The Economic Effects of Minimum Wage Laws

An increase in the Illinois minimum wage would help working families hardest hit by the recession and provide a boost to the economy. During the 2011 legislative session, Illinois lawmakers introduced a measure to increase the state minimum wage across four years to $10.65 per hour, and a similar proposal is expected in the 2012 legislative session. Had it been enacted, S.B. 1565 (97th General Assembly, State of Illinois, 2011) would have given more than 1.1 million of the lowest-paid workers a raise, providing more than $3.8 billion in increased wages for directly affected workers.¹

The Illinois minimum wage currently is $8.25 per hour. The legislation as proposed in 2011 would have gradually increased the minimum wage until it reached $10.65 in 2014. It would have increased to $8.90 in 2011, $9.50 in 2012, $10.15 in 2013, and $10.65 in 2014. After 2014, it would have maintained its value with increases tied to inflation. Amid persistent unemployment and the resulting downward pressure on wages, increasing the minimum wage for low-wage workers would be a welcome lift for the economy. An incremental increase also would help working families in Illinois make ends meet in the aftermath of the worst recession in generations.

The benefits of raising Illinois' minimum wage

I can still remember the first job I had in high school. It paid a state-mandated minimum wage of $5.25 and I though it was great that I could earn so much despite having no labor skills to offer. Within a year, the small family business I worked for could not afford to compete and sold out to a larger chain, which then cut the number of workers for that location to maintain profitability. I was able to afford the things I needed and wanted at an early age, but had no idea that those same laws reduced the potential of unemployed laborers to find work.

There is no clearer demonstration of the essential identity of the two political parties than their position on the minimum wage. The Democrats proposed to raise the legal minimum wage from $3.35 an hour, to which it had been raised by the Reagan administration during its allegedly free-market salad days in 1981. The Republican counter was to allow a "subminimum" wage for teenagers, who, as marginal workers, are the ones who are indeed hardest hit by any legal minimum. 

In truth, there is only one way to regard a minimum-wage law: it is compulsory unemployment, period. The law says, it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum-wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result. 

All demand curves are falling, and the demand for hiring labor is no exception. Hence, laws that prohibit employment at any wage that is relevant to the market (a minimum wage of 10 cents an hour would have little or no impact) must result in outlawing employment and hence causing unemployment. 

If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by this prohibition will be precisely the "marginal" (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect. 

The advocates of the minimum wage and its periodic boosting reply that all this is scare talk and that minimum-wage rates do not and never have caused any unemployment. The proper riposte is to raise them one better; all right, if the minimum wage is such a wonderful antipoverty measure, and can have no unemployment-raising effects, why are you such pikers? Why you are helping the working poor by such piddling amounts? Why stop at $4.55 an hour? Why not $10 an hour? $100? $1,000? 

More: The Crippling Nature of Minimum-Wage Laws, by Murray Rothbard

While laborers understandably support a floor for wages, the economic effects are not entirely visible to those workers. The benefits of increasing the wage floor is only really positioned to consider the increased economic benefit to those workers who are employed, and ignores the negative effect of increasing unemployment rates (though, unemployment is increased by taxation of labor earnings as well as other interventionist policies). What wage laws do by setting a minimum level at which producers can compensate workers is to limit the amount of labor that producers can afford. Since wage laws do not also increase the market cost producers receive for goods and services, the net effect is that input costs to producers rise, yet revenue does not. This effect on producers is rarely considered in the arguments on labor wages. It is hard to argue with Rothbard's logic on any subject, including his view that "the minimum-wage advocates do not pursue their own logic, because if they push it to such heights, virtually the entire labor force will be disemployed. In short, you can have  as much unemployment as you want, simply by pushing the legal minimum wage high enough." Interventionism into wage rates increases the inefficiencies of the market and decreases the net economic value to consumers and producers, as well as laborers themselves.

The very essence of the interventionist politicians' wisdom is to raise the price of labor either by government decree or by violent action on the part of labor unions. To raise wage rates above the height at which the unhampered market would determine them is considered a postulate of the eternal laws of morality as well as indispensable from the economic point of view. Whoever dares to challenge this ethical and economic dogma is scorned both as depraved and ignorant. Many of our contemporaries look upon people who are foolhardy enough "to cross a picket line" as primitive tribesmen looked upon those who violated the precepts of taboo conceptions. Millions are jubilant if such scabs receive their well-deserved punishment from the hands of the strikers while the police, the public attorneys, and the penal courts preserve a lofty neutrality.

