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RealClearPolitics - Articles - John Stossel

Last Build Date: Wed, 08 Apr 2009 00:30:00 -0600

Copyright: Copyright 2009

The Universal Pre-K Scam

Wed, 08 Apr 2009 00:30:00 -0600

Mia Levi has. She told me, "This whole thing is a scam."

Levi runs six preschools. I thought she'd favor the program, since she'd collect easy money from the government.

"I don't want to have to answer to the government," she said in my ABC special "Bailouts and Bull". "Our programs are so far superior."

Universal pre-K would create a single standard for preschools, but why is that a good thing? Why should we think there is one way to do preschool and that government experts know what it is? President Obama doesn't acknowledge what Nobel economist F. A. Hayek taught us: Competition is a discovery process.

Levi has to work hard to improve her schools because she knows that, unlike with government services, parents have options.

"If we didn't do our job, families would go down the street to the next school. Public schools aren't doing their job, and they get to just keep opening their doors. To say that they are the ones to define ... quality is laughable."

As she says, the pre-K movement has the whiff of scam about it. Most American kids already attend preschool. Parents pay for it themselves, and those who can't afford it can get government subsidies or use free programs like Head Start. But under universal pre-K, taxpayers would pay for every child.

"It's a flagrant waste of money," Levi said. "It's as if I went shopping for myself because I needed a dress for a party and I bought a dress for everybody else whether they needed it or not."

But we keep hearing that investment in pre-K will pay off later. Obama says, "For every dollar we invest in these programs, we get nearly $10 back in reduced welfare rolls, fewer health costs and less crime."

Those glowing statistics come from tiny studies (58 children) of places like Michigan's Perry Preschool. But those low-income, low-IQ kids got much more than preschool, including after-school tutoring, and their moms and dads got parenting classes.

Lisa Snell, education director of the Reason Foundation, says you can't expect similar results with middle- and higher income children.

In addition, lots of studies say the preschool effect fades. Head Start is revered for raising test scores, but studies show that by grades 3 or 4 those gains vanish.

"They can't tell the difference between the kids that went to Head Start and the kids who didn't," Snell says. "When they compared them to the kids that are disadvantaged that didn't go to Head Start, they can't tell from their test scores which kids had the treatment of Head Start."

There's still another flaw in the program. Some studies have found that too much school may lead to disruptive and aggressive behavior. Libby Doggett, who leads one of the biggest pre-K advocacy groups, concedes that, but claims that "high-quality" government programs benefit children. She said Oklahoma and Georgia have them already.

But those states, despite spending billions of tax dollars on preschool for the past 10 years, have not shown impressive results. Oklahoma's students lost ground to kids from other states.

Doggett replied: "We don't want to just focus on IQ scores. We want to look at how children are doing in their social and emotional, their non-cognitive development."

Please. When the huge government program fails to raise scores, the central planners promise it will help the kids socially?

Give me a break.

Sell the Roads!

Wed, 01 Apr 2009 00:20:00 -0600

It's happening. Private road builders are doing it. They built a double-decker underground highway in Paris. A 45-minute trip now takes 10 minutes. Three hundred-fifty cameras watch for traffic delays or accidents. Once the camera detects a problem, a crew rushes to tow the obstacle away so traffic keeps moving.

They did a similar thing in California, too, on Highway 91. Instead of building a brand-new road, a private developer added two lanes in the median strip of an existing highway. The beauty of it: Unlike government work, the private highway is all voluntary. No driver or taxpayer was forced to pay for the extra lanes. Drivers can choose to use them or not. Those who want to go faster have to pay a toll -- from a buck fifty to $9 -- depending on traffic. By paying you save time. And for some people, time is money.

The success of private roads made politicians from other states want to try leasing roads. Mayor Richard Daley did it with the Chicago Skyway. Indiana Gov. Mitch Daniels leased the Indiana toll road to a private company.

"We received $4 billion, free and clear, no taxes, no debt left to our kids," Daniels told me for my ABC special "Bailouts and Bull".

But many people are horrified by the idea of leasing roads to businesses. When Florida considered leasing Alligator Alley, the highway that spans Florida from east to west, people held protests and screamed about the evil of corporate profit. Politicians shelved the idea.

The governor of New Jersey gave up, too. A private highway is dying in Pennsylvania and dead in Texas.

"Privatizing existing taxpayer infrastructure is not a solution for anybody," Congressman Peter DeFazio of Oregon told me.

He also says that what Gov. Daniels did is wrong.

Daniels made money for the taxpayer. What's wrong with that? I asked DeFazio.

"Money that the people of Indiana could have had in the future is going to go to a private company."

"What money?" Daniels asks. "The toll road was losing money!"

If Indiana couldn't make money running the toll road, how can a private company do it?

"Your first insurance that they're going to run a better road than the politicians did is, if they don't, people won't drive on it, and they'll lose a lot of money. They have every incentive to make traffic flow swiftly, to make that drive as pleasant and safe as possible."

Private owners also have an incentive to maintain the road. Bureaucracies let the highways decay. Why did it take a recession to get them thinking about repairs?

DeFazio disagrees: "If you have toll roads, the toll authority, if properly run, can meet all of those requirements."

But do they?

