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Saturday, 05 December 2015 04:55

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

The Election-Year Politics of Energy

Realizing that his popularity may decline as the price of gasoline rises, President Obama is barnstorming the country, emphatically insisting that drilling for more oil isn't the cure for high gas prices and that wind and solar energy represent our energy future.

Republican presidential candidate Newt Gingrich recently challenged Obama, claiming that gas prices would fall to $2.50 per gallon or lower if he were president. Many Americans believe Gingrich when he says that repealing Obama's anti-drilling policies would increase the supply of oil and push gas prices lower. In his weekly address on March 10, Obama disputed Gingrich's assertion, arguing, "With only 2 percent of the world's oil reserves, we can't just drill our way to lower gas prices."

One wonders how the president can make such a claim, given that natural gas companies are currently hurting because, in fact, they have drilled their way to lower natural gas prices. Surely this president does not believe that the law of supply and demand doesn't apply to oil, too.

To the contrary, Obama concedes just that when he considers dipping into the Strategic Petroleum Reserve for no other reason than to lower gas prices in an election year.

When you think about President Obama's antipathy for oil companies' profits, you would think that he would be one of the most vocal supporters of more drilling. After all, increased production of oil would drive down prices and shrink profits. How deliciously ironic that Obama's own anti-drilling policies are handing windfall profits to the very oil companies he rails against.

The president's statement about America having only 2 percent of oil reserves is misleading. The size of our reserve is actually quite vast, but the percent of the world's oil we have is far less important than the amount we produce. The United States accounts for at least 6 percent of global production of petroleum - a figure that would be significantly higher had President Obama's party not been impeding and restricting domestic petroleum production for years.

On March 14, the president ramped up his anti-drilling argument. He employed hyperbole, asserting, "If we drilled every square inch of this country . . . we would still have only two percent of the world's known oil reserves." To assert that a massive increase in drilling would result in no increase of oil defies logic and experience. The reality is that reserves have grown year after year, decade after decade, precisely because the more we drill, the more oil we find.

The president resorted to a "straw man" subterfuge to disparage Republicans who aren't on the "green" energy bandwagon, snidely proclaiming that they "probably would have agreed with one of the pioneers of the radio who said, 'Television won't last,' or the Henry Ford associate who argued that 'the automobile is only a fad.'" First, the comparison is inapt. Neither radio nor the Ford automobile needed government subsidies, whereas "renewable energies" have received them for years, even decades, and they still aren't cost-effective. Second, I don't know anyone - Republican, Democrat, or Martian - who would oppose clean, renewable, cost-effective energy. Nobody is against "green" energy per se. The objection is to costly, taxpayer-financed government subsidies to the politically connected, and to mandates that compel Americans to purchase uneconomical forms of energy.

The Wall Street Journal recently reported that the Democrat-controlled Senate defeated Sen. Jim DeMint's (R-SC) budget amendment to eliminate every federal subsidy and tax credit to all energy companies, whether they produce fossil fuels, renewables, batteries, or nuclear power. By voting with all Democrat senators (yes, every single one) to defeat DeMint's amendment, 19 Republicans showed that the GOP is not yet a free-market party. What chutzpah Vice President Biden showed by denouncing Republicans as the party of privilege during the very week when his own party voted unanimously to retain expensive taxpayer-subsidized privileges to corporate America.

The Obama/Biden tandem's overstated rhetoric may backfire on them. When people don't have the facts on their side, their attempts to ridicule others can end up making themselves look ridiculous. Apparently, the president and vice-president are betting that enough voters believe so fervently in hope, change, and other good things that facts, basic economic knowledge, and common sense won't burst their bubble.

Upheavals in American Education: The Start of Something Big?

Reform in America's public schools occurs with seemingly glacial slowness. In the private sector, businesses (including schools) that provide a lousy product quickly lose customers. They either correct their deficiencies or they eventually close. Similarly, if the problem is poor performance by a private enterprise's workers, then either the employees start doing a better job or management replaces them to save the company.

