‘I would let people gamble on the Internet, I would let adults smoke marijuana; I would let adults do a lot of things, if they choose. But allowing them total freedom to take on economic obligations that spill over into the broader society? The individual is not the only one impacted here, when bad decisions get made in the economic sphere, it causes problems.’
– U.S. Rep. Barney Frank (D-Mass) Apr 23, 2009 interview with CBSNews.com
I think Rep. Frank means he wants to restrict the freedom of the powerful financial institutions to make economic decisions (“take on economic obligations”) on their own. After all, the big private financial institutions made the decisions that led to the mortgage meltdown and the current crisis. Well…I don’t think so.
The federal government’s record of making economic decisions, controlling how private firms take on economic obligations, is abysmal.
The Federal Reserve Act, and related legislation in 1913, nationalized financial markets and financial institutions, making them the most regulated sector in the American economy. The Federal Reserve Act was intended to stop the periodic recessions (sometimes called “panics” in the 19th century) that plagued the economy every dozen years or so. Promoters declared that the Federal Reserve, authorized by the Act, would end the up-and-down business cycles by implementing “rational” policies in the management of the money supply, credit, interest rates, and the value of the dollar relative to gold and other currencies.
Since the nationalizing of the currency, we have had recessions every six years, on average. Gee, that worked.
Government Failures, not Free Market Failures, Cause Recessions
The recession of 1920 was caused by decisions made by the Federal Reserve during and after WWI. The crash of October 1929 was caused by federal policies that reduced the money supply. The Crash of 29 turned into the Great Depression because of economic and monetary decisions made by the Federal Government and the Federal Reserve – most notably continuing to decrease the money supply, unpredictably changing interest rates, and arbitrary changes to the price of gold. The crash of 2008 was caused by federal monetary and credit policies.
Woa! What about the mortgage companies that made all those bad loans, and the financial traders who created all those toxic derivatives and scattered them throughout the world markets? Wasn’t it the economic decisions of those private corporations that caused the crash?
Government Policies Affect (or even control) Private Actions
Well… How do you think Government policies are implemented? By encouraging (or forcing) certain behaviors by private organizations.
As I said earlier, the financial markets are the most heavily regulated sectors of the economy. The economic behavior of private financial organizations is heavily influenced, if not controlled outright, by Barney Frank and his fellows in the government. And the policies of the President, including dumb decisions made by Pres. Bush.
Government policies can create perverse incentives and penalties that will inevitably lead to perverse behavior by those regulated.
So, after perverse government policies forced financial organizations to make perverse, dangerous, and stupid decisions, Rep. Frank wants even more control.
Coercion
Did I say forced? Yes. As in “your bank charter won’t be renewed unless you take on a certain percentage of high-risk, sub-prime mortgages.” These mortgages were then backed by Fannie Mae and Freddie Mac” – “private” institutions wholly owned by the U.S. government.
These private financial organizations took on stupid economic obligations because not doing so would have put them out of business.
This oversimplified explanation (WAY oversimplified) is not meant to pick on Rep. Frank but to point out the fallacy of a way of thinking: that the government can run things better than free market, the extended order of voluntary human cooperation. Government restrictions of liberty beyond the minimum of protecting private property, keeping the peace, enforcing contracts, and protecting from invasion are the causes of economic problems, not the solution.
Nothing is Usually a Good Thing to Do
Oh, remember I mentioned the crash or recession of 1920? It was about as bad as the crash of 1929. But the economy worked its way out of the recession by the middle of 1922. What did the government do to fix the problem? NOTHING. Well, taxes and spending were reduced. But other than that NOTHING.
The crash of October 1929 turned into the Great Depression because, unlike President Harding, President Hoover actively tried to fix the problem. Then President Roosevelt continued and expanded Hoover’s policies (while mendaciously claiming Hoover did nothing).
Government management of the economy is a great idea as long as you ignore its uninterrupted string of failures.
‘Politicians have immense power to do harm to the economy. But they have very little power to do good.’
– Walter E. Williams
Wednesday, March 10, 2010
Fascism and the Frank Principle
‘I would let people gamble on the Internet, I would let adults smoke marijuana; I would let adults do a lot of things, if they choose. But allowing them total freedom to take on economic obligations that spill over into the broader society? The individual is not the only one impacted here, when bad decisions get made in the economic sphere, it causes problems.’