"I can't account for the crummy government in Indiana or Pennsylvania. They could run them better. They could run them just as well as the private sector because the private sector runs it well and makes a profit."

But that's exactly the point! Profit management beats government management every time.

"When government runs things, it's a monopoly, and it has no competition, and there's no upside to doing a lot better job," Daniels says. "That's why we didn't have, until this new situation, electronic tolling. People were still stopping, chucking quarters into baskets. Politicians never run things well."

Why then do some congressman say you shouldn't sell public highways? Gov. Daniels has an answer:

"There are people, frankly, in Congress, who can't abide the thought that you might be able to pay for something without going down there and kissing their ring for the money."

The War on Drugs Is Idiotic

Thu, 26 Mar 2009 00:30:00 -0600

The federal Drug Enforcement Administration (DEA) seized 30 pounds of marijuana. Sheriff Pat Hedges said the facts were clear, "Charlie Lynch was making a profit off of selling marijuana." It wasn't hard for the authorities to locate Lynch's marijuana operation. They were probably tipped off by the public ribbon-cutting ceremony Lynch held -- the one that the mayor of his town attended, along with city councilmen and the president of the Chamber of Commerce. The police were invited, too. You see, Lynch sold medical marijuana, which has been declared legal by California and 12 other states. California says if a doctor recommends that you use the drug, it's perfectly legal. Singer Melissa Etheridge is happy about that. When she got breast cancer, chemotherapy took her hair and made her sick. She told me that chemo kills more than cancer. "It's like putting acid in your body. You have absolutely no strength." The pills to treat the side effects have their own side effects. She said, "Take the one drug for pain. It makes you constipated. So then you have to take the drug that helps you not be constipated. But that drug [gives you] diarrhea, and so you have to take another drug to combat the side effects of that." So her doctor recommended marijuana. "I had a choice: those drugs and all these side effects, or ... one remedy that takes care of all of the [side effects]." It worked for high school student Owen Beck, too. "I was playing soccer, and [my leg] was really hurting one day. ... I went and got an MRI. It was a medium-sized tumor." Doctors amputated Owen's leg and gave him chemotherapy. Chemo tortured him the way it tortured Etheridge. "It destroys your appetite, and whatever you can eat, you throw up." When prescribed medicine didn't relieve the side effects, his doctors suggested medical marijuana. "With the marijuana, I could do what I needed to do during the day and just not be in pain. I could be comfortable." Owen bought his marijuana from Charlie Lynch's dispensary. Sheriff Hedges says that Lynch's business "is not in the best interests of the community." He was helping people, wasn't he? I asked Hedges. "Well, you're making an assumption that he's helping people. He was primarily helping himself." The sheriff's office's staked out Charlie's dispensary and sent in undercover agents to see if Charlie was breaking any part of California's law. He wasn't. So after a year of diligently documenting that marijuana was indeed being sold by a marijuana dispensary, the sheriff handed the case over to the federal police, the DEA. U.S. law ludicrously calls marijuana a schedule 1 narcotic. That puts it in the same category as heroin. Federal authorities cleverly avoided California's state courts and took Charlie into federal court, where his lawyers were not even allowed to tell the jury that medical marijuana is legal in California. Not surprisingly, Charlie was convicted. Possible sentence: 100 years in federal prison. He told me his life has been destroyed. He is bankrupt; his girlfriend left him; and friends are afraid to talk to him. President Obama has joked about his own marijuana use, but since his inauguration, federal police have raided five marijuana dispensaries in states where state law permits them. Last week, however, the administration announced it would no longer raid legal dispensaries. That bought Charlie Lynch some time. This week the federal judge postponed sentencing -- pending more information about the Justice Department's new policy. The feds still wanted to lock up Charlie Lynch. I don't know why. The DEA refuses to talk to me about it. The war on drugs is idiotic. It deters few, drives drug use underground -- making it more d[...]

