Natural Liberty…?

“The liberty of man consists solely in this, that he obeys the laws of nature because he has himself recognized them as such, & not because they have been imposed upon him externally by any foreign will whatsoever, human or divine, collective or individual.”
~Mikhail Bakunin~

Wasted Welfare Spending: Nationalized Charity Fails to Serve the Poor

The American “welfare state” offers what must be one of the most spectacular failures of government redistribution programs to provide assistance to poor & needy people. Judging from official data, more government spending has brought an increase in the number & proportion of people living below the poverty line.

In 1970, the percentage of families below the poverty line was 10.9%. But in 2011, there were 16.8 million US households with incomes below the poverty line or about 14.6% of total households.

This suggests either massive ineptitude or wanton corruption since federal government spending on means-tested welfare programs for that year was $746 billion or $44,405 for family below the poverty line. With so much money being thrown around, how could anyone in America be considered to be poor.

This amount includes federal government means-tested programs but not Social Security & Medicare or veterans benefits or spending by state or local government that targets needy people.

It looks worse when adding in the $166 billion spent by state & local governments for Medicaid in 2011 so that an average of $54,286 was spent for each family with income below the poverty threshold.

There are problems with measuring poverty. First, it is usually defined in terms of income. A better indicator, thought more difficult to measure, is consumption.

Second, the notion of “relative” poverty is conflated with “absolute” poverty. As it is, the “poor” in America are rich by global standards.

The typical poor household in US owns a car & has air conditioning, 2 color televisions with cable or satellite, DVD player & VCR. They also have a refrigerator, oven stove as well as a microwave, clothes washer, clothes dryer, ceiling fans, a cordless phone & coffee maker.

Part of the problem is that nationalizing the provision of charity creates perverse incentives for poor people to remain indigent as a condition of receiving so much largess. In breaking the interpersonal link that exists with private charities, recipients feel entitled to demand more. Although bureaucratic “benefactors” face weak budget constraints so that they tend to bend rules for eligibility, their commitment is more impersonal since they work from 9-to-5. By contrast, private charities face tight budget constraints yet are more likely to engage recipients on a personal basis.

Before Bismarck introduced the concept of the modern welfare state, assistance depended upon private efforts of religious institutions or neighbors or family members or philanthropic organizations. While no system is ever perfect, there is no historical evidence that private charities were less effective than state-run charity.

Government Policies Cause Shortages in Aftermath of SuperStorm Sandy

Shortages are almost never the outcome of market processes.

As such, prolonged shortages are almost always the outcome of a flawed public policy intervention.

Consider the shortages of gasoline in the areas affected by SuperStorm Sandy.

For example, laws against “price gouging” inhibit gasoline stations from being able to raise prices by a sufficient amount to offset the precautionary purchase of generators to provide power to pump fuel from their storage tanks. Being unable to increase their prices sufficiently interferes with the profit motive that would induce them to buy generators.

Another source of the problem is US maritime policy, including the Jones Act that prohibits foreign-flagged vessels from shipping gasoline, diesel & other petroleum products from the Gulf of Mexico to north-eastern ports. This statute dates from the early 20th Century & requires ships be registered in the US, operated by an American company that is managed by & predominantly owned by US citizens with crews that are 50-90% American citizens.

With crew costs the largest single ship-operating cost, the requirement of US crew would put American shippers at a cost disadvantage were it not for the protectionist privileges granted to them. And since ships must be built & repaired in American shipyards that tend to cost at least twice as much as comparable vessels built elsewhere, all Americans must pay more for everything that arrives by ship to the US.

Although there was a temporary suspension of the Jones Act restrictions, the fact is that US citizens are net losers from the granting of special privileges to a particular industry & a small subset of the workforce. While all Americans must either do without or pay higher prices for ALL goods that arrive by ship to US seaports, America’s maritime policy provides large benefits to a relatively small group of workers & industrialists.

Finally, the requirements for the blending of ethanol into US gasoline supplies slowed down the provision of fuels to meet Congressional mandates that were imposed to benefit corporate farming giants like ADM.

Ignoring the need to provide “power to the people”, public policies tend grant privileges to the politically-well-connected.

The best way to end shortages & high prices is to END CORPORATE WELFARE!!!

US Federal Budget Deficit Reveals a Spending Problem; Not a Revenue Problem

Is it really necessary for the US federal government to increase revenues by raising tax rates to balance its budget?

That seems to be the conclusion drawn from information provided in the proposed budget of the Obama administration.

Consider that average federal revenue collections over the 10 years before Obama assumed office was 18.1% of GDP. Under the Obama budget proposal, revenue collections from FY2013 to FY2017 would increase to 18.8% of GDP.

By contrast, federal spending averaged 19.4% of GDP in the 10 years prior to Obama entering office but this ratio rose sharply to an average of 24.4% of GDP.

The Obama budget would purportedly reduce that average to 22.6% over the next 5 years if the accompanying economic growth assumptions hold true. But this is unlikely. Consider that the projection for FY2012 growth was 3.0% real GDP growth & 3.2% for FY2013. It turns out that FY2012 data shows growth of only 2.3%, far below that expected in the Obama budget.

The latest report on the annualized growth rate for US real GDP growth rate put the figure at 2% or about half of the average for economic recoveries after WWII. As it is, this feeble number depended on federal spending growing by 9.6%.

Without a higher rate of economic growth, higher tax rates will not solve the problem of large budget deficits. As long the rate of growth in the size of the public sector exceeds the rate of growth of the private sector, there will be a growing budgetary gap.

Instead of increased tax rates, there must be much greater restraint on government spending combined with policies that create the sort of certainty that will allow higher economic growth rates. For their part, higher tax rate increases will increase the burden on the private and lead to slower economic growth.

Examples of how to control or curb spending might start with some of the entitlement programs. For example, in fiscal year 2010, the Centers for Medicare & Medicaid Services (CMS)–the agency that administers Medicare and Medicaid–estimated that these programs made a total of over $70 billion in improper payments.

How can government officials in good conscience ask for more money from taxpayers when there is such rampant abuse & misuse of funds already in their hands?

Has Economic “Stimulus” Been Counter-Productive in Restoring Growth…?

In a recent WSJ article, Alan Blinder opines that” “When you suffer through the worst recession since the 1930s, healing takes a long time.”

Among his comments is a quote from John Adams, sic, ‘Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”

Indeed, he should have examined the facts. There are many examples in history where deep recessions have been followed by rapid recoveries. Had he reviewed the historical record, he might have been able to understand why the current recovery, that supposedly began in June 2009, has dragged on for so long.

For example, a deep recession began in last half of 1920 when commodity prices fell from an index value of 248 in May 1920 to 141 by next August. Consumer price deflation was highest ever & industrial production fell by 30% & unemployment rate went from under 2% to nearly 12%.

By August 1921, an economic recovery was beginning.

How did this happen?

In those halcyon days before Keynesian theory promoted governments spending their way out of recession, there was NO deficit spending or “stimulus” packages.

The Harding administration CUT federal spending, exclusive of repayments of debt, from just over $6 billion in fiscal 1920 to just over $3 billion in fiscal 1923, a decline of 45%. As such, federal outlays fell from just over 7% of GNP to less than 4% (even as tax revenues declined over the same period).

Perhaps the cause of the sluggish restoration of trend-line growth for the US economy is that “stimulative” economic policies since 2008 have been worse than ineffective, Indeed, it appears that they have been counter-productive.