“Is the free market morally superior or inferior to other economic systems? If it’s morally superior, what makes it so? If it’s morally inferior, do we need greater government control of the economy? Walter Williams, renowned Professor of Economics at George Mason University, faces these questions head on and with bracing clarity.”
Category Archives: Economics
Walter Williams on the topic "Free Market Morality"
On the current state of America’s public finances…
Today, on the day after the election, US federal government debt stands at $16.2 trillion. Putting this into perspective, US federal government debt stood at $5.7 trillion on the day that George W. Bush was first inaugurated (January 20, 2001), and grew by $4.9 trillion (to $10.6 trillion) by the time of Barack Obama’s inauguration on January 20, 2009. Three years and 10 months later, US federal government debt has grown by an additional $5.6 trillion (you can verify these numbers by using the “Debt to the Penny” app located on the treasury.gov website (see http://www.treasurydirect.gov/NP/BPDLogin?application=np)).
As bad as the US federal government debt problem is, we have a far worse entitlement problem which hardly anyone is bothering to talk about these days; indeed, I don’t recall any substantive discussion about this topic during the past several months leading up to yesterday’s election. According to an authoritative source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stands at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! :-)).
This means that as a country, total indebtedness due to claims on the federal government stands at roughly $16.2 trillion plus $51.2 trillion, or $67.4 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out to a per household debt of (gulp) $573,432. If you throw in unfunded liabilities from state employee pensions (estimated by Stanford University finance professor Joshua Rauh to total roughly $4 trillion; cf. http://www.econtalk.org/archives/2012/11/joshua_rauh_on.html), this works out to an additional $34,031 for a total of $607,463 per US household. Since the average net worth per US household is roughly $80,000 (see http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth), this means that the average American household effectively has a (negative) net worth in excess of half of a million dollars…
On the current state of America's public finances…
http://www.treasurydirect.gov/NP/BPDLogin?application=np)). As bad as the US federal government debt problem is, we have a far worse entitlement problem which hardly anyone is bothering to talk about these days; indeed, I don’t recall any substantive discussion about this topic during the past several months leading up to yesterday’s election. According to an authoritative source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stands at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! :-)). This means that as a country, total indebtedness due to claims on the federal government stands at roughly $16.2 trillion plus $51.2 trillion, or $67.4 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out to a per household debt of (gulp) $573,432. If you throw in unfunded liabilities from state employee pensions (estimated by Stanford University finance professor Joshua Rauh to total roughly $4 trillion; cf. http://www.econtalk.org/archives/2012/11/joshua_rauh_on.html), this works out to an additional $34,031 for a total of $607,463 per US household. Since the average net worth per US household is roughly $80,000 (see http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth), this means that the average American household effectively has a (negative) net worth in excess of half of a million dollars…]]>
On US Indebtedness…
Earlier today, I had an exchange with a friend of mine about the ongoing European sovereign debt crisis. I opined that an important reason why the European sovereign debt crisis has been going on for such a long period of time (several years now) is due to the political class’s preference (was well as incentives) for applying triage by implementing half-measures; such triage enables policymakers to kick the can far enough down the road so that the European sovereign debt crisis becomes someone else’s problem.
After thinking about a bit further about this, we Americans obviously similar governance problems as the Europeans which, quite tragically, have similarly put the US on an unsound and completely unsustainable fiscal footing. Debt owed by the US federal government now stands at more than $15.7 trillion. Putting this number into perspective, US federal government debt stood at $5.7 trillion on the day that George W. Bush was first inaugurated (January 20, 2001), and grew by $4.9 trillion (to $10.6 trillion) by the time of Barack Obama’s inauguration on January 20, 2009. In just three years and five months, US federal government debt has grown by an additional $5.1 trillion, to $15.7 trillion (you can verify these numbers by using the “Debt to the Penny” app located on the treasury.gov website (see http://www.treasurydirect.gov/NP/BPDLogin?application=np). So Bush 43 accounts for 31.2%, Obama accounts for 32.5%, and the previous 42 presidents cumulatively account for 36.3% of total US federal government debt.
As bad the US federal government debt problem is, we have a far worse entitlement problem which no one (other than perhaps Paul Ryan (R, Wisconsin) and Ron Wyden (D, Oregon)) are even talking about these days. According to an authoritative (but dated) source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stand at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! :-)).
This means that as a country, our total indebtedness now stands at roughly $15.7 trillion plus $51.2 trillion, or $66.9 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out a per household debt of (gulp) $569,178.
Lone Star Discussion with Arthur Brooks
Arthur Brooks, President of the American Enterprise Institute, discusses America’s tradition of free enterprise, the moral justifications for a free society and today’s threats to liberty with the Texas Public Policy Foundation’s VP of Communications, Josh Trevino (recorded in Austin, TX on May 31). In this 63 minute video, Dr. Brooks provides an overview and synopsis of his new book entitled “The Road to Freedom”. For more information about Art Brooks and his book “The Road to Freedom”, see http://arthurbrooks.aei.org. For more information about the Texas Public Policy Foundation, see http://www.texaspolicy.com.
Today's unemployment report…
Earlier today, the Department of Labor’s Bureau of Labor Statistics (BLS) released its May 2012 unemployment report (AKA its “Employment Situation Summary”, available at http://www.bls.gov/news.release/empsit.nr0.htm). The news (net job creation of only 69,000 jobs) was very disappointing and came in far below economists’ expectations. According to the BLS, the January-April monthly average rate of net job creation was 188,500 jobs per month, so the May report represents a more than 60 percent drop in the rate of job creation. Putting this into a broader perspective, it takes 130,000 new jobs per month just to keep the unemployment rate at its current (historically high) 8.2% rate, assuming that the labor force participation rate remains constant and that the US population prospectively continues to grow 1% per year (see http://bit.ly/LPEVOM).