Making It

Wed, 18 Mar 2009 00:00:00 -0600

And author Barbara Ehrenreich won fame by claiming that it's almost impossible for an entry-level worker to make it in America. She wrote "Nickel and Dimed," a book that describes her failure to "make it" working in entry-level jobs. Her book is now required reading in thousands of high schools and colleges. I spoke to her for my ABC special "Bailouts, Big Spending and Bull". "I worked as a waitress and an aide in a nursing home and a cleaning lady and a Wal-Mart associate. And that didn't do it." If you do a good job, can't you move up? "That's not easy. Wal-Mart capped the maximum you can ever make." But if you do a good job, you could be promoted to assistant manager, store manager. "Well, I suppose." I pointed out that the new CEO of Wal-Mart, Mike Duke, started out as an hourly worker. "There are always exceptions," she said. "My father worked his way up and became a corporate executive. But that was a one-in-a-million situation." Oh, yeah? "I read 'Nickel and Dimed,'" Adam Shepard told me. He was assigned her book in college and decided to test Ehrenreich's claim. He picked a city out of a hat, Charleston, S.C., and showed up there with $25. He didn't tell anyone about his college degree. He soon got an $8/hour job working for a moving company. He kept at it. Within a year, he told me, "I have got $5,500 and a car. I have got a furnished apartment." Adam writes about his search for the American Dream in "Scratch Beginnings". It's a very different book from "Nickel and Dimed." "If you want to fail, go for it, " he said. Barbara Ehrenreich wanted to fail? "Absolutely, I think she wanted to fail -- and write the book about it. I asked him for evidence. "She is spending $40 on pants. She is staying in hotels. I made sacrifices so that I could succeed. She didn't make any sacrifices." I asked Ehrenreich: Why can he do it, when you couldn't? "I know, it's embarrassing." Were you trying to fail? "I think that is so unfair. The $40 pants, that was a big mistake, and that was one mistake I made early on. The motels, that's not a rich person option." You could have succeeded if you'd gotten a roommate. "In time, yes, I could have gotten roommates." You're saying you can't make it in America in these jobs. And you can. "I said, here's what my experience was." Her account of her experience is a very misleading portrait of opportunity in America. American Enterprise Institute president Arthur Brooks points out, "From 1950 to 2007, middle-class family income went up, in real dollars, adjusted for inflation, from $29,000 a year to $75,000." Of course now we're in the midst of a recession. Millions have lost jobs. "We can't make light of that. But we have to keep this in perspective. We've had worse recessions." Perspective is right. "Middle-class people today live like rich people lived in the 1950s." "We've always said, 'But in the old days things were better,'" Brooks notes. "They said that in the 1920s. They said that in the 1950s, and we say it again today. It's not that we have less money. It's that our expectations have risen." Lately, fear has risen, as the economy has fallen. But economies do recover. "We have a society that rewards hard work and merit," Brooks adds. "Half of the poor actually are not poor 10 years later. Nobody is stuck where they start out."[...]

The Fatal Conceit

Wed, 11 Mar 2009 00:20:00 -0600

If someone expresses skepticism, Obama and other political leaders suggest that economists are unanimous in believing that government spending is the only answer. "We have a consensus that we need a big stimulus package that will jolt the economy back into shape," Obama said. House Majority Leader Steny Hoyer agreed: "Every economist from right to left, Republican, Democrat, advises that it has to be a very substantial package." It's a lie. There was no consensus. (Anyway, a consensus doesn't mean something is true.) Finding an economist who opposed government spending as a way to fix the economy was easy. More than 350 signed a petition opposing the bill. You can hear some of them on "20/20" this Friday at 10 p.m. "How is it the government is going to be able to spend a dollar in such a way that it generates a dollar or more in value?" asked George Mason University economist Peter Leeson. "A more likely possibility is that a dollar that government takes out of the private sector is a dollar the private sector doesn't have to spend." Leeson is referring to the "broken-window" fallacy, which comes from Frederic Bastiat's story about a boy who throws a rock through a shop window. Since the shopkeeper has to buy a new window, some believe the mischief will actually stimulate the local economy. The fallacy lies in overlooking that the shopkeeper would have spent the money some other way if he didn't have to replace the window. Every penny the government spends will first have to be borrowed from someone in the economy. So where's the stimulus? It's also quite a conceit to believe that a few men in power are smart enough to know precisely how to spend trillions of your dollars. "They're exploiting a minor correction in the economy. ... Markets go through corrections all the time," Lydia Ortega of San Jose State University told me. I pointed out that people say this correction is worse -- maybe like the Depression. "But markets need to go through this correction," she said. "What's happening now, what's making it worse, is that people don't know what's going to happen. There's so much uncertainty generated by the government spending." The more the government does, the more private investors wait. "Part of the reason that people aren't spending is they don't know what these characters in Washington are going to do," says Howard Baetjer of Towson University. "Japan tried six spending packages in the early 1990s. The result? A decade of lost growth," points out Ben Powell of Suffolk University. "It's the government's own policies that contributed to the bubble. The government's not the answer to it." I wanted to ask the bailout's big boosters about that. Two agreed to talk, Maxine Waters of the House Finance Committee and Majority Leader Hoyer. Hoyer conceded that he "overstated the case" when he said every economist endorsed government action. Wasn't the bubble caused by too much debt? I asked. "No doubt about it." So the answer is more debt? "Most economists believe that's the case." This stimulus spending is this going to work? "I hope so." Might it cause hyperinflation? "We hope it doesn't. " Well, that's comforting. "Government can't sit and just twiddle its fingers," Rep. Waters told me. "We have got to interject money into these banks and these systems that help this economy work." How are you going to pay for it? "We have borrowed money before. We continue to borrow money, but we pay it back." She left a few things out. Debt means interest payments and higher taxes in the future. It also means inflation when the Fed prints money to redu[...]

