FISCAL FITNESS: A matter of attitude

The beginning of each year is a time when our attention is almost automatically focused toward the future. Even more important than any specific plans we have is our attitude about the future.

I guess I'm an optimist by nature. My blood type, in fact, is B-positive. Nevertheless, whether or not optimism and hope are your natural tendencies, optimism is more logical than pessimism.

Consider the profound questions about the future. Should we be hopeful or fearful about the future of mankind? People are concerned about overpopulation, global warming, loss of species and a long list of similar problems. Many seem to believe that one or another of these problems will lead to our demise.

The threat posed by any one of these problems is debatable. How serious they will be in 25, 50 or 100 years is even more debatable. You can't really know what the future has in store, so essentially you have to make an assumption. Now you can assume that we will create ways to deal with these problems, or assume that we will fail.

Here's where the logic of hope and optimism comes in. Suppose you decide to work on the assumption that mankind will fail to solve the mega-problems. That means that you live your life in some degree of despair.

Even if you live to see your pessimistic prediction come true, there is no payoff. Your prediction came true, but you were probably miserable in anticipation of it. Your only consolation is that you can say, "See, I was right!"

If you're wrong, mankind succeeds. You can breathe a sigh of relief, but much of your own life has been wasted in worry. One of the truest quotes in all literature is "A coward dies a thousand deaths, a brave man dies but once." Couldn't it also be said that a pessimist also "dies a thousand deaths"?

Here's another reason why it makes sense to have hope. Consider two "populations": the population of problems and the population of solutions.

It's clear that as our stock of knowledge and information grows, the population of solutions grows. The more we know about the world -- chemistry, biology, medicine, electronics, physics, psychology -- the greater is our problem-solving ability.

We've learned, for example, that many mental problems are the result of imbalances in blood chemistry. Millions of people have achieved dramatic relief through the use of a growing number of pharmacological treatments. That's just one example of how greater knowledge has reduced human suffering.

On the other hand, what has been happening to the population of problems? Some people tend to think that every new solution creates a new problem. They belong to the "there's-no-hope" school.

Solutions do cause change, and with change there are gains and losses. The clearest and most significant achievement of science and economic growth is our increased life expectancy. This advance, however, has caused Alzheimer's disease to be far more common than it used to be.

I would argue that the population of major problems is almost static, that most of the large problems and challenges of the human condition have been with us for thousands of years.

Besides logic there is also historical support for optimism. Pessimists and doomsayers have been with us throughout history. Every kind of catastrophe imaginable has been predicted and practically none have come to pass. Society keeps on muddling through. Of course, present-day pessimists maintain that "this time it's different." Yeah, right.

One popular doomsayer is Paul Erlich. In his 1968 book, "The Population Bomb," he warned, "The battle to feed humanity is over. In the 1970s the world will undergo famines -- hundreds of millions of people are going to starve to death." Repeatedly, Erlich's predictions have failed to materialize. Strangely, people keep buying his books and listening to what he says.

Pessimism's only real advantages are that, in the short run, it's easier to be pessimistic than optimistic, and cynicism is the cheapest way to act sophisticated.

The greatest damage done by pessimism is what it does to our youth. I'm troubled hearing my own children relate what they learn at school regarding insurmountable problems facing mankind in the future. In most cases I'm sure it's unintentional, but destroying a young person's hope is a terrible, terrible thing to do. As a matter of fact, giving children hope should be one of society's highest priorities.

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◼ FISCAL FITNESS: A matter of attitude - North Coast Journal January 1997

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Campaign reform unlikely

A consensus is building that we are in dire need of major campaign finance reform. It was one issue that Bill Clinton, Bob Dole and Ross Perot all agreed on.

But don't get your hopes up. The likelihood of significant and effective campaign finance reform is remote at best. Furthermore, it may not be as desirable as you might think.

In the recent elections it's estimated that approximately $1 billion was spent on federal, state and local campaigns nationwide. Especially during the last few weeks of the campaign, the airwaves were inundated with political ads and mail boxes overflowed with flyers.

It's important to recognize why so much is spent on elections. The problem, essentially, is that over $2 trillion per year is at stake. That's how much local, state and federal governments spend per year.

Most elected offices have four-year terms. Over $8 trillion was at issue in the elections we just had. The amount spent was only about one-tenth of 1 percent of the amount of government expenditures at stake.

The total spent amounted to only about $10 per voter. Compare that with how much you'll pay in taxes over the next four years. The wonder is that so little is spent on elections.

