How the CARES Act Will Delay Economic Recovery

How the CARES Act Will Delay Economic Recovery

The economic fallout of the government’s shutdown in response to the coronavirus pandemic has been unprecedented.

Nearly ten million people have filed for unemployment benefits in just two weeks. The 6.6 million claims from the last week of March doubled the previous week, and both weeks smashed the previous one-week record of 700,000 claims in 1982.

To mitigate the damage of this mass level of unemployment, the federal “stimulus” bill, called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), includes two key provisions that will serve to prolong the negative economic impact of the shutdown: bailouts to big businesses and the $600 a week in unemployment benefits in addition to state level benefits for eligible recipients.

The bailout payments to big businesses, like the airlines, not only rewards risky behavior but will just delay the inevitable restructuring that will need to take place.

For instance, American Airlines and Boeing, rather than building up cash reserves during the past ten years of flush economic times, instead leveraged low-interest rates (courtesy of mad Fed money printing) to engage in billions of dollars worth of stock buybacks to benefit from the stock market bubble. Now, rather than selling their stocks to raise liquidity as the prices tumble, they will rely again on a taxpayer-funded bailout.  

Furthermore, the bailouts will largely just enable big businesses to stay afloat during the remainder of the shutdown, delaying layoffs that will likely be necessary as the travel industry will be slow to recover due to a public remaining uncertain about the health risks of travel. 

So at a time when the economy is attempting to “re-open,” the businesses that had been propped up during the shutdown will need to engage in another round of layoffs, prolonging any recovery efforts. 

Also damaging to the labor market as the economy attempts to re-start will be the enhanced unemployment benefits. 

 “The $600 weekly unemployment compensation boost included in the CARES Act will provide valuable support to American workers and their families during this challenging time,” said Secretary of Labor Eugene Scalia.

Indeed, the financial support will be critical for those laid off through no fault of their own.

Such benefits, however, will significantly hamper any effort to “re-open” the economy once the pandemic fears erode, and may prove to be very difficult to eliminate.

A cursory look at the data shows that many of those out of work will be getting paid more not to work than they did to work.

Examining Bureau of Labor Statistics data, this article in The Street found “the median income for a full-time wage or salary worker on a weekly basis was $936. For a 40-hour work week, this translates to a yearly income of approximately $48,672.”

Comparatively, a 2019 USA Today article evaluating 2018 state unemployment benefits data reported the average national weekly unemployment payout of $347 a week. Add to this the $600 a week from the CARES act, and that comes to $947 per week, or $49,244 on an annualized basis.

In other words, the average unemployed person receiving benefits due to the coronavirus shutdown would be receiving more income than the national median income from working. Granted, these figures are broad aggregates, but still illustrate the point that many will be receiving more income being unemployed than they would if they chose to return to work.

The federal supplements are currently scheduled to last four months – roughly to the end of July.

Now imagine, using an optimistic scenario, most of the nation begins to wind down their economic shutdowns by mid-May or early June, meaning many workers would still have four to six weeks of eligibility to receive the generous unemployment benefits.

Of those businesses seeking to re-hire workers to help ramp up production and services to customers, many will find it difficult to do so. Unemployed workers who can receive more income staying at home instead of returning to work will choose to stay at home as long as the unemployment checks continue to roll in. Most states have waived the requirement to be seeking work to receive unemployment benefits, so there would be no pressure to do so. 

Returning to work for many would make them financially worse off. Some employers would also offer benefits like health insurance, but many jobs in the hospitality industry – where the majority of jobs have been lost – do not. While many would be eager to return to work to regain a sense of purpose, many others would make the economically-rational choice to continue receiving the higher level of income while avoiding the disutility of work. 

And this effect would reach beyond more than just those that could receive more income staying at home. For some, even the opportunity to earn more money working rather than remaining unemployed would not be deemed to be worth it, once we take the marginal benefits and costs into consideration.

Say someone receiving $947 per week in unemployment benefits has an opportunity to return to a job paying $1,000 a week. Obvious choice, right?

Maybe not.

The choice isn’t simply between receiving $947 a week versus $1,000 a week, but also working 40 hours a week versus zero hours. On the margin, this person would be receiving $53 more a week, but having to work 40 hours to earn that marginal benefit. On the margin, returning to work would yield this person about $1.33 per hour. Many would find this unappealing.

The federal government’s paying out of these additional benefits will surely provide a much-needed financial lifeline to millions forced out of work. But it’s also important to acknowledge how they will make it far more difficult to get the economy going again. Many businesses will find it difficult to once again staff their operations while the benefits continue. 

The notion of generous unemployment benefits discouraging work is not some right-wing, or free market ideological talking point. Even the New York Times resident left-wing economist Paul Krugman acknowledges that extended unemployment benefits will likewise extend higher levels of unemployment. In his 2010 economics textbook, Krugman stated “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect.” He explains that granting more generous benefits “reduces a worker’s incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of ‘Eurosclerosis,’ the persistent high unemployment that affects a number of European countries.”

Moreover, these benefits will likely prove to be very politically difficult to end. Indeed, before the first checks have even been cut, Nancy Pelosi has been promoting the idea of extending the benefits through September. 

Imagine if unemployment remains high, perhaps in or near double digits, and Congress finds itself debating whether or not to cut millions of out of work American off from these federal benefits just two months before a national election.

Any guesses how that turns out?

The government has shut down the economy, forcing millions out of work. It’s understandable for them to also take measures to cushion the financial blow dealt to those made unemployed because of their decision.

What’s also important is to understand that these actions will most likely prolong any desired “re-start” of the economy, and these supposedly temporary unemployment benefits will prove to be very difficult to eliminate in an election year. 

Panic Buying, Medical Rationing Underscore Importance of Free Markets

Panic Buying, Medical Rationing Underscore Importance of Free Markets

The recent coronavirus panic has provided a stark reminder about the scarcity of economic goods. From people hoarding and stockpiling common household items like toilet paper and hand sanitizer to the downright morbid reports of doctors in Italy and Spain having to pick and choose who should receive medical care, the issue of resource scarcity has been thrust front and center.

To be clear, when economists refer to scarcity, it doesn’t just refer to empty shelves or a general lack of supply of something. Instead, we mean that goods are objects of choice: its use for one purpose or user precludes it from use for another purpose or user.

A bottle of hand sanitizer is scarce because when one person uses it for his hands, it is not available for another person’s use. Ventilators and hospital beds are also scarce; if Jane is using a bed and ventilator, it is not available for John’s use.

This leads us to conclude a key economic truth: all goods must be rationed. How a society overcomes this issue of scarcity and the method of rationing scarce goods determines that society’s well-being and standard of living.

 When the method of rationing facilitates efficient allocation of resources toward society’s most urgent needs, while encouraging productive behavior, the economy will flourish. If an inefficient means of resource allocation is used, poverty and shortages follow. 

Moreover, the issue of scarcity gives rise to the dilemma of multiple people desiring to lay claim to the same resource. Therefore, the method by which scarce goods are allocated will determine how people compete to obtain that good. 

So, what are some methods by which scarce goods are allocated, and what does the current crisis reveal about each one?

First come, first served: Under this method, whoever is first to claim or physically obtain the good gets to keep it. Time becomes a currency of sorts in this method, as those willing to forego other uses of their time in order to be among the first in line will be rewarded. It may also involve a little luck as well, with those who happen to be closest to some valuable good having the greatest ease of getting to it first. 

