Revival of mercantilist thought among conservatives

Vijay K. Mathur

Published in Standard-Examiner, November 6, 2011, Ogden, Utah

Mercantilism prevailed in Europe after the decline of feudalism in the early 15^th century and the beginning of the Industrial revolution in 1780.   The term mercantilism is derived from the Italian word for merchant.  Mercantilists were a disparate group of writers and thinkers.   Professor E. Ray Canterbury states in his book, The Making of Economics, that mercantilism  “was the first major alliance in modern history between government and business.”

I see some parallels between mercantilist thought and the views of some right-wing conservatives in state governments, in the Congress, and our Republican presidential candidates.  Let me first discuss some salient features of mercantilist thought.  A detailed analysis can be found in the book A History of Economic Theory and Method by Professors Robert Ekelund Jr. and Robert Hebert.

Mercantilists were obsessed with material gain, a source of power to the state (monarchy).  They favored selective regulations, subsidization and taxation of industries, and monopoly in some sectors. Their efforts and writings were mainly directed at state actions to benefit the merchant-capitalists.  They even advocated import tariffs to achieve trade surplus, because it would  result in the accumulation of gold and silver (acceptable currency during those times), and therefore power and benefits to merchant-capitalists.  David Hume, 18^th century British philosopher-economist, discredited this idea, arguing that surplus in the trade account and hence accumulation of gold and silver will increase money supply and therefore inflation.  Inflation in turn will reduce exports and increase imports, causing the surplus to dissipate.

The most telling feature of mercantilist thought was their views on labor.   As Ekelund and Herbert state, interests of mercantilists and aristocrats converged on the issue of wages.   Mercantilists argued labor should be paid subsistence wages; high wages would make them work less.  Poverty  would make them industrious.  “Unemployment was, … , simply the result of indolence.”   They even advocated that children of the poor should not be educated at public expense because it is destructive to the poor and promotes idleness.  Education is only relevant for the livelihood of the business class.  

Now let us look at what today’s conservatives and their wealthy and corporate supporters are proposing.  As opposed to mercantilists, most tend to support free trade.   However, they want to restrict trade with countries that manipulate their currencies, do not follow humanitarian treatment of labor, subsidize industries, and have lax environmental laws.  Even some academic research is raising doubts about benefits of free trade based upon comparative advantage.

There are similarities between mercantilists and current corporate world, wealthy and conservative politicians.  Money spent by business class and wealthy on contributions to political campaigns and on lobbying congressional politicians to maintain and/or increase their share of income and wealth through favorable taxation, spending and regulatory policies has grown manifold; influence peddling in politics by corporations even has the blessing of the Supreme Court.   Researcher Lee Druutman reports in his paper that corporate lobbying expenditure increased 77% from 1998 to 2008.  A U of Kansas study, reported in The Christian Science Monitor, April 10, 2009, estimated that every $1 spent by corporations on lobbying Congress brought $220 in return.

Tax policies proposed by Republican presidential candidates would further worsen the income distribution problem.  There is no convincing evidence that prevailing income inequality is beneficial for economic growth.  Backed by deep-pocketed lobbyists, conservatives in state and federal government want to take away the countervailing bargaining power of labor unions, thus worsening income inequality.  Among many conservatives there is a belief, just like mercantilists, that poor people are poor because they are basically lazy and lack work ethics.  They also think that minimum wage laws should be abolished.  Herman Cain, Republican candidate for president, and Tea Party favorite, argues that it is the fault of unemployed that they do not have jobs.  Public education is also under attack, and some are advocating eliminating the US Department of Education.

In the present political climate mercantilist thought controls the overall ideology among right-wing conservatives, often legitimized by some conservatives in think tanks with a forum in conservative media.  

Right-wing conservatives’ ideology is even worse than mercantilism because it gives the impression to Americans that their policy actions, aimed at corporations and wealthy, will ultimately benefit low and middle income Americans.  It is high time to bury the idea that making rich richer and wealthy wealthier through government policy will generate more opportunity for non-rich.  What the political establishment has to do is to open up more avenues of opportunity aimed directly at non-rich, so that they can acquire more human capital and become successful entrepreneurs.  I hope that conservative politicians’ alliance with business and wealthy is a temporary phenomenon, because otherwise it will take the country’s progress back to the mercantilist era and dismantle the middle class—the fountain of entrepreneurship.   It will have a deleterious effect on democracy, free competitive markets and growth.

