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.

FISCAL FITNESS: A Day in a White Coat

Most people, at one time or another, have probably wondered what it's like to be a doctor. Recently, I had the opportunity to see firsthand part of what being a physician is like in today's health care system by participating in the Humboldt-Del Norte Medical Society's "mini-intern" program.

The purpose of the program, said Dr. Brian Dorman, president of the Humboldt-Del Norte Medical Society, is to give members of the public an "unfiltered view" of the medical profession. "We want people to see what we do and draw their own conclusions," he said.

He recognizes that each participant draws different conclusions because of varied training and experience. "Your conclusions as an economist would be different from those of someone with a different perspective," he told me.

The program was suggested to local medical societies by the California Medical Association (CMA). The Humboldt-Del Norte Medical Society has offered the program twice and plans to repeat it about every six months. So far, a total of 17 mini-interns have participated.

During my two days in the program, I spent time with physicians in four different medical specialties. I discovered there is no simple answer to the question, "What is it like to be a doctor?"

The first stage of the program is an orientation. The general nature and objectives of the program are summarized, as well as the importance of confidentiality. One physician explained that he does not discuss his patients even with his wife. Mini-intern participants are required to sign a statement agreeing strictly to respect patient confidentiality.

At the orientation, participants also are issued lab coats. It is surprising how the trappings of a profession make an impact. When I showed up at my first assignment the next morning, the staff thought I was a physician, even though they were expecting me.

Mini-intern participants accompany the physician as he goes about his regular activities. Before each appointment, the patient is asked permission to allow the observer in the room. I was surprised that during my two days, only one patient declined to give permission even though some of the ailments were rather personal in nature. On behalf of the other mini-interns and myself, I want to thank all those patients who participated. Without their cooperation the program would be greatly diminished.

My first morning was spent with Dr. Kim Bauriedel, a urologist. I arrived in his office before his first patient arrived and he gave me an overview of the kinds of activities he was expecting. He also showed me some of the things it's possible to detect in x-rays of kidneys. Later he showed me what he looks for under the microscope when looking at a urine sample. At about 9 a.m. the first patient arrived and for the next three hours it was basically perpetual motion from one patient to the next. Although certain aspects of each examination were similar, the patients had a wide range of ailments. It became quite obvious to me that a physician cannot take a cookie-cutter approach to his practice, even when he or she is a specialist.

Most of Dr. Bauriedel's patients are male, and the part of the anatomy that creates many of the problems he sees is the prostate. One of the patients he saw was about 60 and had his prostate removed because of a malignancy. His appointment was a regular follow-up exam. Besides the exam, the patient also had several questions concerning aftereffects of the surgery.

As was the case with the other physicians, I got the impression that besides being a physician, Dr. Bauriedel is a teacher at heart. He seemed to enjoy explaining things to me, and certainly to his patients.

Furthermore, he was not the least bit reticent to tell his patients what he did not know. He did not overpromise. He conveyed optimism and hope regarding prescribed treatments without implying certainty of the outcome. He enlisted the patient in the decision making process.

The afternoon of my first day was spent in the radiology department of General Hospital. The two radiologists on duty were Drs. James McAllister and James Moore. During the entire afternoon, the two doctors saw only one patient face-to-face. Most of their time was spent interpreting X-rays, CAT scans (computerized axial tomography) and MRIs (magnetic resonance imaging).

Radiologists serve primarily as consultants to other physicians. I had already seen that morning the extent to which radiology is important to a urologist.

That one patient was suffering from an enlarged thyroid gland. She was about 40 years old and Dr. Moore described to her the treatment he would recommend for the problem.

I learned that there is a way to essentially destroy a thyroid gland without invasive surgery. The treatment is the closest thing to a "magic bullet" I've ever heard of. The patient was visibly relieved to learn that her prospects were so favorable. The absence of a thyroid gland results in other complications, but those are relatively easy to offset with medication.

A major demand on a physician's time is documentation and record keeping. This was especially true of the radiologists. They spend a considerable amount of their time dictating notes. These notes are fed to a transcription service and converted to "hard copy" for use by the patient's other physicians and become part of the patient's record.

The second day of my mini-internship started with Dr. John Van Speybroeck, a thoracic and vascular surgeon. One of my hopes going into the program was that I would have the opportunity to observe surgery, but Dr. Van Speybroeck had none scheduled that morning, so I missed my chance. His morning was spent moving between examining rooms consulting with patients primarily regarding pre- and postoperative procedures and consultation.

My final half-day was spent with Dr. Phillip Wagner, head of Humboldt Occupational and Environmental Medicine (HOEM). HOEM, affiliated with General Hospital, specializes in a number of services including pre-employment physicals, drug testing and substance abuse prevention.

I accompanied Dr. Wagner and his assistant on a "house call" to a potential employer/client. Dr. Wagner explained to the person in charge how HOEM could operate the employer's drug prevention program. Such programs are mandated for certain employers, especially those having connections with or contracts from federal agencies.

I doubt that he would think of himself as a "techie," but I was impressed with Dr. Wagner's facility with his lap-top computer. It was obvious that it saved him a considerable amount of time and helped keep him organized within his varied responsibilities, as well as enhancing his capabilities as a physician.

Did I find the program worthwhile? Did it justify taking two days away from my own schedule? Definitely so. I wish other professions and businesses could arrange such programs.

One strong impression I came away with is that one of the most valuable aspects of a physician's responsibilities is decision making. He has to decide, for example, what is the malady? Are more tests needed and are they worth the extra expense? What treatments and medications should be used?

In most cases the decisions have to be made with highly imperfect information. As often as not, symptoms give ambiguous and even contradictory messages. Sometimes the ailment fails to respond to the prescribed medication. The human body is an overwhelmingly complex organism. What we don't know is vastly greater than what we do know. Nevertheless, decisions have to be made, and I was amazed at the number and frequency. The success rate must be quite high or we would see even more lawsuits than we do.

The making of momentous decisions is something doctors seem to take in stride. It's part of being a doctor, and it's what they expected when they chose their profession.

What does seem to be bothering them is the profound change and upheaval currently taking place in the health-care industry. Even though comprehensive health care reform is now a moribund national issue, dramatic changes continue to occur.

New forms of competition are developing and physicians can't help feeling uncertain about what their places will be in the future. Health maintenance organizations (HMOs), for example, are a growing force in the industry. Many physicians worry that HMOs and other trends will have a detrimental effect on the patient-physician relationship.

The next mini-intern program is tentatively scheduled for March. Participation is by invitation. The medical society is basically looking for people who are active in the community. If you would like to be considered, get in touch.

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◼ FISCAL FITNESS: A Day in a White Coat - North Coast Journal

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.