Why Elections Do Not Represent the ‘Will of the People’

Why Elections Do Not Represent the ‘Will of the People’

As lawsuits are being filed to challenge the results of this year’s “most important election of our lifetime,” the pundits and talking heads of the political class will repeatedly remind us that election results reflect “the will of the people.”

They couldn’t be more wrong.

There are several reasons why, beginning with the fact that there is no such thing as a singular will of “the people.”

The United States consists of more than 330 million unique individuals with different preferences, priorities, and goals in life. There is no singular “will” of such a large and diverse group of people. The only way a singular “will” of the people can be achieved is if it is imposed from above—by force and threats of violence—in which our overlords override our personal decisions and force compliance to their chosen outcomes.

Moreover, voter turnout—even in this year of projected record turnout—is estimated at about 70 percent for president, with lower totals for down-ballot races. That means that at least 30 percent of the voting-age population did not even vote, either due to apathy or an objection to the available choices. There is no plausible explanation for maintaining that election results somehow reflect the “will” of those that didn’t vote.

And what about the tens of millions of people who voted for a losing candidate? Whether it be president, senator, governor or town council, it is transparently obvious their will is not reflected by the winning candidates they voted against.

Indeed, in politics, a 60% to 40% victory is considered a massive landslide. Such a vote outcome would endlessly be described as giving the winning candidate a “mandate” to carry out his agenda. But in such a case, a full 2/5 of those who bothered to vote are rendered voiceless and impotent over their rights. Their “will” will clearly be ignored.

Thirdly, what about those who did vote for the winning candidate, but that candidate ends up breaking his campaign promises while in office? Votes for candidates promising X but delivering Y can hardly be considered expressing the will of the people. If you vote for a candidate promising to eliminate Obamacare, for instance, and once in office that representative ends up instead voting to expand Obamacare, that politician’s actions could hardly be described as reflecting the will of his own voters, let alone the will of “the people” as a whole.

Most assuredly, political representatives, even after elected, can not represent our interests in any meaningful sense. To be considered a person’s true representative, at minimum these three conditions would need to be met. The representative 1) would be chosen by that person 2) can be dismissed at any time, and 3) can’t act contrary to that person’s wishes (or risk being fired).

When it comes to political representation, none of these conditions hold. A majority vote—not your personal choice—chooses your political representative, you have to wait years before the next opportunity for your political representative to be dismissed, and elected representatives can regularly act contrary to the wishes of up to 49% of voters with little risk of being voted out of office.

Why is this so important?

In his book “Anatomy of the State,” Murray Rothbard pointed out perhaps the more insidious misconception of the State. “With the rise of democracy, the identification of the State with society has been redoubled, until it is common to hear sentiments expressed which violate virtually every tenet of reason and common sense such as, ‘we are the government,’” he wrote.

The use of the collective we, Rothbard noted, has “enabled an ideological camouflage to be thrown over the reality of political life.”

The slogans declaring election outcomes to represent the “will of the people” go hand in glove with the misguided notion of “we are the government” Rothbard warned us about.

No ballot box can conceal the glaring contrast between the rulers and the ruled. Voting merely induces the ruled to believe in the legitimacy of their own servitude.

On the bright side, maybe with so many now questioning the process of counting votes more people will become skeptical of democracy itself, and in turn perhaps rid more people of the misguided notion that “the government is us.”

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on Twitter @erasestate.

How Data Collection Drives State Intervention In Our Lives

How Data Collection Drives State Intervention In Our Lives

The U.S. Census made the news recently, as a dispute over the deadline for its data collection made it to the U.S. Supreme Court.

The Trump administration successfully lobbied for a deadline of Friday October 16, over the objections of the National Urban League who instead wanted the deadline extended to the end of October due to COVID-related delays.

The traditional census has been conducted every decade since 1790, as mandated in the Constitution. The population count is used to determine representation in congressional districts for the next 10 years.

The data is also “used to distribute billions of dollars in federal funds for health care, housing programs and education,” as ABC News described.

Local communities emphasize high census response rates so that they aren’t “underrepresented” when it comes to the federal government dole.

But that’s not all. Indeed it’s far from it.

As detailed in this Census Bureau document, the census also asks a litany of other questions of households, including income, sex, age, home value, education attainment, kitchen facilities, number of vehicles available, and dozens more.

The census, however, is just the tip of the iceberg when it comes to government data collection.

As Murray Rothbard wrote even decades ago, “The vast bulk of statistics is gathered and disseminated by government. The overall statistics of the economy, the popular ‘gross national product’ data that permits every economist to be a soothsayer of business conditions, come from government.”

In an essay first published in 1961 by the Foundation for Economic Education, and much more recently re-produced at Mises.org, Rothbard argued that the “burgeoning of government statistics offers several obvious evils to the libertarian.”

Steep Compliance Costs

Forced compliance to the government’s massive apparatus of data collection imposes significant costs, especially burdensome on the nations’ small businesses.

“Private industry, and the private consumer, must bear the burdensome costs of record keeping, filing, and the like, that these statistics demand,” Rothbard wrote. “Not only that; these fixed costs impose a relatively great burden on small business firms, which are ill equipped to handle the mountains of red tape.”

Data collection represents yet another means by which big government hurts the little guy.

While it’s impossible to know the severity of the burden, Rothbard did report on a Hoover Commission task force which found “The chemical industry alone reports that each year it spends $8,850,000 to supply statistical reports demanded by three departments of the Government. The utility industry spends $32,000,000 a year in preparing reports for Government agencies.”

Recall that this data is from an article written in 1961, so today’s burden on businesses will be several multiples higher in dollar terms. The millions (or more) in resources devoted to compliance to government data collection schemes diverts scarce resources that could otherwise be devoted to job creation, capital investment that increases productivity which in turn drives up wages, or research and development devoted to developing new products to improve the lives of consumers.

A Precursor to Fovernment Intervention

Even more nefarious, however, is how government data collection serves as the foundation upon which government intervention and control is built. According to Rothbard:

Not only do statistics gathering and producing go beyond the governmental function of defense of persons and property; not only are economic resources wasted and misallocated, and the taxpayers, industry, small business, and the consumer burdened. But, furthermore, statistics are, in a crucial sense, critical to all interventionist and socialist activities of government.

The data and statistics collected by the government, Rothbard argued, serves as a substitute for market data for government planners. Consumers, for instance, have little need of such statistics. Instead, Rothbard wrote, the consumer uses localized knowledge made available “through advertising, through the information of friends, and through his own experience” in order to understand the markets around him and help inform his decisions.

Likewise, business owners “must also size up his particular market, determine the prices he has to pay for what he buys and charge for what he sells, engage in cost accounting to estimate his costs, and so on.”

None of this activity by consumers and businesses, however, is dependent upon the “statistical facts about the economy ingested by the federal government,” Rothbard noted. Instead, “The businessman, like the consumer, knows and learns about his particular market through his daily experience.”

But government bureaucrats, Rothbard continued, “are in a completely different state of affairs.”

They are decidedly outside the market. Therefore, in order to get ‘into’ the situation that they are trying to plan and reform, they must obtain knowledge that is not personal, day-to-day experience; the only form that such knowledge can take is statistics.

