The Industrial Manifesto

/in , , , , /by

In the wake of two recessions following two fleeting, largely service-sector bubbles—the dot-com bubble and the housing/financial bubble—America’s intellectual and political leaders are championing the need for industrial progress.

The ubiquitous Thomas L. Friedman takes on the subject of industrial progress in his latest book, That Used to Be Us, coauthored by political scientist Michael Mandelbaum. The book begins by describing a China full of fast trains, stupendous buildings, and an aura of dynamism—and contrasting it to an America in which repairing a subway is a multi-year project. Such images resonate with readers and voters, who wonder with frustration why so much industrial innovation, production, and job-creation is happening overseas rather than in America.

In President Obama’s recent address on jobs, he angrily complained about the state of American industry:

Our highways are clogged with traffic. Our skies are the most congested in the world. It’s an outrage.

Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads?

Obama is right about this much; the state of American industry is an outrage. America has enormous, incalculable, untapped potential to make industrial progress—to radically increase our standard of living through far greater productivity in energy production, in manufacturing, in construction, in mining, in transportation. Unfortunately, the statist philosophy of Obama, Friedman, et al leads them to speciously attribute the problem to lack of government—despite the unprecedented expansion of government over the last 50 years. They propose still more increases in government spending and controls, as if some magic manipulation is going to spark the next industrial revolution.

At the same time, they ignore the most blatant impediment to industrial progress—an impediment caused by policies they support. This impediment is an open secret readily discoverable by asking American industrialists what is holding them back.

When I do this, I hear one theme repeated over and over: it is ruinously difficult to start new industrial projects because of our anti-industrial, “green” policies.

Consider the plight of the modern industrialist. Whether he wishes to construct a new apartment complex, open a coal mine, site a nuclear power plant, build a new factory, drill for oil, he cannot count on clear, objective laws to protect his right to develop. Instead, he must deal with open-ended environmental laws and near-omnipotent regulatory agencies that can forbid any project that is regarded as insufficiently “green.”

The industrialist is virtually guaranteed to face a labyrinth of opposition by environmental bureaucrats, controls, lawsuits, NIMBYs, and activist groups. Every step of the labyrinth costs time and money, and there is no guarantee a project will emerge alive; vital industrial projects can and have been shut down to preserve the likes of kangaroo rats and two-toed sloths.

Given this industrial climate, it is a wonder that any industrial development occurs in this country. Ask any leader of an industrial project how much opposition he faces in refining the fuel we use to drive, in fracking for the gas that heats our homes, in building the coal or nuclear plants that keep the power on, and you will marvel at the inhuman endurance our industrialists possess—an endurance we can’t, and shouldn’t have to, count on.

The “green” labyrinth goes far beyond traditional environmentalist targets such as coal and oil. The DC Metro subway system that Friedman and Mandelbaum complain about has been enmeshed in controversy for years over adding a new “Purple Line” to its system, with rabid opposition. Any proposed new road in California, the home of some of the country’s worst traffic, faces an uphill, if not impossible, battle.

Even allegedly “green” solar and wind projects frequently face environmentalist opposition. Environmentalist Robert F. Kennedy Jr. is the biggest opponent of Cape Wind, a windmill project off the coast of Nantucket. Environmentalists were the first to object to a giant solar project in the middle of the Mojave Desert in California.

What is so remarkable about the “green” opposition to industrial projects is that Americans, who supposedly want industrial progress, are so accepting of it. Based on the “green” movement’s actions, one might expect its goals and policies to be viewed with suspicion if not derision.

Instead, the idea of “going green” has never been more popular, with practically every businessman, schoolteacher, and politician trying to prove his “green” chops, in his personal life or at the ballot box. And thus, countless industrial projects continue to be deferred and destroyed.

If we are to make industrial progress, we need to seriously question the idea of “going green,” and its role in our government.

The “Green” Ideal

What does “green” really mean? It is most commonly associated with a lack of pollution and other environmental health hazards, but this is both far too narrow and highly misleading. Consider the range of actions that fall under the banner of “green.” As industrialists experience, it is considered “green” to object to crucial industrial projects, from power plants to dams to apartment complexes, on the grounds that some plant or animal will be impacted—plants and animals that take precedence over the human animals who need or want the projects.

It is considered “green” to oppose not only fossil fuel plants (which produce 86% of the world’s energy), but hydroelectric plants and nuclear plants—which all told means 98% of the world’s energy production. It is considered “green” to turn off the heat or air-conditioning, even at the price of personal discomfort.

It is considered “green” to do less of anything industrial—from driving to flying to using a washing machine to using disposable diapers to consuming pretty much any modern product (there is now an attack on iPhones for being insufficiently “green” given the various materials that must be mined to make them).

Often the same activity will be characterized as both “green” and non-“green”—just ask the proponents and opponents of any given solar farm. The proponents will say that the installation is “green” because it doesn’t use fossil fuels (except, they evade, to mine, fabricate, transport and assemble it), it isn’t mining the earth’s precious “natural resources” (except, they evade, for enormous amounts of steel, concrete, and various rare and toxic elements), etc. The opponents will point to the fact that solar farms, because they use a diffuse, intermittent energy source, take up an enormous “footprint” on nature, that they require prominent, long-distance transmission lines to take to their customers, that they require large-“footprint” backup systems to store energy or fossil fuel plants to serve as backups, etc.

Clearly, “going green” is not primarily about human health—indeed, in its opposition to just about anything industrial, it threatens the industrial foundations of modern health and sanitation. The essence of “going green,” the common denominator in all its various iterations, is the belief that humans should minimize their impact on nature.

“Green” leaders and followers may disagree on how to implement this ideal, and they certainly do not follow it consistently, but nevertheless it is uncontroversial that minimizing impact is the ideal.

But if we take ideas seriously, then the “green” ideal should be more than controversial. It should be jettisoned, as it is squarely opposed to the requirements of human life, including the requirements of a healthy human environment.

The Industrial Ideal

Human beings survive by transforming nature to meet our needs. The higher our level of survival, the more we must transform nature. In other words, we survive to the extent we depart from the “green” ideal.

Nature does not provide us with the wealth or the environment we need to live long, healthy, happy lives; hence the historical life expectancy of 30. To live and thrive, we must create wealth and create a livable environment.  And every new  act of creation, from building a fire to building an air-conditioned home to building the Internet, requires additional impacting—transforming—nature.

The fundamental reason for today’s incredibly high standard of living is that thanks to industrialization—the pervasive use of man-made power to fuel industrial machines—human beings can do hundreds of times more work to transform nature than we could even 200 years ago. But if our ancestors had followed “green” strictures, industrialization would have never got off the ground.

When the early oil industry turned night into day by making cheap illumination available to millions, they did it by drilling thousands of deep holes in rural Pennsylvania, extracting the black gold beneath, refining it into various useful substances, burning kerosene to create light, and dealing with whatever waste products emerged. J. J. Hill’s Great Northern Railway, a private transcontinental railroad that revolutionized American transportation and commerce, required men to mine iron ore from the ground, to combine it with carbon to make steel, to mine and use coal to power the steel furnace, to pour the mixture into molds, to use the molds to make railroad tracks, to lay the railroad tracks across patches of wilderness, to displace various plants and animals that stood in the way, and many more changes to the status quo.

Fast forwarding to today, the Chinese airports and buildings that many marvel at also transform nature on a massive scale—from the magnitude of the physical structures themselves to the coal plants, gas plants, factories, mining operations, oil rigs, oil refineries, and heavy machinery that went into building them, not to mention the industrial transportation system that keeps them maintained and stocked with supplies.

Industrial progress is not “green.” “Going industrial” requires a commitment to impacting nature as much as necessary to make it more hospitable to human life. And it is no accident that in generations past, Americans viewed industrial progress, not industrial abstention, as an ideal to strive for. Earlier generations took pride in transforming nature—in being a people that “tamed a continent,” that built new factories, that paved new roads, that drilled new wells, that mined the earth for resources. Whole towns would celebrate when a new bridge was built, when a factory was erected. They would proudly drive their automobiles, fly in planes, support new railroads, build new roads—without a shred of guilt over the fate of the two-toed sloth.

What about “green” support for “green energy” and a “green economy”? Is this not just a new, superior form of industry? Far from it. Any talk of green industry is ultimately contradictory, which is why such industries never materialize on a significant scale. All energy production requires an enormous amount of industrial development, both in its production and in its consumption.

Thus, environmentalists frequently oppose every power source, including solar and wind, for their various impacts. (They complain that solar and wind farms have the largest land “footprint” of any form of energy generation, which is true.) Similarly, for all the talk of “green construction,” “green building,” and “green jobs,” any activity with a major industrial presence will draw “green” opposition—as the valuable website www.projectnoproject.comaptly details.

The more consistent anti-industrialists are explicit about their goal, including its ultimate implication: de-development and depopulation. Stanford environmentalist celebrity Paul Ehrlich, who likens population growth to a “cancer,” “A massive campaign must be launched to de-develop the United States. De-development means bringing our economic system into line with the realities of ecology and the world resource situation.” Billionaire Ted Turner, a “mainstream” figure, says: “A total [world] population of 250-300 million people, a 95% decline from present levels, would be ideal.”

The true nature of “green” emerged particularly clearly in a debate over nuclear fusion in the late 1980s. Some uninformed news reports announced that fusion—which, if it worked, would be the cheapest, cleanest, most plentiful source of energy every created—was on its way to commercial reality. Many expected environmentalists to embrace this development. They condemned it.

“It’s the worst thing that could happen to our planet,” said leading environmentalist Jeremy Rifkin. Ehrlich memorably said that allowing human beings to use fusion was “like giving a machine gun to an idiot child.” Environmentalist icon Amory Lovins stresses he would oppose any fusion-like energy breakthrough: “Complex technology of any sort is an assault on human dignity. It would be little short of disastrous for us to discover a source of clean, cheap, abundant energy, because of what we might do with it.”

