Degrees of Freedom

Conservatism and lottery tickets

2011-02-14T20:38:00.004-05:00

Most of my posts on this blog address what I see as the failings of the left, or the problems with moderate libertarians aka minarchists. So what's my argument for conservatives? Well, it's an argument I'd just as soon offer anyone else. In fact, it's essentially the same argument I offer to those who want to play the lottery.

Yes, a lottery ticket may make you rich. But we know that it almost certainly won't. Most conservatives get this. What they miss is that their ideology is about as attractive as a lottery ticket. Really, the argument I'd offer conservatives is not very different. Here it is:

For centuries every government that has ever existed has had the power to interfere in the activities of consenting adults, but it has been vanishingly rare that governments have used this power in the ways that you want them to. Very close to 100% of the time, when governments have had the powers necessary to implement the agenda you endorse, those governments use that power in ways that were absolutely incompatible with your priorities. Unless you have some compelling reason to expect a future exception to a centuries old tendency with approximately zero historical exceptions, it's inconsistent with your priorities to favor a government with any power beyond the extent generally recommended by libertarians. Yes, it's possible that government might actually do what you want but the odds are overwhelmingly against this.

The argument minarchists ought to make

2010-07-24T14:04:00.003-04:00

My last post before this one dealt with the three arguments for minarchism that I've encountered most frequently. I see these trotted out all the time, often by people who identify as libertarians but more frequently lately by people who identify as conservatives. This post is about the argument that these people ought to make.

First, these people ought to take into account the positions that they are responding to.

Moral libertarians have a pretty straightforward position: I oppose all policies which call upon the people in the government to do things that I regard as immoral.^[1] Almost every government policy calls upon the government to do things that I regard as immoral.² So I oppose nearly all^[3] government policies. For the few policies that remain, I have no moral objection but a government which limited itself strictly to policies that I don't regard as immoral wouldn't really look anything like a government. The core of the matter is that if moral constraints pertain to all persons, then one cannot favor any sort of statism without simultaneously favoring immorality.

In most cases, minarchists respond to this argument by ignoring it, but how ought a minarchist to respond? A far better approach would begin with something like "While you take it as given that moral constrains pertain to all persons, I don't. I regard actions committed by people acting on behalf of governments as constituting a separate moral category from actions committed by people not acting on behalf of governments. Literally, there are acts which are moral just in case the person commiting them is a government employee." This doesn't sound good, but it's an improvement over what currently passes for state of the art in among arguments for minarchism.

Consequentialist libertarians generally tend to be minarchists, but exceptions exist. Their position is straightforward as well: The overwhelming balance of the empirical evidence is that governments do more harm than good. Even statists have to cherry pick their examples when they want to claim that governments make people better off.^[4] The best theoretical arguments for the state presume that the people in the state will act in an idealized way, while also assuming that the people outside of the state are primarily concerned with their own well being, willing to harm others to benefit themselves, prone to all sorts of cognitive errors, etc.^[5] The reality is that all people share these flaws. Calling some people a government and having them boss everyone else around does not constitute an improvement.

Again, minarchists generally respond to this argument by ignoring it, but how then should a minarchist respond? Why not come clean from the start and say "I believe, despite the incredible odds, that the peopel within a government will begin to behave according to my stylized model rather than how most people in governments have tended to behave throughout the whole of human history..." Again, this doesn't sound good, but at least it's honest.

Do I expect that any minarchist will actually take this advice? No way. Not in a thousand years. The assumptions that one needs to make to defend minarchism are so extreme that no minarchist is likely to ever want to state those assumptions explicitly. But that's kind of the point. Why bother clinging to positions that based on premises which are too embarassing to state explicitly?

___
[1] That is, things that I (and nearly everyone else) would regard as immoral if done by people outside of the government.
[2] To this day, I've never met anyone who even entertained the notion that it would be moral for me to hire a prostitute in bad faith with the intent to bind her wrist, drive her to a place where she deosn't want to go and lock her in a cage for a year. I've never met anyone who might consider it moral for me to print money and use it to manipulate the bond market. And so on...
[3] One example is the plain act of delivering mail for customerrs who choose to hire the government for this purpose, not including the enforced monopoly on first class mail and the means by which the USPS covers its losses.
[4] In any case, historical examples of governments making people better off are really examples of some governments making people better off than other governments. This is absolutely uncontroversial but it doesn't address the issue of whether being subject to a government actually makes people better off than they would be if they were not subject to that government.
[5] I'm all for simplifying assumptions, so long as they do not drive the conclusion. Assuming a state made of people that deliberately and successfully maximizes social welfare in order to make a case for the state is akin to assuming a society made of persons that deliberately and successfully maximize social welfare in order to make a case against the state.

Please put these away...

2010-07-19T22:19:00.005-04:00

I'm aware of a number of arguments that minarchist libertarians offer against their anarchist friends. For whatever reason, the arguments which minarchists mention most frequently happen to be the least persuasive. Here's one:

"Without a state, people might mistreat other people. So we need a state."

It's not very compelling when expressed so succinctly. It doesn't even follow. In order to reach a conclusion about states, you need a premise about states. One might claim, for example, that people are less likely to be mistreated when a government is involved. A few thousand years of human history indicate otherwise, however.

Here's another one:

"Anarchy is unlikely. So we should favor a state."

This one doesn't follow either. Whether or not anarchy is likely is a positive fact about the world. It has no bearing on the normative question of whether or not anyone should favor a state. Indeed, the only statistically likely arrangement is tyranny. I've yet to meet anyone who would cite this as evidence in favor of tyranny.

Here's another:

"Without a state, markets would be inefficient due to collective action problems, asymmetrical information, moral hazard, and the like. Se we should favor a state."

Again, this doesn't follow. It doesn't even make sense. If people tend to commit those resources at their disposal to their own selfish concerns, it's just wishful thinking to suppose that those same people, if organized into a state, would begin to commit the resources at their disposal to the resolution of economic inefficiencies. In a world with more than a hundred governments, without exception the tendency has been for heads of state to live well at the expense of their subjects while implementing policies that make markets even less efficient.

Dear minarchists: Please retire these arguments. Don't bother trying to rehabilitate them, or to pad them out with more verbiage. If you have any better arguments, great, but let go of these. They aren't worth hanging on to.

Anti-Government Or Anti-Regime?

2010-05-15T09:58:00.000-04:00

I was watching a video on the situation in Thailand just now and the journalist narrating it described the Red Shirt protesters who are being attacked/attacking the Thai military as "anti-government."

But they're not anti-government! They're pro-government, indeed, this is why they are protesting, because they want to have a government that they are more comfortable with for various reasons.

A better word might be anti-regime-- an individual who opposes a particular, current iteration of a government.

A Letter To Don Boudreaux Regarding Anarchy

2010-05-03T17:22:00.001-04:00

On March 15th, 2010, I listened to an EconTalk podcast with GMU professor Don Boudreaux about Public Choice.

After listening to the podcast, I sent the following e-mail to both Don and the general EconTalk e-mail contact, which host Russ Roberts encourages his listeners to send correspondence to because "we'd love to hear from you." I never got a response to my e-mail. Apparently wanting to hear from listeners is not the same as wanting to correspond with listeners. Below is my e-mail, reproduced in full, followed by a brief note as to why I am bothering to share this e-mail publicly:

Hi Don and Econtalk,

I listened with interest to your recent Public Choice podcast, for a variety of reasons: the topic interests me, I enjoy the series and I have especially enjoyed following the comments of Russ and yourself on Cafe Hayek (as well as what I see to be evidence of your "creeping" philosophical anarchism/opposition to the State). I wanted to share a couple comments related to this podcast.

My first comment is about your opposition to the use of the term "anarchist" to describe yourself. I found your argument against doing so to be both unique and confusing. Many people who otherwise hold viewpoints that boil down to opposition to any and all forms of institutionalized coercion (ie, government) choose not to label themselves as "anarchists" because the term has come to mean, in common parlance, "chaos" and/or "lawlessness," with particular emphasis on the chaos part (many have described lawful societies, such as dictatorships, as nonetheless experiencing "anarchy" due to the social chaos that arises, for instance).

Don, your specific disagreement was about the "lawlessness" characterization, but going one step further you defined/interpreted the word "anarchy" to mean "without law" or "no law". I assume this means the an- means "No" to you and the "archy" means law. I found this confusing because I assume you do not similarly interpret "democracy" to mean "law of the people", or "oligarchy" to mean "law of the few." I assume you also define these terms as "rule by __________". This is how I commonly hear them defined so I am confused as to why you change the meaning of "archy" to "law" when considering the word "anarchy."

To add further color to it, I will add that law and rulership are two different things. More importantly, they can be mutually exclusive-- you can have law without rulership (a free market society, perhaps as envisioned by "anarcho-capitalist" theorists like Murray Rothbard, though certainly not limited to their particular thought) and you can have rulership without law (consider a dictatorship or despotism in which the executive rules without reference to any formalized legal process or legislative enactments).

My second comment was related to the following discussion about your preference (or lack thereof) for democracy as a form of political organization. If I remember your comments correctly, Russ asked you if you were against democracy and you replied that, as far as governments go ("if there must be a government"...) you prefer it to be run organized along democratic principles because this provides the best chance that the actions of the government will most closely represent the choices of the people being ruled. I was humored at this point by two observations:

1.) Before you even felt comfortable to express your opinion of democracy, you kept reiterating your lack of academic expertise with the subject, that there were undoubtedly other people with more informed viewpoints than your own, etc. Yet, here you were, not necessarily being a cheerleader for democracy, but not condemning it too harshly either in relation to various alternatives, when democracy is a system that relies on people who are, in most situations, completely uninformed on the specific issues, for its very operation! I chuckled because I just found this so ironic... here is a guy who is apologizing for opinionating-without-expertise about a political system that forces people to make choices about things they know nothing about! If only most voters were similarly humble!!

2.) You are, perhaps, correct that a democracy might be the political system by which the operation of the government best reflects the choices of a majority of the voters. However, this rarely seems to translate into a government whose policies most benefit the welfare of the various individuals ruled as a whole. What I mean to say is that, via democracy, the ruled can create for themselves their own special hell when a less "choosy" government might have been less invasive and/or destructive of the ruled's ability to build wealth than the democracy. Theoretically, one could consider an "enlightened monarch" or a "benevolent dictatorship" in which the ruled have no choice of their rulers or his policies, yet he decides to allow for greater economic freedom than we currently have. (Hans-Hermann Hoppe covered this a bit in his "Democracy: The God That Failed" though, again, I am not leaning on simply this Austrian-school thinker here for my reasoning).

I'm sure you know this, as this is part of what Public Choice is about. I just wanted to point it out again because you said you were making value judgments and I was surprised to not hear a value judgment on this particular failing of democracy.

Now, so that my e-mail is not just a bunch of criticism and has some kind of constructive advice or suggestion to it, as well...

You call yourself a "philosophical anti-Stater" as opposed to an "anarchist." Leaving aside how confusing that specific terminology is, may I suggest/have you considered instead any of these?-- voluntaryist, advocate of the private property society, total free marketeer? I find that telling people you support a "private property society" leads to some curiosity, though maybe none of these properly address the idea that one philosophically views the actions of the State by the same standards as they view private, individual conduct (then again, neither does "philosophical anti-Stater" I guess). Maybe we need a new word, legal equivacalist? Ha!

Alright, thank you for reading, enjoyed the show!

Listen to the original podcast if you distrust my retelling of the pertinent details in my e-mail. My e-mail was concerned with the anxiety Boudreaux expressed in using the term anarchist to describe himself. I tried to put the term in a more accurate historical and linguistic context to show that the distinction he had made that anarchy meant a society "without law" was incorrect and misleading.

I was quite surprised then, to read this post by Don Boudreaux on April 21st, 2010 on his Cafe Hayek group blog, which I follow daily in my Google Reader subscription list. I was especially surprised given that I never received any acknowledgement of Boudreaux having read my e-mail, yet here he was in this post explaining the issue much differently from his EconTalk discussion of a month earlier, as if maybe he had.

I am not going to claim he definitely did read my e-mail and then changed his mind, all without mentioning it to me. It's possible he rethought the issue on his own, that another friend of his told him something similar as what I said or that he even misspoke (at length) on the podcast. But the timing, the tone and the specific way in which he re-explained the issue seemed to be a bit more than a mere coincidence!

What should libertarians do?

2010-04-30T23:24:00.003-04:00

If I wanted to do as much as possible to advance individual liberty, what would be my best course of action for that purpose? I can think of a few responses that other libertarians might offer:

Run for office. It's hard to imagine a way to do this without making some nasty compromises. The best I can come up with is running for sheriff and then directing department resources away from the drug war toward the enforcement of laws against assault and trespass. Or running for president and vetoing everything.
Become a college professor and promote libertarian ideas. I'm not sure how much impact this would have on the world but it seems to require less compromises of principle than most other options.
Become a public intellectual and promote libertarian ideas. This is like the previous option, but it requires no involvement with the government-educational complex.
Engage in civil disobedience. This seems to require a sympathetic press. Anyone trying this would be portrayed as a racist. I have a hunch that the government wouldn't treat anti-statists in the same way that they treated people like Rosa Parks.
Take a government job with the intent to disrupt the mission of the relevant agency. This is something that lots of libertarians could do starting right now. Just go to work as a tax enforcement agent and let everyone get away with noncompliance.
Promote my own freedom instead. The premise with this one is that I'm better off just trying to increase my own freedom rather than trying to change anyone else's circumstances.
Some other option...

I don't know which of these would have the most impact. Any thoughts?

The Crime Campaign: The Hypocrisy of Ron Paul

2010-04-30T18:58:00.000-04:00

Bizarro-world echoing of Mattheus in his most recent post, I'd like to highlight a couple of blog posts on Ron Paul put together by an old friend, Salty Pig. In the first, Salty calculates that RP had, up to that point, enjoyed total taxpayer-financed "takings" of nearly $3,000,000 over the duration of his "service to the people," making him the $3M bandit of peace:

the US constitution. what value have words if the US constitution’s referred to as indestructible? isn’t the destruction of the constitution paulist complaint number one?

note that while lew cavorts with and encourages these RP deists, when the coast is clearer he maligns a different career thief for an office “built with stolen funds”. may i “privatize” ron paul’s stolen property in an anti-theft protest and receive a similar attaboy from the hypocrite lew rockwell? of course not. i would be an “enemy of liberty” if i took moral action against the career thief RP — in the case of LRC’s discordant perspective an anointed career thief.

note this other post, in which among other things lew criticizes the psycho mccain for his actions “on coerced salary and vast expenses from the US taxpayer”. again, this principle is as applicable to ron paul as mccain. did not ron paul spend years sucking milfare teat in the martial service of the emperor, patching up and maintaining the likes of mccain? has he not also spent almost 18 years (next 19) eating a salary of stolen wealth as a “representative” in congress? (presumably, lew rockwell was also eating stolen money as chief of staff during ron paul’s first congressional crime wave; if so, wither restoration of his victims?)

how is this ignored and ron paul painted as a friend to liberty when his record of profiting from stolen wealth competes with that of professional burglars, in amounts representing physical and mental duress for innumerable fedgoon coercion victims? and unlike lew rockwell, who marginally repudiated his participation in the goonery (making his recent cheerleading reuptake more perplexing), ron paul continues paving the trail of tears. that he’s not on the pointy end, waving gun in face directly, simply indicates he’s a dishonest pussy hypocrite version of a bandit. at least a burglar will risk death jumping through your window while you’re sleeping, and he doesn’t require you to deliver your burglary losses to him via systematic extortion payments over the course of your life. ron paul remains on the thievery rolls, proudly. he’s striving for and accepting stolen property for “you”!

In the second, Salty strikes at those who might cheer for a man who seeks to hold a position no man should:

“oh, ron — er, Dr. Paul… cutesy me once again, my lover. deny the core principle i aver. use my wealth to that end. let me man-crush you into history. i will cheer. i will shout your name. show us salvation via the state, as only you can.

Now, the "seeking a position no man should hold" bit got me thinking. People who support Ron Paul and other libertarians in their quests for elected office often refer to the strategic objectives that could be obtained in such a run, coming in the form of "spreading awareness" about the libertarian message. What's offensive (to actual libertarians) about this logic, obviously, is that it's a violation of libertarian principle and is an example of ends-justify-means logic. The libertarian message is, "Nobody should be president; there should not be a president." How does running for president spread awareness of this message?

In Ron Paul's case, it doesn't and it never will-- Ron Paul believes in presidents! He believes in the Constitution and he believes in minarchy, that is, the institutionalized, systematic violation of people's property rights in the name of upholding and defending from violent assault individual property rights.

What about in the case of "ironic libertarians", who truly hope to gain office just to then have a (taxpayer-financed) public platform from which they can shoot themselves in the proverbial foot? It still doesn't. Unless...

...unless they accepted only voluntary campaign contributions, pledged to not occupy the office should their bid be successful and, here's the most important/ironic part, ran with a campaign slogan of "DON'T Vote [Myself] for [Office Sought] in [Year of Election]."

Imagine the kind of publicity that stunt would get. How many MSM-heads would explode after hearing about and then interviewing a candidate who is asking his supporters not to vote for him? The more the word of his campaign spread, the more people would be exposed to the logic and reasons behind why he DIDN'T want to win the office for which he was running.

Imagine: "No one should be president, not even me. Please, if you believe in human freedom, do your part and DON'T vote for me or anyone else for president in 2012!"

By the way, for people who clicked that last link, you may be interested to learn that Walter Block is up to his old tricks again. I haven't done a scientific survey to back this observation up as undeniable fact, but I am fairly certain that the only people who support libertarians in government (specifically, a libertarian in government, that libertarian being Ron Paul) are: Lew Rockwell and Walter Block, both of which were once members of Ron Paul's political campaign and later his political staff; and minarchists, who are hypocrites.

Does that tell you something about the veracity of the claim "libertarians can be politicians and still be libertarians"?

One last point-- "libertarians" who support Ron Paul and other "libertarians" as politicians often make their argument from the position of what they find to be practical and expedient. Given that, once elected to King Emperor, Ron Paul would be forced to deal with the many and devious aspects of the practical reality of the unlibertarian monstrosity he'd just been installed into the brain of, with none of his options for action including "Do nothing" or "Instantly dismantle this monstrosity", how might many of these former supporters feel watching their favorite guy jerking the levers of power back and forth all day long like your average backhoe operator?

I'd imagine for the more naive amongst them, watching RP sign into law bill after bill of liberty-trouncing new legislation would probably feel like getting punched in the solar plexus. And lord spare us should any of these people have to witness RP fully engaged in "Go!-Time" in the aftermath of his very own 9/11-like escapade.

The Elegance of Ron Paul

2010-04-25T23:56:00.000-04:00

Somebody convince him to run in 2012.

Dealing With A Keynesian: A Brief Note

2010-03-29T14:10:00.004-04:00

NY Times columnist Paul Krugman has recently assuaged readers' fears of a climbing debt by doing simple math. What he should have been doing instead is simple economics. I understand it's become very commonplace to attack Krugman on his understanding of foreign policy or his infantile treatment of the ABCT, but this is pushing his idiocy a little further than I thought capable. Let's start out slow:

"I get a lot of worried mail along the lines of “how on earth will we ever be able to pay off our debt”? Look, there are real worries — but the math per se isn’t very hard.

The Obama administration’s budget (pdf) predicts that by 2020 we’ll have net federal debt of around 70% of GDP and a budget deficit of around 4 percent of GDP. Now, you don’t have to go to a zero budget deficit to make headway on the debt — a budget deficit of 2-3 percent of GDP would imply a steadily declining debt/GDP ratio. So if you believe the administration’s budget estimates, we’ll need to find another 1-2 percent of GDP in revenue or cost savings."

Alright, Krugman - we'll see how our debt goes. As of 2009 fiscal year, our federal debt including intra-governmental obligations was around 83%. After taking into account some of Obama's pet projects, including spending the rest of ARRA, Obamacare, and the expected initiation of tougher Cap-and-Trade policies, I'm sure FY2010 will dwarf our measly 83% debt-to-GDP ratio, let alone 2020. Spendthrift that he is with other people's money, I wonder on what grounds can you claim further spending will reduce the debt?

Furthermore, you really do need to make a zero budget deficit to make any headway. If we are currently making deficits of 4% (like 2004 - during the boom), anything short of reducing spending by 4% will increase the debt. Krugman here plays a bait-and-switch - he attempts to show the reduction in the ratio of Deficit to GDP, which is a relative gain, and trick us into believing it can erase the debt entirely, an absolute gain. Here is some simple math to illustrate:

Mattheus' income in 2009: $100

Mattheus' spending in 2009: $104

Here I am running a deficit of 4%. If I follow Krugman's advice, and hope to wipe out the debt by reducing spending by less than 4%, this follows:

Mattheus' income in 2009 and 2010: $200

Mattheus' spending in 2009 and 2010: $207

In 2010, I only ran a 3% deficit; spending a measly $103 dollars. In relative terms, the deficit is lower. Instead of being 1.04:1, it is now 1.035:1. It's shrinking! Of course, even the layman sees that I owe more in absolute terms, because now I owe $7 extra as opposed to $4. The "ratio reduction" doesn't really make me any better off because I, in fact, ran another deficit and I will have to pay off even more. Krugman's analysis is faulty because he looks at the shrinking deficit ratio (1.35 as opposed to 1.4) and concludes that consecutive deficits can make it run to unity. Of course, we all know that consecutive deficits can only make a person (or nation) owe more. You do not become absolved of debt by reducing the "ratio" of debt/income but by paying back what you owe.

"Many independent sources are moderately more pessimistic; they think that on current policies we’d be looking at a deficit of 5-6 percent of GDP. So that makes it more like a 3 or 4 percent of GDP adjustment.

That’s not, in economic terms, a huge number. We could raise taxes that much and still be one of the lowest-tax nations in the advanced world. Or we could save a significant share of that total by not being totally prepared for the day when Soviet tanks sweep across the North German plain."

I'm not surprised Krugman thinks raising taxes is the panacea for debt. As usual, he puts so many carts before horses that he forgets how the carriage is pulled. It is not increased taxation that is necessary for salvation, but reduced spending. All other things being equal, government spending has to equal government income. G = Y. Instead of stealing more money from everyone (which is the equivalent of raising Y), Krugman could argue for less government intervention. But this, of course, would get in the way of his multiplier and a whole host of fallacies we don't want to get into.

As far as raising taxes by 3-4% and being "one of the lowest-tax nations in the advanced world," Krugman doesn't really seem to grasp how uncompetitive the US is in terms of investment. According to the OECD, the United States has the 2nd highest corporate tax rate in the world (Behind Japan - who knew?), and a personal tax rate of almost 30%. A 3-4% increase in personal taxes would place us near Canada and the UK. An increase on corporate taxes by 3-4% is financial Armageddon - hopefully Krugman isn't too stupid to see that. To his credit, he joins the ranks of tens of millions of uneducated, ordinary Americans who wonder why we still protect the Rhineland from the Warsaw nations.

"The only reason to doubt our ability to get things under control a decade from now is politics: if we’re still deadlocked, if sane Republicans are cowed by the Tea Party, then sure, we can have a fiscal crisis. And longer term, we’ll be in a mess unless we get health care costs under control — which is exactly what we’re trying to do, in the face of cries about death panels.
The numbers aren’t that bad; if we go wrong, the fault will lie not in our debt, but in ourselves."

His first statement is correct. Politics play the most important role in determining the fate of our economic future. His second, third, and successive statements are wrong. I knew I shouldn't have given him the benefit of the doubt to be correct on more than one count at a time, but darn it - I was hoping!

The imagery Krugman conjures here is amusing. The "sane" Republicans - like bipartisan John McCain who so sanely voted for the sane Stimulus bill - might be cowed by the non-violent, non-partisan radical advocates of liberty. God forbid! I won't even address his last point about "trying" to get health care costs under control. It is no overstatement or exaggeration to say that if I were dictator, I could get health care costs under control without trying at all (hint: stop trying).

The numbers are terrible, Paul; for the Democratic majority, for the rampaging national debt, for everything. But hey - look on the bright side: You couldn't go more "wrong" if you tried. The only way to go is up!

Randian Economic Objectivism?

2010-03-26T02:47:00.003-04:00

I started reading Capitalism: The Unknown Ideal the other day, and, in discussing competing theories of value, a curious passage showed up that reads:

"The subjectivist theory holds that the good bears no relation to the facts of reality, that it is the product of a man’s consciousness, created by his feelings, desires, “intuitions,” or whims, and that it is merely an “arbitrary postulate” or an “emotional commitment.”

The intrinsic theory holds that the good resides in some sort of reality, independent of man’s consciousness; the subjectivist theory holds that the good resides in man’s consciousness, independent of reality.

The objective theory holds that the good is neither an attribute of "things in themselves" or of man's emotional states, but an evaulation of the facts of reality by man's consciousness according to a rational standard of value. (Rational, in this context, means: derived from the facts of reality and validated by a process of reason.) The objective theory holds that the good is an aspect of reality in relation to man-- and that it must be discovered, not invented, by man."

I understand the subjective theory: that goods are only valuable because they fulfill human wants to remove uneasiness, and as we are all different, goods are valued to different subjective tastes.

I understand the "intrinsic" theory: that goods are valuable because of specific qualities inherent in either their sale or production. From Smith to Ricardo to Marx, the "labor theory of value" was a type of "instrinsic" value system.

But the objective theory is what I do not understand. What "facts of reality" is Rand talking about? I would understand if she were talking about objective ethics. We create an objective standard of ethics based on natural law and other arguments, but an objective standard for goods? What?!

Why are factories valued at a certain amount? Why are bananas, and shoes, and typewriters valued at what they are? Because of their specific ability to meet human needs. Typewriters fulfill the ability to write journals far better than bananas may, but bananas fulfill the ability to satisfy the writer's hunger - and so depending on your subjective need (to write or eat), each good is valued differently at different times. Am I misinterpreting her?

Hayek set about very clearly explaining the way prices are formed in a market economy (See: The Use of Knowledge in Society). He explained them as a product of the disseminated bits of information that we each acquire at every moment of our lives - my information that I value hunger over the ability to sky-dive is why I purchase pizza over parachutes. Parachutes would fulfill a much smaller need than pizza and so I am not willing to pay for its use. Others, perhaps, according to their own subjective opinions and information regarding their wants and needs, would purchase the parachutes over the pizza. There are no immutable "facts of reality" that must be considered. Our market economy is a product of human action. It was not created by indivisible laws of nature and humans happened to arbitrarily stumble upon it. It is entirely a product of homo sapien development; most markedly by our faculty of reason.

Have I misunderstood or misconstrued her point? She talked further about something being "socially objective." But at this point I was so lost in pretentious jargon that I could barely continue. What good is socially objective? Who decides? What "facts of reality" are there that our reason must adhere to? Is a bottle of ketchup more objectively valuable than a bottle of mustard because the "universe says so?"

Nationalized National Security

2010-03-24T18:40:00.000-04:00

Well, now that the healthcare bill has passed, I am kind of curious what arguments your average liberal and conservative have for keeping private an obviously flawed national defense procurement system of the United States Federal Government.

Why not nationalize the manufacturers of missles, tanks, jet fighters, bombers, firearms, etc., get rid of the profit and pass the cost savings on to the taxpayers? Why allow the repeated boondoggles, cost overruns, delays, dangerous and shoddy craftsmanship, fraud, corruption and various other detrimental side effects of a semi-competitive (that is, fascist) market in national defense technologies?

And don't say, "The Constitution" or something equally crass and unbelieveable... we all know you liberals and conservatives don't care about those scribbling-covered scrolls of toilet-paper anytime it gets in the way of your agenda.

Serious question, I am running a bit of a survey here: what is the two-party politico standard argument against socializing this industry wholesale?

Anarchy as a Product of Utilitarianism

2010-03-24T00:38:00.002-04:00

By recent study of praxeology by Menger and Mises, we have come to a fairly good understanding of the nature of human action and behavior. Because of specific traits in our species, we thrive when freedom is present. Ants, contrarily, do not. There is something uniquely human in which freedom is given such a high status. Freedom to some species is nothing. It is irrelevant. Their social apparatus excludes it entirely as a concept. There is no notion of freedom in an ant colony, presumably because they have not developed the cognitive capacity to understand it. To us, it is as indispensible as the air we breathe. Civilizations that have encouraged a large amount of freedom have, by and large, thrived compared to the civilizations that restricted it. Mises’ quote here is relevant:

“If history could prove and teach us anything, it would be that private ownership of the means of production is a necessary requisite of civilization and material well-being. . . . Only nations committed to the principle of private property have risen above penury and produced science, art and literature.”

This much historical understanding and praxeological theory has shown us. Taking that humans act and that we prefer happiness to suffering as premises, he was able to construct a nearly perfect model for human economy. We understand our models of subjective value and private property because A) We observe the human species and in what environment it thrives; and B) That by the premises assigned to man, private property is the only form of social organization compatible. We arrive at anarchy by a priori and a posteriori methods.

Thus I present my case for anarchy under the banner of utilitarianism. I had written my thread on utilitarianism focusing mostly on how the majority of utilitarians do not, as Lord Acton, see liberty as an end in itself. They see the hospitals and churches and roads and conclude from some optimization that these produce the best result. They are missing that which is subtracted by infringing on the necessary human condition of freedom. In taxing to erect a hospital, presumably the community gains by some measure or the planners would have never built it at all. But they fail to see the intangible utility that was lost because human freedom had been undermined. Once again, Bastiat’s “That Which is Seen and That Which is Unseen” comes to mind. On net, it will always be a negative sum because we know from aprioristic reasoning that humans thrive most under conditions of complete freedom. To contradict that in any fashion would be to question the premises of praxeology. Whether they need to be questioned or not is a subject beyond my grasp.

Taking our understanding of praxeology and its implications, and the historical understanding that freedom has played in our civilization, I conclude, by means of utility optimization that anarchy is the only compatible social system under Utilitarianism because it is the only system that does not betray our knowledge of the human condition. All manner of planning by means of aggression must necessarily result in less total utility than in a condition of zero aggression.

Edit: The previous discussion on natural law in the first post is completely unnecessary. Natural law is tautologically valid as it pertains to justice and human behavior.

A poor argument against hernia repair (and libertarianism)

2010-03-20T21:43:00.004-04:00

I have no experience with hernia repair surgery but I understand that one possible outcome of such syrgery is iatrogenic death due to medical errors, an adverse reaction to anaesthesia or other complications. Still, no sane person would claim that the risk of death implies that undergoing hernia repair surgery is actually a bad idea.

All kinds of activities carry with them the risk that something bad might happen. Driving a car, taking out a mortgage, getting married, flying in an airplane, working with powertools, becoming pregnant and so on all involve the possibility of a bad outcome. But no sensible person points out that a worst case scenario exists as though the existence of a worst case scenario were proof that any of these activities was an inherently bad idea.

And yet I've heard plenty of people who otherwise seem quite sane make such claims as

"The problem with libertarians is that they want to eliminate the welfare system and leave poor people to a life of poverty."

and

"Absent laws forbidding prostitution, there would be nothing to prevent naive women from being victimized."

I could cite similar examples, but they are all in the same vain.

These sorts of claims are among the most perplexing objections that a libertarian might respond to because it's hard to know where to even begin. There is overwhelming evidence that welfare states contribute to chronic poverty and that laws forbidding prostitution increase the risk of naive women being victimized. But this is all really beside the point. No matter what the actual effects of welfare states and vice laws may be, a libertarian world would still have worst cases. But it's a non-sequitur to suggest that because a worst case can be named, libertarianism is inferior to some alternative.

