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.


Libertarians & Open Borders


Libertarians and conservatives agree on many issues. When it comes to economics, both groups generally favor free markets, although there are some divisions. I tend to side with the libertarians on most of these issues, but immigration is an exception, not for ideological reasons but for pragmatic ones.

Libertarians are strong ideological proponents of open borders. The notion of individual liberty cannot coexist with arbitrary borders. Besides, they argue, immigrants often bring skills and a work ethic that can help an economy grow. But many economists have produced strong evidence that illegal immigration is a huge economic drain. For example, the Heritage Foundation’s Robert Rector estimates that granting amnesty to 4 million illegal immigrants will cost the U.S. an estimated $2 trillion. The average education level in this group is tenth grade, so most will be low income earners and will contribute far less to the system than they take, creating losses with regard to Social Security, Medicare, public education, health care, and other government services.

Both sides are valid in this argument, but the traditional libertarian argument is flawed because it starts with a blank slate. Put another way, their argument assumes freedom in other sectors of the economy as well. One of the twentieth centuries greatest economists, libertarian-leaning Milton Friedman, encapsulated the problem in his famous retort, “You cannot simultaneously have free immigration and a welfare state.”

Friedman’s comment is simple and clear, but seems to be forgotten in the contemporary argument. The left argues for amnesty on emotional and pseudo-economic terms. On the emotional side, opposition to unfettered immigration is couched as “breaking up families.” Taken to its logical extension, this is an argument for no borders because chain migration has no end. On the economic side, we are told that more immigrants are needed to keep the Social Security system solvent. This claim proves that Social Security was never “insurance” or a “trust fund” in the first place, but instead transfers money from one group of citizens to another. Moreover, it should be needless to say that adding low-income contributors might help in the short run, but it will only intensify the long-term disaster when these individuals begin drawing more than the put in.

Interestingly, Friedman actually resolved this dilemma by offering an intriguing point: Our nation really benefits from illegal—not legal—immigration because illegal immigrants are (in theory) unable to access costly government benefits. They simply come and work hard. This is no longer true, as illegals can get EITC, drivers licenses, bank accounts, health care, public education, and other services regardless of their status. Without dialing back these benefits, illegal immigration is an economic drain. This is where many libertarians miss the point. They end up siding with crony corporatists who see open borders because they result in cheap labor, thereby passing much of the real costs along to taxpayers.

To my libertarian friends, I’m okay with immigration, but let’s get a hold on the current situation by securing the border and eliminating immigrant benefits first. Friedman was right.


The student loan crisis & the upcoming election


Currently, the federal government holds most of the U.S. student loan debt, almost $1 trillion. This is a crisis.

Graduates—especially those without jobs—are clamoring for relief. With the feds in control of the loans, it’s almost a political certainty that a substantial “plan” to aid troubled students will pop up around election time. Some of the left are even calling for massive forgiveness, but a more modest approach could include partial forgiveness for those who “serve society” in the way Washington sees fit. Teachers, nurses, social workers, and government employees could benefit at taxpayer expense under such a plan, while those pursuing careers in business or engineering would have to pay their own freight.

This is a left-wing dream. Simply mine the data of students who hold the debt and identify the groups most likely to vote for candidate X if they get some degree of debt forgiveness. Then craft a plan that offers forgiveness to be paid for—of course—with a tax of some sort on the “rich.” Market it with slogans that highlight the importance of education. A plan like this is a sure winner with many millenials and swing voters. Indeed, the ability to play politics with personal debt decisions is why the federal government should not be in the student loan business in the first place.

It should be needless to say, but there should be no student loan debt forgiveness of any kind. Contracts should be honored, and the federal government should not be seen as a vehicle for abolishing a contract when enough voters change their minds after the fact. Why should taxpayers have to shoulder the burden of students who received college loans? Moreover, how is this fair to students who tried to act responsibly by attending lower cost colleges or working more to pay a larger chunk of their own tuition?

