“Dick Rowland Image”

”Shoots (News, Views and Quotes)”

– On the Chopping Block: The Real Cost of Corporate Welfare

By Michael LaFaive

A World Connected, Institute for Humane Studies

It is poor economics and fundamentally unfair for government to pick
winners and losers by providing special breaks, favors, or subsidies to
certain firms and not their competitors. The only problem is, state
governments are doing exactly that.
CONTACT: Institute for Humane Studies, 3401 N. Fairfax Dr., Suite 440,
Arlington, VA 22201, 703/934-6920, fax 703/352-7535, email mailto:ihs@gmu.edu
http://www.theihs.org

– United They Fall: Unions Won’t Prosper if American Corporations Don’t

By Stephen Moore

Cato Institute

It would appear that the pilots and mechanics will soon discover an
important lesson: The alternative to accepting reduced salaries will be
no jobs at all. The United labor fracas raises the question of whether
unions have so outserved their usefulness that they are now doing more
harm than good for American workers. The unions are already losing
hundreds of thousands of members every year, and their recent behavior
suggests that labor bosses are intent on accelerating their own demise.

CONTACT: Cato Institute, 1000 Massachusetts Ave., NW, Washington, DC
20001, 202/842-0200, fax 202/842-3490, http://www.cato.org

– Real Earnings Higher in Right to Work States: Evidence From the AFLCIO
Empire

By Stan Greer

National Institute for Labor Relations Research

Right to Work laws safeguard employees’ freedom of association
evenhandedly: They prohibit the firing of employees for refusal to join
or pay “fees” to a union, and they also prohibit termination for joining
or financially supporting a union. Union officials’ opposition to Right
to Work laws tends to be voiced on economic, rather than philosophical,
grounds. But F. Howard Nelson, a researcher employed by the
AFLCIO-affiliated American Federation of Teachers (AFT) union, has
created an interstate cost-of-living index that gravely undermines Big
Labor’s economic indictment of Right to Work laws. Adjusted for
differences in living costs as measured by Dr. Nelson’s index,
employees’ mean weekly earnings in 2000 in the 21 states that then had
Right to Work laws were $638, compared to $632 in states without such
laws. After subtracting federal taxes and state and local taxes that are
not factored into the Nelson index, employees in Right to Work states
earned a mean of $484, compared to $468 in non-Right to Work states.

CONTACT: The National Institute for Labor Relations Research, 5211 Port
Royal Road, Suite 510, Springfield, VA 22151, 703/321-9606, fax
703/321-7342, email mailto:research@nilrr.org http://www.nilrr.org

Above articles are quoted from Heritage Foundation, The Insider 2/2003
http://www.heritage.org

”Roots (Food for Thought)”

– The Fundamental Problem with Social Security

By Dennis E. Clayson

There is one question that most Americans refuse to think about. Pundits
and commentators will take the logic of its premise up to a certain
point and then go no further. Perhaps it is because of the almost
universal lack of economic knowledge in our society, or because many do
not want to face the implications of the answer. Whatever the reason,
the answer relates to almost every discussion of federal taxation and is
the key to the debate over Social Security.

The question can be stated simply. What can the federal government do
with a surplus to make that surplus available in subsequent years?

If you think about it carefully, you will realize that there is nothing
the federal government could do with a surplus that would result in its
preservation and expansion. Consider the options. For example, you might
suggest that the government could print money and store the money in
large vaults somewhere. Yet printed money has no value except to
facilitate exchanges. The longer you hold it, the more it depreciates.
Even naive citizens will not invest wealth in this fashion.

Some have suggested that the government could take whatever surpluses it
has and invest them in the marketplace. There are two reasons that the
government can’t do this. First, federal power is based on several
sensitive balances. The trust between these constituencies is not
sufficient for investments on this scale. Second, it would destroy the
free marketplace. Normal fluctuations in the market would be seen as
public threats and there would be tremendous political pressure for
governmental control. Third, over time the government would end up
owning the country, or at least all means of production, which is close
to the economic definition of socialism. The amounts of wealth
confiscated by the government are too large to be invested in this
fashion. Even if these problems could be overcome, the investments would
only make sense if the government were willing to liquidate assets. This
is problematic. History indicates that the federal government is
unlikely to do this. Assets quickly build special interest groups, and
they represent a type of power that is very difficult to relinquish.

