China & Venezuela


I just returned from another trip to Asia. I always see some things firsthand when I’m there. I had two interesting encounters this time.

The first was at the national museum in Beijing. The modern history section tells the story from Mao to the present. The shift from Marxism to a mixed approach with some capitalism is officially presented as a natural evolution of socialism, not a departure from it. The term is they use frequently is market socialism, an oxymoron in a literal sense, but not from their perspective. As my Chinese colleague explained, socialism isn’t really about Marxism, but about income equality—nobody having more than anyone else. In other words, capitalism is fine as long as its abundance can be redistributed. In this sense, capitalism becomes the new socialism. This is a novel way of understanding the Chinese economy, but it also provides insight into the neo-socialists in the US. They are happy with capitalism to the extent that they can control most of its bounty through taxation, redistribution, and regulation.

The second encounter was with an engineer from Venezuela I met in the hotel lobby. I asked him how things were going there. He just shook is head and said, “It’s the government.” As he put it, “The government in Venezuela is just for the poor people, but it’s horrible for the professionals. They take everything the professionals and companies produce and give it to the poor, except for what they keep for themselves. Nobody who produces anything can make any money anymore. So many companies have shut down that there isn’t anything left to take from them. There’s no future.” I’ve covered the plight of Venezuela many times in my blog so there’s nothing new here, but it’s interesting to hear it firsthand from someone suffering through it.

Apparently Chavez and Maduro didn’t learn anything from the Chinese, who have figured out that some degree of free enterprise is necessary to generate the cash to finance government largesse. Of course, capitalism cannot coexist with income equality. Entrepreneurs take risks and work hard, and are only willing to do so if they get to keep what they earn. Income inequality comes with the territory. The Chinese, the Venezuelans, and the leftists in the US are all trying to figure out the same thing—how much wealth can confiscated before business leaders and other professionals quit producing.

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Economics & China


I just returned from a trip to China. While there I spoke with students considering coming to the US to study, one of which asked me a great question: The economic systems of the US and China are different, so if I study economics in the US will what I learn be useful when I return to China?

I gave her a truthful answer: Economic principles are universal, economies are global, and there are similarities and differences between the US and Chinese economies. What you learn in the US would be very useful when you return to China.

But a complete answer is much more complex. Yes, there are economic differences between the two nations, but they aren’t as great as some think. Granted, the US and Chinese economies are officially “capitalist” and “communist,” the US has two centuries of economic growth China cannot match, and the US dollar—unlike the RMB—is openly traded and respected on world markets. These differences aside, the similarities are growing.

Both nations manipulate their currencies. The literal and figurative printing presses in Congress and the Fed have been expanding and inflating the money supply in the US. Central planners in China do pretty much the same, pegging the value of the RMB in part to the market value of the US dollar.

Politicians in both nations routinely call for economic growth while beating down the source of that growth, the private sector. The US and China are moving in different directions, but toward the same middle ground. The Chinese government just introduced a “reform package” for its state-owned enterprises (SOEs) that allows them to make more of their own decisions and offer better compensation packages to top executives, most of whom have left the SOEs for private firms. However, the government will retain tight control over capital and key strategic decisions will always be vetted by government officials.

Meanwhile, Washington has ramped up regulations for virtually every sector in the economy. From Obamacare to Dodd-Frank to “anti-trust” persecution of successful companies to calls for a national $15 minimum wage, the US government is implementing ever-expansive controls on US industry. Like Beijing, Washington attempts to find the “balance” between economic freedom that produces growth and jobs, and state control that legitimizes the political claim that business cannot be trusted. In this respect, both nations are off course. Of course, there’s no thing as a balance between liberty and statism. The US is moving in the wrong direction, away from a successful free enterprise tradition. The Chinese are moving in the right direction, but still want the control. Both the US and China could use a heavy does of Hayek.