We’ve witnessed this method emerge with the panic buying of toilet paper and hand sanitizer because prices have not been not allowed to adjust due to anti-price gouging laws. Those willing and able to get to the front of the line clear out the shelves, leaving nothing for everyone else. 

When freely adjusting prices aren’t allowed to work, and instead a method of first come, first served emerges, the cost to consumers is time. Those willing to pay the highest cost in terms of time (i.e. spend hours waiting for a store to open so they are first in line) acquire the most goods.

Unfortunately, this method does not allow prices to reflect relative demand and scarcity, preventing valuable signals to guide producers to direct goods where they are most urgently needed.  And this method does not encourage productive behavior, as those consumers who spend more time waiting in lines rather than working are rewarded.

Critics claim that allowing prices to rise rapidly during emergencies may price some completely out of the market for a much-needed product during a time of distress. But empty shelves created by shortages also force many to go without. And the only way to bring prices back down without causing shortages and heavy time costs on consumers (via long lines) is to allow for prices to signal to producers to direct current supplies to where they are in most short supply, and incentivize them to produce more of the good in question. Freely adjusting prices can rapidly enable supply to surge and meet demand, and bring prices back down.  

An authority distributes goods based on “need”: Under this method an authority figure decides who gets what, by determining who is in most desperate need. Concentrating so much power over scarce goods into the hands of a single person or committee invites corruption. As such, people are incentivized to bribe or threaten the decision-makers to obtain what they desire. Lobbying becomes more rewarding than investments in productivity.

Moreover, attempting to distribute by “need” subjects distribution to the arbitrary definition of “need” by the authority figure. Potential consumers are incentivized to remain “needy” according to the definition of the authorities in order to gain access to goods and services. Think of the poverty trap created by the welfare state.

This also gives rise to the rationing of medical care we’ve seen emerge in countries like Italy and Spain, where the authorities are determining that young people are more worthy of scarce medical care during the coronavirus pandemic than older people who have fewer quality years of life left. 

This method also removes crucial price signals that would both incentivize increased production of those goods and services in most urgent demand, and the distribution of these goods to where they are most urgently needed. The costs can be fatal.

People have little incentive to be productive out of fear of losing access to goods and services because the authority may not deem them “needy” enough. 

Neither of those options seems like a particularly efficient (or fair) means by which to allocate scarce resources. Which brings us to:

Exchange of private property with freely adjusting prices: Private property implies that goods have an owner, and that owner is the one with just and legal authority to determine how that good is used. The owner can consume it, use it for productive purposes, stockpile it or trade it. One acquires rights over (already owned) property thru voluntary exchange, whether those exchanges involve goods for goods, goods for money, or money for labor.

Under such a system, in order to compete for desired goods, one must offer something of value in exchange, unlike the other previously mentioned methods. This incentivizes greater productivity – the key to improving the standard of living for a society.

Furthermore, not only does this system create a greater abundance of goods and services desired by society, but it more efficiently allocates them to their most urgent uses. 

Price signals provide valuable information and incentives to market participants. High prices of relatively scarce goods incentivize consumers to economize on the more expensive goods, while also encouraging producers to create more of that good in pursuit of higher revenue and profits. Shortages vanish.

Low prices encourage consumers to buy more, while telling producers that their productive resources are more urgently needed elsewhere. Surpluses are eliminated. 

The method society chooses for how scarce resources are allocated will generate very different types of behavior, and results.

The coronavirus panic has revealed that when government interferes with market prices and the exchange of private property, other means of distribution will emerge. These other methods, however, are far less efficient and more unfair. 

A system based on private property rights and free exchange based on freely adjusting prices provides the framework for the most efficient and fair allocation of scarce resources, while also encouraging more productive activity. The result is a more prosperous society, one far better equipped to meet society’s most urgent needs, especially so during times of emergency.

 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

 

 

The Unseen Consequences of the Coronavirus Response

The Unseen Consequences of the Coronavirus Response

While sicknesses and death mount from the coronavirus pandemic, the responses by all levels of government have been overwhelming. 

School closings, business closings, cancellations of sporting events and concerts, “stay in place” orders, hysterical panic spread by the corporate press, and massive government “stimulus” and bailout plans have all been justified as a means to save lives and “flatten the curve” of the spread of the virus so the healthcare system isn’t overwhelmed.

These efforts have been made in an attempt to head off what some are predicting would be a historic mass pandemic resulting in hundreds of thousand or possibly a million deaths in the U.S., according to some preliminary, worst-case scenario projections

No doubt such a result would spur sizeable social and economic upheaval. Such a momentous number of deaths and illnesses would cause mass panic and grind the economy to a halt. In strictly economic terms, to the extent that the workforce is reduced (most deaths would be to the elderly population), a supply shock would diminish productivity for a noticeable duration. Supply chains would be disrupted and need to adjust to the new labor market. 

During the outbreak, non-specific capital goods would be converted to the production of medical supplies to address the virus, similar to how factories were converted to producing tanks and guns during WWII. 

There would be at minimum a significant economic downturn during the crisis, and depending on the government’s response, it would take a considerable amount of time for the economy to shift back to normal once the virus subsided. 

The coronavirus’ threat to health and the economy is indeed serious, and the trade-offs of “doing nothing” have been often discussed to justify the unprecedented response.

What seems to be missing from the discussion, however, is the notion of any trade-offs coming from the government’s actual response. The government’s measures are positioned as but temporary inconveniences needed to stave off mass illnesses and save lives. Better to be safe than sorry, goes the justification.

But what if trying to “be safe” comes with dramatic costs as well? Why is nobody talking about those costs?

As Mises Institute Research Fellow Peter G. Klein tweeted:

“I hear ‘lives vs. livelihoods’ as if the cost of shutting down economies to flatten the curve is inconvenience and reduced economic growth. But what about the immediate and long-term public health harms from shutdown?”

To drive the point further home, Mises Institute President Jeff Deist wrote in a Facebook post

“A broken economy, crazed fiscal/monetary responses by Congress and the Fed, not to mention egregious & illegal violations of liberty, are not all justified by this virus. Our actions will kill & impoverish people, perhaps far more people than the virus. The lesson of Bastiat’s seen and unseen remains unlearned.” 

Indeed, it’s easy to see the government’s response and attribute a slowed infection growth rate and lower mortality figures from the virus to those measures.

But what of the negative impacts the government’s response will have? These “unseen” impacts, as Bastiat would frame them because they are much harder to detect, will be numerous and possibly more deadly the coronavirus itself.

Massive job losses may increase suicide, depression, substance abuse

Due to the mass panic being spread by governments and media (not to mention government edicts shuttering the doors of many businesses), many industries are being devastated. Especially harmed is the hospitality industry. Sadly, panic is a result of the government’s response to head off the panic that would result if government failed to act to prevent the spread of the virus.

Some estimates are predicting more than 2 million people will apply for unemployment this week, which would be the highest one-week figure on record. 

The stress and uncertainty of joblessness has numerous negative consequences, some of them deadly. 

A study published by The Lancet found “the relative risk of suicide associated with unemployment was elevated by about 20–30%” in their study period. 

The study further attributed roughly 45,000 suicides per year worldwide to the mental and psychological toll of unemployment.

The hope for many laid-off workers is that their unemployment will be temporary, but there remains great uncertainty just how long this will last. The longer this economic shutdown and its consequences last, the more suicides there will be. 

Moreover, as the substance abuse rehab clinic Recovery Ways notes, “One study from 2017 found that every time unemployment rises by one percentage point in a given county, the rate of opioid deaths increases by 3.6 percent and the rate of emergency room visits increases by seven percent.” 

