Speaking of the bottom 50% looking within…

…Walter Williams does just that in his latest column, Dependency, Not Poverty.

A snippet:

No one can blame a person if he starts out in life poor, because how one starts out is not his fault. If he stays poor, he is to blame because it is his fault. Avoiding long-term poverty is not rocket science. First, graduate from high school. Second, get married before you have children, and stay married. Third, work at any kind of job, even one that starts out paying the minimum wage. And finally, avoid engaging in criminal behavior.

Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the “need” to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, “you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what’s left over, one could buy every airline, trucking company and our commercial maritime fleet. If you’re still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation” (http://tinyurl.com/kmhy6es). Today’s total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.

There’s very little guts in the political arena to address the basic causes of poverty. To do so risks being labeled as racist, sexist, uncaring and insensitive. That means today’s dependency is likely to become permanent.

 

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Incentives matter: Work and welfare edition

The Wall Street Journal has a must-read interview with Bob Funk, CEO of Express Employment Services — a $2.5 billion employment services agency. There’s also a good companion piece, Won’t Work for Food Stamps.

Funks covers some key points from a report his company plans to publish on Monday called, The Great Shift.

Here are snippets:

[Funk believes] “anyone who really wants a job in this country can have one.” With 20 million Americans unemployed or underemployed, how can that be?

To land and keep a job isn’t hard, he says, but you have to meet three conditions: “First you need integrity; second, a strong work ethic; and, third, you have to be able to pass a drug test.” If an applicant can meet those minimal qualifications, he says, “I guarantee I can find employers tomorrow who will hire you.”

He thinks the notion of the “dead-end job” is poisonous because it shuts down all sense of possibility and ambition. One of his lifelong themes, Mr. Funk says, is that “a job—any job—is by far the best social program in America and the ladder to success.”

The primary jobs problem today, Mr. Funk says, is that too many workers are functionally unemployable because of attitude, behavior or lack of the most basic work skills. One discouraging statistic is that only about one of six workers who comes to Express seeking employment makes the cut. He recites a company statistic that about one in four applicants can’t even pass a drug test.

“In my 40-some years in this business, the biggest change I’ve witnessed is the erosion of the American work ethic. It just isn’t there today like it used to be,” Mr. Funk says. Asked to define “work ethic,” he replies that it’s fairly simple but vital on-the-job behavior, such as showing up on time, being conscientious and productive in every task, showing a willingness to get your hands dirty and at times working extra hours.

He fears that too many of the young millennials who come knocking on his door view a paycheck as a kind of entitlement, not something to be earned. He is also concerned that the trendy concept of “life-balancing” is putting work second behind leisure.

Funk admits to a prejudice (emphasis added):

“I guess I’m a little prejudiced to the immigrants and especially Hispanics,” he says. “They have an amazing work ethic. They don’t want handouts and are grateful to have a job. Our company has a great success rate with these workers.” This focus on work effort is seldom, if ever, discussed by policy makers or labor economists when they ponder what to do about unemployment. To most liberals, the very topic is taboo and is disparaged as blaming the economy’s victims.

The author of the WSJ piece includes some eye-opening stats to back Funk’s claims. There are 47 million people receiving food stamps, 14 million people collect disability benefits and with unemployment insurance extended to 90 weeks, Funk calls these:

…[the] vast social welfare state programs that have become a substitute for work. There’s a prevalent attitude of a lot of this generation of workers that the government will always be there to take care of them. It’s hard to get people to take entry-level jobs when they can get unemployment benefits, health care, food stamps and the rest.

The companion piece shows the sharp rises in such social welfare programs. The cost of food stamps has more than doubled since 2008 to $83 billion and one in seven Americans receive food stamps. The government spends ‘roughly $40 million a year…to convince to enroll’ in food stamps.

The multiplier is not prosperity

“I’m doing my part to help the economy!”

I’ve heard many folks make this joke after a big purchase. We snicker. We know they really bought it for the personal benefits they expect to gain. As we’ve been discussing in the comments, they bought it because they valued it more than what they gave up.

The joke implies the multiplier effect — the idea that your purchase stimulates economic activity. You buy a car, which means income for the car maker and workers, they spend that income on suits and shoes, and so on. And, by the time it’s all said and done every dollar of your purchase ‘stimulated’ more than a dollars worth of economic activity, which is measured as GDP.

