Archive for February, 2010

Reagan said the more you tax something, the less you have of it. If you tax labor and the products of labor, you’ll have fewer jobs. If you tax sales contracts, you’ll have fewer goods and services for sale – and therefore fewer jobs. If you tax business contracts of all kinds, you’ll have fewer business transactions. We know what fewer business transactions implies for jobs.

We know how to increase the number of jobs. Everyone knows: we have to remove government from the labor market. Yes, we’ll always have taxes, but we can fashion tax policy so as to minimize the impact taxes have on business contracts. Labor and sales contracts are the key types of business contracts at issue here. If we reduce taxes on labor and sales contracts, we increase the number of contracts and therefore the number of people engaged in those contracts. If we reduce government interference with labor and sales contracts, we increase the number of contracts and therefore – I don’t really need to say it again – the number of jobs.

Here is a baker’s dozen of things we can do to reduce taxes on business contracts and eliminate government impediments:

  1. Decouple health care and employment.
  2. Decouple tax collection and employment.
  3. End the social security tax.
  4. End the tax for Medicare and Medicaid.
  5. Tax all employment at the same low rate.
  6. Give employers, contractors, and independent consultants complete freedom to form business contracts. Eliminate the tax distinctions and restrictions that govern contract employment.
  7. Tax all sales transactions at the same low rate. Eliminate the multitude of largely invisible taxes on sales contracts in favor of a single sales tax.
  8. End the minimum wage.
  9. End the permits, tax requirements, and other legal restrictions that make it difficult for entrepreneurs to start and grow a new business.
  10. For any new business contract, eliminate all taxes for six months. Let any two people or parties form a legitimate business contract without regard for tax or other legal requirements.
  11. End the requirement that employers pay for unemployment insurance.
  12. End the requirement that employers pay for workers’ compensation.
  13. End all government subsidies in the form of direct payments, tax breaks, and other allowances. Reduce government payments and special considerations to zero.

Naturally we don’t plan to do any of these things. Instead we will pass another stimulus bill, which reduces our ability to sustain job growth over the long term. We’ll continue our unhappy discussions about how to create jobs, our sense of pessimism about how to accomplish it. But we know how to accomplish it. The path to labor market freedom lies right in front of us.

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Recently I ran across an article by Cynthia Tucker that quoted from Ronald Reagan’s 1961 speech against Medicare. In the speech, Reagan accurately predicted what would happen if Medicare were enacted. She also cited Nicholas Kristof’s article, where he mocks critics of Social Security and Medicare. Referring to the critics of the current health care bill before Congress, he suggests we’ve heard all of this before. All the predictions about socialization, higher costs, and loss of freedom were wrong then, Kristoff says, and they’re wrong now. These programs proved to be hugely popular, so much so that Reagan stopped criticizing them when he ran for president.

The popularity of Social Security and Medicare doesn’t mean their critics were wrong, though. Their predictions about cost, freedom of choice, and socialization came about. Their description of how our society would evolve with these programs in place was remarkably accurate. We expect and accept the high taxes, and constraints on individual freedom that these programs entail. The program’s popularity doesn’t mean the critics were mistaken. It means people have wanted to trade freedom for security in two key areas: retirement income and health care. Many accept the higher costs and loss of choice that public programs impose, if in return the government can ease their fears about poverty and ill-health during old age.

So defenders of the current efforts to improve our health care system can look back and say accurately that Medicare has more supporters than critics. What’s popular does matter in a democracy, but truth and popularity aren’t always on the same side. In this case, Reagan’s warnings about Medicare have proven altogether accurate. In fact, the need to change our health care system now would not be so urgent if Medicare did not place such a strain on our government’s resources. We could live with our system’s faults if the bill for Medicare weren’t so high. As it is, Medicare payments seem out of control, going up faster and faster as our population becomes older. Thus the urgent need, expressed so often by Washington’s budget analysts, to contain costs.

Interestingly, a key element of our current cost-cutting plan is to increase the government’s role in health care! If you aim to reduce costs without rationing, reduce government’s role. Don’t increase it. We have other goals, however: clearly universal participation in the nation’s health care system precedes cost cutting as the reformers’ primary goal. The outlay of public funds required to cover every person, under current proposals, won’t be small. We have only two ways to limit costs: individuals who make purchasing decisions in an unregulated market, and some form of public rationing. We are a long way from the free market option, and no one speaks favorably of the R word. Consequently we are headed toward an expansion of public funding for health care, with no support for rationing. Of course the government’s costs will go up. We’ve tried – not so successfully – to pretend they won’t.

Let’s return to Kristoff’s confident, dismissive remark: “We’ve heard all of this before.” The critics were wrong then, Kristoff implies, and they’re equally wrong now. Critics in the 1960s said we would look to governnent for our benefits and well-being, and we do. Critics said the costs of social health care in old age would become insupportable, and they have. Critics argued that each enhancement of the government’s authority would result in a diminution of our freedom. We have seen exactly that outcome. Reagan and all the wise people who joined him spoke truthfully. We enacted public funding for old age health care, and we  have seen the results. For the most part, the intended social bargain since 1964 has worked: in return for high taxes and a substantial degree of government involvement in old age health care, Medicare participants have received the care they want.

