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How America's Business Lobby Often Opposes Free Markets

Traditionally, business was the most important political backer of free markets, which made sense because business needs markets in order to exist at all. However, in the last generation, the views of business, as expressed by the U.S. Chamber of Commerce and other outlets, have increasingly diverged from the free-market ideal. As crony capitalist ideas have come to dominate business thinking, so crony capitalism itself has come to dominate the U.S. economy, with dire results for productivity growth and the living standards of Americans.

In some respects, the Chamber of Commerce and domestic business generally remain committed to the remnants of free-market principle in an environment where they have been beleaguered. The Chamber vehemently opposes the efforts of trial lawyers to divert shareholder funds to their own pockets. It generally supports free trade; indeed it is especially adamant in supporting the freedom to offshore operations from the U.S. to emerging markets where costs are lower. It supports the Keystone pipeline.

As might be expected, the Chamber also opposes a number of Obama administration initiatives that directly increase business costs. It opposes Obamacare in general and is especially vehement against the Consumer Financial Protection Bureau’s lack of accountability and surplus of regulations. It also, as might be expected, opposes restrictions on atmospheric carbon and retains its historic opposition to the trade union movement.

The Chamber would naturally oppose legislation that imposed costs on business; in the same way, it naturally favors provisions that reward business with tax breaks not available to the public as a whole. However, in general its anti-market positions bear only modest relation to the economic interests of business, and instead reflect a corporatist agenda that is thoroughly detrimental both to the interest of ordinary people and to the overall U.S. economy.

The most egregious anti-market attitude of modern business, at least the largest businesses, is on immigration. Here it favors essentially the abolition of all restrictions. Thus, it wants to import high-skill immigrants in tech sectors to compete with U.S. STEM graduates for the limited number of jobs available (we learned this week that Microsoft, one of the advocates of increased immigration, is to lay off 15,000 U.S. workers.) This is a very shortsighted policy indeed; by driving down the wages paid to STEM graduates, so that computer scientists earn less now than they did in 1999, business lobbyists are ensuring that the best and brightest U.S. students head for careers in areas such as law where they are better protected from foreign competition.

At the low-skill end of immigration, business generally favors both legalization of the 11 million illegal immigrants already in the country (thus encouraging a further flow, as we are seeing currently) and the establishment of not one but two guest-worker programs, under which further low-skill workers can be imported to drive low-skill wages down to subsistence levels. Needless to say, this is not in the interest of the U.S. people as a whole, who are impoverished thereby. It is not even in the long-term interest of business. Very high low-skill immigration and declining U.S. living standards degrade the gigantic domestic market so that it is no longer the template against which international competition must measure itself. Without the world’s richest and most sophisticated consumers, U.S. business will be at a growing disadvantage against competitors from richer and better-ordered countries such as Japan, Germany, Scandinavia and eventually South Korea, Taiwan and others in South-East Asia.

The free-market approach to immigration recognizes that people are not goods and that the arguments for free trade in goods break down when the item moving from country to country is an immigrant. Barbers are paid more in Boston than they are in Bangalore because of the greater wealth surrounding them, and an extra barber imported to Boston competes directly with the local workforce and plays far more havoc with domestic living standards than an imported car, machine tool or item of software. Hence, to prevent Boston barbers’ living standards from being driven down to those of the Congo, we must restrict imports of people. The cheap labor lobby, whether in the tech sector, in agriculture or in low-wage service sectors, is attempting to enrich itself by immiserating its fellow citizens.

Business in general and the Chamber of Commerce in particular are further violating free-market principles by their approach to education, for which they favor a “Common Core” standard imposed by a remote bureaucracy in Washington. Raising educational attainment is desirable, but in most respects the Common Core standards are dumbed down and politicized compared to the state standards that preceded them. The problem becomes worse if education funding is made dependent on standardized test results. At that point, all effort goes to satisfying the test results rather than getting the best out of the academically gifted, and study beyond the core syllabus more or less disappears.

