COMANCHE COUNTY DEMOCRAT

MICKEY'S MUSINGS by Mickey Hepner

A few months ago Mary Fallin seemed to be the ideal Congressional candidate as she was both likeable and experienced. She had served for four years in the state Legislature, another twelve years as Lt. Governor, and through all that she remained likeable. Her popularity even prompted this observer to claim that Ms. Fallin was a tougher opponent for Democrats than her predecessor Ernest Istook. As appealing as “candidate Fallin” was in November, it is apparent that Congresswoman Fallin has been a disappointment.

This last week http://www.congress.org/ —a nonpartisan website that follows the U.S. Congress—released their latest power rankings for all Members of Congress. These rankings illustrate just how much influence each member wields in the halls of power, just how much ability each member has to serve the interests of their constituents. Out of 435 Members of Congress (and four nonvoting delegates) Rep. Fallin ranks ahead of only two others (and one of those is under FBI investigation for accepting bribes). In other words, Ms. Fallin is one of the least powerful Members of Congress.

There are three main reasons for her relative weakness. First, as a freshman Member of Congress Rep. Fallin has no seniority—and on Capitol Hill seniority matters. In all fairness, this is not her fault as all freshman lawmakers bear this burden. Yet, her lack of seniority cannot be the sole reason for Rep. Fallin’s low power score. Of the 52 new Members of Congress, Ms. Fallin ranks ahead of only one of them in the power rankings. She ranks low even among her fellow freshmen.

Second, Democrats now control Congress and the Congressional agenda. Thus, Democrats now have more influence over Congressional actions, control that affects the latest power rankings. Of the 100 most powerful Members, only three are Republicans. Of the 100 least powerful Members, only six are Democrats. Even freshmen Democrats benefit from their party’s control of the Congress. Rep. Heath Shuler who also won election last November ranks nearly 200 spots higher than Rep. Fallin and higher than many Republicans with more seniority. The reason? He is a Democrat. Notice that this also means that Oklahomans can increase their clout by electing more Democrats in 2008. With Democrats in control even a freshman Democrat would possess more power than a sophomore Mary Fallin.

Third, Rep. Fallin has limited her leverage and influence by opposing measures that have bipartisan support. Less than 48 hours after taking office, she opposed a measure to make it more difficult for Congress to increase the national debt we are passing onto our children. The measure, known as PAYGO, requires Congress to find the funds to pay for any new spending or tax cuts instead of passing more debt onto our children to pay.

Since then she has opposed efforts to implement the recommendations of the 9/11 Commission—a bipartisan panel that examined how we can better protect ourselves from terrorists. She opposed legislation allowing the federal government to negotiate lower prescription drug prices for Medicare recipients. And she opposed federal funding for stem cell research. For each of these cases centrist Republicans joined Democrats in their approval. Each time, Mary Fallin and her conservative colleagues were ignored.

When Mary Fallin won her election she could have chosen to take a different path. She could have joined centrist Republicans and centrist Democrats in seeking bipartisan solutions to America’s problems. Instead she has chosen to join the ranks of the most conservative faction of the House Republican Caucus. Instead of seeking common ground she stands on the shaky ground of partisan politics, a place where she is easily ignored.

Oklahoma’s Fifth Congressional District deserves better. Oklahoma needs leaders who have the power and influence to fight for Oklahoma’s families. Oklahoma needs leaders who will put aside petty partisanship and work to build a consensus on America’s future. Unfortunately, in her first three months in office, Rep. Fallin has not shown herself to be that type of leader yet.

HEPNER LAUNCHES BLOG

Friends,

I am writing to invite you to visit my new blog Mickey's Musings (http://mickeyhepner.blogspot.com) to read my latest columns. Here you can find my latest columns as well as my thoughts on other issues. I have included a chiclet that you can use to subscribe so you can receive daily updates of my posts. Additionally, I invite you to comment on any of these posts by using the comment function.

Switching my columns over to blogspot is just much easier for me, much more accessible for you, and makes it much easier for us to share our thoughts.

So, please join me over at Mickey's Musings. I look forward to hearing from you!

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

ECONOMIC POLICY WEEKLY

Number 2006-48

How Many Lives is Iraq Worth?
December 11, 2006

“If the situation in Iraq continues to deteriorate, the consequences could be severe for Iraq, the United States, the region, and the world.”