In sum, research has shown the anxiety of joblessness leads to increased rates of suicide and drug abuse. 

Furthermore, a study published by the National Institute of Health concluded: “Results suggest that unemployment is associated with young adults’ heavy episodic drinking,” This is of particular concern given that the hospitality industry workforce tends to be younger. 

Another NIH study found “Unemployment increases the risk of relapse after alcohol and drug addiction treatment,” and that “Unemployment is a significant risk factor for substance use.”

Shutdown will have much broader economic impact, exacerbate other health problems

The current shutdowns and mass hysteria are having first order effects largely on the travel and hospitality industries. But the negative financial consequences will not be contained.

As economist and financial advisor Doug Casey said in an interview published at LewRockwell.com:

A restaurant closes down, but the owner still has to pay his mortgage. And the staff mostly lives on tips. How are they going to pay the rent—and if they don’t, then how’s the landlord going to pay his mortgage? The consequences of businesses shutting down, and going bust, are just huge.

The economic contagion and domino effect could indeed be very significant. Recall how the bursting of the housing bubble triggered the Great Recession. We may now be facing similar effects, as small businesses struggle to pay their rents and laid-off workers struggle to make rent and mortgage payments. As debt defaults mount, banks lose their cash flow and become extremely cautious about creating new loans. Liquidity freezes and grinds the economy to a halt.  

There is a very real chance that the orchestrated economic shutdown can trigger a much broader economic collapse. Keep in mind, of course, that prior to the virus outbreak the economy was largely propped up by fiat Fed money printing, and that bubble was bound to burst eventually.

The hysterical response to the virus is serving as the pin to pop that bubble, and make things worse.

We’ve already seen how unemployment leads to severe health consequences. Full-blown recession serves to double down on them, and then some.

One study found that the Great Recession was linked to an additional 260,000 cancer deaths in OECD countries alone, with the authors suggesting “increased joblessness during the economic crisis may have limited people’s access to health care, leading to late-stage diagnoses and poor or delayed treatment.”

Moreover, with the stock market taking a major hit, it’s not just Wall Street fat cats taking a haircut. Thanks to decades of absurdly low interest rates driven down by Federal Reserve policy, average workers can no longer set aside their retirement savings into safe, interest-bearing savings accounts. Instead, they have been driven to invest retirement savings into the stock market. The economic shutdown has caused current retirees and those nearing retirement to lose a significant share of their retirement nest egg. Senior citizens facing such high levels of stress will be more likely to suffer ill health effects, like stroke or heart attack. 

Anxiety from mass hysteria weakens immune systems

Politicians and the corporate media are in 24/7 mass hysteria mode. There is no way to avoid constant chatter about the impending doom of coronavirus. 

The most visible signs of this ginned up mass panic can be found in retail stores across the country with empty shelves. Panic-buying of hand sanitizer and toilet paper has been well publicized.

But there is a more serious consequence of spreading mass panic among the populace. In a very bitter case of irony, the anxiety and stress caused by the reaction to fight the spread of the coronavirus can actually weaken your immune system and make you more vulnerable to the spread of viruses. As reported at Healthline.com

But if you repeatedly feel anxious and stressed or it lasts a long time, your body never gets the signal to return to normal functioning. This can weaken your immune system, leaving you more vulnerable to viral infections and frequent illnesses. Also, your regular vaccines may not work as well if you have anxiety.

Panic can also drive up suicides, while panic-stricken grocery shoppers gather in long lines in close proximity to each other holding shopping cart handles that are likely riddled with germs and bacteria

 

Long-term impacts

The federal government’s fiscal response to the coronavirus pandemic and subsequent economic shutdown has been unprecedented. 

The Federal Reserve has slashed interest rates to near zero, while pumping $1.5 trillion of fiat money in an attempt to prop up the economy. A “stimulus” bill to bail out affected industries and send money to households is being negotiated, and seems to grow by the day, with latest reports indicating it could top $2 trillion. With the federal government already $23 trillion in debt and running trillion-dollar deficits, most – if not all – of this stimulus spending will need to be funding by newly-printed fiat money.

By comparison, President Obama’s stimulus package to combat a global financial meltdown was estimated to be less than $900 billion. 

While households will no doubt welcome the financial relief of government checks, this level of new money printing will have dire effects. The new money may help temporarily prop up some industries, but it will ultimately wreak havoc on the economy and hurt low-income households the hardest.

With so much newly-created money sloshing around the economy, price inflation is sure to follow the current shutdown. Price increases will impact low-skilled, low-income workers and those on fixed incomes the hardest, as they will not be able to keep pace with the rising cost of living. More people will fall further behind, exacerbating the mental and physical health consequences mentioned above.

Finally, the mad money printing by the Fed will at best temporarily re-inflate the economic bubble. But it’s during the bubble that the seeds for the next recession are planted, and the current massive money printing will serve to deepen the next recession.

The deeper the next recession, the more deaths from suicide, anxiety and substance abuse there will be.

Conclusion

Bastiat’s warnings about the seen vs. the unseen continue to be ignored. The negative consequences of the government’s hysterical response to the coronavirus stretch far beyond a temporary economic disruption. Higher rates of suicide and substance abuse, anxiety-induced illnesses, and a deeper recession that worsens these public health issues will be among the steep price we pay. 

It may be time for more to question if the cure will be worse than the disease. 

 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

 

Direct Payments From Government is Not the Way to Stimulate the Economy

Direct Payments From Government is Not the Way to Stimulate the Economy

The latest in the Federal government’s response to the coronavirus pandemic is President Trump’s announcement of a “stimulus package” estimated between $850 billion to $1 trillion. The plan reportedly includes $50 to $100 billion bailouts to the airline industry, $200 to $300 billion in small business assistance, and at least half a trillion in “direct payments or tax cuts.” 

On that last option, it is further reported that potentially $250 billion would go toward direct payments to citizens, a form of a “rebate check” of sorts. As cnbc.com reported, “Treasury Secretary Steven Mnuchin said earlier Tuesday that the administration wants to get emergency funds in Americans’ pockets ‘immediately.’” Mnuchin added “Americans need cash now. I mean now in the next two weeks.”

There were few details yet available for Trump’s proposal, and it would still need to be negotiated in Congress.  One idea picking up steam, supported by Sen. Mitt Romney and others, is to send every American adult a check for $1,000.

Naturally, that would provide welcome and needed financial relief during very stressful times, and returning stolen money to the people it was stolen from is a good thing. 

The notion, however, that the government sending money to people will somehow “stimulate” the economy in this, or any other crisis, is wrongheaded.

We do have some fairly recent precedent for this, specifically the 2008 George W. Bush tax rebates of up to $300 in 2008 at the onset of the Great Recession. As Sheldon Richman wrote at the time, however, “Those checks transferred money from the capital markets to consumers, distorting economic decisions and doing nothing to improve the incentives for wealth creation.”

Applying basic economics to today, mailing government checks will be equally impotent in terms of economic stimulus, if not more so. 

For starters, the shock to the economic system is coming from the supply side. Putting government checks into the hands of consumers will do nothing to address the significant hit to production caused by closed factories and companies suffering from high worker absences due to workers staying home.

To the extent that people will spend part of their government check, there will be more money chasing fewer goods and services, the result will be price inflation. 

And that artificial price inflation will interfere with the market’s price system that sends important signals to both producers and input suppliers. Increasingly scarce resources should be allowed to flow to those items that are genuinely in highest demand, not propped up by government checks.

