Uncle Sam's Toy Train Set

"There's something about a train that's magic." - Amtrak slogan.

For RTD-Denver's light rail expansion project, the magic is dead on the tracks. According to an article in the February 20th edition of The Economist, FasTracks, the system's third and largest expansion project ground to a halt. An ambitious plan, the Regional Transportation District planned 188 miles of additional commuter rail line to be built by 2017. Residents and visitors in the Denver metropolitan area currently fund this public transport-planner's dream with a 0.4% sales tax. Additionally, billions of dollars of our federal tax money will spur the program. Community leaders holding shiny new shovels and wearing business suits topped with one-and-done construction helmets enjoyed the photo opportunity that celebrated how, as Mayor John Hickenlooper described glowingly, "the whole community came together in the region at a level that we've never seen before." According to the original cheerleaders of the project, without new revenue sources, that same "whole community" must wait until 2042 for FasTracks completion.

Ah, the good old days. Visions of new light rail cars carrying drunken sports spectators from taxpayer-funded downtown sports venues to newly constructed Park and Rides for the remainder of the journey home will remain just visions for a good while longer. Thanks to the media touting whatever lowball budget figure local politicians gave them in order to sell the scheme to hopeful voters, Denver-area taxpayers watch in disgust as the current estimate for the project's cost rises (gasp!) 43%, to $6.5 billion. This predicament is the result of two foreseeable events: the fluctuation in long-run sales tax revenue, and new safety requirements, in this case as a reaction to the deadly incompetence of Los Angeles-area light rail operators.

Hmm, what do you suppose might happen next as local governments across the recession-gripped United States everywhere struggle to find revenue with which to provide the basic public safety and infrastructure maintenance? If you guessed double the tax rate, you've got a future in civic government! Whether Denver-area voters approve a ballot initiative this fall to flush more money into an enterprise which few of them will ever use depends on the velocity and sparkle of the spin that area pols will apply to the "vision."

Thankfully, our paternalistic Uncle Sam came to the rescue last week with $300 million in federal loans, a sure sign that the planned billion dollar grant from the Federal Transit Administration is hiding in the caboose. Why? Hint: it's Washington's favorite four-letter word.

Jobs. The Denver Post quotes U.S. Senator Michael Bennet as saying that construction of rail lines and revitalization of Union Station "conservatively could create 10,000 good-paying jobs throughout the metro area." In a metropolitan area of 2.9 million residents, that's almost a one per cent temporary increase in the employment base - spread over six years.

What costs aren't mentioned by the Post or the elected representatives? Many along the Gold Line to Wheat Ridge and the I-70 corridor to Denver International Airport will be forced to sell their private property at fair market value, not an appealing prospect in the current real estate market. More importantly, RTD seeks to remove hundreds of millions of dollars of spending from the local economy, money which could surely fund thousands of commercial sector jobs in industries which consumers wish to support.

Tragically, few who pay the tax will reap an equivalent value for their lost spending power. For most New York metro-area residents, the inconvenience of walking to a bus station, riding to the rail station, walking to the office and repeating the process in reverse every weekday is a relatively smaller opportunity cost than car ownership, parking fees and hours in traffic. There, such a system has some viability, though the MTA receives state and federal funds for its lifeline. Denver's RTD, however, shamefully touts FasTracks and light rail expansion as vital to maintain the area's standard of living, an area whose inhabitant spread themselves thinly across 700 square miles. Hopefully, Denver area voters will let their elected officials sweat over the promises they made to local commerce leaders. Hopefully, those leaders of commerce get to keep the money that we'd like to spend on their goods.

The "Left" is not right.

After reading Ludwig von Mises writings on Capitalism and Socialism I found it very clear that Socialism is wrong and Capitalism is the only way to go. Even before reading Mises I knew that Capitalism is far superior to Socialism. Mises explains the details very well and I would have a hard time arguing with his logic. By reading Mises I got a better understanding on both Capitalism and Socialism. Mises states the following:

"Those who call themselves
"liberals" today are asking for policies which are precisely
the opposite of those policies which the liberals of
the nineteenth century advocated in their liberal programs.
The so-called liberals of today have the very
popular idea that freedom of speech, of thought, of the
press, freedom of religion, freedom from imprisonment
without trial—that all these freedoms can be preserved
in the absence of what is called economic freedom. They
do not realize that, in a system where there is no market,
where the government directs everything, all those other
freedoms are illusory, even if they are made into laws
and written up in constitutions."