These market-based, pro-consumer forces are largely absent from taxpayer-supported schools, because public schools have captive "customers." Young residents of a public-school district are legally required to attend school, and in areas where those schools lack meaningful, affordable competitors, the youngsters are trapped by a virtual monopoly. The school can do a poor job year after year, and teaching jobs can become sinecures for the mediocre, the burned out, and the indifferent, protected by powerful unions that exist to serve teachers and not the pupils with whose education they have been entrusted.

It is in that context that I was glad to hear the news out of Chicago that Democratic Mayor Rahm Emanuel has announced plans to close 17 of the city's worst-performing schools. This seems like one of those Nixon-in-China moments when only a politician from the party normally allied with unions would dare to implement a policy that is so hated by the teachers' union. Indeed, the mayor's courageous decision brought upon him the ire of Jesse Jackson and the Chicago Teachers Union, but I salute Mayor Emanuel for challenging a status quo that protects failed, dysfunctional schools.

I can attest from first-hand experience that some schools are so dysfunctional that they simply cannot be reformed. Early in my career, I did some substitute teaching in innercity Phoenix. While there were several schools that were pathetic, one particular middle school sticks in my memory.

The windows in the classrooms had been smashed so often that the decision was made to brick them up, depriving the rooms of any natural light. A favorite pastime was to turn off the light switch when the teacher wasn't looking. That was a signal for books to be thrown through the air. Everyone, including the teacher, would take cover, because in the total darkness, everyone was at risk of injury, while it was nearly impossible to know who had thrown the particular book that hit somebody.

At that same school, kids would tear pages out of books to get out of doing assignments. At least a dozen seventh-grade girls were pregnant at any given time. A fulltime teacher there (a former college linebacker) told me that a good day was when nobody got hurt. The priority at that school was safety, not education. That school should have been euthanized and something else done in an attempt to salvage a decent education for those children.

Similar to Mayor Emanuel's decision to pull the plug on a few failed schools in Chicago, there are similar moves afoot in California, where a majority of parents could sign a petition that triggers a major reform of an unsatisfactory public school, up to and including shutting it down if it can't be reformed or restructured satisfactorily.

That is the good news. The bad news is that union operatives and allies, some from outside the area, used a combination of intimidation and lies against parents who had signed petitions to trigger reforms, causing the petition to be rescinded. It remains for the courts to determine whether the original petition is valid or not, but in the interim, reform is being blocked. This may be a short-term victory for the teachers' union, but in the long run, they may find (as in Wisconsin) that their aggressiveness may turn people against them.

In New York City, teacher evaluations were made public at the instigation of The Wall Street Journal and other media organizations. This is problematical, and I'm not sure I agree with it. Yes, without a doubt, teachers should be held accountable for their performance and irremediably ineffective teachers should be canned. But can't this be done without making public spectacles of inferior teachers? Perhaps a small committee of parents could be allowed to see the evaluations on the condition of confidentiality being maintained as long as the school district acts to replace bad teachers. In short, remove them, but don't make them wear a scarlet letter.

There are signs that significant upheavals are beginning to occur in public education. Let's hope they gain traction and momentum. We owe it to our young people. A decent education is an integral part of the American Dream.

People Say the Darnedest Things

Those of you past a certain age may remember the old Art Linkletter show "Kids Say the Darndest [sic] Things." The one I still remember was when Linkletter asked a little boy if he looked like his daddy. "No," replied the boy innocently, "I look like the mailman."

Well, adults say the darnedest things, too. Sometimes they give us a window into their egos or their ignorance. Sometimes their comments contain important truths. Other times, they don't even make sense. Let me give you an example of each kind of statement, starting with an example of the latter.

Many journalists have dutifully reported that the latest Greek bailout will reduce Greece's national debt to a "sustainable" level of 120 percent of GDP (from over 164 percent today) by the year 2020. The problem is, they never explain how Greece will be sustained through the next eight years of "unsustainable" debt levels until the level supposedly becomes sustainable. Sustaining the unsustainable for eight years is quite a trick!

At the opposite pole from such unthinking fatuity is a statement of blazing clarity made by Rick Santorum during a recent GOP debate. With refreshing candor, Santorum stated to a nationwide audience:

I voted for that [No Child Left Behind Act]; it was against the principles I believe in . . . and I made a mistake.

