Topic: Government and Politics

Political Inequality: Residents of Washington are Different from the Rest of Us

America is a class-based society. Based on politics, not economics. An elite political class runs the state to their benefit. The rest of us pay the bill.

The differences between the assumptions and values of people within and without Washington’s 68 square miles of fantasy long have been on ostentatious display. The Democrats’ health care “reform” has become the latest example, offering tender treatment for those in the capital who approved the measure despite opposition from those outside the capital.

Critics of ObamaCare successfully pushed an amendment requiring congressmen and congressional staffers to purchase their health insurance through the new government exchanges. Being tossed from their special plans meant the end of federal subsidies, which run $5000 annually for individuals and $11,000 for families.

The new rule was meant to diffuse the anger of tens of millions of Americans who were forced to change plans and pay more for health care coverage. No surprise, residents of Capitol Hill were not happy. Alas, it wouldn’t look good to voters if Congress now enacted a special exemption. So without any legal authority, President Barack Obama maintained existing federal contributions.

Rep. Chris Stewart (R-Utah) observed:  “There’s no question it was the right thing to do. Not just for me, but for my staff. Heavens, I have staff who don’t make much money. This would be a really big bite for them.”

Too bad the president didn’t similarly step in to ensure that the rest of us won’t have to suffer “a really big bite” from ObamaCare.

Mr. President, Increasing the Minimum Wage Is Wrong Medicine for Ailing Economy

When President Obama advocates a higher minimum wage in his State of the Union Address, he will no doubt argue that by increasing the minimum to $10.10, workers will have fatter pay checks and spend more, thus stimulating the economy and creating more jobs.  In fact, economic logic tells a different story. 

The law of demand is more powerful than the minimum wage law: when the price of anything, including labor, goes up, the quantity demanded goes down, other things constant.  No one has ever disproven this economic law—and neither the President nor Congress can overturn it.

The idea that raising the minimum wage will increase income confuses the price of labor (the wage rate) with labor income (wage rate x hours worked).  If a worker loses her job or can’t find a job at the higher minimum wage, her income is zero.  

Proponents of the minimum wage argue that those workers who do retain their jobs will consume more, which will increase aggregate demand and increase GDP.  But that line of argument is a case of upside-down economics.  Consumption is not a determinant of economic growth; it is the result of a prior increase in production.  Workers cannot be paid what they haven’t first produced.

A higher minimum wage—without a corresponding increase in the demand for labor caused by an increase in labor productivity (due to more capital per worker, better technology, or more education)—will mean fewer jobs, slower job growth, and higher unemployment for lower-skilled workers.  Higher-skilled workers and union workers will benefit, but only at the expense of lower-skilled workers, especially the young and minorities.  There is no free lunch.

Small business owners will see their profits cut, which will either drive them out of business or slow their expansion.  If prices are increased to offset the higher minimum wage—something that is difficult in globally competitive markets—consumers will have less money to spend on other things. Thus, there will be no net increase in employment. Moreover, an increase in the minimum wage cannot lead to an increase in aggregate demand unless the Federal Reserve accommodates the higher minimum by pumping up the money supply, which would lead to inflation and a loss of purchasing power. 

Mr. President, there is no magical way to stimulate the economy by increasing the minimum wage. The only sure way to increase jobs and wages for lower-skilled workers, and thus to increase their standard of living, is to increase economic growth.  The minimum wage is neither necessary nor sufficient for economic growth.  Hong Kong grew rich without a minimum wage because it undertook the reforms that fuel growth: free trade, low tax rates, limited government, a stable rule of law that safeguards private property, sound money, and low costs of doing business.  The United States should do likewise. 

Increasing the minimum wage is the wrong medicine for an ailing economy.  Further government intervention in free markets is the path toward socialism, not market liberalism.  Letting free markets determine wage rates is consistent with a free society and also with economic logic.  It is the surest path toward greater income mobility as younger, low-skilled workers get experience and move up the income ladder.  Cutting that ladder off by mandating a higher minimum wage is a recipe for poverty not progress.   