Do not make the mistake of writing off these anti-industrialists as “extremists” who don’t reflect on “moderate” greens. While the “extremists” are more consistent than the “moderates,” they share the same ideal—the anti-impact ideal that destroys industrial progress to whatever extent it is practiced.

But what about the “environmental impact” of industrial development? Isn’t the “green” movement providing a salutary influence us by helping us combat that problem? Again, no.

The idea of “environmental impact” is what philosopher Ayn Rand called an “intellectual package-deal.” Such a concept dishonestly packages together two very different things—the impact of development on the human environment and the impact of development on the non-human environment. Industrial development will certainly often harm various non-human environments—but it is a godsend to the human environment. By lumping together concern with the non-human environment (e.g., displacing some caribou to get billions of barrels of the lifeblood of civilization) and the human environment (e.g., air quality), anti-industrialists are able to dupe Americans into thinking that sacrificing to caribou somehow benefits them.

Historically, industrial progress brought with it a radical improvement of the human environment. Indeed, industrial progress essentially is the improvement of the human environment. The reason we develop is to make our surroundings better so that our lives are better, cleaner, healthier safer—in the face of a natural environment that is often hostile to human life.

Contrary to “green” mythology, man’s natural environment is neither clean nor safe. In a non- industrialized, “natural” state, men face all sorts of health dangers in the air and water, from the choking smoke of an open fire made using plant matter (a cause of over a million deaths a year to this day) to the feces-infested local brook that he must share with farm animals. Industrial development gives men the technology and tools to make their environment healthier—from sanitation systems to sturdier buildings to less onerous job conditions to comfortable furniture to having healthy, fresh food at one’s disposal year round, to the wealth and ability to preserve and travel to the most beautiful parts of nature. And so long as we embrace policies that protect property rights, including air and water rights, we protect industrial development and protect individuals from pollution.

As for the “sustainability” of industrial progress, an accusation that dates back to Marx, this fails to recognize the fact (elaborated on by Julian Simon and Ayn Rand) that man has an unlimited capacity to rearrange nature’s endless stockpile of raw materials into useful resources—which is why the more resources we use, the more resources we have.

Human life requires changing nature on a massive scale. Any cause that holds minimal impact as an ideal is anti-human and an enemy of the human environment.

Today’s anti-industrial movement is not new in this respect. Throughout history, there have been major, anti-industrial groups or movements. The basic premise they have in common is that it is arrogant and wrong for man to transform nature as he sees fit. Man, they believe, should not tame nature but exist in some sort of mystical “harmony” with it (how he is supposed to cope with nature’s dangers and a life expectancy of 30 is rarely specified). Perhaps the iconic anti-industrialist was the 18th Century’s Jean-Jacques Rousseau, who worshiped nature untouched by man and regarded the transformation of nature in his time (let alone the then-unimaginable transformation that is our modern world) as evil.

But the modern-day followers of Rousseau know they cannot succeed by being directly anti-industrial. So they create a false association between themselves and environmental progress, and a false opposition between industrial progress and environmental progress.

Part of this false conceptualization has been achieved by using an old socialist trick to obscure the massive environmental improvement that industrial capitalism brought. The trick is to criticize something by comparison to a nonexistent and impossible utopia.

Socialists used this technique to criticize capitalism for causing poverty, even though capitalism inherited poverty–and cured it. Yet Marxists would attack capitalism’s incredible contribution to human life, including to the life of laborers, by comparing that contribution, not to its predecessors and not to any known alternatives, but to a fictional socialist utopia whose advertised results contradicted everything known (even then) about socialism’s destructive nature.

Environmentalists have done the equivalent to industrial progress. Instead of comparing the human environment pre-industrial and post-industrial, they compared the post-industrial environment to a non-existent pollution-free utopia achieved by man living in “harmony” with nature. They did this in spite of conclusive historical evidence that living in “harmony” with nature means living very briefly. Historically, to the extent humans didn’t mine, didn’t burn fuels, didn’t develop, and were unwilling or unable to control or displace other species where necessary, they died early and often. The modern standard of living is an unprecedented, singular achievement that continues only so long as men are free to command nature on a large scale.

Early environmentalists cursed the coal fumes of newly industrial cities, evading the wood fumes, dung fumes, and starvation coal had replaced–and the work-hours it saved and years of life it added to human life. They cursed smog, evading that it replaced rampant airborne disease from horse-drawn society. And when increased production of coal and oil and natural gas produced the energy and technology to develop ways to radically reduce their pollution, environmentalists took credit–as if laws against pollution weren’t essential to capitalism, the system where protection of all forms of property is sacrosanct.

Development, industrial progress, and capitalism promote a human environment. The anti-industrial “green” movement opposes it. This is a truth that Americans desperately need to understand. At present, the philosophical confusion caused by anti-industrialists causes Americans who are genuinely concerned about their health and well-being to embrace the ideas and policies of those who want to sacrifice that health and well-being to the non-human. We are taught to denigrate fossil fuels, which have doubled the human life expectancy, and to strive for a mythical “green energy” economy, powered by fuel sources that have failed for decades. We are not taught that industrialization has enabled man to be orders of magnitude less vulnerable to climate, but that a degree rise in temperature over 150 years portends catastrophe. With proposals on the table such as 80% cuts in CO2 emissions, “green” confusion could mean economic suicide.

Such is the power of moral idealism and philosophical corruption. The ideal—and the corruption—need to be replaced.

Industrial Progress: A New Cultural Ideal for America

The only solution to a false ideal put forward by philosophical corruption is a true ideal put forward with philosophical clarity.

We need to embrace, unambiguously, the never-ending project that is the industrial revolution: the transformation of nature on a massive scale, with the unlimited potential to produce more energy, create more wealth, create more productivity, increase leisure time, transport things more quickly, conduct more complex scientific experiments, build sturdier, more comfortable places to live. We can travel farther and faster. We can live longer and better.

For the same reasons, we need to embrace, unambiguously, the harmony of industrial progress and the human environment. Industrial progress should be celebrated in classrooms, on YouTube, on t-shirts. Americans should think of fracking with the same excitement they feel for iPhones.

It is a moral embarrassment that in today’s world, where billions die for lack of energy, where Americans still have so much untapped potential, that what passes for idealism is driving a battery-powered car or sorting through one’s trash to make sure everything is in its “proper” bin. What does it say about our cultural self-esteem when we believe it is wrong to do something as necessary as generate trash—which simply amounts to taking some matter from the earth, making profitable use of it, and putting its waste product in a safe place?

For too long, Americans have taken industrial progress for granted, and carelessly embraced “going green” as an ideal–expecting that the unprecedented standard of living we had would automatically continue, even though we permitted environmentalists to oppose new energy production and new development at every turn. Today, we are paying the price, with an economy whose productive fundamentals are less and less sound.

So long as the anti-industrialists have the moral high ground, they can inspire support for their suicidal “green economy,” and inspire guilt to gain power and thwart the opposition. Way too much of free-market criticism of environmentalism bends over backwards to declare itself “green” and mouth environmentalist terminology such as “protect the environment”—as if the kangaroo rat environment and the human environment are interchangeably valuable.

Thus, we must clearly identify and steadfastly reject any trace of the “green” ideal: to sacrifice the human environment to the non-human environment. And any trace of “green” must be removed from politics. The one and only industrial policy that is needed is the proper definition and protection of property rights for individuals and companies. Human ingenuity directed toward the improvement of human life, will do the rest.

In the past, Americans’ unprecedented industrial freedom and growth depended on a certain industrial philosophy. With industrial progress as our ideal, and with policies that fully respect property rights and fully allow free markets, the brilliantly talented individuals of this great country can lead us to the next industrial renaissance and an ever-improving environment.

Don’t “go green.” Go industrial.

Driverless Money by George Selgin

/in , , /by

Last week I was contemplating a post having to do with driverless cars when, wouldn’t you know it, I received word that the Bank of England had just started a new blog called Bank Underground, and the first substantive post on it had to do with — you guessed it — driverless cars.

As it turned out, I needn’t have worried that Bank Underground had stolen my fire. The post, you see, was written by some employees in the Bank of England’s General Insurance Supervision Division, whose concern was that driverless cars might be bad news for the insurance industry.

The problem, as the Bank of England’s experts see it, is that cars like the ones that Google plans to introduce in 2020 are much better drivers than we humans happen to be — so much better, according to research cited in the post, that “the entire basis of motor insurance, which mainly exists because people crash, could … be upended.”

Driverless cars, therefore, threaten to “wipe out traditional motor insurance.”

It is, of course, a great relief to know that the Bank of England’s experts are keeping a sharp eye out for such threats to the insurance industry. (I suppose they must be working as we speak on some plan for addressing the dire possibility — let us hope it never comes to this — that cancer and other diseases will eventually be eradicated.)

But my own interest in driverless cars is rather different. So far as I’m concerned, the advent of such cars should have us all wondering, not about the future of the insurance industry, but about the future of…the Bank of England, or rather of it and all other central banks.

If driverless cars can upend “the entire basis of motor insurance,” then surely, I should think, an automatic or “driverless” monetary system ought to be capable of upending “the entire basis of monetary policy,” as such policy is presently conducted.

And that, so far as I’m concerned, would be a jolly good thing.

Am I drifting into science fiction? Let’s put matters in perspective. Although experiments involving driverless or “autonomous” cars have been going on for decades, until as recently as one decade ago, the suggestion that such cars would soon be, not only safe enough to replace conventional ones, but far safer, would have struck many people as fantastic.

Consider for a moment the vast array of contingencies such a vehicle must be capable of taking into account in order to avoid accidents and get passengers to some desired destination. Besides having to determine correct routes, follow their many twists and turns, obey traffic signals, and parallel park, they have to be capable of evading all sorts of unpredictable hazards, including other errant vehicles, not to mention jaywalkers and such.

