Senator Ron Johnson recently told a group of donors that Social Security should be privatized because “it is a Ponzi scheme and the bonds in the Social Security Trust Fund are worthless.” In doing so, he demonstrates his misunderstanding of  Social Security and of Ponzi schemes. 

            A Ponzi scheme sets up a fund and attracts investors who buy shares of that fund on the promise of very high returns on their investment.  But there are no real resources backing up the fund, nor is there a reasonable-risk venture such as car production,  or a medical technology invention.  Instead, there is simply a sequence of investors in the fund, with early investors gaining a return via payments out of the fund financed by the payments into the fund by later investors.   As the high returns get paid, the news travels fast, and more and more investors gleefully invest. As long as each successive group of investors is sufficiently larger than the preceding group, the promised returns can continue to be paid, and, of course, the scheme organizers reap huge profits as well. Eventually, however, the laws of arithmetic catch up with the Ponzi scheme.  It becomes impossible for each succeeding investor group to be larger than the preceding group; the investor returns collapse, disappointed investors sue the scheme organizers, and, as in the cases of Bernie Madoff and Charles Ponzi, the organizers serve prison terms.

 By contrast, Social Security is remarkably solvent; the system is going strong after 80 years, never having missed a payment. It is an insurance program backed by real resources, i.e., the taxes paid by current workers as well as the bond fund to be explained shortly. Most workers are required to participate by paying a payroll tax as their contribution to insure against poverty in their old age. It is designed as a “pay-as-you-go” system: current workers pay for current retirees with the expectation that, when they reach the age of eligibility,  future workers will pay their Social Security benefits. This can be reasonably expected because over the decades each generation has added to and passed on the physical and knowledge capital of the nation. As a result worker productivity per hour has been increasing at a rate of roughly 1.5% annually. The immense value of this transfer of productivity from old to young enables younger workers to produce the national income out of which the old take their piece. There is no similar reciprocity in a Ponzi scheme.

            Such pay-as-you-go systems are stable if each succeeding generation has a bit higher total productivity than the preceding one.  Even though productivity per worker is rising, stability of an intergenerational financing of the Social Security system is hard to achieve when one generation is much smaller in number than the preceding one. Just such a problem was created when the baby boomers numbered 77 million and the subsequent generation numbered only 47 million. In 1985, when President Reagan foresaw the problem Social Security would face by 2012 when the boomers would begin to retire, he augmented the original pay-as-you-go design by increasing the payroll tax rate.  This forced the boomers to add savings of their own to the payroll taxes they were already paying.    

            To understand the Reagan plan, we must follow both cash and bonds. Beginning in 1985, the increase in the payroll tax rate drove receipts above payments of retiree benefits, the difference generating a surplus. These surplus dollars were invested in a "Trust Fund," a reserve of special-issue US Treasury bonds that can only be traded between the US Treasury and the Social Security Administration. During the years that Social Security holds these bonds, Treasury has the corresponding cash, a chance to boost national economic growth by investing in assets like roads, bridges, broadband, and port facilities.  Whenever payroll tax revenue is insufficient to pay scheduled retirement benefits, either due to the large number of retirees or setbacks such as the Great Recession of 2008-09 or the COVID-19 crisis of 2020, the bonds can be cashed in to add to the payroll tax.  Contrary to Senator Johnson's misunderstanding, the bonds are definitely not worthless; they represent money loaned to the general public by boomers during their work years to be repaid later during the boomers’ retirement years.  If the bonds were worthless, then the Reagan plan would have been massive theft. Fortunately, Ronald Reagan was no Charles Ponzi!

            In the original 1985 plan, the payroll tax rate was calibrated so that the bonds would run out around 2060 after all but the most persistent boomers will have passed on. However, the combination of slower-than-projected economic growth plus the blessing of longer life will exhaust the bond fund around 2034. At that point, the payroll tax revenue will be about 79 percent of what is required for scheduled benefits. Consequently, just like a private insurance plan adjusts to changing demographics and returns on endowment, adjustments will be required to Social Security.  Phasing in small changes, such as an increase in the eligibility age and raising the top end of the taxable income range, will make up for the shortfall.  

  Social Security is not a one-way transfer of funds from workers to retirees. Rather, it is a program that recognizes the reciprocity between generations. In a market system, with well-functioning capital markets, each generation’s productivity is enhanced by the efforts of preceding generations, and each generation pays a part of that increased productivity in the form of retirement benefits for the generation that made it possible.  The young pay the old out of enhanced productivity made possible by the old when they were young. 

The debt of the United States is currently $29.6 trillion and is rising fast: the 2020 federal deficit (i.e., the one-year addition to the debt) was $2.8 trillion; and in 2021 was $2.14 trillion.    Numbers this large tend to boggle the mind. Such numbers lower our nation's sense of financial security, increase anxiety and, for younger/future taxpayers especially, foster insecurity. 

