The HHS Mandate and Economics

Posted At : March 6, 2012 3:34 PM | Posted By : Dr. William Luckey
Related Categories: Economics Errors,Current Events

Anyone who is living has heard of the dispute between the Obama administration and the Catholic Church regarding the Obamacare ruling that religious organizations, such as schools and hospitals, must provide contraceptive services, including sterilization and abortifacient pills. Due to the tremendous outcry, the administration rescinded part of the mandate and said that the religious organizations did not have to provide the services, but their insurers did, and for free, women’s “health care” being considered a right under the Obamacare plan.

The major problem here is that the Catholic people and institutions will be paying for these “health” services, to which Catholics must have nothing to do, and many of the insurers are the Catholic organizations themselves. For example, in my diocese, the diocese is the insurer, and Catholic Charities is its insurer.

Why would a politician who wants to be reelected in November go charging into a large crowd of Christians, Jews, and religious liberty-loving Americans in general with only one horse and lance? Is he politically suicidal? Does he not know that he will be overwhelmed?

There are standard answers to this question, such as, Obama is appealing to his base. Even if he loses the fight, no one can say that he did not try to take on the evil, out-of-date Catholic Church. This will shore up his base, just as the stupid decision to stop the Keystone pipeline will solidify his radical environmental supporters. All this might be true. But an economist sees things from a little more complex view.

I have in the past explained what public choice economics is (see my article, “The Economics of Politics”). Let us apply Public Choice to the HHS mandate. What explains this action of the President and his Catholic henchwoman, Kathleen Sebelius, which seems to be political suicide. Remember, all people act in their own interest. That is not generally a bad thing, especially in the private forum, because 99% of what we do for ourselves helps the common good. Self-interest is not necessarily selfishness. But in public life it is another story. When a politician acts also for his own interest in public life, this interest usually contradicts the common good. Politicians protest that they are “public servants” and suddenly receive a halo when working for the government that they did not have in private life. Does that make sense to you? When politicians act (generally speaking), they act because they want something. Threatening to regulate an industry brings forth that something. Threatening to place expensive regulations on, say, the hat industry brings about a flurry of meetings among the hat industry executives about how to stop the regulations. The scenario usually ends up where the industry raises money and offers it to the politician’s election campaign funds or PACs, getting a promise to back down on the regulations. It also works in the other direction. A government cartel can be threatened by a politician to have the regulations which protect the cartel from competition removed. This forces the cartel to do the same thing—cough up money for the politician’s war chest to keep the regulations in place.

Now let us take the case at bar. We all know that Obama has a Catholic strategy. His idea is to rope in Catholics to his team by trying to show that despite the fact that he is a fanatical supporter of birth control and abortion, there are many prominent Catholics that follow him: Professor Kmiec, Kathleen Sebelius, Notre Dame, Joe Biden, etc. But his problem is that the American bishops are beginning to develop a backbone and are a bit more outspoken regarding the incompatibility of Catholicism with Obamaism. Since the original strategy meant to gain Catholic support is floundering, a new strategy to release the Catholic pressure against him is necessary. He now threatens to “regulate” Catholic institutions by making them pay for birth control, sterilization, and abortifacients. The Church puts up a big stink about it, good, but I am sure negotiations are going on behind the scenes to the tune of, “Mr. President, what do you want for this to go away?” Now the President can hardly expect the bishops to put money in his coffers. But one thing that they can do is soften their criticism of him, from now until election time.

Can we prove this? No, but we can see what happened in retrospect. If Obama lifts all the regulations, let us see if we see any opposition to Obama from the bishops in general. If they are silent prior to the next election, then that was probably what the deal was.

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'That’s Not Fair!'

Posted At : February 10, 2012 10:37 AM | Posted By : Dr. William Luckey
Related Categories: Economics Errors

The above expression brings me back to my childhood on the streets of New York City, where we were always playing some kind of ball game. So many times during a stickball game in the street there would be a great hitter, like my friend Dennis, who would cream the ball every time he got up to bat. And usually after a few runs, one person on the other team would shout out, “That’s not fair!” In fact, it always seemed to be the same guy. He could not stand it that there was someone way better than he was, if that guy was on the other team. A few times this complainer would go off in a snit into his house until his temper would abate, and he would come out and apologize for his behavior in the face of yet another enemy home run.

In this case, my complaining friend was angry that someone was better, not only than he was, but even better than the rest of us—and we were no slouches. But Dennis was headed to the pros one day, which he almost made as a pitcher when he permanently injured his arm, and that was the end of that.

What is farness? Interestingly, it is not a philosophical concept. Neither the Dictionary of the History of Ideas nor the Encyclopedia of Philosophy has an entry for the word or any variation of it. The online dictionary, on the other hand, hits the nail on the head: “Gained or earned without cheating or stealing . . . free from favoritism or self-interest or bias or deception. . . .” But is this what my companion meant by his protests—that we have violated the rules; that we cheated or were out to get him? Of course not. But there is a serious problem in our society. More and more we hear the word “fair” and “fairness” in public discourse about the economy. There are calls by politicians and other interested parties that we need more fairness. The implication is clearly that if some people are doing better than others, financially, educationally, or skill-wise, there is something “unfair” about it; that these people have gotten where they are by “cheating or stealing” or with “bias or deception.” Take the example of Robert’s Rules of Order or the rules of criminal or civil procedure of a state. These rules are meant to produce a fair process, not to effect a “fair” outcome. The rules protect both sides of an argument to make sure they get a “fair” hearing. If the chairman of the meeting or in court the judge, who is the trier of law (the jury is the trier of fact), deviates from the rules, someone can object. But in a meeting when a vote is taken after the rules are followed, one sides loses; in a court once the jury decides, the rules being properly enforced by the court, the outcome is final. If you are convicted of bank robbery by said jury, that’s fair, because the rules are followed. You cannot argue that it is not fair that you have to spend 10 years in jail, while everybody else walks around free.

