How Dependent Are Americans on Government?

When the New York Times publishes an article on the extent of government dependence, that's when you know that you have to begin wondering just how dependent the average American has become on government. What does it mean to "be dependent" on government? How do we measure dependency on government?

The Heritage Foundation recently put out the data in their 2012 Index of Dependence on Government. It is tempting to scream "right-winged bias." I'm not a happy that Heritage Foundation only included federal income taxes in its assessment with tax burden or that it does not put the growth of expenditures in terms of 2012 dollars.  But just remember that with the aforementioned NYT article, there was an interactive map that came to the same conclusion: Americans have become increasingly dependent on government.

As Heritage Foundation points out, the programs that create dependency account for seventy percent of our budget! The two largest programs are Social Security and Medicare. Considering the rise of retiring Baby Boomers, it should be no surprise that these expenditures will only increase with time, not only as a dollar amount, but also in percentage of the federal government's budget.

What makes these programs even worse is these two entitlement programs are not predicated upon economic status, but age. This is a point that the Center of Budget and Policy Priorities, a Left-leaning think tank, illustrates, which is that the "middle class" is benefiting way more than perceived. That makes sense given that Social Security and Medicare are the large percentage of these "entitlement expenditures." I know what the CBPP is trying to do. They want to demystify the Republican adage of redistribution of wealth. However, this does not help the Left's cause because they go on and on about how we need these programs to help the poor. If that is not what is really going on, all that the CBPP study does is give libertarians such as myself the reaffirmation as to why such programs are not needed.

Look at Social Security. The original purpose of Social Security was a temporary safety net created during the Great Depression to make sure that elderly citizens weren't dropping dead en masse. Now, the government is treating the program as "guaranteeing" a retirement account to American citizens, much of the funding that helps the "middle class." Considering the rising costs, scaling back on Social Security and encouraging private retirement accounts (PRAs) would be the way to go.

Although Social Security and Medicare are two programs that create a huge degree of dependency at a great fiscal cost, I'm not solely worried about that. What about housing? Or higher-education subsidies? Federal employees notwithstanding, approximately one in five citizens are dependent on the government.

I know of people who would play the emotional card on me here and say that I don't care about others, that I want the elderly to die, or I don't want young adults to receive a good education because I either want virtually every government department either scaled back or eliminated. But let's look at a department such as the U.S. Department of Housing and Urban Development, also known as HUD. The department was created back in 1965, which was also the same year that the legislation that created Medicare passed.

It makes me wonder. Was there no healthcare prior to the creation of Medicare? Prior to 1965, was there no interim housing for those who were temporarily down on their luck? Of course not! For my friends who are enamored with Big Government, it must be difficult to imagine a world in which there is not a bureaucratic entity that attempted to regulate and provide everything. However, prior to the creation of these programs, mutual-aid, religious, and educational organizations provided poor people with such needs as temporary housing, welfare, and healthcare.

But now? We live in society with such a self-entitlement mentality that many expect the government to not only solve problems, but provide citizens with everything, i.e., a "welfare state." It's not simply a matter of the welfare state being a costly endeavor. Dependency stymies progress and growth, both for the individual and the society as a whole. The trend of this country is clearly heading in a direction towards increased dependency. If we are to reverse this negative trend, it begins with changing the minds and hearts of the American people.

Was the Right-to-Work Bill a Victory for Indiana?

As of yesterday, Indiana became the first state in the "Rust Belt" to enact right-to-work (RTW) laws, as well as the 23rd state in the Union to do so. It's the first time in about a decade that such a bill has been passed. One thing is for certain: Big Union is throwing a hissy fit.

Although the bill has become law in Indiana, it begs the question of whether Indiana did the right thing.

Unions complain that it will cause a "free rider" issue. If such an issue exists, then union members would be disincentivized to pay union dues, thereby causing erosion of unions. However, it does not seem out of the realm of possibility, especially in a policy-making sense, to create some sort of mechanism in which non-union members would not derive benefit from any union negotiations. Plus, the Supreme Court prohibits free riding under Consolidated Edison Co. v. NLRB (1938). 