Politics is known as a business where principles routinely fall by the wayside, but rare indeed is the politician who admits to compromising principles.

As an example of a statement that displays a disturbing ignorance of elementary economic rationality, President Obama's friend and adviser, Valerie Jarrett, recently asserted that unemployment payments are economically beneficial, because

. . . people who receive that unemployment check go out and spend it and help stimulate the economy.

Those who advance this theory never explain how prosperity can improve from putting more money into circulation without any additional goods or services being produced. If the key to economic progress is more money in circulation, then let Federal Reserve Board Chairman Ben Bernanke rain money down on us from the figurative helicopter to which he once alluded. In real life, boosting prosperity is not that simple.

It's scary when one realizes how many members of Team Obama, including the leader himself, share Jarrett's faith in tossing money at a problem. Apparently, they really believe in the mysticism that economist John Maynard Keynes preached when he wrote in 1943 that increasing credit (or money) performed the "miracle . . . of turning a stone into bread."

Finally, if you want a supreme example of how a statement can provide a revealing glimpse of a person's ego, consider the president's speech at the National Prayer Breakfast last month. In it, he attempted to justify tax increases and government redistribution of wealth by citing Jesus' statement, "unto whom much is given, much shall be required."

I agree 100 percent with what the Lord said, but President Obama tore it out of context and twisted its meaning. The statement, which is the punch line in Jesus' parable of the talents, reminds us that it is God (not government) Who has blessed humans with the gifts of life and talent, and that we owe it to God (not government) to use those gifts productively for His (God's, not government's nor Obama's) glory and purposes. For a human being, even one as powerful as the president of the United States, to seek to usurp the place and prerogatives of the Creator takes hubris to the highest degree.

Yep, people do say the darnedest things. And those things can be quite illuminating when we pay attention.

Sports, Concussions, and Contemporary American Culture

If you follow professional sports, and especially if you are a football or hockey fan, you undoubtedly are aware of the rash of concussions that have rendered players unfit to play. Now there's a rash of lawsuits being filed against the National Football League, the latest of which includes a group of 106 retired football players, all alleging that the NFL should have done more to protect them from known risks.

We here in western Pennsylvania are acutely aware of this phenomenon. The Pittsburgh Steelers' linebacker, James Harrison, was suspended for a game after concussing Colt McCoy with a helmet-to-helmet hit on the defenseless Cleveland quarterback. On December 13, I attended my first hockey game in years, watching the Detroit Red Wings beat the Pittsburgh Penguins, 4-1. It was an exciting, well-played hockey game that I enjoyed, but would have enjoyed more if two Penguins' stars, Sidney Crosby and Kris Letang, had not been sidelined by concussions.

The question has arisen: Should the NFL and National Hockey League tighten the rules to protect players from concussions? Opponents argue that these sports are inherently risky and violent, and that to curtail the action in any way would diminish, if not ruin, the game. I respectfully disagree.

It's time for the owners and commissioners to exercise leadership and take decisive action to reduce the incidence of concussions.

Let me offer the Detroit-Pittsburgh hockey game as Exhibit A in support of my case. I wish you could have been there. The game was a magnificent display of athletic skill and intense competition. The players' wizardry on skates was accompanied by hard checks, collisions, and knockdowns on open ice, against the boards, and in the goalmouth. In other words, it was a clean game - tough, physical, without a whiff of wimpiness, but also without a single cheap shot.

This game was hockey as it was meant to be - artistic, fast-paced, and rugged. The play-making skill of Henrik Zetterberg, the power and precision of Evgeni Malkin's booming shot, the magician-like stick of Pavel Datsyuk, the acrobatics of goalie Marc-Andre Fleury, were a wonder to behold.

Such displays of skill make hockey a great spectator sport - not goon-like thuggery where a player takes a shot at an opponent's head. The hockey game I saw was physical enough to satisfy anyone other than a macho sadist. It had "manliness" without crossing a line where players' lives were at risk from gratuitous and dangerous head hunting.

