There Ain't No Such Thing as a Free Lunch

My oldest daughter loves to read. As soon as she is done reading one book, she immediately moves to the next. Actually, oftentimes she doesn't wait to be finished with one before she starts another. I have to marvel at her ability to keep track of multiple stories as she puts down the book she is reading in the living room and then heads to her bedroom in order to pick up where she left off in whatever book she has stashed in there. So, books are obviously an easy gift idea whenever Christmas or her birthday is approaching. Last Christmas I decided to get her a book that would properly introduce her to one of my favorite subjects: Economics.

Now, I know that sounds like a boring Christmas gift for a 10 year old. In fact, I was prepared for her to show no interest in it. But I figured that one day she would be ready for it and, even if she never wanted to read it, I still had two other children who might like it someday. Besides, this idea didn't come out of the blue. Last summer, as we were sitting outside and enjoying the weather, the topic of conversation turned to economics (as it often does when I am a participant). She said that she would like to know more about economics and I mentioned that I heard Whatever Happened to Penny Candy  by Richard J. Maybury was a great way for children to learn about the subject. She liked the title and said she wished I would buy that book. So, I called her bluff.

When she opened the book on Christmas Day, she didn't look all that excited. That was okay. I had prepared for that (lack of) reaction. I wasn't going to try and shove it down her throat. I would just lay back and wait for an opportunity to present itself. A couple of months later, it did. Or, it would be more apt to say she did. She had begun reading it on her own and right at the beginning she found Shel Silverstein's hilarious poem "Smart". She was so impressed by it, that she copied it down word for word to put up in her room. She brought the book downstairs so that I could read the poem. From there we began reading the book together. At the end of each chapter, I would ask if she wanted to read another or if she wanted to put it away for another time. More often than not, she chose the former.

What I found was that not only did the book make basic economic principles clear to a 4th grader, it was also engaging for adults. The book focuses on the dangers of debasing a currency and describes the unavoidable consequences of doing so. Maybury tells how the law of Supply & Demand says that as the amount of any good increases, its value decreases. He then explains that money is not free from this law. The more dollars that are created, the less the dollar in your wallet will buy. He combines this theoretical insight with economic history by using examples from ancient Rome and the Weimar Republic. He even does an outstanding job describing, and then debunking, the wage/price spiral theory of inflation.

The theory says that inflation has its roots in wage increases. He gives the example of a union demanding higher wages. The employer then raises prices in order to pay these wages. Since prices are rising, more laborers demand more wage increases. Which causes employers to raises prices again and we are caught in a deadly, but natural, spiral of inflation. The problem with this theory is that it completely ignores a crucial question: Where is all the money to pay these increasing costs and prices coming from? The answer: The printing press. If the Federal Reserve wasn't busy creating money out of thin air, it would do no good for laborers or employers to ask for more money that isn't there. This theory presents an outlook of the world that is exactly backwards. In reality, consumers determine prices by their willingness to pay a certain price. The entrepreneur must make his costs conform to the market's price, or else go bankrupt. He cannot simply dictate the price to his customers, at least not if he wants to stay in business.

There are many more lessons in this little book, and my daughter and I had a great time discovering them. And even if she never reads another economics book, she probably already knows more than her teacher. I will enthusiastically recommend this book to anyone looking to learn more, or teach their children, about inflation. And it's also good to learn the little rule the author encourages you to keep in mind whenever you hear about a new government welfare or economic policy. TANSTAAFL (There Ain't No Such Thing As A Free Lunch).

Vouching for Vouchers

Today the Indiana Supreme Court unanimously upheld the state's school voucher program. It looks like (some) parents will continue to be able to choose the school they must send their children to instead of having the decision dictated to them on the basis of what their address is.

Now I have been skeptical of school voucher systems in the past. I still worry that they will eventually be used as an excuse to increase government regulation of private schools and I'm never comfortable with the idea of private enterprises being supported by tax money. But the way that teachers unions like the ISTA (the plaintiff in the court case) seem to fear it, makes me think this might be a step in the right direction. You see, it hurts the union's bargaining position if people aren't forced to send their children into the public schools. Compulsory schooling provides a guaranteed stream of revenue and neither the unions nor the government school officials want to share that revenue with private schools.

