From time to time, Dr. William F. Staats provides a commentary on developments in the economy, the financial services industry, and the political environment. Contents of the Commentary page of this website are changed at irregular intervals ranging from two to four weeks. To provide feedback or comments on items in this section, please e-mail wstaats@wstaats.com. Commentary is copyright by William F. Staats.

Ignorance--AnEpidemic
Basic American Principles
Penalties and Incentives

Ignorance--An Epidemic

There appears to be an epidemic of ignorance abroad in the land. I have come to that sad conclusion based on what I have heard and read as I travel across the nation on the speaking circuit. Too many people just do not understand the basic principles that made the United States of America the greatest nation in the history of the world. Moreover, it appears that many do not understand the most fundamental of economic principles. On top of that, so many are unable or unwilling to think logically and come to sound conclusions regarding economic and political issues.

	While riding on a Maryland highway, the driver derisively pronounced SUVs “evil.” At that time we were riding in his van! Apparently, in his mind, there is some level of fuel consumption that differentiates between a “good” vehicle and an “evil” one. Of course, his van passes the test, and thus is not evil.
	A brilliant person expressed sympathy with the objectives of the rabble-rousers protesting at the World Trade Organization meeting in Seattle against international trade a few years ago. Some months later, after returning from a trip to Cuba, that same individual suggested that I write President Bush and urge him to normalize trade relations with Cuba. It seems that she had come to appreciate some artisans in Cuba, and was hoping that those good people would gain a broader geographical market in which to sell their products. I pointed out that, contrary to the belief of the protesters, world trade obviously was good for people, and particularly good for poor people and small businesses.
	Annually, the Texas Sheep and Goat Raisers Auxiliary and the American Land Foundation conduct a contest on current topics for high school seniors. Last year the topic which the students addressed had to do with whether the federal government should own more of the nation's land. Approximately 25 per cent of the students entering the contest naively and ignorantly and, perhaps idealistically, said that the federal government should own more land. Among the comments, “I feel that private ownership of land is becoming obsolete” and “ landowners really don't serve any purpose; we don't get anything in return for the rent we give them... . If land is leased out and the incoming money is distributed equally among the citizens, this could be used to abolish income tax and whoever needed land would have a chance..". Scary thoughts, these!

Basic American Principles

We can help stop and even reverse the spread of ignorance by expressing at every opportunity our understanding of, and appreciation for, basic principles that have given Americans the highest standard of living of any people on earth. Among these crucial principles which must be protected and maintained are:

	The private market system--individuals are free to buy or sell legal goods and services. The benefit of the market system is that it provides incentives for innovation and for the creation of goods and services. The incentive for people to come up with new and better things is that, if they are successful, the public will buy. The creators of those goods and services gets income and wealth as a reward. The purchasers get a higher economic quality of life.
	Individual initiative--the marketplace provides an incentive for individuals to exercise their initiative to be creative and productive. Except for the need to file some government forms and perhaps obtain licenses or occupancy permits, individuals are free to create an enterprise. In the absence of the incentive of income and wealth, there would be little or no economic reason to develop new drugs for the treatment of diseases, innovative services such as FedEx or UPS (each of which is rapidly outgrowing the government-owned postal system), or new technology and distribution channels to bring goods and services to people at lower costs.
	Private ownership of property--the opportunity to own property is one of the rewards available through the marketplace for individuals who have created goods and services. Also private ownership helps assure the optimal use of property. In nations where the government owns and controls property such as in socialist countries or in those under despotic rule, the quality of life for people languishes.The quality and value of government-owned property tends to deteriorate more rapidly than does privately owned property. Look at the condition of publically owned housing projects compared with houses which are privately owned. When a person owns property, he or she has a strong incentive to take care of it. The owner benefits--in fact, all of us collectively benefit. In my speaking trips around the nation, I often rent automobiles. Never once have I checked the oil of a rental car or even washed one. It is not my property, and therefore I don't concern myself with its maintenance and upkeep. Similarly, when government owns property, the bureaucrats or other users say “it's not my property.” Likewise, there is much waste in government spending because, again, it is not the individual government official's money that is being wasted.
	Limited government--the constitution of the United States clearly limits the role of government. The government is to provide for defense to assure our liberty, both as individuals and collectively as Americans.

So, please join me in taking every opportunity to acknowledge publically these and other principles that make this the greatest nation in the world. Help eliminate the ignorance with respect to our economic system, and help assure that Americans do not take these principles for granted.

Penalties and Incentives

Debates on taxes at all levels of government often ignore economic and social realities. A tax is a penalty. The more you tax something, the less of it you will have, all other factors constant. Some state legislatures have considered or are considering increasing the tax on cigarettes in an effort to reduce smoking. So, it can be seen that at least some people in government understand the penalty nature of taxes. It is less clear, however, that they understand the same concept applies to income tax rates, as well. The higher the income tax rates on productive activity, the less of that activity will take place. The tax is, after all, a penalty.

In contrast, a subsidy is a reward. Whatever the government subsidizes, we will get more of. For example, the more that the government subsidizes incomes through welfare payments, the more people we will have on welfare. Similarly, the more the government subsidizes production of certain products because of the political clout of the producers, the more of those products will be produced. People will go for the rewards of subsidies.

So, what we penalize, we get less of, and what we subsidize we get more of. Unfortunately, many of the decisions regarding penalties and subsidies turn on purely political concerns. Elected officials cater to voting blocks and to influential contributors. Often, the interest of those special interests do not always conform to the general desires and the long-term welfare of all Americans. The market system is a more appropriate form for providing the rewards and, in fact, the penalties.

Moreover, unlike many in government, the market system is blind to racial and ethnic and even wealth considerations. I trust the collective decisions of all peoples, as evidenced by their votes in the marketplace, far more than I trust elected officials. Too many of them lack statesmanship, and tend to do whatever it takes to get re-elected.