Taxing Ourselves and More Random Thoughts

While Pratt is correct that the propaganda is the basis of the sales tax increase in Arizona, I remain somewhat puzzled that the propaganda is effective. While it is true that the public sector unions have been screaming about the failure of education due to lack of funding, any more it seems a broken record. How many times does the taxpayer have to hear the cry before saying enough. More importantly when does the taxpayer realize that states that lower taxes draw businesses to the state while states that raise taxes drive businesses out. For examples look to California and New York and compare them to Texas. New Jersey is another state that has driven high income earners and businesses out of the state, but the new Governor is attempting to change that. He is cutting spending and of course upsetting the public sector unions, especially teacher unions. Governor Christie of New Jersey had a great response to a teacher who was yelling at him “you are not supporting my education. You are not supporting my experience.” Christie said “Well, you don’t have to teach. You could do something else.” The public sector unions are the cause of Greece’s crisis and are leading every Western nation in the same direction.

The massive oil spill in the Gulf has led to a shutdown of offshore drilling and confirmed environmentalist’s worries about onshore drilling. The point I think everyone is missing is that this disaster lies at the foot of the environmentalists. They forced drilling out five miles where the ugly rigs could not be seen from shore. Think how much more dangerous it is to drill down a mile or so in water than to drill on land. A blowout on land would have been stopped virtually immediately. What this disaster should tell us is that we need to collect energy from the safest and cheapest sources. And that is on shore drilling, just offshore drilling, and the use of coal. It would be much less expensive to clean coal than it is to force drilling 5 miles off shore and bear the costs of a blowout like the current one.

The European Union is done, stick a fork in it. It always was a strange beast but now with Germany bailing out the Southern nations, the pressure on it to collapse is higher than ever. The idea of the European Community was to ensure that the terrible wars of the 20th Century did not occur again. If the economies could be tied together, it was thought, then the events that led to the Wars could not happen again. The mistake the community made was to attempt to convert the nations to a single economic entity. It did not seem logical that people and customs as different as Germany and France and Greece and so on could become like the states in the US. The Euro meant that Greece, Spain, Portugal and others could go on spending, running huge debts, and having more than half their labor force employed by government while Germany to the large extent, and France less so would support them. This situation not only creates moral hazard but creates tensions and divisions inside Germany and France. The EU should have kicked Greece out if they wanted to retain the union. Bailing them out will simply delay the collapse of the entire union for a short time.

Speaking of bailouts, will the US bail out California? The public sector unions have refused to accept any budget cuts. Taxes have maxed out – businesses and high income earners are leaving the state in droves. A higher tax of any kind will simply drive more out and reduce revenues. So, will California go bankrupt or will taxpayers in the other 49 states bail it out? If taxpayers do bail out California the same type of moral hazard is created as in the EU. If California gets bailed out, why should any other state cut spending?

Taxing ourselves

Boyes expressed surprise that Prop 100 passed, in essence Arizona taxpayers agreed to tax (coerce) themselves. I was not surprised (although I was disappointed) and I think part of the explanation lies in item 5 of Boyes' post - the rise of public sector unions.

Our previous discussions on this blog point out that public sector employees, in many cases, earn wages and benefits above that of their private sector counterparts. To protect these rents in the face of transparency (an issue that has become explosive in Greece and will I suspect become equally explosive here in the US) public sector unions must work aggressively to protect these rents. There are any number of strategies employed by the public sector unions, one of the most effective is that of propaganda. In the case of Prop 100, the public sector union effort aligned nicely with the intellectual/elite view that the government should be the provider of educational services. The "crisis" in public school education is not surprising, it is inevitable - the government has no incentive for efficiency, indeed local governments in the form of school districts and individual schools have an inability to react to changing conditions. Compare the plight of public schools in Arizona to private or charter schools like Tempe Prep, Basis, The Awakening Seed . . . these schools are continuing on - the private schools raising tuition if necessary, but all adjusting operations. It is notable that these schools have lower average wages and benefits that comparable public schools.

But the essence of the question remains, why was there overwhelming support to increase sales taxes - a tax that interventionists and elites must grind their teeth at due to its regressive nature?

Unfortunately the bulk of "citizens" now have a default view that the government should take care of _______________________(fill in the blank - the media blathering about the BP spill is another example that deserves a separate blog post). So, over time, the elite/intellectual position articulated by JFK has permeated the consciousness or subconsciousness of the masses - "ask not what your country can do for you, ask what you can do for your country".