Mississinewa Community Schools Superintendent Mike Powell seemed to lament the Supreme Court's decision when he said,  “It’s the intent of our legislature to do everything they can to do away with public education". I think Mike might be a little guilty of hyperbole here. I don't think the legislature is exactly brimming with hardcore libertarians. Any matter, he has bravely decided to battle on. "We know we are ( the best option out there), and I just think we need to prove it to our legislators.” I think you need to prove it to your customers, Mikey. You know, the parents of the children you are supposed to be educating.

There is a proposal out right now to increase the number of children who qualify for vouchers. This proposal would include children with disabilities as well as others. As a father of a child with Williams Syndrome, I would gladly welcome the ability to use the money that is taxed from me in the name of my child's education, to help pay for the school my wife and I decide is best for her.

And really, that's what it is all about. Letting parents choose how to spend the money they earn in order to best educate their children. But those who oppose school vouchers make a valid point. They see this program as essentially a means of funding religious institutions (as many private schools are) with tax dollars. If you are not religious, you should not be forced pay for religious teachings. I agree with this point. But is the solution to force parents to send their children to schools others would prefer they attend? Or to pony up extra cash to send their children to a school more to their liking while still being coerced into subsidizing the public school system?

Wouldn't it be better if nobody was compelled to spend their money on schooling of which they don't approve? Isn't there a way to make sure that religious people aren't made to support secular schooling and the non-religious aren't made to fund religious schooling? Perhaps we should treat schooling in the same manner that we treat food, clothing, shelter, and (formerly) medicine. Perhaps the same market that provides us with ever increasing improvements in technology with ever decreasing relative prices could also provide us with a vast array of affordable education options. Perhaps we should take the government guns out of the equation altogether and allow people to experience a free market of schools. I bet you never hear that idea come out of the legislature (You can breathe easy, Mr. Powell).

For now, I'll settle for a voucher.

Are You Being Forced to Subsidize Drug Use?

The Indiana  House of Representatives on Monday passed a bill that would drug test some welfare recipients. From my limited research, it seems my opposition to such a bill is firmly in the minority. It's not that I am for paying for poor people's drugs. I certainly am not. In fact, when asked by drug abusers if I can help them out, I usually decline. Not many people want to actively contribute to someone else's perceived drug problems. But certainly drugs aren't the only "non-basic essential" (to use the federal government's phrase) that welfare recipients are purchasing. Should we start restricting welfare payments to those who smoke or purchase tattoos? What about those who use their EBT card to purchase a Polar Pop right before they whip out cash to buy Hoosier Lotto tickets? Should we stop sending payments to those mothers on Facebook who seem to post nothing but pictures of themselves out drinking with friends?

My point is that we are focusing on the wrong issue. When you establish a welfare state, you make private decisions a public matter. In the past, your nosy neighbors may have had a low opinion of your habits and probably gossiped about it to all who would listen. But now they have a stake in making sure your lifestyle conforms to their standards. Not only do they have motive, they also have the tool: Democracy. It is very tempting to vote for the guy who says he is going to make sure your money stops being used to purchase narcotics. As you can see, the welfare state doesn't only put your wallet in danger; It destroys privacy.

If these matters were decided on an individual level, instead of by the state, people could  give their money to anyone they chose to and to no one they didn't. If a poor person decided to spend money on cigarettes and Mountain Dew, it would be between him and the gas station clerk.  If you give your money to a church or charity to help the indigent, and you feel that institution is making poor decisions with your money, you can stop giving to them. This is not the case when it comes to state sponsored welfare. Instead, we find ourselves constantly trying to use new laws and regulations and never address the core issues.

Setting up drug testing for welfare recipients will not save us much (if any) money. In fact, I would not be surprised if setting up the bureaucracy to handle this program actually cost us more. It will expand the state's ability to pry into the private lives of its citizens and use tax money to bribe people to live, or at least appear to live, their lives in a way of which the government approves. It will also funnel taxpayer money to the hospitals which will do the testing (If you think hospitals need to be subsidized, perhaps you haven't paid a medical bill lately). Drug use will still be rampant. And unless the general economy improves, the welfare rolls will continue to swell.

There is a law of economics known as The Law of Diminishing Marginal Utility. It says people always spend their first dollar on their most urgent want and then spend each additional dollar on progressively less urgent wants. This means that every time you spend money on an addict's food or medicine, you are freeing up money for them to spend on less urgent expenses like drugs. The only way to make sure welfare money isn't used for drugs and other "non-essential" items is to abandon the welfare state. I highly doubt that Hoosiers are ready to do that.