I'm sure the commissioners and team owners are currently calculating whether the potential premature end of the careers of a sport's marquee superstars (and the tens of millions of dollars that owners have invested in them) are worth risking to appease an appetite for mayhem. Even fans must think it would be a shame if the best players' careers were abbreviated by brain damage. But the discussion needs to go beyond the welfare of star players. Every professional athlete, even a rookie just called up from the minors to make his major league debut, is a precious human being. None of these athletes should have to go through life brain-damaged because the leagues are unwilling to police headshots.

A sickness has crept into our culture. Some sports fanatics think that cheap shots that can result in brain injuries are a legitimate part of sports. This warped mentality brings to mind James Caan's 1975 movie, "Rollerball." In that futuristic world, the powers-that-be kept loosening the rules of the fictitious sport rollerball until players eventually were allowed to kill their opponents, so that victory would go to the team that survived - literally.

We seem ominously close to starting down the same senseless slippery slope as dramatized in "Rollerball." In pagan societies, life is cheap and individuals are expendable. Think of the blood-thirsty Roman crowds in the Coliseum who derived perverse pleasure from seeing gladiators not just defeated, but destroyed.

Call me a wimp, if you wish, but it's time for the owners, players, commissioners, etc., to rein in the headshots. It's one thing in sports to want to physically dominate an opponent and "whup 'em." It's something totally different to inflict brain damage on another human being for life.

A Whiff of Privatization

Three decades ago, Prime Minister Margaret Thatcher implemented a policy called "privatization" to rejuvenate the moribund economy of the United Kingdom.

Like the United States today, the cost of a too-large government was sapping the vitality of the U.K.'s economy. The private sector was staggering under the heavy tax burden needed to fund the public sector. In fact, despite very high tax rates, taxation could not keep up with government spending, so the Bank of England (the U.K.'s central bank) created more money (what we euphemistically call "quantitative easing" today) to make up the difference.

Prime Minister Thatcher's solution to this untenable situation was brilliant and elegantly simple: She decided to divest the government of its nationalized businesses by selling them to private investors - i.e., privatization. This shrank the budget deficit dramatically, first, by shrinking expenditures, since the government would no longer have to fund those businesses, and second, by increasing revenue. Revenue was increased both immediately, via the price paid by private investors for government assets, and on an ongoing basis, as private firms and their employees became net taxpayers.

A whiff of privatization is in the air here in the United States, and at the federal level. (Privatization has been widely practiced by American states and local governments during the past two decades.) A bill called the Civilian Property Realignment Act (H.R. 1734) is "in play" in the House of Representatives. Its objective, according to Congressman Mike Kelly's press release, is to

. . . save billions of taxpayer dollars by selling or redeveloping high value federal properties, consolidating federal space, maximizing the utilization rates of space, and streamlining the disposal of unneeded assets. . . . If passed into law, the Office of Management and Budget (OMB) estimates that H.R. 1734 could generate $15 billion in revenue from property sales, in addition to the billions more generated from future cost avoidance from simply owning less property.

Given the federal government's gargantuan debt and deficits, H.R. 1734 should be a no-brainer, a slam-dunk. One would expect any member of Congress who professes any concern for fiscal responsibility to vote for this bill. Nevertheless, the bill is flawed.

Selling properties outright is a great idea, but is "redeveloping . . . properties and consolidating . . . space" a great idea? Sorry, but I have no confidence in Washington's ability to manage resources efficiently. Just sell the stuff and let private-sector experts in property management figure out how to make economic use of those properties.

Hopefully, H.R. 1734 would be a first step in a much larger privatization process. While the United States doesn't have a large inventory of nationalized industries to privatize like the U.K. did in the 1980s, there are many assets that Uncle Sam could sell to the private sector to start reducing the national debt.

First, Uncle Sam could divest itself of vast swaths of federally owned land. Surely, the government needs nowhere near the 30 percent of our national territory that it owns.

Second, privatize AmTrak; privatize the Post Office and rescind its monopoly privilege; and completely privatize government-sponsored enterprises, so the taxpayer doesn't get stuck with any more Fannies and Freddies.

Third, privatize the Government Printing Office and any other federal agency or office that unfairly competes with unsubsidized private companies.

Fourth, privatize any government activity that profits private businesses: energy research, the Export-Import Bank, the advertising programs in the Department of Commerce, etc. At a time when many large American corporations are sitting on record amounts of cash, we don't need to increase the national debt to subsidize them.

