Sunday, 20 December 2015 08:12

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.

Feeling Good About America on a Chilly Autumn Evening

Don't you love it when something heartwarming happens to you unexpectedly? That happened to me on October 1. My friend Ron invited me to go with him to Cleveland to see the game that night between the Indians and the Minnesota Twins. Neither of us had any connection to either of the teams (I'm a lifelong Tigers fan and Ron is a lifelong Pirates fan) but I had never seen Progressive (formerly Jacobs) Field before, so off we went.

From the moment we left the parking garage and walked a block to the ballpark, I felt comfortable. Usually, cities tense me up, but Cleveland had a small-town "vibe" - calm, safe, and peaceful. As we crossed the street to the stadium, we encountered a large statue of Larry Doby. That was a nostalgic moment for me. Doby was a Cleveland outfielder in the first major league baseball game I ever attended, way back in the 1950s at Briggs (later Tiger) Stadium in Detroit. For the benefit of younger readers who may not recognize his name, Doby is historically significant to major league baseball, because he was the first African-American to play in the American League, just as Jackie Robinson had broken the color barrier in the National League. A seven-time All-Star center fielder and Hall-of-Famer, Doby (along with teammate Satchel Paige) became the first African-American to be a World Series champion when the Indians won in 1954 after Doby led the league in home runs and RBIs.

Snapping out of my nostalgic reverie, my thoughts shifted from past to present as we approached the turnstiles. My first impression: Baseball near the shore of Lake Erie on an October night is a chilly proposition! The cool wind off the lake is impossible to ignore. I can't imagine what it would be like to play a World Series game there in November. Second impression: The people working at Progressive Field were as warm as the air was cold. I have never met people as uniformly friendly as the off-the-field team assembled by the Cleveland Baseball Club.

The security inspectors at the turnstiles were relaxed and affable. They treated us like welcomed guests instead of like cattle. The lady at the hamburger stand must have served thousands of other customers during the season, but she made me feel like I was her first-ever customer. She greeted me with a beaming smile, twinkling eyes, and overflowing kindness. The ushers, too, were helpful, courteous, and friendly. They took a personal interest in us rather than thinking of us as numbers in a crowd.

We had arrived early and soon went to escape the cold in the Terrace Club - an enclosed area - to wait there until the game started. We had already eaten and didn't need a table, so after checking out the Bob Feller exhibit in the waiting area, we were invited my the cheerful hostess to sit in a couple of comfortable chairs.

What happened next touched my heart. Out on the field, a young lady was ready to sing the national anthem. Ron and I rose, and then, almost to my surprise, every single person who was sitting in the restaurant area in front of us, also rose and doffed their caps. They could have stayed seated, being physically removed from the stadium seats by privacy glass, but they didn't. God bless the people of Cleveland! They are true patriots.

For me, the good people we encountered that night at Progressive Field helped forge a bond with the city where my late mom grew up - a great American city with some of the friendliest people I have ever met. For you who have read this, I hope this story will be an encouraging reminder that there are a lot of good people in our country. This everyday goodness, not the evil done by a few warped individuals, is what America is really all about. We have a lot to be proud of and a lot to be grateful for.

Thoughts on Jeb Bush's Tax Plan

[Recently], Jeb Bush explained his proposed plan for tax reform on the Commentary page of The Wall Street Journal. Let's review a few of the proposal's pros and cons.

First, the economic. Pro: Bush proposes lower rates for both personal and corporate income. At a time when an increasing number of American citizens and American corporations are moving abroad so that they can keep more of their income, such a proposal is timely and vital.

Con: The proposal doesn't go as far as Rand Paul's more visionary proposal from early this summer. While Bush's top personal income tax rate would be 28 percent (approximately a 25 percent reduction) and the top corporate rate 20 percent (almost a 50 percent reduction), Sen. Paul boldly proposed a uniform top rate of 14.5 percent (why that oddball number instead of simply 15 percent, I have no idea) for both personal and corporate income. In addition to allowing Americans to keep more of their income, Paul's plan helps to restore the venerable principle of equality before the law by deep-sixing the discriminatory graduated tax scheme that discriminates against Americans by taxing some at higher rates than others.

Second, the political. Pro: By emphasizing growth while Democrats obsess about income distribution and redistribution, Bush is appealing to Americans' inherent optimism and belief in progress and achievement. While progressives sputter in the gloominess of their 16th-century zero-sum worldview, Bush's approach exudes togetherness and inclusiveness. He knows that America and Americans are capable of so much more than the government-induced stagnation of recent years. By calling for three personal income tax rates, with the top one being 28 percent, he clearly is maneuvering to lay claim to the Reagan mantle, since Reagan's last tax reform had only three tax rates with the same top marginal rate of 28 percent.