On Chile and Haiti...

2010-03-13T20:56:00.002-05:00

While plenty of compassion and aid has been poured out for the earthquake disaster in Haiti, relatively little media attention has been given to Chile for its tragedy. The reason for this ought not to surprise us. While Haiti suffered an earthquake measuring 7.0 on the Richter scale and the earthquake off the coast of Chile earned an impressive 8.8 – Chile seemed to fare better than Haiti did. After the enormous emergence of poverty and destitution in Haiti following the earthquake, people all over the world expected the same response coming from Chile, especially considering the magnitude of the shock. Despite all common-sense predictions, Chile is making significant progress toward rebuilding its nation. The same cannot be said for Haiti. Still in a constant state of chaos and unrest, Haiti makes the perfect case for a policy of laissez-faire economics.

Many people are quick to lend their support for the struggling island nation, and as humans we should be willing to give generously for those in duress. The humanitarian drive behind so much of the support is commendable. What people don’t ask, however, is what caused such poverty. The earthquake didn’t give the Haitians a low standard of living. Yes, it destroyed infrastructure, resulted in casualties, and sent the country into martial law. Make no mistake, however; Haiti was not a prosperous nation before the earthquake. The entire history of Haiti is one of poverty, repression, arbitrary foreign intervention, and consecutive military dictatorships.

Chile, on the other hand, has been a nation of prosperity and recovery since Milton Friedman’s famous discussion with then-dictator Pinochet. The Index of Economic Freedom places Chile at a 77.2% – the 10th most free country in the world, between Denmark and the UK, and by far the most free country in the entire South/Central America and Caribbean region. Since the Chilean-Chicago economists had their way, Chile has experienced remarkable growth and, as such, its citizens are more able to deal adequately with catastrophic events such the recent earthquake (the strongest Chile has experienced in 50 years).

The major difference between these nations is not geographical or social but econo-political. Chile’s government claims a measly 18% of GDP in spending and allows a rather wide berth of economic decisions to be made by citizens and firms. Haiti is more familiar with a command and control approach. If Haiti had followed a freer economic policy decades ago, this earthquake would be handled far better and its current chaos would be relatively short-lived.

In an analogous twist, Haiti can be considered the foolish little piggy who built his house out of straw. Guess how Chile built its house when the wolf came to huff and puff?

No, libertarians are not guilty of ignoring public goods problems

2010-03-08T15:46:00.004-05:00

Commenting at Econlog, Daniel Kuehn expresses a commonly heard objection to libetarianism. Kuehn:

I suppose I just think the libertarian that takes public good and externality issues seriously is very rare. It's not incompatible with libertarianism, but it's deliberately minimized.

No matter how many times I encounter it, this objection to libertarianism always surprises me because it's so plainly incorrect. As I pointed out:

It's not that libertarians don't take public goods problems seriously. We just don't trust people in the government any more than we trust people outside of the government.

If I suggested that you let me withhold a fraction of your paycheck at my own discretion so that I could deal with climate change, protect you from foreign invasion and stabilize the financial system, you'd rightly be very skeptical of such a proposal no matter what you think about public goods and externalities. Libertarians are just people who react the same way whether the person proposing such an arrangement is a politician or not.

If any group seems to disregard public goods problems, it's people who so eagerly embrace political solutions to public goods problems. What non-libertarians nearly always miss is that increasing the power of government always introduces a new public goods problem: The people in the government may use that increased power in harmful ways. Anyone who expends the effort and resources to stop such abuses from happening bears the full cost of such efforts but receives only a tiny fraction of the benefit if they are successful. I've never observed any advocate for more government intervention actually address this.

It would be nice if detractors of libertarianism would base their criticisms on things that libertarians actually believe.

Open Questions

2010-02-19T15:41:00.001-05:00

Mattheus' recent post on the idea of "emotional property" and some of the comments below get at a number of interesting open questions for libertarians. I'll enumerate a few of these open questions here:

Are punitive damages justified and, if so, to what extent? Nearly every libertarian believes that restitution is justified in cases of fraud or thievery. But in a world where thieves and fraudsters are not always caught, if the penalty for violating property rights were simply to make victims whole, theft and fraud would remain very attractive. Imagine: if I steal $100 from 100 people, and the legal system forces me to pay restitution to only half of the victims, I'm still $5,000 ahead. One way to correct this incentive problem is to require that thieves and fraudsters pay more than full restitution. If I cheat 100 people out of $100 each and half of these people take legal action and the legal system makes me pay double to each of these, I'm still breaking even. But a skilled criminal might very well avoid being caught in 90% or even 99% of the crimes he commits. A court might assign very high punitive damages and that might eliminate any incentive to commit thievery or fraud, but it introduces other problems, especially for adherents to strict non-aggression. If I rob you of $100 and you take exactly $100 back from me, that's not aggression. If I rob you of $100 and you take everything I own, somewhere along the line, your actions have crossed over into the initiation of force. I don't know if any libertarian has tried to give a clear justification for any specific level at which punitive damages become excessive enough to qualify as initiation of force. This isn't just a libertarian problem; No statist philosophy is clear on this either, but it's an area that libertarians have not yet managed to tidy up.

What obligations exist between parents and children? Libertarians recognize obligations when they arise from valid and consensual agreements, but parents and children don't generally have contracts specifying what they are obligated to do for eachother. Still, I don't know of any libertarian who would claim that because parents have entered into no contract with their children, they have no obligations to their children. One might take the view that parents have no legal obligation to their children past the age of 21, or 17 and a half or 15 years and 212 days or any other arbitrary age, but the basis for such a view would have to be something other than a simple appeal to the principle of non-aggression.

Is any level of harassment ever a crime? Most people, libertarians or not, would regard minor forms of harassment (e.g. giving someone the finger in traffic) as immoral but not criminal. At the same time, anyone that can't imagine harassment severe enough to justify retaliation of some sort isn't trying hard enough. Libertarians who don't want to endorse any violation of the principle of non-aggression might take the position that nothing short of a violation of property rights should be considered a crime. That's a hard bullet to bite, if for no other reason, for the odd incentives it would create. If I am legally permitted to harass you as much as I want so long as I don't touch you or your belongings, and I am legally permitted to propose exchanges between you and me, I might offer not to harass you if you agree to pay me. I can't imagine any libertarian willing to endorse a system of laws in which this sort of nonsense is a viable business strategy.

There are plenty of other open questions like these. Unlike some of libertarianism's critics, I don't regard the openness of these questions as a huge problem with the potential to discredit libertarianism. Just the opposite. The fact that it's hard to establish what should count as libertarian positions and very easy to establish what should count as liberal or conservative positions is a symptom of the fact that libertarian positions are based on principles while liberal and conservative positions are so frequently based on no principles at all.

But these questions are interesting for libertarians for at least two reasons. First, they are just interesting in the same sense that most legal questions are interesting. Beyond that, I think questions like these may point to a problem with libertarianism as it is commonly understood. Most libertarians believe that absolute adherence to the principle of non-aggression is a necessary and sufficient condition for a just society. Whether adherence to the principle of non-aggression is necessary is another matter, but the fact that none of these questions can be answered in a satisfying way solely by appealing to the principle of non-aggression makes me wonder whether adhering to the principle of non-aggression is even sufficient.

The Other Texas Gubernatorial Race

2010-02-19T10:35:00.001-05:00

On Tuesday night, February 16th, 2010, the SMU University Libertarians, in partnership with Dallas Libertarians, hosted a Libertarian Party Texas Gubernatorial Candidates Debate at the Hughes-Trigg Student Center on the campus of the Southern Methodist University.

Present at the debate were four members of the Libertarian Party running for governor of the state of Texas in 2010. They were:

Steve Nichols, aka "Roads Scholar"
Jeff Daiell, aka "The 60 Year-Old McLovin"
Katherine Youngblood Glass, aka "The Patriot"
Ed Tidwell, aka "Sarge"

These aliases should make more sense to you as you read on.

Moderating the debate was Paul Petersen of Dallas Libertarians. Each candidate stood at a separate microphoned podium during the debate and was offered five minutes to give their opening remarks. Three questions were prepared by the organizers ahead of time (surprisingly, none of which had to do with smoking pot or marrying homosexuals) and each candidate was allowed three minutes to deliver what were, essentially, prepared remarks. Following this segment, another five questions were submitted by audience members -- who numbered about thirty -- to which each candidate was given one minute to shoot from the hip in response. Finally, each candidate was given several minutes to make their closing remarks.

Let's get to the debate.

Introduction
Before the candidates gave their opening remarks, Spencer Price Matthews, "Red" President of the SMU University Libertarians, gave a short introduction about the significance of the debate within the context of the growth of the freedom movement. While no real attention seemed to be paid to some of the roots of the libertarian movement in the United States or its early advocates (one attendee I spoke with seemed well aware of them, and spoke with some concern about some of their missteps, such as Rothbard's attempted alliance with the New Left in the 60s and his explicit call for the adoption of Leninist organizational principles) Matthews "growing pains" metaphor was nonetheless thoughtful.

Matthews reminded the audience that political growth and maturity, like the transition from adolescence to adulthood, is often awkward and uncomfortable and spreading the freedom message is no different. To smooth the process, however, Matthews exhorted the audience to be patient and work hard to listen to others, first and foremost. That is the problem with the two major parties, said Matthews-- they think they have all of the answers. The advantage for the humble, awkward youth of a freedom movement is that it has no ego to lose in admitting it has a lot to learn.

That being said, the candidates weren't entirely without answers of their own...

Opening Remarks
The opening remarks set the tone for the entire debate in terms of who the candidates were, what they stood for... and how confused they seemed to be in terms of understanding for which elected office they were actually running. Nichols declared that he was a registered, state-approved member of the real estate appraisal guild and insisted that this combined with his time spent working in local politics in Frisco, TX, made him the only candidate with experience. He highlighted the fact that the state has a budget shortfall, that 75% of the budget is spent on education and welfare and, oddly, insisted that more of that budget be spent on infrastructure, specifically roads.

Daiell was next to speak and made perhaps the most sensible and coherent suggestions-- Texans must be persuaded to support a smaller, more decentralized "sovereign" Texas, law enforcement efforts should be refocused on fighting violent crime (this would rule out drug and sex worker crimes, business regulatory harassment, etc.). His one gaffe, and it would remain his one real gaffe for the evening, was his suggestion that Texas adopt an immigration policy that protects Texas taxpayers. If you can ignore a libertarian advocating belligerence against nonviolent labor migration, he was off to an otherwise good start.

Youngblood Glass seemed to forget where she was for a moment and imagined herself in a "Why am I the most patriotic?" segment of a Miss America contest. "I believe in American exceptionalism... because we believe in freedom," she said. Well, that's great, Dorothy, but we were in Texas and we were talking about the governorship. She followed up that starry-eyed bit with a complete non sequitur about other countries having the ability to be free but apparently not wanting to be so and completely ignored the fact that many people around the world are currently unfree precisely because vulgar American exceptionalist military globetrotters were working diligently to lay waste to their property and families. But never mind, because Youngblood Glass seemed to know that, as unpopular as it is these days to be a jingoistic, anti-secessionary slob, it was still important for her to declare that she didn't want to leave America "in her hour when she needs me."

Yeah, you figure that one out, because I can't.

The only thing that could've pushed the needle further on the trite cliche-o-meter than Ms. Youngblood's "these colors don't run" rhetoric would've been a 26-year veteran of the Marines starting off with a John Kerry-esque "Reporting for duty! (salutes)", and in that vein, Ed Tidwell almost did not disappoint. As if to truly confuse any of the audience members who were actually paying attention, though, he began channeling Hayek (via quoting him by quoting John Stossel who had once quoted him... I know) and railed against the planned society and the multiplicity of taxes gouging the Texas everyman. Then he went right ahead and contradicted himself by talking about how he wanted to plan the labor and education markets of Texas, by focusing on immigration control and educational policy.

Are we having fun yet? If you don't take this stuff too seriously, like me, then you better be, 'cause there's more!

The Proper Role of State Government in the Education of "Our" Youth (Scare Quotes Mine)
As it would turn into something of a theme that night, Daiell had a reasonable response to the question that was actually libertarian. He advocated a "three fold" solution: protect children and educators from federal control by rejecting federal funding, separating school and state by offering tax relief (NOT vouchers!) to parents sending their children to non-governmental schools and... sorry, I forgot the third fold because I got distracted when I realized Daiell looked and sounded a lot like notorious mischief-maker McLovin from the teen comedy "Superbad", only fifty years older than the original character.

The other three found it to be a suitable opportunity to demonstrate their penchant for central economic planning.

The Roads Scholar paid lip service to fiscal responsibility by noting that a 10% cut in the education budget would save $4B that wouldn't need to be accepted from the Feds (their entire contribution on an annual basis) and then suggested that by "not spending a penny" on illegal immigrants and enacting a voucher system, more money could be saved. As education = jobs in the minds of the average Texan these days, Nichols segued into a demand for higher infrastructure spending to provide more jobs for all these newly educated people.

The Patriot advised that education is not the proper role of the State, yet the constitution of the state of Texas provides for it and there's just no arguing with a piece of paper mistakenly written more than a century ago. She also suggested that tapping oil and gas royalties for an "efficient education" fund might be a good idea. I began to wonder if she was educated in an Arab emirate.

Sarge went all anachronistic on everyone's ass and appealed to a document only slightly younger than the Texas state constitution for authority-- The post-War Between The States Reconstruction Act. But he still believed in wresting control of education from the state of Texas, so much so that at maximum he would have the state set minimum education standards for Texan students. For my part, I couldn't figure out which was worse-- looking to partisan legislation from the 1860s, written by military conquerors, for inspiration about how the next generation of mindservants should be brainwashed, or just going ahead and relinquishing all control over the matter to the state while confusing yourself and everyone else around you into believing you were somehow putting a limit on government control. Tidwell, you did well, my man.

Working Towards Free Market Transportation Solutions in Texas
Nichols nearly feinted with excitement. Time to talk about ROADS! "Over the next 10 years, Texas will require $315B for road needs" Nichols claimed, though he did not explain what a "road need" was nor how he calculated that this massive expenditure would be economically useful. Youngblood Glass had a momentary epiphany when she observed that public-private partnerships are fascist (my word) and empower those who already have power and privilege, but then she mumbled something about keeping federal gas tax money in state. Seargent Tidwell opined that privatization is ideal, but, well, we can't do that. Then he said something about making responsible appointments to public transportation commissions and I had trouble differentiating that from every other empty promise of transparency every wanna-be pol has ever given.

Daiell was, as per usual, the sole, consistent voice of reason on the matter-- refuse federal transportation dollars, veto new state transportation projects, work to sunset the state transportation bureaucracy and, even better than all that, place a wholesale ban on eminent domain. This guy was good!

Resisting Leviathan
Oddly, the most objectively non-libertarian question ("How will you resist the encroachment of the federal government?") was the one question in which all four candidates responses scored some points, within the twisted, socialist context presented.

Nichols observed that federal dollars come with strings attached and result in a phenomenon he called "maintenance of effort." Daiell said that the governor would need to work to get DC to recognize the 10th amendment and suggested that secession was an option that should be considered soberly, with full recognition of its consequences on future generations.

Youngblood woke up from her flag-waving stupor long enough to realize that the EPA sucks, and it sucks so much that it can't even get anything done on its own so it forces state governments to do the dirty work of enforcing its mandates, which she obviously thought was BS! and so she cried out "Just stop doing these things!" Little known libertarian fact-- demanding the government just plain old stop doing X is normally the quickest way to realize true, libertarian progress. Seriously. I'm not being sarcastic this time... ultimately, that's the whole point of libertarianism, to get the government to stop doing what its doing and go away.

Tidwell imagined the role of governor would be a powerful one for the soapbox speaker and suggested he would use his role to create vocal opposition to the federal government. And, as a former Marine who was obviously itching for a fight, some kind of fight, Tidwell hinted that secession was a possible last resort, if necessary.

Keeping Texas, Texas, For Texans (Or, How To Not Be CA/Greece/Spain/etc.)
It was time for audience questions and the first up was a simple budgetary puzzle-- Texas currently has a $33B state debt, how would these would-be governors bridge the gap?

Nichols insisted keeping dirty smelly immigrants out would solve all the problems. I think he needs to do the math, and also consider ejecting all the dirty smelly welfare recipients who happened to be born on this side of La Frontera. Who knows, might result in a budget surplus! The Patriot, of course, agreed, but added that spending could and should be cut. Doesn't matter where, just cut it. The Sarge, likely imaging himself in a special Governor's Edition Border Patrol Battle Platform Vehicle, echoed the anti-foreigner sentiments, called Youngblood's budget frugality and raised her a Child Protective Services, education, prison, welfare and medicare hack-n-slash extravaganza. I can see it now, "Ed Tidwell-- Tough on Mexicans, tough on schoolchildren, soft on hardened criminals."

Daiell, perhaps just to exert psychological dominance as his chip stack was already enough to cover all three combined, went ahead and went all-in, coming way over the top with his desire to ban state borrowing completely. That's what debt-ridden inflationista socialists refer to as "exploding millions of vials of bubonic plague in the ionosphere" in terms of putting the ultimate kibosh on their spendthrift ways.

Eminent Domain
The story of two crazies and a Rothbardian.

Act I: Two Crazies
Roads Scholar: "Eminent domain has a place in economic growth, I saw this during my time in local government... eminent domain should be used for ROADS! only...let's compensate landowners at 125% of Fair Market Value"

The Patriot: "That's nothing... I'd support passing an amendment to ban it, but since that'll never work I'll do one better and totally contradict this sentiment by suggesting that the state pay landowners FMV + 10%, and if they incur attorney fees fighting the state, we'll have the state pay those, too! This is definitely not, I repeat, NOT, a potentially massive open-ended liability that could cost the state literally billions as it pays individuals to fight itself and then to appeal these decisions all the way up to the Supreme Court, who will of course just ridicule them and their plight but nonetheless spend a lot more time and money doing so. Also, it is totally libertarian to charge Dick and Jane to pay Moe's legal fees that he incurs fighting Gary Government. Thank you for your time."

Act II: A Rothbardian
Libertarian McLovin: "Eminent domain is legalized theft. 'Eminent domain abuse' is a redundancy." (cedes remainder of his time)

Me: (speechless)

Closing Remarks
The rest of the audience questions and the candidates answers were only of mild interest so I'll leave them out in the interest of brevity (as I've done such an outstanding job of it so far). Instead, I'd like to focus on a final few hypocrisies- the closing remarks.

It's hard to tell who should get the top prize in this regard.

A good place to start, much like the debates themselves, might be with Steve "Roads Scholar" Nichols. In an eyebrow-raising reference to The Only Gubernatorial Race That Actually Matters (ie, not this one, unfortunately), Nichols said that he agreed with Debra Medina and her call to end property taxes in Texas. Property ownership, Nichols preached, was a human right and property rights should never be taxed because they're integral to freedom. According to his earlier comments, however, they should clearly be abridged anytime a case can be made for economic development-- especially if someone needs to drive somewhere and his "Point A to Point B" straight line just happens to go through your property. And, true to form, Nichols made one last push for road building in the state of Texas, an activity which, no matter the problem, it seemed to be the solution. Was this guy in the pocket of some road contractor or something? And was his road contractor stupid enough to think buying off an LP candidate was a good use of his resources?

Either way, when your rhetoric and political doctrine has more in common with Barack Obama's stimulus plans and the economic development goals of Chinese communist central planners than anything Henry David Thoreau ever talked about, you may want to consider, as Ayn Rand might say, checking your premises. The premise in this case would be, "I, Steve Nichols, am a libertarian."

Then, there was the entirely predictable Ed Tidwell, whose closing remarks sounded something like this-- "Leadership. Leadership. Leadership! Lead-er-SHIP! Also, eliminate taxes and close the borders. Oh, and leadership." He means well, but I think his brainwashing at the hands of his commanding officers in the hive-mind of the Marine Corps. has left him intellectually unequipped for the individualist liberty mission at hand, so I am going to designate this one 4-F. Unfit for "service." Sorry, 1st Sgt Tidwell. Over and out.

Youngblood Glass, again seemingly by accident, stumbled upon something sensible in the end when she snuck in a Randian insight, "We have come by a happy coincidence in which the moral and the practical are the same."

Daiell invoked something of a tautology when he insisted that this election "could decide how free Texans are going forward into the future." Well, yes, of course. He told the crowd that whatever they do they should vote libertarian because voting libertarian means voting with your heart and your head, and it's ultimately best for all Texans. He finished with a little historical nuance, telling the attendees "I will pledge my life, my fortune and my sacred honor."

Final Thoughts
Nichols, Youngblood Glass and Tidwell all came across as disaffected Republicans, Nichols openly admitting to be so and Youngblood Glass I grudgingly declare her to be so as she claimed to have been involved in libertarian politics since 1982 when she ran for attorney general (oh yeah, she's a lawyer in Houston). I don't think any of these three mean any harm to anybody, and I respect the fact that they believe they're working to serve other people in liberty. Unfortunately, they seem to understand essentially little of the philosophy of liberty and absolutely nothing of economics (eminent domain is a necessary legal precondition for economic growth? What?!) and what little they do know they apply inconsistently according to their varied interpretations of what realpolitik demands.

Daiell, on the other hand, seems to get this stuff at a fundamental level. My written observations do not adequately capture this gentleman's command for elaborating on traditional libertarian principles in a structured format such as this debate. Of course, his physical frailty and apparent poor health (he was much more "robust" looking in some of his earlier headshots that can be found on the web) serve only to heighten the comical ironic by-now-non-irony inherent in the fact that, as the most consistent and authoritative libertarian at the debate he is absolutely the one least likely to ever kick his shoes up on the governor's desk after a popular election.

It's a shame, really. I'm not one for standing for other people, and I'd certainly never stand for any of the first three (I'll be honest... I decided not to clap for many of their responses because they were either non-sensical or outright tyrannical in their implications). But, if I had to stand for somebody, because someone in the government was pointing a gun at my head or something...

I'd get up for Jeff Daiell. Give him the titlebelt, guys, he's the libertarian heavyweight in this ring.

*UPDATE*

Jeff Daiell writes:

I never advocated hostility toward immigrants; indeed, I said we should respect the American Dream that all who wanted to make an honest living should be welcome. By "protect the taxpayer" I meant privatizing social services.

(Cross-posted at The Jungle is Everywhere)

Are Emotions Property?

2010-02-14T20:17:00.002-05:00

As I sat in sunny St. Augustine, Florida, and enjoyed lunch with my friends, I overheard a discussion behind me where a couple began ridiculing each other. Obviously, the ridicule was sarcastic and merely banter between two otherwise lovely people. But it made me think of all the times I, and others, have been ridiculed, with the express malicious intent of causing suffering. Surely this is not a strange phenomenon.

All of us that remember grade school remember a bully shouting to the top of his lungs that someone peed his pants, or that James kissed Sally, or in some other way, using nothing other than powerful vocal chords, causing great embarrassment to the bully’s target.

From this nostalgia, I started comparing it to property rights. We define property to be:

1) The tangible objects by which we exercise control and possession. Homes, automobiles, television sets, etc.

2) The corporeal flesh of our bodies. Punching someone in the face is assault because it is a violation of property rights.

3) Wealth. Money, cash, currency, credit, liquid assets, etc.

I’m sure there are other examples and other subcategories, but these are the three I came up with on my own. My focus will be on my 2nd example of property: the person himself.

This definition of property rights explains why rape, murder, and assault are all, not only illegal, but immoral. Why do the antics of the bully, which cause great psychological harm (embarrassment, anxiety, emotional complexes) not count as violations of property rights? Surely the mind is just as much property as the body is. No one would doubt that starting a fight violates the other person’s property, but why is the bar fight with knives and broken bottles any more a violation of property rights than the husband who accuses the wife of infidelity and continues to disparage and scream, her crying all the while?

Our legal system, in extreme degrees, regards mental health as property. Psychological trauma and torture are crimes to be charged under legal statutes. They understand that acts which change the person’s mental well-being are just as dangerous as those that change the physical ones. The strongest form of torture is that of the mind, and yet there is no clear-cut way to bring that into the well-defined category of property rights.

Is there some distinction I am missing? Is there a caveat I have forgotten that makes all this unnecessary?

In the definitional sense, physical trauma is forbidden, but mental trauma is overlooked. Why?

Why are the long-lasting feelings of depression, anger, and abandonment that accompany a girl when the boy breaks up with her not violations, but a slap across the face that fades within minutes an egregious infringement of property rights? There are several instances where I would gladly trade my mental anguish for pain in my physical body.

There are two possible reasons:

1) Mental anguish was accidentally excluded.

Possibly because nobody had ever considered that psychological duress is capable of bearing far greater harm than physical pain.

2) Mental anguish was specifically excluded.

Because to incorporate mental trauma into the litany of current violations would so burden the process, so as to make fighting it impossible. How would you try and convict people of violating someone’s property rights if you insulted them in private? What is the proper remuneration for calling someone “stupid” or, in the previous instance, breaking up with a loved one?

If mental anguish was accidentally excluded, ought it to be included? And if it was deliberately excluded, ought we to change the definition of property?

Lay It Out For Me

2010-01-26T01:12:00.002-05:00

After engaging in several debates on libertarian truisms and the application of force, I find myself constantly juggling between the sides of Limited-government libertarianism/minarchism and complete market anarchy. I am torn between my desire to be intellectually consistent and my desire to reconcile well-adopted theories of government behavior in economic matters.

Instead of lobbing unassailable axioms at me for anarchy, would you be more realistic about your position? How would life fundamentally change were government to be abolished (if much at all)? What are some problems with anarchy that government, through force, mitigates well and without would be unable to "solve?"

I am still rather tenuous on the position of rule of law and courts/judicial process, so bear with me on this. I have been on the fence for awhile and the arguments you two (Taylor and James) champion indeed have merit.

Would you please be more pedestrian in explaining how an anarchic society would function as opposed to any sort of society with a government?

Government Intervention: Heed Your Own Advice, Mish

2010-01-21T11:09:00.000-05:00

In Glass-Steagall: Be Careful What You Wish, blogger Mish asks, "What about the Free Market?":

Are such proposals inconsistent with a free market? I think not. The free market is not the same as anarchy. The role of government is to protect property rights and civil rights. There are rules and regulations to prevent theft, murder, and fraud, as well there should be.

Glass Steagall would not have prevented this crisis, but the proposals would prevent front running trades and betting against advice given to clients, both of which I believe constitute fraud.

Mish is confused here. What meaning does "free market" have outside of meaning "free of government intervention"? And, to be consistent, this means outside of all government intervention, not just outside of the government intervention Mish finds detestable.

There is no role for government in a civil society because government is inherently anti-social: it is an institutionalized violence monopoly and it can not exist without taxation, which is theft. Theft is immoral and illegal (according to natural law/natural justice)-- it doesn't matter why the theft occurs, whether it be to feed a starving child or to set-up a government to protect people from theft. Theft is theft, it's equally despicable no matter who does it.

To the extent that government does exist and to the extent that government arrogates to itself a monopoly on retaliatory violence/justice, such an institution should concern itself with punishing actual crime: assault, murder, theft and fraud. Really this could be further simplified to assault and theft (murder is an extreme form of assault, fraud is a variant of theft involving deception... and rape falls under the assault rubric so it should go without saying).

These are the only criminal actions a government or other body need prohibit. All crimes are property crimes and assault and theft are the two archetype ways in which a property crime can be carried out. There is simply no reason and no need to get more specific by legislating individual prohibitions against specific variants of these crimes.

For example, if Goldman-Sachs is frontrunning clients by trading ahead of them, when it is contractually obligated to not do so, this is, in fact, fraud, and should be punished as such. There is no reason or need to pass a law called "Prohibition of Frontrunning" and creating a whole new class of crime for it. This point is particularly transparent when the person supporting such a law falls back on the "frontrunning is fraud" defense for why it's a just law.

Beyond that, government has no "role" in mitigating the risk of crime. Just as it would be improper for government to mandate that everybody install reinforced doors to prevent break-ins, it is improper for government to mandate that a financial firm, which is the private property of its owners/shareholders, be split into two separate financial entities to prevent the fraud inherent in frontrunning.

In reality, all these efforts will serve to accomplish is to instigate further interventionism in the conduct of private business while further intellectually sanctioning the busy-body, interventionist mindset amongst people who are following the story. Criminals always have and always will find ways around attempts to prevent their potential crimes and the punishing of their thought-crimes. And politicians always have and always will find ways to utilize these attempts in self-aggrandizing ways that enhance their own power and prestige while weakening the control of market participants over their own property.

Mish, heed your own advice and be careful of what you wish for. Let's pursue a sounder advocacy going forward-- let the government punish the criminals, let the market prevent the crime. After all, we likely wouldn't even be having this conversation if government had kept to its proper "role" in the first place, instead of regulating the disciplinary scope of the market out of existence and bailing out the very criminals you so abhor.

(Cross-posted at The Jungle Is Everywhere)

Minarchy is either unnecessary or impossible

2010-01-19T21:58:00.004-05:00

Either there are or there are not people in the world who would be willing and able to faithfully defend you from aggression at a cost less than the maximum amount that you'd be willing to pay for their service.

If there are such people, then you can simply hire those people to protect you. In this case, minarchist government is unnecessary.

If there are not such people, then there is no one who is willing to do the things that a minarchist state is supposed to perform. Minarchy is, in this case, impossible.

QED

What's wrong with minarchism?

2010-01-16T21:19:00.001-05:00

Short answer: Minarchism implies that some people should do things to others which no one should ever do to anyone.

Different minarchists will have different ideas about exactly what some people ought to do but all minarchists agree with at least of few of these:

Some people should use violence against those who refuse to purchase the defense services offered by some people.
Some people should force others to provide funding for roads whether they intend to use those roads or not.
Some people should print currency and use it to manipulate the bond market.
Some people should lock other people in cages if they attempt to sell defensive services.
Some people should use violence on those who want to sell lawn services without first obtaining permission from some people.

Of course all of these call for some people to do things that I believe no person should ever do.

Instead of writing "Some people", I could have written "The couple in the next apartment" or "The guys in the frathouse" or "Left handed women". Had I made any of these or countless other possible substitutions, nearly all minarchists would immediately disagree. No minarchist really believes that left handed women should print money to manipulate the bond market or that the couple in the next apartment should force others to buy their defense services, etc. And in my experience, most minarchists can provide very sensible reasons why they don't agree with such stuff. I have no idea why minarchists don't realize that those same reasons are just as relevant when "some people" is replaced with "government employees."

More On The Logic Of Anarchism

2010-01-15T22:25:00.000-05:00

Economic law/logic is decided on the anarchy debate-- socialism doesn't "work" because socialists can't calculate, and involuntary exchanges do not produce wealth like voluntary ones. On the economic front, the anti-utility of government is decided in favor of markets (anarchy).

The anarchy-government debate over the economic production of law and security remains a political one. And yet...

And yet, so often "economists" debating the merits of one system or another look at the world around us and say, "This would never happen under anarchy." They ask their opponent to imagine a more likely order under anarchy, something akin to a smaller, less technically advanced world than the one we have now. Obviously, none of this follows and they're simply attempting to pull at heartstrings (it is a political argument, after all, what more can you do?) but think of what they're implicitly admitting with such a tactic: there are major costs to governmental social systems, which would not be distributed and borne in exactly the same way as they are now, under anarchy.

Precisely! It's become vogue for critics of the market to point out various situations in which property rights are ill-defined or non-existant (though of course they never depict these scenarios as suffering from such obvious neglect) to make the point that "the true costs of X are not being fully realized." Yes, and so too, it is, with government... the full costs are not being fully realized.

