Don't Blame Reagan

Today's California seems to hate the private sector. And vice versa.

◼ Don't Blame Reagan - Ron Ross/North Coast Journal

We can all agree that California is a fiscal mess. As I have traveled around the country over the past few months, people I talk with seem to essentially view our state with a sense of pity. They ask, "What are you guys going to do out there?"

The fact that this state, with all its natural beauty, delightful climate and creative population, has gotten itself into such dire straits raises the obvious question -- why? How, exactly, did this come to pass?

Two Bay Guardian journalists, Steven Jones and Tim Redmond, present the rather implausible hypothesis that the true sources of our problems are rooted in the long-ago administration of Ronald Reagan and the free market philosophy that he espoused. More specifically, they blame the 1978 passage of Proposition 13, which limited property tax increases in the state. Attributing our problems to Prop 13 is an argument I've seen presented many times over the past few years.

Jones and Redmond assert that "opposition to taxes is now deeply embedded in the California electorate." Their lament, essentially, is that we are in this predicament because taxes aren't high enough. Granted, primarily because of Prop 13, California's property tax rate is below the national average. That, however, is only part of the picture.

California has the highest state income tax rates and the highest sales tax rates in the nation. We are first out of 50 in those rather dubious achievements. (Our top income tax rate, 10.55 percent, is almost twice the average of the other 49 states.) I shudder to think how high our tax rates would be if the electorate were not under the spells of Ronald Reagan, Howard Jarvis (described by the authors as "a Republican landlord lobbyist") and Milton Friedman. In spite of Prop 13, state government expenditures have increased more than 7 percent per year since its passage.

Jones and Redmond seem to believe that advocacy of free market economics and opposition to government growth started in California 40 years ago. They also believe that California is such a trendsetter that the philosophy contaminated the rest of the country, and the whole world as well.

Argument for the benefits of free market economics has been around for well over 200 years and was first elaborated by a Scotsman, Adam Smith, with the publication of "The Wealth of Nations" in 1776. The most famous tax revolt, the Boston Tea Party, occurred in 1773.

It apparently doesn't occur to the authors that the kinds of liberal and progressive policies they advocate might have played in California's decline. Because they refuse to look inward or take any accountability, they can only conjure up strained explanations as to why someone else must be to blame. All the state's problems are caused by the ghosts of three dead white guys (Reagan, Jarvis and Friedman).

California's fundamental problem is its anemic economic growth rate. Our state has the fourth highest unemployment rate (12.2 percent) and the second highest home foreclosure rate. Is California in such relatively bad shape because its citizens are not taxed enough? That doesn't make sense.

The opposite is much closer to the truth. Because of high taxes and irrationally burdensome regulations, California is near the top of the list in regard to hostility toward business. According to a ranking by the Small Business and Entrepreneurship Council, only New Jersey has a more business-unfriendly environment. Californians can, if they choose, burden businesses with ever more demands and regulations. They pay a high price, however. Choices have consequences. Intel Corporation, the chip manufacturer that started in California, announced earlier this year that it would be investing $7 billion in new manufacturing facilities over the next two years -- in Oregon, Arizona and New Mexico. There's a pattern there. Are they avoiding California because our taxes are too low?

Jones and Redmond recognize the negative effects of the kinds of policies they espouse. "Certainly, turning over more public resources to free market capitalists, cutting taxes and slashing government regulation will spur private sector economic growth, just as advocates claim. But that growth has a cost. The wealth won't be shared by everyone." Their argument essentially says there's no point in creating wealth if it's not equally distributed.

In other words, if the beneficial impacts of some policy are not equally shared by everyone, they must be rejected. Such a standard creates an absolutely impossible hurdle for any human action. For Redmond and Jones, income equality is more important than economic growth. I have never understood those kinds of priorities. The damage done by unemployment is a real and unrecoverable loss. Ironically, it also hurts government revenues and, in the end, those citizens who depend on government-funded programs. If Redmond and Jones really want more money flowing into state coffers they should be welcoming policies that encourage economic vitality.

Jones and Redmond regret that corporations don't pay as much taxes as they should, partly because of Prop 13. The fantasy that corporations are capable of paying taxes is one of the most naïve beliefs of the left. In the real world, the world all of us actually live in, only humans are capable of paying taxes. Corporations are only intermediaries. They can write the checks to the IRS or the Franchise Tax Board, but they can't bear the "burden" of taxes any more than cows or real estate can.