In the following Gallup poll over 1/3 of Americans have a positive image of Socialism. That is a very high percentage of people that live in a free country that strives off Capitalism. The majority of the people that view Socialism as positive consider themselves to be liberal. As Mises explains that the definition of a liberal is different now than in the past. Today's average Liberal is confused, they want to have all of the freedoms of America and Socialism all wrapped up in one. The combination of freedom and Socialism will never happen. Sorry Liberals, freedom only works with Capitalism. I have a little advice for all you people that like Socialism, look at Socialism in the past, Socialism does NOT work. And read some Mises if you still don't understand.

Bail or Fail, What are the risks? What are the Incentives?

In recent times, we have heard about the “big three” and the controversial discussion regarding the question of whether or not tax dollars should be used to bailout failing businesses. Those in favor of bailouts justify their stance by explaining that such a move would alleviate economic trouble and perhaps hold us back “from the brink” of economic disaster. In contrast to such sentiment often found in discussions within the media, one can see a much different perspective if he only steps back from the situation and makes an effort to see what is really going on. As a topic that most of us have heard about, I would like to discuss the role of failure and the significance of bailouts within our economy.

When an entrepreneur starts a business, he takes a risk-a calculated risk. He takes a risk with the belief that, provided he is correct in his decision-making, he will make a profit on his idea. He knows, however, that if his idea fails and he does not make a profit, he will suffer the costs of a failing business. I'm sure we have heard that (approximately) 50% of businesses fail within the first five years of operation. At the same time we know that 80% of the U.S. Economy is run by small businesses. Why then do prospective business owners decide to start their own businesses? Is it not (at least in part) because they know that they have an idea that is as good, if not better, than a similar product on the market? It is in this way that a person chooses to go into business- because he has determined that it is worth the risk for him to try to enter the market for a certain good or service. How then can a person say that a bailout is necessary for a company that the markets have all ready determined as being inefficient. Does not such a bailout prop up the business and save it from failure? If this is the case, then why would people want to go into business? What is their incentive to bring a better product to market if they will have to compete with an artificially propped- up business- which they know would be traditionally inefficient in the market? As Tyler Watts states in his article, “The Importance of Failure,” “...why strive for profits if Uncle Sam will cover your losses with a bailout? Why bust your butt to compete and succeed if you can just clamor for a handout instead?” In a sense, Watts says, “bailouts destroy the profit motive — and all the benefits of a competitive economy.” If one has the ability to make a profit, he should be allowed to suffer losses.

Clearly, bailouts are requested by those businesses who see that their previous poor decisions are now leading them to an unsustainable (losing profits) path. Do these businesses deserve to be rescued from their business troubles? Most people would answer “no” to these questions. Of course, when a business is viewed as being “too big too fail,” thereby implying that the absence of a bailout would surely mean economic disaster for the public as a whole, people begin to look at the situation quite differently. Does this argument justify such a move? Taking on the traditional Austrian perspective, one would answer, "no” and respond by saying, “just allow the insolvent entities to fail and let the chips fall where they may and let the short-term pain of failure guide a business owner towards more productive, successful choices.” While this is a somewhat simplistic discussion of failure, it is important to note that, in the end, failure within markets allows “capital to move from weak hands to strong hands” (Blumen), thus permitting us to be better off because of it.

References

Blumen, Robert. "Bail or Fail." 7 Oct 2009. Web. 22 Feb 2010. http://blog.mises.org/archives/010791.asp

Watts, Tyler. "The Importance of Failure." Mises Daily 10 Feb 2009. Web. 26 Feb 2010. http://mises.org/daily/3321

