Kerry in Full Bloom

July 8, 2004 | by | Topic: Economics & Political SystemsPrint Print

The bankruptcy of the activist view of government is in full bloom again, thanks to the John Kerry campaign.

For starters, Kerry promised to raise the minimum wage. Even if Kerry is an Economics 101 dropout, one would think that witnessing labor unions lobby for higher minimum wages during his many years in the Senate would have aroused his suspicions about who benefits from such legislation. Since union members are already being paid well above the minimum wage, union officials must recognize what Kerry seems not to see: that raising the minimum wage makes the lowest-wage workers unemployable and, thus reduces their competitiveness with union workers.

Creating an underclass of low-skilled, unemployable persons is, perhaps, the most socially malignant way imaginable to raise union wages.

Proponents of activist government think they can dismiss the logic of economics because they mistakenly view businesses as a horn of plenty which business executives exhaust to the exclusion of workers. They seem blissfully unaware that labor receives around 80 percent of national income each year, while profits are a miserly 5 percent to 10 percent. Even complete confiscation of profit and consequent redistribution to workers would be, at most, a onetime 12.5 percent raise. After that, businesses would shut down and wages would fall to zero.

Try as they might, however, activists cannot deny the logic of economics. Otherwise why limit proposals for raising the minimum wage to a paltry $7 an hour? Seventy dollars an hour would be better and $700 better still. Neither would they limit their beneficence to America—they could declare a living wage for everyone and conquer world poverty with the stroke of a pen. That they don’t advocate such patent nonsense is proof that they cannot deny logic in the end.

Not content minimum wage folly, Kerry has also proposed making health care a right for all Americans.

Now everyone across the political spectrum agrees that material benefits such as high wages and adequate food, housing and health care are desirable. Kerry and the proponents of activist government, however, seem to think that such benefits can be legislated into existence.

Most of the rest of us recognize that they are the product of hard work and the blessings of a free market economy built by many years of painstaking capital accumulation. To the extent that anyone advocates raising living standards to the point where everyone can enjoy the material benefits of modern life, they must advocate unfettered capitalism.

Adequate health care for all requires building hospitals, researching and producing drugs, making specialized medical equipment, and providing arduous training for doctors and nurses. To support those who specialize in the medical professions, others must become more productive in producing foods, shelter, and other material goods. None of these advances can be legislated into existence—they result from working, saving, investing, and producing.

Finally, Kerry has made proposals for higher education. He promises to give states a onetime $10 billion subsidy for public higher education in exchange for capping future tuition increases to the rate of price inflation. In addition, he promises $300 million a year to encourage women and minorities to study math and science, another $100 million a year to reward schools that graduate more Pell Grant recipients, and another $100 million a year for math and science scholarships and bonuses for new teachers who go into math and science. The subsidies of $10 billion up front plus $500 million a year would be funded by raising taxes on Americans who earn more than $200,000 a year.

Public universities are state-run institutions. If residents in the various states consider it imperative to limit tuition increases, then states could do it themselves and raise their own taxes to subsidize public higher education. There is no need for Federal government interference unless the real goal of Kerry’s proposal is to circumvent the wishes of residents in the various states by centralizing power in Washington. Kerry seems oblivious that taxpayers may think the already enormous public university subsidies forced upon them are enough.

To the extent that states are fiscally responsible with tax funds and attempt to run their universities as businesses, tuition increases, like any other price increases, result from increased demand. Government grants, scholarships, loan guarantees and so on drive up demand and must either push up tuition or lead to shortages.

Kerry’s education proposals, as so often happens with activists’ schemes, work at cross purposes. They do nothing to solve any real or imagined problem with higher education, but instead serve to transfer wealth and power to Washington.

Since the government, at best, aggravates and, at worst, creates the social ills it presumes to cure, the proper policy is clear—wealth and power must remain with people, not become even more centralized in Washington, D.C. To use the coercive power of the state to force people to subsidize what they would not fund voluntarily is a repudiation of the birthright of Americans: the rights to life, liberty, and the pursuit of happiness.

Jeffrey M. Herbener

Jeffrey M. Herbener

Dr. Jeffrey Herbener is chair of the department of economics at Grove City College and fellow for economic theory & policy with The Center for Vision & Values.

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