Category Archives: Political Economy

Free Community College or Pandering to the Base?

President Obama has recently stated he would like to make community college “free” for those who maintain a GPA of 2.5 or higher and are making progress towards a degree. Liberals love it because it is providing “free” education and young kids hear free college and think it is great as well.

So, does President Obama really want to make college more affordable, or simply appeal to certain voting groups?

Due to his proposed new tax on 529 college savings plans, I believe he is simply trying to appeal to voting groups. A 529 is a college saving plan usually set up by a parent to help pay for their child’s college tuition. If you have a 529 you can contribute money to the account federal income tax free, the account is allowed to build up federal income tax free, and you can withdraw tax-free. Pretty great deal, right?

Well, President Obama has proposed a new plan that will remove the federal income-tax exemption for the earnings part. According to the investment Company Institute, there are roughly 12 million 529 savings accounts with a about $245 million in assets. This averages to 21,000 per account.

Now ask yourself, whom do these accounts benefit? The richest in America have no use for these types of accounts, but the middle class benefits from them greatly.

Why would someone who is trying to make college more affordable make it harder for middle class Americans to pay for college? The truth is he does not care. He only wants to expand the size of the government, which is what both of these policies will do.

– JW

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Filed under Domestic Policy, Political Economy, Political Philosophy

Understanding the Emancipation Proclamation

Team of RivalsTHE EMANCIPATION PROCLAMATION revisited, denuded and within historical context.

I often hear that Lincoln is a tyrant and his goal was to centralize power in the federal government to satiate his own ambitions. His Emancipation Proclamation is used as evidence. It’s often portrayed by revisionist historical ideologues–more wedded to a vision than to truth–as a baseless usurpation of power by the executive, and theft of private property. In fact, it was neither, and one would have to PURPOSELY ignore Lincoln’s arguments for his emancipation proclamation and many in Congress who implored him to do it sooner than he actually did. Lincoln did not roll out of bed one day and blithely decide to take “property” from sovereign American citizens (let’s suppose, for argument sake, another human being can be considered property). It’s far more nuanced than that. This narrative elides nuance and context, I will do my best to fill the holes and tell the whole story of the Constitutional rationale behind the Proclamation.

First, it’s important to understand exactly what the Emancipation Proclamation actually did. It’s also important–especially those that decry Lincoln’s suspension of habeas corpus without the consent of Congress–to point out The First Confiscation Act in 1861, authorizing the confiscation of ANY property used in the REBELLION of the against the U.S. government. It wasn’t until September of 22, 1863, after the battle of Antietam, a union victory, that he issued his proclamation. It declared that “all persons held as slaves … shall be then, thenceforward, and forever free.” NOTE: this applied only to the states that were in REBELLION, as the Constitution itself makes a distinction between a nation at peace and one in rebellion. It did not free the slaves in the slaveholding border states such as Delaware, Kentucky, Maryland or Missouri and other slaveholding areas of the south that were already under union control. Lincoln was careful in his timing, ensuring that the proclamation would have as large of an positive impact as it possibly could in helping to preserve the union.

Now, for Lincoln’s actual position on emancipation, slavery and preserving the union.

1. Lincoln knew that his desire to end slavery was Constitutionally untenable. The Constitution provided the executive with absolutely zero power to prohibit it in the southern states. At the ratification, no southern delegate would have voted in favor of the document had this been the case. Lincoln states in his first inaugural address, “I have no purpose, directly or indirectly, to interfere with the institution of slavery in the States where it exists, I believe I have no lawful right to do so, and I have no inclination to do so.” But Lincoln didn’t stop there…

1a. In the same inaugural he went on to quote the Fugitive Slave Clause of the Constitution explaining, “It is scarcely questioned that this provision was intended by those who made it for the reclaiming of what we call fugitive slaves; and the intention of the lawgiver is the law. All members of Congress swear there support to the whole Constitution–to this provision as much as any other.” It’s important to note Lincoln’s fidelity to the Constitution.

2a. Lincoln goes so far as to propose a Constitutional amendment that would proscribe the federal government from ever interfering with the domestic institutions of a state. He explains, “holding such a provision to now be implied constitutional law, I have no objection to it’s being made express and irrevocable.”

Here, Lincoln validates two of the most important constitutional claims of the southern slaveholders, a constitutional prohibition against federal interference in the affairs of the states, particularly in regards to slavery. And, the constitutional right of slaveholders to recover their slaves.

In 1854, writing on this very issue, when southerners “remind us of their constitutional rights, I acknowledge them, not begrudgingly, but fully and fairly…”

So where was the disagreement?