Paying Kids to Study

There is a recent article in Newsweek magazine titled "Why Paying Kids to Study Works in Texas" written by Tony Dokoupil. In this article Dokoupil suggests that paying kids to study is an effective way to boost their academic performance. He sites studies that suggest this incentive has helped Texas high-school students who earned money for scoring well on Advanced Placement exams. According to the author these studies showed students achieving a higher GPA and bumps in the likelihood for earning their degree with this paid incentive. The author of this study is Cornell Professor Kirabo Jackson. Jackson is quoted as saying "If you have a million dollars, this is a pretty good way to spend it. It gives cool-minded kids an alibi for success, he adds: I don't like math:I'm saving for an Xbox.'" The funds currently being used to pay out these incentives are from private donors. The main point of this article is not to encourage more private people to donate. The writer of this article makes his point at the end. This cash incentive to do well in school should be adopted into public policy. The government should pay us for doing what is in our best interest.
It is easy to see how this is a terrible idea in many ways. Adopting this into public policy is just another case of unnecessary goverment intervention. I believe that most people would agree that children doing well in school is something that everyone wants, however this is not the way to go about doing it. The government should not pay kids to do well in school for the same reason that it should not pay us to stay away from Taco Bell. We as private citizens can make our own choices and do not need government to tax us in order to provide incentive for others to make the "right" choice. There is already an incentive for kids to do well in school because higher education pays off in many ways. Doing well in school and gaining more education increases their human capital. It is the job of parents and people raising the childern to help them to realize that education is important, not the job of government. This cash incentive will only send kids the message that "Something is only worth doing if I get an immediate reward from it."Also, if these high-school students in Texas are truly only doing well in school for a small immediate monetary gain rather than for gain in the long run, then they are not going to do well after high-school. Is the government then going to pay them to attend college and pay them to find a career after? If government payment was thier only reason for learning then it is only logical that government should look at other aspects of our lives and pay us for what it deems to be the right choice. Most people would agree that excercise is a good thing. Maybe government should pay us $5 for every mile we jog per year. Clearly this idea is ridiculas.

On the Status of the "Progressive" Movement

I want to discuss what has as of lately been referred to as the "progressive," movement in this country. I use the term "progressive," loosely here because I feel that there is little about said movement in the way of advancing our country forward in any helpful manner.

What we have seen throughout the past years, from both major political institutions, is a relatively unprecedented amount of spending in Washington that does little to favor anything outside of big business and big government. As previously aforementioned in other contributions to this blog, the bailout represented companies that were supposedly "too big to fail." This unbelievable amount of spending by the Bush administration was subsequently followed by the Obama administration whose readiness to spend $3.3B over the course of 10 years in a "stimulus," package made the previous bailout almost appear laughable (Source: U.S. News and World Report).

That said, who stands to benefit from this "progressive movement," whose goals ideologically favor large corporations and even larger federal government? Well to put it simply I feel that I have answered my own question. Big business/big government run the show. However, it appears to go beyond that as well, but it's nearly impossible to say exactly what since so much "stimulus," money was sent to phantom zip codes across the country, not unlike this example from the state of North Carolina. Perhaps it is paying off individuals or groups who helped make "change," a reality. Perhaps it allows greater funding to political pet projects under the guise of assisting "smaller," states such as the Carolinas. Or even it could be that those in power want to stay in power, and the forcing of copious amounts of money onto good parts of the country helps to secure that.

In my opinion, we find that both political parties are huge and historically based. Further, the amount of cash flow that comes with that is sizable as well. This being said, we find that neither party is particularly out to serve the American people as organizations. But to take that a step further I think we should find that having a supermajority of either party is never going to be a good thing. The stimulus package, "public option" health care, and the jobs bill are all examples of greediness on the part of the current party in power. All of the previously aforementioned bills set before congress do nothing but favor larger government takeovers, such is the case with health care. Also with the stimulus package, the federal government essentially bought states and companies outright.

Ultimately what we have seen in our day and age is an advancement of a minority of people called the "progressives," into the positions of power on promises of "change." Well truly there has been change but consequently it has mostly involved adding on to the already high amounts of expenditure and increases in government power that Americans were not promised when they voted. Mises wrote of the "insanity," of the American economic climate... I wonder what he would have to say these days?

Washington please take Econ 398

It is unfortunate that over the last twenty five years that the leaders of our nation have been clueless when it comes to keeping America on the economic path to prosperity. We have all asked the question, how did America become the most prosperous, wealthy and innovative country in the world over the last one hundred and fifty years? The answer to that question was the granting of property rights to the common man. No other nation in the world allowed for this right. Because of that concept, the opportunity for the individual to take on risk through entreprenuorship created a basis for markets and trade. This led to individual's making choices to better themselves. The basis for this prosperity is reflected by human action.