If you want more details on this problem, see Noah Smith’s post on Bloomberg:


McDonald’s Joins the Fray


Another major corporation has joined Wal-Mart, Target and others in hiking its wages. Effective July 1, employees at non-franchised McDonald’s will receive hourly wages at least $1 above the local minimum wage. While this increase will only effect those not already earning $1 more than the minimum and it only affects those at company-owned stores—about 10% of all stores—it reflects a rising sentiment that increasing wages can be a good business decision. Of course, it’s not surprising that critics are continuing to clamor for more:

The unprecedented changes we’re seeing in companies like Wal-Mart and McDonald’s is evidence that markets are capable to driving wages up. With Republican majorities in the House and Senate, there is little threat of a higher minimum wage at the national level. Yet, companies are evaluating shifts in the labor market and making their own decisions to pay more. Government action was not required, which brings me to deeper point.

Leftists argue that when left alone, companies will always drive wages down to the lowest possible level. In fact, I heard one commentator argue, “corporate America needs to learn that hiring people at rock bottom wages isn’t the best way to run a business.” She assumes—like Marx—that workers are powerless and have no choice in the matter. Big companies set the wages and benefits, and the rest of us take it or leave it. This is demonstrably false; just consider the high turnover rates in fast-food. Moreover, with few exceptions, corporate America already understands employment realities quite well.

From a cost standpoint, hiring the cheapest workers you can find may not be the most economical way to run your business. Better workers—even in unskilled categories—are more likely to show up on time, are less likely to quit, and tend to make fewer mistakes on the job. Paying a few dollars per hour more for these workers is often worth the investment. Savvy employers try to find the sweet spot where they reward employees just enough to retain the good ones.

So why aren’t more fast-food restaurants paying more in order to get better cooks and cashiers? Some are, but the truth is that promising fast-food employees are either promoted or they eventually leave the industry for better job opportunities elsewhere. Most talented workers see burger flipping as a part-time or a temporary job while they build a track record or train for something better. In this way, companies like McDonald’s are providing sorely needed training to entry-level workers.

Companies like McDonald’s shouldn’t be castigated because they don’t offer middle class wages. They should be celebrated because they provide initial job training and experience.


Raising Wages


Wal-Mart recently announced it will start paying all of its workers at least $9 per hour. TJ Maxx and Target have now followed suit. I’m being asked frequently if these moves are a response to the minimum wage protests or other business interests. It’s impossible to tell if you read the press releases—companies never tell you exactly what’s going on the boardroom—but I think both are factors.

Wal-Mart is the most protested and sued corporation in the US. Its customers are driven primarily by value and convenience. Still, most Americans like to “feel good” about where they work and shop. Raising wages at the bottom certainly helps companies like Wal-Mart and Target fend off some of the social criticism. If customers are willing to base their shopping decisions in part on retailer image, then these companies could be making a wise business decision.

Nonetheless, Wal-Mart and Target must compete for labor. With the employment picture improving a little—especially in certain markets—retailers must deal with reality. If you pay less than your competitors, then you’re likely to lose your best workers. There’s no doubt that both Wal-Mart and Target are raising wages for certain employees because their leaders believe they need to do so for competitive reasons.

There are several take-home points here. First, corporate social decisions are usually just business decisions. Pressure from social groups calling for changes such as higher wages, better benefits, or more products made in the US can influence business strategy, but this is unlikely to occur unless it is necessary to keep customers happy. Put another way, Starbucks is often touted as a very “socially responsible” firm because of its human resource and environmental practices, but its customers seem to be willing to pay more—a lot more—for coffee there. For Starbucks, it’s a good investment. For companies like Wal-Mart and McDonald’s, it’s often not.

Second, raising the minimum wage is irrelevant when competitive pressures make it more difficult for companies to attract and retain employees. The minimum wage is only relevant to workers whose market value is really less and therefore, would earn less without it. Wal-Mart, Target and other retailers are making proactive decisions to pay market value above the minimum wage.

Finally, companies like Wal-Mart are criticized primarily because they are large, successful, cost-conscious firms. The criticism hasn’t stopped because of the impending wage increases. Search “Wal-Mart” in Google News and count the number of negative stories. Those who despise Wal-Mart will continue to do so. It’s about capitalism, not just wages.


