More Dangerous than the Factory Building Collapse

The recent collapse of a garment factory building in Bangladesh, resulting in the death, at latest count, of more than 1,100 workers who were employed there, has led to international outrage not only against the building’s owner but also against the various retailers in the United States and Europe, many of them prominent, that have sold clothing produced in that building. It is demanded that they assume responsibility for working conditions in the factories that supply them and not deal with factories that do not provide safe and humane conditions and pay fair wages.

Such demands rest on the belief that, if left free of government interference, the profit motive of businessmen or capitalists leads them to pay subsistence wages to workers compelled to work intolerable hours in sub-human conditions. And, more, that the profits allegedly wrung from the workers in this way exist in the hands of the capitalists as a kind of disposable slush fund as it were, at least some more or less substantial portion of which can be given back to the workers from whom they were taken, or used on behalf of those workers, with no negative effect except to deprive the capitalists of some of their ill-gotten gains. It is generally taken for granted that the reason the kind of conditions that prevail in Bangladesh and the rest of the Third World do not exist in the United States and Western Europe is the enactment of labor and social legislation, and that what is needed is to extend such legislation to the countries that do not yet have it.

Every aspect of this set of beliefs is wrong and its consequences are highly destructive, above all to the masses of workers in the Third World who already live close to starvation and who are in danger of being driven into it by needlessly increasing the cost of employing them either by arbitrarily raising their wages or by requiring that they be provided with improved working conditions that must be at their expense and which they cannot afford.

One of the most elementary propositions of the science of economics is that the higher the price of anything, the smaller is the quantity of it that will be purchased. This applies to labor no less than to goods. If wage rates in Bangladesh are arbitrarily increased, fewer workers will be employed in Bangladesh. In that case, workers who would have earned low wages will earn no wages. They will starve. If employers in Bangladesh are compelled to make improvements in working conditions of a kind that do not pay for themselves, the cost of those improvements represents the equivalent of a rise in wage rates. Again, there will be unemployment. The unemployment could be avoided only if workers’ take-home wages could fall sufficiently to offset the cost of the improvements. In that case, the situation would be comparable to making the workers use their already meager wages to pay for improvements that they simply cannot afford.

These are not outcomes that the advocates of imposing labor standards want. What they want is higher wages and better working conditions. Their problem is that they do not realize what is actually necessary to achieve these results.

What will achieve these results is leaving business firms in Bangladesh and throughout the Third World alone, to be as profitable as they can be. (It should be obvious that the loss of a factory building and its machinery was not profitable and that while it may be legitimate to denounce the building’s owner for criminal recklessness and negligence, it is simply absurd to denounce him for seeking profit, when what he actually achieved, and could only achieve through such conduct, was total loss.)

The high profits that can be earned in a Third World country, if not prevented by too many obstacles, will be heavily saved and invested, mainly in that Third World country. As the experience of Taiwan, South Korea, and now even mainland China  shows, a generation or more of such a process results in a vast accumulation of means of production in the country—i.e., numerous new factories, with better and better equipment. This results in an intensified competition for labor and thus rising wage rates. As wage rates rise, workers can more and more afford to accept lesser increases along with improved working conditions of a kind that must be at their expense.

Economic freedom, not government interference, is the road that the wealth of nations travels.

---

Copyright © 2013 by George Reisman. This article may be reproduced electronically provided this note is included. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Amazon Kindle Edition, 2012). His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com.

 

“Tax Expenditures”: Not Taxing Is Allegedly Spending

Runaway government spending is among the most important economic problems of our time. It is absolutely urgent that it be brought under control and progressively reduced until it is sufficient to provide for no more than the essential government functions of defense and justice. Only then will the citizens have the greatest possible individual freedom to decide how their earnings are spent and the greatest possible motivation to increase their earnings and improve their standard of living.

As recognition of the importance of bringing government spending under control has grown, the enemies of individual freedom have seized upon a tactic which they hope will avoid the necessity of reducing government spending, indeed, will allow them to go on increasing it, under a fraudulently created appearance of reduction. The tactic is described by the words “tax expenditure.”

A tax expenditure is a tax that the government has the power to collect but chooses, for any reason, not to collect. More precisely, a tax expenditure is a fictional, non-existent tax accompanied by an equivalent fictional, non-existent expenditure. Although the government does not actually collect the tax, the fact that it has the power to do so is used as the basis for pretending that it does collect the tax and that it uses the proceeds to make an expenditure that goes to those from whom it has chosen not to collect the tax. In this way, the taxes that are not collected are treated as though they were collected and then used as a subsidy paid to those from whom they were not collected. In effect, the government’s not taking is alleged to be giving. Its not taxing is alleged to be spending.