But, why? What if that level of borrowing did not occur?  The United States borrowed more in 2020 than ever before in order to save businesses and household solvency during the pandemic, now they are bouncing back.  In earlier years, more common lower levels of borrowing financed national defense, repaired the nation's infrastructure,  improved math and science education, and fought recession and joblessness. Should anxiety over America's debt prevent us from modernizing the country? It is essential to think about these numbers in a rational way. 

As a second example of misleading reporting, recent spikes in the price of gasoline "at the pump" have caused a great deal of angst because newscasters and politicos have stated that the gas price has never been higher in history! This is simply not true: this misleading notion comes from the failure to adjust for inflation, one of the simplest arithmetic calculations in all of economics. As President Joe Biden might say: "C'mon man. Do the MATH!"

 INFRASTRUCTURE BILLS

To help voters understand the debt capacity of their government, just as for a corporation or an individual, they should be shown the relative earning power from which that debt will be repaid.  This logic can be applied to the infrastructure bill passed last November, whose projected spending is  $1 trillion over 10 years,  and to the soft infrastructure bill often dubbed “Build Back Better”, whose projected cost over 10 years is $3.5 trillion.  To determine the true affordability of these investments, simple arithmetic is required.  First, in each case, the spending is to take place over 10 years.  So, to compare the actual size and proportion of the expenditure to the nation’s ability to pay, the huge figure must be divided by the number of spending years to calculate the annual cost. This result must be further divided by the annual national income to determine its relative percentage. 

HARD INFRASTRUCTURE BILL  (Infrastructure Investment and Jobs Act of November 2021)

       Total new  Cost Estimated = $1 Trillion

       Projected Spending Period = 10 Years

       Cost per year = $100 Billion

       Percent of Annual National Income = 0.44% (less than ½ of 1%!)

SOFT INFRASTRUCTURE BILL  (Ten Year Budget Framework aka  "Build Back Better.")

       Total new Cost Estimate = $3.5 Trillion

       Projected Spending Period  = 10 Years

       Cost per year = $350 Billion

       Percent of Annual National Income = 1.54%

This arithmetic, which is obviously not ideological but simply factual, shows that when huge numbers are compared in proportion to the ability to pay they provide a much more rational way of deciding whether the nation should make such expenditures.  Failure to make these two adjustments to the relative costs and benefits of public investments is not only misleading, but it prevents rational decision-making. 

GASOLINE PRICE ADJUSTED FOR INFLATION

A second example of how arithmetic must be applied to avoid misleading the public is in comparing economic data from different time periods. Recently it was announced that the spike in gasoline prices had driven the average "price at the pump" above the previous all-time high. This was reported in major newspapers, on television, and screamed on Fox News in an attempt to make the Biden Administration look bad. Apart from the fact that no president has much impact on the price of any individual commodity, it is a common but serious error to compare prices from different years without adjusting for inflation. Fortunately, the correction is simple.

First, the data.  In the table below are listed two important years, 2008 which had very high gasoline prices, and the current year, 2022.  Also shown are the dollar prices from those two years.   Without adjusting for inflation, the 2022 price is higher. 

The table also shows the consumer price index for the two years.  Using this index, we can adjust for inflation in two ways. First, the 2022 price of $4.33 can be expressed in 2008 dollars, by multiplying it by the CPI from 2008 divided by the CPI  from 2022:

THE 2022 "PRICE AT THE PUMP" IN 2008 DOLLARS:

     $4.33 x 212/284  =   $3.23

Result: contrary to news reports, this means that in a direct comparison with the 2008 price today's price is only 79% of the 2008 price.

The second way to adjust for inflation is to convert the 2008 price to today's dollars by taking the 2008 price and multiplying it by the ratio of the consumer price indices for those two years:

THE 2008 PRICE IN 2022 DOLLARS:

     $4.10 x  284/212  =  $5.49

In this scenario, the 2008 price adjusted for inflation is $5.49, actually 26% higher than today’s price.

Correcting Mis- and Dis-information

In national budget discussions, projecting large, scary expenditures such as the $29.6 trillion debt figure should not be introduced without explaining them in relation to the economy's projected ability to cover their cost,, or National Income. Omitting this second factor introduces false and possibly misleading information, and presents a deceptive picture.

  Because most of the general public has only a limited understanding of such large numbers,  reporters, politicians, pundits, editors, and professors should follow these basic rules of arithmetic.

Rule No. 1: Never use large debt numbers without stating the time period over which they are to be incurred and their corresponding percentage relative to the ability to pay, or National Income.