I have this bigger issue with forcing people to be part of a union. It's a violation of freedom of association, as well as dictating whether someone should have their hard-earned cash go towards union dues. If there is a reason that an individual does not want to be a part of a given union, they would either have to "grin and bear it," leave their profession, or leave their state to find a job in a right-to-work state. There might be a reason why nearly three in four Americans have a problem with it.

There are also questions to consider that go beyond fairness, mainly that of efficacy and whether this causes more [economic] harm than good.

The unions complain that workers make less than non-union workers, thus making a "right-to-work" bill a "right-to-work-for-less" bill. The Economic Policy Institute, a Left-leaning think tank, argues that it also has detrimental effects, particularly in private-sector pension funds. Do keep in mind that only 6.9% of private sector workers are in unions, not to mention the average American's propensity towards dissavings, so it's hard to see how that has much bearing. Interestingly enough, their 2011 study shows that states with RTW laws have lower levels of unemployment than states without such laws (8.6% and 9.6% respectively), as well as lower costs of living.

The libertarian think-tank Cascade Policy recently just put out a study as to how implementing RTW laws would be good for Oregon, although much of the data would be relevant for any other non-RTW state. The study looks at various macroeconomic effects of RTW laws, including impact on employment and income growth.

Looking at the data, I think that Indiana will be better off for enacting RTW laws. But it'll depend on what your take on the data is or how you perceive unions. Either way, it'll be interesting to see if Indiana's economy improves.

Mediocrity in the Job Market Won't Cut It Anymore

I hardly consider myself a fan of the New York Times. However, Thomas Friedman recently penned a piece entitled "Average Is Over," and I have to say that I enjoyed it. The premise of the article is that being average, whether in education or job skills, used to get an individual a cozy lifestyle. Due to such phenomena as globalization, technological progress, and economic liberalization, being average no longer suffices.

The value of a high school education is not what it used to be. Median wages for those with just a high school education has been dropping over the years. This would have something to do with the fact that the American economy has put more emphasis on the service sector and less on the manufacturing sector. The service sector requires more skills than manufacturing, which is why the college degree has an increased premium.

If America is to compete in the global job market, education reform is going to have to be a top priority for America. Although getting into actual education policy is a topic too grandiose for this single blog entry, I still would like to briefly highlight an important policy goal: improving the quality of K-12 education. 

Why do I under-emphasize college education reform? I'm not saying that a college education is unimportant. Quite the contrary! The college education premium has only increased in recent years. 

Rather, there is no reason to focus on college education if K-12 education is not addressed first. If children are not developing necessary skills and common sense in the primary and secondary school systems, there are going to flounder all the more if/when they reach college.   

There was a time in which a high school education had career-based value. If we want American to avoid a fate of becoming a mediocre nation, it would be nice if we could re-establish the worth of a high school degree that was enjoyed in previous years.

Contending with Profanity in Jewish Law and in American Society

On some level, I always find that America expresses bi-polarity when it comes to morality. Think about it for a moment. When it comes to sex, we have a Puritan-like taboo on the topic while simultaneously having it on television and advertisements, being told that "sex sells." Being able to swear is no different. We Americans love the ability to say what we want, but we also have this borderline-compulsive desire to bleep out expletives for "decency's sake."

I would like to approach profanity from two standpoints: Jewish law and American jurisprudence. I want to look at the issue Jewishly because 1) I'm Jewish, and 2) Judaism influenced Christianity, and as such, has impacted this bi-polarity. I also want to bring American legal arguments because it's interesting to see how "life, liberty, and pursuit of happiness" interact and/or conflict with Jewish values. 