The relevant variables are, in fact, innumerable. Yet using a combination of devices tech wizards have managed to overcome almost every hurdle, and will soon have overcome the few that remain.

All of this would be impressive enough even if human beings were excellent drivers. In fact, they are often very poor drivers indeed, which means that driverless cars are capable, not only of being just as good, but of being far better —  90 percent better, to be precise, since that’s the percentage of all car accidents attributable to human error.

Human beings are bad drivers for all sorts of reasons. They have to perform other tasks that take their mind off the road; their vision is sometimes impaired; they misjudge their own driving capabilities or the workings of their machines; some are sometimes inclined to show off, while others are dangerously timid. Occasionally, instead of relying on their wits, they drive “under the influence.”

Central bankers, being human, suffer from similar human foibles. They are distracted by the back-seat ululations of commercial bankers, exporters, finance ministers, and union leaders, among others. Their vision is at the same time both cloudy and subject to myopia.

Finally, few if any are able to escape altogether the disorienting influence of politics. The history of central banking is, by and large, a history of accidents, if not of tragic accidents, stemming from these and other sorts of human error.

It should not be so difficult, then, to imagine that a “driverless” monetary system might spare humanity such accidents, by guiding monetary policy more responsibly than human beings are capable of doing.

How complicated a challenge is this? Is it really more complicated than that involved in, say, driving from San Francisco to New York? Central bankers themselves like to think so, of course — just as most of us still like to believe that we are better drivers than any computer.

But let’s be reasonable. At bottom central bankers, in their monetary policy deliberations, have to make a decision concerning one thing, and one thing only: should they acquire or sell assets, and how many, or should they do neither?

Unlike a car, which has numerous controls — a steering wheel, signal lights, brakes, and an accelerator — a central bank has basically one, consisting of the instrument with which it adjusts the rate at which assets flow into or out of its balance sheet. Pretty simple.

And the flow itself? Here, to be sure, things get more complicated. What “target” should the central bank have in mind in determining the flow? Should it consist of a single variable, like the inflation rate, or of two or more variables, like inflation and unemployment? But the apparent complexity is, in my humble opinion, a result of confusion on monetary economists’ part, rather than of any genuine trade-offs central bankers face.

As Scott Sumner has been indefatigably arguing for some years now (and as I myself have long maintained), sound monetary policy isn’t a matter of having either a constant rate of inflation or any particular level of either employment or real output. It’s a matter of securing a stable flow of spending, or Nominal GNP, while leaving it to the marketplace to determine how that flow breaks down into separate real output and inflation-rate components.

Scott would have NGDP grow at an annual rate of 4-5 percent; I would be more comfortable with a rate of 2-3 percent. But this number is far less important to the achievement of macroeconomic stability than a commitment to keeping the rate — whatever it happens to be — stable and, therefore, predictable.

So: one goal, and one control. That’s much simpler than driving from San Francisco to New York. Heck, it’s simpler than managing the twists and turns of San Franscisco’s Lombard Street.

And the technology? In principle, one could program a computer to manage the necessary asset purchases or sales. That idea itself is an old one, Milton Friedman having contemplated it almost forty years ago, when computers were still relatively rare.

What Friedman could not have imagined then was a protocol like the one that controls the supply of bitcoins, which has the distinct advantage of being, not only automatic, but tamper-proof: once set going, no-one can easily alter it. The advantage of a bitcoin-style driverless monetary system is that it is, not only capable of steering itself, but incapable of being hijacked.

The bitcoin protocol itself allows the stock of bitcoins to grow at a predetermined and ever-diminishing rate, so that the stock of bitcoins will cease to grow as it approaches a limit of 21 million coins.

But all sorts of protocols may be possible, including ones that would adjust a currency’s supply growth according to its velocity — that is, the rate at which the currency is being spent — so as to maintain a steady flow of spending, à la Sumner. The growth rate could even be made to depend on market-based indicators of the likely future value of NGDP.

This isn’t to say that there aren’t any challenges yet to be overcome in designing a reliable “driverless money.” For one thing, the monetary system as a whole has to be functioning properly: just as a driverless car won’t work if the steering linkage is broken, a driverless monetary system won’t work if it’s so badly tuned that banks end up just sitting on any fresh reserves that come their way.

My point is rather that there’s no good reason for supposing that such challenges are any more insuperable than those against which the designers of driverless cars have prevailed. If driverless car technology has managed to take on San Francisco’s Lombard Street, I see no reason why driverless money technology couldn’t eventually tackle London’s.

What’s more, there is every reason to believe that driverless money would, if given a chance, prove to be far more beneficial to mankind than driverless cars ever will.

For although bad drivers cause plenty of accidents, none has yet managed to wreck an entire economy, as reckless central bankers have sometimes done. If driverless monetary systems merely served to avoid the worst macroeconomic pileups, that alone would be reason enough to favor them.

But they can surely do much better than that. Who knows: perhaps the day will come when, thanks to improvements in driverless monetary technology, central bankers will find themselves with nothing better to do than worry about the future of the hedge fund industry.

Cross-posted from Alt-M.org and Cato.org.

George Selgin

Sabotaging Uber: The Umpire Strikes Back by Michael Munger

/in /by

Evolution works by killing. Sometimes the death is slow — starvation or exclusion. Sometimes it’s outright murder, bloody and face-to-face. But make no mistake: natural selection means that some things survive, and others die. The things that survive may not be “better” than the ones that die, but they are better suited to their environment.

And so it is in a market system. Joseph Schumpeter called it “creative destruction,” but we tend to understate the “destruction” part. Economic competition implies the replacement of inferior systems of production and distribution by more efficient mechanisms; new and better ideas work through killing off the old ways, the old firms, and the old jobs.

It’s brutal. Instead of “survival” in a biological sense, the competition is over providing goods and services at higher quality and lower cost. Consumers win in this system, but it is tough on employees and employers.

Of course, the old ways don’t go down without a fight, as we saw last week.

We tend to think of the government as a judge, a kind of umpire. But sometimes the umpire plays favorites. The California Labor Commission, an administrative law body, issued a ruling on June 16 that reclassified Uber drivers from contractors to employees.

This will have several effects, which were spelled out here (with a little help from me, though Ms. Brown did almost all of the work). The short version is that the costs to Uber of having employees rather than acting as a seller of information will effectively prevent Uber from expanding, and may even cause it to pull out of California altogether.

In August of 2011, my Twitter pal @pmarca (Marc Andreessen) wrote an article that will still be discussed 10 years from now, maybe longer. The title was “Why Software is Eating the World.”

What was important about that article is that it recognized, and spelled out pretty clearly, the destructive power of smart phones with software apps that provide services. Not employees, mind you. Software. “Eats the world” was Andreessen’s way of describing the death of traditional ways of doing business.

Of course, one of the key examples of software eating the world is Uber. The company claims that it is not a provider of taxi services, but rather a software platform that helps a willing buyer and a qualified, nearby seller to find each other.

And Uber is exactly right about that: Uber is not an employer of drivers, and it is not a seller of transport services. Uber is selling reductions in transactions costs: I want a ride, and you have a car and a few minutes. We could never find each other on our own, but with Uber we can make a convenient, mutually beneficial exchange in safety and with minimal fuss on clearing the payment.

In any kind of fair contest between Uber and traditional taxi companies, software eats the old way of doing things. It is perfectly true that some of Uber’s advantage lies in avoiding taxes on services, and in fact Uber has been moving in the direction of solving that problem.

But much of the advantage for Uber is the fact that drivers only have to cover the marginal cost of providing ride services, while traditional taxi and limousine companies have to cover their average costs. It is true that this is a real advantage, but that advantage benefits consumers, so the umpire-state should stand back and let it all be.

But in California, the umpire struck back. The “workers” who drive with Uber often do it precisely because they can set their own hours and they have freedom to decide whether to offer rides on any particular day or route. They can say “no,” and all Uber does is offer information about ride opportunities.

The “court” (which, as I noted above, is not a court at all but the Labor Commission) said this, in response to the suit by disgruntled driver Barbara Berwick:

Defendants hold themselves out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation. The reality, however, is that Defendants are involved in every aspect of the operation.

Eek. That’s like saying that Rotten Tomatoes makes movies. What Rotten Tomatoes does is provide information about a transaction (reviews, film ratings, nearby theaters, showtimes, and options to buy a ticket) that will take place only if the consumer decides she wants to see that movie, or not.

Yes, Rotten Tomatoes is “involved” in the movie watching business, pretty deeply. But what they are selling is information.

Of course, it really is true that with Uber (unlike with Rotten Tomatoes) you pay the company, and they pay the driver. But the rates are fixed and known in advance (yes, even during a “surge,” you know in advance).

Uber just acts to clear the transaction conveniently and quickly, so you don’t have to carry cash and neither does the driver. It is just not true that Uber is paying the driver. The passenger is paying the driver, in a way that is more convenient for everyone. Uber just handles the transaction.

Why did the umpire strike back? The California Labor Commission is actually an advocacy group, for labor. Not for Uber drivers, though that is the way that this decision is justified on paper. The CLC is advocating for taxi drivers, and other employees of companies that need to die.

They don’t need to die because they are evil; in fact, the folks who work in traditional transport services are decent, hard-working, salt-of-the-earth people who are just trying to make a living and, in many cases, support their families.

No, the reason that traditional employee-driven (pardon the pun) transport services need to die is that software is cheaper, faster, and better than “employees.” The costs to consumers of paying the extra amount, which takes the form of higher prices as well as reduced convenience and more difficult payment, is far higher than the benefit to employees of keeping their jobs.

The solution is for the umpire to quit playing the game and go back to a neutral role. Sure, it’s tough to see one side get crushed, especially when you consider that the “employee” team is far more likely to be Democrat, and the transportation contractors are more likely to be Republican or independent. In California, that’s a real consideration, because policy is more about politics than about taxpayers or the law.