Rule No. 2: Never compare dollar figures from different years without adjusting to a common year using the consumer price index, readily available online at FRED (Federal Reserve Economic Database:  fred.stlouisfed.org).

Rule No. 3:  When a violation of Rule No. 1 or Rule No. 2 leads to a false conclusion, a correction should be published or broadcast with the same degree of audience reach as the original misleading statement, including a complete reference to the original misinformation. 

William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

SENATOR JOHNSON STILL WANTS TO REPEAL THE AFFORDABLE CARE ACT

In his effort to retake the Congress, Senator McConnell is urging   Republicans to shut up about their policy preferences until "we take it back." Senator Johnson violated the secrecy of this stealth platform when he said recently that he would like to return to the days when Republicans actively tried to "repeal and replace Obamacare."  Speaker Pelosi responded: "the GOP just can't quit their obsession with ripping healthcare away from Americans with pre-existing conditions." The White House issued a statement: "Senate Republicans have a plan to gut healthcare, raise premiums, and strip protections for pre-existing conditions."

Opponents of the ACA seem to have forgotten the extreme dissatisfaction voters expressed with the health insurance market that existed prior to the ACA when insurance companies could deny coverage based on "pre-existing" health problems.  Now seems a good time to ask whether the basic economics of insurance markets can help us predict how the ACA and its free-market alternatives would work.        

A Primer on Insurance 

Insurance provides financial relief to those who suffer the consequences of low-probability, high-cost events — car crashes, health problems, natural disasters. Companies collect premiums so that the few who suffer insured-against events receive financial assistance from the many who avoid these problems.  In a process called "experience rating," they place their insureds into pools based on perceived risk levels. High-risk people are assigned to a high-risk pool and charged a higher premium than lower-risk people who are placed in a lower-risk pool and charged a lower premium.  For example, drivers with prior accidents or OWI arrests pay higher car insurance premiums than drivers who have clean records. Similarly, the sick person with a pre-existing condition would pay more -- and may even be denied coverage for that condition.    

Experience rating will not result in universal healthcare because the premiums charged high-risk people (mainly those with pre-existing conditions, or currently ill, or older Americans) will be simply too high for many of them. Their only choice is to forego coverage and utilize emergency rooms when medical care is needed.   While the road system is designed for the cautious driver, the healthcare system is designed to help sick people and to prevent healthy people from becoming sick. To insure sick people the same way we insure drunk drivers is unjust and perverse.  This "free-market solution" would return the nation to the days when families would hold bake sales and car washes, sell their homes, and take on odd jobs to help sick members.

         The regulatory alternative is "community rating," where premiums reflect a shared responsibility and are based upon the experience of a large “community” of people. Accordingly, those who are lower risk subsidize those who are higher risk:  high-risk policyholders pay less than their expected cost as their costs are subsidized by low-risk policyholders who pay more than their expected cost;  as a result, higher-risk people are not priced out of the market. 

A Market Solution with Regulations

In the early 1990s, the Heritage Foundation, a pro-market think tank,   recognized two critical facts about insurance markets: first, unregulated "free" markets are incapable of delivering universal health insurance coverage, and second, to approximate universal coverage while retaining the advantages of competition among private insurance companies, a series of new government regulations is necessary. Heritage proposed a regulated private insurance market in which insurers are required to offer policies that meet certain specifications.  These specifications include: (1) a mandate requiring everyone to have proof of insurance; (2) a prohibition against the use of pre-existing conditions as a basis for rejection of coverage; (3) a ban on lifetime coverage limits; and (4) the creation of state insurance exchanges that provide consumers with information to assist them in their selection of a health insurance plan.   The purpose of these exchanges is to protect those in need of health insurance against the natural tendency of unregulated insurance companies to charge experience-based premiums. To have access to the market through these exchanges, insurers must agree not to deny coverage for pre-existing conditions or to raise premiums to unreasonable levels when people get sick.

Further ACA Market Support

Under the Affordable Care Act, the federal government helps people pay their premiums, especially the poor and those with pre-existing conditions, using tax dollars levied on higher-income people. In exchange for mandating that insurance companies cannot deny coverage to any applicant, the government pays “premium support," a subsidy to make up the difference between the insurance premiums and the amount paid by the citizen. Further, the government helps those with pre-existing conditions by capping the net premiums they pay. 

         In addition, ACA pays “reinsurance” directly from the federal government to those insurance companies who wind up with a disproportionate share of the high-risk customers, as well as “risk corridors,” which are limits on potential losses. Premium support, premium caps, risk corridors, and reinsurance, all stabilize the regulated market in which all applicants must be issued policies. In combination, these measures are designed to increase the number of firms willing to compete in the exchanges.