There is one key distinction between the US and China—political freedom. Reform in China depends on the wisdom of the current socialist regime, but citizens in the US have the opportunity to replace its socialist political leadership by means of the voting booth. Statism is well grounded in the US; our government schools, a bloated social security system, and massive deficit spending connected to an entitlement mentality won’t change overnight, even with the right leadership. But we have the power to recall our representatives and begin moving in the right direction. Many of the candidates in the Republican presidential primary offer potential for doing just that.


Is Trump Correct on China?


Donald Trump is talking a lot about China. His central claim is that that the Chinese government continues to manipulate the value of its currency, keeping it low and enabling Chinese companies to export their products at lower costs than competitors in the US or other parts of the world. Is he correct?

When Trump made this claim as a presidential candidate several months ago, “fact checkers” rebuked him, citing economic reports that the Chinese currency (RMB) is now fairly valued relative to the US dollar. But the Chinese government pegs the value of the RMB in great part to that of the US dollar and reserves the right to inflate or deflate this value on a daily basis. If—as these economists claim—it is obvious that the RMB is not undervalued, and if the Chinese government is really committed to a market-based exchange rate, it would simply allow the value of the currency to float with the market. It’s like someone from the US Postal Service claiming that the private sector couldn’t deliver a letter for less than 49 cents. If so, then why maintain laws prohibiting the private sector from giving it a try?

There’s an interesting irony here. If the Trump critics were correct at the time when they claimed that the RMB was valued accurately, then the currency is now undervalued due to two significant devaluations made by the government during the Chinese market meltdown last week. I believe the Chinese currency is still undervalued but I am guessing. The truth is that we can’t know for sure without letting the market decide. The beauty of a market system is that prices will set automatically and will accurately reflect market value. An exchange rate is nothing more than a price for a currency. This debate would resolve itself if the Chinese government allows the RMB to trade freely on global markets.

So when it comes to currency valuation, Donald Trump is entirely correct. But he also refers to a need to “decouple” economically from the Chinese. Here I believe he is right again, but only to a point.

History, economics, and market logic tell us that free global trade benefits all partners. Artificially reducing trade between the US and China would have economic costs. If this is what Trump means by decoupling, then he’s incorrect.

But it is clear, however, that the US has mismanaged both its own economy and the US-Sino relationship. The Fed’s overbearing influence on interest rates and financial markets makes it difficult for US negotiators to argue with straight face that the Chinese government should leave its markets alone. US government subsidies also pick winners and losers, and our massive debt has given the Chinese an opportunity to invest heavily in the US dollar. US negotiators should have been clear about the currency manipulation issue years ago, but they bought the argument that a weak RMB was necessary and appropriate for Chinese development. In this respect, the relationship with China is skewed. We need to clean up our own house fiscally and then—from a position of strength—insist that the Chinese do likewise. To the extent that Trump is suggesting this type of reboot, he is correct.

For the record, I am not endorsing Donald Trump or any candidate for President at this point. Many of you know that I like Rand Paul a lot, but he has struggled to package his ideas effectively. Trump has clearly changed the rules of the game and I’m glad that he is running, however. His candor is a breath of fresh air, but there’s still a long way to go.


More of the Inevitable in Venezuela


It’s time to update the crisis in Venezuela. The mass printing of bolivars has led to predictable hyperinflation in recent months. It’s no surprise that President Maduro’s government hasn’t published any inflation or related data since December 2014, when the annual rate officially hit 68%.

But there are other ways to skin the proverbial cat. Venezuela-born and Miami-based financial analyst Miguel Octavio frequently travels to Caracas and always dines on a popular local favorite, arepas, at the same restaurant. The price he pays for arepas is always changing, providing key insight into general prices in the country. Since November, Octavio logged an increase from about 100 bolivars for an arepa with cheese in November 2014 to about 470 in July 2015, with the price more than doubling in the past 3 months. Because the trend is not stable, computing the current annual rate is an inexact science, but I’m estimating ~1000% based on the arepas. Conservative estimates are closer to 200%, which is no picnic. To put this into context, inflation is a problem in neighboring Uruguay and Brazil, but it’s only 8.5% and 9.6% in these countries respectively.