– U.S. Rep. Barney Frank (D-Mass) Apr 23, 2009 interview with CBSNews.com
In principle, this means that no private citizen has total freedom to take economic actions because all private economic acts have consequences that spill over into the broader society to some tiny extent. BUT, since we don’t live on individual islands, other than thinking, ALL of our actions, good and bad, are made in the economic sphere and spill over into the broader society, even the decisions to smoke marijuana (which we have to buy, thereby affecting the price, and we have to exhale, thereby affecting air quality and CO2 concentrations) and gambling on the internet (essentially taking out loans, thereby affecting interest rates and the availability of capital).
So, under the Frank Principle, we really have no liberties, no unalienable rights as human beings.
Supremacy of Government (Because We Care)
The Frank Principle means that liberty is something the government grants, giving you as much as it – the government (and Barney Frank) – thinks you should have and reducing or eliminating liberty as it – the government – sees fit. Your liberty is not your own, your rights are not inherent to your humanity, rather they are granted by the government. Since the government grants or restricts rights, no longer are “governments instituted among men, deriving their just powers from the consent of the governed” to protect inalienable human rights. The Frank Principle reverses the relationship humans have with their government: no longer do people create governments to protect their rights; instead government exists to GIVE people rights. Government is primary, individuals are secondary. No longer “Individual living human beings are the most important things there are” as a rights-granting government is necessarily more important.
The Frank Principle need not lead to common, or government, ownership of the means of production. The means of production – capital, factories, tools, inventories, raw materials, and the organizations that produce things – can remain in private hands. But their economic decisions, because the results of bad economic decisions spill over into the broader society, must be controlled (or at least regulated) by the political system – the government. This system of private-ownership-under-public-control, where firms that are too big to fail are saved or purchased by the government, is a public/private partnership where government takes the lead, specifies who will profit and who will lose and ensures that everything is orderly, sensible, and under rational control.
Nothing New
This way of organizing and managing production and the economy has enormous appeal – guaranteed profits for businesses that no longer have to compete in the free-market jungle, guaranteed importance (and opportunities to extort “gifts”) for government officials, and general reduction of uncertainty, mystery, incomprehensibility, and risk for everyone. It is sometimes called “Corporatism”.
The traditional term is “fascism,” in the original meaning of the term. The meaning that was applauded by FDR, the leading lights of the New Deal, American Progressive intellectuals, and Lenin himself.
Unlike Progressives, I don't call something “fascist” because I don’t like it. While for most Progressives words have only emotional content and little or no meaning, for me words have meanings: they convey thoughts and ideas, not just emotions.
“Fascism” was the name Mussolini gave to the corporatist socialist political/economic system he implemented in Italy during the 1920s. It was Mussolini’s version of socialism. I call the system I described above “fascist” because that is what it is, although “corporatist” doesn’t pack the emotional baggage while meaning essentially the same thing. Look it up. Read what Mussolini had to say about the system, learn how it worked. The racism and militarism and violence were artifacts of German and (to a lesser extent) Italian cultural history, ancillary to the core political-economic system. Corporatism need not be ugly in the way of Nazi Germany, or Italy after it allied itself with Hitler.
Is Barney Frank a fascist? I expect the notion would offend him. Besides, he probably doesn’t know enough about fascism to form an accurate opinion. Is President Obama a fascist? Again, his ignorance of history would indicate he wouldn’t consider his policies fascist. Both of them, and their allies and supporters, seem to think they dreamed up this great idea, corporatism, on their own. Since they aren’t racist or militaristic or planning to take over other countries they would be offended to be called “fascist” because that is all they know about fascism.
But in relation to economics and individual liberty, the ideas and policies they promote are straight out of Mussolini’s handbook. And antithetical to individual liberty.
P.S. Lest anyone think this is a partisan screed, I fully recognize that the corporatist policies began under the Bush Administration with the financial bailouts of failed companies. I don't care who violates our liberties, I will criticize the violation.
– U.S. Rep. Barney Frank (D-Mass) Apr 23, 2009 interview with CBSNews.com
In principle, this means that no private citizen has total freedom to take economic actions because all private economic acts have consequences that spill over into the broader society to some tiny extent. BUT, since we don’t live on individual islands, other than thinking, ALL of our actions, good and bad, are made in the economic sphere and spill over into the broader society, even the decisions to smoke marijuana (which we have to buy, thereby affecting the price, and we have to exhale, thereby affecting air quality and CO2 concentrations) and gambling on the internet (essentially taking out loans, thereby affecting interest rates and the availability of capital).
So, under the Frank Principle, we really have no liberties, no unalienable rights as human beings.
