Wednesday, January 31, 2007

Understanding Economics: Prices

One of the key features of any modern economy is the existence of prices. Prices are expressed in units of money. The existence of money allows us to quantify value.

Where do prices come from? Why are they what they are? In a free market, both buyer and seller must agree to a price for a transaction to take place. Buyers naturally want to pay as little as possible, while sellers naturally want to be paid as much as possible. A transaction will only occur if both believe they will benefit. Thus the price of an object must be between its values to the buyer and seller. This is what determines prices.

But don't businesses set prices? It's true that a business can try to sell an object for whatever price it wants. But if they set its price too high, no one will buy it, and if they persist, they will go out of business. If they set the price too low, they will lose money on each sale, and if they persist, they will go out of business. Prices are not arbitrary, they are a reflection of reality.

Why do prices change? They change in response to changing circumstances. They are a reflection of supply and demand. If a price increases, then either the supply decreased or the demand increased (or both). If a price decreases, then either the supply increased or the demand decreased.

Prices convey information. Nobody--not buyers, sellers, businessmen, economists, politicians, or bureaucrats--can fully understand all the factors that make a price what it is. Each price is the result of millions, if not billions, of pieces of information about the desires of consumers and the availability of an object.

One of the most appealing notions to many people over the years is that government can "control" prices by passing laws. Thus "price controls" mandate the price of a given object. Price controls work by banning transactions that both buyer and seller freely agree to.

But prices are not arbitrary. If the mandated price is set below the market price, the demand for an object will outstrip the supply, and there will be a shortage. If the mandated price is set above the market price, the supply of an object will exceed the demand, and there will be a surplus.

Much the same thing is accomplished by price floors and ceilings, which mandate minimum and maximum prices, respectively. This is provided that they are above or below the market price, respectively.

Probably the most popular type of price control is the price floor known as the minimum wage. The economic analysis above shows that such laws reduce the demand for labor when the "minimum wage" is set above the market price.

The lack of understanding of the origin of prices makes people easy targets for demagoguery. One example in recent years is "price gouging," which generally refers to a significant increase in prices following a disaster of some sort. Economic analysis shows that in a free market, higher prices are the result of decreased supply, increased demand, or both. This is exactly what happens in a disaster. Nobody likes paying higher prices, but they are a reflection of the reality following the disaster. Attempting to "control" such prices leads to shortages, as described above.

Increasing the money supply results in a general increase in prices, which can be blamed on businessmen, rather than government, the true culprit.

Saturday, January 27, 2007


This update focuses on gun rights. Gun control increases crime and empowers government. Most Americans support gun rights, but liberals may try to impose more gun control.

John Snyder chronicles Michael Bloomberg's attack on gun rights.
Gun Owners of America summarizes the fight for gun rights in 2006.
Lawrence Keane shows that America didn't vote for gun control.
Steve Chapman explains how concealed carry saves lives.
Ron Paul explains the state of the debate about gun control.
Dave Kopel shows that gun control does not keep schools safe.

Daily gun news is available at NRA-ILA and Keep and Bear Arms.

The Coalition for Higher Tuition Returns

The WMU Living Wage Coalition is back.

Also a student group that has, on the behalf of contracted workers, been agitating for what it calls a "living wage'' for them may have been successful in getting the board to put the issue on an upcoming agenda.

The WMU Living Wage Campaign Coalition, has said WMU should require companies that contract with the university to pay workers $9.50 an hour with health-care benefits or $11.50 an hour without such benefits.

The issue surfaced almost three years ago when WMU outsourced several dozen custodians who work in residence halls as part of cost-cutting measures.

When the custodial contract is up for renewal this year "we ask that you do what is fair, do what is right, do what is moral ... adopt a living wage policy and require all companies who submit bids to pay their workers a wage that they can live off of,'' Tim Hurttgam, a WMU junior and WMU Living Wage Campaign Coalition organizer, told the board.
Increasing costs for the university will only increase costs for students. The coalition could better lobby for Western to sell off unneeded assets like the downtown property mentioned in the article.

Previous: The Coalition for Higher Tuition

Wednesday, January 24, 2007

Pfizer job cuts

Pfizer, the pharmaceutical giant that is a major employer in Kalamazoo County, announced plans for major job cuts worldwide. That includes 250 research jobs in the City of Kalamazoo. As they still employ 4000 people in this county, it could have been worse. Ann Arbor will lose 2000 Pfizer jobs.

This seems to be a tradition in this area. Every few years, the pharmaceutical company that was Upjohn, Pharmacia and Upjohn, Pharmacia, and now Pfizer cuts more jobs in this county.

Pharmaceutical companies have been frequent targets of attack by Democrats in recent years. Whatever their faults, these companies make drugs that save many thousands of lives. Yet Democrats are pushing legislation that would impare their ability to save more lives.

In Michigan, one of the major items on the Democrats' agenda is legislation that will make it easier to sue drug companies.

Nationally, Democrats are pushing legislation for government to "negotiate" lower drug prices. Depending on how it is implemented, this could impose price controls. Another de facto imposition of price controls is the reimportation of prescription drugs from Canada.

Price controls would reduce the amount of money that drug companies have to conduct the very expensive research needed to save lives. Thousands of people could die needlessly so that Democrats can win a few more votes.