The market wage rate tends toward a height at which all those eager to earn wages get jobs and all those eager to employ workers can hire as many as they want. It tends toward the establishment of what is nowadays called full employment. Where there is neither government nor union interference with the labor market, there is only voluntary or catallactic unemployment. But as soon as external pressure and compulsion, be it on the part of the government or on the part of the unions, tries to fix wage rates at a higher point, institutional unemployment emerges. While there prevails on the unhampered labor market a tendency for catallactic unemployment to disappear, institutional unemployment cannot disappear as long as the government or the unions are successful in the enforcement of their fiat. If the minimum wage rate refers only to a part of the various occupations while other sectors of the labor market are left free, those losing their jobs on its account enter the free branches of business and increase the supply of labor in them. When unionism was restricted to skilled labor mainly, the wage rise achieved by the unions did not lead to institutional unemployment. It merely lowered the height of wage rates in those branches in which there were no efficient unions or no unions at all. The corollary of the rise in wages for organized workers was a drop in wages for unorganized workers. But with the spread of government interference with wages and with government support of unionism, conditions have changed. Institutional unemployment has become a chronic or permanent mass phenomenon.

Writing in 1930, Lord Beveridge, now an enthusiastic advocate of government and union meddling with the labor market, pointed out that the potential effect of "a high-wages policy" in causing unemployment is "not denied by any competent authority." In fact, to deny this effect is tantamount to a complete disavowal of any regularity in the sequence and interconnectedness of market phenomena. Those earlier economists who sympathized with the unions were fully aware of the fact that unionization can achieve its ends only when restricted to a minority of workers. They approved of unionism as a device beneficial to the group interests of a privileged labor aristocracy, and did not concern themselves about its consequences for the rest of the wage earners. No one has ever succeeded in the effort to demonstrate that unionism could improve the conditions and raise the standard of living of all those eager to earn wages.

It is important to remember also that Karl Marx did not contend that unions could raise the average standard of wages. As he saw it, "the general tendency of capitalistic production is not to raise, but to sink the average standard of wages." Such being the tendency of things, all that unionism can achieve with regard to wages is "making the best of the occasional chances for their temporary improvement." The unions counted for Marx only as far as they attacked "the very system of wage slavery and present-day methods of production." They should understand that "instead of the conservative motto, A fair day's wages for a fair day's work! they ought to inscribe on their banner the revolutionary watchword, Abolition of the wages system." Consistent Marxians always opposed attempts to impose minimum wage rates as detrimental to the interests of the whole labor class. From the beginning of the modern labor movement there was always an antagonism between the unions and the revolutionary socialists. The older British and American unions were exclusively dedicated to the enforcement of higher wage rates. They looked askance upon socialism, "utopian" as well as "scientific." In Germany there was a rivalry between the adepts of the Marxian creed and the union leaders. Finally, in the last decades preceding the outbreak of the First World War, the unions triumphed. They virtually converted the Social Democratic Party to the principles of interventionism and unionism. In France, Georges Sorel aimed at imbuing the unions with that spirit of ruthless aggression and revolutionary bellicosity which Marx wanted to impart to them. There is today in every nonsocialist country a manifest conflict between two irreconcilable factions within the unions. One group considers unionism a device for the improvement of the workers' conditions within the frame of capitalism. The other group wants to drive the unions into the ranks of militant communism and approves of them only as far as they are the pioneers of a violent overthrow of the capitalistic system.

Firmly committed to the principles of interventionism, governments try to check this undesired result of their interference by resorting to those measures which are nowadays called full-employment policy: unemployment doles, arbitration of labor disputes, public works by means of lavish public spending, inflation, and credit expansion. All these remedies are worse than the evil they are designed to remove.

Assistance granted to the unemployed does not dispose of unemployment. It makes it easier for the unemployed to remain idle. The nearer the allowance comes to the height at which the unhampered market would have fixed the wage rate, the less incentive it offers to the beneficiary to look for a new job. It is a means of making unemployment last rather than of making it disappear. The disastrous financial implications of unemployment benefits are manifest.

If government spending is financed by taxing the citizens or borrowing from them, the citizens' power to spend and invest is curtailed to the same extent as that of the public treasury expands. No additional jobs are created.

But if the government finances its spending program by inflation — by an increase in the quantity of money and by credit expansion — it causes a general cash-induced rise in the prices of all commodities and services. If in the course of such an inflation the rise in wage rates sufficiently lags behind the rise in the prices of commodities, institutional unemployment may shrink or disappear altogether. But what makes it shrink or disappear is precisely the fact that such an outcome is tantamount to a drop in real wage rates. Lord Keynes considered credit expansion an efficient method for the abolition of unemployment; he believed that "gradual and automatic lowering of real wages as a result of rising prices" would not be so strongly resisted by labor as any attempt to lower money wage rates. However, the success of such a cunning plan would require an unlikely degree of ignorance and stupidity on the part of the wage earners. As long as workers believe that minimum wage rates benefit them, they will not let themselves be cheated by such clever tricks.