Mathur is former chair and professor of economics, and is now professor emeritus at Cleveland State University, Cleveland, Ohio.  He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.     

Environmental quality is a jobs-growth strategy

Vijay K. Mathur

Published in Standard- Examiner, October 7, 2011

It appears that Americans are divided into two camps on the promotion of environmental quality and the role of the EPA to enforce environmental quality standards. One camp, dominated by Tea Party activists and many conservative politicians, asserts that environmental regulations are killing jobs, hence the EPA should be abolished or environmental regulations should be scaled down. Many of them trust the free market to improve environmental quality. The other camp is demanding that EPA should vigorously enforce environmental quality standards and believe that more regulations may be needed to head off climate change.

 Let me first clarify a point that is a source of misunderstanding. In a market economy, private goods benefit only those who are able and willing to pay prices for those goods. In markets, with property rights for private goods, demand and supply determine prices at which goods are traded. However, markets cannot efficiently provide public goods. Like national defense, most environmental goods, e.g., air and natural waterways, are public goods.

 

 Take the case of air quality. First, clean air use by someone who pays for it does not diminish its quantity to others who do not pay for it. Second, use of clean air by those who do not pay for it cannot be prevented without incurring substantial cost. Third, the extra cost of providing clean air to an additional person is close to zero. These characteristics of air quality prevent emergence of a market for clean air. Since property rights to any entity cannot be defined, allocated and enforced, the market fails to provide clean air. Environmental quality is an externality, and it faces the usual common problem in which common property is overused and despoiled. Only collectively clean air could be provided at a shared cost. That collective mechanism is the EPA, created during the Nixon administration. A conservative president saw the value of preserving our natural assets so that generations of Americans could continue to reap their rewards.

 Promotion of environmental quality is pro-productivity and hence a pro-growth strategy. We need economic growth to create more jobs. Arthur Okun, chairman of the Council of Economic Advisors under the Johnson administration, proposed a simple rule that states that a 2 percent increase in the growth rate of real gross domestic product (GDP) is associated with a 1 percent decrease in unemployment rate.

Environmental quality is essential for a healthy work force. It preserves health capital and thus enhances human capital in the present and in the future by keeping children healthy. No amount of spending on education and training of workforce will preserve and promote human capital unless workforce and children are healthy. Earth Policy Institute reports 70,000 deaths annually due to air pollution in the U.S., 1.75 times annual traffic fatalities. Similarly, environmental pollution degrades physical capital and natural resources, such as forestland and natural waterways, at a faster rate and hence adversely affects productivity and growth. Our environmental record does not give us bragging rights. Resources for the Future reports that in 2006, U.S. ranking on Environmental Performance Index, based on 16 indicators developed by Professor Daniel Esty of Yale University, is 28th from the top among 133 countries in the world.

I do not see a conflict between good air and water quality and jobs. Conservatives who think that promoting environmental quality kills jobs are mistaken. Improvement in environmental quality requires allocation of resources to the production sectors that contribute to environmental quality and jobs. A well thought-out strategy could be instrumental in guiding labor, capital and natural resources to cleaner activities. A comprehensive study by Florentin Krause, Stephen Decanio, J. Andrew Hoerner and Paul Baer, in Contemporary Economic Policy, October 2002, showed that an integrated least-cost strategy to achieve Kyoto greenhouse emission reduction targets would have added $250 billion in 2010 and $600 billion by 2020 to GDP on net present value basis.

In a recent study in the American Economic Review, August 2011, Nicholas Muller, Robert Mendelsohn and William Nordhaus proposed that damage to the environment should be part of GDP accounts. They calculated air pollution damage by industrial sectors, labeled as Gross External Damage (GED). They find total GED of $184 billion in 2002 in 2000 prices in all 19 industrial sectors combined. However, most of the GED is concentrated in nine sectors and one-third of the GED is in the utility sector. One least-cost policy to enhance environmental quality and create jobs would be to tax damaging economic activities and shift tax revenues to cleaner jobs activities.

If conservatives and their sympathizers believe in productivity, growth and jobs creation, they should support EPA and regulations to promote environmental quality.

