A Debate on Subsidies

January 12, 2025January 10, 2025Leave a comment

January 12, 2025

by Stephen Stofka

This is ninth in a series of debates on various issues. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

After a few pleasantries, Abel began, “Last week, we finished talking about the government’s role in the social contract. The scope of that role is the key difference between your group and mine.”

Cain nodded. “Your group thinks of the federal government as an insurance company. Our group tries to keep your group in check. It’s not easy.”

Abel replied, “Your group may believe in a more limited role for government as a general principle, but you advocate policies that contradict that principle. Take housing as an example. It is a private good that is heavily subsidized by the federal government.”

Cain tilted his head in an equivocating manner. “Let me stop you there. Are you asking whether our group supports federal underwriting of thirty-year mortgages? In principle, we shouldn’t. The federal government should have a minimal role in the exchange of private goods. As a practical matter, the entire housing market would collapse if the federal government did not underwrite most mortgages in the U.S.”

Abel interrupted, “But your group doesn’t support the federal government’s student loan program.”

Cain nodded, “That’s right. An education is a different type of good than a house. An education can’t be separated or alienated from a person. A house can. I would prefer that the federal government not be involved in the mortgage market, but few states have the resources to underwrite mortgages. Private banks prefer not to underwrite 30-year mortgages at low interest rates. Only the U.S. and tiny Denmark have 30-year mortgages at fixed interest rates (source).”

Abel said, “But the higher education market would collapse without federal student loans, grants and subsidies. That same practical reasoning supports the federal involvement in underwriting higher education loans.”

Cain shook his head. “Housing has a concrete public aspect to it. Education doesn’t. The Constitution specifies a role for the federal government. It is to provide for the ‘general welfare,’ not private welfare. An education is inseparable from a person’s private welfare.”

Abel objected, “But private welfare contributes to the general welfare. This is a sticking point between our two groups. Your group regards the general welfare as only those goods or services that are available to all. The sum of individual welfare is the general welfare.”

Cain replied, “Look, everyone who wants a subsidy claims that their private welfare will contribute to the public good. Car manufacturers want protective tariffs and subsidized loans, claiming that it will help preserve jobs. Ranchers want below market rates on grazing land for their catttle, claiming that they will be motivated to act as good stewards of that land and help preserve it. College students want subsidized loans and grants on the premise that their improved skills will contribute to a better society, a more productive work force.”

Abel argued, “But your group is more likely to support subsidies for ranchers and farmers.”

Cain shrugged. “The subsidy for grazing fees is about $100 million, according to one estimate. Americans have $7.5 trillion in federally backed mortgages at an interest rate that is at least 5% below market. That’s an indirect annual subsidy to homeowners of $350 billion, with a ‘b.’ Subsidies to farmers and ranchers are like drops in the bucket compared to the subsidies to homeowners. Divide that $350 billion by approximately 50 million federally backed mortgages and each mortgage holder gets an average annual subsidy of $7000. The federal government looks like it has deep pockets. Everyone wants to stick their hand in those pockets. It’s the road to ruin.”

Abel argued, “But the federal government has a long history of handing out subsidies. In the 19^th century, they gave out vast tracts of western lands to the railroads for pennies an acre. After the tracks were built the railroads sold the land to developers for many times what the railroads paid. Then the developers sold the land for many times that to homesteaders. Subsidies are a tool of government.”

Cain interrupted, “Tools to achieve what? Policy goals. Who sets those policy goals? The politicians in Washington. What is their policy goal? To get re-elected. How do they get re-elected? By gettting subsidies of some sort for their constituents. What is the sum of those individual efforts by elected officials? A government whose main purpose is giving out subsidies. There has to be some principle in place to limit that kind of largesse.”

Abel asked, “So what? End all subsidies? That is not going to happen. America binds all these regional interests together by handing out subsidies to homeowners, students, farmers, ranchers, people of every business type. In an earlier era, Senate leaders inserted earmarks for those senators who held crucial votes. Former OMB director George Shultz quipped, ‘the budget process was a fight of the parts against the whole and the parts always won.’ (Behn 1977, 109).”

Cain interrupted, “That practice promoted increased spending and deficits. When the government borrows money, that increases the money supply and inflation. Then the Federal Reserve has to fight inflation by adjusting interest rates. Higher interest rates causes a drop in investment which can raise unemployment. There’s just a whole cascade of economic effects.”

Abel argued, “In 2006, John Boehner, the former Speaker of the House, ended all earmarks in the House. Have deficits decreased? No, they have gotten worse. So has the polarization in the Congress and in the country. The public is like a pack of hungry dogs. Give each of them a little bit of meat and they won’t tear each other apart.”

Cain shook his head. “Tell the voters on the campaign trail that they are a bunch of dogs. The problem with your group is a lack of respect for the public and way too much respect for politicians and experts.”

Abel conceded, “Ok, maybe the hungry dogs imagery wasn’t the best, but look at the defense industry. It wields a lot of influence on Capitol Hill and your group is a big supporter of defense contractors. Defense is one of the few legitimate constitutional duties of the federal government, you say. Each individual representative in Congress votes for more defense spending if it will mean more federal tax dollars coming into their state. Each representative competes for defense dollars even if it is wasteful. It’s pork barrel politics.”

Cain said, “The saying goes, ‘something that can’t last forever won’t.’ The country can’t keep running deficits and borrowing money from the private sector. The interest on that debt keeps getting larger every year. It’s unsustainable. Deficit spending is a security issue. If and when a large war breaks out, the country will not be able to muster a strong response.”

Abel nodded. “Our group agrees that deficit spending is a problem. Your group thinks that earmarks are a big part of the problem. We don’t. Pork barrel politics joins people together. All the different constituencies in the country gather together to pull one of two ends of the rope. What we need is higher taxes on upper income households to afford those earmarks.”

Cain shook his head. “Higher taxes reduces investment.”

Abel interrupted, “So your group says. During the 1990s, both taxes and investment increased. In fact, investment increased at the highest pace since World War 2, and we had budget surpluses by the time Clinton left office at the end of the decade. Higher taxes do not reduce investment.”

Cain argued, “Look, the birth of the internet and the computer age was a special case. That exception does not support your case.”

Abel smiled. “Taxes and the effect of taxes is a whole other discussion. See you next time.”

Cain nodded and turned to leave. “Until then.”

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Photo by Anna Samoylova on Unsplash

A 2010 analysis by the Congressional Research Service found that few developed countries offer 30-year mortgages at fixed interest rates. https://crsreports.congress.gov/product/pdf/R/R41432/3

An analysis by the Center on Biological Diversity estimated an annual subsidy of $100 million to ranchers in below market rates for grazing fees. https://www.biologicaldiversity.org/programs/public_lands/grazing/pdfs/CostsAndConsequences_01-2015.pdf

Federally backed mortgages rose from $707 billion in 2009 to $5 trillion in 2010 and have risen steadily since then. https://fred.stlouisfed.org/series/BOGZ1FL403065005Q

Behn, Richard. 1977. “The False Dawn of the Sunset Laws.” The Public Interest (Fall): 103-118. doi: https://www.nationalaffairs.com/public_interest/detail/the-false-dawn-of-the-sunset-laws.

The Federal deficit as a percent of GDP https://fred.stlouisfed.org/series/FYFSDFYGDP

Tevlin, S., & Whelan, K. (2000). Explaining the investment boom of the 1990s. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.221415 In the seven-year period 1992-1998, investment growth averaged a record-breaking 11.2%. A copy of the paper can be found at https://www.federalreserve.gov/pubs/feds/2000/200011/200011pap.pdf

A Debate on Vulnerability

January 5, 2025January 4, 2025Leave a comment

This is eighth in a series of debates on various issues. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Hope everyone enjoyed their holidays.

Abel began the conversation. “Last week neither of us were happy with the present structure of our government. I thought we could discuss a more fundamental issue, the duty of a government and the duties of its citizens.”

Cain nodded. “At the Constitutional Convention in 1787, the founding fathers fought bitterly about the duties of a federal government. Over two hundred years later, I don’t think we have come any closer to an agreement on this point.”

Abel said, “The scope of the federal government’s duties have expanded since Roosevelt and the Great Depression.”

Cain argued, “For decades, our group has been fighting that expansion. We have compassion for the vulnerable but caring for them is a proper function of state governments.”

Abel shook his head. “The Jim Crow era and the Depression taught us that state governments may be unwilling or unable to help the vulnerable. During the hundred years after the Civil War, southern states lacked any compassion for their black residents. During the Depression, the ranks of the vulnerable increased beyond the capacity of state governments. FDR and the Democrats recognized that and instituted job and relief programs to lessen the suffering and reassert some moral order.”

Cain replied, “It is still not clear that most of those programs did much good. The economy continued to flounder until this country entered World War 2. The federal government may be able to borrow the resources for relief programs, but Congress and the President try to design a one-size-fits-all solution. Only the states can design programs that are suited to the population, resources and economy of each state. Texas and New York have entirely different resources, cultures and economy.”

Abel argued, “But that variety produces a fragmented policy response. State representatives are easily influenced by well-funded interest groups and dominant voting constituencies that want to bend the rules in their favor. Minority populations can become severely disadvantaged.”

Cain argued, “Because of that fragmentation, it can be costly for interest groups and lobbyists to fund a campaign that encompasses more than a few states. Instead, they consolidate their resources in Washington where they hope to effect a centralized policy. Centralized policymaking promotes more lobbying. As the saying goes, ‘The road to ruin is paved with good intentions.’”

Abel insisted, “Your group prefers a more federalist, splintered approach to policymaking. Historically, that has led to unequal treatment of the citizens who live in a state. That abuse violates the 14^th Amendment as well as the principles of equality established in the Declaration of Independence.”

Cain nodded grudgingly. “Yes, there have been instances of abuse. Your group has used that unfortunate history to promote your vision of the federal government as the protector-in-chief of people’s welfare, animals, plants, the air and water. Social welfare programs embody the sentiment ‘From each according to his ability, to each according to his needs.’”

Abel shook his head. “That overstates our group’s position. We value compassion for the vulnerable, many of whom are victims of circumstance, heritage, and the bad luck of being a minority, a historically disfavored group to policymakers.”

Cain argued, “You absolve them of all responsibility for their choices.”

Abel insisted, “Their history as political pariahs and poor economic circumstances influence those choices. Our society bears a heavy burden there. Our group recognizes that.”

Cain said, “You want people to pay for policy mistakes a century or more old. You believe that white people are born with an original sin, guilty of the racist policies of bygone generations. Our group rejects that belief.”

Abel’s tone was more forceful. “Evidence illegally obtained is inadmissible in court. Evidence derived from that evidence is also inadmissible. That is the Fruit of the Poisonous Tree legal doctrine. Riches and advantages derived from property illegally obtained is tainted, yet many of us blithely reject responsibility. How many white people say, ‘Well, I did not steal my advantages or property. I was not yet born when some of these abuses were done. I bear no burden because I belong to a dominant racial, ethnic or cultural group.’”