“Current U.S. Policy is not working…Nearly 100 Americans are dying every month. The United States is spending $2 billion per week. Our ability to respond to other international crises is constrained.”—Final Report of the Iraq Study Group

In its purest form, economics is the study of how to make optimal decisions. One can apply its lessons to a variety of subjects--even to help us to find the optimal Iraq war policy.

The debate over the Iraq war stokes the passions of the American populace like no other issue today. This fight divides families, communities, and our nation. The divide is so sharp, the chasm so wide, that perhaps the only point the warring sides can agree upon is that there is so little agreed upon. And the fact that all too often the arguments (on both sides) are based on faulty reasoning, serves to only exacerbate the problem.

On one hand, there are those on the left who believe that we never should have invaded Iraq in the first place, and therefore should begin to withdraw all American troops immediately. I must admit that I too believe the Iraq war was a mistake—I have previously called the Iraq war a “colossal blunder”. After all, Iraq was not responsible for the September 11, 2001 terrorist attacks, Iraq posed no imminent threat to our security, and by manufacturing a threat in Iraq we lost sight of the real threat—al-Qaeda.

On the other hand, there are those on the right who believe that because we have already committed ourselves to occupying Iraq, we must stay the course until the bullets stop flying. Admittedly, this steadfast approach emotes a sense of machismo that is in some ways very appealing.

Unfortunately, both arguments are faulty. They are faulty because they both derive from past actions.  The optimal strategy, though, is the one with the best future outcome—the strategy must be future-focused. In other words, the fact that we invaded Iraq (rightly or wrongly) is irrelevant to choosing the optimal strategy now. Now, I want to stress that the issue of whether we should have invaded Iraq is an important one…one that should be the centerpiece of elections for years to come. But since we cannot change the past, that past decision should not shape our future Iraq strategy. 

Instead, our policymakers should be discussing and debating what would happen in the future if we withdraw from Iraq. Likewise, they should be considering what would happen in the future if we choose to stay the course. In all cases our policymakers need to weigh the future benefits and future costs of each proposal.

This week, a group of distinguished former government officials known as the Iraq Study Group (comprised of five Republicans and five Democrats) sought to provide policymakers with this kind of information. For example, the Group’s report argues that an immediate withdrawal will save many American lives but will likely increase violence and raise the prospect of a regional war in the Middle East—an outcome that clearly threatens U.S. national interest. The report also notes though, that a stay-the-course strategy is also troublesome as it would likely mean another 1000 American deaths over the next year but may increase the likelihood that a stable Iraq will result.

One can argue about the conclusions of the Iraq Study Group report—about whether we should invite Iran and Syria to negotiate a final solution, about whether we should wait another year to withdraw all combat forces, or whether the prospects for stability in Iraq are worth the likely 1000 American lives that will be lost over the next year. At least, though, the Iraq Study Group was asking the right question…where do we go from here?

We have already lost over 2900 American lives in Iraq. If we stay the course for another year we will likely lose 1000 more—1000 more sons and daughters, 1000 more mothers and fathers, 1000 more brothers and sisters—who will be taken from us. We need to be debating whether the outcome we hope to see in Iraq is worth this inevitable loss of life. I certainly do not have all the answers…but at least now I have hope that we can focus on the right questions.

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

ECONOMIC POLICY WEEKLY

TIME FOR ANOTHER CONSTITUTIONAL CONVENTION?

Number 2006-46

November 27, 2006

This month Oklahoma begins its 100^th year, a year for us to celebrate our past and consider our future. As Oklahoma begins its centennial year, perhaps it is time for us to consider a state Constitutional Convention.Every constitution is the product of its framers— their experiences, ideas and prejudices. Oklahoma’s Constitution is no different. But our world has changed significantly over the last 100 years. Provisions that would have been necessary in 1907 (or even 1957) may not be so important in 2007. I wonder, if we could do it all over again, what would we do differently?