Obama the Efficient Goes to Washington

Wed, 04 Mar 2009 00:00:00 -0600

And he's making progress. "[W]e have already identified $2 trillion in savings over the next decade." How will he do it? Here's an example: "Agriculture Secretary Vilsack is saving nearly $20 million with reforms to modernize programs and streamline bureaucracy". Amazing! "Modernize and streamline." It is indeed a new day. Though he says he wants better not bigger government, Obama plans to spend a lot more money -- on medical reform, education, energy, etc. He also promises to halve the deficit by the end of his term. (Presumptuously he says, "first term.") This is dangerous nonsense. Obama's budget numbers are laden with politically driven assumptions about a rosy future in which robust economic growth pays for record-breaking government. Unfortunately, Obama is simultaneously working hard to delay recovery by imposing new taxes on the rich, toadying up to unions and trial lawyers, being ambiguous about trade and threatening all sorts of "activist" government that makes the future even more unpredictable. The new taxes are not just the direct assault on wealthy taxpayers, but indirect punishments, like his cap-and-trade plan for carbon emissions. His gifts to unions go beyond the outrageous "card-check" rule to the requirement that stimulus spending go to union workers who must be paid artificially high Davis-Bacon wages. All this will frighten off private capital and suffocate economic recovery. Obama's budget also creates a $634-billion "reserve fund" for medical reform -- but only $318 billion is to come from higher taxes. Where will the rest come from? Where else? Savings squeezed out of Medicare, Medicaid and other medical programs. Give me a break. It is hard to take seriously his claim that he will cut old spending to make way for new spending and a lower deficit. As The Wall Street Journal points out, "[T]he 2009 budget deficit is estimated to be an eye-popping 12.7 percent of GDP, which once again dwarfs anything we've seen in the postwar era. The White House blueprint predicts that this will fall back down to 3.5 percent as soon as 2012, but this is based on assumptions about Washington that aren't going to happen." One of the most absurd assumptions is that the new stimulus spending will be temporary. Higher stimulus spending in the current budget becomes the new baseline for future budgets. Any cuts below that line will be condemned as heartless. Every president promises to save money by eliminating waste and fraud. But the savings never materialize. In Washington, one person's waste is another person's pork. Every dime spent by the federal government has well-connected advocates who swear the money is vital to the national interest. They line up to testify. Even if they didn't grease the palms of lobbyists and congressmen, their cries would be hard to resist. "This program will keep this poor woman, your constituent, alive! Would you be so cold as to deny her that?" Congress appropriates the money, and then the permanent bureaucracy fights forever to preserve it. After all, its very life depends on it. It's not that people in government aren't as good or competent as those in the private sector (though that may be true). The difference lies in the incentives and feedback they face. Bureaucracies have little check on what they do, no bottom line, no market prices for their "output." What they do have is an incentive to spend all the money budgeted or risk getting less next year. As Milton Friedman used to say, no one spends other people's money as carefully as he spends his own. It is absurd to think the humongous constellation of federal bureaucracies is going to identify and root out "waste" in any significant way. It's just not in the nature of th[...]

Judging Obama

Wed, 25 Feb 2009 00:30:00 -0600

If the gain is in the private sector, Obama's boosters will claim credit on the basis of the "multiplier effect." It's a favorite theory of politicians and their court economists that government spending has a bigger economic jolt than cutting marginal tax rates does. But not everyone is so sure. (Harvard economist Gregory Mankiw, for one.

The bottom line is that a lower unemployment rate will not prove that Obama's "stimulus" worked.

Given time, the economy, unless totally crippled by government intervention, will regenerate itself. That's because an economy is not a machine that needs jumpstarting. It is people who have objectives they want to achieve. They will not sit on their hands forever waiting for government to "fix" things. Instead, they work to overcome obstacles to get what they want. Some banks are struggling, but there are still people who want to lend money and people who want to borrow it. They will find each other without government help.

During the Great Depression, many Americans kept producing in spite of the burdens imposed by the FDR's New Deal. (Amity Shlaes calls these "the forgotten man".) Likewise today, economist Steven Horwitz writes (, "[T]he American people are already doing something to create wealth and hasten the recovery, even if we are the ones forgotten in the battle over what Washington should do. Americans are going to work every day and providing for their families ... increasing their savings rates, making much needed capital available to the private sector ... imagining new and more efficient ways to use valuable resources."

We should make sure that President Obama and his congressional colleagues don't take credit for what we do. It wouldn't be the first time a "leader" ran in front of a crowd and claimed to have led the way.

What if the economy is still in bad shape a year or two from now? Will we get apologies from Obama and the stimulus advocates in Congress? Not a chance. Their excuse is already prepared: The stimulus was too small.

On the day Obama signed the bill, his aides put out the word that another may be needed. The blame will not be put on the folly of stimulus, only on the meagerness of the spending.

Heads -- big government wins. Tails -- free people lose. I don't want to play that game.

It's important to remember that government has no resources it hasn't first commandeered from the private economy. Anything it does to stimulate economic activity necessarily preempts private activity. Where is the gain?

Worse: Since monopoly bureaucracies are not as efficient as competitive businesses, government efforts won't get as much bang for the buck as private efforts. They will likely destroy wealth.

Ah, say the Keynesians, people aren't buying, and that's why businesses aren't investing and hiring. Only government can jumpstart the economy.

But people didn't just wake up one day and decide not to consume and invest. They hold back because the economy is uncertain. Then they hold back more because they don't know what activist government will do next. Will it prop up housing or other prices? Will it nationalize the banks?

The way to get private activity going again is to let markets adjust to reality and set prices accordingly. Only then will economic activity resume and unemployment recede.

If, through your perseverance, things begin looking up, credit belongs not to President Obama and Congress. It belongs to you.

