“Stupid in America”

Check your FoxNews lineup and set your DVR to record John Stossel’s recent education special, Stupid in America.  If you know when it will next air, let me know and I’ll provide an update.

It originally aired last weekend.  I watched it tonight.  It’s worth watching.  He covers teachers unions, union bosses, firing teachers, the Washington DC school district, charter schools and Khan Academy.

In an interview, one union boss, who represented a district with bad student test scores, assured us that he knows his kids are learning because “he can see it in their eyes.”  Now that’s compelling stuff.  I certainly think there are numerous issues with test scores as a measure of teacher performance, but I much prefer those over what this man sees in his students eyes.

This same union leader defended bad teachers from being fired (I’m paraphrasing): It would be a tremendous cost and a major adjustment for the teacher. We need to seek professional development opportunities for that teacher.

lol?  I did.

I find it strange that we should have to train teachers to be teachers (isn’t that what they were supposed to do before they became a teacher?) to prevent them from not being a teacher. I also find it strange how a trade that’s based so strictly on credentialing (e.g. education certification), would then want to take on the expense of the training the teacher what he or she apparently didn’t learn before.  With that logic, why require credentials at all?  Just let anyone come in and they will be trained.

Of course, this union boss believes training will be the antidote.  What if the teacher doesn’t want to teach?  Why not free up the spot for someone who does?

Another union boss proclaimed that he would try to physically prevent people from going to charter schools in “our” (meaning teacher union) buildings.  Excuse me, aren’t those the taxpayers’ buildings? I didn’t realize that the teachers union now owns their buildings as well.

As Stossel so aptly put it in the show, much of what is wrong with education is that we have “adult fools” running things.

Stossel also showed lots of signs of progress education.

  • Charter schools where the kids love to come and learn.
  • Kids digging math because they’re watching Salman Khan videos.
  • Teachers in charter schools that say things like (paraphrasing again), why shouldn’t they be able to fire me?  If I was a bad doctor, I wouldn’t have any patients.
  • A charter school where the principal actively watches and coaches her teachers to improve their teaching (many businesses can learn from this).
  • A post-Katrina, charter school-based rebirth of education in New Orleans.  One founder of the Sci Academy started with just himself in 2008 and now has a “school” based in trailers and his students are testing well.  He said, if you hear someone in education talking about having top notch facilities, that’s a sign they’re not putting education first.

Government is an expense

In this post, I wrote about how government is overhead.

If you believe this view of government, then you shouldn’t use GDP (Gross Domestic Product) as an indicator of the health of our economy.

Gross Domestic Product is calculated by adding consumer, investment and government spending.  If consumer and investment spending decline, as usually happens in a recession (and usually for good reasons), people believe that boosting government spending is a good thing because it helps offset the declines in the other components of GDP.

What’s wrong with that?

GDP tells us how much economic activity there is.  It doesn’t say if that activity is healthy or not.  But we assume it does.  We assume GDP is like to our income.  We assume (and I think we are taught) that it’s the “income” of the economy, so more of it is good and less is bad.

But it’s not really income of the economy.  It’s the total economic activity of the economy.

Let’s say you made $50,000 in income, spent $40,000 and invested $10,000.  Your GDP, or total economic activity, was the sum of the three or $100,000.

$5,000 of your income came from a part-time job that you decide to quit.  Your income drops to $45,000 and your total economic activity drops to $95,000.

Confusing your total economic activity with your income, you decide to borrow $5,000 and spend it to keep your economic activity at $100,000.

Many people will instantly see the problem with using economic activity in this fashion and advise against borrowing the money.  They would also likely point out that your income level and how much you have left to invest after spending are better measures of your economic health.

But if you cloak such words as income, spending and investment with other words like GDP, consumer, investment and government spending, we lose our senses and start to believe it’s okay to borrow $5,000 to keep GDP at $100,000.

If we recognize that consumer and investment spending is the better estimate of the economy’s income and view government spending as an expense, we will make better decisions.  For example, when economy’s “income” declines, we will want to reduce our expense, rather than increase it.

Not quite convinced?  Here’s one more way to look at it.

Again, the three components of GDP are consumer, investment and government spending.  Where does each of these come from?

Consumer and investment spending are the result of value created in society.  Chipotle makes a burrito, I buy it.  We both come out ahead (or we wouldn’t have traded).

Government spending also comes from this value creation process.  Your expenses are enabled by the value you create at your job or with your business.  I do something for my employer, they pay me.  We both come out ahead.   I spend some of that income on a Chipotle burrito.

As an expense, government spending comes from our income.  Without income from our productive pursuits, we would not have government.  As our productive pursuits have become ever more productive over the centuries, we’ve been able to afford bigger governments.  Increase government spending and that leaves less income to spend on other things.