Corporations connect with humans in three ways -- owners, employees and customers. The burden of corporate taxes falls on some combination of those three groups. Corporate taxes result in some combination of reduced profits for shareholders, higher prices for customers and lower wages for employees. The actual distribution of the effects varies from industry to industry, case to case. The conclusion of most recent research indicates that the principal burden falls on the employees of corporations. If your objective is to soak the rich, the corporate tax is an extremely crude and counterproductive means for doing so. Many on the left despise corporations and have no interest in actually analyzing their policies, so the corporate tax is one of their favorite weapons of choice.

California will survive and we will muddle through somehow. Unfortunately, we are squandering our vast potential by misreading the fundamental sources of our chronic problems.

_________________

This article originally ran in the North Coast Journal. October 29, 2009

Today's California seems to hate the private sector. And vice versa.

◼ Don't Blame Reagan - North Coast Journal

We can all agree that California is a fiscal mess. As I have traveled around the country over the past few months, people I talk with seem to essentially view our state with a sense of pity. They ask, "What are you guys going to do out there?"

The fact that this state, with all its natural beauty, delightful climate and creative population, has gotten itself into such dire straits raises the obvious question -- why? How, exactly, did this come to pass?

Two Bay Guardian journalists, Steven Jones and Tim Redmond, present the rather implausible hypothesis that the true sources of our problems are rooted in the long-ago administration of Ronald Reagan and the free market philosophy that he espoused. More specifically, they blame the 1978 passage of Proposition 13, which limited property tax increases in the state. Attributing our problems to Prop 13 is an argument I've seen presented many times over the past few years.

Jones and Redmond assert that "opposition to taxes is now deeply embedded in the California electorate." Their lament, essentially, is that we are in this predicament because taxes aren't high enough. Granted, primarily because of Prop 13, California's property tax rate is below the national average. That, however, is only part of the picture.

California has the highest state income tax rates and the highest sales tax rates in the nation. We are first out of 50 in those rather dubious achievements. (Our top income tax rate, 10.55 percent, is almost twice the average of the other 49 states.) I shudder to think how high our tax rates would be if the electorate were not under the spells of Ronald Reagan, Howard Jarvis (described by the authors as "a Republican landlord lobbyist") and Milton Friedman. In spite of Prop 13, state government expenditures have increased more than 7 percent per year since its passage.

Jones and Redmond seem to believe that advocacy of free market economics and opposition to government growth started in California 40 years ago. They also believe that California is such a trendsetter that the philosophy contaminated the rest of the country, and the whole world as well.

Argument for the benefits of free market economics has been around for well over 200 years and was first elaborated by a Scotsman, Adam Smith, with the publication of "The Wealth of Nations" in 1776. The most famous tax revolt, the Boston Tea Party, occurred in 1773.

It apparently doesn't occur to the authors that the kinds of liberal and progressive policies they advocate might have played in California's decline. Because they refuse to look inward or take any accountability, they can only conjure up strained explanations as to why someone else must be to blame. All the state's problems are caused by the ghosts of three dead white guys (Reagan, Jarvis and Friedman).

California's fundamental problem is its anemic economic growth rate. Our state has the fourth highest unemployment rate (12.2 percent) and the second highest home foreclosure rate. Is California in such relatively bad shape because its citizens are not taxed enough? That doesn't make sense.

The opposite is much closer to the truth. Because of high taxes and irrationally burdensome regulations, California is near the top of the list in regard to hostility toward business. According to a ranking by the Small Business and Entrepreneurship Council, only New Jersey has a more business-unfriendly environment. Californians can, if they choose, burden businesses with ever more demands and regulations. They pay a high price, however. Choices have consequences. Intel Corporation, the chip manufacturer that started in California, announced earlier this year that it would be investing $7 billion in new manufacturing facilities over the next two years -- in Oregon, Arizona and New Mexico. There's a pattern there. Are they avoiding California because our taxes are too low?

Jones and Redmond recognize the negative effects of the kinds of policies they espouse. "Certainly, turning over more public resources to free market capitalists, cutting taxes and slashing government regulation will spur private sector economic growth, just as advocates claim. But that growth has a cost. The wealth won't be shared by everyone." Their argument essentially says there's no point in creating wealth if it's not equally distributed.