Good environmental quality not only creates jobs, but also assures robust economic growth with environmental amenities that enrich the lives of all Americans now and in the future.

Mathur is former chair and professor and now professor emeritus of economics, Cleveland State University, Cleveland, Ohio.  He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.

A sensible economic policy proposal

Vijay K. Mathur

Published in Standard-Examiner, September 1, 2011, Ogden, Utah

Professor Robert Barro, an economist at Harvard and the Hoover Institution, in his Aug. 8 column in the Wall Street Journal, made recommendations meant for stimulating the economy, solving the budget deficit and debt problems, and ultimately boosting the rating of U.S. government securities. Even though his recommendations are meant to improve the economy in the long run, they are relatively more balanced than most I have seen from the Hoover Institution and other conservative pundits.

Barro's five recommendations and add some of my own. First, he wants to change the entitlement programs, starting with the increase in the age of eligibility. Most likely he is referring to Social Security and Medicare. This is the same recommendation made by the Simpson-Bowles Commission. He also adds that an "economically appropriate indexing formula" be used to calculate benefits. I assume he is advocating a shift from the Consumers Price Index for Urban Wage and Salary Earners (CPI-W)) to the Consumers Price Index for all Urban Consumers (CPI-U). Since CPI-W has been increasing at a higher rate than CPI-U, Social Security benefits are increasing faster than the inflation rate measured by CPI-U.

In addition, I propose an increase in the Medicare tax, an increase in the income cap for the payroll tax, and a decrease in Medicare benefits on a sliding scale as inflation-indexed income rises above $1 million. The Urban Institute calculated that a man with an average wage of $43,000 in 2010 dollars would receive total Social Security and Medicare benefits of $417,000 while paying only $345,000 over his lifetime. The difference is even greater for women at that average wage. Such a mismatch between benefits received and revenues generated is unsustainable. If Americans want these benefits to continue, they have to pay for them.

Second, Professor Barro wants to change the structure of marginal tax rates in the federal income tax system. This is similar to the Simpson-Bowles Commission's recommendation of three income tax brackets, 12 percent, 22 percent and 28 percent. Third, he will pay for the reduction in marginal income tax rates by reducing tax deductions for home mortgage interest, employee fringe benefits and state and local taxes, and elimination of the ethanol subsidy. However, I would propose to limit the tax deduction for home mortgage interest to the first primary residence with the maximum market value of $2 million indexed to inflation rates, and continue tax relief for home equity from the primary residence. This will cover states with the highest average market values for housing. I would also recommend taking away subsidies to oil and gas industries, ranchers, agriculture, sugar and other mature industries.

Fourth, Professor Barro wants to eliminate corporate and estate taxes. I have also proposed reducing and even eliminating corporate taxes. In this age of globalization, the U.S. does not have to compete in corporate tax rates with the rest of the world when it is increasingly becoming relatively easy to outsource businesses in low-tax countries. It is about time that we take away the excuse of high corporate tax rates that many corporations use for not investing and doing business in the U.S. I am not inclined to eliminate estate taxes because its elimination will provide no economic incentive for entrepreneurial and investment activities.

Fifth, Professor Barro proposes a broad-based tax, such as the value-added tax (VAT) with a rate around 10 percent, but exempting commodities like food and housing. I have mentioned such a tax in my writings before, but I recommended that its revenue be used to pay for universal health care. Given all the tax credits, deductions and loopholes in the current income tax code, it is imperative that all Americans have a responsibility to pay taxes for the benefits they receive from the federal government.

It is appalling that, according to the Tax Policy Center, 46 percent of households pay no federal income tax and taxes paid by some of the wealthiest Americans are between 0 to 10 percent. If marginal tax rates are lowered, then there is no need to treat capital gains and dividends any differently than ordinary income. Income of hedge fund managers should be treated as ordinary income and not as capital gains. VAT or any such national sales tax will also be able to tap Internet sales with an appropriate formula for sharing revenues with the states. It will stop the haphazard approach followed by states to implement sales tax on Internet sales.

Professor Barro's recommendations provide a long-term solution for growth and reduction in budget deficits and debt, but they will not solve the short-term problem of unemployment. Since consumers and private investors are not spending enough to lift up the economy to provide enough jobs, the federal government has to spend on public investment projects, including education, which will not only provide jobs but also add to the productive capacity of the nation.