Would we still have eleven elected statewide offices? Currently, Oklahoma voters elect the Governor, Lt. Governor, Attorney General, State Treasurer, State Auditor and Inspector, State Superintendent of Public Instruction, Labor Commissioner, Insurance Commissioner, and three Corporation Commissioners. This system creates in Oklahomaa relatively weak Governor who has little control over many important duties of state government. For example, the State Superintendent for Public Instruction, who could have very different ideas than the Governor, leads the State Department of Education.

ECONOMIC POLICY WEEKLY

Friends,

Here is my latest column. As always, feel free to share your thoughts with me. Don't forget to forward this to anyone you think might be interested.

I hope all is well.

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

Economic Policy Weekly
Number 2006-45

Selling Higher Education
November 20, 2006

"You are not here merely to make a living. You are here to enable the world to live more amply, with greater vision, and with a finer spirit of hope and achievement. You are here to enrich the world. You impoverish yourself if you forget this errand."--President Woodrow Wilson

Should we be encouraging so many of today’s high school students to prepare for college? Surprisingly, some say no. I hope policymakers do not heed their advice.

Recently, the John William Pope Center for Higher Education Policy—a conservative organization that urges governments to reduce higher education funding—released a report that claims too many students attend America’s colleges and universities. To support this claim, the report makes three broad assertions: 1) governmental subsidies encourage more students to seek higher education, 2) students mistakenly believe that a college degree leads to higher earnings, and 3) many students are more interested in acquiring a degree than they are in learning. These assertions lead the report’s authors to the controversial conclusion that society would be better off if fewer students attended America’s colleges and universities.

As a college professor, it should come as no surprise that I disagree with this conclusion. But the argument is not completely without merit.

There is little doubt that governmental support for higher education (at the local, state and federal levels) has led to increased enrollment in higher education institutions. This support takes the form of grants, low-cost loans, and even direct support to higher education institutions. The cumulative effect is to dramatically reduce the price students are forced to pay for higher education, leading to more consumption of the service.

It is also true that a college degree alone is not sufficient to ensure a lifetime of financial security.  Just because someone completes a college degree program does not mean they should spend their graduation day begin picking out furniture for their new McMansion. However, a college degree undoubtedly enhances one’s employability. This is true for two reasons.

First, completing a college degree program requires several years of study—studies which give students the knowledge and skills (what economists refer to as human capital) that students need to compete for higher-paying jobs. Of course, some degree programs provide more marketable skills than others. Some degree programs lead to higher-paying jobs than others. But this means only that the skills gained in the less-marketable degrees are worth less…not worthless.

Second, a college degree can serve as a signaling tool to future employers about a prospective worker’s skills. When an employer is hiring a worker, the employer generally knows relatively little about the prospective employee's effectiveness. However, the fact that the job applicant completed a college degree program provides some information to the prospective employer about that worker's skills and motivation.

Note that in both cases it is not the degree itself that is most important, but rather it is the knowledge, skills, and motivation—the human capital one acquires while earning the degree that matters. College graduates earn more than non-graduates because they have higher levels of human capital than non-graduates.

But it is on this point that the higher education industry has failed. We have not successfully informed our students that the education is more important than the degree. We tell our students that with a college degree they will earn more. Instead, we should be telling them that when they learn more, they will earn more.

As a result, our students focus too much on degree requirements, and not enough on learning. They focus on assignments, deadlines, and tasks instead of engaging in intellectual explorations. They focus too little on acquiring human capital. And by doing so, they only impoverish themselves.

ECONOMIC POLICY WEEKLY by Mickey Hepner

The Dangers of Hubris

November 13, 2006

Across the nation Democrats are celebrating, Republicans are mourning, and thankfully the elections are over. Yet, Congressional Democrats should remember that they are not responsible for their recent success.

Election waves like the one we witnessed Tuesday are caused by voter dissatisfaction with the ruling party. In this case Democrats won because on issues ranging from Iraq, the economy, to Congressional pages, voters perceived that Republicans were more interested in furthering their own interests than the interests of middle-class America. In other words, voters were not voting for Democrats, they were voting against Republicans. Voters were not saying that Democrats could do better than Republicans, but that Democrats could not do any worse than the Republicans.

Republicans lost because of hubris.

But hubris does not only infect Republicans. In 1994 Republicans rode into power on charges that the Congressional Democratic leadership was corrupt and out of touch with ordinary Americans. Democrats had become too accustomed to power, stopped serving the people, and lost badly. In that 1994 election, the hubris-infected Democrats lost both Houses of Congress to the Republicans. Hubris, whether possessed by Republicans or Democrats, inevitably leads to election losses.

