Flint Hills Center for Public Policy

2004-01-27T14:32:00.000-06:00

Change of Address
I've moved to a new blog hosting service - hope you can join me at bengpratt.blogs.com. This site will stick around for a while, but I won't be adding any more posts here. See ya over there!

2004-01-24T23:01:00.000-06:00

They Never Learn...
The Channel 10 evening news carried a story on a Kansas Republican legislator who was proposing a raise in the minimum wage. Although it sounded eminent, I can't find it online - if anyone knows how to search the legislative website for proposals like this, please email me!

These election year rallies around emotionally-charged issues like the minimum wage remind me of parties people throw on the coasts in the face of a huge hurricane that ends in tragedy because people think they can ignore the forces of nature. And like a Hurricane, the laws of supply and demand are forces of nature. Not paying attention to them is like not respecting Mother Nature, with equally tragic results.

The facts are these: (1) the only minimum wage - the real one - is zero; (2) the laws of supply and demand - which are not in dispute by any economist on any side of the debate - state that when you artificially raise a price of something (like the price of labor - e.g. the so-called "minimum wage") it tends to cause more of that something to be supplied and less of it to be demanded. This results in a surplus.

Politicians discuss minimum wage laws in terms of "benefits" they will confer on workers who will receive those increased wages. But the real minimum wage is zero, and that is exactly what many of these workers will receive in the aftermath of government-mandated raises -- because they will lose their jobs. The labor market is no more exempt than the peanut or car markets: artificially raised prices will create surplus. In a labor surplus, the least skilled -- those very people the policitian purports to be helping with his proposal to increase the minimum wage -- will lose their jobs.

I could stop there with the "it's econ 101 stupid" lecture, but here's the deal: we should be free to associate with whomever we want. No one should be allowed to interfere with that. This basic principle - freedom of association - is core to our economy's success. Why? Because in the absence of coercion both parties gain from an exchange. Otherwise they wouldn't do it. When an external entity interferes with an exchange, as the government does when it mandates minimum wages, it's more than likely one or both sides will be worse off.

Life is tough and clearly there are times when we only have a list of bad choices to choose from. Normally, unskilled workers would prefer to make the best of a bad list of choices than to have those choices reduced or taken away from them. Raising minimum wages is a great, emotionally-charged issue for a politician to wield during an election year... but it is a very cruel and heartless trick played on those who are using their minimum-wage positions to build a ladder to a better future.

2004-01-14T09:48:00.000-06:00

To Be Ruled by Laws and not Men...
In a city that during winter is perhaps the alter-ego of San Diego for it's constancy of cold-dark-wetness, one of London's compensating charms is its pubs. Last night I was in a beautiful pub tucked in an alley just off of Berkeley Square drinking a pint with my good friend Pavetto and, as always seems to happen everytime I've been in a London pub for the last 15 years, I ran into an interesting gentleman and had yet another fascinating conversation.

His name was Joey, and he looked to be in his mid to late 50's with a kind face but hard eyes. He was from Zimbabwe and said he used to own a farm there, as had many of his family - who had migrated there from England about 160 years ago. Zimbabwe is an incredibly fertile area and as late as 2000 was a rather signficant bread basket for Africa. Many of the established farmers were white.

Around the year 2000, President Robert Mugabe was in trouble: his soldiers weren't getting paid after coming home from brutal assignments in the Congo where they were sent to help fight that civil war - and the citizens weren't voting for his party. He declared white people as enemies of the state - saying they had stolen their land from the native citizenry so many generations ago (I don't know if this is true or not) and ordered his returning vets to occupy the farms. Many farmers and their workers were beaten and sometimes killed (especially if they were known supports of the opposition).

The Zimbabwe courts ruled the farm invasions illegal and ordered the invaders to leave. Mugabe ordered the police not to intervene. Results? Utter destruction of farming, the flight of educated workers to safer countries, rampant starvation and zero incentives on the part of the remaining white farmers with know-how and any surviving capital to risk investing it by planting any new crops.

And those thugs who now occupy the other 1000+ farms? Of the small minority who express any interest in farming, there's no equipment to do it with - for now. The current issue of the Economist reports that Mugabe plans to sieze farming equipment that's been stored in warehouses by farmers whose land was stolen...

I remember Tom Palmer saying that beer and wine are the libations of liberty and progress - they foster fellowship and a coming together... whereas a drink like vodka is the tipple of totalitarianism and control. Nursing my pint in that pub with Pavetto and the Zimbabwe refugee, I supposed that Mugabe and his thugs were probably big fans of vodka.