Moreover, as Richman alluded to, is the fact that these government checks aren’t manna from heaven. The money must come from somewhere, be it taxes, borrowing or new money printing.

With the federal government running trillion dollar deficits, the rebate checks will need to come from borrowed funds, and the Federal Reserve stands at the ready to monetize this new debt. But the creation of more fiat dollars does not magically put self-quarantining workers back to work. 

Instead, it just further erodes the purchasing power of the very same dollars the government will be sending you in the mail. And with more money being diverted into consumers’ hands, there is less money in the capital markets for struggling businesses to borrow to help make payroll and otherwise weather the current storm. As Richman noted, “If the government increases some people’s ability to spend by decreasing other people’s ability to spend, where’s the stimulus?”

Naturally, rising prices will impact low-income, low-skilled people the hardest, because they are least equipped to see their wages rise along with the cost of living. 

The government’s policy to mail out checks will not only not stimulate the economy, but in the end may make workers worse off.


Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

Why ‘Price Gouging’ Actually Helps During a Crisis

Why ‘Price Gouging’ Actually Helps During a Crisis

As the coronavirus panic heightens, the price of items like hand sanitizer and medical face masks – to the extent they are still available – are skyrocketing.

CBS News reported last week that “Online, sales of virus protection products have skyrocketed, up 817% in the last two months.

Two large bottles of Purell hand sanitizer were on sale for $299 on Amazon. That size normally sells for about $9 a bottle. Another listing, for four boxes of masks, is usually about $20 — it was being sold for more than $1,000.”

In response, some state governments have already vowed to punish “price gouging.”

“California’s attorney general told businesses that if they violated price gouging laws, ‘You’d better be prepared to pay the price for your lawbreaking.’ New York City is issuing $500 fines to any stores found price gouging, starting this week,” CBS reported.

Indeed, even the Department of Justice issued a warning that they “stand(s) ready to make sure that bad actors do not take advantage of emergency response efforts, healthcare providers, or the American people during this crucial time.”

The trade group The Consumer Brands Association praised the DOJ’s response, saying “We appreciate the Department of Justice’s swift response to Consumer Brands’ request to combat price gouging and ensure American consumers have access to critical products at affordable prices.”

But does preventing ‘price gouging’ during times of distress actually help ensure that critical products will remain available at affordable prices?

Basic economics tells us no.

Price controls in times of emergency have negative consequences, just as they do during normal times. When prices aren’t allowed to move in response to changing economic conditions, those who most urgently need these critical items will likely find the shelves empty.

In the current situation, fear of the spread of the coronavirus has caused demand for virus protection items to skyrocket.  

But if the sellers of these items are not allowed to raise their prices out of fear of government punishment, the result will be that the first wave of customers will clear out all the available supplies.

During times of distress like this, people’s demand curves shift. They are now willing to buy more of a good (like hand sanitizer) at any given price. Without a higher price, the first buyers will stock up, leaving no supplies for others in need. There is no incentive to economize; in fact there is incentive for those first in line to buy up more than they actually need to potentially take advantage of shortages and make a profit by selling to those willing to pay a higher price in the black market. 

If prices are allowed to rise to reflect the greater urgency of demand, however, consumers will limit their purchases to just what they truly need. Those first in line will be far less likely to clean out the shelves, but rather buy the minimum amount needed to ride out the virus scare.

As a result, more people will be able to acquire at least some of the highly-valued products, and supplies are more likely to be available to those who most urgently need the product. 

As Robert Wenzel at EconomicPolicyJournal.com wrote, “If someone wants to buy a mask to travel by subway to go to a movie and the mask is $200, the consumer might think twice and not buy the mask, thus leaving it for someone else. At the same time, a heart surgeon may want to buy a mask to travel the same subway to perform heart surgeries. He might be very willing to pay $200 for a mask.”

Moreover, freely adjusting prices send important signals to producers about the intensity of demand, providing incentive to suppliers to devote more resources to the production and distribution of the critical items in such high demand.

Manufacturers of masks and hand sanitizer will be willing to outbid manufactures of other products for the inputs they need to produce the finished product. They may also be willing to invest in more speedy delivery mechanisms to more quickly acquire their needed inputs so that they can increase supplies in a shorter time frame. 

Allowing for prices to freely adjust to market conditions sends vital signals both to consumers to economize and producers to marshal resources to increase supply. Shortages will be avoided and the most urgent needs will be met. 

Emotions are running high during the current panic. Part of the emotional response is directed at sellers of critical items like hand sanitizer and medical masks, who are seen as exploiting the desperation of the situation. But government price controls will create shortages, causing those who most urgently need such products, like medical personnel, to do without. 

As usual, when the government interferes in the market, they can only make a bad situation worse. 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

The “F” Word

The “F” Word

There’s a four letter word beginning with ‘f’ that’s on a lot of people’s lips these days.

I’m talking about “free.”

Free just might be the most powerful word in the English language. It drastically alters people’s behaviors and can short-circuit mental reasoning like few other words can.

I can vividly remember many years ago when I worked events for a major league baseball franchise. The team would occasionally have “giveaway” nights in which the first 1,000 or 5,000 fans would receive a free souvenir gift.

Mind you, these gifts were typically low-quality, cheap trinkets that most folks would otherwise either never buy or not pay more than a couple bucks for. Valuable memorabilia autographed by star players these most definitely were not.

But because they were advertised as “free,” people lined up an hour or more before games to ensure their spot in line to get one. And the panicked and outraged looks on people’s faces after we ran out of the souvenirs struck me as completely irrational. Why do people get so worked up over something so cheap, just because it’s “free”?

It’s this experience that sticks with me as I see the groundswell of support for politicians like Bernie Sanders promising voters “free” stuff like healthcare, college and daycare. If people got that excited over a cheap souvenir given away for free at a baseball game, just imagine how downright hysterical people will get over the thought of getting such vital and expensive services like healthcare and college for “free.”

 There’s just something about the idea of getting something for free that makes people lose their minds.

And don’t dare try to convince the average Bernie supporter that nothing in life is free. Just like the lottery player wouldn’t care how his winnings would be paid for, Bernie bros can’t be bothered with the notion that all this “free” stuff actually comes with a cost.

And when pressed for a price tag, Bernie himself can’t seem to be bothered to come up with an answer.

Witness his February 60 Minutes appearance, when Sanders unapologetically answered, “No, I don’t” when directly asked if he had a price tag for all his programs. 

Nothing in life is free

As the old saying goes, “there’s no such thing as a free lunch.”

When politicians promise free stuff, what they really mean is that it would be free at the point of exchange for the user.

But University lecture halls don’t organically sprout from the ground, they need to be constructed. Hospitals and day cares need to be built. Doctors, nurses, daycare providers and professors need to get paid. 

When the government provides goods and services for “free,” it really means they are shifting their costs onto others, by force.

A Yahoo News headline was quickly seized on by social media and made into a meme exposing the reality of supposed “free” government programs.

It’s always amusing when the mask slips.

Third party payments make goods and services more costly

When a third party is paying the bill for something, that’s when costs explode. Because it’s free at the point of service, demand will rise. In a free market, when demand rises, prices will typically rise and both tamp down demand and encourage more supply. Market forces would push the price for this product toward equilibrium.

When the government is paying, however, the market forces are absent. Prices won’t rise, because they remain free at the point of service. Demand will continue to climb. 