The economic calamity is widespread. Barclays analysts give a 98% probability to Venezuela’s default on its sovereign debt in the next 5 years. As a Bank of America economist put it, “People are literally getting rid of money faster than the government can print it.”

This type of hyperinflation is a broad result of Venezuela’s Marxist philosophy that demonizes and punishes free enterprise in favor of an arbitrary, inefficient central planning model. It is a direct result of the country’s decision to print more currency. We’re experiencing both of these evils in the US, although at a less tyrannical pace. While I don’t expect the US to go the way of Venezuela anytime soon, the trend is in the same direction. It might be a generation away, but massive debt, unfunded liabilities, and constant pressure on liberty and free enterprise—the engine of the economy—foretell trouble down the road.

For more on the situation in Venezuela, see


Democrat vs. Socialist


Chris Matthews recently asked DNC chair Debbie Wasserman Schultz to explain the difference between a Democrat and a Socialist. She wouldn’t answer. As we shall see, the reason why tells us a lot.

A Democrat is a member of a particular party, but a socialist can refer to either a party or an ideology. Dominant views in parties can and frequently do change, while ideologies are more consistent.

Democrats and Republicans are political parties. Their members tend to share common views on certain issues, but not always.

Socialism and capitalism are ideologies. Socialists favor government control of production because they believe government officials are more trustworthy and wiser than would-be business owners. Capitalists favor market control of production because they believe individuals can be trusted for the most part, and should have the right to control their own capital, labor, and purchase decisions. Besides, capitalism works.

Now back to Wallace’s question. Several decades ago, the answer would have been easy: Unlike socialists—who are statists—Democrats are neo-capitalists who also favor some government intervention in the economy. But this explanation is no longer true. Wasserman Schultz struggled with an answer because the Democrat party no longer emphasizes free enterprise. In fact, many Democrats are quasi-capitalists at best. How often do you hear prominent Democrats praise or even acknowledge free enterprise for anything positive? Most rail business and blame its leaders for every perceived social malady from income inequality to health care to unemployment.

But herein lies the rub. The President may be a strong leftist, but the current party includes large numbers of both traditional Democrats and modern socialists. If Wasserman Schultz embraces free enterprise in her definition of a Democrat, she will alienate the socialists. If she doesn’t, she distances herself from many blue collar Democrats and independents who see themselves as moderates. Democrats can’t win national elections without the support of this latter group.

Of course, Republicans have a similar problem. Many Republicans are not capitalists, but instead favor a blend of free enterprise, socialism, and cronyism. Today, libertarians and constitutionalists occupy the political space largely abandoned by the Republican party. They often vote Republican by default, if they vote at all.

Frankly, Chris Matthews asked a superb question, and the same should be posed to every prominent Democrat. To be fair, Republican candidates should be asked to clarify the difference between a Republican and a capitalist, constitutionalist or libertarian. Those who claim the values of liberty, rule by Constitution, and free markets should be asked what they specifically plan to do (if elected) to vigorously promote these ideals. Any answer that doesn’t include a repeal of Obamacare, a complete overhaul of the tax code, and a significant rollback of the welfare state is coming from an imposter.


Rand Paul’s fat tax


Senator and presidential candidate Rand Paul launched a flat tax proposal last month. It’s received a lot of criticism from all sides. Some has been warranted, but much of it is really designed to mask a deeper problem.

Paul proposed a single 14.5% income tax rate with no tax on the first $50,000 of income for a family of four, and deductions for mortgage interest and charitable contributions. The plan also eliminates the worker share of payroll taxes, gift and estate taxes, and all tariffs and duties. Capital gains would also be taxed at the 14.5% rate.