 The ACA  is not the free-market solution  Ron Johnson instinctively advocates.  Nor should it be equated with either the single-payer (non-market government) solution or the British-style (tax-supported government health provider) solution.   The ACA exchanges create a market of private insurance companies to which President Biden would add a "public option" as a choice on the ACA exchanges. This public option would resemble Medicare but would be available to people below age 65 as an alternative to private insurance.

  If Senator Johnson has an alternative system that can solve the same problem that the popular ACA solves, the senator should propose it before proposing repeal of what is working. The fact that Congressional Republicans attempted 70 efforts to repeal the ACA without proposing a viable replacement indicates that the Heritage Foundation was right when it set forth its necessary conditions for a system that would work, the very conditions upon which the Affordable Care Act is built.   

William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

When the nation was founded, the right to vote was limited to white landowners. Since then, our nation has strengthened representative democracy by extending the right to vote to people who do not own land, to non-whites, to women, to younger people. Each time the right to vote was extended to a new demographic group, it was declared that all registered voters are to be accorded equal access to the polls. Officially, access was to be both fair and unbiased.  For example, it became customary within a state that all voting places be open for the same days and hours.  That would seem to provide equal access, but in practice, it can be used as a tool to suppress the vote; while the polling places may be in operation for exactly the same amount of time, the amount of time needed to vote may differ considerably due to local conditions such as the number of polling places per capita.

 The Wisconsin primary of April 7, 2020, provides an illustration.  Contrary to the recommendations of the President’s Pandemic Advisory Task Force to delay an election for a State Supreme Court seat,  Wisconsin held it as scheduled on  April 7, 2020.   Efforts to change the date due to Covid were rejected by the gerrymandered Republican legislature, the Wisconsin Supreme Court, and the United States Supreme Court. Consequently, contrary to the stay-at-home recommendation of the Center for Disease Control, the election proceeded on schedule, and voters waited in lines for up to two and a half hours, wearing surgical masks on their faces and maintaining six-foot "social distances" from each other.   The local TV news that evening featured footage of the long lines to vote at Riverside High School on Milwaukee's East Side.  As if the time cost we're not enough of a deterrent, Mother Nature delivered an inch of rain in an hour,  punctuated by hailstones.   While those voters endured long lines in bad weather, just a mile up the street in the northern suburb of Shorewood,  voters were voting in 10 minutes, parking in designated parking spaces, and then heading off to their next appointment.   

            Equal access?

             Time has a great opportunity cost:  the greater the amount of time required to vote, the more other activities have to be cut back; the more parents need babysitters; the less time available for work or family.  When some vote in ten minutes with ease while others stand in bad weather for ten times as long; the opportunity costs are very different.  The greater that cost, the greater the disincentive to vote.

            The tools available to achieve more equal voting times include more conveniently located polling places,  mail-in ballots, ballots received by mail, drop boxes, and the ability to drop a completed ballot with a certified clerk. Since all of these have been used for years in various jurisdictions around the country,  those opposed to them should bear a burden of proof that they lead to integrity problems.    

The 2020 election provides a controlled experiment. Anticipating long lines at polling centers, exposing voters to Covid while waiting to vote,  the state relaxed its rules on absentee voting by mail-in ballot and the use of drop boxes. Eight hundred thousand registered voters applied, providing an online photo of their driver’s license to receive a ballot in the mail.  The return envelope required a signature witnessed by another registered voter who also had to provide an address.  Any errors nullified the ballot, and fraud was deterred by stiff financial fines and possible jail.  The completed ballot was then either mailed or placed in a certified drop-box.   This pandemic-induced procedure worked well, and despite strenuous effort to find evidence of voter fraud, none has been found.    

  The Wisconsin Institute for Law and Liberty (WILL) filed a lawsuit arguing that the use of drop boxes was not in accordance with the requirements of ballot custody spelled out quite clearly in Wisconsin Statute.  They won: on February 11, 2022, the State Supreme Court agreed and banned the use of drop-boxes for the remainder of 2022.  

The proponents of equal access to the ballot box should propose an evidence-based change in the law to permit the use of drop boxes.  Here WILL  helps: in addition to their successful lawsuit,  WILL also issued a report confirming that the use of drop boxes during the pandemic did not contribute to voter fraud!   Mail-ballot voting with drop boxes has been the norm in four states for twenty years: Washington, Utah, Oregon, and Colorado.   They report no significant problems. For example, Oregon found that out of 100 million ballots handled since the year 2000, there were 12 cases of voter fraud or 0.000012%. With tiny numbers like that, the benefit of mail-in voting vastly outweighs any damage done to democracy by potential fraud. Moreover, a problem would have to be based on “net fraud,” i.e., the difference between the tiny number of fraud cases in in-person voting versus the tiny number of fraud cases from absentee ballot/dropbox voting. The burden of proof should be on those who make this extremely dubious charge.  Finding none, let's get those drop boxes back in the business of reducing voter suppression and strengthening democracy.

