Almost a hundred years ago Charles Kettering didn't like the idea of cranking a car to make it start, so he invented the electric starter. This meant you could start the car from the driver's seat. Brute strength was no longer the perquisite to mobility. This single invention may have done more to liberate women than the entire feminist movement.
Just before World War II an article was written about inventors and how so many inventions came about accidentally and spontaneously. The author ended by categorizing inventions into useful and non-essential gadgets. He put automatic transmissions, which were seen as a novelty with little purpose, into the later category and chastised the automobile industry for wasting time and energy on foolishness when there were serious things to be done. About a year later, we were in the war and the U.S. was taking a beating in the air. Experts agreed we needed a hydraulic clutch in order to beat our enemies in altitude flying. The Germans had tried unsuccessfully to use a hydraulic clutch in their altitude engine and had given up. Hydraulic clutches, frivolously perfected in American automobile factories made it possible for our pilots to outfly our enemies. The clutches were also installed in tanks, making it possible to train the operator in hours instead of weeks. Tank operators no longer had to be muscular giants, and could even divide their attention between driving and fighting in emergency situations. More importantly, since the new tanks didn't have to stop when gears were shifted, they were less of a target.
The story illustrates how hopeless it is to choose what invention is essential and what non-essential. In the automatic transmission story, mass production of hydraulic clutches could never have gotten beyond the experimental stage or even gotten started except for an open-minded dreamer-type American consumer always on the lookout for new products---a consumer that fails to draw lines between necessities and luxuries.
About a half a million of these hydraulic clutches had been built before we even entered the war. The difference between the United States and Germany was that Americans did not have to invent on demand. Americans built those clutches for peacetime use.
Fifty years later history repeated itself. The California dune buggy, manufactured by former off-road racer, Michael Thomas, played a major role in the Gulf War. Prior to 1990, the company had a relatively small annual sales record with less than a dozen buggies going to recreational users and another 1,000 sub-assemblies to do-it-your-selfers. As strictly a sideline, sales of about 400 were made to the military over a 12 year period. The vehicles were used by the military in the desert to gather intelligence. Thomas adapted them for military use by adding a gunner's cage to the back and racks for carrying gear to the sides and painted them khaki. The converted dune buggies were able to zip across the terrain at 100 miles per hour where jeeps and tanks would have stalled. Their tubular frame had few flat surfaces so enemy radar found them hard to detect. Thomas was able to meet the military's immediate demand by calling 25 buddies from the race car circuit to help his own 35 employees and by having everyone put in 12 hour days.
The following are inventions in technology that continue to keep America at the head of the pack, despite all our social problems.
John Vanderjagt, Memphis industrialist, may have found a way to affordable housing through technology. He used 38-foot-long, 9-foot-high slabs of concrete, costing $186 each to build a 3-bedroom 1,064 square foot ranch house . He thinks similar houses can be built from between $20,000 to $25,000. That's $24 a square foot compared to the minimum of $50 a square foot using traditional materials. He's willing to gamble a lot of money on the idea and is building a 30,000 square ft plant to manufacture the slabs. (write to him)
Many recent advances in the health industry lower the cost of diagnosis and deliver a better product. Acuson of Mountain View, California, is a manufacturer of computerized diagnostic equipment. Acuson has revolutionized the field of sonography, a technology that uses safe, targeted soundwaves to penetrate body tissues and allows technicians to detect abnormalities on a monitor. Although sonography has been used for 30 years, it had a reputation for poor image resolutions. Acuson has corrected that with new technological innovations which makes it a viable alternative to the MRS, magnetic resonance scanners. MRS costs upwards of a million dollars, whereas Acuson's equipment sells for around $125,000.
A private insurance company cut its processing of insurance applications from as much as 25 days to as little as four hours by using updated technology.
It helps to be aware of problems that need solving and to be receptive to ideas. That's where you and the Harry Singer Foundation come into it. The Harry Singer Foundation has unbounded faith in your ability to contribute.
Some people might think you are too young and haven't had enough experience to make much of a contribution to solving the nation's problems. Maybe you've run into some of those people. Maybe they never heard of the young girl from New England who asked "Why not peace?" and was invited to visit Gorbachev. Maybe they aren't familiar with the 12 year old boy in the Midwest who mobilized his town to help the homeless, or maybe the don't know about the college student who started Teach for America, a variation of the Peace Corps---only it's a Teach Corps.
Young people who are short on experience may not be the best choice for administrative or leadership roles but they may well be our best problem solvers. You are not afraid to ask why? or to suggest why not? You bring a fresh enthusiasm and optimism to problems. You don't believe when you are told it can't be done. You are most like those immigrants who keep coming to our shores, working hard and developing entrepreneurial businesses and taking top awards in our educational institutions because they don't know the American Dream is waning--- they don't believe those, like Robert Reich, who have written from the hallowed halls of the J. F. Kennedy School of Government that the self-made man is an American myth. They refuse to believe that the American Dream is an illusion and so in their naiveté, they fulfill it.
Some of you one day will be rich and famous; some of you will hold leadership roles in this country. But each and everyone of you can be whatever you chose to be. It is up to you and you alone. Superior brain power, talent and luck are not essential. What it will take is determination, optimism, perseverance and hard work.