For some reason, we don’t snicker when economists and politicians make this same claim. We should.

David Henderson, who doesn’t make this claim, does a great job explaining why we should snicker in his aptly titled essay, GDP Fetishism, which I discovered after reading a recent post of his about the ‘multiplier’ of foreign aid.

Also recommended, his latest post about subjective value, which is a topic we’ve touched on here recently in the comments.

Robert Frank on EconTalk

This week’s EconTalk podcast has Robert Frank of Cornell University discussing income inequality with host Russ Roberts of George Mason University.

This seems to be a fundamental basis of Frank’s mental model (about 4:40 in):

So the best situation from an economist’s perspective is the one that leads to the largest surplus. For the non-economists in the audience, surplus is just the cumulative sum over all people of the difference between the benefits they get and the costs they bear, evaluated in their own terms. So, if we can make the economic pie bigger, the attraction of doing that, is that it’s always going to be possible for everybody to have a bigger slice than before. I don’t think that requires any difficult value judgment at all.

I added the emphasis.

I agree that surplus is the difference between benefits and costs, evaluated on our own terms. That’s the root of why our standard of living is much better than our ancestors.  We trade our surpluses in mutually beneficial manners with each other to make our lives even better.

But, I disagree with Frank’s last sentence.

As individuals, making value judgments on our own terms isn’t difficult.  We make them naturally every day.  I often to choose to pay $2 for a cup of coffee even when I can get it free elsewhere.  That might sound absurd.  But, I finish the $2 coffee because it tastes good, while  I throw out a half cup of the free coffee because it doesn’t.

What bothers me about Frank’s last sentence is that I don’t believe he’s talking about individuals making their own value judgments any longer.  I believe he’s talking about economists and politicians making value judgments for individuals based on their assessment of what creates the greater good or the largest pie.  Unlike Frank, who seems to think this is easy, I don’t think it is possible for a third party to appropriately assess how others judge value.   That’s an awful lot like the thinking that leads to destructive central planning. 

I would like to ask Frank if he was given the power to enact his policies to maximize economic surplus, how would he know if he happened  to be wrong?  If he were wrong, how would that be corrected?

Excellent Post and Comments at Cafe Hayek

Russ Roberts made reference to David Rose’s good work in his post Justice and the Rule of Law at Cafe Hayek.  The comments section was good too.  Key paragraph from Rose’s work:

But a consequentialist judge would look beyond the law and consider the insurance mandate’s impact on society. Using this criterion, the consequentialist judge might see the mandate as a “benefit to public health” and a “compelling state interest.” Such thinking would lead to a loose interpretation of the Commerce Clause and an affirmation of an unprecedented loss of personal liberty in America.

Commenter MichaelSmith writes:

“Consequentialist” — at least as it is being used in this context — essentially means “collectivist”. It is an effort to obliterate the concept of individual rights in the context of evaluating the Constitution by substituting, instead, the thoroughly collectivist notion that “the public good” — or some similar allegedly superior “right” of the collective — trumps and cancels individual rights.

Continue reading

Tick, tick, tick, tick

Ricky Gervais, creator of the television show The Office, and Andy Rooney both lamented about how much money they have on this evening’s 60 Minutes.  Ricky said that he doesn’t work harder than a lot of other folks, but earns many multiples of their income.  He said that a large part of his success was due to luck.

I agree.  Nassim Taleb, author of the Black Swan and Fooled by Randomness, educated me on how much luck plays in the success of successful people.  As Taleb says, we always hear about the successful people but never about the just as talented people who aren’t as successful because they just haven’t had their lucky break.  Sometimes it’s as simple as meeting the right person at a party.

But, I will give Ricky something, he does have talent.  He makes me laugh.  I enjoy his humor, acting and writing.  Not to say that others aren’t as deserving, but any dollars Ricky has of mine in his pocket were well earned.

Rooney seemed bothered by having more than his share, but comforted by the fact that he doesn’t have as much as others.  He referenced the Forbes 400 list of the richest 400 people as proof.

