Monthly Archives: August 2010

Big government is producing high unemployment and stagnant wages.

Marketwatch reports Salaries and wages are rising, but not by much. Even that subdued headline is upbeat when you read some of the details:

Want some more bad news? Average wages today are lower than a decade ago when adjusted for inflation, according to an analysis earlier this year by the Economic Policy Institute.

For high school graduates, median inflation-adjusted wages were $626 per week in 2009, compared with $629 in 2000. If you assume a worker gets paid for a full year that totals $32,552 in 2009, down from $32,708 in 2000.

For college graduates, weekly wages were $1,025 in 2009, compared with $1,030 in 2000, according to EPI. Over one year, that works out to $53,300 last year, down from $53,560 in 2000.

Additionally, the official unemployment rate was just 4.0% back in 2000. Today, it stands at 9.5%. So not only are working Americans earning less, many more are unemployed and earning nothing.

The American dream is dying. But why? I again return to this chart, first posted here.

As is clearly evident in that chart, the government’s intrusion in our economy is at historically high levels. In this recent recession, government spending has hit all new unforeseen levels. But even prior to that, the 90s and 2000s, a period under both Republican and Democratic Presidents and Congresses, saw government spending excluding defense bouncing around the 30% level. Even that much-lauded decline in government spending under President Bill Clinton and the Republican Congress, only saw non-defense government spending decline from 31.87% in 1991 to 28.95% in 2000, a 2.92% decline. By comparison, non-defense government spending rose a 4.86% in 2009 alone. A supposedly major accomplishment that took ten years to achieve was obliterated in less than a year.

While non-defense government spending at 28.95% may look appealing now that the figure is about nine percentage point higher, non-defense government spending had never exceeded that level prior to 1982. While many talk about the small government days of Bill Clinton and the Republican Revolution of 1994, remember that FDR, LBJ, and Jimmy Carter all spent less excluding defense (which is wildly volatile depending largely on external affairs) than the U.S.’s recent best.

Our experiment with government intervention in society is failing. Government control over a third of the economy has produced high unemployment and stagnant wages. For decades, the United States enjoyed small government and prospered as a results. It is no coincidence that our recent weakness is the result of an overly large and burdensome government.

Record number in government anti-poverty programs. Fewer people to support them.

In The Path to Tyranny, I wrote:

Why work if the government will provide free food, subsidized housing, free health care, and a welfare check?

It turns out that fewer people are working and more are relying on government assistance. The USA Today reports Record number in government anti-poverty programs. Here are some of the numbers:

  • “More than 50 million Americans are on Medicaid.”
  • “The new health care law adds about 16 million people, beginning in 2014.”
  • “More than 40 million people get food stamps.”
  • “Close to 10 million receive unemployment insurance.”
  • “More than 4.4 million people are on welfare.”
  • “The federal price tag for Medicaid has jumped 36% in two years, to $273 billion. Jobless benefits have soared from $43 billion to $160 billion. The food stamps program has risen 80%, to $70 billion. Welfare is up 24%, to $22 billion. Taken together, they cost more than Medicare.”

All told, these government welfare programs cost $525 billion. Currently, there are 139 million employed people in the United States. Thus, each worker is taxed about $3,800 to support the unemployed. The average employee earns about $40,000 per year. So he gives up 9.5% of his wages to be received by the employed. The unemployment rate is 9.5%, an exact match for this income redistribution scheme.

Of course, the average employed person lives much better than the average unemployed person. But this is not always true at the margin. A  below average wage earner may find he or she is better off not working and choose to receive government welfare instead. This is especially true if he or she has children and would have to pay for childcare while working. The added childcare expense along with taxes and transportation expense may make it financial wiser to stay unemployed and receive government assistance.

Not only are these programs costing hard-working Americans a large portion of their earnings, it is encouraging many to stay at home when they could work and would like to work.

The Fall of Civilization is spreading

In a follow-up to The fall of civilization spreads to Oakland, USA Today reports:

Budget cuts are forcing police around the country to stop responding to fraud, burglary and theft calls as officers focus limited resources on violent crime.

Cutbacks in such places as Oakland, Tulsa and Norton, Mass. have forced police to tell residents to file their own reports — online or in writing — for break-ins and other lesser crimes.

In Tulsa, which lost 110 officers to layoffs and retirements, the 739-officer department isn’t sending cops to the scene of larceny, fraud and car theft.

Tulsa police spokesman Jason Willingham says some residents have said they won’t bother to report those crimes any more. “They think nothing is going to be done, so why mess with it,” he said.

In the Boston suburb of Norton, police told residents there may be delays or no response at all to some calls, including vandalism. The department posted the new policy on its website.

“We wanted to let people know about this,” Norton Police Chief Brian Clark said. “We didn’t want people to be surprised.”

As I wrote about Oakland, “The government’s primary job is to protect the people’s rights to life, liberty, and property.” But apparently, the government is abandoning its job of defending our property. I am of course reminded of what John Adams wrote regarding private property in his A Defence of the Constitutions of Government of the United States of America:

“The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence. If “Thou shalt not covet” and “Thou shalt not steal” were not commandments of Heaven, they must be made inviolable precepts in every society before it can be civilized or made free.”

In cities such as Oakland, Tulsa, and Norton, “there is not a force of law and public justice to protect it.” So when will anarchy and tyranny commence? Or has it already?