It seems clear to a good many people around the world that concentration of power in a centralized bureaucracy is a recipe for failure. Centralization inhibits creativity and does not provide the services people need or desire.
(The following is edited and excerpted from the writings of H.
P. Rogers and
is a paraphrase of material found in Mainspring of Human
Progress by Henry
Grady Weaver. See notes in back)
The so-called Panic of 1837 discredited government enterprise and
made it
possible to implement the laissez-faire policies of Adam Smith.
This remedy,
was responsible for the largest and fastest increase in living
standards the
world has ever seen. Under the policies espoused by Adam Smith, John
Locke
and other favorites of our founding fathers, Americans were able to
accomplish
in less than two hundred years, what men, just as intelligent and
living in
lands with as many natural resources, had not been able to accomplish
in the
previous six thousand years.
Throughout man’s history, citizens have fought for their share of
the
existing wealth. They thought it only natural that A would have to
suffer to
satisfy the needs of B. That is the zero-sum philosophy.
Too many in positions of power in Washington, DC, subscribe to the
zero-sum
philosophy which always destroys wealth, dissipates human energy and
lowers
the living standard of all. It simply is not true that one man’s
profit must
be another man’s loss. By freeing those capable of exercising the
greatest
creativity and productivity, the fortunes of all citizens are
enhanced. The
jobs created by allowing capital to accumulate and then allowing that
accumulation to be invested in ideas has made American citizens the
envy of
the world. They have all shared in the benefits made possible by
labor-saving
devices. Women had washing machines in the United States when women
in many
other countries, just as intelligent and just as capable were still
pounding
clothes on rocks down by the river. The automobile, until recently a
luxury
reserved for a tiny segment of the population in many parts of the
world, has
long been considered indispensable to all but the poorest American.
The
automobile enabled our citizens to get around faster, giving them
more time to
direct their energies to even greater productivity.
(E-1) Explain, in your own words, what is meant by the "zero-sum philosophy."
(E-2) What does it mean to "free" the most creative and productive people in society? Who or what does the "freeing"? How are these special people discovered or chosen? By whom or by what procedure?
Government controls by penalties. For example, suppose the goal is oil conservation and increased safety. The government would set speed limits and fine or otherwise punish recalcitrant drivers. The market is guided by profits. The goals could be achieved without government controls if drivers realized they could save money and minimize the risk of accident by driving slower. The first is control by penalty; the second is control by profits. Losses are the only penalty in a free market. The individual is forced by competition to seek his own success in serving the market as exemplified by the consumer. Obedience to the market ruled by uncontrolled prices is rewarded by profit, whereas disobedience is punished by loss and bankruptcy.
Non-market economies try to replace this guidance by planning. If a businessman miscalculates the worst that awaits him is financial ruin. If a public official miscalculates we all suffer in countless ways. Who will deny that millions of ordinary citizens making calculations have a far greater chance that judgments will offset one another than if a handful of well intentioned officials were doing the same thing?
No single man or group of men is capable of deciding the correct relationship between the latitude of events which are changing moment by moment in our complex society. It is absolutely mind boggling to realize that the economy functions without any human direction-with no person deciding who shall perform what task and prescribing what goods and how much of each shall be produced and brought to market. Not only functions, but in a relatively short time this market has produced the highest living standard the world has every known. Admittedly people today are subject to more regulation than they were a few decades ago, but capitalism is the system of government which leaves to the people decisions about production, consumption, saving, buying and selling and even their environment.
(E-3) The government controls by penalties, not profits. Using the "oil conservation" example above as a guideline, give two of your own examples. State a goal and show how the government might achieve it. Then show how the desire for profits might achieve the same goal.
(E-4) In the Eastern Bloc countries government for years told the people what to plant and how much. In Western countries those decisions were left to markets and the pursuit of profits. Write your own example that proves the point stated above that ordinary citizens or businessmen making calculations have a far greater chance that judgments will offset one another than if a handful experts were doing the same thing.
The following is found on page 277 of Reinventing
Government:
American governments have always used market mechanisms to achieve
their goals
to one degree or another. We have long used tax incentives to
influence
individual and corporate spending. We have long used zoning to shape
the
growth of our communities. We have always set the rules of the
marketplace---and often changed them when we wanted different
outcomes. . . .
Our governments must consciously use their immense leverage to
structure the
market, so that millions of businesses and individuals have
incentives to meet
our health care, child care, job training, and environmental needs.
Not
surprisingly, this is precisely where they are heading. ... The trend
has
nothing to do with conservative calls to 'leave it to the market,'
however.
Structuring the market to achieve a public purpose is in fact the
opposite of
leaving matters to the 'free market'----it is a form of
intervention in the
market. . . . Structuring the market is also the opposite of
creating publicly
administered bureaucracies to deliver services. It is a third way,
an
alternative to both the liberal call for administrative programs and
the
conservative call for government to stay out of the marketplace. It
is a way
of using public leverage to shape private decisions to achieve
collective
goals. It is a classic method of entrepreneurial governance: active
government without bureaucratic government. ... If a government can
create
incentives that affect millions of decisions made in the
marketplace---rather
than affecting only those activities for which the government
pays---it can
multiply its impact a thousand fold. (RIG 277-278)
(E-5) Describe "structuring the market" in your own words. Do you think because it is half-way between the conservative "free market" and the "bureaucratic delivery of services", that it may be the ideal? Comment.
