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In a national election, the people
pick a president and for four years thereafter they pick on him. But few
presidents have ever picked on their successors after they failed to be reelected. Most have made a graceful exit and enjoyed
the sunshine of history. President Jimmy Carter is a rare exception. Since
he left office in 1981, he has authored a number of books, some of which
are highly critical of his successors. In his latest, entitled Our
Endangered Values, he finds grievous fault not only with the economic
policies of his Republican successors but also with their moral and
cultural values. He is deeply saddened and disturbed by what he calls
"America's
moral crisis."
It behooves
us to speak softly and respectfully of a president of the United States, probably the
most influential and powerful individual on earth. After all, he managed to
rise to this illustrious position with great ability, sagacity, and
courage. Mr. Carter rose to the presidency at a time when the American
people wanted new faces and new talent in Washington. He was a newcomer, a new
sort of Democrat, a kind of "religious liberal" who was concerned
about poverty, unemployment, and other social issues. There is no voice
louder on such matters than that of the President of the United States,
no voice that reaches farther than his; everything he says is heard around
the world and everything he does has consequences. But there cannot be any
doubt that loud voices, too, may be mistaken and that the results of good
intentions may be evil if they build on misinformation, misunderstanding,
and misconception. When committed by a president, even a retired president,
the consequences may be extraordinarily harmful.
In nearly all his writings, Mr. Carter
touches upon economic issues, yet he seems to be rather unaware of the
inexorable economic principles that direct and determine economic life. He
seems to be unknowing of the natural regularity of the sequence and
interdependence of market phenomena. Viewing individual action as good or
bad, fair or unfair, just or unjust, he does not see the principles to
which one must adjust in order to succeed. Always the censor who approves
or disapproves of other people's actions, he pays no heed to the basic
principles of prices and wages that affect individual wealth and poverty. Pointing
to the Republican leadership in Washington,
for instance, he lodges these charges: "Despite touting concern for
working Americans and private home ownership, key political leaders in Washington have
successfully blocked any increase in the minimum wage, which has been held
at only $5.15 per hour for eight years and not indexed to accommodate
inflation. (In comparison, in U.S. dollars and based on currency values in
April 2005, the minimum wage in Australia
is $8.66, in France
$8.88, in Italy $9.18,
in England $9.20, and in
Germany
$12.74)" (p. 195)
Mr. Carter undoubtedly would like to
see the U.S.
government lift its minimum wage at least to French, Italian, English, or
even German levels. He obviously is convinced that it is the function and
duty of government to set satisfactory wage rates and regulate employment
conditions. He seems to be unaware that, in a free society and free
economy, wage rates are determined by the value of the services rendered. Consumers
determine not only the prices of consumer goods but also those of the
factors of production, that is, land, labor, and
capital. They determine and pay the wages of every worker.
At free market wages all workers eager
to earn wages can find jobs; there is what commonly is called "full
employment." But whenever government or labor
unions raise wages above the rates which consumers are willing to pay,
institutional unemployment emerges. Minimum wage legislation obviously
condemns all workers with personal productivity lower than the minimum to
instant unemployment. If the federal government were to raise the minimum
wage to French, Italian, or German levels, it soon would boost the rate of
unemployment to European levels: in France
to 12.1 percent, Italy
9.6 percent, and Germany
10 percent. The actual rates of unemployment of unskilled and uneducated labor, the very class of labor
which the minimum wage is supposed to benefit, are much higher; they
usually reach 30 to 40 percent. If the class should also differ ethnically,
that is, in its religious, racial, national, or cultural characteristics, labor productivity may be lower yet, and the rates of
unemployment may be twice as high again. At this very moment, unemployed
youths are rioting, burning cars, and battling the police in the suburbs of
Paris and across France. Although many rioters
are unemployed Muslims who feel discriminated against, many non-Muslims
have joined their ranks. Throughout it all, the French president, Mr.
Jacques Chirac, proudly defends the French labor
market with its $8.88 minimum wage, the 35-hour work week, tough hiring and
firing rules, and other throttling labor
restrictions. He promptly announced more government spending programs to
improve housing, education, employment, and a special training for 50,000
underprivileged teens by 2007.
The French riots remind us of the
riots that paralyzed some American cities in the past. Surely, it was
unemployed black youths rather than Muslim youths that rampaged and ran
amok in Watts in 1965, leaving 34 people dead, more than 1000 people
injured, more than 4000 arested, hundreds of
buildings destroyed, and more than 200 million dollars in destruction of
property. The same pattern of rioting was seen in New
York in 1964 and 1968, in Detroit
in 1967, San Francisco in 1966, Washington, D.C. in
1968, Baltimore in 1967 and 1968, and Chicago and Cleveland
in 1968. In
the Los Angeles
riots in 1992, some 50 to 60 unemployed youths were killed. Surely, the
nation grieves for the dead and sympathizes with the unemployed. Yet
politicians never tire of erecting new employment barriers.