We've all become so accustomed to The Way Things Are(tm) that we assume it's normal, natural and that we're maybe even entitled to it, but even if we aren't, we suffer the fear that we wouldn't like it any other way. And yet, it's quite possible that, were markets the norm, in everything, and our standard of living were drastically altered/reduced as the critics opine, we might find ourselves enjoying it quite a bit. By definition, there'd be no economic victims anymore.

Funny, it seems the debate is economic after all.

(Cross-posted at The Jungle Is Everywhere)

A Brief History Of Haiti

2010-01-13T23:01:00.001-05:00

Following the devastating earthquake in Haiti, news reports are wont to point out that rescue and relief efforts, as well as the death and destruction of the disaster itself, are complicated by the extreme poverty of Haiti. Implicit is the assumption that, because Haitians are poor, they can not help themselves and therefore must be helped by the West.

This is a description of reality-- Haitians are, by and large, poor and economically depressed. Left unasked is the question, "Why are Haitians so poor?"

For a possible answer, let's examine, briefly, the history of Haiti from its early history to the present day (summary from Wikipedia):

pre-1492: Haiti is populated by Taino Indians, a sub-population of South American Arawaks.
1492: Haiti is "discovered" by Christopher Columbus, in search of a western trade passage to India, and claimed for the Spanish crown
1517: Charles V, Holy Roman Emperor, authorizes the draft of slaves
1697: Treaty of Ryswick divides the island of Hispaniola between the French and the Spanish. French settlers from Bordeaux arrive in droves and begin colonizing modern-day Haiti
1776: The American Revolution
1789: The Constitution of the United States of America is ratified
1791: Haitian slaves revolt against French rule
1793: The island is invaded by the British and Spanish, who are now at war with France. A local commissioner drives the invaders off the island. American interests supply both the French and the rebels
1804: Haitian former slave rebels successfully defeat French forces and establish the nation of Haiti. It is the only nation to be formed from a slave revolt in history. Approximately 100,000 blacks and 24,000 white colonists die in the conflict
1825: Charles X of France sends a fleet and army to retake the island. The despotic leadership agrees to an indemnity tax to ward off invasion as a repayment for revenue lost by the French crown from the end of slavery in Haiti
1888: US Marines support a military revolt against the Haitian government
1914: US, British and German troops enter Haiti, ostensibly to protect their citizens, who have steadily grown as members of an immigrant commercial class since the mid-1800s
1915-1934: The US Marines invade and occupy Port-au-Prince to "protect American and foreign interest." "The Haitian administration dismantled the constitutional system, built roads, and established the National Guards that ran the country after the Marines left"
1957-1986: "the Duvalier family reigned as dictators, turning the country into a hermit kingdom with a personality cult and excessive corruption. They created the private army and terrorist death squads known as Tonton Macoutes. Many Haitians fled to exile in the United States and Canada, especially French-speaking Quebec. In the 1970s the United States funded major efforts to establish assembly plants for U.S. manufacturers. In the mid 1980s the US continued military and economic aid to the regime"
1986: "protests against "Baby Doc" led the U.S. to arrange for Duvalier and his family to be exiled to France. Army leader General Henri Namphy headed a new National Governing Council"
1991-1994: Following a coup d'etat, President Aristride is flown to exile (by the US government). A supreme court justice is put in place as president by the military leader responsible for the coup while preparations are made for a new election according to the 1987 constitution. The elections are blocked by the international community (re: the US government)
1994: Following negotiations with the Clinton Administration, the military leadership of Haiti departs the country and US Marines again occupy Port-au-Prince, this time as part of "Operation Uphold Democracy" which results in the reinstitution of Aristride as president of Haiti. The pillaging and enslavement of Haitian resources and people by foreign commercial interests resumes unabated
2004: Aristride is again deposed in a military coup... this time by US Marines who exile him to the Central African Republic
2010: A terrible earthquake destroys Port-au-Prince, leaving thousands feared dead and many more injured and in even deeper poverty than before. US President Barack Obama, incredible philanthropist with other people's money that he is, immediately prepares to douse the small island nation with cash and the full compassion of the humanitarian US Navy ("A Global Force For Good"), along with a small detachment of US Marines who will reoccupy the country for the, what is this, fourth time, fifth time? I've lost count

So, there you have it. Start with a history of slavery and imperial oppression, evolve into a crony capitalist fascist economy of foreign corporate exploitation and shady political machinations, round it out with constant military occupations and re-occupations, coup d'etats and coup-undoings and top with a slice of compassionate, imperialistic humanitarianist military re-invasion and occupation and... voila! A brief history of Haiti, a brief history of constant poverty and oppression.

No free markets, no hope for individualist self-determination, a world of constant regime uncertainty that provides no chance whatsoever to effectively plan for the future (not to mention you are forcibly obstructed from competing with foreign commercial interests anyway). In short, everything you need for the kind of crushing poverty that would result in a literal physical and economic collapse of your surroundings following a natural disaster replete with an emergency response system which is as poor and shackled as you are and, because it has been monopolized by the same corrupt central government that has worked to hold you down in every other way possible, dissolves into nothingness the very moment you need it most.

Why Buying From Sweatshops Makes You A Philanthropist

2009-12-14T12:54:00.001-05:00

We all have very vivid images in our head of poor, non industrialized, Third World countries. Some of these images may include children going without education, shoes, or even food. Perhaps one thinks of undrinkable water. Another thought may be a country with a strong military dictatorship. Notwithstanding the fact that 4 out of 5 Americans will never travel and never see a Third World country, all of these images are correct. Life is brutal, difficult, and often dangerous.

One image some people may associate with this sociopolitical carnage is that of a sweatshop - a dingy, poorly-lit room with 50 women sewing socks while a mustached overlord looms over. The truth is that conditions on the farms and streets are much worse. I find it the greatest irony that when people conceptualize what a sweatshop is and what is represents, they only look at negatives. I see a sweatshop as a beacon of hope; a glimmer of promise for those poor souls struggling to get by day after day.

By its very definition, a sweatshop is a factory. A very poor, dirty, and often dangerous factory. One that might be compared to factories of the 19th century in Great Britain. They paid little and required demanding hours. By virtue of the fact that sweatshop workers receive wages, we can therefore take it they are not being held against their will. So why do people work there? Could it be because any opportunity for money is a good one? Could it be that with their wages they can lead a better, more prosperous life than without a job? Understand that people working for sweatshops are in no way different than laymen working for a wage in the US or Europe. They work to put bread on the table.

The very fact of using politicians to boycott sweatshop products because they are not made according to our "proper working conditions," does this not hurt the sweatshop? Surely the intention is to crush it completely, wipe it off the face of the earth. The irony of this situation is that while those shops are not maintaining certain standards which are normal here (How can they? Their economies can't handle it.), the destruction of these sweatshops perpetuate the degradation and substandard lifestyle these people are living. In short, Third World boycotts make it that much harder for a mother to feed her children.

I consider a sweatshop as a golden ticket to a new life. I know, I know - we have our preconceptions of sweatshop owners as tyrants, but truly, are they not the greatest capitalists? Finding, amongst probably thousands of workers, those who will work longest and for the lowest wages, they erect competition between workers and instill a need for progress. By purchasing products from these workshops, you are giving them profit and allowing them to employ more people, thus raising the standard of living for all those involved.

Given the choice, between "Buying American" and helping poor nations industrialize, I think I'll make the sensible choice and buy cheap, while doing my good deed for the day.

Hazlitt on Keynes: My Academic Humor

2009-11-29T00:34:00.004-05:00

As good Austrians, we all reserve an enormous amount of doubt for John Maynard Keynes. As one who is familiar with the General Theory, however, my amount of doubt grows to gargantuan proportions. For good reason, we shall see.

There are many things wrong with Keynesian economics. Keynes' philosophies on saving vs. investment are ridiculous, his theories on a consumption function are infantile, and his principles of employment on an aggregate demand table are mathematically incomprehensible.

For sheer dumbness, his explanations of "marginal efficiency of capital" take the cake.

The following is a section taken from Henry Hazlitt's The Failure of the 'New Economics', which I had the very good fortune in reading this Thanksgiving week:

"4. Abundance Unlimited

Sections III and IV of Chapter 16 are so fantastic in their assumptions and reasoning that it is difficult to know where to start picking up the fallacies and misstatements. Keynes begins with the bland statement: "We have seen that capital has to be kept scarce enough in the long-period to have a marginal efficiency which is at least equal to the rate of interest" etc. (My italics, p. 217.) This is much as if he had written: "We have seen that commodities have to be kept scarce enough to give them a price." This statement embodies the insinuation both that the rate of interest is a purely artificial and unnecessary thing and that capitalists have to conspire to "keep" everything scarce so that somebody or other can make a profit.

Keynes then goes on to speculate upon what would happen in "a society which finds itself so well equipped with capital that its marginal efficiency is zero and would be negative with any additional investment" (p. 217). And this is not merely a hypothetical assumption for the purpose of deducing hypothetical consequences, nor even an assumption which is not supposed to be realized for an indefinitely remote future. If

State action enters in . . . to provide that the growth of capital equipment shall be such as to approach saturation point at a rate which does not put a disproportionate burden on the standard of life of the present generation . . . I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation (p. 220). [And, going further:] If I am right in supposing it to be comparatively easy to make capital goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism (p. 221).

Nonsense could hardly be carried further. The central problem with which economics deals, the problem with which mankind has been struggling since the beginning of time, is the problem of scarcity, and this problem is assumed away in a few blithe words. It is "comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero." Did Keynes stop to think for a moment what this would imply? It would imply that capital goods were so abundant that they had no exchange value! And if they had no value, they would be as free as air or (most) water or other goods without scarcity. It would be worth nobody's while to keep
such capital goods in repair (unless it cost nothing, not even anybody's labor, to keep them in repair). There would be no problem even of replacement. For as soon as there were a problem of replacement, it would mean that capital goods once more had a value and cost something to produce: therefore, presumably, capital goods would cost nothing to produce.

Moreover, if the marginal efficiency of capital were zero, it would also mean that no consumer goods would have any scarcity, price, or exchange value. For as long as any consumer goods anywhere failed to reach the point of satiation, and had a price or a value, then capital to help produce these consumer goods would have some marginal yield above zero.

A marginal efficiency of zero for capital would mean, in brief, such an abundance of everything that neither capital goods nor consumers goods would have any scarcity, any price, or any exchange value. In such circumstances the rate of interest, of course, would also fall to zero—not only because the rate of interest and the marginal yield of capital tend toward equality, but because it is one of the implications of a zero marginal yield for capital that no one would want to borrow money for investment. If someone did want to borrow money for investment (enough to pay anything for the privilege), it would imply that to this borrower, at least, capital did have a marginal yield above zero.

Capital will continue to have a marginal yield above zero, in brief, as long as it continues to help in the production of consumer goods that have a price above zero. And if these consumer goods have a price above zero, it will be not only because they fill human wants, but because their supply is not unlimited and because they cost something to produce.

And it is this cost of production (and not some wicked conspiracy of the capitalists) that keeps them scarce. The capitalist system, in fact—which is the system of free, private, competitive enterprise—has been doing more to reduce production costs, and to relieve scarcity, than any system in history. It is because America has come nearer to adopting a full free private enterprise system that it has done more to relieve scarcity than any other nation in history. But as human wants are insatiable, and as both consumer and capital goods will always, to repeat, cost something to produce, the day when capital will cease to have any yield at all, and when consumer goods cease to have a price, and when no scarcity of any kind exists, is still far, far off. All talk of making capital so plentiful as to reduce its marginal efficiency to zero ' 'within a single generation" is the purest moonshine."

More on utilitarianism

2009-11-28T11:17:00.002-05:00

People sometimes claim that utilitarianism ought to be the main basis or the only basis for deciding what people or organizations or governments ought to do. Philosophers have generated a number of good responses to this position but let me amateurishly offer one more:

Most of what goes under the utilitarian banner is just a bait and switch. Whatever abstract arguments anyone offers in favor of utilitarianism as a concept, they are almost certainly not actually applying the same thing that they endorse.

The bait: Utilitarianism suggests that choosing what policies to implement, what behaviors to commit and so on should be determined by solving an optimization problem. So a utilitarian might make the argument that any course of action other than the course of action dictated by utilitarianism is necessarily suboptimal. Putting aside some pesky little questions (What to maximize? What constraints?), the utilitarian can even claim that his position is tautologically true: Utilitarianism always dictates an optimal course of action, therefore by definition no alternative can be superior.

The switch: Ask a self-identifying utilitarian to show his work (or, just for fun, ask him to prove that his preferred tax policy gives a global maximum rather than a local maximum), and you'll get some very odd looks. Why? Because the people who call themselves utilitarians don't expect to be called out on this stuff. I have no idea why anyone would think utilitarians ought to get such a free pass.

In disciplines where optimization techniques are commonly used, no one talks abstractly about the merits of optimization as though this were sufficient to justify the implementation of, say, a set of airline routes or a portfolio of stock options. They can state exactly what they are attempting to maximize and what their choice variables and constraints are and then anyone can reproduce the same results. Utilitarian ethicists and policy geeks don't even pretend to to do this. If asked, they will brush off the question as though it were bad manners to even ask.

As a believer in justice-as-principles, I'll bite the bullet and admit that I can't prove my positions to be optimal. At least I can truthfully claim that my positions actually follow from the principles that I espouse.

Bloomie's Broken Window Blooper

2009-10-19T21:50:00.001-04:00

This ain't the 'Broken Window' theory championed by Rudy, Billy and Howie in NYC in the early 90's. No, this is the 'Broken Window fallacy' of French economist Frederic Bastiast of the 50's (the 1850's, that is), and NYC mayor Mike Bloomberg is all over it! According to the NYT.com:

Mayor Michael R. Bloomberg is closing in on a milestone: building or preserving 165,000 city-financed apartments and houses for low-, moderate- and middle-income families, the goal of a $7.5 billion housing plan he announced in 2002 and expanded in 2005.

It has already financed the creation or preservation of 94,000 units, including 72,000 for low-income households, city officials say.

But those efforts have been overwhelmed by a far larger number — the 200,000 apartments affordable to low-income renters that New York City has lost over all, because of market forces, during the mayor’s tenure.

Oh Bloomie! While you may be in charge of executing the law, and your police buddies are responsible for enforcing it, Bastiat wrote the book, literally. Bastiat's The Law, published 1850, decried the twin evils of "stupid greed" and "false philanthropy" and served as a follow-up to his earlier pamphlet That Which Is Seen And That Which Is Unseen, which first related his Parable of the Broken Window which made the simple observation of redistributive welfare economics-- it doesn't work. For every dollar spent by the government on a welfare project, corporate or individual, there is concurrently one less dollar available to be spent in the private sector. In The Law, Bastiat railed against the "protective tariffs, subsidies, guaranteed profits" of stupid greed and the "guaranteed jobs, relief and welfare schemes, public education, progressive taxation, free credit, and public works" of false philanthropy.

Hey, Bloomie, which of these farcical fallacies have you pursued in your wanton violation of unrepealable (economic) Law?

When you read the sly propaganda of the NYT and learn that Bloomie has almost "built or preserved" 165,000 apartments and houses for "low-, moderate- and middle-income families" with his $7.5 billion program, you ought to make like Bastiat, the economic Lawficer, and ask yourself these questions:

Whose money did Bloomie use to do this?
How did he decide on the $7.5 billion figure (what calculation did he arrive at to conclude this was an optimal amount)?
How many apartments and houses, for families and individuals of all economic strata, were NOT built because the funds to do so were absorbed by Bloomie's program? (If each of these apartments/houses house just one family, then the cost of construction/preservation was more than $45,000 per unit!)
Furthermore, how many buildings providing all kinds of goods and services (housing, healthcare, food, entertainment, recreation, transportation, etc.) were NOT built because the funds to do so had been appropriated by Bloomie's ambition?
Go one step further... imagine everything that could've been built/preserved with that money, and wasn't, and ask yourself how Bloomie knew that this use of the $7.5 billion total was the best, most economic/welfare-enhancing use of that money for NYC's society, in light of the nearly infinite multitude of alternative uses?
How many votes do you estimate Bloomie bought with NYC-taxpayer money?

The last question is an important one, and the effects of the expenditure are obviously both direct and indirect. Nearly every one of the families housed by Bloomberg's affordability extravaganza will likely feel indebted to him for their cheap dwelling, but there will also undoubtedly be a ripple effect an order of magnitude greater in number amongst the voting 'conscientious' in the Big Apple.

Let's face it, "affordable housing" is a misnomer, if not an outright lie. Like the politicos who push it like a drug on the corner outside the local bodega, it's a definitional perpetration of the 'Broken Window fallacy' Bastiat warned us against. For every individual who is seen to gain a unit of "affordable" housing, another individual goes largely unseen in bearing the incredibly unaffordable tax burden placed upon him that permits the "affordable" housing to exist. And the tradeoff is rarely 1:1... a poor man gains his housing while a wealthy man loses the tax levied on him to pay for it. But maybe someone else loses, too, like the other poor man and his now non-existent job, who would've been hired by the wealthy taxpayer. Or maybe the wealthy man was an investor, who can now not afford to invest in a start-up company that would've provided a new good or service to thousands of people but which was unfortunately unable to secure their start-up capital.

The possibilities are endless, and they're all unrealized and therefore unseen.

And while the NYT laments the lack of "reasonable places to live" (gee, how do they calculate that one? Is it 'reasonable' to have your own bathroom? kitchen? dishwasher? laundry machine? bedroom plus dining room?) no one seems to miss all the other "reasonable places to live" and great places to hang out and cool new products and services to try that, thanks to Bloomie's "stupid greed" for votes and "false philanthropy" simply don't exist at all.

But that's not the most confusing part. The article continues:

Including public housing, the number of apartments considered affordable to low-income households — those earning less than 80 percent of the city’s median income, or less than $37,000 — decreased to 991,592 from 1,189,962, a drop of nearly 17 percent, from 2002 to 2008. About 42 percent of the city’s households fit in that income category in 2008.

The data were supplied by the Furman Center for Real Estate and Urban Policy at New York University, which analyzed the city’s Housing and Vacancy Survey from 2002, 2005 and 2008. The center and other housing experts consider an apartment affordable if it costs no more than 30 percent of a family’s income, or about $925 a month for a family earning $37,000.

The city says a low-income household is one earning less than 80 percent of the median income of $37,000 (by the way, if this is a relativistic definition based on a sliding scale, it's possible for a household to qualify as low-income making $150,000 if the median income is $200,000). The Furman Center at NYU says an apartment is affordable if it costs no more than 30 percent of a family's income. But what do the people say?

The people say all kinds of things about affordability. Some people are thrifty and won't spend more than 20 percent of their income on housing. Some prefer to spend more of their income on housing than on other monthly expenses and will spend 40 percent. Some think it's more "reasonable" to spend more if they conclude they're getting a safer housing experience, others spend less when they find their housing options to be inconvenient to their lifestyles. There's no right or wrong answer when it comes to individual perceptions of affordability... unless you happen to work in the mayor's office or on the campus of NYU.

Comically, the NYT gives us the best proof of this concept possible with their own portrayal of one of the 'victims' of the affordability crisis:

Before the recession, James Hadden was earning up to $1,000 a week cutting hair at a Harlem salon, but more recently he has taken home $400 to $700. So he has fallen behind on the $1,300-a-month rent on his one-bedroom apartment, a fourth-floor walk-up on Lenox Avenue. His landlord began asking him to pay weekly. “I’m going to go pay this man’s rent so he’ll stop calling me,” Mr. Hadden, 42, said Tuesday.

Of course, the plight of poor James Hadden, a man who once made $4,000 a month styling people's hair, tells us absolutely nothing about how "affordable" or "unaffordable" housing in New York City is and everything about the choices and trade-offs individuals will make when it comes to allocating their own resources to housing. Mr. Hadden has presumably already made the decision to accept a 'less desireable' housing location in the city (Harlem), for a much lower average rent on same-space (even in the middle of the Next Great Depression, it's hard to find a studio apartment for less than $1,800/mo, and a 1-BR for less than $2,200 if you want to live further south in the city).

But there's even more to Mr. Hadden's economizing on housing than just cost:

He said he was happy to be only 16 blocks from work; closer to the salon, on Fifth Avenue at 116th Street, rents are even more expensive. But he said he sometimes heard gunfire outside his building on Saturdays. “My family comes to visit me and I’m embarrassed to show them where I live,” he said.

Ah, so you see, Mr. Hadden also trades the convenience of living near work for the safety and security of living somewhere else. And although he's taken a pay cut lately -- his housing was already "unaffordable" by city/NYU standards at 32% of his income, even though Mr. Hadden presumably didn't begin complaining about the situation until recently -- Mr. Hadden continues to pay rent even at these elevated cost-to-income ratios because he appears to find this a more "affordable" set-up than the other alternatives presently available to him. But don't tell the "experts" that, or they might suffocate you in charts, facts and figures.

Bloomie's policy brings us one more treasure, too-- housing by lottery:

Affordable housing is in such demand that most new apartments are awarded by lottery. Alan Ceballos, 30, said he was grateful to have won his two-bedroom apartment, costing $839 a month, in a new building on University Avenue in the Bronx.

Mr. Ceballos, who earns about $33,000 a year as a sales associate at a car rental agency, won the spot three years ago, allowing him to move out of a one-bedroom that cost $794. He and his wife had two children then, and now have three.

Let's see, limited supply of "affordable" housing... nearly unlimited demand for it. How do we solve this problem? Bloomie wonders. Oh, I know! he shouts, Let's have a lottery!

Seems fair, right? Until you ask yourself, "How many families are there who could've paid $839 a month or more in rent and outcompeted Mr. Ceballos, but instead must settle for their next-best housing alternative as a result of not winning the lottery?"

The market's solution is impersonal and, dare I say it, fair: prices rise and fall in terms of rents asked for and rents bid until supply and demand equilibrate and those who value a unit of housing the most are those who get the housing.

Bloomie's solution is arbitrary and mean. He sets up a lottery and then says "Too bad, so sad" to those who don't win but could've afforded the housing nonetheless. Don't forget, this is the kind of 'solution' we'll be seeing with rationed public healthcare soon enough, too.

Public housing programs and "affordable" housing regulations are a disaster. They punish and reward at random, they suppress profits and leech taxes out of private wealth that could be used to maintain and expand the supply of ALL private goods and services, including private housing, and they violate economic law in a tragic race-to-the-bottom. The more housing resources and wealth in general under control of the State and Michael Bloomberg, the less housing resources and wealth in general will be available to you, me and everyone else to do as we prefer with it.

Keep in mind, whereas the private sector does everything it can to try to promote the kind of quality, convenience, security and accessibility that maintain and drive property prices higher, it is the stated policy aim of governments everywhere to drive property prices and values lower. And while it is the competition of the marketplace which is the only phenomenon capable of actually achieving the government's aims (lower real property values), the government will nevertheless achieve one of its goals (lower nominal property prices) by inviting in all the crime and decrepitude normally found in government-owned ghettos the world-round, and spreading this social malice as far and wide as it is able to do so.

So, in a nutshell, Bloomie, you blew it. Your pursuit of "affordable" housing for the benighted people of NYC will forever remain elusive, but your success in visiting more stagnation, rot and hardship on those same poor people will indeed be great and remembered forever!

(Originally published at EconomicPolicyJournal.com)

Anarchy Is Logically Consistent Politically And Economically Speaking

2009-09-17T00:18:00.000-04:00

I want to make two simple points about anarchy that, in my mind, completely settle the debate. Here they are:

Politically speaking, you either believe that some people have the right to coerce other people, or you do not. I do not.

Arguing for any level of government intervention, no matter how minuscule, is a contradiction of the belief that no one has the right to coerce anyone else.

Economically speaking, you either believe in subjective value theory and the idea that utility is innate and individual to each person, or you believe in objective value theory and the idea that value can be observed, declared and dictated from outside the individual mind. I believe value is subjective.

Arguing that anarchy wouldn't 'work' or that it would result in less total utility than an alternate reality with government intervention is a contradiction of the belief that value is subjective and that the costs and benefits of the use of coercion can not be objectively calculated.

It's that simple. Natural rights-based (self-ownership) political theory demands anarchy. Subjective value-based (individual marginal utility) economic theory demands anarchy. These are the only ways to be logically consistent. All positions deviating from these truths are not objective logic but subjective opinions. They begin with "I think that..." but never "I can prove that..."

(cross-posted at The Jungle Is Everywhere)

Rothbard On America's Great Depression

2009-09-08T00:44:00.000-04:00

I finished reading Murray Rothbard's America's Great Depression (pdf) and highlighted some passages that I found particularly noteworthy. I'm not going to sully this stuff with my unending wit and intelligence as I think it stands on its own. That being said, as you read, ask yourself if this is economic history Rothbard wrote or if it was instead prophetic predictions of the future (our present) with the names and numbers changed to protect the not-so-innocent. Draw parallels where you will, and must.

On Hoover's Reconstruction Finance Corporation (pgs 296-298):

On all other aspects of the Hoover New Deal, the President
blossomed rather than faltered. The most important plank in his
program—the RFC—was passed hurriedly in January by the Congress.
The RFC was provided with government capital totaling
$500 million, and was empowered to issue further debentures up
to $1.5 billion. Hoover asked none other than Bernard Baruch to
head the RFC, but Baruch declined. At that point, Hoover turned
to name as Chairman one of his most socialistic advisers, the one
who originally suggested the RFC to Hoover, Eugene Meyer, Jr.,
an old friend of Baruch’s. For the first five months of its life, the
lending activities of the RFC lay shrouded in secrecy, and only
determined action by the Democratic Congress finally forced the
agency to make periodic public reports, beginning at the end of
August. The bureaucratic excuse was that RFC loans should, like
bank loans or previous National Credit Corporation (NCC) loans,
remain confidential, lest public confidence in the aided bank or
business firm be weakened. But the point is that, since the RFC
was designed to lend money to unsound organizations about to
fail, they were weak and the public deserved to lose confidence, and
the sooner the better. Furthermore, since the taxpayers pay for
government and are supposed to be its “owners,” there is no excuse
for governmental representatives to keep secrets from their own
principals. In a democracy, secrecy is particularly culpable: for how
can the people possibly make intelligent decisions if the facts are
withheld from them by the government?
During the first five months of operation, from February to
June, the RFC made $1 billion worth of loans, of which 80 percent
was lent to banks and railroads, and about 60 percent to banks.
The Republican claim that the RFC loans were not at all political
rings pretty hollow in light of the facts. Thus, General Charles
Dawes resigned as President of the RFC on June 7. Less than three
weeks later, the Chicago bank which he headed, the Central
Republic Bank and Trust Company, received an RFC loan of $90
million even though the bank’s total deposits were only $95 million.
That General Dawes resigned and then promptly asked for
and received a huge loan for his own bank, certainly appears to be
mulcting of the taxpayers by political collusion. In addition, the
RFC granted a $14 million loan to the Union Trust Company of
Cleveland; chairman of the board of this bank was none other than
Joseph R. Nutt, treasurer of the Republican National Committee.
The successor to Dawes as head of the RFC was the Hon. Atlee
Pomerene, whose great contribution to economic wisdom was his
pronouncement that he would like to compel all merchants to
increase their purchases by 33 percent. There was the road to
recovery! Under Pomerene’s aegis, the FRC promptly authorized
a $12.3 million loan to the Guardian Trust Company, of Cleveland,
of which Pomerene was a director. Another loan of $7.4 million
was made to the Baltimore Trust Company, the vice-chairman
of which was the influential Republican Senator Phillips L. Goldsborough.
A loan of $13 million was granted to the Union
Guardian Trust Company of Detroit, a director of which was the
Secretary of Commerce, Roy D. Chapin.
Some $264 million were loaned to railroads during the five
months of secrecy. The theory was that railroad securities must be
protected, since many were held by savings banks and insurance
companies, alleged agents of the small investor. Of the $187 million
of loans that have been traced, $37 million were for the purpose
of making improvements, and $150 million to repay debts.
One of the first loans, for example, was a $5.75 million grant to the
Missouri Pacific to repay its debt to J.P. Morgan and Company. A
total of $11 million was loaned to the Van Sweringen railroads
(including the Missouri Pacific) to repay bank loans. $8 million
were loaned to the Baltimore and Ohio to repay a debt to Kuhn,
Loeb and Company. All in all, $44 million were granted to the railroads
by the RFC in order to repay bank loans. One of the main
enthusiasts for this policy was Eugene Meyer, on the grounds of
“promoting recovery,” and, frankly, “putting more money into the
banks.” But this “promotion of recovery” really meant that the taxpayers
were expropriated, and their money transferred by coercion
to a few banks, notably J.P. Morgan and Company, and Kuhn,
Loeb and Company. The extent of Meyer’s humanitarianism in
this affair may be gauged from the fact that his brother-in-law,
George Blumenthal, was a member of J.P. Morgan and Company,
and that Meyer had also served as a liaison officer between the
Morgan firm and the French government. In the case of the Missouri
Pacific, the RFC granted the loan despite an adverse warning
by a minority of the Interstate Commerce Commission, and, as
soon as the line had repaid its debt to Morgan, the Missouri Pacific
was gently allowed to go into bankruptcy.

On the futility of central banker attempts to create inflation, and the earnestness of bottom-callers in the midst of the depths of the recession (pg. 304):

And, as we noted above, we must not overlook the
frightening effect of the wave of bank failures on bank policies.
During the 1920s, a typical year might find 700 banks failing, with
deposits totaling $170 million. In 1930, 1350 banks failed, with
deposits of $837 million; in 1931, 2,293 banks collapsed, with
deposits of $1,690 million; and in 1932, 1,453 banks failed, having
$706 million in deposits. This enormous increase in bank failures
was enough to give any bank pause—particularly when the bankers
knew in their hearts that no bank (outside of the nonexisting ideal
100 percent bank) can ever withstand a determined run. Consequently,
the banks permitted their commercial loans to run down
without increasing their investments.
Thus, the Hoover administration pursued a giant inflationary
policy from March through July 1932, raising controlled reserves
by $1 billion through Fed purchase of government securities. If all
other factors had remained constant, and banks fully loaned up,
the money supply would have risen abruptly and wildly by over
$10 billion during that period. Instead, and fortunately, the inflationary
policy was reversed and turned into a rout. What defeated
it? Foreigners who lost confidence in the dollar, partly as a result
of the program, and drew out gold; American citizens who lost
confidence in the banks and changed their deposits into Federal
Reserve notes; and finally, bankers who refused to endanger themselves
any further, and either used the increased resources to repay
debt to the Federal Reserve or allowed them to pile up in the
vaults. And so, fortunately, inflation by the government was turned
into deflation by the policies of the public and the banks, and the
money supply dropped by $3.5 billion. As we shall see further
below, the American economy reached the depths of depression
during 1932 and 1933, and yet it had begun to turn upward by
mid-1932.

