Calling It Like It Is: Eminent Domain Abuse

With a H/T to the Club for Growth blogsite, Donald Boudreaux says it like it is:

Editor, The New York Post

To the Editor:

The Supreme Court says that property can be seized from private citizen Smith and transferred to private citizen Jones as long as the government declares that the seizure serves a good cause ("Supreme Court Rules Cities May Seize Homes," June 24).

So let's see. If I poke a gun in my neighbor's nose and demand that he "sell" his house to me, I would be arrested. But if I get a city council to poke the gun on my behalf - in exchange for my promise to generate handsome tax revenues for the city - all's well and constitutionally okie-dokie.

Makes sense…for a nation that worships power and disdains liberty.

Sincerely,

Donald J. Boudreaux
Department of Economics
George Mason University

The Ballot Question Question

As the Projo’s Elizabeth Gudrais has reported, Governor Donald Carcieri has vetoed the bill that would terminate the right of Rhode Islanders to express themselves by voting on non-binding referenda placed on the statewide ballot by the Governor. The legislature is expected to override the veto.

Representative Peter Kilmartin (D-Pawtucket), the primary sponsor of the bill, argues that the Governor’s power to place non-binding questions on the ballot is an affront to principles of separation of powers and checks-and-balances…

The power should never have been given to the governor in the first place, Kilmartin argued, and has even less of a place in the state's political workings with the implementation of the separation-of-powers constitutional amendment voters approved in 2004.

"I ask you, where is the check and balance with this statute as it is?" Kilmartin, D-Pawtucket, said. "The fact is, there is none."

Actually, non-binding referenda are the balance. The executive’s power to place questions on the statewide ballot is a very minimal check on the legislature’s power to kill an issue in committee. In the committee process, not everyone in the state has representation. In a referenda, all of Rhode Island's voters can have a voice in the discussion of an issue.

Particularly telling is the fact that the Democratic position goes beyond just stripping the Governor of the power to call non-binding referenda. The Democrats want to eliminate non-binding referenda in any form, revealing how little confidence they have in their ability to convince the voters of the sensibility of their policy positions.

Cape Wind and Collateral Damage in the Midwest

Today’s Chicago Tribune has an article describing how wind farms in the Midwest have been collaterally damaged by Congress’ attempt to kill the Cape Wind project …

The federal government has stopped work on more than a dozen wind farms planned across the Midwest, saying research is needed on whether the giant turbines could interfere with military radar....

Federal officials declined to reveal how many stop-work orders have been sent out. But developers said that at least 15 wind farm proposals in the Midwest have been shut down by the Federal Aviation Administration since the start of the year....

Most of the opposition focuses on the proposed location in a channel between Cape Cod and Martha's Vineyard, the bucolic Massachusetts vacation areas frequented by many high-profile celebrities, business executives and politicians....

The project continued to move forward until late last year, when [Senator John] Warner, chairman of the Senate Armed Services Committee, slipped an amendment into a military spending bill. The one-sentence congressional order directs the Defense Department to study whether wind towers could mask the radar signals of small aircraft.

Since then, at the Defense Department's behest, the FAA has been blocking any new wind turbines within the scope of radar systems used by the military.

The Warner amendment took effect after the Federal Aviation Administration had already approved the Cape Wind project...

Warner's amendment also appears to have reversed the government's position on the Cape Wind proposal. Both the FAA and the Air Force had previously signed off on the project, which would be located within miles of a missile defense radar system.

Here’s an excerpt from the FAA memo dated April 2003 certifying that the proposed Cape Wind turbines present no threat to aircraft or to "air navigation facilties", e.g. radar stations....

The Federal Aviation Administration has completed an aeronautical study under the provisions of 49 U.S.C., Section 44718 and, if applicable, Title 14 of the Code of Federal Regulations, part 77, concerning:

Structure Type: Wind Turbine (A8)
Location: Nantucket Sound, MA…

This aeronautical study revealed that the structure would have no substantial adverse effect on the safe and efficient utilization of the navigable airspace by aircraft or on the operation of air navigation facilities.

The Air Force was even more specific...

Our experts have reviewed the proposed locations for the Wind Power Plant near Cape Cod AFS and have determined it poses no threat to the operation of the PAVE PAWS radar at Cape Cod AFS. At the nearest proposed location, the main radar beam will clear the towers by more then 4500 feet.

However, the Defense Department has offered no date for lifting its moratorium on the construction of wind farms in Illinois, Wisconsin, Minnesota, North Dakota and South Dakota...

"Until the potential effects can be quantified and possible mitigation techniques developed, it is prudent to temporarily postpone wind turbine construction in areas where the ability of these long-range radars that protect our country might be compromised," said Eileen Lainez, a Defense Department spokeswoman.

Nothing is expected to change until the department's study is completed. It is unclear when that will happen, Lainez said.

Economic Thoughts, Part XI: Prices

This posting is Part XI in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 3 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discusses prices, a key structural element in a competitive capitalistic economy.

Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldom understood by the pubic and it is often disregarded entirely by politicians.

Many people see prices as simply obstacles to their getting the things they want...

Prices are like messengers conveying news...prices convey...the end results...

Prices not only guide consumers, they guide producers as well. When all is said and done, producers cannot possibly know what millions of different consumers want...

While a free market economic system is sometimes called a profit system, it is really a profit-and-loss system - and the losses are equally important for the efficiency of the economy, because they tell manufacturers what to stop producing. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money...Although the producers are only looking out for themselves and their companies' bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices...

What this all means as a general principle is that the price that one producer is willing to pay for milk (or any other ingredient) is the price that other producers are forced to pay for that same ingredient. Since scarce resources have alternative uses, the value placed on one of these uses by one other individual or company becomes a cost that has to be paid by others who want to bid some of these resources away for their own use...this means that resources tend to flow to their most valued uses...

Prices coordinate the use of resources, so that only that amount is used for one thing which is equal in value to what it is worth to others in other uses...The efficient allocation of scarce resources which have alternative uses is not just an abstract notion of economists. It determines how well or how badly millions of people live...

...prices convey an underlying reality: From the standpoint of society as a whole, the "cost" of anything is the value that it has in alternative uses....

Different economic systems deal with this underlying reality in different ways and with different degrees of efficiency, but the underlying reality exists independently of whatever particular economic system is used...

The consequence was that far more resources were used to produce a given amount of output in the Soviet economy as compared to a price-coordinated economic system, such as that in the United States...

The Soviet Union did not lack for resources...What it lacked was an economic system that made efficient use of scarce resources...Soviet enterprises were not forced to economize - that is, to treat their resources as both scarce and valuable in alternative uses. While such waste cost these enterprises little or nothing, they cost the Soviet people dearly, in the form of a lower standard of living than their resources and technology were capable of producing...

While history can tell us that such things happened [in the transitional years of Communist China to a less politically controlled economy], economics helps explain why they happened - what there is about prices that allows them to accomplish what political control of an economy can seldom match. There is more to economics than prices, but understanding how prices function is the foundation for understanding much of the rest of economics.

In a society of millions of consumers, no given individual or set of government decision-makers sitting around a table can possibly know just how much these millions of consumers prefer one product to another, much less thousand of products to thousands of other products - quite aside from the problem of knowing how much of each of thousand of resources should be used to produce which products. In an economy coordinated by prices, no one has to know...

Knowledge is one of the most scarce of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people...

In a price-coordinated economy, employees and creditors insist on being paid, regardless of whether the managers and owners have made mistakes. This means that capitalist businesses can make only so many mistakes for so long before they have to either stop or get stopped - whether by an inability to get the labor and supplies they need or by bankruptcy...

When people try to quantify a country's "need" for this or that product or service, they are ignoring the fact that there is no fixed or objective "need." The fact that people demand more at a lower price and less at a higher price may be easy to understand, but it is also easy to forget. Seldom, if ever, is there a fixed quantity demanded...

Likewise, there is no fixed supply...

When people projects that there will be a shortage...in the years ahead, they usually either ignore prices or implicitly assume that there will be a shortage at today's prices. But shortages are precisely what cause prices to rise...Price fluctuations are a way of letting a little knowledge go a long way...

There are all kind of prices. The prices of consumer goods are the most obvious examples but labor also has prices called wages or salaries, and borrowed money has a price called interest...Prices produce incentives to conserve...

...So long as people are free to spend their money for what they see fit, price changes in response to supply and demand direct resources to where they are most in demand and direct people to where their desires can be satisfied most fully by the existing supply...

To treat prices as resulting from greed implies that sellers can set prices where they wish, that prices are not determined by supply and demand...

The fact that prices fluctuate over time, and occasionally have a sharp rise or a steep drop, misleads some people into concluding that prices are deviating from their "real" values...But their usual level under usual conditions is no more real or valid than their much higher or lower levels under different conditions...

Prices not only ration existing supplies, they also act as powerful incentives to cause supplies to rise or fall in response to changing demand...

...In short, people tend to do more for their own benefit than for the benefit of others. Freely fluctuating prices can make that turn out to be beneficial to others...

Part XII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market

Economic Thoughts, Part XI: Prices

This posting is Part XI in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 3 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discusses prices, a key structural element in a competitive capitalistic economy.

Prices play a crucial role in determining how much of each resource gets used where. Yet this role is seldom understood by the pubic and it is often disregarded entirely by politicians.

Many people see prices as simply obstacles to their getting the things they want...

Prices are like messengers conveying news...prices convey...the end results...

Prices not only guide consumers, they guide producers as well. When all is said and done, producers cannot possibly know what millions of different consumers want...

While a free market economic system is sometimes called a profit system, it is really a profit-and-loss system - and the losses are equally important for the efficiency of the economy, because they tell manufacturers what to stop producing. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money...Although the producers are only looking out for themselves and their companies' bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices...

What this all means as a general principle is that the price that one producer is willing to pay for milk (or any other ingredient) is the price that other producers are forced to pay for that same ingredient. Since scarce resources have alternative uses, the value placed on one of these uses by one other individual or company becomes a cost that has to be paid by others who want to bid some of these resources away for their own use...this means that resources tend to flow to their most valued uses...

Prices coordinate the use of resources, so that only that amount is used for one thing which is equal in value to what it is worth to others in other uses...The efficient allocation of scarce resources which have alternative uses is not just an abstract notion of economists. It determines how well or how badly millions of people live...

...prices convey an underlying reality: From the standpoint of society as a whole, the "cost" of anything is the value that it has in alternative uses....

Different economic systems deal with this underlying reality in different ways and with different degrees of efficiency, but the underlying reality exists independently of whatever particular economic system is used...

The consequence was that far more resources were used to produce a given amount of output in the Soviet economy as compared to a price-coordinated economic system, such as that in the United States...

The Soviet Union did not lack for resources...What it lacked was an economic system that made efficient use of scarce resources...Soviet enterprises were not forced to economize - that is, to treat their resources as both scarce and valuable in alternative uses. While such waste cost these enterprises little or nothing, they cost the Soviet people dearly, in the form of a lower standard of living than their resources and technology were capable of producing...

While history can tell us that such things happened [in the transitional years of Communist China to a less politically controlled economy], economics helps explain why they happened - what there is about prices that allows them to accomplish what political control of an economy can seldom match. There is more to economics than prices, but understanding how prices function is the foundation for understanding much of the rest of economics.

In a society of millions of consumers, no given individual or set of government decision-makers sitting around a table can possibly know just how much these millions of consumers prefer one product to another, much less thousand of products to thousands of other products - quite aside from the problem of knowing how much of each of thousand of resources should be used to produce which products. In an economy coordinated by prices, no one has to know...

Knowledge is one of the most scarce of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people...

In a price-coordinated economy, employees and creditors insist on being paid, regardless of whether the managers and owners have made mistakes. This means that capitalist businesses can make only so many mistakes for so long before they have to either stop or get stopped - whether by an inability to get the labor and supplies they need or by bankruptcy...

When people try to quantify a country's "need" for this or that product or service, they are ignoring the fact that there is no fixed or objective "need." The fact that people demand more at a lower price and less at a higher price may be easy to understand, but it is also easy to forget. Seldom, if ever, is there a fixed quantity demanded...

Likewise, there is no fixed supply...

When people projects that there will be a shortage...in the years ahead, they usually either ignore prices or implicitly assume that there will be a shortage at today's prices. But shortages are precisely what cause prices to rise...Price fluctuations are a way of letting a little knowledge go a long way...

There are all kind of prices. The prices of consumer goods are the most obvious examples but labor also has prices called wages or salaries, and borrowed money has a price called interest...Prices produce incentives to conserve...

...So long as people are free to spend their money for what they see fit, price changes in response to supply and demand direct resources to where they are most in demand and direct people to where their desires can be satisfied most fully by the existing supply...

To treat prices as resulting from greed implies that sellers can set prices where they wish, that prices are not determined by supply and demand...

The fact that prices fluctuate over time, and occasionally have a sharp rise or a steep drop, misleads some people into concluding that prices are deviating from their "real" values...But their usual level under usual conditions is no more real or valid than their much higher or lower levels under different conditions...

Prices not only ration existing supplies, they also act as powerful incentives to cause supplies to rise or fall in response to changing demand...

...In short, people tend to do more for their own benefit than for the benefit of others. Freely fluctuating prices can make that turn out to be beneficial to others...

Part XII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market

New England Wind Update

1. According to Kevin Dennehy of the Cape Cod Times, the Federal legislation championed by Massachusetts Senator Edward Kennedy and Massachusetts Congressman William Delahunt intended to kill the Cape Wind project has been mellowed. Cape Wind proposes constructing a set of wind turbines in Nantucket Sound capable of generating three-quarters of the electricity used by Cape Cod. Opponents of the Cape Wind project had been trying to insert an amendment into the Coast Guard appropriations bill that would allow the governor of Massachusetts to veto Cape Wind even if all other regulatory hurdles had been passed.

In the face of widespread popular support for Cape Wind, the amendment has been modified to give an additional veto over the project to the Commandant of the Coast Guard, instead of to the Governor of Massachusetts. Why any additional veto is necessary at all still remains unclear

2. The Cape Cod Times also has the details on a second wind farm project proposed for Buzzards Bay. This project would produce a little less than three-quarters of the electricity that the Cape Wind project would (300 Megawatts versus 420). The regulatory path will also likely be different, as the Cape Wind project is to be situated in Federal waters, while the Buzzards Bay wind project will be in state waters.

Economic Thoughts, Part X: The Power of the Market

This posting is Part X in a series of postings about economic thoughts.

Milton and Rose Friedman, in Chapter 1 of their 1979 book, Free to Choose: A Personal Statement, discuss the power of the market:

...we know of no society that has ever achieved prosperity and freedom, unless voluntary exchange has been its dominant principle of organization. We hasten to add that voluntary exchange is not a sufficient condition for prosperity...but...is a necessary condition...

THE ROLE OF PRICES

The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.

This key insight is obvious for a simple exchange between two individuals. It is far more difficult to understand how it can enable people living all over the world to cooperate to promote their separate interests.

The price system is the mechanism that performs this task without central direction, without requiring people to speak to one another or to like one another...the price system enables people to cooperate peacefully in one phase of their life while each one goes about his own business with respect of everything else...

...It was a startling idea then, and it remains one today, that economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest.

The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble...

Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product - the distribution of income. These three functions are closely interrelated...

Transmission of Information

The price system transmits only the important information and only to the people who need to know...

A major problem in transmitting information efficiently is to make sure that everyone who can use the information gets it without clogging the "in" baskets of those who have no use for it. The price system automatically solves this problem. The people who transmit the information have an incentive to search out the people who can use it and they are in a position to do so. People who can use the information have an incentive to get it and they are in a position to do so...

The transmission of information through prices is enormously facilitated these days by organized markets and by specialized communication facilities...

Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information. Private monopoly...is one example...Price controls on oil and other forms of energy by the U.S. government [are another.]...

Important as private distortions of the price system are, these days the government is the major source of interference with a free market system - through tariffs and other restraints on international trade, domestic action fixing or affecting individual prices, including wages, government regulation of specific industries, monetary and fiscal policies producing erratic inflation, and numerous other channels...

Incentives

The effective transmission of accurate information is wasted unless the relevant people have an incentive to act, and act correctly on the basis of that information...One of the beauties of a free price system is that the prices that bring the information also provide both an incentive to react to the information and the means to do so.

This function of prices is intimately connected with the third function - determining the distribution of income - and cannot be explained without bringing that function into the account...

Prices also provide an incentive to act on information not only about the demand for output but also about the most efficient way to produce a product...

We have discussed the incentive effect so far in terms of producers and consumers. But it also operates with respect to workers and owners of other productive resources...

Distribution of Income

In countries like the United States the major productive resource is personal productive capacity - what economists call "human capital." Something like three-quarters of all income generated in the United States through market transactions takes the form of the compensation of employees (wages and salaries plus supplements) and about half the rest takes the form of the income of proprietors of farm and nonfarm enterprises...

The accumulation of physical capital...has played an essential role in economic growth...

But the accumulation of human capital - in the form of increased knowledge and skills and improved health and longevity - has also played an essential role. And the two have reinforced each other. The physical capital enabled people to be far more productive by providing them with the tools to work with. And the capacity of people to invent new forms of physical capital, to learn how to use and get the most out of physical capital, and to organize the use of both physical and human capital on a larger and larger scale enabled the physical capital to be more productive. Both physical and human capital must be cared for and replaced...

The amount of each kind of resource each of us owns is partly the result of chance, partly of choice by ourselves or others...

The price that the market sets on the services of our resources is similarly affected by a bewildering mixture of chance and choice...the price we receive for the services of our resources through the market also depends on our own choices - where we choose to settle, how we choose to use those resources, to whom we choose to sell...services, and so on.

In every society, however it is organized, there is always dissatisfaction with the distribution of income...In a command system envy and dissatisfaction are directed at rulers. In a free market system they are directed at the market.

One result has been an attempt to separate this function of the price system - distributing income - from its other functions - transmitting information and providing incentives. Much government activity during recent decades...has been directed at altering the distribution of income generated by the market in order to produce a different and more equitable distribution of income...

However we might wish it otherwise, it simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to affect, even if not completely determine, the distribution of income. If what a person gets does not depend on the price he receives for the services of his resources, what incentive does he have to seek out information on prices or act on the basis of that information?...If prices are prevented from affecting the distribution of income, they cannot be used for other purposes. The only alternative is command. Such authority would have to decide who should produce what and how much...

A BROADER VIEW

Adam Smith's "invisible hand" is generally regarded as referring to the purchases or sales of goods or services for money. But economic activity is by no means the only area of human life in which a complex and sophisticated structure arises as an unintended consequence of a large number of individuals cooperating while each pursues his own interests.

Consider, for example, language...

How did language develop? In much the same way as an economic order develops through the market - out of the voluntary interaction of individuals...One or another meaning was attributed to a word, or words were added as the need arose. Grammatical usages developed and were later codified into rules. Two parties who want to communicate with one another both benefit from coming to a common agreement about the words they use...As a wider and wider circle of people find it advantageous to communicate with one another, a common usage spreads and is codified in dictionaries. At no point is there any coercion, any central planner who has power to command...

Another example is scientific knowledge. The structure of disciplines [within science] was not the product of a deliberate decision by anyone...

Within any discipline the growth of the subject strictly parallels the economic marketplace. Scholars cooperate with one another because they find it mutually beneficial. They accept from one another's work what they find useful. They exchange their findings...The esteem or approval of fellow scholars serves very much the same function that monetary reward does in the economic marketplace....

A society's values, its culture, its social conventions - all these develop in the same way, through voluntary exchange, spontaneous cooperation, the evolution of a complex structure through trial and error, acceptance and rejection...

The structures produced by voluntary exchange...develop a life of their own. They are capable of taking many different forms under different circumstances. Voluntary exchange can produce uniformity in some respects combined with diversity in others. It is a subtle process whose general principles of operation can fairly readily be grasped but whose detailed results can seldom be foreseen.

These examples may suggest not only the wide scope for voluntary exchange but also the broad definition that must be attached to the concept of "self-interest." Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards...That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue...all are pursuing their interests, as they see them, as they judge them by their own values.

THE ROLE OF GOVERNMENT

...what role should be assigned to government?

It is not easy to improve on the answer that Adam Smith gave to this question...

...According to the system of natural liberty, the sovereign has only three duties of great importance...first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

The first two duties are clear and straightforward: the protection of individuals in the society from coercion whether it comes from outside or from their fellow citizens. Unless there is such protection, we are not really free to choose...

...it is one thing to state the purpose that an institution, particularly a governmental institution, "ought" to serve; it is quite another to describe the purposes the institution actually serves. The intentions of the persons responsible for setting up the institution and of the persons who operate it often differ sharply. Equally important, the results achieved often differ widely from those intended...

A major problem in achieving and preserving a free society is precisely how to assure that coercive powers granted to government in order to preserve freedom are limited to that function and are kept from becoming a threat to freedom. The founders of our country wrestled with that problem...We have tended to neglect it.

Adam Smith's second duty goes beyond the narrow police function of protecting people from physical coercion; it includes "an exact administration of justice."...There must be some way to mediate disputes...

This role of government also includes facilitating voluntary exchanges by adopting general rules - the rules of the economic and social games that the citizens of a free society play. The most obvious example is the meaning to be attached to private property...The major way that society has come to agree on the rules of property is through the growth of common law...

Adam Smith's third duty raises the most troublesome issues. He himself regarded it as having a narrow application. It has since been used to justify an extremely wide range of government activities...

The valid element arises because of the cost of producing some goods and services through strictly voluntary exchanges...

A more subtle example involves effects on "third parties," who are not parties to the particular exchange - the classic "smoke nuisance" case...

To lapse into technical jargon, there is a "market failure" because of "external" or "neighborhood" effects for which it is not feasible to compensate or charge the people affected...

Almost everything we do has some third-party effects...In consequence, Adam Smith's third duty may at first blush appear to justify almost any proposed government measure. But there is a fallacy. Government measures also have third-party effects. "Governmental failure" no less than "market failure" arises from "external" or "neighborhood" effects. And if such effects are important for a market transaction, they are likely also to be important for government measures intended to correct the "market failure."...

If it is difficult for private parties to identify who imposes costs or benefits on whom, it is difficult for government to do so. As a result a government attempt to rectify the situation may very well end up making matters worse rather than better - imposing costs on innocent third parties or conferring benefits on lucky bystanders. To finance its activities it must collect taxes, which themselves affect what taxpayers do - still another third-party effect. In addition, every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others...

The lesson to be drawn from the misuse of Smith's third duty is not that government intervention is never justified, but rather that the burden of proof should be on its proponents...This [benefits/cost] course of action is recommended not only by the difficulty of assessing the hidden costs of government intervention but also by another consideration. Experience shows that once government undertakes an activity, it is seldom terminated...

A fourth duty of government that Adam Smith did not explicitly mention is the duty to protect members of the community who cannot be regarded as "responsible" individuals. Like Adam Smith's third duty, this one, too, is susceptible of great abuse. Yet it cannot be avoided.

Freedom is a tenable objective only for responsible individuals...We must somehow draw a line between responsible individuals and others, yet doing so introduces a fundamental ambiguity into our ultimate objective of freedom. We cannot categorically reject paternalism for those whom we consider as not responsible...

LIMITED GOVERNMENT IN PRACTICE

In today's world big government seems pervasive. We may well ask whether there exist any contemporaneous examples of societies that rely primarily on voluntary exchange through the market to organize their economic activity and in which government is limited to our four duties.

Perhaps the best example is Hong Kong [pre-1997 takeover by Communist China]...

Hong Kong has no tariffs of other restraints on international trade...It has no government direction of economic activity, no minimum wage laws, no fixing of prices. The residents are free to buy from whom they want, to sell to whom they want, to invest however they want, to hire whom they want, to work for whom they want.

Government plays an important role that is limited primarily to our four duties interpreted rather narrowly. It enforces law and order, provides a means for formulating the rules of conduct, adjudicates disputes, facilitates transportation and communication, and supervises the issuance of currency. It has provided public housing for arriving refuges from China...[taxes] remain among the lowest in the world...low taxes preserve incentives. Businessmen can reap the benefits of their success but must also bear the costs of their mistakes...

Though Hong Kong is an excellent current example, it is by no means the most important example of limited government and free market societies in practice...

The United States is another striking example...

A myth has grown up about the United States that paints the nineteenth century as the era of the robber baron, of rugged, unrestrained individualism...

The reality was very different. Immigrants kept coming...The early ones might have been fooled, but it is inconceivable that millions kept coming to the United States decade after decade to be exploited. They came because the hopes of those who had preceded them were largely realized...The newcomers spread from east to west. As they spread, cities sprang up, ever more land was brought into cultivation. The country grew more prosperous and more productive, and the immigrants shared in the prosperity...

...the flowering of charitable activity in the United States in the nineteenth century: Privately financed schools and colleges multiplied; foreign missionary activity exploded; nonprofit hospitals, orphanages, and numerous other institutions sprang up like weeks. Almost every charitable or public service organization from the Society for the Prevention of Cruelty to Animals to the YMCA and YWCA, from the Indian Rights Association to the Salvation Army, dates from that period. Voluntary cooperation is no less effective in organizing charitable activity than in organizing production for profit.

The charitable activity was matched by a burst of cultural activity - art museums, opera houses, symphonies, museums, public libraries arose in big cities and frontier towns alike.

The size of government spending is one measure of government's role. Major wars aside, government spending from 1800 to 1929 did not exceed about 12 percent of the national income. Two-thirds of that was spent by state and local governments, mostly for schools and roads. As late as 1928, federal government spending amounted to about 3 percent of the national income...

It is often maintained that while a let-alone, limited government policy was feasible in sparsely populated nineteenth-century America, government must play a far larger, indeed dominant, role in a modern urbanized and industrial society. One hour in Hong Kong will dispose of that view.

Our society is what we make it...none prevents us, if we will, from building a society that relies primarily on voluntary cooperation to organize both economic and other activity, a society that preserves and expands human freedom, that keeps government in its place, keeping it our servant and not letting it become our master.

Part XI to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government

Economic Thoughts, Part X: The Power of the Market

This posting is Part X in a series of postings about economic thoughts.

Milton and Rose Friedman, in Chapter 1 of their 1979 book, Free to Choose: A Personal Statement, discuss the power of the market:

...we know of no society that has ever achieved prosperity and freedom, unless voluntary exchange has been its dominant principle of organization. We hasten to add that voluntary exchange is not a sufficient condition for prosperity...but...is a necessary condition...

THE ROLE OF PRICES

The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.

This key insight is obvious for a simple exchange between two individuals. It is far more difficult to understand how it can enable people living all over the world to cooperate to promote their separate interests.

The price system is the mechanism that performs this task without central direction, without requiring people to speak to one another or to like one another...the price system enables people to cooperate peacefully in one phase of their life while each one goes about his own business with respect of everything else...

...It was a startling idea then, and it remains one today, that economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest.

The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble...

Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product - the distribution of income. These three functions are closely interrelated...

Transmission of Information

The price system transmits only the important information and only to the people who need to know...

A major problem in transmitting information efficiently is to make sure that everyone who can use the information gets it without clogging the "in" baskets of those who have no use for it. The price system automatically solves this problem. The people who transmit the information have an incentive to search out the people who can use it and they are in a position to do so. People who can use the information have an incentive to get it and they are in a position to do so...

The transmission of information through prices is enormously facilitated these days by organized markets and by specialized communication facilities...

Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information. Private monopoly...is one example...Price controls on oil and other forms of energy by the U.S. government [are another.]...

Important as private distortions of the price system are, these days the government is the major source of interference with a free market system - through tariffs and other restraints on international trade, domestic action fixing or affecting individual prices, including wages, government regulation of specific industries, monetary and fiscal policies producing erratic inflation, and numerous other channels...

Incentives

The effective transmission of accurate information is wasted unless the relevant people have an incentive to act, and act correctly on the basis of that information...One of the beauties of a free price system is that the prices that bring the information also provide both an incentive to react to the information and the means to do so.

This function of prices is intimately connected with the third function - determining the distribution of income - and cannot be explained without bringing that function into the account...

Prices also provide an incentive to act on information not only about the demand for output but also about the most efficient way to produce a product...

We have discussed the incentive effect so far in terms of producers and consumers. But it also operates with respect to workers and owners of other productive resources...

Distribution of Income

In countries like the United States the major productive resource is personal productive capacity - what economists call "human capital." Something like three-quarters of all income generated in the United States through market transactions takes the form of the compensation of employees (wages and salaries plus supplements) and about half the rest takes the form of the income of proprietors of farm and nonfarm enterprises...

The accumulation of physical capital...has played an essential role in economic growth...

But the accumulation of human capital - in the form of increased knowledge and skills and improved health and longevity - has also played an essential role. And the two have reinforced each other. The physical capital enabled people to be far more productive by providing them with the tools to work with. And the capacity of people to invent new forms of physical capital, to learn how to use and get the most out of physical capital, and to organize the use of both physical and human capital on a larger and larger scale enabled the physical capital to be more productive. Both physical and human capital must be cared for and replaced...

The amount of each kind of resource each of us owns is partly the result of chance, partly of choice by ourselves or others...

The price that the market sets on the services of our resources is similarly affected by a bewildering mixture of chance and choice...the price we receive for the services of our resources through the market also depends on our own choices - where we choose to settle, how we choose to use those resources, to whom we choose to sell...services, and so on.

In every society, however it is organized, there is always dissatisfaction with the distribution of income...In a command system envy and dissatisfaction are directed at rulers. In a free market system they are directed at the market.

One result has been an attempt to separate this function of the price system - distributing income - from its other functions - transmitting information and providing incentives. Much government activity during recent decades...has been directed at altering the distribution of income generated by the market in order to produce a different and more equitable distribution of income...

However we might wish it otherwise, it simply is not possible to use prices to transmit information and provide an incentive to act on that information without using prices also to affect, even if not completely determine, the distribution of income. If what a person gets does not depend on the price he receives for the services of his resources, what incentive does he have to seek out information on prices or act on the basis of that information?...If prices are prevented from affecting the distribution of income, they cannot be used for other purposes. The only alternative is command. Such authority would have to decide who should produce what and how much...

A BROADER VIEW

Adam Smith's "invisible hand" is generally regarded as referring to the purchases or sales of goods or services for money. But economic activity is by no means the only area of human life in which a complex and sophisticated structure arises as an unintended consequence of a large number of individuals cooperating while each pursues his own interests.

Consider, for example, language...

How did language develop? In much the same way as an economic order develops through the market - out of the voluntary interaction of individuals...One or another meaning was attributed to a word, or words were added as the need arose. Grammatical usages developed and were later codified into rules. Two parties who want to communicate with one another both benefit from coming to a common agreement about the words they use...As a wider and wider circle of people find it advantageous to communicate with one another, a common usage spreads and is codified in dictionaries. At no point is there any coercion, any central planner who has power to command...

Another example is scientific knowledge. The structure of disciplines [within science] was not the product of a deliberate decision by anyone...

Within any discipline the growth of the subject strictly parallels the economic marketplace. Scholars cooperate with one another because they find it mutually beneficial. They accept from one another's work what they find useful. They exchange their findings...The esteem or approval of fellow scholars serves very much the same function that monetary reward does in the economic marketplace....

A society's values, its culture, its social conventions - all these develop in the same way, through voluntary exchange, spontaneous cooperation, the evolution of a complex structure through trial and error, acceptance and rejection...

The structures produced by voluntary exchange...develop a life of their own. They are capable of taking many different forms under different circumstances. Voluntary exchange can produce uniformity in some respects combined with diversity in others. It is a subtle process whose general principles of operation can fairly readily be grasped but whose detailed results can seldom be foreseen.

These examples may suggest not only the wide scope for voluntary exchange but also the broad definition that must be attached to the concept of "self-interest." Narrow preoccupation with the economic market has led to a narrow interpretation of self-interest as myopic selfishness, as exclusive concern with immediate material rewards...That is a great mistake. Self-interest is not myopic selfishness. It is whatever it is that interests the participants, whatever they value, whatever goals they pursue...all are pursuing their interests, as they see them, as they judge them by their own values.

THE ROLE OF GOVERNMENT

...what role should be assigned to government?

It is not easy to improve on the answer that Adam Smith gave to this question...

...According to the system of natural liberty, the sovereign has only three duties of great importance...first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

The first two duties are clear and straightforward: the protection of individuals in the society from coercion whether it comes from outside or from their fellow citizens. Unless there is such protection, we are not really free to choose...

...it is one thing to state the purpose that an institution, particularly a governmental institution, "ought" to serve; it is quite another to describe the purposes the institution actually serves. The intentions of the persons responsible for setting up the institution and of the persons who operate it often differ sharply. Equally important, the results achieved often differ widely from those intended...

A major problem in achieving and preserving a free society is precisely how to assure that coercive powers granted to government in order to preserve freedom are limited to that function and are kept from becoming a threat to freedom. The founders of our country wrestled with that problem...We have tended to neglect it.

Adam Smith's second duty goes beyond the narrow police function of protecting people from physical coercion; it includes "an exact administration of justice."...There must be some way to mediate disputes...

This role of government also includes facilitating voluntary exchanges by adopting general rules - the rules of the economic and social games that the citizens of a free society play. The most obvious example is the meaning to be attached to private property...The major way that society has come to agree on the rules of property is through the growth of common law...

Adam Smith's third duty raises the most troublesome issues. He himself regarded it as having a narrow application. It has since been used to justify an extremely wide range of government activities...

The valid element arises because of the cost of producing some goods and services through strictly voluntary exchanges...

A more subtle example involves effects on "third parties," who are not parties to the particular exchange - the classic "smoke nuisance" case...

To lapse into technical jargon, there is a "market failure" because of "external" or "neighborhood" effects for which it is not feasible to compensate or charge the people affected...

Almost everything we do has some third-party effects...In consequence, Adam Smith's third duty may at first blush appear to justify almost any proposed government measure. But there is a fallacy. Government measures also have third-party effects. "Governmental failure" no less than "market failure" arises from "external" or "neighborhood" effects. And if such effects are important for a market transaction, they are likely also to be important for government measures intended to correct the "market failure."...

If it is difficult for private parties to identify who imposes costs or benefits on whom, it is difficult for government to do so. As a result a government attempt to rectify the situation may very well end up making matters worse rather than better - imposing costs on innocent third parties or conferring benefits on lucky bystanders. To finance its activities it must collect taxes, which themselves affect what taxpayers do - still another third-party effect. In addition, every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others...

The lesson to be drawn from the misuse of Smith's third duty is not that government intervention is never justified, but rather that the burden of proof should be on its proponents...This [benefits/cost] course of action is recommended not only by the difficulty of assessing the hidden costs of government intervention but also by another consideration. Experience shows that once government undertakes an activity, it is seldom terminated...

A fourth duty of government that Adam Smith did not explicitly mention is the duty to protect members of the community who cannot be regarded as "responsible" individuals. Like Adam Smith's third duty, this one, too, is susceptible of great abuse. Yet it cannot be avoided.

Freedom is a tenable objective only for responsible individuals...We must somehow draw a line between responsible individuals and others, yet doing so introduces a fundamental ambiguity into our ultimate objective of freedom. We cannot categorically reject paternalism for those whom we consider as not responsible...

LIMITED GOVERNMENT IN PRACTICE

In today's world big government seems pervasive. We may well ask whether there exist any contemporaneous examples of societies that rely primarily on voluntary exchange through the market to organize their economic activity and in which government is limited to our four duties.

Perhaps the best example is Hong Kong [pre-1997 takeover by Communist China]...