Profanity in Jewish Law

Jewish speech ethics are not only nuanced, but they also set a high standard. Since G-d created the universe by speaking (read Genesis 1), Judaism teaches that words have a powerful impact. The Chofetz Chayim points out that speaking לשון הרע (literally "evil tongue," denotes "bad speech ethics"), one can violate up to 31 mitzvot. In Jewish law, it goes well beyond avoiding slander and libel. Gossip, slurs, and negative truths are forbidden under Jewish law. If such restrictions are in Jewish speech ethics, it would be safe to assume that the high bar set also applies to swearing, and you would be correct. Foul language (נבול פה) is also forbidden under Jewish law.

One of the main reasons not to swear under Jewish law it degrades another individual, which is prohibited because we are all "created in His image." But what if you are using swear words to convey intensity of a given feeling? Some people might. Most don't. Since swear words are used so frequently these days, they have lost their intensity, but have not lost their meaning. Plus, if an individual has a sufficiently large vocabulary, he'll find a way to express the same intensity without resorting to swearing.

If you think about it, most swear words are focused on either sex or functions performed in the bathroom. If Judaism teaches that we should elevate the mundane to a level of holiness, especially speech, then swearing is not the way to go about it. Rabbi Elazar ben Yaakov (Derech Eretz Rabbah 3:3) compares swearing to pollution: "A person who uses rough language is like a pipe spewing foul odors in a beautiful room."

Given the amount of swearing in our culture, the only way to have a completely swearing-free zone is to live in an insular community with those who have similar values to you. For most of us, however, we hear swear words often enough. For those of us who want to cut back on swearing, we try to apply such high standards to our lives, easily forgetting that we are human, and thus prone to err. Although we might swear from time to time, we have to accept our inconsistencies if we are to minimize the gap between theory and practice in our daily lives. 

Profanity in American Law

It would be nice to close the gap between in theory and practice not just in my private life, but in greater society. If there were a society free of swearing and people speaking unkindly of one another, it would be spiritually liberating, akin to not having to inhale second-hand smoke all the time. It might explain why nearly two-thirds of Americans favor FCC regulation of profanity. 

As nice as it might sound to have the government regulate profanity in the name of moral decency, there's this little thing called the First Amendment. Aside from exigent circumstances such as one's speech inciting violence or causing harm to another, the First Amendment gives an individual the right to free speech. That is why the Supreme Court has upheld such acts as desecration of the American flag (Texas v. Johnson), a Nazi rally in a predominantly Jewish neighborhood (National Socialist Party of America v. Village of Skokie), owning pornography (Stanley v. Georgia), depictions of animal cruelty (United States v. Stevens), and the right for the Westboro Baptist Church to disseminate its hate message on public property (Snyder v. Phelps). 

There is no constitutional right to not be offended. As repulsive as these acts might be for a good majority of Americans, they are protected by the First Amendment, whether we like it or not. As tempting as it might be to censor things such as swearing, if we do, it's only a hop, skip, and jump away from having censorship bureaus and have the level of censorship they have in China. 

Additional Thoughts

If you're worried about your children swearing, as I mentioned earlier, you can live in an insular, religious community, such as the Amish or the the Satmar Chasidic community of Kiryas Joel. If that doesn't work, censor television programs that have swears in them. If that doesn't work, have a mature, one-on-one discussion with your child about swearing and how to handle it. Either way, it's called good parenting.

And for those of us that are adults, we are grown up enough to make our own decisions about what we view and what we hear. In America, if we cherish "life, liberty, and pursuit of happiness," we should be able to choose the level of obscenity of our media. If you don't want to deal with swearing, shut off the television or find more suitable programming. 

Why should moral puritans and those of the Religious Right, who are a minority, get to dictate the programming of American citizens? In a free society, one of the joys I get is free will. Free will gives us the ability to make moral decisions. I should be given the choice of whether to listen to or use profanity. If that free will is taken away from me, I don't have the ability to actualize my potential in the moralistic sphere. 