Since there are so many examples of this, one might wonder why so many politicians fall victim to this malady. University of Chicagoeconomist (and Nobel Laureate) Gary Becker provides the answer. He reasoned that criminal or unethical behavior is not all that different in its genesis than regular behavior. After all people do the things that they believe will make them better off. People choose to buy a car when after comparing the benefits and costs of buying, they believe that buying the car will make them better off. Likewise, criminals choose to steal a car when they believe that doing so will make them better off. In other words if politicians act unethically, they do so because they believe they their unethical actions will make them better off.

From this simple idea, Becker reasoned that the likelihood that a criminal would be punished for their crimes influences their decisions. For example, many speeders suddenly slow down when they see a police car sitting nearby. They do so because they know that with the police nearby, they are more likely to be caught speeding, and more likely to be punished. But if our governments suddenly announced that they would no longer ticket anyone for speeding, regardless of their speed, more speeders would suddenly emerge.

Politicians tend to act the same way. When voters pay close attention to the activities of their representatives the politicians are more responsive to those voters. However, when politicians believe that few people notice their activities, corrupt officials quickly emerge. Inevitably, though, this corruption becomes public. And when it does, the voters will notice. Politicians may believe that they are invincible...but in our system they never are.

Democrats would do well to heed this lesson. In the coming years, Democrats will have a chance to lead...and lead they must. We have thousands of troops in harm's way. We have 46 million Americans without health insurance. We have a $5 trillion debt we are passing on to our children.

America needs strong leadership now.

If Democrats place the people's interest over special interests, if Democrats choose to fight for our families instead of simply fighting, if Democrats work to leave our children with a better world and a brighter future...then the new Democratic majority may last a long time. You see, the biggest threat to the new Democratic majority does not come from the Republican Party...but from Democrats themselves. It is the Democrats who will now be exposed to the dangers of hubris. Only time will tell whether that exposure is fatal.

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

ECONOMIC POLICY NEWS- Another 247 Billlion

Friends,

Here is my latest column. As always,feel free to forward to anyone you think might be interested. And make sure you share your thoughts with me also!

I hope all is well.

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

---

Number 2006-40 

Another Year, Another $247 Billion

October 16, 2006

Eager to discuss anything other than the Foley sex scandal cover-up, the mounting death toll in Iraq , or the surging numbers of uninsured Americans, Republicans are clinging to any scrap of good news they can. Thus, it was no surprise this week when Republicans lauded the latest news on the budget deficit. However, the news is certainly not as good as they would lead you to believe.

The Bush Administration announced this week that the federal budget deficit for the fiscal year (which ended September 30) was $247.7 billion—the lowest in four years. This is proof, they argue, that the Republican economic plan of tax cuts for the wealthiest Americans is working. There are two reasons, though, why I do not buy the spin coming from Republicans.

ECONOMIC POLICY WEEKLY - Hastert Should Go

Mickey A. Hepner, Ph.D.

Associate Professor & Director of UCO Policy Institute

University of Central Oklahoma

Department of Economics

100 N. University Dr.

Thatcher Hall, Room 222

Edmond, OK 73034-5209

Phone: 405.974.2829

Fax: 405.974.3853

www.busn.ucok.edu/mhepner

Hastert Should Go
October 9, 2006

Perhaps the most fundamental concept in economics is that individuals act in ways they believe will make them better off. When someone buys a new car, the buyer must expect some happiness from the new car. When people give money to charity, they must gain some satisfaction from knowing they are helping others. And when someone covers up the actions of a sexual predator, they must be doing so for their personal benefit.

As everyone now knows, former Republican Congressman Mark Foley has resigned his position after being confronted by ABC news with the details of his communication with teenage Congressional pages. What has Washington all aflutter, though, is the news that some of Mr. Foley's Republican colleagues knew about his actions long before the story broke.