Now if your side loses, and there is a reason of substance, not procedure, why you are upset, you might claim that the outcome was not just, even though the procedures were fair. Suppose the members of the organization at the meeting merely did not listen to your arguments, or the jury ignored evidence in your favor; then you can argue on substantive grounds that justice was lacking. In business, suppose I contract to work for a company for a gross amount of $10 per hour, and when I get paid, I get only $8 per hour gross. This might very well be unjust, assuming it is not a mistake. If it is a mistake, it is merely unfair. If it is intentional, it is unjust.

So why the constant talk about fairness? Some have less resources than others. This is a fact of life, but there are reasons for it. If I have a skill that is in demand and you have no skills or a skill that no one demands, it is just that I get more income than you. A brain surgeon makes way more than I do, even though I have much more education than almost all brain surgeons. Why? If you have a brain tumor, who would you go to? Me? Even I would not go to me. Even though the world needs good political philosophers, economists, and theologians, the need is not as acute as the need for surgeons. Hence, surgeons are in demand more than political philosophers, economists, and theologians. Hence, the surgeons make more money. But so many people resent this. So many are supporters of politicians who will take the surgeons’ income away and give it to the political philosophers, economists, and theologians, or, more likely, give it to the skill-less. But the surgeons, and for that matter, the political philosophers, economists, and theologians are more in demand by society than the skill-less.

It seems that the root cause of all this fairness “jibba-jabba” (to quote Mr. T.) is egalitarianism, or the desire for equal outcomes, enforced, of course, by the government. And where does this idea come from? There are a couple of sources; intellectual, laziness, greed and envy. Here I want to address the laziness, greed and envy aspects. I want to do this because there are personal flaws surfacing and now widespread in many American people today. Laziness produces a desire for a reward despite the fact that one does not do anything to earn the reward. Greed is the desire lurking in all of us for more and more. Greed does not apply to the rich only, contrary to popular opinion. Since greed is a capital sin, as is laziness, it applies to all, if we let that cat out of the bag. Envy may be the worst of the three. In envy we are sad and jealous at the success of another and we begin to go from mere envy to a violation of the Tenth Commandment—desiring our neighbor’s goods, which then leads to violation of the Seventh Commandment—Thou shalt not steal.

But most people do not want to risk walking over to their neighbor’s house and kicking the family out of their mansion. This might bring dire consequences, like the possibility that the owner might kill the perpetrator, or that the perpetrator will be arrested and spend time in prison. What is the next best thing? Get the government to do it! Almost all government programs are wealth transfers in order to buy votes. The lower classes, which are more numerous than the more productive classes, use the votes or threat of votes to get politicians to take money from the latter and give it to the former. This now has become legalized theft. Those who voted for it will not go to jail, and the politicians will not go to jail. The productive classes are the only losers here because they just do not have the numbers. Today a report came out that the average person on governmental assistance gets more net money than the average net income of the whole USA. Gee, I wonder why!

Next, I want to write an article about the HHS mandate, but then I will return to the root causes of this problem.

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Some Economic Laws of Spirituality

Posted At : October 22, 2011 3:21 PM | Posted By : Dr. William Luckey
Related Categories: Observations

I cannot take any credit for this, and I am sorry that I did not think of it first. The other day I was reading a book on spirituality and the author brought up an interesting point. She said that Christianity conformed to economic laws such as Gresham’s law. This law says, in its short form, that bad money drives out good. We can understand this by looking at an economic system that has two types of currency in circulation, both legal tender. One is a precious metal, such as gold, and the other, paper money, supposedly representing gold. The two currencies are interchangeable, meaning that one can turn in paper certificates for the real thing, or, say, for convenience, turn in the gold for certificates representing the gold. But when governments start printing more certificates than there is gold, like a counterfeiter, the value of those certificates begins to decline. People then notice that the paper certificate that says 10 oz. of gold buys less than the 10 oz. of actual gold. Noticing this, people obtain as much gold as they can and hoard it, and use the paper certificates. Gold, because it is now more valuable, becomes an inflation hedge and people keep it against the time when the paper currency becomes valueless; then they can bring out their real gold and still be able to survive.

The author to whom I referred said that there is a Gresham’s law of Christianity: non-challenging Christianity drives out challenging Christianity. We could say that non-challenging Christianity is “watered-down” Christianity, just as the paper currency in the above example is “watered-down” currency. In this case, however, the reason for the driving out of the challenging Christianity is different from the reason for the driving out of the gold in favor of the paper money. That reason is that people tend, because of the scars of original sin, to gravitate to the easy, the shortcut, to that which confirms their own private preferences. A friend of mine once characterized the typical sermon of the 1970s in New York City as, “It’s go to be good to be good.” This is an example of the “watered-down” religion that crept into so many parishes and dioceses since Vatican II was hijacked by modernist rebels. Priests no longer gave sermons on serious moral questions such as abortion or, God forbid, the evils of artificial birth control, in favor of sermons having very little content—sermons that made you feel good, rather than telling you what you must actually do. This kind of Christianity spread like wildfire, because now people could make up their own minds about moral questions, simply because there was no priestly guidance.