Unfortunetly the so called leaders within our Government, Republican or Democrat are more concerned about their own self interest vs. the people they were chosen to represent. Because of this inappropriate human action by the people in power we now have a financial system, housing market and economy in total collapse. Therefore the wizards in Washington are now deciding that interventionism is the solution to remedy our econmy. That concept is exactly what we do not need. We the people are asking for less government intervention and more freedom to prosper once again. But as Ludwig von Mises has stated "The government wants to arrogate to itself the power, which, in the free economy, is in the hands of the consumers" We are seeing this posturing by this administration every day. It is a travesty that issues are being addressed to the public in a capitalistic format, but the backroom dealings are clearly a form of socialism. I believe we have socialism in our economy. The lower class has had it for six generations and now the upper class has joined in, it is obvious by the bailouts given to Wall Street and the Banks. They are no longer taking on any risk, they are to big to fail. The only part of Capitalism left is found in the middle class, and that form of freedom is being taxed and regulated away.

After writing this blog I have to ask myself, have the progressives already taken Economics 398? Their is a pattern in this administration that reflects the writings of Ludwig von Mises, that are being used to transform one of the greatest nations on earth. We are clearly creating policy's that are taking us in the wrong direction as described in our readings, history has shown that.

I am enlightened and energized by this class. I find it very beneficial to me to be studying at a time when the readings pertain to the current government policy's. The progressives feel this is there time in history to redically change America, it will be short lived. I believe that freedom wiil prevail and we will once again become the greatest nation to prosper in.

Matthew Grubesic

Obama's Business Roundtable Speech- Paradoxical or Contradictory

Today President Obama addressed a group of people who represent the most historically successful and significant businesses in America. Insurance providers, car manufacturers, and home goods producers gathered together to hear what changes President Obama has in store for the United States economy. This is not just a question large business owners are wondering about. It is a vital question every American wants answered.

President Obama begins his speech by discussing our current situation and reminding his audience that despite the recent hardship they have previously managed to find common ground. But President Obama does not dwell on the past or linger on the mistakes that led to the current recession, he quickly moves on. Painting a bright future he says, "we need an economy where we generate more jobs here at home... We need to invest and nurture the industries of the future, and we need to train our workers to compete for those jobs." The "we" used in the previous sentence sets the tone for the remainder of the speech. In what could be a reference to High School Musical President Obama says, "we are all in this together." High School Musical presents a rosy world where despite personal differences people decide to help their competitor reach his or her goals. In the end, everyone in the musical is happy with the outcome, because they worked together.

Unfortunately, economic principles do not allow the government and private businesses to work together as successfully as the actors in High School Musical. President Obama upholds previous government projects such as social security, unemployment insurance, and agricultural research as ways in which the government has acted as a catalyst for private business. He wants to continue in this vein by increasing government spending on education, infrastructure, and innovation. At the same time he wants to prevent an "entitlement state" and encourage the growth of businesses. The problem is that the money for all of these different projects has to come from somewhere. If the government is borrowing money for its projects, then businesses are not borrowing that money. One type of spending replaces the other. Mises illustrated this point by referring to the government building a hospital; "the government, appearing on the market as a buyer, replaces the individual citizen" (Mises 57). Instead of borrowing the money, the federal government could raise taxes. But if the government is spending the money, then why earn it in the first place?

Later in the speech President Obama presents ways to revitalize business in the United States. He suggests a tax credit for small businesses that higher new workers and a tax incentive for large businesses to create new factories. This initially sounds like a good idea. Who does not want more employment? The problem is that offering incentives is expensive, and once again the money has to come from somewhere. There is a third way government can come up with money and that is simply to print it. A significant amount of money has already been printed during the Obama administration, because printing money is a way for the government to spend without directly taxing the citizens. However after a period of time printing extra currency leads to inflation and eventually a loss of confidence in the currency. Even in the case of printing money politicians are deciding where the money is to be spent. In addition, with the current uncertainty in the market companies do not need more factories. As of late production has significantly slowed, because people are buying fewer goods. If people are not buying a good, companies cannot make a profit, so why would they want to incur the expense of building an extra factory?

