Wednesday, 16 December 2015 11:16

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 & Value, and

Technology May Spur 10+ Career Changes for Today's Youth: Are We Ready?

How fast is technology developing? Raymond Kurzweil describes the pace as "exponential," leading to a "singularity" that will radically transform the human experience.

Robert Stevenson asserts, "The doubling speed of knowledge is now between one and two years." This implies that when this year's incoming college freshmen graduate, knowledge will have quadrupled.

Whatever the actual rate of technological progress (as in economics, whatever we assert about the future can only be educated guesses), it appears certain that we will be inundated with amazing changes and breakthroughs. The accelerating pace of technological innovations raises two vital questions: 1) Do human beings have the moral capacity to use new technologies beneficially or destructively? 2) Do humans have the psychological capacity to "roll with the punches" and adapt to mind-boggling rapid change, or will the pace of change overwhelm our psyches and lead to all sorts of individual and societal traumas?

The first question is perennial - every generation has to make moral choices about the appropriate uses of technology. Technology can be a blessing or a curse. Take handguns, for example. They have been used to kill innocent people. That's bad. But many innocent people have used guns to protect themselves and save the lives of loved ones. That's good.

Similarly, nuclear energy can be used to provide abundant energy or to annihilate populations.

Idealists would like to eliminate technologies that have destructive uses, but technological knowledge is like the proverbial genie that can't be put back into the bottle. And, in such a world it makes a huge difference whether lethal technology is in the hands of the (relatively) "good guys" or "bad guys." Technology, in sum, is neither good nor evil in and of itself, but the choices humans make about how they use technology can be categorized according to their moral content. These thoughts have been brought to the fore in recent months by news stories about lethal drones and NSA data-gathering.

Shortly after reading about mini-drones that will be able to chart a course to a particular individual and kill him, there was a disquieting report that the Obama Administration has sold drone technology to one or more of the Arab mini-states. Perhaps someone will find a way to defend against these personalized messengers of death, but imagine what the world will be like if various would-be tyrants gain access to such technology.

Such a scenario was enough to make me think of the old Star Trek episode, "A Taste of Armageddon." In it, technology had advanced to the point where "kills" were a certainty, so rather than blowing up homes and factories, two warring planets let computer programs identify the "kills" who then went to death chambers where their lives were ended without maiming, pain, suffering or destruction of property. Mini-drones raise the question of the morality of such efficient means of killing one's enemies.

As for the NSA's data gathering, it is indeed a technological marvel that the entire content of the Internet and of telephone conversations can be gathered, and that algorithms can identify networks of terrorists. That sounds good. But how confident can we be that nobody who has access to such information will misuse it? Aye, there's the rub. In the final analysis, a technology is only as "good" as the people who use it.

Even if good retains the upper hand over evil so that technology's potential destructiveness is held in check, what will the accelerating pace of technological change do to our psyches? The futurist Alvin Toffler warned nearly fifty years ago that the pace of change could someday exceed humans' ability to adapt, leading to the collapse of societal institutions.

You're aware, I'm sure, of the estimates that the average young person today may experience ten or more career changes. Might not as-yet unseen technological changes impel even greater economic and societal upheavals and changes? This poses an enormous challenge, because humans are creatures of habit. Businesses desperately cling to familiar but no-longer-competitive modes of operation. Union members use the political process to protect themselves against the threat of change from both domestic and foreign competitors. Most of us prefer stability to unpredictable change. We fear the unknown; yet the unknown is what technological change portends and is thrusting upon us.

So, what kind of a brave, new world are we entering? Rapidly evolving technologies seem certain to unfold new wonders that have the potential to greatly enhance human life. Less certain is whether we humans have the moral and psychological capability of keeping up with the pace of technological change.

Smarter Government Might Be President Obama's Most Vacuous Banality Yet

We have a president who specializes in banal slogans and fatuous cliches, yet his July 8 call for "smarter government" has to rank as one of his most vacuous banalities yet. Adding exquisite irony to the occasion, Barack Obama had Joe Biden stand next to him as he droned on about government needing to be smarter. There is less substance to this lame suggestion than meets the eye.