Whatever judgments we make about Medicare’s tradeoffs, though, we should recognize why Reagan and others objected to it. If we want to change the system in a way that forces everyone to participate, we certainly have to recognize what’s true in the critics’ warnings. The truth is that security of the type we’re talking about here does come at the price of freedom. As we move to carry out health care reform, we ought to heed Reagan’s warning: once we sacrifice our freedom to some other end, we’re not going to get it back. We can easily relinquish our freedoms incrementally, in return for benefits we’re eager to acquire. We’ll have the security we crave, but will we have the life we want?

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With no political capital left and much of his legislative initiatives dead in Congress, President Obama’s administration recently announced that he intends to use executive orders to advance his agenda.  According to White House chief of staff Rahm Emanuel, “We are reviewing a list of presidential executive orders and directives to get the job done across a front of issues”.  Those issues include everything from budget commissions to environmental law to health care funding.

Of course, executive orders are nothing new.  They have been around since at least Lincoln’s so called “Emancipation Proclamation” and probably before that.  George W. Bush signed the most ever as president and was rightly criticized by Obama in his campaign for president.  This is key because it doesn’t matter which party controls the White House.  When push comes to shove and the president can’t get his way he resorts to this underhanded tactic.

But, it’s more than underhanded; it is downright unconstitutional.  As schoolchildren, we are all taught that our federal government is composed of three branches.  The legislative makes the laws; the judicial judges the laws for constitutionality; and the executive acts as the top cop by enforcing the law.  Congress has power to legislate, not the president.  The closest he/she comes to this power is his/her ability to advise Congress, “and recommend to their Consideration such Measures as he shall judge necessary and expedient”.

The Founders knew that separating the powers of government into three different branches would prevent any one branch and/or person from becoming too powerful – thus potentially infringing upon the rights of the citizenry.  Through executive orders presidents circumvent the process reserved to Congress because they have the force of law and at times have horrendously violated the rights of American citizens.  For instance, Franklin Roosevelt issued executive orders that deprived Americans of their property without due process of law by seizing their gold during the Great Depression and that unconstitutionally suspended the writ of habeas corpus by interning Japanese-Americans during World War II.  More recently, George W. Bush issued an executive order that allowed his administration to unconstitutionally wiretap the phone conversations of Americans without a warrant.  Now, Obama, like his predecessors, is unable to get his unpopular policies through Congress, so he will violate the supreme law of the land by usurping the powers of another branch of government. 

But, the current occupier of the Oval Office is not content with stopping there.  His aides last month indicated that he will reserve the right to ignore enforcing parts of bills he considers unconstitutional.  This is reminiscent of Bush’s statement after signing an anti- torture bill that he would interpret the new law in any way he chose.  There are several things wrong with this position.  First, the Supreme Court has the power to declare all or parts of laws unconstitutional.  Second, if the president doesn’t like a part of a bill then his constitutional recourse is to veto it and hope Congress amends it to his liking.  Third, jury and state nullification are considered outside the law.  The president is essentially proposing executive nullification – the same thing.  Why is there a double standard?  Sorry Mr. President, you do not have a line item veto power.  You really must accept all or nothing when it comes to congressional acts.  Not doing so is unconstitutional and a usurpation of the High Court’s power.

Lastly, this president is also attempting to make unconstitutional recess appointments.  Here again presidents have done this in the past.  The practice originated in the good old days when Congress was only in session for part of the year.  Read literally, the phrase in Article 2 Section 2 of the Constitution giving the president this power reads “The President shall have power to fill up all vacancies that may happen during the recess of the Senate, by granting commissions which shall expire at the end of their next session”.  Key to the power is the simple phrase, “all vacancies that may happen during the recess of the Senate”.  Obama’s current vacancies happened when the Senate was in session, thus if he waits until they recess he is usurping the power of the Senate to advise and consent to his nominations.  When Bush used the power to make John Bolton ambassador to the United Nations, then Senator Obama called Bolton “damaged goods”.  Not only is Obama being hypocritical, he again is attempting to commandeer powers that belong to another branch of government.

Make no mistake about it, over time an imperial presidency has been built in Washington by both Republicans and Democrats.  Executive orders, presidential nullification, and unconstitutional recess appointments have been used by presidents to achieve objectives they could not get legally through Congress.  It has made a mockery of the Constitution and at times has had serious consequences for American citizens.  Congress must reassert its authority over these matters.  Perhaps the Democrats with huge majorities in both chambers can set the example and stand up to one of their own in his quest to carry on the unfortunate tradition.       

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina.

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Whoever says that state budget crises are all bad doesn’t know what they are talking about.  Now, I know that schools suffer, social services for the poor get tight, and everything from state parks to public hospitals cut back on services, but good can come out of it as well.  Take for example the many states that are currently looking for ways to increase revenue and decrease costs by privatizing the sale of alcoholic beverages.  It is a move that is way past due.