Scalia the Unlikely Swing Vote in Big Workers Rights Case

Today the Supreme Court heard oral argument in Harris v. Quinn, the case regarding the forced unionization of home healthcare workers in Illinois (and by extension the 10 other states with similar laws). To me this is a pretty easy case: just because the state is paying these workers through its Medicaid program doesn’t mean it employs them – just like my doctor isn’t employed by my health-insurance company – which means that it can’t force them to pay dues to a union that negotiates Medicaid reimbursement rates. 

Like most of the labor cases in recent years, however, this one is likely to go 5-4. The so-called “liberal” justices were all openly hostile to the workers’ position, so the challengers will have to sweep the rest of the bench of to win. Fortunately, such an outcome is more than possible – though much will depend on the thinking of Justice Scalia, who was hostile to everyone.

The argument began in a frustrating manner, with a focus on the right to petition the government for redress of grievances, and whether a union asking for a pay increase was different from an individual public-sector employee (a policeman, say) asking for the same raise. Justice Scalia correctly pointed out that this wasn’t really the right at issue here, but he further confused the matter in distinguishing the right to petition from the First Amendment (when in fact that right is found in that amendment). He meant to invoke the First Amendment right to the freedoms of speech and association, but also indicated that he was prepared to give the government plenty of leeway when it was acting as an employer.

Justice Alito was the most skeptical of the union/government position, pointing out that unions don’t necessarily act in all workers’ interest, even when they succeed in negotiating certain “gains.” For example, a productive young worker might prefer merit pay to tenure provisions or a defined-benefit pension plan. Chief Justice Roberts was similarly concerned about administering the line between those union expenses that could be “charged” even to nonmembers (because related to collective bargaining) versus those that can’t because they involve political activity. Justice Kennedy, meanwhile, noted that in this era of growing government, increasing the size and cost of the public workforce is more than simple bargaining over wages and benefits; it’s “a fundamental issue of political belief.” In no other context could a government seek to compel its citizens to subsidize such speech. A worker who disagrees with the union view on these political questions is still made to subsidize it. 

It was also heartening to see that the continuing vitality of Abood v. Detroit Board of Education (1977) was in play. That case established that, in the interest of “labor peace,” a state could mandate its employees’ association with a union, forcing them to subsidize that union’s speech and submit to it as their exclusive representative for negotiating with the government regarding their employment. (Abood simply assumed, without further analysis, that the Supreme Court had recognized labor peace as a compelling interest.)

Justices Breyer and Kagan were particularly concerned that so many employers and unions had relied on the Abood doctrine over the years, so touching it would implicate significant reliance interests. But overruling or severely limiting Abood would only be one more step in the Court’s trend of protecting individual workers from having to support political activities. More workers could thus opt out of supporting a labor union – but if unions truly provide valuable services for their members, few workers would do so.

Of course, the Court could shy away from touching Abood and simply rule that being paid by state funds alone isn’t sufficient to make someone a state employee. Such a position might more easily attract Justice Scalia’s vote – and that of Chief Justice Roberts, who goes out of his way to rule narrowly – even if it leaves unresolved some of the contradictions at the heart of the jurisprudence in this area, such as the duty of courts to police the murky line between “chargeable” and “nonchargeable” union expenses.

For more on the case, see George Will’s recent op-ed and the Wall Street Journal’s editorial.

Flooding: Do Governments Make It Worse?

Both the economy and the environment are complex ecosystems. Governments often upset the natural balance and cause damage because they combine limited understanding with an excessive zeal to mandate and subsidize.

In Washington , we have snow and cold, but I can’t blame that on the government. However, Britain has been suffering from river flooding, and a Daily Mail article explains how subsidies are a key culprit: “Thought ‘extreme weather’ was to blame for the floods? Wrong. The real culprit is the European subsidies that pay UK farmers to destroy the very trees that soak up the storm.”

The author is a liberal environmentalist, but his piece illustrates how liberals and libertarians can share common ground on the issue of government subsidies.

The article describes how forests in the upstream areas of watersheds can mitigate floods. However, there “is an unbreakable rule laid down by the EU’s Common Agricultural Policy. If you want to receive your single farm payment … that land has to be free from what it calls ‘unwanted vegetation.’ Land covered by trees is not eligible. The subsidy rules have enforced the mass clearance of vegetation from the hills.”

In the United States, we’ve got our own environment-damaging farm subsidies. We’ve also got the Army Corps of Engineers, which the Daily Mail could be describing when it refers to British policy: “Flood defence, or so we are told almost everywhere, is about how much concrete you can pour.