One after Another

The Democratic majority in Congress has committed one outrage after another.

After the House passed a good though modest bill for earmark disclosure, Senate Majority Leader Harry Reid offered a different version of the bill that would have exempted 95% of earmarks. The indispensable Senator Jim DeMint offered an amendment to change it to the House version. Reid gave in to political pressure and the amendment passed.

Far worse was the Democratic attack on free speech. Buried in their "ethics reform" legislation was a provision that would banned organizations from soliciting the public to contact Congress without submitting to intrusive regulations such as handing over their membership lists. God forbid that Congressmen hear from their constituents! We can't have that!

Political speech is the heart of the of the First Amendment. Yet the consistent assumption of "reform" legislation in Congress in recent years has been that it is the people who are corrupting Congress, and not Congress which is itself corrupt. Thankfully, after a storm of protest, the Senate passed an amendment to strip the measure 55-43. All the Senators defending the provision were Democrats.

Democrats apparently don't think that their new House majority is big enough. So they have decided to create five new Congressmen out of nothing. They decided to treat the nonvoting delegates from Samoa, Guam, the Virgin Islands, Puerto Rico, and the District of Columbia as Congressmen. Four of these delegates are Democrats (Puerto Rico has a Republican representative). So they have effectively given themselves an extra three votes.

In case you're wondering, this is completely unconstitutional. Congressmen must represent states. And like it or not, territories are not states. For one thing, territories don't have to pay federal income taxes. Less partisan liberals have criticized this move when Democrats tried it in 1992.

The New York Times voiced a similar sentiment in December 1992: “A greedy grab . . . an outrageous power play . . . a distressing sign that the leadership hasn’t the slightest clue that people are fed up with Washington’s business as usual.” (Editorial, 12/29/92)

Monday, January 22, 2007

Thoughts on Abortion

This is the 34th anniversary of the Roe vs. Wade decision. Even many liberal legal scholars have admitted what a sham the decision was.

The largest abortion performer is Planned Parenthood, which was founded by Margaret Sanger. What was her agenda? She wanted to suppress the reproduction of blacks and others who she viewed as unfit.

The Planned Parenthood Federation of America makes a futile effort to deny that its founder Margaret Sanger was a eugenicist. Eugenics is a pseudo-science that claims some races are genetically superior and more fit to survive than others. As a eugenicist, Sanger’s goals were to discourage the “unfit” and “inferior” from reproducing. In her 1922 book Pivot of Civilization, she called for segregation of “morons, misfits, and the maladjusted” and sterilization of “genetically inferior races.”

Can you guess which race in particular she considered genetically inferior?
Sanger even suggested that the federal government pay “obviously unfit parents” not to have children and advocated limiting and discouraging “overfertility of the mentally and physically defective.”

In 1916, Sanger founded the Birth Control League, the forerunner of Planned Parenthood. She appointed a man named Lothrop Stoddard, a Nazi sympathizer, fellow eugenicist and author of The Rising Tide of Color Against White World Supremacy to the Board of Directors. At some point, after Adolph Hitler’s atrocities against the Jews became known, Sanger changed the league’s name to Planned Parenthood, because “birth control” was too closely associated with eugenics.

More controversial is Sanger’s “Negro Project,” devised in 1939. The eugenicist set out to implicate black ministers and doctors in her efforts to spread her message of contraception, sterilization, and abortion in the black community. “The most successful educational approach to the Negro is through a religious appeal. We do not want the word to get out that we want to exterminate the Negro population, and the minister is the man who can straighten out that idea if it occurs to any of their more rebellious members,” she wrote.
Today's feminists should listen to the original feminists, including Susan B. Anthony and Elizabeth Cady Stanton.

Suffragists Susan B. Anthony and Elizabeth Cady Stanton would certainly be cheered that women’s voting rights lead to women’s political leadership. But their elation would have been tempered by the content of the current top female leaders’ abortion position. Anthony and Stanton held positions that were internally consistent. They opposed slavery, supported voting rights for women, and opposed abortion. They acted as if they believed that authentic human rights could not be built upon the broken rights of other human beings. Or in the words of Stanton: "When we consider that women are treated as property, it is degrading to women that we should treat our children as property to be disposed of as we see fit." (Elizabeth Cady Stanton in a letter to Julia Ward Howe, October 16, 1873. Recorded in Howe's diary at Harvard University Library.) They would have agreed with Alice Paul, original author of the Equal Rights Amendment, who was reported to have labeled abortion “the ultimate exploitation of women.”

Front Page!

Check out the front page of immediately to see a picture of Ann Coulter! (UPDATE: It's been changed to the Republican elephant logo.) The attached article from WMU News is announcing the WMU College Republicans award as the best college Republican chapter in the nation.

Western wasn't as enthusiastic about Coulter when we brought her.

I also like how the article points out that the "Best Chapter" award is given to "only one chapter annually." It makes me think of those schools where seventeen different people are named valedictorian.


WMU College Republicans are nation's best

Jan. 21, 2007

KALAMAZOO--Political activism by members of Western Michigan University's chapter of the College Republicans has garnered that group the designation of the nation's "Best Chapter" in 2006 from the College Republican National Committee.