On the fearful public's monetary response to rumors of radicalism in the White House, and the catch-22 of central bank firefighting efforts (pg. 324):

Most important of the attacks on creditors’ property occurred
during the currency crisis that marked the end of the Hoover term.
After the election, as the new Presidential term approached, people
grew more and more apprehensive, and properly so, of the
monetary policies of the incoming president. Dark rumors circulated
about the radicalism of Roosevelt’s advisers, and of their willingness
to go off the gold standard. Consequently, not only did
gold “hoarding” by foreigners develop momentum, but even gold
hoarding by domestic citizens. For the first time in the depression,
American citizens were beginning to lose confidence in the dollar
itself. The loss of confidence reached its apogee in February, 1933,
the month before the Roosevelt inaugural. In that one month, the
monetary gold stock fell by $173 million, and money in circulation
increased by the phenomenal amount of $900 million, the reflection
of domestic loss of confidence. Money in circulation totaled
$5.4 billion at the end of January, and $6.3 billion by the end of
February. $700 million of this increase was in Federal Reserve
notes, and $140 million in gold coin and gold certificates.
The Federal Reserve did its best to combat this deflationary
pull on bank reserves, but its inflationary measures only served to
diminish confidence in the dollar still further. Thus, in the month
of February alone, Uncontrolled Reserves fell by $1,089 million.
The FRS greatly inflated its Controlled Reserves: bills discounted
more than doubled to increase by $308 million, bills bought multiplied
tenfold to increase by $305 million, $103 million of U.S.
governments were purchased. All in all, controlled reserves
increased by $785 million during this month; net reserves fell by
$305 million.

On deflation of fiduciary media (money-substitutes) and bank runs (pg. 326):

It is at times like these that the speciousness of apologists for our
banking system hailing fractional reserves as being as sound as the
building of bridges—on estimate that only some inhabitants of the
area will cross it at any one time—becomes patently evident. For
no one has a legal property ownership in the bridge, as they do in
their bank deposits. At times like these, also, it becomes clear that
bank deposits are not really money—even on a paper, let alone a
gold standard—but mere money-substitutes, which serve as money
ordinarily, but reveal their true identity when nationwide confidence
begins to collapse.

On central authorities turning to withdrawal moritoria and bank holidays to avert bank collapse, and the moral hazard of such policies which punishes conservative banks for their adherence to sound-banking principles (pgs. 326-328):

On the request of bankers for government to save them from
the consequences of their own mistakes, state after state, beginning
with Indiana, declared moratoria and bank holidays. Governor
Ritchie of Maryland declared a three-day bank holiday on February
24. On February 27, the member banks of the Cleveland
Clearing House Association decided arbitrarily to limit withdrawals
from all their branches, and no state officials acted to stop
this blatant infringement of property right. They were promptly
followed by Akron and Indianapolis banks. On February 27, the
Ohio, Pennsylvania, and Delaware legislatures authorized the state
banking officials to restrict the right of withdrawal of deposits.
The states adopted this procedure quickly and virtually without
debate, the laws being rammed through on the old political excuse
that the taxpaying and voting public must be kept in ignorance of
the situation in order to prevent panic.6 In such a manner do the
“people’s representatives” characteristically treat their supposed
principals.
One of the ironic aspects of this situation was the fact that many
national banks, which had worked hard to keep themselves in an at
least relatively sound position, did not want to avail themselves of
the special privilege of bank holiday, and had to be coerced into
doing so. As Willis puts it:
[i]n many cases, the national banks . . . had no wish to
join in the holiday provisions of the localities in which
they were situated. They had, in such cases, kept themselves
in position to meet all claims to which they might
be subject, and they desired naturally to demonstrate to
depositors and customers their ability to meet and overcome
the obstacles of the time, both as a service to such
customers and as an evidence of their own trustworthiness.
There followed what was deemed . . . the necessity
or desirability of coercing . . . the sound banks of the
community into acceptation of the standard thought
essential for the less liquid and less well-managed institutions.
7

And finally, on the inevitability of depression history repeating itself (pg. 337):

The guilt for the Great Depression
must, at long last, be lifted from the shoulders of the free-market
economy, and placed where it properly belongs: at the doors of
politicians, bureaucrats, and the mass of “enlightened” economists.
And in any other depression, past or future, the story will be the
same.

Bold emphasis mine.

Feser on Self Ownership

2009-08-25T10:55:00.000-04:00

Ed Feser is not a fan of Murray Rothbard as a philosopher. His latest post attacks the Rothbardian position that self ownership is axiomatic. Feser's first post on Rothbard challenged Rothbard's capabilities as a philosopher. One would expect that Feser would go the extra mile to avoid fallacious reasoning in his own criticisms of Rothbard.

Feser starts by sugesting that what makes something axiomatic is the degree of obviousness:

Again, what I am asking is whether the principle is plausibly axiomatic in the strictest sense.

What sense is that? One traditional way of thinking about it is this: A principle is axiomatic in the strictest sense if any proposition you could give as evidence for it would be less obviously true than the principle itself is. The law of non-contradiction is a standard example. Nothing you could say in defense of the law of non-contradiction is as obviously correct as the law of non-contradiction itself is. Call this special characteristic of strictly axiomatic propositions “self-evidence.”

By this standard, whether or not self ownership is an axiom depends on its obviousness. Feser doesn't explain how he determines the level of obviousness of a claim so I won't challenge him on that. I suppose one response to Feser would be to claim that self ownership really is obvious, but conflicting claims of obviousness seldom make for good philosophy.

Another understanding of of what it means for a claim to be axiomatic is that denial of that claim necessarily leads to absurdity. Look at Rothbard's defense of self ownership (In it, Rothbard attempts to show how every alternative leads to absurdity.) and it seems that this is what he means. In his latest post, Feser doesn't addresss whether Rothbard demonstrated that self ownership is axiomatic in that sense.

A few paragraphs later, Feser cites moral limits on what a person may do with his body...

Not so fast. Your right hand is indeed yours, as is your right foot, your right eye, and every other body part you can name. All well and good – and not terribly controversial. But what exactly does that entail? Does it entail that you are entitled to do absolutely anything you want with those body parts, provided you do not infringe the liberty of others? Does it entail that you can even do things that are immoral – on the grounds that since it’s your body, you have the absolute right to abuse it so long as you harm no one else? More to the point, is it strictly axiomatic or self-evident that you can do these things?

...as though this were evidence against self ownership. Not so. "A owns X" doesn't mean that A is morally free to do whatsoever A pleases with X. It means that it would be a crime for some other party to forcibly stop A from doing whatsoever he pleases with X. Since self ownership is controversial, an example related to computer ownership might help. It would be immoral for me to dash off a spiteful email to my mother. Yet from this, it does not follow that I do not own my computer.

Feser then cites a strong implication of Rothbard's view of self ownership:

Consider further: Suppose your adult child or best friend informs you that he has decided to do one of these things. To take a clear and fairly simple example, suppose he has become a devout follower of Schopenhauer and has decided, on well-thought out philosophical grounds (rather than some fleeting whim, say), to commit suicide. And suppose you try to talk him out of it, but to no avail. Is it strictly axiomatic or self-evident that you must not use force to prevent him from killing himself – such as by stealing his glass of hemlock, locking him in a padded room, or whatever? Because that is what the libertarian principle of self-ownership entails.

First of all, I'll be clear and say that Feser is correct in his last sentence. Self ownership really does imply this much. But does this show that self ownership is not axiomatic? This would count as a very powerful demonstration that self ownership is not axiomatic, if compatibility with conservative sensibilities were a requirement for a claim to be an axiom. But no such requirement exists. Citing the fact that self ownership has implications repugnant to conservative sensibilities doesn't show that self ownership is not axiomatic. It just shows that self ownership has implications repugnant to conservative sensibilities.

Two other gems stand out:

Property rights are not all-or-nothing. For almost all theories of property historically – and certainly for classical natural law theory, which is in my view the correct approach to moral questions generally – private property rights, even when very strong, nevertheless come with various qualifications.

So what? One can respond to any political philosophy by claiming that, "according to the opposing view, it's different."

Also:

To suggest that you either go along with Rothbard or you are logically committed to going the whole hog for socialism is just too silly for words.

Maybe some Rothbardian has made such a claim in haste but this strikes me as a straw man. I doubt that any student of Rothbard doesn't know that there are a host of political philosophies besides socialism which deny absolute self ownership.

If it weren't for the death panels and the socialistic nature of it all...

2009-08-21T00:33:00.001-04:00

I'm no supporter of anything remotely related to the idea that government has a legitimate role related to performing cost benefit analysis to determine whether or not people should be allowed to receive medical care. I don't have a very positive view of nationalizing industries. I don't believe government provision is likely to improve any industry. That said, It's disheartening to see that opponents of ObamaCare focus on these issues and ignore the elephant in the room:

Supporters of statist policies claim that government intervention is necessary for the provision of public goods and for remedying market failures. Leave aside the objections to this premise for a moment. Health care is rivalrous and excludable, that is, it is a private good. If there is some other problem related to health care (I keep reading about adverse selection.) then it remains to be established whether that is a market failure or a failure of the mixed economy. By the standards of pro-ObamaCare academics and public intellectuals, ObamaCare would take the goverment well outside of its proper role.

It might be that I'm too charitable in excluding the possibility that statist intellectuals are actually playing a bait-and-switch game which involves peddling the idea that the state should provide public goods and correct market failures in order to push policies in which the state provides private goods. Surely there are some plain hacks who would engage in this sort of thing, but I get the sense that most statists are sincere. I wish they would sincerely reconsider the huge disconnect between their theoretical reasons to favor government intervention and the actual interventions that they favor.

Free Market Allows For Massively Unproductive, Charitable Life; None Thankful

2009-08-11T18:19:00.005-04:00

The NYT.com reports that Eunice Kennedy Shriver has died. They write that she was a "a trailblazer in improving the lives of people with disabilities" as founder of the Special Olympics.

Shriver, who had no extensive private-sector career of her own with which to fund herself and her charitable impulses, nonetheless was able to contribute to society and focus her daily efforts on making the lives of the handicapped more enjoyable and respectable. How was she able to do this?

She was able to do this because her family had accumulated enough wealth over the years to support her (in dollar terms) unproductive lifestyle and interests. What is significant about this is the fact that an argument is commonly made against capitalism and free markets that it concentrates wealth into the hands of a few people or families in society, who then "hoard" this wealth and live materialistic lives of largesse off of it for generations, contributing nothing and "giving nothing back to society" in the process. This reasoning leads to calls for inheritance taxes, to ensure that once a wealthy individual dies no wealthy, lazy heirs are kinged and instead the money can be "redistributed back to society" (via government, of course).

The life of Eunice Kennedy Shriver stands as a testament to the falsity of this line of reasoning.

I Thought Racism Had Ended In America?

2009-07-21T15:47:00.003-04:00

We were told that black people thought race relations had improved in America following the election of Barack Obama, and that racial quietude was slowly creeping over America in the election's wake.

Turns out this is not so, or, at least, the quietude seems to have passed over the conscientious, liberal paramount of Harvard:

Professor Gates’s front door was stuck shut, and his taxi driver helped Professor Gates pry it open. According to the police report a woman called to report two black men on the porch of the home trying to wedge the door open.

Police and Professor Gates offered different accounts of what happened when officers arrived. According to Professor Ogletree, Professor Gates said he showed the responding officer, Sgt. James Crowley, photo identification, but he did not believe Professor Gates lived at the home. Frustrated, Professor Gates asked for Sgt. Crowley’s name and badge number, which he refused to give. Professor Gates was arrested on his front porch, where several other officers were standing.

Police said Professor Gates refused to show identification. When told that Sgt. Crowley was investigating a robbery, the police said Professor Gates yelled, “Why because I’m a black man in America?’ and accused the sergent of racism. The police report said Professor Gates followed the officer outside, yelled at him and was arrested for disorderly conduct.

Gates loud-volumed retort would seem to be more appropriate had someone just mistaken him for the President of the United States of America, at least in a post-racism America. But I guess that isn't this country after all.

Depoliticization Of Politics

2009-07-21T12:49:00.002-04:00

In Bernanke's testimony before Congress today, he repeatedly made the point, as he has in the past, that monetary policy must be protected from politics by allowing the Fed an appropriate level of independence from Congress. Without this independence, politicization of the Fed's decision-making process will jeopardize it's ability to make objective, sensible choices in maintaining the health and stability of the economy.

Now, if the Fed can't make good policy (what's the root of that word, by the way?) without being free of political intrigue, how does the Congress manage to do so, particularly in an incredibly trying economic time such as today's Great Depression II?

Or is Bernanke saying that the Congress has done a terrible job managing the economy due to the fact that it is wholly guided by political pandering?

Corrollary question(s): Bernanke continually remarked on the fiscal policy of Congress, and insisted repetitiously that healthcare spending in the United States poses the largest, long-term threat to the dollar/Treasury market going forward (this response was elicited anytime a Congressperson asked Bernanke if he was concerned about the bond market being able to handle the massive monetization of debt Bernanke has engaged in). He said that some kind of reform -- ie, the Obama healthcare plan -- need to occur to address this looming issue.

Why is it that the Fed is independent of Congress, but the Congress is not independent of the Fed? How is it that monetary policy can't be conducted with political pressure, but fiscal policy need keep in mind the pressure posed on it by monetary policy?

Utilitarian wierdness

2009-07-20T21:26:00.005-04:00

Scott Summner writes, "Now I think rich people should keep what they earn if and only if trying to take it away from them it will do more harm than good."

Commenting, I had asked "Do you think courts should allow this as a defense for private persons charged with theft? Or are you proposing a standard to be used for judging the actions of the state, with the unwritten caveat that different and less permissive standards should be used to judge the actions of private persons?"

I'd bet that like most people who express similar views, Sumner is a particularist on this but either way the implications are bizarre.

Besides the particularism/absurd jurisprudence dilemma, Sumner's view has an even odder implication: On Scott's stated view, each person's proper tax rate depends, in part, on how willing that person is to resist the taxing authority. For most people this part is no big deal but there are those rare tax resisters who would be willing to endanger the lives of others to avoid paying taxes. To be consistent, Sumner would have to admit that peaceful people should face a higher tax incidence than violent people like Gordon Kahl. That's an extreme example, but it's unavoidable once you grant Sumner's claim.

A "Ten-Sigma" Econo-Historical Event

2009-07-07T13:05:00.003-04:00

Defying odds that dictate a likelihood of 1 occurence in every 1 billion universes, Japan has officially become the only country in the whole world in all of history to become trapped in a "permanent" deflationary death spiral.

Now, to arrest this tailspin mid-crash and save Japan, a truly unique nation which is, to repeat, the only country ever, in the entire history of the entire human world, to become permanently (twenty years and counting... sometimes it just seems like forever!) embroiled in a deflationary meltdown, Japanese authorities and Bank of Japan economists are considering abolishing cash to assist in implementing negative interest rates to save the economy.

And the magic, negative interest rate number that will save the benighted Japanese economy once and for all? 4%.

Four-hundredths of the whole number one... the most powerful mathematical concept on the entire planet, possibly even in the universe in toto.

Of course, Japan's fall off the deflationary cliff happened in spite of its massive and similarly historically-unprecedented stimulus efforts. It couldn't have possibly been because of it.

Proposals like these are the absolute perfect example of why economics should be abandoned in favor of rereading some history lessons. When you arrive at the historically original moment and you have no clue why, you may want to check your historical premises.

The Fallacy of Pre-Emptive Regulation

2009-06-29T17:50:00.008-04:00

In the comments section of an NYT.com blog post about 3 employees who died in an accident at a Queens-based "waste transfer plant," I found the following comment:

Here in British Columbia we have one or two workers per year (on average) die in storage or processing tanks. One should not have to go to work and be at risk of death.

This is where we need government. The for-profit sector is completely incapable of regulating itself.

What kind of society has the West developed for itself?

— Stephen Moyse

Before I respond to this, let's take a quick look back at the article for a few important details:

According to the State Department of Environmental Conservation, the company has had a permit to manage solid waste since 1991. Its current permit allows for a daily capacity of 600 tons per day of solid waste and 266 tons per day of construction and demolition debris. The department intends to send staff to inspect the plant, said a department spokeswoman, Maureen Wren.

Records from the most recent inspection by the Occupational Safety and Health Administration, conducted earlier this year, show that the federal agency identified several serious violations at the plant, including violations concerning floor and wall openings and holes, industrial stairs, respiratory protection, medical services, and oxygen-fuel gas welding and cutting. The company was directed to pay thousands of dollars in penalties in connection with those violations.

What do we know about the plant now? We know that it was regulated by the government at the time of the accident.

Yet still there will be people like "Stephen Moyse" who call for further government regulation in response to an accident like this. In the worldview of people like "Stephen Moyse," accidents can't happen with "proper" government regulation and supervision. And when they do despite the existence of outstanding government regulations, this demonstrates that the events occurred within some Wild West free market-land where anything goes, profits trump personal safety and most accidents are not accidents but likely pre-meditated exploitations of the poor worker by the rich capitalist owner.

Am I being unfair and reading a strawman argument into Moyse's comment so I can ridicule it and knock it down? I don't think I am. I think there's a fallacy in the call for any government regulation, no matter how minor, that essentially logically leads to all of the things I just accused Moyse of thinking. Let me explain why.

Returning to the facts of this incident, we know that this plant was currently licensed to operate and had its safety standards regulated by various levels of government. We also know that the government recently found this company to be in violation of several of its own regulations and standards (which, it is unclear from the article whether or not the standards violated were related to the particulars of the accident that occured today), levied fines in the amount of thousands of dollars, but allowed the company to continue to operate. What does this tell us about this situation, the operation of governmental oversight and regulation and the balancing of costs and benefits from all parties involved, both public and private?

First, it shows us some level of incompetence to provide safety by the government. Despite these regulations, an accident still occured.

Second, it shows the operation of political motives and political cost accounting. The government identified this operation to be somewhat unsafe yet allowed it to remain in operation. The judgment that was made on the part of the regulatory agencies involved was that the potential risk of environmental damage or employee health problems, injuries or even accidental deaths was outweighed by the political hell that would be caused by trash and waste products piling up on the streets because of the plant being shutdown by the government for safety violations. Obviously, the removal of some waste processing capacity from the system overall would result in a disruption to waste processing overall, leading to unsightly and odiferous waste accumulation.

How could this situation be improved? How could the government better structure or enforce safety regulations to prevent such a tragedy from occuring again?

Perhaps the government could hire a full-time, state-employed "safety inspector" to work on-site, at every waste processing plant, every day. Or maybe it could hire TWO such inspectors. Or three, or four, or five... how many safety inspectors does it take to make sure no one gets hurt?

Perhaps the government could force waste processing firms to purchase better safety equipment for their employees who are faced with such hazardous work environments. But what quality of equipment is necessary? Does every employee need an N95 respirator? Do they all need their own oxygen supply carried on their back (and what happens if this leads to additional fatigue)? Or should every employee get a biohazard suit, perhaps like the kind the firefighters who arrived on scene likely wore? How do we determine what is the 'appropriate' safety gear for the task?

Perhaps the government could force these waste processing plants to provide their employees with more on-the-job safety training. But what is the most effective way to train? Should they have visits by experts who give speeches on occupational safety? Should they have video training seminars? Should training occur once a month? Once a week? Once a day? Four hours out of every eight-hour workday?

By now, I hope the point of my rhetorical questions are obvious. There's simply no way for the government to calculate the "best" way to ensure safety at these waste processing plants. There's no way for the government to calculate the most cost-effective way to ensure safety, either, because the government has no way to account for costs. The government has no way to measure the desire individuals have for waste processing capacity, versus occupational safety, as well as the desire employees at the plant have for jobs, versus occupational safety. It seems 'obvious' that everyone would value their life over another paycheck, but no one knows for sure which outcome is more likely in a given situation. The best they can do is estimate the potential risk according to their own knowledge and instincts and then make a decision from there, something the government is incapable of doing because it can not know the hearts and minds of individual waste processing employees, waste processing capacity buyers, etc. etc.

The government can not successfully pre-empt accidents in "hazardous" work environments (note: ALL work environments are hazardous because LIFE is hazardous... hazards to health and life simply exist in greater or lesser intensity and number in each different environment and location). And, as evidenced by the government's previously pitiful fine-rendering for past safety violations, the best the government can ever do on the safety front is respond after the fact (think: 9/11 and cockpit door reinforcement) and extract money from private enterprise through threats and fines, money which does not make anyone safer or better off except for the bureaucrats and public servants who are eventually paid with that money and thereby enjoy a bit more "financial safety" than they otherwise would have.

Some may try to argue that we can see all the injuries and deaths prevented by government safety regulation, but that's false because there's no way to know the future of risk for certain. And meanwhile, what goes unseen are all the benefits and incremental improvements to everyone's safety and enjoyment of life which are foregone because of arbitrary government regulations and fines which take away from the capital base of the economy, resulting in lower productivity and lower wealth overall than the alternative.

And similarly, what goes unseen are all of the injuries and deaths that occur because of these government regulations and fines, which make a "society" poorer and therefore more willing to sacrafice health and safety for material improvement while simultaneously making the prevention of injury and death more costly due to increased scarcity of resources.

Notes on medical licensing

2009-06-19T19:06:00.006-04:00

The difference of opinions between libertarians and non-libertarians on the issue of occupational licensing, especially medical licensing, is commonly portrayed by both sides as though it were between the following views:

Libertarian: Anyone should be free to offer their services as a surgeon. People with no surgical ability will not be common in the profession because of reputational effects, laws against fraud, tort costs and high malpractice insurance costs.

Non-Libertarian: If anyone were free to offer their services as a surgeon, someone might be operated on by an incompetent bozo.^[1] Therefore, the government should determine who is qualified to perform surgery and those attempting to enter the surgery business without approval should face fines and possibly jail.

That's how both sides often understand each other but it doesn't really capture the point of disagreement. The disagreement is more like this:

Non-Libertarian: Surgery requires a very high level of competence. The function of determining who may perform surgery should be performed by a monopoly. That monopoly should be the government.

Libertarian: Determining competence to perform surgery is a valuable service. Like other valuable services, it will be provided best when there are competing service providers. For good reasons, we all agree that no private sector provider of any service should use violence as a barrier to entry. For those same good reasons, we should all agree that no public sector service provider should use violence as barrier to entry.^[2]

The disagreement is not as to whether or not someone should be evaluating the competence of surgeons. Absent medical licensing, hospitals would still take competence into account when hiring surgeons. Few hospitals want to face lawsuits for malpractice. Insurance companies would be concerned with competence when setting malpractice policy premiums. Medical schools would be concerned with the competence of their graduates for fear of being seen as diploma mills. The disagreement concerns whether or not the service of evaluating surgical competence should be a government monopoly, like the Post Office, the IRS and the DHS.

If this still seems too fast and loose, there is a potential compromise solution that those in favor of occupational licensing should be willing to entertain: Let the government certify surgeons, but end the licensing requirement to practice. Let any patient hire any surgeon he is willing to hire, but let the surgeon advertise that the government finds his surgical skill up to snuff if the government so finds. This allows patients to enjoy the full benefit of having the government decide who is or is not competent to perform surgery. Sure, some people might choose to do business with surgeons that have not received government approval, but no one is deprived of the benefit of having the government evaluate surgical competence. I suspect that few proponents of medical licensing would actually accept this option, but I mention it because their reasons would be informative.

I expect that those opposed to replacing medical licensing with a non-mandatory government seal of approval would oppose the idea on the grounds that parties unqualified to evaluate surgical competence might enter the surgeon evaluation business. And that probably would happen. On the other hand, a government monopoly on medical licensing hardly prevents this. If anyone believes that government agencies are comprised of more qualified personnel than private firms, they ought to share their reasons for believing this.

That's the core of the disagreement. It's not about "The government should evaluate surgical competence" vs "No one should evaluate surgical competence. " The disagreement concerns whether or not evaluating surgical competence should be entrusted to a government monopoly.

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[1] People who favor statist policies often seem to think it decisive to point out that absent their preferred policy, something bad might happen. (I've actually heard all of these offered by otherwise intelligent people as one line proofs: Without lending regulation, bill collectors might extract internal organs from debtors. School vouchers might be used to fund schools teaching Islamic radicalism. Without a welfare state, some people might starve in the street. If anyone could own any weapon they liked, someone might detonate a massive bomb in a crowded mall. If hard drugs were legal, children might turn to crime to buy cocaine. Without securities regulation, people might gamble their money on reckless investments. If the CIA doesn't use "enhanced interrogation" a terrorist might refuse to divulge life saving information.) Does it never occur to them that (a) there is a worst case scenario associated with any policy option, even their favorite and (b) the worst case scenario associated with their preferred policy might well be worse than the alternative?

[2] This is apparently quite a leap for many. I don't know whether to be impressed or disgusted when I come across the rare statist willing to admit to believing that an argument can be logically valid when it refers to any of the thousands of private firms in the world but not when it refers to a government agency, for no other reason than other than the fact that the government agency is a government agency.

Social ARMageddon

2009-06-15T11:22:00.021-04:00

Rolfe Winkler, crypto-Marxist* and proprietor of the popular financial meltdown blog Option ARMageddon is at it again. In a recent post entitled Obama Embraces Demolition?, Winkler (hopefully) discusses the recent proposal by Genesee County, Michigan Treasurer Dan Kildee to bulldoze large tracts of Flint, Michigan and other nearby towns in an attempt at creating an area that is more manageable for local government to administer.

Winkler, the latent objective-value theorist and eventual public-planner hopeful, is in love with this idea. He has so far written several posts on the topic of bulldozing what he considers to be excess housing and infrastructure capacity in the name of saving and revitalizing what are popularly termed "blighted" communities. I've challenged him on his advocacy numerous times and have yet to get a straight, clear response to what he thinks about this issue, but judging from the responses I have received so far, including comments on the latest post which I will discuss below, it seems clear that Rolfe believes in central planning, believes he can dictate wealth, value and sustainability for far-off communities and ultimately that he believes in the Keynesian fallacy of pyramid-building/slum-demolition and the closely related fallacious syllogism "We are poor because we are rich."

Before I get to addressing the errors of Winkler and his Keynesian Kommenter Kohort, I should first be sure to clearly state my own thoughts on this subject, as well as take this opportunity to reiterate previous criticisms I've shared with Winkler via e-mail and in comments at his blog (since deleted, see "*" below), as I don't want to be accussed of hiding my own position or casting it in confusing language. Ever the moderate pragmatist, I'm sure Winkler will engage in enough obfuscation and mathematical meandering on his own for the two of us combined, falling back on weak insistences about the consideration of "carrying costs," "social benefits" and other pseudo-calculations to try to give his political moralizing the imperative tone of strict science.

As I've stated in comments on the topic in the past, I don't believe that turning to bulldozing large swaths of land at the behest of local politicians is optimal, efficient or necessary, economically, socially or otherwise. I believe the only solution which could possibly be all three is the one provided for via the free market. And my definition of the free market is that combination of transactions and exchanges that individuals come to on a voluntary, non-violent basis.

This isn't because I'm a "free market ideologue" or something, though that very well may be the case. It's because a centrally-planned solution won't work and can't work, and even worse, it's an immoral solution as well for anyone whose moral code prohibits coercing other people, which mine does. You can not say you are against violence and coercion and then advocate for a land-grabbing, bulldozing scheme thought up by local politicians (who are employees of the regional violence monopoly, aka government) without revealing yourself to be a big-time hypocrite. But even with the moral issue aside, any attempt at making an argument in terms of "costs and benefits" ends up being fruitless, because there is no way to account for EITHER under central planning.

Individuals exist. Society doesn't exist. Society is a symantic crutch. It's a term we use to relate to a number of individuals cooperating socially with one another. Individuals think, feel and value things. Society does none of these things. It is impossible to speak of society thinking, feeling or valuing unless the individual members of the society in question are all unanimously acting the same way, and even then it's clear that it is those individual members who are all acting identically, there is not an additional unitary being called society which has taken it upon itself to willfully behave in accordance with the community of individuals. And when the members of a society do not act unanimously, then you have arrived in the tricky zone of logic whereby you must engage in a contradiction-- you want to consider person A to be a member of society, whose "decisions" are enforceable on this person, yet you must acknowledge that person A's preferences are not shared by society, and in so doing you've created a situation whereby person A is both a part of society and not a part of society simultaneously.

For example, imagine a society of three people, Q, R and S. Q and R enjoy Baroque architecture, while S enjoys architecture from the Classical school. A person like Rolfe Winkler might say something like "society is fond of Baroque architecture" and he might even later fool himself into thinking that "society would benefit from the bulldozing of Classical architectural achievements." But S does not share this preference for Baroque architecture and would clearly not benefit from the bulldozing of Classical architecture examples. What are the implications? Either S is not actually a member of society, or he is but his values are deemed worthless and thus excludeable, or else it is incorrect (and incoherent) to say something like "society is fond of Baroque architecture."

So, it is useless to make claims such that bulldozing depressed communities will inherently "benefit society," or that the costs of not doing so are "too much for society to bear." These are not claims based upon the careful consideration of costs and benefits to individuals according to their own personal judgments and preferences. These are estimations and probabilities made in consideration of disingenuous social aggregates which can not bear costs and can not profit from benefits.

In the strict sense, ignoring attempts to compute carrying costs and infrastructure costs and other costs "to society" of leaving these areas in tact, it is wrong to say that "we are poor because we are rich." It is wrong to say, "We have too many houses" in an absolute sense, and that therefore they must be demolished. The truth is that we may have "too many houses... relative to current prices." There is always a price at which a market will clear, if prices are allowed to freely adjust (with time) and if the operation of this price mechanism is free of complicating influences from regulatory and tax burdens.

And then, if it is in fact the case, after careful and prudent individual consideration of the costs associated with maintaining a particular property by its rightful owner, that maintaining the property will result in a negative value surpassed by the value (positive or negative) of demolishing the property and/or renouncing the title, then and only then would it be proper for that owner to undertake a demolition. But there can be no way for a central planner in the Genesee County offices, for instance, to know this for themselves, and there can be no way for them to judge that such an undertaking would benefit "society" more than the cost such a demolition would impose on "society."

The very fact that these owners are NOT spontaneously demolishing their properties should be evidence enough that the Genesee County administrators have miscalculated costs and benefits.

Furthermore, I expressed skepticism about the true intentions of the politicians in promoting these demolition plans. I suggested that the entire operation sounded like a scam for the city to grab title to the lands (eminent domain) and then turn them over to politically-connected developers who, perhaps backed with federal stimulus funds, might turn around and magically "revitalize" these communities at taxpayer expense, enriching themselves greatly in the process.

I suggested that if it were really just about costs and benefits the local government need do no more than announce that anyone within the particular "blighted" areas would henceforth be responsible for fending for themselves, cut off the relevant infrastructure services being provided and see what happens. I suggested that the local bureaucrats might be afraid of doing just that not because this would be an invitation for criminal elements to move in, but because they likely know full-well that many likely would find a way to fend for themselves and call the bluff of the "necessity" of these public services in general.

I suggested that the people whose property is to be demolished and allowed to lie fallow will be victimized further as they will likely be moved into public housing and thereby become permanent wards of the system (aka a new, captive voting bloc) as so many others are. And I am newly suggesting right now that the decision-making process that leads to some areas being deemed demolition-worthy and others to be worthy of saving and serving to be entirely arbitrary and whimsical, as well.

So, with all of that background in mind, I want to take the opportunity now to respond to a few of the recent comments on this post of Winkler's (Obama Embraces Demolition? - comments), some of which were in response to me and some of which were in response to the original post itself, as I realize attempting to do so at Winkler's blog is unwanted and will likely be again deleted.

In other words, do you believe that we, as human beings, can achieve more prosperity by destroying the wealth that we have?

It’s only wealth if someone is willing to pay for it.

By K T Cat on Jun 14, 2009

Quotingm me in italics, "K T Cat" confuses monetary value and liquidity with wealth. The rejoinder to this is simple: if "K T Cat" owns a home, a car, a wardrobe, a washing machine, food and gold, are these things not part of "K T Cat"'s wealth if she can't find a buyer for them? Do these things not improve the quality of "K T Cat"'s life just because no one else wants them even if she does? Do they no longer serve a useful purpose (means) in helping "K T Cat" to pursue her ends if these items have zero exchange value?