Real Jobs Create Wealth

Thu, 19 Feb 2009 00:30:00 -0600

Its economic significance was not lost on that great advocate of full employment through public works, John Maynard Keynes. The British economist, so in vogue today, famously wrote in "The General Theory" (1936), "Pyramid-building, earthquakes, even wars may serve to increase wealth".

In fact, pyramids are even better than the usual government project. Keynes said: "Two pyramids . . . are twice as good as one; but not so two railways from London to York."

Ancient Egypt's success has many applications today. We could have full employment overnight if the government simply outlawed machines. Today's 7 percent unemployment rate would vanish.

Again, we find an endorsement in Keynes's "General Theory": "'To dig holes in the ground,' paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services".

Exhibit B is Franklin Delano Roosevelt. I don't mean his public-works projects, like the Civilian Conservation Corps. I'm talking about his most serious job-creating operation: the draft.

In September 1940, Roosevelt signed the Selective Act, which ordered all males 21-35 to register for military service. "Of the 16 million persons who served in the armed forces at some time during the war, 10 million were conscripted, and many of those who volunteered did so only to avoid the draft ... " writes Robert Higgs in "Depression, War and Cold War."

The draft marked the beginning of the end to the double-digit unemployment that had plagued America for a decade. Two years earlier, Roosevelt's treasury secretary, Henry Morgenthau, lamented, "[A]fter eight years of this Administration we have just as much unemployment as when we started". The draft was the answer they had sought all that time.

So creating jobs is not difficult for government. What is difficult for government is creating jobs that produce wealth. Pyramids, holes in the ground and war do not produce wealth. They destroy wealth. They take valuable resources and convert them into something less valuable.

Instead of iPods, great art, cures for diseases and machines that replace back-breaking work, we get the equivalent of digging holes and filling them up.

Under President Obama's "stimulus" plan, jobs will be created to weatherize buildings, construct schools and wind turbines, and repair roads and bridges. But outside the market process, there is no way to know whether those are better uses of scarce capital than whatever would have been produced had it been left in the private economy.

Since government services are paid for through the compulsion of taxes, they have no market price. But without market prices, we have no way of knowing the importance that free people would place on those services versus other things they want.

So although we'll see the government putting people to work and even some new schools and bridges, we won't be able to calculate how much wealth we've lost because scarce resources were misallocated by the politicians.

Nevertheless, we can be sure we will have lost. If the government's projects were truly worthwhile, they would be undertaken by private efforts, and in their quest for profits, entrepreneurs would handle them more efficiently.

Remember this when President Obama begins to boast about how successful his stimulus plan is.

Making a Bad Bill Worse

Wed, 11 Feb 2009 00:00:00 -0600

But some members of his party were elected on protectionist platforms, and they are not about to blow this chance to reward their union and industrial constituencies. What was Obama to do? He did what old-style politicians always do: tried to have it both ways by resorting to vague rhetoric. He said he'd "see what kind of language we can work on this issue". The Senate then added a line saying that the "Buy American" section must be "applied in a manner consistent with U.S. obligations under international agreements". So is the bill protectionist or not? It sounds as though our trade agreements must be respected, but as The New York Times noted, "[I]n many cases it [a "Buy American" provision] is not considered a violation of trade treaties." Public Citizen's protectionist website, Eyes on Trade, agrees: Under its trade agreements, the United States has "always been allowed to do most if not all of what is in the stimulus package". As long as it remains in the bill, the "Buy American" section will haunt us. Protectionism is poison. Prosperity means having access to the least expensive goods the world has to offer. When we save money buying something cheaper from abroad, we have more money to spend on other things or to invest. Laws that force us to pay more for things cannot make us wealthier. Protectionist unions and firms say that a "Buy American" policy creates jobs at home. But that is misleading, because while protectionism does save some American jobs -- often temporarily -- the policy also destroys jobs at home. It destroys jobs in two ways. First, when foreigners lose sales here, they have fewer dollars with which to buy American exports or to invest in the U.S. economy. Jobs in the export sector disappear, and the jobs that would have been created through the new investment won't be created. Second, when foreign nations retaliate against American exporters, even more jobs are destroyed. "Buy American" is a dishonest slogan because it leads to a loss of American opportunities for prosperity. It is special-interest legislation that is paid for dearly by other Americans. As my first college economics professor, Burton G. Malkiel, wrote in The Wall Street Journal last week, "Beggar-thy-neighbor policies create more beggars and hostile neighbors". The alleged "stimulus" bill is a rotten idea to begin with. Government has no resources that it hasn't first taken from someone else. By borrowing $800 billion to pay for pet political projects, government prevents that money from being used to rebuild the economy according to consumer preferences. Bad stimulus drives out good. Protectionism makes it even worse, and we should know better. In 1929-30, President Herbert Hoover and the U.S. Congress helped turn a depression into the Great Depression by enacting the infamous Smoot-Hawley tariff. Hoover's mere announcement that he would sign the bill pushed the stock market into the tank. Hoover and Congress then made their bad tariff decision worse by approving a "Buy America Act," which required federal projects to use only American supplies. Hoover signed it on his last day in office. Countries the world over retaliated, and by 1932, U.S. exports had fallen 64 percent, aggravating unemployment, which approached 25 percent. The effects of the "Buy American" provision of the "stimulus" bill may not be as egregious, but who knows? What we do know is that many of our so-called leaders have learned nothing from history.[...]