As such, only through the mass gathering of statistics can the government make “even a fitful attempt to plan, regulate, control, or reform various industries—or impose central planning and socialization on the entire economic system,” Rothbard wrote.

Without gathering statistics on various industries, how could it even begin to regulate prices or other aspects of their economic activity? How could the government attempt to “regulate” the business cycle without knowing whether business activity was going up or down?

“Statistics, to repeat, are the eyes and ears of the interventionists,” Rothbard declared. “Cut off those eyes and ears, destroy those crucial guidelines to knowledge, and the whole threat of government intervention is almost completely eliminated.”

Lastly, because perhaps the most common pretext for government intervention into the economy is to “correct” for market failures, if the government were deprived of its data collection, there would no longer even be the slightest “pretense of rationality in government intervention” left.

As a result, Rothbard concludes by suggesting that “the simple and unspectacular abolition of government statistics would probably be the most thorough and most effective” check on government intervention. “Statistics, so vital to statism, its namesake, is also the State’s Achilles’ heel.”

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. You can follow him on Twitter @erasestate.

What ‘Experts’ Miss About Economic Inequality

What ‘Experts’ Miss About Economic Inequality

How can the U.S. reduce economic inequality?

That’s a question USA Today posed to three “policy experts on the left and the right” in this recent article. The responses, while unsurprising, were nevertheless disappointing.

For libertarians, economic inequality itself is not problematic, as long as it is in the context of an unfettered market economy free of government privileges and interference.

Of course, that’s not what we have. But instead of advocating for a more free economy to address inequality, the “experts” consulted by USA Today advocate for more state interference that would likely make inequality worse, while ignoring perhaps the largest source of inequality, the Federal Reserve.

First up is Scott Winship of the American Enterprise Institute, who focuses on income mobility. Winship points out that if every child had equal economic opportunity, then we would see an equal percentage among races of children remaining in the bottom fifth of income when they become adults.

Winship notes that roughly 30% of white children remain in the bottom fifth in adulthood, while the percent for black children exceeds 50%.

Absent from Winship’s observation, however, is the recognition of why this might be the case.

According to Pew Research, 30% of single mothers and their families are living in poverty compared to 8% of married couples and families. In other words, children are nearly four times as likely to be living in poverty in a single mother household compared to a household headed by a married couple. Meanwhile, 58% of black children are living with an unmarried parent, compared to 24% of white children and just 13% of Asian children.

Moreover, the welfare state has facilitated a dramatic rise in single-parent homes. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.

Single parenthood fueled by the welfare state is an outsized source of inequality, but the welfare state escapes any blame by the “expert” Winship.

To his credit, Winship in his recommendations mentions in passing that “shoring up marriage where it has become an anomaly” would help reduce inequality, but fails to target the welfare state as the major culprit.

His other recommendations include the vague notion of “expanding access to high opportunity neighborhoods,” perhaps a nod to government programs to inject affordable housing projects in middle class suburbs, along with increased government spending on early childhood programs. Encouraging more state involvement in child rearing while ignoring the glaring problem of single parenthood caused in large part by the welfare state sounds like a recipe to exacerbate inequality, not combat it.

Next up is American Compass research director Wells King, who blames growing economic inequality on the fact that the “labor movement has lost power.”

King overlooks basic economic analysis while giving labor unions undeserving credit for boosting worker wages on a broad scale. As Henry Hazlitt wrote, “the blunt truth is that labor unions cannot raise the real wages of all workers.”

As Hazlitt explained, “whenever the unions gain higher wage rates for their own members than free competition would have brought, they can do this only by increasing unemployment,” in that industry, because the above market wage rates decrease employer demand.

As a result, more workers are forced to compete for other nonunionized jobs, and the increased supply of workers in other industries drives down those wages. Therefore, Hazlitt concludes, “All union ‘gains’ (i.e., wage rates above what a competitive free market would have brought) are at the expense of lower wages than otherwise for at least some if not most nonunion workers. The unions cannot raise the average level of real wages; they can at best distort it.”

As Hazlitt explained, King’s calls for a more robust union movement as a means to reduce economic inequality are ill-founded.

Moreover, King’s blinkered focus on unions as being a force for growing worker wages blinds him to a far more potent force driving inequality.

“The steady erosion of unions over the past 50 years has been responsible” for growing inequality, King insists while noting a correlation between declining union membership and growing wealth inequality during that time.

But what else happened fifty years ago that might influence wealth inequality?

Of course it was Nixon’s severing the final ties of the dollar to gold in 1971, which has enabled the Federal Reserve to create fiat money completely unchecked.

As demonstrated in multiple charts at the website WTFhappenedin1971, there is a clear divergence in incomes between high and low earners beginning sharply in 1971.

According to this 2018 Mises.org article, the base (M1) money supply ballooned by an incredible 17 times, with more than $3.2 trillion being created from 1971 to 2018. And it’s only getting worse, with another 33% increase in the first 7 months of 2020 alone.

Why does Fed money printing increase economic inequality?

In short, the rich receive a significant share of their income from investments, while the middle class primarily relies on their income from labor, and the poor a combination of labor income and government welfare payments.

When the Fed creates new fiat money out of thin air, it isn’t distributed evenly throughout the economy. Instead, it is inserted at specific points, typically via credit to business investors. As the Fed inflates a bubble, speculation with the new money also increases—which inflates the stock market, benefitting the investor class.

Meanwhile, the fiat money creation creates price inflation that permeates over time throughout the economy. Some of the more highly skilled in the middle class may receive salary increases to keep up with the inflation, while many of the lower-skilled middle class will struggle to keep up with rising prices.

Meanwhile, the poor, who lack the bargaining power to raise their wages to keep pace with inflation, and otherwise rely on relatively fixed incomes, fall further behind.

The failure of King to recognize the Fed’s major role in growing inequality undercuts any credibility his recommendations should be given.

Lastly is Economic Policy Institute research director Josh Bevins who incredibly calls for more money printing to help reduce economic inequality.

“Policymakers should re-target genuine full employment (the Fed is making good steps in this direction)” Bevins implores. How this supposed “expert” believes more asset bubble inflating money creation will reduce economic inequality goes without explanation.

Bevins further calls for a “substantially increased” federal minimum wage, without acknowledging that pricing low-skilled workers out of the workforce and eliminating their first rung on the career ladder will reduce the ability for low-income people to increase their earning power and narrow economic inequality.

More generous unemployment benefits is another of Bevins’ recommendations. But increasing the incentive to not work will result in more people, especially those already on the margins of employment, staying out of the workforce for longer periods of time—a great recipe to stymie the steady career track needed to climb out of low-income status.

How disappointing that a national publication like USA Today can do no better than “experts” who recommend government interventions that would end up increasing, rather than shrinking, economic inequality.

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on twitter @erasestate.

‘Serve and Protect’? Eighty Percent of Criminal Charges Are for Misdemeanors

‘Serve and Protect’? Eighty Percent of Criminal Charges Are for Misdemeanors

A recent meeting by a North Carolina state government task force underscored that the mission today of American police forces may well be less to “serve and protect” and more to “harass and extract.”

“Of North Carolina’s 1.9 million criminal charges, 1.6 million of those are misdemeanors,” reported the N.C Insider (subscription required). This statistic was revealed by Jessica Smith, a professor of public law and government at the UNC School of Government, to members of the N.C. Task Force on Racial Equity in an August 20 meeting.