In other words, if the beneficial impacts of some policy are not equally shared by everyone, they must be rejected. Such a standard creates an absolutely impossible hurdle for any human action. For Redmond and Jones, income equality is more important than economic growth. I have never understood those kinds of priorities. The damage done by unemployment is a real and unrecoverable loss. Ironically, it also hurts government revenues and, in the end, those citizens who depend on government-funded programs. If Redmond and Jones really want more money flowing into state coffers they should be welcoming policies that encourage economic vitality.

Jones and Redmond regret that corporations don't pay as much taxes as they should, partly because of Prop 13. The fantasy that corporations are capable of paying taxes is one of the most naïve beliefs of the left. In the real world, the world all of us actually live in, only humans are capable of paying taxes. Corporations are only intermediaries. They can write the checks to the IRS or the Franchise Tax Board, but they can't bear the "burden" of taxes any more than cows or real estate can.

Corporations connect with humans in three ways -- owners, employees and customers. The burden of corporate taxes falls on some combination of those three groups. Corporate taxes result in some combination of reduced profits for shareholders, higher prices for customers and lower wages for employees. The actual distribution of the effects varies from industry to industry, case to case. The conclusion of most recent research indicates that the principal burden falls on the employees of corporations. If your objective is to soak the rich, the corporate tax is an extremely crude and counterproductive means for doing so. Many on the left despise corporations and have no interest in actually analyzing their policies, so the corporate tax is one of their favorite weapons of choice.

California will survive and we will muddle through somehow. Unfortunately, we are squandering our vast potential by misreading the fundamental sources of our chronic problems.

Many Questions, Few Answers

◼ Many Questions, Few Answers

There are many reasons why support for President Obama's health care plan has declined as the details have become clearer. I suspect that Mr. Obama and his advisors were afraid this would happen. That's probably why they wanted to rush it through Congress (even though most of its provisions don't become effective until 2013).

Their central dilemma is this -- voters want more than vague outlines of what Obamacare will mean to them. Unfortunately for reform proponents, however, whenever there is talk about specifics a firestorm of controversy and partisan division erupts. In other words, the proponents can't be vague and they can't be specific.

In his campaign for the presidency Mr. Obama did an excellent job of selling himself, but he has failed to truly sell anything else. It's becoming clear he is not a good salesman, teacher, or persuader. He has attempted to sell what's unbelievable. That's not good salesmanship. If I were one of his supporters I would be extremely frustrated with him. The recurrent problem with selling Obamacare is that there are far too many aspects that, to put it mildly, strain credulity.

The so-called "public option" is a prime example of why everyone ought to be extremely skeptical of Obamacare. In a Labor Day speech the president said "I continue to believe that a public option will improve quality and bring down cost." On an almost daily basis, however, the public option has been an on-again-off-again proposition. This might cause a person to wonder, is it important or isn't it? In his speech to the joint session of Congress Mr. Obama said that the public option is simply "a means to an end."

Although none of the specifics of Obamacare are clearly defined, the idea behind the public option is that it would supposedly be a way to add a new kind of competitive pressure to private health insurance companies. The public option would be a new government-run, government-owned health insurance company.

I've been studying economics for almost 50 years. I have never before heard of anything vaguely resembling the case being made for the public option. I would be interested to see an example of a government-run, government-owned institution that puts competitive pressure on private companies, causing them to provide lower prices and better service. Is it the existence of the U.S. Postal Service that causes UPS and FedEx to keep costs low and service high? Where are the examples of government institutions being run more efficiently than private companies? The experience most people have is just the opposite.

There are already well over a thousand health insurance companies in existence. It would be hard to argue that our health insurance problems stem from a lack of competition. In some states there are only a handful of available companies. That's primarily the result of burdensome regulations, mandates and limits on interstate competition. Economists have called competition the "patron saint of consumers." More competition is definitely a good idea, but attempting to make the government a competitor is a weird way to accomplish that objective.

I have no idea where this totally novel idea came from or why anyone thinks it would work. It's an idea I had never even heard of until a few months ago. Nevertheless, it has become a make-or-break issue for many Obamacare proponents. The proponents need to explain exactly how it would work and why it is of such paramount importance.

