Ward or Free Women?

(HT: Drudge Report) An employee of an elementary school in North Carolina to a preschool girl that her homemade meal wasn’t healthy enough and replaced that meal with one from the school cafeteria (“Food police reject preschooler's homemade lunch... in favour of chicken nuggets”). The Department of Health and Human Services determines what is healthy and requires students to eat put it on their plates. The girl’s incensed mother responded,

What got me so mad is, number one, don’t tell my kid I’m not packing her lunch box properly…I pack her lunchbox according to what she eats. It always consists of a fruit. It never consists of a vegetable. She eats vegetables at home because I have to watch her because she doesn’t really care for vegetables. 

You can lead a girl to vegetables but you can’t make her eat. She ate the chicken nuggets on the school provided plate but nothing else. The mother was charges $1.25 for the lunch.

Two winners of the Nobel Prize in Economics suggest two problems with the school’s action. The minor issue was that the school action almost necessarily reduced the wellbeing of the girl. Hayek argues that government action lacks local knowledge, in this case the girl’s eating habits, which is needed for an efficient decision.

The bigger issue is the role that citizens should give the state. Milton Friedman addresses this issue by criticizing a much quoted statement by President Kennedy. Upon reading Friedman’s critique, I first disagreed, but on subsequent readings, I have flip-flopped and completely and whole-heartedly agree with it. The following quote is from the introduction to Milton Friedman's 1962 book "Capitalism and Freedom".

In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country." Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your 'country" implies the government is the master or the deity, the citizen, the servant or the votary.

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?

And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

The girl and her mother were no longer free women but wards of the state.
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Ethanol and the Production Possibilities Frontier

People acting through their government face trade-offs.  The production possibilities frontier is a simple model showing food and ethanol production that illustrates some trade-offs.  In the United States, ethanol is made from corn.  To get more ethanol, resources have to move from the production of food and into the production of ethanol.

Markets are usually the best way to organize economic activities.  The graph shows the market production combination point.  Economic agents, acting through markets, buy a great deal of food and little ethanol.  People acting through markets do not consume much ethanol. 

Governments can sometimes improve market outcomes.  In the light of rising oil prices, a warming climate, and the war in Iraq, some suggested that oil production is associated with three significant negative externalities that contributed to each problem.  Economists usually recommend that negative externalities be taxed.

This is not the course the government took.  At the urging of almost all corn growers and a few environmentalists, the Congress passed and President Bush signed legislation that subsidized the production of ethanol in three ways: consumers must buy blended gasoline containing 10% ethanol, blenders received a 45 cent per gallon subsidy for mixing the gasoline and ethanol, and importers must pay a 54 cent per gallon tariff (taxes on imports) on foreign ethanol.  In response to these incentives, farmers took resources from food production and put it into ethanol production.  Forty percent of corn production in the United States is now used to make ethanol.  This is shown in the graph at the point “Production Combination with Ethanol Subsidies.”

Environmentalist no longer support ethanol production.  The EPA believes that corn production has a minimal to negative impact on the environment.  David Pimentel, a Cornell University scientist, estimates that the United States would achieve only a 4% reduction in oil consumption if the entire corn crop were devoted to ethanol production.  Let me suggest that, at the margin, such a small reduction in oil consumption would not significantly reduce the odds of entering a war to protect oil production.

At a time of slow growth, lingering high unemployment from the Great Recession, and budget deficits that threaten the financial stability of the government, ethanol subsidies should be ended.  Instead, protection has been extended and expanded.  When consumers did not buy the mandated level of ethanol, the Obama administration lifted the cap on how much ethanol could be blended into gasoline from 10% to 15% and increased the number of car models that are approved to use the 15% blend.  The Congress also extended subsidies to ethanol production. 
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Wind Farms and Economic Biases

Jonathan Karl's abc NEWS article, "New Wind Farms in the U.S. Do not Bring Jobs" focuses on the number of jobs created by "green" energy wind farms through funds provided by the American Recovery and Reinvestment Act.  This is a fair line of inquiry because the Obama administration sold the Act as a stimulus to create jobs.  It is a reminder that the press corps generally does not think like economists.   

Nearly $2 billion in money from the American Recovery and Reinvestment Act has been spent on wind power, funding the creation of enough new wind farms to power 2.4 million homes over the past year. But the study found that nearly 80 percent of that money has gone to foreign manufacturers of wind turbines.

"Most of the jobs are going overseas," said Russ Choma at the Investigative Reporting Workshop. He analyzed which foreign firms had accepted the most stimulus money. "According to our estimates, about 6,000 jobs have been created overseas, and maybe a couple hundred have been created in the U.S."

Even with the infusion of so much stimulus money, a recent report by American Wind Energy Association showed a drop in U.S. wind manufacturing jobs last year.

Sen. Chuck Schumer, D-N.Y., called the flow of money to foreign companies an outrage, because the stimulus, he said, was intended to create jobs inside the United States...
Several of the large European turbine manufacturers had limited manufacturing facilities in the United States, but there was nothing in the stimulus plan that required that the turbines, or any other equipment needed for the wind farms, be made here, said Rogers. There are strict "Buy America" provisions in the Recovery Act, but this Green Energy Stimulus initiative turned the existing tax credits into cash grants, bypassing the "Buy America" provision.

Karl implies that more jobs would have been created if the government would have forced the government to buy American produced wind turbines and that would have been good for the economy. 

Bryan Caplan calls the tendency of noneconomists to focus on job creation make work bias ("The Myth of the Rational Voter").  Even during a recession, many economists focus on increasing productivity.  Efficient investment leads to increased productivity and economic growth.  Job creation follows economic growth.  Economists deal with tradeoffs.  Economists who opposed the stimulus noted that the funds will not be spent efficiently resulting in lower future economic growth.  Economists who supported the stimulus argued that the loss from an inefficient allocation of resources would be smaller than the losses incurred by leaving resources unemployed.  This is an issue worthy of debate and empirical investigation. 

Economists know that everything has an opportunity cost.  The stimulus was financed by expanding government debt.  Other things equal, as government expands debt, interest rates rise crowding out private investment.  What opportunities did we collectively forego to fund the wind farms?  Would those foregone opportunities have been more or less productive than those made through the stimulus?

Senator Schumer expresses a shocking amount of "antiforeign" bias, the tendency to underestimate the benefits if economic exchange with foreign entities, a second bias identified by Caplan.  We buy wind turbines from Spain.  They earn dollars.  What do they do with the dollars when they are based in a country that uses Euros?  They can import U.S. goods or services thus decreasing the trade deficit, or they can invest in the United States decreasing net capital outflows.  In either case, the dollars are returned to our country and create jobs. 

Schumer, and Karl also fail to ask what would happen if the buy American provisions were stronger.  Other countries would retaliate by passing their own trade restrictions and remember that the Smoot-Hawley tariffs deepened the Great Depression.

The media can produce stories that ask bad economic questions because most Americans do not have enough foundations in economics to realize that we, through the media, are asking the wrong questions. 
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Yoram Bauman on Mankiw's, "Ten Principles of Economics"

For those who wish to see a comedic take on Mankiw's "Ten Principles of Economics," I have linked to Yoram Bauman, the stand-up economist. Yes, he does have a Ph.D. The video is a little over five minutes.

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