Smith told the work group that only 6.7% of those misdemeanors were considered violent. “I would say that the justice system is largely a non-violent misdemeanor system,” Smith added.

According to the news account of the task force meeting, Smith said that “the majority of the nonviolent misdemeanor charges are traffic, including speeding, driving with a revoked license, expired registration or not having an operator’s license.” Moreover, the article continued, Smith noted that “outside traffic violations, the most charged misdemeanors are larceny, possession of drug paraphernalia, possessions of a half-ounce of marijuana and possession of marijuana paraphernalia.”

Clogging up the state’s court systems are cases of minor victimless offenses, according to Smith.

Smith pointed out some of the most absurd misdemeanors consuming the state court system’s time. These included “not having a city dog tag, leash law violations or having tinted windows,” according to the news report.

North Carolina’s trends mirror the national data.

In this 2019 Equal Justice Initiative article, former federal public defender and legal scholar Alexandra Natapoff “estimates that misdemeanors comprise approximately 80 percent of all arrests and 80 percent of state dockets, based on arrest data from the FBI and other statistical reports.”

Natapoff concludes from her research that, “Misdemeanors are moneymakers for local jurisdictions,” adding that “Because they fund courts, probation offices, public defender and prosecutor offices, and even the general budget in some jurisdictions…misdemeanors function as a regressive tax policy that shifts costs for basic services to the poorest citizens.”

Legislators create more and more violations, making it virtually impossible for the average citizen to make it through the day without violating one of them. This is on top of the laws, like drug possession, that prohibit “unapproved” behavior in which there is no actual victim. The criminal justice system has been turned into more of a cash cow extracting fines and penalties from peaceful citizens than an institution protecting its citizens from the aggression of others.

Overcriminalization has led to overpolicing. It’s become so ludicrous, that according to a 2019 report by the Vera Institute of Justice, an arrest is made every 3 seconds in America.

The report notes that “fewer than 5 percent” of the arrests are for serious violent crimes, and furthermore “the authors of the study suggested that arresting large numbers of people for minor offenses for nonviolent or comparatively minor offenses can effectively undermine the trust and legitimacy that effective law enforcement requires.”

The mass levels of arrests and police interactions with citizens amazingly come at a time when violent crime has been decreasing. This 2019 Reason article noted that the violent crime rate fell another 3.3 percent from 2017 to 2018, after a “reduction of violent crime by roughly half since 1993.”

Because of the rising trend of overcriminalization, Reason reported that “about 6.4 percent of Americans born before 1949 have been arrested, compared to about 23 percent of those born between 1979 and 1988.”

Unsurprisingly, Reason noted that “Drug arrests have grown increasingly common, now representing 9 percent of arrests for men and 8 percent for women,” and further that “11 percent of arrests of women and 16 percent of those of men are for underage drinking.”

Being arrested for even such petty, non-violent transgressions can cause long-lasting damage to the lives of those being charged. Stiff fines can put low-income people in to debt that takes years to climb out of, and adding a misdemeanor to one’s record can create significant barriers to employment.

And of course, having so many interactions between citizens and police increases the odds of more interactions turning violent or deadly.

We are taught in elementary school that our government exists to secure our rights to “life, liberty, and pursuit of happiness.” Police are to be deployed as a means to protect us from those that would violate such rights.

Sadly, we are way beyond that point. Legislators create countless laws to restrict or mandate behaviors having nothing to do with protecting our basic rights. Police are dispatched to enforce these rules, making criminals out of peaceful people who never aggressed against anyone.

The criminal justice system has turned into a money-making machine, punishing millions of victimless misdemeanors to collect fines to pay the people running and enforcing the system. Like everything else it touches, the state has turned the criminal justice system into a means to enrich itself at citizens’ expense.

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on Twitter @erasestate.

Debunking Marx’s ‘Iron Law of Wages’

Debunking Marx’s ‘Iron Law of Wages’

Does a competitive, free market capitalist system drive down wages for the common man?

That’s the question I was confronted with in a recent exchange I had with a Marxist on Twitter.

My original post stated that “Free, competitive markets don’t drive down worker wages, as Marx argued.”

“Instead,” the post continued, “markets drive up wages because entrepreneurs must bid against one another to acquire and retain the workers they need.” This led me to my ultimate point that “government intervention that limits competition will repress wages.”

The take home point, of course, was to illustrate that when the state interferes with the market it harms the working class; in contrast to the excuses of statist interventionists who insist their interventions are designed to help the common man.

That conclusion was unacceptable for our friendly social media Marxist, however. He replied with the following comment:

This is a common objection raised by Marxists, and a pillar of Marx’s economic analysis. Marx claimed that competitive, capitalist market economies would drive down wages of workers for the reasons stated above. Namely, that the labor force outnumbers the amount of available jobs, putting workers at a grave disadvantage and forcing them to accept ever dwindling wages if they are to be hired. Employers have no reason to pay anything more than “starvation wages” because the supply of willing and desperate workers far outstrips the supply of jobs.

Employers can drop wages as far as they want and still find willing takers, according to the theory, because if one person refused to work for such little pay, there will be a significant pool of desperately unemployed people willing to accept the crumbs. This tendency for competitive capitalist markets to drive wages down to bare subsistence levels is often referred to as the “Iron Law of Wages.”

This is an argument still relevant to policy discussions today, so it’s important to address why this argument is wrong.

What Determines Wages?

For clarity, it is important to first gain an understanding of what determines wages. A highly useful insight can be gained from political scientist David Osterfeld’s essay in the 1993 book  Requiem for Marx, edited by Yuri Maltsev:

Wage rates on the unhampered market do not depend on the individual worker’s ‘productivity’ but on the marginal productivity of labor. And the marginal productivity of labor is a product of savings, on the one hand, which creates additional capital and, on the other, entrepreneurial activity which directs this additional capital into the production of those goods and services most urgently desired by consumers.

The marginal productivity of labor, in short, is the value added to the production process of the next additional worker added to that process. And, as Osterfeld notes, the value added of that next worker will be determined largely by the amount and type of capital goods, i.e. machines, tools, technology, provided by the entrepreneur to aid the worker.

More specifically, wages will tend toward the present value of the marginal productivity of the worker. Say, for instance, an hour’s work adds $20 toward the value of a finished product that will likely be sold one year from now. That worker’s wages today will tend toward the estimated present value of $20 one year from now.

Importantly, the marginal productivity of labor in one line of industry heavily influences wage rates in other industries. In an unhampered, competitive market labor will flow to the highest wages made available for which they are qualified.

This means, as Ludwig von Mises pointed out in his 1956 book The Anti-Capitalist Mentality, that improvements in the marginal productivity of labor in some lines of industry that drive up wages will spur wage increases in seemingly unrelated industries.

Mises noted that there are many jobs in which the productivity of the worker has remained unchanged for centuries. For the barber, the butler, and basic agriculture work, for instance, worker output has remained roughly the same for generations, but wages have nevertheless risen.

Mises observed, “the wage rates earned by such workers are today much higher than they were in the past. They are higher because they are determined by the marginal productivity of labor. The employer of a butler withoholds this man from employment in a factory and must therefore pay the equivalent of the increase in output which the additional employment of one man in a factory would bring about.”