Would this new government-run health insurance agency be self-supporting? If it had access to public funds, how could private companies compete with it? It would not be a level playing field. The president has told us repeatedly that if we're satisfied with our current health insurance, we can keep it. If a subsidized public option drives most private insurers out of business, however, that option will go away. The main reason there are so few private schools is that they have to compete with public schools that provide a similar product free of charge.

The public option is a totally untested shot-in-the-dark. It is perhaps the best indicator that Obamacare proponents are willing to overhaul one-sixth of the economy on little more than a wing and a prayer. At this point the public option could be described as a "faith-based" proposal.

Mr. Obama and other Democrats have said many times that their preferred version of health care reform is the so-called "single payer" system similar to what Canada, Britain and France now have. They recognize that, at this point, however, a single-payer system is a political impossibility. It's that reality that is the real impetus behind the public option.

Whenever the public option itself begins to look like a political dead end, they run some other half-baked idea up the flagpole. "May I offer you single payer? Not interested? Would you buy a public option? No? Would you buy a health insurance co-op? Not that either? Could I interest you in a public option trigger? No? Surely, then, you could agree to an insurance exchange." They're beginning to look silly, desperate and floundering -- more like a Saturday Night Live skit than someone wanting to redesign a sixth of the economy. Do we really want a comedy team in charge of our health care?

Another example of the too-good-to-be-true nature of Obamacare is Mr. Obama's promise that it will reduce the overall cost of health care and will not add to our already massive deficit. There are obvious reasons why much of the public is not buying that claim.

We're told repeatedly that there are 47 million Americans without medical insurance and because of that they are receiving inadequate medical care. (In his speech to the joint session of Congress Mr. Obama put the number at 30 million uninsured Americans.) The dilemma is you can't improve the medical care for 47 million (or even 30 million) people without spending large amounts of money.

As much as they might like to, politicians cannot repeal the laws of supply and demand. If demand is increased significantly, there will be upward pressure on prices. Lawmakers can attempt to cap prices if they want, but that will only lead to shortages. Improving the health care for millions of new people will require a significant increase in the number of health care professionals. How is that going to be accomplished? How is going to be paid for?

Mr. Obama has also assured us that his plan will not lead to rationing. That is another impossible promise. In one form or another, every economic good has to be rationed. There is no good or service that can be available to everyone in unlimited quantities. The rationing device we rely on in most cases is the price system. Flexible prices balance supply and demand. If you choose not to rely on the price system some other rationing mechanism has to be put in its place.

Remaking the health care sector is probably the biggest domestic issue ever undertaken by the government. Something that massive and historic should only be attempted after careful analysis as well as deliberate, serious, and open debate. Mr. Obama has not had discussions with Republican lawmakers since April. He has taken a "my way or the highway" attitude. Rather than take alternative proposals seriously and respectfully, he has demeaned and ridiculed anyone who's not on board with his own particular prescription for reform.

One undeniable aspect of government solutions to problems is that the "cures" are extremely inflexible. Technology, our culture and the economy are all changing at an accelerating pace. Even if an answer is right today, it isn't necessarily right tomorrow. Politically imposed rules and bureaucracies all suffer from chronic rigidity. Government imposed regulations necessarily take on a "one size fits all" character. Bureaucracies treat people not as individuals but rather as categories. Is that really the direction we want to go with health care?

Consider, for example, how the federal government attempted to deal with agricultural problems in the early years of the Depression. Their "solutions" were based on what we now realize was a complete misreading of the underlying problems. Nevertheless, their ill-advised programs are still with us more than 75 years later. There have been numerous attempts by presidents from both parties to end or modify such programs as agricultural price supports, all to no avail.

Creating a whole new set of rules that will significantly change one-sixth of our economy is an undertaking far more difficult than the advocates of health care reform seem to grasp. Neither Mr. Obama nor the congressmen involved are experts on the health care industry.

Politicians have a fatal urge to oversimplify reality. Problems and shortcomings of our health care system are exceedingly complex with an endless list of origins. Politicians arrogantly assume that in a relatively short period of time they can design solutions that will make the whole system function more efficiently. Whatever "solutions" they impose on a complex system will make some problems better and some problems worse. More often than not, politically imposed "solutions" create far more problems than they eliminate.

___________________

Thhis article originally ran in the North Coast Journal, September 17, 2009 - Ron Ross Ph.D. is an investment advisor at Premier Financial Group in Eureka and author of The Unbeatable Market.