Examples of tax expenditures recently provided by The New York Times are the taxation of capital gains and dividends at lower rates than ordinary income; allowance for deductions from taxable income of the payment of interest on home mortgages, the payment of property taxes, state and local income taxes, charitable contributions;  and the absence of taxation on employees for health insurance and pension benefits paid for by employers on their behalf. All in all, according to The Times, “Tax expenditures cost the federal government more than $1 trillion a year in lost revenue.”

When one recalls that in World War II, there was a 90 percent bracket in the federal income tax, and that the government has it in its power to impose such a tax rate on everyone but presently chooses not to do so, then it becomes clear that by the logic of the concept, the cost of tax expenditures to the federal government is not just $1 trillion, but many, many trillions. It is, in fact, everyone’s entire income and wealth.

The philosophical principle underlying the concept of tax expenditure is that we are all serfs or slaves in the power of our Lord and Master the Almighty Government. It owns us and all of our income and wealth. All that we earn and possess, we do so by virtue of its largess, by virtue of its giving to us what we may have believed was ours to begin with.

The concept of tax expenditure is as hostile to the principles on which the United States was founded as any concept can be. It flies in the face of the fact that here, in this country, government is supposed to be the servant, not the master; that it is the people who support the government, not the government that supports the people; and, above all, that what the people have earned and saved, they hold by right, not subject to any arbitrary appropriation by the government.

What the government does not take, even though it may have the power to take it, is not something that the government gives. It is the property of the individual citizens who earned it. They do not receive any of it from the government by virtue of the government’s decision not to take it from them.

To claim that government spending will somehow be reduced by reducing tax expenditures is a moral outrage. Its only possible meaning is increasing taxes, which will allow government spending to continue on without reduction, indeed, with possible increase.

When, for example, the government taxes capital gains and dividends at a lower rate than ordinary income, it is not giving anything to the people who pay the capital gains and dividend taxes. On the contrary, they are giving money to the government; they are giving the taxes they pay. The fact that they are giving the government less money than it would like to receive and has the power to take, does not change that fact. If the tax rate on these incomes were increased, there would be absolutely no reduction in government spending. But the government would be in possession of additional funds with which to continue its spending and possibly increase it.

To reduce government spending means to reduce the money the government pays out, not to reduce the money it has chosen not to take in. The first is a reduction in government spending; the second is an increase in taxes. Confusing the two is of benefit only to con men who worship an omnipotent state.

Copyright © 2013 by George Reisman. Permission is hereby given to reproduce this article, royalty free, in digital/electronic format, provided only that this biographical note is included. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012).  His website is www.capitalism.net. His blog is georgereismansblog.blogspot.com. See his Amazon.com author’s central page.

 

New Kindle Book by Reisman

Labor Unions, Thugs, and Storm Troopers is now available as a Kindle book from Amazon.com, for 99¢. It comes with no "digitial rights management," which means that it's not copy protected and that you can send copies to whomever you like, without any additional charge. Here's its cover Please be sure to note the caption under the drawing.

 



Labor Unions, Thugs, and Storm Troopers

1. New York Times Columnist Eduardo Porter on How to Raise Wages

The following three paragraphs are a quotation from the article "Unionizing the Bottom of the Pay Scale" by New York Times columnist Eduardo Porter. The article appeared on the front page of the business section in the December 5, 2012 National Edition. The subject of the article is the present attempts going on to unionize the employees of such establishments as fast-food restaurants and Walmart, whose workers are at the low end of the general wage scale in the US.

Union leaders know they are fighting long odds — hemmed in by legal decisions limiting how they can organize and protest, while trying to organize workers in industries of low skill and high turnover like fast food. But they hope to have come upon a winning strategy, applying some of the tactics that workers used before the Wagner Act created the federal legal right to unionize in 1935.

“We must go back to the strategies of nonviolent disruption of the 1930s,” suggests Stephen Lerner, a veteran organizer and strategist formerly at the Service Employees International Union, one of the unions behind the fast-food strike. “You can’t successfully organize without large-scale civil disobedience. The law will change when employers say there’s too much disruption. We need another system.”

In the 1990s and 2000s, the S.E.I.U. unionized tens of thousands of mostly Latino janitors from Los Angeles to Houston, including thousands of illegal immigrants, who were until then considered impossible to organize because of their legal status. It did so by putting pressure not only on the building maintenance contractors but also on the building owners who hired them, often resorting to bare-knuckle tactics. In 1990, the union asked members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags. Mr. Malkin met Mr. Lerner soon thereafter.