Today’s unemployment report…
Earlier today, the Department of Labor’s Bureau of Labor Statistics (BLS) released its May 2012 unemployment report (AKA its “Employment Situation Summary”, available at http://www.bls.gov/news.release/empsit.nr0.htm). The news (net job creation of only 69,000 jobs) was very disappointing and came in far below economists’ expectations. According to the BLS, the January-April monthly average rate of net job creation was 188,500 jobs per month, so the May report represents a more than 60 percent drop in the rate of job creation. Putting this into a broader perspective, it takes 130,000 new jobs per month just to keep the unemployment rate at its current (historically high) 8.2% rate, assuming that the labor force participation rate remains constant and that the US population prospectively continues to grow 1% per year (see http://bit.ly/LPEVOM).
Free to Choose
One of the first books that I ever read on the topic of economics was “Free to Choose: A Personal Statement“, published in 1980 by Milton and Rose Friedman. As the Free to Choose Wikipedia article notes, “This book maintains that the free market works best for all members of a society, provides examples of how the free market engenders prosperity, and maintains that it can solve problems where other approaches have failed.” Anyway, Free to Choose deeply influenced me when I read it as a beginning graduate student, and I am delighted to see that a Values & Capitalism blogger named Kurt Jaros is “walking” his readers through the entire book. Here’s a list of blog postings that he has contributed so far, along with brief summaries provided by Mr. Jaros (source: http://valuesandcapitalism.com/authors/t-kurt-jaros):
“Free to Choose
This Christmas I asked for and received Free to Choose by Milton and Rose Friedman. I’ve been a big fan of Milton for a while now, be it reading some articles online or watching YouTube videos of him.
The Power of the Market: Part 1
A couple weeks ago I wrote about the introduction to Free to Choose by Milton and Rose Friedman. In this post, I will explore some of the points from the first chapter, “The Power of the Market.” Friedman begins the chapter by explaining the difference between a command and a voluntary economy.
The Power of the Market: Part 2
Some people think the free market is full of greedy men who respond to monetary stimuli. But this isn’t the essence of a market (despite some types of those men acting within the free market).
The Tyranny of Controls
In the second chapter, Friedman writes on the role of government as it relates to trade. He makes a strong case for free trade, and specifically focuses on international trade. However, the same principles ought to be applied to domestic trade.
The Tyranny of Controls: Part 2
In my previous post I explained why the government should not regulate tariffs due to their harmful consequences toward consumers and innovation. This is part five of a book series on Free to Choose by Milton Friedman.
The Anatomy of Crisis
In my previous post, I shared Milton Friedman’s thoughts on why international trade is bad for an economy. This is part six of the series on “Free to Choose” by Milton Friedman. Often times in our political discussions with friends and colleagues we want to play the role of doctor and figure out what the source of pain is. We can both agree on what the symptoms are, but we may have different answers for the cause.
Cradle to Grave
In my previous post, I summarized Friedman’s beliefs about the Federal Reserve, its proper role, and how its failure is what leads us to economic problems (not capitalism). In his following chapter, “Cradle to Grave,” Friedman explains how the welfare state began to take off during the FDR administration.
Cradle to Grave: Part 2
In my previous post I began to discuss the shift of public perception about the role of government in America from one that merely protects the individuals to one that also provides for the individuals. Although he does not use the term, Friedman considers Social Security to be a Ponzi scheme.”
Is Our Adults Learning?
Yesterday, David Brooks published an interesting essay in the New York Times entitled “Is Our Adults Learning?” The basic premise behind his essay can be summarized in the following quote, “Government doesn’t profit from experience because of the way it goes about testing its policy problems. It should try learning the way businesses do.”
My purpose in posting this commentary on Brooks’ article is to challenge his presumption that it’s even remotely possible for the government to conduct itself like a business. Avinash Dixit’s 1997 American Economic Review article entitled “Power of Incentives in Private versus Public Organizations” provides the framework for my critique. In this (admittedly somewhat dated) academic journal article, professor Dixit takes on an earlier version of Brooks’ ideas as exemplified in Al Gore’s 1995 tome entitled “Common sense government”. In this book, Gore argues for “reinventing” government by measuring and rewarding “results, not red tape.” However, Dixit shows that the problem with Gore’s and Brooks’ platitudes about getting the government to act more like a business is that these “theories” fundamentally ignore the nature of government bureaucracy. Dixit argues that “a distinct feature of government bureaucracies is that they must answer to multiple principals”, and he goes on to “… develop a model of a common agency to show how the interaction among many principals results in a loss of the power of incentives.” To illustrate this, Dixit notes that in the real world, a government agency may be formally answerable only to the executive, but in practice Congress, courts, media, and organized lobbies all have a say. He notes that one way to resolve this “weak incentive” problem at the federal level is to devolve political power to states or localities, where “…agencies can be so designed that each performs fewer tasks, thus reducing the externalities among the principals affected by its actions.” So basically Dixit rigorously proves with the game theory the wisdom behind federalism!
In closing, it would seem that the least likely place for “decentralizing policy experimentation as much as possible to encourage maximum variation” to be successful would be at the level of the federal government. The weak incentive problem identified by Dixit explains why government agencies are typically focused on red tape, and not results; it’s all about process and procedure, and rarely ever about results.