Nevertheless, the general feeling is that money has become too big a factor in politics. We have a vision of all citizens commanding approximately equal power. All citizens, however, are not equally affected by government. It's unrealistic, and maybe unfair, to expect all citizens to be satisfied with some maximum amount of influence on elections.

Laws such as limitations on campaign contributions necessarily must rely mostly on voluntary compliance. For voluntary compliance to work, people have to think that the law makes sense and is fair. Virtually everyone obeys traffic lights because it's obvious what would happen if they did not.

The reasons for campaign finance limitations are far from being inherently logical or universally supported. For example, the current law prohibits individuals from contributing more than $1,000 per candidate.

That amount has been unchanged for more than 20 years. Could anyone explain how that amount was determined in the first place? Yankee ingenuity always figures out a way to overcome obstacles when there is a strong incentive to do so, especially when people believe the obstacle has no business being there in the first place.

The limit per individual is what spawned political action committees. PACs are a good example of "unintended consequences." In making laws, it's easier to aggravate a problem than to alleviate one.

Perhaps the greatest dilemma inherent in campaign finance reform is its conflict with our basic freedoms. How do you restrict a person's ability to spend money on something he believes in without restricting his political freedom? That conflict of goals is one of the specific reasons why the finance limitations fail to have general support.

One reason even more money isn't spent on elections is that there is not that much real difference between the major parties. Sure, the government has a big impact on your pocketbook, but most people are unconvinced it matters much if Republicans or Democrats are in power. The overriding objective of most political ads is to convince voters that there is a difference between the parties and between the candidates.

Many of the largest campaign contributors give money to both parties and both candidates. It's not so much that they have a strong opinion about who they want to win, it's more that they want to have a sympathetic ear from whomever the office holder is. Of course, when someone contributes to both parties, it's not a competitive advantage for either. The effect is mainly to raise the general noise level.

Contrary to what they say publicly, neither of the major parties is wildly enthusiastic about campaign finance reform. They've grown accustomed to the existing system and rules of the game. In fact, they are significant beneficiaries of them. Their hearts will not be in the crusade for reform.

Effective reform will take considerable wisdom and energy. Keeping the reform bandwagon moving will not be easy.

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◼ FISCAL FITNESS: Campaign reform unlikely - North Coast Journal December 1996

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Are we energy hogs?

YOU HAVE PROBABLY HEARD SOMEONE POINT OUT THAT the United States, with less than 5 percent of the world's population, consumes about 40 percent of the world's energy output.

Did it make you feel guilty? The impression is that we are using more than our fair share of energy resources, that Americans are energy gluttons.

Should Americans feel guilty about their energy usage? We probably should if we stole oil from other countries. That, of course, is not what we do. We pay market prices.

The predominant way we interact with each other and the rest of the world is through voluntary exchange -- the essence of the market economy.

When voluntary exchange occurs, both parties benefit. When you sell something it's because you value the item less than the money you receive in return. The corollary is true for the buyer. Both participants end up better off than they started.

We benefit greatly from the oil we buy. But the rest of the world benefits as well from what it purchases with the dollars it receives in exchange for the oil as well as any other products we buy. When you have something to sell, you greatly appreciate having customers. Americans consume more than most other people in the world, but we also produce more.

The billions of dollars foreigners receive when we purchase their oil is used to buy the vast array of products we have developed and produced. Money is used as a medium of exchange, but what happens ultimately is that we are trading goods for goods. If we were not so productive, we would not have the wherewithal to make the volume of exchanges we do.

To hear some people talk, you would think that voluntary exchange makes the parties involved worse off! We are told that buying oil from foreigners hurts us by aggravating our trade deficit, and it hurts the countries we buy it from by depleting their resources. It seems sometimes that we are inundated by complaints from people with jaundiced outlooks.

Our productivity and ingenuity benefit the world in countless ways. The advances we've made in computers, for example, increases the pace at which other countries can improve their own productivity and thereby raise their standards of living.

Americans care about humanity beyond our borders. We want to see other countries develop economically so that they can rise above the scourges that accompany poverty. Using voluntary exchange to encourage development tends to have a much more lasting impact than unilateral grants-in-aid. Traditional foreign aid has the same dependency-inducing effects that welfare has within countries.

What if we use up all the oil before the rest of the world gets its chance to use it? That question is based on the seemingly obvious premise that we will, in fact, someday run out of oil. Ridiculous as it might sound, there is no real reason to assume that we will run out of fossil fuels, at least not before we switch to a better alternative.