Supremacy of Government (Because We Care)
The Frank Principle means that liberty is something the government grants, giving you as much as it – the government (and Barney Frank) – thinks you should have and reducing or eliminating liberty as it – the government – sees fit. Your liberty is not your own, your rights are not inherent to your humanity, rather they are granted by the government. Since the government grants or restricts rights, no longer are “governments instituted among men, deriving their just powers from the consent of the governed” to protect inalienable human rights. The Frank Principle reverses the relationship humans have with their government: no longer do people create governments to protect their rights; instead government exists to GIVE people rights. Government is primary, individuals are secondary. No longer “Individual living human beings are the most important things there are” as a rights-granting government is necessarily more important.
The Frank Principle need not lead to common, or government, ownership of the means of production. The means of production – capital, factories, tools, inventories, raw materials, and the organizations that produce things – can remain in private hands. But their economic decisions, because the results of bad economic decisions spill over into the broader society, must be controlled (or at least regulated) by the political system – the government. This system of private-ownership-under-public-control, where firms that are too big to fail are saved or purchased by the government, is a public/private partnership where government takes the lead, specifies who will profit and who will lose and ensures that everything is orderly, sensible, and under rational control.
Nothing New
This way of organizing and managing production and the economy has enormous appeal – guaranteed profits for businesses that no longer have to compete in the free-market jungle, guaranteed importance (and opportunities to extort “gifts”) for government officials, and general reduction of uncertainty, mystery, incomprehensibility, and risk for everyone. It is sometimes called “Corporatism”.
The traditional term is “fascism,” in the original meaning of the term. The meaning that was applauded by FDR, the leading lights of the New Deal, American Progressive intellectuals, and Lenin himself.
Unlike Progressives, I don't call something “fascist” because I don’t like it. While for most Progressives words have only emotional content and little or no meaning, for me words have meanings: they convey thoughts and ideas, not just emotions.
“Fascism” was the name Mussolini gave to the corporatist socialist political/economic system he implemented in Italy during the 1920s. It was Mussolini’s version of socialism. I call the system I described above “fascist” because that is what it is, although “corporatist” doesn’t pack the emotional baggage while meaning essentially the same thing. Look it up. Read what Mussolini had to say about the system, learn how it worked. The racism and militarism and violence were artifacts of German and (to a lesser extent) Italian cultural history, ancillary to the core political-economic system. Corporatism need not be ugly in the way of Nazi Germany, or Italy after it allied itself with Hitler.
Is Barney Frank a fascist? I expect the notion would offend him. Besides, he probably doesn’t know enough about fascism to form an accurate opinion. Is President Obama a fascist? Again, his ignorance of history would indicate he wouldn’t consider his policies fascist. Both of them, and their allies and supporters, seem to think they dreamed up this great idea, corporatism, on their own. Since they aren’t racist or militaristic or planning to take over other countries they would be offended to be called “fascist” because that is all they know about fascism.
But in relation to economics and individual liberty, the ideas and policies they promote are straight out of Mussolini’s handbook. And antithetical to individual liberty.
P.S. Lest anyone think this is a partisan screed, I fully recognize that the corporatist policies began under the Bush Administration with the financial bailouts of failed companies. I don't care who violates our liberties, I will criticize the violation.
Not Left Wing nor Right Wing
If the extreme Left Wing of politics is Communism, and the extreme Right Wing is Fascism…
Then the line between is nothing but the spectrum of socialism. Right-wing socialism, Left-wing socialism, middle-of-the-road socialism. Socialism.
Yet most of the political-economic systems in human history don’t fall anywhere on the line. Classical Liberalism most certainly does not. That is why the point of view of this blog is neither of the Left nor of the Right.
Bolshevik Communism and Fascism/Nazism were flavors of socialism competing for control of European industrialized societies in the first few decades of the 20th century. The Bolshevik version paid more attention to Marx while the Fascists paid more attention to other socialist thinkers. Bolshevism was internationalist and Proletarian while Fascism/Nazism was nationalist and not class specific. But both were communitarian, state supremacist, rationalist (so they claimed), scientific (so they claimed) systems based on core socialist principles.
They even were allies, or mutual admirers, early on. But like brothers competing for the hand of the same maiden, they became bitter enemies, blaming each other for all their difficulties and failures. The Bolsheviks continued to blame Fascists and Nazis for their failures decades after Fascism and Nazism ceased to exist outside of caves and South American enclaves.
Stalin is the one who declared Nazism to be the polar opposite of Bolshevik Communism. American Progressives who took their marching orders from Moscow repeated the Party line. And repeat it to this day.