Lincoln differed from the south in two prominent areas, the federal government’s ability to limit the expansion of slavery in the territories (The activist decision in the Dred Scott case unlawfully invalidated the federal government’s power to do so), and a perceived right of secession. It is extremely hard for one to rationalize those who have claimed to leave the union and the Constitution, while still seeking constitutional protection of slavery.

Though, Lincoln understood he had no power in times of peace to limit or abolish slavery. If he were to do so, the South could threaten the union. Moreover, the framers had capitulated on the issue of slavery and made explicit concessions to slavery in the Constitution, and in Lincoln’s opinion, those must be honored. Lincoln was then consigned to the very same necessity of the institution of slavery as our framers.

It wasn’t until the Southern states seceded, rescinding one of the main arguments for restraint in the North. The act of rebellion itself (secession) eliminated the threat of said rebellion as a reason for the North to accept the status quo. As Professor David Nichols so eloquently states, “Lincoln believed that the rebellion had turned the Constitutional tables on slavery.” The issue of slavery was going to die a slow, arduous and costly death, not at the hands of Lincoln, but at the behest of an insecure and lawless south, that was threatened by the growing industrial power and discontent with slavery itself in the North. Despite the act of rebellion, Congress’ First Confiscation Act, the Second Confiscation Act (which he would later point to as justification), and efforts by his generals to emancipate the slaves, Lincoln remained steadfast in his OPPOSITION to emancipation (as the timing was incorrect). As Lincoln states in a letter to Horace Greely (in response to Greely’s editorial. A few years after Lincoln’s death, Greely noted it was not a response at all, but Lincoln used it as a platform for his “altered position” on emancipation):

“…paramount object in this struggle is to save the Union, and is not either to save or to destroy slavery. If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that. What I do about slavery, and the colored race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union. I shall do less whenever I shall believe what I am doing hurts the cause, and I shall do more whenever I shall believe doing more will help the cause. I shall try to correct errors when shown to be errors; and I shall adopt new views so fast as they shall appear to be true views.”

Lincoln argued, in my opinion rightly, that his commander-in-chief powers, and the status of rebellion in the southern states, The First Confiscation Act and The Second Confiscation Act, afforded him the power to emancipate the slaves in order further the union cause and preserve the Constitution. What better way than to deprive the South of a large part of its labor force while simultaneously bolstering the size of the union army (estimated at 130,000 soldiers) with the recruitment of the newly freed slaves.

Once the North recognized southern slaves to be free, and as they were fleeing to Union camps or by union soldiers, made the political reality of slavery ever being restored in jeopardy. Also, the fact that 130,000 freed slaves had fought side-by-side with whites in the union army, invalidated any notion that slaves were not persons.

The border states, in which the Emancipation Proclamation did not apply to, and with much urging from Lincoln, understood this reality and began plans of their own for emancipation. Lincoln then wanted a constitutional amendment approved as soon as possible so that slavery as a constitutional issue will no longer remain in doubt (13th Amendment).

Lincoln bided his time until he knew it would help the union succeed. This is where he derived his just powers from, not solely from a desire to free the slaves. In their misguided and unconstitutional attempts to secede THEY opened the door for the emancipation of the slaves. In this sense, the South was their own worst enemy, and their perverted interpretation of the Constitution was their ultimate downfall. How ironic.

I’ll leave you with this quote by Lincoln:

By general law, life and limb must be protected; yet often a limb must be amputated to save a life; but a life is never wisely given to save a limb. I felt that measures, otherwise unconstitutional, might become lawful, by becoming indispensable to the preservation of the Constitution, the the preservation of the nation.”

 

– Will Ricciardella

 

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Do Patents Help or Hurt Investment and Innovation?

PatentOne of the most controversial topics amongst libertarians/conservatives is whether patents increase or decrease innovation. As is common in economics, it is not an easy answer and has different solutions based on different industries.

The argument everyone has heard in favor of patents is that it protects the inventors/firms profits and therefore increases incentive to invest in R&D. This argument makes intuitive sense. If a firm/inventor spends a lot of time and money working on an invention only to have it imitated the day it hits the market, they are less likely to spend the same amount of time and effort working on another invention.

The argument made against patents is that they decrease innovation because they decrease competition. The argument says that acquiring patents incurs additional costs and promotes wasteful attempts to invent around patents. Moreover, patents could delay spillover effects in sequential innovation. This also makes intuitive sense. So, which argument is correct?

In general, it depends on the industry.