Fossil fuel supplies are not what really should concern us. Rather, what we actually care about and need is energy. Fossil fuels are just one of countless sources of energy.

For example, someday we are bound to invent ways to economically divide water into oxygen and hydrogen. (We already know how to make the division, just not economically. You may even have done so yourself in your high school science lab.) When you burn hydrogen the by-product is water, not carbon dioxide.

How can we be confident that we will make such a discovery before we run out of fossil fuels? One reason is that our stock of knowledge will continue to grow. Another reason is that necessity is the mother of invention. When the price of a resource rises, it increases the incentive to invent substitutes.

The implication of comments like the energy-use/population ratio is that Americans should be ashamed and that the world would be a lot better off if we didn't exist. If you think about it, this is really an insidious line of reasoning. It's meant to make you feel bad about yourself and your countrymen, and you are given virtually no advice as to what corrective action to take.

Focusing on our energy usage is also a prime example of surface logic. It is a half-truth, and with half-truths, distortion is the dominant gene.

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◼ FISCAL FITNESS: Are we energy hogs? - North Coast Journal August 1996

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Gas price greed?

ALTHOUGH THE RAPID RISE IN THE PRICE OF gasoline this summer is certainly a pain in the pocketbook, it may have been better than the alternative: Remember the gas lines of 1974?

The root causes of sudden gas price increases are often many and varied, but this recent price hike is similar to the one we experienced in 1990 when the troubles in the Middle East restricted the world's available oil supply. What dismayed many people at the time was that prices at the gas pump increased almost immediately as soon as there was a threat of a problem. Even before the refiners faced restricted supply or higher raw materials prices, they raised the prices of their products.

A lot of people at the time, especially politicians, called this unconscionable. Weren't the producers just exploiting an unfortunate situation? Not necessarily.

Consider what would have happened if the dealers had waited to raise their prices. Consumers watch the news. They could see that oil supplies were about to be curtailed. They could predict that prices would soon be higher, so they would stock up on gasoline as much as they could. That, of course, would aggravate the shortage.

For the good of the economy, it's best when prices rise as soon as there's a probability of a reduced supply.

A reduced supply necessitates a reduced demand. Far and away the fairest and most efficient way to reduce demand is through higher prices. Higher prices spread the cutback much more effectively than rationing, waiting in lines or first-come, first-served.

The greatest contribution of the price system is balancing supply and demand, and thereby eliminating shortages and surpluses. Either shortages or surpluses are extremely costly to the economy. Raw materials shortages, for example, can bring producers to a virtual standstill.

What economists refer to as the "price system" plays an extremely important role in the economy. The price system is basically the matrix of the relative prices of all goods and services in an economy. What's most essential in the price system is the relationship of one price to another.

When the price of a good is relatively high, that's an indication that the good is relatively scarce or costly to produce. The high price provides us with both the message and the incentive to respond appropriately to the message.

As is typically the case, some people blamed the latest gasoline price increase on greed. It's undeniably true that greed is a widespread part of the human condition, but greed isn't very useful in explaining a change in something. Using greed to explain rising prices would mean that for some reason greed has suddenly appeared. You can certainly argue, if you like, that oil company executives are greedy. But what basis is there for arguing that they are greedier today than they were six months ago?

In general, it's reasonable to work on the assumption that sellers set their prices as high as they can. Keep in mind, however, that they do not set their prices as high as they would like. Sellers compete for consumers' dollars, and consumers have a wide array of choices.

Even a casual look at gasoline price behavior will reveal that there is not a simple or direct relationship between wholesale and retail price movements. For example, when the 4.3 cent gasoline tax first took effect, there was very little movement in retail prices. That's an indication that supply and demand conditions were such that dealers simply did not have the ability to pass along the tax to consumers. Obviously, they would have preferred to do so.

I cannot tell you all the reasons why gasoline prices have risen so much recently. I can tell you, however, that the economic forces leading to the increase were real. You could almost say that we are fortunate that prices went up! Given the available alternatives, we are better off than if they had remained the same in the face of new realities.

The good news is that most of the factors resulting in the higher prices appear to be temporary. One such factor is that oil companies guessed wrong about crude oil prices and got caught with depleted inventories. That situation will correct itself before long. By this fall we will probably see gasoline prices significantly below their peak levels. If you postpone your vacation plans until then, you will help reduce the current demand for gasoline prices and hasten the price decline!

A former professor of economics, Ron Ross is a financial planner with Premier Financial Group, Eureka.