The left doesn’t like Paul because he has a way of encroaching on some of their constituencies. A July 10 op ed piece in the New York Times exemplifies the liberal opposition to the plan. It’s flawed because (1) it retains two popular deductions, (2) it would reduce government revenue, and (3) it helps the rich at the expense of everyone else. If these are really legitimate problems, then the NYT could address these concerns by countering with a proposal that (1) eliminates all deductions, (2) contains a higher rate that increases revenues, and (3) excludes more income. They didn’t because they don’t like the idea of a flat tax anyway. The arguments they made are but a smokescreen.

The NYT piece makes an interesting claim:“ Arguments about the proper role of government aside, a population and an economy that are growing in size and complexity cannot thrive with a shrinking government.” In other words, an economy can only grow when government grows. This statement is patently false and exposes their bias.

In fairness, a critical analysis of Rand’s proposal is in order. The $50,000 exemption and the 14.5% rate are arbitrary. Arguing to raise or lower them requires in-depth analysis of economic data, so I’ll set this issue aside. Suffice to say that government revenues would likely decline as a result, but Paul’s answer would simply be to spend less anyway.

An ideal tax system would contain no deductions, but the two retained in the proposal are logical. The mortgage tax deduction should be eliminated over time because it requires a higher tax rate to finance, and it distorts the housing market. Abolishing it (all at once) could have negative repercussions because individuals have become accustomed to the current system. I would prefer phasing it out over 4-6 years, adjusting tax rates down with each cut in the deductible amount. Nonetheless, one could argue that keeping it retains stability in the housing market. It’s also a political decision.

The charitable deduction is entirely logical. If charities don’t have to pay income taxes, then individuals should be able to assign a portion of their income to charities and avoid the taxes as well. I prefer a fair tax (i.e., sales tax) to a flat tax in part because it eliminates the entire question of charitable deductions. However, retaining this deduction makes perfect sense if you’re going to have an income tax.

Does Paul’s proposal “hurt” the poor? This is really a complex question. Eliminating the worker portion of social security would help low wage earners because this tax is paid on the first dollar of income. Not taxing the first $50,000 of income should be fair enough, but there are so many giveaways embedded in the tax code that this might actually hurt some low-income filers. If so, it only tells us how far we drifted into a tax code that’s entirely a game of redistribution and social engineering.

In the end, I’d propose a fair tax, or a slightly different flat tax. That having been said, no proposal like this has any chance of getting through Congress without changes anyway, so knit picking the details at this point is an exercise in futility. Consider the big picture. Paul’s plan would be a substantial improvement over the status quo. It would cut the influence of special interests, and save billions in compliance costs. Anyone who opposes it should provide an alternative.


The Greek Crisis


The size and scope of government has ballooned in Greece. Ordinarily this type of problem would be confined to a single nation, but not when there is a common currency. The problems of Greece affect the entire continent, particularly those in the EU. And what affects the Europe affects the entire world.

Investors fear government default, prompting the rest of to negotiate a bailout. The International Monetary Fund (IMF) is a key bailout vehicle, ultimately transferring a chunk of the European risk to U.S. taxpayers. We have been told that a bailout is in our best interest, lest this crisis reap havoc on the global economy. This might be true in the short run—as it was the last time Greece was bailed out—but the problem only gets bigger when you kick the can down the road.

The EU nations are demanding sacrifices from Greece in return for some debt relief, but the Greeks are balking and may actually hold some bargaining chips in this game of chicken. The negative ripple effect of a default would hurt the rest of the EU, so there are strong incentives for a deal favorable to the Greeks. The country is run by leftist Alexis Tsipras who, bolstered by a 61% vote against the latest proposal, continues to call for a more “sustainable” solution. That means a larger bailout.

You might remember the ~2011 Greek bailout. Austerity measures then included a government hiring freeze, giving more flexibility to private companies with regard to layoffs, and extending the retirement age beyond 61. The imposed budget was supposed to balance by 2014. It didn’t, and Greece defaulted on a €1.6 billion debt repayment last week. Greece owes the European Central Bank €3.5 billion on July 20, with another large payment due in August. Greece’s current debt level is 175% of GDP, compared to about 100% in the US.

