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. These articles are from V & V, a web site of the Center for Vision & Values.

Inflation: Food, Fuel, and the Fed

As Americans increasingly feel the pinch of higher prices for food and fuel, the Federal Reserve's QE2 policy of creating more money has been called into question. Asked if the Fed bore some responsibility for these vexing price increases, Fed Chairman Ben Bernanke essentially replied, "It's not our fault." Instead, Bernanke blamed the price increases on "global supply and demand conditions."

Is Chairman Bernanke correct? To use a well-known phrase: "Not exactly."

Far be it from me, as an economist, to downplay the importance of supply and demand in determining prices. Certainly supply and demand have been pushing food and fuel prices higher. But those factors don't account for all of the increases. For Bernanke to claim that the Fed's inflationary monetary policies have not put upward pressure on prices is preposterous.

Let's examine some of the causes of higher food and fuel prices more closely.

First, fuel: For decades, it has been federal policy to declare huge tracts of domestic territory off-limits to petroleum production. Team Obama - whose secretary of energy, Steven Chu, publicly declared in 2008, "Somehow we have to figure out how to boost the price of gasoline to the levels in Europe" (i.e., $8 per gallon) - has been the most radical anti-drilling administration ever. With government having succeeded in artificially suppressing supply to such a great degree, prices for oil and gasoline can't help but be higher than they should be.

Second, food: For decades, federal policies have been designed to boost food prices above their free-market level in order to benefit well-organized, well-funded, and politically influential agricultural interests. In recent years, federal policy has given a turbo-boost to prices of agricultural commodities by mandating increased usage of ethanol in our gas tanks. We are literally burning up millions of acres of corn, a basic food staple. Inevitably, less corn available for food means a higher price for corn. The higher price for corn ripples through the economy, resulting in higher prices for competing grains and livestock that feed on grain - voila, it gets more expensive to eat.

The ripple effects of government-induced higher corn prices are international. Since food, like oil, has a global market, higher agricultural commodity prices are necessarily global. As food prices have risen, life has become increasingly precarious for the masses of poor people, such as those in the Middle East who have risen in protest and toppled governments. In turn, the rising political instability of the world's key oil-producing region has imposed an uncertainty premium on the price of crude oil, further driving up gasoline prices here in the United States.

Clearly, Ben Bernanke was right to cite supply and demand factors as contributing to higher food and energy costs. He was too delicate, too politic, to point out the culpability of government policy in perpetrating this mischief. Without a doubt, federal policies have made food and fuel more expensive for Americans, with an additional international feedback loop whereby higher food prices trigger political instability in the Middle East, driving up oil prices even further.

However, Bernanke and the Fed are not blameless here. If the prices of a small number of commodities rise while most prices do not, we would reasonably conclude that those price movements are dictated by supply-and-demand factors. But when prices in general rise, that is the smoking gun that points to an inflationary monetary policy.

Since the Fed's QE2 program was launched last September, the Commodities Research Bureau index of 19 basic, widely-used commodities has risen by almost 40 percent. Has demand risen and supplies fallen significantly for all commodities since September? The odds against such an improbable coincidence are astronomical.

Instead, the answer is obvious: The Fed has flooded the financial system with newly created money, and the inevitable result of a lot more money bidding for approximately the same supply of goods is markedly higher prices. Indeed, for Bernanke to deny partial responsibility for higher prices is more than disingenuous, since the Fed's stated goal last September was for prices to rise more rapidly. Does the Fed now regret getting what it wished and aimed for?

The solution to the problem of soaring prices of food and fuel lies in Washington. If Congress, the president, and the bureaucracies would restore free markets in food and fuel markets, prices would come down. If Bernanke and the Fed would quit expanding the supply of Federal Reserve Notes, upward pressure on prices would be diminished. It's that simple, economically. Whether Washington's frequent perverse, wealth-destroying policies can be reversed politically is another matter.

How "Radical" Is the Ryan Plan?

Question for those of you concerned about the size of federal debts and deficits: Would you endorse a plan which would add another five or six trillion dollars to the federal debt over the next decade while increasing Uncle Sam's annual expenditures by $1.1 trillion? If so, you're in luck. House Budget Committee Chairman Paul Ryan (R-WI) recently unveiled just such a plan.

Naturally, Democrats immediately denounced Ryan's plan as "radical." They think the increases in spending and debt should be much larger. It shows how far the goalposts have been moved in American politics that adding multi-trillion-dollars of debt is the most conservative proposal anyone in government has made. How would you like your government debt, Mr. or Ms. Citizen - gargantuan or astronomical?

