WELFARE PROGRAMS ARE A BAD DEAL (22)
Government minimum wage laws and welfare programs were designed to do good things. But like so many other well-intended efforts, they are a bad deal for almost everyone concerned. They are unhealthy for the poor, inappropriate for the wealthy, and conceptually flawed.
Let’s first address the poor. The great thinker Dr. Milton Friedman once said that “You very seldom find poor people testifying in favor of the minimum wage. The people who do are those who receive or pay wages much higher than the minimum.”
One of the people Dr. Friedman was referring to was John F. Kennedy who, when he was still in Congress, testified that he wanted to pass minimum wage laws to protect the textile workers in his district from competition from the “cheap labor” in the South. Kennedy candidly acknowledged that “the effect of minimum wage law is to produce unemployment among people with low skills. And who are (they)? In the main, they tend to be teenagers and blacks, and women who have no special skills, or have been out of the labor force and are coming back.”
And Kennedy was right. Face it, there are some people who are actually not worth the $7.50 per hour that California now requires be paid for a minimum wage. So what happens when these laws are passed? Employers go to great lengths to reduce the numbers of the unprofitable employees that they hire or retain. Think “automatic check-out machines” at Home Depot and other similar stores. These machines are more cost effective than the minimum wage employees, even if you consider their purchase price and upkeep expenses. Consequently those people lose their jobs.
So ask yourself, is it better for society to have fewer people paid a slightly higher wage, or is it more productive to have many more people actually employed?
In my view the answer is that society critically needs more entry-level jobs. That would beneficially address the needs of most teenagers, and also many people currently without job skills. It would also give them the opportunity to learn and demonstrate a work ethic. And when that happens, many of them will either quickly show their employers that they are worth more than they are being paid and get a raise, or they will move on to a different and higher-paying job.
In that regard I am reminded of a bumper sticker I once saw that proudly proclaimed: “Broken English, Spoken Perfectly.” These are people who can get ahead if they are afforded the chance to pursue the American Dream. But under the welfare system that opportunity is mostly squandered.
Of course, there will always be people who cannot support themselves, so what is to happen with them? Well, for decades we have been putting those people on welfare programs. And what has been the result? Decades of poverty. In fact, since the beginning of the so-called “War on Poverty” in 1965, our country has spent more than $5 trillion trying to reduce the burdens of the poor. But what have we received for this enormous expenditure of resources? Mostly more poverty.
So these government welfare programs should not be abandoned because we are pinching taxpayer pennies or because we are uncaring about the poor. They should be abandoned because they do not work, and are actually a vicious trap for the poor.
What does work? America has become great because of what I call the four pillars that are guaranteed in our Constitution, which are Liberty, Property Rights, Free Markets and Free Minds, and a fair and foreseeable Administration of Justice. We should do everything we reasonably can to bring everyone in our country into the mainstream of those four pillars.
But that certainly does not end the inquiry. What about those people who obtain jobs for $6 or so per hour? Certainly people cannot live in today’s world while earning $48 gross for a full working day. What happens with them, or the people who are unemployed?
Well, the first thing to do after we end the welfare programs is to establish a dollar-for-dollar tax credit up to a certain maximum amount for donations to private charities that address the needs of the poor. Private charities will do this work far more productively than the government.
The second thing to do, as was addressed in an earlier column, is to appreciably reduce the obstacles for people to pursue entrepreneurial opportunities. Today huge numbers of people work illegally “off the books” in areas like hairstyling, tailoring, auto repair, “gypsy” taxi cabs, and ad hoc catering and child care services. We should change the system so that they can do this work legally and above-board. Then their customers can decide if their work is worth the money or not.
And thirdly, we simply must improve our government-run school system. Stay tuned for that one, because it will be addressed here in a future column.
Finally, for those people who still “fall through the cracks,” we should provide them with dormitory-style living and two or three hot and nutritious meals per day under a system of government contracts. Everyone in our society should have somewhere to go that is safe, warm and dry. But our tax money should actually be spent for food, clothing and shelter, and not for non-necessities, administration and fraud.
Of course those who are able should be required to work at chores around the premises in partial payment for the benefits received. But overall this approach would at the same time provide a secure and safe environment for the poor, while also providing them with an important incentive “to earn the extra dollar” and improve their position.
Probably the best approach to effect this system would be for all cities in our country to be required to provide a certain number of beds based upon their population. That way no city would have to support more people than its fair share.
But now let’s also address the welfare system for the wealthy. Are there such programs? Absolutely! One of them is the system of subsidies to our country’s farmers. For example, between 1995 and 2002 our government paid a whopping $114 billion in farm subsidies, and the payments have actually increased since that time. What is the rationale for this largesse? The stated purpose is to help our country’s small farmers.