The Institute for Local Self-Reliance calculated in a recent study, a city with 1 million people could supply up to 29 factories employing 1,800 workers by recycling 43 percent of its waste. If recycling took off, think of the potential offered by something as promising for the collective good as counseling. Consider how many jobs could be generated if government would rule that the dysfunctional in our society be counseled; those with shaky marriages, children from broken homes, single working parents, their latchkey offspring, those with credit problems, the homeless, the jobless, dropouts, abusers of tobacco, alcohol and other drugs, batterers, harrassers, sexual and mental abusers, overweight, overthin, the shy and fearful, those lacking in self-esteem there is no end to the potential users of counseling and no doubt for the need for it in our society. The number of jobs such a mandate would generate is truly amazing.
(E-6) Present your own program for the collective good. Do you think your program should be legislated? Do you think counseling should be legislated? How about recycling? Explain why or why not in each of the cases.
In his new book The Culture of Spending, Jim Payne traces the proliferation of government staff and the recurring reports required on Capitol Hill. In addition to recurring reports like annuals and quarterlies, there are generally another couple thousand one-time only special reports in any given year. In 1963 recurring reports numbered 600; 1980 = 1,400; 1985 = 2,800 and by 1990 Congress was requiring 3,000 recurring reports a year. Three bills were passed to restrict them. Each time a bill came up for a vote, members of Congress had to look over the reports they had never before found time to read. Each time they found so many valuable reports they ended up increasing the number required. Their intentions were good. Policy makers knew they needed the reported information. However, in defending their inaction in allowing the HUD and savings and loan scandals , Congress referred to over 3,000 warning and advisory reports waiting to be read. They wanted to do the right thing, but like so many of us, they just never got around to it.
(E-7) Do you think that even with the best of intentions and with all the integrity and goodwill in the world it is possible for 535 elected officials to successfully manage the affairs of over 250 million Americans? Explain.
The efforts of now-retired Air Force General Bill Creech to
decentralize a
government agency is highly recommended reading and can be found in
the
January 1987 issue of Inc. pages 41-51 and in abbreviated form
on pages
255-259 of Reinventing Government.
In his six years at TAC (Tactical Air Command), Creech virtually
doubled its
productivity. He did so simply by recognizing human nature: people
work
harder and invest more of their creativity when they control their
own work.
In his interview with Inc. Creech said something that successful
government
managers are discovering: "there are lots of people just waiting for
you to
give them some responsibility, some sense of ownership, something
they can
take personal pride in. And it's amazing how, once you take those
first
steps, suddenly a thousand flowers bloom, and the organization takes
off in
ways that nobody could have predicted."
President Nixon panicked the Japanese by proposing standby export restrictions on soybeans. In order to avoid shortages from the United States, Japanese importers and trading companies stepped up soybean cultivation in Brazil. Now Brazil is our biggest competitor in world soybean markets.
Japan is an island country with few natural resources. It is therefore dependent on the rest of the world for many things. Markets that fluctuate beyond their control can devastate the Japanese economy. That's why it is so important for the Japanese to exert a strong influence in the economies of other countries, and why they will often go to great lengths to establish market share.
Predatory pricing refers to a business practice whereby a country or a company, willing and able to suffer large losses for a period of time, reduces its prices below costs in an attempt to drive competitors out of business. The government steps in to prevent this undercutting because of the potential harm to the public which occurs when competition has been removed and the predator is able to charge whatever it wants until a new competitor appears on the scene. This is obviously manipulation by the government for what appears to be a good cause.
(E-8) Predatory pricing subjects the consumer to potential harm and actual good. What is the good?
(E-9) Who decides when prices are too low and how?
What happened when the government mandated lighter cars? The
Japanese, who
had been producing lighter cars all along, gained the advantage. The
U.S.
government stepped in again with mandates. As Osborne and Gaebler
recognize:
The political answer to a politically created problem is almost never
to stop
doing what is causing the trouble, but instead to create yet another
political
intervention. . . (the public has) to understand that you cannot just
continue
to load ever more requirements on any product without regard to the
costs.
(E-10) Discuss at least two drawbacks to government's interference in the marketplace. Include at least one of the following and choose one that is not on this list: (a) marketplace is skewed (b) higher prices for consumers (c) competitors suffer (d) decisions are centralized and consequentially more likely to be harmful.
Alexander Hamilton thought the infant United States needed protective tariffs and was not ready for free international trade. But states rights were strong and that meant states, and not the federal government, played the major role in solidifying the political philosophy under which we live. But these concepts evolved slowly and were and are still subject to dispute and dissension.
Latex, the main ingredient in rubber thread, is extremely
expensive to
transport. Since the rubber trees from which latex is derived are
plentiful in
Malaysia, these foreign manufacturers have a distinct advantage over
their
American competitors. However, although increased tariffs on
Malaysian
imports might benefit the 150 workers who manufacture American rubber
thread,
the increased price of the thread would hurt the more than 3,000
workers who
use the thread. As James Bovard said in a Wall Street Journal
editorial on
December 18, 199:,
Additional protection could destroy 20 times as many jobs as it
saves.