The Ryan Plan, if implemented (more on that in a moment), would cut $179 billion from President Obama's planned spending in 2012 and another $241 billion in 2013. Why is it not "radical" to raise spending by $787 billion in one year, like Obama did in 2009, but "radical" to propose a decrease of $179 billion?

Ryan proposes to reform Medicare and Medicaid so that they don't bankrupt the country. Why is that demonized as "war on the elderly and poor" (the phraseology of Illinois Democrat Jan Schakovsky), but nobody talks about waging "war on the young" by saddling the rising generation with trillions of dollars of debt?

Ryan's plan is bold in comparison to the status quo in Washington, but it isn't radical. You want "radical"? How about getting government out of the medical field entirely? Since the creation of Medicare and Medicaid in the 1960s, medical costs have soared far beyond the rate of inflation. More than that, market competition has been diminished and fraud and inefficiency have ballooned apace with the growth of these two medical bureaucracies. (Why do liberals rant and rave about the Pentagon's inefficiencies, but remain silent about the similar inefficiencies of Medicare and Medicaid?) Ryan's plan is statist to the core, promising seniors large government subsidies with which to choose from a slate of government-regulated health care plans.

At this stage, Ryan's plan is academic. Its combination of spending cuts, tax cuts, and devolution of administration of government programs from the federal to the state level - while a significant improvement over the fiscal insanity of recent years - is dead in the water until at least 2013.

If you doubt that, look at the recently concluded "government shutdown" soap opera. The government is going broke, the Republicans were asking for a giveback of less than 10 percent of the Obama/Pelosi/Reid spending increases, but the Democrats - famous for extolling bipartisanship - threatened to shut down the government rather than make such a modest compromise.

It will be interesting to see how long Ryan's fellow Republicans in the House stand by his proposals. The coming vote is largely symbolic. The real test will be when Republicans have to face the voters in close re-election races next year. A majority of Americans may say that they favor reduced federal spending and smaller deficits, but when push comes to shove, how many will vote for a legislator who actually shrinks programs from which voters benefit?

Even if Ryan's plan, by some miracle, were to be enacted, nothing would change. Uncle Sam will remain a gigantic, meddling nanny, interfering with our lives and progressively eroding our liberty, entangling us in a corrupt network of special privileges that murder justice and bury the rule of law.

Ryan's plan is a futile attempt to square the circle. He is trying to find a way to preserve an inherently flawed system - a democratic transfer society - whereby government somehow takes care of all of us without eventually spending itself into bankruptcy.

The Ryan Plan is not radical; that is, it doesn't get to the root of the problem. It never questions the legitimacy of government redistribution of wealth. The mechanisms, rationale, and justification for Big Government remain unchallenged. Although a significant step in the right direction (i.e., less federal spending), Paul Ryan's plan ultimately is not a cure for what ails us.

Christian Conservatives and Randians

According to a 1991 Book of the Month Club / Library of Congress survey that asked what book had most influenced their lives, the two top picks by respondents were the Bible and Ayn Rand's Atlas Shrugged. Coincidentally, this is a big week for both Christians and Randians. The former are celebrating the resurrection of Jesus Christ; the latter, the long-awaited release of the film version of Atlas Shrugged (part one of three).

On the eve of the film's April 15 release, I was half of a panel discussion on Atlas Shrugged at a gathering of young professionals in Pittsburgh. I focused on economic and political themes in Rand's writings. As a former socialist who now espouses genuine free-market capitalism (not today's counterfeit version), I esteem Atlas Shrugged as a brilliantly insightful work of politico-economic fiction. Rand's grim depiction of self-serving political opportunists progressively destroying the economic motor that sustains human life is uncannily accurate, astute, and timely, despite having been written over 50 years ago.

The other speaker at the Pittsburgh event was a very kind, gracious, and bright professor - a philosopher who is an adherent of Rand's comprehensive philosophy, called "Objectivism." For those of you not familiar with it, one of the fundamental tenets of Objectivism is atheism. Consequently, dialogs between Christians and Objectivists are relatively rare, so I am glad to report that the Pittsburgh panel shared by a Christian economist and Objectivist philosopher was friendly and respectful.

We were able to pull it off because we largely stayed away from areas of irreconcilable differences - specifically, beliefs about ultimate causes. Instead, we made common cause in addressing the huge threat to all of us of an aggressive political class bent on demolishing property rights, redistributing wealth, and absorbing the private sector into a centrally planned people's republic.