The award, given by the CRNC to only one chapter annually, was presented to the WMU group on Jan. 13 at the Michigan Republican Party State committee meeting in Lansing. Dan Carlson, chairman of the Michigan Federation of College Republicans, presented the award.

WMU's chapter was chosen from more than 1,700 college chapters nationwide.

According to Carlson, the WMU College Republicans was selected as a result of the chapter's strong efforts for a number of years.

"They have excelled at campus activism and serving the needs of the Republican Party in general," Carlson says. "The award is a national recognition of the hard work of the WMUCR and the great leadership they have had on their campus."

Carlson cited such chapter activities as hosting speakers Pat Buchanan and Ann Coulter and leading large numbers of chapter members into the field to work on Republican campaigns during the 2006 election.

In addition, two of the chapter's members, chairman Tom Barrett and Brandon Moore, ran for seats on the Kalamazoo County Commission.

"Tom Barrett's leadership and activities this year helped put WMU in the national spotlight," says Carlson. "College Republicans at their best are active on campus recruiting future Republicans while simultaneously helping out Republican campaigns. Working on both projects is a difficult task for clubs, but the WMU CRs were able to excel at both. Nobody deserves it more."

Sunday, January 21, 2007

Inside American Education

I recently finished the fascinating book Inside American Education by Thomas Sowell. Sowell is an economist at the Hoover Institution and an expert on economics, race, and education. This book is not his most current; it was published in 1993. Nonetheless, it is full of insights.

The book is incredibly well researched, with more than 1000 footnotes. I can't hope to list all of Sowell's sources, but I can summarize some of the most important and surprising facts and conclusions contained in his book.

On average, public school teachers are of poor academic quality. This is due to the requirement that they get education degrees. Education schools in American colleges are of similarly poor quality. Education classes are often busywork. Requiring teachers to take them serves to screen out good candidates.

Instead of teaching basic facts or thinking skills, schools are increasingly using brainwashing techniques to indoctrinate students. They are disguised in disparate programs like "values clarification" and "affective education." Their goal is to turn children against the values of their parents. These programs are inspired by the work of humanist psychologist Carl Rogers.

Bilingual Education programs fail in their stated goal of helping educate students whose first language is not English. A majority of Hispanic parents favor English immersion; bilingual education is supported by a few radical "leaders." Students have been placed in bilingual programs that are not even in their native languages. This includes black students whose native language in English. These programs are supported by federal subsidies.

Colleges maximize their income by charging different rates to every student through "financial aid." For many years, elite colleges formed a cartel to charge the same price to each different applicant.

Elite colleges like the Ivy League schools are not inherently "better" than other schools. Instead, they attract better students. Different schools are better for different students. There is a big difference between the quality of research at a college and the quality of its teaching.

The best predictors of a student's academic success are tests like the SAT. Deciding admissions based on factors like "leadership potential" indulges the fantasies of admissions directors.

Preferential admissions of minorities lead to the systematic mismatching of students and schools. This leads to needlessly high dropout rates of minorities at all levels, particularly at elite schools. Racial discrimination in grading is sometimes used to hide this fact. This leads to racial tensions between black and white students.

The same pattern occurs with "legacy" students. Those who are admitted outside the normal criteria have the same high dropout rates.

Demands for minority faculty similarly lead to lower quality. Self-interested minority faculty and student "leaders" promote racial segregation and paranoia to enhance their own power.

Colleges have double standards for conservatives and liberals. Leftists regularly try to silence conservative speakers. They are often left unpunished by campus administrators.

The quality of teaching varies wildly in colleges. The combination of tenure and faculty governance lead to administrative unaccountability and the indulgence of ideological fads.

Most college athletics programs actually lose money. Athletic directors would rather continue them than suffer embarrassment. They are sustained through indirect taxpayer subsidies and alumni donations.

Schools and colleges shift the blame and use rhetorical tricks to avoid accountability for their failures.

Inside American Education is an excellent look at how government involvement and liberal ideology have damaged education.

POLITICAL UPDATE--News from Abroad

This update focuses on news from abroad. Communists continue to oppress millions of people. Radical Islam is fighting to impose its will. The United Nations dreams of world government. The West is declining. Yet victory is possible when America acts.

William Jasper exposes continuing KGB control of Russia.
Larry Kelley reports a victory against terrorists in Somalia.
Humberto Fontova chronicles the crimes of Fidel Castro.
Ed Timperlake asks whether China has allied with radical Islam.
Dennis Behreandt shows the United Nations is America's enemy.
Pat Buchanan explains the failure of neoconservative policies.
Jerome Corsi explains Iran's involvement in the Iraq war.
Joseph D'Agostino explains that Canada is dying out.
Walter Williams examines the economic decline of Europe.
William Rusher chronicles the spread of nuclear weapons.
Janice Crouse shows that the United Nations promotes abortion.

POLITICAL UPDATES are archived here.

Saturday, January 20, 2007

Why does college cost so much?

There is currently a proposal in Congress to cut the interest rate of student loans. Similar proposals to subsidize the expense of college recur frequently at the federal, state, and even local levels. Such proposals are inspired by the high and ever-increasing cost of college. Yet it is rarely asked why the price of a college education is both so high and constantly increasing.