Political leaders have suggested that a surplus could be used to reduce
the size of the national debt. On the surface this appears to be a way
of investing money for the future, while at the same time demonstrating
a concern for fiscal responsibility. Unfortunately, this solution also
fails. It is easy to explain why.

If you were to loan the government money by buying a government bond,
you would make an agreement with the government that you would give them
a certain amount of money, and after a specified period of time they
would give you back an amount larger than what you invested. If the feds
decided to “buy down” the national debt, they would have to come to you
and do one of two things. They could retire debt prematurely by not
paying off the full maturity value, or by paying it off earlier than
initially agreed upon. In the first case they would say to you, “We want
to retire our debt, therefore we will pay you the principal plus the
amount of interest you have accrued up to this date.” You would not be
happy with this solution. The government would be essentially breaking
its promise to you to pay you a larger amount in the future. You may be
less likely to loan the government money again. Even more troubling, you
may be less likely to trust the government as a stable instrument of
investment. If your attitude became widespread, the feds would no longer
be able to service their debt. The government is not going to put itself
and the world’s economic future into the jeopardy this policy could
create.

Alternately, they could come to you and pay off the full amount before
it is due. This makes you happy, but it makes the taxpayers very
unhappy. To do this, the feds have to essentially increase the interest
on the national debt and cheat taxpayers in the process. There are two
reasons why the government will not do this. It would have a tendency to
get people kicked out of office, and it would require the surplus to be
utilized (albeit inappropriately) instead of being spent. Washington is
about power, privilege, and influence. Money buys all three. If surplus
money is used to pay you for a past debt, there is less for federal
politicians to spend on other purposes.

The second major thing the feds could do to reduce the national debt is
simply to issue less of it. Note, however, that issuing less debt has
nothing to do with any surplus. All the government has to do to issue
less debt is to balance the federal budget. Any money left over (i.e., a
surplus) cannot be used to accelerate the process. So, a surplus cannot
be used to buy down the national debt. It can be used on paper to make
it appear that way, but essentially the government is still spending the
surplus the same as any other income. The federal government can only do
two things with a surplus, either send it back, or spend it.

This creates a very important question. If the government only has two
options, which one would give the best results to the average taxpayer
now and in the future? The last fifty years have taught us that once a
government program is in place, it hardly ever goes away. Not only that,
but spending for these programs seldom declines. Political battles over
budgets have not been about spending reductions, but about the size of
increases. Spending a surplus obligates the government to spend at least
the same amount in the future. This requires that either surpluses will
continue indefinitely, or that taxes and/or debt will have to be
increased. Balancing the budget by returning surpluses does not obligate
the government to future spending. It also allows the money to stimulate
the free market, increasing the nation’s wealth.

All of this brings us to a discussion of the Social Security surplus.
What are the consequences of accepting the proposition that the federal
government cannot maintain a surplus?

The first consequence is fundamental and is widely recognized. There is
NO Social Security surplus. Yes, there is one on paper, but in the real
world it does not exist. Furthermore, it has never existed and it never
will. This fact is independent of party politics, shifty bureaucrats, or
any election cycle revelations. It does not matter who is in power, or
what their ideology is. There is no Social Security surplus because it
cannot exist. The second consequence is actually more troubling. There
is a basic problem with how the Social Security system has been
unethically represented to the American people.

To put this into perspective, consider the following thought problem.
Suppose the federal government wants to start a retirement program. It
proposes that every worker make a contribution to the feds and then that
worker would be sent a check every month by the government when he or
she retires. For the sake of simplicity, we will say that the government
agrees to issue a $400 per month check upon retirement. There are four
workers for every beneficiary, so each worker is asked to pay $100 per
month into the system. The workers agree, thinking that $100 per month
will secure them a $400 per month retirement.

The program is popular, especially with the retired, but the feds,
looking into the future, realize that soon there will be only three
workers for each beneficiary and soon thereafter, only two workers. This
will mean that the two workers in the future will have to pay $200 per
month into the system and will still only get $400 per month out of it.
The future workers might not be happy about this. What to do?

A federal worker comes up with a solution. We could, he says, get the
workers now to pay a surplus so that the future worker won’t have to pay
so much. This plan is deemed brilliant, so the feds ask the current
workers to pay $130 per month. It is a small sacrifice, they say, to
keep the system solvent and to make sure that the $400 per month is
there for you when you retire. The feds are still paying out $400 per
month, but are now bringing in $520 per month from the four workers.
They now have a $120 per month surplus.