This gives me hope that a tactical alliance between Christian conservatives and Objectivists can be forged, since we both seek to reverse the progressive loss of liberty in the United States. We Christians shouldn't expect Objectivists to accept the reality of the God that we know as an immanent spirit, but Who does not appear on earth as an objective reality. Nor should Objectivists expect Christians to accept some materialistic hypothesis about the origin of the visible universe, such as the fantastical "Big Bang" theory - a belief that requires one willfully to overlook the reasonable but problematical question, "Where did the primordial ball of gas come from?"

We Americans have a long and proud history of overlooking religious differences while collaborating to produce a more prosperous society. What one believes about God or how one conceives of ultimate causation cannot be enforced by government. It is a matter of what the Puritans called "liberty of conscience." How Americans treat each other, by contrast, is inevitably a public matter. A society must hammer out rules for what is and is not permissible in how we interact with each other.

Commonly shared ethical principles form the basis for our Constitution and laws. Christians who correctly understand the Bible's teachings about private property unite with Randians in believing that every individual's property rights should be inviolable. Rand's statements in Atlas Shrugged about the legitimate sphere of government power are virtually indistinguishable from certain principles expressed in the Declaration of Independence.

For the time being, let's set aside our differences. The problematical relationship of Christians and Objectivists reminds me of the friction that so often divides economic conservatives and libertarians, limited-government classical liberals and anarcho-capitalists. All of these believe that government is far too big today. Yet they waste far too much energy quarreling with each other when they could expend that energy far more productively in working to roll back Big Government. Their mutual priority should be to get rid of 75 percent of the federal leviathan. Then, after having achieved that much freer and more prosperous state of affairs, have a royal donnybrook to decide what to do about the remaining 25 percent of Uncle Sam.

Similarly, I see conservative Christians and Objectivists as potential allies in the "good fight" for smaller government and a restoration of individual rights, united by a commonality of ethics. In the short run, there is an immediate, desperate need to pry government's grip off of our country's economic windpipe before it chokes us into serfdom; in the long run, metaphysical questions about ultimate reality, the creative force, and accountability may be the most important. But, let's first make common cause to thwart those whom Rand dubs "looters" and "cannibals" - those who are bleeding our wealth and devouring our rights. Later, in a United States liberated from suffocating government, there will be a more advantageous time for interested parties to have a knockdown, drag-out debate about God and creation.

America's Christian Founding Fathers and the 20th-century immigrant Ayn Rand both deeply loved the United States of America. May those who walk in their respective footsteps today also love the United States enough to forge an alliance, not of convenience but of necessity, to rescue our country from her destroyers and to resurrect liberty and restore our fundamental rights.

Budget Tightening in Pennsylvania - and Around the Nation

Pennsylvania's new governor, Tom Corbett, has submitted his first annual budget to the state legislature. It includes proposals for spending cuts and no new taxes. In some ways, the budget is a model of what must be done nationwide.

Governor Corbett also claims that it cuts spending, but that depends on how the numbers are crunched. During the current 2010-2011 fiscal year, $28 billion is being disbursed from the general fund. That's less than half of total Pennsylvania government spending - the balance consisting of special funds and federal funds. Next year, approximately $3 billion of one-time federal stimulus funds will be gone; thus, the 2011-2012 general fund would decrease to $25 billion without any spending cuts or increases. Since Corbett has proposed to spend $27.3 billion in fiscal year 2011-2012, then the alleged 3.1 percent cut from $28 to $27.3 billion, while technically true, appears to be an actual 9.5 percent, $2 billion hike in Pennsylvania-funded spending ($25 to $27.3 billion).

Nevertheless, Corbett has proposed specific spending cuts, eliciting criticism from those who have grown accustomed to receiving erstwhile Governor Ed Rendell's perennial largess. Indeed, the contrast between the Democrat, Rendell, and his Republican successor is unmistakable. It brings to mind the late Austrian scholar Erik R. von Kuehnelt-Leddihn's description of the competing parties in modern democracies: The liberal party is the Santa Claus party; the conservative party is the "tighten the belt" party.

In Pennsylvania, ex-Governor Rendell was Santa Claus on steroids. He increased subsidies to his favorite constituencies, such as school districts and state colleges, all eight years he was in office, even while the private sector was shrinking from the recession. Under Rendell, Pennsylvania's general obligation debt rose 39 percent. Wait, it gets worse. Most of the commonwealth's debt is in off-budget agencies. That indebtedness soared 93 percent under Rendell. In total, Pennsylvania's state debt swelled 82 percent in eight years to $43 billion. (By way of comparison, local debt in Pennsylvania increased 35 percent during the same time period.) So profligate was Rendell's spending that he borrowed more than $3 billion of federal monies to fund unemployment checks, and he left Corbett without sufficient funds to pay all current bills; consequently, Pennsylvanians are paying interest on emergency loans to cover current expenditures. Want more? The teachers' retirement fund is $31 billion underfunded and the state employees' pension $11 billion underfunded. Thank you, Ed Rendell.