But it does not work that way. In actuality, a full 77 percent of the money goes to the top 10 percent of the beneficiaries, and most of those are large farming enterprises. For example, between the years 2003 and 2005, $9.4 billion went to people who claimed entitlements through partnerships, joint ventures, corporations or other business entities. That does not sound like helping small farmers to me. As further proof, people who lived in downtown New York City actually received payments of $4.2 million during this same period of time.
Of course, the lower 80 percent of the beneficiaries, who actually are the small farmers, received an average of only about $846 per year. So in summary and contrary to the stated purpose, these subsidies actually make it much harder for small farmers to compete!
The second rationale for the so-called farm support system is to stabilize food prices. As the argument goes, if there is a surplus of crops, prices will fall too much and farmers will lose money. So supposedly to more stabilize this market, between 1995 and 2002 some farmers were actually paid $14 billion by the taxpayers not to grow anything! Of course, this interference in the free market only really creates mischief. In addition these government subsidies have actually and appropriately resulted in sanctions against our country from the World Trade Organization for interfering in the world market.
Why is the system not more closely monitored to help it to achieve its stated goals? For two reasons. First, the federal laws are much too vague to allow the proper monitoring of the hundreds of thousands of farm-subsidy payments that are made each year. And second, the government employees are not well enough trained and funded to be able to monitor the recipients’ eligibilities any better. As a result, the government only is able to run fact-checks on about 1,000 applications each year.
So why is this system perpetuated? The answer to that question, like so many others addressed in this column, is politics. Wealthy farmers have a powerful political lobby. Of course they are quite anxious for these payments to continue, and will politically punish any member of Congress that jeopardizes their entitlements. In my view this situation is living proof of the old saying that “If you want to rob Peter to pay Paul, you can always count on the support of Paul.”
So that’s the way it is. I thought that you would be interested in hearing where a lot of your tax money is going, and the poor results that are being gathered from it. And I also thought that maybe in this election year you might want to talk to your members of Congress about this situation and see what they propose to do about it. If anything.
James P. Gray is a judge of the Orange County Superior Court, the author of the upcoming book Wearing the Robe: the Art and Responsibilities of Judging in Today’s Courts (Square One Press), and can be reached at JimPGray@sbcglobal.net or his blog at JudgeJimGray.JudgeJimGray.com.
“FREE TO CHOOSE” IS THE SLOGAN FOR PROSPERITY (24)
We are about to enter another New Year. May it meet your (reasonable) expectations, and may you prosper.
Okay, that is the formality, but I actually hope it comes to pass. Nevertheless, for us to maximize everyone’s chances of fulfilling those desires for prosperity, we must listen better to that great thinker and Nobel Prize-winning economist Dr. Milton Friedman and his equally brilliant wife Rose.
Yes, we as citizens and voters actually have to consider economics, because this is the “invisible hand” that in so many ways drives our decision-making process and also that of our great nation as well. And the basis for our prosperity is simple: the basis is “choice,” or as the Friedmans put it in the title of the economic bible they wrote, we must be “Free to Choose.”
What does that mean? It means that the foundations of prosperity based upon our free choice are private property rights, a fair and foreseeable system of justice, and entrepreneurship and all of the calculated economic risk-taking that this entails.
This sounds like intellectual egg-head talk, but it really is not. It simply means that we must set up a system that maximizes ways people can choose for themselves how to work and spend their money, instead of having the government make those choices for them. This necessarily means that people will benefit from the good choices they make and be responsible for poor ones. But that is the way to prosperity. Therefore, every time the government substitutes its “wisdom” for ours, it is taking us farther away from prosperity.
For example, if you feel you get good value for your money by having a particular person cut your hair, why should the government require a license before that person can do that work? Remember, if the work is not worth the money charged, the would-be barber will go out of business regardless of what the government license says.
Of course we will still need things like protections against environmental pollution and recourse for defective or even harmful products. But fortunately in most ways the justice system can handle those issues.
So how do property rights fit into this discussion? Let me give you an example. Consider that there was a grove of apple trees growing wild somewhere along the Oregon Trail during the covered wagon days. So when a wagon train would come upon it, the travelers would pick more of the ripe apples than they needed – why not, they’re free?
Then the people in the next train would probably pick all of the remaining ripe apples, and most of the green ones as well. Why not, they’re free, and the travelers can always feed the unripe apples to their oxen. So soon there would be no more apples at all on the trees. But the people in the next train would cut down the branches and even the trunks of the trees to use as firewood. Why not? They can use the wood, and if they do not cut it down, someone else behind them will.