Cain paused. “Ok, let me ask you. When is the debt paid? If there is a debt, it is finite, so when will it be paid? How much will have to be paid? Who will be assessed for that debt? If a person is 2% white, are they 2% responsible for the debt? Some racist policies were based on that same kind of thinking. A person of ‘mixed blood’ was treated as black and denied a loan or was excluded from buying a house in a certain area. We don’t want to repeat the sins of our fathers, so to speak, in making restitution for the sins of our fathers. The past is past. Let’s move forward.”

Abel argued. “It is not a debt. It is a duty to help the vulnerable, and those who have been wronged. Don’t you see? Some people move forward more slowly because they are weighed down by the policy sins of past generations.”

Cain scoffed, “We may recognize a moral, but not legal, duty to help the vulnerable. The parable of the Good Samaritan comes to mind. Should we legalize that duty and have the government enforce a charitable spirit on everyone? No. As to the abuses of the past, should the federal government give American Indians a lot of land back? Shall we have the National Guard evict a lot of American homeowners? No! The past is past. The Age of Conquest is over. We move forward.”

Abel said, “We can preserve areas like Bears Ears National Monument that is sacred land to an Indian tribe. We can enjoy it in its pristine beauty instead of drilling holes in the ground and installing bobbing black oil pumps.”

Cain shook his head. “Bears Ears is an example of a President overstepping his Constitutional bounds. Resources contained within a state are managed by the state unless Congress mandates otherwise. Congress, not the President. Congress passed a law that designated Yellowstone a National Park. President Grant signed the law that Congress passed.”

Abel argued, “In 1906, Congress passed the Antiquities Act, giving itself and the President the legal authority to designate national parks and monuments. Grand Canyon National Park was created under the authority of that act. Presidents are entirely within the bounds of their designated authority when they dedicate a section of land as a national monument.”

Cain smiled ruefully. “The focus of our argument is wandering. We began by discussing vulnerability and now we are discussing the scope of federal and Presidential authority.”

Abel returned the smile. “Vulnerable lands and artifacts on those lands, vulnerable Indian tribes, their cultures and beliefs. We are still talking about vulnerability.”

Cain replied, “Your group wants to take from those that have and give it to those who have not. Those policies do not raise the overall utility or the flourishing of a society.”

Abel said, “We want to improve the conditions of the least among us. Imagine two kids who have to decide how to divide some chocolate milk. The fairest solution is to have one child pour the milk into each glass, then let the other child get first pick of which glass they want. The child doing the pouring will try to make each quantity as equal as possible. A few decades ago, the philosopher John Rawls argued a similar proposition he called the original position. If we could choose the type of society we wanted to be born into without knowing what our place in that society would be, we would choose a society with a fairly even distribution of resources.”

Cain argued, “To implement those kinds of policies means that society has to take property from some individuals and give it to others. In trying to achieve one form of justice, society commits an injustice, a violation of the rights of private property.”

Abel replied, “Even though there is a violation of private property rights, governments can still attain a more just society. That is the principle behind a progressive income tax system. Take a higher percentage from those who have more and use those funds to help the least among us.”

Cain shook his head. “Not only are such policies a violation of property rights, but they are also a violation of individual privacy. To implement such policies, governments collect a lot of data on their citizens. That kind of personal intrusion is typical of totalitarian governments. George Orwell fictionalized such a government in his book 1984. When governments enact distributive policies, they commit many injustices in the pursuit of justice. The net gain is negative.”

Abel argued, “The U.S. is not the government portrayed in Orwell’s book. You are overstating the case. States and local governments collect much of the information on an individual. Why? So they can tax them. Water boards charge homeowners for the impervious area of their home. City governments regularly assess the value of one’s property for property tax.”

Cain held up his hand in a stop motion. “That’s information on property, not the individual. The amount of information gathered by the IRS is intrusive. Every aspect of a person’s life, including their work and family. It is typical of totalitarian governments. If there was any doubt that we are living under a totalitarian regime, all we need to do is look at the Covid lockdowns during the pandemic.”

Abel said, “Well, the country needed a unified response to a rapidly spreading pathogen. And yes, I agree that the information gathered is a bit excessive. Taxes are an unfortunate component of the social contract.”

Cain said, “A person’s work shouldn’t be taxed at any rate. It’s immoral.”

Abel shrugged. “Whether it is immoral is a matter of opinion. It’s the law, an amendment that is part of the Constitution. Killing people is immoral. When political leaders perceive a threat to the country’s security, they authorize killing. As this country’s population expanded in the late 19^th century, policymakers thought that the inadequacy of revenue from tariffs was weakening the government’s finances to the point where it could become a security threat. An income tax was ruled unconstitutional by the Supreme Court in 1895. Eventually, the states amended the Constitution.”

Cain returned to the totalitarian theme. “Lockdown policies during the pandemic scared a lot of people. They demonstrated the authoritarian reach of this government. Grandparents unable to visit with or care for their grandchildren. Scare tactics like ‘Little Johnny will spread the disease and kill Grandma.’ It was reminiscent of the Red Scare, the fear that left wing ideas would infect people’s minds.”

Abel nodded. “That’s a whole other discussion. Every year the Supreme Court hears cases that test the extent of the police power of the federal and state governments. We’ve wandered off topic again.”

Cain shook his head. “Many of these issues are interwoven or joined together like the threads in a spider’s web. What is fairness? How much control should a government exercise to protect the vulnerable? What should be the extent of the government’s role in the social contract?”

Abel smiled. “I like the spider web image. We pull on one thread and that affects the tension on the other connections in the web. Well, maybe next week we can look at the police power of government.”

Cain replied, “Or tax policy.”

Abel laughed. “I wished we could find something simple to talk about.”

With mock skepticism Cain said, “Like whether the toilet seat should be left up or down.”

Abel smiled. “See you next week.”

Cain waved goodbye.

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Photo by Ross Sneddon on Unsplash

In March 2009, in the depths of the financial crisis, historian Allan Winkler testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs on the effect of New Deal policies during the Depression. “The NRA alienated business, and never did encourage private expansion or investment. It may have halted the deflationary spiral, but it failed to create new jobs.” https://www.banking.senate.gov/imo/media/doc/WinklerTestimony33109TheNewDealSenateTestimony.pdf#page=5

In 2016, Barack Obama designated the Bears Ears National Monument in Southern Utah a national monument. Here is a video of some of the landscape from the Patagonia Company. You can read more about the controversy and legal skirmishes here https://www.npr.org/2022/08/24/1119310929/utah-sues-to-stop-restoration-of-boundaries-at-bears-ears-grand-staircase-monument

Exploitation as well as preservation were key motivations behind the passage of the Yellowstone National Park Preservation Act in 1872. https://www.nps.gov/articles/000/president-grant-and-the-yellowstone-national-park-protection-act.htm

A list of national monuments. https://geojango.com/pages/list-of-national-monuments

In his 1971 book, A Theory of Justice, the philosopher John Rawls argued for a more equal distribution of resources in society. https://en.wikipedia.org/wiki/A_Theory_of_Justice

The precedent underlying the Supreme Court’s 1895 decision that an income tax was unconstitutional. https://taxfoundation.org/blog/today-history-income-tax-ruled-unconstitutional-pollock-v-farmers-loan-trust-co/

More on the Red Scare and McCarthyism. https://millercenter.org/the-presidency/educational-resources/age-of-eisenhower/mcarthyism-red-scare

More on the Fruit of the Poisonous Tree doctrine https://www.law.cornell.edu/wex/fruit_of_the_poisonous_tree

A Debate on Immigration

December 29, 2024December 28, 2024Leave a comment

December 29, 2024

by Stephen Stofka

This is seventh in a series of debates on various issues. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Wishing everyone a happy and flourishing New Year.

Abel opened the conversation. “I thought we might talk about immigration this week.”

Cain replied, “You mean illegal immigration.”

Abel said, “Our group doesn’t like calling people illegal. The only illegal act that many of these migrants have committed is crossing the border, a Section 1325 offense. That carries civil, not criminal, penalties.”

Cain shook his head. “You make it sound like a speeding ticket. If your group doesn’t like the term ‘illegal,’ we can refer to them as ‘illegitimate asylum seekers.’ Most of them are not fleeing persecution. They are jumping the immigration line. They are cheaters, taking advantage of the huge backlog in processing asylum claims.”

Abel shrugged. “Everybody cheats. Thousands of people and businesses fraudulently applied for Paycheck Protection checks during the pandemic. The bankers cheated the system and provoked the financial crisis that caused millions of Americans to lose their homes. Then the bankers claimed asylum from their own stupidity and recklessness and the government bailed them out.”

Cain’s expression was grim. “Our group did not approve of bailouts for bankers. It cost taxpayers billions, and they kept their bonuses. None were prosecuted under Obama’s watch.”

Abel argued, “No jail time for fat cats but your group wants to jail vulnerable migrants. Why don’t we put some of the migrants in the penthouses that the bankers bought with taxpayer money? Your group imagines a world where everyone plays by the rules. Like I said, everyone cheats.”

Cain shook his head. “They can wait in the immigration line like millions before them. Think of the people waiting in line outside of the U.S. for their immigration application to be processed. Illegals jump the line and claim asylum as they’ve been told to do by the cartels and coyotes. It’s an insult to those who are playing by the rules.”

Abel said, “Many recent immigrants have been coming from Venezuela. It is a failing state, ranked 28^th out of 178 states. Nicaragua, Columbia and Honduras are ranked in the sixties, putting them in the top third of vulnerable states.”

Cain nodded. “So, some of the Central American countries are stressed. Their economy is poor. Maybe there is some gang activity. When Congress passed the asylum law in 1980, the basis for a refugee claim was fear of persecution because a person belonged to some group. Their race, religion, nationality or membership in a social group made them a target. A parent might be worried that a local gang will target her son or daughter. I sympathize but that is not grounds for an asylum claim.”

Abel said, “The U.S. has been an economic leader because of our openness to immigrants. The Census Bureau recently reported that 83% of the net increase in population came from immigration. Our population is getting older. We are having fewer children. Our economic stability depends on immigrants to expand our workforce.”

Cain said, “Look, I agree that immigrants may become net contributors to our society and economy. But that takes a long time. Newly arrived immigrants at the southern border have so many immediate needs. That includes housing, health care and other social services. The kids need education. They make huge demands on a community before they make any notable contribution.”

Abel argued, “Many Americans are descended from immigrants who came from similar circumstances. It takes a lot of desire and gumption to tear up roots and start over in a new country. America became the world’s leader by welcoming people like that.”

Cain shrugged. “No doubt it takes heart, but many of our ancestors came over when governments provided far fewer social services.”

Abel said, “Your group wants to keep a balance sheet for each immigrant. How many services do they use? What taxes do they pay? The sum of a person’s contributions and withdrawals from the community cannot be summed up so easily.”