But because payment is made by the government, and reimbursements paid to providers do not increase along with demand, there is no incentive in place to encourage supply to increase. Moreover, because the consumer is not the one actually paying, there’s little incentive for providers to compete for customers. Producers will have virtually no incentive to economize production in order to offer their product at a lower price, or improve quality to capture a larger share of the market. 

Non-price factors become more influential in the rationing of the goods and services. Costs in the form of shortages, long wait times and lower quality are forced upon consumers in lieu of prices. 

Meanwhile, demand for the “free” goods and services remains unchecked, so the amount of goods and services being consumed rises beyond government bureaucrats’ expectations. This process then mainly serves as an excuse for government to dig deeper into taxpayer wallets forcing them to subsidize more and more people desiring to acquire goods at someone else’s expense.

Why politicians love the F word

Politicians exploit the power of the F word to gain votes and power. Their political calculus is this: “If I can convince enough voters that they will get free stuff paid for by a small group of ‘rich’ others, I’ll secure enough votes to win the election.”

And because their time horizon of concern is the next election, any long-term consequences don’t concern them. When the bill comes due and the system begins to collapse, they’ll be out of office and the current officeholders will get the blame while they enjoy a cushy retirement or lobbying career.

The siren song of “free” is incredibly alluring, especially to the young. Voting is such a small price to pay for the potential of free college or healthcare. 

But “free” comes with a steep price. Society must choose: free stuff, or free people.

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

No, Taxing Corporations Is Not How You ‘Stand Up’ For Workers

No, Taxing Corporations Is Not How You ‘Stand Up’ For Workers

No, taxing corporations is not how you ‘stand up’ for workers 

It’s hypocritical to claim to support workers but also want to heavily tax corporations.

Leading Democratic presidential candidates like Bernie Sanders and Elizabeth Warren will constantly tell us they are for protecting and standing up for workers, while at the same time insist that the government levy heavy taxes on corporations.

But basic economic analysis tells us that taxing corporations is not a way to stand up for workers, but rather punish them. 

Why?

Because “corporations” don’t pay taxes, people do.

But if corporations cannot pay taxes, who does end up bearing the burden of corporate taxes?

To answer that question, we need to look beyond the mere legal requirement of a corporation paying the tax. What really needs to be evaluated are the harder-to-detect consequences of who truly bears the burden of corporate taxes.

In short, people and businesses respond to changes in taxes by altering their behavior.  The real question is: Who really is harmed or helped by this change in economic behavior?

Economists refer to the true costs or benefits resulting from this change in economic behavior as the “tax incidence.”

Claiming to advocate for workers while also demanding higher corporate taxes ignores who is truly impacted by the ways corporations will respond to those tax hikes.

Many observers make the claim that such taxes are merely “passed along to consumers” as companies raise prices to compensate for the added burden. This common notion, however, does not reflect economic realities of the marketplace.

Businesses cannot arbitrarily raise prices. Rather, prices are determined by what consumers are willing to pay for a specific product, regardless of a company’s tax bill. A change in the corporate tax rate does not shift the demand curve for a corporation’s product, consumers will not magically be willing to pay more for the good. Besides, if the company could raise prices on the product, it already would have. So corporations cannot pass along the cost of their tax to consumers without risking a drop in customer demand that would damage their profitability.

Another common fallacy is the notion that corporate taxes are at least in part passed on to “wealthy shareholders” in the form of lower returns or dividends. For starters, it’s hard to argue that corporate taxes affect only wealthy shareholders when the majority of people reading this article are invested in a 401k. More to the point, empirical research shows this is not the case either.

The real victim of corporate taxation? 

Workers. 

As the Tax Foundation states, research indicates “that in a global economy, where capital is highly mobile but workers are not, labor is bearing the brunt of corporate taxation.”

For instance, a Journal of Applied Economics article surveyed a panel of 66 countries over 25 years and concluded that “Higher corporate tax rates depress wages.” Specifically, the researchers estimated “that a one percent increase in the corporate tax leads to a 0.5 percent decrease in wage rates.”

Also, the Tax Foundation reported in 2017 that “The Council of Economic Advisers (CEA) has just estimated the amount borne by labor at 250 percent of the tax.”

Making matters worse, the negative effect of corporate taxation on wages falls hardest on lower-skilled workers and those on the margins of employment. While politicians often express a desire to further cut income taxes for lower- and middle-income taxpayers, many of these taxpayers already have virtually no income tax burden. In reality, these taxpayers would benefit more from a cut in the corporate tax rate.

A 2007 Tax Foundation study examined the federal corporate tax burden on workers based on income level and determined that “a cut in corporate taxes would provide a greater benefit to low-income households than would more cuts in individual taxes.”

Moreover, the unseen effects of business taxation are the jobs never created that otherwise would have been had the taxes not been in effect. 

Politicians cannot lead the charge about taxing corporations while simultaneously claiming to be in favor of working families. Economic analysis, and the evidence, suggests that punishing businesses via taxation makes workers worse off. If they truly wanted to fight for workers, politicians would instead demand that the burden of taxation be lifted off of businesses to enable a more thriving job market.

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

Short-sighted state governments rack up $1 Trillion in liabilities

Short-sighted state governments rack up $1 Trillion in liabilities


As if the national debt and federal entitlement liabilities weren’t enough. Now we get word that state governments have racked up more than a trillion dollars in unfunded healthcare benefits for state government workers. That’s trillion – with a ‘T’.

In a report released earlier this month, the American Legislative Exchange Council (ALEC) revealed the total, adding “That’s an average of $3,107 of unfunded OPEB liabilities for every resident of the United States.” 

The financial liabilities, labeled “Other post-employment benefits,” or OPEB for short, calculate the present value of health insurance coverage benefits promised to state government employees when they retire.

Virtually every state government promises fully- or partially- paid health insurance coverage to their employees in retirement.  

More than 40 percent of the benefit plans, according to the ALEC report, operate on a pay-as-you-go basis, meaning there has been no money set aside. And the states that do set aside some funds to help pay for the benefits typically don’t set aside much. Indeed, the ALEC report notes “The average funding ratio for state OPEB plans is 9.4%.”

States with the highest OPEB liabilities per capita are Alaska at $18,500 followed by New Jersey at $14,500 and Hawaii at $12,200.

The liability totals disclosed in the ALEC report differ from the “official” figures produced by most state governments, however. This is because ALEC uses a more realistic discount rate to calculate the present value of the liabilities. State governments are notorious for using impractical discount rates in order to make liabilities look less daunting.

This latest trillion-dollar revelation of yet more irresponsible government promises turning into taxpayer-crushing liabilities illustrates a key point made by Hans-Hermann Hoppe in his 2001 book “Democracy: The God That Failed.”

Because a politician’s top priority is getting re-elected, they have a high time preference. That is, they place a high priority on spending now with little regard for future consequences, because several years down the road they will no longer be in office and the mounting debt and liabilities will become someone else’s problem.

Referring to elected officials in a democracy as “temporary caretakers” of government assets and finances, Hoppe wrote that such caretakers are “not held liable for debts incurred during his tenure of office. Rather, his debts are considered ‘public,’ to be repaid by future (equally nonreliable) governments.”

There is no incentive for elected politicians in a democracy to concern themselves with the long-term value of the government’s financial condition. “A democratic ruler can use the government apparatus to his personal advantage, but he does not own it,” wrote Hoppe. Because there is no ownership, politicians are incentivized to use the resources temporarily at their disposal for their own personal gain, which often results in long-term financial pain.