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.

____________________

◼ 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.

____________________

◼ 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.

____________________

◼ 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: Social (in)Securities

VERY FEW PUBLIC POLICY ISSUES affect more people than Social Security. Almost every wage earner pays Social Security taxes, and most people expect to receive benefits some day or are already receiving them. Social Security is a different kind of pension plan, and that's a big part of the reason why its future is so much in doubt.

To appreciate the dilemma, it helps to compare Social Security with private pension plans or even the plan for state employees. Any pension plan is designed to provide a future flow of income for the participants. You can think of that aspect as the pension plan's liability.

Virtually every pension plan except Social Security has assets to correspond to its liabilities. Over time, a portion of an employee's compensation is set aside and invested, usually in stocks and bonds, and over time, those assets increase in value. A corollary of the funds being set aside is that it provides a pool of capital that fosters economic growth. The future retirees are effectively building the generator of their future flow of income.

Social Security, on the other hand, incorporates no such investment account, at least not in any meaningful sense. It is essentially a hand-to-mouth process. Revenue used to pay current retirees comes primarily from current taxpayers, not from a pool of investments.

When there are assets available to cover your retirement needs, the adequacy of your retirement income depends on how much has been invested, and on the performance of the investments. In the case of Social Security, however, there is no such pool of assets. Consequently, the level of your retirement income depends on the willingness and ability of future taxpayers to tax themselves. Demographics becomes a major concern in a system designed like Social Security. So far the system has benefited from the relatively small population of retirees in relation to those who are still working. That, however, will change drastically as the baby boomers reach retirement ages.

What kinds of solutions to this dilemma can we expect to see in the future? One partial solution is already in place, and that is an increase in the eligible retirement age. Those born after 1938 will not receive a full Social Security benefit at age 65. I was born in 1941 so I won't get full benefits until age 65 years and 8 months. If you were born after 1959 you will not be eligible for full benefits until you are 67.

Don't be surprised to see these ages pushed back even more. Increased life expectancy has been a major contributor to the costs of Social Security. When the system started in 1935, relatively few people lived past age 65. In fact, average longevity at the time was only about 60. Today it is over 75. (If you want there to be enough money for you, encourage your friends to smoke.)



The least painful solution for our Social Security bind is increased economic growth. Greater wealth and income in the future will make it easier for future taxpayers to afford the large population of retirees.

Unfortunately, the very structure of the Social Security system retards economic growth. Workers save less money when they expect Social Security will provide for their retirement. Reduced rates of saving decrease the amount of funds available for investment, which is a major ingredient of economic growth and progress. Furthermore, the Social Security payroll taxes reduce our ability to provide for our own retirement. Social Security taxes are now at 15 percent of a person's compensation. How would you like to have that 15 percent to invest for yourself?

The payroll taxes you see coming out of your paycheck are "only" 7.65 percent of your compensation. There is an additional 7.65 percent that is supposedly being paid by your employer. Basic economic analysis strongly indicates that the employee actually pays both parts of the tax. Splitting the tax arbitrarily into two halves is nothing more than a political shell game having nothing whatever to do with reality.

When Social Security commenced in 1935 the total tax was 2 percent of a worker's first $3,000 of compensation. The rate has multiplied over sevenfold and the base twentyfold. That's a dramatic example of how much the system has changed from its original conception.

We will see further tax increases or the system will have to reduce its unfunded promises. Eventually we will discover where the taxpayers' breaking point is.





In the meantime, you would be well advised to fund your own retirement plan.



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

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◼ FISCAL FITNESS: Social (in)Securities - NOrth Coast Journal September 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: Should the rich pay more?

Major tax reform is rapidly gaining momentum. According to Business Week magazine, "The campaign has struck such a populist chord that a massive restructuring of the tax laws seems inevitable."

The tax reform debate is bound to be heated and contentious. Deciding who should pay and how much taxes is one of the most basic of all public policy issues. It is also a topic fraught with dilemmas.

Should the wealthy pay more taxes than others? Most people would say yes, but how much more? And one question rarely even considered, Why should they pay more?

Another way of looking at the issue is to ask, "How much should each of us pay for government?" In a market economy, everyone is charged essentially the same price for the same item. Such a system is almost universally considered fair and generates relatively few ethical arguments.