There was additional irony in hearing a president who favors Big Government and has noticeably expanded the size and power of government to openly acknowledge what millions of us in the private sector already knew - namely, that the federal leviathan is chronically inefficient and embarrassingly incompetent. Further, his comments invite the question: Why, Mr. President, have you waited until the fifth year of your presidency to address this problem? Didn't you think government needed to function more intelligently and effectively during the years of economic sluggishness over which you have presided?

There is also something pathetically immature about Obama calling for smarter government. Millions of college undergraduates experience the heady, intoxicating brew of the delusion that they, unlike their predecessors, are the first ones both to care deeply about our society's problems and to know how to fix them. Obama gives the impression that he is the first of our 44 presidents to recognize the need for "smarter" government. It's too bad that he doesn't have a clue what "smarter government" is.

Undoubtedly, there are technologies and procedures that can be adapted from the private sector to the government, but the stubborn fact remains that government will never - indeed, can never - operate as efficiently as private firms. As I wrote earlier this year, the Pentagon is inefficient, not because it was tasked with national defense (with mission creep having expanded the sense of what "national defense" includes) but because it is a bureaucracy. As Ludwig von Mises explained in his book, Bureaucracy, the profit-and-loss calculus that impels efficiencies in the private sector is irretrievably absent from bureaucracies.

Actually, Mr. Obama isn't giving federal bureaucrats enough credit for behaving smartly. If he knew anything about public choice theory, he would realize that many of the decisions made by bureaucrats, though they might not make sense economically to a disinterested observer, make perfect sense from the perspective of bureaucrats and the incentives they face. And consider the incentives acting upon Congress. When a federal bureaucracy, such as FEMA, is perceived as performing poorly, as was the case after Hurricane Katrina, public pressure builds on Congress to keep that from happening again. In the private sector, an underperforming insurance company will lose customers, revenues, and profits, and may even go out of business, whereas the common response to poor performance in the public area is for Congress to increase appropriations so that the bureau can add employees and spend more money.

When Obama talks about "smarter government," what he really means is that he wants government to do more to implement his personal, partisan, and political objectives. Listen to his hectoring State of the Union addresses, and you hear the conceit of the central planner. Obama acts as though he knows what the country needs, and so he supports green energy boondoggles and electric cars, strives to channel more federal dollars to unions and other political allies, and desires to be the architect of a more "just" redistribution of the country's wealth.

All that being said, like Obama, I also want smarter government. Unlike Obama, though, I believe (along with Thoreau, Jefferson, Emerson, and other eminent Americans in our past) that smarter government is smaller government - "that government is best which governs least." Indeed, some of the great economic growth spurts in American history occurred during periods in which the federal government was shrinking (e.g., 1866-1895; the Roaring Twenties, the late 1940s). Study after study and country after country have shown that smaller government is smarter government.

Yes, we need smarter government in Washington. It won't happen, though, as long as Barack Obama is president. The first step toward smarter government is for Americans to become smarter voters.

Ben Bernanke: "The Greatest Central Banker in U.S. History"?

During my vacation travels, I spotted Mortimer Zuckerman's enthusiastic paean to Federal Reserve Chairman Ben Bernanke in the July 26 Wall Street Journal. In his article, Zuckerman lamented President Obama's "shabby treatment" and "mean-spirited" dismissal of "the greatest central banker in American history," "the man who saved the economy" through his "heroic effort" and "imaginative . . . procedures" in the aftermath of the 2008 financial crisis.

Whoa, Mort, slow down! I'll grant you that the way Obama let it be known that he has no use for Bernanke was tawdry, but what do you expect from this most ungracious of presidents? As a central banker, though, Bernanke's performance deserves little praise. Let's review a few of the ways that Zuckerman is mistaken about Bernanke.