In short, because marginal productivity in other lines of work have increased and driven up those wages, employers must increase their pay in order to keep worker from seeking the alternative lines of work that pay more.  As the opportunity costs to workers rise, i.e. the wages they are passing up to stay employed in their current job, so too will their actual wages.

As a result, the competitive market has a tendency toward driving up wages, even for lower-skilled sectors of the labor market.

Lump of Labor Fallacy

A fallacy many fall prey to when believing that the wages of the average worker will be driven down to subsistence levels is the “lump of labor fallacy.” This fallacy is based on the faulty premise that the number of jobs in the economy is fixed.

Indeed, viewing the labor market through the lens of supply and demand but limited by the lump of labor fallacy may lend credence to the “iron law of wages” theory on its surface. Outside of those with skills highly demanded by the marketplace, their argument goes, the majority of average Joes and Janes would be forced to accept low and dwindling wages because jobs are more scarce than workers.

Of course, in a competitive market entrepreneurs are constantly looking to either expand or start new ventures, creating new job opportunities. Employers must compete with each other for the needed labor for their endeavors.

As Osterfeld observed, “Wages rise because, in order to take advantage of new profit opportunities provided by additional capital, entrepreneurs must bid workers away from their current positions.”

What those limited by the lump of labor fallacy further overlook is that demand for labor is heightened not only by business expansion and new market entrants, but also by the threat of new entrants in the market who may come along and bid away workers.

Reality Shows That Wages Continue to Rise

It would of course be naïve to claim that employers increase wages out of the goodness of their hearts. As Mises observed in his book Human Action, “Each entrepreneur is eager to buy all the kinds of specific labor he needs for the realization of his plans at the cheapest price.”

These wages, however, “must be high enough to take the workers away from competing entrepreneurs,” he added. In other words, the competition of an unhampered market more than offsets the employers’ desires to drive wages lower.

As evidence, consider that even with an extremely hampered economy in the U.S., wages for the average worker have steadily risen.

According to this recent Bureau of Labor Statistics report, employer costs per hour (wages plus benefits) for average compensation for all private industry workers increased from 2004 to 2020, a time plagued with one of our nation’s harshest recession, from $23.29/hr to $35.34/hr (see pg. 191 of report, figures taken from March of each year). The rise marked an increase of 51.7%, well ahead of the inflation rate of 37.2% during that time.

Clearly, the ‘iron law of wages’ is being broken.

Minimum Wage

If my Marxist critic were correct, and the average worker has such little bargaining power, then wouldn’t a significant share of workers be working for the minimum wage?

As Marx wrote in the Communist Manifesto, “The average price of wage labor is the minimum wage, i.e. that quantum of means subsistence which is absolutely required to keep the laborer in bare existence as laborer.”

Today, instead of a measure of “subsistence” to which average wages would fall, there is a government-mandated legal minimum wage.

Aside from those with highly valued skills who will see their wages bid up, the majority of workers will have to compete for the remaining jobs. Thus, according the Marxian theory, there’d be no reason for employers to pay any more than the legally-mandated minimum for a vast number of jobs, because the number of those competing for such jobs would far outstrip the jobs available.

Of course, reality once again serves to dispel this faulty notion. This 2019 Bureau of Labor Statistics report shows that just 2.1 percent of hourly workers above age 16 earn “wages at or below the federal minimum.” Of those, 47 percent were ages 16 to 24. So indeed it’s only a very small fraction of workers compelled to work for the minimum wage, and of those nearly half are young people probably in their first job.

Conclusion

One of the key criticisms of free market capitalism is that workers have little to no bargaining power, because the supply of labor exceeds the demand. As such, employers can leverage this advantage to steadily grind wages down to a bare subsistence minimum.

This theory, however, suffers from some major shortcomings. First is the fact that workers have opportunity costs, and employers need to pay wages sufficient to keep them from seeking work in alternative fields. So the increase in marginal productivity even in only select industries can still provide overall upward pressure on wages.

Secondly, the argument suffers from the lump of labor fallacy, which falsely assumes the number of jobs in the economy is fixed. Expansion of current businesses and new business startups is a regular feature of a market economy, however, which grows the number of jobs available.

Contrary to Marx and modern-day Leftists, it is not competition of the market that drives down wages, but restrictions on competition. For instance, barriers to entry for new entrants and other market interference that protects incumbent firms from competition would make it easier for them to pay lower wages.

An unhampered, competitive market economy is the working man’s best friend; and government interference their enemy.

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on Twitter: @erasestate.

Reboot Government? No, Dismantle It

Reboot Government? No, Dismantle It

Imagine my intrigue at seeing this subtitle kicking off a recent op-ed in USA Today:

Why do Americans hate Washington? One reason is that it makes us feel powerless.

Americans hating Washington? An article exploring how the state makes its citizens feel powerless?

Sign me up.

It didn’t take long, however, for me to be disappointed.

The article started out promising, by citing “discontent” toward government coming from “both sides.”

“A survey in 2018, for example, found that almost two-thirds of Americans favored ‘very major reform’ of government, almost double from 20 years ago,” the article noted.

“Political leaders sow division” it continued.

Bingo.

The article next itemized some obstacles to reforming some of society’s pressing problems. Police unions stand in the way of firing bad cops. Red tape gummed up the response to the spread of coronavirus.

Disappointingly, however, the article quickly squandered an opportunity to educate readers how a significant reduction in state power and influence would be the best recipe to heal much of society’s division. Instead, it hits readers with this line:

“Americans need to feel that government can make things better.”

This turn for the worse should have come as no surprise, given the author of the piece, Philip K. Howard, is the head of an organization called “Campaign for the Common Good.”

Any group or person claiming to be working toward the “common good” immediately should raise a red flag for libertarians. Of course, we know there is no such thing as the “common good,” but rather an extremely diverse set of individuals with varying wants and differing plans on how to achieve happiness.

So, how do we achieve this common good and overcome citizen’s sense of powerlessness, according to Mr. Howard?

“Let people take responsibility again. Give officials and citizens alike goals and guiding principles, and then let other people hold them accountable,” he recommends.

Who should “give” officials and citizens their goals and guiding principles goes unanswered.

Moreover, Howard states that overcoming powerlessness involves “letting” government officials do their job, including suggestions such as “Let local public health officials respond immediately to the pandemic,” “(L)et designated officials issue infrastructure permits after reasonable review,” and “(L)et teachers maintain order in the classroom.”

Such suggestions may be great for government officials, but doesn’t do much for citizens. Indeed, his suggestions further entrench the state as problem-solver for society, removing opportunities for free citizens to responsibly solve problems through voluntary cooperation.

To his credit, Howard criticizes the government’s overly-complex law books that allow for little discretion on the part of public officials or citizens, and calls for a process of simplifying and stripping them down.

He supports this notion, however, in part because it will “reactivate(s) our link to government.”

The last thing we need is a greater link to the oppressive and divisive leviathan government.

“Governing isn’t this hard,” Howard assures us. “America needs a new public operating system that re-empowers people with responsibility to deal sensibly with the situation before them.”

But a “new public operating system” will still carry with it the immoral baggage of the old one. It will be funded by taxes stolen from citizens. Its decrees will still be enforced by threats of force by an organization with a monopoly on violence.