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◼ FISCAL FITNESS: Gas price greed? - North Coast Journal June 1996

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Economics of snowboarding

SKIING IS ONE OF THE MOST ENJOYABLE ACTIVITIES I've ever tried, but by choice, I may never ski again. Why not? Because I've been bitten by the snow boarding bug. This recent affliction, along with the not-so-recent affliction of being an economist, got me thinking about the larger context of the snow boarding phenomenon.

A few years ago when snow boarding became popular, skiers resented the invasion of what they considered wild, rowdy, impolite, hormone-charged adolescent snow boarders on their slopes. Most of that resentment has now passed, and boarders and skiers coexist peacefully.

Skiers may not realize it, but the snow boarding phenomenon is to their advantage. Because of snow boarding, skiers have more options. How so?

Most of the costs of running a ski resort are "fixed" as opposed to "variable." The ski lifts, for example, cost about the same regardless of how many people use them. Therefore, the more people who use the lifts, the less the cost per user.

Resort owners receive more revenue, resorts become more profitable, and profits encourage additional resorts. Surprisingly, many ski lifts now even operate in the summer, transporting people and their mountain bikes to the tops of the mountains for the exciting ride down the slopes.

Snow boarding is only one of countless new recreational activities that have been created over the past several years. To me, one of the most fascinating aspects of the rapid evolution of the industry is how existing equipment and activities have been hybridized into new ones.

Snow boarding, for example, takes something from surfing, skateboarding and skiing. Wind surfing takes something from sailing and surf boarding. Roller blading is a combination of ice skating and roller skating. Skateboards could not have been developed without advances made in plastics.

These innovations are a marriage of Yankee ingenuity and space-age materials and technology. Each new development opens possibilities for others and for other syntheses.

Spending on recreational activities has been growing about twice as fast as the overall economy. Economists classify recreational spending as a luxury good. A luxury good is any expenditure that increases faster than a person's total income. An example of a non-luxury good is food. As your income increases, the percentage of your income spent for food tends to decrease.

The recreation industry has also become a major presence in Humboldt County's economy. Moonstone Mountaineering makes a variety of products related to mountain climbing, kayaking and camping. Kokatat makes apparel for water sports. Yakima makes auto roof racks used to transport bicycles, skis, camping gear and kayaks. Wings makes inflatable rafts.

The invention of each new activity provides us with more ways to have fun. Having a greater array of options benefits us in a variety of ways. Although snow boarding is still dominated by males aged 15 to 25, that is bound to be less so in the future.

It takes less skill than skiing, is less physically demanding and is less risky to knees and ankles. In comparison to jogging, roller blading is gentler to ankles, knees and hips.

My primary recreational activity is running. In the 27 years I've been running, the improvements in running shoes have been amazing, and I'm sure have helped to minimize injuries and prolong my running career.

Recreation is not the only industry that offers consumers an increasing selection of products. Practically everywhere you look in the economy, consumers have more to choose from. Automobiles now come in a wide variety of body types. Cable TV offers 40 or more channels, and satellite TV more than 150. The ever-increasing array of speciality catalogs provide people with access to virtually any product category imaginable.

There are dozens of kinds of beer to choose from. In Humboldt County alone there are four micro breweries!

It's been observed that one effect of this increasing variety is that it allows each of us to raise our standards. As we have move away from a "one-size-fits-all" outlook, we can come much closer to satisfying our individual tastes and preferences. Producers are forced to try harder in satisfying consumers and in competing for their dollars.

If it's true that variety is the spice of life, America today is a red hot chili pepper. My only complaint is that I can't snow board again until next winter.

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◼ FISCAL FITNESS: Economics of snowboarding

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Anticipation

The latest Nobel Prize in economics was awarded to Robert Lucas of the University of Chicago. He is known primarily for his work regarding the concept of rational expectations. The essence of rational expectations could be summarized as "people aren't as dense as policy makers used to think they were."

Lucas showed statistically that the average person anticipates the impact of governmental economic policy. As individuals and businesses anticipate the probable effects of actions by policy makers, they adjust their behavior. As they do so, the effect the policy makers had hoped for is at least partially nullified.

One issue that was illuminated by the insights of Professor Lucas was the so-called Phillips Curve. The initial Phillips Curve data seemed to show a trade-off between unemployment and inflation. One implication was that we ought to tolerate some inflation since it would result in a reduced unemployment.

Lucas and other rational expectations theoreticians showed that the trade-off does not actually exist, especially not in the long-run. Their theory explained the results along these lines: any attempts to stimulate the economy by means of deliberately creating inflation would be transparent.