This is unchartered economic waters, but it is doubtful that Greece will depart the EU. Tsipras was quick to note that a no vote on the bailout/austerity plan was not a no vote to leave the Eurozone. Clearly, Tsipras wants the benefits associated with being a weaker member of the EU collective without paying all of the dues. Of course, austerity will come to Greece anyway, either by means of a negotiated agreement or through the market’s invisible hand.

Could this happen in the US? Not exactly or at least not now, primarily because the US economy arguably remains the strongest in the world and the dollar is a preferred global currency. With a massive national debt, trillions in unfunded mandates, and seemingly no political will to change, financial crisis of some magnitude is in our future.

But there’s another lesson here. A common currency is a horrible idea because it fosters “moral hazard,” a situation when one party in a contract can benefit at someone else’s expense. When each nation has its own currency, the strength or weakness of the currency depends on government and economic factors within the nation. Exchange rates fluctuate and punish those that are fiscally irresponsible. But when nations share a currency, their politicians have an incentive to game the system to their own advantage. Of course, member nations “agree” to follow certain guidelines designed to eliminate the moral hazard, but these are not airtight, as evidenced by the Greek fiasco. When Europe’s central planners originally promoted the Euro, they set the stage for the current crisis. It was only a matter of time.

Unfortunately we are experiencing the same type of problem in the U.S. States that overspend turn to the federal government for help, which—directly or indirectly—must come from other states that are more fiscally responsible. Liberals are happy to oblige, thereby creating greater dependency on Washington and ensuring more irresponsibility in the future. Of course, the root of this problem can be traced to Washington’s ability to churn out more dollars through Fed and Congressional recklessness.

Whether it’s Greece or Detroit, governments should be held accountable for their actions and must make the tough decisions necessary to balance their own books. Bailouts simply breed more destructive behavior. The antidote for moral hazard is personal responsibility.

The EU was all about “strength in numbers,” but this can easily turn into “the producers carrying the non-producers” when the irresponsible learn to game the system or refuse to make tough choices. The EU is not obligated to bail out Greece, but the collective system they have created allows financial poison from one country to spread more easily to its neighbors. This creates incentives for Germany, France, and others to support bailout efforts, as well as for less prosperous members to engage in risky growth and development schemes because they won’t be held fully accountable for their actions.

Thanks to the European Union, Greece’s financial catastrophe is a collective problem. Because of the common currency, neighboring countries can’t afford to let Greece (or any other country in the EU) implode, so a bailout is required. A common currency formally links one country’s economic destiny to that of others in the group. Collective oversight—de facto one-world government—is always part of the arrangement, and the strong and responsible will always end up paying for the weak and irresponsible. This is why we should never give serious consideration to a North American currency, much less a global one.


The Pope & Climate Change


Pope Francis released an encyclical on climate change a few days ago, among other things condemning business for its “obsession with maximizing profits” and consumers for buying things they don’t need. I’m not a Catholic, but I appreciate the church’s leadership on a number of issues. On this one, the Pope’s dead wrong.

What’s most disturbing about the Pope’s commentary is that he creates a false moral argument against free enterprise cloaked in a nefarious mix of sound reasoning and misinformation. At a basic moral and theological level, the Pope is correct. Protestants (like me) and Catholics generally agree that God created man as a superior being with authority to oversee the earth, but that man has a responsibility to care for it appropriately. Reasonable arguments decrying the immorality of pollution in general stem from this logic. However, his definition of pollution has broadened to include most production and consumption activity because of their alleged connection with climate change. In other words, his moral argument for saving the planet is based on his acceptance of flawed or incomplete scientific arguments about man’s ability to influence the climate. The linchpin to the entire argument is an acceptance of the climate change science.

Having spent last week in China, far left CNN-International was one of my few available news sources. CNNI-I was thrilled to acknowledge the Pope’s support and immediately trotted on Naomi Klein, author of This Changes Everything: Capitalism vs. the Climate. The title of the book and a quick perusal of her site ( illustrate the battle lines. This is an attack on free enterprise, plain and simple.