Any time you hear a Conservative or Classical Liberal referred to as a Nazi, a bell should go off in your head: Stalinism! The speaker/writer is repeating Stalinist propaganda! After eighty years! Probably without knowing it. Progressives aren’t particularly interested in history.
If you haven’t already, read Liberal Fascism by Jonah Goldberg. Goldberg means “liberal” in its modern sense of Progressivism, and not in the same sense as Classical Liberal or “liberal” as used by Mises and other champions of individual liberty.
Then the line between is nothing but the spectrum of socialism. Right-wing socialism, Left-wing socialism, middle-of-the-road socialism. Socialism.
Yet most of the political-economic systems in human history don’t fall anywhere on the line. Classical Liberalism most certainly does not. That is why the point of view of this blog is neither of the Left nor of the Right.
Bolshevik Communism and Fascism/Nazism were flavors of socialism competing for control of European industrialized societies in the first few decades of the 20th century. The Bolshevik version paid more attention to Marx while the Fascists paid more attention to other socialist thinkers. Bolshevism was internationalist and Proletarian while Fascism/Nazism was nationalist and not class specific. But both were communitarian, state supremacist, rationalist (so they claimed), scientific (so they claimed) systems based on core socialist principles.
They even were allies, or mutual admirers, early on. But like brothers competing for the hand of the same maiden, they became bitter enemies, blaming each other for all their difficulties and failures. The Bolsheviks continued to blame Fascists and Nazis for their failures decades after Fascism and Nazism ceased to exist outside of caves and South American enclaves.
Stalin is the one who declared Nazism to be the polar opposite of Bolshevik Communism. American Progressives who took their marching orders from Moscow repeated the Party line. And repeat it to this day.
Any time you hear a Conservative or Classical Liberal referred to as a Nazi, a bell should go off in your head: Stalinism! The speaker/writer is repeating Stalinist propaganda! After eighty years! Probably without knowing it. Progressives aren’t particularly interested in history.
If you haven’t already, read Liberal Fascism by Jonah Goldberg. Goldberg means “liberal” in its modern sense of Progressivism, and not in the same sense as Classical Liberal or “liberal” as used by Mises and other champions of individual liberty.
Myth of Corporate Power
Much has been written about corporate power and the need of a strong and active government to counter it. Gailbraith was big on the idea. Blogs continue to have rantings about corporate power.
What power could a corporation – a business, large or small – possibly have? Just the powers a society’s constitution and laws permit any person or group of persons to exert by spending their own money. In a properly-ordered free society where individuals have liberty over their persons and possessions this power is in no way coercive.
If it is coercive, that is a government failure, not a failure of the market or business. In any group of people, there are some who would bully others to get their own way. The first and most important role of government is to protect individuals from coercion by others. Don’t blame the bully if the government doesn’t do its job, or if the government extracts bribes from the bully to overlook the bullying.
Money confers power of a kind: the power to acquire goods, services, and fixed assets through voluntary exchange with others – other corporations or individuals. This power, however, is possessed by anyone with even the smallest amount of money and doesn’t give the power to coerce anyone. Money merely provides the ability to acquire things by giving people more money than the things are worth to the sellers.
What’s wrong with that? Or is the problem that the sellers are making decisions the one doing the objecting does not like? Is the one complaining about corporate power really complaining about the power of the myriad sellers? Perhaps the complainer believes neither should have the power liberty grants them. Usually the complainer doesn’t believe in liberty, believing instead that people (other than themselves) are easily duped and defrauded into accepting money to do the rich man’s bidding; or the complainers don’t think people (other than themselves) ought to be at liberty because free people don’t make “the right” decisions.
What Power?
Surely the first goal of power is to ensure survival. How much power can someone or something have if it can’t even use that power to survive? Can the power of money ensure the corporation survives? Hardly. Digital Equipment, LTV, Gulf and Western, Braniff, Getty Oil, American Motors, General Motors, Chrysler: all billion-dollar companies; all have failed. For decades, General Motors was the largest corporation on the planet! Today the government has taken over to forestall bankruptcy. Of the 100 largest American corporations listed by Fortune in 1980, only 24 were among the top 100 just 25 years later. The other 76 were acquired, dropped below the top 100, or simply went out of business.
No. Corporate power cannot ensure survival. Not even for the extremely big.
Interference in Legislation (lobbying)
Ah, but a big corporation can have power over government through its use of money or by influencing the votes of the many corporate workers. OK. But no one can influence or bribe the government to do something the government is not permitted to do. DUH.