2004-01-09T11:02:00.000-06:00

Churchill and Taxes

Great quote from a couple of days ago in the European version of the Wall Street Journal's editorial page from Winston Churchill - if you have a subscription to the online journal, the link is here.

"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

I'll be in London starting tomorrow... I normally run in the mornings there -- a semi-regular route heading from the City's (the financial district) St.Paul's across the Millenium bridge, down the Thames path on the Southwark side, across the Westminster bridge and up to St. James Park -- on the way from the bridge to the park one passes Big Ben and the Houses of Parliament and Westminster park with lots of fantastic statues -- the most striking of which is Winston Churchill. As I run by it on Sunday, I will recall this quote, this blog and all of you - thanks for your continued support.

By the way - interestingly, there is also a statue of an American president across the street from Westminster park on the North end - can you guess who it is? Click here to see.

2004-01-07T11:45:00.000-06:00

Make More Babies?
Last November (way back in 2003) Adair Turner, Vice-Chairman of Merrill Lynch Holdings Ltd, gave a public lecture for the Center for Economic Performance, titled "Demographics, economics and social choice." It does an excellent job of detailing why we're in such a mess with our public pension systems (e.g. Social Security).

It also reminded me that it's important not to forget to appreciate the achievements of freedom and global free markets over the last several centuries that forced the issue with a system that, had it been run by a private company, would have been prosecuted for operating a pyramid scheme. (Social Security depends on having more workers paying into the system than there are retirees drawing off of the system at any given point in time).

Two hundred years ago, even if you were wealthy and living in a wealthy country, you could only expect to live around 35 years. Today the average joe can expect to live to 80. Where mortality in the first year of life during the early 19th century was 181 per 1,000 in a country like France, it is now 4 per 1,000. Parents can expect their children to outlive them and they can expect them to live long, fulfilling and interesting lives. Even China's average life expectancy is 70!!

Not only are people living longer, but fertility is declining. In the US and UK fertility rates are "at replacement levels." In other countries they are below.
Obviously this, in conjunction with longer life expectancies, exacerbates the current ponzi schemes that are the public pension systems of the large western democracies.

The Economist ran a lead story back in September of last year titled, "Work longer, have more babies!" which referred to these trends as the biggest time-bomb in our social history. For instance - the ratio of 20-64 year-olds to 65+ year-olds in the US in 2000 was 4.8; in the year 2050 it is projected to be 2.8. (Interestingly, in Korea it goes from 9.0 in 2000 to 1.7 in 2050!!).

The upshot here is that if you want to keep a public pension pay-as-you-go system in place going forward you're stuck with:

Increased retirement ages;

Smaller payout to retirees;

Bigger worker contributions;

More workers (i.e. make more babies and/or increase immigration)

None of these is going to get you far over the long haul for a lot of reasons. But there is an alternative to this insane pyramid play: PRIVATIZATION. If you're interested there's lots of very well written information on it by folks like Michael Tanner of the Cato Institute.

2004-01-05T13:34:00.000-06:00

The Cult of Capitalism

Is capitalism a "cult?" -- to quote Alexander Volokh:

"...Yes, the free market is a cult -- not in the pejorative, dismissive sense, but in the sense of 'minority faith.' It's a deep-seated, fundamental belief in the sanctity of human liberty. And it imposes a harsh dsicipline on its adherents. First, it forces us to tolerate our neighbors, who may want to start clubs excluding gays, paint their houses pink, hire smokers, buy foreign cars or demand a lot of money before letting us live in their apartments. And second, it prevents us from demanding the servitude of our neighbors, who may not particularly want to hire us, rent to us, buy our products or let us onto their property. As Rutherford B. Hayes, whose finger points deep into your soul from the top floor of Langdell, once put it, 'The price of liberty is no free lunch.'"

2004-01-02T13:13:00.000-06:00

Two excellent editorials today in the Wall Street Journal. If you have an online subscription, follow this link to Stephen Moore's commentary, and this link to Bjorn Lomborg's commentary.

Lomborg is the author of The Skeptical Environmentalist. His commentary in the WSJ today points out that global warming has so far only influenced minimum temperatures (resulting in milder winters and evenings). The link between climate change and events like the extremely hot summer in Europe in 2003 is doubtful.

His main point is that the "experts" of the Kyoto protocols and "end of the world" types continue to ignore that very important economic concept of opportunity cost. In his example, for all the money they want to pour into the global warming "crisis" (that is currently saving lives by lessening the impact of extreme cold and is not responsible for extreme heat) we could instead bring clean water to every human on the planet...

[Opportunity cost is the value of the best alternative to a given choice, or the value of resources in their next best use. I'm a baseball fan, so here's a link to an example of opportunity cost using baseball.]

