B of A's Debit Charges: It's About More Than Fees

The Christian Science Monitor recently discussed Bank of America’s decision to charge fees on its debit cards, ascribing that decision to a reaction to new federal price controls:

In early 2012, Bank of America customers with basic accounts will be charged a $5 monthly fee for shopping with their debit cards. The fee will be charged whether customers choose 'debit' or 'credit' at the point of sale.

ATM usage fees will remain the same, and those customers who do not shop with their debit card will not incur the $5 monthly fee.

Why is Bank of America making this move?

The move is partly prompted by a new federal regulation, starting Oct. 1, that will begin limiting the cut banks can take from merchants at the point of sale. Bank of America is expecting the new lower rate to reduce the revenue that those merchant fees currently bring to the bank. In 2009, those fees amounted to $19 billion in revenue.

So in other words, Bank of America is shifting a part of the fee obligation from merchants to customers.

Sen. Dick Durbin (D) of Illinois responded bluntly to Bank of America's announcement: "After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers," Senator Durbin said Thursday. "It's overt, unfair and I hope their customers have the final say."

I left some comments. But that triggered an interesting debate with another correspondent, a former restaurant owner. The debate hits upon a crucial distinction that has been lost – the difference between voluntary private agreements and government force; between economic and political power. Here are my comments, followed by the exchange. The other correspondent calls himself The_rabbit_error. For convenience, my comments are italicized and The_rabbit_error's responses are blockquoted. I interjected some additional comments, shown in regular type:

As a B of A customer, I am angry – but not @ B of A. As the article clearly states, the government imposed price controls on banks in regard to fees charged to merchants, and the B of A is merely reacting to it. B of A is acting rationally and morally (and, I might add, legally) in seeking to recoup the lost revenue stolen from them by meddling politicians illegitimately forcing their terms on private voluntary contracts mutually agreed to by banks and merchants. I notice Durban’s temper tantrum. This is classic thug reaction. Politicians love to regulate everything in sight, then blame someone else - usually the victims - when it backfires. Durban can stamp his feet all he wants, but he and his cohorts are the real villains. I don’t like bank fees any more than the next guy. But, on principle, I hope B of A’s new fee sticks, their customers stick with them, and instead direct their displeasure at the politicians that caused it.

Really? I'm sure as hell blaming the banks for charging an unfair fee to merchants. Perhaps you've never had to run a business but the fee they take out of EVERY transaction quickly adds up, and people like you never realize it. I use to run a restaurant, and every thing we severed from drinks to food had to be marked up a good 3-4% to cover our transaction cost. That quickly added up to well over 5$ a month for any one who came in more then 2 times a month. Other restaurants have to do the same. We can't charge a "convenience" fee for people using cards because the banks wont allow it, if we tried we'd lose our card readers.

Put simply, these banks are to damn big and they are able to push small people and groups around. They can nickle and dime us to death, and people like you don't seem to care. Most people never even notice because they hide these cost from consumers and then make us take the blame for their BS. I've had accounts at banks and credit unions, so far I've never seen a credit union need to implement such fees, and they seem to be doing pretty damn good. It just makes it even more damning when these smaller banks and credit unions can pull a significant profit with out these added fees. Clearly the big banks are doing something very wrong. Personally I applaud Senator Durbin, were I in his state he'd have my vote in a heart beat.

I have friends who are in business, so I do know how these fees work. No one forces merchants to accept credit cards. Most do because it on balance is good for sales, and profits. But remember that merchants can pass on those charges to credit card paying customers, OR offer discounts to cash customers – as many gas stations now do in NJ. If a merchant is forbidden by a voluntary contractual agreement to do so, however, then what’s the beef? Drop the contract, lower your prices, and go cash only. One of our favorite restaurants is Spirito’s in Elizabeth. It has been around since 1928, does good business, and has never accepted credit cards. The bottom line is, you can’t have your cake and eat it too. Credit cards are big business because most people find them convenient, merchants get higher sales and fewer bounced checks, and are an overall facilitator of economic activity. Credit cards, fees and all, are widely accepted by merchants because they are on balance a net plus for them. If banks make big profits from their valuable products, good for them – they earned it. But it is simply wrong to get the benefits of a product by forcing your own terms on the provider of that product through political coercion – as the merchant lobby has done in this case.

Wow, you really don't get it. Merchants' DONT have a choice. If I didn't accept cards I wouldn't have had sales (about 80% of our sales were charges of some kind). If I didn't accept cards I wouldn't have enough money to stay open. Which consequently would mean that I couldn't hire people and thus provided jobs. Every other small business in my area faced similar problems, and the end result was our customers paid more then they would have otherwise, because we had to cover our loses. All this law does is force these banks to be up front about what's happening rather then hide it all. Ask most people about merchant fees and they wouldn't know what your talking about.