Which brings us back to the OPEB liabilities faced by state governments. For decades, state politicians have promised generous retirement benefits to state employees to curry favor (and donations) from state employees, and to access the deep pockets of state government unions.

Such retiree health benefits for state government employees are far more generous than the private sector, where owners need to be more conscious of long-term financial implications.

According to this recently-released report by the Manhattan Institute, the growing OPEB liabilities have “also revealed the extent of the gulf between the public and the private sectors. Larger private-sector firms began to offer retiree health-care coverage in the 1940s, but new accounting rules issued in the 1980s drove most firms to halt the practice.”

The report continues, “The portion of large and midsize firms offering retiree health benefits fell from 45% in 1988 to 24% in 2017. Smaller companies were less likely to offer such benefits. Today, only 15% of private-sector workers have access to employer-provided retiree health benefits. In contrast, 70% of state and local workers are eligible for employer-provided retiree health benefits.”

Naturally, politicians who are merely temporary caretakers of money taken from citizens by force will be quite willing to exchange generous benefits for better odds of winning re-election. 

Leftists accuse capitalists of being greedy and self-interested. But the latest revelation of another trillion-dollar government liability underscores the greed and self-interest of the political class. Short-sighted desire to win the next election and maintain power is the driving force behind mounting government debt and liabilities. Not some altruistic desire to take care of others.

A free society based on private property would not only be morally preferable but would enjoy a far better preservation and accumulation of wealth. Private ownership incentivizes the increase of asset values, while democratic government incentivizes elected officials to use up resources in the short-term for personal gain at the expense of impoverishing future generations through crushing debt.  

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

Is Anarcho-Capitalism A Contradiction?       

Is Anarcho-Capitalism A Contradiction?       

Is it possible for a stateless society to adequately protect property rights?

Any Rothbardian anarcho-capitalist has no doubt been confronted with the assertion that a state is necessary to enforce the property rights so vital to a market-based, capitalist system. 

Is this true?

Defining the State 

Before proceeding any further, its imperative to establish what we mean when describing “the state.”

In a brilliant 1974 lecture entitled “Society Without a State,” presented online here, Murray Rothbard laid out a concise definition:

“Let me say from the beginning that I define the state as that institution which possesses one or both (almost always both) of the following properties: (1) it acquires its income by the physical coercion known as “taxation”; and (2) it asserts and usually obtains a coerced monopoly of the provision of defense service (police and courts) over a given territorial area.”

Rothbard further refined his description in describing the state as an organization, that by its use of physical coercion, “has arrogated to itself a compulsory monopoly of defense services over its territorial jurisdiction.”

The State Is Coercion

With the definition of a state established, what is the proper role of the state? For those minarchists who believe a state is necessary, they insist the proper role of the state is to protect the rights of individuals. Namely, to protect people from physical harm or theft.

Such protection however, requires police, investigators, courts, prisons and judges. How are these services to be funded? Via taxation, they’ll concede. 

However, the aggression used by the state to collect taxes violates the very theft the state is supposedly established to protect against. Intellectual consistency leads us to conclude that the state cannot simultaneously protect us from theft while committing it. 

Even those who believe in free, competitive markets as being the most moral and efficient method of production and exchange for all other goods and services, will nevertheless maintain that the state must provide a system of law enforcement and courts to carry out the protection of rights – including property rights.

In his essay, Rothbard begs to differ. “But it is certainly conceptually possible for such services to be supplied by private, non-state institutions, and indeed such services have historically been supplied by other organizations than the state.”

He continues, “My contention is that all of these admittedly necessary services of protection can be satisfactorily and efficiently supplied by private persons and institutions on the free market.”

To be clear, Rothbard is not naïve in his thinking, acknowledging that “mankind is a mixture of good and evil.” There is no utopian vision of a stateless society in which bad actors and aggression magically become extinct. He persuasively makes the case however, that voluntary arrangements for security and criminal justice would not only be fairer and more efficient, but tend to minimizeboth the opportunity and the moral legitimacy of the evil and the criminal” with the removal of the state’s monopoly on violence and provision of defense services.

Markets in Security

Beginning with security, we already see a robust system of private security being enlisted by businesses and individuals to protect their property, in no small part because the current system of government policing is not up to the task. 

We can look to the city of Detroit, in which last year it was reported the city has seen massive increases in private security companies providing protection because local citizens and businesses have lost faith in the government to keep their persons and property safe.

For those who can’t afford to pay directly for security, Rothbard wrote, widespread and affordable protection services could “be supplied by insurance companies who will provide crime insurance to their clients.”

“In that case,” he continued, “insurance companies will pay off the victims of crime or the breaking of contracts or arbitration awards and then pursue the aggressors in court to recoup their losses. There is a natural market connection between insurance companies and defense service, since they need pay out less benefits in proportion as they are able to keep down the rate of crime.”

As Rothbard demonstrated, understanding how society could transition to exclusively private security should not be that intellectually challenging. 

Why Not Markets in Criminal Justice?

This leads us, however, to the somewhat more difficult case of how to replace the government court system. In his essay, Rothbard asserts that “any society, be it statist or anarchist, has to have some way of resolving disputes that will gain a majority consensus in society.”

When protection agencies catch a criminal who has committed, or is in the act of committing, aggression against another’s person or property, there must a system in which victims can recoup their losses and/or ensure the perpetrator receives appropriate punishment. For this, Rothbard argued, a system of private, voluntary arbitration courts will suffice. 

Indeed, Rothbard cites a 1970 book written by the Harvard and University of Virginia educated legal scholar William C. Wooldridge entitled “Uncle Sam, the Monopoly Man.”  Even in 1970, Wooldridge wrote that “Arbitration has grown to proportions that make the courts a secondary recourse in many areas and completely superfluous in others.”

Again, just as in security, the market has been providing arbitration services to supplement the government court system’s shortcomings. 

Critics may object Rothbard wrote, “that arbitration only works successfully because the (government) courts enforce the award of the arbitrator.” 

“Wooldridge points out however, that arbitration was unenforceable in the American courts before 1920, but that this did not prevent voluntary arbitration from being successful and expanding in the United States and in England,” he continued.

Moreover, as Rothbard highlighted, Wooldridge pointed out “the successful operations of merchant courts since the Middle Ages, those courts which successfully developed the entire body of the law merchant. None of those courts possessed the power of enforcement.”

“In other words, private arbitration is, and has been for generations, successfully settling disputes,” Rothbard concluded.

The market process, Rothbard added, would ensure the most trustworthy arbitrators would rise to the top. “As in other processes of the market, the arbitrators with the best record in settling disputes will come to gain an increasing amount of business, and those with poor records will no longer enjoy clients and will have to shift to another line of endeavor,” he wrote.  

But how would the system of courts in a free society be funded?

“Courts might either charge fees for their services, with the losers of cases obliged to pay court costs, or else they may subsist on monthly or yearly premiums by their clients, who may be either individuals or the police or insurance agencies,” Rothbard argued. Entrepreneurial ingenuity and technological advancements would also produce funding mechanisms yet to be imagined. 

Conclusion

Rothbard’s essay serves as an outstanding introduction to the provision of security, law and courts in a stateless society. The enforcement of private property rights, contrary to anarcho-capitalist skeptics and critics, can indeed be capably handled through voluntary market exchanges. No corrupting and coercive influence of the government is needed.