First, did Bernanke pull "the country - and ultimately the world economy - back from the abyss"? I assume Zuckerman means that without a massive expansion of the Fed's balance sheet, there would have been a catastrophic deflation triggering a second Great Depression. Perhaps, but there are two flaws with this widely held belief: 1) Deflation need not be catastrophic. The Friedmanite/Keynesian dogma that the Great Depression was caused primarily by a sharp contraction of the money supply ignores what happened during the sharp-but-brief depression of 1920-21. The money supply contracted just as severely then as it did in the early 1930s, but the economy quickly rebounded - not because of Fed intervention, but because government got out of the way (lower taxes and spending) and let markets work as flexible prices and wages adjusted to new equilibriums. 2) By preventing the liquidation of debt and mal-investments, the Fed has contributed to the sluggishness of the Obama era economy and has merely postponed those inevitable corrections, i.e., (as has been said ad nauseam) "kicked the can down the road."

Second, through its unwise interventions, Bernanke's Fed has painted itself into a corner. What Zuckerman praised as Bernanke's "untested [and perhaps extralegal] emergency funding procedures" has turned the central bank into the world's largest repository of financial detritus. The Fed has become a "bad bank" - a garbage dump, by virtue of lending "more than a trillion (newly created) dollars (to]) troubled (i.e., over-leveraged, reckless, and often unidentified) financial firms" and buying distressed (i.e., nearly worthless) mortgage assets" and no-bid "debt from industrial corporations such as General Electric GE -0.04 percent." The Fed will never be able to find buyers for much of the garbage paper it has bought, and what it is able to unload will surely be sold at a significant discount to opportunistic and well-connected financial giants.

Third, Bernanke's series of Quantitative Easing policies are predicated on a fallacy. The notion of continuing to purchase federal debt until unemployment falls to a certain level is little more than the discredited "Phillips curve" - the theory that monetary inflation leads to lower unemployment, which the stagflation of the 1970s blew to smithereens. The simple economic truth that Bernanke and the public policy establishment willfully ignore is that unemployment is a cost phenomenon. (If it were a monetary phenomenon, then there wouldn't be an unemployment problem in any country with a central bank, because the bank would merrily create money and credit until everyone who wanted a job had one.) Our unemployment has remained stubbornly high not because of monetary policy, but because of a widespread mispricing of labor due to various combinations of the wages, benefits, inflexible contracts, tax and regulatory costs of labor.

Fourth, Bernanke's policies have been both unfair and economically harmful to the American people. In the private sector, by selectively assisting certain corporate entities, particularly on Wall Street, Bernanke has exercised the kind of power that Obama likes - i.e., picking economic winners. (Indeed, Zuckerman enthusiastically approves of Bernanke having "transformed the Fed" into "an active market participant" that has abandoned any pretense of impartiality, but millions of Americans regard this as blatantly unfair.) Bernanke's bailouts have increased moral hazard by rescuing and propping up zombie firms guilty of misfeasance and malfeasance.

In the public sector, Bernanke has been the essential enabler of the unconscionable deficit spending of recent years. If it were not for his creation of fiat credit via QE interventions, the federal spending surge of recent years would have pushed the market price of interest to balloon rather than collapse. That would have caused the annual carrying costs of the federal debt to soar, which, in turn, would have made it much harder for Congress and the president to spend so much. Bernanke's massive purchases of federal debt have hurt the American people by adding to Washington's power to transferring additional control of real wealth.

Fifth, where Zuckerman applauds Bernanke for "manipulating prices and forcing interest rates down to virtually zero," this policy deserves our strongest condemnation. Interest rates perform the vital functions of rationally pricing capital and helping to coordinate production between the present and the future. By sabotaging this market, Bernanke has been wreaking havoc with entrepreneurial and business decisions, penalizing savers, and sowing the seeds of future economic problems resulting from the as-yet unseen mal-investments produced by his artificially low interest rates.

Far from being "the greatest central banker in American history," Ben Bernanke has misdiagnosed our economic problems, undermined the soundness and respectability of the Fed, trampled on the principles of justice, and undermined the naturally self-correcting functions of free markets. In some ways, he is a tragic figure, at once both immensely powerful and totally powerless. On the one hand, his words move financial markets. Earlier this year, a statistician reported an astounding .85 correlation between the QE programs and stock market performance showing that the bull market has been the product of Bernanke's interventions. On the other hand, Bernanke seems to sense that QE can't continue forever, but he is reluctant to stop QE, because once he does, the economy is likely to head south in a hurry.