...Rhode Island Textiles, which produces elastic, ...recently lost
"a very
large customer" in Los Angeles to a Hong Kong firm that can buy
rubber thread
at world prices (roughly 30% to 40% below current U.S. prices)-and
must pay
only an 8% U.S. tariff on its elastic exports. The high tariffs are
also
undercutting U.S. companies' efforts to export American-made elastic.
_The
rubber thread case vivifies the essence of
protectionism---politicians
intervening to allow floundering American companies to take
successful
American companies hostage.
(E-11) U.S. trade law specifies that higher duties can be imposed on imports only if it is shown that economic and social benefits outweigh costs. Do they in the latex case?
United Airlines invested large amounts of capital to develop its computerized reservation system. When United bought the rights to Pan Am's Pacific routes, the court refused to allow the purchase unless United agreed to make its reservation system available to its competitors.
By requiring United to deal with its competitors on terms, blatantly detrimental to itself, the court created a market. Not a free-market, but a market. However, United's right to dispose of its own property was violated and its competitors were unjustly enriched. They did nothing for the government-mandated benefit they received. Any incentives to invest in innovations, such as United's reservation system, were drastically reduced by the court interference.
(E-12) Consumers didn't benefit. Why not?
(E-13) Some people believe the court interfered with United's property rights and its ability to contract. Others, including those on the court, of course, do not. Why do you think the court made United share its reservation system? Do you find the reasoning satisfying? Why or why not?
Federal Marketing Orders were created in 1937 as a short-term program to help growers during the Depression. The orders imposed artificially high prices by restricting the amount of citrus that can be sold. By law, some 35 percent of California's citrus crop must be exported, left to rot or used for juice. The Antitrust Division of the Justice Department and the Small Business Administration both want an end to citrus quotas. An unfortunate USDA official was quoted: "People don't need oranges, they can take vitamins."
(E-14) What might Marie Antoinette have said if she had been the USDA official?
In 1985 the government went after Carl Pescosolido, a grower from Exeter, California, who gave away illegal oranges to charity and failed to fill out quota forms.
(E-15) Two parties got hurt here. Identify them.
Donald Kettl, a University of Wisconsin political scientist says "The much-praised self-discipline of the market exists only when competition can reward success and punish failures. If market imperfections hinder such self-discipline, problems ranging from conflicts of interest to fraud can simmer."
(E-16) What was the conflict of interest in the case of oranges?
(E-17) What is the potential for fraud under Federal Marketing Orders?
Governments have a variety of ways to achieve environmental goals. Take recycling for example. Some, like St. Paul, Minnesota, have entered into partnership, using tax dollars as start up and volunteers for the long haul. St. Paul extended seed money to a non-profit recycling program. Others, like Oregon and New Jersey, use tax incentives to encourage recycling whereas Seattle by-passed the tax code altogether and went for a market solution. For every garbage can that was not sorted for recycling, the consumer was charged an extra $14. It wasn't long before Seattle was recycling more of its trash than any other city in the country.
But Tom Arrandale pointed out a potential problem with recycling
on page 28
of the April 1993 issue of Governing:
With old newspapers, green bottles and plastics glutting recycling
markets, a
political backlash has been building as free-market enthusiasts blame
governments for accelerating costly recycling campaigns far beyond
industry's
need for the materials they're collecting. In just the past four
years,
curbside collection programs have multiplied from 600 across the
country to
nearly 4,000 communities. Prices have plunged, even for recyclable
staples
like aluminum cans... Before 1988, for instance, New Jersey dealers
paid $45 a
ton for old newspapers they could resell to a few paper making mills
or export
markets for recycled fibers. ...Now dealers are charging $25 a ton
to haul
the newspapers away.... Lack of markets poses the biggest barrier to
successful recycling programs." Virgin materials, are in many
instances,
cheaper than the recycled materials. Some of this may be due to tax
incentives and subsidies put in place in other times to encourage
industries
supplying virgin raw materials. "Below-cost timber sales from
national
forests, for instance, help keep prices for wood used to make virgin
paper
artificially low. Subsidized energy prices keep the cost of making
new
plastics down. "...outmoded government preferences hide the true
costs of
extracting and processing raw materials. If the market truly
reflected those
costs, (proponents of recycling argue) recycled commodities already
would be
competitive.
The heading of Mr. Arrandale's cover story on recycling read:
Mr. Arrandale was all for manipulating the marketplace and set out
to tell
governments how to go about it:
Government procurement accounts for 18 percent of the nation's gross
national
product. ... For products where governments are major buyers,
government
procurement standards can persuade major manufacturers to start
making them
with recycled material. ... (However) fiscal problems will make it
more
difficult than ever for governments to offer new incentives and pay
higher
prices for recycled products. But with their regulatory authority,
legislatures have the power to mandate what kind of products
manufacturers
make and private businesses purchase. _ Joan Edwards, former NYC
recycling
director and currently the head of the Los Angeles Integrated Solid
Waste
Management Office says, "minimum content may become more prominent as
a state
strategy because of the fiscal crisis. So far, the federal
government has
kept to the sidelines as state and local governments promote
recycling. But
now the Clinton administration may be ready to step in with ambitious
federal
procurement guidelines and nationwide standards for recycled content.