When the question is asked, college administrators sometimes say that costs are increasing. But this fails to provide any information about where the money is going. Another common response is that state aid to higher education has decreased. Taxpayers would do well to be skeptical of such claims. But even if this were true, it still doesn't explain why the total cost, including the cost to taxpayers, is so high and increasing.

There is significant taxpayer money spent on education, there are more and more private scholarships, and more and more alumni donations to universities. At the same time, the price of college just keeps increasing. How can this be?

Actually, it shouldn't be surprising at all. When government subsidizes something, demand increases, and when demand increases, prices rise. Colleges that conscientiously held down prices would be forfeiting government money. Contrary to the self-serving image that colleges paint, they are actually particularly egregious in milking their customers.

Like most any institution that sells goods or services, colleges want to charge as much as possible for the services that they provide. In principle, there's nothing wrong with this, since consumers want to pay as little as possible and the two must freely agree to some price for a transaction to occur. However, the situation of college education is different from typical transactions.

Since different consumers value the same good differently, the maximum amount that they will pay for it varies from person to person. Theoretically, an institution could maximize its profit by charging a different price to each consumer. In practice, most institutions don't have the information needed to do this, and consumers would revolt if they tried.

However, this is exactly what colleges are doing. Colleges quote everyone the same high list price and then offer a different amount of financial aid to each student based on need to discount it. Thus they charge each student a different amount based on their ability to pay.

In the fascinating book Inside American Education by Thomas Sowell, Sowell reports that from 1956 to 1990, the leaders of about two dozen of the most elite colleges and universities met to determine in advance the exact net amount that any of them would charge students who applied to more than one of them. This attempt to limit the effects that competition has on prices constituted a cartel. The cartel was disbanded in 1991 after the Justice Department launched an investigation.

Sowell's book was published in 1993, and I don't know if any similar cartel has existed since then. But college prices continue to increase at well above the level of inflation. Colleges continue to charge different prices to different customers.

As Sowell points out, when colleges say that costs have increased, this is equivalent to saying that they chose to spend more.

Once again, government subsidies make things worse, not better.

Free College for All?

The Gazette reports that some people are advocating a government program to fund college tuition for all people. This effort is inspired by the privately funded Kalamazoo Promise program to give free tuition to all Kalamazoo Public Schools graduates.

The fact that college graduates could advocate such a program refutes its assumptions.

The best response to this proposal is to link to this article by Charles Murray in the Wall street Journal.

As Murray writes, not everyone is smart enough to go to college, at least not if a college degree means something. And plenty of jobs don't require a college degree.

The proponents of a "Michigan promise" are apparently basing their proposal on the fact that college graduates make more money than nongraduates. This is certainly true. However, as the proponents should have learned in college (or earlier) correlation is not causation. In this case, it is more likely that there is an underlying cause for both college graduation and high earnings. Namely, people who are more intelligent and motivated are more likely to achieve both.

Now, a college degree certainly helps increase earnings for those who pursue certain professions like doctor, lawyer, engineer, scientist. However, it is not likely that these results can be extended to everyone.

Another bad assumption is the implicit equation of going to college with getting a college education. It may be necessary to go to college to get a college education (though I can't help wondering if you could get an equivalent education in some subjects without going to college). But going to college does not mean that you are getting an education.

The proponents of this plan should have studied economics. We can discover its consequences by analyzing the incentives involved.

Most obviously, the plan would cost a fortune. The proponents talk about how it would cost "only" $350 per year for an average family. Oh, that's all, is it? Raising taxes would further damage Michigan's economy, leading businesses and citizens to seek their fortunes elsewhere. Even this assumes that tuition stays at current levels.

But tuition would skyrocket. Subsidizing something leads to increased demand, and increased demand leads to increased prices. Colleges would have every reason to raise tuition to take advantage of the government money.

To keep the less qualified students, colleges would have strong incentives to lower standards. There would have to be more remedial courses, and many courses would be dumbed down to the point that almost anyone could pass. Many would simply be filled with busywork. This would not only waste the time of less qualified students, but also damage the education of qualified and motivated students.

While there would be more students in college, that doesn't mean they would be getting educations. As it stands, plenty of students are more interested in partying than getting an education. With tuition guaranteed, this would increase dramatically.

Taxpayers, students of all sorts, and the economy would all be worse off under such a plan. The only people who would gain are a small group of college administrators and professors who would be guaranteed more money. They have a strong incentive to support this plan.

Friday, January 19, 2007

Haenicke is Awesome

It's great to see Western's Interim President Diether Haenicke put Western back on the right track. The Gazette has an article that profiles some of Haenicke's decisions.

In particular, Haenicke has canceled Western's free room and board for Kalamazoo Promise students, who already receive full tuition.

Not to be outdone, Western Michigan University declared its own deal within hours. To beat Wayne State University's offer of discounted room and board, WMU promised free room and board for four years for Kalamazoo Public Schools' Class of 2006.

In hindsight, that offer by former WMU President Judith I. Bailey's administration was a hasty decision that cost the university, WMU Interim President Diether Haenicke says.

Plus, instead of simply offering campus living expenses at no cost, WMU wound up writing checks to students who had scholarship dollars that exceeded the costs normally billed by Western.