The amount we pay for most goods and services is in proportion to how much we use. With most items it's a matter of quid pro quo, this for that. There's a close connection between benefits received and price paid.

When we cannot rely on simple exchange, we find ourselves in a bind. There are significant problems inherent in every other known alternative.

The way we pay for most government services isn't nearly as elegant as ordinary exchange. Even though most citizens receive roughly the same benefit from government activities, the amount of taxes paid varies widely from person to person. (Gasoline taxes are one exception, since we pay in proportion to how much we use the roads and highways.)

When paying for government services, different people are charged different prices. In contrast, when you ask about the price of a new car, the salesman doesn't ask, "What is your income?" The price of any given car is not adjusted according to the buyer's income.

If all prices were adjusted according to the buyer's income, income differences would be effectively cancelled out. Making more money wouldn't do you any good because the price you paid for everything would just go up proportionately.

One major gap in the tax burden debate is this: In seeking a meaningful answer to the question to who should pay how much tax, shouldn't we consider how a person acquired the money he has?

In our economy, most people acquire their incomes by producing goods and services. The act of earning the money results from your making a contribution to society. What you produce adds to society's well being.

Bill Gates, the founder of Microsoft Corp., is reportedly worth $10 billion. He has, however, improved the efficiency of the economy several times more than $10 billion. His accomplishments are just the most dramatic example of what most of the other participants in the economy do day in and day out.

Of course, people do not become wealthy in isolation. Gates would not be a billionaire if he operated within an underdeveloped country. Is his paying higher taxes a way for him to pay back the economic environment that has been so good for him? Sounds good, but does it really make sense?

Usually discussions about the tax burden boil down to this: Mr. X should pay more taxes than Mr. Y because Mr. X has more money than Mr. Y. A difference, however, in and of itself, justifies nothing. To put it mildly, that's a morally lazy argument. There needs to be more to it than that.

When explaining why he robbed banks, the infamous Willie Sutton reportedly said, "That's where the money is." Much of the rationale for distributing the tax burden is not much more legitimate or sophisticated than Sutton's comment.

If we do decide that people with more money should pay more taxes, that still does not tell us how much more they should pay. It doesn't take a progressive tax (higher percentages for higher tax brackets) to get the rich to pay more than others. A proportional tax of 10 percent results in someone with 10 times the income as someone else to pay 10 times the taxes.

What's fair? Should a person with 10 times the income pay 20 times more taxes? Thirty times?

These are some to the questions we will need to answer as tax reform takes shape. Whether we move to a flat tax, a value-added tax or a national sales tax, we face tough issues concerning fairness, efficiency and incentives.

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◼ FISCAL FITNESS: Should the rich pay more? - North Coast Journal July 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: Involuntary servitude

The one good thing about the O.J. trial is that it's exhibiting the sorry condition of our justice system. The element most obviously in need of reform is the jury system.

Our jury system is one of our few remaining remnants of involuntary servitude. Of all the people in a court room, the only ones who are there involuntarily are the accused and the jurors. (Subpoenaed witnesses are also involuntary participants but only for short durations of time.)

We treat the jury process much too casually. We pretend that justice can be served by randomly selecting who will serve on juries. We pretend that trials are simple enough that people with no training, experience or expertise can fill the bill. It makes no sense.

The least-appreciated feature of a market economy is the fact that it relies on voluntary exchange. The absence of force in such arrangements is important in itself, but voluntary exchange also accounts for much of the productivity we enjoy. People naturally do a much better job when they work voluntarily rather than by coercion. People gravitate toward the kinds of jobs they are best at.

Numerous problems invariably arise when you use coercion instead of voluntary exchange to get something done. Even if you have strong feelings about doing your civic duty, it's hard to be conscientious doing something you're forced to do.

A tradition of our legal system is that we will be judged by a jury of our peers. Is there anything inherently wrong with those peers being professionals? The constitution guarantees the right to trial by jury, but it specifies nonemof the details.

It's not hard to imagine a vastly superior jury system to what we have. There is no doubt a significant number of people who would like to be professional jurors. There could be juror training and certification programs. Jurors would learn from experience and have documentable listings of previous trials.

Court cases, especially civil suits, are frequently complex and technical. To expect untrained, inexperienced people to decide such cases is a travesty.

From an economic perspective, problems always arise when we underpay resources. At $5 a day, we are not paying the full cost for jurors. The predictable result is the wasteful use of jurors.