Political Correctness at the U of Minnesota


I was intrigued to learn that the University of Minnesota recently decided to no longer include racial descriptions in crime alerts to avoid stigmatizing minorities. By definition, crime alerts are designed to provide specific information about a perpetrator so that the general public—in this instance, faculty, staff and students—can remain vigilant and safe. The purpose and effectiveness of crime alerts is directly tied to the specificity of the information. It wouldn’t do me much good to know that robbery suspects on my campus are on the loose if I don’t know what they look like.

There are two problems here. First, why not eliminate other descriptors as well? For example, most assailants are young males, so identifying a perpetrator as such reinforces the stereotype that young males are criminals. If we are really concerns with social stigmas, then we must take this argument to its logical conclusion. Needless to say, a crime alert that avoids race, gender, and age would be essentially useless, as in the hypothetical alert, “We have information that a heavily armed person with a red shirt is loose on campus.” I hope I don’t happen to be out for a jog and wearing a red shirt when that alert goes out.

The second problem is ironic; not including specific information in a crime alert can cause members of the general public to fill in the blanks themselves. Although removing this information from the alert is designed to trigger fewer racial or ethnic stereotypes, those prone to them might mistakenly conclude that a nondescript perpetrator identified in an alert is a young, non-white male. Hence, withholding information can actually lead to stigmatization.

In researching the University of Minnesota’s decision, I ran across a column by Camille Galles at the Minnesota Daily ( Galles presents the logic that underpins PC thinking, arguing that, “for students, being politically correct helps facilitate open dialogue instead of stifling it.” Put another way, political correctness is not offensive and makes everyone feel safe, thereby promoting deeper conversations among parties with different worldviews.

There is a kernel of truth here. Avoiding offending someone—when possible—helps advance an argument and promotes greater understanding. The problem is that real issues involve inconvenient reality. When truth is evaded in the interest of political correctness, then an entire conversation is based on half-truths and is therefore, worthless at best. At worst, such conversations can be damaging because they create the illusion of sound conclusions.

Consider the following example. Common sense tells us that some Americans who receive unemployment benefits don’t really want a job. This is not to say that all or even most unemployed Americans are in this category; the percentage is up for debate, but at least some are. If making this point is not permitted (i.e., politically incorrect) because it might offend unemployed Americans who are genuinely seeking work, then the discussion must proceed on the misguided idea that all Americans who receive unemployment benefits really want to work instead of receiving government benefits. Hence, Galles has it completely wrong. As this example illustrates, political correctness stifles open dialogue and can actually lead to poor personal decisions and poor public policy.

I’m a strong advocate for free speech everywhere, especially college campuses. It’s important to encourage everyone to be respectful when expressing views. However, real tolerance is the opposite of political correctness. It’s about being offended less and respecting differences, not evading them.


Update on Venezuela


The oil-rich and once expanding Venezuelan economy is in shambles. The country is running out of basics, from food to toilet paper. While retaining preferred exchange rates for select food and medicine at 6.3 bolivars per dollar, the official value of the Venezuelan currency has plummeted from about 50 to 170 in the last several days, an admission that the central government’s attempt to control the currency has failed miserably. Meanwhile, the government is seeking to overturn a World Bank ruling that it owes Exxon Mobil $1.6 billion due to under-compensation when the Chavez regime nationalized some of its oil projects. I’m sure Exxon Mobil wants to be paid in U.S. dollars, not bolivars.

But as Venezuela continues its downward economic spiral, the police state is intensifying its clamp on society. Mass protests are common. Police shot and killed a teenager in San Cristobal during a protest against the Maduro regime. The city’s pro-democracy mayor has been arrested for allegedly plotting the overthrow of the national government. As usual, Maduro sympathizers continue to claim that the U.S. is behind the protests and is actively seeking regime change. I ordinarily wouldn’t discount this charge completely, but President Obama seems to be somewhat of a sympathizer himself.