              (A very comprehensive account of the issue, including a discussion of WILL's report finding no voter fraud, can be found here: https://www.wsj.com/articles/the-best-summary-of-the-2020-election-biden-wisconsin-trump-lawsuit-voting-rights-fraud-absentee-dropboxes-ballot-curing-big-lie-11642966744?st=pjas9v2kn1k1wjr&reflink=desktopwebshare_permalink)

William L. Holahan is an Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

With the split in the Republican Party growing by the day, the likelihood is increasing of a multiple-candidate presidential primary season in 2024.  In that event, no doubt a large number of presidential hopefuls will declare their candidacy in a contest similar to the 2016 primary which began with 17 candidates.   Meanwhile, the Democrats will also have a primary season beginning with several hopefuls, if not in 2024 then certainly in 2028. 

         Neither party has a rational procedure for choosing the final winner in these multiple candidate contests.  If the current rules apply, those primaries will be conducted over many months, each decided by plurality rule, not majority rule. A series of plurality vote wins does not lead to majority rule. Instead, plurality rule in a series of primaries among a large number of contestants is highly likely to prevent majority rule as a matter of simple arithmetic.

          To illustrate the general problem, consider a party with a core constituency of, say, 60% of its members. These are Republicans who yearn for a return to sanity and "principles" that they claim to believe in:  free markets; individuality; personal responsibility; law and order, de-regulation, lower taxes, smaller government, and so on.  Another 30% are fringe voters who grieve for the good old days, and a candidate who will vaguely promise to shake things up by protecting an imaginary  Second Amendment not tethered to recent Supreme Court decisions,  approving of police violence, freedom from vaccine and mask mandates, and abandoning logic and science as well as accurate history in schools.    A smattering of "undecided" makes up the other 10%.

         Now suppose that the 60% core voters are split among five candidates, each with about 12% of the core voters apiece. With the core vote split among the several candidates, a fringe candidate with only 30% of the vote can win an early primary contest determined by plurality rule.  A recent example is the 2016   Republican primary season when Donald Trump won a series of early primaries with only 25 to 30% of the vote while the more traditional established vote was split among several more candidates including Jeb Bush, Chris Christie, Carly Fiorina, and John Kasich. Because he retains solid support among at least 30% of Republicans,  Trump is primed to do that again in 2024.

The Essence of the Problem

         The presidential primary season is a sequence of contests, each one influencing the next in the series. The winner of the first primary in the series  gains not only that election victory but also a first-mover advantage in the next election in the sequence: delegates toward the total number needed to eventually win the party nomination, growing donor support,  improvement in the polls,   media reports on the candidate's momentum, and priceless television interview time.   

         One by one, losing contenders drop out as donors give up on them and polls show them dropping.    As candidates drop out after losing in earlier contests which were determined by plurality rule, winners of contests later in the series will get larger vote percentages, perhaps even greater than 50%.  What is a majority vote in those contests is not a majority-rule result for the primary season; the contestants in those later contests were the survivors of earlier contests determined by plurality rule. 

RANK CHOICE VOTING (aka INSTANT RUN-OFF VOTING)

         Instant runoff voting (IRV) retains majority rule in all of the contests in the series, regardless of how many candidates enter those contests.  IRV increases the likelihood that the winners of early primaries will represent the preferences of the majority of voters.    Here's how it works: instead of voting for just one person, the ballot permits the voter to vote for several contestants, ranking them in their order of preference.  After the polls close computers tally the first-choice votes. A winner is declared only if the top vote-getter has a majority of all votes cast. Otherwise, a new round of calculation ensues in which the last-place finisher is eliminated and their ranked votes are redistributed to the other candidates.   If this second round calculation produces a majority vote-getter, that candidate is the winner.  If not, additional rounds are calculated until a candidate does get a majority.

         Conventional runoffs are time-consuming, expensive, and inconvenient for the voter.  Consequently, neither party uses them.  The default has been to designate the plurality vote-getter as the winner and move on to the next primary contest.    By contrast, IRV is conducted by computer and results can be established very quickly after the polls close.   

           If the Republican party is to resuscitate itself into a principled, centrist organization, they should implement IRV for the 2024 presidential primary season. Similarly, whether it happens in 2024 or 2028, the Democratic party should appeal to their majority and do the same.