Some of the most innovative industries happen to also have some of the weakest patenting laws. The software, computer and semiconductor industries have all had weak patent protection and relatively fast imitation of products. Of course, one could argue that if they had stronger patent laws the innovation would have been even more rapid. However, the data doesn’t agree with this claim. James Bessen and Eric Maskin find that when there has been an increase in patenting laws in these industries, R&D investment decreases [1]. This is not totally surprising. If there is no risk for imitation, there is less incentive to make a new innovation as quickly as possible. They do not argue for an optimal level of patenting laws, as we will see the authors of the next paper do.

The typical example for the necessity of patenting laws is the pharmaceutical industry. This is because the costs of putting a new drug in the market are staggering. Not only that, it takes many years for the FDA to approve the drug (If the FDA was eliminated this might be an entirely different discussion). In this industry, the first argument I presented is more useful, to an extent. In his paper, Yi Quan finds that in the pharmaceutical industry there is evidence for patenting laws increasing innovation, and that there is an optimal level [2]. However, he also finds that this is only true for certain countries. In countries with lower education levels and national income there is no positive relationship between patenting laws and innovation. This is because these counties largely rely on more developed countries for certain innovations. The most important result (at least for me), is that he finds a positive relationship in the U.S. After a certain level, however, strengthening patent laws will decrease innovation.

The last result has been more common in my research, that there is an optimal level of patenting laws. Too strong of laws decreases incentive to imitate or make sequential innovations because it increases the odds of a lawsuit and other costs that reduce R&D spending. So my personal opinion is that in most industries, weak patenting laws are beneficial. However, I would not make this claim for all industries.

Thus, the discussion about patents should not be a carte blanche generalization for all industries. If someone asks you what your opinion on patents are, the most appropriate response should be “Patents for what industry?”

– JW

 

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[1] Bessen, Maskin “Sequential Innovation, Patents and Imitation”, The Rand Journal of Economics Vol. 40, No. 4 (Winter 2009)

[2] Quan “Do National Patent Laws Stimulate Domestic Innovation in a Global Patenting Environment? A Cross Country Analysis of Pharmaceutical Patent Protection , 1978-2002” The Review of Economics and Statistics Vol. 89 No. 83 (Aug. 2007)

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Filed under Chicago School of Economics, Economic Methodology, General Philosophy, Political Economy, Political Philosophy

Macroeconomics and the Broken Window

My macroeconomics professor is convinced that a war or an earthquake will boost GDP.

This may be true of the numbers temporarily. But the numbers don’t take into account the wealth that is destroyed. It’s incredibly myopic not to see this (Broken Window Fallacy) He advocates government spending as a means to boost GDP, but, what he doesn’t understand is that government must first take or borrow from the private sector in order to purchase or do anything. When I brought this to his attention, he literally scoffed at me, and was amazed I’d even bring it up. He must have thought of me as one of those “conservative economists” or “right-wing” economists he’s trashes during some lectures.

Government is a taker, not a producer. It creates no wealth, it can only hinder wealth creation. He is a firm believer that government stabilizes the economy. In fact, the FED does the exact opposite, it’s been proven many times.

He’ll also never miss an opportunity to bash private business, like when he blamed the 2008 crash on banks, not once mentioning the CRA, HUD or Fannie and Freddie.

Basically, my macroeconomics teacher doesn’t know where wealth comes from. And I’m paying for this!

The best part is, he’s smug, egotistic and thinks he’s brilliant.

End rant

 

– Will Ricciardella

 

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An Economic Analysis of Litigation

I asked our twitter followers if there was anything in specific they would like me or my brother to write about and someone asked us to contemplate the question – “Does fear of litigation force doctors to overcompensate?”

The immediate thought I had was “it has to force them to overcompensate”.  Here is why:

If we consider this through a decision theoretic approach, it is easy to see why doctors are likely to overcompensate. Decision theory is similar to game theory, except, instead of considering multiple individuals making decisions against each other, we consider a single individual making decisions against “states of the world.” The possible states of the world we must consider are: x = not overcompensating and correct diagnosis, y = overcompensating and correct diagnosis, z = not overcompensating and wrong diagnosis, w = overcompensating and wrong diagnosis.

Now, consider what “states of the world” are most favorable. Obviously it is either x and y, and to the doctor the difference between them is negligible even if to the patient they are not. This leaves z and w as the two least favorable situations, and of them, w is more favorable to the doctor while z is more favorable to the patient ( z >w for the patient because lower medical bills, w>z for the doctor because “they covered all their bases” and is less likely to lead to litigation). From this we can see the rational decision for the doctor is to overcompensate because it maximizes his expected “payoff”.  (payoff being keeping his job, not getting sued etc.) The payoff is greater because the payoff of x=the payoff of y, but the payoff of w > payoff of z.