Here's another comment:

On a deeper level it represents another move away from a laissez-faire system motivated largely by the cost of money, versus a resource-centric long-term national and regional planning approach.

By Gregman2 on Jun 14, 2009

Laughable. Besides "Gregman2"'s confusion about the "cost of money," he seems confused about who engages in "resource-centric" and "long-term" planning in an economy.

As government has no way to calculate costs and benefits (as discussed above), it has no way to efficiently and rationally allocate scarce resources. This is what the market does-- employing the price mechanism and the signals offered by profit and loss to private actors, the market system steers resources into their most valuable, most demanded and most efficient uses. In a market system, individuals bear the costs of their preferences alone, meaning that if someone prefers to employ a scarce resource inefficiently, he is free to do so but he must shoulder that burden by himself. In contrast, a central bureaucrat might arbitrarily decide to waste a scarce resource on a pet project that pleases him and his friends, while the cost gets passed on to those who pay taxes in support of his project. Ironically, many of these people might be individuals who would've paid for the privelege of employing this resource in their own projects but who have had the resource bid away from them by the public treasury to be wasted on a whim.

As for long-term planning... that requires saving. One might "plan" something grand for the future all they want, but if they don't save some of what they've produced now to employ in an investment in the future, that plan simply won't be realized. And saving is something the private sector does, not the public sector. The public sector is inherently incapable of saving. Government spending is not productive but rather consumptive (as I discussed in an earlier post). The government does not engage in profitable business ventures which return more money to the public treasury than are expensed in pursuing these ventures. Rather, the public treasury raises money through taxing the production of individuals in the private sector (taxing the salaries of public employees is similarly unproductive, as these individuals are engaged in the consumption of wealth during their employ as well).

The government does not plan for the long-term and it is incapable of doing so even if it tries.

This is really shortsighted.

These periods have happened before and people will go back to populating these areas–but only when the prices go down to where the average person would find it very affordable.

To put it another way–Imagine if you only spent 25% of what you now do on housing. How would that free up your finances? Would you spend more on other things? Would you save more? Invest?

Property values are just too high. They need to stop being artificially inflated and be allowed to drop to an affordable level. Creating scarcity isn’t the answer.

By Lisa on Jun 15, 2009

Lisa, that’s just not true. Flint has been in decline for 30 years. Detroit houses can be had for a median price of $6,000. Still, no one wants to live in these places. They’ve become crime-infested poverty-stricken disaster areas.

These blighted areas are the civil engineering equivalent of rotting corpses.

What little living tissue actually remains can only be rescued by amputating gangrenous extremities.

By RolfeWinkler on Jun 15, 2009

Despite "Lisa"'s ignorance in an earlier OA post I responded to, I have to say I agree with her completely in this case. In fact, she completely nailed it. She brought in Bastiat's "That Which is Seen, and That Which is Unseen" in noting that lower housing prices allow resources to be freed up for other uses. She also made the argument that I made earlier in this post, which is that all markets can clear given freely adjusting prices (this is known as Say's Law, which is better understood as the truism that supply creates its own demand).

Winkler, then, reveals his true colors in arguing against the truth that Lisa speaks. He makes several errors and engages in paradoxical thinking in the process. Let's look at them one by one:

Flint has been in decline for 30 years.

In my mind, I look at a community that has been in decline for 30-odd years and the first question I ask is "Why?" Why would people stick around? Flint is a mini-welfare state. That's one reason. It's likely THE reason, as well. Others would likely argue that people are "stuck" in these communities because they can't afford to move. The availability of welfare and other free public services (such as water, electricity, fire and police in an "unproductive" enclave) seem to provide incentives for people to stay in place and artificially raises the opportunity cost of moving.

Detroit houses can be had for a median price of $6,000. Still, no one wants to live in these places.

The is confusing and paradoxical. First, it appears that Winkler is making the mistake of engaging in objective value theorizing. To Winkler, $6,000 is a low price for a home, end of story. But if the home is delapidated, in an impoverished and "under-served" (welfare-statist favorite euphemism for a poor community suffering from ironically HIGH levels of government intervention), it's possible that $6,000 still isn't low enough to entice people to buy and move-in. If $6,000 is a good price, it should behoove Winkler and other potential investors to purchase this home and wait for price appreciation to cash-in on the purchase. They don't, because this isn't a good price, even at $6,000.

Second, it seems like something straight out of Yogi Berra's mouth to claim that "Still no one lives in these places" when this post discussed demolishing existing communities. It's obvious people do live in these places. Maybe they just aren't the type of people Winkler would like to see living there? But that goes right back to objective value theory-- who is to say Winkler is right about who should live where? That's his opinion, not an indisputable fact or law of nature.

They’ve become crime-infested poverty-stricken disaster areas.

I can't help myself but, government fails again! On two counts: 1.) existing government poverty-alleviation and policing efforts in these areas have failed miserably because these problems continue, and 2.) the government has acknowledged the futility of this struggle and admits its own weakness in resolving to withdraw from these communities entirely and return them to a state of nature!

These blighted areas are the civil engineering equivalent of rotting corpses.

What little living tissue actually remains can only be rescued by amputating gangrenous extremities.

You can't rescue tissue from a "rotting corpse," Rolfe. The very term implies death and dead tissue.

Rolfe and other supporters of demolition proposals want you to believe that you can affirm something by negating it. They want you to accept the fallacious logic that a community can be saved by virtue of it being destroyed. Just as in Vietnam it purportedly "became necessary to destroy the village in order to save it," and just as Bush, Hank Paulson, Ben Bernanke and Obama advised that they had to intervene in the free markets in order to save the free markets, Rolfe Winkler would like you to believe that communities must be demolished in order to be sustained. Rolfe wants you to believe that "we are poor because we are rich" and that we'd be richer if we divested ourselves of some of our wealth.

This is not logical thinking, it's not economic thinking and it is not socially beneficial thinking. This is anti-social ideology, morally relativistic confusion and political inebriation.

Rolfe Winkler is either incredibly, willfully ignorant of the damaging policies he is advocating or else he is maliciously aware of them and has another agenda entirely. Either way he is a menacing supporter of "Social ARMageddon."

---
* Winkler has recently taken a fancy to deleting challenging comments at his blog, specifically mine. In a recent blogpost, Winkler argued that "A perfectly free market for labor quickly leads to slavery." I advised Winkler that this was an error in economic thinking first made by Ricardo and popularized by Karl Marx, and is also known as Marx's "Iron Law of Wages." I helpfully linked to a number of resources that discuss and debunk this fallacious argument, and Winkler just as helpfully deleted the comment from existence. Apparently the truth doesn't pass muster as far as Winkler's misinformed opinion is concerned.

Costa Rican Anarchism

2009-06-10T01:31:00.003-04:00

I was just skipping through a copy of "Home" that I had downloaded and I came across some views of the Costa Rican landscape around the Arenal region of the country (and beautiful Volcan Arenal) when the narrator said something to the effect of, "Costa Rica made a decision between defense spending and environmental spending. Costa Rica no longer has an army, deciding instead to invest that money in promoting tourism and protecting it's natural environment."

Uh, dudes, wait a second. Now I have been to Costa Rica twice in the past 5 years and it is only now that I realize that each time I went, the country was not in fact a war zone as a result of competing local statist neighbors all attempting to prey on the poor, defenseless Costa Rica. True, the border near Nicaragua is a bit unstable and sometimes some of the more desperate former child-soldiers of that country will cross over to engage in a bit of petty crime, thuggery and general machisimo directed at whoever happens to make the mistake of being present for their menacing, but overall, things are pretty peaceful down there.

Isn't one of the bromides leveled by statists against anarchism the "fact" that even if people within a particular geographic zone all agree anarchy is the way to go, all it takes is one jerk outside that community to call himself king and raise an army and next thing you know, whoopsies, there goes all the anarchists' personal sovereignty?

So, what's the deal here-- is someone guaranteeing Costa Rica's sovereignty? Does the Costa Rican constitution allow for an army of fearsome bus drivers, translators, tour guides, coffee plantation workers and the assorted other menagerie that caters to eco-tourism down there to be raised in a time of dire need and impending doom?

Or is statist fact once again more like statist misinformed opinion?

California Political And Budgetary Theatrics

2009-05-20T17:58:00.004-04:00

At the LATimes.com, following California-voters' striking down of Propositions 1A-1E, Michael Finnegan says that representative government logically implies that all the problems of the government are the people's fault.

The article is full of chastisement for the painfully imbecilic California voter, from a wealth of state public policy wonks and current and former government leaders. Former California Governor Gray Davis, recalled due to incredible corruption and progenitor of the second-most recent California budgetary crisis, informs the people that they've been trying for decades to live beyond their means. State university professors lambast the people for being "unrealistic" and for "clearly" demanding more services than they're willing to pay for.

You'll laugh, you'll cry... you may even vomit a little in your own mouth.

From the producers who brought you "We Owe It To Ourselves" comes this summer's latest blockbuster epic drama, "They Did It To Themselves."

Now playing everywhere at a local, state and federal government near you.

Arguments from efficiency

2009-05-12T22:37:00.002-04:00

Recently Bryan Caplan and Robin Hanson had a well documented debate on one of the recurring themes in libertarian circles, liberty vs. efficiency.^[1] I think I understand the arguments on both sides and I always come away with the same reaction:

Those who argue for efficiency almost always skip too many steps ahead and jump right into some sort of cost-benefit analysis and those who argue for liberty nearly always let them do so. This kind of reasoning is faulty. Why? Two reasons:

Cost benefit analysis across different types of units (e.g. evaluation of a measure which increases the number of murders by x but reduces the number of robberies by y) depends on well defined marginal rates of substitution between different types of units. Consequentialists always want to just take theirs as given, but there is no reason why anyone should do so. Note: Not all scenarios have unique efficient solutions so it won't do to "take the preferences of others as given" or to claim to. The analysis can't get started without a marginal rate of substitution between Jones' utility and Smith's utility.

Cost benefit analysis presupposes a choice set (i.e. What is the set of knobs that we are free to twiddle in maximizing the objective function?) When consequentialists defend the claim that knobs A, B and C should be adjusted to settings X, Y and Z by listing their reasons for selecting settings X, Y and Z, they are skipping a necessary step: defending their identification of the choice set. Once they do that, then they can get on to the part about why X, Y and Z are the right settings. But consequentialists ought not to just assume that principles of justice, individual rights, and so on don't imply a narrower choice set than what they have in mind. Or if they want to make the assumption, they should at least do so explicitly by admitting that their analysis proceeds from the view that principles of justice, individual rights and the like are ethically unimportant.

The efficiency advocates should just start with "Every physically possible means for increasing efficiency is an acceptable means for doing so and it would be wrong not to do so. Here's why..." That's what the debate is ultimately about.

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[1] There are really two variations on this theme, liberty vs. efficiency as a guide for action and liberty vs. efficiency as a basis for promoting libertarianism. I'm only addressing the former here.

Our Enemy, The Fed

2009-05-07T17:24:00.003-04:00

...and Ben Bernanke, a truly evil and deceptive man who is not to be trusted under any circumstances whatsoever.

How does one say, "Free people be warned" in Latin? Caveat liberdem? Someone help me out here, I need to let people know before it's too late. Oh, wait...

Another critic of the Austrian business cycle theory

2009-05-05T23:40:00.004-04:00

John Quiggin has recently written a fairly lengthly article critical of Austrian business cycle theory (ABCT). It's remarkable how much the critics of the ABCT seem to misrepresent the position they claim to oppose. If I had to misrepresent some point of view in order to criticize it, I'd soon wonder if that point of view had more going for it that I had previously realized.

I quote his errors and give corrections below. I didn't originally intend to quote nearly all of Quiggin's article, but in quoting all of his errors it seems that I have do exactly that.

But the Austrians balked at the interventionist implications of their own position,

The ABCT has strictly anti-interventionist implications.

and failed to engage seriously with Keynesian ideas.

A large portion of Roger Garrison's Time and Money is devoted to comparing the Austrian view to the Keynesian view.

According to the theory, the business cycle unfolds in the following way. The money supply expands either because of an inflow of gold, printing of fiat money or financial innovations that increase the ratio of the effective money supply to the monetary base.

The ABCT only recognizes fiat money creation as distortionary.

The result is lower interest rates.

Yes, but that's not the point. The problem according to that Austrian theory isn't that rates are low. It is that rates are artificially low. That is, there is no increase in savings to warrant an increase in whatever investments follow.

Expansion of the money supply will lower (short-term) interest rates and therefore make investments more attractive.

Again, the problem isn't that monetary expansion makes investments attactive. It's that it makes investments appear attractive which are not suited to the preferences of consumers.

There’s an obvious implication about the (sub)optimality of market outcomes here, though more obvious to a generation of economists for whom arguments about rational expectations are second nature than it was 100 years ago. If investors correctly anticipate that a decline in interest rates will be temporary, they won’t evaluate long-term investments on the basis of current rates. So, the Austrian story requires either a failure of rational expectations, or a capital market failure that means that individuals rationally choose to make ‘bad’ investments on the assumption that someone else will bear the cost.

Quiggin is correct to note that the Austrian theory is incompatible with rational expectations. But Quiggin is clearly mistaken to think that Austrian business cycle theory implies a capital market failure. Rather, the Austrian view is that government manipulation of the credit market has ill effects in other markets.

A closely related point is that, unless Say’s Law is violated, the Austrian model implies that consumption should be negatively correlated with investment over the business cycle, whereas in fact the opposite is true. To the extent that booms are driven by mistaken beliefs that investments have become more profitable, they are typically characterized by high, not low, consumption.

The Austrian view does not imply what Quigging suggests. The graph below comes directly from Garrison's essay The Austrian School: Capital-Based Macroeconomics and shows consumption and investment increasing and decreasing together through the business cycle.

Quiggin continues:

Finally, the Austrian theory didn’t say much about labour markets, but for most people, unemployment is what makes the business cycle such a problem. It was left to Keynes to produce a theory of how the non-neutrality of money could produce sustained unemployment.

This is incorrect. In the article which includes the chart above, Garrison writes, "As boom turns to bust, much of the unemployment is associated with liquidations in the early stages of production. Too much capital and labor have been committed to new ventures. The liquidations release these factors of production, most of which can be reabsorbed—though, of course, not instantaneously—elsewhere in the structure of production. For the Austrians, this particular instance of structural unemployment is not something distinct from cyclical unemployment. Quite to the contrary, the cyclical unemployment that marks the beginning of the downturn has a characteristically structural quality about it."

Keynesian theorizing suffers especialy here, as it is impossible to discuss unemployment except in contradistinction to full employment. The concept of full emplyment presupposes an upper bound i.e. supply side constraints which receive hardly any attention in the Keynesian view.

Unfortunately, having put taken the first steps in the direction of a serious theory of the business cycle, Hayek and Mises spent the rest of their lives running hard in the opposite direction. As Laidler observes, they took a nihilistic ‘liquidationist’ view in the Great Depression, a position that is not entailed by the theory, but reflects an a priori commitment to laissez-faire. [...] And this mistake has hardened into dogma in the hands of their successors.

Hayek and Mises did not spend the rest of their lives advocating credit expansion. The liquidationist perspective is based on the view that it is desirable to reallocate unproductive resources to more productive uses, not on nihilism. Whether this view is dogma in anyone's mind is orthogonal to the question of whether it is true or false.

The modern Austrian school has tried to argue that the business cycle they describe is caused in some way by government policy, though the choice of policy varies from Austrian to Austrian - some blame paper money and want a gold standard, others blame central banks, some want a strict prohibition on fractional reserve banking while others favour a laissez-faire policy of free banking, where anyone who wants can print money and others still (Hayek for example) a system of competing currencies.

This much is correct. I include Quiggin's description of the diversity of Austrian views only as a contrast to his pejorative use of the term "dogma" in the previous sentence.

Rothbard (who seems to be the most popular exponent these days) blames central banking for the existence of the business cycle, which is somewhat problematic, since the business cycle predates central banking.

Roger Garrison and George Selgin come to mind as the most popular exponents of ABCT. No Austrian claims that all business cycles are cause by central banks, so the existence of business cycles in the absence of a central bank is hardly evidence against the ABCT. (By analogy, if I claim that nails in the road can cause flat tires, would Quiggin point to a tire that had gone flat in the absense of a nail as evidence against my claim about nails?)

In fact, central banking in its modern form was introduced in an attempt to stabilise the business cycle. The US Federal Reserve was only established in 1913, after Mises had published his analysis.Just because central banking was intended to serve as a stabilizer doesn't mean that it can't have the opposite effect.

The Fed does date back to 1913 but it was hardly the first central bank and the Federal Reserve Note was certainly not the first fiat currency.

Rothbard gets around this by defining central banking to cover almost any kind of bank that has some sort of government endorsement, such as the (private) Bank of England in the 19th century, and arguing for a system of free banking that would avoid, he asserts, these problems. But, on any plausible definition of the term, the US had free banking from the Jackson Administration to the Civil War [...]

One plausible definition of free banking is banking "without government interference." By this definition, the U.S. did not have free banking. Perhaps Quiggin belives that "with government interference" is a more plausible definition of "free."

[...] and that didn’t stop the business cycle (Rothbard offers some historical revisionism to argue that the Panic of 1837 didn’t really happen, but that wasn’t what US voters thought when they threw the Jacksonians out in 1840). And free banking in late 19th century Australia (our first quasi-central bank was the Commonwealth Bank established in 1915) didn’t prevent a huge boom and subsequent long depression around 1890.

No version of ABCT implies that the absence of a central bank implies the absence of business cycles. Perhaps Rothbard was incorrect about the panic of 1837 by in any case recession dating is not determined by vote.

Overall, the US was much closer to free banking throughout the 19th century than in the period from 1945 until the development of the largely unregulated ’shadow banking’ system in the 1990s, but the business cycle was worse then (how much worse is a matter of some controversy, but no serious economist claims it was better).

Quiggin cherry picks the period from 1945 until the 1990s. Why not the 1970s, when the dollar was finally detached from gold once and for all?

To sum up, the version of the Austrian Business Cycle Theory originally developed by Hayek and Mises gives strong reasons to think that an unregulated financial system will be prone to booms and busts and that this will be true for a wide range of monetary systems, particularly including gold standard systems.

Not so. The ABCT implies that government manipulation of the money market will create the potential for booms and busts.

But that is only part of what is needed for a complete account of the business cycle, and the theory can only be made coherent with a broadly Keynesian model of equilibrium unemployment.

I've already mentioned the inherent weakness of the Keynesian model in analyzing unemployment.

Trying to tie Austrian Business Cycle Theory to Austrian prejudices against government intervention has been a recipe for intellectual and policy disaster and theoretical stagnation.

The Austrian opposition to government intervention is not a prejudice. So far as I know no policy, disastrous or not, has ever been implemented on the basis of ABCT.

John, whatever it is that you disagree with, please stop calling it the Austrian business cycle theory.

Rothbard On Mankiw's Latest Scheme And More

2009-04-28T23:15:00.027-04:00

Recently Austrian economist and Ludwig von Mises Institute associate Bob Murphy has gotten into a bit of a tussle with Harvard non-economist Greg Mankiw over Mankiw's economically-illiterate proposal to spur aggregate spending by randomly deactivating 10% of the money supply through a serial number lottery.

Tonight I came across a passage in Rothbard's Man, Economy and State which I think perfectly addresses one of the underlying assumptions of Mankiw's suggestion and shows that assumption to be totally false. Frankly, I think it's such a brilliantly coherent and plain-spoken argument that I am surprised, with all the damn-near idolatrous quoting of Mises and Rothbard amongst many at the LvMI (they've even released a book to assist in the task!), that this particular passage doesn't get trotted out more frequently, if ever. I suppose it's because it's length doesn't lend itself to easy memorization or quick-draw quoting. Either way, here it is (Rothbard, 265):

Uncertainty, indeed, is a fundamental feature of all human action, and uncertainty about changing prices and changing value scales are aspects of this basic uncertainty. [...] An example of general uncertainty is an individual's typical desire to keep a certain amount of cash on hand "in case of a rainy day" or an emergency that will require an unanticipated expenditure of funds in some direction. His "feeling safer" in such a case demonstrates that money's only value is not simply when it makes exchanges; because of its very marketability, its mere possession in the hands of an individual performs a service for that person.

That money in one's cash balance is performing a service demonstrates the fallacy in the distinction that some writers make between "circulating" money and money in "idle hoards." In the first place, all money is always in someone's cash balance. It is never "moving" in some mysterious "circulation." It is in A's cash balance, and then when A buys eggs from B, it is shifted to B's cash balance. Secondly, regardless of the length of time any given unit of money is in one person's cash balance, it is performing a service to him, and is therefore never in an "idle hoard."

So, there you have it-- Rothbard anticipated Mankiw's silly Keynesian predilection and responded to it 47 years ago. Turns out Mankiw's "neo-Keynesian" streak isn't so neo after all, and some bad economic ideas seem to be timelessly so.

I think some of the implications here are clear but I'll elaborate on them in the event that they're not because I think Rothbard makes a few critiques of Mankiw's idea all at once.

First, the concern about hoarding that Mankiw is trying to address with his proposal turns out to be a non-issue. As Rothbard explains, it is not as if there is a quantity of money in the system that is perpetually circulating and another that sits and does nothing. In the event that money is exchanged, the circulation occurs almost instantaneously before it is again held in an "idle" state.

Second, this "idle" money has a value to the individual keeping it in their cash balance rather than exchanging it. It could be that the individual anticipates his money will become more valuable over time. It could be that the individual anticipates a potential expenditure to be less costly if he waits for a period of time (this is another way of considering the previous statement). It could also be that the individual is planning for a foreseen future need (saving for a child's education, the only good kind of saving any individual could ever possibly engage in according to the favorite canard of Harvard non-economists like Mankiw who stand to profit from such saving) or an unforeseen but anticipated future need (sudden illness, surgical operation, hot date with sexy little number in Accounting).

From these few points we can see why Mankiw's idea is truly monstrous. In the name of saving the economy and all the value it can potentially create, Mankiw sets out to randomly destroy parts of it. He does this to promote spending at the expense of saving and in the process implies that spending is more valuable to an economy than saving. But as Rothbard demonstrates, saving and spending both have value and utility to money-users. All money not in the act of being spent is in fact being "saved" in anticipation of being spent.

Mankiw's suggestion is hazardous to economic health and rational economic planning, that is, the subjective, individual planning of every person with regards to their own limited resources. It punishes all money holders equally, something that most economists like Mankiw would consider to be regressive in light of the fact that non-wealthy individuals' savings would be under the same proportionate threat as wealthy individuals' savings.

It would make "rainy-day" savings held as cash highly unreliable and could put undue stress on wealthy and non-wealthy money users alike in the event that their money is suddenly turned worthless by lottery. Imagine working your ass off for several years to take your family on a nice summer trip to Greece. You finally have enough to buy the tickets only to find that Mankiw's Money Accelerator lottery system has randomly invalidated 10% of the money supply. Even better, by a stroke of luck ALL the money you hold happens to be within the serial number range of the lottery-- you're not going to Greece, you're going to the poorhouse!

And talk about Bubblemania, the world's stock, commodity and bond markets would become lightning rounds of hot-potato, as just as soon as you're able to sell something for cash (if even you could) there'd be an incentive to turn right back around and buy something else to rid yourself of cash in favor of a non-serialized investment.

Mankiw claims to be suspicious of gold-as-money and has in the past advocated that the end of the gold standard was the best thing that happened in the 30's. His proposal, if enacted as a policy, would send the gold price skyrocketing overnight and essentially guarantee that people distrust fiat currencies in favor of gold. Is Mankiw a goldbug, or just that stupid?

---

The Rothbard passage also gave me another idea. Just as it got me thinking about what really happens with money being saved or circulated, I began thinking about what it means when we say that "The government bailed out company X today for Y billion dollars," or as is popular in California right now with radio ads in support of recent ballot propositions, "Proposition Z means spending more money on schools and students!"

When we hear things like this, on an abstract level, we tend to think of companies, schools and students as these mechanical entities that require numerous inputs to function properly, one of which is money. Just as you put oil into a car engine which it slowly consumes over time, companies, schools and students require money that is consumed in the course of operation. More precisely what I am saying is that money is paid to or spent on a company, a school or a student as an abstract entity.

For example, the state of California might budget $50,000 for school district G, which is then spent on school district G and suddenly school district G is magically better. The money "evaporates" through the expenditure process and life goes on. This might seem silly at first but bear with me. Obviously, that's not really what happens, so the question is, where does the money go?

The money goes to people.

It always goes to people. It must go to people.

If you buy limestone for your kitchen counter-tops, you aren't paying a limestone rock. You're paying a limestone rock supplier, who pays a limestone rock mining company and the company pays its owners, managers and employees. There is not some wealthy limestone rock out there, sitting around inertly with a big pile of money next to it.

When the government bails out Goldman-Sachs, it's paying off all the people who are owed money by Goldman-Sachs. Similarly, when money goes into AIG to pay off their counter-parties, that money is simply being transferred to other companies that are then paying out to individual equity holders, managers and employees (you can bet people are getting bonused throughout as that's how many compensation plans are set up).

And when a radio ad makes the plea for spending more money on schools and students, money isn't being paid to a physical school building, or to individual students. It's going into the pockets of building contractors, textbook writers and publishers, learning material producers and individual teachers and administrators. In plainer terms, it's a business transaction with self-interested parties of individuals who stand to benefit monetarily each and every time. There is no altruistic gift of cash to the god of education or some such.

Again, this might seem like common sense and you might be wondering why I even bother mentioning it, but is it? Many times people seem to take it for granted that the bailouts are a good thing, or spending more on "schools and students" means the quantity and quality of education will improve. But for these things to be true it must also be true that individual-at-AIG-counter-party-F getting $175,000 in bonus this year rather than just $45,000 in bonus had the CDS he bought have defaulted, be a good thing. And it must be true that Mrs. Teacher D make $48,000 in salary this year rather than just $43,000.

We have to believe that if these people don't make more money, the economy will fail or the educational system will be lacking. If an electrician (unionized, of course) doesn't get paid $5,000 to change out a few light bulbs, the students will be indelibly harmed in their effort to learn more about the glories of civic government. If another Mercedes-Benz-driving district administrator with an MBA can't be hired for another $70,000 a year, the dropout rate will rise 2%. If the principal can't be kept on with four weeks paid vacation, rather than three weeks, all hell will break loose.

Money is spent on people, whether it's the cattle-farmer, the loan officer, the librarian, the accountant, the firefighter or the doctor. Money ultimately buys the effort (time) of people.

---

One final point I wanted to make, again somewhat inspired by this entire topic-- Austrians seem to be the only ones who have a theory of government which sees the government as exogenous to a functioning economy, and not an assumed part of it.

It's clear that Mankiw and fellow Keynesians reason their support of government intervention as follows:

Markets can be inefficient and suffer from market failures, and
Governments exist, therefore
Governments should intervene in markets to correct for market failures.

The existence of something doesn't necessitate its use or its beneficence, however. Keynesian economic models are dependent on a governmental framework. I've never seen a Keynesian explain the working of an economic system in an axiomatic fashion, starting from first principles and working up to a modern, division-of-labor economy. In fact, anytime I have seen anything that comes close to approximating this approach, it usually goes something like this:

Farmer John and Jeff live on a secluded island with a waterfall.
Each farmer would be better off if they had electricity.
The monetary benefit of a hydro-electric dam to the two farmers would be $500. The cost of the dam would be $400. Each farmer is only willing to contribute $199 to the construction of a dam.
The government could tax each farmer for $200 to build the dam for $400 and each farmer would benefit to the tune of $250. The government should build the dam to correct for this market failure.

There are a lot of built-in assumptions here. One is money, for which no explanation is given of how the money arose or how it operates. Another is the assumption that the individual benefits to each farmer of dam-provided electricity (the subjective value) is knowable and expressible in money-prices. A third assumption is that a government exists. The final assumption is that the government should correct for these inefficiencies whenever they arise. But the model takes place on a secluded island with two resident-farmers!

Obviously my example isn't entirely charitable to Keynesian economic modelers but at the same time I don't think it's altogether inaccurate. Consider it a model, just as a Keynesian might ask you to. The point I'm trying to demonstrate with my model is that Keynesians like Mankiw assume that because a tool like government exists, it is proper to use it in solving a perceived economic problem. What remains unaccounted for is how this tool was presented to us in the first place. The origin and production structure of a particular tool is important to understanding the economic value of that tool.

Maybe I can build and utilize a truck for load-hauling, but the truck requires more labor and capital inputs to build than would be expended by individuals carrying the loads in their bare hands. In such a case, it's clear that just because I could build and use such a truck doesn't mean that economically-speaking I should, because doing so is an obvious waste and creates more economic inefficiency than it solves.

Austrians point out that, when the nature, production and utilization of government are put into consideration, government reveals itself to be a destructive and wasteful economic tool. That's why Austrians avoid working the government into the proposed solutions for their economic models.

Keynesians just ignore this issue completely and operate off unshared assumptions.

Suicide On The Rise Amongst Government Employees

2009-04-22T21:23:00.002-04:00

Troubling news from the nation's single largest employer. Time.com is wondering Why Are Army Recruiters Killing Themselves?

When Army Staff Sergeant Amanda Henderson ran into Staff Sergeant Larry Flores in their Texas recruiting station last August, she was shocked by the dark circles under his eyes and his ragged appearance. "Are you O.K.?" she asked the normally squared-away soldier. "Sergeant Henderson, I am just really tired," he replied. "I had such a bad, long week, it was ridiculous." The previous Saturday, Flores' commanders had berated him for poor performance. He had worked every day since from 6:30 a.m. to 10 p.m., trying to persuade the youth of Nacogdoches to wear Army green. "But I'm O.K.," he told her.

No, he wasn't. Later that night, Flores hanged himself in his garage with an extension cord. Henderson and her husband Patrick, both Army recruiters, were stunned. "I'll never forget sitting there at Sergeant Flores' memorial service with my husband and seeing his wife crying," Amanda recalls. "I remember looking over at Patrick and going, 'Why did he do this to her? Why did he do this to his children?' " Patrick didn't say anything, and Amanda now says Flores' suicide "triggered" something in her husband. Six weeks later, Patrick hanged himself with a dog chain in their backyard shed.

And at the New York Times website today, we learn that Freddie Mac Executive Found Dead:

The pressures were already immense when David B. Kellermann was promoted to the top financial position at mortgage giant Freddie Mac last September. Then they got even worse.

Mr. Kellermann’s boss and other top executives were ousted when the Treasury secretary seized Freddie Mac and its sibling company Fannie Mae; others left on their own and were not replaced. Soon President Obama told the firms they were responsible for implementing some of his programs to revive the economy, in addition to keeping the housing market afloat by buying and selling hundreds of thousands of mortgages a month.
Mr. Kellermann, 41, began working non-stop, sometimes returning home only to change clothes, colleagues say. He was losing weight and telling friends that it seemed impossible to appease everyone — regulators, lawmakers, investors and other executives — with competing demands. Someone was always angry at him, he told one friend. And no matter how many hours everyone worked, it seemed like the economy and homeowners were still slipping further into the abyss.

...

Early Tuesday, Mr. Kellermann reportedly went to the basement of his brick home and hanged himself.

A common argument amongst some supporters of state intervention in the labor market is that without it, employees would be at the mercy of their employers-- their wages and benefits would be reduced to subsistence levels, their hours jacked up to the point of sleep deprivation, their family life would be destroyed in the name of higher productivity and the worker's ability to esteem himself for his own handiwork would be lost in the turmoil of seemingly unending exploitation and degradation.