Cain agreed, “The accounting is not perfect, I’ll admit, but policymakers need some concrete measures to evaluate the policies they implement.”

Abel argued, “Let’s go back to the peak years of European immigration in the late 19^th century and early 20^th century. Many of those immigrants were exploited by employers and landlords. In the late 19^th century, Jacob Riis published pictures of the slum conditions in New York City. Immigrants lived in cramped conditions without proper water or sanitation. They worked in sweat shops and factories where they had few safety protections. Any ‘contributions’ they made to society were skimmed off by unscrupulous employers and landlords.”

Cain was adamant. “You think that kind of exploitation has stopped? Migrants working seasonal harvests under the H-2A visa program are often housed in accommodations with minimal standards. Their status affords them little bargaining power, so they are under the control of the subcontractor who employs them or the farmer that engages the subcontractor. Employers want cheap labor.”

Abel said, “Tighter borders controls in the past few decades have made it impractical for some seasonal workers to follow the harvests in Mexico and the U.S. They have stayed behind in the U.S., supporting their families in Mexico from afar. They pay taxes but are not entitled to retirement benefits even after twenty or thirty years of working in the U.S. If they are cheating the system, they are doing a terrible job. They are funding benefits to native Americans.”

Cain continued, “Your group advocates policies that only encourage labor exploitation, whether you mean to or not. Immigrants increase the supply of labor and lower wages for native Americans. It’s Econ 101. Supply and demand.”

Abel disagreed, “Lower wages would increase the supply of goods and lower prices. That’s also Econ 101. Immigrants increase demand for the very goods they help produce. That increases employment and reduces the unemployment rate for native workers with low-skills.”

Cain shook his head. “I disagree. At any rate, social services for illegal immigrants are costly. Sanctuary cities like Denver and New York City have discovered just how expensive and disruptive these immigrants can be. The mayors complained when Texas and Arizona sent them some of the thousands of immigrants that cross the border every day. Policymakers in those cities sure got a taste of the problems that border states are dealing with.”

Abel sighed, “It was a political stunt by Abbott, the governor of Texas.”

Cain replied, “Martin Luther leading a bunch of black people across the Edmund Pettus Bridge in Birmingham was also a ‘political stunt.’ A better word is ‘protest.’ Busing illegal immigrants to other cities was a legitimate form of protest for Texas and Arizona.”

Abel argued, “Citizens protesting government abuse is a protest. When one state uses people as a political hot potato with another state, that’s a stunt.”

Cain shook his head. “Texas and Arizona have long complained about federal immigration policy. All those words fell on deaf ears in Washington. Actions do speak louder than words. Liberal states like Colorado and New York woke up to the reality of immigration policy when they had to deal with the problem in a concrete way.”

Abel insisted, “States should be working their policy disagreements out in Congress. Abbott’s stunt was sophomoric and vindictive.”

Cain replied, “Congress has been at a stalemate for years. The states have to take matters into their own hands where and when they can. The immigration system has been broken for years because Congress wants it broken. A persistent problem gives politicians an issue they can campaign on. Why is the minimum wage not indexed to inflation? Because Congress wants to fight over it.”

Abel asked, “So what does your group propose? Close all the borders?”

Cain said, “This country was founded on federalism, a compact between the states. The border states should have more autonomy in border control.”

Abel scoffed. “That won’t work. Immigrants will go to the border state with the most relaxed controls. Once they are in the country, they can move to another border state.”

Cain shook his head. “Make it illegal. If California lets in an illegal, that person has to stay in California for five years or so.”

Abel sighed. “How will the states enforce that? Each state would have to implement border controls on each highway going into their state. It’s not practical. The only practical policy solution is a unified federal response from Congress.”

Cain said, “Then the problem will plague this country forever, particularly Texas, Arizona and California. Congress doesn’t compromise on a solution until it becomes a crisis.”

Abel said, “Now we are getting to the heart of the matter. The two parties have created a political system that cannot craft coherent policies to address our problems. Americans suffer. They get cynical. Only 60% vote in a Presidential election. Only 20% may vote in a primary. Most of them tune out of politics because it’s a maze with no exit.”

Cain’s tone was resolute. “Then we need to fundamentally alter our system. The states need to call for a Constitutional Convention and bypass this dysfunctional Congress.”

Abel said, “That movement grew in popularity during the 1960s and 1970s. It seems to be gaining popularity recently. Maybe that’s the only solution. I’m afraid the two-party system that cripples our policymaking today will subvert a convention.”

Cain turned to leave. “That’s a discussion for another day. In a first ‘past the post’ election system, two parties are inevitable. The convention would have to implement a Parliamentary system, I suppose.”

Abel waved. “See you next week.”

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Photo by Greg Bulla on Unsplash

Jacob Riis’ photos uncovered the abuses of immigrants in the Gilded Age. https://www.britannica.com/biography/Jacob-Riis

The Census Bureau’s recent report on population growth. Most of the 1% increase in population came from immigration. https://www.census.gov/newsroom/press-releases/2024/population-estimates-international-migration.html

Many undocumented immigrants are not eligible for federal subsidy programs. A state may allow them to participate in a particular program administered by the state. https://www.nilc.org/resources/overview-immeligfedprograms/

In a 2015 analysis of 2000-2010 data, Andri Chassamboulli and Giovanni Peri found that “increasing deportation rates and tightening border control weakens low-skilled labor markets, increasing unemployment of native low-skilled workers.” The incoming administration assumes that the opposite is true, that tougher border policy will strengthen low-skilled labor markets. https://www.sciencedirect.com/science/article/abs/pii/S1094202515000514

The New York Times related the stories of several aging farm workers. https://www.nytimes.com/2023/12/05/us/aging-undocumented-farmworkers.html

A Colorado Public Radio report on the difficulties and cost of treating newly arrived immigrants. https://www.cpr.org/2024/03/19/colorado-new-immigrant-population-adds-strain-to-hospital-system-already-stretched-thin/

An explainer of the H-2A worker program from the U.S. Citizenship and Immigration Services. https://www.uscis.gov/working-in-the-united-states/temporary-workers/h-2a-temporary-agricultural-workers

The Congressional Research Service investigated the mechanisms of calling a Constitutional Convention and a range of issues that the convention would debate. https://crsreports.congress.gov/product/pdf/R/R42589/15

A Debate on School Vouchers

December 22, 2024December 19, 2024Leave a comment

December 22, 2024

by Stephen Stofka

This is sixth in a series of debates on various issues. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Wishing everyone a happy holiday this coming week.

Abel said, “Last week, we spoke about higher education but let’s look at the K-12 system. Your group advocates for school choice and a voucher program. For each school age child, the government gives families a voucher that can be applied to their school of choice.”

Cain replied, “There are a number of voucher programs in various states and studies have found an overall positive effect on student learning.”

Abel argued, “Our group is concerned that the costs outweigh the relatively small benefits. The key feature of those programs is parental freedom, your group says, but those taxpayer dollars are taken from established public schools to fund private schools. If voucher programs are more widely adopted, existing schools will have less money for capital improvements and repairs, forcing some to close. Lower enrollment causes public school districts to consolidate their students and close some. School choice transfers resources from one publicly funded school system to another.”

Cain insisted, “Parents are taxpayers. Many are homeowners whose property taxes are the main source of funding for public schools. Parents should have some control over where their property taxes are being spent. A voucher system allows parents to direct funds to those schools which serve their children best and away from low-performing schools or schools that do not provide a safe environment.”

Abel said, “Our concern is that parents will direct funds to those schools with students from similar backgrounds, effectively segregating the schools. As I mentioned last week, parents might choose schools with a curriculum that does not challenge their child in a particular subject like math.”

Cain shook his head. “Your group has too much faith in ‘experts.’ You readily overlook the many policy mistakes that education experts have made. The ‘new math’ that de-emphasized rote learning of arithmetic is one example. Kids got out of school and couldn’t make change when working in a retail store. In the 1970s, schools tried the ‘open classroom’ concept, a model based on the one-room country schoolhouse. Imagine the noise and distraction when fifty to sixty kids of various grade levels were squeezed into one big room and learning multiple subjects.”

Abel nodded. “I’ll grant you that there have been policy mistakes. Your group has a faith in the wisdom of crowds. That’s the idea underpinning the free market and democracy. Our group is concerned about what Garret Hardin called the ‘Tragedy of the Commons.” The sum of individual actions can produce a result that is harmful to the group as a whole. Overgrazing and overfishing are prime examples.”

Cain interrupted, “I’ll grant that the Tragedy of the Commons can be a problem. Our group worries about the ‘Tragedy of Group Think.’ Policymakers of like assumptions, values and policy preferences are attracted to each other like magnets. They implement some policy and overdo it. Their biases and loyalty to their political group make them unable to honestly evaluate the results of their policy. They become increasingly focused on countering any political opposition to their policies.”

Abel shrugged. “Yes, our system of checks and balances can be like a tired defensive line in the fourth quarter. Our group worries that the tragedy of the commons will become more acute as the population concentrates in urban areas. As our technology and communications become more powerful, there is a greater likelihood that people synchronize their decisions and actions. The sum of those actions creates a negative feedback loop that creates the very circumstances that people fear.”

Cain’s said, “The problem with ‘top-down’ policymaking is that an interest group can influence policy to best meet their self-interest. The teachers’ union is a prime example. They have joined forces with a deep educational bureaucracy to take over the public schools. Administration is no longer responsive to parents’ concerns. When bad teachers get paid to sit and do nothing in so called ‘rubber rooms,’ that is a waste of taxpayer dollars and an insult to hard working parents.”

Abel shrugged, “A few bad teachers make the headlines, and your group uses that as an excuse to condemn all public-school teachers. Does one bad soldier make you condemn all soldiers? No, of course not. Most teachers work hard. They care about the kids. They make personal sacrifices and financial sacrifices.”

Cain objected, “It’s the teachers and administrators spreading their liberal ideology when the schools should be teaching reading and math skills.”

Abel sighed. “Now we are getting to the heart of the debate. How do kids learn to read? By reading. Your group objects to some of the material the kids read in class. Your group wants to hover over teachers’ shoulders, approving or disapproving of each piece of reading material. In 2023, Florida passed a law that allowed anyone in a school district to challenge the appropriateness of a particular book. Schools often remove a challenged book from their shelves while the book is under review. School districts insist the books are not banned – only temporarily removed.”

Cain made a ‘stop’ motion with his hand. “Most of those objections were raised by a single advocacy group. Florida passed a law in 2024 permitting only parents to raise an objection.”

Abel protested, “An advocacy group could enlist the help of a parent and raise an objection. Call it whatever euphemism you want; the policy effectively bans books.”

Cain argued, “Look, the responsibility for rearing children resides primarily with the parents, not the state. Only if the parents are unfit can the state override that fundamental right.”