We Can't Spend Our Way to Prosperity

Wed, 04 Feb 2009 00:00:00 -0600

House Speaker Nancy Pelosi thinks that hundreds of millions of dollars for family-planning services will stimulate the economy. My colleague George Stephanopoulos of "This Week" was incredulous. But Pelosi was ready for him: "Well, the family planning services reduce cost. ... The states are in terrible fiscal budget crises now. ... [C]ontraception will reduce costs to the states and to the federal government" ( Fortunately, the White House saw that as a stretch and distanced itself from Pelosi. "The principles of what he [President Obama] thought should be in the package -- that wasn't part of that," said Deputy Press Secretary Bill Burton. ( That glitch aside, an agreement has emerged on how Congress should "stimulate the economy." The final bill will contain spending on states and localities, roads and bridges, unemployment benefits, "green" technologies, etc. ( President Obama has vowed that no earmarks -- special appropriations to benefit particular congressmen -- will sully the final package. But in the Wonderland called Washington, things are never what they seem: "The result, as The Associated Press learned in interviews with more than a dozen lawmakers, lobbyists and state and local officials, is a shadowy lobbying effort that may make it difficult to discern how hundreds of billions in federal money will be parceled out" ( What a surprise. Even if the spending could give the economy a jolt, at what price? I don't mean the legislation's overt price tag. I mean the production lost because the money borrowed by the government won't be available for private investment aimed at satisfying consumers ( Do we want politicians directing how scarce resources are used? I'd rather have those decisions made by entrepreneurs who must please consumers or go bankrupt. It's perfectly clear that the recession is a license for politicians to do what they've wanted to do all along. All the usual checks on extravagance, weak as they are, have been washed away. Budgets? We'll worry about that later. Inflation? We'll worry about that later. After all, Keynes said: "In the long run we are all dead" ( Keynes, at any rate, is dead, but we're stuck with his legacy of profligate, burdensome government. And now we are about to stick our children and grandchildren with even more -- intrusive government, more debt, higher taxes and price inflation. We should be suspicious when politicians, economists and the media declare a "consensus" and marginalize dissent ( President Obama says, "There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy." That's not true. Last week, the Cato Institute ran a full-page newspaper ad ( signed by more than 200 economists, including Nobel laureates stating: "We the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's 'lost decade' in the 1990s ... Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth." Let's hear no more about "everyone" agreeing that politicians can spend the economy into recovery. [...]

The College Scam

Wed, 28 Jan 2009 00:30:00 -0600

But for three years she failed to find a decent job. Now she holds a low-level desk job doing work she says she could have done straight out of high school. And she's still $85,000 in debt. This month she had to move out of her apartment because she couldn't pay the rent.

The promise about college? "I definitely feel like it was a scam," says Rachele.

Her college wrote us that that many of its graduates have launched successful careers. But Rachele's problem isn't uncommon. A recent survey asked thousands of students: Would you go to your college again? About 40 percent said no.

"The bachelor's degree? It's America's most overrated product," says education consultant and career counselor Dr. Marty Nemko.

Nemko is one of many who are critical of that often-cited million-dollar bonus. "There could be no more misleading statistic," he says. It includes billionaire super-earners who skew the average. More importantly, the statistic misleads because many successful college kids would have been successful whether they went to college or not.

"You could take the pool of college-bound students and lock them in a closet for four years -- and they're going to earn more money," Nemko says.

Those are the kids who already tend to be more intelligent, harder-working and more persistent.

But universities still throw around that million-dollar number. Arizona State recently used it to justify a tuition hike.

Charles Murray's recent book, "Real Education", argues that many students just aren't able to handle college work. Graduation statistics seem to bear him out.

"If you're in the bottom 40 percent of your high school class," Nemko says, "you have a very small chance of graduating, even if you are given eight and a half years."

Colleges still actively recruit those kids, and eight years later, many of those students find themselves with no degree and lots of debt. They think of themselves as failures.

"And the immoral thing about it is that the colleges do not disclose that!"

For many kids, career counselors told us, it's often smarter to acquire specific marketable skills at a community college or technical school, or to work as an apprentice for some business. That makes you more employable.

Vocational education pays off for many. Electricians today make on average $48,000 a year. Plumbers make $47,000. That's more than the average American earns. But some people look down on vocational school. A degree from a four-year college is considered first class. A vocational-school degree is not.

"More people need to realize that you don't have to get a four-year degree to be successful," says Steven Eilers, who went through an automotive program and then continued his education by getting a paying job as an apprentice in a car-repair center. He's making good money, and he has zero student-loan debt.

Eilers story is no fluke. In the past year, while hundreds of thousands of white-collar jobs vanished, the auto-repair industry added jobs.

Self-serving college presidents and politicians should drop the scam. Higher enrollments and government loan programs may be good for them, but they are making lots of our kids miserable and poor. For many, the good life can be lived without college.