Howard is focused largely on making government more efficient in carrying out its functions, and uninterested in limiting its size and scope. This won’t reduce the division that he expressed concern over. The state sows division because if forces some to fund others through welfare and wealth redistribution schemes, and it compels people with vastly different preferences to live under the same arbitrary rules having nothing to do with protecting people’s person and property.

Amazingly, Howard concludes with the statement, “The best cure for alienation is ownership.”

But that starts with self-ownership, not reducing red tape to allow government agents to more swiftly enforce their decrees or spend stolen taxpayer money.

Citizens feel powerless because the state is empowered to initiate force against them, with no repercussions. Powerlessness is not felt because government contractors are slowed from starting their tax-funded projects due to red tape.

Mr. Howard largely gets the diagnosis right. More people are getting frustrated with government and recognizing it as a source of division. Disappointingly, he gets the cure wrong.

Instead of a “reboot” of government, society needs a radical rollback of its power.

Bradley Thomas is creator of the website Erasethestate.com and author of the book “Tweeting Liberty: Libertarian Tweets to Smash Statists and Socialists.” He is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics. Follow him on Twitter: @erasestate.

What Paul Krugman Gets Wrong About The $600 Unemployment Bonus

What Paul Krugman Gets Wrong About The $600 Unemployment Bonus

The federal government’s program of supplemental unemployment benefits of up to $600 per week, as provided for in the CARES Act, is set to expire at the end of July.

Whether or not to extend this program is setting up to become a contentious political battle mere months before this fall’s national election.

But what of the economic debate?

Keynesians like Paul Krugman who support the extension of the benefits focus on getting money in the hands of people most likely to spend it—boosting ‘aggregate demand.’

On Twitter, Krugman insisted the economic shutdown was “annoying but sustainable,” and added there are “no financial constraints” on government borrowing money to plug holes in the safety net, presumably including a continuation of the supplemental unemployment benefits.

Krugman Tweet

To Krugman, a significant and extended period of diminished production (due to the shutdown) is sustainable via enhanced government benefits to maintain sufficient levels of consumer demand.

But as economist Per Bylund quickly noted, “You cannot eat money. And you cannot buy what isn’t being produced. Production precedes consumption.”

Byland Tweet

Indeed, the economic argument for the perceived benefits of extending supplemental unemployment assistance to stimulate aggregate demand stands on very shaky ground.

Even granting the assumption that the unemployed will spend all or most of the supplemental benefits on consumer goods, consumption unbacked by previous production merely represents capital consumption.

To illustrate, take the example of the food and agriculture industries. Let us assume that the unemployed spend their enhanced benefits on groceries. For further sake of simplicity, let’s assume all the groceries come from agriculture.

But where would the money come from that’s dispensed to the unemployed?

The financing of the enhanced unemployment benefits, as encouraged by Krugman, would come from funds borrowed by the government. The money lent to the government would necessarily come out of the economy’s pool of savings. The unemployment benefits, therefore, represent a shift in resources from savings to consumption.

In this case, this shift in wealth from savers to consumers means less saving available to finance farmers’ investment in capital equipment like tractors and irrigations systems. As productive capital goods wear out, capital consumption ensues. The farmers’ productive capacity is diminished. Now multiply this agriculture example across the entire economy.

Sustainable employment and economic growth relies on steady investment in capital goods. By directly financing consumer spending via borrowed funds, the government is financing the bidding away of scarce resources from the capital goods sector and in turn funding the consumption of capital.

As John Chamberlain, the late economic historian stated, “There is no political alchemy which can transmute diminished production into increased consumption.”

Without the productive capacity to meet increases in consumer demand, price inflation results as more consumer dollars are chasing an output of finished goods that can’t keep up. Rapidly rising prices in household staples, and a diminishing stock of capital goods slowing down output is not “sustainable,” contrary to what Krugman would like you to believe.

And what about when the timing is right to fully reopen the economy, end the supplemental unemployment benefits and try to get people back to work?

Unfortunately, because of the capital consumption encouraged by Krugman, recovery will be severely hampered and jobs hard to come by.

A diminished stock of worn out capital good is not the foundation upon which economic recovery is built. And the savings needed to replenish and expand the economy’s structure of production will have been diminished by the massive shift from savings to consumption by virtue of the government’s supplemental benefits.

One may support extending the supplemental unemployment benefits on the grounds of providing temporary aid to those impacted by the shutdown. But economic arguments presented by the likes of Krugman claiming a prolonged shutdown and indefinite extension of benefits are sustainable because there are “no financial constraints” on the government are pure nonsense.

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: @erasestate.

Exposing Jerome Powell’s Lies About the Fed and Inequality

Exposing Jerome Powell’s Lies About the Fed and Inequality

If the heads of the Federal Reserve are to be believed, Fed policies do not make wealth inequality worse.

When asked recently if the Fed’s policies widen inequality, San Francisco Federal Reserve President Mary Daly stated without reservation: “Not in my judgment.”

Previously, Fed Chairman Jay Powell at the end of May was less forceful in his response, but nevertheless danced around the question of Fed policy increasing inequality. “Everything we do is focused on creating an environment in which those people will have their best chance to keep their job or maybe get a new job,” was his response.

Of course, we know Powell and Daly are lying.

How the Fed Benefits the Investor Class

Austrian school investor Jesse Colombo writes at his site explainingcapitalism.org, “the Fed and the ‘paper’ dollar are the main reasons for America’s growing economic inequality.”

Why is this so?

“In simple terms,” Colombo explains, “inflation benefits the rich while hurting the middle class and poor due to the way each group’s finances are structured.”

In short, the rich receive a significant share of their income from investments, while the middle class primarily relies on their income from labor, and the poor a combination of labor income and government welfare payments.

When the Fed creates new fiat money out of thin air, it isn’t distributed evenly throughout the economy. Instead, it is inserted at specific points, typically via credit to business investors. As the Fed inflates a bubble, speculation with the new money also increases—which inflates the stock market and other major asset classes like housing, benefitting the investor class.

To see just how acute the rise in asset value for the investor class has been, massive fiat money printing has helped the S&P 500 balloon by more than 360% in the last 30 years, a nearly five-fold increase, and more than doubling in the last ten years alone.

Moreover, median home values have nearly tripled over the last 30 years, far surpassing the rate of inflation.

The overwhelming majority of these benefits accrue to a small group of investors.

This June 2 article on quartz.com reported that the “wealthiest 10% of U.S. households owned about 83%” of stock market wealth, according to a 2016 Federal Reserve Bank of St. Louis report.

“The richest one percent of Americans now account for more than half the value of equities owned by U.S. households, according to Goldman Sachs,” reported this February 2020 Financial Post article. Conversely, the bottom 90 percent of households owned just 12 percent of stock market wealth.

Additionally, rapidly rising home prices puts homeownership out of reach for more and more people. “Homeownership is increasingly out of reach for the typical American,” Redfin Chief Economist Daryl Fairweather said in this 2019 HousingWire.com article. “Over the last few years builders have focused on luxury homes, and there hasn’t been enough construction of affordable starter homes.”