Remember how at the end of The Empire Strikes Back Han Solo was frozen in carbonite (right after he responded, “I know” when Leia expressed her love for him)? That’s pretty much the situation for Uber right now. We all love Uber. Uber knows it. But California is on the verge of freezing out one of the most useful and innovative software platforms of the last decade.


Michael Munger

Michael Munger is the director of the philosophy, politics, and economics program at Duke University. He is a past president of the Public Choice Society.

A Constitutional Federal Revenue System by Congressman Jim Bridenstine

/in , , /by

“The power to tax involves the power to destroy.” – Chief Justice John Marshall, McCulloch v. Maryland, 1819

My vision for federal government revenue system is simple:

  1. Abolish the IRS
  2. Scrap the existing tax code
  3. Establish a new, simple, fair, pro-growth tax system worthy of the American people

As an essential step in reforming taxes and returning to constitutional government, the Internal Revenue Service should be abolished.  The IRS is a vast bureaucracy, costing $12.5 to $13 billion annually.  It would not be necessary under the FairTax.

The IRS has directly abused and harassed individual American citizens and organizations to advance political and policy agendas. The IRS has been used as a political weapon to suppress First Amendment and Fourth Amendment rights and influence elections.

The Fourth Amendment to the U.S. Constitution guarantees “The right of people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.”  The Sixteenth Amendment, which established the income tax, effectively negated the Fourth Amendment by assigning the power to seize assets in payment of taxes due and implicitly violates the provision against “unreasonable searches” in the extent of information that must be reported. The Sixteenth Amendment should be repealed.

The federal income tax system has been used to distort the free market and drive social policies and agendas. Myriad tax loopholes encourage politically favored behavior with economic rewards. The constitutional “general welfare clause” (Article 1, Section 8, Clause 1) requires that federal laws provide for the general welfare of all citizens rather than the specific welfare of particular individuals, groups or classes.  Income tax loopholes violate that concept.

Beyond distorting the economy and favoring specific groups, numerous provisions of the complex U.S. tax code directly discourage economic growth. Taxpayers are required to report complex details of their personal financial life, costing Americans billions of hours in non-productive tax compliance efforts every year.  Onerous “death taxes” often force liquidation of businesses and the sale of family farms, forcing not only the elimination of viable businesses and jobs but also economic inefficiencies in tax avoidance schemes.  Tax penalties in the existing code discourage the repatriation of capital earned in international enterprises.  This diminishes potential capital investment in the United States, dampening economic growth and employment.

I favor implementing the FairTax to replace the current federal tax code. The FairTax would raise similar amounts as current federal taxes while being less intrusive, less coercive, less abusive, and less frustrating than the current system.

The FairTax replaces most existing federal taxes with a simple sales tax on all new goods and services at the retail level.  The FairTax does not distort markets, manipulate behavior, or create economic inefficiencies by favoring or penalizing businesses’ or individuals’ economic decisions.

Taxes will be transparent rather than hidden in the cost of goods. Unlike the current system, prices will not include hidden income and payroll taxes paid for labor at every step of production and will not be masked from the worker by employers “withholding” estimated taxes owed from paychecks.

The FairTax is simple to collect and places the burden of proof on the government rather than the taxpayer.  The collection of the FairTax is administered by the states, 45 of which already have sales tax, so collection is simplified.  Under the FairTax, the regressive nature of consumption taxes is eliminated by “prebates” paid to everyone to cover taxes paid on basic necessities.

Abolishing the IRS, scrapping the existing federal tax code, and establishing a simple, fair, pro-growth tax system such as the FairTax will be a move toward constitutional, limited government and a strong economy.  It will also be a great relief to individual Americans.

REP JIM BRIDENSTINEABOUT CONGRESSMAN JIM BRIDENSTINE (R-OK)

U.S. Congressman Jim Bridenstine (R-Okla.) is a member of the House Armed Services Committee and chairman of the Science, Space, and Technology Committee environment subcommittee. He has a triple major from Rice University in Economics, Business, and Psychology and an MBA from Cornell.

How Moms Both Challenge and Confirm Standard Economic Theory Or, the “Principles of Momonomics” by Sarah Skwire

/in /by

Last winter, I was getting ready to put insulating plastic on all of my windows to keep the cold out. I quizzed my Facebook friends to see if they could use the economic way of thinking to predict which room’s windows I would insulate first. They had some good suggestions. Maybe the coldest room? Maybe the kitchen, because it gets the most use? Maybe the room with the largest windows?

They were all wrong, and they were wrong because I don’t really do economics. I do momonomics. Momonomics is the particular kind of economic thinking engaged in by parents. (All parents use momonomics, even dads. I just think momonomics sounds better than parentonomics.) If you practice momonomics, you know that the windows that get covered in plastic first are the ones in the kids’ rooms, because you can do that in the half an hour the kids are spending watching Phineas and Ferb and then get the rest done while they’re in bed and not in the way. Also, the children are tiny and cold, and you feel sorry for them.

The factor, in other words, that makes momonomics different from other economic ways of thinking is that children are the primary binding constraint. Here’s an example of what I mean.

Economics says that all goods have substitutes, but momonomics knows this is nonsense. Momonomics says that sometimes you’re going to have to turn the car around and drive two hours back to the hotel where you stayed last night in order to rescue one very special doll from the hotel laundry. (Thanks, btw, Mom and Dad. I still have her.) Economics says that ablanket may have a substitute, but momonomics says that the blanket does not. Sometimes demand curves are vertical, and price is infinite.

Economics takes preferences as given and explains why actors behave the way they do. Momonomics knows that preferences are mysterious and behavior cannot be explained, especially when the actor is under three feet tall. In fact, the job of the momonomist is often to restructure given preference sets and to alter behavior. We want you to eat your vegetables first, even if they don’t taste as good as tater tots.

Sometimes momonomics helps to reveal hidden economic secrets. We all know economics values efficiency. So some people might think that because the gas station is between the office and the day care, you should stop for gas on the way to pick the kids up. Momonomics knows this doesn’t make sense if the kids go out of their minds if they aren’t picked up at their usual time, and they really like to help put gas in the car. So momonomics schedules that trip in a way that makes momonomic sense and that, once the constraints are fully understood, makes better economic sense as well.

Economics thinks expressed preferences are important, but often mysterious. People want strawberry Pop-Tarts after natural disasters because they do. It’s not particularly important why. Momonomics can help unpack those preferences, reminding us that strawberry Pop-Tarts are a kid-friendly food that provide a burst of energy and a comforting familiarity; also, they don’t require any cooking, and they don’t make a mess.

Just as frequently as momonomics challenges economic theory, momonomics helps to confirm the practical applicability of economic thinking.

Economics reminds us that we live in an environment of scarcity. Momonomics agrees and says that because your sister finished the cinnamon Life cereal, you have to have peanut butter Cheerios for breakfast.

Economics reminds us that, just like every other resource, time is subject to scarcity constraints. Momonomics agrees, and wouldn’t sell you the hours between kid bedtime and grown-up bedtime for a gold nugget.

Economics knows that because time is a resource, sometimes the order in which you use other resources matters. Momonomics agrees. That’s why we’re having salad for dinner tonight, and frozen peas at the end of the week. And take a banana for a snack while you’re at it — they’re starting to get brown.

Economics knows that capital is heterogeneous. So does momonomics. That’s why if you don’t take the banana today, there will be banana bread tomorrow.

And when it comes time to slice up and share that banana bread, momonomics agrees with economics. You cut it up, but your brother gets to pick his slice first. (Momonomics comports to some degree with Rawlsian political philosophy). And don’t forget to wrap the leftovers in foil.

There’s a more serious point behind all this silliness. People who don’t know any technical economics use economic and momonomic ways of thinking every day to make decisions, both large and small. Lenore Skenazy is doing an excellent job of demonstrating the good things that can happen when moms start thinking about risk and uncertainty the way that economists do. And economists in classrooms everywhere are using momonomics examples to clarify arcane principles and connect economics to their students’ lives.

We would all make better decisions if moms thought more about economics and economists thought more about moms.


Sarah Skwire

Sarah Skwire is a senior fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis.

California Government Puts Uber on Blocks by Jeffrey A. Tucker

/in , /by

The California Labor Commission, with its expansive power to categorize and codify what it is that workers do, has dealt a terrible blow to Uber, the disruptive ride-sharing service. In one administrative edict, it has managed to do what hundreds of local governments haven’t.

Every rapacious municipal taxi monopoly in the state has to be celebrating today. It also provides a model for how these companies will be treated at the federal level. This could be a crushing blow. It’s not only the fate of Uber that is at stake. The entire peer-to-peer economy could be damaged by these administrative edicts.

The change in how the income of Uber drivers is treated by the law seems innocuous. Instead of being regarded as “independent contractors,” they are now to be regarded as “employees.”

Why does it matter? You find out only way down in the New York Times story on the issue. This “could change Uber’s cost structure, requiring it to offer health insurance and other benefits, as well as paying salaries.”

That’s just the start of it. Suddenly, Uber drivers will be subject to a huge range of federal tax laws that involve withholding, maximum working hours, and the entire labor code at all levels as it affects the market for employees. Oh, and Obamacare.

This is a devastating turn for the company and those who drive for it.

Just ask the drivers:

Indeed, there seems to be no justification for calling Uber drivers employees. I can recall being picked up at airport once. Uber was not allowed to serve that airport. I asked the man if he worked for Uber. He said he used to but not anymore.

“When did you quit?”

“Just now,” he said. Wink, wink. He was driving for himself on my trip.

“When do you think you will work for Uber again?”

“After I drop you off.”

That’s exactly the kind of independence that Uber drivers value. They don’t have to answer any particular call that comes in. They set their own hours. They drive their own cars. When an airport bans Uber, they simply redefine themselves.