In practice all these devices of an alleged full employment policy finally lead to the establishment of socialism of the German pattern. As the members of an arbitration court whom the employers have appointed and those whom the unions have appointed never agree with regard to the fairness of a definite rate, the decision virtually devolves upon the members appointed by the government. The power to determine the height of wage rates is thus vested in the government.

The more public works expand and the more the government undertakes in order to fill the gap left by "private enterprise's inability to provide jobs for all," the more the realm of private enterprise shrinks. Thus we are again faced with the alternative of capitalism or socialism. There cannot be any question of a lasting policy of minimum wage rates.

More: Minimum-Wage Rates, by Ludwig von Mises

By setting a minimum wage, producers are unable to hire a larger portion of the available labor force, and the resulting economic effect is a surplus of labor, or unemployment. By allowing a segment of the labor force to work for a lower wage (such as younger workers without skill who live at home and do not have high financial responsibilities like a family yet), unemployment can be reduced and those workers willing to work for lower wages can fill that void. During a time when so many are effected by an economic crisis, it would be more responsible of government to repeal minimum wage laws entirely.

For laborers, that first job was a chance to get training, to learn skills while earning wages. By increasing the potential for more low-wage earners to start out earning below current minimum wage rate (or any fiat rate), more low-skill, low-wage jobs can be offered to the market by producers, driving down unemployment, and also driving costs of goods and services to consumers.

Fighting Joblessness

With constantly rising unemployment rates created by government interventionist policies like taxation and minimum wage laws, I think about how we might see a future where we can reduce unemployment. The resulting surplus labor which constitutes the unemployed are created because of protectionist efforts by legislators and labor unions to drive labor costs up, even when the goods and services produced do not demand higher prices. I see this as fairly basic economics which has been perverted by some for their own benefit while many go without employment prospects entirely.

Is it more just for a smaller portion of the available labor force to have positions that are compensated at rates higher than the market equilibrium, or is it more fair for a near entirety of the labor force to find sustaining work?

The state does have one option at its disposal which could actually alleviate this situation which itself created; deregulation. By repealing minimum wage laws, employers can set wages more appropriately proportional to the products and services offered in the market, which can increase revenue generated by lowering the costs of goods and services to consumers.

How To: Fix the Housing Crisis

CNN's Jim Cramer year after year that the housing market has found a floor. BoA's Jamie Dimon says the end of the crisis is near (it helps that he also serves on the Federal Reserve board and can bail out his own bank). Millions of homes are reported sold which never actually happened. There are over ten million American homes today that are under water, with 3/4 of those homes current with mortgage owners making regular payments.

There is a pattern of failure here, but that is only the obvious half, that which educated consumers grasp. The other half is ugly and no one wants to consider it, but it's no fantasy. It's real.

As one time, fewer Americans could afford the American dream; home ownership. It is a fine and noble dream, but a nightmare if achieved at involuntary costs to others.

The Federal Reserve did more than their part to promote consumer debt in the housing market. Free markets work by the graces of the Invisible Hand, not the state. Freddy and Fanny were doomed from birth. Hundreds of billions of dollars was not enough to keep them from flatlining. They misvalued their assets well into irresponsible levels.

When state intervention occurs, markets for services and products lose efficiency in terms of costs to consumers. When the Fed holds interest rates at near-zero levels, it encourages private market lenders to follow suit and lend to consumers which have precious little creditworthiness.

Sorry to be brutally honest. Reality happens. Profits and losses are a part of the market, until Uncle Sam opens our wallets.

When the housing bubble burst, few outside of the Mises or Cato institutes saw the parallel to the higher education bubble, which took the same course. The banks hold properties on their books valued at the mortgage value, which sets the system up for fail in the simplest way.

We can fix these failed systems. We have to start over using proven principles to revive matter economies, but not through government programs. The state is the intervening entity which causes its own ailments.

The state must step out of interventionist policies into markets. To remove inefficiencies that produce deadweight loss and drive private forms and households into financial stress,

Mortgaging your way to a college education

The Consumer Financial Protection Bureau (CFPB) came out with a report that confirmed what many of us were projecting. The CFPB has noted that both private and federal student loan debt has now hit the $1 trillion dollar mark. This is a big deal for a variety of reasons and will have an impact on the housing market for years to come. For new home buyers many are already stretching every dollar they can through loan down payment loans via FHA insured products. More and more Americans are attending college but at the same time, many more are plunging into massive levels of debt. Student default rates are surging at a time when the cost of going to college is at all time highs. Public universities are hiking tuition since state budgets are in poor shape. This is important because a college education is now becoming the second most expensive purchase for most Americans right behind housing.