As for offering cash discounts, it's also not possible for the same reason that adding fees to card transactions isn't possible, I was not contractually not able to. I couldn't get a better contract because when it comes to small bussness they are all "cookie cutter" contracts with no allowances for me to negotiate. The only one's who would have any ability to negotiate for lower fees or the like are large or mega corportations. In the end, even with a decent business and a staff of 50 I still I had no power to negotitate, this law helps level the playing feild so that I can get similar terms that bigger bussness get, and so that people can actually see what's happening. Big banks are making big profits off of MY hard word, and I don't have a choice in the matter. In order to run a successful business I need to accept cards because they have become the defacto standard of transactions. This is a fair and just law, if these banks want to continue to earn heaps of money they can all they have to do is charge the consumer for there valuable service. Only now they have to be in the open about what actually takes place.

Again, all this law does is level the playing field and force the banks to be open about were their money is actually coming from, the consumer. If the banks truly have earned these profits then they can continue to do so by charging the consumer directly rather then trying to pass the buck and hide their tactics.

You’ve made my point quite eloquently, rabbit! Credit cards are a boon to your business and, according to you, others as well. In fact, the "mega corporations" are profiting off of THEIR OWN valuable products, NOT your hard work. It sounds like small business should give silent thanks for the added business. And don’t tell me you don’t have a choice. No one is putting a gun to your head to do business with the card companies. You do so because it is in your own best interest, which I consider to be the essence of moral action. But others have the same right to the same moral action. And this is exactly the point: A voluntary contract is mutually beneficial, and your customers get the convenience of charging their purchases, to boot. It’s a win-win-win. Yet, on the other hand, you find it ok to put a gun to the heads of your own benefactors whose products you readily acknowledge you need "In order to run a successful business"?!? A level playing field is one in which contracts are strictly voluntary agreements. When one side resorts to legalized force to get by political power what he can’t get by voluntary agreement, there is no level playing field. I am strongly pro-free market, and I hold American businessmen in high esteem. But when you seek personal gain by political force, you’ve lost me. American business is cutting its own long-term throat by empowering government to impose private contractual terms – and selling out the rest of the country in the process.

Take note at this point: Considering the regulatory power of government – especially the antitrust laws – diatribes against private citizens by politicians like Durbin can never be dismissed as hot air. Subsequent to his comments, the Democrats began seeking antitrust investigations against B of A. There is no defense against antitrust, making the Durbins of the world more akin to dictators rather than “public servants”. This blatant assault by government officials against B of A over bank fees shows how much today’s politicians believe they can get away with, how much Americans’ reverence for and/or understanding of freedom has eroded, and how far along the path of economic fascism we have traveled, a prelude to a full collapse into dictatorship.

Rabbit flippantly rationalizes that “if these banks want to continue to earn heaps of money they can all they have to do is charge the consumer for there valuable service. Only now they have to be in the open about what actually takes place.” Look where being “in the open” has led – the threat of still more government controls, this time in the name of “the consumer”. While merchants like Rabbit seek to have their cake and eat it too – get the card benefits without paying for it – the government expands and freedom contracts.

Cards have replaced cash. That's not a boon, it's a curse. Fundamentally they are making money off of us not the reverse. If cards didn't exist I would likely have had the same amount of business only with out the over head. Banks want people to replace money with their cards, and they have done so at the expensive of society. People have failed to realize this because these cost are offten hidden, now thanks to this law they can see what it cost them. See this is a point you REPEATEDLY miss, these cost are hidden, all this law does is force them out into the open. Banks are hiding these cost from people and fundamentally cost everyone more because of it.

There is nothing voluntary about this arrangement. If I don't accept cards then I don't have a business anymore, because people have slowly but surly replaced cash with cards because the banks have effectively hid the cost from consumers. I can argue the contracts or get a better one because my business isn't big enough. You completely miss this point again and again. There is no choice here, ether I play by the rules the bank made or I fail. Ask most people on the street you'll find that the majority don't carry cash any more. Hence it's not it's not really possible to operate with out being able to accept it. Remember many places can't offer cash discounts and still accept cards. The end result is that everyone pays more for the same thing, and the bank parasitically takes away the profit. Its a tax that's worse then any the government issues, at least when I get tax some of my money goes back to the community.

Fundamentally the banks have a bigger gun then I could ever have. They have such vast amounts of wealth that they could quite easily crush my business. They've done it to more then enough already. Force comes from many places, and the force of wealth tends to often beat the force of politics. Consider that there must be a damn strong push from people to fix this issue if The banks are still able to charge fees to both parties, they can still make money. No one has taken that away from them. The banks are still making the same amount of money, only now they have
to take it directly from the consumer rather then take it indirectly. The few major banks have an oligopoly over non cash based transactions and they are consequently being regulated. This is all a result of their abused of the system and it seems quite fair and just to me. In the end this will benefit consumers. They will now have a better idea how much their banks are actually costing them, and will hopefully be smart enough to act accordingly.

Translation: "I can't have my way, so I'm entitled to force others!" Those blasted cards are a curse! Notice how the age-old cover for plain thuggery oozes into Rabbit's rhetoric - altruism and collectivism. It’s bad for "Society". Somehow, “society” has no choice. Somehow, the banks “abuse the system”. So, let’s regulate the fees to merchants down. It’s not for the unearned benefit of merchants like me. Oh, no. “In the end this will benefit consumers.”