Porter believes, wrongly, that labor unions are able to improve the standard of living of wage earners throughout the economic system and that they do so by means of securing increases in money wage rates. He, along with almost everyone else, commits the fallacy of assuming that because earning more money is obviously an intelligent policy for an individual wage earner to pursue, it follows that it must be an intelligent policy for all wage earners taken together to pursue. He is totally ignorant of the fact that increases in money wage rates obtained by labor unions reduce the quantity of labor demanded and thereby cause unemployment, less production, higher prices, and an added burden of supporting the unemployed. He is ignorant of the fact that what serves to increase money wages without causing additional unemployment is merely the increase in the quantity of money and consequent increase in the volume of spending in the economic system. But this phenomenon serves equally to raise prices and thus does not improve the standard of living of wage earners.

To state these points in the customary terminology of demand and supply, the only way that wage rates can rise is either if there is less supply of labor, which means unemployment, or more demand for labor, which will also mean more demand for consumers’ goods and thus higher prices of consumers’ goods. Thus, however surprising it may be, we must conclude that higher money wages, whether obtained through less supply of labor or more demand for labor based on a larger quantity of money, simply do not raise the standard of living of the average wage earner. We must conclude that if they really wish to raise the standard of living of the average worker, the unions are utterly misguided in making the increase in money wages their goal. But that is their goal and they have no other comparably major goal.

I want to acknowledge that there is a way that an increase in the demand for labor can raise wage rates without increasing the demand for consumers’ goods and prices. And that is insofar as it takes place as the result of an increase in saving. What would contribute to this would be reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested. In this category are the corporate income tax, the progressive personal income tax, capital gains taxes, and inheritance taxes. The additional savings that resulted would be expended in substantial measure in paying additional wages. The wage earners would be in a position to increase their consumption spending correspondingly. This would not represent an increase in overall, total consumer spending, because it would be financed by an equivalent, indeed, more than equivalent reduction in consumer spending on the part of the government. Thus, while wages rose, nothing would be present to make prices rise. Of course, such tax reductions are absolutely anathema to the labor unions and their supporters.

What does improve the standard of living of wage earners is increases in the productivity of labor, i.e., the output per unit of labor. This serves to increase the supply of goods relative to the supply of labor and thus to reduce prices relative to wage rates. It can be accompanied by prices actually falling while wage rates remain unchanged. Or, when the effects of an increase in the quantity of money and volume of spending going on at the same time are allowed for, by prices staying the same while wage rates rise, or by both prices and wage rates rising but with prices rising by less than wage rates.

I must point out that an essential foundation of a rising productivity of labor is a sufficiently high degree of spending to produce capital goods rather than consumers’ goods. This outcome too is supported by reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested.

Porter and almost everyone else is totally unaware of these facts. Above all they are ignorant of the fact that the wage earners' standard of living does not rise from the side of wage rates rising but from the side of prices falling. As indicated, the fall in prices need not be an absolute fall. But it must at least be a relative fall. That is, prices must fall at least in comparison with what they otherwise would have been if the only factor operative were an increase in the quantity of money and volume of spending.

When one grasps the fact that the standard of living of wage earners rises from the side of prices falling rather than wages rising, it is but a short step to the conclusion that labor unions are not only utterly ignorant about how to raise the standard of living of wage earners in general, but operate in diametric opposition to the interests of wage earners in general.

Labor unions can raise the standard of living of narrow groups of workers, by gaining monopolistic privileges that limit the number of workers who can be employed in a given line of work or by causing or maintaining an artificial need for the services of workers of given types. But in these cases they reduce the standard of living of other workers.

The workers who are barred from working in the unionized fields must find work in other fields, where their added numbers serve to depress wages. If minimum wage laws prohibit that fall in wages, then the workers displaced end up simply as unemployed or take the jobs of other workers who become unemployed.

Compelling the continued employment of more workers than are needed to produce a product despite the fact that economic advances have made their employment in that line of work no longer necessary, has the effect of maintaining a product price that is unnecessarily high and thereby of depriving wage earners throughout the economic system of the funds they would have had available as the result of a lower price to spend on other products. And, it should be realized, the production of those other products, previously not affordable because of lack of available funds, would have required the employment of an amount labor equal to the labor initially displaced.

In the light of these facts, one can understand how the productivity of labor over the last 225 years or so has risen by enormous multiples with a comparably enormous positive effect on real wages and the general standard of living and no negative effect whatever on the overall rate of unemployment. Indeed, the total number of wage earners employed has also increased enormously, in line with the increase in population made possible by the rise in the productivity of labor and consequent rise in the standard of living.