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

What Robert Reich is hiding from millennials

What Robert Reich is hiding from millennials

Former Labor Secretary Robert Reich’s latest video presentation attempts to explain to millennials why they are so broke. Disappointingly, millennials will be left wanting, as Reich never delves deeper than surface-level observations and conceals some inconvenient facts that may lead viewers to a very different conclusion than Reich would like them to reach.

Produced by his organization called “Inequality Media” and published at Salon.com, Reich’s latest commentary is entitled “Four reasons why millennials don’t have any money.”

Declaring that millennials are “working hard, starting families and trying to build wealth,” Reich laments “(B)ut as a generation, they’re way behind” older generations.

Millennials, Reich continues, are “deeper in debt, only half as likely to own a home, and more likely to live in poverty than their parents.

“If we want to address their problems, we need to understand those problems,” he concludes.

Closer inspection of his four main points, however, reveals that Reich himself either doesn’t understand the source of these problems, or is intentionally obscuring them.

“Number one: Stagnant wages”

With no explanation offered, Reich begins by informing viewers that “Median wages grew by an average of 0.3% per year between 2007 and 2017, including the Great Recession – just as millennials were beginning their careers. Before that, between the mid-1980s and mid-1990s, wages grew at three times that rate.”

No doubt, entering the workforce during the Great Recession was a very perilous task. Such a daunting labor market put many a millennial behind schedule in terms of financial advancement.

But the economy has been in recovery mode for about a decade now, so why the continued slow income growth?

A significant factor can be found right in the theme Reich is examining: age. As noted in this 2018 MarketWatch article: “But it’s worth noting that the aging of America’s workforce is having a downward impact on pay.

The median weekly earnings of 55-to-64 year old’s is 28% higher than that of 25-to-34 year old’s. That’s logical — pay improves as a worker’s career advances.”

With more experienced, higher-paid workers aging out of the workforce, median wages are bound to be dragged down. “The San Francisco Fed studied this issue in depth in March 2016,” the MarketWatch article continued. The study found that as baby boomers retire “the fraction of exits occurring from above the median wage has gotten larger,” which naturally drags down the median. 

Moreover, as the economy recovered, more low-wage workers that lost their jobs during the recession began to re-enter the workforce, applying more downward pressure on median wages.

“Second: As wages have stagnated, the costs of essentials like housing and education have been going through the roof”

Here, Reich points out how millennials own fewer homes, and further points out that, adjusted for inflation, “the average college education in 2018 cost nearly three times what it did in 1978.”

Like his first point, Reich offers no potential explanations for this phenomenon. 

In higher education, as with healthcare, a system increasingly reliant on third-party payers for the expenses has been a major driver of exploding tuition costs. As summed up in this College Board articlewith third parties paying part or all of the bills (via government and private ‘scholarships,’ subsidized loans, and subsidies of institutions), schools can often raise fees without dire financial or academic consequences.”

In 2018-19, according to College Board, undergraduate and graduate students received a total of $246 billion in student aid in the form of grants, tax credits and loans.

Indeed, there’s been a stunning 416 percent rise in total federal, state and institutional student aid loans since 1989, adjusted for inflation. Pell Grants, the federal government’s largest college grant tuition assistance program nearly tripled in real terms during that time.

With billions in federal student aid, grants and below-market interest loans courtesy of the U.S. Department of Education artificially inflating demand for college, tuition prices were sure to explode. Why does Reich deprive millennial viewers of this vital information?

“Third: As a result of all of this, debt”  

Here Reich informs viewers that “the average graduate carries a whopping $28,000 in student loan debt,” and that as a generation, “millennials are more than one trillion dollars in the red.”

We already addressed a primary driver of rising tuition costs that Reich ignores. But here we can further note that the levels of student loan debt is so crushing because such a significant share of millennials are not earning enough to afford the debt payments. 

Young people are often drawn into college on the promise that a college degree is their only ticket to career success. 

But increasingly, it is not. As Ohio University economist Richard Vedder has written, “The Federal Reserve Bank of New York said that 41.4 percent of recent college graduates in December 2018 were ‘underemployed,’ doing jobs mostly held by those with lesser education.”

In other words, more than two-fifths of recent grads are in jobs that don’t require a college degree. As Vedder notes, this is because “(W)e actually have too many college graduates for the number of professional, managerial, and technical jobs available.”

With a glut of college graduates flooding the job market, there is little bargaining power for millennials entering the market, outside of those with degrees in highly technical areas. In too many cases, a college degree simply does not translate into earning power sufficient enough to pay off formidable student loans. 

And that glut can in no small part be attributed to the massive sums of money flowing from government programs, a fact Reich turns a blind eye to. 

“Fourth: Millennials are finding it harder than previous generations to save for the future” 

Harder, or less beneficial?

Historically-low interest rates for the past decade, which followed decades of a mostly low-interest environment, discourages savings. Why set money aside when there is virtually no financial gain to doing so?

For most of the millennial generation’s adult lives, the paltry interest on savings has been insufficient to keep up with inflation. 

Why won’t Reich mention the Federal Reserve’s role in keeping interest rates low, thus suppressing any returns to savings?

Reich further points out that employers are “replacing pensions with essentially ‘do-it-yourself’ savings plans; and that among Fortune 500 companies, “only 81 sponsored a pension plan in 2017, that’s down from 288 twenty years ago.”

Readers are just supposed to accept this as is, with no broader context.

What could be helpful to note is that perhaps corporate pension plans are being crowded out by rising healthcare costs. 

Research by the Peterson Center on Healthcare and Kaiser Family Foundation shows that large group employer coverage costs to employers more than doubled between 2003 and 2018.

This has escalated during a time of dramatically increasing government intervention into the healthcare market.

With so many more dollars going to paying employee health benefits, there’s little wonder that companies are cutting back on pension plans. 

Conclusion

Without further explanation for why millennials have no money, they will be more susceptible to accepting misguided policies claiming to ease them of their financial woes. 

Unsurprisingly, Reich lists several government interventionist policies to address the generational wealth gap, including “debt relief, accessible health insurance, paid family leave, affordable housing, and a more equitable tax code for renters.”

With the goal of selling government as the key to millennials’ financial security, it is hardly surprising that he would want to conceal vital facts about how government intervention is a primary cause of their financial struggles in the first place. 

Millennials: don’t just unquestioningly accept Reich’s recommendations. Do your homework and discover the underlying causes to this “generational wealth gap.” You just might find that the solution lies in less government, not more. 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

Two replies to shut down the “healthcare and housing are human rights” argument

Two replies to shut down the “healthcare and housing are human rights” argument

There is no shortage of politicians and other armchair philosophers insisting that things like healthcare and housing are “human rights.” Anyone watching the Democratic presidential debates, or having spent five minutes on social media, has no doubt heard this refrain countless times. The claim, of course, is a veiled way to promote greater government involvement in the provision of such goods. Opponents can then be tarred with wanting to deny people of their basic human rights if they dare speak a word in opposition to plans like Medicare for All or expanded housing subsidies.

The claim has natural appeal to many because housing and healthcare are such basic and vital needs for the well-being of our fellow citizens. This may indeed be a clever rhetorical trick to silence unprepared advocates of liberty. But there’s no need to be caught flat-footed when confronted with this argument. Below are two simple retorts that expose the fallacy of healthcare and housing being “human rights.”  