They can do this because they are their own boss; Uber only cuts them off if they don’t answer a call on their mobile apps for 180 days. But it is precisely that rule that led the commission to call them “employees.”

That’s a pretty thin basis on which to call someone an employee. And it’s also solid proof that the point of this decision is not to clarify some labor designation but rather to shore up the old monopolies that want to continue to rip off consumers with high prices and poor service. No surprise, government here is using its power to serve the ruling class and established interests.

This is exactly the problem with government regulations that purport to define and codify every job. Such regulations tend to restrict the types and speed of innovation that can occur in enterprises.

The app economy and peer-to-peer network are huge growth areas precisely because they have so far manage to evade being codified and controlled and shoe-horned into the old stultifying rules.

If everyone earning a piecemeal stream of income is called an employee — and regulated by relevant tax, workplace, and labor laws — many of these companies immediately become unviable.

There will be no more on-demand hair stylists, plumbers, tennis coaches, and piano teachers. The fate of a vast number of companies is at stake. The future is at stake.

For now, Uber is saying that this decision pertains to this one employee only. I hope that this claim is sustainable. If it is not, the regulators will use this decision to inflict a terrible blow on the brightest and fastest growing sector of American economic life.


Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.

Create or Die: The World of Don Draper by Jeffrey A. Tucker

/in /by

I was in an elevator and heard a conversation between a young worker in information technology and an old timer involved in heavy industry. They were talking professions. The young man told the old man that he was in digital marketing. You could feel the sense of incredulity in the small space, and (though he didn’t say it) I just knew what the old man was thinking: “Another fake job in the unsustainable Facebook economy.”

So it has always been. The belief that unless you are making stuff you are not really producing has been with us since the ancient world. Even Aristotle found retailing to be disgusting, and money lending even more so. After all, these people are not actually contributing to the physical store of wealth in society, so in what sense are they creating value? We read similar opinions every day.

Such views completely misconstrue the nature of wealth and the job of enterprise. “The characteristic feature of capitalism that distinguishes it from pre-capitalist methods of production,” writes Ludwig von Mises, “was its new principle of marketing.”

The consumers rule. The makers and sellers of products seek their approval. What influences the decision to buy are the ideas people hold. It thereby becomes incumbent on the sellers to explain, persuade, convince, and inspire. They can only do this with good ideas.

To contemplate the value of an idea, the potentially immense worth of a single product of the human mind, dreamed up from non-existence to the stage of realization, communicated in a way that causes people to change their minds even in the absence of any physical change to the world, is to come to terms with a realm in which matter and spirit meet.

Exploring this realm is where the television series Mad Men (2007-2015) truly excels. It is set in the early 1960s, a time when the modern advertising industry began to take on critical economic importance due to innovations in communications technology. This industry sought to move already-produced goods (and services) from warehouse shelves to become part of people’s lives.

The entire goal of the firm is to bring consumers to a position decision to buy. The right messaging, well placed, can make the difference between a multi-million dollar success and a complete flop. It’s all about entering and influencing the headspace of the consumers — the ultimate decision makers in a capitalist economy.

Time and again, an outsider asks what it is that these advertising executives actually make. They try to explain. They fail. It seems too elusive, or perhaps too fake.

Like any good drama, Mad Men avoids didacticism concerning its point of view. There is plenty of good and evil to go around in the firm and the industry.

But over time, the viewer begins to cheer on the success of these ad men (and women), particularly Don Draper, the series’ main protagonist. You can’t help but sympathize with him on as he struggles to stay in a game in which the rules are always changing and the value systems of the mass of consumers are in constant flux.

For many people, Mad Men has been the first behind-the-scenes exposure to the world of advertising and the capitalistic machinery that manages it. The series is revealing in a historical sense, taking us through the systematic social, political, and economic upheaval of the 1960s. The characters are so well drawn that we actually come to believe we can psychologically deconstruct them one by one.

So let me try to deconstruct Don Draper, at least in a professional sense. He has one skill: creativity. And that creative skill has a test: profitability. In this sense, his creativity is different from a regular artist such as a painter or poet or musician. His one single goal is to generate ideas that sell product. There is a metric to reveal success or failure: It is the balance sheet. If the balance sheet responds, he has succeeded. If it does not, he has failed, and there are dozens of others ready to take his place to try their hands at idea creation.

Where do these marketing ideas come from? They are anything but automatic. If the answer to the question of marketing were obvious, his skills wouldn’t be needed. His job is to discover a message that rearranges the preference scales of possible consumers, which requires discerning the way that a mere physical product can most deeply meet human needs.

When he gets a new client, he extracts the most necessary known data: What is the product and what does it do? To whom is it most likely to be useful? Why would anyone want to obtain it through market exchange, giving up their property for someone else’s?

Once he has processed all known data, he turns his attention to what is unknown. How does this directly benefit people in their daily lives? And how can this product provide an even deeper benefit by causing life to better than it has been thus far?

The people who hire him do not know the answer. Draper does not know the answer either. He has to generate that answer from within his creative capacity. He will be tested on whether he gets it right, which is why he needs time to reflect. The answer for one product is not the same as another. Each case is unique. As he finds the best possible strategy, he also knows that there is no faking it: He either gets it right or he gets it wrong.

Every day, he faces this struggle to discover, see, codify, and pitch — to sell his idea to sell a product. He goes to bed each night with a profound sense of uncertainty. The answer is elusive. He looks through the glass darkly. Beyond the horizon of the present is the abyss of the future.

To cross it, he has to put himself in the shoes of countless people who know nothing about the product, peer into their hearts and souls, discern the inner workings of their minds, connect the results with a product, map out a memorable message, strategize on the right paths for conveying that message, and explain it all in a way that persuades those who have hired him that he is right and becoming willing to take the risk.

When you consider the whole of the responsibility here, it is awesome. Most people can’t live in this constant state of not knowing today what is essential to know tomorrow. But Draper has learned to have confidence that his knowledge will be greater tomorrow than it is today. He has learned to put his faith and trust in an emergent process that operates within his mind.

Notice that there are two levels of challenge here, both within and without.

Externally, he must put himself in the mindset of a random and unknown consumer, potentially millions of them. He must be outward looking, one might even say public spirited. He has to discern the workings of the human spirit.

Internally, the challenge is just as great. He has this gray matter that has to generate something fresh, wonderful, and effective. He has to believe that the answer is in there somewhere; it just needs the right configuration of outside stimuli and careful reflection to shake it loose.

He must manage his life to maximize the chances that these external and internal forces will come together to reveal the answer he is seeking. He lives an edgy and sometimes horrible life. Why does he seem to disappoint and betray so many people? Why does he so often disappoint us with his antics, his insensitivities, his erratic wanderings? How can he appear to have such intense convictions in one setting and then blow them up again in a different setting later in the same day?

In the course of his life, Draper is cultivating his capacity for thinking and creating in the best way he knows how. The ideas have to emerge: where they come from and how they rise from the recesses of his brain is not completely known to him.

But this much he knows: living a static and ritualized existence does not do it. He must at all times be ready to destroy a previous mode of thought, no matter what the costs that went into making it, and replace it with something completely new. In order to disrupt his own staid patterns of thought and open new ways of thinking, he seeks out change with new stimuli, risk, and even danger.

It’s the way the truly creative mind works — not through repeating what is known but by progressively discovering what has been unknown. In this task, past data is useful and interesting but also potentially distracting and even completely irrelevant in a world of ceaseless change. A plan based on known metrics alone is a recipe for total failure. The real source of value comes from understanding, anticipating, and acting on what is next. Even more value comes from actually creating what is next.

This method is not only Don’s own. It is also the source of progress in our world. Our lives are strictly divided into three experience of time: the unchangeable data of the past, the tactile experiences of the present, and the darkened and mapless path of the future. The forward motion of time, from past to present to future, never stops. The job of the advertiser — or the creative artist or the entrepreneur or the manager of any firm — is to find the light switches that illuminate the best route to leave the unchangeable past, improve the unsatisfactory present, and pave the way to a more wonderful world of tomorrow.

Don Draper is seeking those switches. When he finds one, there is a moment of rejoicing but then the reality dawns. He must find another. Then another. He must create or die. And so it must be for as long as he pursues his career.

Draper is a very flawed figure. So are we all. So will always be the ideas and structures and institutions created by mortal beings. His drive to succeed seems to come at the expense of his own soul. His obsession with knowing the minds of others displaces the need to be honest with himself.

All of this is true, and well portrayed. But consider what is being criticized here. The problem with Draper, we are being told, is that he gives of himself too much. And perhaps he does. It’s a struggle everyone faces, no matter the institutional and professional setting.

Still, even given his flaws, we should not fail to observe the piety at work here. It is because of the daring and courageous will to think something new, to seek out the workings of the public mind, to live day-to-day with radical uncertainty, to dive into the crucible of profit-and-loss that we move ever further from the state of nature toward the promise and possibility of a flourishing society of prosperity and peace.

The advertisers and marketers are seeking to have a role in creating that future. Think of how you spend your time. Think of how you spend your money. There are infinite choices before us, but at any one moment, you can only do one thing at a time.

Very often, as you reflect on your life and what you do, you will find that the goods and services that capture your attention, have behind them a massive apparatus of genius, risk, and creativity, all constructed to convey an idea.

That is called marketing. It is devised by human beings, portrayed so beautifully, flaws and all, on Mad Men.

In a market economy, geniuses are gathered to care about the life and decisions of the common person. They regard us as valuable. This is a wonderful thing. We should be grateful for it. It all happens because of an idea — an idea that begins in one mind that can eventually teach the world to sing.

Is there value in that? Absolutely — even if it can’t be explained in an elevator pitch.


Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.

EDITORS NOTE: This column originally appeared in Anything Peaceful.