The only contribution of the labor unions to this process is to impede it. At every step of the way, they fight the rise in the  productivity of labor whenever it threatens to reduce the number of jobs available for their members. Indeed, they openly pride themselves on "making work" rather than making goods, apparently incapable of grasping that making work by requiring more labor to produce a good than is necessary, serves to prevent the production of other goods, that would have been available in addition to the one, particular good they are concerned with.

Labor union membership in private employment has greatly declined over the decades, from about 35 percent in the mid 1950s to about 7 percent today. The reason is the fact that unionization imposes artificially high costs on firms. It does so in the form of above-market union wage rates and reduced efficiency and quality of product resulting from union hostility to improvements in productivity, arbitrary work rules, and the difficulty or even impossibility of firing incompetent workers.  Under such conditions, firms cannot meet the competition of other firms, foreign or domestic, that are non-union, and thus sooner or later must go out of business. The most recent large-scale example is that of Hostess Brands. It finally had to close when one of the major unions it had to deal with was unwilling to accept a wage reduction, with the result that 18,000 workers became unemployed. This kind of story, repeated hundreds of times over, explains the decline in union membership.

To continue in existence, labor unions need "fresh blood" to drain. Their most fruitful source in recent decades has been government employees, who now account for about half of their overall membership. By making huge contributions to the political campaigns of corrupt politicians, and having their members vote for those politicians en masse, the public-employee unions can secure outlandish wage and pension benefits for their members, financed by the taxpayers. In the face of governmental bankruptcies or impending bankruptcies, this process has encountered growing opposition and, hopefully, may now be nearing its end.

I must briefly comment on the specific main subject of Porter's article, the current attempt to unionize the lowest-paid workers in the economic system. If successful, it may well serve to improve the standard of living of those workers in this group who keep their jobs. They will receive higher wages.

But the rise in price of things such as hamburgers and other fast foods, and the kind of goods that Walmart sells, that will be necessary to cover the higher costs imposed by the rise in wages, will result in a reduction in the quantities of these goods that buyers can afford to buy. This in turn must result in a reduction in the number of workers who are employed in producing or distributing these goods. These workers will then either be unemployed or drive down wage rates elsewhere in the economic system.

In addition, the real wages—the standard of living—of workers throughout the economic system who buy these products will be reduced because of the need to pay higher prices for them, including, of course, the very considerable part of this group who are themselves low-income earners. And the prices that they pay will be higher not only because of the union-imposed rise in wage rates, but also because of the union-imposed reductions in the productivity of labor.

Can this outcome really be Porter's and the unions' idea of economic improvement for the poor?

And now I come to one point on which Porter is right, the point that appears in the final paragraph that I quoted from his article. It is Porter's realization that to achieve their goals, labor unions must rely on tactics of intimidation and thus, implicitly, on force and violence. This is the meaning of the "bare-knuckle tactics" that he lauds as having proved successful in union organizing efforts in the past. Porter refers only to "the union ask[ing] members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags." He does not mention such things as preventing access to factories and stores by mass picketing, physically assaulting non-union workers, setting off stink bombs in factories, and shooting out truck tires. But the implication is clear. It is does not go away by using the word “nonviolent” before “disruption.”

Intimidation, force, and violence, that is Porter's and the unions' s theory of how to raise the standard of living of the average wage earner. It is the theory of those whose heads are as empty of knowledge of economics as were the heads of our apelike ancestors.

2. The California Federation of Teachers Incites Hatred Against the Rich

The California Federation of Teachers describes itself, on the home page of its
web site as "the statewide affiliate of the American Federation of Teachers. The CFT represents faculty and other school employees in public and private schools and colleges, from early childhood through higher education."

The CFT is a labor union. Its parent organization belongs to the AFL-CIO. As such, it is an organization founded on precisely the same kind of ignorance of economics that I have just described. The effects of its operation on the quantity and quality of the product of its members and their employers (principally the California Department of Education) are what one would expect from the influence of a powerful labor union. Namely, in this case, very low performance on the part of the students and graduates, who generally rank near the bottom nationwide in math and English test scores.

However, when it comes to matters of knowledge of economics, and all that depends on knowledge of economics, such as understanding much of modern history and modern literature, current events, and contemporary public policy, the effect of its existence is even worse. This is because in these areas, it and many, if not most, of its members, work to fill the minds of young students, who are in school to gain knowledge, with worse ignorance than that with which they came to school. Its and its members' ignorance of economics serves to produce hordes of ignorant malcontents who are hostile to the capitalist economic system, individual rights, economic freedom, and the founding principles of the United States.