What bothered me: C’mon guys.  Rather than feel down about being wealthy, celebrate it.  Encourage others.  Tell us how awesome it is that we live in a world where you can follow your dreams, work hard and be rewarded.  Acknowledge, as Ricky did, that there is some luck to it, but one thing is for certain – they wouldn’t have been successful if they hadn’t tried.

And, if you don’t have a dream but can still live a decent, comfortable life as a nurse, engineer, electrician or some other chosen profession, that’s awesome too.  Compared to how people lived a century ago or how people live in other parts of the world (some within a day’s drive for most of us) – we are all rock stars.  That something that we should feel good about it.

We should be asking ourselves why that is.  What are the root causes that allow each of us live better than royalty in the past in exchange for an honest day’s work?  We should want more of that.

They showed an 80s video of Ricky taking a stab at the music business.  Apparently it didn’t work out.  He wasn’t bothered by it.  He seemed to recognize that all things don’t work out, but trying matters.

General Welfare

More great thoughts from Walter Williams, Exploiting Public Ignorance.

He points out that the Constitution does not empower Congress to manage the economy.

Most attempts to persuade otherwise rests on the misinterpretation of what is commonly referred to as the general welfare clause in Article I, Section 8 which states, “The Congress shall have Power To lay and collect Taxes, Duties, Impost, Excises to pay the Debts and provide for the common Defense and general Welfare of the United States.”

Not understood by those who misinterpret this section is that the Constitution specifically lists the powers in the rest of Section 8, which is entitled, appropriately enough, Powers of Congress.

Rather than letting those who misinterpret this section frame the debate in their terms, I recommend keeping a copy of Article I, Section 8 handy and referencing it when discussing whether Government should do this or that and asking them to specify and explain which of the listed powers of Congress enables Congress to take that action.

Here is Article I, Section 8 in it’s entirety (thanks to usconstitution.net):

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and Post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings; And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Getting By in This Economy

The bad economy was the common angle on this evening’s local TV news.  Charities need more donations because they’re getting less donations in the bad economy.  More people are turning to charities because of the bad economy.  Restaurants were busier this Easter because of the bad economy (“a rare and welcome break from the kitchen”). 

A conversation I had yesterday sparked an idea.  I’d love to see stories about people rising to the challenge of this economy by making responsible choices so they’ll come out of the economy stronger, more self-reliant and in a better position to help those who need it.

The conversation that sparked this idea was with a former neighbor who has owned and operated a business from her home since I’ve known her.  Over the years she’s cleaned toilets, ran estate sales, provided coaching and administrative services to other businesses and offered notary services among other things.  She lives within her means.  When times were better, she wasn’t tempted to take out a bigger mortgage.  She reminded me that it always pays to be industrious and look for ways to make yourself valuable to others and not to wait around for others to solve your problems.

I’ll make this a recurring thread here.  Please share your stories.  This is how we get out of this mess.

Why we do what we do

I lifted this from an econblog I frequent at Marginal Revolution.  It’s a nice piece of work from Adam Smith and I wanted to collect it to remind  me  why capitalism works so well to improve the standard of living for the masses, far better than most people realize.  This is from Smith’s Wealth of Nations, Book 1, Chapter 2. 

But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely.

Though I’m not sure what to make of the last two sentences.  I don’t believe people give money to beggars out of benevolence.  I think givers get something from giving that appeals to their own self-love.  Perhaps a good feeling they helped someone in need or an ease to the discomfort they get from the sad stare of the unfortuanate person on the receiving end. 

Addendum:  I actually lifted this from Cafe Hayek, not Marginal Revolution.

Corrosive nature of making secondary impulses top priority

And another (from America Alone) by Mark Steyn:

To understand why the West seems so weak in the face of a laughably primitive enemy it’s necessary to examine the wholesale transformation undergone by almost every advanced nation since World War Two.  Today, in your typical election campaign, the political platforms of at least one party in the United States and pretty much every party in the rest of the West are exclusively about those secondary impulses: government healthcare (which America is slouching toward, incrementally but remorselessly), government day care (which was supposedly the most important issue in the 2006 Canadian election), government paternity leave (which Britain has introduced).  We’ve elevated the secondary impulses over the primary ones: national defense, self-reliance, family, and, most basic of all, reproductive activity. 

 A government big enough to give you everything you want is big enough to take away everything you have, starting with your sense of self-reliance.