And restaurant meals have replaced eating home. That’s not a boon, it’s a curse. Fundamentally, they are making money off of people’s need to eat. If restaurants didn’t exist I’d likely have had the same number of meals, and "In the end this will benefit consumers" who would have more money in their pockets and more home cooked meals.　Your logic can be repeated ad infinitum, right back to the cave man era.

But in fact, your first sentence says it all. The widespread acceptance of credit and debit cards speaks to the extraordinary value of the product as determined by tens of millions of people, proving it to be one of the most important financial innovations of the 20th century. They facilitate trade, and lesson the risk of carrying large amounts of cash. Such wide use also proves that the fees are very reasonable and fair. Why? Because if they were "excessive", they wouldn’t have achieved such success in the market. What is the "market"? The cumulative voluntary choices of individual participants. Any other method of determining pricing is the method of an armed thug. 　

Let’s be clear: force means physical compulsion or violence, or the threat thereof, and nothing else. I know of no instance where someone was forced to use or accept cards. Choosing a course of action based upon competitive necessity or need is not force. The fact that you need to accept credits cards or face lost business does not force you to accept credit cards. You can always choose fewer customers, because you are free to choose. Life is about choices. But if someone demanded a meal at half price or he would break your legs, that would be force; i.e., criminal. The law forcing banks to lower fees to merchants is the same thing, only worse – legalized criminality. All of the banks’ wealth can’t crush your business. Wealth is not force. Only your customers can "crush" your business, by choosing not to patronize it. No bank can stop a customer from entering your business. Only you can by failing to offer competitive value.　

As to those fees, they’re no more hidden than any other business costs such as utility bills, cost of supplies, insurance, building upkeep and taxes, etc. They are also not relevant to the customer, unless you believe that every customer has a right to see your books. The only things relevant to the customer is service, price, and quality. Your resentment against cards is one man’s opinion, and you don’t speak for anyone else. Everyone has free will and the right to exercise it freely without forcible interference from others, including others in their capacity as government officials. Cards add value to the lives of everyone who has one, otherwise they wouldn’t have one, now would they? The banks legitimately and morally earn their fees, however they’re levied, by providing that value. If "Society", the "community", the "consumers", or whatever you want to call it doesn’t bow down to your wishes, you need to deal with it.

You know, I've gone off my original point here so I'm just going to sum it up right now. Banks are business I understand and respect that. However the fact is the larger one's have been hiding most of their cost behind these fees. Merchants have no choice but to raise the cost of their goods to cover these fees (and not accepting cards is not an option in the present day). So while the price of a soda may jump from 1.25 to 1.50, the consumer may not see that the bank has increased the merchant transaction fee and instead declare that it's the restaurant that's being greedy (and I got this complaint a lot). This law forces the banks to be open and honest with their fees, rather then hide behind people like me. BoA can apply fees as they wish, and smarter people will move to better managed banks and credit unions who know they don't have to charge these dumb stingy fees to turn large profits.

With that I'm done, you can ignore my points all you wish from here on out.

I know your point, and I don’t disagree with you – just your methods. But since you widened the discussion considerably, I needed to respond in defense of free markets. I don’t really care how fees are levied, as long as they are based upon voluntary contractual agreement. By the way, I’m no big fan of the banking industry, because it is 70% controlled by the government. No free market there, just bits and pieces here and there – and dwindling all the time.

Cheers

"Force comes from many places, and the force of wealth tends to often beat the force of politics." This statement by Rabbit, more than any other in this exchange, points to one of the destroyers of both economic and political freedom; the inability to distinguish - or the deliberate blurring of - the line between private and governmental action. Statements such as this, Harry Binswanger writesThe Dollar and the Gun,represents "...a fallacy grounded in the deepest philosophical premises of those who commit it. To defend capitalism effectively, one must be able to recognize and combat this fallacy in whatever form it may appear. The fallacy is equivocation—the equivocation between economic power and political power." The difference between the two, he writes, is between "the ability to produce material values and offer them for sale" - symbolized by the dollar - and the power to impose "fines, imprisonment, and ultimately, death" - symbolized by the gun. Binswanger writes:

Economic power stems from and depends upon the voluntary choices of the buying public. We are the ones who make big businesses big. One grants economic power to a company whenever one buys its products. And the reason one buys is to profit by the purchase: one values the product more than the money it costs—otherwise, one would not buy it. (The savage polemics against the profits of business are demands that the entire gain should go to one side—that “the little guy” should get all of the gain and businesses none, rather than both profiting from the transaction.)

To the extent a business fails at producing things people choose to buy, it is powerless. The mightiest Big Multinational Conglomerate which devoted its power to producing items of no value would achieve no effect other than its own bankruptcy.

Economic power, then, is purely benevolent. It does not include the power to harm people, enslave them, exploit them or “rip them off.” Marx to the contrary notwithstanding, the only means of exploiting someone is by using physical force—i.e., by employing the principle of political power.

Binswanger's essay is an important read, and I highly recommend it. More can be said about Rabbit's comments and his underlying premises. But the key lesson here is: Never accept the premise of equivocation.

PSA Testing: Are Death Panels Arriving Under Cover of “Scientific Evidence”?