In ancient Athens, there was a time when citizens voted on an office-holder's performance at the end of his term. If he had governed poorly, the citizens voted to exile him. We don't have such a safeguard today. Instead, Rendell goes on his way while Corbett inherits a mess and takes all the heat for trying to make ends meet.

Governor Corbett has one option if he is not to allow the state's finances to continue deteriorating to the point of bankruptcy: To play the role of belt-tightener-in-chief. Thus, he has begun to do what fiscally responsible governors across the union are doing and must continue to do to help salvage states' financial viability. He is asking long-time beneficiaries of state spending, like the education sector, to accept some cuts. Also, citing figures that the median state government salary in Pennsylvania increased from $39,000 in 2004 to $45,000 today (in comparison to today's private sector median income of $32,000), Corbett proposed freezes and cutbacks for state employees.

Corbett is to be commended for defying the know-nothing leftists who complain, "The big winners [in Corbett's budget] are corporations with out-of-state addresses," particularly oil and gas companies. This is economically illiterate. One of the best hopes for increasing state tax receipts is for those out-of-state companies to continue to create good jobs by developing the state's rich natural-gas deposits. As for them being domiciled out of state, blame our anti-business (and therefore anti-job) tax laws. You don't attract businesses to your state by taxing the heck out of them.

It remains to be seen which of Corbett's proposals will be enacted by the GOP-controlled legislature. However, since the total indebtedness (including unfunded obligations) of all units of government in Pennsylvania now exceeds $194 billion, it would be fiscally insane for Corbett and the legislature not to trim spending. Actually, a three-percent trim is not enough. The debt figures are plain: It's time for some major belt-tightening, in Pennsylvania and around the nation.

A Tale of Two Union Disputes: the NFL vs. Wisconsin Teachers

There are two high-profile labor disputes in the news these days. One involves Wisconsin's public-school teachers; the other, the National Football League's players. I mentioned this to a friend, who responded that the NFL dispute was more troublesome. The very idea of people making such high salaries possibly striking for more irked her. While I understand that sentiment, I believe that the dispute in Wisconsin is far more problematical. Here's why:

I freely concede that teachers are far more valuable to society than pro-football players. Education is necessary; major league sports teams are not. Why, then, do jocks get paid so much more than teachers?

This question is a latter-day version of what was known a couple of centuries ago as "the paradox of value" - a paradox that economists didn't resolve until the 1870s. The paradox was that an ounce of gold sold for a much higher price than a loaf of bread, even though the former was an optional ornamentation and the latter sustained life itself. Clearly, bread is more valuable. It is also, however, far more common than gold. The relative scarcity of gold accounts for its higher price. Today, the relative scarcity of men able to compete at the NFL level is why they get paid so much more than teachers, the latter of whom are far more abundant.

Many say that pro athletes don't deserve to make so much money. I disagree. That is not to say that I regard athletes as more important than teachers. I don't. Nor is it to say that we shouldn't be concerned about the athlete-as-idol phenomenon in our culture. (The decline and fall of Rome was accompanied by a pagan obsession with musculature and physical contests.) It's not that I don't think tickets to NFL games are already too high. For my taste, they are, but that is irrelevant, because enough of my fellow citizens freely choose to pay those stiff prices and pay for those gaudy NFL salaries. Since nobody forces anybody to pay those ticket prices, who can object?

Here are the main reasons why I have more sympathy for the NFL Players' Association (NFLPA) than the Wisconsin teachers union (WEAC) in their respective labor disputes:

The NFL is highly competitive. Those who don't perform at a very high level are quickly replaced. Superior performance is rewarded and underachievers are pink-slipped. The NFL is a meritocracy, and that commands respect. The teachers union, by contrast, is anticompetitive. The NEA and its affiliates have squandered much public goodwill by routinely protecting inferior teachers and resisting all efforts to reward exceptional performance.

The NFLPA is negotiating directly with those who pay their salaries - the team owners. The WEAC, by contrast, uses every political tactic it can think of to induce the Wisconsin governor and legislature to transfer money that isn't even their own (it's citizens' money) into their bank accounts. NFL owners are wealthier than the players they pay. By contrast, many of the citizens who are taxed year after year to pay teachers' salaries and benefits have lower salaries and fewer benefits than those to whom their taxes go.

I should interject here that there is an unresolvable dilemma inherent in the taxpayer-financed public school model. Either governments enable public school teachers to hold taxpayers over a barrel and essentially extort money from them by work stoppages, or teachers surrender their right to withhold their labor if the terms of employment aren't satisfactory to them. Neither option seems just. The only way out of that dilemma is to privatize education, but that idea is currently regarded as too radical.