And assuming that government could and would use mandates to
create a market
in recyclables, Mr. Arrandale saw another benefit, as good if not
better than
recycled waste:
(G)overnments could be making a mistake if they overlook the
job-creating
potential of the recyclable commodities they're collecting. The
Institute for
Local Self-Reliance estimates that recycling 15,000 tons of solid
waste
creates nine jobs in ventures that collect, sort and prepare them to
meet
industry specification."
In Washington state, a fledgling recycling industry already employs
close to
5,000 workers. The California Integrated Waste Management Board
calculates
that the 12 Recycling Market Development Zones it designated last
year have
created around 800 new jobs." In up-state New York, two plants that
will use
recycled cardboard to make linerboard should provide 300-400 new
jobs. P.32
(In 1987) the New York legislature set up an Office of Recycling
Market
Development within the Department of Economic Development. The state
Environmental Conservation Department had previously held
market-development
power, but 'they really hadn't done anything with it,' says William
Ferretti,
the new agency's director. Ferretti's agency, however, is in the
business of
industrial development. 'DED has internal experience and expertise in
industrial economic development that most environmental agencies just
don't
have,' he says. The program operates with a $3.1 million budget and
has staff
in three economic development offices around the state. Since 1988
it has
provided grants for 29 projects by 27 companies. . . In addition, the
office
has loaned $1.5 million to various private recycling ventures, as
well as
helping firms obtain more than $40 million in loans and loan
guarantees from
sister economic development agencies. ... The Clean Washington
Center, part
of the state's Dept. of Trade and Economic Development, has a $2
million
annual budget with which it "drafted a strategic plan for each
potentially
recyclable commodity. Each plan assesses how much will be collected
by the
state's rapidly expanding recycling programs over the coming years.
The
center then studies market obstacles and targets recycling projects
that will
help overcome them." Missouri, Pennsylvania, and Colorado all have
recycling
market programs in place. Joan Edwards believes "linking recycling
markets to
industrial development may be what it takes to turn what's now a
citizens'
movement into an economic fixture."
(E-18) Is it possible for a few policy makers to successfully establish and regulate the marketplace for recylables or anything else? Should they try? Why or why not? Use historical examples to substantiate your claim.
(E-19) Why is it often cheaper for manufacturers to use new material rather than recycled material? Use paper and plastics as examples in your answer.
(E-20) Who gets hurt when government makes new rules? Write from
the point of
view of an owner of a mine, the owner of a recoiling
plant, the stock
market and a consumer under the following
circumstances:
(a) The federal government prohibits the recycling of aluminum.
(b) The federal government offers large subsidies to the owners of
aluminum mines.
(c) The federal government outlaws aluminum in commerce as too
dangerous and
orders that copper be everywhere used as a substitute.
Robert Stavins of Harvard published a study in 1988 with Senators Wirth of Colorado and Heinz of Pennsylvania. The study present 36 ways to use the marketplace to solve environmental problems. The marketplace was used by the Environmental Protection Agency (EPA) under the Bush administration, in an attempt to solve the nation's pollution problem. With the hope of encouraging innovation, the agency decided to allow companies to trade or sell credits between different sources of pollution.
Tom Arrandale also had something to say about this in a March,
1993 issue of
Governing:
(G)overnment itself may stand in the way of sensible measures to keep
pollution from happening. Regulatory standards specifying which
emission
control equipment factories must install leave too little room for
experiments
with new pollution-saving technologies. Plant managers trying to
cope with
separate air, water and waste-handling permits---and the three
different
inspectors who enforce them---grow reluctant to tinker with
less-polluting
manufacturing processes.
All too often, reducing one form of emissions has wound up creating
another
problem by moving contaminants around among the air or water or the
ground.
... At one Massachusetts site, a state air quality inspector stepped
over
leaking hazardous wastes to look at air pollution control equipment
but never
alerted his toxic-waste section colleagues. ...That narrow-minded
approach
hardly gives the public confidence that governments can protect the
environment without damaging the economy.
But placing an excise tax on polluters may be the most efficient
way to clean
up pollution according to Osborne and Gaebler:
(T)o make sure that all of us, producers and consumers alike, face up
to the
full costs and consequences of our decisions---(we can build) the
cost imposed
on society by the polluter into the cost of the product----whether
gasoline,
pesticides, electricity generated by burning coal, or products
containing
chlorofluorocarbons. When this is done, people have an incentive not
to
pollute. And businesses that don't spend money or time to reduce
their
pollution put themselves at a competitive disadvantage. A good side
benefit
is the fact that "Consumers need no sophistication about which
product is more
environmentally damaging than another; they simply have to look at
the price.
If driving a heavily polluting car creates significant air pollution,
it
becomes expensive. If electricity from coal-fired plants creates
acid rain,
it becomes expensive. If disposing of plastic diapers fills up
landfills,
they become expensive. . . . If pollution became a significant
expense,
industries would do what they could to avoid it---developing cleaner
technologies, changing the fuels they burned, recycling materials and
conserving energy. The profit motive is a powerful incentive to
innovate.(RIG
p302-303)
(E-21) Explain what is meant by the trading of pollution credits.