After peaking in 2006 before the Great Recession, overall homeownership rates fell from a high of 69 percent to 63 percent in 2016. Ownership rates have been climbing again in recent years, but nevertheless the gains from housing value increases accrue not only to just those who can afford a home, but even more acutely to those in more expensive houses. Meanwhile, non-homeowners and those with lower-priced homes fall further behind.

Racial Wealth Gap

With a sharper and more critical eye being focused on racial issues—and the racial wealth gap in particular—due to recent events, the Fed is due its fair share of blame in this realm as well.

For starters, the benefits of rising home prices fueled by easy Fed money can only benefit actual homeowners. And, according to this February 2020 Urban Institute paper, “the gap between the black and white homeownership rates in the United States has increased to its highest level in 50 years” in 2017.

The white homeownership rate stood at 71.9 percent, compared to just 41.8 percent for blacks.

Furthermore, Federal Reserve data analyzed at capitalist.com shows that 61 percent of white households own publicly traded stock compared to just 31 percent of black households.

Even in middle and upper class households, the discrepancy persists. A March 2019 Investor’s Business Daily article reported that “A 2015 survey by Ariel asked Americans with household income of at least $50,000 whether they owned stocks or stock mutual funds. Eighty-six percent of whites said they did. For African-Americans, the number was 67%.”

In short, as Fed easy money policies benefit stockholders and homeowners, a disproportionate amount of those benefits are going to white households, further exacerbating the racial wealth gap.

Conclusion

There’s little doubt that the Federal Reserve increases wealth inequality overall, but deepens the racial wealth gap as well. The easy money policies of the last decade as the nation attempted to recover from the Great Recession provide a prime example.

As this 2019 MarketWatch.com article noted, “the Fed lowered interest rates, which had the knock-on effect of pushing easy money into the hands of the already-wealthy.”

As Deutsche Bank’s Securities’ chief economist Torsten Sløk said, “The response to the financial crisis was for the Fed to lower interest rates which in turn pushed home prices and stock prices steadily higher over the past decade.”

Like the old state lottery ads used to say “Lotto: You’ve got to be in it to win it.”

Similarly, to “win” benefits from Federal Reserve easy money policies, you’ve got to already be in the stock and homeownership game, i.e. the investor class.

It’s beyond disingenuous for the likes of Powell and Daly to claim the Federal Reserve doesn’t increase inequality. Any discussion of wealth inequality—be it overall or the racial wealth gap—is incomplete without a discussion of the Fed.

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: @erasestate

If I Were a Racist…

If I Were a Racist…

Protests across the nation following the murder of George Floyd have inspired discussions beyond just police brutality, shining a spotlight on issues like “social justice” and “systemic racism.”

But the divisive rhetoric on racism serves to distract from the statism.

If I were a racist, I would support policies that negatively impact minorities. Anything that winds up making their lives and socioeconomic condition worse off would get my approval. On that score, big government could serve as a shining example with a record of harming minorities any racist would envy.

The Welfare State

For starters, if I were a racist I would look at the results of the huge expansion of the welfare state with glee. It’s rumored that President Lyndon Johnson bragged, “I’ll have those niggers voting Democratic for the next 200 years” as a result of his passage not only of civil rights legislation but his massive ratcheting up of the welfare state known as the “Great Society.”

Whether or not Johnson uttered those actual words is immaterial; they were consistent with his racist tendencies. Much more importantly, however, is that the results have reflected the sentiment behind the alleged quote: a growing dependency of the black community on government programs, leading to a devastating destruction of the black family and in turn a deepening cycle of poverty.

Poor and dependent people will reliably vote for the party promising to continue and increase the flow of benefits.
Welfare programs championed by Johnson and progressives break up families by replacing a father’s paycheck with a government check and benefits. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.

This effect has been especially acute in black families, as more than 70 percent of all black children today are born to an unmarried mother, a three-fold increase.

According to 2017 American Community Survey data produced by the U.S. Census Bureau, only 5.3% of families with a married couple live in poverty nationally, compared to 28.8% of households with a “female householder, no husband present.”
In other words, single mother households are five times as likely to be in poverty compared to households with both parents. Largely as a result of the breakdown of the black family, 20 percent of blacks live in poverty, more than twice the rate of whites (8%).

As economist Thomas Sowell once wrote, “The black family survived centuries of slavery and generations of Jim Crow, but it has disintegrated in the wake of the liberals’ expansion of the welfare state.”

Indeed, if a group of racist Klan members conspired to develop a plan to impoverish black households, they could have not done much better than the exploding welfare state.

The Minimum Wage

If I were a racist, I would want to see to it that young black people coming from broken, low-income homes have a harder time entering the workforce, making it more difficult to escape poverty.

The minimum wage accomplishes that.

The economic lesson is obvious: artificially increasing the wage employers must pay decreases the demand for low-skilled workers, while drawing more demand from prospective workers to fill these positions. Low-skilled labor is priced out of the workforce as a result.

History has shown that black teenagers are hit the hardest by minimum wage hikes.

Research by Sowell underscores this point: “Unemployment among 16 and 17-year-old black males was no higher than among white males of the same age in 1948. It was only after a series of minimum wage escalations began that black male teenage unemployment rates not only skyrocketed but became more than double the unemployment rates among white male teenagers.”

Indeed, there is ample research showing that the minimum wage’s origin was inspired by racism. Such historic facts led economist Walter E. Williams to label the minimum wage “one of the most effective tools in the arsenal of racists everywhere in the world.”

Putting the first rung of the career ladder out of reach to young blacks is a great way to frustrate them and push them towards either a life of crime or government dependency. Far too many end up hopeless in prison or in the ghetto—right where racists want them.

Gun Control

Seeing to it that more blacks are stuck in a cycle of government dependency and hopelessness, and packed in close quarters in inner cities, I’d be pretty confident that those inner cities would have high rates of violent crime.

So if I were a racist, I’d want to take away the right to legally defend oneself by imposing strict gun control laws. This way, the honest citizens living in the violent inner cities would have no way to defend themselves against the criminals.

As Maj Toure of Black Guns Matter says, “All gun control is racist.”

Research on the history of gun control laws strongly suggests racist motives compelling these restrictions for hundreds of years. According to the website firearmsandliberty.com, “The historical record provides compelling evidence that racism underlies gun control laws—and not in any subtle way. Throughout much of American history, gun control was openly stated as a method for keeping blacks and Hispanics ‘in their place,’ and to quiet the racial fears of whites.”

One of the top priorities of the Ku Klux Klan after the Civil War was to enact laws barring gun ownership by the freedmen, making it all the easier to terrorize them.

Today, however, there’s no need to put on a white hood and lynch anybody, just see to it that blacks are defenseless and let the criminals handle the rest.

School Choice

If I were a racist, I’d want to block any attempt to make better educational opportunities available for minorities. The government indoctrination centers known as public schools are not only systemically incapable of providing high quality education for children, they have especially failed minority kids.

As Walter E. Williams has written, “the average black 12th-grader has the academic achievement level of the average white seventh- or eighth-grader. In some cities, there’s an even larger achievement gap.”

The ultimate goal, of course, is to separate school and state (and eliminate the state altogether). But short of that, we need to shift more control over educational choices out of the hands of politicians and bureaucrats and into the hands of parents and families.

Such policies are highly popular among minority families. Indeed, a 2018 national survey by Education Next found that Hispanic (62%) and black (56%) respondents expressed far higher support for school choice initiatives targeted to low-income families than whites (35%).