And yet, we never seem to hear enough about how poorly paid the average "public servant" is, from the teacher to the policeman to the court-appointed attorney, individuals whose meager salaries (ignoring possible future retirement benefits) impress even more considering how many can tell a story of working "off the clock" and never receiving the overtime they are due. Everyday now, too, the newswires ring with more and more stories of disgruntlement and suicide amongst employees of the state, whether they be lowly army recruiters who can't ever seem to make their quotas, or flashy, important government-backed housing finance executives who endure much suffering trying to figure out which of their many masters should be obeyed first.

True, there's always a risk that an employee might suffer at the hands of an employer through the inexorable functioning of private enterprise. But let's not kid ourselves... it seems obvious from some of the stories above that laboring for the State is no Workers' Paradise either.

After all, it was government employees on the fritz that gave us our cherished goin'-wacko phrase, "That guy went postal."

How Adam And Eve Were Responsible For Filling The World With Sin

2009-04-07T00:54:00.002-04:00

In the "reductio ad absurdum" department we have this question-begging turn of events from Los Angeles, CA, when a cop accidentally kills a few people in a vehicle collision and their deaths are blamed on the parolee the cop was chasing:

Charles and Susanne Antuna were driving their Chrysler PT Cruiser to church to hear their daughter sing in a musical. A La Habra police officer was racing in her patrol car to help other officers in pursuit of a wanted parolee.

Just after 5 p.m. Sunday at the intersection of Euclid Street and La Habra Boulevard, the two cars collided. Susanne Antuna, 55, died at the scene. Charles Antuna, 54, died early Monday at UC Irvine Medical Center.

The officer, whose name was not released because of an ongoing investigation by the California Highway Patrol, was taken to the same hospital and treated for soft tissue injuries.

Within hours of the crash, the parolee, Roary William Gorbea, 27, had been arrested on suspicion of indirectly causing the couple's deaths by leading police on a pursuit. The next day, the Antunas' daughter Andrea was disputing reports that the patrol car's lights and siren were on when it entered the intersection.

Witnesses told authorities the patrol car had its lights and sirens on at the time of the collision, said Officer Ray Payton of the Westminster office of the California Highway Patrol. There is also preliminary evidence that the victims were not wearing seat belts, he said.

But Andrea Antuna told television station KABC that witnesses told her there were no sirens. "They take that officer to the hospital right away, and she's fine, but my dad is gone, and now my mom's gone," she said.

The chain of events began when La Habra police tried to arrest Gorbea at a home in the 200 block of Capella Street. Gorbea fled, and police followed, believing he was armed and dangerous, said La Habra Police spokeswoman Cindy Knapp.

Gorbea had been arrested and convicted of shooting at a La Habra police officer, "a fact known to the pursuing officers," according to a news release from La Habra police.

The officer was responding to an "officer needs assistance" call when she drove into the intersection, traveling at what witnesses told investigators was about 50 mph.

But one man who saw the accident from a nearby park said the police car appeared to be going more than 65 mph.

"The cop car flew through the intersection and hit a car straight on and flipped the car into the Police Department parking lot," said Hugo Islas, 27, of Rancho Cucamonga. "I didn't understand why they were going so fast."

The La Habra Police Department declined to comment on the patrol car's speed, citing the ongoing investigation.

Gorbea was arrested about 9:15 p.m. Sunday after a standoff with police in an apartment complex in the 900 block of North Hillside Avenue.

He was booked at the La Habra Police Department on suspicion of murder as well as for parole violation, resisting officers and gang affiliation. He is being held without bail.

"The accident was a result of his actions," Knapp said.

The bold emphasis is mine. Need I say more?

Bailouts In The News

2009-04-07T00:16:00.003-04:00

Here's the top story from the New York Times "Global Edition" website:

Few Strings on Russian-Style Bailout
TOLYATTI, Russia — A bailout for Avtovaz, one of the least efficient automakers in the world, is intended more to ensure peace than to restructure a business.

Could this be a plausible headline and story for the U.S. edition, too? Let's see:

A Few Strings on American-Style Bailout
DETROIT, Michigan — A bailout for GM, one of the least efficient automakers in the world, is intended more to ensure peace and protect bondholders than to restructure a business.

If the shoe fits...

Interpreting Rothbard: Price And Supply Offered

2009-03-29T19:37:00.003-04:00

On page 123, chapter 2, "Direct Exchange" of Murray Rothbard's economic treatise Man, Economy and State (full PDF), Murray says the following about the supply of horses offered at given prices according to an individual, "Johnson" and his value scale:

He will supply zero horses up to a price of 80, one horse at a price between 81 and 87, two horses with the price between 88 and 94, three horses at a price of 95 to 98, and four horses at a price of 99 and above.

(I invite the reader to view the page in the linked PDF himself to see the value-scale being referred to, which has not been reproduced here.)

Rothbard would perhaps more clearly make his point if he said "up to two horses," etc., rather than "two horses." For instance, Johnson will supply "up to two horses with the price between 88 and 94," but he may supply only one, if he can persuade a buyer to accept only one horse for that price. If he can not, he'd be willing to supply an additional horse at that price, if necessary.

I think, however, that the point Rothbard was trying to make was more broad-- according to Johnson's value scale, various prices would promote a willingness within him to part for an increasing number of his stock of horses.

Interpreting Rothbard: Prices In Direct Exchange

2009-03-28T12:30:00.004-04:00

On page 103, chapter 2, "Direct Exchange" of Murray Rothbard's economic treatise Man, Economy and State (full PDF), Murray says the following about the determination of prices in direct exchange:

If two cows exchange for 1,000 berries, the the price of cows in terms of berries ("the berry-price of cows") is 500 berries per cow. Conversely, the price of berries in terms of cows ("the cow-price of berries") is 1/500 cow per berry.

This passage seems to stand in contradiction to another one, two pages later, page 105:

It must be reiterated that a good is not defined by its physical characteristics, but by the equal serviceability of its units to the actor. Now, clearly, a berry from a longer distance, since it must call forth the disutility of labor to move it, is not the same good as the berry from a shorter distance, even though it is physically the same berry. The very fact that it is further away means that it is not as serviceable as the other berry, and hence not the same good.

(Further contradictions appear to be relevant in the definition of "goods" on pages 69-70. I invite you to check the extended passage and explanation of the difference between "ice-in-the-summer" and "ice-in-the-winter" if you're curious.)

Rothbard seems to be contradicting himself here because it's not readily apparent, from his example, that 1/500th of a cow is as serviceable as 1 whole cow, in the sense that it's accurate to say 1 cow exchanges for 500 berries while 1/500th of a cow exchanges for 1 berry. It seems Rothbard is confusing the apparent ease of divisibility and equality of serviceability of individual, single-quantity berry units qua a 500-quantity supply of berries, with the idea that 1 cow, which exchanges for 500 berries, can be divided into 500 pieces itself and trade 1:1 with each berry.

It should seem obvious that generally-speaking, 1/500th of a cow is not 1/500th as serviceable as a whole cow. In fact, they would seem to be completely different goods. Whereas a whole cow is alive (it could be dead but we assume "cow" means live cow whereas "dead cow" means dead cow, a la "pez" vs "pescado"), can move itself, can perform labor, etc. (actions which are generic to "cow" and not specific to "male cow/steer/bull" or "female cow" which would be further different goods), 1/500th of a cow could be anything from the head of the cow, the leather (skin) of the cow, individual organs of the cow, cuts of meat from the cow, etc. Each of these are also different goods from one another, so long as their "serviceability" is determined to be different from the subjective point of view of the actor.

It's entirely possible that the actor in question might judge the serviceability of 1 whole cow to be equal to that of 1/500th of a cow, but that doesn't seem to be implied by Rothbard, or else why would 1 whole cow trade for 500 berries, while 1/500th of a cow trades for 1 berry?

So, then, it seems that from the evidence at hand, Rothbard is correct in his logic and the point he's making but perhaps could've picked an example which less confusingly made that point without requiring the reader to correct for his sloppy pen.

Interpreting Rothbard: Classifying Human Action

2009-03-21T11:42:00.004-04:00

On page 2, chapter 1, "The Fundamentals of Human Action" of Murray Rothbard's economic treatise Man, Economy and State (full PDF), Murray says the following about human action:

All human beings act by virtue of their existence and their nature as human beings. We could not conceive of human beings who do not act purposefully, who have no ends in view that they desire and attempt to attain. Things that did not act, that did not behave purposefully, would no longer be classified as human.
[...]
The contrary -- the absence of motivated behavior -- would apply only to plants and inorganic matter.

I find Rothbard's formulation of the axiom of human action here confusing and sloppily worded.

To begin with, read literally, Rothbard's insistence that individuals that do not "act," where "acting" is defined as having "ends in view that they desire and attempt to attain," seems to rule out brain-dead human beings, as well as individual human beings who suffer from forms of mental retardation which do not permit them to "act" as it is so defined. Are these individuals no longer to be classified as human as Rothbard suggests?

Additionally, Rothbard seems to build the case that only human beings act. Yet later on the page (quoted above) he says that the "absence of motivated behavior" applies only to plants and inorganic matter. This means other animals such as mammals, lizards, amphibians, fish, etc. have motivated behavior (ie, act "purposefully") but do not count as human beings, which seems obvious, but if we are trying to define and develop a science of specifically human action, it seems like a bit of an oversight to leave room for non-humans to be described by the same special factors that classify an animal as human.

Santino, a chimp in a Swedish zoo whose rock-stockpiling behavior demonstrates an anticipation of future moods and desires (time preference) would seem, by Rothbard's loose explanation of "action" and the way in which we classify things as human, to be at least a nominee for admission into the human race. But clearly he's still a chimpanzee, and it's hard to believe Rothbard meant to include intelligent animal behavior such as that of Santino under the umbrella of human action.

Illegal immigration

2009-03-19T20:41:00.002-04:00

Some libertarians take the view that although the initiation of force has outcomes that are almost universally lousy, the world would be a better place if the government would do more to initiate force against people born in Mexico who try to sell their labor in California without permission from people in the District of Columbia. I'm not among them.

Why not? I don't have an especially detailed argument on this one.

I take it as given that:
1. Any policy which requires someone to do something immoral is a bad policy.
2. If my pals and I were to use violence on people who enter the country without our approval, that would be immoral.
3. The government is not an exception to ethics, so if it's immoral for us to do it, it's immoral for the government to do it.
4. Immigration laws require the employees of the enforcing agency to use violence on those who enter the country without the approval of the employees of the enforcing agency.

From these, it follows that:
5. Immigration laws require someone to do something immoral. (from 2,3,4)
6. Immigration laws are a bad policy. (from 1 & 5)

I wonder which part the persons in favor of immigration restrictions disagree with.

I agree: Doing nothing is not an option!

2009-02-28T22:36:00.004-05:00

I'm surprised to find myself in agreement with the pro-stimulus crowd on anything, but it seems that I am. In the words of Barack Obama, "Doing nothing is not an option."

I just get the impression that Obama doesn't understand what he's saying or what it is that he disagrees with. When the government taxes away the income earned by productive people and businesses, those people and businesses have to cancel their plans to do something with the money that the government takes from them. They have no choice but to do nothing with the money that they had to the state.

No one favors doing nothing. The relevant disagreement is between two ways of favoring doing something: the view that politicians who can impose the costs of their errors on others are better at doing something and the view that private persons who will bear the costs of their own mistakes are better at doing something.

Seeing It Their Way / Why I'm Not Your Kind of Libertarian

2009-02-26T19:56:00.010-05:00

I seldom pay attention to left wing blogs but from time to time the comments there can be eye opening. Take, for example, the following:

"It's times like this that remind me of the differences between "conservatives" and "libertarians". Conservatives are, through no fault of their own, grim social maladroits incapable of thinking or drawing outside of the lines, constricted as they are by child-like notions of "that's the way it always been", "different = wrong", and whatever religious hoodoo was drummed into their inelastic brains during their joyless and awkward adolescence.

Libertarians, on the other hand, are just assholes."

The whole thing is not much better. On the other hand, material like this is illustrative of the nature of disagreements in politics. There is a natural instinct to slur the other side, rather than to look at what the other side actually believes and show why the other side is actually wrong. If liberalism were utterly vacuous, I'd understand why liberals would resort to this kind of stuff. (Yes, I know Ann Coulter exists. It's not just liberals.) But liberalism isn't utterly vacuous. I don't agree with most of the positions that liberals hold, but even I don't think the case for liberalism is so soggy that vitriol is a better alternative. Note: If you act as if you think the best case for your political philosophy consists of vitriol and ridicule, don't be surprised if the other side appears intractable.

For the sake of practicing what I've just preached, here's what I think a thoughtful liberal would actually say about the the merits of liberalism vs. libertarianism:

Libertarians favor a world where all or nearly all decisions about how to use resources are made only by those who own them. And in some cases, this makes sense. But in plenty of situations, the decision concerning how a resource gets used has a great deal of impact on many people other than the owner of those resources.

As an example, a for-profit drug company has a much greater financial incentive to develop treatments for impotence than for a cure for diseases like AIDS. The libertarians will claim that this is a good thing on grounds of economic efficiency: "If there is more demand for impotence drugs than for AIDS drugs, that's a clear sign that the consumers value impotence drugs more than they value AIDS drugs. If a drug company were to disregard this signal from the market, they wouldn't be satisfying the desires revealed by their customers. How can anyone claim to be concerned about the welfare of the users of pharmaceutical products and then complain when a drug company responds to the preferences that those consumers reveal in the market?" Or the more philosophical libertarian will bypass the issue of consumer satisfaction entirely: "However good or bad the choice to focus on impotence drugs may be, the drug company's freedom to choose its own production plan is inviolable or nearly inviolable."

Both of these libertarian views are problematic. The first approach is mistaken in assuming that profitability is a good index of preference satisfaction. Can anyone seriously believe that people with AIDS don't value their survival more than middle aged men value sex? Impotence drugs fetch a higher price than AIDS drugs, not because they are more preferred, but because the primary consumer base for impotence drugs is wealthier than the consumer base for AIDS drugs. A Rothbardian will accuse me of making an interpersonal comparison of utility. Well, I am but (1) it's not unreasonable to assume that AIDS victims value their survival more than old men value sex and (2) libertarians are guity of interpersonal aggregation of utility when they point to consumer and producer surplus and this aggregation is weighted in favor of the wealthy.

The second approach takes it as given that freedom is a good thing, which is true enough, but the problem arises in the interpretation. Yes, freedom is a wonderful thing, but not so wonderful that it should be preserved at any cost. Indeed, there are libertarians who will claim that there is no case in which the attenuation of the freedom of others is justifiable. It's an initiation of force, no matter what the anticipated benefit. Perhaps they believe this, but if so, then they haven't fully thought through their ideas. Do they believe in self defense, defense of property, restitution, etc? No system of justice can have an error rate of exatly zero, so any attempt at securing justice will lead to the possibility that the rights of an innocent are violated.

If libertarians agree that giving up some amount of freedom is acceptable to further other ends, then we disagree only on what the marginal rate of substitution between freedom and all other goals happens to be. So what's the "right" marginal rate of substitution between one norm and all others? Once the libertarian admits that he's willing, at least in principle, to sacrifice freedom to attain other goals he can't then invoke the non-aggression principle to suggest that his marginal rate of substitution between norms is the right one. It's incoherent to appeal only to norm X to justify a particular level of willingess to exchange X for Y.

Not only do these libertarian arguments lack any real force, the most that they could prove is that liberalism and libertarianism are incompatible. We liberals don't claim to be concerned with maximizing economic efficiency or minimizing coercion, so if our preferred policies aren't compatible with economic efficiency or the non-aggression principle, that's not a serious problem. When libertarians act as if it is, it's hard to see how they are not begging the question. They are effectively assuming that their political philosophy is right in order to prove that other political philosophies are wrong.

What we liberals want is for all human beings to be as well off as possible. There are scenarios where market forces lead to that result better than any government program but in many cases, this isn't the case. At any point in time, the sum total of all resources available to a society can be used in any number of ways. Some ways make people worse off and some ways make people better off and some ways make people much better off than before. And there is no guarantee that market forces will lead to the arrangement where resources are used in ways which make people much better off. And we see the force of government as a tool that can be used to generate better outcomes than the free market can generate on its own. We believe that governments ought to act to bring about those sorts of outcomes.

At this point, libertarians will make a public choice argument to the effect that if a government has the power to intervene in markets, the people who determine policy will probably not implement the sort of policies we have in mind. We don't necessarily disagree. Libertarians should have no trouble understanding that liberalism is a position on what governments should do, not a claim that they are likely to do one thing or another. If politicians act in their self interest rather than implement liberal policies, and this leads to results incompatible with the goals of liberalism, then the results cannot be counted as evidence against liberalism. This just means that liberalism cannot work where it goes untried.

To sum it up:

1. Markets don't always allocate resources in the way that makes people best off.
2. Government can, in principle, improve upon market outcomes from time to time.
3. Governments should improve upon market outcomes when they can.
4. Where governments fail to implement the welfare improving policies we favor, this is a problem with those governments, not with the policies that they failed to implement.

At least, that's my understanding of the liberal point of view.

Some of it, I even agree with. So far as I can tell, markets don't always and everywhere lead to the arrangements that make human beings best off. Kaldor-Hicks efficiency is not a perfect measure of human welfare. Freedom from coercion is not so valuable that no benefit, no matter how great, could justify even the tiniest amount of coercion. There are cases where a coercive government might make everyone better off. When politicians act as public choice theory predicts, that just shows that polticians aren't acting as statists believe they ought to, but it doesn't show that statists are wrong about what politicians ought to do.

That list of claims is also a list of reasons why I'm not a non-aggression libertarian a la Murray Rothbard, or an economic efficiency libertarian a la David Friedman. If I had to distill my libertarianism down to one sentence it would be this:

The morality of an act is not a function only of the the identity of, or the agency on whose behalf, the doer is acting.

My libertarianism (as opposed to the whole of my ethics) is silent on the question of whether or not it's moral to take from the rich to feed the starving, but if it is moral for people acting on behalf of a government to take from the rich to feed the starving, this must be so for some reason other than the fact that the doers are acting on behalf of a government. It it's immoral for anyone not acting on behalf of a government to take from the rich to feed the starving, this must be so for some other reason besides the fact that the doers are not acting on behalf of a government.

To be sure, I don't deny that the doer can matter. Only Bill may demand payments from guests at Bill's hotel, but that's not only because the doer is Bill. It's because the doer is Bill and also because Bill happens to own the hotel. I just deny that the morality of an act can depend solely on the identity of the doer. (Aside: A liberal would likely respond to this example by claiming that the government owns the country. Libertarian: Why? Liberal: Because the government has done some XYZ. Libertarian: Is it moral to take posession after doing XYZ only if the doer is a government?)

If any non-libertarians want to admit to believing that the actions of government agents are moral solely because the doers are acting on behalf of a government, I hope they will. At least then the core of the disagreement will be clear, rather than obscured by vitriol.

Progressive Taxes Incentivize Concentrated Income Wealth

2009-02-23T20:55:00.006-05:00

A progressive tax structure provides an incentive for government to pass legislation which leads to concentration of wealth through artificially high incomes for some individuals at the expense of artificially low incomes for other individuals. Consider the following example:

A country utilizes a progressive tax structure whereby incomes of $100,000 or greater are taxed at 40%, $99,999-$50,000 are taxed at 20%, and incomes below $50,000 are taxed at 5%. The country consists of 100 individuals and the total annual incomes of all individuals is $4,000,000.

If incomes are distributed equally across the populace, each individual brings home $40,000 in annual income, meaning the government is only able to tax each individual at 5% and therefore its annual tax revenues are $200,000.

Lets say incomes are weighted more towards the middle bracket. There is 1 individual who makes $100,000, 75 individuals who make $50,000 and 15 individuals who make $10,000 annually, with 9 individuals making no income and living off of welfare. The government collects $40,000 from the first individual, $750,000 from the next 75, and $7,500 from the last 15, generating total annual tax revenues of $797,500.

Now lets see what happens when incomes are weighted towards the top bracket in a progressive income structure. There is now 1 individual making $750,000, 10 people making $250,000 each, 10 people making $50,000 each and 50 individuals making $5,000 annually, with 29 individuals making no income and living off of welfare. The government collects $1,300,000 from the first 11 individuals, $100,000 from the next 10 individuals and $12,500 from the next 50 individuals, generating total annual tax revenues of $1,412,500.

Under the first income distribution, the "equitable" distribution, the government collects 5% of the total annual incomes of the country. Under the "middle-class" distribution, the government collects approximately 20% of the total annual incomes of the country. Under the "extremes of income" distribution, the government collects more than 35% of the total annual incomes of the country.

These are simply observations at this point. Obviously, with something like a flat tax, all incomes are taxed at an equal proportion meaning the total tax revenue the government collects (via income taxes) is an absolute percentage of the total annual national income of the country. In contrast, a progressive tax structure is more "efficient" at collecting revenue for the state when income wealth is concentrated into a few members of the highest tax bracket.

I'm not trying to pass judgment on the merits or lack of merits of one tax system versus another. The truth is I think all tax systems are evil and wrong, and economically speaking, highly inefficient (whatever result they might have on the state treasury). I'm certainly not advocating for any particular kind of distribution of incomes, either-- obviously, smaller incomes distributed more widely across the population serve to inhibit government tax collection efficiency under a progressive tax structure, and because limiting the state's financial and political power are goals of libertarians, this would be a good development from that standpoint. But that doesn't mean that I support some kind of law that mandates ceilings on incomes.

I don't even know/think that what I've written here is even original. I'm sure some academic somewhere has already written a thesis paper about this. I just wanted to highlight the fact that concentrated income wealth under a progressive tax structure serves to enhance the government's tax collecting efforts, meaning that the government has an incentive to try to shape society and the economy in such a way that the income distribution is tilted towards a concentration of total income into higher tax brackets which yield higher revenues for the state.

We All Know How This Joke Ends

2009-02-23T02:04:00.004-05:00

The New York Times says that a Secret U.S. Unit Trains Commandos in Pakistan:

American military advisers are working in Pakistan to help its armed forces battle Al Qaeda and the Taliban in lawless tribal areas.

First of all, this isn't really news. Antiwar.com's Justin Raimondo has been talking about Obama's Vietnam for some time now.

Secondly, I've got a funny joke to share with everyone, it's an old joke but I think it's pretty timely given the recent developments in Pakistan that the NYT has uncovered. It goes a little something like this:

So, an American military adviser walks into a South(-East) Asian country...

Stop me if you've heard this one before.

Obama Solves The Socialist Calculation Problem

2009-02-20T16:23:00.006-05:00

Now that Obama has passed his $787 billion spending bill, the spotlight turns to the individual city mayors who will be instrumental in doling the money out. To them, Obama warns, "Here's your chance, now don't screw it up!" (NYT.com)

“I want to be clear about this: We cannot tolerate business as usual -- not in Washington, not in our state capitols, not in America’s cities and towns,” Mr. Obama told a gathering of the United States Conference of Mayors. He said he was putting them “on notice” that if they propose a wasteful project, “I will call them out on it.”

There are an almost overwhelming number of presumptions made by Obama in this short, underwhelmingly self-assured speech:

Government spending projects are not inherently wasteful-- government spending projects could be either welfare-enhancing or welfare-diminishing.
Obama and his staff have the economic prescience and ability to predict the subjective future valuations of millions of individuals necessary to give him the capability to distinguish between a welfare-enhancing (non-wasteful) and welfare-diminishing (wasteful) spending project, given the near infinite number of alternative uses of the money spent.
Obama and his staff will provide the required oversight faithfully and without flaw.

To clarify, Obama presumes government efficacy, omiscience and omnipotence. All three presumptions are false.

Government spending projects are inherently wasteful and welfare-diminishing. There is no good or service the government could provide that free individuals acting on their own volition and responding to market incentives (price, profit/loss) could not furnish more efficiently. This is because all government projects are financed by taxes and orchestrated by bureaucrats.

In the free market, business enterprises are entered into based upon a perceived economic need by the entrepreneur in question. Private capital is risked in establishing a means of production or a process of supply by which a good or service is brought to market at a particular price, hopefully above the cost of initial materials, labor and capital. The earning of a profit on the sale of this good or service signals to the entrepreneur that the need they perceived was an actual one, with a particularly emphatic profit also serving to make other entrepreneurs aware of the need and encouraging them to allocate their capital and resources towards fulfilling the need as well. The realization of a loss signals to the entrepreneur that the need could either be satisfied using less resources or by employing existing resources in a differing arrangement, or if it's a particularly strong loss it might signal that the perceived need was false or that the entrepreneur attempting to satisfy it is incapable of doing so.

In the political "market," spending projects are entered into based upon campaign promises or reaction to public opinion polls, protests or personal agendas. Financing for the project in question is appropriated through coercive tax measures and the size, scope and duration of the project is determined by the arbitrary constraints of the preceding legislation supporting it as well as the whims of the bureaucrats in charge of executing it. There is no profit and loss feedback to refer to for hints as to the success of the project. Instead, bureaucrats and politicians in charge of the project refer to the results of successive elections, the outcome of which are treated as referenda on the popularity of any and all projects the politician whose seat was contested may happened to have been in support of. Often times, regardless of the outcome of an election, the budget for an existing project will increase, as a victory at the polls is taken as a show of support for the project just as a loss at the polls is interpreted to mean that not enough was spent on the project the first time around. Because the costs are spread out over the entire tax-payer base and often deferred over time, while the benefits are concentrated and felt almost immeadiately, it is difficult to both perceive the economic success of an individual spending project as well as rally resistance to its expansion or continuation, while it is comparatively easy to generate support for the project as votes are free and lack scarcity (an individual can vote as many times as there is an election, whereas they can only spend as much money as they make or someone else is willing to lend to them).

Axiomatically, we know government spending projects are wasteful because of the following: two individuals who are rational will make an exchange of goods and services voluntarily anytime each individual perceives such an exchange to be welfare-enhancing. Individuals will not enter into an exchange anytime one or both of the individuals believes that such an exchange would be welfare-diminishing. This means that all involuntary (coercive) exchanges are necessarily welfare-diminishing. As all government spending projects are financed through taxation, which is a form of coercive, involuntary exchange, it can be said that all government spending projects are welfare-diminishing by inheritance.

Obama and his staff can't know individual valuations, present and future, because they are subjective and as such are subject to change without notice. Were they capable of correctly predicting individual future valuations, by the time they had acted upon these predictions it'd already be the present and individuals would have again changed their subjective valuations of the present and the future.

As for being able to successfully regulate these spending projects and carefully assuring against waste, consider that the federal government proved itself incapable of catching Bernard Madoff in his $50 billion investment fraud, which was mostly centralized amongst investors in the northeast part of the country. The current spending bill is $787 billion and will cover spending projects across the entire country in nearly every state, county and city from coast to coast. An immense, new regulatory agency that was able to field agents and monitors all across the country, all the time would need to be set up and, to not be wasteful itself, would need to be set up at a cost less than that of whatever the cost might be of allowing waste and fraud in the spending project to go on without punishment, a calcuation which is impossible for the government to make as it has no reference to profit/loss and prices. Finally, as Obama and his staff are the ultimate arbiters of what is waste and what is not waste, there is no other authority to turn to if they make an error in judgment or succumb to temptations of personal gain or corruption, meaning they must be perfectly disciplined and unerring in their judgment in order to successfully provide their oversight as promised. There is no "check and balance" here.

The president repeated his pledge that, under scrutiny byhis [sic] team of money managers and in public view through the Web site www.recovery.gov, the money flowing out of Washington would be spent “wisely, free from politics and free from personal agendas” — a goal that skeptics have said will be hard to meet.

This is laughable and it should be clear by now just why it is so. Because the local governments spending this money are not businesses responding to profit and loss and the information carried in prices, there is no way for them to spend the money without referring to "politics." Those are the only two economies that exist! There is the free economy, represented by businesses and private enterprise, and there is the "political economy" represented by the government and other coercively-financed agencies.

The insistence that money be spent "wisely" is also a joke. How is "wisdom" defined here? Should the people responsible for coordinating the spending be elderly? Perhaps they should all hold PhDs (in political science? economics? sociology?)

Furthermore, Obama presumes that the initial decision to write and then pass this $787 billion spending bill was accomplished in observance of all three-- that it was wisely written and passed, that its passage occured free of politics and free from influence by personal agenda. We know this to be a lie, as well. The bill went through many different stages and shapes before its final passage. At one time it was $900 billion, at another it included a larger schedule of proposed tax cuts. Each permutation was suggested and fought over to satisfy competing political views of the Congresspeople working on it. And as the final bill does not satisfy ALL Congresspeople (and all American citizens), it is necessarily representative of the "personal agendas" of only those who find its contents to be agreeable.

The degree of certainty that Obama applies to what he plans to do is perplexing and shocking, but maybe less so than the comment of one Democratic mayor from Florida:

Kevin Burns, a Democrat and the mayor of North Miami, Fla., said: “Whether we like it or not, this money is here; we have to account for it, we have to spend it. The time for bickering that it’s a bad program is over with.”

True, the bill has been passed and the money has been allocated. But it is not true that it must be spent. Anyone who might receive some of the proceeds of the spending bill is perfectly free to reject the money and send it back to Washington. No one in the federal government is putting a gun to their head and forcing them to take it.

But if they are, wouldn't that make it just one more coercive exchange in a long, wide string of them, the perfect wasteful cap to an incredibly irresponsible and wasteful bill?

Insurance Regulation: Inefficient, Immoral

2009-02-09T22:14:00.010-05:00

I've recently become embroiled in a number of comment-debates at Rolfe Winkler's Option ARMageddon blog, the most recent of which took place on Rolfe's post "With Allstate, you're NOT in good hands." I took issue, as I have been in some of Rolfe's previous posts, with his insistence that what's needed to quell the economic crisis is better banking regulation, and I tried to explain that the solution is actually complete deregulation, not more regulation or lighter regulation or "better" regulation.

Rolfe's argument for better regulation relies on an at this point tired misunderstanding of Gresham's Law, which I've previously corrected him on (see previous link), but which he continues to turn to in making his argument. Essentially, Rolfe says that without sound regulation which requires insurers (and banks, and other financial-type institutions on a "capital reserve"-type business model) to keep an adequate supply of capital in reserve to backstop sudden losses, the insurance industry will suffer a tragedy as bad insurers drive out good ones.

In the interest of continuing the argument in a way that spares Rolfe my annoyingly thorough rebuttals to the logical and economic fallacies being committed daily on the blog and in the comments sections of his posts, I'm going to copy some of the latest retorts from several of his readers who all decided to dog-pile me today (I seem to have touched a nerve) and respond to them here.

I don't care if Rolfe ends up reading this or not, but I should place a full disclosure here: aside from his naivety regarding insurance and bank regulation as being the solution to the current economic state of affairs, Rolfe is definitely a smart guy and is otherwise up to speed on his economic theory. He rejects Keynesianism, understands the role leverage plays, is far more adept at digging up and analyzing financial data, balance sheets, income statements and annual reports than I am and is overall quite an entertaining and educational read-- whenever I take lunch at my desk at work, I try to leave his posts for last in my Google Reader queue so I have something fun to look at while I choke down another dull meal from the cafeteria.