(E-22) Choose three from those listed and discuss the potential
problems
associated with passing the cost of pollution along to the
consumer.
(a)Who determines the cost of pollution in any given instance?
(b) How accurate is any such determination likely to be?
(c) How might such a policy affect our domestic economy: inflation
rate, interest rates,
savings, and investment?
(d) What about our global competitiveness? Trade?
(e) How would low-income people be affected?
(f) Would adjustments be necessary and further complicate our tax
code?
Environmentalists claim taxing carbon emissions, could reduce the use of fossil fuels significantly. The federal government projects a $100 carbon tax, phased in over a 10 year period would further eliminate anywhere from eight percent to 36 percent of fuel emissions. But the costs could be significant. Professor Stavins figures the $100 carbon tax would probably add 75 percent to the price of crude oil, 25 percent to the price of electricity and 30 percent to the consumer at the gasoline pump.
Kent Jeffreys, director of environmental studies at the
Competitive Enterprise
Institute makes a suggestion:
(G)reater use of revolving loan funds would begin to instill a touch
of market
discipline in state and federal decision making. If the federal
government is
no longer simply giving away dollars, it will reduce the incentives
for
wasteful spending. If states are required to pay back, to some
degree, loans
for the cleanup costs at Superfund sites or for creating wilderness
areas,
they may begin to set more rational priorities.
(E-23) Comment on Mr. Jeffrey's suggestion.
If you had set out to buy a home in 1930, you would have saved up 50 percent of the purchase price for a down payment and applied at your local bank for a five-year mortgage. That was how people bought houses in 1930, because that was how banks did business. During the New Deal, Franklin Roosevelt's Federal Housing Administration (FHA) pioneered a new form of mortgage, which required only 20 percent down and let the borrower repay over 30 years. Other government corporations created a secondary market so banks could resell these new loans. And the banking industry converted. . . . What the FHA (Federal Housing Administration) did, in essence, was structure the marketplace to fulfill a public purpose._
The Government National Mortgage Association (Ginnie Mae) uses government funds to buy government-insured mortgages in the secondary mortgage market and later auctions them. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored private corporation. It makes extra mortgage funds available by buying conventional and government - insured mortgages in the secondary mortgage market. It raises its capital through the sale of short and long-term obligations, mortgage-backed bonds and stock. It usually doesn't sell the mortgages it buys. The Federal Home Loan Mortgage Corporation (Freddie Mac) is a corporation owned by the 12 district Federal Home Loan Banks and directed by the Federal Home Loan Bank Board. It stabilizes the flow of funds into residential mortgage investments by buying and selling conventional mortgages and some government insured mortgages in the secondary mortgage market.
Fanny and Freddie are a duopoly controlling 90 percent of the housing mortgage market. Fannie, by herself, in 1991 controlled $120 billion worth of mortgages. Critics maintain that they unfairly compete with private lenders. There's no doubt private but government-sponsored entities (GSE) like Fannie and Freddie are privileged. GSEs have lower taxes, more favorable capital-lending ratios, lower cost of funds and don't have to meet the same community investment standards. Most alarming is the fact that Fannie and Freddie's taxpayer guarantees grew 250 percent over five years. Over $1 trillion is guaranteed!
People want more affordable housing and most don't know or care what it involves. Few know about the trillion dollar taxpayer guarantee.
(E-24) How do you feel about GSE competing with private business? Might this be an instance where the ends justify the means? Why or why not?
The following is an excerpt from a commentary by John I.
Gilderbloom, which
appeared in the July, 1993 issue of Governing:
As interest rates have dropped to low levels in recent years,
landlord profits
have been rising significantly due to refinancing while renters have
witnessed
a steady increase in rents. Landlords should be sharing their
mortgage cost
savings with tenants, yet the lesson from California's tax-slashing
measure,
Proposition 13, is that landlords are unwilling to pass along
savings, even in
a time of national sacrifice. Rent control could help bring some
fairness to
this situation.
(E-25) What or who gives Mr. Gilderbloom the right to say what landlords should or should not be doing? Do you agree with his point of view? Why or why not?
Mr. Gilderbloom continues:
While rent control creates a better balance of power between tenant
and
landlord, however, it is not the ultimate solution. The best kind of
rent
control is home ownership.
High rents are a reflection of home prices, which are currently out
of reach
for far too many Americans. If more affordable housing is built,
rents will be
held down. In Louisville, Kentucky for example, house and
apartment prices
rank among the lowest of an American city with a population of more
than
100,000. Why? Because a concerted effort has been made by the city,
business
groups, community organizations and higher-education institutions to
produce
and renovate housing for sale to low-and moderate-income people.
In Louisville, a one-bedroom condominium goes for as little as
$18,000, and
attractive three-bedroom/two bath cottage-style homes sell for prices
as low
as $40,000. If more cities were to concentrate their efforts on
promoting
home ownership opportunities, rent control would become a secondary
issue.
(E-26) Do you agree that "If more affordable housing is built, rents will be held down.? Why or why not? Define, in your discussion, the phrase "supply and demand".
In Cumberland, Maine, public officials are doing something about
affordable
housing:
The project is a subdivision of 49 single family homes, prices of
which range
from $85,000 to $92,000. The first five homes are already occupied
by their
new owners. Families whose incomes average $33,000 are eligible.