Results like this suggest that low-income, minority families recognize the status quo is not working, and they are craving policies that would enable them to access other educational options.

Those opposing policies that would provide minorities such options may not be motivated by racism, but one would be hard pressed to say how their actions would be different if they were.

War on Drugs

If I were a racist, I would no doubt enjoy the results of the government’s failed “war on drugs.” The war on drugs has put thousands of minorities in prison for crimes emerging from the government’s attempt to dictate to citizens what they can or cannot put in their own bodies. According to the Drug Policy Alliance, “Nearly 80% of people in federal prison and almost 60% of people in state prison for drug offenses are black or Latino.”

Moreover, the Drug Policy Alliance notes “2.7 million children are growing up in U.S. households in which one or more parents are incarcerated. Two-thirds of these parents are incarcerated for nonviolent offenses, including a substantial proportion who are incarcerated for drug law violations.” The drug war, like the war on poverty, is a major factor in fatherless homes in the black community.

The war on drugs has devastated minority communities, and its enforcement has greatly increased the number of confrontations between police and minorities; which in turn increases the opportunity for police brutality cases.

Conclusion

Big government has arguably been the biggest enemy of minorities. Indeed, an examination of the results of government control and intervention looks an awful lot like something racists would support.

Instead of pitting white against black to divide us, to achieve more justice for minorities we must instead focus our energy on dismantling the state.

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, @erasestate.

The State’s Priority Is Protecting Itself, Not You

The State’s Priority Is Protecting Itself, Not You

Murray Rothbard pointed out in his book Anatomy of the State how the state is far more punitive against those that threaten the comfort and authority of government institutions and workers than they are against crimes against citizens.

This, according to Rothbard, exposed as a myth the notion that the state exists to protect its citizens.

“We may test the hypothesis that the State is largely interested in protecting itself rather than its subjects by asking: which category of crimes does the State pursue and punish most intensely—those against private citizens or those against itself?” Rothbard wrote.

“The gravest crimes in the State’s lexicon are almost invariably not invasions of private person or property, but dangers to its own contentment, for example, treason, desertion of a soldier to the enemy, failure to register for the draft, subversion and subversive conspiracy, assassination of rulers and such economic crimes against the State as counterfeiting its money or evasion of its income tax.”

Boy how recent events have proven Rothbard right.

For weeks, we saw police aggressively pursuing and punishing peaceful people merely violating arbitrary lockdown orders to go surfing, cut hair, or host a child’s play date.

But in the first nights of the George Floyd protests, police allowed rioters to run amok destroying property, with political leaders dismissing the damage as unimportant.

This stark contrast in police responses dramatically underscores Rothbard’s point.

Take the first nights of rioting in Minneapolis. As reported by the Manhattan Institute’s City Journal, Minneapolis Mayor Jacob Frey, the source of the “police stand-down order that allowed his own city to burn,” merely “shrugged off responsibility and minimized the damage.” Moreover, according to the report, “Frey kept repeating that the destruction was ‘just brick and mortar.’”

And consider the example of Raleigh, North Carolina Police Chief Cassandra Deck-Brown, who said:

When the greater risk is of injury to the officer, and I had five injured last night – a building? A window? A door? The property that was in it can easily be replaced. But for a person who has had officers shot. And more recently than not, I will not put an officer in harm’s way to protect the property inside of a building. Because insurance is most likely going to cover that as well but that officer’s safety is of the utmost importance.

Got that? The officer’s safety is the primary concern, not the property of citizens. Agents of the state whose sole job is supposedly to protect the people and their property instead refuse to do their job at the first hint of danger.

Worse still, as Ryan McMaken pointed out in a recent article at Mises.org, “A failure to protect taxpaying citizens from violence and crime in a wide variety of situations is standard operating procedure for police departments that are under no legal obligation to protect anyone, and where ‘officer safety’ is the number one priority.”

McMaken further notes that it is “now a well-established legal principle in the United States that police officers and police departments are not legally responsible for refusing to intervene in cases where private citizens are in imminent danger or even in the process of being victimized.”

Police absence during riots is nothing new. As McMaken wrote: “During the 2014 riots that followed the police killing of Michael Brown, for example, shopkeepers were forced to hire private security, and many had to rely on armed volunteers for protection from looters. ‘There’s no police,’ one Ferguson shopkeeper told Fox News at the time. ‘We trusted the police to keep it peaceful; they didn’t do their job.”’

As the violence of the riots intensified, mayors instructed police forces in cities across the nation to step up their presence.

But their initial reactions are the most telling.

The contrast between police actions against peaceful lockdown “violators” and the rioters is striking. The instincts of the political class was to haul mothers in parks and hair stylists away in handcuffs, while standing down and allowing private property owned by citizens to burn.

The former involved disobeying a government order, an act which would threaten the perceived authority, no matter how arbitrary, of the state. The latter involved violation and destruction of citizens’ property.

As Rothbard would have predicted, the state was far more interested in preserving the illusion of its authority than the property of its citizens.

Putting a tragic, but fine, point to Rothbard’s point: George Floyd was choked to death by a police officer sent to detain him for the “crime” of using a counterfeit $20 bill to buy cigarettes.

The state is not us. It does not exist to protect our person or property. It exists first and foremost for its own benefit and to exert power and control over its subjects.

Events of the past several weeks should make this crystal clear.

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, @erasestate

The Statist Origins of Modern Health Insurance

The Statist Origins of Modern Health Insurance

With roughly 36 million people having filed for unemployment across the country in the last two months in the wake of the coronavirus shutdown, one issue receiving more scrutiny from some quarters is the issue of employer-based health insurance.

With so many laid off temporarily or permanently out of work, there is increasing concern about how many of those will be uninsured because when they lost their job, they also lost their source of health insurance.

About half of Americans receive their health insurance through an employer-sponsored plan, which means the recent layoffs could potentially swell the ranks of the uninsured by 18 million.

Concern over this trend has prompted a growing chorus of those attempting to mount an opposition to America’s heavy reliance on employer-sponsored insurance. For example, Rep. Ilhan Omar’s tweet below which garnered more than 76 thousand likes at the time of this writing.

Ilhan Omar Tweet

This raises the question, however: Why is health insurance tied so closely to employment in the first place?

The answer should come as no surprise to readers of this site: government intervention.

As this 2017 New York Times article describes, when we look back a hundred years ago, “Most insurance in the first half of the 20th century was bought privately, but few people wanted it.”

Few people wanted insurance because there was not much medical care that needed to be insured.

The medical treatment and technology available at the time was very limited. But as doctors learned to treat more illnesses and medical technology advanced, the healthcare industry likewise began to expand which brought increasing procedures and treatments to be paid for.

In response, hospitals formed Blue Cross in 1939 as an insurance pool to help patients pay for treatment, and physicians formed Blue Shield at about the same time.

A gradual increase in insurance coverage followed.

Then, as the Times reported, “Things changed during World War II.”

“In 1942, with so many eligible workers diverted to military service, the nation was facing a severe labor shortage. Economists feared that businesses would keep raising salaries to compete for workers, and that inflation would spiral out of control as the country came out of the Depression.”