Hong Kong has no tariffs of other restraints on international trade...It has no government direction of economic activity, no minimum wage laws, no fixing of prices. The residents are free to buy from whom they want, to sell to whom they want, to invest however they want, to hire whom they want, to work for whom they want.

Government plays an important role that is limited primarily to our four duties interpreted rather narrowly. It enforces law and order, provides a means for formulating the rules of conduct, adjudicates disputes, facilitates transportation and communication, and supervises the issuance of currency. It has provided public housing for arriving refuges from China...[taxes] remain among the lowest in the world...low taxes preserve incentives. Businessmen can reap the benefits of their success but must also bear the costs of their mistakes...

Though Hong Kong is an excellent current example, it is by no means the most important example of limited government and free market societies in practice...

The United States is another striking example...

A myth has grown up about the United States that paints the nineteenth century as the era of the robber baron, of rugged, unrestrained individualism...

The reality was very different. Immigrants kept coming...The early ones might have been fooled, but it is inconceivable that millions kept coming to the United States decade after decade to be exploited. They came because the hopes of those who had preceded them were largely realized...The newcomers spread from east to west. As they spread, cities sprang up, ever more land was brought into cultivation. The country grew more prosperous and more productive, and the immigrants shared in the prosperity...

...the flowering of charitable activity in the United States in the nineteenth century: Privately financed schools and colleges multiplied; foreign missionary activity exploded; nonprofit hospitals, orphanages, and numerous other institutions sprang up like weeks. Almost every charitable or public service organization from the Society for the Prevention of Cruelty to Animals to the YMCA and YWCA, from the Indian Rights Association to the Salvation Army, dates from that period. Voluntary cooperation is no less effective in organizing charitable activity than in organizing production for profit.

The charitable activity was matched by a burst of cultural activity - art museums, opera houses, symphonies, museums, public libraries arose in big cities and frontier towns alike.

The size of government spending is one measure of government's role. Major wars aside, government spending from 1800 to 1929 did not exceed about 12 percent of the national income. Two-thirds of that was spent by state and local governments, mostly for schools and roads. As late as 1928, federal government spending amounted to about 3 percent of the national income...

It is often maintained that while a let-alone, limited government policy was feasible in sparsely populated nineteenth-century America, government must play a far larger, indeed dominant, role in a modern urbanized and industrial society. One hour in Hong Kong will dispose of that view.

Our society is what we make it...none prevents us, if we will, from building a society that relies primarily on voluntary cooperation to organize both economic and other activity, a society that preserves and expands human freedom, that keeps government in its place, keeping it our servant and not letting it become our master.

Part XI to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government

More Thoughts on the Senate Immigration Bill

The editors at the National Review have written a stellar piece on the Senate immigration bill entitled Temporary Madness:

The Senate isn’t serious about enforcing the nation’s immigration laws. It is bad enough that the bill that 39 Democrats and 23 Republicans just voted to pass provides an amnesty to illegal immigrants already here. There might be an argument for doing that if there were any evidence of a commitment to enforce the immigration laws in the future. But the bill actually prohibits local police from enforcing civil violations of immigration laws—which in practice, given the byzantine rules distinguishing between civil and criminal violations of those laws, will get local police out of the enforcement business altogether. No serious effort is being made to make the bureaucracy capable of the enforcement tasks that will now be asked of them, such as performing background checks on the illegal population.

The bill forbids the federal government to use any information included in an application for amnesty in national-security or criminal investigations. Any federal agent who does use that information would be fined $10,000—which is five times more than an illegal alien would have to pay to get the amnesty. The Senate, on a tie vote, defeated John Cornyn’s (R., Tex.) attempt to rectify these provisions.
When Sen. Johnny Isakson (R., Ga.) offered an amendment to require that enforcement be proven to have succeeded before the amnesty or guest-worker provisions could take effect, he was voted down, 55-40. For most senators, enforcement is just boob bait for the voters. They are not willing to demand it before getting what they, for various reasons, really want: an amnesty and a massive increase in legal immigration.

Sen. Jeff Sessions (R., Ala.) wanted to deny illegal immigrants the earned income tax credit. It is one thing to legalize them, went the argument, and another to subsidize them. He, too, was voted down, with Sen. John McCain (R., Ariz.) flippantly suggesting that the amendment was akin to requiring illegals to ride in the back of the bus. (No, senator: They’re in the front of the line, at least for legal residency in the U.S.)

The “temporary” guest-workers will be eligible for citizenship. If they overstay their welcome, there is no guarantee they will be deported—especially when Congress will have signaled, by passing this bill, its view that deportation is draconian. So these “temporary” workers will permanently change America. Robert Rector of the Heritage Foundation estimates that the bill would make for an inflow of 66 million immigrants over the next 20 years. Since much of this inflow would consist of poor and relatively uneducated people, one result would be, he says, the largest expansion of the welfare state in 35 years. (And he’s not accounting for the likely effects of these people’s votes.) Another very likely result would be the increased balkanization of America, as this massive inflow slows both economic and cultural assimilation.

If supporters of the Senate bill were serious about securing the border, they would have considered following a strategy of attrition—of stepping up enforcement of the immigration laws so as to shrink the illegal-immigrant population over time—and, if they ultimately rejected that strategy, explained why. Implicit in their arguments for amnesty and a guest-worker program is one possible objection to the attrition strategy: that the American economy needs more cheap, unskilled labor. Proponents of mass immigration boast that immigration brings a net benefit of $10 billion to the American economy. But this amount is, in the context of our $13 trillion economy, trivial. Reduced immigration would lead to some increased outsourcing, some substitution of machines for labor, some increased wages, and some higher prices. The economy would survive.

So will Republicans, if they reject this bill (as most Senate Republicans did). They are being told that they need to pass a bill, even if they dislike many of its provisions, to be seen as “doing something” about the border. But the voters who care the most about this issue know that the Senate bill does something they heartily detest. They know that the only way to get any enforcement of our immigration laws—at the border or the workplace—is to keep all of the interests that want increased immigration from getting what they want until enforcement is achieved. The Senate should stand down in favor of the House’s enforcement-first approach, not the other way around. But it would be much better to enact no bill than to enact the Senate bill.

Additional readings on illegal immigration include:

Mickey Kaus on I'll Believe the MSM Is Fair When...the Senate gets pressed to cave on immigration., where he notes:

Does the just-passed Senate immigration bill really only require illegal immigrants to pay back taxes for 3 of the past 5 years? It looks that way. I'll take that deal!...

Mary Ann Glendon on Principled Immigration

Mark Steyn on Undocumented Status for All!

Washington Times on 'Amnesty' jams compromise bill

Washington Times on House chief say 'no' to amnesty bill

Washington Times on Mexico aims to maintain easy flow over border

For more readings on the illegal immigration bill, there have been twelve recent postings on Anchor Rising about immigration:

Identifying Four Core Issues Underlying the Immigration Debate

More Misguided Thinking From RIFuture & State Legislators on Illegal Immigration

Why is Congress Discriminating Against Educated Legal Immigrants?

More Links on Immigration Issue

Asleep at the Border

Senate Rejects Securing the Borders while Supporting Increased Presidential Power

Senator Reed Votes For Open Borders

Does The Rule Of Law & A Sense Of Fair Play Matter Anymore? The Debate About In-State Tuitions For Illegal Immigrants

Jennifer Roback Morse: Further Clarifying What is at Stake in the Illegal Immigration Debate

Senator Grassley's Top 10 Flaws in Immigration Bill

Senator Sessions' Senate Floor Speech on Illegal Immigration Bill

The Senate Passes an Illegal Immigration Amnesty Bill, But Lacks The Courage To Call It What It Is

In addition, another series of previous postings contain information about recent events in the public debate about illegal immigration and can be found in Parts I, II, III, IV, V, and VI.

"They represent the highest form of the citizen"

Honor Roll of Soldiers Killed in Afghanistan

Honor Roll of Soldiers Killed in Iraq

They represent the highest form of the citizen, and every man and woman among them was a volunteer. This plain statement requires no further rhetoric.

-- Christopher Hitchens, in OpinionJournal, Today

President George W. Bush Discusses the War on Terror, Freedom & Democracy

President George W. Bush gave the West Point commencement address this weekend, where he again addressed the serious issues of the War on Terror.

All of his prior speeches on the War on Terror and the great themes of freedom and democracy - along with some commentary - are presented below (as previously highlighted in an earlier posting):

1. September 20, 2001 initial speech about War on Terror

2. October 7, 2001 Afghanistan speech

3. January 29, 2002 State of the Union speech

4. June 1, 2002 West Point graduation speech

5. January 20, 2005 Inaugural speech

6. March 8, 2005 National Defense University speech

7. May 7, 2005 speech in Latvia on freedom and democracy

8. May 10, 2005 speech in Georgia on freedom and democracy

9. October 6, 2005 National Endowment for Democracy speech about War on Terror

10. October 25, 2005 speech to Joint Armed Forces Officers' Wives' Luncheon

11. November 11, 2005 Veterans' Day speech about War on Terror

12. November 16, 2005 speech in Kyoto, Japan on freedom and democracy

James Q. Wilson wishes Bush would give this speech.

Norman Pohoretz asks Who is Lying About Iraq?

Rich Lowry comments that If Bush lied, it stands to reason that Democrats who followed are all naifs, foolishly drawn to the seductions of a charlatan.

Michelle Malkin writes about Bush's Veterans' Day speech in Bush Battles Back and provides links to other reactions in the blogging community.

Other commentaries about the claim that Bush misled the nation about going to war by Instapundit, J.D. Johannes, Mark Goldblatt, Power Line, Christopher Hitchens, Power Line, Power Line, Joel Engel, Stephen Hayes, Instapundit, Instapundit, Power Line, and Captain's Quarters.

Read the links in this posting to remind yourself how Cindy Sheehan is wacky beyond words.

The Wall Street Journal comments on Bush's speeches in Latvia and Georgia.

Duncan Curries comments on Bush's speech in Japan.

ADDITIONAL INFORMATION:

President Bush gives additional major speeches:

13. November 30, 2005 Naval Academy speech on the strategy for victory in Iraq

Marc highlights commentary on the speech by Mac Owens and Rich Lowry and links to the National Strategy for Victory in Iraq report.

14. December 7, 2005 Council on Foreign Relations speech on War on Terror and Rebuilding Iraq

15. December 12, 2005 Philadelphia World Affairs Council speech on War on Terror and Upcoming Iraqi Elections

16. December 14, 2005 Woodrow Wilson Center speech on Iraqi Elections, Victory in the War on Terror

Peggy Noonan has these thoughts.

ADDITIONAL INFORMATION II:

In a separate commentary, Peggy Noonan has some questions.

Angela Codevilla offers a counter-argument:

In 2005, the U.S. government's "war on terror," as well as its operations in Iraq, were entwined in the same tortuous logic by which they had been conceived. After redefining the mission in Iraq from finding Weapons of Mass Destruction, to building democracy, to eliminating terrorists, to enabling the Iraqis to fight for themselves—and not being serious about any of these—the Bush Administration was arguing that to withdraw would be to admit defeat. But what would victory look like?

In December, pressed from all parts of America to address that question, President George W. Bush spoke, surrounded by banners that read, "The Strategy for Victory." Yet the speech, as well as the seven-point, 35-page White House document that accompanied it, simply reiterated hopes for a united, democratic Iraq and the beneficial influence this might have. It described efforts to bolster Iraqi armed forces, foster national reconciliation, and build up the country's infrastructure. None of this amounted to a strategy any more than it ever had, because wishes are a poor substitute for explaining why anyone should expect these actions to produce those outcomes. In short, the Bush Administration never attempted logically to balance ends and means, the things it desired with the things it was doing...

Harry Jaffa discusses Human Equality and Democracy in the Middle East - and in America.

Economic Thoughts, Part IX: More on the Coercive Role of Government

This posting is Part IX in a series of postings about economic thoughts.

D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:

I am government...

Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well...

I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.

My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me...

I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.

...There have been successful efforts to restrain me for extended periods of time...In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.

Why then do I ever fail?...There must be an answer, because I do sometimes falter...my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?

Part X to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions

Economic Thoughts, Part IX: More on the Coercive Role of Government

This posting is Part IX in a series of postings about economic thoughts.

D. W. MacKenzie wrote in the October 2002 issue of The Freeman: Ideas on Liberty, the monthly publication of the Foundation for Economic Education, about the coercive role of government:

I am government...

Coercion is both my vocation and my avocation; it is in my very nature to compel others to do that which they otherwise would not do. My nature should then be of great concern to you as I impinge on your liberty. My nature affects your life profoundly. Indeed, there is little in your life that escapes my grasp. I am also a mystery to many. Some see me as benevolent, though I murdered 119 million people in the twentieth century. Some see me as omniscient, though I face an insurmountable knowledge problem in trying to comprehend the society I seek to control. Some see me as an absolute necessity, though people have lived in societies without me. But those whom I use seldom recognize any of this. These naive convictions grant me an unwarranted place in society. These misconceptions have imposed great hardships on ordinary people, though they have served an elite of rulers well...

I benefit few at the expense of the many. Small groups organize easily, and large ones do not. Hence if I serve any interests other than those of actual rulers, I serve narrow interests. I grant monopoly privileges to influential industrialists and trade associations. I do this with tariffs and import restrictions that hobble foreign competitors. I do this with regulations that place burdens on new businesses. I do this with licensing laws that restrict access to professions. Of course, these interests pay me to get what they want. Sometimes they pay me simply to leave them alone.

My form is difficult to comprehend as well. I am vast and complex. No one can fathom me in all my complexity. I comprise a gargantuan array of agencies, statutes and regulations, and discretionary policies. No one would have the time or the intellectual capacity to know me fully even if he were to try. There is little point in trying anyway. One person can do nothing to me. No significant election has ever turned on a single vote, so voters have no obvious incentive to learn about me...

I am responsible for all the worst unnatural tragedies and unnecessary burdens that mankind has endured. Yet it seems that no one knows how to stop me. How can this be? My true nature is not easy to discern. When tragedy strikes, I am called into action. If I raise taxes to fund the effort to deal with crises, all can see my costs clearly. If I instead expand my authority to conscript resources, I hide my true costs, thus causing many to overestimate the net benefit of my actions. This instills unduly favorable beliefs about me in many minds.

...There have been successful efforts to restrain me for extended periods of time...In such places, people have prospered. But I have often succeeded in making strong comebacks. Some seek to limit my power with constitutional rules. However, there are strong reasons to doubt the efficacy of these rules. Persons who have power to enforce constitutional rules also have the power to flout them.

Why then do I ever fail?...There must be an answer, because I do sometimes falter...my failures are relatively uncommon. As difficult as the issues here are, they are vitally important to you because the continued success of free societies hinges on them. What is more important to you than that?

Part X to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions

Ain't We All So Open-Minded

Mike of RightRI (to whose specific post I can't find a way to link) points to a Charles Bakst column that I'd missed. Bakst:

At the recent South Kingstown financial town meeting, Nan Hirst glanced at the proposed budget and noticed a $500 appropriation for the Boy Scouts. ...

Hirst turned to her husband, George, and daughter, Courtney LeClaire-Conway, and said she'd move to delete the item. "I remember telling Courtney that my motion had little chance of passing but that I could not not do it." ...

I say: Good for her, because she was right, and because she took a stand.

I admire individuals who demonstrate courage of convictions -- even if I disagree with the convictions.

Frankly, I don't see anything in the action or the column that indicates a requirement of courage. Here's Mrs. Hirst on her motivation:

We have to stand up so that others know that it's okay to stand up, that it's safe.

Doing things that are safe is not courageous. Safe actions may be right, or they may be wrong, but courage is evident in the risk taken. And in this case, veteran reporter Charles Bakst apparently had a difficult time finding anybody to disagree with the action: even David Preston, Rhode Island Boy Scout organization spokesman, whisps up his hands and says (paraphrasing), "Hey, that's democracy!" Bakst goes so far as to track down Matthew Lutynski, a grown Boy Scout who once disinvited Jack Reed from his Eagle Scout ceremony because of the then-representative's views on abortion, and Matt takes the line that he doesn't agree with the Scouts' policy but doesn't have any control over it.

For his part, RightRI Mike focuses on the fact that the $500 was intended for scholarships for underprivileged kids, but even he writes:

My purpose is not to argue with Hirst’s position. I believe a group like the Scouts, that claims to be an organization rooted in the Christian faith, should have the right to exclude leaders whose behavior does not exemplify their moral beliefs.

Whether a government, local or otherwise, should budget funds for such an organization is another issue.

And his first commenter adds:

... good for the people of South Kingstown for standing up and saying that their government should not, indeed cannot, condone discrimination by giving money to the Scouts. I was at the meeting, and I was somewhat torn about Mrs. Hirst's motion due to the concerns you have raised; but I voted with Mrs. Hirst because what it comes down to is that the Town simply cannot give money to an organization that openly discriminates against gays, even if the money is to be used to send kids to summer camp.

I'm not suggesting that the people of South Kingstown are not within their rights to withhold funds from any particular organization, but let's be honest about it: the town is discriminating against the Boy Scouts on the behalf of homosexuals. An ideological side has been chosen. If we were truly dealing with an objective principle, here, consistency would require that a town not give money to the Boy Scouts for discriminating against Satanists. (Maybe we shouldn't laugh at that.)

The general implication that government bodies — even local ones — cannot allocate funds for the activities of their Christian citizens is pernicious and, properly understood, unconstitutional. In this case, that legal convolution appears to have been a cover for some to take the easy way out (given the local atmosphere).

According to Bakst, "Hirst didn't even know what the Scouts would do with the money." For all she knew, the Scouts were acting as a funnel for funds to give one of the group's juvenile members a heart transplant. Mike is correct to point out the obvious: that, to Hirst and to the voters, the "political statement was more important." As with Catholic adoption services in Massachusetts, forcing social views on religious citizens trumps whatever good those citizens might be doing in the society.

So hooray for the people of South Kingstown for proving that ideology can leverage political abstractions in order to exclude citizens not merely from some private organization, but from their very own government.

Affording Rhode Island

Perhaps I take rhetoric such as Bernie Beaudreau's in the Providence Journal a bit too personally:

Low-income Rhode Islanders register little in the present tax debate, except for the false promise that there is a connection between tax breaks for the rich and more bread for the poor. "The flat tax will reduce poverty," we're told.

They offer no proof for this assertion. The tax proposal does indeed promise to take tens of millions of dollars out of state revenues at a time of budget deficits and when investments are needed to meet the basic food, health and shelter needs of our people. That's just plain wrong.

As a matter of decency, we all should recognize that everyone in our community should at least have enough to eat, a place to sleep at night and health care before we choose to further enrich the relatively few who live already abundantly. This is a fundamental principle of our great nation.

I am no stranger to the choice between writing checks for housing or for food. At several key points of my life, when doing no more nor less than looking for work, the state of Rhode Island has let me down: out of college, when no longer able to stand the commute to Framingham, Massachusetts, when children required me to work additional hours, and when only partially employed for a year. Mr. Beaudreau complains of Rhode Island's poor having to work two jobs, well, depending on how the term is defined, I've worked between three and five jobs for the past fourteen months, and largely because of the accumulating debt by which I've survived in this state for almost a decade, if I can't maintain 80+ hour workweeks for the foreseeable future, I'll have no choice but to leave, tearing my children from their large extended family.

For all his lamentations about others' lack of proof, Beaudreau offers not a single economic fact himself. Instead, he tosses around his own class-warfare assertions and gives absolutely no indication of empathy for those who are struggling to stay out of his food lines. Come to think of it, I don't think I've heard a single member of the charity industry spare a word of understanding for anybody who is feeling the crunch of this state's economy, but has not yet been crushed by it.

Well, to Mr. Beaudreau and all of his fellow singers in the choir of Give'em Gimme, I suggest that, before they ask where the plight of the rich leaves "the rest of us," they ponder to whom they're speaking and what changes to the local government might answer our needs. Cheap lines about "year-round golf" are certain to yield diminishing returns.

Surely a man pulling upwards of $90,000 a year has the time and wherewithal to research economics for himself. Perhaps he can devote his next vacation (a privilege that I haven't enjoyed for just about seven years) to a search for a bottomless well, and if he doesn't find one, maybe he can come back home and ask "the rest of us" how our lives can be enriched.

A Curious Title?

I'm sure I'm not alone among Anchor Rising writers in feeling a glimmer of hope when such letters as Melbourne Fisher's appear in the paying press:

Columnists Bob Kerr and Charlie Bakst get plenty of ink, and the "loyal opposition" gets an occasional letter to the editor. Keep Bob and Charlie; just get another writer who gives your socially conservative readers a column to read.

But the title that the Projo gives the letter (at least online) reads a bit more like a response to, than a summary of, Fisher's complaint: "Conservatives need not apply."

Economic Thoughts, Part VIII: The Unspoken, But Very Real, Incentives Which Drive Governmental Action

This posting is Part VIII in a series of postings about economic thoughts.

This posting contains excerpts from a previous posting that addressed the often unspoken, but very real and deeply influential, incentives that drive government behavior - and how they compare unfavorably with the incentives that drive behaviors in a competitive capitalism system:

In the book entitled Government Failure: A Primer in Public Choice, Arthur Seldon writes:

Many economics writers and teachers still present economic systems of exchange between private individuals or firms as "imperfect" and requiring "correction" by government. Most teachers of politics, politicians, and political journalists still present government as well-meaning and able to remove such "imperfections."

In spite of this view of government, Seldon notes:

Economic systems based on exchange between individuals and on selling and buying between firms usually correct themselves in time if they are free to adapt themselves to changing conditions of supply and demand. Government "cures" usually do more harm than good in the long run because of three stubborn and too-long neglected excesses of government: their "cures" are begun too soon, they do too much, and they are continued for too long.

Gordon Tullock, writing in the same book, explains the evolution of public choice theory:

Throughout the 19th and well into the 20th century, economists assumed that individuals were primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families. However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.

Economists changed this bifurcated view of human behavior by developing the theory of public choice...

We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so...

Jane Shaw, in her article entitled Public Choice Theory, offers a more detailed explanation of how there is such a mismatch between our expectations of government and the actual performance by government:

...Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest...Public choice economists make the same assumption�that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In [Nobel Laureate James] Buchanan's words the theory "replaces... romantic and illusory... notions about the workings of governments [with]... notions that embody more skepticism."

In the past many economists have argued that the way to rein in "market failures" such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as "government failure."...

One of the chief underpinnings of public choice theory is the lack of incentives for voters to monitor government effectively...the voter is largely ignorant of political issues and that this ignorance is rational. Even though the result of an election may be very important, an individual's vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has virtually no chance to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter...

Public choice economists point out that this incentive to be ignorant is rare in the private sector...he or she pays only for the [purchased item] chosen. If the choice is wise, the buyer will benefit; if it is unwise, the buyer will suffer directly. Voting lacks that kind of direct result...

Public choice economists also examine the actions of legislators. Although legislators are expected to pursue the "public interest," they make decisions on how to use other people's resources, not their own. Furthermore, these resources must be provided by taxpayers and by those hurt by regulations whether they want to provide them or not...Efficient decisions, however, will neither save their own money nor give them any proportion of the wealth they save for citizens. There is no direct reward for fighting powerful interest groups in order to confer benefits on a public that is not even aware of the benefits or of who conferred them. Thus, the incentives for good management in the public interest are weak. In contrast, interest groups are organized by people with very strong gains to be made from governmental action. They provide politicians with campaign funds and campaign workers. In return they receive at least the "ear" of the politician and often gain support for their goals.

In other words, because legislators have the power to tax and to extract resources in other coercive ways, and because voters monitor their behavior poorly, legislators behave in ways that are costly to citizens. One technique analyzed by public choice is log rolling, or vote trading. An urban legislator votes to subsidize a rural water project in order to win another legislator's vote for a city housing subsidy. The two projects may be part of a single spending bill. Through such log rolling both legislators get what they want. And even though neither project uses resources efficiently, local voters know that their representative got something for them. They may not know that they are paying a pro-rata share of a bundle of inefficient projects! And the total expenditures may well be more than individual taxpayers would be willing to authorize if they were fully aware of what is going on.

...bureaucrats in government...incentives explain why many regulatory agencies appear to be "captured" by special interests...Capture occurs because bureaucrats do not have a profit goal to guide their behavior. Instead, they usually are in government because they have a goal or mission. They rely on Congress for their budgets, and often the people who will benefit from their mission can influence Congress to provide more funds. Thus interest groups...become important to them. Such interrelationships can lead to bureaucrats being captured by interest groups.

Although public choice economists have focused mostly on analyzing government failure, they also have suggested ways to correct problems. For example, they argue that if government action is required, it should take place at the local level whenever possible. Because there are many local governments, and because people "vote with their feet," there is competition among local governments, as well as some experimentation. To streamline bureaucracies, Gordon Tullock and William Niskanen have recommended allowing several bureaus to supply the same service on the grounds that the resulting competition will improve efficiency...

From the previously mentioned book, Tullock continues by explaining how public choice theory impacts public policy expectations and the broad question of what role should be played by government:

But the different attitude toward government that arises from public choice does have major effects on our views of what policies government should undertake or can carry out. In particular, it makes us much less ambitious about relying on government to provide certain services...

A deep-seated feeling that government is imperfect carries with it two consequences. The first is that imperfections in the market process do not necessarily call for government intervention; the second is a desire to see if we cannot do something about government processes that might conceivably improve their efficiency...

A final area where knowledge of public choice has an effect on people's views about policy concerns the behavior of government officials. The student of public choice is unlikely to believe that government officials are overly concerned with the public interest. Because they operate in an area where information is very poor (and the proof that the voters' information on political issues would be poor was one of the first achievements of the public choice theory), deception is much more likely to be a worthwhile tactic than it is in the marketplace. Therefore, one would anticipate much more dishonesty in government. Indeed, granted that government officials are the only people who can check on the dishonesty of government officials, the problem of curing dishonesty in government involves an infinite regression. Private businesspeople, who deal with better-informed consumers than do politicians, are also subject to surveillance by public officials who, dishonest though some may be, very commonly have no personal motive to protect a particular private businessperson. The amount of dishonesty that has turned up in private business in spite of these inspections gives a rough idea of the almost complete uniformity of dishonesty in politics...

The side effects from the pervasive belief that government can and/or must solve any imperfection in our society has led to an ever increasing presence of government in our society. That has magnified another problem which Ilya Somin of the Cato Institute discusses in his policy piece entitled When Ignorance Isn't Bliss: How Political Ignorance Threatens Democracy:

Democracy demands an informed electorate. Voters who lack adequate knowledge about politics will find it difficult to control public policy. Inadequate voter knowledge prevents government from reflecting the will of the people in any meaningful way. Such ignorance also raises doubts about democracy as a means of serving the interests of a majority. Voters who lack sufficient knowledge may be manipulated by elites. They may also demand policies that contravene their own interests...

The size of modern government is often so great that it is impossible for voters--even the most knowledgeable among them--to be adequately informed about its operations. Smaller government may actually be more democratic than that which we have now: voters would be more likely to exercise informed control over policy. Voter ignorance also suggests the value of decentralized federalism. In a decentralized federal system, citizens may "vote with their feet" by moving out of jurisdictions with policies they dislike and into those that have more favorable ones. Because each person decides whether or not to move, there is a much greater incentive to acquire relevant information with "foot voting" than with traditional voting at the polls.

Can the incentives that drive government behavior be altered for the better? An earlier posting discusses why structural problems in government create fundamentally misguided incentives that drive adverse public sector behavior.

That same posting quotes Lawrence Reed from an October 2001 speech to the Economic Club of Detroit:

Economist Milton Friedman...pointed out that there are only four ways to spend money. When you spend your own money on yourself, you make occasional mistakes but they're few and far between. The connection between the one who earned it, the one who is spending it, and the one who is reaping the final benefit is pretty strong. When you use your money to buy someone else a gift, you have some incentive to get your money's worth but you might not end up getting something the intended recipient really needs or values. When you use somebody else's money to buy something for yourself, such as lunch on an expense account, you have some incentive to get the right thing but little reason to economize. Finally, when you spend other people's money to buy something for someone else, the connection between the earner, the spender and the recipient is most remote - and the potential for mischief is the greatest. Think about it - somebody spending somebody else's money on yet somebody else - that's what government does all the time.

Two earlier postings, (here and here), suggest that both campaign finance reform and lobbyist reform efforts will be unsuccessful because they cannot alter the fundamental structural problems that create the misguided incentives which drive government behavior.

Part IX to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society

Economic Thoughts, Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions

This posting is Part VIII in a series of postings about economic thoughts.

This posting contains excerpts from a previous posting that addressed the often unspoken, but very real and deeply influential, incentives that drive government behavior - and how they compare unfavorably with the incentives that drive behaviors in a competitive capitalism system:

In the book entitled Government Failure: A Primer in Public Choice, Arthur Seldon writes:

Many economics writers and teachers still present economic systems of exchange between private individuals or firms as "imperfect" and requiring "correction" by government. Most teachers of politics, politicians, and political journalists still present government as well-meaning and able to remove such "imperfections."

In spite of this view of government, Seldon notes:

Economic systems based on exchange between individuals and on selling and buying between firms usually correct themselves in time if they are free to adapt themselves to changing conditions of supply and demand. Government "cures" usually do more harm than good in the long run because of three stubborn and too-long neglected excesses of government: their "cures" are begun too soon, they do too much, and they are continued for too long.

Gordon Tullock, writing in the same book, explains the evolution of public choice theory:

Throughout the 19th and well into the 20th century, economists assumed that individuals were primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. Thus individuals who enter a supermarket and purchase items of their choice are assumed, when they enter the voting booth, to vote not for the politicians and laws that will benefit themselves, but for politicians and laws that will benefit the nation as a whole. People in the supermarket mainly buy the food and other goods that are, granted the price, found to benefit themselves and their families. However, when individuals become politicians, a transformation is assumed to occur so that a broader perspective guides them to make morally correct decisions rather than follow the course of behavior that pleases the interest groups that supported them or the policies that may lead to reelection.

Economists changed this bifurcated view of human behavior by developing the theory of public choice...

We must accept that in government, as in any form of commerce, people will pursue their private interests, and they will achieve goals reasonably closely related to those of company stockholders or of citizens only if it is in their private interest to do so...

Jane Shaw, in her article entitled Public Choice Theory, offers a more detailed explanation of how there is such a mismatch between our expectations of government and the actual performance by government:

...Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest...Public choice economists make the same assumption—that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In [Nobel Laureate James] Buchanan's words the theory "replaces... romantic and illusory... notions about the workings of governments [with]... notions that embody more skepticism."

In the past many economists have argued that the way to rein in "market failures" such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as "government failure."...

One of the chief underpinnings of public choice theory is the lack of incentives for voters to monitor government effectively...the voter is largely ignorant of political issues and that this ignorance is rational. Even though the result of an election may be very important, an individual's vote rarely decides an election. Thus, the direct impact of casting a well-informed vote is almost nil; the voter has virtually no chance to determine the outcome of the election. So spending time following the issues is not personally worthwhile for the voter...

Public choice economists point out that this incentive to be ignorant is rare in the private sector...he or she pays only for the [purchased item] chosen. If the choice is wise, the buyer will benefit; if it is unwise, the buyer will suffer directly. Voting lacks that kind of direct result...

Public choice economists also examine the actions of legislators. Although legislators are expected to pursue the "public interest," they make decisions on how to use other people's resources, not their own. Furthermore, these resources must be provided by taxpayers and by those hurt by regulations whether they want to provide them or not...Efficient decisions, however, will neither save their own money nor give them any proportion of the wealth they save for citizens. There is no direct reward for fighting powerful interest groups in order to confer benefits on a public that is not even aware of the benefits or of who conferred them. Thus, the incentives for good management in the public interest are weak. In contrast, interest groups are organized by people with very strong gains to be made from governmental action. They provide politicians with campaign funds and campaign workers. In return they receive at least the "ear" of the politician and often gain support for their goals.

In other words, because legislators have the power to tax and to extract resources in other coercive ways, and because voters monitor their behavior poorly, legislators behave in ways that are costly to citizens. One technique analyzed by public choice is log rolling, or vote trading. An urban legislator votes to subsidize a rural water project in order to win another legislator's vote for a city housing subsidy. The two projects may be part of a single spending bill. Through such log rolling both legislators get what they want. And even though neither project uses resources efficiently, local voters know that their representative got something for them. They may not know that they are paying a pro-rata share of a bundle of inefficient projects! And the total expenditures may well be more than individual taxpayers would be willing to authorize if they were fully aware of what is going on.

...bureaucrats in government...incentives explain why many regulatory agencies appear to be "captured" by special interests...Capture occurs because bureaucrats do not have a profit goal to guide their behavior. Instead, they usually are in government because they have a goal or mission. They rely on Congress for their budgets, and often the people who will benefit from their mission can influence Congress to provide more funds. Thus interest groups...become important to them. Such interrelationships can lead to bureaucrats being captured by interest groups.

Although public choice economists have focused mostly on analyzing government failure, they also have suggested ways to correct problems. For example, they argue that if government action is required, it should take place at the local level whenever possible. Because there are many local governments, and because people "vote with their feet," there is competition among local governments, as well as some experimentation. To streamline bureaucracies, Gordon Tullock and William Niskanen have recommended allowing several bureaus to supply the same service on the grounds that the resulting competition will improve efficiency...

From the previously mentioned book, Tullock continues by explaining how public choice theory impacts public policy expectations and the broad question of what role should be played by government:

But the different attitude toward government that arises from public choice does have major effects on our views of what policies government should undertake or can carry out. In particular, it makes us much less ambitious about relying on government to provide certain services...

A deep-seated feeling that government is imperfect carries with it two consequences. The first is that imperfections in the market process do not necessarily call for government intervention; the second is a desire to see if we cannot do something about government processes that might conceivably improve their efficiency...

A final area where knowledge of public choice has an effect on people's views about policy concerns the behavior of government officials. The student of public choice is unlikely to believe that government officials are overly concerned with the public interest. Because they operate in an area where information is very poor (and the proof that the voters' information on political issues would be poor was one of the first achievements of the public choice theory), deception is much more likely to be a worthwhile tactic than it is in the marketplace. Therefore, one would anticipate much more dishonesty in government. Indeed, granted that government officials are the only people who can check on the dishonesty of government officials, the problem of curing dishonesty in government involves an infinite regression. Private businesspeople, who deal with better-informed consumers than do politicians, are also subject to surveillance by public officials who, dishonest though some may be, very commonly have no personal motive to protect a particular private businessperson. The amount of dishonesty that has turned up in private business in spite of these inspections gives a rough idea of the almost complete uniformity of dishonesty in politics...

The side effects from the pervasive belief that government can and/or must solve any imperfection in our society has led to an ever increasing presence of government in our society. That has magnified another problem which Ilya Somin of the Cato Institue discusses in his policy piece entitled When Ignorance Isn't Bliss: How Political Ignorance Threatens Democracy:

Democracy demands an informed electorate. Voters who lack adequate knowledge about politics will find it difficult to control public policy. Inadequate voter knowledge prevents government from reflecting the will of the people in any meaningful way. Such ignorance also raises doubts about democracy as a means of serving the interests of a majority. Voters who lack sufficient knowledge may be manipulated by elites. They may also demand policies that contravene their own interests...

The size of modern government is often so great that it is impossible for voters--even the most knowledgeable among them--to be adequately informed about its operations. Smaller government may actually be more democratic than that which we have now: voters would be more likely to exercise informed control over policy. Voter ignorance also suggests the value of decentralized federalism. In a decentralized federal system, citizens may "vote with their feet" by moving out of jurisdictions with policies they dislike and into those that have more favorable ones. Because each person decides whether or not to move, there is a much greater incentive to acquire relevant information with "foot voting" than with traditional voting at the polls.