Abel nodded. “But a school acts on behalf of parents when children are in their custody and care. A school cannot satisfy the preferences and ideologies of every parent who sends their child to a school.”

Cain answered, “Should an unelected bureaucrat decide what is appropriate material for a library shelf in a K-12 school? Under that system, a small committee of bureaucrats can promote homosexuality or transgender issues, pushing their personal agenda on the community. Our group prefers that parents make decisions about their children, not some supposed expert.”

Abel replied, “Teachers are promoting tolerance for others who may look or act different than the majority. In a classroom with children from different family structures, cultures and faiths, tolerance is an important character trait. In the Christian tradition, Jesus taught tolerance of those ostracized by their society – the leper and prostitute, for example. The Founding Fathers enshrined tolerance in the First Amendment, protecting speech and religion against government intrusion.”

Cain said, “As public institutions, public schools might have some Constitutional obligations that private schools don’t have. That is why some parents want the option of sending their children to private school.”

Abel interjected, “At taxpayer expense.”

Cain disagreed, “Parents are the taxpayers. Naturally, they don’t want to pay property and sales tax for public schools, then pay again to send their children to a private school.”

Abel argued, “Look, a voucher program is an ‘end-run’ around the Constitutional separation of church and state. The exchange of a voucher between a parent and a school does not obscure the fact that taxpayer money is funding the school. If the school is religious, that is a violation of the First Amendment.”

Cain said, “Is it? The term ‘separation of church and state’ was coined by Thomas Jefferson and is not in the Constitution. The text of the First Amendment is that the government can not inhibit or promote a religion. In a 1971 case, Lemon v Kurtzman, the Supreme Court established the ‘Lemon test’, a three-part test as to whether a particular law violates the Establishment Clause of the First Amendment. In our opinion, school vouchers pass that test and do not violate the Establishment Clause any more than giving property tax exemptions to religious schools. In a 2002 decision, the court ruled that an Ohio voucher program was legal.”

Abel argued, “That Lemon case was a unanimous 8-0 decision. The 2002 case was decided 5-4. by the same slim conservative majority that handed George Bush the 2000 Presidential election.”

Cain objected, “Supreme Court decisions form legal precedent no matter what the ‘score’ was. The justices on the present court are even more conservative now.”

Abel said, “This year, the South Carolina Supreme Court found that a voucher program violated their state constitution. Obviously, the legality of voucher programs is not settled. To our group, the issue seems more like judicial political preference than judicial precedence.”

Cain replied, “A voucher program may violate the text of a state’s constitution, but it doesn’t violate the federal Establishment Clause.”

Abel raised his hand. “Let’s move on from the legality of it and return to the taxpayer expense aspect. Many private schools are exempt from state and local property taxes so the loss of that tax revenue is a taxpayer expense. Lower attendance in the public school system prompts school districts to consolidate and close some of their schools. Taxpayers have an ongoing expense to maintain or dispose of those buildings. School choice robs Peter to pay Paul, as the saying goes.”

Cain said, “Adopting any new policy of modifying an existing system incurs costs. A public expense may affect some taxpayers differently than others. That is the nature of a public expense and it’s why people often disagree on funding for public improvements. For instance, a district or county allows the building of new subdivisions. Then the county has to build a larger sewage treatment plant to process the extra waste from those residences. When the county proposes a special property tax assessment to pay for the plant, homeowners in older portions of the county object. They feel like most of the cost should fall on those newer homeowners.”

Abel replied, “Your example is about an addition to an existing system. School choice involves replacing, not adding to, existing public schools.”

Cain said, “A distinction without a difference. Often the schools that are closed have served their useful life. In other words, they are fully depreciated and would require a lot of ongoing expense to maintain or upgrade to current building codes. In that sense, private schools save taxpayers the burden of that expense and allow them to sell the property to a buyer who will maximize its usefulness.”

Abel insisted, “Often those closed schools are in low-income areas. A voucher may not fully reimburse a parent who wants to send their child to a more expensive school in a nearby district. School vouchers can further separate families by socio-economic status. Even if vouchers pass the court’s Lemon test, they will not afford all families equal access to the K-12 school system.”

Cain argued, “The vouchers would all be for the same amount within that geographical area. That’s equal access.”

Abel replied, “Equal access is not equal opportunity. The equality of the voucher amounts would not violate the text of the Fourteenth Amendment, but they would violate its spirit of equality.”

Cain turned to leave. “That equality issue is a Pandora’s box of different interpretations. We’ll cover that another time.”

Abel waved. “See you next week.”

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Photo by Julia Morales on Unsplash

New math focused on student comprehension of math concepts rather than rote learning of arithmetic skills like multiplication tables https://en.wikipedia.org/wiki/New_Math. Without fundamental skills in arithmetic, however, students struggled to understand conceptual relationships between quantitative measures.

Here is a recent article on Australia’s current experiment with the open classroom concept. https://en.wikipedia.org/wiki/Open_classroom. Montessori schools have a non-traditional design with class sizes of twenty to thirty students. https://amshq.org/Families/Why-Choose-Montessori/Montessori-FAQs

This Wikipedia article on the Tragedy of the Commons notes that Garret Hardin did not invent the concept but his 1968 article in Science brought widespread attention to the problem. https://en.wikipedia.org/wiki/Tragedy_of_the_commons

This article from the Fordham Institute contains links to several studies of voucher programs in the states. https://fordhaminstitute.org/national/commentary/impact-voucher-programs-deep-dive-research In Troxel v. Granville, 530 U.S. 57 (2000), the Supreme Court held that, under the 14^th Amendment, parents have a fundamental right to “oversee the care, custody and control of a child.” https://supreme.justia.com/cases/federal/us/530/57/. Schools have an “in loco parentis” duty to act on behalf of the parents when the child is in the school’s custody, but states cannot supersede the fundamental rights of the parents “until a parent is proven unfit.” See https://www.supremecourt.gov/DocketPDF/20/20-618/162853/20201207145434898_20-616%20Amicus%20Brief%20The%20Justice%20Foundation%20cert%20stage.pdf.

A Debate on Education

December 15, 2024December 13, 2024Leave a comment

December 15, 2024

by Stephen Stofka

This is fifth in a series of debates on various issues. The debates are voiced by Abel, a Wilsonian with a faith that government can ameliorate social and economic injustices to improve society’s welfare, and Cain, who believes that individual autonomy, the free market and the price system promote the greatest good.

Cain said, “Last week, after our discussion on healthcare, you asked what kind of public good our group likes. Education is a proper role for government.”

Abel asked, “Our group thinks both healthcare and education are public goods. Why do you agree on one and not the other?”

Cain replied, “What’s a public good? Something that benefits an entire group of people but the market undersupplies.”

Abel interrupted, “Like healthcare.”

Cain disagreed, “Education is different than healthcare because learned skills are portable and transferable.”

Abel countered, “Our group would argue that healthy people are more productive. Good health is a transferable skill as well.”

Cain shrugged, “I’ll grant you that. But there’s a difference. Education transforms human beings. Healthcare is restorative. Education can be traced to a source that bears the expense of training. Good health has multiple sources.”

Abel interjected, “Wait. Let me get these distinctions you’re making. Transformative versus restorative. Single source versus multiple source. Ok, got it.”

Cain continued, “There’s a cost benefit paradox. Let’s say a company trains some people at their own expense. In the middle ages and Renaissance, a trade or craft guild trained their apprentices. They controlled advancement to the ranks of journeyman and master and where their guild members worked.”

Abel said, “In the 15^th century, London public schools taught students basic reading and math skills so they could be admitted to a trade or craft guild. Even then, education was understood as a role of government.”

Cain replied, “Ok, but even under the guild system, the masters paid their apprentices less to recover the costs of training. Let’s imagine a more modern system where guilds do not dictate where a person can work. An employee learns that they can earn more at a competing company whose business model is hiring trained employees from other companies. The training benefits the employees and the competitor but not the company that does the training. No company wants to train their employees unless everyone does it. That’s an ideal role for government.”

Abel replied, “Ok, so your group acknowledges the role of government in providing education. How much education? Who pays for that expense? Those are policy decisions that are outside the price system.”

Cain nodded. “How much meaning how many years? Grade school, high school, college?”

Abel replied, “Yes. I would include trade schools.”

Cain said, “Our group advocates for school choice, a voucher system that allows parents to decide what school is best for their children. Our K-12 system was designed in the 19^th century when many parents had little formal education and could not evaluate a school’s practices. That is no longer true.”

Abel argued, “That approach can lower standards. Schools would learn to cater to parents. For instance, a high school might offer a diploma without the need to take geometry or algebra class. A parent whose child was not good in math would be attracted to such a school.”

Cain replied, “There would have to be some standards, of course.”

Abel responded, “But setting standards requires a governing body to set those standards. How are those people appointed? Are they elected? Again, the price system cannot achieve a desired allocation of resources.”

Cain shook his head. “Sure, there will be parents who game the system, but they will be a small minority. Don’t use those few to invalidate an entire framework.”

Abel said, “It’s not just a few. During the 1980s, some online colleges became ‘diploma mills’, enabling students to acquire diplomas with little effort. In some fields like the law, a diploma is a credential that enables a person to get a license to practice the law. That diploma is a direct factor of production. In the humanities, a diploma can be more of a signaling device. In markets like that, the price system invites abuse.”

Cain nodded. “I’ll grant you there is a need for standards.”

Abel continued, “Many of the products we consume are subject to standards that were set by some governing body over a century ago. In the 19^th and 20^th century, groups like yours with libertarian sentiments opposed such standards.”

Cain said, “OK, I get your point. Our point is that such intervention, which is subject to political ideologies and alliances, should be kept to a minimum.”

Abel replied, “A college certification or degree is not an electrical appliance that can be easily tested. Some trade certifications are only awarded after a hands-on or clinical test. But some disciplines like sociology have no testable application. In that case, only the rigor of the curriculum can be evaluated. A school must submit its curriculum to an accrediting body.”

Cain said, “An who evaluates the accrediting body? The Department of Education. Some advocacy organizations like Veterans Education Success have questioned the legitimacy of an accrediting agency.”

Abel nodded. “Agreed. There will always be a political element in any market. Your group wants to look at the price system in isolation. It is skeptical of government institutions. Our group sees those institutions as vital to functioning markets as umpires are to the game of baseball. The price system cannot survive without strong government institutions that people respect or at least tolerate. When those institutions seem to be biased to a particular group, they lose credibility, and the price system invites abuse.”

Cain replied, “Let’s agree that a market is like a game. It needs some governing body to set the rules, and it needs umpires or referees to make sure players abide by the rules. Our group opposes government agencies setting rules to force a particular outcome. Baseball fans are used to it. The dimensions of the strike zone are changed to advantage batters and promote higher scoring games. That’s fine for an entertainment sport like baseball. It’s not fine for the private economy. Regulators might change the rules to promote a more equal distribution of income. The people who are attracted to government are attracted to power. A rule change is like pulling a big lever on the economic machine.”

