a Russian nationalist, an orthodox Christian, a traditionalist who favored an authoritarian government exercising a dominant role in his country's economic life. Most importantly for the world, though, he was a courageous, principled man, who stood up to evil and prevailed. In doing so, he helped us to do the same. God bless you, sir, and thank you. R.I.P.

Olympic Anecdotes

After lying dormant for more than 22 centuries, the modern Olympic Games were launched in 1896. Held in Athens (of course!), the first modern Olympiad attracted the largest crowd ever to have assembled for a sporting event. The athletes were truly amateurs -- so much so that, when I was in college, I threw the discus far enough to have won the gold medal at the 1896 Olympics. Don't be impressed. My toss only qualified for third place at an intramural track meet at a small college. Today, many high-school girls throw the discus farther than I did.

The greatest film ever made about the Olympics was Chariots of Fire, the last G-rated movie to win the Oscar for Best Picture. This stirring story about the 1924 Olympics and the intersecting athletic careers of Jewish Cambridge student Harold Abrahams and Scottish Christian-missionary-to-be Eric Liddell had a difficult time finding financial backing due to the Christian-Jewish themes. The project was rescued when a Muslim, Dodi Al-Fayed (who died with Princess Diana in that tragic car crash), bankrolled the film. Chariots of Fire is undoubtedly the best movie ever made about the Olympics.

Geopolitical affairs have often obtruded on the Olympic ideals of peace and global fellowship. The Games were canceled during both world wars. One of the most memorable Olympics was in 1936, when American track star Jesse Owens, a black man, won four gold medals in Berlin -- exploding Hitler's dogma of Aryan supremacy.

Who was the greatest Olympian of all time? Jim Thorpe, Nadia Comaneci, Carl Lewis, Katarina Witt? How about Abebe Bikila? The Ethiopian was one of only two marathon runners to win gold twice. In 1960, Mr. Bikila ran barefoot, breaking the heart of the sports shoe companies seeking endorsements. He won again in 1964, only 40 days after undergoing an emergency appendectomy. What a lion-heart!

In 1964, the blond, handsome American swimmer Don Schollander won gold and graced many magazine covers. In the 1970s, one of my dates mentioned that she had a husband (those 1970s sure were different!). Marlin, the husband, became my close friend. In 1964, he had shared Schollander's national swim record, and his blondness and good looks, too. Marlin might have won gold, but he bypassed the Olympics to join the navy and see the world. Can you imagine an athlete making that choice today?

The 1968 games were memorable for the black power gesture of two American sprinters on the winners' podium and the amazing feat of Bob Beamon, who smashed the world long jump record by more than a foot, becoming the first human to break both the 28-foot and 29-foot barriers.

The 1972 games were the saddest, as Arab terrorists murdered Israeli athletes in their quarters in Munich. By violating the Olympic Games with those cold-blooded murders, the perpetrators lost much sympathy for the Palestinian cause.

The decades-long rivalry between the Free World and Communist Bloc reached its climax at the 1980 Winter Games. The victory of the American hockey team, consisting of young amateurs, over the mighty Red Army team symbolized the triumph of liberty over tyranny. The guttural chant "U-S-A" never sounded so sweet. (Now that the cold war is over, is that pounding, in-your-face chant appropriate when an American athlete beats some postal clerk from Paraguay or Timbuktu?)

Besides the geopolitical undercurrents that have conflicted with the Olympic ideal of global brotherhood, the Games' lofty aspirations have been vitiated by doping scandals and corrupt judging. The International Olympic Committee itself has compromised its own ideals by opening events to professionals already earning millions for playing their sports. Nevertheless, the noble ideals of the Olympics -- striving to achieve one's best in a spirit of genuine brotherhood and charity -- endure. Many more Olympians honor those ideals than fall short of them.

One of the great experiences of my life was attending the opening ceremony of the 2002 winter games in Salt Lake City with my daughter as guests of the Olympic Committee. Karin had composed the torch relay song, "Carry the Flame" (recorded by Aretha Franklin), which captured the Olympic spirit, reminding each of us of our opportunity to be all that we can be. I'll never forget how the crowd enthusiastically welcomed all the athletes at the Opening Ceremony -- Russian, French, Islamic, every single one. The Olympics provide a vivid demonstration that individual human beings can harmonize beautifully when politics doesn't intrude.

As we observe the 2008 Olympic Games in China, let us all embrace the Olympic spirit. May the spirit of true brotherhood and sisterhood prevail -- let us feel unselfish joy in each other's accomplishments. May the Olympic Games inspire us to build a future in which the whole human race coexists as one family, working peacefully and cooperatively to achieve humankind's maximum potential. *

"Nothing is more essential to the establishment of manners in a State than that all persons employed in places of power and trust must be men of unexceptionable characters." --Samuel Adams

Read 1840 times Last modified on Friday, 20 November 2015 19:30
Mark Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and Forbes.com.

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