While it is always dangerous to write about fluid situations--the situation on Friday may be very different from the situation on Sunday--there are some things we know:
1. Former Congressman Mark Foley sent inappropriate messages to underage boys serving as Congressional Pages
2. Rep. Tom Reynolds (R - New York) says he spoke with Speaker of the House Dennis Hastert earlier this year about the issue. Rep. Reynolds heads the National Republican Campaign Committee which supports the elections of Republican Congressional candidates. Speaker Hastert says that he does not recall the meeting with Rep. Reynolds, but does not deny that it occurred.
3. Rep. John Boehner (R - Ohio) also says he spoke with Speaker Hastert earlier this year on the issue. Rep. Boehner in his position as Majority Leader is the second most powerful Republican in the House of Representatives. He also shirks responsibility for the issue by stating, "It is in his (Speaker Hastert's) corner, it is his responsibility".
4. Rep. John Shimkus (R - Illinois) told Mr. Foley last year to immediately cease contact with a page whose parents had complained about inappropriate e-mails from the Congressman. Rep. Shimkus heads the Congressional Page Board that oversees the page program.
5. No one apparently told any Democrats about the sexual predator sitting in Congress.

This last point is the most shocking of them all. Why would anyone purposefully keep one political party in the dark when a potential sexual predator is walking the halls of Congress?  Because they believed it was in their best interest to hide the truth from Democrats (and the public). They feared that revealing the information would give Democrats an opening to win one more seat in Congress...and move one step closer to becoming the majority party. Those Republicans who shielded Mr. Foley were more interested in retaining their own power than they were in protecting the young men and women serving as Congressional pages...and that is unforgivable.

Apparently exposing his partisan view of the world, Speaker Hastert had the gall to lash out to Democrats for the leaks instead of focusing his anger on the guy preying on children (ABC News reporter Brian Ross, who broke the story, later revealed that Republicans disgusted by Mark Foley's actions were actually the source of the leaks). But this reaction by the Speaker gives us a glimpse into his character. After all, shouldn't exposing a sexual predator be something worthy of praise? Apparently, Speaker Hastert would have preferred that no one ever learned the lurid details of Mark Foley's behavior. This fact alone shows that it is time for Hastert to go.

Ironically, the cover-up intended to preserve Republican power could cost Republicans control of the House of Representatives. In a few weeks, voters across the country will go to the polls to elect the 435 members of the U.S. House of Representatives. Next January, those members will cast their first votes by choosing the Speaker and other House leaders. As things stand today, a vote for a Republican Congressional candidate is a vote to keep Dennis Hastert and his backwards priorities in power.

This fact should generate much anxiety for Republicans heading into the last few weeks of the fall campaign. With his inaction, Speaker Hastert has displayed a willingness to place his personal interest above the interest of protecting our children. As long as Congressional Republicans (and their candidates) still accept him as their leader, they are also accepting his backwards priorities...something voters should remember in November.

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NEWBIE SENATORS CHANGING WASHINGTON

Newbie Senators Changing Washington

September 18, 2006

Some politicians go to Washington and quickly become immersed in the establishment. But this year, two freshman U.S. Senators are changing the way Washington operates.

In 2004 Oklahoma and Illinois both elected new people to serve in the "World's Most Exclusive Club"--otherwise known as the U.S. Senate. Ever since, Oklahoma's Tom Coburn (a Republican) and Illinois' Barack Obama (a Democrat) have been collaborating to reform the legislative system.

This week, their efforts paid off when the Federal Funding Accountability and Transparency Act, which was co-authored by the two newbie Senators, passed both the U.S. House and Senate. President Bush has promised to sign the bill into law.

The bill (what Sen. Coburn calls the "Google Government" bill) would require the federal government to establish a website listing every person and group, along with their location, that receives federal grants and contracts. This database will allow every person to cast a more watchful eye over how the federal government spends our tax dollars, and consequently hold our elected officials accountable.

Naturally, establishing such a database is not free. The Congressional Budget Office estimates that the website will cost $15 million over the next five years. But the increased transparency of federal spending could lead to savings that dwarf this amount. After all, it is a lot easier to waste money when no one knows how it is being spent. Like mold, wasteful spending dislikes the sunshine.

Of course this bill is far from a panacea for Congress' spendthrift ways. Congress still needs to act to eliminate the special "earmarks" that allow members to spend millions of dollars on wasteful pork projects. The Citizens Against Government Waste (www.cagw.org)--a conservative government watchdog group--notes that earmarks have exploded over the last few years to a record $29 billion in 2005! Last year taxpayers helped fund such notable events as the World Toilet Summit and the Teapot Museum in Sparta, North Carolina.