We respect and esteem President
Carter's concern for the poor and underprivileged, and we applaud The
Carter Center, a nonprofit
organization that seeks to resolve international conflicts and improve
public health around the world. It does not surprise us that, since Mr.
Carter left the presidency in 1981, he earned a Nobel Peace Prize for his
humanitarian work. Yet we cannot ignore his want of perception of the inexorable
principles of human action and cooperation and his amazing faith in his
particular brand of political action.
President Carter never tires of
expounding his displeasure and irritability about the income and wealth of
many capitalists and about government policies that seem to favor the rich. "Almost every decision made in Washington since
2000," he laments, "has favored the
wealthy, often at the expense of middle-class working families and the needy, and fundamental legislation on taxation and expenditures
has been designed to perpetuate those trends." (p. 191) And further
below, "our unprecedented deficits mean that there will be fewer funds
for maintaining -- much less increasing -- existing levels for health,
education, welfare, housing, environmental quality, or the creation of
jobs." "Conservative true believers", he charges, are
squeezing domestic programs from Social Security to Medicaid, Medicare,
Head Start, and other humanitarian programs for the purpose of
"another massive reduction in the tax burden for the richest families
in America."
Mr. Carter seems to be unaware that
most rich people are investors and builders of facilities of production,
creating jobs and increasing labor productivity. The
lion's share of great family wealth usually consists of certificates of
ownership of means of transportation, communication, and many kinds of
manufacture. Workers do not create jobs nor contribute to the improvement
of the apparatus of production. Yet American wage rates and standards of
living are substantially higher than many others in the world because of
the capital accumulation and investment by farsighted wealthy
entrepreneurs.
Mr. Carter deplores the thought of any
reduction in inheritance taxation which in the past consumed as much as 77
percent of a rich man's estate. Surely, the tax does not immediately and
visibly destroy capital equipment such as steel mills, railroads, or
refineries, but it forces owners or their heirs to sell all or part of the
taxed estate in order to raise the cash needed for tax payment. The loss in
productive investments - the factories and stores not built, the oil wells
not drilled - will never be seen, but consumers must pay higher prices for
fewer goods and workers earn less for their efforts. All lose but the beneficiaries
of the transfer process.
The victims of painful estate taxation
tend to redirect their efforts toward less productive pursuits or create
wealth that is less visible to estate tax collectors. The tax may induce
them to join the rapidly growing "underground economy," where
personal wealth takes the form of jewelry,
precious metals, art objects, collector's items, etc. They may shift their
wealth to safer shores abroad and accumulate income and wealth in foreign
places. Or they may just cease to be productive and instead openly embark
upon consumption of their accumulated wealth. Their reaction may explain
the rapid growth of the luxury industries that cater to ostentatious
consumption. It may also illustrate why many old corporations that were
founded by eminent entrepreneurs are now owned by many thousands of small
stockholders who wield little control over their corporations. These are
managed by attorneys with political knowledge and legal and regulatory
expertise; there are no ownership requirements or interests,
which readily explains why, in recent years, conglomerates have been
the rage, and reckless mergers and acquisitions have made the news. These
corporate executives engage in empire-building, their pay rockets beyond
sight, and multimillion-dollar severance packages provide golden
parachutes. Mr. Carter heavy-heartedly observes the conditions and calls on
legislators, regulators, and tax collectors to implement new policies that
reinforce the causes.
As the 39th president of the United States
Mr. Carter had an unprecedented opportunity to improve the situation and
guide the nation out of political and economic disarray. With Presidents
Nixon and Ford in the White House the economy had plunged from one crisis
to another. Most troublesome of all were the soaring inflation, a deepening
recession, and a painful energy crisis. With President Carter in the White
House the rate of inflation unfortunately accelerated. The purchasing power
of the American dollar, computed in 1967 dollars, was worth 55 cents in
1977; by 1980 it had shrunk to 41 cents. In 1977 the index of consumer
prices, according to Department of Labor Bureau
of Labor Statistics, stood at 181.5; it hovered
at 246.8 in
1980. In
1977 the average unemployment amounted to 6.991 million; in 1980 it stood
at 7.637 million. During the same period, Federal unemployment insurance
taxes which obviously increase the cost of labor,
according to Treasury Department statistics, rose from $92.61 billion to
$139.27 billion. The number of Americans living in poverty, according to
Department of Commerce, Bureau of the Census statistics, amounted to 24.7
million in 1977 and to 29.27 million in 1980. Federal outlays, according to
the Office of Management and Budget and Treasury Department, soared from
$409 billion in 1977 to $590.9 billion in 1980, budget deficits from $53.6
billion to $73.8 billion, and the Federal debt from $709 billion to $914
billion. And in matters of energy crisis, the President strongly urged
Congress to continue price controls on natural gas, impose heavy taxes on
crude oil and fuels used by industry, and rebate energy-tax revenue to
consumers.
Economists may ponder about the prime
author and mover of such policies. Yet, politicians are not troubled by
such reflections; they are guided by public opinion and sentiment. But
whatever they may do, ye shall know them by the fruits of their policies.
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