Thursday, February 21, 2013

Defense and the pensions racket


A nation's choice between spending on military defense and spending on civilian goods has often been posed as "guns versus butter." But understanding the choices of many nations' political leaders might be helped by examining the contrast between their runaway spending on pensions while skimping on military defense.

Huge pensions for retired government workers can be found from small municipalities to national governments on both sides of the Atlantic. There is a reason. For elected officials, pensions are virtually the ideal thing to spend money on, politically speaking.

Many kinds of spending of the taxpayers' money win votes from the recipients. But raising taxes to pay for this spending loses votes from the taxpayers. Pensions offer a way out of this dilemma for politicians.

Creating pensions that offer generous retirement benefits wins votes in the present by promising spending in the future. Promises cost nothing in the short run – and elections are held in the short run, long before the pensions are due.

By contrast, private insurance companies that sell annuities are forced by law to set aside enough assets to cover the cost of the annuities they have promised to pay. But nobody can force the government to do that – and most governments do not.

This means that it is only a matter of time before pensions are due to be paid and there is not enough money set aside to pay for them. This applies to Social Security and other government pensions here, as well as to all sorts of pensions in other countries overseas.

Eventually, the truth will come out that there is just not enough money in the till to pay what retirees were promised. But eventually can be a long time.

A politician can win quite a few elections between now and eventually – and be living in comfortable retirement by the time it is somebody else's problem to cope with the impossibility of paying retirees the pensions they were promised.

Inflating the currency and paying pensions in dollars that won't buy as much is just one of the ways for the government to seem to be keeping its promises, while in fact welshing on the deal.

The politics of military spending are just the opposite of the politics of pensions. In the short run, politicians can always cut military spending without any immediate harm being visible, however catastrophic the consequences may turn out to be down the road.

Despite the huge increase in government spending on domestic programs during Franklin D. Roosevelt's administration in the 1930s, FDR cut back on military spending. On the eve of the Second World War, the United States had the 16th largest army in the world, right behind Portugal.

Even this small military force was so inadequately supplied with equipment that its training was skimped. American soldiers went on maneuvers using trucks with "tank" painted on their sides, since there were not enough real tanks to go around.

American warplanes were not updated to match the latest warplanes of Nazi Germany or imperial Japan. After World War II broke out, American soldiers stationed in the Philippines were fighting for their lives using rifles left over from the Spanish-American war, decades earlier. The hand grenades they threw at the Japanese invaders were so old that they often failed to explode.

At the battle of Midway, of 82 Americans who flew into combat in obsolete torpedo planes, only 12 returned alive. In Europe, our best tanks were never as good as the Germans' best tanks, which destroyed several times as many American tanks as the Germans lost in tank battles.

Fortunately, the quality of American warplanes eventually caught up with and surpassed the best that the Germans and Japanese had. But a lot of American pilots lost their lives needlessly in outdated planes before that happened.

These were among the many prices paid for skimping on military spending in the years leading up to World War II. But, politically, the path of least resistance is to cut military spending in the short run and let the long run take care of itself.

In a nuclear age, we may not have time to recover from our short-sighted policies, as we did in World War II.



Who owns us?

Leftists from Hegel on definitely think the State does

If the "rich" really do owe their wealth to the State then surely you would not claim that just one separate group of people (the hated rich) are owned, but logically we all also owe all we have to the State. If that is so, then logically it follows that if the State owns the rights to all we have produced, then in essence it owns us. Logically then, it also follows that if we agree the State owns us, it is then the right of the State to determine all aspects of every person's life, even ultimately to whether they live or die. That is the essence of Nationalism...Fascism.

When Republicans constantly talk about "National Interest" that is also what they mean, so the Democrats do not have a corner on support of Nationalism.

Ironically the two slightly different "flavors" of Nationalism meet. Of course the D's and R's think they are quite different from each other, but scratch the surface and both are based on the same philosophy of State ownership of the person. I have debated with many Democrats and Republicans who dismiss the very idea of self ownership and even ridicule it as a silly concept.

We libertarians, most Austrian economists, anarcho caps, are on the other side of the equation. We think that self ownership is the defining concept that is at the core of one's life view. Either we own ourselves or we are owned by others. Of course, the "State" is merely a concept. Ownership by the State actually means, quite simply, those few humans who control the State control and own those other humans over whom they have established control.