(Of course, here and there, one might find a member of the CFT who would disavow all of its destructive beliefs and activities and agree with the principles I've expressed. But can anyone believe that he would be allowed freely to teach those principles? That he would not encounter overwhelming pressure not to do so and that his life would not be made very difficult, to say the least? Whatever else it might be, the CFT is almost certainly not an organization devoted to supporting free inquiry and open discussion that would constitute a challenge to the basis of its very existence. The fact that it uses dues paid by its members to advance its political agenda, irrespective of the convictions and choice of the individual members, is confirmation of this fact.)

It should almost go without saying that in addition to teaching the same kind of pro-union ideas that Porter propounds, the CFT and its members also teach much of the rest of the Marxist body of doctrine, above all, the exploitation theory. This is the belief that capitalists and the rich (in today’s jargon, “the 1 percent”) systematically steal from and impoverish the great mass of the people (i.e., “the 99 percent”).

The vacuum-filled heads of the Marxist “teachers” contain absolutely no awareness of the fact that under capitalism the wealth of the rich is accumulated through the repeated introduction of new and improved, more efficiently produced products that serve to raise the standard of living of everyone. And that as that wealth is accumulated, it does not stand as a giant pile of food on the plates of gluttonous capitalists but as capital, i.e., as means of production that produce the products that everyone—capitalists and non-capitalists alike—buys and that provide the foundation of the demand for the labor of all those who are wage earners. The wealth of the capitalists—the “rich”—in other words, is the source of the supply of goods that non-capitalists buy and of the demand for the labor that the non-capitalists sell. Everything that reduces this wealth, reduces the demand for labor and the supply of products. In both ways, it reduces real wages and the general standard of living.

Thus, contrary to the beliefs of the ignoramuses of the CFT, taxing the wealth of the rich does not serve to transfer food from the plate of a glutton to the plate of a starving person, or to provide benefits of any kind to the poor that in any sense are free. On the contrary, it serves to make people poorer, by reducing the demand for their labor and the supply of products available for them to buy.

In the light of this background, one should consider the animated cartoon video that the CFT released the other day and that is now prominently featured on its web site. The video is titled “Tax the Rich.” It is narrated by Ed Asner, a Hollywood actor.

I urge readers to watch this video in full and listen carefully to Asner's commentary. It is a work not only of ignorance but of the kind of malicious ignorance with which one would try to incite a mob—the kind of ignorance that under the Russian Czars was used to foment pogroms and that under Hitler was used to set off the infamous Krystallnacht, i.e., the night in November of 1938 when Jewish-owned stores across Germany were attacked and wrecked by Nazi mobs.

Hitler depicted the Jews, who comprised not quite 1 percent of the German population, as a sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the German people who were non-Jews. He blamed the Jews for Germany’s defeat in World War I, for the hyperinflation that followed, and for the Great Depression. In the same way, the CFT and Asner depict our 1 percent—“the rich”—as another sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the American people who are not “rich.”

They blame “the rich” for the bubbles and crashes in the stock market and real estate market, and for people’s loss of their jobs and homes. Again and again, they claim that the suffering of 99 percent has been caused by the deliberate evil of 1 percent. So malicious is their propaganda, that in their attempt to ridicule the productive contribution of “the rich,” which the left has long been in the habit of mocking as “the trickle down theory,” their video shows a rich man urinating on members of the 99 percent. (It’s possible that this frame has now been removed from the video in response to complaints. But it is reproduced here.)

This is the kind of class hatred the California Federation of Teachers is peddling to the American people and which is being taught to the intellectually helpless children in the classrooms of its members. How long will it take if 99 percent of the people become convinced that all of their problems in life are the result of the evil of 1 percent of the people, before the 99 percent turns on the 1 percent in an orgy of hatred and destruction?

That is the outcome that the CFT, Ed Asner, and all the rest of the mindless left are preparing. They are in process of organizing the persecution of a highly productive and provident minority of 1 percent of the population by an increasingly miseducated and manipulated 99 percent.

*****

The first portion of this article showed how the success of labor unions in imposing their demands depends on the activities of thugs. Thugs are needed by the unions to perform such activities as mailing garbage to employers otherwise unwilling to deal with them and for creating "too much disruption" for employers to stand. Their tactics, "bare-knuckle," as Porter describes them, or brass knuckle, as one in fact should say, are required if the unions are to have their way. The thugs make offers, that in the terminology of The Godfather, employers "can't refuse."