What effect does this have on society is the next question. Well for one, it increases costs to the patient. In the state of Illinois women had to buy psychiatric coverage, unlimited overnight stays in the hospital, OBGYN coverage, unlimited mammograms and a plethora of other things. The reason why they had to purchase these features is because doctors have to “cover their bases.”  This obviously increases health insurance costs. It seems absurd that a woman who is sane, or not trying to have a baby, shouldn’t be allowed to buy basic coverage. This is at least part of the reason why so many people could not afford health insurance. This of course leads to all sorts of other costs to society, such as medicare/medicaid, and libs pushing and passing the Affordable Care Act.

This is how I think of this problem, and I hope it helps everyone understand the situation more clearly.

– JW

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Discussing Globalism and Open Borders

Adam Smith PortraitI am in favor of free trade between countries and also open borders with regard to labor. Almost all schools of economic thought are in accordance with this theory of the free mobility of labor. Monetarists, Austrians, and even Keynesians are all in agreement in this economic point of view. In a nutshell, the theory states open borders will lead to increased economic activity and increase the standard of living.

I was in a recent discussion with a person who was a fan of Adam Smith, and was claiming that Smith was against open borders with regard to trade and labor. He thought that open borders to trade and labor, and commodity backed money, would lead to “mutually assured economic destruction”.  I have not read as much Adam Smith as I should have, but since this discussion I have been motivated read a little more of his work. According to my recent research, I discovered that the person I was debating has Smith completely backwards.

I was surprised to hear someone claiming that Smith was against open borders in the first place. So I read Smith’s views on borders, and one quote sums up his view very well, “The core of free trade, is the free circulation of labor.”  Clearly this implies that Smith opposed any mercantilistic restrictions with regards to not only trade, but the movement of labor as well. It makes sense that he would be in favor of open borders, every good economist I have ever read or spoken with is in favor of it.  Furthermore, all economists get particularly annoyed when they hear people talk about why tariffs are good for protecting our companies, and that we can’t let immigrants steal our jobs etc. etc.

I had no idea what Marx thought of immigration at the time of this discussion, but he sent me a link of something that indicated that Marx was in favor of open immigration to reduce national identity. This sounded like something Marx might say, but my research did not agree with this assessment. Basically, Marx was against any immigration thinking it was a ploy of the bourgeoisie to bring in cheap labor to drive down the wages and further exploit the labor. It also makes sense that Marx would be against the free movement of labor – He is one of the worst economists in the history economic thought.

Disclaimer: When economists talk about open borders to trade and labor they are not endorsing letting anyone in the country at anytime for any reason. Rather, they are endorsing making it easier for people to enter a country for jobs if they are demanded.

 

– JW

 

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Random Thoughts About Progressive Liberalism

It’s amazing to me that liberals/socialists can get away with blaming wealth creators for poverty or penury throughout the world without ascribing a bit of blame to the actual and perpetual perpetrator – big government.

The market doesn’t force kids to go to substandard schools without any choice whatsoever. The market doesn’t force these same kids into schools that teach them minimal-to no-skills. The market doesn’t make it illegal to hire someone at their actual level of production that is most times (due to poor public education and lack of choice) below an arbitrary level of production the government deems moral (so much for not legislating morality, huh libs?).

A liberal will tell you how the debate for climate change/ global warming is over. It’s science. In fact, it’s far from over. Economic matters, for example, are more clear.

No matter how many times you show them the data and empirical observations of the economic sciences, they’ll deny them till they’re blue in the face, lament your racist leanings, misogynistic tendencies and your irrational hatred for poor people. The fact that minimum wage helps no one, but hurts those most vulnerable is no match for mantras, repetition, and sloganeering.

In fact, the reason these observations and empirical analysis exist is to ensure that those most vulnerable are the least impacted by economic policies, and allow them a fair shake at acquiring human capital, and adding to aggregate production improving the standard of living for all (liberals, like Karl Marx, cannot comprehend that wages are relative to prices, but that doesn’t surprise me). Liberals don’t care about truth, they care about ideology. The myth that somehow they are driven by “compassion,” when it is in fact a high degree of envy that undergirds liberal rhetoric and policy making that directly correlates to the apathy of the people, who would rather feel than think. How do I know? Because they deny science, reason and logic, no matter how many of those people they claim to want to help, are affected negatively by their maladroit policies.

It is very frustrating.

 

– Will Ricciardella

 

 

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