Not surprisingly, the Republican-leadership in Congress is unwilling to make substantial reforms to the appropriations process. Instead of eliminating earmarks altogether, this last week House Republicans announced that for all earmarks this year (and only this year), they will link every earmark with the Member who requested it. Far from being a step forward, this move allows those Members who brag about the pork they bring to their home districts to now have evidence to support their claims!

To me though, this is evidence that we need new leadership in Congress. We need leaders from both political parties to be less concerned about Republicans and Democrats, and be more concerned about right and wrong. We need leaders who will fight against waste, and for a brighter future. This week, Sens. Coburn and Obama gave me hope that those leaders exist.

Mickey A. Hepner, Ph.D.
Associate Professor & Director of UCO Policy Institute
University of Central Oklahoma
Department of Economics
100 N. University Dr.
Thatcher Hall, Room 222
Edmond, OK 73034-5209
Phone: 405.974.2829
Fax: 405.974.3853
www.busn.ucok.edu/mhepner

ECONOMIC POLICY WEEKLY - New Leadership in Healthcare

Fax: (405) 974-3853

Editor: Be sure to visit this web site:

www.busn.ucok.edu/mhepner

Commentary on Today's
Economic Issues by Mickey Hepner, Ph.D.

Number 2006-35
September 11, 2006

A new government report last week confirmed that more Americans are losing their health insurance. Unfortunately, with the current leadership in Congress (in both political parties) nothing will be done to help them.

The U.S. Census Bureau recently released its annual report on health insurance coverage and reported that in 2005 there were 46.6 million uninsured Americans (up from 45.3 million in 2004). For children, the story is not any brighter. The Census Bureau estimates that 8.3 million children went without health insurance in 2005 compared to 7.9 million just one year earlier.

Knowing that people without health insurance are less likely to seek the health care they need, one might think that both Republicans and Democrats would be eagerly seeking some real solutions to this crisis. Yet, neither party is working towards a solution that will actually work. Democrats blame employers for not covering every worker. Republicans just bring up the war on terror.

The solution to this problem requires a major overhaul of the current health insurance system. Specifically, we have to acknowledge that employers should not be responsible for providing health insurance to employees. (I will pause here for a moment to give you a chance to get over your initial shock to my statement.)

Before you snap off your reply that I have finally succumbed to some sort of intellectual paralysis, let me defend myself. I know that nearly 60% of the population relies upon employer-sponsored health insurance...and that moving away from this system would be a dramatic change. However, I also know that our current system has too many holes, and too many problems.

For example, Starbucks spends more on employee health care than it does for raw coffee beans! Rising health care costs comprise the fastest growing portion of business costs in America today. And because many foreign firms do not face this same pressure, the rising costs place American firms at a severe disadvantage to their foreign competitors. Expecting these firms to pay even more to cover even more workers is unrealistic.

It is also inefficient. For most Americans (including me), their health insurance coverage is determined by their employer. If you ever change employers, you must also change your insurance. If you work for a small employer your insurance is more expensive than if you work for a large employer because the larger group can distribute the risk over a larger population. It does not have to be this way.

Imagine if every Oklahoman was pooled together into a giant insurance purchasing pool. Different insurance companies, offering different insurance plans, would offer those plans to every individual in the state at the best group plan rates (after all there would be 3.5 million Oklahomans in the group--much larger than any group health plan in Oklahoma today). Under such a scenario, every Oklahoman would be eligible to purchase health insurance at the most affordable group rates. If you ever change employers...there would be no need to change your insurance.

Of course there are some significant obstacles to this plan. First, Congress needs to authorize the formation of these statewide purchasing pools. Second, Congress needs to end its favorable treatment of employer-sponsored insurance plans. Currently, employer-sponsored health insurance payments are deductible from federal and state income taxes. However, other methods of purchasing health insurance do not receive this same treatment. We can change this to make all health insurance purchases tax deductible. Essentially, instead of giving the tax deduction to employers who offer health insurance...we should give the deduction directly to workers so they can purchase the health insurance they need.