Finally, the NFL negotiations have not become a divisive partisan phenomenon in an age when too many issues have. We won't have to worry about the NFL labor dispute inducing President Obama to abuse our constitutional federal order or try to subvert a state's duly elected government.

Indeed, don't expect to see any of your favorite pro football players carrying posters of Hitler or trying to shut down lawful government. Even if you don't like what the NFL players are asking for, compared to the teachers in Wisconsin, they are pursuing their goals in a dignified, respectful way. Thanks, guys, for upholding a higher standard in collective bargaining. And thank you to all you Wisconsin teachers who are dedicated to your students and don't support your union's mandatory shakedowns.

Imperfect Justice in Snyder v. Phelps

On March 2, the Supreme Court issued a decision in the case Snyder v. Phelps that illustrates the difficulty of balancing competing claims to rights and justice in our judicial system.

The court overturned a lower court's $5 million tort judgment against Pastor Fred Phelps of the Westboro Baptist Church of Topeka, Kansas, for invasion of privacy and inflicting emotional distress on the Albert Snyder family.

In case you haven't heard, Phelps and his little band of coreligionists had chosen the funeral of Mr. Snyder's son, Matthew, a Marine who perished in Iraq, to hold up signs containing such niceties as "God hates you," "You're going to hell," and "Thank God for dead soldiers." Phelps opposes and condemns various public policies (e.g., gays in the military) and private matters of conscience (e.g., religious affiliation, in this case, the Phelps family's Catholicism). In Snyder v. Phelps, the Supreme Court ruled 8-1 that the First Amendment right to free speech trumped the relevant tort doctrines under which Phelps had been found at fault.

I rarely play Monday morning quarterback after a Supreme Court decision. I am not a lawyer, nor do I know all the facts and pertinent legal precedents of this case. There were multiple legal issues, each with its own complexities, raised in this case (e.g., infliction of emotional distress, invasion of privacy, civil conspiracy, states' rights, etc.). I acknowledge the immense difficulty of coming to a single "right" ruling. I believe that all nine justices acted in good faith. It seems to this observer, though, that the opinion of the dissenting justice, Samuel Alito, was superior to the majority's position.

All nine justices emphasized our right to free speech - a right that some powerful Americans have sought to curtail. If we are to remain a free people, we cannot censor words or ideas just because they are ugly, unpopular, revolting, venomous, or abhorrent.

However, that does not mean that offensive language can be used anywhere or anytime. For example, we rightly bar people from walking into kindergarten classes and dropping a string of f-bombs. Such restrictions don't endanger our precious liberty.

Similarly, I concur with Associate Justice Alito's opinion in Snyder v. Phelps that:

Allowing family members to have a few hours of peace [at a funeral] without harassment does not undermine public debate.

Alito really nailed the issue with this statement:

In order to have a society in which public issues can be openly and vigorously debated, it is not necessary to allow the brutalization of innocent victims.

Perhaps I am guilty of wanting to have my cake and eat it too, but can we not have both a right to express our beliefs and also have government fulfill its primary purpose of protecting individuals from acts of aggression? Make no mistake about it: The Snyder family was the target of a deliberate, pre-meditated, unprovoked assault.

The Snyders had done nothing to Phelps. The Snyders weren't responsible for any of the national policies to which Phelps objects. Matthew Snyder's funeral was a private family matter, not a public event. Don't the Snyders - indeed, all Americans - have a right to be protected from hurtful, unprovoked, sadistic assault? Does our Supreme Court want to turn the First Amendment into a license for anyone to intentionally inflict emotional anguish on a grieving family at a moment of maximum vulnerability?

Yes, Phelps has rights, but so do the Snyders. And yet, in Snyder v. Phelps, the Snyders' rights were abrogated for the sake of Phelps' rights. Surely American jurisprudence is broad enough to protect both Phelps' right of free speech and the Snyders' right to protection. As Justice Alito wrote in his dissent, there are thousands of places at which Phelps and Co. could have had their say without inflicting emotional duress on the innocent Snyder family.

There is a story (whether true or apocryphal, I know not) about a first-year law student who strongly objected in class to a judicial decision that was being discussed. "This is NOT justice!" he exclaimed to his professor. The experienced legal scholar calmly replied, "Young man, if it's justice you want, go across the street and enroll in the divinity school; THIS is the law school."

It seems to me that Mr. Snyder didn't receive justice from the Supreme Court. May he be healed of his pain and find his justice in a court higher than the erroneously named "Supreme Court." *