To illustrate how rational expectations interfere with policy makers' intentions, consider the following: Let's say a government wants to stimulate the economy and decides to do so by dropping money out of helicopters.

People having more money tends to stimulate spending and employment, at least until prices are bid up. Higher prices effectively neutralize the larger money supply. At best, the new money creates only a short-term stimulus.

According to the conclusions of rational expectations, however, there may not be even a short-term economic boost. If decision makers anticipate policy makers' actions, prices will go up at the first sound of helicopter engines. The impact of the increased money supply would be instantaneously nullified.

I remember being at a convention of economists about the time rational expectations was first becoming a hot issue. One of the discussants of a paper asked the paper's author, "Are you talking here about people or economists?" The author replied, "Well, I think one is a subset of the other."

The exchange illustrates a general criticism of rational expectations -- that it seems to imply that ordinary decision makers in the economy think like economists who are closely monitoring and predicting what's in store for the economy. Although rational expectations may seem to imply that, it actually doesn't.

The best test of a theory's validity is its ability to predict. Models taking rational expectations into account predict economic phenomena better than ones that don't.

It's probably true that most people don't think like economists. The evidence, however, indicates that players in the economy are not chumps. Ordinary people do learn from past experience and adjust their behavior accordingly.

From the standpoint of developments in economic theory, the University of Chicago is in a class by itself. Its economics department members have won Nobel Prizes in five of the past six years.

The department is known for its respect and admiration for the workings of the free market. The flip side of that attitude is a skepticism for government solutions to problems.

Lucas' work is definitely consistent with the general themes the department has pursued for 50 years. A major implication of rational expectations is that government policy makers have much less control than they used to believe. If their control instruments are unreliable and unpredictable, the case for intervention loses much of its appeal.

One key to the department's success is its ingenuity in applying basic economic theory to other disciplines. Merton Miller, for example, won the 1990 Nobel prize for his breakthroughs in what has come to be known as "financial economics."

The winner in 1991, Ronald Coase, has been instrumental in applying economic analysis to our legal system. He founded and edited the Journal of Law and Economics.

Lucas has developed theories that assume a higher level of sophistication and awareness on the part of decision makers than did earlier models. He treated people with more respect and was rewarded in at least two ways for doing so. His theory generated more accurate results, and he won the profession's highest honor, the Nobel Prize as well as the $1 million that goes with it.

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◼ FISCAL FITNESS - North Coast Journal December 1995

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: The value of information

It is nearly impossible these days to open a newspaper or magazine without running across the terms "information age," "information superhighway," or "information revolution."

What's so important about information, anyway?

With the single exception of time, information is by far the most important non-human resource in our economy. The primary reason we are so vastly wealthier than our ancestors is that we have access to more information than they did. Most other resources would not even be considered such if we did not have the knowledge about how to use them.

Information is the magic elixir. Petroleum is just a bothersome gooey substance without the knowledge of how to refine it and the ability to build machines.

Think back on your life, particularly about the decisions you made that you now regret. A major reason you made those errors in judgment was the lack of information. Probably the best thing you can say about making mistakes is that at least you gain information!

Information comes in a wide variety of forms. A map is an example. If you can refer to a map as you plan your trip, you will arrive at your desired destination in a more efficient manner. You economize on your use of other resources such as your time, fuel and wear and tear on your car. Information has the amazing ability to increase the efficiency of all other resources.

Time is perhaps the resource that is most enhanced by the information revolution. A consistent trend, particularly in regard to computers, is increased speed. Speed is essentially a measure of how intensively we use time.

In comparison to other resources, information has almost a magical quality. If I use the resources that are necessary for making a car, those resources are unavailable to anyone else. Information, however, is different.

Information is not exclusionary. You and I can both possess the same bit of knowledge. You can use it without interfering with my using it.

We have been accumulating information since the dawn of civilization. It is not a limited resource. It is virtually the opposite of limited -- it multiplies as we use it.

Generating new information is part of what the information revolution is about, but it's also about organizing and disseminating the information that already exists. There is what you might think of as informational logistics -- getting the information to the right places and people at the right time in the right form. The Internet with its World-Wide Web, fax machines and cellular phones are some of the main players in informational logistics.

One important indicator of the value of information in our lives and the economy is the fact that a person's income is roughly proportional to the amount of information he or she has accumulated.

Like other resources, information has a cost. Part of what the information revolution is about is reducing the cost of generating, processing and distributing information. Computers continue to drop in price. The portion of the population that can afford to own one keeps increasing.

