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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.

Orwellian Reinterpretation of Desegregation Fuels Federal Attack on School Vouchers

Even as the attorney general of the United States, Eric Holder, commemorated the 50th anniversary of Dr. Martin Luther King’s historic “I have a dream speech” in Washington, D.C., his Department of Justice petitioned a federal court to halt the use of Opportunity Scholarships enacted by the Louisiana Legislature on behalf of predominantly minority children.

No, it wasn’t quite George Wallace seeking to block students from entering schoolhouses. Ironically, it was Eric Holder seeking to block the exit of predominantly poor, African American children from chronically failing schools in their search of a quality education.

Holder’s filing is a challenge to the rights of parents whose kids are trapped by automatic school enrollment by ZIP code, regardless of whether that campus is identified as a failing school. The Justice Department is seeking to bar the awarding of these scholarships, also called vouchers, in public school systems that are under federal desegregation orders, unless the vouchers first are approved by a federal judge.

Holder, using dubious data, argues that the exit of black children from failing schools would “impede the desegregation process” in Louisiana. He argues that the scholarship program is a civil-rights violation because schools become “whiter” as minority children flee their failing public school.

Reaction to the Justice Department challenge was fast and furious. Kenneth Campbell, president of the Black Alliance for Educational Options, acknowledged Louisiana’s racist history, but stated, “It would be a mistake to equate the current scholarship program that provides the only avenue for low-income children to escape failing schools to past efforts that supported and encouraged ‘white flight’ 40 years ago.”

The Louisiana program has been operational for five years and was designed as a voluntary program enabling low-income parents to move their children from low-performing public schools to either higher-performing public schools or to private schools. Last year, some 5,000 children participated; almost 8,000 scholarships were awarded this year. Eighty-six percent of scholarship students who applied were from schools rated as either grade D or F. Ninety-one percent of the children were minority.

Holder’s arguments are an Orwellian reinterpretation of desegregation fights. How does keeping kids trapped in recognized dropout factories advance the dream of Dr. Martin Luther King?

What is the value of an “integrated” school if none of the kids at that school – regardless of skin color – can even read at basic levels of proficiency?

Undoubtedly, the next chapter in civil rights and education law will no longer be dominated by mere demands for integration. Rather, school transformation and parental rights to end school assignment by ZIP code – truly five digits of separation from the American Dream for millions of children across the nation – is being embraced by parents who understand that education is the key to the American Dream. A fundamental rethinking of public education, including discussion of Opportunity Scholarships and vouchers is no longer “off the table” – even among Democrats embracing school reforms.

Sadly, this is not the first time that the Obama administration has moved against vouchers. It also zeroed out funding for the highly successful Washington, D.C., Opportunity Scholarship Program – even as he and the first lady exercised their parental choice to send their daughters to a very prestigious, expensive private school. Most parents in D.C. can’t afford to do that.

After Hurricane Katrina, Louisiana rallied to rebuild its schools. Not only have Pelican State residents rebuilt their schools, they have completely re-imagined education. Today, they are recognized leaders on achieving successful school transformations.

It is shameful that an African American attorney general would attempt to block the exits from failing schools in the name of justice. This is not why Dr. King marched.

Romero, a Los Angeles resident, served in the California Legislature from 1998 to 2008, the last seven years as Senate majority leader. This article originally appeared in the Orange County Register and is republished here with permission.

Happy Birthday, Milton Friedman

Economist Milton Friedman would be 101 today. His passing several years ago was lamentable but many of his ideas — involving monetary policy and price theory, for instance — are immortalized in his many scholarly books, academic papers and tributes by fellow scholars who knew him best.

Friedman was born the son of immigrants in Brooklyn, N.Y. He earned mathematics and economics degrees from Rutgers University before obtaining a master’s degree in the economic science from the University of Chicago and holds a doctorate from Columbia in the same field.

Friedman has been the greatest of my intellectual heroes, a stature he has held since 1986 when I first read his powerful book, “Free to Choose: A Personal Statement.” The book was a hit with readers and it powered its way to the top of the New York Times best seller list in 1980. The book was published in concert with his Public Broadcasting Service series by the same name.

“Free to Choose” was about economic liberty and public policy and was written for the everyman. His ability to communicate with anyone was a trait that served him well. If you were a fellow professorial egghead, he could speak egghead. If not, he could happily distill complex notions into digestible bites.