The rise in tuition costs

The University of California recently stated that should the November ballot initiative not pass, tuition is likely to increase an additional 20 percent:

Source: Keep California Promise

"(Contra Costa Times) California voters know their K-12 schools will see dramatic cuts and perhaps the nation's shortest school year if they reject a November tax increase. Now, the University of California has revealed its stake in the election: a 20-percent tuition hike for its nearly 182,000 undergraduates.

UC's annual cost could bump to $14,670 a year -- one more threat among many if Gov. Jerry Brown's sales tax and tax on the wealthy fails. California State University students would see their tuitions leap 5 percent to $6,120 a year."

This is a significant increase. As recently as 2005 the annual tuition to attend a UC was roughly $6,000. It is now double that and should the tax measures fail, it is likely to jump to close to $15,000 per year. You also have many students enrolling in for-profit institutions and going into deep debt:

Source: CFPB

Most of the private student loan debt at two year institutions is flowing into the for-profit sector that is facing default rates similar to what was experienced in the subprime mortgage sector. This is important to note since the return on many of these institutions is minimal. It is hard to imagine but student loan debt is much worse than housing debt. Why? With a mortgage, if you have not noticed, you can stop paying and it will take some time before you lose your home. After losing your home in most states your liability on the property ends and your only penalty is a dinged credit score for a few years. Student debt does not go away. It will follow you around similar to unpaid taxes. This is why I found this part in the report interesting:

In California, many of those buying these $500,000 homes with low interest rates think they got a major deal. It is likely they are middle class so they are unlikely to qualify for many grants and aid. So many of these home buyers with kids are "school obsessed" so they are likely aiming for elite public universities or top private schools that cost upwards of $50,000 per year. As you can see from the above chart, many parents are co-signing the loans for their children. A student going to a private school might end up having $100,000 or more in debt when they are done and many are moving back home. That co-signer is on the hook as well. The data shows growing default rates:

There is no guarantee of a good paying job in this market even with a college degree. The unemployment rate of those with private student loans is 16 percent (twice the nationwide headline figure). Of those with a bachelor degree the unemployment rate was 11 percent. As previously noted, more private student loan debt is going to for-profit institutions so this is likely to push the unemployment rate even higher than the headline unemployment rate. So you have to wonder how eager will these young graduates be to purchase that first home and take on more debt?

Homeownership rates have fallen significantly for those 34 and younger:

It is important to note most of the student debt problems are hitting the younger generation:

Over two-thirds of past due debt is hitting with those 39 and younger. A good amount is hitting the under 30 crowd. Remember those co-signed loans? There is little doubt why the housing recovery has been so tepid nationwide. In California, home prices are still out of sync in many locations but just think about a more realistic nationwide scenario. A young graduate comes out with $50,000 in student debt and the starter homes they are looking at cost $150,000. This is very typical. How easily can they shoulder that new debt amount? Are they even willing to take this new loan on? Virtually every other debt segment has pulled back since the recession hit outside of student debt. Home ownership rates for younger Americans have fallen dramatically in the last decade and this burden of "other" debt is becoming a big issue. It is also impacting baby boomers as kids boomerang back home. Another trillion dollar debt market with major issues. You don't need a Ph.D. to know this is a big problem.

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Energy, Environmentalism, and Economics

Common resources are recognized as needing protection from abuse and over-consumption. The abuse of common resources is known as the Tragedy of the Commons and has been explored by environmentalists and libertarians alike. Today, many people believe that the best methods to achieve these goals of protection and preservation are government regulation. While this appears a productive method to prevent the resources from exploitation, it is less than efficient, and generally agreed to be immoral by the exclusion of voluntarism in individual interactions and exchanges. Let's take the whaling industry and fossil fuels as an example, a simple one at that.

Before fossil fuels, there was whale oil. Used most commonly for fueling lamps to light homes, it was the most affordable source to meet that market need. While anyone can see the actions of whalers as violent and aggressive toward a species other than our own, hunting is a way of life for many around the world. Calling for an outright ban on any action will only drive that action into black markets, but will not causes that action to cease. It will drive costs to consumers to rise, however. And that increased potential profit encourages producers to deliver services and goods despite regulations and bans. Look at any service or product the government regulates or has labeled illegal and you will find the trade flourishing. Prohibition has always been an avenue of failure, it takes many forms, but so many continue to be drawn to the flawed concept like moths to a flame. It might be funnier if it were not so true.