Now some fear that a move away from employer-sponsored health insurance would result in firms no longer offering health insurance, and therefore would reduce the total compensation of workers. While it is true that fewer firms would offer health insurance, employee compensation would not fall. After all, the firms have already agreed to a certain level of compensation for each worker already (some in wages, some in benefits). All that would change is the composition of that compensation. The level of compensation would be unchanged. Employers would simply pay more in wages since they do not have to pay as much in benefits...leaving total compensation unchanged.

This proposal would make health insurance more affordable, more flexible, and most importantly more available for all Americans...all without expanding the role of government in our healthcare system. As a result, we would begin to see the number of uninsured Americans begin to fall. Today, we can see the promised land where every person has access to quality health care. Unfortunately, our current leaders aren't willing to take us there.

Feel free to submit your comments to mhepner@ucok.edu.

The views and opinions expressed on this page are strictly those of the author.

ECONOMIC POLICY WEEKLY

COMMENTARY ON TODAY'S ECONOMIC ISSUES
MICKEY A. HEPNER, PH.D.

Number 2006-32
August 20, 2006

The Economic Argument For the Minimum Wage

This is the second in a series of columns on the minimum wage. Next week: “The Politics of the Minimum Wage”, or “If the Minimum Wage is Bad, Why Do So Many People Support It?”

“If all economists were laid end-to-end, they would not reach a conclusion.”—George Bernard Shaw

We economists are notorious for our disagreements. There are liberal economists. There are conservative economists. And then there are economists like me in the middle. Yet when it comes to the minimum wage, most economists are in agreement—raising the minimum wage reduces employment opportunities for those minimum wage workers.

Of course in any profession there are always those who disagree with the conventional wisdom. It is no different with economists and the minimum wage. In the 1990’s, two well-regarded economists, David Card and Alan Kreuger, authored a book in which they argued that small minimum wage increases generate no employment reductions.

They justified their views by claiming that labor markets suffer from a problem known as monopsony power. (If you are like my students your eyebrows just furrowed while you wondered if “monopsony” is a real word). This monopsony power is really just the opposite of monopoly power. For example, OG&E (like most electric utilities) has monopoly power—relatively few competitors selling electricity to the same market. Since OG&E faces relatively little competition from other sellers, it is able to charge inefficiently high prices for their service. As a result, economists admit that government can intervene and force OG&E to charge a more-efficient, lower price. This is why the Oklahoma Corporation Commission regulates the prices that OG&E charges their customers.

With monopsony power, though, it is the buyers and not the sellers that face relatively little competition. In this case, the buyers face little competition from other buyers wanting to buy the same item. This allows buyers to pay inefficiently low prices. As with the case of monopoly power, economists recognize that with monopsony power there is a potential role for government. In this case, the government can intervene to force buyers to pay a more-efficient, higher price. In labor markets this higher price is the minimum wage.

Economists have long accepted the monopsony power argument for policies like the minimum wage, and we know that many labor markets suffer from monopsony power problems. For example, the market for Major League Baseball players suffered from monopsony power prior the onset of free-agency in the mid-1970’s. Until that time, players were only allowed to negotiate future contracts with the team for which they most recently played. Thus, there was only one team that was able to buy their labor. These teams did not have to worry about other teams luring players away with larger salaries. With the onset of free-agency, however, players were free to negotiate with all of the teams. This additional competition among the buyers of baseball labor has led to a dramatic increase in baseball salaries.

However, most economists simply do not agree with the argument that the market for minimum wage labor suffers from this same monopsony power problem. Notice that for monopsony power to exist, there needs to be a lack of competition among the buyers of minimum wage labor. However, there are clearly many firms that hire minimum wage workers (retail shops, hotels, fast-food restaurants, etc.). As a result, if one firm tries to pay less than the market wage rate they will have difficulty attracting the employees they need. In other words, these firms face competition from other firms wanting to hire the same labor. Consequently, these firms do not have monopsony power.

In the absence of monopsony power economists—even Card and Kreuger—agree that minimum wage laws reduce employment opportunities for the very workers they are trying to help. While economists like to disagree on many issues, the effects of the minimum wage is not one of them.

 

Feel free to submit your comments to mhepner@ucok.edu.

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