What is the very best of Friedman? Fans all have their own personal lists of their favorite Milton Friedman work, but I’ll offer mine, as well as important themes that Friedman brought up that we grapple with today.

  1. Free choice. “Free to Choose” changed my life while I was still a teenager and made me realize there were policy ideas that were not Democratic or Republican. The video series is worth your time, too, an example of which is at the bottom of this essay.
  1. Monetary research. Friedman coined the phrase, “Inflation is always and everywhere a monetary phenomenon. …” In 1976, he was awarded the Nobel prize in Economic Sciences, in part for his work on “… monetary history and theory. …”

In 1963, Friedman, with co-author Anna Schwartz, published “A Monetary History of the United States.” This seminal work remains a classic in the field of economics. It is probably impossible for the average graduate student in economics to avoid being exposed to it, in varying degrees.

The Fortune Encyclopedia of Economics wrote that the Federal Reserve Bank officials were so unnerved by Friedman’s analysis of the bank and its work that they “discontinued their policy of releasing minutes from the board’s meeting to the public.”

  1. Price theory. Friedman published his book, “Price Theory,” based on notes he used while teaching the subject.

Despite Friedman’s belief that it was roughly composed, it turned out to be such a popular work that versions of it have been translated into Portuguese, Spanish, German, French and Japanese, according to Friedman’s co-biography, “Two Lucky People,” which he wrote with wife, Rose.

  1. Social responsibility. Friedman’s essay, “The Social Responsibility of Business,” is an excellent rejoinder to many — including captains of particular corporations — on the true social responsibility of business.

This topic was addressed in his book, “Capitalism and Freedom,” and a 1970 article in New York Times Magazine. His conclusion can be summarized best by his quote:

“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

  1. Magazine essays. Friedman wrote a Newsweek column every few weeks, totaling more than 300 over an 18 year period, starting in 1966.

These columns surprised the Friedman’s to at least one degree. They found the work — written for the layman — being cited in peer-reviewed journals “and technical economics books.” That was not their intention, but it turned out to be an interesting turn of events.

  1. School choice. As far back as 1955, the Friedmans thought that greater parental choice in schooling was necessary.

In “Free to Choose,” Friedman laid out the case for a voucher system that would wrest control from government schooling bureaucracies. If money for education flowed to parents in the form of a voucher, parents could be free to choose the best and safest education for their children, and not one that was simply imposed by government.

Today the Friedman Foundation for Educational Choice works to carry out that vision.

Milton Friedman was an intellectual giant and arguably the most influential scholars of the 20th Century. While Milton Friedman is gone, his ideas live on, and this author is happy to reflect on just some of those while marking the 101st anniversary of his extraordinary life.

 Michael LaFaive is director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy.

Chutzpah on Steroids

An audacious article asserting that teachers unions are good for kids may have fooled some people fifty years ago but now should be viewed as a modern fairy tale.

AlterNet, a far left website that among other things extols the virtues of Communist wretch Howard Zinn, posted an article by Kristin Rawls – are you sitting down – “6 Reasons Teachers Unions Are Good for Kids.” I checked the date and it wasn’t April 1st so I realized that Rawls was actually serious – seriously deluded.

One of her six reasons: Teachers unions are the only major educational players still focused on advancing school equity by leveling the playing field. Yes, the playing field is level – the basement level, however – across much of the country. But parents are more interested in quality, which is why so many of them (especially minorities) are doing everything they can to get their kids away from unionized schools.

Another reason: Teachers unions protect student and teacher safety in schools. Student safety? Really? In California, the teachers unions just killed SB 1530, a bill that would have shortened the endless “dismissal statutes” for teachers who committed offenses involving violence, sex or drug use with children. I don’t think that the students victimized by pedophiles and sadistic teachers would agree with her outlandish statement.

Teachers unions fight to protect teachers’ First Amendment rights… Perhaps the writer needs a history lesson. The First Amendment is in the U.S. Constitution; no one needs a union to guarantee constitutional protections.

Teachers unions oppose school vouchers. She’s right about this one, which is too bad because vouchers work for both the students who avail themselves of them and the students who don’t. The competition factor improves the quality of education for all students. But then again, the writer isn’t looking for quality, just equality. And if kids are equally miserable, well at least they’re equal, right?

