Monday, February 6, 2012

Important Role of Government

I am today philosophically close to where I was when I was in graduate school. I am a middle of the road economist. I recognize the importance of government fiscal and monetary policy and yet government needs to make sure it doesn’t micromanage where it isn’t necessary, and government needs to make sure that the laws are constructed in the fairest way possible. I’m not sure at this moment that government—all levels of government—are doing all they can do to be fair and to not micromanage. For example, when a major presidential candidate can earn over $20 million dollars per year and not pay more than a 15% tax rate, I question the fairness of the system. I don’t fault Mitt Romney—there is no reason that he should pay more than is required. Nor should he be ashamed either of his earning power and his level of taxation. He is an American success story. I do, however, fault our federal government for creating a tax structure where the wealthiest Americans are so clearly paying a lesser percentage than millions of Americans whose earnings are a fraction of Governor Romney’s earnings. I would never suggest we impose an onerous tax rate for individuals in this bracket and perhaps we should all pay the same percentage, but no one should believe that the system that presently exists meets the fairness test. I’ve written before about defined benefit pension plans. There is no question that they are very beneficial for the recipients but there is also no question that substituting certainty for risk on the part of the pension recipients is made possible at the expense of tax payers. These are the same tax payers who, for the most part, save what they can for retirement without the ability to shelter these monies from the winds of economic uncertainty. What a nice system it is when you win if the stock market rises and you can’t lose if the stock market falls. I would never diminish the defined benefit pension plans for those who already have them. But can we really justify their continuation in the same form going forward? And to prop up these pensions, what are we now not able to do which meet important needs. Are we cutting back, for example, on our support for public K-12 education? Bad decision and bad news for the competitive future of our country. The few times in my life that I have seen momentary price controls, the end results have been serious market disruptions. In a market economy, it doesn’t really work to bypass the market. And now there is mention of government efforts to limit tuition increases. The market already is an effective brake on excessive tuition increases. If the value equation isn’t there for a particular college or university, there are multiple other universities—private as well as public, senior as well as community – to chose from. A dynamic institution striving to make greater use of full-time faculty, or greater merit-based or need-based scholarships, or smaller class size, or new majors in more costly areas, may need a larger than average tuition rate increase. Should institutions making initiatives like this be dissuaded from doing so or penalized for doing so? It makes no sense. And I do understand the high cost of education and the strains that it puts on many families. Competition from lower priced alternatives including on-line degree programs or for profit colleges and universities are better alternatives than price controls. Here is my dilemma and the dilemma for so many of us. Government is a lifeline we all need but when government undermines a level playing field, we are all hurt.

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