The catechetical instruction in the 1970s was horrible as well. When my kids began to become school age, we were directed to a private Catholic school run by nuns because people told us that it was more orthodox than the local parish school. Well, that was not true at all, and after my wife had a talk with the principal, and we both examined the catechetical materials my children were to have in their classes, we decided to homeschool. So who were left to go to the school? People who were not at all distressed by the no-content doctrine that was to be taught, and paid a lot of money for it. The rest of us went into “hiding,” in a sense.

One economic law that might help to understand this phenomenon is the economic “law of demand.” This very simple law, which is one of the first things one learns in an introductory economics class, is that when price goes up, people demand less of a product or service; when the price declines, they want more. The extent of the change of quantity demanded to the change of price is called by the unfortunate term of “elasticity.” Simply stated, if people are really committed to something, like heroin, a rise in price will make hardly a difference in demand. If people are not really committed, and there are some substitutes available, such as tea for coffee, the demand for the item with the rising price will fall and the demand for the item with the unchanged price will rise.

Applied to the religious situation at hand, when the Church begins to fail in its duties to the faithful to offer the unvarnished truth and substitutes a namby-pamby version of itself, two markets are created. One is the market for namby-pamby Catholicism, and the other for the real thing. They are no longer the same product. The newfangled version of Catholicism has a low price (no real penitential practices, pick-and-choose morality, and no real presence in the Eucharist) as opposed to the higher-priced Catholicism, the true version, which calls for real commitment and sacrifice, etc. Just as with a high-quality product which is sold in upscale stores, most people go for “knockoffs.” Liberal Catholicism is a “knockoff” religion. One gets to call oneself a Catholic like a woman who shows off her “Gucci” purse, but neither of them has the real thing.

Why are there two markets for Christianity? The answer is the level of the society. In a society that prized the traditional values of Christianity, the watered-down version would not be tolerated. For the last 40 years it not only has been tolerated, but embraced, by a society which has become “fat, dumb, and happy.” All we have to do is read the Old Testament to see the same scenario that God Himself predicted in Deuteronomy. The chosen people would become prosperous and eventually offer human sacrifices to Baal in the very temple itself. God sent his prophets to warn the people, as he has in the past hundred years or so: St. Thérèse of Lisieux, St. Josemaria Escriva, Archbishop Fulton Sheen, great popes, but like the Israelites of old, we did not listen.

The other market, that does not tolerate the cheesy Catholicism, pays an even higher price for the “product” because it comes with persecution, not only from the society at large and the agnostic media, but from members of the Church itself. My own sons, because they have a large number of children, are criticized by their fellow parishioners: “Didn’t you ever hear of birth control?” or “What are you, some sort of Super-Catholics?” There are even advertisers for this diluted form of Catholicism—liberal professors at so called Catholic universities. Most college-aged Catholic students, ignorant of the true faith and whose parents are just as ignorant, send them to these colleges thinking that they will get a Catholic education. They come out as agnostics, or as surface believers. It is the same as the advertisers of Gucci knockoff purses, who, while not admitting that the purse is not a real Gucci, tell them that it is, but just cheaper. That is to say, this is the real Catholicism, but it costs less in actual requirements than the original.

Because economics is not a business science but a science of human action, I think that this author I was reading has stumbled onto something useful to our understanding of the spiritual world, and I intend to follow the path it leads from time to time.

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Introduction to Economics 2

Posted At : September 14, 2011 10:35 AM | Posted By : Dr. William Luckey
Related Categories: Economics for Catholics

In our last article, we covered the fact that people make choices based on their values. The values are subjective to them. We stressed that this is not a denial of objective values, but it is a recognition that one must accept something as his own before he chooses it. Even green vegetables fall into this category. They are good for you, and you need their nutrients, but how many kids turn their nose up at them. In fact, even some adults reject them despite the fact that they know that they are part of a healthful diet. So, the truth is that people make choices based on what is in their heart, and it is not the job of the economist qua economist to comment on that.

Next, we have to realize that people’s values are ordinal, not cardinal. This means that they are not able to be ranked as 1, 2, 3, etc., but at 1st, 2nd, 3rd, and so forth, and that this ranking changes over time, either long or short. Just before lunch, you may be hungry, and therefore, eating is ranked high on your value list. After lunch, eating has fallen to the bottom of the list, but will rise in rank as the day goes on. There are long- and short-term values. One might say that the most important thing I want to do in my life is to become a lawyer, but right now I have a paper due tomorrow and I have to get it done. Both of these values are ranked first, but in different time schemes. There are related in that the immediate problem, doing the paper, is a means to accomplish the long-term value.

When people act they not only act for an end, but they always act to improve their condition. From shifting your position in a chair so that you will feel more comfortable, to changing jobs because you see more room for advancement, no one acts if there is no chance for betterment. Acting, however, is based on the idea that the act is likely to improve one’s condition, so that a person must see an end and means to accomplish that end. If you are in prison and you would like to escape to regain your freedom, but the prison is so well sealed up that you cannot figure out a way out, you will not try to escape. Not to see any way to improve your lot in life, whether this perception is accurate or not, leads to despair. Persons who have a victim personality think that the whole world is against them and so they do not see any connection between their actions and their betterment. The result is that they stop trying. Those people who live in poverty-stricken countries, where there has been no economic improvement for a long time, despair of ever bettering their future. But these cases are usually caused by either dictatorship, where the ruler drains any wealth from his people, or by constant civil war. Political stability is necessary for economic improvement, because no one will try to fulfill their goals in the midst of serious uncertainty or danger.