A recent widely publicized and controversial study released by the federal U.S. Preventive Services Task Force “will propose downgrading its recommendations for prostate-specific antigen (PSA) for prostate cancer,” according to Rob Stein of the Washington Post:

Task force chairwoman Virginia Moyer said the group based its draft recommendations on an exhaustive review of the latest scientific evidence, which concluded that even for younger men, the risks appeared to outweigh the benefits for those who are showing no signs of the disease.

It’s notable that the study was done under the purview of the same bureaucrats charged with administering federal health care programs, including ObamaCare:

The 16-member independent panel is organized by the Department of Health and Human Services to regularly assess preventive medical care. Its recommendations have a widespread impact, especially on what services Medicare and private insurers pay for. The group’s influence was enhanced by the new federal health-care law, which will base some of its requirements for coverage on the group’s ratings.

The proposed recommendations come as doctors, researchers and policymakers are increasingly questioning whether many tests, drugs and procedures are being overused, unnecessarily driving up health-care costs and exposing patients to the risks of unneeded treatment. (Emphasis added)

According to Stein, “The test … has significantly increased the number of prostate cancer cases being diagnosed at very early stages.” Despite this fact, however:

[I]t has been a matter of intense debate whether that translates into a reduction in the death rate from the disease. Prostate cancer often grows so slowly that many men die from something else without knowing they had it.

Because it is not clear precisely what PSA level signals the presence of cancer, many men experience stressful false alarms that lead to unnecessary surgical biopsies to make a definitive diagnosis, which can be painful and in rare cases can cause serious complications.

Even when the test picks up a real cancer, doctors are uncertain what, if anything, men should do about it. Many men are simply monitored closely to see whether the tumor shows signs of growing or spreading. Others undergo surgery, radiation and hormone treatments, which often leave them incontinent, impotent and experiencing other complications.

What is actually being said here? Note the vagueness surrounding terms like “appeared to outweigh”, “increasingly questioning”, “intense debate”, “not clear precisely”, and “doctors are uncertain”, and contrast that mush to the acknowledged fact that PSA testing “significantly increased” early cancer detection. Yet, this study is cited as a possible justification for “requirements for coverage” over both government and “private” coverage – imposed by HHS. Keep this in mind.

The recommendations drew immediate and forceful rebuttal:

The “decision of no confidence on the PSA test by the U.S. Government condemns tens of thousands of men to die this year and every year going forward if families are to believe the out-of-date evidence presented by the USPSTF,” said Skip Lockwood, chief executive of Zero, a patient-advocacy group. “A decision on how best to test and treat for prostate cancer must be made between a man and his doctor. This decision is coming from a panel that doesn’t even include a urologist or medical oncologist.”

Several other experts agreed.

“The bottom line is that we should encourage screening because it will give men the full range of options to avoid death from prostate cancer,” said William J. Catalona of the Northwestern University Feinberg School of Medicine.

J. Brantley Thrasher of the University of Kansas Medical Center said, “It appears to me that screening is accomplishing just what we would like to see: diagnose and treat the disease while it is still confined to the prostate and, as such, still curable.”

I didn’t devote much attention to Stein’s article (which was carried on the front page of the New Jersey Star-Ledger on 10/7/11) until two letters-to-the-editor were published in the 10/13/11 Ledger. Tina Levorse of Parsippany and John Schlager of Springfield strongly objected to the proposed recommendations, citing personal experiences regarding early prostate cancer detection thanks to PSA tests. But it was Levorse’s perceptive LTE that got my attention. Entitled “Are death panels here?” she wrote:

While I’m not a big Sarah Palin supporter, it appears she was right. The Obamacare death panels are here.

I left the following comments:

In the past two months, I had two close friends diagnosed with early stage prostate cancer thanks to PSA screening. After biopsies and consultations with their doctors, both are now pursuing courses of action they deemed best in their individual circumstances. Both Levorse and Schlager provide indisputable logic as to the value of regular screening.

On the face of it, the U.S. Preventive Services Task Force’s “recommendations” appear to make no sense at all. But, viewed within the context of the government’s ongoing takeover of healthcare, it makes perfect sense. The Federal government now controls almost 90% of healthcare spending, both directly through programs like Medicare and Medicaid and indirectly through its crony arm, the quasi-private health insurance industry. Consequently, the government now has a vested interest in controlling costs. The deep, inherent conflict of interest is apparent, and should scare all of us. Early screening leads to early detection, which leads to a much higher survival rate, which leads to more people living longer lives, which leads to – higher costs to government.

I believe Ms. Levorse has nailed it. Death panels are inherent in government-run medicine, and may be arriving under cover of “science”. Of course, there are no explicit death panels written into ObamaCare or any other government program. There don’t have to be. Through the bureaucratic tyranny set up by ObamaCare, those recommendations and others like them will become mandatory, and restrictions will be written into the guidelines doctors must follow. The freedom of the doctor to focus on the best interests of his patient and the freedom of the patient to decide for himself based upon his doctors’ recommendations, will be lost to professional bean counters. Such are the consequences of surrendering to government the responsibility for paying for one’s healthcare.

This should be another wakeup call to Americans, but for too many, it probably won’t be. But one thing is for sure: No study connected to government financing can be trusted, given the government’s massive role in healthcare.