Abel shook his head. “There you go again. Your group assumes that people in the market have benign self-serving intentions. You assume that people in government, on the other hand, have suspicious motives. They are villains twirling their long moustaches and plotting the end of a free republic.”

Cain laughed. “There are few adaptable constraints on their behavior. We are not saying that people in the private market are saints. Adam Smith’s point about the invisible hand was that the sum of individual self-serving action promoted an overall good. Each of us serving our own needs acts as a constraint on others.”

Abel interjected, “Adam Smith also pointed out that businessmen were constantly colluding to subvert the price system and the public good.”

Cain nodded. “Fair enough. My point is that politics is a dangerous game because there are so few players. The Constitution specifically gives the House and Senate the ability to set their own rules. State and federal legislatures regularly change those rules to promote their own party power. Gerrymandering congressional districts is an example of changing the dimensions of the strike zone. They change the rules to achieve a specific outcome.”

Abel said, “In the cause of promoting higher education for everyone, policymakers want to change the rules to give everyone a chance at a higher education. That includes funding for school and guidelines that promote more diversity on campus.”

Cain argued, “Like everything else government touches, they make the process of getting financial aid complicated. Many parents and students need help with the labyrinth of information and regulation that the financial aid form – FAFSA – requires.”

Abel replied, “The Department of Education needs to assess the financial need of each student. They want to make sure that a student from a high-income family is not tapping the pool of funds that could be helping a student from a low-income family.”

Cain said, “That’s the problem with needs-based frameworks. Some government agency has to assess a student’s need. Imagine if a restaurant owner charged different prices for a meal based on their customers’ incomes.”

Abel shook his head. “An education is not a restaurant meal. At any rate, colleges and universities usually publish the same price per semester. Based on ability and financial need, a student gets scholarships or grants. If you want to use the restaurant meal analogy, those grants are like having a discount coupon off a meal. The complicated part is figuring out who gets the coupons and how much the coupons are worth. Your group doesn’t like complications.”

Cain replied, “In our economic system, students are aspiring suppliers of skills and knowledge to the marketplace. They attend college to acquire those skills and knowledge. The schools should supply them with those skills and relevant knowledge. I emphasize the word ‘relevant’. The government’s role is not to fund teachers spreading their Marxist ideologies or to be an advocate for gay issues.”

Abel argued, “Students in a sociology class might be interested in a career as a law enforcement officer, public administration or the practice of law. The treatment of gay people in different cultural backgrounds would provide helpful background in their jobs. Remember the 80-20 rule. We use only 20% of what we learn in school to do our job. The other 80% enables us to understand that 20% we do use.”

Cain nodded. “Professors are there to present information, not their normative perspective. They take advantage of students who are at an impressionable age. Too many professors treat the classroom as their personal pulpit. The taxpayers shouldn’t be funding some professor’s personal political religion.”

Abel shook his head. “Taxpayers help fund Christian Colleges and Bible Colleges. Are you suggesting that the government should support some perspectives and censor others?”

Cain said, “Our group believes that states and local communities should have more of a say in how their taxes are spent.”

Abel replied, “Alaska and Rhode Island receive the most in federal grants on a per-capita basis. Residents of New York and California pay the most in taxes. Should taxpayers in New York City have a say in how Alaska spends its federal grants? We are a republic of fifty states. Our finances are interconnected and that creates conflicts in our common and individual interests. Governing those diverse interests makes it difficult to apply a cohesive set of principles.”

Cain argued, “Transparent principles are essential to good governance. Discretionary public policy invites abuse and corruption.”

Abel nodded, “James Madison, the primary architect of the Constitution, thought that conflicts in regional interests would cause the nation to fracture and fail. As rigid as the Constitution is, we keep patching the contracts and alliances that form our union.”

Cain threw up his hands. “We seem no closer to an agreement on education policy.”

Abel replied, “The path to compromise is paved with disagreements.”

Cain nodded. “We’ll talk next week.”

Abel said, “See you then.”

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Photo by The Oregon State University Collections and Archives on Unsplash

A comparison of training done in medieval guilds with the current university system. https://onlinelibrary.wiley.com/doi/full/10.1111/hequ.12305

In 15^th century London, public schools taught basic reading and arithmetic skills which were necessary for admittance to the guilds. https://www.thoughtco.com/medieval-child-the-learning-years-1789122

A history of “diploma mills” https://en.wikipedia.org/wiki/Diploma_mills_in_the_United_States. Veterans Education Success advocates for veterans in higher education. Here is a complaint they filed with the Department of Education https://vetsedsuccess.org/our-letter-to-the-department-of-education-on-hlc/

A Debate On Medicare

December 8, 2024December 7, 2024Leave a comment

December 8, 2024

by Stephen Stofka

This is part 4 of a weekly series of debates on various issues, including climate change, pollution, rent control and market failures in general.

Abel said, “I’d like to pick up where we left off last week, talking about monopolies.”

Cain added, “And monopsonies, you said, where there is only one buyer in a specific market.”

Abel nodded. “There is no better example of both monopoly and monopsony than the health care industry. Your group wants to keep government interference in the market to a minimum. In the health care market, it’s just not possible.”

Cain said, “Private companies offer health insurance. Why do we need government?”

Abel replied, “A product might be labeled health insurance, but insurance companies stay in business by selling risk mitigation. Consumers buy an insurance policy to protect them from a large expense. A for-profit insurance company has an obligation to their shareholders first and they use every legal ruse to reduce the amount they pay on medical claims from their customers.”

Cain argued, “We agree that insurers sometimes deny or delay legitimate claims for care. Congress passed Medicare in 1965 to provide low-cost health care to seniors. The government uses less discretion in paying claims but pays below market rates. That system welcomes fraud and abuse. Health and Human Services estimated that the Medicare and Medicaid programs paid out $100 billion in improper payments in 2023.”

Abel nodded. “The price system doesn’t account for dishonesty by private providers. All the more reason why there has to be greater supervision by government agencies to ensure compliance. A frequent police presence incentivizes people to police themselves.”

Cain disagreed, “No, the government has become a monopsony in the healthcare market. Providers are attracted to Medicare because there is such a large pool of buying power. Providers and suppliers are eager – too – eager – to diagnose and treat older people. Those are resources that cannot be spent on younger people.”

Abel countered, “Younger adults in their prime working years use far less health care services than older people. Without government subsidies, an insurance company would need to charge a prohibitively high rate to insure 70-year-olds.”

Cain asserted, “When people or things get old, they require more service. Imagine if the government funded low-cost auto repairs on cars that were more than ten years old. Car makers would be reluctant to develop improvements in newer car models. Why bother? There is more profit in fixing up the old cars.”

Abel protested, “That’s a stupid analogy. People are not cars.”

Cain nodded. “Exactly. My point is that our society is currently spending a lot of money on old people and the diseases that affect old people. That money is not available to help young people, the newer models of people.”

Abel argued, “Your group sees every problem in dollars and cents. Health care is about human dignity and flourishing as well as the alleviation of suffering, especially for older people who have spent a lifetime working and contributing to their community. What is the price of human dignity? The price system is incapable of measuring the value of intangibles that are precious to us. Government’s role is to protect those qualities we hold dear and that takes regular intervention. Government can’t just step in, assign property rights and let the private market and the price system manage the problem.”

Cain shook his head. “As a share of GDP, healthcare spending in this country continues to grow larger. Per capita spending on healthcare has more than doubled since 2001. The Centers for Medicare and Medicaid Services says that the share was 17.3% in 2022. Out of every $6 of economic activity in this country, more than $1 is spent on healthcare.”

Abel explained, “But that’s because the Boomer generation is so large, and many are seniors. Naturally, healthcare spending will rise because older people use more healthcare services.”

Cain replied, “Yeah, but Medicare spending as a share of total healthcare costs was rising before any of the Boomers became eligible for Medicare. In 2001, Medicare spending was just $1 out of every $5 spent on healthcare. By 2011, that share was more than $1 out of every $4 and the first Boomers had just turned 65 and become eligible for Medicare. In 2021, Medicare spending accounted for almost $1 out of every $3 spent on healthcare (FRED chart and data here). Out of $20 spent in the entire economy, the government now spends $1 taking care of old people. And that doesn’t include Medicaid spending on low- income seniors. That is a burden on younger generations.”

Abel said, “Those costs went up in the 2000s after Republicans revised the Medicare Advantage, Part C, program and added a drug benefit, Part D. Obamacare expanded the program even further. The latest annual report to Congress from the Medicare Payment Advisory Commission found that Medicare Advantage plans paid providers 122% of the amount paid for similar services to Fee-For-Service plans under traditional Medicare.”

Cain replied, “That illustrates my point. When politicians and government agencies try to improve any program, they don’t make the program more efficient. They spend more money. The people who work in government want to codify their principles, their ideals, their sense of fairness into law. Despite their rhetoric, they do not serve the cause of efficiency. They only make things more expensive and more complicated for the people they are supposed to serve.”

Abel countered, “I’ll repeat, your group looks only at the dollars and cents. In 1965, a 65-year-old male could expect to live another 13 years. In 2021, that same male could expect to live another 17 years. Women have had a similar increase of almost four years in life expectancy. The government is spending more on seniors because they are living longer and living better, thanks to the Medicare program. A 70-year-old Boomer today is far healthier and more active than a 70-year-old was in 1965. The price system can not value improvements in the quality or quantity of life.”

Cain argued, “When the government buys almost a third of the entire healthcare market, that’s effectively a monopsony, which distorts the price system. With a functioning market, seniors would pay more for those healthcare services which improved their quality of life. Instead, the government writes the checks, so seniors overconsume healthcare services. Why not? It’s effectively free. That distorts any measure of value that the price system can determine.”

Abel shook his head. “Seniors on fixed incomes have reduced options. There is too much danger that they will forego needed medical care simply because they can’t afford it. For most of their lifetime, they got over respiratory diseases like colds. After an initial visit, injuries like broken bones healed. It may be difficult for seniors to understand that the diseases of old age will not just go away on their own. High blood pressure and heart disease, Type 2 diabetes, arthritis and chronic respiratory problems need active management. Putting off care for a lack of funds only makes those conditions less manageable.”

Cain said, “Educating seniors is the key. Instead, the government treats old people like children. The Medicare program lacks the discipline that private insurance companies bring to the market.”

Abel objected, “A doctor specializing in breast cancer shouldn’t have to justify his recommended course of treatment to some clerk at an insurance company. That’s not a disciplined approach. That’s abuse by an insurance company and people die from that abuse.”

Cain said, “Some unfortunate cases get all the headlines. The government pays out $100 billion in improper payments. That is taxpayer abuse but there is no identifiable victim so that news story runs on page 6. Everyone is so accustomed to government inefficiency and abuse that another example of it causes little outcry. Politicians depend on a voting public that has become numb to the ineptness and unfairness of the political process. Congress has an approval rating of less than 20% but every two years, over 90% of House members are re-elected. Voters act like they are wind up toys.