The invention of the printing press was itself a kind of information revolution. The printing press dramatically reduced the cost of information and was a major step toward making knowledge available to the masses. The printing press was invented by one person, yet it changed the lives of virtually everyone.

Computer software is developed by relatively small groups of people yet it increases the productivity of millions of others. Even those not directly working with computers benefit in the form of reduced prices for the products they purchase.

Just a hundred years ago music could be experienced only through live performances. The development of compact disks and low-priced stereos have made quality music reproduction accessible to almost everyone. What a difference!

One of the exciting aspects of a revolution is that it is unpredictable. It's fun to speculate about what's going to happen next.

Information also has the ability to build on itself. It's like a ladder that keeps extending itself no matter how high we climb. When it comes to information, not even the sky is the limit.

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◼ FISCAL FITNESS - North Coast Journal November 1995

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

FISCAL FITNESS: Down with the I.R.S.

Here's an easy question: What's the most hated institution in the country? The answer, of course, is the Internal Revenue Service - especially this time of the year. You probably think that the IRS is simply something we have to live with, that it's an unpleasant but necessary reality of modern living.

It could be, however, that ridding ourselves of the IRS is within the realm of feasibility. It is, in fact, a possibility that is being seriously examined not just among theoreticians but among persons in positions of authority as well.

The new chairman of the House Ways and Means Committee, the traditional source of tax legislation, is Bill Archer. In a recent interview with Businessweek magazine, Archer said, "I want to tear the income tax out by its roots ... (and) eliminate the IRS from our lives."

Without taxing income, where would the federal government derive its revenue? The most realistic and likely alternative is a national sales tax or a "value-added tax." We could tax consumption rather than income.

Replacing the revenue now collected from federal individual and corporate income taxes would require a sales tax rate of approximately 14 percent (applied to all final purchases of goods and services).

Ceasing income taxation would greatly reduce the government's intrusiveness into our lives. The reduction in the record-keeping burden alone would make a dramatic difference. Just imagine not having to keep and sort out all those records and documents every year as you prepare your tax return. That, however, is only the tip of the iceberg.

A vital difference between an income and a sales tax is this: An income tax is on people (and businesses) and a sales tax is on transactions. By its nature, an income tax necessitates the detailed monitoring of the lives of people. Nothing does as much violence to our privacy as the collection of income taxes. We've gotten used to it, but we would be much happier without it.

Ending income taxation would do wonders for the economy. The annual corporate income tax return for the Chrysler Corp., for example, is three feet high. Chrysler employs 65 people full-time to prepare its taxes. The expenditure of resources in preparing such documents increases the costs of products. It's estimated that it costs the economy as much as 60 cents to collect a dollar's worth of income tax revenue. Using income as the tax base is horrendously inefficient.

The tediously complex tax code also causes immeasurable distortions in the economy. Many individual and business decisions are based not on true costs and benefits, but rather on the artificial prize of tax avoidance.

The complexity of the tax code is a problem in itself. We expend vast amounts of time and talent struggling to cope with its labyrinthine provisions. Fair and effective enforcement is far beyond the IRS' capabilities.

We've attempted numerous times to simplify the tax code and it only grows more complex. It's time we recognized that a simple income tax is an oxymoron.

The absence of income taxes would increase the net reward of earning income from employment and investments. A sales tax would discourage consumption, and, by definition, income not consumed is saved.

We would solve the problem of our anemic savings rate. Savings provide the basis for investment, and the more we invest the faster we grow. Increased economic growth is one of the greatest gifts we could leave our grandchildren.

One drawback of converting to a sales-tax based system is that sales taxes are, to some extent "regressive." In other words, the percent you pay decreases as your income increases. I'm convinced, however, that the lower prices resulting from economic efficiencies and greater economic growth would result in low income people being markedly better off, on balance, than they are currently.

What would happen to the millions of people employed in tax return preparation and all the supporting activities? The money not spent on tax preparation would be spent or invested in something. Jobs would arise.

Tax preparers are typically bright, creative and well educated. They will find employment producing goods and services. The fact that millions are employed in helping the IRS collect revenue is another indication of its burden on the economy.

Individuals and businesses are draftees in the IRS revenue collection army. Ending the draft would generate more benefits than we could possibly imagine. You're going to hear a lot more about this proposal as more people realize that the IRS is something we can live without. -end-

A former professor of economics, Ron Ross is a financial planner with Premier Financial Group, Eureka.

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◼ FISCAL FITNESS: Down with the I.R.S. - North Coast Journal April 1995

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.