Stephen Moore and his Club for Growth continues to do a great job of pounding into our heads the link between prosperity and lower taxes - and the corollary that raising taxes will reduce wealth. In his commentary in today's WSJ he points his extraordinary wit and insight at Democratic presidential wannabe Howard Dean, who, it seems, wants to choke us in taxes.

Hope you all enjoyed a safe and happy New Year's.

2003-12-30T13:59:00.000-06:00

Here are some other blogs that folks might find of interest on the 'net:

Marginal Revolution - Small Steps Towards a Better World is one of my current favorites. Mainly updated by Tyler Cowen, who wrote a wonderful book titled, Creative Destruction.

tomgpalmer.com is also excellent. Tom was our guest this fall for both a Flint Hills Center University session, and as a featured speaker at our Founding Fathers lecture series. Lots of great material is on this site along with the blog itself.

By the way - Virgina Postrel's book The Substance of Style has hit the shelves!

2003-12-30T12:43:00.000-06:00

I'm on vacation this week - yesterday I was having a coffee at Barnes & Nobles and browsing the bookstacks, when a bright red book caught my eye in the business section -- low and behold, it turns out that one of my personal heroes has released a new and expanded edition of his outstanding text Basic Economics. This classic book originally appeared in a bright day-glo green color that you simply couldn't miss on a shelf. But what's interesting is that neither Amazon nor Thomas Sowell's personal site have a reference to this new edition!!

I've gotten a lot of great feedback on the letter to the editor this last sunday (see post below and on the website. Thank you. The gist of my beef is this: if you are having a hard time paying the mortgage, do you start talking about the new Mercedes models this year or discuss building a new swimming pool in the backyard? Of course not! So why doesn't the same principle apply in government?

The combined weight on our collective posterity (our children, their children, etc.) of the present unfunded liabilities for Social Security and Medicare is absolutely crushing (on the order of many tens of trillions). In my opinion this is the 300 lb. gorilla in the room that noone wants to talk about. Sooner or later it's gonna make us pay attention. Like Sowell - or any other reputable economist - will tell you in his book, there's no such thing as a free lunch.

2003-12-29T10:39:00.000-06:00

The following Letter to the Editor was published in Sunday's Wichita Eagle:

Staggering cost
The $400 billion Medicare bill that President Bush signed earlier this month doesn't reform Medicare. It hardly even provides a prescription-drug benefit.

But it does come at a staggering cost for a program that already has unfunded liabilities of $33 trillion. (That's $33,000,000,000,000.)

I suppose the cynic might say, "What's another $400 billion?" If you're inclined that way, consider that this bill has no cost controls built in. The cited $400 billion is more like a suggestion than a limit, and only describes the first 10 years of costs.

The tragedy is that this bill was unnecessary. Most seniors already have prescription-drug coverage using "Medigap" policies. The majority of seniors -- 70 percent of Medicare beneficiaries -- spent less than $500 out of pocket for prescriptions last year.

Our representatives should have instead attempted to help those who really needed it: low-income seniors with high drug costs. That would have been a lot less expensive and far more beneficial.

BENJAMIN PRATT
Flint Hills Center for Public Policy
Wichita

2003-12-26T12:10:00.000-06:00

Early this morning, I was drinking my 4-shot latte and reading a book on wine, of all things, when I came across this quote from Kevin Zraly's Window's on the World Complete Wine Course:

"You are never going to stylize the California wines the same way that European wines have been stylized, because we have more freedom to experiment. I value my freedom to make the style of wine I want more than the security of the A.O.C. laws. Laws discourage experimentation." -- Louis Martini

Bien sur.

2003-12-22T13:36:00.000-06:00

Recently read a fantastic book that was recommended to me by Helen Cochran: How the Scots Invented the Modern World by Arthur Herman, who is a professor of history at George Mason University.

He wastes little time on the Highlander romantic myth -- their ilk were busy losing an ancient nation while the real heroes were quietly creating the modern world -- people like Adam Smith, David Hume, Lord Kames, Francis Hutcheson, Thomas Reid, Robert Adam, etc.

Herman tells the story of how the Scottish Enlightenment created the basic ideals of modernity in the 18th century. He tells it well and it is worth reading. Many of the ideas we espouse at the Flint Hills Center came out of this period and these individuals.

Although there are many wonderful quotes and stories in this book of giants, my favorite has to be from Thomas Telford:

"I admire commercial enterprise. It is the vigorous outgrowth of our industrial life. I admire everything that gives it free scope, as wherever it goes, activity, energy, intelligence -- all that we call civilization -- goes with it."

2003-12-12T11:19:00.000-06:00

There is a great article in the November FEE's Ideas on Liberty , titled The Economics of Spam by Christopher Westley.