What we usually call cost is called “opportunity cost” by economists. The cost of something is not the price one paid for it; it is the loss of the next best alternative, now made impossible by the choice of the first option. Years ago there was an ad on television of a guy drinking something, perhaps a soda. After finishing the drink, he hit himself on the forehead and said, “I could have had a V8,” referring to vegetable juice. Since he bought and drank the soda, he cannot have the V8, and the way the ad was set up, the opportunity cost of not having the vegetable juice was higher than the benefit of having the soda.

Notice that the idea of money was not brought up so far. Since economics is a science of human action, it is necessary to see the patterns of human action, prior to introducing money into the situation. This leads us to consider things that go into benefit. True, money or income might be the motivation for someone to do something, but part of considering the cost of the action might be what are called “psychic benefits.” Blessed Mother Teresa, knowing that she was pleasing God by showing his love to the least in his kingdom, did not make money taking care of the poorest of the poor, but received a psychic benefit greater than the very high cost to her in doing what she did. She started by herself, in the very poorest part of Calcutta, living with the squalor in which these unfortunates lived, taking care of those who were dying, smelled bad, had diseases, could not feed themselves, were incontinent, and in the midst of all this she was persecuted by Hindu authorities and citizens who accused her of not allowing these people to find their Karma.

This example aside, we are not disembodied souls, and the provisions for the body and those of the family are a necessary part of life. In addition, there is nothing in our faith that prohibits us from having labor-saving devices, or conveniences, such as air conditioners, which no one I knew had when I was a kid, or cars and such. (We are not all capable of becoming Mother Teresa.) The moral problem with this is not in the things themselves, being inanimate, but in the heart of the person. As Blessed Pope John Paul II said, the problem is in a person’s defining himself by “having,” not “being.”

Having said this, it is now time to go on to more of what makes a free market work: our next installment.

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Introduction to Economics

Posted At : August 22, 2011 11:25 AM | Posted By : Dr. William Luckey
Related Categories: Economics for Catholics

This is going to be a series of articles to help Catholics understand economics. Because of the serious deficit in the comprehension of economics by Catholics, this will be a daunting task, but the author will do his best.

In order to understand this subject, there is a need to distinguish between the actions of human beings and the way those actions are perceived by those who study them. The value of any writer’s thought is whether it jibes with actual human experience. Note, it is not your personal experience, but the general experience of humanity that counts. This means that the economic system of a country and the writings of those who study it may or may not jibe, depending upon how schooled in technique and objective the observer is. It is a commonplace that witnesses to a crime, even if it is staged crime in a law school class, will differ widely in their descriptions of what occurred. This means that no evaluation of how an economy works is valid when done by observers not trained in what to look for, nor trained to analyze what they have observed, not to mention the fact that their experience may be limited to their own neighborhood or their personal experience, or one event. Sadly, most people see themselves as experts on economics and political science, without having read or studied any serious work on these subjects. Happily, this is not true of surgery. Very few people try to instruct physicians on how to take out a gall bladder, but everyone “knows” about politics and economics, such that the layman considers his view of these subjects as good as, or better than, those who have studied for years.

Everyone must remember that the economic system is a given, and it is extremely complex. There are billions of transactions of every kind (not just business transactions) that occur continually each and every day. No human being or group of human beings or computer can ever monitor even some of those transactions. This is because a transaction is not a transaction until someone acts and another responds. One would have to be there to know the transaction; and who could ever do that? What we get are statistics that are nothing more than past history, a digest of what occurred a week or a month or two ago, by the time they are gathered. While analyzing statistics can be helpful in telling one what happened, it is useless in informing us as to why it happened. But a true science is not based on what, but on why, on cause and effect. And the best way to understand economics as a science is to understand man, not data.

Economics begins with the “action axiom,” i.e., man acts. There is no question that this is true, because even to argue with this you are required to act. It is true that man also thinks, but we cannot know what he is thinking unless he acts. So if a person says to himself that he going skiing tomorrow, it means nothing if he does not actually do it. If I come up with a great theory of the nature of the universe, it is useless unless I act—in this case, tell someone either verbally or on paper. We know about Einstein’s fruitful “thought experiments” only because he wrote about them. Blessed Pope John Paul II tells us in The Acting Person that those who only have ideas live in a dream world. Thinking about doing good does not make one good. Thinking about going to France does not get you there. Dreaming about a machine that you would like to invent that would be a great boon to mankind does not help mankind at all.

But admitting that man acts does not explain how man acts. Economics does not delve into the psychological tangles of the mind to explain why each man acts, but it does explain his actions to a great degree. Aristotle correctly informs us that all men act for an end or goal. In other words, people do not act for nothing. Your mother may have asked you at one time, “What are you doing?” You may have responded, “Nothing.” But was that really true? Chances are that you were playing, chilling, thinking about what to do on Saturday, or brooding, or stalling so that you did not have to do your homework or chores, etc. Even an act as innocuous as going to bed has a purpose to the person who does it. He knows that if he does not get sleep he will be miserable the next day, if not dysfunctional.

So, all men act for an end. In addition, all men act for the good. You may object to this, pointing out correctly that the prisons are full of people who did not act for the good. But as Aristotle says, men act for either a real good or a perceived good. In other words, whether the action is aimed at an objective good or not, even the bad acts seemed good to the perception of the actor at the time of the action. Think of the bank robber. No one goes through all that trouble because he was bored (of course, the ending of boredom is a end), but because it is seen as a solution to the robber’s money problems. Later on, when he sees his picture on television and he has to go on the run, he might come to the realization that it was not really a good choice, and turn himself in. But in this case, “good” again does not mean objectively good, but that the trouble he is in, and the inconvenience he caused himself, was not worth the money, which is slowly dwindling.