A second fawning pro-union article appeared in the Los Angeles Times last week. Michael Hiltzik’s “Proposition 32: A fraud to end all frauds” attacks an initiative that will be on the California ballot in November. This prop would ban not only direct corporate and union contributions to state and local candidates, but also contributions by government contractors to the politicians who control contracts awarded to them, and in addition, it would prohibit automatic deductions by corporations, unions, and government of employees’ wages to be used for politics. The piece is insulting to voters, whom he suggests would be “stupid” to vote for the prop and to union members he believes should be forced to pay dues to a union whether they want to or not.

A much more realistic and sobering article also appeared in the LA Times last week. Michael Mishak’s “California Teachers Assn. a powerful force in Sacramento” details the frightening power wielded by CTA. Just a few quotes from the article will put things in perspective:

The union views itself as “the co-equal fourth branch of government,” said Oakland Democrat Don Perata, a former teacher who crossed swords with the group when he was state Senate leader.

Backed by an army of 325,000 teachers and a war chest as sizable as those of the major political parties, CTA can make or break all sorts of deals. It holds sway over Democrats, labor’s traditional ally, and Republicans alike.

Jim Brulte, a former leader of the state Senate’s GOP caucus, recalled once attending a CTA reception with a Republican colleague who told the union’s leaders that he had come to “check with the owners.”

CTA has since used its institutionalized clout, deep pockets and mass membership largely to protect the status quo… CTA has ferociously guarded a set of hard-won tenure rules and seniority protections, repeatedly beating back attempts by education groups to overturn those measures, increase teacher accountability and introduce private-school vouchers.

In a similar vein, Troy Senik wrote a piece for City Journal, “The Worst Union in America: How the California Teachers Association betrayed the schools and crippled the state.” Like Mishak, he makes a case for the enormously destructive power of the teachers union,

In 1991, the CTA took to the ramparts again to combat Proposition 174, a ballot initiative that would have made California a national leader in school choice by giving families universal access to school vouchers. When initiative supporters began circulating the petitions necessary to get it onto the ballot, some CTA members tried to intimidate petition signers physically. The union also encouraged people to sign the petition multiple times in order to throw the process into chaos.

As the CTA’s power grew, it learned that it could extract policy concessions simply by employing its aggressive PR machine. In 1996, with the state’s budget in surplus, the CTA spent $1 million on an ad campaign touting the virtues of reduced class sizes in kindergarten through third grade. Feeling the heat from the campaign, Republican governor Pete Wilson signed a measure providing subsidies to schools with classes of 20 children or fewer. The program was a disaster: it failed to improve educational outcomes, and the need to hire many new teachers quickly, to handle all the smaller classes, reduced the quality of teachers throughout the state. The program cost California nearly $2 billion per year at its high-water mark, becoming the most expensive education-reform initiative in the state’s history. But it worked out well for the CTA, whose ranks and coffers were swelled by all those new teachers.

Seems overwhelming, doesn’t it? No, not really. In a recent post, education blogger Joann Jacobs spells out some inconvenient realities for the teachers unions. In “Teachers unions go on the defensive,” she points to an article in the New York Times by Frank Bruni who writes that,

In Chicago, Philadelphia, Los Angeles and other cities, Democratic mayors have feuded bitterly with teachers’ unions and at times come to see them as enemies. And at a meeting of the United States Conference of Mayors in June, Democratic mayors joined Republican ones in a unanimous endorsement of so-called parent trigger legislation, about which unions have serious reservations. These laws, recently passed in only a few states but being considered in more, abet parent takeovers of underperforming schools, which may then be replaced with charter schools run by private entities.

The unions have also run afoul of the grim economic times. “In the private sector, nobody’s got any security about anything,” said Charles Taylor Kerchner, a professor of education at Claremont Graduate University. So the unions’ fights over pay raises and pensions, he said, made previously routine negotiations “look like pigs at the trough.”

Then, referring to liberal news commentator Campbell Brown’s recent dust up with AFT President Randi Weingarten, Jay Greene says,

. . . the teacher unions are finally being treated as the special interest group they are rather than as credible players in the discussion over the merits of various education policies. When Campbell Brown takes on the unions, the game is over.

Well, maybe not “over.” Greene concedes,

The unions are still quite powerful and policy battles will continue to rage. But a big political and cultural shift has occurred.

Indeed it has, which is why “6 Reasons Teachers Unions Are Good for Kids,” with its brazen, reality-free content, would be a fitting entry in “Mother Goose: The Dark Side.”

About the author: Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers with reliable and balanced information about professional affiliations and positions on educational issues.