Since government spending comes from our income, it makes no sense to increase it in response to a decline in income.  Rather, we should reduce it and look for ways to increase our income.

And, the secret to increasing our income is by encouraging, rather than discouraging, market-based innovative pursuits, just as it has been since humans have been evolving.

‘…a devalued government’

Peter Schiff explains it well (HT: Carpe Diem) in his testimony before the Congress on Jobs Committee:

In fact, some of what he said is very reminiscent of this most excellent video of Daniel Hannan from 2 years ago, dressing down then British Prime Minister for trying to spend his way out of the recession:

It may be hard to believe after watching the video, but Hannan supported Obama and still supported him through the first stimulus package.  I wonder if he has changed his mind? What he says at about the 2 minute mark would aptly apply to Obama’s latest jobs bill proposal.

Prime Minister, you cannot carry on forever squeezing the productive bit of the economy, in order to fund an unprecedented engorgement of the unproductive bit.  You cannot spend your way out of recession or borrow your way out of debt.  You know and we know and you know that we know that its nonsense.

Addendum:  At the 12:35 mark of the first video, Schiff asks a question that I like to ask my liberal friends who want to raise taxes on the rich:

What percentage of my income do you think would be fair to take?

The hemming and hawing that goes on after that is priceless.  No answer was given.  Just airs of indignity, which often masquerades as argument, to shame Schiff for asking such a question.

Like Schiff, I’d like to know.  I want anyone who would like to raise taxes to tell me what they want to raise it to.  That way when we get there and we won’t have to keep hearing that we should pay more.  When they run out of our money, we can remind that they told us that X% would be enough so they now need to figure out how to get spending under control.

Unintended Consequences Matter

I linked to Aaron McKenzie’s disentanglement of self-interest and greed here.

In this post, Arnold Kling recommends reading an essay called Capitalism and the Jewish Intellectuals.  In it, he writes, the authors believe intellectuals are hostile to capitalism because of this entanglement of self-interest and greed.  They interpret “incentives matter” as “greed drives capitalism.”

So, they recommend a way to get intellectuals over that hump.  Kling poses their recommendation in the form of a Q&A:

Q: How would you break down that hostility to capitalism?

A: By de-emphasizing “Incentives matter” and instead emphasizing that “unintended consequences matter.” That is the message of Adam Smith. It is the message of Hayek. Once we embed people in complex economic and political systems, selfish intentions can turn out well (because of competition), and good intentions can turn out badly (because of imperfect knowledge).

Though, based on Aaron’s advice, I would reword part of the answer to:

…self-interested intentions can turn out well (because of competition)

Democracy: Two Wolves and a Sheep Voting on What’s for Dinner

Responding to this post on Cafe Hayek, morganovich concisely sums up moral hazard:

why act responsibly if acting irresponsibly gets you free stuff?

He also concisely sums up the problem with government charity:

it’s always folks wanting to be generous with my money then voting themselves less skin in the game through purported defense of the “middle class” and its “unfair tax burden”.

10 years ago 24% of americans paid no net federal income tax.

that number is now 51%.

that’s a terrifying number as they are now the majority, so every time a new “compassion” issue comes up, a majority knows it’s not their money. it does not take a brilliant game theorist to see where that leads.

Well-said, even without proper capitalization.

A source of our stagnation?

Does anyone disagree with what Rep. Ryan has to say in this video (HT: W.E. Heasley)?


46 seconds in Ryan nails it:

Every dollar that companies spend lobbying for a better tax deal, is a dollar they are not spending making a better product.

The graphic at 1:17 is telling.  The U.S. ranks second behind Japan in combined federal, state and local corporate tax rate of 39.2%.  Japan has been stagnant since the late 80s.

Most folks don’t understand that they pay corporate taxes.  They see that as a tax on the wealthy.

But, most of us own corporations through our retirement and investment accounts.  Here’s a simple way to estimate the amount of corporate taxes that are paid on your behalf each year.

Find the total value of your retirement and investment accounts.  Multiply that by 2% and 4%.  That’ll give you a rough ballpark low and high range of the corporate taxes that you pay.

So, someone with $250,000 in investments will pay between $5,000 and $10,000 in corporate taxes. This is a tax that most investors never realize they pay.

Add that to the income and payroll taxes that you pay directly (and are paid on your behalf by your employer) and you’ll get a better sense for how much total tax paid you paid.

A lower corporate tax rate will help everybody.

I’m a skeptic about most politicians, but I like what Ryan says here.

Self interest is not greed, nor selfishness

Speaking of Aaron McKenzie, he did a great job in this post at untangling two concepts that many people get tangled up: Self-interest and greed.  These are not the same.