The free-market approach to education is precisely the opposite of that favored by the U.S. Chamber of Commerce: to decentralize it as far as possible, introducing competition between schools and localities and allowing parents to choose both where they live and where within that area their children go to school. Of course, top-up payments should be made to ensure that schools in poor or educationally deprived communities are capable of raising the standards of their pupils, but this is best achieved by a voucher system, with additional vouchers for poor or disadvantaged families. While parents lack the knowledge to choose optimally between different educational approaches, so do educational bureaucrats, and the parents are much more likely to choose approaches that fit the needs and aspirations of their children.

A third policy area in which business opposes the free market is in infrastructure spending, typically funded by the state. Here costs have escalated far in excess of general inflation, by a factor of five or 10 times in real terms in the last 50 years, yet business still pushes for high spending, expecting it to be funded by the taxpayer, and does little or nothing to dynamite the union rules, environmental constraints and sheer mindless regulation that makes it so impossibly expensive. The free-market response to the infrastructure problem is a moratorium, refusing to fund any new projects until costs have been returned to their historic level in real terms (ample documentation is available to show where cost savings must be made.) Only when a bonfire of regulation and litigation has occurred should infrastructure spending again be resumed, this time at reasonable cost to the tax-paying public.

Business is also anti-free-market in the patent and copyright area, where it favors excessive and costly patent grants and copyrights extending far beyond a reasonable return for the creation concerned, so that 1923 seems destined to survive forever as a fixed date after which copyright will be eternal. It plays games with pension funding, hoping to pass off much of the cost of eventual defaults on taxpayers through the Pension Benefit Guaranty Corporation. It favors the US Eximbank, even though that crony capitalist institution supports a tiny minority of businesses, lands taxpayers with credit losses and provides subsidized competition to other businesses such as Delta Airlines.

Finally, the most damaging betrayal of free markets by U.S. business is its support for the Fed’s current extreme monetary policies. Here there is a disconnect between the needs of business itself, which wants at all costs to avoid another destructive meltdown like that of 2008, and those of corporate management, who want a continual bubble-led inflation of stock prices to maximize the value of their options. The Chamber view even extends to decrying the 2008 Fed as having been too tight – something that can have been true for at most a week or so, given the persistent negative real interest rates of that year.

Business in general and the U.S. Chamber of Commerce in particular retain a theoretical support for the free-market system. But that support is increasingly counterbalanced by practical opposition to it on issue after issue. It’s not very surprising; as the economy gets pulled further and further away from a true free market, with larger and larger government, more and more regulation and an increasingly destructive monetary policy, the interests of business increasingly become locked into the statist status quo. The beneficiaries of crony capitalism are rich and thriving in a crony capitalist world; those of a true free market are increasingly beleaguered, as they represent businesses that never came into existence or were stifled early on by monstrous regulation.

If a full free market, with Volckerite or gold-standard monetary policy and regulation sharply cut back were ever re-established, much of today’s business would bitterly oppose it, as no doubt would the Chamber. We even saw a simulacrum of this process in the run-up to the 1980 election and the early Reagan years, when much of the business establishment was dragged kicking and screaming into the new world. The effect today would be much stronger as the deviation from a free-market economy has gone much further since 1988.

We are at present in the gloomy world of Ayn Rand’s “Atlas Shrugged,” in which an alliance between the crony capitalist James Taggart and the regulator Wesley Mouch is driving the innovators into bankruptcy—or in that case, into a secret hideout in the Colorado mountains that was, alas, pure fantasy. There is still hope for a reversal into something better, but the business lobby will initially oppose bitterly any such move.

About the Author:  Martin Hutchinson is the author of “Great Conservatives” (Academica Press, 2005) which examines the British governments of 1783-1830. He was formerly Business and Economics Editor at United Press International. Martin’s weekly column, The Bear’s Lair, is based on the rationale that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. This article originally appeared on the economics website “The Prudent Bear” and is republished here with permission.

Common Core: A Trojan Horse?

The deceptively innocuous-sounding name belies the crippling effects a centralized K-12 education curriculum will have on the United States once it is allowed to take effect. Ze’ev Wurman, software architect, electrical engineer and longtime math advisory expert, feels Common Core is a federally-enforced “mediocre national benchmark” that “marks the cessation of educational standards improvement” and will consign the country to a non-first rate future.