Anything That's Peaceful

Thu, 22 Jan 2009 00:30:00 -0600

Choice is good. As a libertarian, I'm all over choice. But strangely, today, liberals are mostly about what Americans should not be allowed to choose. AFL-CIO boss John Sweeney says, "[O]ur top priority is passage of the Employee Free Choice Act, legislation that will restore workers' freedom to bargain for a better life". That sounds nice. But it really means that workers will no longer have the privacy and safety of a secret ballot when voting on a union. If a union can round up signatures from more than half the employees at a plant, other workers will be forced to unionize, too. Unorganized labor -- better known as most of us, or free people making our own way -- won't be helped by this coercive limiting of choice. Parents have little choice when they send their children to school. Government forces everyone to pay into a system that locks most kids into a unionized monopoly. If low-income parents were allowed $11,000 vouchers (that's about how much government spends per student), that would give poor parents a choice. But liberals don't want that. If you take risks with your own money to build a business, liberals want to limit your choice as to what you can say, how much you pay, and whom you can hire or fire. Freedom of association? Fugeddabout it. You cannot choose to offer newcomers on-the-job training at less than $7.25 per hour. You can't choose to pay older people or pregnant women less because their medical costs may be higher. So newcomers, older people and pregnant women can't choose those jobs. Liberals don't want to liberalize that. In a job interview, you better not ask about age, citizenship status, disability, or whether the person goes by "Mr." "Mrs." "Miss" or "Ms." Those questions are forbidden. Liberal litigators have essentially outlawed racial and sexual comments in schools and workplaces. A cashier at the Senate coffee shop was threatened with firing for addressing customers as "honey" and "baby" because one man complained it was "sexual harassment." Liberal senators like Dick Durbin, John Kerry and Charles Schumer want speech limited further by the "fairness doctrine." Fairness here means depriving people of the choice of all-conservative radio. And what's more liberal than voluntary exchange between consenting adults? Free trade lets everyone in the world find the best buys, no matter where they are. It gives us more things for less money. Even Paul Krugman supports free trade. But liberals don't want to allow buyers and sellers to make their own choices. Liberals want trade curtailed. Even life-saving trade: 95,000 Americans are waiting for organ transplants. Thousands die while waiting. Legalizing the sale of organs would give people the choice of life, while allowing sellers to choose cash over an extra kidney. But liberals don't want to let willing buyers and sellers have that choice. The Food and Drug Administration (FDA) decides what you may put in your own body. A truly liberal FDA would acknowledge that adults own their bodies and can decide for themselves what risks are appropriate. That would give consumers more choice. But liberals want the FDA to be tougher. Liberals don't want you to have the choice of owning a handgun, a big car or keeping your own money so you can use it as you see fit. Liberals want to restrict our choices. I'm a classical liberal. I believe people should have the freedom to do anything that is peaceful. That's truly liberal. I want the word back.[...]

A False Sense of Security

Wed, 14 Jan 2009 00:20:00 -0600

Notice the disconnect. Regulation failed, so we need more regulation. I see it differently. Regulation failed, so let's try free markets. That would be a change. Regulation did indeed fail. "An executive in the securities industry, Harry Markopolos, contacted the SEC's Boston office in May 1999, urging regulators to investigate Mr. Madoff. Mr. Markopolos continued to pursue his accusations over the past nine years," The Wall Street Journal reported. Of course, when a regulatory agency fails, the usual response is to make it bigger, not abolish it. Economist Robert Murphy notes, "In the private sector, when a firm fails, it ceases operations. The opposite happens in government. There is literally nothing a government agency could do that would make the talking heads on the Sunday shows ask, 'Should we just abolish this agency? Is it doing more harm than good?'" Most people won't like the suggestion that we dump regulation for free markets. We can't let markets run themselves, they'll say. Someone has to protect the unsuspecting from conmen. The Madoff case shows why this view is wrong. We've always been told that regulation of financial markets protects the least knowledgeable investors. Sophisticated people know what they are doing and can fend for themselves. But Madoff's alleged Ponzi scheme is fascinating precisely because it caught some very knowledgeable people. They knew Madoff. Everyone trusted him, including the regulators. That's one reason those savvy investors gave him their money. But there is surely another reason. Since the 1930s, investors have been led to believe the regulatory system watches out for dishonest investment schemes. That creates a false sense of security -- and sets people up to be conned. Advocates of regulation attribute almost magical powers to regulators, but clever cheats can get around any system. They always have. It's their chosen profession, and the regulators can't look everywhere. Regulation advocates also assume that bureaucrats are disinterested and incorruptible, but we know this is not always true. People who work in government are like anyone else. There will always be a percentage of individuals who can be tempted by corrupt opportunities. The logic of regulation would require that super bureaucrats be appointed to watch over the regulatory agencies. But who will watch over them? This is why regulation is counterproductive and a poor substitute for investor vigilance. The more rigorous the regulatory effort appears, the more risky it is. Regulation by market discipline is better, but in our state-dominated culture few people realize this. Arthur Levitt says, "The complexity of today's products, markets and investment strategies calls for a laser-like focus [by the SEC] on risk assessment." But the opposite is true. Savvy investors would do their own risk assessment if they didn't believe the government was doing it for them. And wouldn't they do a better job, considering it was their own money at risk? Regulators risk nothing. Of course many of us investors are unqualified to assess risk for ourselves. But we could pay specialists for the service, generating a competitive market for risk assessment -- in contrast to the monopolistic SEC and other agencies. That form of investor protection would be superior in every way to a system that gives a bureaucracy arbitrary power. After all, private risk assessors would have to justify their fees, which clients would pay voluntarily. Current government regulation interferes with honest voluntary exchanges by imposing arbitrary te[...]