That being said, he's seriously misinformed on this issue, as are a number of his readers who replied to my comments, so let's take a look at those now and see what kind of mischief we can stir up:

Taylor, I usually refrain from this sort of thing, but I am calling you out as a shill for the worst kind of scammer/ponzi scheme promotion.
Insurance is a form of gambling: I bet, by paying a “premium”($xx), that something bad will happen to me. ABC insurance co. takes that bet & promises to pay($xxx…)out in the event that bad thing happens. I do not want to find out, after the fact, that ABC Ins. Co. does not have the means to pay my claim.
Actual insurance scams:
-Small time: Ins. agent collects premiums, does not place actual ins. policies & disappears with money.
-Big time: Ins. company is started with minimum required capital that sells state required auto liability coverage. Co. pays top corp. officers big $$ and pays claims for 2-3 years. @years 4-5, co. slows or stops paying claims then goes bankrupt. Claim payments are left to state fund.
Those “top officers” go to another state & start the same scheme over.
-Really big time: Annuities & Long Term Care. These haven’t hit big yet; but just wait…
Most of us ins. agents are honest, hard working people, but it will only take a few “Taylor” types to put us under.
By shinola on Feb 9, 2009

As you'll see, many of the posters accused me of either working for an insurance company, or else being in favor of fraudulent ponzi schemes and scams.

This is one of the least coherent responses so I won't spend much time on it. The point is, I'm against ponzi schemes and other fraudulent schemes. Fraud (claiming you're taking premiums to operate an insurance company, and instead running off with the money) is a violation of the Non-Aggression Principle, because the policyholder would not have willingly given over his money had he known you were deceiving him. It's a form of theft, meaning the premium is taken against the policyholder's will, and it should be treated and punished accordingly.

I don't know if "shinola" reads the news, but if not, he seems to have missed the Bernie Madoff $50-billion Ponzi Bonanza, which occured under the watchful eyes of the SEC. The mere existence of regulation can not guarantee fraud and scams will not occur. If we can accept that sometimes "shit happens" even with regulation in place, we can begin to have a more rational discussion about the true costs and benefits of each system (regulation vs. non-regulation). If, in the face of evidence to the contrary such as the Madoff scam and whatever future Madoff-scams that have yet to be exposed or even perpetrated, a person still insists regulation is justified on the basis that it prevents ponzi schemes and other fraud from happening, there's really no way to debate logically a person who is willfully ignorant of reality.

"shinola" also seems to imply that it is people like me, who criticize government regulation of the insurance industry, that risk putting insurance companies "under." I guess by merely calling into question the sensibility of these policies, I am somehow effecting the profit and loss of the companies that fall under the criticized regulatory umbrella?

Oh, and by the way, the federal government is currently operating the largest ponzi scheme on the face of the earth. It's called Social Security and Medicare/Medicaid, it's taking place right out in the open where everyone can see it and they have yet to do anything about it. And these are the people you want to trust with properly regulating industry?

Hey Taylor, Sounds to me like maybe you work for one of these insurance co’s, no? Cutting Allstate some regulatory slack for their reckless behavior is not the answer. The government has already screwed this up enough as it is!

By Spencer on Feb 9, 2009

The validity of my argument has nothing to do with my employment status. What if I was a policyholder and I argued FOR regulation (by the way, I AM a policyholder), would someone be able to undermine my argument by pointing out that I was a policyholder? Is a consumer's argument for fresh vegetables undermined by the fact that he'd benefit from fresh vegetables?

Again, it's a tepid argument because if I am employed by an insurance company, I'm likely ALSO a policyholder.

I'm going to address the next one in a few parts:

Taylor,

We regulate insurance companies because they need to remain solvent for a very long time in order for their products to have value. In an unregulated market, no person could have any confidence that the company they pay their premiums to would exist in 30 years. The regulation attempts to ensure the continued viability of these companies to prevent windfall losses to policy holders.

It's false to state that "no person could have any confidence" over a period of years. Insolvency is a possibility in an unregulated market, not a certainty. More importantly, insolvency is a possibility in a regulated market, as well. For example, say insurance company "A" takes a bunch of the money it has received as premiums from policyholders and invests it in Mortgage-Backed Securities. Then, say that the real estate market crashes and these investments are worthless. Say that insurance company "A" was reliant on some of the income stream from these MBSs to pay their operating expenses and, because of regulatory requirements, they're not able to dip into their reserves and cover their administrative and operating costs. Bam, insolvency.

Of course, you can add the letters "IG" to company "A" and you've got a situation that's going on right now. That company would be GONE by now if the government hadn't come in and essentially guaranteed all losses, current and future. If you were to point out that AIG made things worse by borrowing money and levering up to make these investments, and that sound regulatory frameworks would prevent an insurance company from levering like that, I would take issue with your regulatory solution but not the fact that the leverage exacerbated things.

My point is that, insolvency is a risk with or without a regulatory apparatus. Let's agree that it is a risk in both scenarios, and then we can discuss which system presents bigger risks. Of course, my belief is that the regulated market presents bigger risks as it grants policyholders a false sense of security and, as we've seen with the most current episodes of regime uncertainty, it heightens the chance for moral hazard-type government interventions when insolvency does strike, unfairly transferring the costs of such an event to people who may very well be entirely unrelated to the insurance market.

Oh, and this is nitpicking but, there's no such thing as a "windfall loss." The term "windfall profits" refers to the concept by which wind passes through a fruit-bearing tree, dislodging some of the fruit and dropping it on the ground where it is easily collected without the effort of climbing into the tree. It's a term that's supposed to connote a sense of undue, exceedingly easy gain that a person might experience not through their effort but through coincidence. Generally-speaking, negative-fruit does not fall from trees after being blown out by the wind, so there is no way to suffer a "windfall loss."

The value to society as a whole for this security apparently outweighs the added costs in the system from reduced competition. Sorry you don’t agree, but apparently the majority of policy holders are happy with this arrangement.

This paragraph strikes me as odd. I don't know how "Steve" calculates the "value to society" or even who "society" is in this case. He seems confused himself, as he later refers to a "majority of policy holders" who are happy with the current regulatory arrangement. Here comes the "majority rules" fallacy. I'm not even sure what election or vote was held on this matter so that "Steve" can decisevly claim that "a majority" of policyholders are okay with the current regulatory climate, but I don't think the result of such an election or vote would matter anyway. Democracy is not a moral or efficient way to allocate resources. I can't imagine that if a vote was held tomorrow about the government's response to the economic depression and "a majority" of voters came out in favor of it, someone like Steve would hold his tongue and take the "will of society" to be the definitive truth on the matter.

As for food and environmental regulation, etc, it is impossible for a consumer to track the ultimate source of every component of the food they eat or the chemicals they encounter. They can’t visit the factories and even if they could they would be unable to expertly analyze the processes to ensure they are safe and sound. Voters, far from being sado-masochistic, are acting very rationally in their own interests to help protect themselves and others from incompetence and greed.

Again, there is a confusion here with a hoped-for ideal (governmental omnipotence vs. limited individual efficacy) and the reality-on-the-ground (limited government efficacy vs. limited individual efficacy). We don't even have to go far back in history to find an example, as the recent peanut butter salmonella scare demonstrates clearly that, while individual consumers might not have the ability to track the source of every component of food they eat or chemical they encounter, neither does the government.

"Steve"'s argument fails because the individuals that make-up the government are not perfect, they're not angels, and they're prone to incompetence and greed just like anyone else.

Finally, "Steve"'s reference to the rationality of voters was in response to a question I posed in the original in which I asked why "we" don't already have the "better regulations" people like Rolfe and Steve believe in. I asked if the absence of these regulations was a sign of sado-masochism on the part of voters. "Steve"'s response did not address my inquiry as it fails to explain why the regulatory regime does not provide the outcome voters supposedly desire, which is safety from risk.

It’s important to not confuse the failure of regulations with the failure of regulators. Government regulations can and do work very effectively as long as the administration of those regulations are done well. It happens that the Bush administration went out of its way to undermine the effectiveness of the regulators (who knows, maybe in the hope of undermining confidence in regulation). But the people aren’t fooled. They know that, administered properly, regulated competition makes the world a better, safer place.

By Steve on Feb 9, 2009

This argument is old hat and it's been the turned-to excuse of Marxists and Socialists since time immemorial, "socialism works, so long as people are committed to it." Incidentally, the mass graves and prison camps tend to show up just as soon as the local authorities figure out that there are large numbers of stubbornly uncommited people in the area, who refuse to well-wish the new socialist regime.

Even if "Steve" were right that regulations work well when there are good regulators in place, and even if he were right that the Bush administration actively worked against the FDA regulatory regime over the past 8 years (which he's wrong about on both counts, the second of which Bob Murphy debunked when he pointed out that spending on the FDA increased to $2.1b from $1.3b during the Bush administration), what happens when good regulators are not in place? And how do the costs of that reality match up with the costs of an unregulated market?

>Taylor

regarding your second point, bad automobiles DO drive out good. They are called lemons. It stems from the fact that market participants have imperfect and often different amounts of knowledge. Suppose their are two people interested in selling a car valued (say, by future utility) at $5000, one of the sellers knows their car has $0 of deferred maintenance, and the other knows that their car has $1000 of deferred maintenance. The second seller would be willing to sell the car for anything down to $4000, due to the deferred maintenance, while the first would sell for anything above $5000. Now if the buyer doesn’t know how much deferred maintenance there is in the car, so the market price is going to be determined by the lemon seller’s willingness to sell at lower prices since lemons are (mostly) indistinguishable from proper goods. And since the lemons drive down the market price by adding supply at lower price levels, owners of good vehicles don’t sell since they know that their car is worth more than the market price.

tl;dr buyers can’t tell (easily) between good and bad product in some situations, bad product depresses prices and drives good product out of the market.

A further explanation of how bad insurance can drive out good, simply replace ‘car’ with ‘insurance’, ‘deferred maintenance’ with ‘the cost of the risk that the insurer can’t pay’, and the value of the car with the cost to provide the insurance.

Namely, a company that can provide $1000/mo worth of insurance for $900/mo by taking on $100/mo worth of extra risk and screwing the insured party if the risk goes bad and hiding that fact, can sell insurance at a price that would lose honest insurance companies money.

By pantheistic multiple-ego solipsist on Feb 9, 2009

A long-winded and ultimately unnecessary lecture on the "Lemons Problem." William Anderson of the Mises Institute tackles this topic in a 2001 article called Lemons and the Nobel Prize. He makes a number of points, including the role that entrepreneurs can play in correcting such a problem, the way in which government can enact conflicting regulation which unwittingly creates Lemons problems that didn't exist, and the fact that markets with assymetrical information did and continue to exist without government regulation which is supposed to address the issue.

The role entrepreneurs play in resolving the problem is certainly important and observable. In the car industry, for example, vehicle manufacturers have taken to offering pre-owned factory-level certification and warranty extension on non-lemon vehicles which have been maintained in a way that justifies such a guarantee. This initiative improves resale value for that manufacturers vehicle, promotes brand loyalty and increased service business for the manufacturer's dealers and works to counter-act the assymetry of information by offering owners of the superior vehicles a way to prove or guarantee the reliability of their vehicle and therefore command the higher price in the marketplace that the product deserves. This is just one "solution" to the Lemons Problem of many, and this type of system could be imitated in other industries by other creative entrepreneurs as well.

Another point I'd raise is that nobody has a right to sell insurance, or their quality used vehicles or what have you, at any particular price. If the technology or information symetry is not available to allow a company with superior risk-aversion to charge a higher price for their insurance than a poorly-run competitor... so what? So there is no market for insurance. Does there have to be? Is there some immutable natural law of the world that says there must be a market for insurance and if one can't exist on its own merits the government is justified in coming in and establishing one by force?

I don't believe that would be the case anyhow, and I have a few more general considerations I had about this topic earlier today when I was initially reading the responses. If anyone from Rolfe's blog is reading this, I'd certainly invite a response to any or all of them:

What is the history of insurance and the insurance industry? My understanding is that the insurance industry did not come into being in the modern, regulatory era, but rather that insurance is an old business and that it existed for most of history without a regulatory regime that worked to "guarantee its solvency." It would be useful to know the history of the insurance industry, the way it operated before large-scale regulation, as well as when instances of the much-feared "mega insurance ponzi fraud" and/or "mega insurance insolvency" have occured, whether or not they occured more or less frequently under a regulatory regime versus a free market, and how the aftermath was conducted in each case. With that information, an empirical comparison could be made of the economic superiority of each system. I doubt that, so far, either participant in the debate (myself or any one of the many people I am arguing with) has even a small bit of the information I think might be worthwhile to consider.
The necessity of regulations that promote the long-term solvency of insurance institutions has been a reoccuring point in the debate from supporters of government insurance regulation. With the frequency of elections in this country and the concomitant rapid change and lack of predictability in policy continuity it entails, I am curious why supporters of a government regulatory solution don't seem to notice a mismatch in the two time horizons? The long-term solvency of insurance companies seems to be too important a thing to leave to the extemporaneous trivialities and changing whims of the modern state.
So we want the insurance industry to be regulated, and we want the government to do it for us, as we think it will provide a better, more efficient result than what would occur on the free market. In other words, government is able to calculate a set of conditions which increases total welfare relative to leaving the industry to the marketplace entirely. How do you calculate the necessary conditions? How do you know what is an underweight, adequate or overweight reserve requirement? When (not if) the regulations fail to deliver the intended result, how do you know in which direction and by what amount to adjust the knobs to get the intended result next time? How do you deal with insurance competitors from other countries which do not have the same regulatory requirements? Do you just ban people from purchasing insurance from those companies, for their own good, of course? (Oh yeah, the protected insurance companies in the US would make out alright, as well, but that's beside the point!)
As Rolfe has pointed out numerous times, in the banking industry, a company which is facing solvency concerns is often asked by FDIC to pay higher premiums for FDIC insurance for the higher risk of loss it poses, which tends to agitate its existing solvency problems and result in an accelerated downward spiral. If an insurance company gets into trouble in the regulated industry and begins to dip into its required reserves, how does your regulatory apparatus respond? And how would this situation be different than how it might be handled in a free market (in terms of recovering assets following insolvency through a bankruptcy proceeding). Careful! Your solution may NOT rely on taxpayer money to be valid in this situation.
No commentor, Rolfe or any of his readers, has yet to address my concerns about the effect regulation has on the competitiveness of the marketplace. I am curious how Rolfe and others are certain that the regulated industry is the most efficient, if smaller start-up companies with different financing, operating and customer-service models are forcibly prevented from participating in the market altogether?

Alright, have at it!

Is My Economics Based on Greed? Is Yours?

2009-02-05T21:25:00.003-05:00

The economy currently stinks and those looking for, or offering, top down solutions haven't lost a moment blaming the free market for the current set of problems. They blame the free market as a matter of principle, but also because they have to do so in order to discredit the opposition. Those of us who oppose stimulus packages, liquidity injections and five year plans oppose all of this stuff because we believe (among other things) that free markets allocate resources more efficiently than central banks, legislative assemblies and regulatory bodies.

If the top down crowd wanted to, they might actually challenge this with facts and logic. They might try to prove that free markets do not allocate resources more efficiently than central banks, legislative assemblies and regulatory bodies. And I wish that folks like Brad DeLong and Paul Krugman and Robert Reich would actually take up such a burden. In any case, it would be more informative than inventing claims to refute (perhaps that all markets, free and unfree alike, allocate resources with perfect efficiency all the time) or pretend that failures in markets constrained by pages upon pages of regulation and subject to activist monetary policy count as evidence that the allocative efficiency of the free market is less than the allocative efficiency of other institutions.

But that's just the response from economists who favor top-down solutions to economic problems. The most common rejoinder to free market economists from non-economists who favor top-down approaches is that free market economics is based on greed. My initial reaction to this has always been that it doesn't matter if free market economics is based on greed. Claims about economics are either true or false regardless of the motives of the people who make them, and claims about economics should be evaluated in terms of whether they are true or false.

Having said that, suppose that motives mattered more than truth or falsehood. What if greedy economics is bad economics simply because it's greedy. If so, then that principle should be applied consistently. That means: If you are clamoring for more money for you in the form of a stimulus check, or demanding a law that prevents people from buy products from your competitors in Asia, or insisting that you and your favorite politicians should get to spend other people's money, then your economics is far more questionable than advocacy for laissez faire.

How to Argue With a Libertarian, Part 47

2009-02-01T15:07:00.003-05:00

Interpret all evidence in light of the general assumption that government intervention is the primary cause of good things.

Example:

1: (Unstated Assumption) Government intervention brings about improvements always or nearly always.
2: (Stated Assumption) There are many historical examples of things that have improved, ranging from medical procedures to automotive design to agricultural output to rising incomes.
3. (From 1 & 2) These improvements are attributable to government intervention.
4. (Conslusion) Therefore, government intervention brings about improvements always or nearly always.

Further reading here.

Perpetual Employment Strategy: Cause Problems So You Can Be Paid To Fix Them

2009-01-23T01:45:00.005-05:00

In Freed by U.S., Saudi Becomes a Qaeda Chief, we find support for the argument that the sensible policy is to avoid all forms of foreign interventionism, not to quibble about what is done with the Frankenstein-esque enemy and enact "change" by releasing people previously wrongly imprisoned and viciously tortured to go become vengeful hardcore terror leaders:

The emergence of a former Guantánamo Bay detainee as leader of Al Qaeda’s Yemeni branch illustrates the pitfalls of closing the detention center.

What an absolutely 100% predictable outcome. The tragedy here is that this will turn into a big news story and an even bigger "national dialogue" about how to properly prosecute the War on Terror, and lost will be any debate about whether a War on Terror makes sense (and makes Americans safer) in the first place.

Misdirect and confuse. That's the name of the governmental game, and the journalists are the referees.

"For my next trick, I'm going to need a few volunteers (conscripts). Now watch as my rhetoric changes to moderation and a new terror attack occurs. My opposition will seize upon the opportunity and berate me for being a dove and a pacifist who is allowing innocent Americans to be killed and... POOF! I magically transform into a war-monger even more bloodthirsty, destructive and tyrannical than all the rest before me! Thank you, thank you! And now, for my next trick..."

Get Out The War Drums And Start Beating Them!

2009-01-23T01:30:00.008-05:00

The New York Times does it twice in one night, amazing! Check out the summary blurb on China's Route Forward:

China is spending billions of dollars on infrastructure projects, fearing that joblessness could lead to unrest.

Now, why, in the opinion of the NYT editors (because that's what we're dealing with here, opinions, not facts, despite their insistence to the contrary) would the United States government be concerned with rates of joblessness in this country? What would be motivating the Bush and now Obama administrations to pass massive "stimulus" bills aimed at "creating" jobs?

This summary blurb would never be found beneath an equivalent article about the United States' stimulus efforts. In America, our politicians are good daddies and they try to take care of us and provide for us out of love and out of the goodness of their hearts. Widespread "unrest" due to hopeless economic conditions and massive unemployment rates, which would lead to a humongous and potentially lethal challenge to their authority and "mandate to govern," never even cross their minds as a possibility.

But in those unruly, backwards foreign lands like commie China, look out! Depredation leads to desperation, desperation leads to fear, fear leads to... unrest. Maybe even a boiling point.

Here in America, we've all been enslaved since 1776, even longer if you count that whole colonial episode thing, so we're kind of used to our masters at this point and don't mind the whippings so much. But in China, they've only had just over a short half a century to get accustomed to the way avowed Communists like to mete out their lashings, so you'll have to excuse them if they get a little restless at the sting of the cat-o-nine.

Makes you wonder though, doesn't it, just who it is that's actually living under the "accountable" political system-- if the Communist Party of China screws things up too bad, the Chinese start protesting, rioting, presumably lynching (their leaders) and otherwise turn to disturbing the peace; if the Demopublican Party of the United States screws things up too bad, the Americans might flip a coin, finger their prayer beads a few times and then later give up and beg for a welfare check after they realize demanding accountability from the tyrants above is hard work and it's a lot easier to just go on the dole like everybody else.

Geithner, Criminal "Transparency" And A Primer On Exchange Rate Regimes

2009-01-22T22:54:00.015-05:00

What's not to love about Geithner Says China Is Manipulating Its Currency? Let me tell you:

WASHINGTON — Timothy F. Geithner, who took a big step toward confirmation as Treasury secretary on Thursday, told senators that the Obama administration believes China is “manipulating” its currency, suggesting a more confrontational trade stance toward that country than under the Bush administration.

Mr. Geithner’s comment, made in writing to the Senate Finance Committee hours before it voted 18 to 5 to recommend that the full Senate confirm him, is certain to anger the Chinese government and raise fears that it could sell off some of its huge reserves of dollars.

But it remained unclear whether Mr. Geithner was signaling that the new administration would make a legal finding that China is engaging in currency manipulation this spring, when it is required by a 20-year-old law to report to Congress on such issues.

“President Obama backed by the conclusions of a broad range of economists believes that China is manipulating its currency,” Mr. Geithner wrote. That stopped short of a charge that China is manipulating its currency intentionally to gain an unfair trade advantage, as the 1988 trade law requires for an official citation of “manipulation,” which in turn would trigger a United States diplomatic effort to get China to let the value of its currency, the yuan, rise.

Fiat currency exchange rate regimes around the world tend to follow one of two models, a floating rate or a fixed rate.

Under a float, the central bank allows the currency's value to fluctuate freely relative to other currencies based upon basic supply/demand economics (through the foreign exchange mechanism). Generally, such things as interest rates, rates of return (profit), productivity of the underlying economy and the availability of sound investment opportunities in the country all contribute to the relative demand for a country's currency and can lead to a rising foreign exchange value relative to other countries.

Under a fixed-rate regime, the central bank pegs the value of the currency to another currency, such as the US Dollar, or, more historically, to a precious metal such as gold. For instance, in the United States, the US Dollar was once under a fixed-rate regime in which a dollar's value was defined as 1/35th of an ounce of gold, because the gold-dollar exchange rate was pegged at $35/oz. More recently, it was popular in Latin American countries to peg their currencies' values to the dollar, so a "peso" might be defined as 1/5th of a dollar, that is, 5 pesos would be exchangeable for 1 USD.

Like much else in life, currency regimes are far from Manichaean and the reality is that most currencies which are said to "freely float" are actually managed floats, also known as a "dirty float." This means that while the currency is typically allowed to respond to basic forex-based supply/demand to determine relative values against competing currencies, the central bank behind the currency will intervene in the forex markets occassionally (sometimes quite often and regularly) to influence the exchange value of the currency, normally through the forex mechanism. That is, central banks will purchase foreign currencies with their home currency (to bid down their currency) in an effort to maintain a relative valuation.

This type of action by a central bank is usually taken relative to particular foreign currencies, not the entire foreign exchange market at the same time, meaning the central bank will typically target ONE foreign currency for relative devaluation at a time, not several or all foreign currencies. Specifically, central banks usually intervene like this to protect existing "balance of trade" systems, or to promote imports or exports with a particular trading partner. Furthermore, this action is usually organized and concerted between the two central banks involved, meaning both central banks are usually concerned with maintaining a particular balance of trade and relative valuations between their currencies and engage in simultaneous interventions to that end.

This "dirty float" has been an active policy of the Bank of England since the end of World War I and is well documented in many different places, Ron Chernow's "The House of Morgan" perhaps being one of the more readable narratives. The Bank of Japan, too, has worked hard to manage the value of its yen since the end of World War II, and newspaper headlines regularly carry the worries of Japanese central bankers that their currency is appreciating against the dollar and threatening the status of their exports to America. Of course, after allowing the renminbi to "float" recently, China's central bank has left the fixed-rate world and jumped in the currency bath as well. Yes, most of the world's fiat currencies are "managed," or manipulated-- including the US dollar.

That's why it's such a hilarious joke to see Tim Geithner, the known liar and complicit-criminal in the entire US/global banking crisis that is continuing to unfold (Geithner is/was formally the New York Fed chief, giving him direct oversight and regulatory responsibility for banks like Citi as they achieved leverage ratios of 280x equity capital) accusing China of manipulating its currency, as if the United States Federal Reserve/Treasury were innocent of doing the same.

They're not. A policy of continuous inflation through money-printing and interest-rate dropping, as well as recent attempts at targeting the long-end of the yield curve by buying up the long bond, are all examples of currency manipulation. Like every other country in the world, the US is trying to drive its currency, the dollar, down, to "export inflation" to other countries and maintain the current trade balance. Currency manipulation, or "management" as it's so politely called in politico-speak, is a not-so-modern form of the not-so-modern and yet still undeniably refuted economic theory known as mercantilism, aka feudal money socialism. In other words, this is a trade war, using the built-in tariff of currency devaluation (if your country's currency is devalued relative to your trading partners currency, it is more expensive for you to purchase his goods as you require more of your currency to exchange for his, meaning that effectively a tariff has been raised on the goods you are trying to import from him).

Back to the article!

Mr. Geithner’s statement was in response to a question submitted by Senator Charles E. Schumer, Democrat of New York, a Finance Committee member who has been among the most vocal China trade critics in Congress. Mr. Schumer welcomed the Geithner reply, saying in a statement, “Change is coming in a lot of places. This new administration has correctly declared the obvious.”

The National Association of Manufacturers, whose members have long pushed administrations of both parties to get tougher with China, likewise was pleased but also cautious given the potential for a U.S.-China confrontation to exacerbate the global economic crisis.

See what I was saying about a trade war?

What does the NAM want to do? It wants to cheaply export its products to the rest of the world, while being protected from the rest of the world attempting to do the same thing to the US. To those ends it hires lobbyists to petition members of Congress, like the dull-witted and obtusely-worded Chuck Schumer, to support protectionist trade policies.

A cheap US dollar is good for NAM because it means they're protected from competition to the extent that it's more expensive for US consumers to purchase foreign competing manufactured products, while they're subsidized in their exports to foreign countries because the lower US dollar makes it cheaper for foreign consumers to purchase their product. This is bad business for US consumers and foreign producers.

“It has to be done very carefully,” said Frank Vargo, vice president for international economic affairs at the N.A.M. “You know the world has changed a lot with the financial crisis and China has a lot in U.S. Treasuries. This needs to be done in a cooperative, not a confrontational, way.”

"Hearts and minds" rhetoric for steel-rollers and machine-tool makers.

The vote came a day after Mr. Geithner endured hours of grilling over his failure to pay thousands of dollars in back taxes. That lapse caused considerable embarrassment for Mr. Geithner, even as some members of the panel said they were willing to accept his word that the failure was an honest mistake.

This is probably one of the most laughable while at the same time disgusting items detailed in this putrid story.

When members of the federal apparatus "forget" to pay their taxes, it's a cause for "considerable embarrassment" and their "word" that it was an "honest mistake" is enough for a little chummy, elbow-to-rib exoneration amongst fellow thieves.

When members of the public at large are caught trying to evade their voluntary contributions to the federal goliath, it's a cause for rather rapid placement into a federal detention center and the scarlet-lettering of "unpatriotic tax evader" for the rest of their lives.

Seriously, consider anyone outside the government having the nerve to defend themselves from a crime, any crime, with "it was an honest mistake" and watch how fast the judge throws the book at them. But in the world of the federal government, few "honest mistakes" are big enough to prevent anyone from being appointed to public office where they can continue to "serve the people" by ripping off whatever appendages they missed during their time in lower offices.

As president of the Federal Reserve Bank of New York, Mr. Geithner has played a central role in the financial rescue efforts of recent months, and President Obama has described him as the person who will be “the chief economic spokesman for my administration.”

Again, this is not an example of "change," but rather an example of the continuing criminality, aka "business as usual" in the federal government, that will now be a part of the Obama administration. Hollywood writers couldn't come up with a more sinister plot of semi-open conspiracy to screw over everyone in sight.

The man who has played a "central role" in (failing/failed) financial rescue efforts (don't forget he played a "central role" in the conditions leading up to the Big Implosion itself!) is now going to be the "chief economic spokesman" for BO's administration.

Is this a confidence-inspiring development or what?

As he awaited the committee vote on Mr. Geithner, the new president was holding a second day of meetings with his economic advisers.

“In the current grave economic circumstances, America’s next Treasury secretary will not have the luxury of being simply at [sic] expert or simply a leader,” said Senator Max Baucus, the Montana Democrat who heads the Finance Committee. “Tim Geithner will need to be both.”

He may need to be both, but can he be both? Isn't the point of the hearings supposed to be feeling the potential new guy out, figuring out what he is and isn't capable of, not sharing with him your hopes and dreams about all the superpowers he'll need to fight a big, bad recession?

Another question would be, "As a former Goldman Sachs CEO (and eventual Treasury secretary), wasn't Hank Paulson both an expert and a leader, and if so, did that seem to do him any good in putting the recession in its place?"

Senator Maria Cantwell, Democrat of Washington, said she looked forward to working with the new Treasury chief, and that she hoped he would help put in place “a very strong regulatory framework” to prevent future financial crises like the one gripping the nation now.

Will he? Won't he? Will he? Won't he? Oh please, Mr. Geithner, please would you be so kind as to put in "a very strong regulatory framework?" It'd make me such a happy little girl! Please da-ddy, please!

Mr. Geithner’s abilities and credentials were never at issue, and even those conservative Republicans who differ with Mr. Geithner ideologically said they were glad to support him.

“I’m not sure he comes from where I come from, but he’s the president’s nominee,” said Senator Mike Crapo, Republican of Idaho.

Argument from authority. Comments like this prove that all partisan politics are nothing but smoke and mirrors. If your criticisms and concerns with a person's politics are meaningless as soon as they have the power to act on them, what value do they hold when the people are in no position to make good on their political views?

With senator-names like these, I have a feeling that this economy "cantwell" up enough strength to rid itself of the recession and the future holds more "crapo" news. Seriously, who elects these turds? I sure didn't.

And the not-so-subtle subliminal apologia of the NYT ("Mr. Geithner’s abilities and credentials were never at issue") is, of course, entirely unnecessary. Readers should be allowed to make up their own mind about whether or not Geithner's abilities and credentials meet muster, although that's hard to do when newspaper articles are light on important information like that and heavy on bi-partisan love-making.

Senator Orrin G. Hatch, Republican of Utah, said he was sure Mr. Geithner was “a person of great integrity, even though he’s made these mistakes,” an allusion to the back-taxes issue. Mr. Hatch praised Mr. Geithner as “non-ideological, which to me is very important.”

Let's see here... we know that Geithner held the second most important banking oversight position in the country as this entire debacle unfolded, which caught him and Bernanke and everyone else in the country (even the bank CEOs themselves, supposedly) completely off-guard, we know he lied about his taxes and "forgot" to pay them like everyone else is forced to, even when he was made aware of his mistake, and we know he's trying to dishonestly incite an escalation in the trade-war with China...

Oh yeah, I don't see any problem here as far as trust is concerned. Hell, I'd let him watch the kids for me on the weekends! And besides... the man was embarrassed and apologized for his little mistake, and we're all Christians here, aren't we, gentlemen? We believe in repentence and second-chances, so let's give the man one, and just to show him how much we trust him, let's give him even more power, responsibility and oversight this time.

Fool me once...

Senator John Cornyn, Republican of Texas, said he was “willing to give Mr. Geithner the benefit of the doubt” on his tax mistakes. But, he added pointedly, he was not willing to give the benefit of the doubt to the so-called “masters of the universe,” apparently meaning the once-mighty Wall Street figures who have borne much of the blame for the current economic troubles.

Well of course not, because they're not full-blooded members of the official mafia, they're only cousins. We can't be entirely sure of their loyalties until they've held public office and explicitly raped and pillaged the citizenry, like us. Until then, they could be wily, individualist, capitalists in disguise. Better watch them carefully and write lots of good legislation to make sure that if they do get any wise ideas, they can't make any money or better society with them...

The other Republicans who endorsed Mr. Geithner were Olympia J. Snowe of Maine and John Ensign of Nevada.

The five senators who voted “no” are all Republicans: Charles E. Grassley of Iowa, Jon Kyl of Arizona, Jim Bunning of Kentucky, Pat Roberts of Kansas and Michael B. Enzi of Wyoming.