Can the incentives that drive government behavior be altered for the better? An earlier posting discusses why structural problems in government create fundamentally misguided incentives that drive adverse public sector behavior.

That same posting quotes Lawrence Reed from an October 2001 speech to the Economic Club of Detroit:

Economist Milton Friedman...pointed out that there are only four ways to spend money. When you spend your own money on yourself, you make occasional mistakes but they're few and far between. The connection between the one who earned it, the one who is spending it, and the one who is reaping the final benefit is pretty strong. When you use your money to buy someone else a gift, you have some incentive to get your money's worth but you might not end up getting something the intended recipient really needs or values. When you use somebody else's money to buy something for yourself, such as lunch on an expense account, you have some incentive to get the right thing but little reason to economize. Finally, when you spend other people’s money to buy something for someone else, the connection between the earner, the spender and the recipient is most remote – and the potential for mischief is the greatest. Think about it - somebody spending somebody else's money on yet somebody else - that's what government does all the time.

Two earlier postings, (here and here), suggest that both campaign finance reform and lobbyist reform efforts will be unsuccessful because they cannot alter the fundamental structural problems that create the misguided incentives which drive government behavior.

Part IX to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society

Casino Amendment: Some Constitutional Context

The debate was entertaining, but eventually the RI House pushed through a ballot question asking the RI voters to amend [PDF] the RI Constitution to allow a privately owned casino in West Warwick. The Constitution already makes provisions for the public to vote on the expansion of state-operated "lotteries," but, as was reinforced last summer by the RI Supreme Court, the Constitution makes no provision for a private entity.

Therefore, assuming the Senate approves the House bill (a fait accompli), the RI voters will be able to decide for themselves if they want to change their Constitution to allow a private entity to run a gambling operation in the state. The Constitutional Amendment route was probably the only way to go about this, but it was unnecessary to include a specific town (West Warwick) in the actual amendment. (Though, I'd be open to the argument for keeping the requirement that any private gaming interest work in concert with Narragansetts.)

In fact, the specific inclusion of West Warwick as the only site for a private casino poses the greatest Constitutional question for this Amendment. Specifically, with the Equal Protection clause (Article I, Section 2) in mind, the question must be asked (and I'm not being rhetorical): Is it fair to designate one town for such "special treatment" within the State's Constitution? For that matter, given the deal made between the Narragansett Tribe and the State in 1978, is the tribe due such special consideration?

Here are some relevant particulars regarding the Amendment:

The Amendment will be appended as Section 23 to Article VI [Of The Legislative Powers], which already deals with gambling in Section 15 and Section 22. Section 15 states:

Lotteries - All lotteries shall be prohibited in the state except lotteries operated by the state and except those previously permitted by the general assembly prior to the adoption of this section, and all shall be subject to the proscription and regulation of the general assembly.

Section 22 states:

Restriction of gambling. -- No act expanding the types of gambling which are permitted within the state or within any city or town therein or expanding the municipalities in which a particular form of gambling is authorized shall take effect until it has been approved by the majority of those electors voting in a statewide referendum and by the majority of those electors voting in a referendum in the municipality in which the proposed gambling would be allowed.

The secretary of state shall certify the results of the statewide referendum and the local board of canvassers of the city or town where the gambling is to be allowed shall certify the results of the local referendum to the secretary of state.

The (new) Section 23 would read:

Resort Casino - - Notwithstanding sections 15 and 22 of this Article, and provided that a majority of the electors of the Town of West Warwick have voted to approve this
amendment, the establishment of a resort casino and games located therein is authorized in the Town of West Warwick. The resort casino shall be privately owned and privately operated by a business entity established pursuant to Rhode Island law by the Narragansett Indian Tribe and its chosen partner, which entity shall be: (i) legally distinct and separate from the Narragansett Indian Tribe, (ii) subject to the laws of the state of Rhode Island, including regulation and taxation, and (iii) required in its organizing documents to expressly waive any sovereign immunity relating to any and all matters of the resort casino, including compliance with and enforcement of the laws of the state of Rhode Island, and the regulation and taxation thereof. The per annum tax rate shall be established by the general assembly with all of such tax proceeds to be dedicated to property-tax relief, as prescribed by statute.

The Senate Passes an Illegal Immigration Amnesty Bill, But Lacks The Courage To Call It What It Is

The Senate passed the illegal immigration bill amnesty bill on Thursday, by a vote of 62-36. Michelle Malkin has more.

A newly-visible issue in the bill: Michelle Malkin raises the question of whether the bill requires the United States government to get prior approval from the Mexican government before acting under its rights as a sovereign nation and building a border fence.

Various senators, including Specter and McCain, are protesting vehemently that this bill is not an amnesty bill. Quite a few others disagree, including Ed Meese, former Reagan administration Attorney General on An Amnesty by Any Other Name ...:

In the debate over immigration, "amnesty" has become something of a dirty word. Some opponents of the immigration bill being debated in the Senate assert that it would grant amnesty to millions of illegal immigrants. Supporters claim it would do no such thing. Instead, they say, it lays out a road map by which illegal aliens can earn citizenship.

Perhaps I can shed some light. Two decades ago, while serving as attorney general under President Ronald Reagan, I was in the thick of things as Congress debated the Immigration Reform and Control Act of 1986. The situation today bears uncanny similarities to what we went through then.

In the mid-80's, many members of Congress — pushed by the Democratic majority in the House and the Select Commission on Immigration and Refugee Policy — advocated amnesty for long-settled illegal immigrants. President Reagan considered it reasonable to adjust the status of what was then a relatively small population, and I supported his decision.

In exchange for allowing aliens to stay, he decided, border security and enforcement of immigration laws would be greatly strengthened — in particular, through sanctions against employers who hired illegal immigrants. If jobs were the attraction for illegal immigrants, then cutting off that option was crucial.

Beyond this, most illegal immigrants who could establish that they had resided in America continuously for five years would be granted temporary resident status, which could be upgraded to permanent residency after 18 months and, after another five years, to citizenship.

Note that this path to citizenship was not automatic. Indeed, the legislation stipulated several conditions: immigrants had to pay application fees, learn to speak English, understand American civics, pass a medical exam and register for military selective service. Those with convictions for a felony or three misdemeanors were ineligible. Sound familiar? These are pretty much the same provisions included in the new Senate proposal and cited by its supporters as proof that they have eschewed amnesty in favor of earned citizenship.

The difference is that President Reagan called this what it was: amnesty. Indeed, look up the term "amnesty" in Black's Law Dictionary, and you'll find it says, "the 1986 Immigration Reform and Control Act provided amnesty for undocumented aliens already in the country."

Like the amnesty bill of 1986, the current Senate proposal would place those who have resided illegally in the United States on a path to citizenship, provided they meet a similar set of conditions and pay a fine and back taxes. The illegal immigrant does not go to the back of the line but gets immediate legalized status, while law-abiding applicants wait in their home countries for years to even get here. And that's the line that counts. In the end, slight differences in process do not change the overriding fact that the 1986 law and today's bill are both amnesties.

There is a practical problem as well: the 1986 act did not solve our illegal immigration problem. From the start, there was widespread document fraud by applicants. Unsurprisingly, the number of people applying for amnesty far exceeded projections. And there proved to be a failure of political will in enforcing new laws against employers.

After a six-month slowdown that followed passage of the legislation, illegal immigration returned to normal levels and continued unabated. Ultimately, some 2.7 million people were granted amnesty, and many who were not stayed anyway, forming the nucleus of today's unauthorized population.

So here we are, 20 years later, having much the same debate and being offered much the same deal in exchange for promises largely dependent on the will of future Congresses and presidents.

Will history repeat itself? I hope not. In the post-9/11 world, secure borders are vital. We have new tools — like biometric technology for identification, and cameras, sensors and satellites to monitor the border — that make enforcement and verification less onerous. And we can learn from the failed policies of the past.

President Bush and Congress would do better to start with securing the border and strengthening enforcement of existing immigration laws. We might also try improving on Ronald Reagan's idea of a pilot program for genuinely temporary workers.

The fair and sound policy is to give those who are here illegally the opportunity to correct their status by returning to their country of origin and getting in line with everyone else. This, along with serious enforcement and control of the illegal inflow at the border — a combination of incentives and disincentives — will significantly reduce over time our population of illegal immigrants.

America welcomes more immigrants than any other country. But in keeping open that door of opportunity, we also must uphold the rule of law and enhance a fair immigration process, as Ronald Reagan said, to "humanely regain control of our borders and thereby preserve the value of one of the most sacred possessions of our people: American citizenship."

For more information:

John Hawkins on An Illegal Immigration Related Teleconference With Ed Meese
Wizbang on Ed Meese Knows It's Amnesty, which links to an important piece by Helen Krieble on Private Employers & Border Control
Mary Katherine Ham on Ed Meese conference call

Thomas Sowell hits the nail on the head in three separate editorials:

Bordering on Fraud
Bordering on Fraud: Part II
Bordering on Fraud: Part III

Several more Heritage Foundation studies:

Tim Kane on Immigration Reform or Central Planning?
Ed Meese and Matthew Spalding on Permanent Principles and Temporary Workers

Robert Rector, also from the Heritage Foundation and arguably the most visible policy analyst on illegal immigration, shares some more of his thoughts:

Robert Rector on The Wrong Course: The Senate’s proposed amnesty will cost a fortune

John O'Sullivan summarizes the various amendments proposed to the illegal immigration bill in recent days.

A leading senator and a leading congressman also weigh in:

Rick Santorum on What Not to Legislate: How not to fix our immigration laws
J. D. Hayworth on Call It What It Is: The president’s plan is an illegal-immigrant amnesty

Additional news from:

Charlie Hurt of Washington Times on 'Path to citizenship' faces House foes:

Liberal House Republicans are taking an increasingly tough stance on immigration reform and are more determined than ever to delete the portions of the Senate bill that grant citizenship rights to more than 10 million illegal aliens...

Michelle Malkin on Booing John McCain (but so what else is new?)
Power Line on What the Base Thinks

For more readings on the illegal immigration bill, there have been eleven recent postings on Anchor Rising about immigration:

Identifying Four Core Issues Underlying the Immigration Debate
More Misguided Thinking From RIFuture & State Legislators on Illegal Immigration
Why is Congress Discriminating Against Educated Legal Immigrants?
More Links on Immigration Issue
Asleep at the Border
Senate Rejects Securing the Borders while Supporting Increased Presidential Power
Senator Reed Votes For Open Borders
Does The Rule Of Law & A Sense Of Fair Play Matter Anymore? The Debate About In-State Tuitions For Illegal Immigrants
Jennifer Roback Morse: Further Clarifying What is at Stake in the Illegal Immigration Debate
Senator Grassley's Top 10 Flaws in Immigration Bill
Senator Sessions' Senate Floor Speech on Illegal Immigration Bill

In addition, another series of previous postings contain information about recent events in the public debate about illegal immigration and can be found in Parts I, II, III, IV, V, and VI.

Economic Thoughts, Part VII: The Role of Government in a Free Society

This posting is Part VII in a series of postings about economic thoughts.

This posting contains excerpts from Chapter 2 of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he discusses the role of government in a free society:

...To the [nineteenth-century] liberal, the appropriate means are free discussion and voluntary co-operation, which implies that any form of coercion is inappropriate. The ideal is unanimity among responsible individuals achieved on the basis of free and full discussion. This is another way of expressing the goal of freedom...

From this standpoint, the role of the market...is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity...the fact that the final outcome generally must be a law applicable to all groups, rather than separate legislative enactments for each "party" represented, means that proportional representation in its political version, far from permitting unanimity without conformity, tends toward ineffectiveness and fragmentation. It thereby operates to destroy any consensus on which unanimity with conformity can rest.

There are clearly some matters with respect to which effective proportional representation is impossible...With respect to such indivisible matters we can discuss, and argue, and vote. But having decided, we must conform. It is precisely the existence of such indivisible matters - protection of the individual and the nation from coercion are clearly the most basic - that prevents exclusive reliance on individual action through the market...

The use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues on which people in any event have common views. Every extension of the range of issues for which explicit agreement is sought strains further the delicate threads that hold society together...Fundamental differences in basic values can seldom if ever be resolved at the ballot box; ultimately they can only be decided, though not resolved, by conflict...

The widespread use of the market reduces the strain on the social fabric by rendering conformity unnecessary with respect to any activities it encompasses. The wider the range of activities covered by the market, the fewer are the issues on which explicitly political decisions are required and hence on which it is necessary to achieve agreement. In turn, the fewer the issues on which agreement is necessary, the greater is the likelihood of getting agreement while maintaining a free society.

Unanimity is, of course, an ideal. In practice, we can afford neither the time nor the effort that would be required to achieve complete unanimity on every issue...We are thus led to accept majority rule in one form or another as an expedient. That majority rule is an expedient rather than itself a basic principle is clearly shown by the fact that our willingness to resort to majority rule, and the size of the majority we require, themselves depend on the seriousness of the issue involved. If the matter is of little moment and the minority has no strong feelings about being overruled, a bare plurality will suffice. On the other hand, if the minority feels strongly about the issue involved, even a bare majority will not do...

...a good society requires that its members agree on the general conditions that will govern relations among them, on some means of arbitrating different interpretations of these conditions, and on some device for enforcing compliance with the generally accepted rules...most of the general conditions are the unintended outcome of custom, accepted unthinkingly...no set of rules can prevail unless most participants most of the time conform to them without external sanctions...But we cannot rely on custom or on this consensus alone to interpret and to enforce the rules; we need an umpire. These then are the basic roles of government in a free society: to provide a means whereby we can modify rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play in the game.

The need for government in these respects arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men...

The major problem in deciding the appropriate activities of government is how to resolve such conflicts among the freedom of different individuals...

...the organization of economic activity through voluntary exchange presumes that we have provided, through government, for the maintenance of law and order to prevent coercion of one individual by another, the enforcement of contracts voluntarily entered into, the definition of the meaning of property rights, the interpretation and enforcement of such rights, and the provision of a monetary system.

The role of government just considered is to do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game...These all reduce to cases in which strictly voluntary exchange is either exceedingly costly or practically impossible. There are two general classes of such cases: monopoly and similar market imperfections, and neighborhood effects.

Exchange is truly voluntary only when nearly equivalent alternatives exist. Monopoly implies the absence of alternatives and thereby inhibits effective freedom of exchange...

When technical conditions make a monopoly the natural outcome of competitive market forces, there are only three alternatives that seem available: private monopoly, public monopoly, or public regulation. All three are bad so we must choose among evils...

In a rapidly changing society, however, the conditions making for technical monopoly frequently change and I suspect that both public regulation and public monopoly are likely to be less responsive to such changes in conditions, to be less readily capable of elimination, than private monopoly...

The choice between the evils of private monopoly, public monopoly, and public regulation cannot, however, be made once and for all, independently of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short-run effects of private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil...

Technical monopoly may on occasion justify a de facto public monopoly. It cannot by itself justify a public monopoly achieved by making it illegal for anyone else to compete...

A second general class of cases in which strictly voluntary exchange is impossible arises when actions of individuals have effects on other individuals for which it is not feasible to charge or recompense them. This is the problem of "neighborhood effects." An obvious example is the pollution of a stream...

A less obvious example is the provision of highways...

Neighborhood effects impede voluntary exchange because it is difficult to identify the effects on third parties and to measure their magnitude; but this difficulty is present in governmental activity as well...when government engages in activities to overcome neighborhood effects, it will in part introduce an additional set of neighborhood effects by failing to charge or compensate individuals properly...Every act of government intervention limits the area of individual freedom directly and threatens the preservation of freedom indirectly...

Freedom is a tenable objective only for responsible individuals. We do not believe in freedom for madmen or children. The necessity of drawing a line between responsible individuals and others is inescapable, yet it means that there is an essential ambiguity in our ultimate objective of freedom. Paternalism is inescapable for those whom we designate as not responsible...

The paternalistic ground for governmental activity is in many ways the most troublesome to a [nineteenth-century] liberal; for it involves the acceptance of a principle - that some shall decide for others - which he finds objectionable in most applications and which he rightly regards as a hallmark of his chief intellectual opponents, the proponents of collectivism...Yet there is no use pretending that problems are simpler than in fact they are. There is no avoiding the need for some measure of paternalism...There is no formula that can tell us where to stop. We must rely on our fallible judgment...We must put our faith, here as elsewhere, in a consensus reached by imperfect and biased men through free discussion and trial and error.

A government which maintained law and order, defined property rights, served as a means whereby we could modify property rights and other rules of the economic game, adjudicated disputes about the interpretation of the rules, enforced contracts, promoted competition, provided a monetary framework, engaged in activities to counter technical monopolies and to overcome neighborhood effects widely regarded as sufficiently important to justify governmental intervention, and which supplemented private charity and the private family in protecting the irresponsible, whether madman or child - such a government would clearly have important functions to perform...

Yet it is also true that such a government would have clearly limited functions and would refrain from a host of activities that are now undertaken by federal and state governments in the United States and their counterparts in other Western countries...

Part VIII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom

Economic Thoughts, Part VII: The Role of Government in a Free Society

This posting is Part VII in a series of postings about economic thoughts.

This posting contains excerpts from Chapter 2 of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he discusses the role of government in a free society:

...To the [nineteenth-century] liberal, the appropriate means are free discussion and voluntary co-operation, which implies that any form of coercion is inappropriate. The ideal is unanimity among responsible individuals achieved on the basis of free and full discussion. This is another way of expressing the goal of freedom...

From this standpoint, the role of the market...is that it permits unanimity without conformity; that it is a system of effectively proportional representation. On the other hand, the characteristic feature of action through explicitly political channels is that it tends to require or to enforce substantial conformity...the fact that the final outcome generally must be a law applicable to all groups, rather than separate legislative enactments for each "party" represented, means that proportional representation in its political version, far from permitting unanimity without conformity, tends toward ineffectiveness and fragmentation. It thereby operates to destroy any consensus on which unanimity with conformity can rest.

There are clearly some matters with respect to which effective proportional representation is impossible...With respect to such indivisible matters we can discuss, and argue, and vote. But having decided, we must conform. It is precisely the existence of such indivisible matters - protection of the individual and the nation from coercion are clearly the most basic - that prevents exclusive reliance on individual action through the market...

The use of political channels, while inevitable, tends to strain the social cohesion essential for a stable society. The strain is least if agreement for joint action need be reached only on a limited range of issues on which people in any event have common views. Every extension of the range of issues for which explicit agreement is sought strains further the delicate threads that hold society together...Fundamental differences in basic values can seldom if ever be resolved at the ballot box; ultimately they can only be decided, though not resolved, by conflict...

The widespread use of the market reduces the strain on the social fabric by rendering conformity unnecessary with respect to any activities it encompasses. The wider the range of activities covered by the market, the fewer are the issues on which explicitly political decisions are required and hence on which it is necessary to achieve agreement. In turn, the fewer the issues on which agreement is necessary, the greater is the likelihood of getting agreement while maintaining a free society.

Unanimity is, of course, an ideal. In practice, we can afford neither the time nor the effort that would be required to achieve complete unanimity on every issue...We are thus led to accept majority rule in one form or another as an expedient. That majority rule is an expedient rather than itself a basic principle is clearly shown by the fact that our willingness to resort to majority rule, and the size of the majority we require, themselves depend on the seriousness of the issue involved. If the matter is of little moment and the minority has no strong feelings about being overruled, a bare plurality will suffice. On the other hand, if the minority feels strongly about the issue involved, even a bare majority will not do...

...a good society requires that its members agree on the general conditions that will govern relations among them, on some means of arbitrating different interpretations of these conditions, and on some device for enforcing compliance with the generally accepted rules...most of the general conditions are the unintended outcome of custom, accepted unthinkingly...no set of rules can prevail unless most participants most of the time conform to them without external sanctions...But we cannot rely on custom or on this consensus alone to interpret and to enforce the rules; we need an umpire. These then are the basic roles of government in a free society: to provide a means whereby we can modify rules, to mediate differences among us on the meaning of the rules, and to enforce compliance with the rules on the part of those few who would otherwise not play in the game.

The need for government in these respects arises because absolute freedom is impossible. However attractive anarchy may be as a philosophy, it is not feasible in a world of imperfect men...

The major problem in deciding the appropriate activities of government is how to resolve such conflicts among the freedom of different individuals...

...the organization of economic activity through voluntary exchange presumes that we have provided, through government, for the maintenance of law and order to prevent coercion of one individual by another, the enforcement of contracts voluntarily entered into, the definition of the meaning of property rights, the interpretation and enforcement of such rights, and the provision of a monetary system.

The role of government just considered is to do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game...These all reduce to cases in which strictly voluntary exchange is either exceedingly costly or practically impossible. There are two general classes of such cases: monopoly and similar market imperfections, and neighborhood effects.

Exchange is truly voluntary only when nearly equivalent alternatives exist. Monopoly implies the absence of alternatives and thereby inhibits effective freedom of exchange...

When technical conditions make a monopoly the natural outcome of competitive market forces, there are only three alternatives that seem available: private monopoly, public monopoly, or public regulation. All three are bad so we must choose among evils...

In a rapidly changing society, however, the conditions making for technical monopoly frequently change and I suspect that both public regulation and public monopoly are likely to be less responsive to such changes in conditions, to be less readily capable of elimination, than private monopoly...

The choice between the evils of private monopoly, public monopoly, and public regulation cannot, however, be made once and for all, independently of the factual circumstances. If the technical monopoly is of a service or commodity that is regarded as essential and if its monopoly power is sizable, even the short-run effects of private unregulated monopoly may not be tolerable, and either public regulation or ownership may be a lesser evil...

Technical monopoly may on occasion justify a de facto public monopoly. It cannot by itself justify a public monopoly achieved by making it illegal for anyone else to compete...

A second general class of cases in which strictly voluntary exchange is impossible arises when actions of individuals have effects on other individuals for which it is not feasible to charge or recompense them. This is the problem of "neighborhood effects." An obvious example is the pollution of a stream...

A less obvious example is the provision of highways...

Neighborhood effects impede voluntary exchange because it is difficult to identify the effects on third parties and to measure their magnitude; but this difficulty is present in governmental activity as well...when government engages in activities to overcome neighborhood effects, it will in part introduce an additional set of neighborhood effects by failing to charge or compensate individuals properly...Every act of government intervention limits the area of individual freedom directly and threatens the preservation of freedom indirectly...

Freedom is a tenable objective only for responsible individuals. We do not believe in freedom for madmen or children. The necessity of drawing a line between responsible individuals and others is inescapable, yet it means that there is an essential ambiguity in our ultimate objective of freedom. Paternalism is inescapable for those whom we designate as not responsible...

The paternalistic ground for governmental activity is in many ways the most troublesome to a [nineteenth-century] liberal; for it involves the acceptance of a principle - that some shall decide for others - which he finds objectionable in most applications and which he rightly regards as a hallmark of his chief intellectual opponents, the proponents of collectivism...Yet there is no use pretending that problems are simpler than in fact they are. There is no avoiding the need for some measure of paternalism...There is no formula that can tell us where to stop. We must rely on our fallible judgment...We must put our faith, here as elsewhere, in a consensus reached by imperfect and biased men through free discussion and trial and error.

A government which maintained law and order, defined property rights, served as a means whereby we could modify property rights and other rules of the economic game, adjudicated disputes about the interpretation of the rules, enforced contracts, promoted competition, provided a monetary framework, engaged in activities to counter technical monopolies and to overcome neighborhood effects widely regarded as sufficiently important to justify governmental intervention, and which supplemented private charity and the private family in protecting the irresponsible, whether madman or child - such a government would clearly have important functions to perform...

Yet it is also true that such a government would have clearly limited functions and would refrain from a host of activities that are now undertaken by federal and state governments in the United States and their counterparts in other Western countries...

Part VIII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom

Casino Question

The Rhode Island House has reduced the debate surrounding amending the state constitution to allow gambling to “Should the state use a no-bid deal to determine the operator of the monopoly mega-casino that it wants to create in West Warwick?” versus “Should the state use competitive bidding to determine the operator of the monopoly mega-casino that it wants to create in West Warwick?”.

The question unasked and unanswered is “If there is to be casino gambling in Rhode Island, why does it have to be in the form of a monopoly mega-casino in West Warwick?”.

If there are people who believe that gambling is a legitimate way to raise revenue and improve the quality of life in Rhode Island, then why aren’t we deliberating simply legalizing gambling? Using the power of government to prevent all but one corporation from operating a casino in Rhode Island certainly benefits mega-casino operators like Harrah’s or Trump, but it is not at all clear that it benefits the people of Rhode Island (save for those people with vested interests in one of the mega-operators).

Here Comes Anti-Laffey Ad #3

The Chafee campaign has released its newest television ad. They've eschewed the cartoon characters of the previous negative ad, and gone with a traditional I'm good because I've been photographed in color; my opponent is bad because he's been photographed in black-and-white attack ad.

The ad takes a couple of swipes at Steve Laffey's record as Mayor of Cranston that will be familiar to people who have been following the campaign (I'll link to the ad as soon as it appears on the Chafee website)...

"[Mayor Laffey] promised spending cuts. Instead he raised spending nearly 20% and raised taxes again and again and again".

The Laffey campaign has already issued a rebuttal. According to figures the Laffey campaign has compiled from Providence Journal reports, Chafee raised taxes more times as Mayor of Warwick than Laffey has as Mayor of Cranston...

As Mayor of Warwick, Lincoln Chafee consistently proposed tax increases despite the absence of a financial crisis:

• FY 94: 5.0% tax increase
• FY 95: 2.6% tax increase
• FY 96: 4.4% tax increase
• FY 97: 1.9% tax increase

Mayor Laffey led Cranston from financial ruin to financial success:

• FY 04: 3.5% tax increase(*)
• FY 05: 4.3% tax increase
• FY 06: 0% (tax freeze)
• FY 07: -1.5% (tax cut)

(*)[UPDATE: Mayor Laffey also applied a one-time 12.8% tax-surcharge in his first term in dealing with Cranston's fiscal crisis.]

Obviously neither candidate has any objection to raising taxes to pay for the things they believe to be important. A real debate on tax policy should center on 1) what spending the candidates believe to be important 2) what spending the candidates believe can be eliminated (if the answer is "none" then tax-increases might be justified) and 3) why the candidates believe their plans for taxing and spending are sustainable.

Equally obvious is the fact that this ad is an attempt by the Chafee campaign to neutralize the Senator's political problems originating with his consistent support for high tax rates.

Senator Sessions' Senate Floor Speech on Illegal Immigration Bill

Many of us have explicit reasons and some intuitive worries about the illegal immigration bill currently being debated in the Senate. Here is the second of two postings which will attempt to characterize the flaws in the bill - from a person who has actually read the 600+ page bill.

Senator Jeff Sessions (R-Alabama) gave this speech on the Senate floor. It is offered in its entirety because you need to see all the words to get the full impact:

Mr. President, I am going to take some time tonight to inform my colleagues about some of the problems with the legislation before us. It is worse than you think, colleagues. The legislation has an incredible number of problems with it. Some, as I will point out tonight, can only be considered deliberate. Whereas on the one hand it has nice words with good sounding phrases in it to do good things, on the second hand it completely eviscerates that, oftentimes in a way that only the most careful reading by a good lawyer would discover. So I feel like I have to fulfill my duty. I was on the Judiciary Committee. We went into this. We tried to monitor it and study it and actually read this 614-page bill, and I have a responsibility and I am going to fulfill my responsibility.

I think the things I am saying tonight ought to disturb people. They ought to be unhappy about it. It ought to make them consider whether they want to vote for this piece of legislation that, in my opinion, should never, ever become law.

I would also just point out I will be offering tomorrow, or soon, an amendment to deal with the earned-income tax credit situation that is raised by this legislation, focusing on the amnesty in the bill and what will happen after amnesty is granted, before they become a full citizen. The Congressional Budget Office has concluded that the earned-income tax credit will pay out to those who came into our country illegally $29 billion over 10 years. The earned-income tax credit has been on the books for some time. It is a good bit larger than most people think. The average recipient of it receives $1,700. Lowerincome people get a larger amount. Over half the people who we expect will receive amnesty are without a high school degree. They are receiving lower wages. They will be the ones who will particularly qualify for this. This is a score that has been given to us by the group that is supposed to score it--$29 billion will be paid out.

If they go all the way and become a citizen they will be entitled to this like any other citizen, and they will be entitled to get it under my amendment. But I do not believe we should award people who have entered our country illegally, submitted a false Social Security number, worked illegally--I do not believe we should reward them with $29 billion of the taxpayers' money. That is a lot of money.

I will also be offering a budget point of order, I or one of my colleagues will, in the next day or so. We have been working on that. We asked for a report. The Congressional Budget Office has concluded that the budget point of order lies in the first 10 years of this bill. It also concludes that it lies under the long-term provisions of the budget points of order for expenditures in the outyears. They didn't give us those numbers, but they said, without much work--they didn't have to do much work--the numbers are going to be much worse in the outyears. It clearly would be a detriment to the Government and these figures would exceed the budget, and a budget point of order would lie.

At the Heritage Foundation, Mr. Robert Rector, who is the expert who dealt with welfare, studied this. He was the architect of welfare reform who has done so much to improve America's welfare system and improve incomes for low-income families. It really worked beautifully. He was the architect of it. He says this bill represents the greatest increase in welfare in 35 years. With the provisions and benefits that will be in it, he estimates that year 10 through year 20, the cost could be $50 to $60 billion a year to the taxpayers because it takes some time for the people who are adjusting and becoming citizens and/or legal permanent residents to really begin to make the claims.

CBO admits the numbers are going to surge in the outyears. He says it is $50 billion a year. If that is so--and he is not exaggerating the numbers, because that is based solely on the amnesty provisions, not the provisions that will allow 3 times to 4 times as many people to come into the country legally in the next 20 years as come in today, and many of them will go on welfare because that whole system is not based on identifying people with skills and educational levels that would indicate they would be more than low-wage workers--so it could really be more than that. But $50 billion a year over 10 years is $500 billion. That is a half a trillion dollars, and that is why Mr. Rector said this legislation is a fiscal catastrophe. This is a man whose opinions and ideas and research this Congress, and particularly the Republicans, utilized to hammer away, time and time again, year after year, to get welfare reform.

It finally happened. It worked just like he said. The predictions of disaster made against his recommendations proved to be false.

He is saying that about this. So this is not a technical point of order. It represents an attempt to save the fiscal soundness of the budget of the United States.

I want to take some moments here to deal with some problems with the legislation. The American people are suspicious of us. They were promised in 1986, after years of urging the Government, the President and the Congress, promised to fix our borders and end illegal immigration. In exchange for that they acquiesced and went along with amnesty in 1986. They said there were a million, 2 million here who would claim it. It turned out 3 million claimed amnesty after 1986. That ought to give us some pause about the projections that we would have. We have 11 million people here now and only 8 or so will seek amnesty under it. That ought to give us some pause there. It may well be above the number.

So the American people are suspicious and they are dubious and they are watching us carefully, and they should. Let me tell you some of the things that are in the legislation that indicate a lack of respect for the American people, really. Some of these are some of the reasons I said the other day the Senate should be ashamed of itself, the way we are moving this bill.

My staff, working up some of these comments, came up with a title--maybe at my suggestion--"Sneaky Lawyer Tricks'' that are in the bill. I will let you decide if that is a fair description of what is in it. I will go down through some of the matters that are important. There are others I could complain about for which we will not have time.

First, the legislation talks about title IV of the bill. That title IV of the bill defines the new H2-C program as a temporary guest worker program. Those are in big print in the bill: Temporary guest workers.

That sounds like a temporary worker, doesn't it? It sounds like a guest, like somebody who stays in your bedroom for a weekend, a guest, temporary guest.

Interesting, section 408 sets out the temporary guest worker visa program task force. So a little further down it has what is called a temporary guest worker visa program task force. So you would think they are writing in this section, would you not, something about the task force. But this, down in that section, this task force establishes the number of H2C visas that may be issued annually and subsection (h) is where the writers of the bill hid the provision that actually transforms these so-called temporary workers into legal, permanent residents. OK? So all the big print, "temporary guest workers,'' "temporary guest worker task force,'' and then you read in that section down there that it effectively converts them from temporary workers to legal permanent residents, granting them a green card.

It is tucked away in a title that has nothing to do with substance of that matter. So I am pleased that my staff and others who have been reading the bill have discovered that. It wasn't discovered early on in the process.

Family members of H-2C visa holder need not be healthy. Under current law, aliens must prove that they are admissible and meet certain health standards. Many times, visa applicants must have a medical exam to show that they do not have a communicable disease. They have to be up-to-date on immunizations, and cannot have mental disorders. Spouses and children of H-2C visa holders, however, are not required to have a medical exam before receiving a visa. I have an amendment to fix this that I hope is accepted.

The work requirement for a blue card can be satisfied in a matter of hours. Under the AgJOBS component of the substitute, illegal alien agricultural workers who have worked 150 "workdays'' in agriculture over the last 2 years will receive a "blue card,'' allowing them to live and work permanently in the U.S. However, because current law defines an agricultural "workday'' as 1 hour of work per day--the bill language restates that definition on page 397--an alien who has worked for as little as 150 hours--there are 168 hours in a week--in agriculture over the last 2 years will qualify for a blue card.

Blue card aliens can only be fired for just cause, unlike an American citizen worker who is likely under an employment at will agreement with the agricultural employer.

No alien granted blue card status may be terminated from employment by any employer during the period of blue card status except for just cause.

Because blue card aliens are not limited to working in agriculture, this employment requirement will follow the alien at their second and third jobs as well. The bill goes as far as setting up an arbitration process for blue card aliens who allege they have been terminated without just cause. Furthermore, the bill requires the Secretary of Homeland Security to pay the fee and expenses of the arbitrator. American citizens do not have a right to this arbitration process, why are we setting up an arbitration process for blue card aliens paid for by the American taxpayer.

Regarding free legal counsel, the AgJOBS amendment goes further than paying for arbitrators, it also provides free legal counsel to illegal aliens who want to receive this amnesty. The AgJOBS amendment specifically states that recipients of "funds under the Legal Services Corporation Act'' shall not be prevented "from providing legal assistance directly related to an application for adjustment of status under this section.'' Interestingly, page 414 of the bill requires the alien to have an attorney file the application for him. Not only will AgJOBS give amnesty to 1.5 million illegal aliens, it would have the American taxpayer pay the legal bills of those illegal aliens. This is unbelievable and unacceptable. We should not be rewarding illegal aliens who break our laws with free legal counsel and a direct path to citizenship.

Under this bill a temporary worker is eligible for a green card if they, in part, maintained their H-2C status. In order to maintain this status the "temporary'' worker may not be unemployed for a period of 60 continuous days. This means that a temporary worker only has to work 1 day in every 59 days to maintain status. This employment requirement only requires that they work about 1 day every 2 months.

In this bill, an alien who has been here between 2 and 5 years is not eligible for asylum if they have persecuted others on account of race, religion, nationality, membership in a particular social group, or political opinion. However, an alien here more than 5 years who has persecuted others on account of race, religion, nationality, membership in a particular social group, or political opinion gets amnesty under this bill. There is no specific ineligibility for such conduct. Since it is included under the "mandatory deferred departure'' section, a court will interpret this to mean we purposefully left it out of the "earned amnesty.'' I cannot imagine why the drafters of this bill would allow persecutors to benefit from amnesty.