To summarize my Jewish libertarian standpoint, it would ideally be nice not to have to deal with profanity. It is spiritually healthier for people. However, we don't live in that ideal world. We have to deal with the pervasiveness of swearing in our culture. As much as a lot of us do not like profanity, there is that reality that we ourselves will give into it because we are human. But we should be given the latitude to deal with it. Those who crusade against profanity shouldn't erode the Constitution to bring about their misconceived notion of utopia. Rather than treat us like children who cannot handle the concept of profanity, maybe citizens should be treated like adults and figure out how to deal with profanity on their own terms.

Conservatives vs. Hispanics?

I came across an article entitled "Public Opinion Snapshot: Conservatives versus Hispanics" from the Center for American Progress (CAP), which identifies itself as progressive. The premise behind the article is that the Republican Party's stance on immigration puts it at odds with the Hispanic community. CAP uses the Hispanic support for the Dream Act, as well as allowing illegal immigrants to attend college at in-state tuition rates, as evidence of how "anti-Hispanic" the GOP is. The ultimate conclusion is that the GOP will pay for its views on immigration in November.

Although immigration policy has a greater impact on the Hispanic community than it does other demographics in this country, viewing the Hispanics as one-issue voters is over-simplified. That's like saying Jewish voters only care about Israel, gay voters only care about gay rights, and that Catholics only care about abortion.

AP and Univisión did a survey of Hispanics back in 2010. A majority (i.e., 65%) of those surveyed were most worried about the state of the economy and unemployment rates. The current unemployment rate of the Hispanic community is currently at 11.0%, which is higher than the recently-reported national unemployment rate of 8.5%. The Hispanic community has been hit hard by the current state of the economy. Is it any wonder that by looking at the Gallup poll and the even more recent Ipsos-Telemundo poll, Obama's approval rating amongst Hispanics is at an all-time low?

Also, looking at campaign promises that Obama made with regard to immigration, he did not adequately keep a single one. Obama's inability to deliver on immigration reform also factors into his low approval ratings in the Hispanic community.

However, this is not to say that the GOP is exactly a fantastic alternative to Obama. Their stance on immigration reform has typically been "put up a fence and enforce our laws on illegal immigration." Such an attitude comes off as hostile towards the Hispanic community. The Republicans would have to come up with a more comprehensive immigration reform plan to put in their party platform if they want an overwhelming support from the Hispanic population. This might be a good idea since the Hispanic accounted for a majority of the population growth in the past decade.

Even if the GOP decides not to change its immigration stance [right away], they can still gain a number of Hispanic votes by appealing to them with promises of job creation, something which has not been a strong suit during Obama's term in office. Although the GOP will have a difficult time convincing Hispanics to vote Republican, the Hispanic vote is anything but a guarantee for Obama and the Democrats in the upcoming elections.

Why America Shouldn't Adopt the Value-Added Tax

The value-added tax, better known as the VAT, is a consumption-based tax that assesses a tax during each stage of production of a given good. This was brought to my attention because I was reading a Wall Street Journal op-ed piece by Daniel Mitchell pointing out that in a recent interview with the Wall Street Journal, presidential candidate Mitt Romney said he would be open to the idea of implementing the VAT in the United States.

There are some things that I like about the VAT. There would be an equal tax burden on each stage of production, rather than having the burden solely on the distributor of the final product. The VAT is a much simpler form of taxation than, let's say, the progressive income tax we currently have, which means less bureaucracy. The end result of both equally distributed burden and simplified flat rate is increased revenue with less inefficiencies. Also, the VAT is more in lines with a free society. Under the current system, you don't have any say as to how much you pay in taxes. However, with the VAT, you can pay as much or little as you want in taxes because it's directly linked with consumption. If it's high enough, it might even incentivize you to save up some money instead of go into over-consumption mode.