"If we had taken that money and put it toward other scholarships, we would have done much, much better,'' Haenicke said. "It was one of these snap decisions, and nobody on the financial side of the house was involved in that decision.''
I criticized this move in the past. Promise students already have lodging within a few minutes of Western, so Western already has an advantage over any other school. As I have said in the past, Bailey made a long string of totally indefensible decisions.

Other examples of successful initiatives under Bailey include the university's new $28 million chemistry building, which opened for classes this month, and a progressively retooled Web site.
While the chemistry building was certainly needed, I have to disagree about the website. It's much harder to find things now than it used to be.

Haenicke has saved money while expanding necessary services.

The ombudsman office has been reopened, as least part time.

Main library hours, which were cut back under Bailey, have been extended considerably.
The mood on campus has improved greatly.

In his second tour at Western -- he was its president from 1985 to 1998 -- Haenicke's presence has been viewed by employees and students as revitalizing to a campus demoralized by controversy and problems including a multimillion-dollar deficit and falling enrollment. (snip)

Haenicke is responding to student concerns, too, said Andrew Hooley, a junior and vice president of the Western Student Association.

Hooley campaigned last year for the WSA on the issue of cutting library hours as a cost-saving measure.

"You've got 20,000 undergraduates ... and we need to have adequate access to the library,'' Hooley said.

"College students study at 11, 12, 1, 2 or 3 o'clock in the morning. Western having a library closing at 11 o'clock at night isn't representative of that. For Haenicke to change that was a great step in the right direction for the administration recognizing students' academic needs.''

New Trustees

Governor Granholm has appointed two new trustees for Western. From WMU News:

KALAMAZOO--Gov. Jennifer M. Granholm today announced the appointments of Jeanne H. Carlson of Novi, Mich., and William D. Johntson of Portage, Mich., as new members of the Western Michigan University Board of Trustees.

Carlson is president and chief executive officer of Blue Care Network of Michigan, headquartered in Southfield. She is a 1968 graduate of WMU and has served on the WMU Alumni Association Board of Directors, most recently, in 2000-01, as association president. Her appointment as a trustee runs through 2014, and she succeeds Peter L. Aseritis of Williamsburg, Mich., whose term expired at the end of 2006.

Prior to assuming her current role at BCN in September 2006, Carlson had served as chief operating officer for BCN since July 2002. Before that, she served in several major capacities at Blue Cross Blue Shield of Michigan. She was vice president for Health Insurance Portability and Accountability Act compliance and operational effectiveness for the company. She also was vice president of several key areas including the General Motors account, PPO and ancillary services, provider relations, provider contracting, and the Ford/AutoAlliance/Rouge Steel accounts.

Johnston is president and CEO of Greenleaf Companies of Kalamazoo. He earned his bachelor's and master's degrees from WMU in 1970 and 1974, respectively. Johnston, whose term as a trustee also will run through 2014, replaces James Holden of Bloomfield Hills, Mich., whose term expired in December.

Johnston launched Greenleaf in 1991 after spending 15 years in education. Today the collective Greenleaf Companies includes Greenleaf Trust; Greenleaf Ventures Inc.; Greenleaf Holdings, LLC; and Greenleaf Capital Inc. Johnston is also chairman of Southwest Michigan First Economic Development Corp., chairman of the board/director of SofTech Inc., director of Special-Lite Corp., and director and past president of the WMU Foundation.

Sunday, January 14, 2007

Understanding Economics: Money

One of the key features of any modern economy is the use of money. Money is a unique good in that it is used as a store of value. Nonetheless, it follows the same rules of economics as any other good.

Primitive economies use barter. That is, they trade objects directly to improve their fortunes. However, barter has definite limitations, since it may not be possible to find someone willing to trade a given good in a given amount at a given time. Thus there is a need for a good that is used specifically as a store of value.

Many different goods have been used as money, but some are better than others. There are certain properties of money that are desirable. It should not decay over time. It should have high value per weight, so as to be easily transportable. It should be divisible. It should be of uniform quality. Perhaps most important, it should not be possible to counterfeit.

Putting all this together, we find that gold and other precious metals are the best type of money. For convenience, certificates redeemable for gold could be used.

When our country was founded, just such a monetary system was created. However, it has since been changed so that the government can print paper money that is not redeemable for anything. This is called fiat money.

What are the consequences of creating more money? When the supply of a good increases, we expect its price to drop. What does it mean for the price of money to drop?

Remember that money is only useful because it can be exchanged for something else. With a given amount of money in existence, prices are established for various goods. An equilibrium is reached with some frequency of exchanges of money and goods.

When more money is introduced into the system, it chases the same amount of goods. Stores start selling out of goods. People find that their money cannot as readily be exchanged for goods. The same is true for retailers. Thus the value of money decreases. Since the values of goods have not changed, more money is required to exchange for them. Thus prices increase.

When government creates more money out of nothing, this is called inflation of the money supply. The logic above shows that a necessary consequence of this inflation is an across-the-board increase in prices. This general increase in prices is what is most commonly known as inflation. This popular nomenclature conflates consequence with cause.