In response, President Roosevelt signed Executive Order 9250, establishing the Office of Economic Stabilization. This order, among other things, froze wages. “Businesses were not allowed to raise pay to attract workers,” the Times noted.

Progressives and anti-capitalists would lead you to believe that this situation would be perfect for greedy business owners. The executive order would give them cover for what they want to do anyways—which is to exploit workers and pay them slave wages.

But reality has a way of bursting progressive’s ideological bubbles.

Instead of gleefully colluding to keep worker compensation suppressed, businesses instead “began to use benefits to compete. Specifically, to offer more, and more generous, health care insurance,” the Times reported.

“Then, in 1943, the Internal Revenue Service decided that employer-based health insurance should be exempt from taxation. This made it cheaper to get health insurance through a job than by other means,” the Times continued.

As an employer, if you could choose between paying a worker, say, an additional salary of $10,000 or pay $10,000 for their health insurance premiums tax free, there is significant incentive for the employer to opt for the insurance coverage.

And even if the employer simply provides the option of enrollment in an employer-provided plan, and requires the worker to pay for those premiums, the employee gets to do so with pre-tax income. There is still strong incentive for the employer and employee to accept insurance coverage in lieu of higher salary.

As University of Alabama-Birmingham health economist Michael A. Morrisey explains, “employers and their employees have a strong incentive to substitute broader and deeper health insurance coverage for money wages. Someone in the 27 percent federal income tax bracket, paying 5 percent state income tax and 7.65 percent in Social Security and Medicare taxes, would find that an extra dollar of employer-sponsored health insurance effectively costs him less than sixty-one cents.”

Roosevelt’s order let the employer-sponsored health insurance genie out of the bottle. And employer-sponsored insurance coverage growth was the driving force in a major increase in overall insurance coverage. As the Times reported, “In 1940, about 9 percent of Americans had some form of health insurance. By 1950, more than 50 percent did. By 1960, more than two-thirds did.”

The stronger the tie between employment and health insurance, the more significant becomes the issue of “job lock.”

This is a situation where workers fear losing or leaving their job because it means also losing their health insurance coverage; which in turn could also mean losing access to their preferred doctor.

Which brings us back to the current situation.

The concern about “job lock” and the close connection between employment and health insurance is legitimate, and has certainly been highlighted by the current crisis.

It’s surely not a stretch of the imagination, however, to conclude that progressives like Omar’s solution is to transition to a government-run single payer scheme like Medicare for All.

But as this debate heats up as more lose their jobs, it is important to understand why health insurance is so closely tied to employment in the first place. The fact that leftists desire to ‘fix’ a problem created by government intervention with still further government control is an irony apparently overlooked.

Ludwig von Mises warned us nearly a hundred years ago that government intervention begets more intervention.

As he wrote in 1929, “isolated intervention fails to achieve what its sponsors hoped to achieve. From their point of view, intervention is not only useless, but wholly unsuitable because it aggravates the ‘evil’ it meant to alleviate.”

Once the interventionists realize their interventions made things worse, Mises argued, they are “not inclined” to remove the initial intervention, but rather seek to address the new problems with still more interventions. The new interventions create new problems, and the cycle repeats, ad nauseam.

His words ring true now more than ever. They should not be ignored.

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, @erasestate

Coronavirus Lockdown: The Political Versus The Voluntary

Coronavirus Lockdown: The Political Versus The Voluntary

The government lockdown is mandatory. Re-opening is not.

The contrast is stark and worth exploring as it underscores the difference between political and voluntary means of organizing society.

Most states have imposed mandatory “stay at home” or “shelter in place” orders, confining citizens to house arrest, save for ‘essential’ purposes like buying food or prescription medicine. This represents the political means of organizing society. These are typically one-size-fits-all orders from state governors that allow for no leeway based upon each state’s widely diverse population demographics and densities.

Rural, sparsely populated counties are treated the same as highly concentrated big cities. Children, with virtually no risk of catching or suffering any symptoms from the coronavirus, are forced to abide by the same rules as older and much more vulnerable populations with underlying conditions.

Disobedience is punished harshly.

Police, who are trained to “just follow orders” rather than exercise rational discretion, have been caught on video enforcing these rules in ways that would be comical if they weren’t so tragic. Social media has been filled with viral examples like police chasing down an individual surfing at a California beach, a mother being handcuffed for taking her children to a public park, and most recently Wisconsin police harassing a mother for having the gall to allow her child to play outside with a friend at her neighbor’s house.

Bear in mind, in this “democracy” that we live in, nobody had the chance to vote over whether or not we will all be involuntarily confined to our homes and universally assumed to be a threat to the health of others – all without any due process. Our rulers once again unilaterally changed the terms of the alleged “social contract” without so much as the appearance of getting the consent of the governed.

Conversely, those states that are now lifting their restrictions are allowing certain businesses the option of opening back up, and likewise allowing consumers the option of frequenting certain establishments. Granted, certain social distancing guidelines and other restrictions remain in place, but the choice is left to the business owners and consumers – the citizens – to evaluate their risk in so doing.

This represents, albeit far from perfectly, a glimmer of how a society based on voluntary means is organized. Businesses are not forced to re-open. They can make that decision themselves.

Indeed, in the state of Georgia, where the governor has once again allowed restaurants to re-open for dine-in eating, a group of more than 50 restaurant owners in Atlanta and Savannah have publicly announced their decision to remain closed to dine-in customers.

“We agree that it’s in the best interest of our employees, our guest, our community, and our industry to keep our dining room closed at this time,” their statement reads.

Fine for them. It is their property and they are well within their right to keep their dining rooms closed to the public. But it is their choice.

They didn’t have a choice in closing up their dining rooms in the first place, however. That choice was forcibly taken from them by the governor.

Dramatically symbolizing the ideological difference between the political and voluntary means of organizing society was a widely-viewed interview between CNN’s Anderson Cooper and Las Vegas Mayor Carolyn Goodman.

This is certainly not to defend everything Goodman said in the interview, but rather to focus in on one aspect in particular. When asked by Cooper about her desire to re-open her city, and what rules she would impose on the casinos, Goodman responded “That’s up to them to figure out. I don’t run a casino.”

The reaction of Cooper and so many others to the interview was quite telling.

The fact that a politician would publicly proclaim her humility and declare that property owners would know better how to safely run their own property better than the politicians was beyond the pale to the masses of statist worshippers of so-called “experts.”

Cooper did an on-air, double face palm he was so stunned. Social media and others universally condemned Goodman, calling the interview “bizarre,” “lunacy,” and declaring that Goodman “embarrassed herself.”

Of course no politician or cable news host knows better how to best, and most safely, utilize property better than the property owners themselves.

But those that subscribe to the centralized, top-down political means of organizing society simply could not mentally process such a thought, and anybody straying from their doctrine must be ostracized.

The coronavirus health scare and the government’s reaction have helped to highlight the stark contrast between competing ideologies. Namely, the debate between those that favor the political means for organizing society versus those that favor the voluntary means.

The political means involves forcible compliance to mandatory, centralized, one-size-fits all orders, while the voluntary means involves de-centralized options determined by the very individuals best positioned to determine the risks and reward of their freely chosen actions.

The growing number and size of public protests indicates that more and more are beginning to recognize the ugly reality of organizing society by political means and demand instead a free society.

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, @erasestate.

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