The effect of mass harvesting of whales for their oil was the decline of their numbers, something that both those in the industry at the time and modern tree-hugging environmentalists alike can recognize. As their numbers declined, costs rose. This is a very basic economic principle. As prices rose, entrepreneurs looked for alternatives to whale oil which could meet consumers needs at a lower cost. This was a natural effort without government intervention. Laws that protected whales from harvesting did not come about until well into the second half of the 1900s, like 1973's Marine Mammal Protection Act. In fact, in 1851, a French law actually encouraged the hunting of whales. As usual, government regulators are late to the party, passing laws after the economic or environmental damage is already done.

Fossil fuels displaced whale oil, but the transition from whale oil as fuel to fossil fuels happened without interventionism, through the free market and Adam Smith's Invisible Hand. Whale oil costs were rising and producers were seeking a more affordable alternative. By the 1840s, kerosene had already begun to replace whale oil as an illuminant. This decreased it's demand and lowered it's cost, but kerosene was significantly cheaper and did not require the industry to kill whales. This was the beginning of the decline of the whaling industry, but was such a significant decrease in demand that laws which came over a century later did little more than recognize the position of animal rights proponents who showed up with legislators well after the party was already over, not surprisingly.

Moving into the future, without intervention into energy markets by governments, consumers and producers will shift from fossil fuels to new sources over time as well. Fossil fuels are finite resources, meaning that there are limits to the long-term viability. Eventually, there may not be enough oil or coal to run internal combustion engines or fire coal plants to generate electricity. The problem with government interventionism is that it ends up promoting the wrong choices (or sometimes simply at the wrong time) when markets will promote the best choice naturally.

In time, we may have electric cars juiced up by wind farms, solar arrays that power office complexes on independent grids, geothermal home heating systems, tidal generators, and other renewable energy sources which are also environmentally friendly. As long as the free market is allowed to function at it's greatest naturally efficient level, the transition will be as simple as using kerosene to light homes instead of whale oil. Simply let the Invisible Hand guide us to a more efficient alternative.

Virtual Mises University Conference

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Please take advantage of the academic and social forums as well as the chat room to get to know your fellow students and build a network of brilliant young Austrians. In the quest for free markets and individual liberty, one can never have too many friends on your side! 

And it's just $20! The week is nearly halfway complete, but the wealth of free market knowledge is abound and well worth the low cost.

Virtual Mises University Conference

US Dept of Education Releases Sequestration Impact

One one hand, I hate to see education opportunities dwindle for any social segment, but, beyond that, there is a fallacy that all services must be provided by the state. When states are unable to provide services due to budgetary restrictions, it is incumbent on the private market to step in a take over those services, as private markets are forced to operate competitively and efficiently in order to survive over the long term. Governments do not operate at the margin, nor do they operate beyond the short term. Once again, we find that state intervention into markets creates the inefficiencies that puts those services at risk.

Letter sent to all state chiefs with the attached charts that says sequestration would not impact 2012-13 school year.

From: Honeysett, Adam
Sent: Friday, July 20, 2012 05:59 PM
Subject: Memo from Deputy Secretary Miller re: Sequester Impact

July 20, 2012

Memorandum to:  Chief State School Officers

From:  Anthony W. Miller, Deputy Secretary, U.S. Department of Education
                       
Subject:  Clarification of Sequester Impact on Four Accounts with Advance Funding

The Budget Control Act (BCA) of 2011 established a Joint Select Committee in Congress charged with the task of developing a proposal to achieve at least $1.2 trillion in deficit reduction.  Unfortunately, last November, the Joint Committee announced that it could not reach agreement on a deficit reduction plan.  This failure triggered enforcement via automatic funding cuts, called sequestration, for fiscal year 2013, unless Congress prevents this from taking place by sending the President a balanced deficit reduction plan that does away with sequestration before it goes into effect on January 2, 2013. 

Many of you have asked technical questions about how the Department of Education would implement the BCA sequestration in our four appropriations accounts that receive fiscal year 2013 budgetary resources from both 2012 advance appropriations and 2013 regular appropriations.  The 2012 advance appropriations become available in October 2012 for school year 2012-13.  The 2013 regular appropriations become available in July 2013 for school year 2013-14.  Most of the funds in the four accounts with advance appropriations—Education for the Disadvantaged (Title I, ESEA), School Improvement Programs (Title II, ESEA), Special Education (IDEA Part B), and Career, Technical, and Adult Education—get distributed by formula to States and then to local school districts or other entities. 

If Congress does not act to avoid sequestration, and assuming the 2013 appropriations for these four accounts are structured similarly to past appropriations (which they are under the pending House and Senate appropriations bills), the Department will take the sequester from funds that would become available in July 2013 for school year 2013-14, not from the 2012 advance appropriations available in October 2012.  The amount of the reduction will be calculated by applying the sequester percentage (to be determined by the Office of Management and Budget) to the fiscal year 2013 budgetary resources from both the 2012 advance appropriations and the 2013 regular appropriations that are available for the four accounts.  The calculated sequester amount will then get subtracted from the July 2013 funding.  The net effect will be to cut the funding level for the programs in the four accounts with advance funding by the same percentage as all other programs, projects, and activities.