Nineteen states still maintain Prohibition era laws in which the state retains the sole right to distribute wine and spirits.  As Prohibition died a justified death about 77 years ago, many state leaders justify the archaic state control laws with the rationale that without tight government control of booze underage drinking, driving while intoxicated, and domestic abuse cases would skyrocket.  Well, on the surface that doesn’t seem to be the case in those 31 states where a private system of distribution exists.  Additionally, it is not like state regulation of the behaviors associated with alcohol consumption will go away if states divest from the booze distribution business.  You will still be dealt with harshly if you drink and drive.  No, state control advocates have no legs to stand on here.

Now, I grew up in Pennsylvania which is a liquor control state.  Pennsylvania’s system is a total joke.  In the Keystone State you buy beer through a licensed private beer distributor.  Go to one to buy just a six-pack and you will be told that under state law you must buy a whole case.  Wines and spirits can only be purchased at state run stores.  Naturally, the service is awful, the hours are short, and the selection is limited.  What would you expect from a state run business?

The biggest issue, at least with Pennsylvania’s control system, is expense to the consumer and Pennsylvanian’s have no way to legally circumvent the law.  If Joe Six-Pack from Northeast Philly decides he wants to save a few bucks on a bottle of Southern Comfort by driving over the Tacony Bridge into southern New Jersey he better think again.  The way the law is written buying his hooch in a neighboring state could land him in jail for 90 days.  Usually though, the officer in the unmarked Pennsylvania police car that waited for folks with PA tags to buy liquor at the New Jersey store just fines the driver per bottle purchased.

I could never understand how the Pennsylvania law was not a violation of the interstate commerce clause of the Constitution.  Taken in its original meaning, the clause allowed Congress to remove obstructions to trade between states.  As a Pennsylvanian I could go to Jersey to buy a car, but I better not buy alcohol because the state owns the monopoly on that business.  This is clearly one of those rare yet constitutional instances where it is totally within the jurisdiction of Congress to step in and regulate Pennsylvania’s anti-consumer and anti-free trade laws away.

The bottom line is that selling alcoholic beverages is a retail activity not meant to be done by any government.  The moralists can say that state control is necessary in order to prevent the decay of society.  Many would even argue that the system works well and there is no need for change.  With so many other problems facing the states in this depression who sells alcohol is of little consequence.  But, remember the point of this article was that state budget crises are not all bad.  If antiquated state liquor control systems like the one in Pennsylvania are terminated then some good has come out of it.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina.

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Last week, the Republicans in the Senate once again showed that they are a big part of what is wrong with Washington.  Twenty-two of them joined forty-eight Democrats in voting for Ben Bernanke for another four year term as Federal Reserve chairman.  Do the math.  If those twenty-two Republicans had voted against Bernanke he would have been sent packing by a vote of 52-48.

Now, I know the Fed isn’t going anywhere, so someone else probably just as bad as Bernanke would ultimately have been appointed if he had been rejected.  But the point to be made here is that Senate Republicans squandered a real opportunity to stand on principle.  After all, aren’t they the ones who almost completely stood against Obama’s $800 billion “stimulus” package and continually criticize the Administration for its reckless spending.  In comparison, Bernanke’s wheeling and dealing as Fed chair makes what Congress and the President have spent look like pocket change.  Under Bernanke the Fed has spent $1.25 trillion just on its program to hold down mortgage rates.  And who do the Republicans think printed all that new money and bought all those treasury bonds in order to monetize Obama’s big spending?  It was Bernanke’s Fed which currently holds the notes on over $5 trillion of our national debt.  Thus, the Republicans can lambast Obama for his absurd appetite to spend, and rightly so, but they supported the man who indirectly makes the deficit spending happen.  They are either oblivious to this fact or hypocritical. 

Of course, Senate Republicans will justify their support for Bernanke based on the claim that he is the person whose leadership took our economy from the brink of collapse and placed it on stable ground.  Naturally, no one can prove that and who is to say that we aren’t headed for an even bigger crash because of his inflationary policies.  The big question to ask in refutation of this theory is, if he was so good at handling the crisis how come he didn’t recognize it until it happened?  If one were to go back and look at Bernanke’s appearances on news shows from 2005-2007, it is clear that right up until the end of the bubble he denied its existence and claimed the fundamentals of our economy were strong.  Isn’t a major responsibility of the Fed to recognize trouble and prevent or alleviate the pain of business cycle downturns?  Bernanke was way off on this one and that alone should have cost him his job.

Bernanke has been a complete disaster as Fed chairman.  Additionally, it is just a matter of time before his big government monetary policies cause another crisis.   Senate Republicans, like Orrin Hatch of Utah and Senate Minority Leader Mitch McConnell of Kentucky, have always talked a good game about small limited government.  Then when they have a real chance to actually vote for it and win they fold like cheap lawn chairs.  That is why there is no hope for the current Republican Party to lead us back to the good old days of constitutional, fiscally and monetarily sound government.  That is why many Americans are fed up with our political system.  The next time Republicans gripe about the Democrats propensity to spend us into oblivion remember it was the man chosen by Bush and approved by Senate Republicans that makes it all possible.           

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina.

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