That’s one of the reasons why the U.S. Constitution was written (and ratified): to limit the powers and permitted acts of the federal government and legislature.
Government limitations of liberty and attempts to guide or correct or “rationalize” the extended order of human cooperation (that spontaneously emerging, self-organizing thing often called “the free market”) invite, no – actively encourage – misuse of wealth to gain government protection, reduce government limitations to the liberty of the wealthy, or encourage government to hinder competitors.
Were the government to do its proper job and quit meddling with business and wealth, business and wealth would cease involvement in the government’s coercive decisions.
When government has, and exercises, the power to protect, promote, punish, or save any entity or group of entities, those entities will do what they can to get the government to protect them from competition or the consequences of their own folly.
Politicians Get Rich off of Bribes from Businesses
‘When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.’
– P.J. O’Rourke Parliament of Whores
Is it any wonder that, when Congress attempts to limit the power of money in politics and government, the result is more money flowing to influence legislation and elections? Congressmen are as greedy as anyone else: if permitted, they will use their power to enrich and sustain themselves at the expense of their competitors. Congress passing limits to lobbying expenditures and financing of elections is like foxes designing security for the hen house.
The best (and perhaps only) way to stop corporations and the wealthy from exerting power by buying legislators is to eliminate government power over business, commerce, and wealth. Nobody wastes money lobbying Congress to do something Congress does not have the power to do.
Hired Thugs
Wealth can be used to hire a private armed force for enforcing a corporation’s desires, that is to coerce others. However, to meet its first responsibility – protection of individual liberty - the government must establish and maintain its monopoly on legitimate violence and punish or eliminate all illegitimate use of violence. If a Big Business is using physical coercion or the threat of violence, the problem is one of government, not of corporate power. Either the government is not doing its job, or the business has actually become government, taking on governmental powers.
When government is doing its proper job, capitalists or the wealthy or big business (or whatever your favorite hobgoblin) cannot run roughshod over anyone's liberty.
Only Adults can be Free
Money can be used to bribe or tempt people but the power of money cannot coerce free adults. In a society of children, or in a society in which individual liberty and private ownership of the means of production are not adequately protected, wealth can have pernicious powers. But that is a problem of proper government, not of corporate power.
What power could a corporation – a business, large or small – possibly have? Just the powers a society’s constitution and laws permit any person or group of persons to exert by spending their own money. In a properly-ordered free society where individuals have liberty over their persons and possessions this power is in no way coercive.
If it is coercive, that is a government failure, not a failure of the market or business. In any group of people, there are some who would bully others to get their own way. The first and most important role of government is to protect individuals from coercion by others. Don’t blame the bully if the government doesn’t do its job, or if the government extracts bribes from the bully to overlook the bullying.
Money confers power of a kind: the power to acquire goods, services, and fixed assets through voluntary exchange with others – other corporations or individuals. This power, however, is possessed by anyone with even the smallest amount of money and doesn’t give the power to coerce anyone. Money merely provides the ability to acquire things by giving people more money than the things are worth to the sellers.
What’s wrong with that? Or is the problem that the sellers are making decisions the one doing the objecting does not like? Is the one complaining about corporate power really complaining about the power of the myriad sellers? Perhaps the complainer believes neither should have the power liberty grants them. Usually the complainer doesn’t believe in liberty, believing instead that people (other than themselves) are easily duped and defrauded into accepting money to do the rich man’s bidding; or the complainers don’t think people (other than themselves) ought to be at liberty because free people don’t make “the right” decisions.
What Power?
Surely the first goal of power is to ensure survival. How much power can someone or something have if it can’t even use that power to survive? Can the power of money ensure the corporation survives? Hardly. Digital Equipment, LTV, Gulf and Western, Braniff, Getty Oil, American Motors, General Motors, Chrysler: all billion-dollar companies; all have failed. For decades, General Motors was the largest corporation on the planet! Today the government has taken over to forestall bankruptcy. Of the 100 largest American corporations listed by Fortune in 1980, only 24 were among the top 100 just 25 years later. The other 76 were acquired, dropped below the top 100, or simply went out of business.
No. Corporate power cannot ensure survival. Not even for the extremely big.
Interference in Legislation (lobbying)
Ah, but a big corporation can have power over government through its use of money or by influencing the votes of the many corporate workers. OK. But no one can influence or bribe the government to do something the government is not permitted to do. DUH.
That’s one of the reasons why the U.S. Constitution was written (and ratified): to limit the powers and permitted acts of the federal government and legislature.