Inside the Mind of the Man Who Could Be Bitcoin’s Creator by Max Borders

/in , , /by

In political science terms medieval Iceland has been called an “anarchy,” but it is more realistic to describe it as a very peer-to-peer kind of government. — Nick Szabo

Many observers think Nick Szabo is the pseudonymous Satoshi Nakamoto, creator of Bitcoin. Szabo, you see, is a coding wizard who had already created an earlier digital currency called “bitgold.” Could bitgold have been a practice run?

What’s more interesting is that Szabo has written extensively on the history of law. In particular, he writes about Anglo-Saxon emergent law, which collided eventually with the “master-servant” law of Justinian’s Rome. And Szabo argues that what we have today in the United States is but the shrinking vestige of common law operating within a growing body of Byzantine statutes.

All this might sound esoteric, but it has profound implications for cryptocurrencies, smart contracts, digital property titles, dispute resolution, and other potential applications of the blockchain at the heart of bitcoin — especially if Szabo is, in fact, the developer who set about writing source code for peer-to-peer law.

Szabo wrote in 2006,

Here’s my paper on private jurisdiction in English history. Franchise jurisdiction played a crucial but unheralded role in the history of English law and politics. Some private jurisdictions existed in Anglo-Saxon times but they grew in importance in the Norman and Angevin periods, and in the corporate form remained an important part of the British Empire until the 20th century.

A franchise, such as a corporation, a jurisdiction, or a right to collect certain tolls or taxes, was a kind of property: an “incorporeal hereditament.” English property law was very flexible; as a result franchise jurisdictions came in a wide variety of forms.

One can see how Szabo would have appreciated that flexibility as a developer.

Of course, some of these aspects of the common law (law by many) are still with us, but they have been overtaken in many quarters by edict (law by one) or especially by statute (law by few).

So what happened?

The Anglo-Norman legal idea of jurisdiction as property and peer-to-peer government clashed with ideas derived from the Roman Empire, via the text of Justinian’s legal code and its elaboration in European universities, of sovereignty and totalitarian rule via a master-servant or delegation hierarchy. By the 20th century, the Roman idea of hierarchical jurisdiction had largely won, especially in political science where government is often defined on neo-Roman terms as “sovereign” and “a monopoly of force.”

Indeed, as I wrote in “The End of Politics,”

Once-great empires soon grew up amid the detritus of war. The clan-king became a god-king. The administration of empire required more layers of hierarchy, which meant delegating power to satraps and governors. The emperor would issue commands to subordinates and those commands would be carried out by those on down the chains of command. Patronage relationships became the norm. The order of man lording power over man took on religious dimensions. Values such as loyalty, honor, obedience, and patriotism firmed up the hierarchy, and without such values, the structure could be weakened either from internal dissent or from better organized enemies.

Hierarchy became more elaborate over time as each layer was added, and hierarchy persisted, apparently, as humanity’s dominant social technology.

This militaristic law is so ingrained in our understanding now that it’s difficult for most of us to imagine life outside of it. Our understanding is of wise stewards minding the upper echelons of statecraft, while the rest of us team and hustle in the relatively peaceful interstices the regulatory state provides for us. It’s hard to conceive of alternative forms of governance and law doing better, and when people drop the A word with respect to these alternative forms, people can’t get past their own connotations.

Most of us have been thoroughly inculcated with this Hobbesian rationale. For example, just in debates among classical liberals, there are those convinced that persistent peace requires a final arbiter — one whose final word quashes conflict and whose law is made absolute through enforcement. And when it comes to alternatives, our failure of imagination has given rise to some of the most predatory regimes in history. As Szabo writes,

Our experience with totalitarianism of the 19th and 20th centuries, inspired and enabled by the Roman-derived procedural law and accompanying political structure (and including Napoleon, the Csars, the Kaisers, Communist despots, the Fascists, and the National Socialists), as well as the rise of vast and often oppressive bureaucracies in the “democratic” countries, should cause us to reconsider our commitment to government via master-servant (in modern terms, employer-employee) hierarchy, which is much better suited to military organization than to legal organization.

Indeed, we should reconsider our unreflective commitment to such hierarchies, because law and society are not only possible without them, but could be more robust, peaceful, and prosperous without them. But how do we move beyond those hierarchies?

The person who designed the basic protocols of the blockchain understood the power of “dumb networks” as opposed to Byzantine codes. As Szabo writes,

Fortunately, franchise jurisdiction has left permanent influences on modern governments, including on the republican form of government in general and the United States Constitution, federalism, and procedural rights in particular. It also left a record of a wide variety of forms of law and government that can provide us with alternatives to the vast employee hierarchies wielding coercive powers that have given rise to modern oppression.

Likewise, the inventor of bitcoin is helping us imagine a different sort of world. I wrote the following in part two of “The End of Politics”:

The architecture of the Web has already shown the world what’s possible in terms of upgrading our democratic operating system (DOS). This is true both in the sense that our new social technologies are like our online technologies, and in the sense that our online technologies enable new social technologies to emerge. Little platoons are already emerging on the spine of the blockchain, for example. And just as Lyft and Uber are showing taxi cartels how it’s done (or as Kickstarter is showing the NEA how it’s done, or as Bitcoin is showing the Federal Reserve how it’s done) new parallel governance structures will soon show State hierarchies around the world how it’s done.

What might the world look like when this process is further along? It’s hard to predict. But the network architectures show the way.

All of this was my rather roundabout way of saying that we’re already weaving together new law and using it, without permission.

Echoing legal scholar Bruce Benson’s Enterprise of Law, writer and venture fund manager Michael Gibson leaves us with an even brighter glimpse of the future in “The Nakamoto Consensus”:

It turns out there’s only one thing that guarantees production of good laws. The people bound by the laws have to agree to be bound by them. Not hypothetically or tacitly, as in some imaginary will of the people or behind a veil of ignorance. Consent must be real, transparent, and continuous. No law can bind a single person unless that person consents to be bound by that law. All laws must be strictly opt in. Lawmakers could be saints, devils or monkeys on typewriters — doesn’t matter. The opt out–opt in system lets only good laws survive. Bad laws are driven out of production.

Bad laws can only inflict harm and destroy wealth up to the cost to opt out of them. We can underthrow the state one contract at a time.

This single insight — articulated so well by Gibson — is what surely informed Nick Szabo and inspired Satoshi Nakamoto.

But if the “underthrow“ of Leviathan lies ahead, it will be thanks not only to encryption technology but also to understanding the beauty, flexibility, and robustness of emergent law. Smaller jurisdictions created by forking the code or by allowing people to vote with their boats are enough to reduce the costs of exit.

Szabo writes,

The overall goal of Juristopia is to improve the most important functions of government (especially defense and the abatement of public nuisances) while preventing the corruption, oppression, war, genocide, and other abuses that have so often come with police powers and taxation. Those evils have been particularly prone to occur when those powers are bundled into a locus of sovereignty, a la the personal totalitarianism of the Justinian Code, Bodin, and Hobbes or the parliamentary totalitarianism of Bagehot. These traditions of legal procedure, assuming political relationships are a matter of delegation rather than of property, have given us almost all of the worst in Western history: the Caesars, the Tsars, Napoleon, the Kaisers, the communist dictators, Mussolini, Franco, and Hitler among others — based on the profoundly false and destructive assumption, derived from the legal procedure of the Roman Empire, that there must be “one person” who is “responsible” for all politics and law — a person or (for Bagehot) small organization sitting at the top of a vast pyramid of principal-agent, usually boss-employee, relationships.

Although it discards totalitarian political structure and legal procedure, our proposed form of government is based on historically proven legal mechanisms. With the clarity of legal procedure it avoids the vague nonsense that often passes for political philosophy. Much of the political structure of Juristopia is based on highly evolved common law mechanisms such as property and contract, but these are used in the same basic manner as in the common law, rather than as misleading analogies or mere labels.

Let’s hope this process unfolds before the hierarchies grow too authoritarian in response.

Whether Nick Szabo is Satoshi Nakamoto I cannot say. But at the very least, Szabo was part of a community from which Nakamoto drew knowledge and inspiration. And that community was built on great ideas that are finally being given expression in ones and zeros.


Max Borders

Max Borders is the editor of the Freeman and director of content for FEE. He is also co-founder of the event experience Voice & Exit and author of Superwealth: Why we should stop worrying about the gap between rich and poor.

We Need a Magna Carta for the Regulatory State

/in , /by

It’s been 800 years since England’s King John signed the Magna Carta and acknowledged that a sovereign’s authority was limited.

Allan Meltzer and Kenneth Scott, both of the Hoover Institution, explain how this document planted the seed of the Rule of Law:

Although general agreement on the precise definition of the “rule of law” is lacking, most agree that it includes the principles that people should be secure in their person and property and that the state’s authority over others remains grounded in legitimate institutions so that no government can impose its will on another unchecked.

Rule of law is often summarized as equal treatment under the law.

By far the most important contribution of the Magna Carta to the rule of law was that King John accepted that his authority was limited, not absolute, and that the limitation was open to negotiation. From this beginning, the rule of law gradually replaced unrestricted sovereign authority.

Separation of powers, divided government, constitutionally enumerated powers. These concepts of limited government sprouted from the 13th Century agreement between barons and king.

From the Magna Carta’s seed to the tree of limited government, we’ve been blessed with economic gain:

The rule of law is found in all countries whose populations enjoy a high standard of living. No country that did not endorse the rule of law has ever developed a high standard of living. Freedom under the law and successful economic development occur together. In our current period, a country like China cannot expect to achieve full development without adopting the rule of law.

By adopting the rule of law, countries reduce uncertainty, which is the foundation of homegrown innovation. The rule of law, and the freedoms that it brings, explain why the United States innovates in the arts, technology and other areas.

However, while “the opportunity to extend the principles that started with the Magna Carta never ends,” Meltzer and Scott warn, “neither does the challenge to freedom.”