Therefore, in this situation not only would no one plant, feed and prune the trees and harvest the apples for maximum benefit, the trees would actually be plundered and soon destroyed. But if a private person had enforceable ownership rights to the apple grove, enforced by a fair and foreseeable system of justice, there would very likely be an abundance of apples for all.
In other words, with enforceable property rights, people have the incentive to work hard and plan for the long run future because they will profit from their efforts. But without those property rights, the incentives instead are for people to plunder the resources in the short run before someone else does so.
Now to take this discussion one step farther, who has more incentive to plant, organize and develop a better apple grove, private people working for their own self-interest, or the government? For the answer to that question, ask the people of Poland, the Czech Republic or Cuba. Or compare the productivity level of South as opposed to North Korea, or previously West Germany as opposed to East Germany. Furthermore, what is a better way to decide how many washing machines to manufacture, or how many black cars to produce instead of red cars? To have a government bureaucrat make the decision, or a private company that is sensitive to the free market choices of its customers?
To have a system of government decisions in the marketplace leads to what the Friedmans call the “tyranny of control.” And bureaucrats always have a natural tendency to increase their power and their area of influence. That is a major explanation for our government being so large and controlling today. But to have the decisions made privately brings the most rational decisions in manufacturing and distribution. And that brings prosperity!
So let us keep in mind and adhere to the teachings of the Friedmans. The free market actually works! All a country needs to be prosperous is a vigorous system of entrepreneurship – not natural resources (Look at Japan!) or even access to the latest technology (Look at Botswana!).
And if you still disagree with this statement, let me clinch it by asking you a few of Milton Friedman’s questions: “Why do you believe that political self-interest works better than economic self-interest? Or why do you believe that government bureaucrats can make more rational choices for you than you can? (And by the way, if the government accumulates more power, the industrialists and other private interests will simply take it over and control it anyway.)
So when will we find these governmental “angels of the public good” to better organize our society? And why haven’t we found them yet? The plain reality is, as stated by the Friedmans, that all societies run on greed, but the prosperous societies run on individuals that run on their personal interests. Competition under a fair and foreseeable justice system pushes us to advance and, once again this brings prosperity.
Look at the recent experiences in Ireland and New Zealand, where large cuts in taxes and government spending directly resulted in substantial increases in investment and entrepreneurship. This has also been seen in Botswana, which has in a short time progressed from one of Africa’s poorest nations into one of middle-range income. The truth is that no peoples have broken away from poverty except under a system of capitalism and free trade, and that means free economic choice. (Today’s China is another case in point.) The big problems come when foreign aid and government interference undercut the local entrepreneurship.
As a result, our efforts at foreign aid would be ever much more successful in non-emergency situations if we would make small business loans of money or even farm animals to the people at the bottom of the economic ladder, instead of providing loans of money and products directly to foreign governments. The former are used by the people to set up and expand local businesses, which create prosperity; the latter are most often used by politicians to purchase expensive automobiles and end up in Swiss bank accounts.
So I believe the Friedmans would conclude this discussion by saying that there are four ways to spend money. The first is that you will spend your own money on yourself. That will be done carefully, and you probably will get your money’s worth. The second is you will spend your money on someone else. Then you will mostly get your money’s worth, but you will be careful not to spend too much. The third is you can spend someone else’s money on yourself. There you will probably get fairly good deals on things you mostly do not need. And fourth, you can spend someone else’s money on someone else. There you will get our nation’s public school system, which we will discuss in a future column.
There certainly is a need for a federal government, but that need is generally just for a strong military, national court system and police network, system of currency, and matters of foreign relations. For other government roles we should go back to the concept of Federalism – which made our country great! That means that the most local government that is able effectively to address a particular issue would have the authority and power to do so. Finally, as it states in both the 9th and 10th Amendments to the U.S. Constitution, the rest of the powers should be reserved for the people themselves. And, as the Friedmans would quickly say, that would allow the people to be Free to Choose.
So as the New Year is upon us, let us come together and decide to change away from a bigger and ever more encroaching government. And we can do it simply by asking ourselves when it comes time to vote which candidates or propositions would more encourage free choice for the most people and responsibility for the choices made?
So now armed with the slogan “Free to Choose,” I sincerely wish you all a Prosperous New Year!
James P. Gray is a judge of the Orange County Superior Court, the composer of the high school musical “Americans All,” and can be contacted at JudgeJimGray.com or at his blog at JudgeJimGray.JudgeJimGray.com.