Probably the most recent terrible examples of Nationalism are Stalin, Hitler, Mussolini, China and North Korea and many countries in Africa. But also "soft," more benign examples exist. Sadly, a little bit of tyranny cannot be content. Power is ever-hungry and morphs into larger power. A close examination of those "soft nationalistic" societies show many examples of the gradual move away from personal freedom in those people's lives. Over time, the State envelopes the people and their formerly soft totalitarianism also takes on aspects of the more horrific societies.

Interestingly, in this country the founders grasped part of the concept as they stated the idea of inalienable rights in the Declaration of Independence. Later in the Constitution, the rights of the enslaved were sadly ignored.

The later insightful, ardent and consistent abolitionists developed the relationship and logic of freedom to self ownership. They intellectually challenged the absence of this idea of self ownership. They further tied it logically to one's ownership of his own labor. The next logical realization was the right to actually posses property with the personal earnings. Many abolitionists grasped that the ownership of any property was a vital element of freedom for all people, not just the slaves.

Of course, at the time the abolitionists were making their discoveries and writing about them, Lincoln was President and he hated this idea of self ownership. Probably the peaceful resolution of the slavery problem was thwarted by his animosity to the idea that black people had innate rights. This is contrary to current romanticizing of Lincoln, however a close examination of his writings and speeches and actual history (not movies) reveal his hostility to black people. Because he favored Nationalism and the ultimate State ownership of all "citizens," his totalitarian personality was not about to concede the abolitionist's insight. He gave no quarter to the idea of each person's self ownership, let alone to the blacks he scorned as less than human and wanted to deport.

The State (power hungry politicians and administrators) perhaps subconsciously, have not forgotten how much easier it was to accumulate power when the Black and Native American people were enslaved. As power accumulation is the default operation of the State, the State continues its agenda to keep them enslaved.

The various laws, regulations  and benefits, whether to individuals or entities, are the means the State uses to enslave all people but neither political camp, Democrats or Republicans, realize this. Instead each camp begs for more controls over the activities of which they disapprove. Foolish folks  cannot see that they are also empowering the entity that will take away the particular freedoms they personally value.

The sad truth is that people who see and grasp one aspect of enslavement, turn around and advocate for other types of control by the State. Ayn Rand was certainly not the first to see through this, but she saw through much of it, though not quite all. Would that she had been perfect, but alas, none of us are. The irony is that writers such as Hartman do not criticize her for her lack of consistency in a few areas but rather her ideas on individualism that are pro liberty.

Fortunately, the last 40 years have seen a rapidly growing body of libertarian literature and media, speakers, teachers and writers. They understand the enormous importance of the concept of self ownership. With the Internet the ideas of individualism, self ownership and self determination, are abundant. People can be awakened to the dangers of Nationalism (fascism).

The crux of the problem is the mistaken idea that we do not own ourselves but that we are owned by someone or some "thing" else.

The first important step is to grasp that the danger lies in giving more control and power to something outside ones self — the State, for example. This is, almost inevitably, the path to slavery.  

The measure of a person's value of liberty is not how much liberty one desires for oneself, but how much liberty one is willing to allow others.



Thoughts on the Minimum-Wage

One of the arguments regarded by the cognoscenti as being too pedestrian to use against minimum-wage legislation goes like this: “Heck, if raising the minimum-wage from $7.25 to (say) $9.00 per hour will make unskilled workers better off, why not raise the minimum-wage to $90.00 per hour and make unskilled workers much better off?”

Minimum-wage proponents understand (correctly) that such a huge increase in the legislated minimum would indeed catastrophically reduce the (legal) employment options open many workers, and especially to workers further down the skills ladder.  These proponents grant, without any hesitation, that such a massive hike in the minimum-wage would cause unemployment to rise exactly as textbook supply-and-demand analysis predicts.

So why are these same minimum-wage proponents – some of whom, I’m embarrassed to say, are professional economists – so sanguine about smaller increases in the minimum-wage?  I can think of four possible reasons.  (Whether or not one or more of these reasons is held consciously by any particular minimum-wage proponent is irrelevant.)  I offer the following four reasons in order of what I believe to the the prevalence of the reason in the popular mind.

First, monopsony power among employers of unskilled labor really is rampant enough to justify minimum-wage legislation.  (Wonkee: In theory, monpsonist purchasers of labor will, under certain conditions, hire more labor if the wage those purchasers are obliged to pay is forcibly raised by legislation.)