Incursion by the federal government in matters pertaining to the curriculum or content in public education is prohibited by the Constitution and echoed in the 1965 Elementary and Secondary Education Act, 1970 General Education Provisions Act and 1979 Department of Education Organization Act.

The 2001 reauthorization of ESEA, the No Child Left Behind legislation, marked a shift that squarely involved the government in establishing education standards and student assessments. With Common Core, however, the reach and scope of federal control and the lawlessness are breathtaking. This essay attempts to outline the main issues. The initiative deserves further analysis.

The Common Core States Initiative was part of 2009 stimulus package. Prohibited by law from direct control of public education, it represented an attempt by the federal government to establish a straw horse, a public beard to induce states to adopt the program to compete for gain shares of $4.35 Billion in Race To the Top grant funds.

CCSSI was presented as a state-led effort “coordinated by the National Governors Association Center for Best Practices and the Council of Chief State School Officers. The standards, assessments, curriculum, texts and instructional materials were all developed by two independent private consortia, SMARTER Balanced Assessment Consortium (SBAC) and the Partnership for Assessment of Readiness for College and Careers consortium. They were selected by the Department of Education and awarded more than $300 Million in federal grants.

Although SBAC and PARCC had not yet written the standards for mathematics and English Language Arts, the states had to commit to them sight unseen in order to receive the RTTT funds, the states were in desperate financial straits due to the economic downturn. Forty-five states and Washington, DC all agreed to accept CCI. NY and Florida each got $700 Million.

CCSSI is a national initiative masquerading as a state-sponsored program. States will be required to develop massive databases involving personal information about students and their families. This is an invasion of privacy that is prohibited by the Family Education and Privacy Act. The information will be shared with the Department of Education and the Executive office as well as other federal agencies.

The standards, curriculum and assessments in mathematics and English Language Arts were developed by a 29-member Common Core Standards Development Work Group. The members represented testing experts, professors of education, one mathematician and several teachers and school administrators.

Instead of experts in the much-needed STEM subjects, the work group and the 25-member Validation Committee consisted of employees of testing organizations like ACT, College Board and Achieve. The members of the two three-person committees that wrote the entirety of the national K-12 standards for mathematics as well as ELA were non-education professionals as well.

Sixty individuals who lacked adequate qualifications or credentials were designated by the federal government to undertake the Herculean task. That the product designed to develop critical thinking and to teach 21st century standards for college and career readiness in the global economy without approval of oversight by the public or nation-wide consultation with educators and experts has caused such furor and outrage is both understandable and appropriate.

There was a single college professor of mathematics, James Milgram from Stanford University but not even one college or PhD-level professors of science, technology or engineering. Milgram refused to sign off on the final draft. He warned that by the seventh grade, the CCI math standards would put American students two years behind their peers from Singapore, Shanghai, Japan and the other high-performing countries.

John Goodman, a math professor at New York University, echoed Milgram’s concerns. He felt the CCI math standards imposed “significantly lower expectations with respect to algebra and geometry than the published standards of other (leading) countries.”

The concerns were prompted by the shift from 8th to 9th grade for Algebra I and the reduction in emphasis in basic principles such as addition, subtraction, fractions and division in elementary school in favor of abstract reasoning and problem solving. Panel member Dr. Sandra Stotsky of the University of Arkansas expressed similar misgivings about the math standards.

The ELA standards are equally sub-standard. 50% of classic literature will be replaced by informational texts from kindergarten through 10th grade. In the last two years of high school, 70% of what students read will consist of informational texts, political speeches and magazine article. Gone are Mark Twain, John Milton, Homer, Dostoyevsky, Tolstoy, Shakespeare, F. Scott Fitzgerald and countless other great Western writers.

A significant number of the literary selections chosen reflect the strong emphasis in multiculturalism. An emphasis on Islam is equally striking that is amplified by a $135 Million federal grant to install books on Islam in every public school library with no funds allocated for books on Judaism or Christianity.

Pioneer Institute estimates the costs to implement Common Core to be $17 Billion for the 1st seven years in addition to the funds each state allocates for education in its annual budget. The Congressional Budget Office was not asked to prepare an estimate lest it become obvious CCI is a federal program.