I am by no means a medical professional or expert. So, I can not and will not offer opinions on the accuracy of the study or its conclusions. But that is really beside the point. The point is, these government studies can not be trusted. The entire character of this article proves the point. How can anyone be sure of the motives behind the conclusions?

The vagueness of the arguments against PSA screening must raise suspicions in light of HHS’s ObamaCare-mandated “cost containment” mission. Add to this deep conflict of interest an inherent contradiction. The article states early on that “the risks [of PSA screening] appeared to outweigh the benefits for those who are showing no signs of the disease”. The express purpose of PSA screening is precisely to detect “signs of the disease” via the red flag of high or rising PSA levels. As a 62-year-old man anxious to get many more quality years out of his life, I have a vested interest in getting an early jump on any health issues that I may confront. In light of the acknowledgement that it is “not clear precisely what PSA level signals the presence of cancer,” who would it be best for me to depend upon most, my doctor’s advice or some distant panel’s mandates? As I said in my comments, I have two friends dealing with PSA-detected cancer. Who knows: I may be next. Yet government officials who do not know I exist have the power to deny me my unalienable right to exercise my own judgement on this matter, by their control over healthcare spending - financed by me, and countless others like me, to boot. And that’s the point: They don’t focus on any individual:

“Unfortunately, the best evidence is that while some men might be helped by screening, others would be harmed, and on balance the test is not useful overall,” said Howard Brody of the University of Texas Medical Branch in Galveston.

No human being is “overall”. And here we come to the essential difference between government-run and free market healthcare – the irreconcilable clash between collectivism and individualism; between a non-existent statistical average and actual living breathing thinking individual men. There is no compassion behind the bean counters’ and their “greater good of society”. There is only a callous disregard for the value of individual lives. I do not mean to imply that every member of the government bureaucracy and his or her panels is callous. I mean to say that callousness is inherent in their jobs, by virtue of the fact that their “overall” findings disregard the unknown “some men [who] might be helped by screening”, and by the unknown agendas of the political masters whose funding they depend upon. They can be nothing but callous, because that’s the nature of the beast. Central planning by definition must focus away from any concern for the best interests of individual men and the judgements of individual doctors in favor of the statist apparition - the public health.

Leaving the treatment decision “between a man and his doctor” is a moral hallmark of the free market and the doctors’ Hippocratic Oath. Snatching decision-making power away from millions of men in favor of a 16-member independent [?] government-sponsored panel – which, incidentally, will also undermine the Oath - is the hallmark of government-run medicine. This is the fundamental issue here, regardless of whom is right about the value of PSA testing. As a layman, studies such as this can be a factor in my decision-making. But they should not pinch hit for my decision-making rights.

To again quote Skip Lockwood, “the decision of no confidence on the PSA test by the U.S. Government condemns tens of thousands of men to die this year and every year going forward.” This reminds me of a question I remember being posed by a champion of government-run medicine some years ago: “If socialized medicine is so bad, where are the victims?” The answer – “They’re all dead.”

Welfare Statists Circle the Wagons

The political strategy of the Left is becoming clearer as we move deeper into the 2012 election cycle. After being seemingly knocked back a bit on their heels by the Tea Party rebellion, the Left is beginning to regroup and circle the wagons around the welfare state. One battle line has formed along the moral front. Another is forming on the economic front. The Left’s latest target is the growing “wealth gap” between rich and poor, a rehash of an old bugaboo. Its main weapon is, as always, its extreme collectivist ideology. NJ Star-Ledger columnist Tom Moran seized upon a report allegedly showing a widening gap:

Shake the numbers any way you want and the answer is the same: Millionaires are getting richer fast, and their tax burden has been cut in half since World War II. The middle class is slowly sinking, despite working longer hours with greater productivity. And the army of the poor is flooded with new recruits, most of them with a long history of working in lousy, low-wage jobs.

The tax statement is utterly false, of course. Tax rates have come down, but the tax burden has shifted steadily up the income scale. The top 1% of earners now pay about 40% of all income taxes. The bottom 50% pays virtually no income tax. (Moran is vague here, however. The Left has taken to throwing payroll taxes into the mix, which skews the overall tax burden down the income scale, as measured by percentage of income. But even including payroll taxes, the top 1% pays nearly 30% of all federal taxes. Furthermore, Medicare and Social Security are tied to contributions, with the benefit calculations skewed toward the lower end of the income scale, as well. In other words, in relation to what they pay in taxes, lower income folks make out quite well. Payroll taxes are much less progressive, owing to the earnings cap. This is hardly unfair, though. One can hardly say that the economic bottom is being cheated)

How do they propose to correct that alleged problem? Not by liberating the economy from oppressive government, but by targeting the people that by their own admission are doing well. How will that foster a return to economic health? It won’t, but they don’t care. Why? Because they are ideologically driven, uncompromising, unabashed statists:

The irony is that robust government programs on a scale we need today are very popular. The GI Bill helped create the middle class by sending a generation of veterans to college. Social Security ended widespread poverty among the elderly. Medicare made sure they would not die without a doctor.

No serious person can argue that private charity would have matched this government effort.