Finally, President Obama addresses the need for "consolidated supervision of all institutions that could pose a risk to the system." He only means to increase government oversight of financial institutions at this time, but in the future if it looks like other types of businesses "pose a risk" there is apparently no reason the government should not step in there as well. Once businesses are overseen by the government, they are more inclined to pander to government bodies and less likely to respect the consumer. As Mises concisely stated the issue, "the government wants to interfere in order to force businessmen to conduct their affairs in a different way than they would have chosen if they had obeyed only the consumers. Thus, all measures of interventionism by the government are directed toward restricting the supremacy of consumers" (Mises 40). When governments regulate business, consumers lose power and voluntary exchange is no longer completely voluntary.

President Obama brings up several other topics in his speech including affordable healthcare, free trade, and energy conservation. President Obama says he will continue to work on trade agreements with foreign nations and will look for ways to lower the deficit. These are all problems that deserve to be discussed in detail, yet all I have time to say here is that if President Obama can accomplish everything he is promising to accomplish while keeping the federal government within its means, he may truly be a miracle worker.

References:

President Barack Obama. "Remarks by the President to the Business Roundtable Quarterly Meeting." 24 February 2010. Web.

Ludwig von Mises. Economic Policy: Thoughts for Today and Tomorrow. Auburn, Alabama: Ludwig von Mises Institute, 2006. Web.

Taking by Force

To offer a little background, without giving too much information away, I’ll start by saying I currently work for a Fortune 500 company that provides television service to its customers. This company currently offers its programming to its employees at a discounted rate. Many of its underpaid employees, like other customers, tend to get behind on their bills, including their television bill.

While talking with my manager yesterday, he brought up the recent push for the majority of this company’s employees to sign up for programming. He then mentioned that previous debts on the part of the employees to the company would possibly be waived. He followed that up with the idea that the company would possibly start taking money directly from employee’s paychecks to pay off future debts to the company, and if they don’t pay it, they’re fired.

This kind of bothered me. I’m all for consumers acting in a responsible manner, and paying off debts that are owed. But to garnish someone’s wages against their wishes doesn’t quite seem like a legal proposition, without the decision of the courts. He took the stance that it was perfectly fine, considering they owed the money. I was opposed to a company overstepping the free agency of the individual to pay the bill at that time, while exercising force, taking the money without offering a choice to the employee.

By taking the money, the company would impose an opportunity cost. Let’s say Tommy has a credit card with a 43% interest rate and is behind on the majority of his bills. He has a change of heart and decides he wants financial freedom. He would more than likely be advised to pay off his bills with the highest interest rates first. After those bills are paid off, the money put toward those bills could go toward paying off bills with the next highest interest rates. After some time, Tommy would eventually reach his goal.

By garnishing the employee’s wages, the company would take away the choice of that individual to act in a manner that would maximize the efficiency of their personal resource allocation. Tommy might have kids he has to feed or provide shelter to. If a company takes money from someone who may have been irresponsible, but is not quite ready to pay something off at that time due to the lack of disposable income, they could be taking resources that were set aside to provide those needs, and leave Tommy without the ability to provide or choice to allocate his resources in an efficient manner.

I’m not refuting the fact that getting into debt with a television provider is irresponsible. However, I do believe in agency, the ability to choose for ones self. My phone company doesn’t have the ability to go to my manager and take what is owed directly from my check. They would report it to a collection agency, my credit would be affected, and I would eventually DECIDE to pay the bill. If another company can’t go into my check and take money, without a court order, then why the hell would the company I work for. In this situation it seems there is a thin line between Capitalism and Socialism.

Yes...Government Regulates That, Too

The next time you are considering going outside for a cigarette break, consider this: Uncle Sam does not want you to smoke. At least, that was the impression I felt when congress passed a bill last summer to put regulation of labels on cigarette packets, advertising methods, and most other production behavior of the tobacco industry under the strict control of the Food and Drug Administration. Accordingly, the FDA would have the power to regulate the market to whom tobacco companies advertise: “Under the new law, most flavored tobacco products — which tend to attract young smokers — would be banned, as would advertisements that use Joe Camel and other cartoon characters that might appeal to children. It also requires stronger warning labels and prohibits the use of the words "mild" and "light," which leave the impression that the products are safer.” (Etter, Mundy, 2009). The players in this act, those concerned about tobacco use, undoubtedly included the American Cancer Society: “’Every day, 3,500 children pick up their first cigarette and 1,000 become addicted smokers’” says John Seffrin, chief executive for the American Cancer Society (Tedford, 2009). Also involved was Senator Chris Dodd, a democrat from Connecticut, who spearheaded the bill. Before I go looking for my soapbox, allow me to say that I think smoking is dangerous and bad for one’s health. However, as a student of economics, I cannot simply stop my analysis at “it’s bad;” especially so, when the government collectively decides they are going to regulate something. Here are a few of my own observations on the matter.