Con: By structuring his tax proposal so as to identify it with Reagan, Bush may find himself being compared to Reagan on far more issues than he would like. GOP conservatives will want to know if he is a "true Reaganite" or an opportunistic impostor. This could backfire on him. While Rand Paul broke new ground with his tax reform proposal, Bush is tilling old ground, which may raise concerns about whether he has any new ideas to deal with a tired old political status quo. Bush is adopting a centrist or perhaps even moderate position in the Republican field, which could replicate Mitt Romney's failed strategy of not winning over enough of the conservative base of the party.

Third, the timing. Pro: Bush deserves credit for publishing his well-thought-out proposal early in the campaign. It makes him seem proactive instead of reactive.

Con: With the current intense concern about the Iran deal and about the apparent law-breaking of the leading Democratic presidential candidate when she was Secretary of State, Bush's proposal may not have "legs" in terms of media coverage. Here I sympathize with him, because hardly a week goes by without the opposition party awash in some crisis or scandal, so it's unlikely he could find a "quiet" time in the news cycle when he could take front stage.

A few final thoughts in the form of questions: Do Americans today care all that much about tax reform? Have they grown tired of Republicans' almost ritualistic, robotic call for tax cuts while remaining relatively silent about the more important and more needed reform of cutting government spending? Are GOP voters more concerned about foreign affairs, immigration, and a political establishment that disrespects America, traditional American values, and American citizenship than about tax rates? Does Bush really "get it" - the big picture, that is?

Jeb Bush's tax proposal would be a marked improvement over our current tax code. It will be interesting to see if voters in the next election feel passionately enough about the tax code for taxes to be one of 2016's decisive issues.

Hillary Clinton's "New College Compact" Raises an Important Question: Did She Ever Take Econ 101?

Today's version of "a chicken in every pot" is Hillary Clinton's proposed plan to "make college affordable and available to every American." This is political catnip, pure and simple. And it is a more delusory form of catnip than Herbert Hoover's "chicken," for while everybody needs enough to eat, not everybody needs to go to college.

There is today an oversupply of college degrees. A Federal Reserve study found that half of recent graduates were working in jobs that didn't require a college degree or were not employed at all. For Mrs. Clinton to propose spending $350 billion to subsidize college attendance will exacerbate rather than reduce the glut of college-educated Americans. To propose such wastefulness when federal debt already exceeds $18 trillion is fiscally irresponsible and a slap at American taxpayers. It will also increase the number of graduates experiencing disillusionment when they realize the lack of market demand for their degrees.

The increasingly overt socialistic nature of Mrs. Clinton's campaign theme is glaringly evident in her "New College Compact." She laments, "For too long, families have been left to bear the burden of crushing costs" of a college education. Heaven forbid that Americans be expected to pay for what they consume! (A quick "thank you" here to those whose generosity funds academic scholarships to highly qualified and motivated students from poor backgrounds.) Who does Mrs. Clinton think should pay if not the consumer? Her plan explicitly specifies that the federal and state governments (i.e., the taxpayer) should foot the bill at public universities and colleges.

Along with state financing, Hillary Clinton advocates increased state control. She thinks that government should micro-manage post-secondary institutions by telling colleges where they must spend their money (less on administrative expenses), commanding colleges to accept junior college credits (regardless of the four-year colleges' own academic standards), and deciding when to waive accreditation standards.

Clinton's disfavor of the private sector is obvious: She expresses sympathy for students with "an expensive degree from a for-profit institution" only to find that a degree doesn't lead to a job. Why single out graduates of for-profit colleges and universities when the same disappointment befalls many graduates of not-for-profit institutions, too? And why should students who agree to work for government receive earlier cancellation of their debts than private-sector workers? That's a double-whammy on the taxpayer, whose taxes first would subsidize the student's education and then pay the student's salary after college. And why is it necessary for government to make sure that community colleges offer more "two-year degrees and certificate programs that are valued by employers?" Why can't private educational entrepreneurs survey the marketplace to discern what degrees and certificates are valued and then profit by providing them?

As for the horrendous problem of college debt blunting the lives of millions of younger Americans, Clinton doesn't acknowledge that the federal loan program is responsible. If she were not so ideologically averse to the private sector, she might see privatization of the college loan market as the solution. First, though, bankruptcy laws should be revised to include college debt. It is anomalous and unjust to allow mature adults with decades of business experience to erase their debts via bankruptcy if they make a miscalculation, but to deny such mercy and financial relief to young, inexperienced adults. If private lenders issued college loans, and they knew that bankruptcy was an option for young borrowers, then those lenders would calculate that risk. They wouldn't lend tens of thousands of dollars to students floundering for five or six years or students taking courses that have little value to the job marketplace, and so the glut of over-educated/under-employed young people would shrink.