That last sentence is all too true, and that points to the fundamental problem. The private sector could not and would not match it, because the vast majority of people receiving government “help” neither need it nor are worthy of private, voluntary charity. (The GI Bill is a special case, which can be seen as payment for services rendered in defense of America. But that is beside the main point.) All of those programs are still in place, and have in fact been expanded into uncharted, vastly unfunded territory. And many more have been added. The results are in. But again, the Left statists are not interested in reexamining the entire welfare state concept. Their goal is more of the same, as they press forward toward their long dreamed of egalitarian utopia. The inverted mentality that seeks to achieve a better economy by sacrificing people who are doing well is dramatized on page 535 of Atlas Shrugged:

“There are people who aren’t broke,” said Boyle slowly [at an economic crisis meeting of top-level government officials]. “You boys have no excuse for permitting all that need and misery to spread through the country – so long as there are people who aren’t broke.”

Moran continues:

America wasn’t always like this. After World War II, the country made big gains that were widely shared. The result was the most prosperous middle class the world has ever known. Play by the rules and you could make out fine, and expect that your kids would do even better.

What was the difference between the post WWII period and today? For one thing, the New Deal and thus the Great Depression ended, Truman lifted wage and price controls, and the gold-backed Bretton Woods international currency system kicked in. Tax rates were high – 91% at the top – but almost no one paid the highest rates, and they were widely seen as a drag on the economy. Remember that Democrat JFK ran on a 1960 presidential campaign slogan “get America moving again”, and followed that up with his signature tax accomplishment that lowered the top rate to 70% in his across-the-board rate reduction plan.

But the most important difference between then and now was the size and scope of government, which was much, much smaller then. Beginning in the mid 1960s, the welfare state exploded, the gold standard ended, and government spending soared at an accelerating rate. Today, the welfare state has reached new heights, federal spending alone now consumes 25% of GDP, and government regulations are descending upon the economy at the most feverish pace since at least the Great Depression.

No, as Tom Moran says, “America wasn’t always like this.” There was a time when we were freer, and consequently individuals had a much easier time rising economically. The struggles of the middle and lower income people that Moran describes are exactly what one would expect in a controlled economy like we have today. But, the Left doesn’t see the obvious correlation between today’s economic troubles and today’s burgeoning welfare state. They don’t want to see it, because the facts threaten their statist worldview. So, they set up a straw man like the wealth gap, and point to that as a symptom of what’s wrong with the economy. It is a symptom, but not in the way the Left believes. Moran and others on the Left have taken a huge bite of foot, this time. The supreme irony is, all of the government-imposed programs Moran credits for lifting the lower and middle classes are still in place, and have been joined by a myriad of new programs piled on top as the welfare state continues to expand to this day. If the size and scope of the welfare state is to be the measure of middle and lower class well-being, then the only conclusion one can draw is that it has been a dismal failure, having wrecked both the middle class and the economy.

[Note: I use the term “class” only in the economic sense of reflecting income brackets. There are no actual classes in America.]

The dream of every stripe of American socialist is to turn the middle class into a welfare class. This is being accomplished by forcing productive Americans to launder their hard-earned money through politicians’ hands via an ever-growing assortment of wealth redistribution programs, return that money in various strings-attached ways, and then call them vital “government benefits”. Social welfare programs did not create the middle class. They were created by politicians – regrettably, often with widespread popular support; but still, by politicians making an end run around the constitution they swore to uphold. Who pays for the welfare state? It is the productive achievements of private citizens that pay for and make the welfare state possible.

What created the middle class? – The individuals that make it up, led by the highly productive rich who break out to new economic heights, creating the mass market products we see all around us, jobs, raising the physical labor productivity that leads to rising real wages, and providing investment opportunities that enable millions to share in the profits of productive businesses. The middle class arose naturally as a direct corollary of the rise of free market capitalism in the 19th century, which arose naturally as a direct consequence of the American ideals of unalienable individual rights and limited rights-protecting government. Popular support or public opinion polls notwithstanding, the facts speak for themselves: The modern welfare state did not create the middle class, but was made possible by the exploitation of the middle class.

The statist mentality has to create the myth that free individuals acting on their own judgement can not take care of themselves, despite all of the evidence to the contrary, in order to justify the case for omnipotent government. Welfare statists love to claim credit for such things as educating veterans, “end[ing] widespread poverty among the elderly”, and “ma[king] sure they would not die without a doctor”, even though such programs are actually paid for by widespread forced taxation of private productive citizens. But the fact is, the very few people who can’t – as opposed to won’t – take care of themselves were merely the rationalization for forcing everyone into a welfare state trap.

What is it that the Left depends upon to make such a defense of its welfare state crown jewel appear to make sense? Moran writes:

Now that social contract has been broken. In the past 20 years, all of the economic gains we’ve made were captured by the top 10 percent of earners. The bottom 90 percent lost ground.