Conflating rights with goods – there is no right to the labor of others

Those presenting healthcare or housing as human rights are making a dire mistake: conflating rights with scarce economic goods. Goods and services like medical care and housing don’t just exist in a state of nature. They are produced using human labor combined with capital goods. This is where the popular meme “Nothing that requires the labor of others is a human right,” comes in handy.  In essence, declaring housing and healthcare to be rights implies that some have a right to the labor of others. Challenging progressives, “Democratic Socialists” and other advocates of these supposed rights to answer why they support the concept of some having a right to the labor of others will typically be answered with awkward silence. 

More specifically however, what supporters of the “right” to healthcare and housing envision is a government-funded system of hospitals, medical providers and “affordable housing” projects financed by taxes taken from workers against their consent. Instead of declaring a right of some to the labor of the service providers themselves, this system declares a right to a portion of the fruits of the labor of all (or most) productive workers in the form of taxation in order to finance such schemes. The mechanism may be different, but the concept remains the same. Taxation implies a right to the labor of workers by the State. That portion of your income earned from labor that is taken by taxes represents the State’s claim over your productive effort. For that amount of time, you are laboring for the rulers, not yourself.   

How much healthcare or housing does everyone have a “right” to?

If healthcare and housing are rights, how much do we have a right to? Mud huts, mansions, two-bedroom apartments? Around the clock medical concierge service, one doctor visit per year, unlimited surgeries? Because they are scarce goods, some form of rationing of healthcare and housing is required. Free markets use the price system to better allocate goods and services to their most highly valued uses.

A system of government provision however, empowers the ruling elite with determining the allocation of goods. If government says these are rights, then it follows government has the authority to determine how much medical care or housing you are entitled to. One can quickly surmise that when officials in Washington D.C. dictate to citizens how much housing or healthcare they are to be allotted, there is no denying that we have become but mere slaves – dependent on our masters for whatever housing or medical care crumbs they determine us to be worthy of. When someone else can determine how much you are entitled to, that means it’s not a right, but a privilege granted by the whims of your overlords.

Just imagine what a system of corruption this would create as those closest to the ruling elite would lobby for a greater share of their “rights” than the rest of the subjects. If you think today’s politicians are in the business of promising more generous benefits to certain segments of the population to buy more votes, just wait until highly-valuable goods like medical care and housing become “rights.” And how long before our rulers decide to wield their complete control over the distribution of housing and medical care as a weapon to punish political opponents?

Conclusion

The only legitimate right to healthcare or housing is to that which the providers are willing to supply in exchange for a price both willingly agree to. Market exchange based on private property is not only the most efficient means of allocating scarce goods like healthcare and housing, but the only moral means as well.

Those attempting to convince the populace that such scarce goods are actually “rights” are merely employing a rhetorical trick to conceal their true desires for further enslavement of the subjects. To paraphrase the old saying “If you think housing and healthcare are expensive now, just wait until they are rights.” The price we pay will be our freedom. 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

How Government is Preventing a North Carolina Doctor from Providing Low-Cost Care to Patients

How Government is Preventing a North Carolina Doctor from Providing Low-Cost Care to Patients

A North Carolina doctor suing the state to overturn a law preventing him from providing affordable MRI scans to patients recently won a small victory in court. In late November, a Wake County Superior Court judge ruled that Dr. Gajendra Singh’s challenge of North Carolina’s Certificate of Need (CON) laws could proceed. 

One of countless regulations imposed on America’s healthcare industry, CON laws serve as yet another reminder of just how far our nation is from having anything remotely resembling a “free market” in healthcare. 

In short, CON laws require medical care facilities and providers to get approval from a state commission to acquire certain medical equipment or otherwise expand the capacity of their facility.

In the case of Dr. Singh, a general surgeon in Winston-Salem, North Carolina, his case arises from his desire to purchase a new MRI machine for his practice.  Dr. Singh contends that doing so would “lower prices for patients by adding competition to the other provider of an MRI” in his area.

“We’re trying to make health care really affordable where a patient can come and not worry about it,” he said. “I’ve been on the other side of the fence where I didn’t have enough money. I grew up poor. I understand, and I feel how much it costs.”

Naturally, the biggest supporters of preserving North Carolina’s CON laws is the hospital lobby. CON laws protect them from new competition and as such enable incumbent providers to have near monopolies in their geographic area, providing the hospitals with much stronger bargaining power to negotiate higher reimbursement rates from insurers. The higher costs, of course, are passed on in the form of more expensive insurance premiums.

 According to news reports, the hospital lobby admits as much. One article wrote: “Cody Hand, Vice President of the North Carolina Healthcare Association, said he understands Singh’s issue but maintains that patients can’t afford to have medicine be a totally free-market environment.” 

The Institute for Justice (IJ), who is representing Dr. Singh in the case, provides more insight on the benefits Singh would like to bring to patients in his community. 

“In addition to X-rays, ultrasounds and other diagnostic imaging services,” they write, Singh’s practice also provides MRI scans. “On average, an MRI at a North Carolina hospital costs upwards of $2,000. At Forsyth (Singh’s practice), Dr. Singh charges $500 to $700. But keeping prices affordable is difficult. That’s because North Carolina’s outdated laws prevent Dr. Singh from owning an MRI scanner.”

Instead, Singh is required to rent an MRI scanner at a cost of thousands of dollars per day. North Carolina’s CON law is what is preventing him from purchasing an MRI scanner in order to offer much more affordable services.

As IJ points out, “Unfortunately, Dr. Singh cannot even start the costly and cumbersome permit process because a board dominated by regulators and industry insiders has determined his community is not in need of any additional MRI scanners.”

What’s perhaps even more absurd, even if the government board stacked with representatives of incumbent medical providers acknowledges a “need” for an additional MRI scanner in Singh’s community, state law allows competitors to challenge the granting of a permit for new medical equipment. State law “allows other providers, like the hospital down the street from Forsyth, to fight him at every step of the way. When all is said and done, obtaining a permit for an MRI scanner can cost upwards of $400,000,” according to IJ.

The original CON laws date back to the 1970s and were passed at the federal level. The stated purpose for CON laws was to control healthcare costs by limiting the amount of “unnecessary” health services and facilities invested in by hospitals and other providers. Presumably, government bureaucrats were in a better position to determine a community’s needs for medical devices and hospital beds than the providers themselves. 

The federal laws, however, did not live for long.

As the Mercatus Center at George Mason University writes, “In 1986—as evidence mounted that CON laws were failing to achieve their stated goals—Congress repealed the federal act, eliminating federal incentives for states to maintain their CON programs.”

Disappointingly, only 15 states have completely done away with their CON regulations. A majority still maintain some level of CON programs, and North Carolina has one of the most restrictive webs of CON laws in the nation. 

Scholars at Mercatus have come to the unsurprising conclusion that CON laws limit the supply of available medical care. In one study they find “that states with CON programs have about 99 fewer hospital beds per 100,000 people than states without these regulations.”

In Dr. Singh’s state of North Carolina, Mercatus estimates that if the state were to eliminate its CON laws, patients could have access to roughly 35,000 more MRI scans per year – a 5 percent increase. Moreover, the state would have 80 rural hospitals, compared to the 56 it has now, and 187 total hospitals compared to the current 132. The increased supply and competition would lead to financial relief for patients. According to the Mercatus research, eliminating CON laws in North Carolina would lower that state’s total healthcare spending per capita by more than $200 per year. 

The growing support for single-payer healthcare plans, such as Medicare for All, is driven in no small part by the belief that what plagues the U.S. healthcare industry is not enough government intervention. 

Certificate of Need laws, and the case of a North Carolina doctor that is forced to sue his own state government for permission to offer lower-priced medical services, serves as one of many examples that proves otherwise. 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

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