Here is presented to us another basic element of human action—all human acts are based on “subjective valuation.” If an economist had a nickel for every time some well-meaning Catholic misunderstood or intentionally misinterpreted that term, he could retire. Subjective valuation means that a person’s actions are based on things that HE thinks are of value. This in no way denies the existence of objective values. It just means that if a person has not subjectivized those values, he will not act on them. If a guy thinks ballet is for sissies, he will never go to one. If I fail to see the value of Catholicism, I will never become a Catholic. So everyone acts on his values. Examine yourself. Ask yourself why you do not do certain things, even things that are perfectly moral and objectively good. It is because YOU do not value them, while still insisting that they are objectively good.

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'Anatomy of an Economic Ignoramus'

Posted At : August 22, 2011 11:20 AM | Posted By : Dr. William Luckey
Related Categories: Economics Errors,Economics for Catholics

This article, by Dr. Thomas Woods, is a great instructional tool because it deals with the most commonly heard objections to the market economy made by both Catholics and various leftists.

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The Parable of the New Car

Posted At : August 10, 2011 8:22 AM | Posted By : Dr. William Luckey
Related Categories: Economics Errors,Current Events

Once upon a time, there was a man, let us say for the sake of the story it is me (it isn’t, but if I did these things, I would be in the same state as the man in the story). One day my 11-year-old Buick died. So, I needed another car. But instead of getting a nice used car for cheap, like the Buick I had which lasted 6 years, I went out and treated myself to a Ferrari. The price of this new car was over $225,000. Now I am a man of modest salary, and I already have a mortgage on my house and am trying to pay off credit cards, which means that I do not have that much discretionary cash. But the payment on this car (I looked this up in the amortization tables) at 5% for five years (the most they usually allow in a new car) is $4700 per month. Since, up to this time, I had a good credit record, they actually loaned me the money.

So I came home with the new Ferrari, and, after my wife stopped hitting me on the head with her rolling pin, she yelled at me for spending too much money and for putting us in so much debt. I felt very bad that she was so upset, so I decided, as soon as the headache went away, that I would do something nice for her. Since my wife does not have her own car (again, for the sake of the story), I went out and bought her a car. But since she was mad that I spent so much on the Ferrari, I decided to get her a cheaper car, so as not to spend as much. The car I bought, a Mercedes-Benz, cost $42,000 and the payments, at 5% for 5 years, would be about $800 per month, surely a bargain compared to a Ferrari. This means that I just boosted by monthly liability payments by $4700 + $800 which equals $5500 per month.

For a man of modest salary and only a small amount of discretionary cash, this payment is way too much. Suppose, for the sake of the story, I am not allowed to give the cars back. Even if I did, they would be considered used cars and I would still owe a chunk on them, though nothing like I am currently paying if I keep them. How do I make the payments? I borrow the money. After all, I made these purchases in only two days; maybe they have not gotten into the credit system yet. Suppose I got some credit cards with high credit levels? I would not have to borrow the whole payment from the cards every month, because I could make some part of the payment with my discretionary cash. I would, however, have to borrow a large portion to make the full payment. Maybe I could make my wife go to work, if she is not already working (in real life, she is). Maybe I can suddenly get hired as a vice-president of a big company so that my salary will take a big jump. But is that likely to happen anytime soon? No. Basically, I am in serious financial trouble.

Now, what is the meaning of this parable? If the reader did not already see it coming, we can compare the man in the parable to the Federal government. The man got attached to material goods, and not just any goods, but fancy, expensive cars, probably due to the mid-life crisis syndrome. The populace gets attached to transfer payments made to them, called entitlements, and the government gets attached to the power that comes to it in return for promising these entitlements to the people attached to them. But the government and the populace, who pay for these things, cannot really afford it, and, like the wife in the example, will shout and scream about the cost. So the government (husband) goes and gets loans to pay for the entitlements, and to appease those who complain about the spending, gets them some goodies, like bailouts for profligate banks and companies, the executives of which get to keep their jobs. Of course, to do that, the government has to borrow more, and in a pinch, the Federal Reserve Bank can counterfeit some cash, for which the man in the parable would go to jail for a long time if he got caught doing that. Meanwhile, the people (like the wife) are furious and are worried that the whole edifice will collapse. Just as the family will have to declare bankruptcy, the government will have to default on its debt. So the government (husband) finds a way to keep borrowing, though a lower amount, to enable everyone to keep their programs (and their cars), the protesters (wife) having gotten used to the bailouts (the Mercedes-Benz), etc. This is the recent debt deal worked out between Democrats and Republicans. Spending was not cut; just the rate of new spending is less than the old rate. We can still borrow more money, which we will also have to pay back, but since the economy has been malfunctioning for some time (no gigantic pay increases for the husband), where will the money come from?

This parable is not far-fetched in any sense of the word. The laws of economics, which are not laid down by anybody but come from the actions of humans, are the same for all. Milton Friedman famously said that there is no such thing as a free lunch. For those too young to know the reference of this wise statement, my grandfather, who was born in New York in 1880, told me that bars in those days advertised a free lunch. Of course, most people going in to get a free lunch got some alcoholic beverage. The cost of the beverage was high enough to pay for the food, so the lunch was not free. Everything has to be paid for, and the debts incurred are not incurred by the “government” but by the individuals in government whose actions try to defy the laws of human action—the laws of economics. Just as the husband in the story would be a fool to buy a Ferrari with the income he has, and then buy a less costing but costing nevertheless Mercedes-Benz right after that, so the people in government are crazy to think that they can keep promising and giving benefits to voters without considering how to pay for them. Thus endeth the lesson!