It has come to our attention that some States may have urged school districts to hold back on spending for the 2012-13 school year because of the possibility of sequestration.  Assuming Congress enacts a 2013 appropriations bill that is structured similarly to the pending House or Senate bills—a reasonable assumption based on past practice—there is no reason to believe that a sequestration would affect funding for the 2012-13 school year. 

While a large sequestration of education appropriations would decrease funding for schools and students across the country, the potential for sequestration should not upset planning and hiring decisions for the immediately upcoming 2012-13 school year.  Federal funds have already been appropriated and will be provided for this school year, through grants made in July 2012 and advance funds that will be obligated in October 2012.

Most other Department elementary and secondary programs award funds late in the fiscal year for the following school year, either through a formula or following a competition for discretionary grants, so the impact of the BCA on these programs will not be felt until the 2013-14 school year as well.  However, the major exception where the BCA sequester could reduce funds for the 2012-13 school year is the $1.2 billion Impact Aid program.  Impact Aid provides funds to some 1,192 school districts serving about 949,000 students.  About 52,000 of those students are in districts that rely heavily on Impact Aid for a large share of their funds.  These districts could experience more significant short-term funding problems due to sequestration than other districts.

Although most of the harm from the sequestration would not be felt in education programs until the 2013-14 school year, the damage from across-the-board cuts in that year would be severe.  The Administration has submitted a balanced plan to Congress to avoid a sequestration, and continues to urge Congress to act on that policy.  The sequestration was not meant to be implemented; it was meant to drive Congress to enact a balanced deficit reduction plan through the threat of destructive cuts.  Time remains for Members of Congress to produce such a balanced plan, and we urge Congress to do so.  Secretary Duncan will be testifying on July 25th before the Senate Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies on the potential harmful impact of sequestration on schools, teachers, and students and will be urging Congress to take action to avoid the deep and indiscriminate cuts in education and other Federal programs that sequestration would entail. However, while we wait for Congressional action, based upon past practice in appropriations, there is little reason to delay hiring for school year 2012-13 due to the threat of sequestration.

• CTE and sequestration.pdf
• ESEA Title II and sequestration.pdf
• IDEA State Grants and sequestration.pdf
• Title I and sequestration.pdf

Tragedies and Ill-conceived Gun Laws

Early last night I sat and watched Dr. Suzanna Hupp's testimony to Congress on gun laws after the tragedy at Luby's October 16, 1991, in Killeen, Texas.

Sadly, there was another shooting tragedy in Aurora, Colorado late last night, near another preventable tragedy: Columbine.

I am sure that many will call for increased gun laws, but as always these are hollow and fail to take into account the reality that criminals will not heed laws, that is their nature. More gun laws only negatively impact the liberties of law-abiding citizens. Calls to ban high-capacity magazines and assault weapons were proven to increase violent crime during the Assault Weapons Ban of 1992. There is a reason the Brady Campaign failed to keep the AWB on the books; it was a failure, a solution to a problem it created itself.

As Hupp correctly suggests, when a person commits these sort of acts, it is an illness, a mental problem that compels them. No law will prevent their intended actions, only the dedication of law-abiding citizens to protect each other in these situations. Violent criminals like these examples are like rabid dogs. The focus needs to be on those politicians willingly legislating away the right to defend ourselves from them.

Law enforcement's duty is to respond, by which time the tragedy is usually over. Many courts have ruled that police have no duty to protect, which can only lead us to understand that we have to defend ourselves. If this means breaking bad laws, so be it. A right the judicial body will never disclose is that of nullification. A jury can set a precedent and strike down a bad law simply by failing to convict a defendant of a charge.

It is statistically proven that allowing citizens to arm themselves decreases crime rates. All we need to do is consider the increases in violent crimes in places like Chicago, Los Angeles, New York City, Philadelphia, even the United Kingdom and other locals to see that the solution is obvious if only we would consider reality instead of relying on emotional arguments and opinions. Gun control encourages criminals to commit violent crime.

Remember this the next time you consider abiding by a poorly-conceived gun law and ask yourself if it makes you and your loved ones any safer. As Suzanna Hupp put it, I would rather be charged with a crime, defending the lives of those I love, than to adhere to bad laws and have to bury them. This is why the Second Amendment was worded the way it is:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

Higher Education: the Next Bubble to Burst

Almost everyone knows the country went through the wringer after the housing bubble burst. Now a new bubble looms before us - the higher-education bubble.