Government limitations of liberty and attempts to guide or correct or “rationalize” the extended order of human cooperation (that spontaneously emerging, self-organizing thing often called “the free market”) invite, no – actively encourage – misuse of wealth to gain government protection, reduce government limitations to the liberty of the wealthy, or encourage government to hinder competitors.
Were the government to do its proper job and quit meddling with business and wealth, business and wealth would cease involvement in the government’s coercive decisions.
When government has, and exercises, the power to protect, promote, punish, or save any entity or group of entities, those entities will do what they can to get the government to protect them from competition or the consequences of their own folly.
Politicians Get Rich off of Bribes from Businesses
‘When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.’
– P.J. O’Rourke Parliament of Whores
Is it any wonder that, when Congress attempts to limit the power of money in politics and government, the result is more money flowing to influence legislation and elections? Congressmen are as greedy as anyone else: if permitted, they will use their power to enrich and sustain themselves at the expense of their competitors. Congress passing limits to lobbying expenditures and financing of elections is like foxes designing security for the hen house.
The best (and perhaps only) way to stop corporations and the wealthy from exerting power by buying legislators is to eliminate government power over business, commerce, and wealth. Nobody wastes money lobbying Congress to do something Congress does not have the power to do.
Hired Thugs
Wealth can be used to hire a private armed force for enforcing a corporation’s desires, that is to coerce others. However, to meet its first responsibility – protection of individual liberty - the government must establish and maintain its monopoly on legitimate violence and punish or eliminate all illegitimate use of violence. If a Big Business is using physical coercion or the threat of violence, the problem is one of government, not of corporate power. Either the government is not doing its job, or the business has actually become government, taking on governmental powers.
When government is doing its proper job, capitalists or the wealthy or big business (or whatever your favorite hobgoblin) cannot run roughshod over anyone's liberty.
Only Adults can be Free
Money can be used to bribe or tempt people but the power of money cannot coerce free adults. In a society of children, or in a society in which individual liberty and private ownership of the means of production are not adequately protected, wealth can have pernicious powers. But that is a problem of proper government, not of corporate power.
Trial and Error vs. Control
Or Evolution versus Planning.
This evolution of the extended order that lifted humans out of abject poverty and enables the survival of 6 billion people depended on individual autonomy and liberty. Experiments that made life better were copied by others; experiments that made things worse quickly ended. There was no guide, no plan, no elite guardians making sure things went well. In fact, history shows that progress halted when elites sought to control this evolving macro-cosmos.
“There is perhaps no single factor contributing so much to people's frequent reluctance to let the market work as their inability to conceive how some necessary balance, between demand and supply, between exports and imports, or the like, will be brought about without deliberate control.”
– F.A.Hayek “Why I am not a Conservative”
Control, however, is counter-evolutionary. Control means things are done because the controlling power thinks those things will work, not because they actually do work. Control exalts human ingenuity over the limitless possibilities of trial-and-error evolution.
Trade, and the wealth it brought, evolved and expanded without deliberate control, driven by the experimentation of individuals freely interacting with each other. The extended order that brings us wealth develops spontaneously among free people, and even pops up in the shadows (as black markets, smuggling, and underground economies) when people are controlled.
The Man with the Cape and Mask Doesn’t Like Not Being in Control
This has to drive the elites nuts. Especially those with the itch to tell others how to live. To them it is inconceivable (ref. Vizzini in The Princess Bride) that human prosperity might increase and poverty be eliminated without their guidance.
And to give them reasons to don their capes and masks to save us from ourselves.
Whenever the socialists, with their atavistic ideas that they imagine constitute progress, have gained power, two things happen:
1) Wealth declines. Countries that formerly exported foodstuffs face shortages and famines. This makes sense, of course: socialism is designed for small bands of people struggling to remain alive. Whenever socialism is fully implemented, the society gradually reverts to the condition where socialism actually works.
For a time socialist societies can make progress because they are an element of the macro-cosmos of the free market, they are subsidized by others, or they live off the capital accumulated before they became socialist. Isolated socialist societies, such as North Korea and Cambodia under the Khmer Rouge, quickly descend into poverty and misery.
2) An extended order of voluntary human interaction (also known as the “free market” or “Capitalism”) spontaneously organizes itself on the fringes and in the shadows (black markets, smuggling, etc. previously mentioned). To stamp out this individualism and maintain the purity of the communal paradise, the intellectuals running the State resorts to killing people. During the 20th Century, over 100 million people were murdered, in peace time, by their own governments trying to maintain the rules of the micro-cosmos (Socialism) throughout the larger community.