Abel sighed. “Your group has a deep skepticism of government. Is that likely to change? Probably not. What’s the point of debating these issues if you have a fundamental distrust of government?”

Cain replied, “Hope. Hope that together we can struggle toward some compromise that can curb the excesses of elected and unelected officials.”

Abel nodded. “Ok, we’ll try again next week. Try to think of a public goods program you like. I can see that Medicare is not one of them.”

Cain replied, “See you then.”

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Photo by Dominik Lange on Unsplash

Medicare Spending charted by Federal Reserve https://fred.stlouisfed.org/series/W824RC1

Per capita healthcare spending, FRED Series https://fred.stlouisfed.org/series/HLTHSCPCHCS

Medicare spending as a share of total health expenditures https://fred.stlouisfed.org/graph/?g=1BYRn

Period Life Expectancy 2004 – 2021 from the Social Security Administration https://www.ssa.gov/oact/STATS/table4c6.html

Period Life Expectancy 1940 – 2001 from the Social Security Administration https://www.ssa.gov/OACT/TR/TR02/lr5A3-h.html

Series of Gallup surveys rating Congress https://news.gallup.com/poll/1600/congress-public.aspx

Re-election rates for House members https://www.opensecrets.org/elections-overview/reelection-rates

A Kaiser Family Foundation brief on the annual report from the Medicare Payment Advisory Commission https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2024-enrollment-update-and-key-trends/

A report on improper Medicare and Medicaid payments https://www.justice.gov/archives/jm/criminal-resource-manual-976-health-care-fraud-generally

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A Debate on Market Failures

December 1, 2024November 29, 2024Leave a comment

December 1, 2024

by Stephen Stofka

This is part of a continuing series of debates on economic and political issues. Substack users can find the past two debates here and here. WordPress and other users can visit my web site innocentinvestor.com here. Hope everyone had a good Thanksgiving.

This week’s letter focuses on market failures, continuing an ongoing series of debates on economic and political issues. Investopedia describes market failure as “the inefficient allocation of resources that occurs when individuals acting in rational self-interest produce a sub-optimal outcome.” In an idealized market, prices act as signals to consumers and producers, who alter their behavior in response. Those actions affect prices, producing a feedback loop that moves supply and demand toward an equilibrium that maximizes the benefits or minimizes the costs to both consumers and producers (Pindyck & Rubinfeld, 2017, p. 312).

Market failures occur when that equilibrium-seeking process is prevented. Failures occur in markets where:
1) a company has monopoly power,
2) buyers or sellers have incomplete information,
3) there are externalities where the effects of consumption do not fall entirely on the buyer of the product or service. Pollution is a common example,
4) public goods where a good or service benefits the group as a whole but the dynamics of the market result in an undersupply.

Abel began the conversation, “Last week we left off with the housing market in New York City being a prime example of a market failure.”

Cain replied, “That’s right. I said that behind every market failure is a policy failure. The idealized ‘free market’ conveniently excludes political alliances and policy. In that idealized framework, prices coordinate supply and demand. The reality is that policymakers nudge both the supply and demand curves, adopting laws that favor suppliers or consumers.”

Abel said, “So you admit that the unregulated free market model misrepresents reality. Why is your group such a champion of markets with as little regulation as possible?”

Cain responded, “In a representative democracy, policymakers try to maximize their power and influence within the political system. They want to get reelected so the choices they make benefit their constituents.”

Abel interjected, “Yes, but not all of their constituents. Just the most influential, the most powerful.”

Cain nodded. “True enough. Naturally, that interferes with the price system. The political ‘market’ is entirely different than the market for goods and services. The political system has an entirely different cost and benefit structure. Policymakers are rewarded when they conform to the strategies of party leaders, or they bear the cost of being marginalized in committees where policymaking happens.”

Abel countered, “Yes, but its not realistic to analyze the economic system without the influence of the political system. Policymakers grant patents and copyrights, enact bankruptcy laws and thousands of measures that affect property rights. Those rights are the foundation of the economic system.”

Cain argued, “I’ll grant you that. But any assignment of property rights should be done to minimize further political involvement. Let private agents working within the price system make adjustments to circumstances.”

Abel said, “In a 2012 interview Ronald Coase (1910 – 2013) pointed out the price system is expensive because buyers and sellers need to know a lot to reach a bargain. Your group says that policymakers should step in once, make a rule and let buyers and sellers take that rule into account as they negotiate transactions. Those ongoing transaction costs are more expensive than the ongoing cost of regulating the market.”

Cain shook his head. “Our group disagrees. Remember, people don’t obey the letter of the regulations. They are always trying to minimize their costs or maximize their gain within that regulatory framework. Our group favors a system with minimal ongoing political regulation. Let the individuals within the market police themselves.”

Abel asked, “How are people living next to a dry cleaners supposed to police the owners of the dry cleaners? The solvent they use is perchloroethylene, commonly called ‘perc,’ and it’s a toxic air pollutant. The neighbors don’t have the expertise to monitor the equipment at the dry cleaners, to make sure that there are no leaks, and that filtration is installed and adequately maintained.”

Cain responded, “Policymakers can assign responsibility. In a 2013 podcast, economist Don Boudreaux noted that lawmakers usually decide that the person responsible for a harm is the party that has the lowest cost in avoiding or preventing that harm. In this case, the owners of the dry cleaners have a much lower cost than the surrounding neighbors.”

Abel argued, “That establishes the dry cleaners as the responsible party. Some regulatory agency must regularly inspect the establishment to make sure they are in compliance with the law. The price system cannot reach some idealistic equilibrium of perc because the equilibrium point is zero. The supply and demand model is an appropriate tool to analyze a market for goods and services where there is some distribution of benefits and costs. In the case of the dry cleaners, the benefit of using perc is concentrated in the owners of the business. It is a critical component of the service they offer. The costs are widely distributed to the surrounding neighborhood.”

Cain countered, “The use of dry-cleaning chemicals benefits the customers who get their clothes dry-cleaned. The owners of the business are just a distribution point of those benefits. If the benefits were entirely concentrated in the business, there would be no dry-cleaning businesses. There would be no political support for those businesses and lawmakers would ban them. This only proves the point that market failures are a result of policy decisions. In this case it is zoning regulations. Dry cleaners serve a public demand and operate in the vicinity of their customers because the public wants the convenience.”

Abel interjected, “That convenience impacts the health of the people surrounding the dry cleaners whether they get their clothes dry-cleaned or not. Those health consequences are a negative externality that the customers don’t pay for. The price system can’t handle a situation like that.”

Cain objected, “There could be a ‘perc’ charge for every piece of clothing dry-cleaned. That would reduce the volume of business.”

Abel argued, “But there is no way for the business owners to recompense the neighbors for the extra risk of living close to a dry cleaners.”

Cain responded, “In a free market system, residents would pay lower rents and house prices as long as the risks were made public. That would be an indirect benefit.”

Abel replied, “Why must poorer people pay the price of pollution? Who gets the ‘perc’ charge that is added on? The city or state? Certainly not the people affected by it. The price system only accounts for the benefits and costs of the parties to a transaction. The price system simply doesn’t respond to externalities like pollution. What about monopolists? Unlike suppliers in a competitive market monopolists maximize their profits by selling fewer goods at a higher price.”

Cain’s voice was resolute. “That only proves the point that behind every market failure is a policy failure. Companies become monopolists through some set of policies that grants them some exclusive property right. If an industry is profitable, it will attract competitors.”

Abel scoffed. “That’s textbook economics – not the real world. A business may become a leader in an industry because it builds a better widget. Then it buys up its competitors and uses economies of scale to rule an industry. Google and Facebook are good examples.”

Cain argued, “They became monopolists because they bought political influence to systematically eliminate any threats to their dominance. Section 230 gave Google and Facebook immunity from liability for user posts. Lawmakers had good intentions. The internet was new, and lawmakers wanted to encourage growth. By removing legal constraints, they inadvertently created the ideal environment for monopolists. It’s a recurrent pattern. I’ll adapt Milton Friedman’s remark on inflation and say, ‘Market failures are always and everywhere policy failures.’ Monopolists lobby for laws that enable then protect their market power. Unlike prices, laws are rigid and don’t respond to the changing circumstances of supply and demand.”

Abel said, “Let’s explore more of monopoly power next week. I’m thinking of Joan Robinson’s innovative thinking about monopsony, where there is one buyer and a lot of sellers.”

Cain responded, “And public goods. Let’s not forget those. See you next week.”

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Photo by Elena Mozhvilo on Unsplash

Birch, S. (2018). Demand-based models and market failure in health care: Projecting shortages and surpluses in doctors and nurses. Health Economics, Policy and Law, 14(2), 291–294. https://doi.org/10.1017/s1744133118000336

Pindyck, R. S., & Rubinfeld, D. L. (2017). Microeconomics. New York, NY: Pearson Education Limited.

Stern, N., & Stiglitz, J. E. (2021). The social cost of carbon, risk, distribution, market failures: An alternative approach. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3785806

Friedman’s more repeated quote is “Inflation is always and everywhere a monetary phenomenon.” Less well-known is his remark that “Inflation is the one form of taxation that can be imposed without legislation.” https://en.wikiquote.org/wiki/Milton_Friedman

A Debate On Rent Control

November 24, 2024November 24, 2024Leave a comment

November 24, 2024

by Stephen Stofka

This is part of a continuing series of debates on economic and political issues. Substack users can find last week’s debate on climate change here. WordPress and other users can visit my web site innocentinvestor.com here. Wishing everyone a good Thanksgiving this next week.

This week’s letter is about the price system, continuing an imagined conversation that began with last week’s letter. What is a price? Is it a measure? If so, it is not a good one because prices keep changing from year to year. Let’s imagine a haircut from the same stylist that costs 5% more in 2024 than in 2023. Did the quality of the haircut change? No. the service delivered is the same but not the price. So, what is price? It must be a good in and of itself – a commodity like wheat. A good that “evaporates” like water in the sun. The CPI calculator at the Bureau of Labor Statistics indicates that a $1 in 2024 buys what $0.50 did in 1995. Any interest earned on savings has barely compensated for the loss of buying power (see notes).

And now the conversation between Abel and Cain continues:

After the usual pleasantries, Abel said, “Last week I pointed out market failures where the price system in a free market does not control a negative externality like pollution. Another flaw in the pricing system is its inability to cope with social justice issues. Your group favors policies that emphasize growth. You claim that more growth will benefit everyone, including minorities. What about rent control? Land can’t grow. In densely populated cities like New York, the only way to grow the housing market is to build up. Zoning policies restrict the height of many residential areas, and the current residents prefer it that way.”