The public is waking up to the specter of national overhaul of public education, lowering of standards and federalization of the system. States are backing out of their commitment and refusing or delaying the implementation of the standards.

Massachusetts, the only state to score in the top three on PISA assessments, dropped significantly in rank after implementing Common Core. In New York, 70% of 8th graders failed the math exam and 74%, the English exam. In one Harlem school, just 7% of students passed in English and 10% in math.

Where do we go from here? There is only one answer. Michelle Malkin is right. She minced no words in her indictment of CCI as “rotten to the core” and her warning that “the corruption of math education is just the beginning.” It must be rejected and rescinded. Our children and our country deserve better.

About the Author:  R. Claire Friend, MD, is the Assistant Professor, Department of Psychiatry and Human Behavior, UC Irvine Medical Center, and the editor of the UC Irvine Quarterly Journal of Psychiatry. She is a retired psychiatrist and frequent commentator on the psychological dimensions of education and social welfare policies.

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Where is Public Education Money Going?

Given the constant chatter from the Obama administration and from teachers’ unions on the need to spend more for public education, let’s address the question “Is the US spending enough on education?”

I propose we look at the stats in graphical form starting with charts of population and total spending, culminating with education spending per child.

1. Population vs Civilian Employees

Data is from the US Census Bureau Population Clock

2. Budget Per Civilian Employee

Data is from White House OMB Historical Tables

3. US Population and Children Population

Data is from Childstats.Gov and the US Census Bureau Population Clock

4. Education Spending in Constant Dollars

Data is from National Center for Education Statistics

The above charts are from reader Tim Wallace who writes …

 Hello Mish

Last week I saw a comment on one of your blogs regarding there would soon be one non-worker for every worker in the country. Here are some charts I put together that highlight the current trends.

1. Total Population vs. Civilian Workers – Ratio Right Axis — This is a chart of our country’s population by year, with the number of people employed in March of that year, starting in 1950. You can see that there is a significant growth in the ratio of people to workers early on, up until the mid 1960’s. This is mostly because of an explosion in the number of children in the USA in that time period, starting at 47.3 million in 1950 and surging to 69.7 million in 1964. The child population then flat lined for several years, decreasing as a percentage of the overall population. The ratio since the 1980’s mostly seems to be affected by recessions periods with increases in the early ’90’s and ’00’s. There has been a slight drop in the ratio the past two years, but nowhere near the number necessary to return us to the levels of the alleged “balanced budget” time period in the late ’90’s.

2. Budget Per Civilian Employed In Constant 2009/2010 Dollars — This chart shows the federal budget divided by the number of people employed, how many dollars it ends up being per person employed. Obviously a lot of tax dollars come from other sources, but it is still illuminating to see the huge increases under the current administration on a per worker basis. From $20,000 per worker in 2007 to around $28,000 now, an increase of $8,000 per, or about 40%. I don’t recall getting a raise that large. Yet somehow we cannot afford a measly 2-3% budget cut.

3. US Total Population and Children Population – Pct. Right Axis — The chart shows children as a percentage of the population plummeting from 1964 – where they peaked at over 36% to today where they are just 24% of the population. The number of children in ’64 was about 69.7 million, today up to 76.7 million, a growth of 7 million while the overall population grew 123.7 million! The real problem here is that a growing economy is always dependent on the growth of the upcoming population. We are in deep trouble here.

4. Number of Children and Per Child Spending On Education in Constant 2009-10 Dollars — I cannot understand how this spending, so absurdly high, is continually pointed out as too little to spend on education! In constant dollars we are spending 7 times the amount on education as the 1950’s – the generation of students that put the man on the moon, invented computers, the list goes on and on. At 1/7th the cost!

Hope these are informative.

Tim

Where Did the Money Go?

Where the money went should be intuitively obvious: Teachers’ salaries, teachers’ pensions, administration salaries, administration pensions, sports programs, sports staff, union maintenance crews, etc.

Please keep these charts in mind the next time someone says we need higher taxes “for the kids“.

About the Author:  Mike Shedlock is the editor of the top-rated global economics blog Mish’s Global Economic Trend Analysis, offering insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.