Progressive intellectuals (who think of themselves as “liberals” but are actually reactionaries trying to implement a Paleolithic social system) imagine that these things won’t happen when they are in charge and, if they do happen, it is because of evil Capitalists (see the essays on Manichaeism) conspiring to thwart the wonderful things they (the Progressives) are trying to achieve.
It never occurs to them that people like liberty and that free people spontaneously create free markets of complexity far beyond human apprehension.
Progressives also never imagine that whatever replaces the free market, the spontaneous and self-organizing system of voluntary human interaction for mutual benefit, will be unable to generate enough wealth to provide food for the current world population. The population will, over time, collapse leaving the remnant in the abject poverty we escaped when trade and the free market emerged.
But even free people feel an emotional attraction to socialism. It’s instinctive.
Reactionary Reform
Congress, the Administration, and pundits are, right now, all rallying about the need for reform.
Quick question:
What needs reforming?
1. Health care. Total expenditures are too high and rising too fast. And millions of Americans are uninsured, many because they cannot afford insurance.
2. Banking and Finance. Millions of Americans are at risk of losing their homes, the stock market is down, unemployment is up... all because Banking and Finance sectors of our economy are messed up and in need of reform.
A second question:
In which sectors of the American economy are most regulated by the federal government? That is, in which sectors is the federal government most heavily involved?
1. Health care. Federal regulation began with the Pure Food and Drug Act of 1906, then increased when opiates were placed under federal controls (during the early years, most of those prosecuted under these early "drug laws" were physicians.) The economic impact of federal involvement expanded enormously during WWII when the federal government allowed (and encouraged) employers to attract workers by providing "medical insurance" (actually, it amounted to employer-paid medical care) in lieu of higher wages (which had been frozen by the government). This company-paid medical care could be deducted by the employer as a business expense - just like wages - but employees would not have to report the medical coverage as income for the purposes of income tax - unlike wages.
2. Banking and Finance. Starting with the Federal Reserve Act of 1913. Since then, Banking and Finance have been the most regulated (and interfered-with) sectors of the American economy.
3. Transportation: highway standards, vehicle standards, control of rates. Regulation in this sector was greatly reduced during the 1980s.
Final question:
If the sectors of our economy in the most trouble - most in need of reform - are two of the three sectors in which the federal government has had the most control, why is increased federal control considered a "reform"? The heavily-regulated sector that is not in trouble is the one whose regulation was reduced 20 years ago.
If doing something causes a problem in our lives, most of us recognize that we ought to stop doing it. Must one have a Harvard Law Degree to be so dumb as to think the solution is to do MORE?
Doing more of what caused the problems in the first place is reactionary and dumb.
Of course, the "reformers" claim the problems exist because the government wasn't given enough control in the first place. Think of the physicians who bled patients to treat fevers; if the fever worsened or the patient weakened, the physician took more blood.
Same thing.
Quick question:
What needs reforming?
1. Health care. Total expenditures are too high and rising too fast. And millions of Americans are uninsured, many because they cannot afford insurance.
2. Banking and Finance. Millions of Americans are at risk of losing their homes, the stock market is down, unemployment is up... all because Banking and Finance sectors of our economy are messed up and in need of reform.
A second question:
In which sectors of the American economy are most regulated by the federal government? That is, in which sectors is the federal government most heavily involved?
1. Health care. Federal regulation began with the Pure Food and Drug Act of 1906, then increased when opiates were placed under federal controls (during the early years, most of those prosecuted under these early "drug laws" were physicians.) The economic impact of federal involvement expanded enormously during WWII when the federal government allowed (and encouraged) employers to attract workers by providing "medical insurance" (actually, it amounted to employer-paid medical care) in lieu of higher wages (which had been frozen by the government). This company-paid medical care could be deducted by the employer as a business expense - just like wages - but employees would not have to report the medical coverage as income for the purposes of income tax - unlike wages.
2. Banking and Finance. Starting with the Federal Reserve Act of 1913. Since then, Banking and Finance have been the most regulated (and interfered-with) sectors of the American economy.
3. Transportation: highway standards, vehicle standards, control of rates. Regulation in this sector was greatly reduced during the 1980s.
Final question:
If the sectors of our economy in the most trouble - most in need of reform - are two of the three sectors in which the federal government has had the most control, why is increased federal control considered a "reform"? The heavily-regulated sector that is not in trouble is the one whose regulation was reduced 20 years ago.