The “social contract” is a euphemism for the legalized armed robbery of forced wealth redistribution. The Left is driven by a bastardized egalitarian conception that views individuals not as equal before the law but as equal in the sense of an ant colony. All wealth is an anonymous collective achievement, this view holds. Intelligence, self-motivation, ability, self-discipline, innovativeness, and all of the virtuous individual character traits that productive work demands are irrelevant to the “distribution” of that wealth. The wealth or “economic pie” just appears, independent of individual activity, and falls into one big tribal pot. It is created by everyone but no one in particular. If someone has too high an income, it’s because they “captured” too much out of the pot. We are all ants, incapable of individually producing wealth by our own capabilities and voluntary private trade. The tribal wealth pot is a static quantity, where one man’s gain is another man’s loss. Left free, some will “capture” an unfair amount, leaving less for others. We need the queen ant, or the tribal chief, or the welfare state – variations of Plato’s “philosopher king” all - to step in to create a fairer distribution by cutting down the successful top. Then somehow, “the economic gains we’ve made” will keep coming.

Of course, all wealth is the product of individual minds, individual initiative, and individual work – the relative individual value of which is determined by free and voluntary association and trade, and, to the extent there is a free market, manifested in the amount of money each individual makes. This fact is buried under a mountain of collectivist jargon and the tribal view of wealth, which unfortunately is a view held beyond just the Left. The result is an ever-expanding government and the rise of force as the dominant means of social interaction. (See my post of 10/6/11).

Over the past century, power-lusting American politicians, by regularly exploiting the genuine needs of the few and the greed of those unwilling to plan their own lives, created today’s economic crisis. The alleged “income gap” is a straw man. The solution is not to go after the one economic group that still manages to flourish, which will only worsen the plight of everyone else. The solution is to begin to lift the suffocating blanket of statism from the economy – beginning with taxes and regulations.

The income gap isn’t growing because the top 10% is in some mystical way benefiting unfairly, it is growing because the government is stifling upward mobility through taxes, spending, monetary policy, central planning, and regulations, while destroying incentives through an expanding array of handouts that encourage the lazy and the shiftless and discourage the ambitious. The middle and lower economic groups are victims not of the top 10%, but of government. More than ever, to cite the Reagan wisdom that Moran quotes in his article, "Government is not a solution to our problems. It is the problem."

The soft communism of welfare state socialism is inexorably approaching its inevitable blind alley throughout the West. We could be witnessing the last gasp of the deadly 20th century scourge of collectivism. One can observe Moran’s reliance on collectivist premises to fortify his Leftist call to action. It is those collectivist premises that must be challenged, and the only alternative is individualism. There are signs that that challenge is beginning to emerge. But, by and large, the Right has so far failed to mount an ideological counter-attack, thus conceding the philosophical battlefield to statism. We must explicitly uphold individualism, otherwise the largely reflexive national recoil against “big government” epitomized by the Tea Party will crash and burn on the rocks of philosophical incoherence.

Challenging the Tribal Premise

One of Ayn Rand's most important non-fiction essays is the one that kicks off her book, Capitalism, the Unknown Ideal. In "What is Capitalism", Rand identified one of the core misunderstandings that is undermining and destroying capitalism, the tribal premise:

The tribal premise underlies today’s political economy. That premise is shared by the enemies and the champions of capitalism alike; it provides the former with a certain inner consistency, and disarms the latter by a subtle, yet devastating aura of moral hypocrisy—as witness, their attempts to justify capitalism on the ground of “the common good” or “service to the consumer” or “the best allocation of resources.” (Whose resources?)

If capitalism is to be understood, it is this tribal premise that has to be checked—and challenged.

I got an opportunity to challenge the tribal premise in a recent article that clearly demonstrates what Rand is talking about.

In How a flush country could be in debt trouble, Zachary A. Goldfarb attempts to explain why the US government's debt problems are not that big a deal. Here are a few selected quotes:

While the U.S. government’s $14.3 trillion debt is an eye-popping figure, the country has plenty of resources. It’s just that over many years Americans and their leaders have chosen not to tap them to pay the government’s growing bills.

The United States is a lot like a rich businessman who owns two homes, a yacht and millions of dollars in stock but is in debt because he took out a big loan to buy a private plane.

This fellow could always have used some of his wealth, for instance his stock, to pay cash for the plane. But he didn’t want to. Now, with the weak economy, he’s finding it hard to pay off the plane simply out of his salary. By putting most of his wealth beyond reach, he has boxed himself in.

Likewise, U.S. politicians have made a value judgment that they shouldn’t tap much of the country’s wealth to pay for government programs. That judgment, in turn, reflects the preference that many Americans themselves have expressed over the years for leaving private resources in mostly private hands.

"the country has plenty of resources", "chosen not to tap them", "the preference ... for leaving private resources in mostly private hands" are all examples of the tribal premise. Considering the prevalence of such views, is it any wonder that our free markets and individual rights - especially property rights - have long been under withering assault, and losing?

I posted the following comments on 7/31/11

The analogy of the businessman could not be more off base. The businessman is managing (or mismanaging) his own money. Comparing the United States Government to that businessman is to assume the premise that the nation’s wealth belongs to society, as represented by the government, rather than the citizens who produced it. This collectivist view ignores the source of wealth, the minds and labor of individuals. It ignores the moral principle of property rights, which are derived from the source of wealth. It assumes that the people are rightless creatures that exist at the pleasure of the imperial state. It holds that the nation may dispose of the lives of its productive citizens without any more concern than ancient rulers gave to their pyramid-building slaves.