Classic quotes against the income tax

Plato: “When there is an income tax, the just man will pay more and the unjust less on the same amount of income.”

Adam Smith in the section “Taxes upon the Wages of Labour” of The Wealth of Nations“Absurd and destructive as such taxes are, however, they take place in many countries.”

Albert Einstein: “The hardest thing in the world to understand is the income tax.”

Will Rogers: “Income tax has made more liars out of the American people than golf.”

Please post more quotes in the comments.

Why can’t the US be like the US of the 1950s?

Sam Zell says Brazil is like ‘US in the 1950s.’ CNBC reports:

Brazil is booming and brimming with business opportunities—like the “US in the 1950s”—billionaire businessman Sam Zell told CNBC Wednesday. He said if Brazil continues on the same course, he predicts that the “fiscally conservative” nation will soon be one of the top two countries in terms of growth.

The real estate tycoon said Brazil has 8 percent debt, compared to 70 percent (of GDP) in the US. The country has a AAA rating from several major credit-rating institutions.

Why must we look for Brazil to be the US of the 1950s? Why can’t the US be like the US of the 50s? Let’s examine some changes that have occurred to the US in the last 50-60 years.

In the 1950s, government spending at all levels averaged 27.0 percent of GDP. Non-defense spending averaged 15.5 percent of GDP. Today, government spending is 43.9 percent of GDP and non-defense government spending is 37.7 percent of GDP. So government spending as a percentage of GDP has risen 62.6 percent in the last 50 years and non-defense government spending has risen 143 percent in that time. (You don’t hear these number reported to you on the news, do you?) Click here to see a chart of non-defense government spending.

The government now confiscates more of your money through taxes to pay for this largess. In the 1950s, government at all levels took in 26.6 percent of GDP. Now, government takes 30.4 percent of our money, a 14.3 percent increase.

But that’s not all. In the last fifty years, regulation has increased dramatically. Back in 1950, there was no Department of Transportation, Federal Highway Administration, Federal Railroad Administration, National Highway Traffic Safety Administration, National Credit Union Administration, Consumer Product Safety Commission, Environmental Protection Agency, Occupational Safety and Health Administration, Federal Energy Administration, Farm Service Agency, Food and Consumer Service, Agricultural Marketing Service, Federal Grain Inspection Service, Animal and Plant Health Inspection Service, Foreign Agricultural Service, Food Safety and Inspection Service, Rural Development Administration, to name just a few. Not only do these agencies cost money, they put an added burden on consumers, businesses, and employees which costs the United States $1.5 trillion each year. That’s like an added hidden 10% tax on the economy, which would bring the real rate of taxation up to 40.4 percent.

In the 1950s, government welfare spending accounted for 1.57 percent of GDP. Today, it accounts for 5.21 percent, a 231% increase. Wikipedia explains how LBJ’s Great Society caused this massive increase:

After the Great Society legislation of the 1960s, for the first time a person who was not elderly or disabled could receive a living from the American government. This could include general welfare payments, health care through Medicaid, food stamps, special payments for pregnant women and young mothers, and federal and state housing benefits. In 1968, 4.1% of families were headed by a woman on welfare; by 1980, this increased to 10%.

Lastly, the United States government has actively pursued a policy of limited oil production. Back in 1950, the US produced 5.9 million barrels a day of oil and had net imports of 545 thousand barrels, 8.4 percent of the total consumptions. In 2009, US production had risen only 21.8 percent over the previous 59 years to 7.2 million barrels a day. But consumption had risen 162 percent to 16.9 million barrels. As a result, imports increased 1,680 percent to 9.7 million barrels a day. At a current price around $70 a barrel, that adds up to $248 billion a year sent overseas, about 1.6 percent of GDP. Thus, over the last 60 years, trillions of dollars have left this country, to be spent primarily by unfree societies overseas. See oil data here.

Making Charity a Crime

Capitalists argue that government spending on welfare, food stamps, housing subsidies, etc. crowds out charities. If government is providing the poor with everything they need, then what is there for charities to do?

Now, the socialists have turned that argument on its head:

SPIEGEL: Forty super wealthy Americans have just announced that they would donate half of their assets, at the very latest after their deaths. As a person who often likes to say that rich people should be asked to contribute more to society, what were your first thoughts?

Krämer: I find the US initiative highly problematic. You can write donations off in your taxes to a large degree in the USA. So the rich make a choice: Would I rather donate or pay taxes? The donors are taking the place of the state. That’s unacceptable.

You got that? Giving money to charity is unacceptable because it is taking the place of the state. But wait, there’s more:

SPIEGEL: But doesn’t the money that is donated serve the common good?

Krämer: It is all just a bad transfer of power from the state to billionaires. So it’s not the state that determines what is good for the people, but rather the rich want to decide. That’s a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?

Understand? Only the government is able to determine what is good for the people and people have no legitimacy to give their own hard-earned money to charity as they see fit.

Next thing you know, acts of charity will be a crime against society.

A Very Popular Democrat Argues for Lower Taxes. Will the left listen?

John F. Kennedy in his Economic Report of the President from January 1963:

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.

John F. Kennedy in his Tax Message to Congress on January 24, 1963:

In short, this tax program will increase our wealth far more than it increases our public debt. The actual burden of that debt–as measured in relation to our total output–will decline. To continue to increase our debt as a result of inadequate earnings is a sign of weakness. But to borrow prudently in order to invest in a tax revision that will greatly increase our earning power can be a source of strength.