Take, for instance, the ever-encroaching Federal Regulatory State.

“The administrative process has become about how unelected officials make laws,” William Kovacs, the U.S. Chamber’s Senior Vice President for Environment, Technology & Regulatory Affairs, told the Senate Judiciary Committee. The Rule of the Regulators has trumped the Rule of Law:

Congress has enacted many broad and vague laws that delegated significant policy making authority to agencies, which have used that authority to fill in many of the legislative gaps. This “gap filling” authority is supported by the courts as they grant deference to agency decisions rather than being a strong check on agency power.

[ … ]

Agencies fill in so many “gaps” they make more law than Congress, all the while ignoring the impacts analyses that Congress requires. Meanwhile, the courts avoid dealing with the complexity by granting tremendous deference to agency decisions. And Congress has focused so intently on the problems with specific rules that it has ignored for almost seventy years one of the most important aspects of our complex society–that while regulators make many laws, all legislative power is still vested in Congress and Congress needs to better ensure that agencies carry out its intent.

For example, after taking three regulatory actions over a six-month period, one agency–EPA–will have extended its reach farther than ever before:

By the end of the year, all these regulations will have been imposed on an economy still trying to generate sustained economic growth and higher incomes for all Americans.

The regulators must be better regulated. We need a Magna Carta for the Regulatory State.

We need reforms to the regulatory process that restore accountability, offers transparency, provides meaningful public participation, and guarantees a safe but swift permitting process.

Americans need a regulatory system that works for them, not one that stifles their opportunities for a better life.

Meet Sean Hackbarth @seanhackbarth Follow @uschamber

EDITORS NOTE: The featured image is of a copy of the Magna Carta. Photo credit: Ed T. Licensed under a Creative Commons Attribution-ShareAlike 2.0 Generic license.

Real Heroes: A Good Samaritan in Cambodia by Lawrence W. Reed

/in , /by

In 30 years of traveling to 81 countries, I’ve come across some pretty nasty governments and some darn good people. To be fair, I should acknowledge that I’ve also encountered some rotten people and a half-decent government or two. The ghastliest of all worlds, of course, is when you have rotten people running nasty governments — a combination that is not in short supply.

Indeed, as Nobel laureate F.A. Hayek famously explained in The Road to Serfdom, the worst tend to rise to the top of all regimes — yet another reason to keep government small in the first place (as if we needed another reason).

“The unscrupulous and uninhibited,” wrote Hayek, “are likely to be more successful” in any society in which government dominates life and the economy. That’s precisely the kind of circumstance that elevates power over persuasion, force over cooperation, arrogance over humility, and corruption over honesty.

So I take special note when I encounter instances of good people working around, in spite of, in opposition to, or simply without a helping hand from government. In today’s dominant culture and climate, private initiative is frequently shortchanged or viewed with suspicion. In some quarters, “private” means unreliably compassionate, incorrigibly greedy, or hopelessly unplanned. We’re overdue for a celebration of the good character many people exhibit when there’s no fame or fortune in it, just the satisfaction that comes from knowing you’ve done the right thing.

Sadly, I can’t give you the name of the person I want to tell you about, and shame on me for that. I spent a grand total of perhaps an hour with him, in short increments as he gave me rides in his “cyclo” (or rickshaw) from one place to another in Phnom Penh, Cambodia, in August 1989. When I was about to fly home to the United States, I gave him something without ever expecting he would do with it what I asked. I wish I’d had the presence of mind to ask for his name and contact information because, in all the years since, I’ve wished for an opportunity to thank him.

I lived in Midland, Michigan, at the time. The area press, particularly theMidland Daily News and the Saginaw News, featured stories about my upcoming visit to Southeast Asia. Local doctors donated medical supplies for me to take to a hospital in the Cambodian capital. A woman named Sharon from a local church saw the news stories. She called me and explained that a few years before, her church had helped Cambodian families who escaped from the Khmer Rouge communists and resettled in mid-Michigan. The families had moved on to other locations in the United States but stayed in touch with the friends they had made in Midland.

Sharon told me that she sent copies of the news stories to her Cambodian friends her church had helped a few years before. Through Sharon, each family asked if I would take letters with cash enclosed to their desperately poor relatives in Cambodia. When they sent anything through the mail, it usually didn’t end up where it was supposed to, especially if cash was involved. I offered to do my best, with no guarantees.

The families who were in Phnom Penh would prove relatively easy to locate, but the last family was many miles away in Battambang. That would have involved a train ride, some personal risk, and a lot of time I didn’t have. If I couldn’t locate any of the families, I was advised not to bring the cash back home but to give it to any poor person. Finding poor Cambodians in 1989, after the savagery the nation endured under the butchery of the Khmer Rouge a decade before, was like looking for fish in an aquarium.

When I realized I wasn’t going to make it to Battambang, I approached a man in tattered clothes in the hotel lobby. I had seen him there a few times before. He always smiled and said hello, and spoke enough English to carry on some short conversations. I had a sense — intuition, perhaps — that he was a decent person.

“I have an envelope with a letter and $200 in it, intended for a very needy family in Battambang. Do you think you could get this to them?” I asked. He replied in the affirmative. “Keep $50 of it if you find them,” I instructed. We said goodbye. I assumed I would never hear anything of what became of either him or the money. I am pained to this day by the realization that without much thought, I had sold him short.

Back home in Michigan several months later, I received an excited phone call from Sharon. “The Cambodians in Virginia whose family in Battambang that last envelope was intended for just received a letter from their loved ones back home!” And then she read me a couple paragraphs from that letter. The final sentence read, “Thank you for the two hundred dollars!”

That man whose name I’m unsure of and whose address I never secured had found his way to Battambang. Not only did he not keep the $50 I offered; he somehow had found a way to pay for the train ride himself. Does his act of honesty tug at your heartstrings? If it does, then you appreciate something the world desperately needs, something that is indispensably crucial to a free and moral society. The man I trusted the money to was poor in material wealth but rich in something more important. As I wrote in a recent book,

Ravaged by conflict, corruption and tyranny, the world is starving for people of character. Indeed, as much as anything, it is on this matter that the fate of individual liberty has always depended. A free society flourishes when people seek to be models of honor, honesty, and propriety at whatever the cost in material wealth, social status, or popularity. It descends into barbarism when they abandon what’s right in favor of self-gratification at the expense of others; when lying, cheating, or stealing are winked at instead of shunned.

If you want to be free, if you want to live in a free society, you must assign top priority to raising the caliber of your character and learning from those who already have it in spades. If you do not govern yourself, you will be governed.

Character means that there are no matters too small to handle the right way. It’s been said that your character is defined by what you do when no one is looking. Cutting corners because “it won’t matter much” or “no one will notice” still knocks your character down a notch and can easily become a slippery slope.

In 2016, I hope to visit Cambodia again. It will be my first time there since 1989. I have a slim lead on how I might find the man I gave that letter and $200 to. I know it’s a long shot. He may have moved away or passed on. But if I find him, it will be a thrill I’ll never forget.

I will embrace him as a brother and be sure he understands that in my book, he is one Real Hero.

For further information, see:


Lawrence W. Reed

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s.

EDITORS NOTE: Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

“Paid Family Leave” Is a Great Way to Hurt Women by Robert P. Murphy

/in , , , , , /by

In an article in the New Republic, Lauren Sandler argues that it’s about time the United States join the ranks of all other industrialized nations and provide legally guaranteed paid leave for pregnancy or illness.

Her arguments are similar to ones employed in the minimum wage debate. Opponents say that making particular workers more expensive will lead employers (on aggregate) to hire fewer of them. Supporters reject this tack as fearmongering, going so far as to claim such measures will boost profitability, and that only callous disregard for the disadvantaged can explain the opposition.

If paid leave (or higher pay for unskilled workers) helps workers and employers, then why do progressives need government power to force these great ideas on everyone?

The United States already has unpaid family leave, with the Family and Medical Leave Act (FMLA) signed into law by President Clinton in 1993. This legislation “entitles eligible employees … to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave.” Specifically, the FMLA grants covered employees 12 workweeks of such protection in a 12-month period, to deal with a pregnancy, personal sickness, or the care of an immediate family member. (There is a provision for 26 workweeks if the injured family member is in the military.)

But “workers’ rights” advocates want to move beyond the FMLA, in winning legally guaranteed paid leave for such absences. Currently, California, New Jersey, and Rhode Island have such policies.

The basic libertarian argument against such legislation is simple enough: no worker has a right to any particular job, just as no employer has the right to compel a person to work for him or her. In a genuine market economy based on private property and consensual relations, employers and workers are legally treated as responsible adults to work out mutually beneficial arrangements. If it’s important to many women workers that they won’t forfeit their jobs in the event of a pregnancy, then in a free and wealthy society, many firms will provide such clauses in the employment contract in order to attract qualified applicants.

For example, if a 23-year-old woman with a fresh MBA is applying to several firms for a career in the financial sector, but she has a serious boyfriend and thinks they might one day start a family, then — other things equal — she is going to highly value a clause in the employment contract that guarantees she won’t lose her job if she takes off time to have a baby. Since female employment in the traditional workforce is now so prevalent, we can expect many employers to have such provisions in in their employment contracts in order to attract qualified applicants. Women don’t have a right to such clauses, just as male hedge-fund VPs don’t have a right to year-end bonuses, but it’s standard for employment contracts to have such features.

Leaving aside philosophical and ethical considerations, let’s consider basic economics and the consequences of pregnancy- and illness-leave legislation. It is undeniable that providing even unpaid, let alone paid, leave is a constraint on employers. Other things equal, an employer does not want an employee to suddenly not show up for work for months at a time, and then expect to come back as if nothing had happened. The employer has to scramble to deal with the absence in the meantime, and furthermore doesn’t want to pour too much training into a temporary employee because the original one is legally guaranteed her (or his) old job. If the employer also has to pay out thousands of dollars to an employee who is not showing up for work, it is obviously an extra burden.