As mentioned above, one of the most important features of money is to not be easily counterfeited. When counterfeiters pass off phony money, they steal some of the value of everyone else's money. That is why counterfeiting is a crime that is punished harshly by the government.

As in many other areas of life, however, the government engages in the same practices that it forbids others to do. There is no distinction in principle between counterfeiting and inflation of the money supply. Both rob existing money of its value.

At best, inflation is simply another form of taxation. However, it is a particularly dangerous form of taxation, since most people don't realize that they are being taxed. When government inflates the money supply, the resulting general increase in prices is typically blamed on "greedy businessmen" and the like, rather than the true culprit, the government.

All too often, the demand for more and more money to finance war, entitlements, or other out-of-control government spending leads government to print more and more money. The amount printed increases exponentially as government attempts to wring the last remaining value out of people's money. This is known as hyperinflation. This explains the phenomenon of the amount of money increasing thousands or millions of times within short periods. Hyperinflation destroys people's savings and wrecks economies.

Thankfully, America has avoided hyperinflation. However, our government does inflate the money supply at a smaller level. While the inflation rate is almost always in the single digits, the effect of inflation compounds over time. Since the creation of the Federal Reserve in 1913, our money has lost 95% of its value. (See this inflation calculator.) To put it another way, government stole 95% of the value of our money.

Understanding the economics of money is necessary to prevent such disasters.

POLITICAL UPDATE--Environmentalism

This update focuses on environmentalism. Environmentalism is an anti-human philosophy that seeks the end of civilization and genocide against humanity. It has already killed millions through a ban on DDT. Environmentalists promote the myth of human caused global warming to impose socialism and poverty on America.

Joseph D'Agostino shows that banning DDT has killed millions.
Deroy Murdock explains that environmentalists want millions to die.
George Reisman explains that environmentalism is anti-human.
Jerome Corsi explains the truth about global warming.
Dan Gainor reports the media's changing stories on climate change.
Robert Novak shows that Democrats want to make America poorer.

POLITICAL UPDATES are archived here.

Friday, January 12, 2007

Higher Taxes for Illegal Immigrants

Governor Granholm has appointed a "bipartisan" panel to address Michigan's budget problems. This is widely seen as a prelude to a push to increase taxes. In addition to the liberal Democrats on the panel, there are liberal Republicans on the panel. The co-chairman is Bill Milliken, the former Michigan governor. Awhile back, the Gazette ran a puff piece on Milliken which noted (favorably) that he "doubled taxes and tripled spending" (or maybe it was "tripled taxes and doubled spending"). I think we know where he stands. Then there's former Congressman Joe Schwarz, who ran for governor in 2002 on a platform of raising taxes. Other non-democrats on the panel include Paul Hillegonds, Dan DeGrow, and Don Gilmer.

Interestingly, there is considerable overlap between this panel and the group "Citizens for Michigan," the group of washed-up liberal politicians who have proposed a number of ways to wreck Michigan's Constitution, including raising taxes. Schwarz, DeGrow, Hillegonds, and Frank Kelley are all members of the group. I guess Granholm knew where to look for sympathetic panelists.

One story that hasn't gotten much attention so far is Granholm's veto of the bill that would have eliminated some government aid to illegal immigrants. The bill had passed the legislature overwhelmingly. So Granholm wants to increase taxes in part to subsidize illegal immigration. Eliminating these subsidies wouldn't solve the entire budget problem, but it sure would be a good place to start.

Thursday, January 11, 2007

Trouble in Portage

There's controversy in Portage over "rules of conduct" proposed by the Portage School Board. The rules include prohibiting school board members from using their title in making endorsements, prohibiting them from criticizing decisions made by the board, and not talking to the press about anything controversial.

The rules appear to be targeted at board member Wendy Mazer, a conservative elected last May. Mazer endorsed State Representative Jack Hoogendyk in the primary last August. She has also been a critic of the some policies of the board, and has questioned the district's International Baccalaureate program.

Taking the proposed norms one by one:

Board members should not use their board titles when they endorse political candidates because the press and the broader public will assume one board member speaks on behalf of the entire board.
Board members evidently don't think much of the level of education of the general public.

A member should defer all press questions to board or district leadership if they think their comments could create ``confusion or controversy.''
We can't have any disagreement, can we?

Even if a member voted against the majority, the member should voice support for the board's decision when speaking with the public.
They should lie to their constituents?

Mazer had many defenders. One was Jim Rodbard of the ACLU, who was surprisingly right on throughout both stories. Other defenders included many conservatives:

District parents Melanie Kurdys and Mark Anthony Martin, Portage City Councilwoman Margaret O'Brien, Kalamazoo City Commissioner Mary Balkema, and Republican County Commissioners Nasim Ansari and John Zull also criticized the norms or voiced support for Mazer. No members of the public spoke in support of the rules.
This sums up the story well:

In an earlier interview, Mazer said she was surprised that none of the board members contacted her after a Gazette reporter questioned them on whether the conduct rules were aimed at her. Mazer was elected in May and is widely considered more conservative than other trustees. Portage City Councilwoman Margaret O'Brien has said she believes Mazer was targeted for her conservatism and for questioning the district administration.