Mathur is former chair and professor of economics, Cleveland Sate University, Cleveland, Ohio. His articles can also be read in guest commentary at www.standard.net. He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.

Reviving the gold standard is of dubious value

Vijay K. Mathur

Published in Standard-Examiner, Ogden, Utah, August 8, 2011.  

Many who are unhappy with the decline in the value of the dollar against foreign currencies, and especially against Yuan (Chinese currency), and with the Federal Reserve Bank's monetary policy would like to bring back gold in the international monetary system. The brief history of the gold standard and its variant will show that bringing gold into international monetary arrangements is impractical and misguided. There are two types of arrangements that have prevailed in the past: the gold standard and the gold exchange standard.

Under the gold standard, all countries fixed the price of gold in terms of their currencies and made them convertible into gold at a fixed price. This system led to fixed exchange rates between currencies, as long as all countries kept the price of gold in terms of their currencies fixed. The need to finance World War I and reconstruction afterwards prompted countries involved, except the U.S., to abandon convertibility of their currencies into gold and dollars at fixed rates.

Professors Paul Krugman and Maurice Obstfeld argue that implementing the gold standard will put constraints on the use of monetary policy to fight unemployment and creates more volatility in prices of commodities. In addition, gold reserves will not meet demands of expanding economies and international trade unless more gold is discovered; gold standard also would give more economic power to gold rich countries like South Africa and Russia to influence macroeconomic policies of other countries.

Attempts were made to resuscitate the gold standard after WWI, but it collapsed again in the midst of the great depression of the 1930s. After World War II, the international monetary system was on life-support, and uncertainty about flexible exchange rates to regulate it led to the gold exchange standard with fixed exchange rates under the Bretton Woods Agreement.

The agreement also called for the establishment of the International Monetary Fund to monitor the system and provide short-term credit. All non-dollar currencies were convertible into dollars at fixed exchange rates (except under certain special conditions) and only dollar was convertible into gold for $35 per ounce.

Hence, the dollar became the key currency for international reserves. At that time, the U.S. had more gold reserves than its liabilities abroad. And other countries, especially European countries and Japan, with war-shattered economies, had large trade deficits and faced dollar shortages. Reconstruction of Europe and Japan required US economic aid. That led to the accumulation of dollar reserves in countries' central banks to conduct international transactions.

The gold exchange standard provided some flexibility in fiscal and monetary policies of countries, as long as the U.S. was willing to provide dollar reserves and convertibility of dollars into gold. But it did make other countries' monetary policy dependent upon the monetary policies of the U.S. Because all countries' central banks fixed prices of their currencies in terms of dollars, market forces with the assistance of central banks kept exchange rates between currencies fixed.

This system required that all central banks have sufficient dollar reserves to keep their currency prices fixed in terms of dollars. For example, if the British pound declined in terms of dollars due to the UK's large trade account deficit, then U.K. central bank had to intervene in the foreign exchange market to buy enough pounds and supply enough dollars to increase the dollar price of pounds at the predetermined fixed rate level. Just the reverse intervention was required if the pound appreciated against the dollar. The fixed price of gold and the quantity of US gold stocks constrained U.S. monetary policy to fight recessions.

The limited U.S. supply of gold was not keeping pace with dollar liabilities due to the growth of world trade and large capital movements. Around 1964, U.S. dollar liabilities were larger than its gold stock, and hence it could not meet all its commitments to convert dollars into gold. Therefore, the confidence in dollar started to decline. The option to increase the price of gold above $35 per ounce would have caused inflation and decreased the value of dollar reserves of other countries' central banks. Thus, the Bretton Woods System was showing strains.

In 1971, the U.S. announced that it would no longer convert dollars into gold at $35 dollars per ounce, and under the Smithsonian Agreement the price of gold increased at first to $38 and then to $42 per ounce. Finally the gold standard was replaced with a dollar standard with no convertibility of the dollar into gold. Fixed exchange rates were replaced with a managed float exchange rate system. Under this system all governments maintained their currencies' exchange rates within certain bounds.