The California Federation of Teachers and its members are pursuing policies that go far beyond the employment of thugs every now and then. Their policies and their day-to-day teaching are serving to manufacture a generation of hate-filled, mindless zombies, who know nothing but leftist propaganda and who will be readily available to serve as storm troopers in a future war against capitalism and "the rich." Their claim to knowledge will be little more than their ability to chant that they are part of the 99 percent and that they hate the 1 percent.

So long as the California Federation of Teachers controls most education in California, a foremost civic duty of every legislator and every voter in California is to take every opportunity to vote to cut the budget of the California Department of Education insofar as it is used directly or indirectly to promote the doctrines of class hatred and class warfare espoused by the CFT and its members.

An excellent opportunity to do this was offered in last month’s elections. A proposition was on the ballot in California, Proposition 30, that threatened a $6 billion cut in funding for public education unless the voters approved $6 billion in new and additional taxes. The voters clearly should have rejected the proposition and urged that whatever cuts that were to be made, be made above all in the funding for courses serving to spread the hate-filled ideology of the CFT and its members. Such spending cuts are as necessary in the body politic as is the surgical removal of malignant cancer tissue in the body of a human being.

At the present time, the public should demand apologies from the CFT, Ed Asner, and the producers of their disgraceful animated video. While its production was not a crime, the class hatred it espouses, along with all the class hatred regularly inculcated in students by the CFT and its members, serves to produce an intellectual climate in which crime—on a massive scale—will certainly be the result.


Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and The Benevolent Nature of Capitalism and Other Essays. His website is www.capitalism.net. His blog is georgereismansblog.blogspot.com. See his Amazon.com author’s central page.




 

Dishonesty on Front Page of New York Times

The November 30, 2012 National (print) Edition of The New York Times' main front page story is titled "Complaints Aside, Most Face Lower Tax Burden Than in the Reagan '80s."


The story takes up a sixth of the first page and spans an additional full two and a third pages inside the paper. It is clearly meant to convey something major and that at the same time happens to provide support for the Obama Administration’s current efforts to raise taxes. Namely, the proposition that accepting Obama’s tax increases will still leave most people with lower taxes than they paid under Reagan.

Unfortunately, for The Times and its prodigious propaganda effort, throughout the article “the Reagan ‘80s” turn out to mean just the year 1980, which was not at all part of the Reagan ‘80s, but was the last year of the Carter Administration. (Reagan did not take office until January 20, 1981.)

Perhaps it will be the case that if Obama’s tax increases are enacted, the tax burden will still not be as great as it was under Carter. But that is certainly not a basis for claiming that it will not be greater than it was under Reagan, who sharply reduced the tax rates inherited from Carter. Nowhere in the vastness of its verbiage does The Times’ article bother to mention that under Reagan, the maximum surtax rate in the federal income tax was 28 percent, compared with today’s 35 percent, and which Obama wants to raise to almost 40 percent.

Interestingly, The Times may have already been told that its headline was blatantly dishonest. Its online version of the same article carries the title “Tax Burden Is Lower for Most Americans Than in the 1980s.” The Times apparently thinks that it can get away with its dishonesty simply by removing the reference to Reagan. But the article is still dishonest. Carter’s 1980 does not serve to describe Reagan’s 1981-1988.

Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and The Benevolent Nature of Capitalism and Other Essays.  His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.

New Kindle Book by Reisman: The Benevolent Nature of Capitalism and Other Essays

I have a new e-book on line at Amazon.com. It’s titled The Benevolent Nature of Capitalism and Other Essays. It sells for just $2.99. Clicking on the title will take you to its location on Amazon, in a separate window. To pique the interest of potential readers, here's my book's table of contents:

PREFACE

I. THE BENEVOLENT NATURE OF CAPITALISM

II. FREEDOM

     Freedom and Government

     Freedom as the Foundation of Security

    The Indivisibility of Economic and Political Freedom

    The Rational Versus the Anarchic Concept of Freedom

    The Decline of Freedom in the United States

III. CAPITALISM: THE CURE FOR RACISM

    A. The Accusations Against Capitalism

    B. Capitalism: The Cure for Racism

        1. Capitalism and Justice for the Black Worker

        2. Black Competition and White Living Standards

        3. Capitalism and Justice for the Black Consumer

    C. Forcible Obstacles to Black Progress: The Mixed Economy

        1. Introduction

        2. Antiprofit Legislation and Business Timidity

        3. Prounion Legislation

        4. Minimum Wage Legislation

        5. Public Welfare Laws

        6. Child Labor Legislation

        7. Compulsory, Tax Supported Education

    D. The Mixed Economy and the Living Conditions of Blacks

        1. Government Intervention in Housing

        2. Municipally Socialized Medicine

        3. Municipally Socialized Sanitation Services

        4. Franchise and Licensing Laws

        5. The Mixed Economy and the Higher Crime Level in Black Slums

    E. Conclusion: Capitalism Is the Cure for Racism

IV. EDUCATION AND THE RACIST ROAD TO BARBARISM

    The Nature of Western Civilization

    The Universalizability of Western Civilization

    The Standard for Judging a Civilization: the Objective Superiority of Western Civilization

    The New Racism

    The Devaluation of Knowledge

    Western Civilization and the State of Education

V. WHERE WOULD GENERAL MOTORS BE WITHOUT THE UNITED AUTOMOBILE WORKERS UNION?

VI. GENERAL MOTORS, RIP

VII. THE MYTH THAT LAISSEZ FAIRE IS RESPONSIBLE FOR OUR FINANCIAL CRISIS

    Government Intervention Actually Responsible for the Crisis

    The Laissez-Faire Myth and the Marxism of the Media

VIII. HOW THE 1 PERCENT PROVIDES THE STANDARD OF LIVING OF THE 99 PERCENT

IX. FREE SPEECH AND OCCUPY WALL STREET

X. GUN CONTROL: CONTROLLING THE GOVERNMENT’S GUNS

ABOUT THE AUTHOR

NOTES

Sandy: A Hurricane with Price Controls

Hurricane Sandy caused the closing of a majority of the gasoline stations in the New York City area, did major damage to petroleum terminals, and reduced the ability of barges carrying fuel to reach their docks. All of this represented a substantial reduction in the supply of gasoline and other petroleum products in the New York metropolitan area. None of it was the cause of a shortage of gasoline or any other petroleum product, a shortage which New York’s Mayor Bloomberg can think of no better means of alleviating than by means of imposing a system of gasoline rationing. (See The New York Times, Nov. 9, 2012.)


In a free market, the effect of a good’s becoming scarcer is not to cause a shortage of it, but a rise in its price. The rise in price serves to reduce the amount of the good buyers seek to buy to a point that is within the limit of the reduced supply available. However much the supply of oil and oil products was reduced by the hurricane, it was certainly not reduced to anywhere even remotely near the normal, everyday degree of scarcity in the supply of such things as gold or diamonds. And yet there is no shortage of gold or diamonds. Whoever is willing and able to pay the market price of these goods has no difficulty in obtaining them. But if our government officials, inspired perhaps by some such belief as that everyone should be able to obtain gold and diamond jewelry at an affordable price, decreed that the price of gold and diamonds should be cut in half, say, then, indeed, there would be shortages of gold and diamonds alongside the present shortages of gasoline in New York and New Jersey.

Even goods of which there is just a single specimen, such as a Rembrandt painting, are not in a state of shortage. When such a good is put up for auction, its price rises as high as necessary to reduce the number of bidders to just one. In the face of the high price, all the other bidders give up and walk away. They do not remain in the auction room for hours still waiting to buy the painting. They know that the price is just too high for them. But imagine an auction in which the auctioneer was prohibited from progressively raising the price until only one buyer remained. Imagine that he was compelled to hold to his first or second offer. In that case, the auction room might remain packed indefinitely.

What all this implies is that the shortages of gasoline now being experienced in the New York metropolitan area and elsewhere in the path of destruction left by Hurricane Sandy, simply do not need to exist. They could be made to disappear very quickly, within a matter of hours. All that would be necessary is to remove the threat of prosecution of gas station owners, and all others in the chain of supply of gasoline, for raising their prices to the extent necessary to reduce the quantity of gasoline demanded to conform with the reduced supply of it available.

Confronted with such a price—possibly one as high as $10 or $20 a gallon, or even higher, given the apparent extent of the reduction in the supply of gasoline—many of the drivers of the cars presently waiting in line at gas stations, would simply drive off, park their cars, and make arrangements for alternative means of transportation, whether car pooling, bicycle riding, or whatever. Almost everyone would curtail his driving commensurate with the higher cost of driving. No one would drive into a gas station who was not prepared to pay the then prevailing very high price of gasoline. The people who needed gasoline for such urgent purposes as getting to work, but who could not afford to pay such a sharply higher price, would not be in nearly as bad a position as needing gasoline to get to work and being simply unable to find it, or find it only after waiting in line for three hours. Such people could car pool and spread the high price of gasoline over as many of them as could reasonably fit in an automobile. The environmentalists, who seem to desire that such arrangements become a normal, everyday occurrence, should welcome this chance to see the achievement of their goal, however temporarily.