Tuesday, January 09, 2007

Understanding Economics: Value

One of the most basic concepts in economics is value. We regularly use this concept when we say that goods or labor have value. But where does this value come from, and how do we determine what it is? (I should point out that I am discussing economic value, not moral value or some other type of value.)

Various theories of value have been proposed and debated. The correct theory of value is subjective value. This means that things have value because we value them. Things are valuable because of their usefulness to us. They do not have inherent value independent of this.

Various incorrect theories of value attempted to assign value to things based on the cost of production or various factors in that production. However, the fact that materials and labor have been used to produce something does not make it valuable. It may simply be junk.

One essential point about value is that things have different values to different people. Given that value is subjective, it could hardly be otherwise. For example, Opera tickets may be very valuable to one person and worthless to another person.

This leads to another essential truth. People can trade things and both benefit. Suppose person X owns object B and person Y owns object A. If person X values object A highly and object B lowly, and person Y values object A lowly and object B highly, then they can trade objects and both come out ahead.

This leads to a second sense of economic value. The first type was value for use by that particular person. The second type is value in trade. Thus objects that are not valuable for personal use still have value since they can be sold. Through the use of money, this trade, or market value of an object can be quantified and compared to the value of other objects.

One particular false theory of value is the labor theory of value. Unfortunately, this error has a long tradition. It was employed, though certainly not invented by Karl Marx. Marx argued that since labor made goods valuable, workers should own the goods they produced. Since they didn't, they were being robbed by their employers.

Of course, this is a fallacy.

Consider what is needed to make a car. All the labor in the world won't make a car without the materials needed to construct it. All the labor and materials in the world won't make a car without the knowledge of how to build one. Each of these factors is important, but since the ability to design a car is scarcer than the other two, it is more highly compensated.

There is no morally "right" price for anything. There is only the real price. As Rush Limbaugh used to say, something is worth what someone will pay for it.

Sunday, January 07, 2007

Understanding Economics: Incentives

Economics is probably the most necessary academic subject for understanding contemporary politics and the least understood.

Economics has a reputation as boring and difficult. While it may sometimes seem that way when poorly taught, it doesn't have to be. Most of what the average citizen needs to know is simple and easy to understand. The history of economics illustrates the truth that what is easy to understand is not necessarily easy to figure out.

Economics describes human use of scarce resources with alternative uses. The economic model of human behavior assumes that people are rational and self-interested. Much elaboration is possible on these concepts. For now, this basically means that people have goals and seek to achieve them as efficiently as possible.

The fundamental concept of economics is incentives. People respond rationally to changing circumstances and seek to use their resources efficiently to achieve their goals.

Penalizing some behavior, whether through taxation, criminalization, or stigmatization, will lead to less of it. Subsidizing some behavior will lead to more of it.

Incentives explain the oft-heard economic concepts of supply and demand, along with their necessary counterparts, price and quantity. In a free market, a given supply and demand determine a given price and quantity sold.

Increasing demand increases price and quantity sold. Decreasing demand decreases price and quantity sold. Increasing supply decreases price and increases quantity sold. Decreasing supply increases price and decreases quantity sold. (Take a moment to think about why these economic laws are true.)

Increasing price artificially (creating a price floor) will decrease demand or increase supply, creating a surplus. Decreasing price artificially (creating a price ceiling) will increase demand or decrease supply, creating a shortage. Try to figure out what happens when a maximum or minimum quantity produced is imposed.

Another issue to consider is that there are usually alternative means of achieving goals. Penalizing one means will increase the use of other means. Subsidizing one means will decrease the use of other means.

Yet another issue is that there is a cost associated with each action. That cost may be uncertain, that is, there may be risk. Decreasing risk will encourage a given action and increasing risk will discourage a given action.

Understanding the incentives created by various actions and policies is the key to understanding economics and much of politics. Analyzing the incentives created by a given policy makes it possible to predict its consequences. The same rules apply regardless whether the specific issue is housing, agriculture, education, or something else.

Analyzing the incentives facing for-profit business, non-profit organizations, unions, and government, and the people who interact with and are a part of them does much to explain their actions.

I will close with an example.

In the past, many well-meaning people were concerned with the problem of poverty. They proposed creating a system of welfare to alleviate it. They were specifically concerned that single mothers did not have the same income provided by a father in a married couple. To target the needy population, they established a limit on the income of people who would receive aid, and gave more aid to single mothers than to married couples.

What incentives did welfare create?

Giving money to people on the condition that they be poor created a greater incentive to be poor, and hence encouraged poverty. This seemingly counterintuitive result follows inevitably from the incentives the program created. The income limit created a disincentive to earn more than it, since that would mean sacrificing government money. Thus welfare tended to mire people in poverty.

Targeting aid specifically to single women created a disincentive to get married, since it would again mean sacrificing government money. Given the alternative means of support for a single woman of marriage and government money, welfare discouraged marriage. One of the major costs of sex outside of marriage is the risk of pregnancy. Welfare lowered the financial risk involved, and so encouraged out-of-wedlock birth. This in turn led to increased crime and many other social problems resulting from the lack of a father.

Thus a seemingly reasonable scheme to end poverty ended up causing great harm. This harm was lessened, but not eliminated, by the 1996 welfare reform. Despite the simplicity of determining the results of such a program, (and some warned of these results at the time), this simple analysis was overlooked or ignored.