If there is one thing for which we can thank Ben Bernanke, it is that his policies should prove once and for all that central banks can't produce economic growth. They can, however, undermine prosperity.

Your Nosebleed Student Loan Debt Pays the Tuition of the Classmate Next to You

Last year I wrote about some of the myths surrounding higher education in the U.S. You also have to beware of colleges acting to redistribute wealth.

Following is an anecdote with which I am intimately acquainted: In the mid-1990s, there was a family (a white family which you will see is a significant detail) whose daughter had a sterling high school record that guaranteed her acceptance at all but the very top colleges in the country. This girl had everything - a nearly perfect grade point average and strong SAT scores, leadership and citizenship awards, three MVP awards in two different sports, and also additional extracurricular activities in school and community service outside of school.

One college that accepted this girl had annual fees of over $25,000 (more than twice that today, which shows how rapidly college costs have increased). The girl's family had only a few thousand dollars of discretionary income after the unavoidable expenses of mortgages, taxes, insurance, food, transportation, etc. Surely that thriving, well-endowed college would offer such a well-rounded student some financial aid, right?

Nope. Not a penny. The college's financial aid office was committed to increasing educational opportunities for minorities by giving them nearly full scholarships. Essentially, white kids, even ones like this girl with the exceptional range of accomplishments, were expected to subsidize the education of other, often less-qualified, students.

While offended by the college's plan to redistribute wealth racially, this was a private college. The family felt that the college had a right to practice social engineering if it wanted to. The family, though, wasn't going to go into debt to pay for this plan, so the daughter went elsewhere for her highly successful collegiate career.

The issue of colleges redistributing wealth becomes more problematical when it happens at state-subsidized schools. Recently, the Oregon legislature approved a plan that redistributes wealth (although, to their credit, not along racial lines). The Oregon plan will let students attend Oregon's state universities at reduced expense, repaying the state of Oregon after they graduate. Repayments will be a certain percentage of their income. In other words, graduates who earn higher incomes will pay more for their college education than those will lower incomes. This plan passed both the Oregon House and Senate unanimously - a costly mistake.

In fiscal terms, during an era of stressed state budgets, it would have made more sense to reduce the taxpayer subsidy to state universities (i.e., state expenditures) rather than current tuition receipts (state revenues). Budget cuts would have induced university administrators to prune courses that make no economic sense and end up wasting taxpayer dollars.

From a fairness point of view, the Oregon plan is yet another scheme to redistribute wealth from the more productive members of society to the less productive. Why should those students who, while in college, do the extra work necessary to eventually gain employment in demanding fields such as engineering and science be expected to shoulder, through a lengthy stretch of their work lives, a portion of the cost of the instruction received by students in less demanding and less remunerative majors?

In the Oregon plan, we once again see the ugly head of moral hazard rear itself. By reducing the economic penalty for poor decisions in choosing what classes to take, the state is increasing the incentive for students to waste time and postpone a profitable start to their careers.

Did it not occur to conservative legislators (if, in fact, there are any left in Oregon) that they have voted to subsidize less marketable majors in the soft disciplines-those often saturated with statist opinions and fuzzy ideological causes such as "social justice?" Thus, they have made the self-defeating blunder of helping to fund the propagation of worthless and pernicious leftist ideologies that already has done so much to undermine the principles and practice of individual liberty and impartial rule of law in this country.

Consumers are increasingly questioning the value of college degrees. The market for exotic, esoteric, feel-good "blow" courses is shrinking. This is the natural, logical course of events, but the Oregon legislature ignored that trend and instead voted to spend precious resources to subsidize the increasingly uneconomic status quo in higher education.

Both private and public colleges and universities have become active in wealth redistribution practices. If you don't want to support such an agenda, you should find out if your kids' prospective college is engaging in it before selecting that college. *

Read 1830 times Last modified on Wednesday, 16 December 2015 17:16
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

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