Scholars and economists at the Mises and Cato Institutes have been campaigning to increase awareness about this issue for years. Those who understand market economics and the downsides of government interventionism are keenly aware of what happens in these situations.

Just as easy money, lowered lending standards and political hype came together to vastly overinflate the housing sector, a combination of easy money (federal grants and loans available for nearly every student), lowered academic standards (colleges that readily accept students with pathetically weak basic skills) and political hype (the notion that getting a degree will guarantee a huge boost in earnings) have produced a vastly overinflated higher-education system.

Why would any lending institution support a student who wants to take out tens of thousands of dollars in student loans to pursue a liberal arts degree, or another field in which the student is unlikely to gain employment sufficient to pay back loans? Lenders in the market see great risk, so they don't loan. The government steps in and guarantees the loans, so the universities accept the student anyway. And tuition costs skyrocket as a direct result.

The higher-education bubble has been inflating for decades, and it’s ready to burst, or at least deflate. That’s because many Americans are realizing that the huge cost of college is often a waste. Whereas college degrees used to be regarded as sure-fire investments, the labor market has become glutted with people who have been to college but can’t find “good” jobs.

Did you know that 22 percent of customer-sales representatives and 16 percent of bartenders have bachelor’s degrees?

Furthermore, at many schools, academic standards have fallen to the point where students can coast through without learning anything worthwhile. As University of Tennessee law professor Glenn Harlan Reynolds recently wrote, “The higher education bubble isn’t bursting because of a shortage of money. It is bursting because of a shortage of value.”

[...]

More: LEEF: Burst the higher-education bubble - Washington Times

All we need to do is look at programs or industries where the government steps in to guarantee loans in this country to see how costs to consumers rise as a result. Higher costs are also passed along to taxpayers if those markets are subsidized. It's a failure of epic proportions, but one where the spoils of which are so willingly accepted despite the likely end result and market reactions. 

Both of the following examples are from a year ago, and they were not the first warnings from market economists.

A college degree once looked to be the path to prosperity. In an article for TechCrunch, Sarah Lacy writes, "Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe."

But the jobs that made higher education pay off during the inflationary boom, kicked into high gear by Nixon waving goodbye to the last shreds of a gold standard, came primarily from government and finance.

In 1990, 6.4 million people worked for federal, state, and local governments. By 2010, that number had grown almost 6 times — to 38.3 million — with many of these jobs being white-collar.

Without sufficient private market jobs to support the revenue needs of the government (taxation of labor), it is easy to see how decreasing revenues can be a problem when paired with ever-increasing government spending. The appearance of cutting budgets is just that; appearance. Spending is cut for future budgets, and is usually cut from proposed increases, not overall budgets. More private market jobs are needed, not public sector. Public jobs contribute a net loss, not a gain.

In 1990, the financial sector was less than 7.5 percent of the S&P 500. By 2006, this sector had grown to 22.3 percent of the S&P, and that year the financial sector constituted 45 percent of the index's earnings.

[...]

The Higher-Education Bubble Has Popped

One of the major complaints of the Occupy Wall Street crowd, many of whom have taken on significant student debt, is that the cost of college is too darn high. And they're right, but not because of greedy corporate fat cats. No, the real guilty party here is federal politicians, who for decades have been fueling high profits — and prices — at both for-profit and nonprofit schools.

Guaranteeing loans promotes those producers to increase costs to consumers. When it is student loans, that results in higher tuition costs, despite a lower likelihood that students will ever be able to pay them back. Those tuition costs are passed on to taxpayers as well without consent, and without ever enrolling in universities or receiving services. Yeah, we are the other people...

Wait. Big profits at nonprofit colleges? Yes, money has been piling up even at schools you thought had no interest in profit. And Washington, D.C., is the biggest hand feeding the beast.

Thanks to recent congressional hearings and battling over new regulations for for-profit schools, most people — including many college-aged, profit-disdaining Wall Street squatters — are probably at least vaguely aware that for-profit colleges are making good money.

[...]

D.C. Drove Up Your Student Debt

Liberals Will Never Understand Economics

Real welfare. The kind Republicans leave out their rhetoric.

Most criticism of free market economics fails from the start to understand it's principles and simply reverts to misinterpretation with silly pictures. They also fail to understand that both liberals (modern, not classic liberalism) and conservatives (who are statists of a different color today) both use government to the same ends without allowing markets to find equilibrium naturally. We have state-capitalism, or fascism at some levels. These folks need to focus criticism where it is due, but their ignorance dues give the occasional chuckle. 

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Original Page: http://liberalsarecool.com/post/27581944137

Virtual Mises University, Austrian Economics from the Source

Want to learn about free market Austrian economics from the source? The 2012 Mises University conference will be running the week of 22 July and is only $20.