This brief checkered history does not inspire confidence in the gold standard or the gold exchange standard. There is not enough gold to keep up with the growth of world trade and capital movements. Nostalgia with the shiny metal that is good for filling teeth, making jewelry and in other industrial uses, will not solve our or other countries' economic problems. The U.S. trade deficit will not disappear and the dollar will not recover its former value unless we become more competitive in the world market. That requires building up our manufacturing base, complemented by investment in human capital, renewable energy and new technologies.

Mathur is former chair of the economics department and professor of economics, Cleveland State University, Cleveland, Ohio. His articles also appear at www.standard.net. He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.

Remedying organ transplant shortage requires financial incentives

Vijay K. Mathur

Published in Standard-Examiner, Ogden Utah, July 2, 2011

Organ transplants for organs like kidney, liver, heart have grown substantially since 1970 with the development of drugs to prevent rejection. However, the shortage of organs also continues to increase over time. In an academic paper in Contemporary Economic Policy, January 2011, Alison J. Wellington and Edward A. Sayre reported that in the winter of 2009, close to 100,000 people were on the waiting list for organ transplants, and most of those were waiting for kidney transplants.

In the private market for other commodities, where price mechanism is allowed to function, the shortage of anything will cause the price to rise until total quantity demanded is equal to quantity supplied. However, in the human organs' market the government does not allow the price mechanism to function, perhaps due to fear or moral guidance that it may lead to financial exploitation, especially of poor people. The National Organ Transplant Act of 1984 does not allow financial incentives for organ transplants. But faced with increasing shortages, even AMA is favorably inclined to consider financial incentives for families of cadaveric donors. Research on the estimated price from cadaveric donors, which tends to equate demand and supply, is spotty and finds very large differences in prices of organs. This could change once markets with appropriate regulations are allowed to function.

In a study in the Journal of Economic Perspectives, Summer 2007, Garry Becker and Julio Jorge Elias estimate that a large supply of live kidney donors would be available relative to the demand at the cost of $15,200 per donor; cost per liver donor is estimated to be $37,600. Perhaps Congress should allow pilot projects in different regions of the country where financial incentives are used to procure organs from cadavers. In fact we have a voluntary system now where we can indicate on our driver licenses, our willingness to donate organs at the time of death in a motor vehicle accident. Financial incentives could be given to those who would like to donate their organs at the time of death in an accident. Wellington and Sayre find that approximately "a quarter of the donated kidneys and one-third of donated hearts came from people who died in motor vehicle accidents..."

Another regulatory mechanism can be found for non-drivers and others who die in other fatal mishaps. The market price prevailing at the time of death will determine the compensation. Perhaps simple procedures and regulations could be implemented for people for drawing up the power of attorney on health matters, and denoting the party receiving the compensation. The compensation can only be paid after verification that organs are healthy and suitable for transplants.

Becker and Elias reason that organs from cadavers will not be enough to meet the demand for transplants. They favor financial incentives for live kidney donors, because they argue that lack of information on the health status of cadavers increases the chance of getting unhealthy organs and thus the failure rates in transplants.  But the failure rate can be minimized if compensation is paid after verification that organs are healthy enough for transplants. In addition, in pilot projects one can at least examine the successes and failures of financial incentives in procuring organs before extending it to kidney procurement from live persons, thus minimizing unwanted consequences.

Altruism has not solved the severe shortage problem, and until new technology is capable of producing kidneys in the lab, financial incentives will go a long way to remedy the shortage. Besides the morality of financial incentives, one has to consider the morality of saving some one's life and at the same time improving the economic well-being of donor's family after his/her death.

Wellington and Sayre report that currently many states, including Utah, have limited financial incentives for live donors of organs in the form of paid leave for government employees or tax deductions to live donors. But they did not find any significant effect of these limited incentives on kidney donations. The authors are of the view that limited financial incentives in states and lack of information to people about the existence of financial incentives for organ donations may be responsible for their weak results.

It seems that a well thought-out program, which compensates for organs from cadavers at full market price, is worth pursuing. It will draw people who are not altruistic and those who are altruistic at the margin.