Here's the problem in Westley's words:

The economics of spam explain its pervasiveness. Once a spamming system is set up, the marginal cost of sending an unsolicited e-mail is virtually zero. As a result, the smallest of response rates can make the process profitable. The rule of thumb is that while old-fashioned junk mail sent via the post office requires a response rate of 1 in 100 to be profitable, spam mail requires a response rate of 1 in 100,000. This greatly increases its appeal as a marketing tool.

For instance, a recent story in the Fort Worth Star-Telegram reported on an Internet marketer who mailed ten million e-mails a day offering eavesdropping software for $40. His annoying efforts result in 50 orders a day, allowing him to earn $700,000 a year. Not bad for a response rate of only 0.000005 percent. Following the law of supply, his success only signals other spammers to enter the industry, which is an extremely easy process. Anyone with a computer and an e-mail account can enter.

You can't legislate these natural forces away. We learn again and again that the world - especially the world of humans - is a very dynamic thing. To think that the problem we're facing with Spam will always be this way is absurd - the market is going to find solutions. In fact it already is.

2003-12-09T15:55:00.000-06:00

In the last Flint Hills meeting of the Board of Directors, questions arose as to what Medicaid was v. Medicare. Here's a very cursory overview based on minimal research on the Web:

Medicare was ostensibly created in an attempt to address the fact that older citizens have medical bills significantly higher than the rest of the population, while it is much more difficult for most seniors to continue to earn enough money to cover those bills.

Eligibility for Medicare is not tied to individual need. Rather, it is an entitlement program; you are entitled to it because you or your spouse paid for it through employement or self-employment taxes.

Medicaid, on the other hand, is a federal program for low-income, financially needy people, set up by the federal government and administered differently in each state.

Although you may qualify and receive converage from both Medicare and Medicaid, there are separate eligibility requirements for each program; being eligible for one doesn't necessarily mean you are eligible for the other. Also, Medicaid pays for some services for which Medicare does not.

WHO IS ELIGIBLE

Medicare covers: almost everyone 65 and older, certain people on Social Security Disability, and some people with permanent kidney failure.

Medicaid covers: low income and financially needy people, including those who are 65 and older who are also on Medicare.

WHO ADMINISTERS THE PROGRAM

Medicare is a federal program whose rules are the same all over the country. Medicare information is available at the Social Security Office.

Medicaid is administered by the 50 states; rules differ in each state. Medicaid information is available at the local county social services, welfare or dept. of human services office.

COVERAGE PROVIDED

Medicare hospital insurance (Part A) provides basic coverage for hospital stays and post-hospital nursing facility and home health care. Medicare medical insurance (Part B) pays most of basic doctor and laboratory costs, and some outpatient medical services, including medical equipment and supplies, home health care and physical therapy. Until the present bill, it did not cover prescription drugs.

In most states, Medicaid covers services and costs Medicare does not - including prescription drugs, diagnostic and preventive care and eyeglasses.

COSTS TO CONSUMER

You must pay a yearly deductible for both Medicare Parts A and B. You must also pay hefty copayments for extended hospital stays.

Under Part B, you must pay 20% of doctors' bills and sometimes an additional 15%. Part B also charges a monthly premium.

Medicaid can pay Medicare deductibles and the 20% portion of charges no paid by Medicare. Medicaid can also pay the Medicare premium. In some states, Medicaid charges consumers small amounts for certain services.

2003-07-02T08:26:00.000-05:00

A History of Medicare.

Have been reading up on where the Medicare program came from. The book that has the most kick for the effort to date is Charlotte Twight's excellent book Dependent on D.C.

I also did a search out on the net. Found an item on SeniorJournal.com that is a very brief, selective but useful timeline. Another timeline published by the Social Security Administration agency is available here. Another quick definition / overview is available here.

Peter Corning of NYU was contracted by the Social Security Administration' Office of Research and Statistics (www.ssa.gov) to write a piece that appears on their site titled The Evolution of Medicare... From Idea to Law".

Here is an interesting piece from the Association of American Physicians and Surgeons that claims to be "A Voice for Private Physicians since 1943" -- and states that "...all we want is to be left alone to exercise our best judgement and skill for the benefit of our patients..." Now there's a novel concept.

In coming to terms with the whole concept of medicare, I asked, "What is the purpose of Insurance?" -- here is what FindLaw says: "The basic purpose of insurance is to anticpate catastrophic losses that could financially impair your future."

Here's an interesting piece on the Medicare watch site which looks to be backed by the Century Foundation titled What's Wrong with Medicare?

And then, of course, there are useful resources on the sites for Cato, State Policy Network, NCPA, etc.