Over the course of 27 years, Mises Institute scholars have crafted and perfected a world-class week-long intensive program in Austrian economics: Mises University. This program has changed the lives of thousands of undergraduate students. Now, thanks to the support of our generous donors, it can change your life too, even if you cannot make it to Auburn. You can enroll in Virtual Mises University, and partake in the intellectual feast over the internet.

Virtual Mises University offers live broadcasts throughout each day of the conference of all the core Mises University lectures.  But you DON’T have to be available during the broadcast times to take the course. Video recordings of the core lectures, and audio recordings of all the lectures will also be posted to the course page afterward, and will remain available long after the course is over. The course provides all of the readings that are required for the on-site attendees, as well as dedicated social and academic forums for students to discuss what they are learning and network with others who share their passion.

The online course also provides digital copies of any lecture materials (powerpoints, handouts, etc.) used by professors during their presentation.

Students who post in the course academic forum at least 10 times will be able to download a Certificate of Participation.

We are very excited to be able to offer this unmatched educational experience to anyone in the world, without being limited by physical space or geographic proximity.

Thanks to our generous donors, we are able to provide unlimited access to Virtual Mises University for only $20!

Broadcast schedule:

Sunday, July 22 — 8:00 p.m.
Monday, July 23 — 9:00 a.m. – 12:30 p.m.; 1:30 – 5:15 p.m.
Tuesday, July 24 — 9:00 a.m. – 12:30 p.m.; 1:30 – 5:00 p.m.
Wednesday, July 25 — 11:30 a.m.; 4:00 p.m.
Thursday, July 26 — 9:00 a.m.; 4:00 p.m.
Friday, July 27 — 2:45 p.m.
Saturday, July 28 — 1:30 p.m.

The Faculty

Mises University faculty are among the finest scholars of Austrian Economics and libertarian political theory in the world.

• Joseph Salerno (MU Director), Pace University & Mises Institute
• Philipp Bagus, University Rey Juan Carlos
• Walter Block, Loyola University, New Orleans
• Thomas DiLorenzo, Loyola University Maryland
• Lucas Engelhardt, Kent State University
• Roger Garrison, Auburn University
• David Gordon, Mises Review
• Jeffrey Herbener, Grove City College
• Robert Higgs, The Independent Institute
• Guido Hulsmann, University of Angers
• Peter Klein, University of Missouri
• Roderick Long, Auburn University
• Robert Murphy, Consulting by RPM
• Gary North, GaryNorth.com
• Timothy Terrell, Wofford College
• Mark Thornton, Mises Institute & Auburn University
• Thomas Woods, Mises Institute
• Leland Yeager, Auburn University

Virtual Mises University

Block on Economics in Environmentalism

Contrary to Pigou and Samuelson, manufac- turers, foundries, railroads, etc., could not act in a vacuum, as if the costs they imposed on others were of no moment. There was a "way to force private polluters to bear the social cost of their operations": sue them, make them pay for their past transgressions, and get a court order prohibiting them from such invasions in future.residential area, for example, would subject the firm to debilitating lawsuits.

Upholding property rights in this manner had several salutary effects. First of all, there was an incentive to use clean burning, but slightly more expensive anthracite coal rather than the cheaper but dirtier high sulfur content variety; less risk of lawsuits. Second, it paid to install scrubbers, and other techniques for reducing pollution output. Third there was an impetus to engage in research and development of new and better methods for the internalization of externalities: keeping one's pollutants to oneself. Fourth, there was a movement toward the use better chimneys and other smoke prevention devices. Fifth, an incipient forensic pollution industry was in the process of being developed.16 Sixth, the locational decisions of manufacturing firms was intimately effected. The law implied that it would be more profitable to establish a plant in an area with very few people, or none at all; setting up shop in a 

In Walter Block's "Environmentalism and Economic Freedom: The Case for Private Property Rights," he describes methods of privatizing natural resources and what unspoiled wilderness that remains. His ideas are realistic and proven. In Africa, countries that outlaw poaching for elephant ivory still have issues with the practice, as each hunter has positive market encouragement to take a many animals as possible to compete. In African nations where it is legalized, land owners have motivation to save the species, taking older elephants, letting younger ones propagate the populations again. With that discrimination, the species can regain its numbers, and the ivory trade can remain profitable yet sustainable. Hunters that provide the ivory have an interest to maintain the species to guarantee future revenue. With an extinction, everyone loses. With regulation through privatization, the elephants can be considered winners. That win comes at a cost, yet worth it considering the tragic alternative. Those who can not find this market example as acceptable in terms of minimizing the violence against nature have not studies economics and fail to understand that nothing is ever quite black and white.