Mathur is former chairmen of the economics department and professor emeritus of economics at Cleveland State University, Cleveland, Ohio.  This article also appears at http://www.standard.net/topics/opinion/2011/07/01. He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/

The economic value of trust in a society

Vijay K. Mathur

Published in Standard-Examiner, May 28, 2011

Trust (confidence), is an implicit contract between entities -- private and public -- including governments and nations. Even explicit contracts are facilitated by trust. As argued below, trust has economic value in a society. Corruption and fraud in any society inflict the most damage to trust.  Almost every day we hear about corrupt practices of politicians, financial brokers and advisers, law enforcement officers, bankers, hedge fund managers and many others groups of people and institutions. Politicians' activities, guided by contributions from deep-pocketed lobbyists, do not create trust among voters who elected them to do the common good.

Those contributions amount to legalized bribery. In fact an International Monetary Fund study by Deniz Igan, Prachi Misra and Thierry Tressel in 2009, found a significant positive relationship between lobbying by financial institutions for special favors from policy makers and the recent financial crisis.  Department of Justice data show that during 2001-2006, 6,899 individuals were charged with public corruption offences and the Justice Department obtained 5,876 convictions nationwide. In 2010, Consumer Sentinel Network of Federal Trade Commission received 725,087 consumer complaints for fraud costing $1.7 billion.  In recent years, Utah has witnessed the rise of "affinity fraud" where LDS Church members abused the trust of fellow members by enticing them to participate in bogus investment schemes.

Corruption and bribery (a hidden price) feed upon each other and lead to dysfunction of markets, private and public institutions, and ultimately loss of confidence and trust in democracy. Kenneth Newton and Pipe Norris, in their working paper at the Kennedy School of Government of Harvard University, would argue that loss of public confidence in institutions representing pillars of the society poses a major threat to democracy. The clear example of this loss of trust in government and its institutions can be found in the recent bailout of the financial institutions during the current severe recession of 2008-09, even though the bailout was necessary to save the economy from the brink of another depression.  In fact, this lack of trust has also spread to our financial institutions. We can see the damaging effects of bribery and corruption on the economies of India, many countries in Africa, Asia, Middle East and Eastern Europe.

How is corruption related to trust in people and institutions? Professor Eric M. Uslaner, of the University of Maryland, states that, "Corruption flouts rules of fairness and gives people advantages others don't have." Since corruption often accompanies bribery either in kind or money, it gives advantage to rich people over people with modest means in the allocation of resources.  Thus, loss of fairness in the allocation of resources and/or income fosters distrust. Economic inequality, according to Professor Uslaner, is the source of corruption, because "corruption and inequality wreak havoc with our moral sense."

The loss of trust in people, institutions and governments imposes high costs on a society. For example, besides the psychological cost to victims of fraud and corruption, people have to spend time and money in drawing up contracts for minor transactions; businesses have to spend more resources to monitor shirking by employees, thus affecting production and quality control; quality of health care will be costly to implement and administer. In the political arena, loss of trust in politicians may be short-lived, but each time corrupt practices and/or political favors to rich lobbyists come into the limelight it undermines confidence in the political process and institutions. In fact, many surveys find that majority of voters lack confidence in Congress.

The loss of trust in government institutions encourages many to engage in the misuse of resources allocated for government programs. Corruption, fraud, bribery and politics motivated by rich influence-peddlers end up in a self-reinforcing vicious circle that ultimately poses grave threats to democratic institutions at all levels of government.

Reviving trust in ethnically diverse and increasingly unequal-income societies like the U.S. poses a greater challenge than in homogenous and more income-equal societies. A recent study for States in the U.S., by Oguzhan C. Dincer in the April 2011 issue of Contemporary Economic Policy, found that after controlling for many other factors' effect on trust, an increase in ethnic polarization and income inequality significantly decreases trust. The finding on the effect of income inequality on trust is especially revealing.  As Professor Raghuram Rajan cogently argues in his book, "Fault Lines," "the most important example of the first kind of fault line, ... is rising income inequality in the United States, and the political pressure it has created for easy credit."

Building trust has to start with the leaders in business and government who recognize the fault lines. We have to move away from easy credit as the path of least resistance, as Professor Rajan argues, to the path of opportunities in education and jobs with a future to Americans.  Short-lived episodes of distrust must not be allowed to become the norm, because distrust is contagious. Loss of trust will impose a high price to free markets and democratic institutions.

Mathur is former chair of the economics department and professor of economics, Cleveland State University, Cleveland, Ohio. He also writes original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc/.