If jurors were paid an amount sufficient to get their voluntary participation, it's reasonable to assume we would see fewer trials dragging on ad nauseam.

The fundamental incentive we have to economize resources is having to pay to use those resources. What's the proper price? It's the price that results from voluntary exchange transactions; that is, through the interplay of supply and demand.

Imagine if buildings could be commandeered for use in trials. There would be little incentive to economize on space.

If we paid jurors enough so that no one would be forced to serve, the high cost of court cases would climb even more. Could we afford it?

Think of it this way: Do budget constraints justify involuntary servitude?

If so, why stop with jurors? Why not make the court clerk serve for $5 a day as well?

In trials such as the O.J. trial, jurors are sequestered for long periods of time. Like the accused, the jurors have been imprisoned against their will. We have a real problem when there is such a flagrant injustice within the justice system itself.

People who are unfortunate enough to end up on juries, particularly in lengthy trials, bear an arbitrary and disproportionate burden of our justice system. Is that fair? Is there no other alternative? Is it absolutely necessary?

There is no fundamental reason preventing us from switching to a voluntary jury system just as we converted to an all-volunteer Army. Before we ended the draft, defenders of the status quo argued that an all-volunteer Army could never work and gave countless reasons why.

None of those reasons turned out to have any merit. No one is forced to serve, and the quality and commitment of people in the armed forces is now as high as ever.

A justice system is one of the linchpins of a civilized society. A perfect justice system is not possible, but it's vitally important that we insist on high standards.

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◼ FISCAL FITNESS: Involuntary servitude - North Coast Journal June 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: False remedies

In his State of the Union speech earlier this year, President Clinton proposed raising the federal minimum wage from $4.25 an hour to $5 an hour. (California has since proposed a $5.75 minimum wage). Since then the president and his secretary of labor, Robert Reich, have continued to press for the increase. Recently Richard Gephardt, House Democratic majority leader, said that we need to "make the minimum wage a living wage.»

Minimum-wage laws have been described as a monument to the power of shallow reasoning. Even so, the debate over the advisability of minimum-wage laws offers numerous lessons about, among other things, the often messy mix of politics and economics.

Here's a question to ponder: Why do most people earn much more than the minimum wage? The answer is that they are worth more than that amount. Their higher wages are not the result of legislation.

Workers produce value for their employers, or themselves if they are self-employed, in excess of $4 or $5 an hour. People who have skills, talents, experience or training are competed for by employers.

Some people, unfortunately, particularly new entrants into the labor force, are simply worth less than the minimum wage.

Our economy is based on voluntary exchange. Employers are not forced to hire certain numbers of workers. If someone produces less than the minimum wage, an employer would be irrational to hire such a person.

The problem is not that employers are paying workers less than they are worth. There is enough competition among employers to prevent that from being a major problem. If you don't believe that, you need to explain why most workers get much more than a minimum wage.

Minimum-wage laws reduce employment opportunities. They retard the best means most people have for increasing their productive value Ñ on-the-job training.

The fundamental problem is that some people have an insufficient value in the labor market. That is the problem we need to focus on if we want to give everyone a "living wage."

Minimum wage laws attack the symptom instead of its source. By reducing opportunities for on-the-job training, they actually worsen the problem.

Speaking of voluntary exchange, it's that aspect of minimum-wage laws that is perhaps the most obnoxious. If one adult wants to work for another adult for $3 an hour (or 3 cents for that matter), what right does anyone else have to interfere with that agreement? The same people who oppose laws against consensual sex between adults advocate restrictions against consensual economic relations between adults. Shouldn't civil rights include economic freedom?

The most powerful interest group supporting the minimum wage is organized labor. Since practically all union members earn more than a minimum wage, why is it an important issue for them?

Think of it this way: If you were General Motors, wouldn't you like to see a law forcing Ford to raise its prices? An important determinant in the demand for any product is the price of substitutes. If the price of Wheaties goes up, the demand for Cheerios will increase. Unions don't want employers to have the option of hiring lower priced workers.

Most goods in our economy can be produced with different combinations of resources Ñ labor, capital, energy. A given quantity of output can be produced with various combinations of these resources.

Which combination to use depends in part on the relative prices of labor and machinery, for example. If the price of labor goes up, the likely outcome will be the substitution of machinery for people. Machines don't require payroll taxes, health insurance or vacations. Again the result is fewer employment opportunities.