William L. Holahan is an Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

 FEDERAL CONTRACTS BRING HIGHER-PAYING  JOBS

         When Oshkosh Corp. landed a contract to produce delivery trucks for the United States Post Office, the company decided to split the tasks: 100 design jobs would be located in Oshkosh Wisconsin and 1000 production jobs would go to  South Carolina. Wisconsin Senator Johnson spoke approvingly of this division of labor, stating that Wisconsin has plenty of jobs already: "It's not like we don't have enough jobs here in Wisconsin. The biggest problem we have in Wisconsin right now is employers not being able to find enough workers."

         That is a rather odd thing for a U.S. Senator from Wisconsin to say, seeming to defy  market process.  Although this is a long-term contract, the labor shortage Johnson refers to is a temporary market adjustment to the hot national economy. In addition, the labor market has been further complicated by Covid and the concern for workplace safety, a complication lessened by the success of the vaccine and its distribution.   This USPS contract can contribute to the long-term process of capital accumulation essential for stable demand for well-paid workers.   

         In his statement, Senator Johnson ignores two additional, broader economic concerns.  First,  climate implications:  the federal government is anxious to modify the contract to build a truck fleet that is more climate-friendly. Wisconsin can become a major player in the burgeoning market for electric vehicles.

        Second, the construction contracts would put more federal dollars into circulation in Wisconsin,  stimulating economic development well beyond the initial contract. 

 Climate Implications

          The Biden Administration has set a national goal of net-zero carbon emissions by the year 2050; meeting that goal will require the replacement of fossil fuel-powered vehicles with electric vehicles. The  Environmental Protection Agency has asked for a review of the contract, as it stands only 10% of the Oshkosh contract is for battery-powered electric vehicles (BEVs). 

            The country has built its transportation infrastructure around the interstate highway system and the local and state highway grids.    The recently-passed bi-partisan infrastructure bill is a further commitment to that network.    The electrification of vehicles is imperative, especially large vehicles like buses and freight and local delivery trucks.  This will entail a multi-decade conversion; Wisconsin companies can gain a competitive position in a high-demand industry, rather than cede this high ground to other states and to China.  Large government truck-fleet contracts give the private market a jumpstart. A contract that provides both quantity and price per unit greatly reduces the risk of capital accumulation first to fulfill the contract for several thousand Postal Service trucks and later to compete in the market for other private-sector vehicles like delivery trucks sought by FedEx, Amazon, UPS, etc.          

Economic Development Multiplier

         Federal money to build or convert postal delivery trucks will have multipliers far beyond that particular contract.   Like all of the 50 states, Wisconsin is in an economic federation.  When money enters the state from the federal government, it is initially spent on the initial purpose, in this case, payment in exchange for a manufactured good. But then that money gets paid out in salary and wages to the many individuals -- from CEO to line worker to janitor --who took part in the fulfillment of that agreement --  i.e., the design, capital installation,  manufacture, and delivery.  The money gets spent again in accordance with the preferences of all those people. They spend the money on rent, food, gasoline, pet supplies, for myriad other goods and services, supporting jobs and wages in those markets.  The people who supply the apartments, food, gasoline, etc. receive payments as income and re-spend the money according to their preferences.   The money is spent multiple times,  in each round stimulating more economic activity.

         Wisconsin has invested in its comparative skill advantage for fulfilling complicated long-term contracts: its experienced and educated workers,  graduates from the UW and private university engineering schools, as well as graduates from the vocational-tech schools and trade apprenticeship programs.     Steering federal contracts to state firms would boost not only the accumulation of capital in the private sector and the growth of labor demand but also the return on the taxpayer investment in the educational and skill development enterprise while contributing to the national goal of net-zero carbon emissions. 

William L. Holahan is an Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

CRITICAL RACE THEORY AND THE SUBURBAN VOTE   

         A core concern for most suburban parents is the education of their children, a concern heightened during the pandemic by school closures and online "virtual classroom" substitutes.     Evidence is mounting of a "COVID Slide" in student proficiency, especially in English and math.   The parents know that the online virtual classrooms have proven to be less effective than in-person instruction, and they want to help their children catch up. 

           Into this environment of concern and exasperation come well-financed right-wing efforts to take over local school boards.        The strategic wedge issue: the claim that "critical race theory" is being taught in the schools.   The claim is false:    CRT is a law-school-level analysis of how legal systems and practices such as bank lending rules and school segregation impact different racial and ethnic groups.  Because it requires law-school-level acumen, it is not and cannot be taught in the kindergarten through 12th grades.        

         It is not sufficient, however, for Democrats to simply counter-claim that CRT is not being taught in suburban schools.  This code phrase resonates with suburban parents because of the greater race consciousness that prevails these days. The Republicans have a strong motivation to make the claim:   to swing elections, not just for school boards but also for higher offices.   Republicans lost the Wisconsin popular vote in the presidential contest by just over 20,000 votes.  A pick-up of just a few percentage points in the suburbs would flip the state back to the Republicans as in 2016.     The CRT label will be amalgamated with other rhetorical handles to bash Democratic Party candidates, such as "defund the police," voting rights for non-citizens, and labeling policy proposals as "socialism."   