Guns are efficient killing machines requiring stricter regulation

Vijay K. Mathur

Published in Standard-Examiner, Ogden, Utah, May 9, 2011

The late Milton Friedman, a Nobel Laureate in economics and the strongest defender of freedom to choose and free enterprise, once remarked, "Every friend of freedom ... must be as revolted as I am by the prospect of turning the United States into an armed camp, by the vision of jails filled with casual drug users and an army of enforcers to invade the liberty of citizens on slight evidence."

Guns, especially handguns, in the hands of people, are the most efficient killing machines ever invented. Like any other machines in industry, they are very productive, if one intends to use it to kill or commit violent acts.

Let me first lay out the facts about the productive power of guns. The National Institute of Justice's data show that in 2005 there were 8,478 homicides by handguns; three times higher than for guns and for other weapons, four times higher than for knifes, and 12 times higher than for blunt objects. The institute's data also show that from 1975 to 2005, 77 percent of homicide victims who died from gun violence were between the ages of 15 and 17. This data not only shows that guns are more efficient killing machines than other weapons, but also are used to kill those who will become the most productive members of society.

What about gun ownership and violence? Data from the Violence Policy Center, a non-profit educational foundation, shows that five states (Louisiana, Alabama, Alaska, Mississippi, and Nevada) which had the highest gun ownership rates (ranging from 31.5 percent in Nevada to 60.6 percent in Alaska), and lax gun laws, also had the highest per-capita gun death rates as compared to the national rate. The states with the lowest gun death rates also had much lower gun ownership rates. The policy center characterizes lax gun laws as those that "add little or nothing to federal restrictions and have permissive concealed carry laws allowing citizens to carry concealed handguns."

A major study by Harvard School of Public Health in 2007 also revealed higher homicide rates among children, women and men of all ages in states where more households had guns. A statistically sophisticated and detailed study by Professor Mark Duggan, published in the Journal of Political Economy in October 2001, also found that, both at the state and county levels, and controlling for other effects on homicides, gun ownership has a significant positive effect on homicide rates. In addition, carrying concealed weapons laws in counties -- where states passed such laws and had the highest pre-CCW gun ownership rates -- had an imperceptible deterrent effect on violent crimes; therefore, "...suggesting either that existing gun ownership did not increase the frequency with which they carried their guns or that this carrying had a negligible impact on the behavior of criminals."

The data indisputably shows that prevalence of guns significantly increases violent crimes. The constitutional protection under the Second Amendment "...to keep and bear Arms..." in the context of "...A well regulated Militia..." does not deny states and/or federal government the right to regulate this right. The question is why are gun lobbies, including the NRA, always fighting stricter handgun control regulations? Why are gun rights different than other rights specified in the Constitution? Like freedom of speech, gun rights are not an absolute right. It stops where it impinges on others' rights for safety and security.

The usual argument that carrying a gun adds more security from crime is not supported by evidence. In addition, if this argument is carried to its logical extreme, it implies that each person is responsible for his or her own security; the role of collective security provided by the police force becomes redundant. It is the responsibility and gun lobby's self-interest to promote stricter handgun laws to keep guns out of the hands of untrained, and violent and/or crime-prone people, and to disrupt legal and/or illegal supply chains that feed criminal elements of the society. One can see the effect of uncontrolled guns-supply chain on the violence in Mexico.

The emphasis on the right to keep and carry guns without sensible regulations to prevent present and future monetary and human costs associated with gun violence does not serve the broad interests of the society, including the gun lobby. In 2001, Professors Philip Cook and Jens Ludwig estimated the cost of gun-related violence, injuries (intentional or unintentional) and suicides to be around $100 billion per year. To put this cost in perspective, the authors stated that $100 billion could cover health care costs of two-thirds of uninsured people or pay college tuition for 27 million people in good public universities. A freedom-loving and democratic society, which focuses only on the right to bear arms, and ignores huge human and financial costs, and loss of freedom from internal safety and security threats to the civilian population, ignores them at its own peril.

Mathur is former chair of the economics department and professor emeritus of economics, Cleveland Sate University, Cleveland, Ohio. He also posts original blogs for the Standard-Examiner at http://blogs.standard.net/economics-etc /