So, teachers unions, elite intellectuals, local governments all asked Arizonans to raise taxes and, in another step on the road to serfdom, a large majority in Tempe complied.

How a Rich and Proud Nation Went Broke

Elena Kagan and Hayek

Hayek identifies lawyers and university professors in particular as members of the cognitive elite with little or no understanding of the functioning of the overall social – economic order which make all of our lives possible. As Hayek puts it using the example of the individual with a law degree, “The rules of just conduct which the lawyer studies serve a kind of order of the character of which the lawyer is largely ignorant.”

Elena Kagan & Class Analysis

“the Great Society.”

Mario Rizzo writes perceptively of the approaching bankruptcy of the welfare state. This state has been morally bankrupt from its inception, now the looming material bankruptcy offers, what Rizzo suggests is a clarion call.

Therefore, I view the more immediate negative consequences of the welfare state as intimations of the long-run effects. They are the easier-to-understand stories that may affect public opinion. In a sense, most economists, for all their complex reasoning, theories and data, are the simpletons of public policy. Their work is preliminary to the real issues. There are, course, some economists like James Buchanan, Deidre McCloskey, Mancur Olson and others who have this broad vision. Unfortunately, their work is vastly undervalued in the economic profession as it has developed in the late twentieth-century into the twenty-first.

Therefore to welcome the bankruptcy of the welfare state is not as perverse as it may seem at first. It is to welcome a warning that may prevent the collapse of what Adam Smith called, “the Great Society.”

Random Thoughts

I have not been able to post anything for the pas week because I had surgery on my right hand and had no use of fingers. That does not mean I have not been thinking about various issues however. Now that I have fingers but no thumb, I will attempt to post some thoughts.

1. The Arizona law SB1070 has created a tremendous uproar. The reason for the uproar is either a fear that it will enable profiling or opposition to any restrictions on illegal immigration. While the law carefully states there is to be no profiling, it is reasonable for Latinos to worry about it. Personally, I think a better statement of Arizona's problem would have been to send the National Guard to the border. Nevertheless, as Milton Friedman once stated, you can not have free immigration in a welfare state. Thus the US must define who is allowed to immigrate and who is not and to enforce that definition. The current immigration law is out of date and creates bottlenecks for those people we most need to immigrate here.

2. Another Arizona Law, 100, surprised me. I didn't think in this environment the public would tax increases on themselves. Moreover, the argument that education and police and fire services would be sacrificed if 100 was not passed, is an old argument that surfaces any time government is faced with budget cuts. In fact, unless cuts are made in all areas, government will continue growing while liberty keeps declining. A good start for state and federal government would be to eliminate the departments of education, to eliminate public K-12 schools and move to a voucher system of private or charter schools.

3. Data released recently show that the private sector accounted for only 42 percent of income; the public sector accounted for 58 percent. The Obamacare is a takeover of about 1/6 of the economy. The student loan program is now totally a government industry. The financial regulation bills mking their way through Congress is a government takover of another 1/6 of the economy.

4. The US stock market has fallen about 10% in month. The market had been on an upward tear, but one must wonder why. The US is facing unprecedented debt levels. Unfunded liabilities are especially troubling. The EU is collapsing. Unemployment remains near 10 percent. The Bush tax cuts are expiring at then end of this year. Why should all this be met with expectations of higher earnings. The market rise is either a move away from risk or a temporary aberration of a sluggish or downward move. One would think that the performance of the economy followng the hue stimulus and jobs spending by the government would have been a final nail in Keynesianism.

5. Public sector unions should be barred. They arise only because of government; they, themselves are a taking -- from privately employed people to government employees. There is no competition and no profit maximizing firms to control the unions. Instead, SEIU continues growing, the National Teachers Unions continue growing, and all continue increasing the overall growth of government.

The problem with democracy

Crosby writes:

The question is how much faith should we put in elected politicians to deliver good fiscal outcomes? In my view stronger fiscal checks will strengthen, rather than weaken democracy. No economist would advocate balanced budgets always, but a balanced budget “over the cycle”, with verification from an independent body over achieving that aim would seem to be a good direction to take. The charter of budget honesty act goes some way towards this, but does not ensure proper independent verification.