         During the heat of political campaigns, the threat posed to school curriculum by CRT will be portrayed not only as a threat to the self-esteem of white students but also as a massive shift of time and resources, limiting the time and resources needed to reverse the COVID-slide.   The survey done by ALG Research after the recent election of Virginia’s governor Youngkin shows that parents generally were not fearful of honest history, but rather were convinced that more instructional time is needed to reverse academic declines and increase proficiencies in core math and English.

(https://thirdway.imgix.net/pdfs/override/Qualitative-Research-Findings-–-Virginia-Post-Election-Research.pdf)

PROMOTE A POSITIVE ALTERNATIVE: BROADBAND AND TUTORING   

         The   Democrats have an opportunity to take control of this conversation.   Based upon a long tradition of passionate support for excellence in public schools, they could credibly remind voters that it is they who have been strenuously promoting essential investments to ensure that all students have the assets they need, including laptops, fast broadband access, sufficient supplies, and well-paid teachers.

Research on Tutoring

           Recently published research shows how tutoring can augment the effort to recover from COVID.   The Center for Research and Reform in Education at Johns Hopkins University proposes large-scale tutoring programs. They propose online tutoring services staffed by 300,000   college students and other members of society who could interact with students struggling with their math and English.  "Structured tutoring programs can make a large difference in a short time, exactly what is needed to help students quickly catch up with grade level expectations."

 (https://www.the74million.org/article/slavin-an-open-letter-to-president-elect-biden-a-tutoring-marshall-plan-to-heal-our-students/).  Matthew A. Kraft, and Grace Falken of the Annenberg Institute at Brown University, agree: "Tutoring is among the most effective education interventions ever to be subjected to rigorous evaluation."     (https://www.edworkingpapers.com/sites/default/files/ai20-335.pdf)

         The pandemic-induced decline in achievement hits poor students the hardest, both in urban and rural areas. Unless reversed, educational gaps will widen further, and deepen current income and wealth gaps. The tutoring proposal from Johns Hopkins and Brown would not only upgrade the schools generally but make the more advanced courses in math and English accessible to more students, opening doors to disciplines and professions that are highly productive, pay well, and can lead to greater equality in income and wealth.   

 LABOR INTENSIVE TEACHING

          Core competencies like English composition and math cannot simply be transferred like physical capital.  A system-wide tutoring program would help schools provide the resources for students to be immersed in the practices of solving math problems and essay writing, while benefitting from more labor-intensive instruction and evaluation of their work. Secretary of Education Miguel Cardona agrees, and urges states to spend COVID money on tutoring. 

(https://www.nytimes.com/live/2022/01/27/world/omicron-covid-vaccine-tests ) 

          Democracy is strengthened when honest history dispels some of the delusions of the inaccurately-portrayed past.  The core goal of education should be to develop students who can think critically for themselves, and express their thoughts well by applying a strong working knowledge of the core languages of their education:  English and math.   

          Implemented in Wisconsin, the "Marshall Plan for Tutoring"   suggested by research powerhouses at Johns Hopkins and Brown Universities would present to parents and students a welcome, positive alternative to the dreary, racially-charged critical race theory assertion.

William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

         “I’ve never really felt it was society’s responsibility to take care of other people’s children.”  So says Ron Johnson, currently a candidate for a third term as US Senator from Wisconsin. In his view, the care of children should be the sole responsibility of the family. All payments, whether consumption items like food, clothing, nutrition, or investment in education, skill development, housing, are all the responsibility of parents.

         His sentiment surely is a long way from "it takes a village to raise a child!" It is also contrary to long-established policy: government does complement the economic well-being of virtually all children through its taxation and spending authorities (just as it does for virtually all businesses, including Mr. Johnson's). Some expenditures in support of children are long-standing: public financing of K-12, community colleges and state universities being the most obvious.  Other examples include public health services, the Supplemental Food and Nutrition Program (SNAP), rent subsidy, investments in hospitals, research universities, disease control, vocational schools, and polytechnics, to mention just a few ways in which taxpayers assist in  "taking care of other people’s children."

DIRECT PAYMENTS TO PARENTS

         Johnson's current objection is directed at government assistance to children via direct payments to their parents, either by a tax credit or rebate.  For example, he opposes extension of President Biden's child tax credit (CTC), a key element of the American Rescue Plan that lifted approximately 30% of poor children above the federal poverty level during the pandemic.  That subsidy expired in December but its revival is included in the now-stalled Build Back Better plan, along with additional assistance to children that Johnson opposes, including a proposed subsidy for child care, and universal pre-K, which would enable more parents to go to work knowing their kids are safe and in productive learning environments.    