Fifth, whether you can find a bidder or not, quit funding the PR and grant-bestowing desks in federal agencies. Their main function often is to use our tax dollars to promote their own expansion. If federal employees want to toot their own horn or give money to non-profits who will do their lobbying for them, let them do it on their dollar, not ours.

Finally, don't waste time trying to reform bureaucracies or make them more efficient. Only the profit-and-loss calculus in competitive markets can do that. Put any federal agency on the block if it is performing a function that conceivably could earn a profit, and sell it to the highest bidder. (If there are no bidders, you're looking at an economically unviable operation, so axe it - unless our lives depend on it.) If an agency isn't fulfilling its purpose, and its primary function seems to be to provide well-paying jobs to otherwise unemployable holders of undergraduate and law degrees, then just pull the plug and abolish it.

Let's hope that the whiff of privatization leads to far more than selling a few unused properties, and that there's real movement toward shrinking the federal government by privatizing many of its properties and activities.

The Tax Rate Scandal

When Republican presidential candidate Mitt Romney casually estimated that his effective tax rate is around 15 percent, progressives immediately pounced on the issue. To this ideological minority with its Ahab-like obsession on class warfare, a rich American paying an effective tax rate of "only" 15 percent is, a priori, a scandal of the first order.

Yes, this story is a scandal (actually, a series of scandals) but not the one that progressives think it is.

It is scandalous that so many journalists and commentators have gotten their basic facts wrong. They have conflated average "effective" tax rates with statutory rates. Under our complex and convoluted tax code, no American pays an effective rate that is as high as his top marginal rate (the statutory rate on the last dollar of income). As it turns out, Romney's effective tax rate of 15 percent is higher than the effective tax rate of approximately 97 percent of taxpayers.

An even greater scandal is that Romney's tax rate is as high as it is. Most of Romney's income comes from his investments, i.e., from capital. Of course, those still influenced by the defunct labor theory of value and Marxian class envy think that taxing capital makes sense. They deride investment income as "unearned" income, as if capital doesn't contribute anything of value to economic production, when, in fact, we owe our wealth almost entirely to capital.

Capital, far from being the cruel exploiter of labor, is labor's major benefactor. Human labor and natural resources are found around the world, but the rich countries are the ones in which the productivity of human labor (and therefore wages and standards of living) have been multiplied by capital.

Americans' relatively high standard of living exists because, according to the opponents of capitalism, greedy capitalists have "exploited" us more than people in poor countries. Well, we should be thankful for this type of so-called "exploitation." Taxing capital diminishes its supply, thereby crimping labor's productivity and lowering workers' standards of living. Any tax on capital above zero percent is scandalously stupid and perversely anti-labor.

A third scandalous aspect of the Romney tax-rate story is that the very people making the tired, tedious complaints that America's income tax code is "unfair" are those who are primarily responsible for the unfairness. Fairness, or justice, means equal treatment before the law. In taxation, that presents two options: Either tax everyone the same amount or tax everyone at the same percentage rate. There is no principle that defines the "right" degree of progressivity in tax rates; such rates are essentially arbitrary, determined by who holds political power - a "might makes right" calculus devoid of ethical content.

Finally, the most egregious scandal in the story about Mitt Romney's tax rate is that the discussion about taxation is distracting us from what is, by far, the major problem our elected officials in Washington need to address: out-of-control federal spending. Granted, a flat tax, if not a consumption tax, would be a huge improvement over the current monstrosity that is our 72,000-plus-page tax code. However, we can survive our flawed tax code for decades, whereas runaway federal spending threatens our country's financial viability in the short run.

Uncle Sam is racing toward a fiscal train wreck that requires a massive cutback of the 75-percent increase in federal spending that has been added over the past dozen years, but neither party is talking along those lines. The Republicans are willing to trim around the edges, whereas the Democrats are digging in their heels against even those token cuts.

Here's an experiment you can try: Ask any candidate running for federal office this year how he or she would cut $1 trillion in spending. They won't have a clue. That's the real scandal of Election Year 2012. *

Read 1543 times Last modified on Saturday, 05 December 2015 10:55
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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