The empirical absurdity of the monpsony-labor-market argument seems to me to be obvious.  But if unskilled labor really were bought and sold in a market infected by monopsony power, a relatively modest hike in the legislated minimum might well benefit workers while a huge hike would indeed harm them.


Second, while a hike in the legislated minimum-wage will indeed cause some regrettable unemployment of unskilled workers, the resulting losses to these out-of-work employees are more than made up for by the higher earnings taken home by those unskilled workers who remain employed at the higher minimum-wage.

Obviously, though, at some point the rise in the minimum-wage becomes so large that the gains to the few unskilled workers who do remain employed at the absurdly high minimum-age are too small to compensate the large losses of the many additional workers who are pushed into unemployment by such a high minimum-wage.


Third, employers of unskilled labor will indeed react predictably to a legislated hike in the minimum-wage, but that reaction is likely to take the form of employers extracting more value-per-hour from their workers rather than the form of hiring fewer workers (or, more precisely, hiring fewer hours of work from workers).  Employers of unskilled and low-skilled workers affected by the minimum-wage hike will work their employees harder: fewer breaks; less leniency regarding arriving at work late and leaving early; greater strictness in enforcing rules against using work time to attend to personal business; etc.  (We can toss into this second reason the reduction also of monetary non-wage benefits such as employer contributions to worker pensions and employer willingness to help cover part of their workers’ child-care expenses.)

Some employers no doubt do react in this way, to a degree, to increases in the legislate minimum-wage.  And such reactions, being substitutes for hiring fewer hours of labor, reduce the amount of unemployment that would otherwise be caused by the rise in the minimum-wage.  (Whether or not minimum-wage employees who keep their jobs because of such employer responses are made better off or worse off as a result is a separate question.)  Here, too, a modest rise in the minimum-wage might cause very little, or even no, increase in the unemployment of unskilled workers, while a substantial hike would indeed cause significant unemployment.  (Employers of unskilled workers might well be able to re-arrange work conditions so that each unskilled worker produces an extra, say, 20 percent more value for the employer per hour.  Re-arranging work conditions so that each unskilled workers produces an extra 200 percent more value for the employer per hour is far less likely.)


Fourth (and I suspect most commonly held), employers can “afford it.”  Employers can afford to absorb small, legislatively prompted increases in their wage bill.  Employers’ profits might fall a bit, of course, but not by enough to cause them to go out of business or even to scale back business significantly enough to reduce the number of hours of work that they hire.  Alternatively, employers can simply raise the prices they charge for their outputs, recovering in the (assumed) higher revenues the higher costs they incur by hiring workers.  [Note, by the way, that it does not work for minimum-wage opponents simply to retort with the rhetorical question "Well, why don't those employers raise the prices they charge anyway, without being prompted to do so by a hike in the minimum-wage?"  This retort, I believe, has much merit, but a great deal more explanation and explication of background assumptions must be offered for it to carry the day among people who know economics.  I leave it to the comments section for Cafe patrons to divine what I have in mind here.]

Relatively small hikes, therefore, in the minimum-wage are paid for by employers taking home a tad fewer profits or consumers paying a tad more for the products they purchase (or a combination of the two).  A large hike in the minimum-wage, in contrast, would indeed reduce profits, or raise product prices, far too much.  The effects of these large reductions employers’ profits would indeed cause significant unemployment of unskilled workers.

This fourth reason is a squirrel’s nest of economic misconceptions.  I content myself here, though, to mention just one – namely, even if it’s true that all, or the great majority, of employers of unskilled workers have enough lee-way in their profits and prices to enable them to absorb, without negative effects on their employees, modest legislated increases in their costs of operation, focusing on the modest effects of only one such legislated increase (the minimum-wage hike) is to mistakenly ignore many other such mandated ‘modest’ increases in costs of operation.

Taken together, the additional costs – whatever the corresponding benefits – of regulations such as a legislated minimum-wage surely are real and extend well beyond lower (presumably lower excess) profits for employers.

In short, given the plethora of existing regulations that artificially raise the costs of operating businesses and employing workers, it’s mistaken to believe that there will be no negative consequences – probably higher unemployment – inflicted upon unsuspecting unskilled workers by a higher legislated minimum-wage.

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