O Intermitente<br> (So long, farewell, auf weidersehen, good-bye)

O Intermitente
(So long, farewell, auf weidersehen, good-bye)

sexta-feira, fevereiro 25, 2005

Stupid does as stupid is

Artigo no Pittsburgh Live.

The Boston Globe's Jeff Jacoby wrote for Thursday the column that I intended to write for today. I'll go a bit further.
Mr. Jacoby offered a wonderfully accessible explanation of how 60 years of federal tuition aid only has served to increase the cost of a college education.

That's daft, you say. How can that be?

Actually, it's not that unhinged at all. And as Jacoby notes, it's quite elementary: "Every dollar that Washington generates in student aid is another dollar that colleges and universities have an incentive to harvest, either by raising their sticker price or reducing the financial aid they offer from their own funds."

The bottom line, as Cato Institute scholar Gary Wolfram found in a new study, is that "federal loans, Pell Grants and other assistance programs result in higher tuition for students ... ."

Just take a look at the year-after-year tuition increases that stunningly outpace the rate of inflation for the anecdotal proof; visit the Cato Institute Web site (www.cato.org) for the empirical case.

Still, Mr. Wolfram's conclusion is a shocker -- for the economic ignorami among us. And that, tragically, is too many of us. For after more than 60 years of being spoon-fed the dog-food dogma of primarily liberal (i.e., socialist) economic folderol, we've forgotten how to think for ourselves.

Stupid does as stupid is.

That "government aid" is good is an instant article of faith in this nation, even, sadly, among supposed conservatives. The outrageously expensive, blanket Medicare prescription drug program is a good example. We are failing miserably as a nation to critically analyze and challenge the resulting "conventional wisdom."

In the introduction to his study, Wolfram, a political science professor at Hillsdale College in Michigan, references the words of the great late Austrian economist Freidrich Hayek from "The Constitution of Liberty":

"(M)ajority decisions" -- the kind of congressional benevolence that gives us federal aid to education and drugs for all -- "are peculiarly liable, if not guided by accepted common principles, to produce overall results that nobody wanted."

Though an excellent and correct statement, it is not a particularly original thought. It is, however, a more contemporary way of explaining what such great thinkers as Adam Smith, the Scottish economist, John Locke, the English empiricist philosopher, and Frederic Bastiat, the French economist, first opened our eyes to centuries ago.

These are the gentlemen who went to great pains -- and often resulting in great ridicule -- to explain what became known as the Law of Unintended Consequences. To wit, in 1692, Mr. Locke argued against a British law that would lower the maximum allowable interest rate on loans from 6 percent to 4 percent.

Now, who in his right mind could mount a cogent argument against such a thing? Obviously, the borrower would benefit in such a deal, right? Not so fast. I'll let former Fortune magazine economics editor Rob Norton take it from here:

"Locke argued that instead of benefiting borrowers, as intended, it would hurt them. People would find ways to circumvent the law, with the cost of the circumvention borne by borrowers. To the extent the law was obeyed, Locke concluded, the chief results would be less available credit and a redistribution of income away from 'widows, orphans and all those who have their estates in money.'"

The Law of Unintended Consequences -- or what Mr. Bastiat referred to as the "seen" and the "unseen" -- is not a law relegated to antiquity. It applies today. But it generally is ignored -- either by the truly ignorant, the greedy who care not about the secondary consequences, or the greedier still who fully understand the consequences and are intent on lining their pockets with your dependence. Politicians come to mind.

Social Security is the perfect example of true ignorance. Never mind that partially privatized accounts, coupled with even reduced existing program benefits, would exceed current Social Security benefits, it is blasphemous in many quarters to talk of restructuring this old-age safety net.

The unintended consequence? Seven decades of a lower savings rate. So what, the apologists for the Nanny State say; the difference is covered by Social Security. But for the private sector, that means there are fewer private investment dollars available "and the economy -- and wages -- grow more slowly than they would without Social Security," Mr. Norton rightly notes. Everyone is poorer for it.

And there are many other equally applicable contemporary situations. Here are just two:

  • Wage floors. Whether it be called "the minimum wage" or a "living wage," the result is fewer entry-level jobs. The very people supposed to be helped by such laws are hurt; an entire class of people is denied that critical first rung on the employment ladder.

  • Labor unions. Indeed, wages and working conditions for union members generally are high and better. But unions also have reduced the number of jobs available; by raising the price of labor, less of it is bought. Additionally, given that most organized labor representation is among those in government jobs, the cost to taxpayers is artificially inflated.

    The best antidote to the kind of economic ignorance that has led us down such an expensive, inefficient and unproductive path is education. But don't expect any breakthroughs until we as a society come to fully understand the need to blow up the heavily unionized educratic establishment.

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    "A society that does not recognize that each individual has values of his own which he is entitled to follow can have no respect for the dignity of the individual and cannot really know freedom."
    F.A.Hayek

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