This illustrates the power of economics to explain and predict human behavior. It also illustrates the necessity of analyzing incentives.

Saturday, January 06, 2007


This update focuses on Russia. Russian President Vladimir Putin is transforming Russia into a dictatorship. Former KGB/FSB officials have taken the most powerful positions in Russian government and business. They have centralized and consolidated power, silenced independent media, jailed political opponents, praised the former Soviet Union, and tried to rig foreign elections. Putin has aided America's enemies, including helping Iran's nuclear program.

Joel Rosenberg chronicles the growing evil in Russia.
Charles Krauthammer examines the murder of Alexander Litvinenko.
Herbert Romerstien examines the history of KGB assassinations.
Yuri Maltsev writes that Putin is promoting tyranny in Russia.
Floyd Brown reveals that Ted Kennedy collaborated with the KGB.
Phyllis Schlafly remembers the 1956 Hungarian Revolution.

POLITICAL UPDATES are archived here.

Friday, January 05, 2007

Random stuff

WorldNetDaily has an interesting list of the top ten most underreported stories this year.

The Democrats have started off their reign in Congress with a "Hundred Hour Agenda." If they want an even catchier title, they could call it the "War on Economics." Of course, their agenda includes the old Democratic favorite, banning low-paying jobs ("raising the minimum wage"). Their proposals all sound good if you don't actually think about them, which most people don't.

Nancy Pelosi is promising the most ethical Congress in history. Does anybody remember when Bill Clinton promised to have the most ethical administration in history? I wonder how long Democrats will be able to keep this up. Just since the election, Pelosi supported John Murtha, an unindicted co-conspirator in the Abscam scandal, for Majority Leader (he lost). She was going to appoint Alcee Hastings, a former federal judge who was impeached for taking bribes as chairman of the intelligence committee until the resulting controversy forced her to change her mind. Congressman William Jefferson, who is on tape taking a $100,000 bribe, most of which was found in his freezer, was reelected by his New Orleans constituents. Jim McDermott was cited by the ethics committee for his role in an illegal wiretapping scandal. John Conyers was cited by the ethics committee for forcing his staffers to do personal work for him. All before the Democrats even took power.

The Democrats have already broken one of their promises. While they were in the minority, they promised that they would allow amendments from the minority if they won power. Now that they are the majority, they immediately flipped and said they wouldn't allow such amendments. Big surprise.

There is good news, though.

Governor Granholm signed the emergency protection bill to stop the confiscation of guns during emergencies.

A three judge panel of the Sixth Circuit Court of Appeals overruled Clinton judge David Lawson's six month stay on the MCRI. The three schools, full of the best and brightest our state has to offer, are still pretending to be confused about how they could possibly not discriminate based on race.

Monday, January 01, 2007

Best Articles of 2006

At long last it's time for the best articles of 2006. I read roughly 10,000 articles this year. More than 300 articles appeared in this year's 52 POLITICAL UPDATES. Immigration was the most frequent topic, inspiring seven updates. The North American Union/SPP was second with five. What follows are my choices, in chronological order, for the ten most important news or opinion pieces of 2006.

Top Ten:
Searching for a New Direction by Congressman Ron Paul explains that government spending and regulation are out of control. The government is drowning in debt, and is likely to inflate the currency, thus robbing our money of its value, and wrecking our economy.
The New Shakers by Mac Johnson explains that the lack of children in America will lead to the decline of our country. We may be overwhelmed by third-world immigrants.
"Free Trade" Impacts Sovereignty by John McManus shows that Alger Hiss was a founder of the World Trade Organization and the United Nations. So-called "free trade" agreements threaten American sovereignty.
United States of North America by Steven Yates shows that the North American Union would merge the United States, Canada, and Mexico into one country that would be less secure and less prosperous.
The Bush-Kennedy Immigration Tsunami by William Jasper reveals that the Senate immigrants bill could have allowed as many as 200 million legal immigrants into America over the next twenty years.
North American Union to Replace USA? by Jerome Corsi is the first in a series of articles exposing the North American Union. Corsi explains who is pushing this plan.
Pawns in a Losing Game by William Jasper exposes the communist organizations behind the illegal immigrant rallies that shocked America in May. Their agenda is to destroy America.
The Missing Children Problem by Donald Devine shows that Western Civilization is dying out due to cultural decline and the welfare state.
Coming Through! The NAFTA Super Highway by Kelly Taylor explains that the massive Trans-Texas Corridor is part of a gigantic nationwide network of highways to cement the NAU.
Environmentalism's Death Toll for 'Nature' by Joseph D'Agostino shows that the environmentalist movement seeks the destruction of civilization and promotes massive genocide against humanity.

Honorable Mentions:
The United Nations seeks to control the internet.
Illegal immigrants rallied against America.
Senator Jeff Sessions shreds the Senate immigration bill.
Liberalism and Islam are killing the Netherlands.
Many environmentalists seek to exterminate humanity.
English is not spoken in many parts of America.
The creation of the NAU resembles that of the European Union.
A summary of news about the NAU.
Environmentalism by its nature seeks the destruction of humanity.

Previous: Best of 2005