For its part, the town borrowed $350,000 from Casco Northern Bank and
loaned
it to the developer. In doing so, it enabled him to leverage a
$900,000 loan
from the bank; as a small developer he could not have gotten the
financing on
his own. The town's loan and interest will be paid back with the
sale of the
homes.
The town also relaxed its zoning standards by instituting contract
zoning to
allow the homes to be built on quarter acre lots. The town was also
able to
assist by not charging a sewer unit fee. An Affordable Housing
Planning Grant
from the Department of Economic and Community Development facilitated
the
planning process.
In order to maintain the affordability of the houses, the town holds
a
"silent" second mortgage that has to be repaid only if a house is
sold to a
buyer who does not meet the income criteria.
Also believed to be unique in the state is the town's senior rental
housing
project, financed in part by the town's issuing a general obligation
bond for
a $1.3 million loan and by a $400,000 low-interest loan from the
Maine State
Housing Authority. This package, coupled with the softened real
estate
market, has allowed the rents to remain affordable and for the
complex to be
completely rent supported. It requires no local tax dollars.
The complex is a mix of 30 one-and-two-bedroom units. Six of the
one-bedroom
units are subsidized and are reserved for those with incomes of
$19,000 a year
or less.
(E-27) How would you feel if you were a family in Cumberland who was not permitted to purchase a home in the new subdivision because your income was $35,000? What is the incentive when income-restrictions are used to qualify program participants?
(E-28) Is there anything wrong with "relaxing zoning
standards" for a chosen
developer? How about having a town loan money to one developer over
another? Remember interest costs will be reimbursed from home sales.
Is
the issue dollars or principle? If principle, what is the principle
that should be considered here? In your personal opinion, should the
principle be the same for
(a) A non-favored developer?
(b) A favored developer?
(c) A family eligible to purchase the subsidized homes?
(d) An ineligible family?
(e) A chosen bank?
(f) A competitor bank?
In The American Deficit, Rogers told a story about a couple
and their four
children who were accused of defrauding the Monterey County Housing
Authority:
They lived in a publicly subsidized apartment for four years while
they
scrimped and saved. They finally gathered the money to start
building a
house on a country lot which they had managed to purchase with
unacknowledged
funds. If acknowledged, those funds would have driven them from the
very
program which had afforded them the opportunity to save in the first
place.
On page 57 of the same book Rogers raised some interesting and
relevant
questions:
New York City has 175,000 families waiting for low-income housing and
yet they
are giving publicly-owned property to squatters; people who
unlawfully
occupied and in some cases, renovated city-owned property. ACORN
(Association
of Community Organizations for Reform Now) is an example of how not
to handle
our housing problems. They advocate anarchy –– disregard for the law
––
because their cause is just and above law. Such arrogance was met by
an
unbelievable mealy-mouthed response from a New York City official _
"The
government has to show some flexibility in looking at individual
cases. To
take a hard-line position across the board against people who in good
faith
invested in the renovation of those buildings would be a
mistake."
Where in the world was the "good faith?" These people were willing
to invest
money and labor and occupy these buildings under the threat of jail.
They
knew full well they were breaking the law and opted to accept the
consequences
in hopes of changing the law. All well and good ––– there is a time
for
arrogance and civil disobedience but there must be consequences.
Hard
decisions were not made by the city of New York _ they fostered a
disregard
for law and broke faith with the 175,000 families on the low-income
housing
waiting list who were playing by the rules.
(E-29) Describe the rules broken in the two separate instances
related by
Rogers. Choose from the list below the point she was most likely
attempting to make.
(a)Officials should have overlooked the rule-breaking in
both cases.
(b) Officials should have overlooked rule-breaking in only the first
instance.
(c) Officials should never overlook the breaking of rules.
(d) Rules are made to be broken because people are always going to
act in their
own best interests. Markets, not government-rules should determine
who
gets housing.
On page 235 of his 1989 book, The New Realities, Peter
Drucker pointed out
that:
America is the only major developed country in which there is no
competition
within the school system. The French have two parallel systems above
the
elementary grades, a public one and a Catholic one, both paid for by
the
state. So do the Italians. Germany has the Gymnasium, the
college-preparatory school for a fairly small elite. In Japan,
schools are
graded by the performance of their students on the university
entrance exams.
The teachers of high-ranking schools are recognized, promoted, and
paid
accordingly. The American public school, by contrast, has a
near-monopoly--no
performance standards and little competition either within the system
or from
the outside.
Today students are allowed the option of attending school in a different district in Minnesota, New York, Arkansas, Iowa, Nebraska, Idaho, Utah and Massachusetts. California, New Jersey, Washington and Colorado allow limited choice and Vermont and Maine have a long standing practice of giving their residents student vouchers which may even be used in the state's private schools. Wisconsin provides up to 1,000 low-income Milwaukee children with vouchers to attend private schools.
Osborne and Gaebler remind us that choice is not necessarily
competition on
page 94 of Reinventing Government:
Inferior schools that fail to attract many students still get filled
up---with
the children of parents who aren't paying attention. Such systems
are usually
an improvement over traditional assignment systems, because they let
parents
choose the style of education they prefer, and they let principals
and
teachers experiment with different methods. But they lack the power
to force
improvement that competition delivers.