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The Game Is Up!

Posted At : July 18, 2011 9:08 AM | Posted By : Dr. William Luckey
Related Categories: Observations

Did you ever wonder why tuition at most Catholic universities has skyrocketed since you went there decades ago? Did you ever wonder why the tuition at these schools climbed way higher than the inflation rate? Well, the game is up; and here is the story.

Somewhere in the mid-1960s when I was an undergraduate in a non-Jesuit Catholic college, the Jesuits had a meeting, the report of which I have read, where they were trying, for good reason, to increase the prestige of their universities. Since the schools were still Catholic at the time of this conference, they were interested in getting more people to go to Jesuit universities to increase the influence of Catholicism. Prior to this time, many, if not most, Jesuit scholars, after their long period of philosophical and theological training, got their doctorates at the Gregorian University in Rome. The Gregorianum, as it is called, was founded by St. Ignatius Loyola himself, and originally called the Roman College. Those getting their doctorates there have gone to an excellent school. The problem with it is that, in the mind of these Jesuits, it is Catholic. There is a prejudice against Catholic education in snooty circles, so the decision was made to send their budding academics to secular universities for the Ph.D. The thinking was that even though these people were Jesuit priests, the fact that they had a Harvard, Yale, University of Chicago, etc., degree would give them, and their universities, recognition in the secular world, yet they would still be Catholic. But this view was very naïve. Since doctorates from Catholic universities in the United States as well as in Europe are generally just as good (if not better—don’t get me started), in my opinion, as the Ivy League’s doctorates, this tells you that the problem is actually that the educational establishment just hates Catholic anything. So starting in the late 1960s you saw more and more priests with doctorates, even sometimes in theology, from big-name secular schools. This was not only true of Jesuits now but of other orders as well. This, however, is only the beginning of the story.

The next chapter of the tale occurred in 1967 when a number of Catholic university officials met and issued the “Land O’Lakes Statement.” Signers included authorities from many Jesuit universities, Seton Hall University, and the Catholic University of America. Thankfully, my undergraduate institution was NOT one of the signers, but my Jesuit doctoral university was, and by the priest-president, who, one year later, left the priesthood. (See http://consortium.villanova.edu/excorde/landlake.htm.) This statement basically relegated Catholicism to the “campus ministry” department, and theology to a study of the “depths of the Christian tradition” and “the total religious heritage of the world.” In other words, Catholicism will no longer be the center of the Catholic university, but will be treated similarly as it is treated in secular universities.

But what about the tuition, our original subject? Well, at the same time as all this was going on, priestly vocations were going down. Since the universities had decided that only big-name doctorates were to be hired, they had to hire laypeople with these degrees. In order to do so, the Catholic schools had to compete with the non-Catholic universities, so that the pay had to be comparable. But how do they pay for this? And how do they pay for an increase in the number of fields available to study, not to mentions labs, etc., staffed by these faculty members now getting greater pay? Here is where the government stepped in. The government, beginning mostly in the Johnson administration in the mid to late 1960s, began a process of increasing the Federal government’s contribution to student financial aid in terms of scholarships, loans, and grants. At first glance, one automatically says, “Isn’t that great, now poorer folks can afford college.” But this had many effects, including one interesting economic one. The big boost in Federal student financial aid became an enabler for these now-liberalized Catholic universities to get more money for themselves. The key was this, and it took a while to actually realize it. What the schools did was raise tuition to great heights. The rich people can pay it anyway with just a check; the poorer ones can just get financial aid. Everybody wins. Now those interested in attending one of the now more secularly prestigious Catholic-named institutions can go even if they could not afford it in the past. One proof of this is the sudden building of a Taj Mahal–like student center at a university at which I used to do research in the 1980s and 1990s. This student center has marbled floors and a hotel attached to it. The reason for this is obvious—competition for students. Students will be attracted by the spectacular.

The last stage of the process is the changing of the Board of Trustees. This occurred early in the game, and the argument was made that since Vatican II gave the laity more responsibilities in the Church, so it should be on college boards. But there were always laypeople on the boards of Catholic universities. So, where is the problem? Now, on most, if not all, colleges run by religious orders, the laypeople are in the majority, usually the vast majority. The order no longer controls its own school. Oh, there is usually a provision that the president has to be a member of the founding order, but he is now a functionary of the board. But, you might object, there are plenty of laymen out there who would have the heart of the institution in mind, so they would make good board members. That is true, but is that why these laypeople are chosen? I argue that it is not. The real reason is their ability to raise money—purely and simply. After all, if the schools are going to hire laymen with big-name university degrees, and build fancy student centers and labs, etc., they have to raise more and more money, since tuition, even with government funding, does not cover probably even half of the expenses. The universities will generally not ask those who are hostile to the university in question to join the board, but the rationale of these board members is not quite the same as that of the original founding order when it was founded.

The ultimate outcome of this whole thing is that many—not all, thank God—Catholic schools have abandoned the faith in reality, while maintaining a veneer of it, to become a business, and while there is nothing wrong with business in itself, there is something wrong with this particular business, the Catholic university, built with the money of devout Catholics and the sacrifices of religious, in some cases since the late 1700s, abandoning their raison d’etre. This explains an awful lot of incidents, such as Cardinal Arinze being treated as if he was the bearer of the plague by a large group of Georgetown University faculty, or Georgetown’s covering up of the Jesuit IHS part of the school’s emblem when President Obama spoke there, the showing of obscene plays on the campus with the authorities powerless to stop it, and lastly, President Obama receiving an honorary degree at the University of Notre Dame. Oh, by the way, both of these schools signed the Land O’Lakes Statement.