Madoff is a Piker

Wed, 07 Jan 2009 00:00:00 -0600

Political leaders say Madoff's alleged crimes show what's wrong with the country. President-elect Obama said the "massive fraud that was made possible in part because the regulators who were assigned to oversee Wall Street dropped the ball". Senator Majority Leader Harry Reid added, "[R]egulators have been asleep at the wheel". Politicians go on and on about Wall Street "greed" and "irresponsibility." But Madoff's scam was small compared to Ponzi schemes the government itself runs: Social Security and Medicare. By now we all know the government does not invest our payroll taxes and pay our benefits with the profits our money earns. In the beginning, writes economic historian Charlotte Twight in "Dependent on D.C.", Americans were told Social Security was an insurance program. But the government was unable to sustain that bald lie. In reality, our money, rather than being invested and kept in an actual "trust fund," is immediately given to current retirees in Social Security benefits or to their healthcare providers in Medicare benefits. The government's promise to pay for your retirement pension and medical care is just a promise. And a lie. In theory, the promise could be kept by raising taxes on future workers, but there won't be enough of them. Changing demographics are destroying the programs. A large working class can support a relatively small retired class, especially when life expectancy is 61 years and benefits don't begin until 65. That's how things were in the early years of Social Security. But when life expectancy grows to 80 and a large generational group -- the baby boomers -- retires expecting to be supported by a far smaller working class, that's trouble. Ten years after Social Security passed in 1935, there were almost 42 workers for each retiree. Five years later, the ratio slipped to about 17 to 1. Now it's about 3.4 to 1. Thirty years from now, the ratio is projected to be 2 to 1. Think of the burden on those two to three workers who'll have to support one retiree for 15 to 20 years. The money just won't be there. In the next 75 years Social Security and Medicare have a combined unfunded liability of $40.3 trillion. Social Security's problems get most of the attention, but Medicare will be the killer. At present it accounts for all but $4.3 trillion of the unfunded liability, and as we aging boomers keep demanding new, improved and more expensive medical care, the deficit will only get worse Soon government will have to say what Madoff said: Sorry! The money's gone. The government has no legal obligation to make good on its promises. Twice the U.S. Supreme Court ruled that Americans have no contractual rights regarding Social Security benefits. In 1960 (Flemming v. Nestor), the court said, "To engraft upon the Social Security system a concept of accrued property rights would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands". Get that? You have no "accrued property rights" under Social Security. It's a welfare program that exists at the politicians' pleasure. The government will either stiff us outright or, more likely, cowardly politicians will pretend to honor their promises by printing so much extra money to write the checks that the dollar will be worth pennies. If Bernie Madoff tried to foist Social Security and Medicare on us, he'd be arrested, prosecuted and thrown in the hoosegow. There's one thing I can say on behalf of Madoff: He never forced anyone to participate in his scheme. That's more th[...]

Caroline Kennedy Would Fit Perfectly in the Senate

Wed, 31 Dec 2008 00:35:00 -0600

Zillions of people may rant that Caroline Kennedy lacks what it takes to be a senator, but I think she's qualified.

After all, what does a senator do?

In theory senators represent the people of the state that sent them to Washington. It's not at all clear what that means. It has something to do with serving the interests of those people rather than the senator's own interests. But it's long been debated whether a representative should do what constituents want or what the representative thinks they should want. Either way we have a problem. New York has 19 million people. We don't have the same interests, and we rarely want the same things. People are diverse.

What's a representative to do? If some in the state want a subsidy for their businesses or farms, and others object, how can the senator serve both groups? Polling is no help, because the minority would be unrepresented.

The idea of a senator truly representing the interests of 19 million people is ridiculous. (This holds for Wyoming's half-million as well.) We pretend that he or she can do it, but no one really believes it. It's just a game we play. The reality is something else.

Caroline Kennedy may indeed be unqualified to be a U.S. senator if she is judged by the job's theoretical duties. But so is everyone else.

On the other hand, she is qualified to perform the actual duties of a senator. Let's look at those:

Senators bloviate on anything and everything, regardless of whether they know what they are talking about. This is an important part of the job. Senators must sound as though they know how to create jobs, what kind of energy the United States should use, how to make health care affordable, how to plan education for 75 million unique children, and so on. They don't have to actually know how to do these things. They just have to sound as though they know. I know very little about Caroline Kennedy, but I'm sure she's capable of making pronouncements about how progressive polices will save the world.

Another thing senators do is cast votes to spend other people's money. Caroline Kennedy should be very good at that. She grew up in a wealthy family. Her stepfather was one of the richest men in the world. Now she's married to a wealthy businessman. She's had lots of practice spending other people's money. She'd be good at it.

All this is not to say the job of a senator is easy. Senators do have to figure out which interest groups to reward with subsidies, special tax breaks and pork in order to assure reelection. But with a little work, that's probably not hard to learn.

So by the standard of the actual duties of a U.S. senator, Caroline Kennedy is eminently qualified.

But, of course, so is virtually everyone else.