The long-time bias of the Army Corps has been to spend a lot of taxpayer money on reengineering nature. Apparently, it’s been a similar story in Britain:

Many years ago, river managers believed that the best way to prevent floods was to straighten, canalise and dredge rivers along much of their length, to enhance their capacity for carrying water. They soon discovered that this was not just wrong but also counter-productive. By building ever higher banks around the rivers, reducing their length through taking out the bends and scooping out the snags and obstructions along the way, engineers unintentionally did two things: they increased the rate of flow, meaning that flood waters poured down the rivers and into the nearest towns much faster; and, by separating the rivers from the rural land through which they passed, they greatly decreased the area of functional flood plains. The result, as authorities all over the world now recognise, was catastrophic.

You don’t have to be an environmental expert to conclude that governments should at least “do no harm,” and not worsen the damage done by adverse weather. That means they should end subsidies for farming, deforestation, and building in flood-prone areas.

Mirror, Mirror, on the Wall, Which Nation Has Increased Welfare Spending the Fastest of All?

There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

New Study on Air Traffic Control Reform

Robert Poole is one the nation’s top experts on privatization and transportation policy reform. He has a great new Hudson Institute study on problems with our air traffic control (ATC) system and ideas for restructuring it. The nation’s ATC system is operated by the Federal Aviation Administration (FAA). Here are some of Bob’s findings:

  • The features and procedures of our government-run ATC system “have remained remarkably unchanged through a half century of dramatic advances in technology” elsewhere in the economy.
  • Our ATC system “has fallen well behind the capacity of new technologies to provide  safer, faster, more reliable, and more fuel efficient air travel and to keep up with the increasing volume of air travel.”
  • “Nearly all communications are still by voice radio, despite the ubiquity of text messaging and its greater ease and accuracy for routine communications.”
  • “Radar remains the principal means of aircraft position surveillance, despite the much greater accuracy of GPS and other systems.”
  • The FAA “is slow to embrace promising innovations in outside research organizations or private-sector companies.”
  • The FAA “does a poor job of procuring new technology, with many programs eventually cancelled or emerging years late at inflated cost.”
  • The FAA “is particularly resistant to high-potential innovations that would disrupt its own institutional status quo.”
  • Canada, Australia, New Zealand, Britain, and Germany are doing a better job of embracing new technologies for ATC. These countries have restructured their systems as self-supporting organizations outside of their government bureaucracies.

Ultimately, the culprit for America falling behind on ATC is not the FAA, but Congress. Congress has its head buried in the sand. Aviation demand is rising and our government-run system is not up to the challenge. ATC is an increasingly dynamic, high-tech business, and it is too important to consign to the lethargy, inefficiency, and bungling that dominates so many Washington bureaucracies.    For more, see this study on airport and ATC reform, and this op-ed on privatizing ATC. Bob’s work at the Reason Foundation is here.

Obama Allows Congress to Participate in Lawmaking

This headline appeared in Thursday’s Washington Post:

Obama allows Congress a voice in NSA

The story reports that President Obama “will call on Congress to help determine the [NSA surveillance] program’s future. Which is good because Article I, Section 1, of the Constitution of the United States provides that:

All legislative Powers herein granted shall be vested in a Congress of the United States.

Deciding the scope and extent of any federal surveillance powers is clearly a legislative matter. Subject to the constraints imposed by the Constitution’s limits on federal powers, legislative powers are vested in Congress, not the president. How can reporters (and headline writers) write so cavalierly about the president “giving” Congress a chance to “weigh in” on matters of fundamental law? This headline should be as jarring as one reading, “Obama plans to give Supreme Court a say in fate of NSA program.” It isn’t up to the president. The legislative branch is empowered by the Constitution to make law, and the judicial branch is empowered to strike down legislative and executive actions not authorized by the Constitution. The president’s job is to “take Care that the Laws be faithfully executed.”

Arthur Schlesinger Jr. wrote that the rise of presidential power ‘‘was as much a matter of congressional acquiescence as of presidential usurpation.’’ It’s time for Congress to stop acquiescing. And for journalists to remind readers of the powers granted to presidents in the Constitution.