What caused the shortages and stops them from being overcome in this way is the fact that the necessary rise in prices is illegal. It is against the law. According to a Bloomberg news release of November 9, 2012, “New Jersey law defines price gouging as an `excessive price increase,’ or of 10 percent or more, during a declared state of emergency.” The same news article also reports that “New York law prohibits selling goods or services for an ‘unconscionably excessive price’ during `abnormal disruption of the market.’”

Thus State laws are what make it impossible for the market immediately to put an end to the shortages. It is these State laws that allowed the shortages to come into existence in the first place, by prohibiting the immediate rise in prices that would have prevented them, and that then make the shortages persist.

The same State laws make it impossible for the market speedily to restore supplies to their normal level, which would serve quickly to bring down prices from their abnormal heights.

If prices were allowed to be “unconscionably” high, it would be possible to bring in vital supplies that are more costly. For example, gasoline from more remote refineries. At prices of $10 to $20 per gallon, it would pay for tanker trucks to bring in gasoline from several hundred miles away. This would serve to spread the loss of supplies caused by the hurricane over a much wider area, with a corresponding reduction in the severity of loss experienced in the area of the hurricane’s path.

The price of gasoline would rise in the areas from which the additional supplies came. That rise in price would pull in replacement supplies to those areas from still more remote regions. Thus, for example, while refineries in Pittsburgh and Cleveland were helping to supply New York and New Jersey, other refineries in the Chicago and Detroit areas would be helping to resupply Cleveland and Pittsburgh. The effect would be that the loss of supplies of gasoline in the New York metropolitan and New Jersey shore areas would be spread across much of the country, thereby resulting in a substantially reduced percentage of loss in the New York/New Jersey areas. Instead of those areas experiencing the effects of a 50 or 75 percent reduction in supply, a much broader area would experience the effects of perhaps only a 5 or 10 percent reduction in supply. The rise in price of gasoline would quickly diminish, reflecting this greatly reduced percentage of loss of supply.

The “unconscionable” rise in the retail price of gasoline that made it possible for the gas stations to pay higher prices to their wholesalers and distributors bringing in gasoline from remote refineries, would also cover the high costs of speedy repairs, such as entailed in round-the-clock repair work, using extra crews, and paying premium wage rates. Thus, in the absence of the price controls, in very short order New York/New Jersey area refineries, terminals, and docks would be repaired, and the gas stations now closed would reopen. This would serve to achieve a full restoration of supplies, along with a return of the gasoline distribution system to normal. These results would quickly bring gasoline prices down to their normal level.

All of this is prevented for no other reason than that our government officials are utterly ignorant of economic law. They believe that prices have no connection with reality and can be dictated by them with no effect other than to make supplies less expensive—for people who can’t get the supplies, because the supplies don’t exist, and who are led to waste endless hours, day after day, trying to get the supplies that don’t exist. By what standard is this a more reasonable arrangement than allowing prices to be “unconscionably” high, for what would certainly be a very short time, and thereby quickly fixing the problem?

The press is as much to blame as the government officials. With rare exceptions, the reporters are as ignorant of economic law as the politicians. Both are unqualified for their jobs. They just don’t know what they’re doing.

The ultimate responsibility, of course, rests with the general public and with the educators who failed to provide people with even the most rudimentary knowledge of economic law.

In a society in which economic law was widely understood, legislators and prosecutors who sought to prevent price increases in cases of emergencies would be regarded as public enemies and barred from office. They would be barred not by a mere lack of support, but by a lack of support manifested in the utmost public contempt and ridicule for their ignorance and destructiveness.

These laws should immediately be overturned. They are in violation of the Ninth and Fourteenth Amendments to the US Constitution. The Ninth Amendment states that "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people." Obviously, the people retain the right to take the steps necessary to cope with catastrophes, such as Hurricane Sandy. These laws fly in the face of that right. They make it illegal for people to take those steps. The Fourteenth Amendment makes the provisions of the US Constitution applicable to the states.

A panel of Federal judges should be convened at once and asked immediately to render these laws null and void. New York and New Jersey are in an emergency situation. It is intolerable that their people be made to suffer the effects of disastrous legislation piled on top of a natural disaster and thereby needlessly enlarging and extending the effects of that disaster.


Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and the recently published The Benevolent Nature of Capitalism and Other Essays.  His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.