The tribal view of America’s wealth implied by Goldfarb’s is more suited to an ant colony, to communism, or to a primitive tribe of ignorant savages. It is not suited to a modern, enlightened industrial country Founded on the principle of the sovereignty and sanctity of the individual and of the individual’s right to his own life.

"More Prosperity" or "Shared Sacrifice"?

The NJ Star Ledger took NJ Governor Chris Christie to task concerning remarks he made in his recent Reagan Library speech. The clash points to the two fundamentally different worldviews that animate today's Left-Right debate about the political/economic future of America.

The Left's view was summed up by Elizabeth Warren, who recently advanced the view that no one succeeds on his own, and thus success translates into a societal claim on "a hunk" of that success:

There is nobody in this country who got rich on his own. Nobody.

You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Don Watkins of ARI more accurately called Warren's "social contract" a social shakedown, and Ari Armstrong shreds her argument in an op-ed in Pajamas Media.

In the Star-Ledger editorial, the editors echo Warren's point, and one correspondent actually quoted Warren in the comments section. What triggered the editorial were these comments by Christie:

“Telling those who are scared and struggling that the only way their lives can get better is to diminish the success of others. Trying to cynically convince those who are suffering that the American economic pie is no longer a growing one that can provide more prosperity for all who work hard. Insisting that we must tax and take and demonize those who have already achieved the American dream.

“That may turn out to be a good re-election strategy for President Obama, but it is a demoralizing message for America.”

"Clue phone for the governor," advise the editors, "America is not demoralized by the notion of increasing taxes on top earners. Polls show that big majorities support the idea. Some even show that most Republicans do."

That's right: Let's raise taxes, but only on the other guy. That's not demoralizing. Hypocracy is OK, if the majority says so.

Why should we raise taxes only on the rich? The editors, in part, had this to say:

The reason is that we need the money. We are entering a period of national sacrifice and most feel it should be shared.

It’s remarkable that Christie can look across the American landscape today and conclude that our priority should be to protect the interests of those at the top of the pyramid, the one group that is doing okay.

It is especially galling to hear this from Christie, who raised taxes on the working poor by cutting their tax credits. Are they better able to take the blow?

Remember, too, that businesses didn’t earn their money without help from taxpayers. They use public roads and rails, they rely on police protection, many of their employees were educated in public schools, and they enjoy the social peace that comes from a shared sense of fair play, a social contract.

The "tax credits" referred to is the Earned Income Tax Credit, which generally means a "refund" for those who owe no income tax. Under our convoluted tax structure, I'm not necessarily opposed to the EITC, since low earners do pay other taxes. Absent major tax reform, I don't necessarily agree with cutting it at this time. But let's not call it what it's not - a sacrifice.

I've left the following comments:

Posted on September 29, 2011 at 10:19AM

The Left is apparently circling the wagons around the welfare state, as the points made in this piece are suddenly cropping up around the media. But, they are a feeble attempt that runs straight up against logic, facts, and morality.

There is no “shared sacrifice”. The reduction of a handout (the earned income “tax credit”) is not a sacrifice, since one can not lose what one doesn’t rightfully own to begin with. Taking one’s earnings by force of a tax increase is.

Businesses provide far more benefits to “the taxpayers” through the products they provide and the jobs they provide than they benefit from them. Furthermore, the editors conveniently forget that businesses are huge taxpayers themselves, and they pay more than their share to fund public roads and rails, police protection, and public schools. Furthermore, businesses pay additional moneys for private security and employee education and training.

The IRS provides readily available data that shows that the top 1% already pays 40% of all income taxes, and the top 10% (which starts at about $120,000 annually) pays 70%, while the bottom 50% pays virtually nothing. Even including payroll taxes, the figure for the top 10% comes in at about 50%. And speaking of payroll taxes: Yes, it is unfair that the lower earners must pay for Warren Buffet’s healthcare and retirement. So, how about ending that travesty by privatizing Social Security and Medicare so that every workers earnings goes into his own personal account, rather than laundered through Washington and into the pockets of retirees who are capable of taking care of themselves?

The true mindset of the Left is revealed here. Why must “we” tax the rich more? “The reason is that we need the money”. Why go after the rich? Because they’re “the one group that is doing okay”. In other words, need is a license to steal, and – as Willie Sutton said – “that’s where the money is”. The Left’s mindset is that of a street thug, and they don’t even try to hide it any more. Christie is absolutely right, and the editors just gave us the ringing proof. The Left doesn’t want more people “doing okay”. They want shared poverty. It’s a moral travesty.

The regulatory welfare state soared over the last 11 years, and today is bigger than ever – at the very time when the struggles of the vast middle class multiply. The Federal government is consuming 25% of GDP as spending and deficits reach unheard-of heights, even when compared to the Bush profligacy. By now the village idiot can see what the increasingly desperate ideologues of the welfare state refuse to see or admit. The welfare state is destructive to prosperity, morality, the economy, and the middle class – and today, throughout the West, is coming to its inevitable dead end.