Mr. Kyl was Mr. Geithner’s chief antagonist on the tax issue. “He has not been as candid with me or the committee as I think he should have been,” Mr. Kyl said.

Mr. Enzi said, “I’m really disappointed that we’re even voting on this,” adding that past nominees for office have been disqualified for lesser infractions.

Did I provide enough reasons? The man's criminality is right there for everyone to see.

A quick note on idle resources

2009-01-17T22:05:00.002-05:00

One of the common arguments against fiscal stimulus is that it exhausts real resources just when they economy is already in trouble. The pro-stimulus counterargument is that when there are idle resources, this objection is moot if the stimulus is targeted to utilize those idle resources.

I won't make the case that this is nonsense. But it's worth noting that those who make this idle resources argument for fiscal stimulus are misusing it if they intend it as a justification for any stimulus that any real government has actually proposed.

All factors of production have co-factors, e.g. anvils cannot only be brought out of idleness without using hammers. The idle resources argument only pertains in the case where the stimulus projects will rely only on idle resources. If the stimulus will also require the use of non-idle resources, then the idle resources argument does not apply.

The condensed version of the ABCT

2009-01-14T20:21:00.003-05:00

Over at Mark Thoma's blog, commenter reason asks

"Please can someone present the Austrian case intelligently, taking account of a (depression really) recession with lots of unemployed resources, and thinking about Federal Government policy, not thinking like a small local community."

My response is reproduced below.

Entrepreneurs rely on the relative prices of different goods to determine what projects to invest in. If a central bank executes expansionary monetary policy, this distorts those relative prices. The distortion includes the price of future goods denominated in present goods and also the relative prices of different types of goods, e.g. the price of houses denominated in building materials. A consequence of these distortions is that in the aggregate, entrepreneurs are led to invest in a capital stock that is ill suited to producing what people actually want. (Note: entrepreneurial error happens all the time due to chance. The clustering of errors leading up to a recession is not explainable by chance alone.)

When the mismatch between the structure of the capital stock and the preferences of consumers is discovered, the market value of the existing stock of physical capital declines and banks become unwilling to lend due to the large portion of their loan portfolios that now appear to be much riskier than before. Entrepreneurs attempt to deal with the situation in a number of ways.

Many will lay off their least productive employees in hopes of cutting costs. The result is that while output declines, output per worker rises and unemployment rises. Other entrepreneurs will simply fail or give up in their ventures and declare bankruptcy. Still others will attempt to persuade the government to help them in ways that the law prevents them from doing for themselves, e.g. forcing unwilling people to finance their projects as creditors or consumers, inhibiting competition, etc.

The main problem in all of this is that scarce resources are not allocated in the way that best satisfies people's wants. For that to happen, there must be new investment in a capital stock that can be used to produce the things that people actually want. That investment requires real resources and it can only happen if relative prices are actually reflective of people's preferences. Any policy which uses up real resources (fiscal policy) or which distorts relative prices (monetary policy) delays the formation of a physical capital stock suitable for the production of what people actually want, hence the Austrian view that the policies which are referred to as stimulus are unlikely to have the outcomes that advocates of stimulus policies claim to want.

As an aside, the people that favor government action in response to recessions often respond to the critics of stimulus policy with the presumption that in a great big national macroeconomy (as opposed to Crusoe on an island, or a small village, or a city, etc.) the standard insights of neoclassical microeconomics & industrial organization no longer apply. Why is that? How big does the economic system have to be for multiplier analysis to be correct and for microeconomic explanations to be incorrect?

More Stimulus Nonsense

2009-01-10T11:14:00.003-05:00

The WSJ points to a report citing the number of jobs that Obama's advisors expect to be created by a stimulus package. The most meaningful number is available from the WSJ link: Obama's advisors expect the stimulus to create 3,675,000 jobs.

I keep hearing that the size of the stimulus will be in the area of a trillion dollars, so that's about $265k per job created, if it's as good as its designers expect. They may have overestimated, but never mind that for a moment. Suppose that the stimulus works much, much, better than expected and creates a job for every single unemployed person. The total number of unemployed persons was measured recently to be 11,108,000. If the stimulus puts every one of these people back to work, that will cost about $90k per person.

It's odd that no representative of the "Let's be more like Europe!" school of thought has jumped on this. It would be about 700 billion cheap to just hire every single unemployed person for a year and pay them $25,000 to do whatever they most enjoy doing.

Peter Schiff, again

2008-12-09T09:37:00.001-05:00

Recently, Bob Murphy has been rather apologetic about his prior treatment of Peter Schiff. For those unaware, Schiff has spent the past few years telling us that the U.S. economy was built on too much debt and bound for hard times. And now hard times are here, just like Schiff promised.

Some while back, I'd commented somewhat disparagingly on Peter Schiff myself. I'll stand by it.

Yes, U.S. stocks have declined greatly in value and unemployment has increased and the NBER has found a recession in the macroeconomic aggregates. So why am I not suddenly praising Schiff for his insight? Because predicting that inevitable events like recessions will occur at some unspecified later time does not require special insight.

Anyone can keep predicting a decline in stocks or rising unemployment or whatever else they please over and over until it happens. More to the point, anyone can predict over and over that borrowing across borders (or the internal contradictions in the capitalist mode of production or aliens from Mars with mind control devices) will trigger a massive equity market decline and rising unemployment. And you can be sure that the UFOlogists, the Marxists and the Peter Schiff's of the world will consider themselves vindicated by the economic downturn.

That doesn't make them right.

Left wing confusion

2008-12-01T19:20:00.003-05:00

In his recent Wall Street Journal column, Thomas Frank writes

Today contractors work alongside government employees all across Washington, often for much better pay. There are seminars you can attend where you will learn how to game the contracting system, reduce your competition, and maximize your haul from good ol' open-handed Uncle Sam. ("Why not become an insider and share in this huge pot of gold?" asks an email ad for one that I got yesterday.) There are even, as Danielle Brian of the Project on Government Oversight, a nonpartisan watchdog group in Washington, D.C., told me, "contractor employees -- lots of them -- whose sole responsibility is to dream up things the government needs to buy from them. The pathetic part is that often the government listens -- kind of like a kid watching a cereal commercial."

Some of Frank's reaction toward government contractors (in parts not quoted here) may be the residue of a worldview that takes for granted that governments are more trustworthy than private organizations, but Frank's concern about private interests using the government to enrich themselves at taxpayer expense is entirely reasonable. (The longer I've been a libertarian, the more I've become convinced that left-wingers are exceedingly good at identifying problems.) And the Frank reveals his solution.

What Mr. Obama must give us is a Grace Commission in reverse, a massive investigation of the entire history of government by contractor. It is time for accountability on a grand scale, and only government has the power to deliver it

In other words, Frank favors the only solution any left winger can image for any problem: The government should do something. (The longer I've been a libertarian, the more I've become convinced that left-wingers think the solution to every problem is for the government to do something. Diagnostic ability does not indicate competence to prescribe a remedy.)

Thomas, let me help you. As I'm sure you are aware, the purpose of government is to take people's money and spend it on things they wouldn't pay for voluntarily. You can agree or disagree, but you can't have it both ways. You may think that 535 legislators and one executive really should take money from hundreds of millions of Americans in order to spend that money on things that those hundreds of millions of Americans would never spend their money on voluntarily. But if that's how you think the world ought to be, you shouldn't be surprised or outraged when 535 legislators and one executive take money from hundreds of millions and spend it in ways that so many Americans disagree with. After all, that's what you are in favor of.

Austrians should not be libertarians?

2008-11-18T21:08:00.004-05:00

Matthew Mueller has an odd post at his Post-Austrian Economics blog. Toward the end of his post (which I won't attempt to summarize here) he writes,

"What needs to be done? Well, if Austrian economics is to have a real future, I think that it must explicitly abandon any connection to the libertarian movement."

Who "needs" to do this and why? I'm not sure what Matthew is trying to say here.

There are those who are libertarians because they are compelled by deductive economic arguments which imply that government intervention is unlikely to have consequences that satisfy the values which motivate those interventions. And there are those who are libertarians because they judge the actions of the state's agents by the same standards of morality that they use to judge the actions of everyone else. And so long as both groups are right in their reasons, why should they change their political philosophy?

I hope Matthew wouldn't suggest that anyone give up any position which is based on good reasons. But if Austrian libertarians' reasons which lead them to be libertarians are false or if those reasons don't actually lend support to libertarianism, Matthew hasn't shown that.

Quality Deportation, Service With A Smile

2008-10-16T20:15:00.004-04:00

You've heard of Air Pelosi, but have you heard of Air Immigranti? From the WSJ.com:

While U.S. airlines downsize and scrimp on amenities, one carrier is offering its passengers leather seats, ample legroom and free food. But frequent fliers probably don't want a ticket on what may be the fastest growing "airline" serving Central America.

This carrier is run by U.S. Immigrations and Customs Enforcement, the federal agency responsible for finding and deporting undocumented immigrants. A crackdown on illegal immigration has led to a spike in deportations and the creation of a de facto airline to send all those people home.

While oil prices hit recent all-time records and US airlines were forced to charge passengers higher and higher fares and heavy fees for previously complimentary service (such as food, in flight entertainment and luggage transfer), the US government has been spending millions on an "illegal alien" deportation/ferrying service-- by jet plane! The wonders never cease.

"For a lot of these immigrants, it has been a long journey to the U.S.," said Michael J. Pitts, chief of flight operations for deportations and removals at ICE. "This is going to be the last impression they have of the United States. We want to provide good service."

This article is quite long and quite detailed in the kind of service this airline provides, which becomes increasingly absurd when one realizes that this service is being provided to people who are being forcibly expelled from the country! What is the point of threatening people with a gun, politely? What kind of impression could a person possibly be left with about a country that kicked them to the curb, literally?

Is the US Federal government desperate for friends or something? "Gee, we hope there are no hard feelings about us imprisoning you and then forcibly sending you back to the terrifying conditions you spent thousands of dollars and risked your life trying to get away from. We hope the free bologna sandwiches and comfy leather seats remind you that America is, at the end of the day, still a friendly, service-oriented country that cares about you!"

In all, the U.S. government deports people to more than 190 countries. Outside of Mexico, ICE flew home 76,102 illegal immigrants in the fiscal year that ended Sept. 30, up from 72,187 last year and 50,222 two years ago.
ICE Air's patrons are what the airline industry calls "non-revenue passengers," since Washington foots the bill at $620 a person on average for the one-way flight home. The agency now flies 10 aircraft, twice as many as last year, including leased and government jets.

Let's do some quick math:

76,102 passengers x $620 per passenger = $47,183,240 in "illegal alien" airfare last year.

And that's just the direct, average costs of the airfare. Many more millions (billions?) are spent on all of the infrastructure, technology and personnel required to run this incredible waste of a human dragnet that originally found these "customers,' stored them in prisons and then put them on planes home. Of course, many thousands more return home on boats and buses.

A Guatemalan foreign-ministry official declared, "Welcome home," and informed the arrivals that they had free access to a phone, a money-changing service and vans to the central bus station. "If you used a different name in the U.S., please give us your real name," the official told the crowd. "There is no problem."

I wonder if there is also a representative of the US Embassy standing at attention, waiting to collect customer satisfaction surveys at the end of these arduous flights?

Waste, waste, waste.

Is Medical Care Exceptional?

2008-10-11T18:35:00.003-04:00

Just like all other recent election seasons, the idea of socializing or nationalizing the medical industry seems to get more mention than usual. I've always been against such programs mostly for moral reasons: Like everyone else, I think it's wicked to force people to pay for things that they claim not to want. Unlike everyone else, I think it's no less wicked when the party doing the forcing is a government.

But most of the people opposed to a government run health care system are opposed for more consequentialist reasons. Specifically, socialism does not typically generate good outcomes.

Supporters of a government run medical industry might deny that having a medical industry run by the national government is socialistic, or claim that socialism is not that bad, but both of these rejoinders seem rare. More common is the claim that while socialism doesn't generally work and the market economy is mostly a better way to do things, the medical industry is exceptional in some way or another.

Usually, this is supported by cross country comparisons of various metrics, but the available cross section of countries has too many counfounding variables. Demographic differences come to mind immediately but there are plenty of others.

If medical care is truly exceptional, then we should expect to find that in the 1970s, countries like Romania and Vietnam and Bulgaria and Poland and China and the USSR had serious problems in their "unexceptional" industries like cars, potatoes, shoes, pork, televisions and so on, but relatively better performance in the medical industry.

So I'm curious: Why hasn't the "medical care is different" crowd produced any research (has there been any?) to show that while every other industry in these fully nationalized economies was plagued with the problems associated with socialism, the medical industries in these economies were relatively successful?

Financial Monopoly

2008-10-08T18:52:00.003-04:00

A thought just occurred to me: most economists seem to take issue with the phenomenon of "monopoly" in the markets. It's something of a dogma that monopoly is an evil and should be forcibly stamped out by government whenever it rears its ugly head.

Most economists also seem to ignore that government is always the biggest and most dangerous monopoly in its particular politico-geographic region, however, and that government suffers from and causes all of the same problems any other theoretical monopoly would-- reduced competition, reduced economic efficiency, higher prices, lower supply, lower welfare/utility in general.

It comes as something less than a surprise then, that most economists aren't standing atop the battlements shouting "Monopoly! Monopoly! Monopoly!" and gesticulating wildly during this historic financial turmoil-- of the original five major broker dealers, Bear Stearns and Lehman brothers are gone, Merrill Lynch has been co-opted and Morgan Stanley and Goldman-Sachs barely stand on their own. Meanwhile, Washington Mutual has fallen, Wachovia has essentially done the same, and it's questionable whether Citi can even survive this alone. As far as large national banking chains go, JPMorgan-Chase and Wells Fargo might very well be the only major US national banks in business when this is through.

Why don't the economists care about this incredible concentration of banking and financial power? Why are they not only not worried about this proto-monopoly, but are instead encouraging it?

Because it's being coordinated and created by the government. And though the average modern economist might claim to like free markets in theory, the truth is that nothing helps him to sleep better at night on his Keynesian pillow than to close his eyes knowing that central planning is alive and well in the world.

Why I Am Looking Forward To An Obama Presidency

2008-10-08T12:23:00.003-04:00

I'm not.

However, if I was, the reason I would be is because Obama's rhetoric has been decidedly anti-free market. He has blamed the free market numerous times for the economic and financial calamaties befalling this country and the world. I don't think anyone who supports him, supports him because he is a free market-fanatic. In fact, just the opposite, I believe many support him because they hope to see him viciously regulate and rein in the nasty, evil free market.

While I, personally, don't believe John McCain is a friend of the free market by any stretch of the incredibly creative imagination, I do think that many people engaged in the two-party political system believe he is some kind of defender of free markets, at least in comparison to Obama. McCain seems to have this reputation as a guy who is for regulating some of the excesses of the free market, but is otherwise just another rabidly pro-market Republican guy.

So, when Obama assumes the presidency and implements more socialism, and when he does so not in the insulting name of free markets as George Bush did, but in the name of socialism and egalitarianism and whatever other ridiculous -ism besides "free marketism" he might be engaging in this rash behavior for, it is my understanding that nobody will be stupid or dishonest enough to be able to blame the free market for all the destruction and mayhem and suffering that follows.

Rather, they might be able to blame the free market, still, for being notoriously hard to pin down and obstructing the valiant efforts of heroic government to save everybody from themselves and then some. But if they are to take any issue with Obama and his policies, their criticism will necessarily be aimed at a socialist doing socialist things, not at a "free market" guy letting "free markets" run wild.

And that, I suppose, could be something to look forward to about an Obama presidency.

If you take pleasure from pain.

Law of Unintended Consequences: Round 4,567,382

2008-10-02T15:35:00.005-04:00

The number above is arbitrary, as is the pain and suffering caused by the "unintended consequences" of this latest governmental legal debacle, as detailed by the NYT.com in Parents Give Up Youths Under Law Meant for Babies:

OMAHA — The abandonments began on Sept. 1, when a mother left her 14-year-old son in a police station here.
By Sept. 23, two more boys and one girl, ages 11 to 14, had been abandoned in hospitals in Omaha and Lincoln. Then a 15-year-old boy and an 11-year-old girl were left.
The biggest shock to public officials came last week, when a single father walked into an Omaha hospital and surrendered nine of his 10 children, ages 1 to 17, saying that his wife had died and he could no longer cope with the burden of raising them.
In total last month, 15 older children in Nebraska were dropped off by a beleaguered parent or custodial aunt or grandmother who said the children were unmanageable.
Officials have called the abandonments a misuse of a new law that was mainly intended to prevent so-called Dumpster babies — the abandonment of newborns by young, terrified mothers — but instead has been used to hand off out-of-control teenagers or, in the case of the father of 10, to escape financial and personal despair. [emphasis added]

Intent doesn't mean anything, only consequences do. Intentions don't heal wounds, keep people out of prison, give people steady wages, reduce poverty or reduce human error or suffering of any kind-- if they did, we wouldn't "need" to pass well-intentioned laws... everyone could just sit around singing kumbaya and humming and channeling their good intentions for everyone else in the world until everything was all better.

Nebraska Official: "We are shocked, SHOCKED, that people would respond to this law, which incentivizes irresponsibility, with irresponsibility. SHOCKED! Did I mention we were shocked? And our intentions, well, we meant well, obviously, but we're just so shocked right now..."

The spate of abandonments has prompted an outcry about parental irresponsibility and pledges to change the state law. But it has also cast a spotlight on the hidden extent of family turmoil around the country and what many experts say is a shortage of respite care, counseling and especially psychiatric services to help parents in dire need.

Now there's what I find "shocking" in this situation-- this law (government intervention) has revealed a "need" for more services (government intervention), which are currently facing a "shortage" according to "experts." This is why sensible people make the slippery slope argument about government intervention. No one goes to sleep in a free country and wakes up to a revolution that has brought about a socialist government. It happens gradually, step-by-step, and it happens in such a way that it appears to everyone involved to be inevitable because government, by nature, creates more problems than it solves, which it must then respond to and attempt to solve until you're in the middle of a totalitarian regime.

My quote fingers are getting tired at this point, by the way, but I use all the quoted terms loosely because I don't agree with their use.

This is how things always go with the government. The government is like a pest exterminator who sees an undisturbed ant hill, stabs a stick into it in the well-intentioned name of "beautifying the lawn" and is suddenly overwhelmed with the appearance of a NEW problem-- millions of angry ants running amok all over the house to which the lawn is attached. So, then, the pest exterminator decides to tent the house and gas it (not sure ants respond to house-tenting but, hey, it's the government, it doesn't matter if it'll work, just so long as it's doing something) and in the process, kills the family cat. Now, the ants are gone, but with the family cat dead, there's suddenly a mouse problem. To control the mouse problem, the pest exterminator leaves mousetraps all over the house, which the baby in the family stumbles into and loses a finger or two. Now, you've got a baby with no fingers, all because the pest exterminator just couldn't leave a little ant hill alone.

And so on and so forth.

My Bailout Plan

2008-10-01T18:23:00.004-04:00

Ever since Paulson and Bernanke began clamoring over the importance of a rescue plan for the currently troubled financial sector, professional and amateur economists have been falling over themselves to propose their own improved plans. Now I'm not in favor of economic planning in general, or even in special times like these. (Aside: If I had to choose, I'd prefer economic planning only in cases when things are going unusually well. In such conditions, the ill effects of economic planning are not as painful as they are when the economy is already in a rut. My preferences here seem to differ from most of the public and even most self identifying free market economists who find government directed allocation of resources most desirable in precisely the times when the economy is least able to withstand such meddling.)

Anyway, like I said, I'm not exactly a fan of any sort of plan to "fix the economy" or whatever it is that people are calling it. But since everyone else wants to enumerate the details of their plans, here's mine.

1. Henry Paulson makes a list of all of the assets that his plan would buy. Recall that he and others have been suggesting that these assets will be profitable in the long run.

2. Henry starts a mutual fund (The Paulson Fund) which will own all of these assets. The Fed provides sufficient capital up front to pay for the total assets of this mutual fund. The Paulson Fund buys all of these assets.

3. Every American is required by law to invest in the fund in proportion to his or her total wealth. The fund must sell shares such that the price of each share reflects no more than the original purchase cost of the assets in the fund. Revenues from sale of the shares should be used to pay back the Fed. That is, the Paulson Fund should not simply resell these assets at a profit to the public.

4. Every participant in the fund should receive the same mailings they might get from any other retail mutual fund. That includes a glossy report about how wise the fund management team is. But this fund would be special. Unlike the glossy reports from other mutual funds, this one would contain the statement: "The very best economic minds in the United States government believe that the investments held in the fund are highly likely to be profitable. They have even testified to that effect before Congress with bipartisan support."

5. Participants in the fund are free to sell their shares to any other willing buyers, or to buy more from willing sellers. Those people that have agreed with the suggestiong that the original Paulson plan would be profitable can now participate in what they regard as a good investment. Those people who think the original plan is a sure loser could offload their unwanted stake.

At least that's what I'd suggest if I were into this whole plan thing. I'm not really endorsing any such nonsense, but compare my plan to the original:

The original plan obscures the distribution of cost and benefit. My plan would leave no one uncertain as to how much the plan was affecting their pocketbook and how much risk it was forcing them to take on.

The original plan may or may not be profitable but it will be very hard to know for sure. My plan will leave no uncertainty as to whether or not the assets that Paulson recommends are actually profitable.

If the original plan turns out to be a loser, people would fail to connect the costs with the people who said it would be profitable. Under my plan, everyone will be able to connect the losses with the "very best economic minds in the United States government."

Under the original plan, everyone has to participate to the extent that the government chooses. Under my plan, each person can choose the individually appropriate level of participation.

Whatever the problems may be with my plan, it's far and away better than the one that recently got scrapped by fairly narrow margins. Somehow, I still suspect that the same Congress that came fairly close to passing the original plan would be far less willing to even consider mine.

Interesting post title

2008-09-29T21:49:00.004-04:00

From Nouriel Roubini: The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever.

Wow! All time highs are pretty rare. I wonder how many total systemic meltdowns were in the data set used to develop this bold risk assessment.

Disclaimer: I have no idea what the risk of a total systemic meltdown is. I don't know how high it would have to be to make an all time high either.

A recent email

2008-09-22T22:24:00.002-04:00

Today I received the same irritating email for what must be the third time now. The owner of another site writes,

Fellow Blogger:

You are invited to my new non-partisan site (site name)

Our mission statement:

(site name) fosters intelligent and informed discussion and debate on issues of public policy, leading to bipartisan solutions enacted for the public good.

Would appreciate your comments on how we can improve this site.

Best,
(Name), founder (site name)

Maybe the content here at Degrees of Freedom is unclear.

Let me clarify: Feel-good expressions like "public policy" and "bipartisan solutions" and "the public good" don't change the ugliness of "There are many of us and few of you so be prepared to for it over." Here are Degrees of Freedom, we are fundamentally opposed to public policy, bipartisan solutions and the like as they are inherently at odds with the principle of private property.

Founder, consider that there are no doubt countless things that you value in your life: family friends, career, etc. Would you want to subject any of these to public policy? Were they the results of bipartisan solutions? Do you value them because they serve the public good? I doubt it.

The USSR Was An Example Of A Failure To Present A Serious Economic Plan

2008-09-16T18:27:00.004-04:00

Barack Obama is "sticking it to the man" as he challenges John McCain's response to recent economic news. From the NYT.com:

“Instead of offering up concrete plans to solve these issues, Senator McCain offered up the oldest Washington stunt in the book –- you pass the buck to a commission to study the problem,” Mr. Obama told an audience here. “But here’s the thing – this isn’t 9/11.”

No, this financial crisis is not a violent attack carried out against the persons and property of the "United States of America" by non-nationals.

Yes, it will be even more costly, financially, economically and perhaps even freedom-wise, than the events following the attacks on September 11th, 2001.

And YES, emphatically YES, Barack Obama, the United States Federal Government is, yet again, the prime instigator and enabler of this mega-disaster.

So then, two big errors in Barack Obama's speech there: he assumes that government investagative committees are appropriate and relevant in some government-instigated crises but not others (they are never appropriate and relevant); and he assumes that there is something that the government could do to assist in a crisis (there is nothing a government can do to assist in a crisis that would not prolong the crisis or otherwise make the relief effort worse than it might have been in the absence of a government response).

Government crisis committees, investigative, regulatory, exploratory and otherwise, are relevant only in communist countries that are enraptured with the belief that central bureaucrats can somehow better plan and run an economy/crisis better than millions of individuals judging costs and benefits on their own intitiative could. Any "plan" from Barack Obama or John McCain for solving this crisis that involves government meddling of any type or magnitude is not a plan that has any relevance or place in a supposedly free-market system. The degree to which politicians and individuals call for a government response to a (government-created) crisis is the degree to which the economy is further from a free-market system and closer to a pure socialist system.

Q: What is the difference between a "free-market" president and a communist secretariat?
A: The president's country has prices. (But apparently not for long.)

Sickening

2008-09-13T20:22:00.004-04:00

The New York Times is carrying a story on the terrible commuter train accident that happened yesterday near Los Angeles. The story, like many others written about this incident so far, is incredibly (overly?) graphic in details concerning blood and gore, and is actually difficult to read at parts because of the descriptions of the carnage aboard the train. I've never read a news article so grim and grotesque before. With all the war and violence that covers the globe on a daily basis, it's odd that the details in those stories are more sanitized than a story about a freak transportation accident.

As difficult as it was to read the traumatized memories and recollections of some of the passengers who had rode the train and survived the collision, one of the more sickening passages I found was the following:

Among the dead, officials confirmed, was a police officer, Spree Desha, 35. When her identity was learned, all officers on the scene formed lines, stood at attention and saluted in silence as her body, covered in a white sheet, was lifted down a ladder and placed with 10 other victims a short distance from the tracks.

That's gross. Somehow Spree Desha's death was more glorious, more saddening, deserving of more respect and solemnity and gesticulation, than anyone else on the train, because she had previously made her living in the employ of the State, terrorizing free people at the point of a gun?

Whose body is that?

It's Spree Desha's. She was one of us.

Disgusting.

The idea of a "modern man" is a humorous joke. Tribalism is a primitive mental fetish and it is alive and well in a good majority of the human beings on this planet and specifically in this country. How else do you explain thousands of police officers marching through the streets of Brooklyn, NY to "pay their respects" to a man likely few had met and even fewer knew personally? How else do you explain atrocities like the War in Iraq, the War in Afghanistan... or any other kind of mindless war anywhere in the world at any point in time?

This is man at his highest point of human development? No, I'm sorry. This is premature man at his least erudite, willfully ignoring reason, the one thing that truly separates him from the lower beasts and which provides him the means necessary to raise himself from the primordial ooze to his potential paramount achievements.

Do As I Say, Not As I Do

2008-09-09T14:48:00.004-04:00

Bloomberg.com is running a story about US Senator Jim Bunning of Kentucky calling Ben Bernanke and Henry Paulson socialists who should resign from their positions:

Sept. 9 (Bloomberg) -- Senator Jim Bunning said Treasury Secretary Henry Paulson, by rescuing Fannie Mae and Freddie Mac, is acting like China's finance minister and both Paulson and Federal Reserve Chairman Ben S. Bernanke should step down.
``I sincerely believe that Henry Paulson and Ben Bernanke should resign,'' said Bunning, a Republican from Kentucky on the Senate Banking Committee. ``They have taken the free market out of the free market.''
[...]
``We no longer have a free market in the United States, we have a government controlled free market,'' Bunning said in an interview. Paulson, a former chief executive officer of Goldman Sachs Group Inc., ``is acting like the minister of finance in China.''

As much as I agree with the good senator's sentiments in this particular regard, I am afraid I am obliged in this instance to point out that, as a ranking member of the non-free market entity known as the US Federal Government, Mr. Bunning is, in fact, a raging hypocrite of the highest order possible. And thus, in response to his call for the resignations of Mr. Bernanke and Mr. Paulson, as well-advised as I feel they are in this situation, might I humbly suggest the following to the good senator?

"You first."

Particularistic thinking about the state doesn't have to be normative

2008-08-28T22:41:00.003-04:00

It's not at all uncommon to encounter views which treat governments as some sort of an exception to normal reasoning about normative claims, e.g. "Taxation isn't theft because the government is the party doing the taking," and "War isn't mass murder because the government is the party organizing the killing," and so on.

But such errors in reasoning are not limited to normative issues. There is a fairly common argument aimed at the justification of the state which treats claims about the state as exceptions to normal causal reasoning:

If a market (perhaps with some well chosen set of characteristics) hasn't existed in the absence of a government before, then (it is claimed) such a market can't exist in the absence of government.

No doubt, one can choose a set of characteristics such that no market has ever existed with those characteristics in the absense of government.^[1]

The person making such an argument takes a logical relationship for a causal one. Suppose that to this day, no market had been observed to exist apart from thieves. This observation could be generalized to the claim that if a market exists somewhere, thieves exist there too. If this generalization were true, one would be correct to say that the existence of thieves is a logically necessary condition for the existence of a market and the existence of a market is a logically sufficient condition for the existence of thieves.

Would it be correct to say that the existence of thieves is a causally necessary condition for the existence of a market? Of course not.^[2]

As I've worded it here, the fallacy is plain. It's no less a fallacy concerning government than concerning thieves.
__________
[1] I don't understand why those who make this argument trouble themselves so much over precisely what characteristics such as growth rates, differentiation of goods, and so on a stateless market must have in order to show that markets don't need government. If this argument held water, an empirical generalization with a handful of exceptions would be convincing enough.

[2] Nearly any theory of causal relationships concerning markets and thieves could accomodate the fact that where markets are observed to exist, thieves are also observed to exist. A Marxist would posit a common cause: greed. An apologist for thieives would claim that markets need thieves to drive away other thieves. A supporter of markets and property rights would claim that the wealth generated by markets attracts thieves.

Logical Positivism Mk. II, meet Logical Positivism Mk. I.

2008-08-04T21:12:00.004-04:00

Eliezer has responded to my previous post concerning the uncanny resemblance between the logical positivism of the last century and the philosophy he seems to be building.

While I presume Eliezer means to distinguish his philosophy from positivism Mk. I, he only demonstrates his lack of familiarity with it. He writes:

Logical positivists were best known for their verificationism: the idea that a belief is defined in terms of the experimental predictions that it makes. Not just tested, not just confirmed, not just justified by experiment, but actually defined as a set of allowable experimental results. An idea unconfirmable by experiment is not just probably wrong, but necessarily meaningless.

I would disagree, and exhibit logical positivism as another case in point of "mistaking the surface of rationality for its substance".

Consider the hypothesis:
On August 1st 2008 at midnight Greenwich time, a one-foot sphere of chocolate cake spontaneously formed in the center of the Sun; and then, in the natural course of events, this Boltzmann Cake almost instantly dissolved.
I would say that this hypothesis is meaningful and almost certainly false. Not that it is "meaningless". Even though I cannot think of any possible experimental test that would discriminate between its being true, and its being false.

This shows that Eliezer is probably unfamiliar with Logical Positivism, Mk. I, not that his own ideas are different from it.

The first bunch of positivists didn't believe actual verification had to take place, or that it had to be physically doable, for a claim to be meaningful. The most commonly referenced illustration of this point, from Ayer's Language, Truth & Logic is the positivist treatment of the claim that mountains exist on the far side of the moon. At the time of Ayer's writing, no human was able to verify this claim in practice, but that was no problem because the claim was verifiable "in principle" i.e. the claim specified something about a physical state of the world. The only difference between the old and new positivism in this regard is more colorful language. Positivists of the Mk. I variety spoke of claims being verifiable in principle rather than in metaphors about rent.