The take-home point here is the connection between economic and political tyranny. Economic freedom is fundamental to any prospering society and includes rights to make both production decisions—what is produced and how it will be priced—and personal decisions—where to work and what to buy. When a government restricts economic rights by nationalizing industries, controlling prices, and manipulating the value of its own currency, it is stifling individual liberty. Government has a monopoly on ultimate force, which must be garnered to institute such restrictions. In the end, the socialism-fascism mix employed by Chavez and Maduro not only destroys the economy, but also ends in arrests and violence.

The U.S. is not Venezuela, but the same principles apply. A confiscatory and irrational tax code is enforced by an IRS with an endless staff of taxpayer-financed attorneys and a legal ability to confiscate assets, sometimes without stated charges. Obamacare requires that individuals purchase government-specified health coverage or pay a fine. And if some on the left eventually get their way, businesses will be required to pay all workers $15 or more per hour regardless of what they actually contribute to the organization. Refuse to do so and you’ll be fined. Refuse to pay the fine and your assets will be seized. You could even end up in jail.

It’s important that we learn from what’s happening in Venezuela. Government isn’t always a bad thing, but most of its regulations restrict both economic and individual liberty. In the end, all laws must be ignored, selectively applied, or administered with force. None of these options are good, which is why


The Politics of Political Talk Radio


I’m a fan of good talk radio (Wilkow on Sirius is my favorite). I don’t like every host but I enjoy an open discussion of ideas and I appreciate the genuine passion that goes with it. But I’m not the only one. About 50 million Americans listen to talk radio each week.

The history of talk radio is fascinating. The format saved AM radio after the FM onslaught. Rush Limbaugh was a groundbreaker, but many others have followed. No two personalities are alike, but almost all of them lean conservative. My theory to explain this is that individuals on the right appreciate fact-based discussions and debates; talk radio (as opposed to TV or other video media) emphasizes the spoken word, and it’s much more difficult to make an emotional argument without visual images. Whether I’m right or not, talk radio is clearly dominated by the political right. Some of the left continue to clamor for fairness and “equal time,” but it’s a free market.

Like any other programming, talk radio is financed by advertising. A host that cannot build and retain an audience sufficient to attract enough ad revenue will be out of the industry. This is where it gets interesting.

During the last several years, many on the left have sought to silence talk radio hosts by threatening their advertisers. In a 2012 satirical monologue, Rush Limbaugh referred to referred to Georgetown University law student as a “slut” because she argued that the federal government should require the Catholic university to provide her with free contraception. Left-wing political groups responded by organizing social media campaigns threatening retaliation against sponsors, many of which eventually shifted their ad campaigns to programs deemed to be less controversial. As the Wall Street Journal recently reported, this campaign has taken a toll. Even with large audiences, advertising on talk radio programs costs about half of what it costs on music radio stations because large accounts are difficult to acquireThis effort tells us a lot about many on the left. Rather than seek to win an argument in the marketplace of ideas, they seek to squelch the opposition. Of course, they have the right to attempt to dissuade advertisers from sponsoring talk radio in a free society, and it’s understandable why many large firms prefer a “safer” route when it comes to marketing. However, it’s interesting to compare their response to the rise of talk radio to the right’s response to network news. Most “conservatives” don’t think much of the news on ABC, NBC, CBS, or CNN, but they just change the channel.

My point here is one of instinct. When those on the right see a problem, most are content to let the market solve it. If you don’t like a product, don’t buy it. If you don’t like Jon Stewart, don’t watch him. But when those on the left see a problem, many seek to control the outcome. They say things like “companies shouldn’t be allowed to…” or “this guy should be off the air.” Their faith is not in free choice and liberty, but in government intervention.


Gas, Highways, and Obama’s $4 Trillion Budget


In a recent post, I addressed a call from statists to increase the gas tax. I suggested that Republicans accept the proposal, but only if the plan included a revenue-neutral cut in income tax rates across the board. I reasoned that a use tax is always better than an income tax and that such an offer wouldn’t be accepted anyways because leftists just want to raise taxes. My post generated several more questions worth answering.