Without regulation, cigarette producers would naturally be incentivized to, at some point, provide alternatives to cigarettes. Cigarettes, despite their addictive nature, are NOT a perfectly inelastic product, and the producers of cigarettes are still subject to the order of consumers. Ludwig Von Mises, in his series of lectures titled Economic Policy: Thoughts for Today and Tomorrow, said it best: “The real bosses in the economic system are the consumers. And if the consumers stop patronizing a branch of business, these businessmen are either forced to abandon their eminent position in the economic system or to adjust their actions to the wishes and to the orders of the consumers.” (Mises, pg. 20) That is to say, if consumers are no longer satisfied by the products which cigarette companies bring to market (which is entirely probable and likely; I could easily ask anyone off the street if they want cancer, and be certain of their response), they will “punish” cigarette producers by not buying their products. Spurred by profit losses, producers would be forced to offer alternatives that would better satisfy the wants of consumers. Sure enough, cigarette producers have already tried to do this by releasing such products as Snus (smokeless nicotine chew), and nicotine pellets, which are claimed to be less harmful than cigarettes. This bill passed by congress has the potential to limit the ability of cigarette producers to bring these alternatives to market: “The regulations also require makers to pull from the market products that were introduced after February 2007, which could hurt some dissolvable tobacco pellets and strips.” (Etter, Mundy, 2009)

Now, legislators, government officials, and certainly the ACS, were concerned over the deaths due to cancer from smoking: “According to the American Cancer Society, 443,600 people in the U.S. die from tobacco-related illnesses each year” (Tedford, 2009). Furthermore, they were concerned that candy and fruit flavored cigarettes, paired with the use of cartoons to advertise such products, would attract younger smokers. While I have no basis to say that either of these concerns are groundless (The former, to the best of my knowledge, is certainly true), I must question whether there is real benefit from government enforcing rules that keep people from doing bad things to themselves . What are the costs, explicit and implicit, of doing so, and are they acceptable compared to the benefits? Again, Mises to the rescue: “But the notion that a capitalist form of government can prevent people from hurting themselves by controlling their consumption is false. The idea of government as a paternal authority, as a guardian for everybody, is the idea of those who favor socialism” (Mises, pg. 21). Granted, the bill passed which puts the FDA in control of cigarette regulation may reduce the rate of cancer caused by cigarettes and other tobacco products, encourage (force) people to make healthier decisions, and etc. However, the government tried the same thing during the Prohibition years, the costs of which included, amongst other things, bloodshed (I must give due credit to Mises for using this example in his argument).

My last observation, which I intend to illustrate as purely theoretical, is the possibility for this legislation to open the gate for government involvement in other areas of product regulation. Mises’ conjecture on Interventionism, or the idea that “government not only fails to protect the smooth operation of the market, but that it interferes with the various market phenomena” (Mises, pg. 40), applies in this case. Government legislators had decided that, due to the harmful nature of tobacco, they must regulate the sale, marketing, and type of tobacco products on the market. Well, certainly aerosol-can office dusters are very harmful if you inhale their contents. Those same legislators may now decide that, due to the harmful nature of inhaling aerosol-can office dusters, that government should regulate who may purchase aerosol-can office dusters, who may sell them, how they are advertised, and what they are made of. What’s to stop them? The population has already voted them the power to make such decisions!

All in all, given the nature of the observations I've just made, had I the opportunity to summarize my own thought on the congressional tobacco bill, it would be simple: it was passed without consideration for all possible ramifications of the action. However, arguing a moral standpoint on a issue such as is may be best left somewhere else. Although, the title, Curious Congress and the Case of the Tobacco Regulatory Bill, is quite amusing.

Reference: Mises, Ludwig Von (2006). Economic Policy: Thoughts for Today and Tomorrow, 3rd edition. Regnery/Gateway Inc., Chicago, IL. Originally publish in 1979