The bill's future flow "guest worker'' program in title IV leaves no illegal alien behind--it is not limited to people outside the United States who want to come here to work in the future, but includes illegal aliens currently present in the United States that do not qualify for the amnesty programs in title VI, including aliens here for less than 2 years. Under the bill language, you can qualify for the new H-2C program to work as a low-skilled permanent immigrant, even if you are unlawfully present inside the United States today. The bill specifically says:

In determining the alien's admissibility as an H-2C nonimmigrant ..... paragraphs (5), (6)(A), (7), (9)(B), and (9) (C) of section 212(a) may be waived for conduct that occurred before the effective date. .....

By waving these grounds of inadmissibility, the new H-2C program is specifically intended to apply to illegal aliens who were already removed from the United States and illegally reentered.

The bill tells DHS to accept "just and reasonable inferences'' from day labor centers and the alien's "sworn declaration'' as evidence that the alien has met the amnesty's work requirement. Under the bill, the alien meets the "burden of proving by a preponderance of the evidence that the alien has satisfied the [work] requirements'' if the alien can demonstrate employment "as a matter of just and reasonable inference.'' An alien can present "conclusive evidence'' of employment in the United States by presenting documents from social security, IRS, employer, or a "union or day labor center.'' The bill then states that:

It is the intent of Congress that the [work] requirement ..... be interpreted and implemented in a manner that recognizes and takes into account the difficulties encountered by aliens in obtaining evidence of employment due to the undocumented status of the alien.

If these lax standards can't be met, the bill makes sure that the alien can get what they need by allowing them to submit "sworn declarations for each period of employment.'' Putting these together the alien must prove it is more likely than not that there is a just and reasonable inference that the alien was employed. I don't know what this means other than DHS will have to accept just about anything as proof of employment.

Regarding in-State tuition for illegal aliens, current law provides that:

[A]n alien who is not lawfully present in the United States shall not be eligible on the basis of residence within a State (or a political subdivision) for any postsecondary education benefit unless a citizen or national of the United States is eligible for such a benefit (in no less an amount, duration, and scope) without regard to whether the citizen or national is such a resident.

The DREAM Act would eliminate this provision and allow illegal alien college and university students to be eligible for in-state tuition without affording out-of-state citizen students the same opportunity. Thus, the University of Alabama could offer in-state tuition to illegal alien students while requiring citizens residing in Mississippi to pay the much higher out-of-state tuition rates.

Allowing all illegal aliens enrolled in college to receive in-state tuition rates means that while American citizens from 49 other states have to pay out-of-state tuition rates to send their kids to UVA, people who have illegally immigrated to this country might not. Out-of-state tuition rates range from 2 to 3 1/2 times the in-state resident tuition rate.

Regarding Federal financial aid for illegal aliens, while the Pell grants provision was removed from the bill, Stafford student loans and work study remains in.

Under title IV of the Higher Education Act of 1965, as amended, legal permanent residents and certain other eligible non-citizens are eligible to compete with American citizens for certain types of higher education assistance.

The DREAM Act makes illegal aliens eligible for several types of higher education assistance offered under the Higher Education Act--including Stafford student loans and work study programs.

There is another matter, another sleight of hand I suggest.

Amnesty both for legal aliens who have been here for more than 5 years, and those in the next category who are here from 2 to 5 years, don't really require that those aliens have to be continuously present in the United States. That is what it says in plain language.

It starts off that you have to be continuously present in the United States. But, once again, is that what it really means?

The bill allows these aliens to depart and to return after a brief departure. This allows illegal aliens who broke our laws by entering the United States and who have left and returned illegally perhaps multiple times--and each time violating our laws by entering the United States--to qualify for this amnesty.

I am not sure how these departures and illegal entries can be considered innocent since the illegal aliens broke U.S. laws by reentering. But it will absolve them from any of these multiple violations. That is a huge loophole.

This is even more important. An alien may not have had deep roots in our country. They may have spent a lot of their time away from our country. But they heard about this amnesty, and if they can get in the country, then they will say they have been here continuously, perhaps.

Somebody says: No. We found out you were back home.

He says: That was brief. I want my amnesty.

We object. I am going to take you to court, or you prove it, or I say I have been here. That is what I say. It is going to be very difficult to prove that.

There are provisions in the bill that deal with U.S. worker protections. The bill purports to protect U.S. workers from the flood of cheap labor that might occur by requiring employers to prove to the Department of Labor that good-faith efforts have been taken, first, to recruit U.S. workers for a job before they go out and hire someone from outside of our country. They ought to at least find out if there are American workers who want the job.

Then they are supposed to notify the Secretary of Labor and the Department of Homeland Security when one of these H-2C workers is "separated from employment.''

I am quoting that--"separated from employment'' requires notice.

We heard defenders of the bill say: Well, if you are not continuously working, they will notify the Department of Labor and you have to leave the country.

Have you heard that? You have to be continuously working, you can't be not working, or else you are not entitled to the benefits of this H-2C provision. The separation from employment notification is supposed to help the Department of Labor and Homeland Security know which people have been out of work, and if they are out of work under the bill for more than 60 days, their visas are supposed to be revoked.

OK. That is supposed to be a provision that makes sure people who come here are really working. Sounds good. But under the provisions of the bill, the term "separation from employment''--you can find that on page 236. As defined, the term means virtually zero.

As defined, "separation from employment is anything other than discharged for inadequate performance, violation of workplace rules, cause, voluntary departure, voluntary retirement, or expiration of a grant or contract.''

Furthermore, it does not include those situations where the worker is offered--even if they do not take it--another position by the same employer.

Is that what I just read to you? It is hard to believe--that you are supposed to notify them, except you don't need to notify them if they have left work, if they left work because they were discharged for inadequate performance, fired, or violation of workplace rules, or for just cause, or involuntary departure, involuntary retirement, or expiration of the contract. You don't have to notify them about those things.

What would you notify them for, pray tell? That is "flabber'' written. I submit whoever wrote this bill--it was not the Senators, I can assure you of that--ought to be ashamed of themselves.

That was a deliberate evisceration of what on the surface sounds like a legitimate provision, totally unenforceable. There is no way under this provision DHS or the Department of Labor will be provided information about people who have been terminated from employment.

Protections for U.S. workers--that is one of the goals the bill says it reaches. Under the bill, employers must prove that hiring an H-2C worker will not adversely affect the wages and working conditions of workers in the United States, and that they did not and will not cause separation from employment of a U.S. worker employed by an employer within the 180-day period beginning 90 days before this H-2C petition is filed.

Employers must also prove that they made good-faith efforts to recruit U.S. workers before they can hire an H-2C worker. That sounds good but, once again, things are not what they seem.

As defined on page 263 of the bill, a U.S. worker includes not only citizens, it includes legal alien workers. And, amazingly, it also includes aliens who are "otherwise authorized under this act to be employed in the United States.''

In other words, this provision provides protection for those who have been given legal status under amnesty, over and above, and provides them the same protection we provide to American citizens who are supposed to be given some protection against the flood of foreign labor.

You have heard the deal. You have heard it said that the people who come to get amnesty--this is almost humorous--have got to pay their taxes. That is part of some sort of punishment. They make it sound like, in some way, you earned the right to be forgiven of your crime by paying your taxes.

Everybody is supposed to pay their taxes. For heaven's sake, we are all supposed to pay taxes. This is nothing but doing what you would expect any American to do. But under the bill, things are, once again, not quite what their sponsors have said, or what the language might lead you to believe. You have to read it carefully.

Under the bill, an illegal alien who is getting amnesty only has to pay back taxes for the period of employment required in the INA, section 245(B)(A)(1)(d).

This is on page 347 of the bill, if people would like to look. These are actually just 3 of the 5 years between April 5, 2001, and April 5, 2002.

So the plain language of the bill doesn't require them to pay all their back taxes at all. They get an option to pick and choose which 3 years they want to pay their taxes. Presumably, they can forget and not pay the taxes for the high years. How silly is that?

This is really important. I think most Americans are pretty sophisticated. They know how the system works and the massive numbers we are talking about--the burden of proving payment of back taxes is on the Internal Revenue Service, pages 351 and 411. They have to prove it. How are they going to prove it? The IRS must prove that they owe the taxes. How will the IRS know if an illegal alien has worked off the books thereby avoiding paying any taxes?

This is really an utter joke. It is a promotion put forth by those in support of the bill that I have heard repeatedly--that somehow it is supposed to make us believe that people have earned their right to be forgiven for violating the law, and they only have to pay back 3 of the last 5 years in taxes.

What about American citizens? Do you think you can go down to Uncle Sam, Mr. President, and have 5 years of income and then be able to pick and choose which years you pay and you only pay 3 out of your last 5 years? Why don't we let every American citizen have this benefit? Why do we only give it to people who entered the country illegally? You tell me.

What about background checks? The bill requires the Department of Homeland Security to do them on illegal aliens. That is going to be exceedingly difficult. They are required to do it within 90 days. They have to protect our homeland. They have to handle all these provisions. I don't think it can ever be done. That may sound like something important is going to happen, that all the people here illegally will have their backgrounds checked promptly, but the truth is that is not going to get done in that timeframe.

How about fines? Let me state who they want to fine. A Federal agent, trying to do his duty to enforce the law and investigate fraudulent information provided by an illegal alien in their amnesty application, for law enforcement purposes, what happens to them if they take the amnesty application and actually examine it and find out it is fraudulent? What do they do? The agent would be fined $10,000. That fine, I note, is five times the amount the alien is able to post, $2,000, to get his amnesty from his illegal acts.

There is no reason in the world Federal law enforcement officers should be barred from investigating and utilizing amnesty applications to prosecute criminal activities in America. There is no reason this ought to be protected other than it looks to me that some clever lawyer has realized if they can get this in the bill people can file false amnesty applications all day and no one will ever be able to investigate. Isn't that horrible? That is what it looks like to me. Is that a sneaky lawyer trick? I ask you to make that judgment. It does not sound good to me.

Page 363 of the bill. Look it up.

How about the employers? They get tax amnesty. Employers of aliens applying for adjustment of status--amnesty--"shall not be subject to civil and criminal tax liability relating directly to the employment of such an alien.'' That means a business that hired illegal workers does not have to pay the taxes they should have paid. Why? This encourages employers to violate our tax laws and not pay what they owe the Federal Government. They are excusing these employers and giving them amnesty from not withholding taxes. That is a very bad thing. Every American business knows they have to pay their withholding taxes.

What about two small businesses, one hiring illegal aliens not paying Social Security, not paying withholding to the Government, and paying some low wage, and another one across the street doing all the right things, hiring American citizens, perhaps paying higher wages and withholding money and sending his Social Security money to the Federal Government, what message does that send to the good guy, to give complete amnesty to the guy who has manipulated the system and gotten away perhaps with tens of thousands of dollars in benefits that his competitor did not get?

You cannot play games with the law like this. You cannot pick and choose people and allow them unilaterally to not have to pay their taxes.

What about illegal alien protection? The alien and their families who file applications for amnesty "shall not be detained, determined inadmissible, deported, or removed until their applications are finally adjudicated, unless they commit a future act that renders them ineligible with amnesty.'' With tens of millions of applications, this amnesty, this provision essentially guarantees an illegal alien years of protection in the United States, even if they do not qualify for the amnesty.

We hear they have to pay the fine, the $2,000 fine, but it is not due right away. For those in the amnesty program, illegal aliens are supposed to pay a fine of $2,000. However, the way the bill is written, many illegal aliens may not have to pay the fine for 8 years. The bill says that the $2,000 fine has to be paid "prior to adjudication.'' It is not required at the first. If it is left the way it is, the illegal alien can live, work and play in our country and not pay a cent of his fine for years. Perhaps they may even decide they do not want to pay it at all. This puts a financial burden on local taxpayers for the health, education, and the infrastructure costs that are not reimbursed for about 5 or 10 years.

There are a number of other items. However, it is late; I will make these remarks part of the RECORD and will not belabor these points.

It is clear the people who drafted this legislation had an agenda and the agenda was not to meet the expectations of the American people. The agenda was to create a facade and appearance of enforcement, an appearance of toughness in some instances. When you get into the meat of the provisions and get into the bill and study it, tucked away here and there are laws that eviscerate and eliminate the real effectiveness of those provisions. It was carefully done and deliberately done. This is a bill that should not become law. It is a bill that will come back to be an embarrassment to our Members who have supported it. I wish it were not so. I know how these things happen. You do not always have time to do everything you want to do. You try to do something you think is right, but ultimately in a bill as important as this one that has tremendous impact on the future of our country and our legal system and our commitment to the rule of law, we ought to get it right. We ought not to let this one slide by. It is not acceptable to say, let's just pass something and we will send it to the House and maybe the House of Representatives will stand up and stop it and fix it. That is not acceptable for the great Senate of the United States.

I strongly believe we are not ready to pass the bill. We are not ready to give it final consideration. I strongly believe it is a horrendous violation of the Committee on the Budget and that it is, as Mr. Rector said, a fiscal catastrophe if passed, and as such we ought not to waive the Budget Act but pull the bill from the floor and fix it.

Here is earlier speech Senator Sessions gave on the illegal immigration bill. It also deserves a close reading.

Why are we doing this to ourselves?

Senator Grassley's Top 10 Flaws in Immigration Bill

Many of us have explicit reasons and some intuitive worries about the illegal immigration bill currently being debated in the Senate. Here is the first of several postings which will attempt to characterize the flaws in the bill - from people who should know.

Senator Charles Grassley (R-Iowa) has issued a press release in which he spells out his Top 10 Flaws with the Illegal Immigration Bill:

Sen. Chuck Grassley today said the immigration reform bill being debated in the U.S. Senate is riddled with loopholes and flaws. During a speech on the Senate floor, he outlined for the American people nearly 30 flaws within only two sections of the bill.

"I was burned once in 1986 when I voted for amnesty believing that it would solve our problems. Now, we have a 12 million illegal immigrant problem. I'm not getting burned again," Grassley said. "Not only do we have a glide path to citizenship, but it's a glide path with plenty of loopholes that don’t meet the common sense test."...

Here is a list of Grassley’s "Top 10."

1. $2,000 Fine -- Under the bill, an illegal alien can go from illegal to legal by paying a small fine of $2,000. Often, illegal aliens will pay more than five times this amount to a smuggler to get across the border. Also, the $2000 fine may not have to be paid until year eight, which allows the illegal alien to live, work, and play in the United States for years free from deportation. This imposes a financial burden on the American taxpayer for health, education, and infrastructure costs that aren’t reimbursed for five or ten years.

2. Taxes -- Under the bill, illegal aliens get an option to only have to pay three of their last five years in back taxes. Law-abiding American citizens do not have the option to pay some of their taxes. The bill would treat lawbreakers better than the American people. The bill also makes the IRS prove that illegal aliens have paid their back taxes. It will be impossible for the IRS to truly enforce this because they cannot audit every single person in this country.

3. Security Clearances in 90 days – Under the bill, the Department of Homeland Security must perform background checks on illegal aliens in the United States. It also encourages the federal government to complete the background checks on 10 million illegal aliens in 90 days. This is a national security concern because Homeland Security will be pressured to complete these checks without doing a thorough job.

4. Work Requirements – Under the bill, illegal aliens must prove they’ve worked in the United States for three of the last five years. It also says they have to work for six years after the date of enactment of the bill. However, there is no continuous work requirement for amnesty. They could work for 30 days, take off 30 days, work for 30 days. The bill also says that illegal aliens have to prove that they’ve worked in the United States for three of the last five years by showing IRS or Social Security records, or records maintained by federal, state, or local governments, employers, unions or day labor centers. However, the bill also allows illegal aliens to ask anybody to attest that they have been employed. This invites fraud, and the government cannot realistically investigate all these cases.

5. Confidentiality – Under the bill, if an illegal alien applies for amnesty, the federal government cannot use information provided in the application for anything but adjudicating the petition. For example, if illegal aliens write in their applications that they are related to Osama Bin Laden, then our government cannot use that information. In fact, it says that the Secretary of Homeland Security can only share that information if someone requests it in writing. This provision severely handicaps national security and criminal investigators.

Also, if a federal agent does use information provided by an illegal alien in an application for amnesty the agent would be fined $10,000. This is five times more than the alien has to pay to get amnesty.

6. Social Security to illegal aliens -- Under the bill, illegal aliens are not prohibited from getting credit for the money they’ve put into the Social Security system if they’ve worked in the U.S. illegally. Illegal immigrants who paid Social Security taxes using a stolen Social Security Number did not do so with the expectation that they would ever qualify for Social Security benefits. (The Ensign amendment would have taken care of this, but it did not pass.)

7. Employers get a tax pardon for hiring illegal aliens -- Under the bill, employers of aliens applying for adjustment of status “shall not be subject to civil and criminal tax liability relating directly to the employment of such alien.” Businesses that hired illegal workers would now get off scott-free from paying the taxes that they owe the government. This encourages employers to violate our tax laws and not pay what they owe the federal government. In addition to not having to pay their taxes, employers are also off the hook for providing illegal aliens with records or evidence that they have worked in the U.S. The employer is not subject to civil and criminal liability for having employed illegal aliens in the past, or before enactment.

8. Family Members of H-2C Visa Holder need not be healthy -- Under the bill, spouses and children of H-2C visa holders are exempt from a requirement proving that they meet certain health standards. The visa holder is required to undergo a medical exam, but their family members are not which potentially puts Americans at risk.

9. Mandatory Departure isn’t really Mandatory -- Under the bill, the Secretary of Homeland Security “may grant” Deferred Mandatory Departure to illegal aliens in the 2-5 year category. The Secretary “may” also waive the departure requirement if it would create substantial hardship for the alien to leave.

10. No Interview Required. – Under the bill, illegal aliens in the 2nd tier who are required to leave the country can re-enter the United States on a visa. However, the bill does not require these individuals do not have to be interviewed. The bill doesn’t give discretion to our consular offices to require an interview. The 9/11 hijackers weren’t subject to appear in person. Today, the State Department requires most applicants to submit to interviews, and waives them only for children and the elderly.

Why are we doing this to ourselves?

Economic Thoughts, Part VI: More on the Relationship Between Economic Freedom and Political Freedom

This posting is Part VI in a series of postings about economic thoughts.

This posting contains excerpts from Chapter 1 of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he continues a discussion about the relationship between economic freedom and political freedom:

It is widely believed that politics and economics are separate and largely unconnected; that individual freedom is a political problem and material welfare an economic problem...The thesis of this chapter is that such a view is a delusion...

Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensible means toward the achievement of political freedom.

The first of these roles of economic freedom needs special emphasis because intellectuals in particular have a strong bias against regarding this aspect of freedom as important...

Viewed as a means to the end of political freedom, economic arrangements are important because of their effect on the concentration or dispersion of power...competitive capitalism also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other...

Because we live in a largely free society, we tend to forget how limited is the span of time and the part of the globe for which there has ever been anything like political freedom: the typical state of mankind is tyranny, servitude, and misery. The nineteenth century and early twentieth century in the Western world stand out as striking exceptions to the general trend of historical development. Political freedom in this instance clearly came along with the free market and the development of capitalist institutions...

History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition...

The relation between political and economic freedom is complex and by no means unilateral...

As [nineteenth-century, not twentieth-century] liberals, we take freedom of the individual, or perhaps the family, as our ultimate goal in judging social arrangements. Freedom as a value in this sense has to do with the interrelationship between people...in a society freedom has nothing to say about what an individual does with his freedom; it is not an all-embracing ethic...a major aim of the liberal is to leave the ethical problem for the individual to wrestle with. The "really" important ethical problems are those that face an individual in a free society - what he should do with his freedom. There are thus two sets of values that a liberal will emphasize - the values that are relevant to relations among people, which is the context in which he assigns first priority to freedom; and the values that are relevant to the individual in the exercise of his freedom, which is the realm of individual ethics and philosophy.

The liberal conceives of men as imperfect human beings. He regards the problem of social organizations to be as much a negative problem of preventing "bad" people from doing harm as of enabling "good" people to do good...

The basic problem of social organization is how to co-ordinate the economic activities of large numbers of people. Even in relatively backward societies, extensive division of labor and specialization of function is required to make effective use of available resources. In advanced societies, the scale...is enormously greater...The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom.

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion - the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals - the technique of the market place.

The possibility of co-ordination through voluntary co-operation rests on the elementary - yet frequently denied - proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.

Exchange can therefore bring about co-ordination without coercion...

Specialization of function and division of labor would not go far if the ultimate productive unit were the household. In a modern society, we have gone much farther. We have introduced enterprises which are intermediaries between individuals in their capacities as suppliers of service and as purchasers of goods...money has been introduced as a means of facilitating exchange, and of enabling the acts of purchase and of sale to be separated into two parts...

...so in the complex enterprise and money exchange economy, co-operation is strictly individual and voluntary provided: (a) that enterprises are private, so that the ultimate contracting parties are individuals and (b) that individuals are effectively free to enter or not to enter into any particular exchange, so that every transaction is strictly voluntary...

The basic requisite is the maintenance of law and order to prevent physical coercion of one individual by another and to enforce contracts voluntarily entered into, thus giving substance to "private." Aside from this, perhaps the most difficult problems arise from monopoly...and from "neighborhood effects." [These problems will be addressed in a subsequent posting.]...

...the central feature of the market organization of economic activity is that it prevents one person from interfering with another in respect of most of his activities. The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers to whom he can sell. The employee is protected from coercion by the employer because of other employers for whom he can work, and so on...the market does this impersonally and without centralized authority.

Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity...

...Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce...The preservation of freedom requires the elimination of such concentration of power to the fullest extent and the dispersal and distribution of whatever power cannot be eliminated - a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

Economic power can be widely dispersed...Political power, on the other hand, is more difficult to decentralize...if economic power is joined to political power, concentration seems almost inevitable. On the other hand, if economic power is kept in separate hands from political power, it can serve as a check and a counter to political power...

In a capitalist society, it is only necessary to convince a few wealthy people to get funds to launch any idea, however strange, and there are many such persons, many independent foci of support...

...the market breaks the vicious cycle and makes it possible ultimately to finance such ventures by small amounts from many people without first persuading them. There are no such possibilities in the socialist state; there is only the all-powerful state...

...freedom to advocate unpopular causes does not require that such advocacy be without cost. On the contrary, no society could be stable if advocacy of radical change was costless, much less subsidized. It is entirely appropriate that men make sacrifices to advocate causes in which they deeply believe. Indeed, it is important to preserve freedom only for people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility. What is essential is that the cost of advocating unpopular causes be tolerable and not prohibitive.

But we are not through yet. In a free market society, it is enough to have the funds...In a socialist society, it would not be enought to have the funds. The hypothetical supporter of socialism would have to persuade [various governmental agencies to provide materials and rights to him]...

...What is clear, however, is that there are very real difficulties in establishing institutions that will effectively preserve the possibility of dissent...none of the people who have been in favor of socialism and also in favor of freedom have really faced up to this issue, or made even a respectable start at developing the institutional arrangements that would permit freedom under socialism. By contrast, it is clear how a free market capitalist society fosters freedom.

No one who buys bread knows whether the wheat from which it is made was grown by a Communist or a Republican, by a constitutionalist or a Fascist, or, for that matter, by a Negro or a white. This illustrates how an impersonal market separates economic activities from political views and protects men from being discriminated against in their economic activities for reasons that are irrelevant to their productivity - whether these reasons are associated with their views or their color.

As this example suggests, the groups in our society that have the most at stake in the preservation and strengthening of competitive capitalism are those minority groups which can most easily become the object of the distrust and enmity of the majority...

Part VII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom

Economic Thoughts, Part VI: More on the Relationship Between Economic Freedom and Political Freedom

This posting is Part VI in a series of postings about economic thoughts.

This posting contains excerpts from Chapter 1 of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he continues a discussion about the relationship between economic freedom and political freedom:

It is widely believed that politics and economics are separate and largely unconnected; that individual freedom is a political problem and material welfare an economic problem...The thesis of this chapter is that such a view is a delusion...

Economic arrangements play a dual role in the promotion of a free society. On the one hand, freedom in economic arrangements is itself a component of freedom broadly understood, so economic freedom is an end in itself. In the second place, economic freedom is also an indispensible means toward the achievement of political freedom.

The first of these roles of economic freedom needs special emphasis because intellectuals in particular have a strong bias against regarding this aspect of freedom as important...

Viewed as a means to the end of political freedom, economic arrangements are important because of their effect on the concentration or dispersion of power...competitive capitalism also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other...

Because we live in a largely free society, we tend to forget how limited is the span of time and the part of the globe for which there has ever been anything like political freedom: the typical state of mankind is tyranny, servitude, and misery. The nineteenth century and early twentieth century in the Western world stand out as striking exceptions to the general trend of historical development. Political freedom in this instance clearly came along with the free market and the development of capitalist institutions...

History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition...

The relation between political and economic freedom is complex and by no means unilateral...

As [nineteenth-century, not twentieth-century] liberals, we take freedom of the individual, or perhaps the family, as our ultimate goal in judging social arrangements. Freedom as a value in this sense has to do with the interrelationship between people...in a society freedom has nothing to say about what an individual does with his freedom; it is not an all-embracing ethic...a major aim of the liberal is to leave the ethical problem for the individual to wrestle with. The "really" important ethical problems are those that face an individual in a free society - what he should do with his freedom. There are thus two sets of values that a liberal will emphasize - the values that are relevant to relations among people, which is the context in which he assigns first priority to freedom; and the values that are relevant to the individual in the exercise of his freedom, which is the realm of individual ethics and philosophy.

The liberal conceives of men as imperfect human beings. He regards the problem of social organizations to be as much a negative problem of preventing "bad" people from doing harm as of enabling "good" people to do good...

The basic problem of social organization is how to co-ordinate the economic activities of large numbers of people. Even in relatively backward societies, extensive division of labor and specialization of function is required to make effective use of available resources. In advanced societies, the scale...is enormously greater...The challenge to the believer in liberty is to reconcile this widespread interdependence with individual freedom.

Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion - the technique of the army and of the modern totalitarian state. The other is voluntary co-operation of individuals - the technique of the market place.

The possibility of co-ordination through voluntary co-operation rests on the elementary - yet frequently denied - proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed.

Exchange can therefore bring about co-ordination without coercion...

Specialization of function and division of labor would not go far if the ultimate productive unit were the household. In a modern society, we have gone much farther. We have introduced enterprises which are intermediaries between individuals in their capacities as suppliers of service and as purchasers of goods...money has been introduced as a means of facilitating exchange, and of enabling the acts of purchase and of sale to be separated into two parts...

...so in the complex enterprise and money exchange economy, co-operation is strictly individual and voluntary provided: (a) that enterprises are private, so that the ultimate contracting parties are individuals and (b) that individuals are effectively free to enter or not to enter into any particular exchange, so that every transaction is strictly voluntary...

The basic requisite is the maintenance of law and order to prevent physical coercion of one individual by another and to enforce contracts voluntarily entered into, thus giving substance to "private." Aside from this, perhaps the most difficult problems arise from monopoly...and from "neighborhood effects." [These problems will be addressed in a subsequent posting.]...

...the central feature of the market organization of economic activity is that it prevents one person from interfering with another in respect of most of his activities. The consumer is protected from coercion by the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of other consumers to whom he can sell. The employee is protected from coercion by the employer because of other employers for whom he can work, and so on...the market does this impersonally and without centralized authority.

Indeed, a major source of objection to a free economy is precisely that it does this task so well. It gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does not of course eliminate the need for government. On the contrary, government is essential both as a forum for determining the "rules of the game" and as an umpire to interpret and enforce the rules decided on. What the market does is reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity...

...Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce...The preservation of freedom requires the elimination of such concentration of power to the fullest extent and the dispersal and distribution of whatever power cannot be eliminated - a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

Economic power can be widely dispersed...Political power, on the other hand, is more difficult to decentralize...if economic power is joined to political power, concentration seems almost inevitable. On the other hand, if economic power is kept in separate hands from political power, it can serve as a check and a counter to political power...

In a capitalist society, it is only necessary to convince a few wealthy people to get funds to launch any idea, however strange, and there are many such persons, many independent foci of support...

...the market breaks the vicious cycle and makes it possible ultimately to finance such ventures by small amounts from many people without first persuading them. There are no such possibilities in the socialist state; there is only the all-powerful state...

...freedom to advocate unpopular causes does not require that such advocacy be without cost. On the contrary, no society could be stable if advocacy of radical change was costless, much less subsidized. It is entirely appropriate that men make sacrifices to advocate causes in which they deeply believe. Indeed, it is important to preserve freedom only for people who are willing to practice self-denial, for otherwise freedom degenerates into license and irresponsibility. What is essential is that the cost of advocating unpopular causes be tolerable and not prohibitive.

But we are not through yet. In a free market society, it is enough to have the funds...In a socialist society, it would not be enought to have the funds. The hypothetical supporter of socialism would have to persuade [various governmental agencies to provide materials and rights to him]...

...What is clear, however, is that there are very real difficulties in establishing institutions that will effectively preserve the possibility of dissent...none of the people who have been in favor of socialism and also in favor of freedom have really faced up to this issue, or made even a respectable start at developing the institutional arrangements that would permit freedom under socialism. By contrast, it is clear how a free market capitalist society fosters freedom.

No one who buys bread knows whether the wheat from which it is made was grown by a Communist or a Republican, by a constitutionalist or a Fascist, or, for that matter, by a Negro or a white. This illustrates how an impersonal market separates economic activities from political views and protects men from being discriminated against in their economic activities for reasons that are irrelevant to their productivity - whether these reasons are associated with their views or their color.

As this example suggests, the groups in our society that have the most at stake in the preservation and strengthening of competitive capitalism are those minority groups which can most easily become the object of the distrust and enmity of the majority...

Part VII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom

Pork Dependence

From a Joseph Fitzgerald article in the Woonsocket Call…

U.S. Sen. Lincoln Chafee Monday said the community’s hard work to restore the vintage Stadium Theatre Performing Arts Centre should not suffer any loss of momentum by the need to install an expensive new fire suppression system as mandated by the state.

While acknowledging the need to comply with state mandates resulting from increased fire safety code regulations, Chafee is hoping the cost for the Stadium Theatre to meet those requirements will be addressed with the help of a $250,000 appropriations request he submitted last month to help pay for the new system.

Senator Chafee has promised to put funding for the Stadium Theatre on a fast-track…

Chafee submitted the funding request to Sen. Christopher Bond, chairman of the Senate Transportation-HUD Appropriations Subcommittee. Funding would come from HUD’s Economic Development Initiative grant program…

"I’ve put a high priority on this request," said Chafee, who was appointed by former governor Lincoln Almond in November 1999 to fill the unexpired Senate term of his late father, Sen. John H. Chafee. "So many people and volunteers worked hard to make this restoration project a reality."

Yes, it is good that the Stadium Theatre will receive the resources it needs to meet the fire code. But wouldn’t it be good if facilities without the right political connections could have the resources to bring their buildings up to code too?

When people are forced to send a large portion of their income to the Federal government, some of it does make it back to them in forms like a $250,000 grant to Woonsocket or a $200,000 grant to the Westerly animal shelter. But a lot more of it is lost to items like a $750,000,000 grant to move a perfectly functional railroad to where casino owners want it, or a $500,000,000 grant to pay for corporate losses already covered by insurance, or a $3,000,000,000 grant to pay for digital-to-analog TV converters.

As long as spending is controlled by a remote Federal government, the allocation of resources will be determined too much by the needs and whims of the remote politicians who control the money, and not enough by the needs of the citizens and communities who have sent their money away. The only way to prevent this is to let local communities keep control of more of their resources by reducing the Federal tax burden.

Barney Frank: Defender of Free Markets

On the heels of George McGovern's defense of big business, we have Barney Frank extolling the virtues of a free market in the face of GOP reluctance to cut agricultural subsidies. (Via Instapundit -> Club for Growth).

Mr. Chairman, I am here to confess my reading incomprehension. I have listened to many of my conservative friends talk about the wonders of the free market, of the importance of letting the consumers make their best choices, of keeping government out of economic activity, of the virtues of free trade, but then I look at various agricultural programs like this one. Now, it violates every principle of free market economics known to man and two or three not yet discovered.

So I have been forced to conclude that in all of those great free market texts by Ludwig von Mises, Friedrich Hayek and all the others that there is a footnote that says, by the way, none of this applies to agriculture. Now, it may be written in high German, and that may be why I have not been able to discern it, but there is no greater contrast in America today than between the free enterprise rhetoric of so many conservatives and the statist, subsidized, inflationary, protectionist, anti-consumer agricultural policies, and this is one of them.

In particular, I have listened to people, and some of us have said let us protect workers and the environment in trade; let us not have unrestricted free trade; but let us have trade that respects worker rights and environmental rights. And we have been excoriated for our lack of concern for poor countries.

There is no greater obstacle, as it is now clear in the Doha round, to the completion of a comprehensive trade policy than the American agricultural policy, with one exception, European agricultural policy, which is much worse and just as phony.

Sugar is an example. This program is an interference with the legitimate efforts at economic self-help in many foreign nations.

Wow, is this Bizzaro World? Or has another blind squirrel found a nut?

George McGovern Advises Unions: Stop Asking for "More"

This can be filed under "Don't kill the goose that lays the golden egg." Paragon of the Left, George McGovern has just such a warning:

I have always been a supporter of the labor movement. Unions have a proud legacy of improving the lives of millions of workers over the last century.

But lately I have seen developments that have me worried. And I have been reminded of legendary union leader John L. Lewis, who was once asked what his miners were after. His answer? "More."

It was a funny answer, and perhaps it was honest too. But these days, it's not a very effective strategy, and we are seeing some unfortunate and unintended consequences of Lewis' "more" philosophy.

McGovern lists the problems with Delphi Corp. as well as U.S. auto makers and the airlines. McGovern also explains (As Don has previously explained on our own pages) that the financial problems for older companies is:

...driven in large part by the compensation packages and work rules that unions have won for their members, which are too expensive compared to [newer companies].... "More" has, unfortunately, become "too much" in a global and far more competitive economy.

Many of my friends will consider this view heretical. But it is based on stark reality. Some progressive union leaders, facing this economic reality, have come to the same conclusion. Others are holding fast. Their behavior is partially a function of internal politics — and sheer habit. Not unlike members of Congress, union leaders are in the business of asking for more. That's what their mentors and predecessors and heroes did. It's very difficult to turn around and say that "more" is not always possible.

He even (gasp) defends Wal-Mart:

It can be galling to hear companies argue that they have to cut wages and benefits for hourly workers — even as they reward top executives with millions of dollars in stock options. The chief executive of Wal-Mart earns $27 million a year, while the company's average worker takes home only about $10 an hour. But let's assume that the chief executive got 27 cents instead of $27 million, and that Wal-Mart distributed the savings to its hourly workers. They would each receive a bonus of less than $20. It's not executive pay that has created this new world. [Emphasis added.]

He adds that--despite its size--Wal Mart only makes less than 4 cents on the dollar with it's thin profit-margin (low prices, high volume), which is the norm for many businesses, both large and small. As McGovern explains, low prices only work with low labor costs and so far consumers (and job applicants to Wal Mart) don't seem to mind. McGovern--who also believes that universal health coverage is better than the current employer-centric model--wraps up the piece with this advice:

Liberals must never abandon their core principles of justice and equality. But union leaders who still see American businesses as the enemy must update that vision.

I wonder if any other progressives will listen? [NB: Michael Barone has some thoughts, too.]