Washington can’t be trusted, so shouldn’t we oppose all tax increases regardless of the trade-offs? I don’t think so. I agree that Washington can’t be trusted, which is why I don’t think any tax trades (i.e., raise one and cut another) should include new taxes. This is why I opposed Herman Cain’s 9-9-9 plan. In theory, it would have been better than the current system, but would have also created a new tax on sales. I prefer a sales tax to an income tax, but over time, the 9-9-9 rates would change and we’d be stuck with an additional tax. We should only add a sales tax if we eliminate the income tax in the same bill.

Washington shouldn’t finance highway construction anyway, so why consider raising the gas tax even if income tax rates are lowered? In a perfect world, I’d rather turn all road construction over to states, local governments, and private entities. Arguably, there is a limited federal role for highway construction, but only for roads that are vital to the national transportation system. The Feds should not be in the business of sending funds back to the states for any other projects. The quagmire here is that the Feds already built the roads and someone has to maintain them. My point is simple: IF the federal government is going to engage in highway projects, than it should do so only with funds its collects from a usage tax, not the general coffers. The gas tax is far from perfect, but it’s better than the alternatives.

Obama’s proposed budget makes my point. The President is asking for increases in “grants” for local road projects from the general fund. Federal grants to local governments are unconstitutional, inefficient, and unnecessary. States and local governments can raise their own taxes to pay for such programs. My proposal is simple: ALL revenues derived from the gas tax must go to pay for vital national highway projects (not projects of state or local interest) through the Federal Highway Trust Fund (FHTF), and NO revenues from other sources should pay for any highway projects. If it is necessary to raise the gas tax to achieve this, then do so, but ONLY with an across-the-board, dollar-for-dollar cut in income tax rates.

Why should we trade income tax rates for gas tax rates when the income tax should be abolished or completely overhauled to a flat tax anyway? Sometimes we have to take incremental gains when we can get them. Followers of this blog know my strong preference for a sales tax (not a VAT, and not in addition to any income taxes) or a simplified flat (income) tax. The former is better, but the latter is easier to achieve, at least in the short term. My disgust for the current system aside, we still need to take action that moves us in the right direction. The left understands this point very well. Just consider how long they’ve worked on shifting healthcare from an individual responsibility toward a single payer system. Their progress has occurred one step at a time over decades.

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Where do the jobs come from?


The job picture has improved some in recent months. While current statistics overstate the employment rate by understating the number of available workers, it is true that things have gotten a little better. Hopefully we’ll finally have a recovery from the recession, one that is long overdue.

Needless to say, the Obama administration—like any other—is claiming responsibility for anything good that might be happening. But have the President’s policies actually promoted job growth? While there are always many factors to be considered, the lion’s share of the recent gains can be attributed to the long-term unemployment benefits supported by the President, most Democrats, and some Republicans in Congress. Unfortunately for the left, it was the expiration of damaging government intervention that actually helped get things moving.

In a recently posted working paper sponsored by the non-partisan National Bureau of Economic Research, economist Marcus Hagedorn and two colleagues concluded that 61% of the jobs created in 2014 can be attributed to the expiration of long-term unemployment benefits (see The technical aspects of this study are beyond they scope of this post, but another finding is also worth noting. States where unemployed workers received the highest long-term benefits experienced (on average) higher unemployment rates than did states with lower long-term benefits prior to the reform that eliminated these benefits. But after the reform, these same states experienced greater employment growth. In other words, long-term federal unemployment benefits hampered job growth through 2013, but their expiration helped promote it in 2014.

You may recall the arguments when federal unemployment benefits were extended on several occasions. Some on the right—those not afraid of being called heartless—suggested ending the long-term benefits because they provided an incentive for many would-be workers to stay unemployed. Those on the left argued that such a move would have been both insensitive and cruel because there simply were not enough available jobs.

The President continues to attribute any positive movement in the economy to his policies, but the Hagedorn study suggests otherwise. As the numbers tell us, it was the end one of Obama’s policies that seemed to trigger the majority of last year’s job growth. Just imagine what would have happened if the feds had stayed out of the long-term unemployment benefit situation in the first place.

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