There is one aspect of Clinton's higher education plan that makes some ethical, if not economic, sense. Ethically speaking, it seems unfair for the Fed to have engineered low borrowing costs for Uncle Sam while at the same time not sharing some of its windfall by refinancing student debt at lower rates. (Many students are still paying off loans at seven, eight, or nine percent). Economically speaking, though, Hillary Clinton has no business promising that the federal government "won't profit off student loans." While "profit" apparently is a dirty word to Clinton, any loan program should generate enough interest income to pay for the salaries, offices, etc., of those administering the loan. If the federal college loan program doesn't cover its own costs, then, once again, the long-suffering taxpayer gets stuck with those costs. The economically rational approach is to let the private sector figure out what an economically viable loan market for college education looks like. Economic losses to our society would decline by billions if privatization of student loans supplanted the socialistic status quo.

The New College Compact proposed by Hillary Clinton is economically wasteful central planning, all wrapped up in the beguiling garb of Santa Claus politics. Caveat emptor - Let the buyer (in this case, the American taxpayer and voter) beware. There ain't no such thing as a free lunch.

The "Not Enough Jobs" Scenario: An Economic Fallacy (But Possibly an Accurate Forecast)

Once again, a scholar with impressive credentials is broadcasting the gloomy notion that Americans face a job-poor future. The insufficient-jobs scenario appeared in George Mason University economist Tyler Cowen's book Average Is Over a couple of years ago. It resurfaced again recently in the Pittsburgh Tribune-Review. Vivek Wadhwa, "a fellow . . . director of research . . . and distinguished scholar" at several prestigious universities, wrote that we need "a new version of capitalism" for "dealing with our jobless future."

The crux of Wadhwa's argument is his belief that technological progress will result in a society divided between a technologically savvy elite, who will prosper mightily, and a larger number of Americans whose jobs will be rendered obsolete and won't be able to find new jobs. There's an obvious fallacy here: If technological progress reduces employment opportunities, then why are hundreds of millions of people still working in the technologically and economically advanced countries of the world? What is it with these intellectuals and the recurring nightmare that progress results in a dearth of jobs?

An incident that the late economist Milton Friedman related comes to mind: While visiting a populous but undeveloped Asian country several decades ago, Friedman saw a gang of workers using shovels to excavate a hole where a building's foundation would be laid. Friedman noted that the job would be completed much more quickly if a modern excavating machine were used. His host replied that a deliberate decision had been made not to use such a machine because the government wanted to maximize employment. Friedman's rejoinder was to the effect that if the goal were to maximize employment in the country, they should ban the use of shovels and equip a far larger number of laborers with spoons. It doesn't require great vision to realize that a fully employed nation of spoon-wielding ditch diggers would remain a very poor place.

Can anyone doubt that technological progress has led to economic advancement? The economic principle is elementary: As worker productivity increases (that is, as more wealth is produced from fewer units of labor) prosperity rises, too. When improved agricultural productivity has bankrupted farmers and resulted in our food supply being produced by an ever-smaller percentage of Americans, what has happened to all those ex-farmers? They found employment in new fields, thereby increasing the number and variety of goods and services produced. In other words, more wealth was created, and that is how a society achieves higher standards of living for the masses.

What has just been described is Schumpeter's process of creative destruction. Old jobs that produce things of less value become obsolete and new jobs producing things of higher value take their place. This is the natural evolutionary course of free markets.

Any notion that there is a ceiling to the number of potential jobs ignores an elementary and undeniable economic truth - namely, that there is no limit to the potential number of jobs because there is no limit to mankind's wants. As technology makes it possible to produce what are considered the modern necessities of life (cars and cell phones in addition to the traditional necessities of food, clothing, and shelter) more workers will be available to produce and provide new goods and services that entrepreneurs are dreaming up every day of the year.

Is there anything that can inhibit or halt the natural tendency of entrepreneurs in market economies to generate new job opportunities? Yes, indeed. Government intervention - excessive and costly regulations, wealth-and capital-depleting taxation, misallocation of resources via government spending programs, depreciating currency, etc. - can stifle economic activity, discourage business formation, and cause job opportunities to dry up.

What is scary about Wadhwa's thesis and related plans (such as Hillary Clinton's proposal for government to lay a heavier, more controlling hand on American entrepreneurs and businesses) is that their ill-conceived policies will produce results opposite to what they claim to be seeking. There will be less employment instead of more.

When Wadhwa says we need a new "capitalism" that redistributes more wealth and provides everyone with a taxpayer-supported guaranteed income, he is doing two destructive things: First, he is perpetrating a pernicious lexicographical hoax, proposing a new form of statism that is a repudiation of free markets - that is, anything but "capitalism." A more honest statement would be "It is time to replace capitalism with greater government control of economic activity." The second destructive aspect of his suggestion is his apparent blindness to the fact that maximum economic freedom - true capitalism - is the world's best hope for expanding job opportunities. To jettison capitalism and replace it with a greater degree of statism will impede economic growth, squelch the growth of businesses, and consequently hinder job creation, to the economic detriment of those who are hoping for jobs.

There will be enough jobs for Americans only if the political planners surrender their mad ambition to direct the economy from Washington. *

Read 1254 times Last modified on Sunday, 20 December 2015 14:12
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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