Charles Rappleye, The Sons of Providence, Slavery, and American History

In his book titled Sons of Providence, author Charles Rappleye tells the story of two brothers, John and Moses Brown, who figure prominently in early Rhode Island history. Both men were involved in many aspects of the early commercial and economic development of Rhode Island, but there was a sharp contrast between the two. John Brown engaged in and defended the slave trade throughout his life, while Moses Brown was a leader in the early abolitionist movement.

Mr. Rappleye is interesting both to read and to listen to (Marc and I recently attended a lecture he presented on his book sponsored by the Providence chapter of the NAACP and the Rhode Island Black Heritage Society) because of his impressive command of the different levels of the story he is telling. His work is fully aware that the story of the Brown brothers is important because it is a part of the long shadow that slavery casts on American history. But Rappleye is equally clear that John and Moses Brown are not mere prisoners of the events of their time; the individual decisions they make for personal, human reasons shape and drive the events of the period -- events that include the American revolution and the formation of the American form of government.

Here are just a few of the interesting points that Mr. Rappleye presents...

• Not only was the slave trade very important to the economy of colonial Rhode Island, but there was also substantial slaveholding here. At one point in the mid-1700s, about 15% of Newport's population was comprised of slaves.
• Moses Brown took up the abolitionist cause after the death of his wife Anna, believing that God had taken her as punishment for his sins, and that he had to work to eradicate slavery as his atonement.
• Moses Brown wrote the first Federal law banning slave trading. The first person convicted under the law was his brother John.
• John Brown was the original Robert Healey (not for reasons related to the slave trade) -- he was elected to Congress even though he didn't really believe in the Federal government. While in Congress, John bucked the common practice of the time of ignoring slavery in civic dicussions and offered the first public, affirmative defense of the slave trade.

After his presentation, Anchor Rising had the chance to ask a few questions to Charles Rappleye...

Anchor Rising: Can you tell us some more about how the story of Moses Brown and abolitionism combines two distinct strands; on the one hand, you have the philosophy of liberty growing out of the rationalistic enlightenment; on the other, you have Moses Brown converting to Quakerism and talking up abolition after a passionate religious experience following the death of his wife...

Charles Rappleye: The first three generations of Moses Brown's five generations in Rhode Island were all Baptist preachers. His father James was a merchant and not a preacher. For Moses to convert from the Baptist faith was a big break with his family. As I describe in the book, as I see it in my mind, he was listening to his religious side, his religious core, whereas John and the other members of the family were kind of just going along.

I do talk, for more than my editor wanted me to, about how the Quakers were alone in talking about slavery and becoming abolitionists long before anybody else. Their tradition of abolitionism was about 50 years old. It was really reaching a crescendo just as this rhetoric of liberty and freedom started breaking out. Abolitionism went from a heretical fringe idea to the popular idea of the day, a popular movement that had the support of most people, certainly in the North, in a period of about three years, which is remarkable.

It was the Quaker influence connected with the revolution rhetoric, even though the Quakers were against the revolution because they were pacifists. But that idea of anti-slavery really caught on. Before I wrote the book, I hadn't known that there was an early phase to the abolition movement, I thought it was more the William Lloyd Garrison kinds of activities going on in the 1820s, 30s and 40s.

It is kind of tragic. There was this moment where abolitionism was popular and slavery unpopular right around the time of the writing of the Constitution, but it was the economic interests, and not the popular sentiment, that prevailed at the conference that wrote that document.

AR: At that time, how radical was an idea like "everyone is equal"?

CR: That was an idea that was on the fringes, although some colonies were fairly democratic. Rhode Island was the most democratic. Some people considered it to be their big flaw. There was one guy who called it a "downright democracy". He was one of the members of the commission that was assembled to hear the evidence of the burining of the Gaspee. In 1772, they're still saying "it's a downright democracy around here".

Democracy was coming into vogue, but was certainly not universally accepted like it is now.

AR: From your work, do you get a sense of whether the appeal of abolitionism was something that was universal, or something unique to the American experience, or something that grew out of European ideas?

CR: Abolitionism was an American product. At the same time, America, as time went on, became the largest slaveholding enterprise in the world. Abolitionism really did start here and caught on here. The Quakers were pushing it in England it at the same time as the ideas of the enlightenment were catching on there as well.

Britain passed their abolitionist legislation after the stuff that was written by Moses Brown and then they became the enforcers of the ban on the Slave trade. That was actually an issue in the War of 1812. The British insisted on the right to search on the high seas because they wanted to search cargoes of the American ships coming out from Africa to search for slaves. The Americans were saying you have no right to search us and no, we're not in violation, whether they had slaves on them or not.

But the prohibition on Slave trading that Moses Brown wrote that passed the legislature in 1787 was the first prohibition on Slave trading anywhere in the world.

ADDITIONAL INFORMATION:

Marc gives his thoughts on Sons of Providence and Charles Rappleye's discussion of it over at Spinning Clio.

Economic Thoughts, Part V: The Relationship between Economic Freedom and Political Freedom

This posting is Part V in a series of postings about economic thoughts.

This posting contains excerpts from the Introduction of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he begins a discussion about the relationship between economic freedom and political freedom:

...The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and, above all, to protect our freedom? And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?...the greatest threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom...

How can we benefit from the promise of government while avoiding the threat to freedom? Two broad principles embodied in our Constitution give an answer...

First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets...By relying primarily on voluntary co-operation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the governmental sector...

The second broad principle is that government power must be dispersed...If government is to exercise power, better in the county than in the state, better in the state than in Washington. If I do not like what my local community does...I can move to another local community, and though few may take this step, the mere possibility acts as a check...If I do not like what Washington imposes, I have few alternatives in this world of jealous nations...

...The power to do good is also the power to do harm; those who control the power today may not tomorrow; and, more important, what one man regards as good, another may regard as harm...

The preservation of freedom is the protective reason for limiting and decentralizing governmental power. But there is also a constructive reason. The great advances of civilization...have never come from centralized government...[Columbus, Newton, Leibnitz, Einstein, Bohr, Shakespeare, Milton, Pasternak, Whitney, McCormick, Edison, Ford, Nightingale, Schweitzer] achievements were the product of individual genius, of strongly held minority views, of a social climate permitting variety and diversity.

Government can never duplicate the variety and diversity of individual action...

This book's...major theme is the role of competitive capitalism - the organization of the bulk of economic activity through private enterprise operating in a free market - as a system of economic freedom and a necessary condition for political freedom...

As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in the society. It supported laissez faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supported free trade abroad as a means of linking the nations of the world together peacefully and democratically. In political matters, it supported the development of representative government and of parliamentary institutions, reduction in the arbitrary power of the state, and protection of the civil freedoms of individuals...

...especially after 1930 in the United States, the term liberalism came to be associated with a very different emphasis...The catchwords became welfare and equality rather than freedom. The nineteenth-century liberal regarded an extension of freedom as the most effective way to promote welfare and equality; the twentieth-century liberal regards welfare and equality as either prerequisites of or alternatives to freedom. In the name of welfare and equality, the twentieth-century liberal has come to favor...state intervention and paternalism...

...Jealous of liberty, and hence fearful of centralized power, whether in governmental or private hands, the nineteenth-century liberal favored political decentralization. Committed to action and confident of the beneficence of power as long as it is in the hands of a government ostensibly controlled by the electorate, the twentieth-century liberal favors centralized government. He will resolve any doubt about where power should be located in favor of the state instead of the city, of the federal government instead of the state, and of a world organization instead of a national government...

Part VI to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations

Economic Thoughts, Part V: The Relationship Between Economic Freedom and Political Freedom

This posting is Part V in a series of postings about economic thoughts.

This posting contains excerpts from the Introduction of Nobel Laureate Milton Friedman's 1962 classic book, Capitalism & Freedom in which he begins a discussion about the relationship between economic freedom and political freedom:

...The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and, above all, to protect our freedom? And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?...the greatest threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom...

How can we benefit from the promise of government while avoiding the threat to freedom? Two broad principles embodied in our Constitution give an answer...

First, the scope of government must be limited. Its major function must be to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets...By relying primarily on voluntary co-operation and private enterprise, in both economic and other activities, we can insure that the private sector is a check on the powers of the governmental sector...

The second broad principle is that government power must be dispersed...If government is to exercise power, better in the county than in the state, better in the state than in Washington. If I do not like what my local community does...I can move to another local community, and though few may take this step, the mere possibility acts as a check...If I do not like what Washington imposes, I have few alternatives in this world of jealous nations...

...The power to do good is also the power to do harm; those who control the power today may not tomorrow; and, more important, what one man regards as good, another may regard as harm...

The preservation of freedom is the protective reason for limiting and decentralizing governmental power. But there is also a constructive reason. The great advances of civilization...have never come from centralized government...[Columbus, Newton, Leibnitz, Einstein, Bohr, Shakespeare, Milton, Pasternak, Whitney, McCormick, Edison, Ford, Nightingale, Schweitzer] achievements were the product of individual genius, of strongly held minority views, of a social climate permitting variety and diversity.

Government can never duplicate the variety and diversity of individual action...

This book's...major theme is the role of competitive capitalism - the organization of the bulk of economic activity through private enterprise operating in a free market - as a system of economic freedom and a necessary condition for political freedom...

As it developed in the late eighteenth and early nineteenth centuries, the intellectual movement that went under the name of liberalism emphasized freedom as the ultimate goal and the individual as the ultimate entity in the society. It supported laissez faire at home as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual; it supported free trade abroad as a means of linking the nations of the world together peacefully and democratically. In political matters, it supported the development of representative government and of parliamentary institutions, reduction in the arbitrary power of the state, and protection of the civil freedoms of individuals...

...especially after 1930 in the United States, the term liberalism came to be associated with a very different emphasis...The catchwords became welfare and equality rather than freedom. The nineteenth-century liberal regarded an extension of freedom as the most effective way to promote welfare and equality; the twentieth-century liberal regards welfare and equality as either prerequisites of or alternatives to freedom. In the name of welfare and equality, the twentieth-century liberal has come to favor...state intervention and paternalism...

...Jealous of liberty, and hence fearful of centralized power, whether in governmental or private hands, the nineteenth-century liberal favored political decentralization. Committed to action and confident of the beneficence of power as long as it is in the hands of a government ostensibly controlled by the electorate, the twentieth-century liberal favors centralized government. He will resolve any doubt about where power should be located in favor of the state instead of the city, of the federal government instead of the state, and of a world organization instead of a national government...

Part VI to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations

Pre-Lapsed

I love this part of Marc's post:

... Michaud also revealed that he was paid $80,000 by Beacon as a consultant and that he was unaware that he should have announced as such when he testified in front of the General Assembly as an expert witness earlier this year.

It brings to mind the movie version of The World According to Garp (I don't remember whether the book has a corresponding scene): Garp is house hunting with his wife, and he insists on buying one that is hit by a plane right before their eyes, saying, "It's been pre-disastered. We're going to be safe here."

In Rhode Island, it isn't inconceivable that voters would feel safer with politicians who are "pre-ethical-lapsed." They've already learned their lesson... right?

Dennis Michaud Makes it Official

Dan Yorke is providing information (here is audio from Yorke's site) about today's announcement by Dennis Michaud that he will be running against Governor Carcieri in the GOP gubernatorial primary. It goes without saying that he won't be getting the support of the official RIGOP leadership, at least according to RIGOP Chair Patricia Morgan.

Michaud is sticking to his claim that former RIGOP leaders (speculation alert: John Holmes and/or Jim Bennett, according to Yorke) encouraged him, despite their public protestations. He also disputed Morgan's contention that past RIGOP Chairmen hadn't encouraged him, saying some of the names being passed around by Morgan as not being involved were indeed involved.

When questioned by Yorke as to why he wouldn't reveal their names, he said that he respected their desire to stay anonymous and then declared that he understood their reluctance to come forward because of the mean-spiritedness of Governor Carcieri. (Huh?) He also displayed no lack of confidence, claiming that the hardest part won't be defeating Carcieri, but defeating Charles Fogarty in the general election.

Michaud takes issue with the Governor's style (which he characterizes as too combatitive) and said that he thinks both sides can come together, which is in line with his self-proclaimed "moderateness." (Incidentally, he is also pro-choice). He made much of his ability to bring people together and says that a Governor can't go in and dictate things to the legislature because it doesn't work. Instead, he believes that you have to negotiate and compromise. He actually made the following comparison between himself and Carcieri: "He's a fighter and I'm a lover." YIKES!

Finally, Michaud also revealed that he was paid $80,000 by Beacon as a consultant and that he was unaware that he should have announced as such when he testified in front of the General Assembly as an expert witness earlier this year.

In response to the Michaud announcement, Patricia Morgan released a statement about Michaud's candicacy:

“Dennis Michaud went into this announcement knowing full well what the questions would be. But despite all the time he had to prepare, he tap-danced around every one of the most important issues in his campaign.

“What all of us in Rhode Island need and want to know is straightforward:

1. Why motivated you, right out of the clear blue sky, to decide to run for Governor?
2. Who are the ‘mystery men’ you say have encouraged you to run?
3. Who are your key supporters? (And why were none of them present at your announcement?)
4. How and from what sources do you expect to raise the $1 million you plan for your campaign? How much financial support do you anticipate receiving from Rhode Island unions?
5. And what, specifically, is the involvement of Blue Cross, Beacon Mutual, senior managers or board members of these firms in your decision to run, and in your campaign?”

“Straight answers to these questions would make the Michaud campaign much less suspicious than it is now. But until these questions are answered, I don’t believe there are many in Rhode Island who will take his candidacy seriously,” Morgan said.

UPDATE: In addition to providing a link to audio of the Michaud announcement (I inserted it above), Dan Yorke has also posted the complete hour with Governor Carcieri (in four parts). To sum it up: the Governor is ready to fight for re-election (and will announce on June 7). He has no doubt that Michaud is a put-up by the Beacon gang. He also talked about a bunch of other things. It's worth a listen.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part VI

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is a sixth posting which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

There are more than a few problems with the Senate's Hagel-Martinez illegal immigration bill.

First, the bill in the Senate is an amnesty bill in more ways than one: Not only are we offering amnesty to illegal immigrant lawbreakers but we are offering amnesty to corporate lawbreakers:

Senate bill protects employers of illegal aliens from penalties from Washington Times:

Among those who will be cleared of past crimes under the Senate's proposed immigration-reform bill would be the businesses that have employed the estimated 10 million illegal aliens eligible for citizenship and that provided the very "magnet" that drew them here in the first place.

Buried in the more than 600 pages of legislation is a section titled "Employer Protections," which states: "Employers of aliens applying for adjustment of status under this section shall not be subject to civil and criminal tax liability relating directly to the employment of such alien."

Supporters of the legislation insist that such provisions do not amount to "amnesty."

"The legislation we are considering today is not amnesty," Senate Judiciary Committee Chairman Arlen Specter said last week. "That is a pejorative term, really a smear term used to denigrate the efforts at comprehensive immigration reform. This is not amnesty because amnesty means a pardon of those who have broken the law."

Mr. Specter, Pennsylvania Republican, and others argue that the bill is not amnesty for illegal aliens because they will have to pay $2,000 in fines before they gain citizenship.

The law does not, however, provide for such fines against employers who have broken the law by hiring the illegals.

Sen. Robert C. Byrd, West Virginia Democrat, vehemently opposes "this effort to waive the rules for lawbreakers and to legalize the unlawful actions of undocumented workers and the businesses that illegally employ them."

Amnesties, he said, "are the dark underbelly of our immigration process."

"They tarnish the magnanimous promise enshrined on the base of the Statue of Liberty," Mr. Byrd said last week on the Senate floor. "Amnesties undermine that great egalitarian and American principle that the law should apply equally and should apply fairly to everyone."

While most of the focus thus far has been on the "amnesty" granted to illegal aliens, opponents only now are discovering the broad range of crimes that will be forgiven under the legislation.

Lawyers for the Senate Judiciary Committee have scoured the bill and come up with a list of 31 crimes relating to illegal immigration that would be wiped clean.

Under current law, simply entering the country illegally can result in a six-month prison stay and a $250,000 fine. Aiding in that crime carries a similar fine and a five-year prison sentence. Once ordered deported, an illegal racks up $500 per day of continued "illegal presence."

In addition, there are the perjury and false statements associated with fraudulently filling out federal tax forms. Each instance carries up to a five-year prison sentence and a $250,000 fine. Then there is the wide array of crimes relating to forging false documents needed to obtain work. Punishments for those crimes range from civil fines to 25 years in prison.

Also, there are crimes relating to the misuse of Social Security numbers needed to obtain work. Those crimes can result in five years in prison and a $250,000 fine.

Businesses that have committed any alien-hiring crimes would be forgiven under the provisions of the bill, although the laws would remain on the books and, thus, future violations could be prosecuted.

In addition to absolving illegals for past misuse of Social Security numbers and documentation, the Senate last week voted to allow aliens to get Social Security benefits based on working in the United States illegally...

What a day in America, when conservatives find themselves agreeing with the porkmeister Senator Byrd!

On a more serious note, think about the implications of this crazy course we are going down: I am sure the content of this bill makes a number of law-abiding U.S. citizens wonder why they cannot get an amnesty from the Senate should they choose to consciously violate American laws in the future, like these illegal immigrants and corporations have done. After all, if the rule of law is to be selectively applied and people who violate laws can have penalties on their crimes waived retroactively, doesn't that create an impulse where others will want our country to become consistently arbitrary in its application of its laws? The consequences of this are non-trivial, as noted here and here.

Second, the agency responsible for processing over 10 million illegal immigrants is not prepared:

Immigration bill's timeline hit from Washington Times:

The director of U.S. Citizenship and Immigration Services, the agency that would administer a new guest-worker program and rule on applications from millions of illegal aliens, says the pending Senate bill doesn't give his agency enough time to prepare for that giant task.

"Quite frankly, I don't think that's really practical. Ninety days to register 12 million people. Do the math," Emilio T. Gonzalez, who took over as director early this year, told The Washington Times...

If Congress passes an immigration bill that includes a temporary-worker program, a path to citizenship for illegal aliens, or both, USCIS will be the agency that has to administer it.

Under the pending Senate bill, and under President Bush's new vision, illegal aliens would be divided into long-time and short-time residents, with most of the long-time residents being conferred an eventual right of citizenship. But given the prevalence of fraudulent documents, the problem will be determining who is a long-time resident...

USCIS is part of the Department of Homeland Security and is one of the three agencies that used to make up the Immigration and Naturalization Service.

The other two -- U.S. Customs and Border Patrol and Immigration and Customs Enforcement -- are law-enforcement agencies...

But Mr. Gonzalez says he is making it clear to his employees that they are part of national security, too -- and the last line of defense in preventing terrorists from gaining a permanent legal foothold in the country...

But he said his agency definitely will need time to write regulations and handle the flood of applicants, which could top 10 million. He said he would need at least two to three times as much time as the Senate has called for in its bill...

Otherwise, he said, they risk a repeat of 1986.

"We're litigating cases today from 1986. And I think the reason we're doing that -- I'm not a lawyer, by the way -- is, if you don't take care of the details, that's what's going to bring you down," he said...

Third, we are releasing illegal immigrants after their apprehension without knowing if they are associated with any potential terrorism risk factors:

Illegals released for lack of funding from the Washington Times:

More than one-third of the illegal aliens apprehended each year and found to be "removable" from the United States are released because of a lack of personnel, a shortage of beds and inadequate funding to hold them while determining their legal status, a report says.

The inability of U.S. Immigration and Customs Enforcement (ICE) to ensure their departure -- including those who pose national-security or public-safety threats -- exposes the country to "significant risks" from would-be terrorists and criminals, said a report by the Department of Homeland Security's Office of Inspector General.

The report, released Thursday, said that of 774,112 illegal aliens apprehended during the past three years and ruled to be "removable," 280,987 -- or 36 percent -- were released because of a lack of personnel, bed space and funding.

"This presents significant risks due to the inability of Customs and Border Protection (CBP) and ICE to verify the identity, country-of-origin, and terrorist or criminal affiliation of many of the aliens being released," the report said.

The report said that although apprehensions have climbed by 19 percent since 2002, authorized personnel and funded bed-space levels have dropped by 3 percent and 6 percent, respectively. It said those "shortfalls encourage illegal immigration by increasing the likelihood that apprehended aliens will be released while their immigration status is adjudicated."

A removable alien is one who has been found to have violated immigration law, pending an appeal, or committed a crime or poses a security risk...

Meanwhile, Senator Feinstein wants to expand the pool of illegal immigrants eligible for citizenship. The same article notes that "Last night in the Senate, Majority Leader Bill Frist filed a "cloture motion" to ensure a final vote on the immigration reform legislation before the end of this week. The Senate yesterday also rejected a proposal by Sen. Saxby Chambliss, Georgia Republican, aimed at removing an incentive for farmers to hire illegal aliens. The amendment would have equalized the wages paid to immigrants working on farms."

And, it is not a surprise that "Since March, the average weekly number of driver's license applications by immigrants and illegal aliens has nearly doubled in Maryland, where legal residency is not required of applicants."

And why do we think this Senate bill will improve the failed status quo?

The Heritage Foundation has been quite active in the illegal immigration public policy debate; some of their major research papers are listed below:

Robert Rector on Senate Immigration Bill Would Allow 100 Million New Legal Immigrants over the Next Twenty Years
Robert Rector on Amnesty and Continued Low Skill Immigration Will Substantially Raise Welfare Costs and Poverty
Matthew Spalding on Making Citizens: The Case for Patriotic Assimilation
Tim Kane and Kirk Johnson on The Real Problem with Immigration... and the Real Solution
Kirk Johnson on The Senate Compromise on Immigration: A Path to Amnesty for Up to 10 Million
Kris Kobach on Courting Chaos: Senate Proposal Undermines Immigration Law
Kirk Johnson on The SAFE Visa: A Good Starting Point for a Truly Temporary Guest Worker Proposal
James Jay Carafano on Senate Immigration Plan Fails to Deliver Comprehensive Border Security
James Jay Carafano on Immigration Enforcement and Workplace Verification: Sensible Proposals for Congress

Another thoughtful policy piece is Newt Gingrich on Ending the Dishonesty: The Way Forward on Border Control and Patriotic Immigration.

Other recent commentaries include:

Mickey Kaus
Stanley Kurtz
Tom Bevan of Real Clear Politics
John Pohoretz
John Derbyshire
Michelle Malkin
Power Line
Power Line
Power Line

For previous posting information, refer to Parts I, II, III, IV and V.

Economic Thoughts, Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations

This posting is Part IV in a series of postings about economic thoughts.

This posting contains excerpts from a January 2005 Reason magazine article, entitled Hayek for the 21st Century, which discusses biographer Bruce Caldwell's thoughts on Nobel Laureate Friedrich Hayek's ideas regarding: (i) the abuse of reason; (ii) fallacies and dangers of centralized planning; (iii) prices & knowledge; and, (iv) understanding limitations.

The Abuse of Reason

Bruce Caldwell: In the 1930s, Hayek was writing articles criticizing the economics of socialism...In Hayek's Challenge, I mention [sociologist] Karl Mannheim in particular as a figure who argued that planning was the only way to avoid totalitarianism, but everyone was making a similar sort of argument. Hayek turned that on its head and said that extensive planning of the economy was in fact the road to serfdom, to less and less freedom.

He was engaging a widespread belief that socialism was not only more just but more efficient than capitalism, that it was the way to make the world work better. Not just economics should be planned. Science should be planned. Everything should be planned. There was an influential magazine around at the time called Science. Virtually every third or fourth week, they'd run an editorial that said we need to have scientists helping plan all sorts of things. Not just the war effort, but everything about the economy to make it work better. This is what everyone who was "intelligent" thought.

If you look at the early 1930s, there was this sense that the Soviet Union had a huge commitment to science and scientific progress...

His critique of the way "science" gets used in social settings. Science is a very powerful tool that has brought a lot of technological and material progress. But the mistaken notion that we can plan social structures and social realities and social institutions in the same way that we can accomplish goals like putting people in space is very, very seductive. That belief is something that never goes away. Hayek's critique of that mind-set is part and parcel of The Road to Serfdom and many of his other writings. Road is part of a larger effort called "The Abuse of Reason Project," which attacked what he eventually called "rationalist constructivism," the idea that we are able to reconstruct or correct society along rational lines.

He argued that you can't easily improve on what he called "spontaneous orders." There are many situations in which an order has arisen by individuals following rules. They often can't articulate why they follow the rules, some of them are moral rules, whatever, and this has lead to a certain amount of coordination of people's activity. To the extent that it's done, that it's allowed, groups that have followed those rules tend to prosper. That's what he defined as "a spontaneous order."...Language, the market, money, and more reflect this.

To simply come in and say, "OK, this stuff all needs changing," ignores that social evolution has taken place through time...

The way socialism was implemented in the 20th century is one of the pre-eminent examples of what goes wrong when you try to reconstruct society along more "rational" lines...

Fallacies & Dangers of Centralized Planning

Reason: Give us the stripped-down version of The Road to Serfdom.

Caldwell: Let's say you agree that the definition of socialism is the ownership of the means of production by the state. That means the state is making decisions about production...

Hayek's point is that when people are not under war conditions, they have many different values. So the question then becomes, if you have socialism, who makes the decision of what gets produced? If people have different values, they are going to disagree with the planners. The planners end up being frustrated because they are unable to decide what to produce and gain full consensus. So they completely take over the production process. Hayek argues that you can't make that neat separation between economics and politics that implicitly fills in the claims of the socialists.

...I think his argument was shown to be absolutely correct. States that went to full socialization of production also placed considerable restrictions on personal liberty and decision making. You don't get the kind of choice that you get under a more liberal system.

Prices & Knowledge

Reason: Beyond his critique of wide-scale social planning, what would you say are Hayek's other major contributions to 20th century thought?

Caldwell: Another very important one has to do with the role of prices in coordinating social action where knowledge is dispersed.

...The model that was then used to describe how an economic system works assumed that all agents had full knowledge and that [an efficient distribution of goods and services] gets obtained [through various transactions]. Some of the socialists argued that the differences between socialism and capitalism, or the market system, were really about what set of people [made the transactions]. Under socialism, you had planners; under capitalism, you had individuals.

Reason: And the socialists argued that their planners could coordinate the production and distribution of goods and services with less trial and error, more quickly, more efficiently?

Caldwell: That's right, because they would be centrally gathering information. The socialists argued that individual entrepreneurs are just looking over their own markets whereas the planners are taking everything into account.

Hayek said, "Well, wait a second, this does not make sense. Markets do a lot of stuff, but this model does not shed light on what markets do." He zeroed in on the critical assumption of full or perfect information. He said that in the real world, we have millions of individuals who have little bits of knowledge. No one has full knowledge, and yet we see a great deal of social coordination. As Frederic Bastiat said, "Paris gets fed." No one intentionally plans on feeding Paris, but millions upon millions of people get up every morning and get what they want for breakfast. How does that happen? Hayek's answer is that a market system ends up coordinating individual activity. Millions of people are out there pursuing their own interests, but the net result is a coordination of economic activities. And prices are the things that contain people's knowledge.

Mainstream economists have picked up on this and talk about prices as containing information. Modern information theory certainly nods to Hayek as a precursor. He argued that pricing contains knowledge of specific time and place and the man on the spot. Prices contain knowledge that is tacit, that can't really be expressed by individuals. Individuals make actions in markets, and that's what causes prices to be what they are. People are acting in markets. They are not always explicitly saying why they are acting, but they are acting on their knowledge of local situation, the past, and more...

Understanding Limitations

Reason: What do you think Hayek's legacy in the 21st century will be?

Caldwell: To the extent that the ideas in papers like "The Theory of Complex Phenomena" get developed, that could be a big part of his legacy. He didn't get very far in developing the concept, but it's the basis for his claims that what we can know in the social sciences is ultimately very limited. It holds that pattern predictions are the best that we can often do when it comes to society. He suggested that it's better to provide explanations of the principle by which something works than to make precise predictions of how people will act.

Reason: So he taught us that the starting point of our plans has to be a recognition of the necessary limits of our understanding, that the grand old Enlightenment dream of total knowledge has to be replaced with one that is limited and provisional.

Caldwell: That is a Hayekian theme. One of the things that I take away from Hayek is you can't really prove any of this stuff in a traditional way. What you can do is develop a way of thinking and all sorts of different evidence that ultimately convinces you that this is an appropriate way of looking at this particular type of social phenomenon. I think this is part and parcel of Hayek's method. It's certainly what I took from him in my book.

Understanding the limits of what we can do is an important legacy. And so is understanding that in trying to do too much, we often end up making situations much worse.

Part V to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics

Economic Thoughts, Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations

This posting is Part IV in a series of postings about economic thoughts.

This posting contains excerpts from a January 2005 Reason magazine article, entitled Hayek for the 21st Century, which discusses biographer Bruce Caldwell's thoughts on Nobel Laureate Friedrich Hayek's ideas regarding: (i) the abuse of reason; (ii) fallacies and dangers of centralized planning; (iii) prices & knowledge; and, (iv) understanding limitations.

The Abuse of Reason

Bruce Caldwell: In the 1930s, Hayek was writing articles criticizing the economics of socialism...In Hayek’s Challenge, I mention [sociologist] Karl Mannheim in particular as a figure who argued that planning was the only way to avoid totalitarianism, but everyone was making a similar sort of argument. Hayek turned that on its head and said that extensive planning of the economy was in fact the road to serfdom, to less and less freedom.

He was engaging a widespread belief that socialism was not only more just but more efficient than capitalism, that it was the way to make the world work better. Not just economics should be planned. Science should be planned. Everything should be planned. There was an influential magazine around at the time called Science. Virtually every third or fourth week, they’d run an editorial that said we need to have scientists helping plan all sorts of things. Not just the war effort, but everything about the economy to make it work better. This is what everyone who was "intelligent" thought.

If you look at the early 1930s, there was this sense that the Soviet Union had a huge commitment to science and scientific progress...

His critique of the way "science" gets used in social settings. Science is a very powerful tool that has brought a lot of technological and material progress. But the mistaken notion that we can plan social structures and social realities and social institutions in the same way that we can accomplish goals like putting people in space is very, very seductive. That belief is something that never goes away. Hayek’s critique of that mind-set is part and parcel of The Road to Serfdom and many of his other writings. Road is part of a larger effort called "The Abuse of Reason Project," which attacked what he eventually called "rationalist constructivism," the idea that we are able to reconstruct or correct society along rational lines.

He argued that you can’t easily improve on what he called "spontaneous orders." There are many situations in which an order has arisen by individuals following rules. They often can’t articulate why they follow the rules, some of them are moral rules, whatever, and this has lead to a certain amount of coordination of people’s activity. To the extent that it’s done, that it’s allowed, groups that have followed those rules tend to prosper. That’s what he defined as "a spontaneous order."...Language, the market, money, and more reflect this.

To simply come in and say, "OK, this stuff all needs changing," ignores that social evolution has taken place through time...

The way socialism was implemented in the 20th century is one of the pre-eminent examples of what goes wrong when you try to reconstruct society along more "rational" lines...

Fallacies & Dangers of Centralized Planning

Reason: Give us the stripped-down version of The Road to Serfdom.

Caldwell: Let’s say you agree that the definition of socialism is the ownership of the means of production by the state. That means the state is making decisions about production...

Hayek’s point is that when people are not under war conditions, they have many different values. So the question then becomes, if you have socialism, who makes the decision of what gets produced? If people have different values, they are going to disagree with the planners. The planners end up being frustrated because they are unable to decide what to produce and gain full consensus. So they completely take over the production process. Hayek argues that you can’t make that neat separation between economics and politics that implicitly fills in the claims of the socialists.

...I think his argument was shown to be absolutely correct. States that went to full socialization of production also placed considerable restrictions on personal liberty and decision making. You don’t get the kind of choice that you get under a more liberal system…

Prices & Knowledge

Reason: Beyond his critique of wide-scale social planning, what would you say are Hayek's other major contributions to 20th century thought?

Caldwell: Another very important one has to do with the role of prices in coordinating social action where knowledge is dispersed.

...The model that was then used to describe how an economic system works assumed that all agents had full knowledge and that [an efficient distribution of goods and services] gets obtained [through various transactions]. Some of the socialists argued that the differences between socialism and capitalism, or the market system, were really about what set of people [made the transactions]. Under socialism, you had planners; under capitalism, you had individuals.

Reason: And the socialists argued that their planners could coordinate the production and distribution of goods and services with less trial and error, more quickly, more efficiently?

Caldwell: That's right, because they would be centrally gathering information. The socialists argued that individual entrepreneurs are just looking over their own markets whereas the planners are taking everything into account.

Hayek said, "Well, wait a second, this does not make sense. Markets do a lot of stuff, but this model does not shed light on what markets do." He zeroed in on the critical assumption of full or perfect information. He said that in the real world, we have millions of individuals who have little bits of knowledge. No one has full knowledge, and yet we see a great deal of social coordination. As Frederic Bastiat said, "Paris gets fed." No one intentionally plans on feeding Paris, but millions upon millions of people get up every morning and get what they want for breakfast. How does that happen? Hayek's answer is that a market system ends up coordinating individual activity. Millions of people are out there pursuing their own interests, but the net result is a coordination of economic activities. And prices are the things that contain people’s knowledge.

Mainstream economists have picked up on this and talk about prices as containing information. Modern information theory certainly nods to Hayek as a precursor. He argued that pricing contains knowledge of specific time and place and the man on the spot. Prices contain knowledge that is tacit, that can't really be expressed by individuals. Individuals make actions in markets, and that's what causes prices to be what they are. People are acting in markets. They are not always explicitly saying why they are acting, but they are acting on their knowledge of local situation, the past, and more...

Understanding Limitations

Reason: What do you think Hayek's legacy in the 21st century will be?

Caldwell: To the extent that the ideas in papers like "The Theory of Complex Phenomena" get developed, that could be a big part of his legacy. He didn’t get very far in developing the concept, but it's the basis for his claims that what we can know in the social sciences is ultimately very limited. It holds that pattern predictions are the best that we can often do when it comes to society. He suggested that it's better to provide explanations of the principle by which something works than to make precise predictions of how people will act.

Reason: So he taught us that the starting point of our plans has to be a recognition of the necessary limits of our understanding, that the grand old Enlightenment dream of total knowledge has to be replaced with one that is limited and provisional.

Caldwell: That is a Hayekian theme. One of the things that I take away from Hayek is you can’t really prove any of this stuff in a traditional way. What you can do is develop a way of thinking and all sorts of different evidence that ultimately convinces you that this is an appropriate way of looking at this particular type of social phenomenon. I think this is part and parcel of Hayek’s method. It’s certainly what I took from him in my book.

Understanding the limits of what we can do is an important legacy. And so is understanding that in trying to do too much, we often end up making situations much worse.

Part V to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics

Jason Steorts also did a review of Bruce Caldwell's book on Hayek in the February 23, 2004 edition of National Review (available only via Digital NR), where he adds some additional perspective on Hayek's contribution to our understanding of economic issues:

...Hayek's antipathy toward socialistic meddling was but one manifestation of his more general concern with what he called the "knowledge problem" - his insights into which are, according to Caldwell, his most important contribution to economics.

In the 1937 essay "Economics and Knowledge," Hayek formulated the "knowledge problem" this way: "How can the combination of fragments of knowledge existing in different minds bring about results which, if they were brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?" Hayek's answer was that market institutions manage to gather the "fragments of knowledge" and co-ordinate individuals toward efficient outcomes. No one knows just what combination of production inputs will minimize costs and produce the quantity of goods that satisfies demand. But the operations of the market, in which prices are not fixed but respond to changes in supply and demand, are a "discovery procedure" (as Hayek would later put it) for such information.