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Raising the Capital Gains Tax

Posted At : June 21, 2011 9:48 PM | Posted By : Dr. William Luckey
Related Categories: Economics Errors,Current Events

As everyone knows, the government has painted itself into a corner. More and more spending on more programs, more bureaucracies, more entitlements, and more buying of votes with these programs has gotten the Federal (and some state) government into the unenviable position of reaching the end of the tolerable income tax level, beyond which the populace will revolt, and at the end of the indebtedness limit, beyond which we cannot repay all the money it borrowed in order to fund these things beyond the tolerable tax level. Calls are being made for a hike in taxes “on the rich,” and a hike on capital gains taxes.

So let us examine what a capital gain is, and then examine the effect on the economy of higher capital gains taxes. A capital gain is the proceeds less cost from the sale of a capital asset, such as property, stocks or bonds, a car, etc. These proceeds are taxed at a lower rate than income, because if income tax rates were applied, most of the proceeds would be given to the government. Suppose you win a million-dollar lottery. This is not a capital gain, and it is taxed as income, which means that about one-half of the million dollars goes to the government. A capital gain, however, is taxed according to different rates. According to the Tax Foundation, the current capital gains tax rate goes from 20% to 39.6%, depending on how long you have owned the asset. The higher rates are for shorter time spans. So if you held a piece of property for a year, you would pay virtually a 40% tax on the proceeds. If you held it for five years or more, you would pay 20%.

What is behind the capital gains tax? Those who propose a capital gains tax, or those who propose raising it to higher levels, are motivated by a number of things. Firstly, there are the government officials whose spending is so profligate, by which they “buy” votes by rewarding their supporters and harvesting more followers, that they need to tax everything that they can, and Americans are habituated to the thinking that everyone has to pay their “fair share” so that the racket can continue. Then there are people motivated by false thinking. Neither of these parties cares about you selling a seven-year-old car, or an old outhouse. Both of these are interested in people who sell, say, the Empire State Building. These types of capital gains are targeted both by government officials and by the people of the second type of thinking, who have in their heads the image of rich people with yachts, with large living quarters on the most desirable locations in the world. To this second group, it is a question of pure class warfare and envy. In their minds, the wealthy sold this big asset so that they could live “high on the hog,” while the rest of the country toils away for a modest living. There was an anecdote I heard when I was a kid, although the story pre-dated my birth, of rich people sitting around having cocktails and one of them says: “I wonder what the poor people are doing today.”

This story is like the cartoon version of the truth, so let us examine what people do when they sell a major capital asset. Firstly, why would a person, or a company, for that matter, sell a major capital asset? Unless the person just wants cash to retire with, which is not that common, he or she wants to do something more profitable with the money. Take our Empire State Building, for instance. That building is income property. Companies rent the offices and the owner, after expenses, is the residual claimant, which means he or she, or their company, gets what’s left. It is this money that allows the owners to live a comfortable life, assuming that they can keep the building rented. The owners do a great service to companies in providing such a building for companies to use. But if the economy tanks, they might find companies that rent space in the building going out of business, and getting others to rent might be difficult, requiring the lowering of rents, so then the residuals will get smaller. Now let us posit the scenario of a midwestern city that is going to get a major-league baseball and football franchise, and now needs a stadium. The owners of the Empire State Building notice that even though the economy is not doing so well generally, and in New York, the Midwest is doing better, and throughout the Midwest receipts for sporting events are actually increasing. The rule here is that money goes where it is most productive, because that is where it is most needed. So the owners of the Empire State Building will find a buyer for the building, even if they sell it for less than they think it is really worth, to raise the cash to build a stadium. (Of course, we are leaving out many technical details here, such having to bid for the contract, etc., but these are not relevant to the story.) But, and here is the key to the article, if the capital gains tax takes too much of the proceeds, the owners of the building will not sell it because the sale will not render enough cash to build the stadium. So, the result of high capital gains taxes is to keep capital frozen in current projects and forestall new, more profitable projects. Notice that the owners of the Empire State Building did not want to sell the building so that they could buy another mansion, but to enter a venture that will increase their own cash flow or income. If they succeed, money will flow from where it is not really needed—New York, where things are in decline—to the Midwest, where people are begging for investment funds.

The result of all of this is that whatever the reason for wanting to foist higher and higher capital gains taxes on business folks, either to fund government profligacy or to soak the rich, the result is the same—economic stagnation.

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(Liberal) Wolves in (Catholic) Sheep’s Clothing

Posted At : May 30, 2011 9:19 AM | Posted By : Dr. William Luckey
Related Categories: Economics Errors,Issues in Social Teachings,Current Events

Speaker of the House of Representatives John Boehner was recently invited to give the commencement address at the Catholic University of America. Boehner himself is a practicing Catholic. But some professors both at Catholic U. and other “Catholic” colleges wrote a public letter upbraiding Speaker Boehner for violating Catholic social teachings by proposing major cuts to entitlements. The letter treats the Speaker like a five-year-old, one who is ignorant and hard-hearted, neither knowing about the social teachings of the Church (they sent him a copy of the Compendium of the Social Doctrine of the Church) nor caring about the poor. They repeat the old complaint that “it [the budget] carves out $3 trillion in new tax cuts for corporations and the wealthy.”

While there are a few recommendable passages in this letter—such as, you cannot cut the budget in a way that is a disproportionate sacrifice of the benefits that the poor get—most of it shows a very poor understanding of Catholic social teaching, such that my undergraduate students could write a better letter than this one. In fact, there are so many problems with the letter that one does not know where to begin. So let’s examine just a few points.