If doing something causes a problem in our lives, most of us recognize that we ought to stop doing it. Must one have a Harvard Law Degree to be so dumb as to think the solution is to do MORE?
Doing more of what caused the problems in the first place is reactionary and dumb.
Of course, the "reformers" claim the problems exist because the government wasn't given enough control in the first place. Think of the physicians who bled patients to treat fevers; if the fever worsened or the patient weakened, the physician took more blood.
Same thing.
Government Creates Illegal Businesses
... which proves government interference reduces creation of wealth.
If commerce outside the law were more efficient than commerce within the law, outlaw trade would out-compete legal trade and drive the law-abiding from all markets. Yet, the only places we find outlaw commerce are where commerce within the law is either not possible or so heavily taxed or regulated that it becomes less efficient than outlaw commerce. Bootlegging of cigarettes is a problem because cigarettes are heavily taxed, so bootleg cigarettes can be offered for lower prices than legal cigarettes while the bootlegger makes a profit in spite of risks and occasional losses. Nobody bootlegs soft drinks.
The more government interferes with the legal market, the more profitable the outlaw market until government controls become so onerous the legal market disappears.
Basic Economic Truth: Low-cost solutions drive out high-cost solutions. Always, everywhere, at all times.
The explanation is simple: people try to maximize their wealth, so buyers seek low prices while sellers seek low costs and high prices. Prices are negotiated between buyer and seller; costs are controlled by the seller alone.
Costs can be difficult to characterize, however, and something what is a low-cost solution for one segment of the market may be a high-cost solution for another, so multiple solutions can exist at the same time, each serving a different market segment.
Price is similarly complex. The waiting for a low-priced item adds to the buyer’s cost: waiting reduces the time a buyer could be doing something else; time is wealth. Just as the risk of being imprisoned adds to the seller’s cost, the risk of being imprisoned adds to the price the buyer must pay.
Without government interference in the market there is no outlaw market. Illegal trade costs more than legal trade, so legal trade drives out the outlaw trade. Absent government interference.
The fact that government “management” or “guidance” or “regulation” or taxation tends to encourage the high-cost outlaw market proves that government interference adds to costs and reduces wealth. Absent government interference, the inefficient, wealth-wasting outlaw market would not exist. Government power, beyond the minimum of protecting persons and property and enforcing contracts, does not and cannot increase human wealth. The existence of thriving illegal businesses proves this.
There is an exception to that grand pronouncement: what economists call “externalities,” although government regulation of externalities can be considered part of protecting persons and property. More on that later.
If commerce outside the law were more efficient than commerce within the law, outlaw trade would out-compete legal trade and drive the law-abiding from all markets. Yet, the only places we find outlaw commerce are where commerce within the law is either not possible or so heavily taxed or regulated that it becomes less efficient than outlaw commerce. Bootlegging of cigarettes is a problem because cigarettes are heavily taxed, so bootleg cigarettes can be offered for lower prices than legal cigarettes while the bootlegger makes a profit in spite of risks and occasional losses. Nobody bootlegs soft drinks.
The more government interferes with the legal market, the more profitable the outlaw market until government controls become so onerous the legal market disappears.
Basic Economic Truth: Low-cost solutions drive out high-cost solutions. Always, everywhere, at all times.
The explanation is simple: people try to maximize their wealth, so buyers seek low prices while sellers seek low costs and high prices. Prices are negotiated between buyer and seller; costs are controlled by the seller alone.
Costs can be difficult to characterize, however, and something what is a low-cost solution for one segment of the market may be a high-cost solution for another, so multiple solutions can exist at the same time, each serving a different market segment.
Price is similarly complex. The waiting for a low-priced item adds to the buyer’s cost: waiting reduces the time a buyer could be doing something else; time is wealth. Just as the risk of being imprisoned adds to the seller’s cost, the risk of being imprisoned adds to the price the buyer must pay.
Without government interference in the market there is no outlaw market. Illegal trade costs more than legal trade, so legal trade drives out the outlaw trade. Absent government interference.
The fact that government “management” or “guidance” or “regulation” or taxation tends to encourage the high-cost outlaw market proves that government interference adds to costs and reduces wealth. Absent government interference, the inefficient, wealth-wasting outlaw market would not exist. Government power, beyond the minimum of protecting persons and property and enforcing contracts, does not and cannot increase human wealth. The existence of thriving illegal businesses proves this.
There is an exception to that grand pronouncement: what economists call “externalities,” although government regulation of externalities can be considered part of protecting persons and property. More on that later.
Subscribe to:
Posts (Atom)