...note how Hayek's answer diverges from standard neoclassical economic theory. In the textbook version, individuals are assumed to have perfect rationality and foresight. They then unfailingly make decisions about the allocation of their resources that maximize their utility. While this model no doubt has its uses, its unrealistic assumptions are often seized upon to discredit laissez-faire economics.

Hayek, like many of his peers (and the Austrians in particular), was also inclined toward skepticism of the elusive, perfectly rational homo economicus. But rather than take the apparent implausibility of the standard model as a reason to reject free markets, Hayek saw that free markets helped compensate for the limitations of human knowledge and rationality. By spontaneously gathering dispersed information and coordinating it through the setting of prices, markets make the choices of individual men both better informed and more rational than they would otherwise be. Hayek also understood - long before most, and to his great credit - that the incompleteness of any individual's knowledge makes central economic planning both impossible and undesirable. (Undesirable in that the planner must, as Hayek explained in the 1939 pamphlet "Freedom and the Economic System," "impose upon the people the detailed code of values that is lacking" - paving a path toward despotism.)

Caldwell goes on to show how Hayek's reflection on the knowledge problem led him to conclusions about the methodology of economics. Just as no central planner knows enough to bring about an efficient economic outcome, no economist knows enough to make precise forecasts. Instead, economists must content themselves with offering general explanations of the principles by which economic outcomes arise, and making predictions about the pattern of future events (rather than predicting specific outcomes). This skepticism continues to rub economists of a positivist persuasion - which is to say nearly the entire field - the wrong way...

...The positivist hope has been that such work [analyzing social phenomena] would establish law-like relations between events and economic outcomes; but for Hayek - and, as is clear by the end of the book, for Caldwell too - such ambitions smack of hubris...

Meet Jim Haldeman, Candidate for State Representative, Part 2

Jim Haldeman is a candidate for State Representative in Rhode Island's 35th district (South Kingstown). Though this will be his first campaign for elected office, it is certainly not his first experience with politics and government...

During a seven month period from March -- September 2005, [Lt. Col. Haldeman] acted as principle representative of the U.S led coalition in Fallujah, where his primary role was to build relations with the people and to establish a new government in Fallujah and surrounding areas. His contributions stand out in several areas. As quoted by Kael Weston, Department of State Representative...

Lt. Col Haldeman's contributions in Fallujah warrant special recognition. His role stands out even in a setting where so many others have contributed so much to overarching U.S. objectives. Lt. Col Haldeman's performance and commitment helped ensure that incoming Marines are well-positioned to build on the groundwork that he and his CMOC team have laid. He represents the best traditions and high standards of the U.S. Marine Corps.

Continuing his answer to Anchor Rising's question about running for office, Mr. Haldeman discussed the dangerous trends that are shaping the future of Rhode Island...

Right now, the kids who are graduating from college are not coming here. They're not staying here. They're going to Massachusetts and New Hampshire and Connecticut. And as I make my rounds and talk to the older generation, they tell me they're leaving too. They stayed for only one reason -- because their kids were here. But now that the younger generation can't find a job, the parents and the grandparents are deciding to leave Rhode Island because they can't take the tax burden.

Rhode Island is stuck with a younger generation not staying, an older generation that's leaving, and a middle income tax base being forced to take care of all of the problems in Rhode Island. Changing this is going to take someone willing to go the General Assembly and talk about these things instead of talking about lemons and oranges at the package store.

But there is more to leading -- especially leading youth -- than economics. Jim Haldeman discussed a special concern of his in this vein...

I am going to be a big advocate for youth physical education. I've played sports all my life. If you affect children's health, there will be less stress on healthcare.

We have to break the cycle and get people to be healthy and stay healthy. I don't know exactly how I'm going to do it. There are a lot of issues, but we need to get kids away from the computers and TV for part of the day and get them to be physically active. We need to educate the youth and break that chain of inactivity. I will find a way to be a big proponent on this.

Finally, Mr. Haldeman gave his view of the big-picture...

My opponents can go hobnob with the all the big unions and the NEAs, and that's fine, but the only special interest group I want to work with is called the taxpayers.

There's a big transition taking place here in Rhode Island and I just happen to be fortunate enough to be able to ride the wave. Things are happening. Things are changing. You see it in the front pages. People want to really become educated and want to know answers and why what has happened to our state has happened. There's going to be quite a few people hit-up in the General Assembly and asked, why is this happening?

Jim Haldeman had contemplated runnng for State Senate in Rhode Island's 37th district, but recently decided to run for Representative in the 35th. His official campaign website will be updated soon to reflect this. In the 35th district, his opponent will be John Patrick Shanley.

Meet Jim Haldeman, Candidate for State Representative

Conventional wisdom holds that voters don't pay much attention to city council endorsements. Here is an endorsement worth paying attention to: Jim Haldeman, candidate for State Representative in Rhode Island's 35th district (South Kingstown), has received expressions of support from the city council and the mayor of Fallujah -- as in Fallujah, Iraq.

Here's a short snippet of Jim Haldeman's biography(*) that explains why he is in a position to receive an unofficial but heartfelt endorsement from Iraq...

Jim volunteered for military duty in Iraq in 2005. He performed with distinction as the Civil-Military Operations Center (CMOC) Commander in Fallujah, Iraq. This position is amongst the most important and sensitive in Al-Anbar Province. During a seven month period from March -- September 2005, he acted as principle representative of the U.S. led coalition in Fallujah, where his primary role was to build relations and establish the new government in Fallujah and surrounding areas...

I had the opportunity to put the following question to Mr. Haldeman: When it comes to working with government, you've done the toughest job in the toughest place in the world to do it. Why step into what, by comparison, is the Keystone Cops world of Rhode Island politics?

Mr. Haldeman began his answer by talking about his experience in Fallujah...

Going over to Fallujah was a rewarding experience for me.

I've done nothing more rewarding than go into a city of 250,000 who had been dealing with forty years of dictatorship and tyranny and change the lives of real people and develop a government by working with the people and building sincere and true friendships. That's what I was supposed to do there, establish the human element of relations with as many of the Iraqi people as I could.

The other stuff got done. We had the Army Corps of engineers and all those kinds of people, but mine was a face-to-face mission, doin' a lot of man-hugs and building human, personal relationships. I think I accomplished that.

I think politics is a philosophy of personal relationships. It's how you deal with people. That's my issue. I'm really fed up with Rhode Island politics, and that's why I'm getting into it. That's why I went to Fallujah. I wanted to find out what was really happening over in Iraq, and I found out. I can make a change here, just like I did there.

Next, he talked about a local concern that is part of the motivation for his run...

I think about the LaPlante Memorial Center. It is a center for the mentally handicapped. It deals with the whole gamut of mental retardation, from 6 month-old children to a group old enough to work. There are 130 clients there. 30 of them are in our community, working every day. They're at Belmonts, at Shaws, at McDonalds.

You first walk into LaPlante and it breaks your heart; it tears at your soul to see them. But then you quickly realize the genuine dignity and pride that they have when they talk about working. The self-reliance and true dignity that these clients show when they talk about themselves is great. It is really inspiring to see that.

Now, LaPlante's clients have every right to feel sorry for themselves. They are the people who should be using the government as their safety net. They don't have to go out and work and yet they do. But as I was touring the facility, the manager of the place told me they're on the chopping block to lose state funds. This just one case of the full-circle economic debacle that is hurting Rhode Island.

Mr. Haldeman then explained how the state legislature is failing the clients of the LaPlante Center and Rhode Islanders in general...

Here you have the people who are running the General Assembly, who are supposedly the advocates of taking care of the truly needy, 85% from one party. Are they talking about healthcare reform? Are they talking about pension reform? Are they talking about welfare reform? Are they talking about tax-reform?

On healthcare and pension reform, the legislature is not talking about simple economic reforms like increasing accountability and ownership. As a union member myself, I think union members deserve more options in their health care and pension benefits. A "one size fits all" approach does not serve the union member or the taxpayer well.

And instead of creating incentives for the most vulnerable of the working class to move down the rungs of the ladder and go on welfare, we should be providing incentives that help people move upward. But when you are a state that is allowing itself to be nearly last in business friendliness, it's not going to happen. There's no reason Rhode Island should be fourth in income tax, or sixth in tax-burden. We're 48th in business friendliness, absolute last in establishing jobs and absolute last is moving people off of welfare and into jobs. Rhode Island keeps people up to 39 months on welfare.

Rhode Island now stands first in the country in having the most costly welfare system. This shows the General Assembly's deficit in understanding basic economics. By not moving forward with welfare reform, the legislature, and not the Governor, is threatening the truly needy in Rhode Island. Governor Carcieri has shown great vision in trying to steer this state toward greater prosperity. The Governor understands that good job creation will build wealth in Rhode Island. This state's real problem is that the legislature has created a hostile environment for potential job growth.

It's a silly operation, it's nonsensical, and it needs to be stopped right now, or we are doomed. We have got to change those statistics.

More to come...

(*) Note: Jim Haldeman had contemplated runnng for State Senate in Rhode Island's 37th district, but recently decided to run for Representative in the 35th. His official campaign website will be updated soon to reflect this. In the 35th district, his opponent will be John Patrick Shanley.

The Myth of the Reality: Fun with Statistics

Opinion pieces that seek to demythologize economic reformers' rhetoric are magnificent fodder for analysis (often facilitating sympathy, in the analyst, for those who don't care enough to investigate). Institute on Taxation and Economic Policy state-tax policy director Matt Gardner offers one such opportunity with his "Correcting myths -- R.I.'s economic climate compares well." I've no knowledge of the leanings of either Mr. Gardner or his institute, but as seems often to be the case with such things, upon opening up the cabinet, one finds its contents all but spilling outward. Cracking it open:

Myth: The number of high-income earners in Rhode Island has fallen in recent years, even as such numbers have risen in neighboring Connecticut, Massachusetts, and New Hampshire.

Reality: Between 1997 and 2003 (the years for which detailed Internal Revenue Service data are available), the number of taxpayers reporting incomes over $200,000 rose 60 percent in Rhode Island -- a greater rate of increase than in Connecticut (37 percent), Massachusetts (51 percent), and New Hampshire (55 percent).

I'll put aside the question of whether anybody's actually made an explicit claim about raw numbers of rich people dropping, as well as the observation that the "recent years" of 2004 and 2005 are not included in Gardner's assessment. Having picked apart the IRS data to which Gardner refers, I'd suggest that percentage increases don't tell the whole story. Here's a chart of the "new" (i.e., additional) high-income earners in the states that he mentions:

One obvious objection to my graphic would be that the raw numbers aren't really comparable, given the different sizes of the states. To be sure, it is a bit unreasonable to compare Rhode Island's 9,252 high-earners with Connecticut's 64,692, but that's pretty much the point: it takes less of an increase to make it appear as if Rhode Island's stock of rich folk is on the same trend path as those of other New England states. Putting the trend in context of the broader societies, however, the reality is that — again, using Gardner's own IRS source — Rhode Island is behind the listed states in the rate at which it is expanding its wealthy class. Relative to total tax returns, the percentage claiming adjusted gross income over $200,000 went from:

• 1.24% in 1997 to 1.86% in 2003 in Rhode Island
• 1.43% in 1997 to 2.05% in 2003 in New Hampshire
• 2.09% in 1997 to 3.06% in 2003 in Massachusetts
• 2.95% in 1997 to 3.91% in 2003 in Connecticut

So, when Gardner states that "the average annual income of the top 1 percent of Rhode Island taxpayers rose by $235,000," he's talking about a relatively stagnant pool, not the froth of a rising tide. In Massachusetts and Connecticut, by comparison, just about a full 1% entered the high-income group.

But here's where the aforementioned spilling begins; expanding the quotation:

Myth: Wealthy Rhode Islanders are getting poorer. The Journal asserts that the wealthiest saw their incomes drop by 17 percent between 1995 and 2002, while high incomes rose in the neighboring states.

Reality: This misuse of statistics would be almost funny except that the statistics being abused come from my organization, the Institute on Taxation and Economic Policy. The data come from two ITEP reports, which look at two very different groups of Rhode Island taxpayers. An "apples-to-apples" comparison over the same period shows that the average annual income of the top 1 percent of Rhode Island taxpayers rose by $235,000 -- for a healthy 46-percent gain in average family income.

It would have been helpful of Mr. Gardner to expend a dozen words or so explaining what made apples apples and oranges oranges in the Providence Journal editorial in dispute, because turning back to the IRS spreadsheets that he found so helpful up to this point, one finds that the total adjusted gross income of $200,000-earners as a group did indeed grow from $3,033,302,000 in 1997 to $4,281,410,000 in 2003. However, those amounts were divided among 5,764 and 9,252 taxpayers, respectively, for an average AGI of $526,249 in 1997, but only $462,755 in 2003. Somehow, this apples-to-apples comparison finds a decrease of 12%.

No doubt, such analysis could go on. It would be interesting, for example, to attempt to reconcile Gardner's sunny view of the low end of Rhode Island's tax spectrum with his seemingly conflicting proclamation that "the gap between rich and poor in Rhode Island was the 12th fastest-growing in the nation." It would be even more interesting to find some sort of data that would shed light on the types of occupations through which the different states' rich earn their wealth. My suspicion is that Rhode Island's upper crust disproportionately boasts those who consume, rather than generate, wealth by draining the public reserves.

Unfortunately, as a man who must actually earn a living in Rhode Island — without the resources to patronize "the plethora of new high-end eateries and cafés" that Gardner sees as evidence of our state's affluence — I haven't the time for further numbers games.

Economic Thoughts, Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics

This posting is Part III in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 24, entitled Parting Thoughts, in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discuss: (i) why policy goals are trumped by incentives they create; and, (ii) the role of knowledge in economics.

Why Policy Goals are Trumped by Incentives They Create

Many economic fallacies depend upon not thinking beyond the initial consequences of particular policies...

One of the recurring themes in our consideration of various policies and institutions...has been the distinction between the goals of these policies and institutions versus the incentives they create...

What must be asked about any goal is: What specific things are going to be done in the name of that goals? What does the particular legislation or policy reward and what does it punish? What constraints does it impose? Looking to the future, what are the likely consequences of such incentives and constraints? Looking back at the past, what have been the consequences of similar incentives and constraints in other times and places?...

The Role of Knowledge in Economics

In addition to the role of incentives and constraints, one of our other central themes has been the role of knowledge. In free market economies, we have seen giant multi-billion dollar corporations fall from their pinnacles...because their knowledge of changing circumstances, and the implication of those changes, lagged behind that of upstart rivals...The public benefitted from that, by getting what it wanted at lower prices...

In centrally planned economies, we have seen the planners overwhelmed by the task of trying to set literally millions of prices and keep changing those prices in response to innumerable and often unforeseeable changes in circumstances. It was not remarkable that they failed so often. What was remarkable was that anyone had expected them to succeed, given the vast amount of knowledge that would have had to be marshalled and mastered in one place by one set of people...

Given the decisive advantages of knowledge and insight in a market economy...we can see why market economies have outperformed other economies that depend on ideas originating within a narrow elite of birth or ideology. While market economies are often thought of as money economies, they are still more so knowledge economies, for money can always be found to back new insights, technologies and organizational methods that work...Capital is always available under capitalism, but knowledge and insight are rare and precious under any system.

Knowledge can be bought and sold in a free market, like anything else...

Knowledge should not be narrowly conceived as the kind of information in which intellectuals and academics specialize...

In reality, there is much that the intelligentsia do not know that is vital knowledge in the functioning of an economy. It may be easy to disdain the kinds of highly specific knowledge and implications which are often economically decisive by asking, for example: How much knowledge does it take to fry a hamburger? Yet McDonald's did not become a multi-billion-dollar corporation...for no reason - not with so many rivals trying desperately and unsuccessfully to do the same...

...In all these cases, it was the knowledge that was built up over the years - the human capital - which ultimately attracted the financial capital to make ideas become reality. The other side of this is that, in countries where the mobilization of financial resources is made difficult by deficiencies in property rights laws, those at the bottom have fewer ways of getting the capital needed to back their entrepreneurial endeavors. More important, the whole society loses the benefits it could gain...

Success is only part of the story of a free market economy. Failure is at least as important a part, though few want to talk about it and none want to experience it...Economics is not about "win-win" options, but about often painful choices in the allocation of scarce resources which have alternative uses. Success and failure are not isolated good fortunes and misfortunes, but inseparable parts of the same process.

All economies...are essentially ways of cooperating in the production and distribution of goods and services, whether this is done efficiently or inefficiently, voluntarily or involuntarily. Naturally, individuals and groups want their own particular contributions to the process to be better rewarded, but their complaints or struggles over this are a sideshow to the main event of complementary efforts which produce the output on which all depend. Yet invidious comparisons and internecine struggles are the stuff of social melodrama, which in turn is the lifeblood of the media and politics, as well as for portions of the intelligentsia.

By portraying cooperative activities as if they were zero-sum contests...those with the power to impose their misconceptions on others through words or laws can create a negative-sum contest, in which all are worse off...

Those with a zero-sum vision who have seen property rights as mere special privileges for the affluent and the rich have helped erode or destroy such rights, or have made them practically inaccessible to the poor in Third World countries, thereby depriving the poor of one of the mechanisms by which people from backgrounds like theirs have risen to prosperity in other times and places.

However useful economics may be for understanding many issues, it is not as emotionally satisfying as more personal and melodramatic depictions of these issues often found in the media and in politics. Dry empirical questions are seldom as exciting as political crusades or moral pronouncements. But they are questions that must be asked, if we are truly interested in the well-being of others, rather than in excitement or a sense of moral superiority for ourselves. Perhaps the most important distinction is between what sounds good and what works. The former may be sufficient for purposes of politics or moral preening, but not for the economic advancement of people in general or the poor in particular...

Part IV to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets

Economic Thoughts, Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics

This posting is Part III in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 24, entitled Parting Thoughts, in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discuss: (i) why policy goals are trumped by incentives they create; and, (ii) the role of knowledge in economics.

Why Policy Goals are Trumped by Incentives They Create

Many economic fallacies depend upon not thinking beyond the initial consequences of particular policies...

One of the recurring themes in our consideration of various policies and institutions...has been the distinction between the goals of these policies and institutions versus the incentives they create...

What must be asked about any goal is: What specific things are going to be done in the name of that goals? What does the particular legislation or policy reward and what does it punish? What constraints does it impose? Looking to the future, what are the likely consequences of such incentives and constraints? Looking back at the past, what have been the consequences of similar incentives and constraints in other times and places?...

The Role of Knowledge in Economics

In addition to the role of incentives and constraints, one of our other central themes has been the role of knowledge. In free market economies, we have seen giant multi-billion dollar corporations fall from their pinnacles...because their knowledge of changing circumstances, and the implication of those changes, lagged behind that of upstart rivals...The public benefitted from that, by getting what it wanted at lower prices...

In centrally planned economies, we have seen the planners overwhelmed by the task of trying to set literally millions of prices and keep changing those prices in response to innumerable and often unforeseeable changes in circumstances. It was not remarkable that they failed so often. What was remarkable was that anyone had expected them to succeed, given the vast amount of knowledge that would have had to be marshalled and mastered in one place by one set of people...

Given the decisive advantages of knowledge and insight in a market economy...we can see why market economies have outperformed other economies that depend on ideas originating within a narrow elite of birth or ideology. While market economies are often thought of as money economies, they are still more so knowledge economies, for money can always be found to back new insights, technologies and organizational methods that work...Capital is always available under capitalism, but knowledge and insight are rare and precious under any system.

Knowledge can be bought and sold in a free market, like anything else...

Knowledge should not be narrowly conceived as the kind of information in which intellectuals and academics specialize...

In reality, there is much that the intelligentsia do not know that is vital knowledge in the functioning of an economy. It may be easy to disdain the kinds of highly specific knowledge and implications which are often economically decisive by asking, for example: How much knowledge does it take to fry a hamburger? Yet McDonald's did not become a multi-billion-dollar corporation...for no reason - not with so many rivals trying desperately and unsuccessfully to do the same...

...In all these cases, it was the knowledge that was built up over the years - the human capital - which ultimately attracted the financial capital to make ideas become reality. The other side of this is that, in countries where the mobilization of financial resources is made difficult by deficiencies in property rights laws, those at the bottom have fewer ways of getting the capital needed to back their entrepreneurial endeavors. More important, the whole society loses the benefits it could gain...

Success is only part of the story of a free market economy. Failure is at least as important a part, though few want to talk about it and none want to experience it...Economics is not about "win-win" options, but about often painful choices in the allocation of scarce resources which have alternative uses. Success and failure are not isolated good fortunes and misfortunes, but inseparable parts of the same process.

All economies...are essentially ways of cooperating in the production and distribution of goods and services, whether this is done efficiently or inefficiently, voluntarily or involuntarily. Naturally, individuals and groups want their own particular contributions to the process to be better rewarded, but their complaints or struggles over this are a sideshow to the main event of complementary efforts which produce the output on which all depend. Yet invidious comparisons and internecine struggles are the stuff of social melodrama, which in turn is the lifeblood of the media and politics, as well as for portions of the intelligentsia.

By portraying cooperative activities as if they were zero-sum contests...those with the power to impose their misconceptions on others through words or laws can create a negative-sum contest, in which all are worse off...

Those with a zero-sum vision who have seen property rights as mere special privileges for the affluent and the rich have helped erode or destroy such rights, or have made them practically inaccessible to the poor in Third World countries, thereby depriving the poor of one of the mechanisms by which people from backgrounds like theirs have risen to prosperity in other times and places.

However useful economics may be for understanding many issues, it is not as emotionally satisfying as more personal and melodramatic depictions of these issues often found in the media and in politics. Dry empirical questions are seldom as exciting as political crusades or moral pronouncements. But they are questions that must be asked, if we are truly interested in the well-being of others, rather than in excitement or a sense of moral superiority for ourselves. Perhaps the most important distinction is between what sounds good and what works. The former may be sufficient for purposes of politics or moral preening, but not for the economic advancement of people in general or the poor in particular...

Part IV to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets

Economic Thoughts, Part II: Myths About Markets

This posting is Part II in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 23 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discuss myths about markets, including: (i) morality and markets; (ii) prices; (iii) the role of profits; (iv) non-profit organizations; and, (v) "trickle down" theory.

Morality and Markets

The market is as moral or immoral as the people in it. So is the government. The fact that we call one set of people "the market" and another set of people "society" does not mean that the moral or other imperfections of the first set of people automatically justify having the second set of imperfect people over-ruling their decisions...the market...is people making their own individual choices and their mutual accomodations.

Once it was fashionable to contrast the selfishness of the isolated individual in a market economy with cooperative actions among people with a more communal spirit under various forms of socialism. One reason such rhetorical or ideological fashions no longer have the same effectiveness is the actual track record of socialist systems in practice. What also needs to be considered is the track record of market economies in creating widespread cooperation among people through individual incentives...

Is cooperation any less because the incentives behind it are the individual benefits of the participants?

Despite the painful facts of history, the idea persists in many places that political decisions are more moral than decisions made through the marketplace...

Empirical consequences, however, often matter less than deeply ingrained beliefs and attitudes. Whether in urgent or less urgent matters, many believe those with political power are better qualified to make moral decisions than are the private parties directly involved...

The idea that third party observers can impose morally better decisions often includes the idea that they can define what are "luxuries of the rich," when it is precisely the progress of free market economies which has turned luxuries of the rich into common amenities of people in general, including the poor...

Prices

There seem to be almost as many myths about prices as there are prices...

Physically identical things are often sold for different prices, usually because of accompanying conditions that are quite different...

Part of the reason for the variations in price [is] the variation in the cost of real estate in the different communities...

Another reason is the cost of inventory...going to different stores meant having different probabilities of finding what you wanted...Cost differences reflected differences in availability, which is to say, differences in the costs of maintaining inventory, even when the particular commodities were physically the same. It also meant differences in the costs measured in the time that a customer would have to spend going from store to store to find all the items on a grocery shopping list.

Mistakes or miscalculations may sometimes cause the same thing to be sold for different prices under comparable conditions temporarily, but competition usually makes this a passing phenomenon...

One of the popular myths that has become part of the tradition of anti-trust law is "predatory pricing."...

One of the most remarkable things about this theory is that those who advocate it seldom provide concrete examples of when it ever actually happened. Perhaps even more remarkable, they have not had to do so, even in courts of law...

A company that sustains losses by selling below cost to drive out a competitor is following a very risky strategy. The only thing it can be sure of is losing money initially. Whether it will ever recover enough extra profits to make the gamble pay off in the long run is problematical...it is by no means clear that eliminating all existing competitors will mean eliminating competition.

Even when a rival firm has been forced into bankruptcy, its physical equipment and the skills of the people who once made it viable do not vanish into thin air. A new entrepreneur can come along and acquire both - perhaps at low distress sale prices...enabling the new competitor to have lower costs than the old and hence be a more dangerous rival...

Bankruptcy can eliminate particular owners and managers, but it does not eliminate competition in the form of new people...Destroying a particular competitor without destroying competition can be an expensive endeavor...

The Role of Profits

Those who favor government intervention in the economy often depict those who prefer free competition as pro-business apologists. This has been profoundly wrong for at least two centuries. Adam Smith, the eighteenth-century father of free-market economics, was so scathingly critical of businessmen that it would be impossible to find a single favorable reference to them...

Skepticism about the business community has remained part of the tradition of free-market economists throughout the twentieth century as well, with Milton Friedman's views being very similar to those of Adam Smith on this point.

Free market competition has often been opposed by the business community...business leaders and organizations have proven equally willing to seek government intervention to keep out foreign competition, bail out failing corporations and banks, and receive billions of dollars in agricultural subsidies, ostensibly for the sake of saving family farms, but in reality going disproportionately to large agricultural corporations...

...Business leaders are not wedded to a free market philosophy or any other philosophy. They promote their own self-interest any way they can, like other special interest groups...

...efficient uses of scarce resources by the economy as a whole depends on a system that features both profits and losses. Businesses are interested only in the profit half. If they can avoid losses by getting government subsidies, tariffs and other restrictions against imports, or domestic laws that stifle competition in various agricultural products, they will do so. Losses, however, are essential to the process that shifts resources to those who are providing what consumers want at the lowest prices - and away from those who are not...

Even people who understand the need for competition, and for both profits and losses, nevertheless often insist that it should be "fair" competition. But this is a slippery word that can mean almost anything...Like discussions of fairness in other contexts besides economics, this kind of reasoning ignores the costs imposed on third parties - in this case, the consumers who pay needlessly high prices to keep less efficient businesses operating, using scarce resources which have more valuable alternative uses.

Some people consider it a valid criticism of corporations that they are "just in business to make profits." By this kind of reasoning, workers are just working to earn their pay. In the process, however, they produce all the things that give their contemporaries the highest standard of living the world has known. What matters is not the motivation but the results...the real question is: What are the preconditions for earning a profit?

One precondition is that profit-seeking corporations cannot squander scarce resources the way Soviet enterprises did. Corporations operating in a market economy have to pay for all their inputs - whether labor, raw materials, or electricity - and they have to pay as much as others are willing to bid for them. Then they have to sell their own end product at a price as low as their competitors are charging. If they fail to do both, they fail to make a profit. And if they keep on failing to amke a profit, either the management will be replaced or the whole business will be replaced by some competitor who is more efficient...

...It is in the absence of a profit-and-loss economy that there are few incentives to maintain the long-run productivity of an industrial enterprise or a collective farm, as in the Soviet Union...

Non-Profit Organizations

...what are called "non-profit organizations" can be better understood when they are seen as non-profit and non-loss institutions...

Non-profit organizations have additional sources of income, including fees from those who use their services...However, these fees do not cover the full costs of their operation - which is to say, the recipients are receiving goods and services that cost more than these recipients are paying...Such subsidized beneficiaries cannot impose the same kind of economic discipline as the customers of a profit-and-loss business who are paying the full cost of everything they get...

What changes incentives and constraints is the fact that the money received by a profit-and-loss business comes directly from those who use its goods and services, while the money received by a non-profit organization comes primarily from subsidized beneficiaries, from donors and - indirectly - from the taxpayers who pay the additional taxes made necessary by the tax exemptions of non-profit organizations. That gives the managers of non-profit organizations far more room to do what they want, rather than what either the public wants or what their deceased donors wanted when these organizations were set up.

"Trickle Down" Theory

People who are politically committed to policies of redistributing income and who tend to emphasize the conflicts between business and labor, rather than their mutual interdependence, often accuse those opposed to them of believing that benefits must be given to the wealthy in general or to business in particular, in order that these benefits will eventually "trickle down" to the masses of ordinary people. But no recognized economist of any school of thought has ever had any such theory or made any such proposal. It is a straw man...

In reality, economic processes work in the directly opposite way from that depicted by those who imagine that profits first benefit business owners and that benefits only belatedly trickle down to workers.

When an investment is made...the first money is spent hiring people to do the work...Money goes out first to pay expenses and then comes back as profits later - if at all. The high rate of failure of new businesses makes painfully clear that there is nothing inevitable about the money coming back.

Even with successful and well-established businesses, years may elapse between the initial investment and the return of earnings...The real effect of a reduction in the capital gains tax is that it opens the prospect of greater future net profits and thereby provides incentives to make current investments...

In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a "trickle-down" theory...

Part III to follow...

For the previous posting on Economic Thoughts, refer to:

Part I: What is Economics?

Economic Thoughts, Part II: Myths About Markets

This posting is Part II in a series of postings about economic thoughts.

The excerpts in this posting are taken from Chapter 23 in Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and discuss myths about markets, including: (i) morality and markets; (ii) prices; (iii) the role of profits; (iv) non-profit organizations; and, (v) "trickle down" theory.

Morality and Markets

The market is as moral or immoral as the people in it. So is the government. The fact that we call one set of people "the market" and another set of people "society" does not mean that the moral or other imperfections of the first set of people automatically justify having the second set of imperfect people over-ruling their decisions...the market...is people making their own individual choices and their mutual accomodations.

Once it was fashionable to contrast the selfishness of the isolated individual in a market economy with cooperative actions among people with a more communal spirit under various forms of socialism. One reason such rhetorical or ideological fashions no longer have the same effectiveness is the actual track record of socialist systems in practice. What also needs to be considered is the track record of market economies in creating widespread cooperation among people through individual incentives...

Is cooperation any less because the incentives behind it are the individual benefits of the participants?

Despite the painful facts of history, the idea persists in many places that political decisions are more moral than decisions made through the marketplace...

Empirical consequences, however, often matter less than deeply ingrained beliefs and attitudes. Whether in urgent or less urgent matters, many believe those with political power are better qualified to make moral decisions than are the private parties directly involved...

The idea that third party observers can impose morally better decisions often includes the idea that they can define what are "luxuries of the rich," when it is precisley the progress of free market economies which has turned luxuries of the rich into common amenities of people in general, including the poor...

Prices

There seem to be almost as many myths about prices as there are prices...

Physically identical things are often sold for different prices, usually because of accompanying conditions that are quite different...

Part of the reason for the variations in price [is] the variation in the cost of real estate in the different communities...

Another reason is the cost of inventory...going to different stores meant having different probabilities of finding what you wanted...Cost differences reflected differences in availability, which is to say, differences in the costs of maintaining inventory, even when the particular commodities were physically the same. It also meant differences in the costs measured in the time that a customer would have to spend going from store to store to find all the items on a grocery shopping list.

Mistakes or miscalculations may sometimes cause the same thing to be sold for different prices under comparable conditions temporarily, but competition usually makes this a passing phenomenon...

One of the popular myths that has become part of the tradition of anti-trust law is "predatory pricing."...

One of the most remarkable things about this theory is that those who advocate it seldom provide concrete examples of when it ever actually happened. Perhaps even more remarkable, they have not had to do so, even in courts of law...

A company that sustains losses by selling below cost to drive out a competitor is following a very risky strategy. The only thing it can be sure of is losing money initially. Whether it will ever recover enough extra profits to make the gamble pay off in the long run is problematical...it is by no means clear that eliminating all existing competitors will mean eliminating competition.

Even when a rival firm has been forced into bankruptcy, its physical equipment and the skills of the people who once made it viable do not vanish into thin air. A new entrepreneur can come along and acquire both - perhaps at low distress sale prices...enabling the new competitor to have lower costs than the old and hence be a more dangerous rival...

Bankruptcy can eliminate particular owners and managers, but it does not eliminate competition in the form of new people...Destroying a particular competitor without destroying competition can be an expensive endeavor...

The Role of Profits

Those who favor government intervention in the economy often depict those who prefer free competition as pro-business apologists. This has been profoundly wrong for at least two centuries. Adam Smith, the eighteenth-century father of free-market economics, was so scathingly critical of businessmen that it would be impossible to find a single favorable reference to them...

Skepticism about the business community has remained part of the tradition of free-market economists throughout the twentieth century as well, with Milton Friedman's views being very similar to those of Adam Smith on this point.

Free market competition has often been opposed by the business community...business leaders and organizations have proven equally willing to seek government intervention to keep out foreign competition, bail out failing corporations and banks, and receive billions of dollars in agricultural subsidies, ostensibly for the sake of saving family farms, but in reality going disproportionately to large agricultural corporations...

...Business leaders are not wedded to a free market philosophy or any other philosophy. They promote their own self-interest any way they can, like other special interest groups...

...efficient uses of scarce resources by the economy as a whole depends on a system that features both profits and losses. Businesses are interested only in the profit half. If they can avoid losses by getting government subsidies, tariffs and other restrictions against imports, or domestic laws that stifle competition in various agricultural products, they will do so. Losses, however, are essential to the process that shifts resources to those who are providing what consumers want at the lowest prices - and away from those who are not...

Even people who understand the need for competition, and for both profits and losses, nevertheless often insist that it should be "fair" competition. But this is a slippery word that can mean almost anything...Like discussions of fairness in other contexts besides economics, this kind of reasoning ignores the costs imposed on third parties - in this case, the consumers who pay needlessly high prices to keep less efficient businesses operating, using scarce resources which have more valuable alternative uses.

Some people consider it a valid criticism of corporations that they are "just in business to make profits." By this kind of reasoning, workers are just working to earn their pay. In the process, however, they produce all the things that give their contemporaries the highest standard of living the world has known. What matters is not the motivation but the results...the real question is: What are the preconditions for earning a profit?

One precondition is that profit-seeking corporations cannot squander scarce resources the way Soviet enterprises did. Corporations operating in a market economy have to pay for all their inputs - whether labor, raw materials, or electricity - and they have to pay as much as others are willing to bid for them. Then they have to sell their own end product at a price as low as their competitors are charging. If they fail to do both, they fail to make a profit. And if they keep on failing to amke a profit, either the management will be replaced or the whole business will be replaced by some competitor who is more efficient...

...It is in the absence of a profit-and-loss economy that there are few incentives to maintain the long-run productivity of an industrial enterprise or a collective farm, as in the Soviet Union...

Non-Profit Organizations

...what are called "non-profit organizations" can be better understood when they are seen as non-profit and non-loss institutions...

Non-profit organizations have additional sources of income, including fees from those who use their services...However, these fees do not cover the full costs of their operation - which is to say, the recipients are receiving goods and services that cost more than these recipients are paying...Such subsidized beneficiaries cannot impose the same kind of economic discipline as the customers of a profit-and-loss business who are paying the full cost of everything they get...