Faced with data suggesting that the planet probably isn’t warming now, Klein and others of her ilk have replaced “global warming” with the all-encompassing “climate change.” The also skillfully drop terms like anthropogenic or man-caused from their rants, claiming that their opponents deny climate change. Of course, the earth has warmed and cooled since the beginning of time. The debate is not about the existence of climate change, but whether man’s activity is contributing to some degree of catastrophic change.

In her CCN-I interview, Klein stated that, “the Republican party has been denying climate change.” This not only reinforces my earlier point about the slick removal of “man-made” from the discussion of climate, but is also factually incorrect. Most Republicans have been afraid of the climate mafia and being touted as Neanderthals for “rejecting science.” Her real beef with the Republicans is that they’ve been too slow as a group to redistribute wealth and dismantle liberty to address the doomsdayers.

Klein, like others, made no mention of the actual scientific argument for anthropogenic climate change. However, she did say that she’s attended many UN conference where a lot of “technical data” was presented and third world representatives were in tears because of climate degradation in their home nations. Put another way, Klein doesn’t want you asking the difficult questions about climate change; it’s better to leave it to the government-funded experts, proceed with the marching orders, and focus on the emotional and human side of disasters allegedly connected to human activity in the West.

CNN-I parroted this logic as well, presenting stories of a flash flood in Shanghai and a drought in parts of Brazil and following them with a superficial disclaimer that, “while no one is certain that human activity caused these calamities, it’s hard to deny the evidence and we need to take action.”

Amidst all of the climate hand wringing, Pope Francis and media like CNN-I are skipping the most salient questions. What exactly is the “settled science” that supports the man-made climate change argument? Why are they willing to put so much faith in a government-supported scientific community on such a critical issue? Why should we believe this community’s assessment of climate change now when many of the same people were touting the destruction of “global cooling” a few decades ago and of “global warming” only a few years ago? If human activity is contributing in some meaningful way to a negative near or intermediate term shift in climate, why should be believe that world government activity is capable of developing and executing a solution? Why do many of the biggest proponents of anthropogenic climate change continue to fly around the world to attend conferences and consume far more than their share of products linked to fossil fuels?

It’s time to shift the debate in the direction of reason. Unfortunately, Pope Francis just added fuel to the existing fire.


Maintaining the Infrastructure


Somebody has to pay for the roads and bridges. Ideally, government-maintained infrastructure should be financed through use taxes so everyone pays in accordance with the benefits they receive. A federal and state gas tax regime has been in place for some time, but the federal trust fund is approaching insolvency. Spurred by the decline in oil prices, a bi-partisan group recently introduced the “Bridge to Sustainable Infrastructure Act” to raise the gas tax by as much as 40% to “rebuild our crumbling infrastructure.” Arguably, raising the gas tax might be necessary if the funds generated are insufficient for maintaining highways, but this proposal is fraught with problems and requires deeper analysis.

First, any and all revenue from a gas tax should be used strictly for infrastructure. Currently, this is not the case. According to a 2013 Heritage Foundation study, significant chunks are allocated to bicycle lanes, light rail, landscaping, and even a transportation museum. Before the fund can be deemed insolvent and any tax increase is discussed, these nonessential expenditures must be stripped from the budget.

Second, we need to take a closer look at sources of funds. Proponents of a tax hike claim that one is needed to replenish the trust fund’s expected $168 billion deficit. Without an increase, Congress would likely appropriate general funds to make up the difference. But if this shortfall is to be financed with a gas tax instead of general funds, then the tax increase will free up other funds for other uses, not necessarily road projects. Why not propose a corresponding cut in the income tax to balance the increase in the gas tax?

Third, much of the $787 billion Obama stimulus package was supposed to finance infrastructure, yet relatively little actually went to highway projects. This illustrates the shell game that occurs whenever taxes and spending are assigned to politically popular purposes like highways, safety, and education.