First of all, it turns out that Professor Schneck, the first signer of the letter, and hence, probably its author, is a board member of both Democrats for Life and Catholics in Alliance for the Common Good. The fact that he is a Democrat tells us a lot, in that most Democrats have major socialist tendencies, and bow down to the Obama agenda. Secondly, I even question the “life” title. Remember Professor Kmiec (see my articles in this forum about him), who, in supporting Obama’s presidential run even though Obama is the most anti-life presidential candidate we have ever had, justified his support by lumping together concern for the poor with the overt act of murdering an innocent baby, holding that Catholics who concentrate on abortion take away from the other life issues, as if these could be compared. For his loyalty to Obama in suppressing a major moral teaching of his faith, Kmiec was rewarded by the president by being nominated to be the Ambassador to the Vatican. The Vatican rejected him. (Gee, maybe that tells you something.) He then was appointed to be Ambassador to Malta—remember, the island converted by St. Paul (“[i]t profits a man nothing to give his soul for the whole world but for Malta?”). He got that position, but resigned soon after because basically the Inspector General reported that he was incompetent, used his office for his personal agenda, and did not take directions from the State Department, his immediate superiors. The always whiney Kmiec, of course, denied everything, just as he blamed those who wrote against his questionable life position as being mean.

The second organization of which Professor Schneck is a board member is funded by George Soros, the billionaire businessman-socialist-atheist, who also funds many of the most leftist organizations in America. While I do not know the personal thinking of Professor Schneck or the other academics who signed the letter, board membership in these organizations does put some questions up for discussion as to the sincerity of the letter and the interpretation given to the social teachings of the Church.

On the sincerity front, Professor Schneck says that he was shocked that the public letter “became viral” so quickly. This man who calls himself a political scientist did not know that a public letter attempting to embarrass the Speaker of the House prior to his speaking at Catholic University of America would cause a stir? This strains the bounds of credulity, to say the least. If the signers did not want the publicity, if they were that concerned with the Speaker’s moral understandings, why did they not just send it to him privately, even handing it to him after the commencement ceremony, to make sure he got it? The signers of this letter just became shills for the Democratic agenda, hiding behind their version of Catholic social teaching in the process.

Since Professor Schneck is a board member for Catholics in Alliance for the Common Good, let us take a look at the nature of the common good. Vatican II defines the common good as “the entirety of those conditions of social life under which men enjoy the possibility of achieving their own perfection in a certain fullness of measure and also with some relative ease, [but] it chiefly consists in the protection of the rights, and in the performance of the duties, of the human person” (Dignitatis Humanae, #6). Notice that this definition has no specific content, but specifies a certain “habitat” in which the human person can develop. The specifics are decided by the laypersons with the guidance of the Church. Nevertheless, the specifics of all this are generally prudential, not moral. Part of this common good is helping the poor. How this is done is part of the virtue of prudence, and includes actions about which there will be disagreements among well-meaning persons. But remember, “the road to hell is paved with good intentions.” As a Catholic economist, this writer is concerned with things that will actually help the poor, and save the most souls. The writers of this letter seem not to care about the poor or souls, and here’s why. The best way to help the poor is your own personal actions, either alone or in concert with others. Mother Teresa correctly pointed out that Jesus sometimes comes to us in distressing disguises. Personal contact with the poor is where Jesus is met. We, you and I, have the responsibility to help the poor, and when we do it personally, we sanctify ourselves, as opposed to having the government take the money out of our wallets to do that which it thinks it can do better, and buy votes in the process.

Also, the question should be asked, “Who are the poor?” Are they only those short of cash? Is there a reason why they are short of cash, like, say, just hard luck, or is the cause mental problems, addictions? Are they working poor who never got any skills? Did they have parents who never imparted to them a work ethic? Are they crippled, or seriously depressed? And what about rich people who live in a bubble and never think of the serious questions of life? All these are poor, and money is not always, and frequently is not, the solution.

What about the principle of subsidiarity, which Schneck mentions toward the end of the letter? Subsidiarity was annunciated first as a concept by Leo XIII, although it appears in many other Catholic thinkers, but not by name. Pope Pius XI gave it its name. Subsidiarity holds, first, that nothing should be done by a higher social level that can be done by a lower social level, and secondly, that nothing should be done by a government agency that can be done privately, by either individuals or their groups. As Leo points out, the state is the last resort, not the first. This begs the question, “What has the human race done all these centuries without government welfare programs?” How much of the “lower” and “private” has been destroyed by government doing everything, leading to a cynical approach to the poor by the citizen? How much is this attitude encouraged by statist Catholics who never really stress subsidiarity?

Lastly, what about the enormous budget deficit that threatens the very future of this country? If this is not taken care of soon, we will all be poor. That’s the reality that the letter takes no care to pursue. What about the question of taxes on business slowing the growth of those businesses or driving marginal ones out of business, and contributing to unemployment? It figures that these signatories would not even think of these things. The list of signers has only one economist on it, and he is from Catholic University. He seems like the odd man out, seeing that he is there with a lot of theologians, nursing professors, and directors of vaguely named institutes, and even the head of the Leadership Conference of Women Religious, a notoriously leftist and even heterodox organization of non-habit-wearing Catholic sisters.

The answer to the question as to why this even happened is contained in this video, which is very informative. It is really sad that our Church has become so politicized, that we have to beaten over the head with Democratic party themes disguised as Catholicism by folks who have very little idea of the nature of the world, and who have no problem putting Catholics on a guilt trip for trying to find prudential solutions to economic problems their kind of thinking caused in the first place.

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