What changes incentives and constraints is the fact that the money received by a profit-and-loss business comes directly from those who use its goods and services, while the money received by a non-profit organization comes primarily from subsidized beneficiaries, from donors and - indirectly - from the taxpayers who pay the additional taxes made necessary by the tax exemptions of non-profit organizations. That gives the managers of non-profit organizations far more room to do what they want, rather than what either the public wants or what their deceased donors wanted when these organizations were set up.

"Trickle Down" Theory

People who are politically committed to policies of redistributing income and who tend to emphasize the conflicts between business and labor, rather than their mutual interdependence, often accuse those opposed to them of believing that benefits must be given to the wealthy in general or to business in particular, in order that these benefits will eventually "trickle down" to the masses of ordinary people. But no recognized economist of any school of thought has ever had any such theory or made any such proposal. It is a straw man...

In reality, economic processes work in the directly opposite way from that depicted by those who imagine that profits first benefit business owners and that benefits only belatedly trickle down to workers.

When an investment is made...the first money is spent hiring people to do the work...Money goes out first to pay expenses and then comes back as profits later - if at all. The high rate of failure of new businesses makes painfully clear that there is nothing inevitable about the money coming back.

Even with successful and well-established businesses, years may elapse between the initial investment and the return of earnings...The real effect of a reduction in the capital gains tax is that it opens the prospect of greater future net profits and thereby provides incentives to make current investments...

In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a "trickle-down" theory...

Part III to follow...

For the previous posting on Economic Thoughts, refer to:

Part I: What is Economics?

Economic Thoughts, Part I

This posting is Part I in a series of postings about economic thoughts.

The excerpts in this posting are taken from Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and define what is economics.

Chapter 1: What is Economics?

Virtually everyone agrees on the importance of economics, but there is far less agreement on just what economics is...economics is not personal finance or business administration...

To know what economics is, we must first know what an economy is. Perhaps most of us think of an economy as a system for the production and distribution of the goods and services we use in everyday life. That is true as far as it goes, but it does not go far enough...Without scarcity, there is no need to economize - and therefore no economics. A distinguished British economist named Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

... But every era has always been an era of scarcity.

What does "scarce" mean? It means that what everybody wants adds up to more than there is. This may seem like a simple thing, but its implications are often grossly misunderstood...

However, it is not something as man-made as a budget that constrains them: Reality constrains them. There has never been enough to satisfy everyone completely. That is the real constraint. That is what scarcity means...

...nothing has been more pervasive in the history of the human race than scarcity and all the requirements for economizing that go with scarcity.

Not only scarcity but also "alternative uses" are at the heart of economics. If each resource had only one use, economics would be much simpler...How much of each resource should be allocated to each of its many uses? Every economy has to answer that question, and each one does, in one way or another, efficiently or inefficiently. Doing so efficiently is what economics is all about...

Economics is not about the financial fate of individuals. It is about the material well-being of society as a whole. It shows cause and effect relationships involving prices, industry and commerce, work and pay, or the international balance of trade - all from the standpoint of how this affects the allocation of scarce resources in a way that raises or lowers the material standard of living of the people as a whole...

...life does not ask what we want. It presents us with options. Economics is just one of the ways of trying to make the most of those options.

While there are controversies in economics, as there are in science, this does not mean that economics is just a matter of opinion...

All sorts of economies - capitalist, socialist, feudal, etc. - must determine in one way or another how the available resources are directed toward their various uses. But how well they do it can lead to poverty or affluence for a whole country. That is what the study of economics is all about and that is what makes it important.

Part II to follow...

Economic Thoughts, Part I: What is Economics?

This posting is Part I in a series of postings about economic thoughts.

The excerpts in this posting are taken from Thomas Sowell's book Basic Economics: A Citizens Guide to the Economy and define what is economics.

Chapter 1: What is Economics?

Virtually everyone agrees on the importance of economics, but there is far less agreement on just what economics is...economics is not personal finance or business administration...

To know what economics is, we must first know what an economy is. Perhaps most of us think of an economy as a system for the production and distribution of the goods and services we use in everyday life. That is true as far as it goes, but it does not go far enough...Without scarcity, there is no need to economize - and therefore no economics. A distinguished British economist named Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

... But every era has always been an era of scarcity.

What does "scarce" mean? It means that what everybody wants adds up to more than there is. This may seem like a simple thing, but its implications are often grossly misunderstood...

However, it is not something as man-made as a budget that constrains them: Reality constrains them. There has never been enough to satisfy everyone completely. That is the real constraint. That is what scarcity means...

...nothing has been more pervasive in the history of the human race than scarcity and all the requirements for economizing that go with scarcity.

Not only scarcity but also "alternative uses" are at the heart of economics. If each resource had only one use, economics would be much simpler...How much of each resource should be allocated to each of its many uses? Every economy has to answer that question, and each one does, in one way or another, efficiently or inefficiently. Doing so efficiently is what economics is all about...

Economics is not about the financial fate of individuals. It is about the material well-being of society as a whole. It shows cause and effect relationships involving prices, industry and commerce, work and pay, or the international balance of trade - all from the standpoint of how this affects the allocation of scarce resources in a way that raises or lowers the material standard of living of the people as a whole...

...life does not ask what we want. It presents us with options. Economics is just one of the ways of trying to make the most of those options.

While there are controversies in economics, as there are in science, this does not mean that economics is just a matter of opinion...

All sorts of economies - capitalist, socialist, feudal, etc. - must determine in one way or another how the available resources are directed toward their various uses. But how well they do it can lead to poverty or affluence for a whole country. That is what the study of economics is all about and that is what makes it important.

Part II to follow...

Explaining the Causes of the Great Depression

There are still many people who persist in propagating the myth that the Great Depression represented a failure of the capitalist system that could only be solved by active government intervention in the economy. Like all myths, the empirical data does not support that belief even as the belief has continued to reside in the superficial understandings of many people.

Lawrence Reed at the Mackinac Center for Public Policy wrote Great Myths of the Great Depression, a very approachable document for reading by the layman.

Milton Friedman won his Nobel Prize in Economics in part for his book, Monetary History of the United States, 1867-1960, in which he offered the first rigorous explanation of what caused the Great Depression.

In the third chapter of his book, Capitalism & Freedom, Friedman offers some highlights of what is in his more indepth study of the Great Depression:

However, in view of the importance which the Great Depression of 1929-1933 played in forming - or, I would say, deforming - general attitudes toward the role of government in economic affairs, it may be wroth indicating more fully...the kind of interpretation suggested by the evidence.

Because of its dramatic character, the stock market crash in October 1929, which terminated the bull market of 1928 and 1929 is often regarded as both the start and the major proximate cause of the Great Depression. Neither is correct. The peak of business was reached in mid-1929...

For something like the first year, the contraction showed none of those special features that were to dominate its later course. The economic decline was more severe than during the first year of most contractions, possible in response to the stock market crash plus the unusually tight monetary conditions that had been maintained since mid-1928...

...it is clear that the Reserve System should already have been behaving differently than it did, that it should not have allowed the money stock to decline by nearly 3 percent from August 1929 to October 1930...

The character of the contraction changed drastically in November 1930 when a series of bank failures led to widespread runs on banks, which is to say attempts by depositors to convert deposits into currency...

Prior to 1930, there had been no sign of a liquidity crisis, or any loss of confidence in banks. From this time on, the economy was plagued by recurrent liquidity crises...These [runs on banks] were important not only or even primarily because of the failures of the banks but because of their effect on the money stock...

This was precisely the kind of a situation that had led to a banking panic under the pre-Federal Reserve banking system...

...one of the major reasons for establishing the Federal Reserve System was to deal with such a situation...

The first need for these powers and hence the first test of their efficacy came in November and December 1930 as a result of the string of bank closings...The Reserve System failed the test miserably. It did little or nothing to provide the banking system with liquidity...It is worth noting that the System's failure was a failure of will, not of power...the System had ample power to provide the banks with the cash their depositors were demanding. Had this been done, the bank closings would have been cut short and the monetary debacle averted...

The [economic] figures for the first four or five months of 1931...have all the earmarks of the bottom of a cycle and the beginning of revival.

The tentative revival was however short-lived. Renewed bank failures started another series of runs and again set in train a renewed decline in the stock of money. Again, the Reserve System stood idly by. In the face of an unprecedented liquidation of the commercial banking system, the books of the [Reserve System] show a decline in the amount of credit it made available to its member banks...

After more than two years of severe economic contraction, the System raised the discount rate...more sharply that it has within so brief a period in its whole history before or since....It was also accompanied by a spectacular increase in bank failures and runs on banks...

A temporary reversal of policy in 1932 involving the purchase of $1 billion of government bonds slowed down the rate of decline. Had this measure been taken in 1931, it would almost surely have been sufficient to prevent the debacle just described. By 1932, it was too late to be more than a palliative and, when the System relapsed into passivity, the temporary improvement was followed by a renewed collapse terminating in the Banking Holiday of 1933...A system established in large part to prevent a temporary suspension of convertibility of deposits into currency - a measure that had formerly prevented banks from failing - first let nearly a third of the banks of the country go out of existence and then welcomed a suspension of convertibility that was incomparably more sweeping and severe than any earlier suspension...

All told, from July 1929 to March 1933, the money stock in the United States fell by one-third...it is literally inconceivable that money income could have declined by over one-half and prices by over one-third in the course of four years if there had been no decline in the stock of money. I know of no severe depression in any country or any time that was not accompanied by a sharp decline in the stock of money and equally of no sharp decline in the stock of money that was not accompanied by a severe depression.

The Great Depression in the United States, far from being a sign of the inherent instability of the private enterprise system, is a testament to how much harm can be done by mistakes on the part of a few men when they wield vast power over the monetary system of a country...

ADDITIONAL INFORMATION:

In the comments section below, Marc has added some important links that further elaborate on the causes for the Great Depression. In addition to the Lawrence Reed piece from the Mackinac Institute referenced above, Marc guides us to:

The Government and the Great Depression by Chris Edwards, Director of Tax Policy at the Cato Institute

The Fed's Depression and the Birth of the New Deal by Paul Craig Roberts and Lawrence Stratton

You can also learn more by reading FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression.

ADDITIONAL INFORMATION II:

Professor Don Boudreaux from Cafe Hayek has more.

The Difference Between Private Sector and Public Sector Unions

Jon Coupal and Richard Rider have written Private and Public Sector Unions are not Equal, in which they say:

...When government watchdogs ask reasonable questions about the wisdom of promising high pay and lavish pensions that are far above what is available to most private sector workers, union leaders accuse critics of being "anti-union." In this manner, they hope to protect their efforts under the umbrella of America's labor union movement. After all, the implication of calling someone "anti-union" is that the person favors sweatshops and employer tactics that use coercion to deny workers a fair wage in return for their labor.

However, government worker unions have little in common with the private sector unions that have spearheaded the American labor movement -- aside from the "union label."

Taxpayer advocates have no fundamental problem with private worker labor unions. There we see the proper balance between labor and management, between employees and owners. While some may disagree with an individual union's policies and tactics -- just as they may disagree with a company's conduct -- most understand that these unions are a part of a productive private sector...

But public employee labor unions are another matter. In essence, particularly on the local level, they select the "owners," or at least the management. They expend manpower and money to see that "their" candidates are elected to office. This way, when it is time to sit down at the bargaining table to discuss wages and benefits, the union has representatives on both sides of the table. There is no balance -- quite the opposite. The fox is guarding the henhouse. And the taxpaying citizens are on the menu.

A major difference between private and public entities is that the private firms have to earn their money through voluntary transactions. For all their rhetoric, private employee union leaders usually understand that it's best that the companies they negotiate with be competitive enough to stay in business and thrive -- and businesses can do that only if they provide a desirable good or service at a price the customers are willing to voluntarily pay.

On the other hand, public employee unions rely on the coercive power of government to tax anyone and anything within their jurisdiction...

Does this make the government union members "bad guys?" No, they are simply acting in their own, and their members', self-interest. But they are playing a zero sum game, thanks to the involuntary nature of taxation. Every dollar that goes to a government worker has to be taken from someone else by the threat of force.

And remember, public employees have something that private employees do not -- a civil service system. Indeed, there is good argument that collective bargaining for public employees is unnecessary because of all the employment protections they already receive. (Ever tried to fire a public employee?)

We need balance to protect the real owners of the public sector -- the vast majority of citizens and taxpayers who do not work for a city, county or state government. It is time to break the government worker union hammerlock by giving the private sector a chance to provide government services at a substantial cost savings...

The authors' description of the political dynamics surrounding public sector unions is explained further in The Radically Different Visions of Tax-Eaters Versus Taxpayers.

Senator Chafee's FEC Complaint Against Mayor Laffey: A Bundle of Information About Bundling

The most recent press release issued by the Chafee campaign concerning their Federal Election Commission complaint against the Laffey campaign may leave people with two mistaken impressions...

In an interview with News Channel 12, Mayor Steve Laffey has admitted that his campaign never reported the approximately $300,000 it received from the Club for Growth in its Federal Election Commission forms, a direct violation of FEC law.

Mayor Laffey initially characterized the formal complaint as filled with “frivolous and baseless charges.” When asked by News Channel 12, however, Laffey freely admitted that the special interest group, the Club for Growth, appears nowhere in his FEC filing. Laffey responded to questions about whether or not the campaign had reported that the Club for Growth had bundled the approximately $300,000 in campaign contributions by stating “no we didn’t, nor did we think we’d have to.”

One mistaken impression is that the FEC complaint concerns contributions made by the Club for Growth and not by individual donors. The other mistaken impression is that the Laffey campaign failed to report the receipt of a large sum of money to the FEC.

What Mayor Laffey is trying to explain in the second paragraph is that his campaign did report receiving the contributions, but did not report that they were “bundled”. What, you ask, does that mean?

Sources familiar with various points of the fundraising chain explain “bundling” as follows. The Club for Growth collects checks made out directly to the Laffey campaign, literally places them into a “bundle” (like a Federal Express package) and mails them to Laffey headquarters. The Laffey campaign makes an appropriate campaign finance filing for each individual donation in the bundle and counts the amount of each donaiton against the contribution limit of the individual who made it.

Campaign finance law is explicit about how bundled contributions are to be treated…

Anyone who receives and forwards an earmarked contribution to a candidate committee is considered a conduit or intermediary…

Individuals, political committees, unregistered committees and partnerships may act as conduits for earmarked contributions…

An earmarked contribution is considered to have been made by the original contributor, thus counting against his or her contribution limit with respect to the recipient candidate. The conduit’s own contribution limit is normally not affected unless the conduit exercises direction or control over the contributor’s choice of recipient candidate…

The conduit must forward an earmarked contribution to the recipient authorized committee within 10 days. The conduit’s report to the recipient (described below) must be forwarded along with the contribution…

An earmarked contribution must be reported by both the conduit (political committee or unregistered entity) and the recipient authorized committee.

What the Laffey campaign apparently has not been doing, which it is legally required to do, is the last item -- making a record of which of its donations have arrived in bundled packages.

But if the Laffey campaign has been diligently recording the appropriate information about all of the individual donations that comprise the bundles, then this is not a Matt Brown-type attempt to circumvent campaign finance limits by tapping donors multiple times in excess of what they are legally allowed to give. The contributions involved in the Chafee complaint are 1) from individuals who want to give money to the Laffey campaign, 2) from individuals who are giving money directly to the Laffey campaign and not through some network of PAC or party committee intermediate accounts and 3) from individuals who have not maxed out for the year on what they are allowed to give to the Laffey campaign.

If the Chafee campaign is alleging that there is money from unaccounted sources in the Laffey campaign account, they need to clarify that point.

Michaud to Challenge Carcieri II

As previously mentioned, Dan Yorke reported yesterday that Brown Economics Professor and Beacon Mutual advisor Dennis Michaud had filed papers to run against Governor Carcieri in the Republican Gubernatorial primary. Now the ProJo has provided further information.

Michaud...said he decided to challenge Carcieri because of the incumbent's "failed economic performance" and "failed performance to deliver on jobs."

"I just think there is no leadership up at the State House that I can see because I've worked with the Carcieri administration. I've done a lot of work in the administration," Michaud said, and "I just don't think the governor is an effective leader."

Michaud said he plans a formal announcement at 2 p.m. on Tuesday at either the State House or Prospect Park...

Michaud yesterday declined to name his backers, but he said he has "support in the Brown community and local business community" and has also "talked with past chairmen of the Republican party, so these are some serious people."

...Richard Reed, deputy director of the state Economic Development Corporation, confirmed that his agency was one of the sponsors of a one-day conference hosted by Brown's corporate-governance research program, and that Michaud was one of eight volunteers on a work group that helped guide the spinoff, from the EDC, of the Quonset Development Corporation.

Beyond that, Reed said Michaud's description of his work for the Carcieri administration was "more generous than I would characterize it."

Late yesterday, Carcieri campaign manager Tim Costa issued this statement: "There are now three candidates running for governor in the November election: the Republican candidate, the Democratic candidate and the Beacon Mutual/labor-insider candidate."

"Sadly, Mr. Michaud's purported candidacy proves that the insiders responsible for the mismanagement and possible criminal activity at Beacon Mutual will stop at nothing to protect themselves from public scrutiny," Costa said.

The ProJo also provided a good summation of the history of the back-and-forth between Michaud and the Carcieri Administration over Beacon Mutual.

New Education Partnership Report on Rhode Island Teachers' Union Contracts

The Education Partnership has announced the publication of its second report, Teacher Contracts: Restoring the Balance, Volume II.

The new report is described in a ProJo article entitled Report: Teachers' benefits 'excessive': Teacher contracts in Rhode Island focus too much on "excessive adult entitlements," such as lifetime health benefits, a business-backed education report states. Union officials call the study "an attack on teacher unions.":

Teacher union contracts are a major stumbling block to improving education in Rhode Island, according to a business-backed organization that is issuing a report today.

The report...says teacher contracts in Rhode Island focus too much on "excessive adult entitlements" -- such as lifetime health benefits, extra pay for professional development and seniority rights -- and not enough on student learning.

The report urges political, education and community leaders to work together to change the laws that govern contract negotiations.

The report is the second in two years from The Education Partnership that criticizes teachers' unions. Last year's report recommended sweeping changes in the way teachers' contracts are negotiated, calling for such issues as salaries, benefits and evaluations to be decided at the state level, not by the local districts.

"Unions have got to get back in balance so they aren't focused solely on membership and benefits, and instead are focusing on the kids," said Valerie Forti, executive director of The Education Partnership. "It's not like we have the answers to all these things, but we know what we have now is not working."

Despite the fact that Rhode Island teachers are among the highest paid in the nation, student performance continues to lag, particularly in urban districts, which have high concentrations of low-income residents, recent immigrants and English language learners. Taxpayers and parents are fed up, and are asking where the money is going, Forti said.

"Rhode Island has shown it is willing to pay top dollar for our schools, because we know good education is expensive. We are not advocating to reduce teacher salaries or remove health care [benefits] and we understand teachers need retirement benefits," Forti said. "But it is not beneficial to bankrupt communities to provide excessive adult benefits."

The partnership also examined 13 teacher contracts and cited several examples they found egregious. The Providence teacher contract specifies the insurance provider and allows retirees and their spouses lifetime health insurance after age 65. Teachers in Bristol/Warren retiring with at least 10 years of service can get paid for unused sick time; the maximum allowed for a teacher with 35 years is about $30,000.

As is customary in Rhode Island, union officials are whining:

As they did with last year's report, union officials called the study "an attack on teacher unions" and "an attempt to gut collective bargaining in Rhode Island."

Union officials also questioned why The Education Partnership did not include them while compiling the reports.

"If we did not have teacher contracts in place, both teachers and students would be significantly worse off in Rhode Island," said Robert A. Walsh Jr., executive director of the state chapter of the National Education Association. "We would not have the quality of teachers we have and things like class size, the structure of the school day and professional development would not be protected."

Putting more authority in the state or school administrators, Walsh said, would cause problems, not solve them. "There is no one-size-fits-all solution," Walsh said. "The issues facing Providence are different than those facing Westerly, and to say there is one answer is crazy."

If a statewide health plan cost a community more than the current plan, who would pay the difference? he asked. If principals chose their teachers, doesn't that open the door to favoritism? Job fairs and job placement based on seniority are more fair and objective than other methods, Walsh said.

Yes, paying the best and worst teachers the same salary based on comparable seniority provides a real incentive for great teachers to excel, doesn't it? Mr. Walsh's comments show such mastery of what works in the real world!

The article continues with comments from the state's leading educational bureaucrat:

Some educators credited The Education Partnership with highlighting many of the pertinent issues many groups are working on, but criticized some language in the report as anti-union. Instead, a statewide discussion needs to include all parties, they say.

"To pull this whole thing off, the conversation should not be about breaking unions but supporting that component of unionism that is where leadership wants to be accountable for results," said Peter McWalters, Rhode Island's education commissioner.

McWalters said he does not agree with everything in the report and believes that some problems can be worked out without changing state law. "But I do think the contracts are part of the problem," he said. "At the same time, if someone thinks the only difference in performance between Scituate and Providence is the teacher contracts, that's just not the case. It's more complicated than that."

Only a bureaucrat would propose a statewide conversation about issues like what East Greenwich is dealing with: (i) 9-12% annual salary increases; (ii) essentially no copayments on health insurance premiums; and, (iii) $5,000 annual cash buybacks for not using health insurance. The working families and retirees of Rhode Island don't need any more conversations because they know excessive adult entitlements when they see them!

The 58-page report makes several recommendations, including having school committee members take an oath to put student interests first and having committees insert language that would make teachers accountable, such as creating an evaluation system and merit-based pay.

Other recommendations include making professional teacher development part of a longer, 190-day school year that would not require extra compensation and extending the teacher work day to eight hours...

Tim Duffy, executive director of the school committee association, says his organization would not oppose having school board members take an oath and learn more about contract negotiation. Duffy said his group already provides some training in collective bargaining.

But, he said, state law favors unions, and making progress would be difficult.

"Negotiating a contract with public employees is extremely difficult, because there is not a level playing field," Duffy said.

Duffy also agrees with the Partnership's recommendation that some items should not be part of the bargaining process. He thinks that issues such as health insurance, making teachers supervisors and curriculum should be decided by school committees.

"As a good practice, you should consult with teachers, but it should be purely the prerogative of the school committee to make these decisions," he said.

Can you imagine: Local communities actually having control and responsibility for their town's educational policies? Most citizens do not appreciate how union contracts provide almost no flexibility for the use of good judgment as school officials have only limited management rights under these contracts. It is not completely out of line to say that today's teachers' union contracts are structured as if we were living in the manufacturing era from nearly 100 years ago.

Some lawmakers say the tide is turning, and more taxpayers want changes to teacher contracts and the school system.

"Some of the things The Education Partnership is concerned about are currently being addressed in a more meaningful way than ever before," said state Rep. Paul W. Crowley, D-Newport...

"My opinion is, I've seen a change in the mood out here that's being driven by state's movement toward accountability and by dollars," Crowley said...

It is the beginning of a new day in Rhode Island. We have been overpaying for underperformance for too long. People across the state are fed up. And we are not going to take it anymore. We cannot afford to send our children out into a global economy without the tools to compete successfully.

The first report by the Education Partnership can be found here.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part V

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is the fifth of five postings which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

WALL STREET JOURNAL

The Wall Street Journal, which has supported a different view than many conservatives on illegal immigration, offered an editorial entitled Reagan on Immigration (available for a fee), which noted:

One myth currently popular on the political right is that the immigration debate pits populist conservatives in the Ronald Reagan mold against Big Business "elites" who've hijacked the Republican Party. It's closer to the truth to say that what's really being hijacked here is the Gipper's reputation.

One of the Reagan Presidency's symbolic highlights was the July 3, 1986, celebration of a refurbished Statue of Liberty and Ellis Island, the gateway for immigrants a century ago...To Reagan, the conservative optimist, immigration was a vital part of his vision of this country as "a shining city upon a Hill," in the John Winthrop phrase he quoted so often. It was proof that America remained a land of opportunity, a nation built on the idea of liberty rather than on the "blood and soil" conservatism of Old Europe...

In 1980, according to the book "Reagan: His Life in Letters" (page 511), the then-Presidential candidate wrote to one supporter that "I believe we must resolve the problem at our southern border with full regard to the problems and needs of Mexico. I have suggested legalizing the entry of Mexican labor into this country on much the same basis you proposed, although I have not put it into the sense of restoring the bracero program." The bracero program was a guest-worker program similar to the one now being proposed by President Bush. It was killed in the mid-1960s, largely due to opposition from unions...

"Some months before I declared, I asked for a meeting and crossed the border to meet with the president of Mexico. I did not go with a plan. I went, as I said in my announcement address, to ask him his ideas -- how we could make the border something other than a locale for a nine-foot fence." So much for those conservatives who think the Gipper would have endorsed a 2,000-mile Tom Tancredo-Pat Buchanan wall...

It's true that in November 1986 Reagan signed the Immigration Reform and Control Act, which included more money for border police and employer sanctions. The Gipper was a practical politician who bowed that year to one of the periodic anti-immigration uprisings from the GOP's nativist wing. But even as he signed that bill, he also insisted on a provision for legalizing immigrants already in the U.S. -- that is, he supported "amnesty."...

PETER ROBINSON

Former Reagan speechwriter, Peter Robinson, writes this:

You offer a perfectly sensible explanation, Mark, and, no, I don’t have any other ideas. But Bush’s motives are on my mind, in part because of an editorial in the Wall Street Journal the other day. Reagan, the Journal, argued, was a cheerful, inclusive figure. He would therefore have stood about where Bush stands, welcoming the new immigrants to this country.

I’m not at all sure. Reagan was indeed cheerful and inclusive. But he was also in touch with the American people. He shaped his conservative ideas during the years he worked for General Electric—years when he traveled from factory to factory, speaking to tens of thousands of ordinary Americans. And as president he wrote most of the eight thousand or so letters he composed to simple citizens, not to Cabinet officals or grandees, explaining his views—and, now and again, adjusting them. Reagan would therefore have known just how strongly the American people feel about the need to control our borders. Reagan would indeed have taken care to avoid insulting immigrants, legal or illegal. But he'd have stood with the great body of ordinary Americans...

NEWS FROM MEXICO

Of course, today's Mexican leadership is taking a different stance from those past years, as shown in this article, which stated:

Mexico said Tuesday that it would file lawsuits in U.S. courts if National Guard troops on the border become directly involved in detaining migrants... President Bush announced Monday that he would send 6,000 National Guard troops to the 2,000-mile border, but they would provide intelligence and surveillance support to Border Patrol agents, not catch and detain illegal immigrants.

"If there is a real wave of rights abuses, if we see the National Guard starting to directly participate in detaining people ... we would immediately start filing lawsuits through our consulates," Foreign Secretary Luis Ernesto Derbez told a Mexico City radio station...

And there are reports of political instability in Mexico, too.

With H/T to Instapundit, here is another story on Mexican politics where the leftist candidate is saying illegal immigration is Mexico's disgrace:

Illegal immigration to the United States is "Mexico's disgrace," caused by the government's failure to create enough jobs, the country's leftist presidential candidate said on Tuesday.

Andres Manuel Lopez Obrador, who trails conservative Felipe Calderon in polls ahead of July 2 elections, accused President Vicente Fox's administration of causing the flight of millions of Mexicans to the north, which prompted President Bush to order National Guard troops to the border.

"They are the ones mostly responsible for what is going on because there is no employment, there are no jobs in Mexico so people need to emigrate," Lopez Obrador said on his morning television show."

He said Bush's plan, announced on Monday night, to deploy up to 6,000 National Guard troops to help secure the Mexican border would not end the flow of illegal aliens.

"It is not the solution. It is not an alternative but it is a disgrace for us Mexicans because of the irresponsible rulers of this country," the leftist said...

Lopez Obrador's comments echoed those of some U.S. critics who say Mexico should do more to keep its people at home...

GLENN REYNOLDS

Glenn notes:

...If Mexico were to reduce corruption and cronyism, and promote openness and the rule of law, its economy would grow and the flood of immigrants to the United States would shrink to a trickle. Unfortunately, the Mexican "right" is wedded to state power, and it seems unlikely that a Mexican leftist regime would enact those sorts of decentralizing economic reforms. That's too bad, as a Chilean-style economy would solve a lot of problems on both sides of the border.

MICHELLE MALKIN

Michelle Malkin continues to follow the issue closely:

Same Old, Same Old (updated)

A Crime Americans Didn't Do tells a terribly sad story.

"Call It A Banana", which notes a "debate" between Senators McCain and Hagel on one side and Senator Vitter on an opposing side.

100,000 = 400, which notes:

Illegal alien activists secured a protest permit in Washington, D.C., for their ballyhooed May 17 Amnesty Rally yesterday. They expected 100,000 people to come.

Only 400 showed up...

LA Times: Open-Border Hacks, which notes:

Yesterday, the Los Angeles Times ran a piece of open-borders propaganda masquerading as journalism, which featured a Riverside, Calif., landscaper named Cyndi Smallwood who claims she can't find workers to dig ditches even at $34 an hour.

The claim seems preposterous, but the Times assures us that Smallwood has no ideological ax to grind. She is "ambivalent on immigration reform," the Times reports. Just an ordinary landscaper, you know.

But it turns out there's a tiny bit more to the story that the LA Times isn't telling you. Reader Christopher L. wrote this morning to point out that a simple Google search shows that Cyndi Smallwood is president of the Orange County chapter of the California Landscape Contractors Association, and is a member of the association's "Immigration Task Force." The activist group opposes the "Punitive Immigration Reform Bill Proposed by Rep. Sensenbrenner."

Be sure to check out Malkin's Immigration Blog.

AMNESTY

The Washington Times explains how Americans don't like the sound of 'amnesty':

President Bush's oft-stated claim that providing illegal aliens a "path to citizenship," such as by allowing them to pay a fine or prove long-term employment, isn't amnesty rings hollow for critics who see it as rewarding lawbreakers.

Political observers say disagreement over the very meaning of the word "amnesty" is fueling what was an already raging debate over pending immigration legislation.

The word "amnesty" carries a certain "radioactivity," says pollster John Zogby.

"Why? Simply because Americans favor playing by the rules," he said. "Anything that sounds illegal, unfair, it's tantamount to using steroids to hit home runs or to win a marathon. When the word amnesty comes up it means condoning actions of people who are not playing by the same rules."

Most dictionaries define amnesty as a pardon granted by government to someone who has committed a political offense or broken a law.

The president has repeatedly asserted that illegal aliens should not be given amnesty, "an automatic pass." But Mr. Bush has suggested some form of quid pro quo for productive illegals now in the United States.

"There ought to be a way for somebody to pay a fine or learn English, or you know, prove that they've been here for a long time working and be able to get in line, not the head of the line, but in the back of the line in order to become a citizen," Mr. Bush said Tuesday.

Opponents disagree, saying what the president has described is equal to simply overlooking the offense of entering the U.S. illegally. The fear, according to some, is that such a move would result in a repeat of 1986 when President Reagan approved the last amnesty, which allowed 2 million illegals to become residents.

"It worked so badly that we can't even use the word anymore," said Robert Rector, a senior research fellow at the Heritage Foundation. He said many more people claimed the right than expected.

As part of a quid pro quo, the 1986 law provided amnesty and carried new penalties for employers found to have hired illegals. The problem, according to Mr. Rector, is that "the second part of the thing never happened."

"Conservatives supported it in '86 because they felt they were going to get a secure border in exchange for amnesty," he said. "It's exactly the same type of fraudulent deal that we're being offered now."...

ANCHOR RISING

There have been nine recent postings on Anchor Rising about immigration:

Identifying Four Core Issues Underlying the Immigration Debate

More Misguided Thinking From RIFuture & State Legislators on Illegal Immigration

Why is Congress Discriminating Against Educated Legal Immigrants?

More Links on Immigration Issue

Asleep at the Border

Senate Rejects Securing the Borders while Supporting Increased Presidential Power

Senator Reed Votes For Open Borders

Does The Rule Of Law & A Sense Of Fair Play Matter Anymore? The Debate About In-State Tuitions For Illegal Immigrants

Jennifer Roback Morse: Further Clarifying What is at Stake in the Illegal Immigration Debate

Part VI to follow...

For previous posting information, refer to Parts I, II, III, and IV.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part IV

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is the fourth of five postings which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

U.S. SENATE DEVELOPMENTS

Here is some information on the major activities in the U.S. Senate during the last week.

Senator Sessions Bill

Power Line reports on Senator Session's bill to build a fence on the border and identifies the 16 Democrats who voted against it. The full vote count is here.

The Washington Times has more.

Deborah Orin of the NY Post (H/T Power Line) adds these comments:

When the Senate voted by a stunning 83-16 in favor of a reinforced fence along the Mexico border yesterday, it showed that lawmakers are feeling get-tough winds blowing from the grass roots. Even 2008 presidential prospects like Sens. Hillary Rodham Clinton (D-N.Y.) and John Kerry (D-Mass.) voted for the 370-mile fence, and several Democrats who first voted no switched nervously to yes.

"Voters are very clear that they want the situation at the border addressed first," said independent pollster Scott Rasmussen, who's found huge enforcement-first majorities in 33 states he polled.

"The real debate isn't about what to do with the illegal aliens who are already here," Rasmussen said. "It's about what to do to keep more from coming here."

In The Price of a Fence, Michelle Malkin notes:

...The Senate voted to build 370 miles of triple-layered fencing along the Mexican border Wednesday and clashed over citizenship for millions of men and women who live in the United States illegally.

Amid increasingly emotional debate over election-year immigration legislation, senators voted 83-16 to add fencing and 500 miles of vehicle barriers along the southern border. It marked the first significant victory in two days for conservatives seeking to place their stamp on the contentious measure.

But if the price of the fence is this...

The prospects were less favorable for their attempt to strip out portions of the legislation that could allow citizenship for millions of illegal immigrants and create new guest worker programs.

...is it worth it? And given past history and yesterday's vote against enforcement first, you already know which provision--the amnesty, not the fence--is the Senate's top priority and which will be in place first.

Senator Vitter's Bill

In a separate bill, Breitbart reports: "[Senator] Vitter led the drive to strip from the bill a provision giving an eventual chance at citizenship to illegal immigrants who have been in the country more than two years. His attempt failed, 66-33, at the hands of a bipartisan coalition, and the provision survived. In all, 41 Democrats joined with 24 Republicans and one independent to turn back the proposal. Opponents included the leaders of both parties, Sens. Bill Frist, R-Tenn., and Harry Reid, D-Nev. Thirty-one Republicans and two Democrats supported Vitter's amendment."

Vote count is here.

Senator Cornyn Bill

Kathryn Jean Lopez has information on the Cornyn bill, which had this objective:

As currently written, the immigration bill pending before the Senate would allow unskilled temporary workers – 200,000 a year – to obtain permanent green cards regardless of whether U.S. workers are available to fill the jobs. The Cornyn amendment would fix that flaw in the pending bill.

[After an employer searches for an American citizen to fill the job,] [t]he Cornyn amendment would require [the company to apply to] the Department of Labor to certify that there is not a U.S. worker who is able, willing, qualified and available to fill the job that is [subsequently] offered to the foreign worker.

As a Washington Times article stated: "The purpose of the bill is to ensure the job market isn't flooded with foreign workers. Also, it prevents foreign workers from coming to the United States only to wind up unemployed and dependent on public assistance."

The vote count can be found here.

Senator Kennedy Bill

However, a subsequent Kennedy bill effectively gutted the Cornyn bill by allowing foreign workers to apply for permanent residency without first having a job, i.e., the foreign workers can apply for guest worker status on their own, even without having a job.