If every other country in the OECD has implemented the VAT, why shouldn't America? To answer that question, here are some issues I have with implementing it here:

1. Although the VAT can incentivize savings, it could just as easily backfire and have a detrimental effect on consumption if the rate of taxation is too high.
2. The richer members of society will consume more goods, and thus put more into tax revenue. In theory, this should equalize tax burden amongst socio-economic classes. However, there is an issue where you have more inelastic goods, such as food, clothing, or even gasoline. When discussing such inelastic goods, the tax becomes more regressive, thereby further hammering the poor with tax burdens.
3. There are still issues with enforcement of the VAT. Unlike the flat tax, the VAT involves many stages of production, which means that there would have to be greater enforcement mechanisms in place to make sure the tax is being paid.  Tax evasion with the VAT has been an ongoing problem both in Europe and in China.  As such, any reduction in costs of the simplification of the tax code would most likely be negated by enforcement costs. 
4. As Mitchell brings up in his op-ed, Congress would realize that the tax is more efficient, and thus cause a tax hike because they would not think that they have reached the top of the Laffer curve yet. 
5. Even if Mitchell is wrong about the VAT being a carte blanche to increase taxes, many people are forgetting something. This tax would most probably not be in lieu of the current tax system. If it were, I, along with other economists, would feel differently. Knowing the politicians in Washington, if this were ever to pass, my educated guess would be that the VAT would be in addition to the current tax system, thereby creating a greater tax burden for the American people. 

Much like they did back in 2010 (see Section 11 of H.R. 4851), I hope that Congress has the minimal common sense to maintain the stance that implementing the VAT, especially in this economy, is not only bad policy, but against their self-interest, especially if they're up for re-election this year.


1-9-2019 Addendum: The World Bank recently released a paper (Gunter et al., 2018) not only showing that VATs come with a large, negative tax multiplier, but that it is worse in developed nations because they have a high tax burden to begin with. 

Does Krugman Understand Debt?

U.S. debt is at 100% of GDP, and citizens are worried. Odds are that reducing the debt will be a hot-button topic in the upcoming elections, especially considering that Obama has increased U.S. debt by more than four trillion since he took office.

Keynesian economist Paul Krugman recently wrote an op-ed piece entitled "Nobody Understands Debt." Krugman's bottom line is that although the issue with deficits is not unimportant, there are more important things to worry about than ever-climbing debt. Is he correct that we shouldn't be as worried about debt as we actually are?  

He brings up the point that we don't have to pay off the debt like a family does.  I'll give him that. As long as we're paying interest on the debt, and that our GDP growth exceeds what we owe in debt, it's not an issue. Debt is not inherently a bad thing. 

History of debt-to-GDP ratio is also interesting. Looking at data provided by the International Monetary Fund (IMF), Krugman points out that the United Kingdom's debt had been over 100% for quite some years. Japan reached 203% after World War Two, but was able to pay it off. Even the United States reached 121%, where it eventually reached a low of 32.2% in 1974. Historically speaking, paying off debt that is at ridiculously high amounts in comparison to economic growth is indeed possible. Maybe Krugman is right. 

I also have an alternative idea: Krugman should apply the op-ed title of "Nobody Understands Debt" to himself.

Does Krugman think uttering the words "we owe it [the debt] to ourselves" makes the problem go away? It won't. The trajectory of government spending shows that the problem is only going to get worse, not better, especially considering that more and more Baby Boomers are going to retire and consume more Social Security and Medicare. This is only going to get more burdensome, unless you believe in the Ricardian Equivalence, which Krugman himself calls a "dubious doctrine."

As economist John Cochrane points out, Krugman never asks where the money comes from, which is important. Borrowing is not costless, which is something that Nobel Laureate James M. Buchanan brings up in his work Public Principles of Public Debt. Money doesn't grow on trees, and capital does not come out of thin air. Since the government does not have any money of its own, guess where it has to borrow from? The private sector. Every dollar that gets put in the public sector gets taken away from the private sector. The private sector ultimately creates wealth. Although it's beyond the scope of this blog entry, it should go without saying that a considerably large amount of money that government spends is done so inefficiently (i.e., for every dollar spent by the government, less than a dollar of benefit is derived). 

Krugman is right that we need to get out of the unemployment trap. But if you're under the impression that increased government spending has nothing to do with economic woes, think again. Increased government spending impedes job growth in the short-run and transfers economic burdens in the long-run.