Cain replied, “Rent control is a price control and our group does not favor price controls in any form. They distort the supply and demand dynamics of a market. Rent control encourages landlords to make only those repairs which will avoid regulatory fines from housing authorities. The quality of the housing stock declines and that only contributes to the problem. Housing authorities must devote more resources to inspect properties, handle tenant complaints and regulate landlords.”

Abel interrupted, “So what’s your suggestion? In crowded markets like New York, the housing supply is too rigid, so it doesn’t shift to meet demand like in a supply demand model. If prices were allowed to find an equilibrium on their own, many working people would be priced out of the market. They would have to move further away from the city and drive long distances to get to work. This would choke an already overtaxed traffic and transit system. What’s your group’s answer? Let people move to another state? The tri-state area has already become a giant metropolis because families have tried that solution. The problem persists.”

Cain nodded. “Yes, there are choke points where circumstances or political interests constrict supply. The first question politicians should ask is ‘How can we adapt the price system to help manage this particular market?’ If we look at improperly maintained housing as a pollutant, perhaps policymakers could use a permit system or tradeable credits, the same system that has been successful with some pollutants.”

Abel asked, “How would that work? Make available a number of permits to not maintain housing units to safe health and safety standards? Housing can’t be turned into a lab experiment.”

Cain responded, “Each city may devise different pricing solutions. Some may work better than others, allowing competing policy frameworks to be tested in different circumstances. The point is that regulations and rent control should not be the first tool that policymakers reach for.”

Abel asked, “Has anyone used an incentive-based strategy using the price system to tackle the problem of affordable housing in a dense urban area?”

Cain replied, “Not that I am aware of.”

Abel argued, “Proves my point. Some issues cannot be resolved through the price system. People tolerate many inconveniences in a big city because there are many factors that induce them to stay.” Abel ticked them off on each finger, “Jobs, family, public transportation and infrastructure, civic associations with people having similar interests, schools for the kids, sports teams, the availability of internet, public institutions like libraries, internet, parks, museums.”

When Abel paused to take a breath, Cain interjected, “I get your point. A home of some sort in a city gives people access to amenities that are not available in a rural district with 2,000 residents. People want availability to all that stuff and pay as little as possible.”

Abel interrupted, “Are you saying that working people who spend half of their income on a place to live in New York City are freeloaders? It’s the upper income people that employ them who are freeloading. The rich are getting labor at an affordable rate. If working people could charge enough to cover their living expenses, they would get paid a lot more than they do.”

Cain argued, “It’s the rich people who are paying most of the state and local taxes that pays for all those amenities. The rich are subsidizing these institutions that the working class take advantage of.”

Abel said, “The median rent in the Bronx is 60% higher than the national average, according to an analysis by Zumper. The average monthly rent for a 2-BR apartment is almost $3500 and the Bronx is one of the more affordable of the five counties in New York City. The national median annual wage for warehouse workers is $38,000, according to the BLS. That’s almost $3200 a month. A couple working two blue collar jobs would be spending more than half their gross income on rent. A prudent percentage is 30%, or less than a third of gross income. If New York City policymakers were to require employers to pay 60% above the national average, those warehouse workers would make almost $61,000 a year, or $5100 a month. Two incomes at that wage would total over $10,000 and that $3500 median rent in the Bronx would be about 34% of income.”

Cain dismissed Abel’s argument. “Those New York City employers wouldn’t be able to compete with other companies in surrounding regions with lower costs. They would leave or go out of business. There would be fewer warehouse jobs. That couple would have to compete with others for blue collar jobs. The increased supply of labor competing for jobs would further lower the market wage and make the couple dependent on social welfare programs. The city would have less tax revenue because those warehouse employers have left the city. Less property tax, less income tax, less tax on business income. The city could not afford to pay more benefits and might declare bankruptcy like it did in the mid 1970’s. A complex negative feedback loop. Policymakers who tinker with natural market forces only make the problem worse.”

Abel objected, “If that couple followed the signal of those market forces, they would move to a lower cost area in a nearby state. There would be fewer workers in New York City, driving up wages. As the couple tried to find work, they would drive wages down further in that nearby state. Those lower costs would enable employers to reduce their prices and put the New York City companies out of business.”

Cain responded, “In order to survive, those New York companies would also leave the city. Anyway, capital relocates faster than people. As soon as policymakers announced a law mandating that employers pay premium wages, a lot of blue-collar companies would relocate out of the city. Our blue-collar couple would be out of a job. Just as with a previous scenario, the couple would be dependent on the government for aid. The price system promotes independence.”

Abel protested, “Paying higher rents than the national average does not promote worker independence. A dense housing market is a seller’s market, a landlord’s market. Without some laws in place to protect renters, they would be entirely at the mercy of landlords. Market prices in a dense housing market like New York only promote independence for those with capital and access to capital like landlords.”

Cain shook his head. “Once again, your group and mine can’t agree. Your group blames capitalists for everything.”

Abel replied, “That’s overstating our objections. Capitalists promote a dynamic economy that responds to changing circumstances. But capitalists can’t operate only in the framework of the pricing system. In some markets, price dynamics often make the problem worse. As Keynes and other economists have shown, an unguided free market system can settle at equilibrium points that are below the productive capacity of a nation’s people and businesses. There is no automatic mechanism to move an economy to an optimal equilibrium of productivity.”

Cain turned to go. “Well, our group disagrees. The free-market system promotes growth, and it is growth that generates a productive equilibrium.”

Abel replied, “I know your group believes that, but belief doesn’t make it so. The housing market in New York City is just one example of market failure, the inability of prices to allocate resources. It is one of many.”

Cain replied, “Maybe we should talk about market failures next time we meet. Behind every market failure is a policy failure, believe me.”

Abel responded, “See you next time.”

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Photo by Shehan Rodrigo on Unsplash

Buying power note: Inflation has averaged 2.76% annually since 1995. The interest on a 1-year Treasury note (FRED Series DGS1) is similar to a 36-month CD rate and has averaged 2.6%.

The Maze of Our Arguments

November 17, 2024November 24, 2024Leave a comment

November 17, 2024

By Stephen Stofka

This is a bit longer than usual but in a conversational format. I will also leave copies of the in-text links in the notes at the end. The sources do not require a subscription.

This week’s letter is about our arguments. Some policies are implemented but the disagreements on the underlying issues are not resolved. The debate often detours through a maze of assumptions and perspectives, identities and loyalties before it can reach the main issue. Resistance and resentment simmer like the underground coal-seam fire in Centralia, PA that has been burning for six decades.

At the Constitutional Convention in 1787, delegates could not resolve the issue of slavery, and the southern states threatened to walk. The financial condition of the confederacy of thirteen colonies was desperate, making the new nation vulnerable to attack and encroachment by France and Spain. In a compromise, the delegates agreed to make the importation of slaves illegal after twenty years, but booted the issue down the road. For seventy years after the Constitution was ratified, the southern states periodically threatened to secede, and various compromises averted a crisis without resolving the issue. The 1820 Missouri Compromise was a key piece of legislation that kept the nation together. In 1857, the Supreme Court issued its Dred Scott decision which overturned the Missouri Compromise and public sentiment accepted the inevitability of civil war.

Climate change is not as emotional a topic as slavery or abortion, which I wrote about here. I will imagine a discussion between two groups of people who set policy for all the people in the country. Speaking for the first group is a person named Abel who claims that certain types of human activity are having a pronounced and growing effect on the climate. To counter these damaging effects, Abel’s group proposes regulating some activities and adopting different methods that will lower the impact of human activity on the climate. Cain, a spokesperson for the second group, is averse to most regulation of economic activity and argues that Abel’s claims and theories are a hoax. Any changes in climate are probably temporary and driven by natural physical variations that people can not influence.

Abel offered to present the evidence for his claim, but Cain dismissed the offer. Cain turned to page 156 of Nassim Taleb’s Fooled by Randomness and handed the book to Abel, who read the highlighted passage, “I can use data to disprove a proposition, never to prove one. I can use history to refute a conjecture, never to affirm it.”

Abel responded, “In An Enquiry Concerning Human Understanding, the 18^th century philosopher David Hume wrote that we could not state with absolute certainty that the sun would rise tomorrow or that it would not rise. Knowledge gained from experience can only move to greater certainty or uncertainty. Each year’s climate data moves us closer to certainty that human activity is a significant contributor to climate change.”

Cain argued, “Our group requires incontrovertible proof, not just an increased certainty. Scientists were certain the climate was cooling in the late 1970s.”

Abel responded, “That is a myth that climate change deniers have used for decades to refute climate change. Peterson et al (2008) unraveled the making of that myth. J. M. Mitchell published his cooling hypothesis in 1963. When others checked his data, they found that his conclusions were based on weather station data in the northern hemisphere only. When researchers included data from the southern hemisphere, the conclusion was the opposite. The planet was warming.”

Cain interjected, “Scientists also claimed that world oil production had reached its peak in the 1960s, a theory known as Peak Oil.”

Abel responded, “Let me finish the rest of the story. In the 1970s, popular magazines like Newsweek promoted both theories as “news peg” headlines to attract readers’ interest. Controversy sells. There was already a broad consensus in the scientific community that the warming effect of man-made greenhouse gases were dominating any cooling effect from aerosols and natural factors. Prominent scientists like Carl Sagan presented that conclusion to Congress in 1985. In 1990, when the IPCC issued it’s first assessment of the global climate changes, it had already found a measurable increase in temperatures.”

Cain argued, “Look, technologies change and new data causes scientists to revise their opinions. The same could happen with climate change. There’s no sense in imposing regulations that disrupt economic activity as long as there is a chance that scientists could be wrong.”

Abel responded, “Your group casually dismisses sixty years of scientific data and increasingly accurate predictions. Hume pointed out that there is always a chance that any claim is wrong. We have to act on probabilities, not absolute certainty. Your group adopts the reasoning of jurors in a criminal trial who reach a conviction only if there is no reasonable doubt. Our claim is more like a civil trial where jurors reach a conclusion based on a preponderance of the evidence. Each year provides more evidence that human activity is having a significant effect on the global climate.”

Cain replied, “Well, some of your group’s proposals seem criminal to me so yes, we require evidence that is beyond a reasonable doubt. Our group is suspicious of policy proposals that affect our economic lives. We believe that the price system provides the best environment for voluntary cooperation. Prices emerge from the decisions and preferences of everyone.”

Abel nodded. “Science works like the price system, only slower. There’s a supply of research and data, and a demand for solutions and understanding. Scholars publish their research. They put their data and conclusions on the market, so to speak. The research community digests that data and methodology, points out flaws and presents alternative conclusions. Theories improve just like the products we buy.”

Cain objected, “Unlike the price system, there is no equilibrium point.”

Abel responded, “Yes, there is. Some consumers and suppliers of fossil fuels want research that concludes that there is little evidence for anthropogenic climate change. These groups fund organizations that hire researchers to publish position papers to that effect. Demand and supply meet, but the quality of the supply of research is lowered.”