Finally, most politicians assume that all highway maintenance must be government-financed, usually at the federal level. I contend that no funds from a federal gas tax should be used for state or local roads; these can be financed through state or local taxes. Moreover, private involvement through tolls can align the specific costs of infrastructure with users of specific projects without the need for more taxes. Federal government involvement in highways is way out of control both constitutionally and pragmatically, but I’ll save that topic for another day.

To the extent that governments will be involved in financing highway projects, federal and state gas taxes are reasonable options, but 100% of the funds generated must be allocated to actual highway projects and any “necessary” increase in gas tax rates should be balanced dollar for dollar with an across-the-board cut in income tax rates. I don’t expect either of these provisions—especially the second one—to be part of the proposal. The “Bridge to Sustainable Infrastructure Act” is neither sustainable nor completely about infrastructure. It’s jut another tax increase.


No free college


Vermont socialist and presidential candidate Bernie Sanders recently introduced a bill to eliminate undergraduate tuition at public colleges and universities. His College for All Act would also reduce interest rates on federal student loans and allow graduates a refinance their loans at these lower rates, thereby “stopping the government from making profits on student loans.” The stated cost of the bill would be $300 billion annually, which would supposedly be financed by instituting 0.5% and 0.1% taxes on trades of stocks and bonds respectively, as well as a smaller fee on derivatives, including stock options and futures contracts.

Sanders has virtually no chance of winning the Democrat primary, but a lighter version of his bill could get some traction from those on the left—and possibly some swing voters who buy the notion that this would be an “investment in America,” so it’s worth debunking at the outset.

As for the interest rate proposal, the federal government nationalized the college loan industry in 2010, a move Sanders supported. If there’s any profit in the student loan business, the federal government is only getting it because it took over the system. The easiest way to keep this from happening is to privatize, but this wouldn’t make the left happy either. The problem is profit. In a socialist’s world, it’s evil. Governments determine production, pricing, and wages so that “market distortions” are eliminated and everything is “fair.” This ideological point aside, we’re hearing more calls to “do something about the $1.2 trillion in student loan debt,” which really means transferring some or all of it from those who willingly borrowed the money to those who did not. Like others of his ilk, Sanders would really like to dissolve most or all of debt, not just tinker with the interest rate.

There are many problems with his free college tuition proposal as well, aside from the fact that the federal government has no constitutional authority to pass it anyway. Costs of public institutions vary widely among the states in part because of the amount of funds state governments allocate. If the federal government is going to pick up the tab, then state governments have an incentive to spend less on their own, effectively turning over the entire college funding process to Washington.

Moreover, not every student needs to go to college or is ready to do so upon graduating from high school. The return on investment for any college decision depends on individual factors. Motivation is a very important one, but less of it is required when someone else is paying the bill. In fact, free college would be viewed as an easier alternative to many jobs one might get out of high school, effectively promoting a college education to those for whom it is not intended.

It’s also important to consider Sanders’ funding mechanism. His proposed taxes on stock trades sounds like a tax hike on the wealthy, but it would be counterproductive to the economy. Investors should be encouraged to move their funds into investments with the most potential. Like a capital gains tax, a levy on stock trades encourage investors to hold funds in questionable assets rather than pay the expense. This is a surefire way to stunt growth.

There is an irony here. Part of the occupy protests was based on the notion that many college graduates have incurred large amounts of debt but are struggling to find employment in their majors. Indeed, many have been deceived by a mantra that encourages college at any cost, so I have some degree of sympathy. Nonetheless, if many current graduates are unable to find good jobs—something leftist supporters of the movement parroted throughout the protests—then why should the government “invest” in more graduates? They wouldn’t owe tuition individually under Sander’s plan, but taxpayers collectively would incur the debt.

There are many other reasons why free college education is a bad idea; in fact, I can’t really think of a reason to support it. Perhaps you might expect me—as a professor at a state-supported university—to favor such a proposal because it would infuse federal dollars and expand the industry, but it’s just not a good idea for anyone.

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