Senator Cornyn was quoted in the same Washington Times article as saying: "What that means is that up to 200,000 unskilled workers a year would become eligible for a green card, regardless of economic conditions, regardless of whether that worker has been actually employed for four years, and most importantly, regardless of whether there are unemployed U.S. workers available to fill those jobs."

Vote count is here.

Senator Isakson's Bill

Later, Malkin reports that The Senate Rejects Enforcement 1st, which notes:

The Senate defeated, 55 to 40, a proposal by Senator Johnny Isakson, Republican of Georgia, that lawmakers demand that border-security measures be in place before beginning a guest-worker program of the kind envisioned by President Bush.

The 55 senators rejected Mr. Isakson's argument that, if the Congress did not act now, it would have to a decade or so from now, and that "instead of 10 million or 12 million, it will be 24 million" illegal immigrants at issue.

The posting lists who voted for open borders. The vote count is here. The Washington Times has more.

Senator Ensign's Bill

Michelle Malkin also reports that the Senate has killed Senator Ensign's amendment. The Washington Times has more, including these words:

The Senate voted yesterday to allow illegal aliens to collect Social Security benefits based on past illegal employment -- even if the job was obtained through forged or stolen documents.

"There was a felony they were committing, and now they can't be prosecuted. That sounds like amnesty to me," said Sen. John Ensign, the Nevada Republican who offered the amendment yesterday to strip out those provisions of the immigration reform bill. "It just boggles the mind how people could be against this amendment."...

"It makes no sense to reward millions of illegal immigrants for criminal behavior while our Social Security system is already in crisis," said Sen. Jim DeMint, South Carolina Republican. "Why in the world would we endorse this criminal activity with federal benefits? The Senate missed a big opportunity to improve this bill, and I doubt American seniors will be pleased with the result."...

Here is one blogger's description of the bill:

Should ILLEGAL immigrants, once made legal by the McCain legislation, be entitled to receive the Social Security benefits they have paid into the system while ILLEGALLY using FRAUDULENT Social Security numbers STOLEN from actual, legal citizens of the United States of America.

The fact that this is even up for debate is just beyond insane. Everyone knows we will never have enough Social Security funds to serve, you know, actual citizens.

Every single one of those senators knows that, and they're debating whether we should extend such non-existent, unsustainable, budget-busting, generation-saddling benefits to millions of people who fraudulently entered the system by stealing the identities (and sometimes ruining the credit) of legal Americans?!?

Sen. Ensign, God bless him, offered an amendment suggesting illegals should not be eligible for Social Security benefits accrued while illegal.

Power Line has more. Vote count is here.

Senator Inhofe's Bill

The Senate has passed the Inhofe Amendment whose statement of purpose is to "declare English as the national language of the United States and to promote the patriotic integration of prospective US citizens."

This amendment also makes English the default language for government communication and redesigns the naturalization exam. The newly designed naturalization exam would require the following citizenship test goals:

Demonstrating sufficient understanding of English for usage in everyday life; Understanding of common values; Understanding American history; Attachment to the Constitution Understanding the rights and responsibilities of citizenship.

Power Line has more here. The vote count is here.

Senator Salazar's Bill

Subsequently, the Senate passed an amendment offered by Senator Salazar, which has these words as its statement of purpose: "To declare that English is the common and unifying language of the United States, and to preserve and enhance the role of the English language." Only time will tell whether that statement truly has any practical meaning and how it relates to the Inhofe amendment.

Vote count for the Salazar amendment is here.

Senator Kyl's Bill

The Senate has Senate voted to kill Kyl amendment , which "would have denied a chance for permanent status and eventual citizenship to illegal immigrants who have been in the country less than five years and to any future immigrants who enter the country under the guest-worker program. Opponents said the amendment...would have gutted the bipartisan bill that allows guest workers an opportunity to seek permanent residence." More information can be found here. The vote count is here.

RASMUSSEN STATE-BY-STATE POLL

The last Power Line posting references the state-by-state Rasmussen immigration poll, which shows "In every state surveyed except Massachusetts, at least 60% of respondents say we should 'enforce existing laws and control the border before considering new reforms.'"

MICKEY KAUS (H/T Instapundit)

Instapundit notes that Mickey Kaus has been posting up a storm, with a critique of Blankley's editorial, Deborah Orin, the Rasmussen poll, and a variety of other topics. Worth the read.

STANLEY KURTZ

Stanley Kurtz critiques Kaus' comments:

Mickey Kaus has a sharp critique of Tony Blankley’s suggested immigration compromise over at Slate. Kaus’s points have to be taken seriously, but I’m not convinced. Kaus dismisses Blankley’s opposition to amnesty by saying that Blankley’s not actually proposing a compromise, but an unattainable Republican victory. Then Kaus says Republicans ought to kill amnesty now by sinking the whole bill. Kaus says we should wait to push an amnesty-free bill under the next president.

So Kaus thinks an amnesty-free bill is impossible now, but just might squeak through in a new administration. Pushing for an amnesty-free bill now, says Kaus, will yield a bogus partial amnesty, lawyered up with loopholes that amount to a conservative loss. Maybe so, but waiting to pass an amnesty-free bill under a new president sounds like pie-in-the-sky to me. Pro-amnesty Democrats and a split Republican Party are likely to recreate today’s political dynamic, whoever the next president is. That would mean a weakened Republican Party for some time. It also means that our likely choice will continue to be between a compromise bill and no bill at all.

If whatever compromise we get has liberal amnesty provisions, no bill at all is the way to go. But Kaus isn’t worried by the political consequences for Republicans of a failed bill. I am. (Or, who knows, maybe Kaus understands perfectly well how politically helpful to Republicans a successful compromise would be.) If Kaus is right that an amnesty-free, or nearly amnesty-free, bill turns out to be impossible, then let the House Republicans walk away at that point. But I think it’s in the Republicans’ interest to push for a compromise that the country would favor, whether it ultimately passes or not. I think the public would respond well to a Blankley-like formula. Let the Democrats take the blame for sinking the bill because they insist on strong amnesty provisions. If forced to choose between a very weak citizenship track and no bill at all, I’m betting the president would sign the bill...

Part V to follow...

For previous posting information, refer to Parts I, II, and III of this posting.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part III

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is the third of five postings which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

DAVID FRUM

David Frum offers this critique of blogger Matt Yglesias who had criticized Samuelson's comments by referencing an American Immigration Law Foundation (AILF) study on Hispanic assimilation:

...[AILF's] own data show that even the grandchildren of the pre-1965 Mexican and Latino population still lag substantially behind native Anglos.

Their data show that the intergenerational progress for Hispanics slowed to a halt after 1980.

Their data show that today’s native-born Hispanics continue to drop out of school at rates nearly double those of Anglos.

And yet on the basis of this same disturbing data, the AILF authors conclude that the very poor, very rural, very uneducated Mexicans arriving illegally today will assimilate just fine over the decades to come.

I share Yglesias’ wish to believe that the current mass migration from Mexico will end well. Even with the strictest enforcement, many millions of the Mexicans who have arrived in the US since 1986 will probably end up staying here. It would be nice to think that they will emulate the experience of the Italians, Greeks, and Poles who arrived before 1924.

Nobody questions that most Mexican migrants work hard and mean well. What is in question are the results of their efforts - for themselves and for the new society that is accepting responsibility for them and their children and grandchildren . So far, those results are troubling. When writers like Samuelson raise those facts, they are showing genuine, not sarcastic, “courage.” And when bloggers like Yglesias jeer at those who mention unwelcome truths, and accept weak research to justify their determination to hear only what pleases them, they are not acting in the spirit of racial tolerance, and much less of serious intellectual inquiry. They are engaged in wishful thinking compounded with intellectual bullying. Not a pretty sight.

DEMOCRACY PROJECT

Mitchell Langbert writes about Immigration Reform and the Decline of Education:

Morse raises the important question of whether immigrants from Mexico are equipped to live in a society governed by the rule of law. I think that this is a valid and critically important question, and one that the left wingers on our campuses would not likely ask because it is a politically incorrect question.

The rule of law is fundamental to a functioning economy and a democratic society, and it is likely the fact that many third world countries are corrupt that prevents more rapid development. Mexico is a case in point. My classmate from Columbia University, Utpal Bhattycharia did a study a number of years back where he related the degree of corruption per country to the stock prices per country, and indeed found that corruption has a dampening effect on market valuation.

There are many wonderful things about Mexican culture. These include their wonderful food, the fact that Mexicans are hard working and many other assets. However, a successful political system and economy are not among their strengths. Nor is respect for the rule of law a characterisitc of Mexican culture. Indeed, the Spanish language is hardly associated with democracy. It is only in the past three decades that democracy has appeared in Spanish-speaking countries, and then in fits and starts...

America has faced this problem before. Immigrants who do not share mainstream American values have immigrated here. The past record is mixed...As the great grandchild and grandchild of such immigrants I have concluded that it takes at least three generations, maybe more likely five generations, for Americans to assimilate. However, that assumes functioning school systems.

...the schools are infested with absurd approaches such as multilingual education and identity politics that may result in self-esteem for the students (or not, who knows whether the advocates of these programs are even capable of testing whether they work)but are highly destructive of participation in the American polity. The history of multilingual societies such as the French in Canada suggests that multilingualism is destructive and will make it even more difficult for immigrants to America to adjust. These are concerns that economists and libertarians who are right in their rationality but wrong in their culture overlook.

Immigration reform needs to be associated with education reform. Making English the official language of the United States, elimination of fraudulent multi-lingual education programs and requiring all immigrants to learn English while inconsistent with libertarian purity is likely goood common sense.

PROFESSOR BAINBRIDGE

Professor Bainbridge references an open letter by economist Alex Tabarrok, including this excerpt:

Immigrants do not take American jobs. The American economy can create as many jobs as there are workers willing to work so long as labor markets remain free, flexible and open to all workers on an equal basis.

Immigration in recent decades of low-skilled workers may have lowered the wages of domestic low-skilled workers, but the effect is likely to be small, with estimates of wage reductions for high-school dropouts ranging from eight percent to as little as zero percent.

While a small percentage of native-born Americans may be harmed by immigration, vastly more Americans benefit from the contributions that immigrants make to our economy, including lower consumer prices. As with trade in goods and services, the gains from immigration outweigh the losses. The effect of all immigration on low-skilled workers is very likely positive as many immigrants bring skills, capital and entrepreneurship to the American economy.

Legitimate concerns about the impact of immigration on the poorest Americans should not be addressed by penalizing even poorer immigrants. Instead, we should promote policies, such as improving our education system that enables Americans to be more productive with high-wage skills.

POWER LINE

Reconquista, Here We Come!, which links to an important Washington Times article about Senator Sessions and a Heritage Foundation study commented on earlier by Andrew (see below for link)

The Senate immigration reform bill would allow for up to 193 million new legal immigrants -- a number greater than 60 percent of the current U.S. population -- in the next 20 years, according to a study released yesterday.

Sen. Jeff Sessions, Alabama Republican who conducted a separate analysis that reached similar results, said Congress is "blissfully ignorant of the scope and impact" of the bill, which has bipartisan support in the Senate and has been praised by President Bush.

The 614-page "compromise" bill -- hastily cobbled together last month by Republican Sens. Chuck Hagel of Nebraska and Mel Martinez of Florida -- would give illegal aliens who have been in the U.S. two years or longer a right to citizenship. Illegals who have been here less than two years would have to return to their home countries to apply for citizenship.

As part of the bill, the annual flow of legal immigrants allowed into the U.S. would more than double to more than 2 million annually. In addition, the guest-worker program in the bill would bring in 325,000 new workers annually who could later apply for citizenship.

That population would grow exponentially from there because the millions of new citizens would be permitted to bring along their extended families. Also, Mr. Sessions said, the bill includes "escalating caps," which would raise the number of immigrants allowed in as more people seek to enter the U.S.

"The impact of this increase in legal immigration dwarfs the magnitude of the amnesty provisions," said Mr. Rector, who has followed Congress for 25 years. He called the bill "the most dramatic piece of legislation in my experience."

Immigration into the U.S. would become an "entitlement," Mr. Sessions said. "The decision as to who may come will almost totally be controlled by the desire of the individuals who wish to immigrate to the United States rather than by the United States government."

One of the most alarming aspects of the bill, opponents say, is that it eliminates a long-standing policy of U.S. immigration law that prohibits anyone from gaining permanent status here who is considered "likely to become a public charge," meaning welfare or other government subsidy.

This change is particularly troublesome because the bill also slants legal immigration away from highly skilled and highly educated workers to the unskilled and uneducated, who are far more likely to require public assistance. In addition, adult immigrants will be permitted to bring along their parents, who would eventually be eligible for Social Security even though they had never paid into it.

Everything old is new again

The legalization of the millions of illegal aliens who are residing in the United States -- the bestowal of American citizenship on them -- would be unjust and unwise for many reasons. Most Americans believe this to be the case; indeed, it is the sole reason for the refusal to acknowledge the substance of this critical component of the "comprehensive immigration reform" that that the president advocates. When described more accurately, it goes under the name of amnesty. The details of the amnesty program advocated by the administration are even more foolish than the idea of amnesty itself (as suggested by point 4 of the White House fact sheet, but also as elaborated at greater length elsewhere by adminstration spokesmen).

The same applies to the administration's advocacy of a guest worker program. The American guest worker program of 1942 to 1964 appears to be one of those secrets of history that it is somehow rude to mention in polite company...

A True Middle Way, featuring an editorial by Tony Blankley:

...his analysis of President Bush's immigration proposal and of the nature of the compromise that should be acceptable to conservatives. Other things being equal, the proper approach to illegal immigration is to secure (or attempt to secure) the border through security measures at the border. If that works, then we can talk about a guest worker program and perhaps some relief for some illegals who are here now. However, as a political matter a pure enforement first program looks like a non-starter...

Thus, conservatives should think carefully about where there may be room for compromise. The obvious candidate is the guest worker program. For one thing, as Blankley says, under the status quo we have a de facto guest worker program with virtually no border security. Thus, it makes sense to consider a plan that gives us a formal program, with enhanced border security, under which we have some hope of keeping track of alien workers...

The issue on which there should be no compromise is amnesty (or the path to citizenship). Such a path, in addition to rewarding scofflaws, would likely increase the pressure on the border. Unless President Bush is willing to compromise his position on citizenship for illegals, conservatives should not compromise with the president.

SOCIALIST WORKER ONLINE

In an editorial entitled Hagel-Martinez divides the movement: "Our position is no compromise", the Socialist Worker makes these comments:

As George W. Bush called for sending National Guard troops to the U.S.-Mexico border, a split emerged in the immigrant rights movement over so-called compromise legislation in the Senate.

The deal--named for its chief negotiators, Sens. Chuck Hagel (R-Neb.) and Mel Martinez (R-Fla.)--has been sharply criticized among activists because it divides undocumented immigrants into three legal categories and includes a guest-worker program demanded by Corporate America.

Yet when Senate Majority Leader Bill Frist announced May 12 that the stalled legislation would be revived, several major immigrant organizations endorsed the bill, including the National Council of La Raza, the League of United Latin American Citizens (LULAC).

The National Immigration Forum (NIF)--whose top officers include the political director of the UNITE HERE union, Thomas Snyder--issued a statement which declared that the "Hagel-Martinez compromise includes the right architecture for real immigration reform." The other main union on the NIF board, the Service Employees International Union (SEIU), views Hagel-Martinez as "a step forward," according to a union spokesperson.

By contrast, Nativo López, president of the Mexican American Political Association (MAPA) and a key organizer of mass marches in Los Angeles on March 25 and May 1, called the proposals "nothing less than a categorization of the immigrant workforce into a bantu apartheid system," akin to the old racist system in South Africa. "[Immigrant workers] will languish in those categories for years with no absolute guarantee of legal status," he told Socialist Worker...

Under Hagel-Martinez, undocumented immigrants living in the U.S. more than five years could apply to become citizens after six years, paying fines and any back taxes, and learning English.

Those in the U.S. more than two years but less than five could apply for status as guest workers, but only after exiting and re-entering the U.S. at a port of entry--a setup, critics say, for instant deportations.

The rest of the undocumented immigrants--more than 2 million people who have come to the U.S. in the last two years--would be forced to leave and could only apply to return under the guest-worker program.

Hagel-Martinez could also put immigrants at risk for deportation if they used false documentation to obtain a job, immigration lawyers say.

And as Hagel and Martinez boasted in a recent article, their proposals would sharply increase enforcement. "The bill adds nearly 15,000 new Border Patrol agents over the next six years," they wrote. "It dramatically increases the number of immigration investigators (1,000), immigration inspectors (1,250) and customs inspectors (1,000) as well. And it authorizes the Department of Homeland Security to make important improvements and additions to border infrastructure necessary to secure the border."...

The three-tiered structure of Hagel-Martinez led to opposition from organizations and unions--including the Laborers International Union--that had earlier supported a guest worker plan in a proposal by Sens. John McCain (R-Ariz.) and Ted Kennedy (D-Mass.). "[Hagel-Martinez] is not good enough for us," Yanira Merino, the Laborers policy director on immigration, said in an interview. "It still leaves a good number of immigrants without a path to citizenship."

Nevertheless, SEIU--with the largest number of immigrants of any union--views Hagel-Martinez as a "step forward," according to union spokesperson Avril Smith.

SEIU, along with the Laborers and UNITE HERE, are part of the Change to Win coalition, a group of unions that split from the AFL-CIO last summer. Now, however, UNITE HERE and SEIU are apparently alone among labor organizations in backing Hagel-Martinez...

By taking this position, SEIU is creating a split in the immigrant rights movement, says MAPA’s Nativo López.

The NIF, National Council of La Raza, LULAC and SEIU are playing a "dangerous game with the Democrats," López said. "This game of 'improving' Hagel-Martinez is a betrayal on its face, because any compromise based on it would mean dividing families, supporting enforcement measures and undermining the rights of all immigrant workers. We take the position of no compromise, and no division of our families. Better no immigration reform bill this year than this bill."

Part IV to follow...

For previous posting information, refer to Parts I and II of this posting.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part II

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is the second of five postings which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

BUSH SPEECH

Can be found here.

NATIONAL REVIEW

From the National Review world, there were two important commentaries on President Bush's speech:

Amnesty Undeniable by the NRO Editors, which notes:

The most important part of Monday night’s speech by President Bush on immigration was not his call for sending unarmed National Guardsmen to temporarily assist the Border Patrol.

Rather, it was his formal embrace, for the first time, of citizenship for illegal aliens.

When he first laid out his view on a foreign-worker program two years ago, he was explicit that illegal aliens could sign up but that "this program expects temporary workers to return permanently to their home countries after their period of work in the United States has expired."

Last night, the president rightly emphasized security, and rightly stressed the importance of assimilation—while advocating a policy that would make assimilation much harder. He adopted the position of Senators Kennedy and McCain and other amnesty supporters, saying that illegal aliens who meet certain conditions should be able to apply for citizenship. He denied that this represented amnesty because "approval would not be automatic"—but when have immigrants ever received "automatic" citizenship?...

Finally, President Bush reassured an anxious Mexican president Vicente Fox over the weekend that any deployment would be only temporary, and that the regular Army would not be involved—in other words, "Don’t worry, Señor Presidente, it’s just symbolism."

As for the Senate’s compromise bill, the Heritage Foundation has released research that should torpedo it. Robert Rector, one of the nation’s leading authorities on poverty and welfare, has estimated that the bill would admit a staggering 103 million people over the next two decades and represent "the largest expansion of the welfare state in 35 years." Supporters of the bill call their approach "comprehensive," and they’re right: They aren’t content merely to deal with the current illegal population or to address a supposed shortage of unskilled labor, but want to effect a massive demographic reshuffling of America while they're at it...

Clintonian at the Border by Rich Lowry, which states:

President Bush has a bold new approach to immigration enforcement: He wants to police the Mexican border with symbolism.

That's the point of his proposal to send the National Guard to our border with Mexico. This represents Bush's final, desperate descent into Clintonian sleight of hand. He wants to distract enough of his supporters with the razzle-dazzle of "National Guard to the Border!" headlines that they won't notice he is pushing through Congress a proposal that essentially legalizes all the population influx from Latin America that has occurred in the past 10 years and any that might occur in the future.

Like President Clinton's gesture of sending more U.S. troops to Somalia after the "Black Hawk Down" battle in Mogadishu, when everyone knew we were really on our way out, Bush's Guard deployment is a prelude to surrender. The immigrants who have come here in defiance of our laws will get to stay, bring their families and be joined by just as many immigrants in the future—at least if Bush gets his way.

...The Guard won't have any real enforcement duties. It will merely provide logistical backup to the Border Patrol. The Guard's presence will be temporary, until a proposed doubling of Border Patrol agents takes place. But if the past is any guide, all of those new positions ultimately won't be funded, once the political heat passes.

Having the National Guard sharpen pencils and fetch coffee for the Border Patrol can't fix our broken immigration system. It is no substitute for a fence, nor for real interior enforcement that punishes employers for hiring illegal labor. The Bush approach to the latter also relies on symbolism. A 26-state immigration raid garnered extensive press attention last month, but most of the aliens arrested were quickly released again...

Bush's heart just isn't in enforcement. Perhaps it's a tribute to his sincerity that he is so bad at faking it. With his sympathy for the struggle of desperate people coming here for work, his "compassionate conservatism" doesn't stop at the Rio Grande. And it is reinforced by his chamber-of-commerce conservatism that wants to welcome the world's huddled masses as long as they will work without complaint on hot roofs for cheap wages.

The Senate bill Bush hopes to help pass would put 12 million illegal aliens on the path to citizenship, double the level of legal immigration from 1 million to 2 million a year and welcome hundreds of thousands of guest workers, according to the Washington Times. Those are the numbers that reflect Bush's true policy preferences, not the couple of thousand unarmed National Guard.

PEGGY NOONAN

Peggy Noonan has written:

What was missing in the president's approach the other night was the expression, or suggestion, of context. The context was a crisis that had gone unanswered as it has built, the perceived detachment of the political elite from people on the ground, and a new distance between the president and his traditional supporters...

Without an established context the speech seemed free-floating: a statement issued into the ether, unanchored to any particular principle...

What was needed was a definitive statement: As of this moment we will control our borders, I'm sending in the men, I'm giving this the attention I've given to the Mideast.

Once that is done, all else follows. "Comprehensive solution" seems like code for "some day we may do something". No one believes in comprehensive solutions. They believe in action they can see. No one believes in the wisdom of government, but they do believe it has a certain brute power.

The disinterest in the White House and among congressional Republicans in establishing authority on America's borders is so amazing--the people want it, the age of terror demands it--that great histories will be written about it. Thinking about this has left me contemplating a question that admittedly seems farfetched: Is it possible our flinty president is so committed to protecting the Republican Party from losing, forever, the Hispanic vote, that he's decided to take a blurred and unsatisfying stand on immigration, and sacrifice all personal popularity, in order to keep the party of the future electorally competitive with a growing ethnic group?

This would, I admit, be rather unlike an American political professional. And it speaks of a long-term thinking that has not been the hallmark of this administration. But at least it would render explicable the president's moves.

The other possibility is that the administration's slow and ambivalent action is the result of being lost in some geopolitical-globalist abstract-athon that has left them puffed with the rightness of their superior knowledge, sure in their membership in a higher brotherhood, and looking down on the low concerns of normal Americans living in America...

Mark Krikorian disagrees with Noonan:

I don't think that either of Peggy Noonan's two explanations today for the president's behavior on immigration is entirely satisfactory...

Both probably have a grain of truth to them, but I get asked this question all the time and the conclusion I've come to is this: The president is morally and emotionally opposed to immigration enforcement, especially on the Mexican border. He sees it as uncompassionate and un-Christian, at best a necessary evil that must be entered into with the greatest reluctance and abandoned as soon as is practical. And this is especially true with regard to Mexico because he sees it as a "cousin" nation, like Britain or Israel, and thus enforcing immigration laws against Mexicans is even worse than doing so against Chinese or Pakistanis.

I don't say this to hurl epithets — President Bush is a conviction politician and sincerely believes this, which is why he sticks to his anti-enforcement guns despite potentially catastrophic political damage...

The political implication is that the House Republicans need to understand that there is no difference to be split with the president on immigration. They must oppose him categorically on the issue and become, in effect, the loyal opposition on immigration. So the best tack for the House would be to wait for the Senate to pass the amnesty bill (if, in fact, that happens), and then refuse to go to conference and repass the original Sensenbrenner bill (after massaging the two provisions that have gotten the most negative attention — downgrade the felony of illegal presence to a misdemeanor and put in a (totally unnecessary) exception for nuns serving illegals at soup kitchens). Putting as much distance as possible between themselves and president on immigration is probably the only way the House Republicans can keep their majority.

ROBERT SAMUELSON

Samuelson offers this commentary:

President Bush's immigration speech mostly missed the true nature of the problem. We face two interconnected population issues. One is aging; the other is immigration. We aren't dealing sensibly with either, and as a result we face a future of unnecessarily heightened political and economic conflict. On the one side will be older baby boomers demanding all their federal retirement benefits. On the other will be an expanding population of younger and poorer Hispanics -- immigrants, their children and grandchildren -- increasingly resentful of their rising taxes that subsidize often-wealthier and unrelated baby boomers.

Does this look like a harmonious future?

But you couldn't glean the danger from Bush's speech Monday night. Nor will you hear of it from most Democrats and (to be fair) the mainstream media. There is much muddle to our immigration debate. The central problem is not illegal immigration. It is undesirably high levels of poor and low-skilled immigrants, whether legal or illegal, most of whom are Hispanic. Immigrants are not all the same. An engineer making $75,000 annually contributes more to the American economy and society than a $20,000 laborer. On average, the engineer will assimilate more easily.

Testifying recently before Congress, University of Illinois economist Barry Chiswick -- a respected immigration scholar -- said this of low-skilled immigrants:

"Their presence in the labor market increases competition for low-skilled jobs, reducing the earnings of low-skilled native-born workers. . . . Because of their low earnings, low-skilled immigrants also tend to pay less in taxes than they receive in public benefits, such as income transfers (e.g., the earned income tax credit, food stamps), public schooling for their children, and publicly provided medical services. Thus while the presence of low-skilled immigrant workers may raise the profits of their employers, they tend to have a negative effect on the well-being of the low-skilled native-born population, and on the native economy as a whole."

Hardly anyone is discussing these issues candidly. It is politically inexpedient to do so. We can be a lawful society and a welcoming society simultaneously, to use the president's phrase, but we cannot be a welcoming society for limitless numbers of Latin America's poor without seriously compromising our own future -- and, indeed, the future of many of the Latinos already here. Yet, that is precisely what the president and many senators (Democratic and Republican) support by endorsing large "guest worker" programs and an expansion of today's system of legal visas. In practice these proposals would result in substantial increases of low-skilled immigrants.

How fast can they assimilate? We cannot know, but we can consult history. It is sobering....[Details follow in the article.]...

There are striking parallels between how we've treated immigration and aging. In both cases, the facts are hiding in plain view. But we've chosen to ignore them because candor seems insensitive and politically awkward. Who wants to offend the elderly or Latinos? The result is to make our choices worse by postponing them. A sensible society would long ago have begun adapting to longer life expectancies, better health and greater wealth by making careful cuts in Social Security and Medicare. We've done little.

...People who don't think there will be conflicts between older beneficiaries and younger taxpayers -- Hispanic or not -- are deluding themselves. People who imagine there won't be more conflicts between growing numbers of poor Latinos and poor African Americans for jobs and political power are also deluding themselves...

Part III to follow...

For previous posting information, refer to Part I of this posting.

An Overview of Recent News & Opinions About Illegal Immigration Debate, Part I

Recent days have been particularly active times in the illegal immigration debate. Since it is difficult to keep up with all that is going on, this is the first of five postings which will present excerpts from a range of news and opinion articles across the MSM and the blogging world.

PRIOR LINKS

An earlier posting contains many links to illegal immigration news events dating back more than 7-10 days from the date of this posting - including the May Day protests.

POWER LINE

Power Line had some particularly insightful postings immediately preceding President Bush's immigration speech:

Free Advice for President Bush

...The time has come, though, to go on national television and say you were wrong, and you've changed your mind. About immigration.

Give a major speech in prime time. Say that you still think that a long-term solution to the immigration issue should include a guest worker program. Acknowledge, however, that many Americans disagree and there is currently no consensus on a long-range policy. Say that, more fundamentally, you're now convinced that our first priority has to be getting control over our borders. Until we control our borders, and know who is coming and going, any immigration policy we may announce will be meaningless anyway.

So, discussion about long-term approaches to immigration will continue. But in the meantime, your priority will be securing the borders and enforcing the laws currently on the books. Which means that the crackdown on employers of illegals will be expanded. Announce some specific measures to begin securing the Mexican border, preferably including some kind of fence...

He Had His Chance...

...As soon as he started talking about guest worker programs and the impossibility of deporting 11 million illegals, it was all over. President Bush keeps trying to find the middle ground, on this and many other issues. But sometimes, there isn't a viable middle ground. This is one of those instances...

How to read the speech, which includes a link to a John O'Sullivan prospective analysis of Bush's speech:

...I shall advise you on how to interpret President Bush's speech on immigration that you heard last night but that was delivered several hours after this column was written. Very simply: Ask yourselves the following questions:

Did the president use the phrase ''comprehensive immigration reform'' several times? That's revealing because this phrase is an example of smuggling. He hopes that by wrapping a ''temporary guest-worker program'' and the ''not an amnesty'' provision to legalize the 12 million illegals already here -- both of which are unpopular -- inside a tough-sounding popular promise to secure the border with the National Guard, he will persuade most Americans to accept the first two proposals...

...As this column has repeatedly pointed out, porous borders are the result of uncontrolled immigration as much as its cause. You cannot control the borders, however many patrols you hire or fences you build, if you grant an effective pardon to anyone who gets 100 miles inland.

Besides, a guest-worker program that admits as many people as employers are willing to hire (at sweatshop wages Americans won't accept) makes extra border security pointless. If everyone can come in legally, there won't be any illegals crossing the desert or swimming the river.

Did the president deny that he and the Senate are proposing an amnesty because the 12 million illegals ''will have to go to the end of the line''?

The trick here is the identity of the line. You thought it meant the line to enter and live in the good old USA, didn't you? That's exactly what the president and his speechwriters wanted you to think. In fact, it means the line to become a citizen. Under the Senate-White House ''compromise,'' the illegals will immediately be granted the right to reside here permanently while legal applicants still wait outside.

It's the line to enter that really matters, however, since a U.S. permanent resident has all the rights and duties of a U.S. citizen except the right to vote and the duty to serve on a jury. Illegals will have to wait a dozen or so years inside America before they obtain those last two...

When the president stressed that the guest-worker program would be temporary, did he mention ''anchor babies''? No? Well, just guessing, but that omission may be because ''anchor babies,'' as the phrase implies, make ''temporary'' guest-workers permanent.

Here's how: Under the U.S. Constitution, if a temporary guest-worker or spouse gives birth during their stay, they become parents of a U.S. citizen and enjoy a right of residence and, in due course, citizenship. The baby anchors them in the United States and nullifies the president's pledge that temporary guest-workers will have to return when their job assignment ends...

Did the president quote many statistics about the number of people likely to be admitted under the ''compromise'' legislation? Or the likely cost of granting amnesty? No? Well, that's hardly surprising. When Alabama Sen. Jeff Sessions produced a chart suggesting that something like 30 million people would be admitted under provisions of the compromise bill, his brave and effective speech halted it dead in its tracks in the Senate before Easter.

But the latest estimates suggest that Sessions was being overly cautious. Robert Rector of the Heritage Foundation has just added up all the provisions of the bill -- for instance, it doubles the number of legal immigrants -- and discovered they would admit 103 million new people over the next 20 years. It's estimated that 19 million people would otherwise enter America over the same period...

CONGRESSMAN JAMES SENSENBRENNER

The Congressman offers strong criticism of President Bush's immigration speech:

Complaining that President Bush "doesn't get it" on immigration, House Judiciary Committee Chairman Jim Sensenbrenner blasted the White House on Wednesday, saying that Bush has provoked a firestorm by endorsing amnesty for illegal immigrants.

"What he is proposing is amnesty," said the Menomonee Falls legislator, using a politically loaded label that Bush has repeatedly disputed...

Sensenbrenner said the White House has irritated him and others by seemingly "running away" from the immigration bill that the House passed in December. Sensenbrenner crafted that measure, whose get-tough provisions have sparked mass protests.

"He basically turned his back on provisions of the House bill, a lot of which we were requested to put in the bill by the White House," Sensenbrenner said.

One provision he cited makes it a criminal offense to be in the country illegally. That followed a request from the Justice Department.

The House bill makes unlawful presence a felony, though Sensenbrenner and House leaders have agreed to reduce it to a criminal misdemeanor. It is currently a civil violation.

"The president seems to be running away from that now," Sensenbrenner said of the stiffened penalties in the House legislation...

"The president has repeatedly and forcefully rejected amnesty," White House spokesman Alex Conant said.

"Under the president's plan, you have to pay stiff fines, follow the law, stay employed, learn English, and after achieving all those things, you still go to the back of the line. That's not amnesty."...

The Senate endorsed the citizenship provisions Wednesday by a roughly 2-to-1 vote.

"It's not amnesty," Arizona Republican John McCain said on the Senate floor. "Call it amnesty. Call it a banana if you want to. But the fact is it is earned citizenship. It is a perversion of the word amnesty."

Sensenbrenner was similarly adamant in his disdain for the term earned citizenship, and in his view, what Bush is discussing "is an amnesty because it allows people who have broken the law to stay in the country."

Under the Senate plan, many of those people will end up achieving legal status much sooner than they would have by waiting for legal permission to enter, Sensenbrenner said.

He called amnesty "the third rail of the immigration debate."...

Sensenbrenner said he thinks a compromise [between House and Senate bills] could include provisions for temporary workers, if "that does not include an amnesty," and only if it includes "vigorous" enforcement of sanctions against employers for hiring illegal immigrants...

CONGRESSMAN TOM TANCREDO

Congressman Tancredo is an outspoken proponent of securing our borders and elaborated in this editorial on what he thought President Bush should say in his speech:

In this speech, the President needs to do three things to accomplish his goals. There is a road to consensus and success if the President will take it...

In his Monday speech, the President needs to make a clear break from previous speeches on the topic and come home to Republican Party principles. He needs to stop pandering to perceived voting blocs and employer lobbies and speak to the one thing all Americans agree upon: No immigration policy is workable without secure borders.

The President needs to speak to the nation as fellow citizens, not ethnic or economic groups, and tell them America will have secure borders that stop all illegal entry into our country. He needs to announce that he will federalize the National Guard in four border states to provide support to the beleaguered Border Patrol. He needs to say this will happen tomorrow morning, not next month or next year.

The second thing the President must do is explicitly separate the priority and necessity of secure borders from all other proposed federal legislation. Secure borders do not depend on a “comprehensive” immigration reform package that includes amnesty and a new temporary worker program. Secure borders are a prerequisite for any new immigration legislation, not a component to be bartered away for increased immigration numbers or new visa rules.

The third thing the President’s speech should do is to avoid any mention of amnesty for illegal aliens already in the country. No matter how cleverly he defines his “legalized status” proposal as not being amnesty, it is still amnesty and everyone knows it.

Americans are not in a mood to negotiate the matter of “regularization” for 12 million to 20 million illegal aliens -- and Newt Gingrich has pointed out the amnesty would ultimately legalize up to 36 million -- until they see we have in fac