If reducing poverty could be reduced as easily as simply passing a law that increased minimum wages to $5, why stop there? Why not reduce poverty even more with a minimum of $10 or $20? A small dose of a bad idea is OK?

Minimum-wage laws illustrate the limits of legislative solutions to real world problems. Economists point out that many of the laws in existence are equivalent to a law prohibiting rain on Sundays.

It could be said that having a minimum wage law makes us feel better. Buying a better feeling at the cost of increased unemployment and prolonged denial of the sources of low wages is no bargain. Focusing on false remedies like minimum-wage laws only take our attention away from real remedies.

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◼ FISCAL FITNESS: False remedies - North Coast Journal May 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.

FISCAL FITNESS: Progress in South Africa

Recently I paid my sixth visit to South Africa, but it was my first visit to the "New South Africa." The changes I detected are subtle but profound.

My first visit to South Africa was in 1976, just a few weeks before the Soweto riots, considered one of the significant events in the country's history. The changes I've observed over the past 19 years have been impressive and inspirational.

All my previous trips to the country left me with a somewhat bittersweet aftertaste. I was extremely impressed with the country and especially its people. But it was afflicted with a fatal flaw for which there seemed to be no cure.

The Afrikaners truly believed that sharing power with the black population would mean the end of their culture, as well as an economic disaster. Their fears were not irrational paranoia; they only had to look at the experience of almost every other African nation.

South Africa was a pariah among nations, the world's favorite whipping boy. Anyone who visited the country usually concluded that the country's bad reputation was, at best, grossly oversimplified.

Nevertheless, even large numbers of white South Africans abhorred the country's racial policies, and hundreds of thousands of them emigrated to such places as the United States, Canada, England and Australia. It's not unusual for a white South African family with four grown children to have them living in four different countries.

The progress South Africa has achieved is mind-boggling. The person who is most responsible is the new president, Nelson Mandela. It is difficult to imagine how South Africa could have peacefully accomplished what it has without him.

Mandela was unjustly imprisoned for 27 years, yet he walked out of jail without a shred of bitterness. He is highly admired and respected by both white and black South Africans. His accomplishments and stature are comparable to Washington, Lincoln or even Ghandi. To a large degree, he is a combination of those three exceptional people. The strength of his character and his obvious integrity played a major role in the Afrikaner government's willingness to voluntarily relinquish power.

Perhaps the most important international development that facilitated the peaceful revolution in South Africa was the collapse of communism. A critical aspect of the white population's fear of giving power to blacks was the concern that black government would impose communism and would be under the influence of Moscow.

The demise of communism meant that it lost virtually all its appeal to movements such as the African National Congress (ANC), Mandela's political party. Communism also was seen as much less of a threat to the white population.

A century and a half ago Karl Marx wrote his famous "A specter is haunting Europe, the specter of communism." Fortunately, those words now ring hollow.

Among the changes I observed this trip was the change in outlook I saw in the people I visited with. There is almost a tangible sense of relief as well as an invigorated sense of national pride.

The conversations I had with my friends there had a different tone this visit. It's as though a weight has been removed from their country. There is still some anxiety about what the future holds, but there is a new sense of optimism and eagerness to tackle the challenges before them. I can't help feeling a sense of excitement for them.

Will South Africa continue to move forward? Might the country fragment and deteriorate when Nelson Mandela dies? Most of his countrymen hope he has a long life, but they seem to be confident that their progress isn't dependent on one man. My assessment is that the country has vastly more economic, cultural and attitudinal assets than liabilities. That's why it's had its past success, and why it's reasonable to assume it will continue. Furthermore, their self-imposed and internationally imposed handicaps have been largely removed. For example, virtually all sanctions against the country have been rescinded.

South Africa already has, by far, the most productive economy on the African continent, especially sub-Saharan Africa. Yet it has in no way fulfilled its potential. Its tourist industry potential, for example, has barely been tapped .

The country is seen more and more as the economic gateway to sub-Saharan Africa. Its infrastructure is highly developed and other African countries look to South Africa as they seek to develop their own. South Africa's success is crucial not just to itself, but to its continental partners as well.

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◼ FISCAL FITNESS: Progress in South Africa - North Coast Journal March 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.