Here is where it begins to get interesting. The feds forgot to tell the
workers that they can’t invest the extra $120 per month. They can’t put
it into the bank, they can’t buy wealth with it, and they can’t even
invest it in the stock market. They have to spend it, which they are
delighted to do. The feds are getting the best of both worlds. They have
extra money each month to spend on office buildings, B1 bombers, and
political pork to keep their federal rears in Washington, and — this is
the best of all — they don’t have to raise any taxes to do it. The feds
would be smart to say nothing about this, and they don’t. But being
compulsive, they write themselves out an IOU every time they spend the
$120 dollars.

The current worker retires.He wants his $400 per month that he was
promised and for which he paid. There are now only two workers to
support him. Each worker must pay $200 per month to support the system,
twice as much as the current retiree paid. The future worker is unhappy
and asks the feds to cash in the IOUs to help him out. The feds say that
they would be happy to do that, but that they spent the money and on
paper bought a federal bond, which was secured by the future worker’s
taxes. If it weren’t for the IOU (bond), maybe the future worker and the
retiree could work out a different arrangement, but the feds’ IOU has
sealed the deal. So the future worker will have to pay $130 per month,
plus all the IOUs. The total, as if by magic, comes up to over $200 per
month.

Notice something interesting here. The future worker has to pay the same
to keep the system solvent, irrespective of how much the current worker
paid in surplus to “keep the system solvent.” In other words, the future
worker has been scammed because the promises made to him have been
violated. The present worker has also been scammed because he was told
that his sacrifice in paying more than the system needed would relieve
the future worker and make the system secure. Neither of these happened.
In between time, the feds had a party on the extra money, the so-called
“Social Security surplus.”

The ethical problem is actually worse than this little story
illustrates. Who pays Social Security taxes? Who paid the surplus?
Social Security charges are a flat tax on all persons with income. The
teenager flipping hamburgers pays the tax, the working poor pay the tax,
the part time worker pays the tax, and they all pay at the same rate.
Making “the rich” or “big” businesses pay for redistribution of wealth
by claims that you are helping the poor are common and accepted
strategies, but robbing the working poor for more governmental pork is a
very hard sell.

The amounts are enormous. Over the last five years, the surplus has been
$100 to $170 billion a year. In 1999 there were approximately 111
million workers in the United States and $133.7 billion of Social
Security surplus, or $1,205 per worker. This $100 per month tax is
seldom acknowledged as money that will be spent as general revenue, and
never, ever is the American worker informed that it will not make the
system secure,or that he or she will have to pay it again when the
Social Security IOUs become due.

Social Security is a pay-as you-go system. It should never be presented
as anything other than this. The increased costs per worker projected
for the future of the system will have to be taken from the workers at
that future time. If those workers refuse to pay the bill, or if paying
it weakens the economy, the system will run head-on into a wall. There
is no way to avoid this. It is essential for the economic wellbeing of
the nation that Social Security reform be initiated, and initiated as
soon as possible. If nothing else, for economic and ethical reasons, the
surplus payments should be eliminated immediately.

Dennis E. Clayson is a Professor of Finance at the University of
Northern Iowa. He also writes a weekly column for the Waterloo- Cedar
Falls Courier.

Above article is quoted from Public Interest Institute, Facts & Opinions, February 2003 http://www.limitedgovernment.org

”Evergreen (Today’s Quote)”

“That community is already in the process of dissolution where each man
begins to eye his neighbor as a possible enemy, where nonconformity with
the accepted creed, political as well as religious, is a mark of
disaffection; where denunciation, without specification or backing,
takes the place of evidence; where orthodoxy chokes freedom of dissent;
where faith in the eventual supremacy of reason has become so timid that
we dare not enter our convictions in the open lists, to win or lose.”
— Judge Learned Hand, Speech to the Board of Regents, University of the
State of New York [October 24, 1952]

”’Edited by Richard O. Rowland, president of Grassroot Institute of Hawaii. He can be reached at (808) 487-4959 or by email at:”’ mailto:grassroot@hawaii.rr.com ”’For more information, see its Web site at:”’ http://www.grassrootinstitute.org/

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