Those against competition claim that more affluent families would add
their
own money to vouchers and buy elite education that would still remain
beyond
the reach of others who would be forced to remain behind in failing
institutions. But the wealthy have the ability to buy superior
education now.
Wealth has always brought privilege. That's why people pursue it.
That's why
people are motivated to work longer and harder and take risks and
come up with
innovations. And these innovations do indeed trickle down,
allowing the
American people to enjoy a higher standard of living than their
counterparts
in other parts of the world.
Choice is discussed further on page 102 of Reinventing
Government:
Choice advocates in East Harlem and Minnesota argue that their
approach ...
forces failing school to improve---or forces the district to change
their
management. ... In higher education, for example, the worst students
end up
in the schools with the lowest standards, but those schools don't
necessarily
degenerate. Because they face competition---and because they could
go
bankrupt---they strive constantly to improve. (This is not the case
with
public institutions that are guaranteed a certain number of students
or a
certain amount of financial support, however. True competition means
competition for students and funds.) . . . Teachers in East
Harlem are able to
run effective schools because they are able to break the rules.
Opponents of Choice sometimes fear schools will pander to children
in an
effort to attract their business. But the experience of those
who live with
Choice has been very different.
When District 4 in East Harlem opened a 'sports school' which used
sports as a
lure but offered rigorous academics, most of East Harlem's poor
minority
parents would not let their children attend for fear they would not
get a good
education. The district finally had to change the school's name.
Osborne and Gaebler overcome another objection to Choice beginning
with a
quote on page 104 from Sy Fliegel, one of the original instigators of
the East
Harlem experiment:
Critics say choice cannot work in inner-city schools because parents
lack the
necessary education to make informed choices. They are wrong.
Inner-city
minority parents are no less concerned than their middle-class
counterparts to
see their children educated in stimulating, orderly, vigorous schools
and no
less capable of choosing those schools when information is made
available to
them....Schooling often represents the only avenue of escape from a
much more
desperate situation.
We provide parents with reading and math scores and high school
placements.
Our parents and our kids know who the best teachers are and which are
the best
schools. They make selections based on experience, word of mouth,
and public
information about the schools.
(E-30) Does the school system in your district allow students to choose their school? If so describe your choice system. If not, state the pros and cons of choice as you personally understand the issue.
Japan requires students to attend school 243 days, Germany requires 210, as did the USSR. Thailand requires 200; Holland, 200; England, 192; Finland, 190; France, 185 –– all higher than the 180 required by Sweden and the United States.
Everyone agrees that engaging in what is not successful for a longer period of time is foolish. Author Chester Finn says, "American education is to education what the Soviet economy is to economy." He also says the results at improving the system over the last decade are similar again to the results the Soviets had with perestroika---a mere band-aid or tinkering around the edges of a gigantic problem. Finn compares the failure of reform in the Soviet Union and in the American educational system saying that in both cases "the task of reforming the system was given to the very people who have a vested interest in its preservation, the education establishment." In both cases it seems that reforms were merely to put a good face on a mammoth problem, "to change appearance, not the fundamental power relationships and the basic rules by which the system operates." Finn suggest a national core curriculum and nationwide testing.
In our system students have little incentive to perform as they are moved up automatically. We do a great job at teaching self esteem even when it isn't deserved. In the 1988 International Achievement Test, America's team of 13-year olds rated themselves as first in math and in fact they came in last.
John Taylor Gatto was the New York State Teacher of the Year in
1991. He
claims,
There isn't a right way to become educated; there are as many ways as
fingerprints. We don't need state-certified teachers to make
education
happen––that probably guarantees it won't. _How much more evidence is
necessary? Good schools don't need more money or a longer year;
they need
real free-market choices, variety that speaks to every need and runs
risks.
We don't need a national curriculum, or national testing either.
Both
initiatives arise from ignorance of how people learn, or deliberate
indifference to it.
Experts pretty much agree that the goal of education is to develop in our youth a desire for learning, a questioning mind and a love for knowledge and truth. Primary school youngsters may need to relate to a human teacher who, as every teacher of young children can affirm, serves as much more than an instructor. The primary teacher must function as a surrogate parent. But in the higher grades there is evidence that the best teachers in the country can be shared and multiplied through technology.
The private-sector Teaching Company markets video lectures by the best college instructors across the country. Today a huge library and interaction with scholars is accessible via any phone jack. Fiber-optic networks, with their almost unlimited capacity for transmitting information, can be the revolutionary new tool our secondary educational system needs, linking the most gifted teachers with the greatest number of students. The connection can be interactive, with dialogue taking place between teacher and student no matter where each may actually be. With the application of "virtual reality," a master teacher can virtually appear in many places at once. Exercises done on the computer and assessed electronically could be part of the program.
(E-31) We are assuming that your present teacher is inspiring and no machine could adequately take his or her place. Nevertheless, how do you feel about interjecting more technology into teaching? Consider schools where violence and drugs are rampant. Do you think students should have the opportunity to learn in their homes, churches or community centers and pass standard tests to show the knowledge they have acquired? To what degree, if at all, should this be allowed?