Cain objected again. “These are reputable scientists presenting their conclusions. Look, even if there was some credible evidence that the use of fossil fuels was having an effect on the climate, our group favors price incentives, not regulations. Carrots, not whips.”

Abel countered, “The free market and price system doesn’t cope with negative externalities like pollution. Do you acknowledge that?”

Cain nodded. “Yes, but we think those externalities can be priced as well. The polluters can compensate others for the nuisance or trade among themselves for permits to pollute.”

Abel replied, “But that requires some government agency to set the prices or the allotment of permits.”

Cain nodded. “It’s not a perfect world. More regulations that affect economic outcomes only incentivize people and companies to find loopholes to avoid the regulations. Government agencies must not only regulate an economic activity like pollution from manufacturing, but they have to play watchdog to catch the actors trying to avoid the regulations. Regulatory agencies are not an efficient way to accomplish a goal.”

Abel asked, “What about social and economic justice issues? How can the price system cope with them? Let’s say some business owner thinks that all black people are inferior workers, so he offers black applicants half the wage he offers white workers. How does the price system handle discrimination?”

Cain shook his head. “Our group does not endorse discrimination of any type. We question whether it is the job of a government agency, particularly a federal agency, to try to correct those attitudes and behaviors. We support policies that encourage economic growth. More growth will promote employment which will create more bargaining power for workers. Employers will have to compete to hire workers. Black workers will have a greater choice of jobs and can refuse to work at a lower wage. Employers will end their discriminatory practices because it hurts their businesses.”

Able argued, “Using Taleb’s reasoning, any instance where the price system does not end discrimination would be cause enough to invalidate your conjecture. If the price system coordinates human activity and resources so well, why are there subsidies for suppliers and price controls for consumers?”

Cain shrugged. “Politics corrupts the price system. In a perfect republic, there would be no subsidies or price controls.”

Abel said, “You speak of the price system as though it were a natural force like gravity.”

Cain nodded. “It is a natural force of human interaction. Einstein said that gravity was the curvature of spacetime. The phrase ‘matter tells spacetime how to curve, and curved spacetime tells matter how to move’ captures an important element of his theory of relativity. Without political interference, suppliers and consumers tell prices how to curve and that curvature affects the decisions and behavior of both suppliers and consumers.”

Abel replied, “The price system provides incentives for a limited number of transactions or exchanges between people. There are economic activities where one party inflicts damage on another party and may not be aware of it. Pollution can affect people far from the source of the pollution as happened with acid rain. Decades ago, the amount of sulfur emissions from smokestacks near New York City were affecting farmers and wildlife in upstate New York. Climate change contributes to a global problem, making it more difficult to regulate with any price system. Human industrial activity contributes to the carbon dioxide blanket surrounding the planet. That blanket inhibits the release of solar energy from the earth’s lower atmosphere, causing ocean and air temperatures to rise. Heat seeks an equilibrium so that warming affects the convection of energy around the planet.”

Cain scoffed. “Your group is saying that a family driving a car powered with gasoline is affecting some people living in remote Kamchatka. Come on, there are limits to responsibility.”

Abel replied, “The family driving the car is affecting their own climate as well. The power plant in Kamchatka is affecting U.S. families. Climate change surpasses national borders. It’s the butterfly effect, an idea that mathematician and meteorologist Ed Lorenz proposed. How the beating of a butterfly wing could contribute to an initial state that eventually produced a tornado.”

Cain objected, “Butterfly effect or not, we can’t be regulating every little action that people do because it might contribute to some problem. In the Fable of the Bees, Bernard Mandeville imagined a society that collapsed after it prohibited all vices. We just have to accept that living bears some risks and unpleasant things. We can’t craft a perfect society. The price system promotes a natural system of checks and balances. Is it perfect? No, but it is better than a bunch of bureaucrats micromanaging our economic activities.”

Abel sighed. “Your group’s solution is to do nothing. If the world goes to hell, so be it?”

Cain replied, “We struggle to solve our own problems. Coordinating human behavior is difficult. The price system is a coordinating mechanism. Sure, it has flaws, but it is more democratic than any autocratic system of regulation. Even if human activity were causing the planet to warm up, how would we get other countries to comply? We can’t force everyone to think like we do.”

Abel asked, “There doesn’t seem to be any area of compromise on this, is there?”

Cain smiled. “A solution will emerge. Don’t worry. For two centuries at least, technological prowess has raised living standards and our life expectancy.”

Abel objected, “The cumulative effect of our technological prowess is causing the problem. How can it solve a problem that it is contributing to?”

Cain turned to leave. “You have no faith in human ingenuity and motivation. That is the real problem.”

Abel replied, “You put too much faith in the price system. That is an even bigger problem. Let’s discuss that next time.”

The debate may begin on climate change but often shifts towards each group’s assumptions and perspectives on an issue. Each group pays more attention to others in their group than arguments from the other side. The signers to the Declaration of Independence argued over the list of British offenses or usurpations included in the Declaration. They had only minor changes to the noble sentiments expressed in the opening paragraphs that we cherish today. The arguments against rebellion? Loyalist sentiments, as they were called, were stamped out. In the northern colonies, some of the Loyalists were driven out and their property confiscated. Force is the final arbiter of failed attempts to compromise.

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Photo by Susan Q Yin on Unsplash

A 16-minute excerpt of Carl Sagan’s presentation before a Republican led Senate committee in 1985.

Anti-Loyalist sentiment

Fable of the Bees

The butterfly effect

acid rain

curvature of spacetime

Peak Oil

natural physical variations that contribute to climate change.

The Dred Scott decision and the inevitability of civil war. Roger Taney, the Chief Justice and author of the court’s majority opinion, was initially nominated by President Andrew Jackson to be Secretary of the Treasury. Taney was the first cabinet nominee to be rejected by the Senate. Jackson then nominated Taney for the position of associate justice of the Supreme Court and met rejection again. Later, Jackson nominated Taney for Chief Justice, and the Senate confirmed him after much debate.

An underground coal-seam fire in Centralia, Pennsylvania burning since at least 1962.

Peterson, T. C., Connolley, W. M., & Fleck, J. (2008). The myth of the 1970s Global Cooling Scientific Consensus. Bulletin of the American Meteorological Society, 89(9), 1325–1338. https://doi.org/10.1175/2008bams2370.1

Fortunate Son

November 10, 2024November 9, 2024Leave a comment

November 10, 2024

By Stephen Stofka

The country has elected a fortunate son for the second time. Throughout his life, Donald has enjoyed the protection of a phalanx of lawyers who have kept him out of jail. A recent decision by the country’s highest court will give him immunity for another four years. His physical condition and cognitive health are declining so rapidly that he likely will not serve out his full term. His much younger Vice-President J.D. Vance will become President and possibly the leader of the MAGA movement for another eight years.

Another take. Former President Donald J. Trump has made the greatest political comeback in the history of this country. Millions of supporters donated money to his legal efforts to defend the integrity of the vote and challenge voter fraud by the Democratic Party. Despite persistent persecution by Democratic prosecutors, Mr. Trump has emerged victorious. In the days leading up to the election, the former President held many rallies, demonstrating the vitality of a candidate twenty years younger.

Yet another take – a just the facts, ma’am perspective. Presidents with low approval ratings, including Trump in 2020, do not win reelection. This election’s results repeated that trend. James Carville, Clinton’s campaign manager in the 1992 race, coined the famous phrase “It’s the economy, stupid.” Voters showed more concern about inflation and immigration than Trump’s character and demeanor. Voters are especially sensitive to inflation because they feel helpless, and people do not like feeling helpless.

The misery index is the sum of the unemployment rate and the inflation rate. A comfortable reading is about 7%. In 1980, the index was 20% and Jimmy Carter lost his bid for re-election. Bill Clinton and George W. Bush won re-election with misery readings of 8%, and Obama won the 2012 election when the misery index was near 10%. In the fall of this year, the index was below 7%. Perhaps the misery index is not a consistent predictor.

Which is your take on the election results? Each second of our day we download terabytes of information into our brains. We filter out much of that data, then arrange what remains into a version of the world that is uniquely ours. Then we interpret that stimuli, integrating it into our memories along well-worn neural pathways. In that integration process, we reconstruct the world again, discarding the information that conflicts with our previous experience, beliefs and values. We shape what we experience, and our experience shapes us. We may be traveling with others on a train through time, but we have a unique vantage point as we look out the window.

In her book Lost in Math, physicist Sabine Hossenfelder writes, “If a thousand people read a book, they read a thousand different books.” Each voter creates a unique election story. Media analysts focus on different elements of an election, creating their own version of the contest, weaving a narrative of cause and effect. In the telling of the election, we should remember Nassim Taleb’s caution, in Fooled by Randomness, that “past events will always look less random than they were.” Since we are rational creatures, we are both frightened and fooled by randomness. In an evenly divided electorate where a few thousand votes in several key counties can make a difference, random events can decide the outcome. A snowstorm in a key state in the days before an election, the path of a bullet at an election rally, a decision by a federal judge.

The percentages of the Presidential election votes were no different than 140 million voters flipping a fair coin.. Heads equals a vote from Trump. Tails was a vote for Harris. Did any individual voter flip a coin? Possibly, but unlikely. As a collective, our individual actions can simulate random behavior. Randomness can make us feel helpless, so we act as though our actions have purpose. We act aggressively or assume a false bravado in the face of random mortal danger. Watch the clip from the Deer Hunter where the prisoners are made to play Russian Roulette.

Those who struggle through life may vote for the calm bravado of someone privileged. Ronald Reagan was known as the Teflon President. The public did not hold him responsible for several controversies and scandals that occurred during his eight years in the White House. In 1981 to 1982, the country suffered the worst recession since the Great Depression fifty years earlier. During the 1983 Lebanese civil war, Reagan ignored warnings that the U.S. Marines barrack in Beirut would be vulnerable to attack. The October 23rd bombing resulted in the loss of 241 lives, most of them Marines. . In his 1984 bid for re-election, Reagan won all but one state, a resounding vote of public approval. In 1986, the Iran-Contra scandal, a secretive trade of arms for hostages with Iran, occupied public attention but Reagan escaped any responsibility or public indignation.

Forty years later Donald Trump can wear that moniker, the Teflon President. A slim majority of voters overlooked his many scandals, his felony conviction, and his chaotic management style during the pandemic and most of his first term. Although the Republican Party’s name remains the same, Trump and his followers have erased the legacy of Reagan. The party’s former symbol, an elephant, has been replaced by a red MAGA hat. It has become a party dedicated not to any consistent set of principles but to one person, a fortunate son.

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Photo by Danilo Batista on Unsplash

Keywords: misery index, election, recession, inflation

Innocent Investor

A helpful understanding

Author: sgstofka

A Debate on Subsidies

A Debate on Immigration

A Debate on School Vouchers

A Debate on Education

A Debate On Medicare

A Debate on Market Failures

A Debate On Rent Control

The Maze of Our Arguments

Fortunate Son