         The United States economy is primarily a decentralized market system that guides economic activity via price incentives. But all modern market systems require a strong public sector to produce goods and services which benefit society but which will not be produced in the market due to insufficient incentives. Modern democracies have devised public policies to assist parents rather than rely solely on the powerful but inadequate forces of the market.    

         The prominent "conservative" and Nobel-prize-winning economist Milton Friedman reasoned that some government assistance on behalf of children is best managed by their parents; better to enhance parental ability to pay than to make choices for them.   For example, addressing a national goal of better nutrition requires both money and decision-making. Rather than have government deliver pre-determined food packages, the SNAP program provides a debit card to pay for food, leaving the food choices up to the parents.    

          Another example promoted by Friedman and implemented by President Reagan was the earned income tax credit (EITC). This program adds to after-tax hourly wages which, in turn, enables lower-income workers to provide more for their children. A third example is the child tax credit (CTC), which pays parents $3,000 per year per child under age 17; $3,600 if under age 6.

WHY DOES IT TAKE A VILLAGE? 

         If investment in children is so vital to the performance of the economy, why won't the free market make those investments?   Investments are inherently intertemporal:  spend money now for benefits later.  To support the upbringing of children, parents can spend out of current income or via borrowing, but only if those resources are available to them; the parent with no access to investment funds can at best meet immediate needs. The market provides investment funds only through loans with expected repayment plus interest, an impossibility for people who cannot make those assurances.  In the world that Johnson envisions,  cycles of poverty will not be broken.        

         The US is designed as a market system guided by representative-government rulemaking. Both function better with full development of their people. Thomas Jefferson instructed us that the benefit of investment in people extends beyond the individual to benefit society as a whole; democracy is strengthened when its populace is educated. We the people have to invest to produce that public good.

         Inflation is both a financial and psychological issue, particularly for older people who experienced the "double-digit inflation" of the early 1980s, and the tough monetary policy that drove up interest rates to near 20%. They recall how inflation crushed the markets for long-lived assets like cars and houses and squeezed savings, wages, and living standards. The recently reported annualized inflation rate of 6.8%, well above the Federal Reserve target of 2%, provides rueful reminders of those high-inflation years, threatening to erode public support for spending on Joe Biden's initiatives.  Initially, it was hoped that this rate of inflation would be transitory, i.e., at least partially self-correcting, but increasingly it looks more permanent and dangerously upward spiraling, prompting Fed chair Jerome Powell to announce a plan to rein in inflation by raising interest rates beginning in March, although in a far less draconian pattern than was imposed in the 1980s. 

         Meanwhile, Republicans see this as an opportunity to gain seats in Congress and the White House in 2024. Senator Rick Scott of Florida proclaimed, "We're going to continue to have inflation. And then interest rates will go up. This is a goldmine for us."  

 COVID AND TODAY'S INFLATION ARE LINKED

          The linkages between the ravages of Covid and the performance of the economy are by now familiar. Workers feared unsafe working conditions. Understaffed businesses reduced hours and some closed, temporarily for some, permanently for others.  Meanwhile, consumer preferences shifted from services to goods, increasing the pressure on already-bottlenecked ports, freight rail and long-haul trucking. All of these factors raised costs which were passed on in the price level.

          Fortunately, the supply chain blockages that developed due to Covid are being moderated by policy. Extended hours of operation in the major ports of Savannah, Long Beach, and Los Angeles as well as enhanced fees and bonuses for on-time delivery seem to be loosening up the blockages. Worldwide, however, the pandemic continues to slow manufacturing and freight operations, further affecting global price levels.   

 RAPID RESPONSE

         The strategic republicans will find a "goldmine" in any negative factor they can associate with President Biden. In response, Democrats can point out that inflation is only one indicator of economic performance. Other major measures are unemployment, wage growth, unemployment and wage growth among minority groups, child poverty, food insecurity, job insecurity, and many others, all improving during 2021. Growth of the economy during 2021 was 5.7%, the highest rate since 1984. Most strikingly, nearly 6 million jobs have been added during that time, a record for the first year of a presidential term, accompanied by the fall in the unemployment rate to 3.9%.

         Because inflation and covid are linked, Republicans could better serve the nation by admitting that the evidence is in; vaccines and masking work. Moreover, as NPR reported recently, for example, counties that voted most heavily for Trump in 2020 have 5.5 times more deaths per 100,000 from Covid than did counties that voted most heavily for Biden.  To save lives, and reduce economic uncertainty, all leaders should promote the Covid-fighting measures that the scientists tell us will help get and keep the pandemic under greater control.   

William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.