As always with such topics, the easiest way to see the trade-off is to exaggerate the proposed measure. Suppose instead of merely guaranteeing a few months of paid maternity leave, instead the state enforced a rule that said, “Any female employee who becomes pregnant can take off up to 15 years, earning half of her salary, in order to deliver and homeschool the new child.” If that were the rule, then young female employees would be ticking time bombs, and potential employers would come up with all sorts of tricks to deny hiring them or to pay them very low salaries compared to their ostensible on-the-job productivity.

Now, just because guaranteed leave, whether paid or unpaid, is an expensive constraint for employers, that doesn’t mean such policies (in moderation) are necessarily bad business practices, so long as they are adopted voluntarily. To repeat, it is entirely possible that in a genuinely free market economy, many employers would voluntarily provide such policies in order to attract the most productive workers. After all, employers allow their employees to take bathroom breaks, eat lunch, and go on vacation, even though the employees aren’t generating revenue for the firm when doing so.

However, if the state must force employers to enact such policies, then we can be pretty sure they don’t make economic sense for the firms in question. In her article, Sandler addresses this fear by writing, in reference to New Jersey’s paid leave legislation,

After then-Governor Jon Corzine signed the bill, Chris Christie promised to overturn it during his campaign against Corzine. But Christie never followed through. The reason why is quite plain: As with California, most everyone loves paid leave. A recent study from the CEPR found that businesses, many of which strenuously opposed the policy, now believe paid leave has improved productivity and employee retention, decreasing turnover costs. (emphasis added)

Well, that’s fantastic! Rather than engaging in divisive political battles, why doesn’t Sandler simply email that CEPR (Center for Economic and Policy Research) study to every employer in the 47 states that currently lack paid leave legislation? Once they see that they are flushing money down the toilet right now with high turnover costs, they will join the ranks of the truly civilized nations and offer paid leave.

The quotation from Sandler is quite telling. Certain arguments for progressive legislation rely on “externalities,” where the profit-and-loss incentives facing individual consumers or firms do not yield the “socially optimal” behavior. On this issue of family leave, the progressive argument is much weaker. Sandler and other supporters must maintain that they know better than the owners of thousands of firms how to structure their employment contracts in order to boost productivity and employee retention. What are the chances of that?

In reality, given our current level of wealth and the configuration of our labor force, it makes sense for some firms to have generous “family leave” clauses for some employees, but it is not necessarily a sensible approach in all cases. The way a free society deals with such nuanced situations is to allow employers and employees to reach mutually beneficial agreements. If the state mandates an approach that makes employment more generous to women in certain dimensions — since they are the prime beneficiaries of pregnancy leave, even if men can ostensibly use it, too — then we can expect employers to reduce the attractiveness of employment contracts offered to women in other dimensions. There is no such thing as a free lunch. Mandating paid leave will reduce hiring opportunities and base pay, especially for women. If this trade-off is something the vast majority of employees want, then that’s the outcome a free labor market would have provided without a state mandate.


Robert P. Murphy

Robert P. Murphy is senior economist with the Institute for Energy Research. He is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

Labor Unions Create Unemployment: It’s a Feature, Not a Bug by Sarah Skwire

/in , , , , /by

Did the labor unions goof, or did they get exactly what they want?

Los Angeles has approved a minimum wage hike to $15 an hour. Some of the biggest supporters of that increase were the labor unions. But now that the increase has been approved, the unions are fighting to exempt union labor from that wage hike.

Over at Anything Peaceful, Dan Bier has nicely explained why the unions would do something that seems, at first glance, so nonsensical. But what I want to point out is that this kind of hijinks is not a new invention of 21st century organized labor. Instead, it’s pretty much what labor was organized to do. It’s a feature, not a bug.

Part of the early reasoning for the minimum wage — which originated as a “family wage” or “living wage” — was its intent to allow a worker to “keep his wife and children out of competition with himself” and presumably to keep all other women out of the workforce as well.

Similarly, the labor movement, from the very beginning, meant to protect organized white male labor from competition against black labor, immigrant labor, female labor, and nonunion labor. There are subtleties to this generalization, of course, and labor historian Ruth Milkman identifies four historical waves of the labor movement that have differing commitments (and a lack thereof) to a more diverse vision of labor rights. But unions — like so many other institutions — work on the “get up and bar the door” principle. Get up as high as you can, and then bar the door behind you against any further entrants who might cut into the goodies you have grabbed for yourself.

Labor union expert Charles Baird notes,

Unions depend on capture. They try to capture employers by cutting them off from alternative sources of labor; they try to capture workers by eliminating union-free employment alternatives; and they try to capture customers by eliminating union-free producers. Successful capture generates monopoly gains for unions.

Protection is the name of the game.

Unsurprisingly, the unions made sure to be involved when, about 50 years before the 1970s push for an equal rights amendment, there was another push for an ERA in the United States. Written by suffragist leader Alice Paul, the amendment was an attempt to leverage the newly recognized voting power of women into a policy that guaranteed men and women “shall have equal rights throughout the United States and every place under its jurisdiction.” This amendment would have prevented various gender-based inequities that the courts supported at the time — like hugely different hourly wages for male and female workers, limits on the number of hours women could work, limits on when women could work (night shifts were seen as particularly dangerous for women’s health and welfare), and limits on the kinds of work women could do.

Reporting on the debates over the ERA in 1924, Doris Stevens noted three main objections to the amendment:

First, there was the familiar plea for gradual, rather than sweeping change.

Second, there were concerns over lost pensions for widows and mothers.

And in Stevens’s words,

The final objection says: Grant political, social, and civil equality to women, but do not give equality to women in industry.… Here lies the heart of the whole controversy. It is not astonishing, but very intelligent indeed, that the battle should center on the point of woman’s right to sell her labor on the same terms as man. For unless she is able equally to compete, to earn, to control, and to invest her money, unless in short woman’s economic position is made more secure, certainly she cannot establish equality in fact. She will have won merely the shadow of power without essential and authentic substance.

Suffragist Rheta Childe Dorr (in Good Housekeeping, of all places. How the mighty have fallen!) pointed out again the logic behind labor’s opposition to the equal rights amendment:

The labor unions are most opposed to this law, for few unions want women to advance in skilled trades. The Women’s Trade Union League, controlled and to a large extent supported by the men’s unions, opposes it. Of course, the welfare organizations oppose it, for it frees women wage earners from the police power of the old laws. But I pray that public opinion, especially that of the club women, will support it. It’s the first law yet proposed that gives working women a man’s chance industrially. “No men’s labor unions, no leisure class women, no uniformed legislators have a right to govern our lives without our consent,” the women declare, and I think they are dead right about it.

Organized labor — founded to ensure the collective right to contract — refused to stand up for the right of individual women to contract. From their point of view, it was only sensible. And, perhaps most importantly, women in organized labor refused to stand up for the women outside the unions.

Organized male and female labor’s fight against the ERA was at least as much about protectionism as it was about sexism. Maybe more. Women’s rights and union activist Ethel M. Smith attended the debates on the ERA to report on it for the Life and Labor Bulletin, and found that union workers did not even attempt to gloss over their protectionist agenda:

Miss Mary Goff of the International Ladies’ Garment Workers Union, emphasized the seriousness of the effect upon organized establishments were legal restrictions upon hours of labor removed from the unorganized. “The organized women workers,” she said, “need the labor laws to protect them from the competition of the unorganized. Where my union, for instance, may have secured for me a 44-hour week, how long could they maintain it if there were unlimited hours for other workers? Unfortunately, there are hundreds of thousands of unorganized working women in New York who would undoubtedly be working 10 hours a day but for the 9-hour law of New York.”

So labor unions excluded women as long as they could, then let in a privileged few and barred the doors behind them. And they continue to use the same tactics today in LA and elsewhere.

How long can they keep it up?


Sarah Skwire

Sarah Skwire is a senior fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis.

Kelo: Politicians Stole Her Home for Private Developers and Started a Legal War by Ilya Somin

/in , , /by

Most of my new book, The Grasping Hand, focuses on the broader legal and political issues raised by the Supreme Court’s ruling in Kelo v. City of New London.

As explained in the first post in this series, I wrote the book primarily to address these big-picture issues.

But the story of how such a momentous case arose from unlikely origins is interesting in its own right.

The case originated with a development project in the Fort Trumbull area of New London, a small city in Connecticut. The neighborhood had fallen on difficult economic times in the 1990s after the closure of a naval research facility.

City officials and others hoped to revitalize it. The administration of Republican Governor John Rowland hoped to expand his political base by promoting development in New London; but to avoid having to work directly through the heavily Democratic city government, they helped resuscitate the long-moribund New London Development Corporation, a private nonprofit organization established to aid the city with development planning.

The NLDC produced a development plan that would revitalize Fort Trumbull by building housing, office space, and other facilities that would support a new headquarters that Pfizer, Inc. – a major pharmaceutical firm – had agreed to build nearby.

The development plan produced by the NLDC was in large part based on Pfizer’s requirements, which NLDC leaders (some of whom had close ties to Pfizer) were eager to meet. Pfizer would not be the new owner of the redeveloped land, but did expect to benefit from it.

I believe that NLDC leaders genuinely thought the plan would serve the public interest, as did the city and state officials who supported it. But it is also true, as one of those who worked on the plan put it, that Pfizer was the “10,000-pound gorilla” behind the project.

In order to implement the plan, the NLDC sought to acquire land belonging to some ninety different Fort Trumbull property owners.

In 2000, the New London city council authorized the NLDC to use eminent domain to condemn the land of those who refused to sell. Some defenders of the takings emphasize that all but seven of the owners sold “voluntarily.”

But as New London’s counsel Wesley Horton noted in oral argument before the Supreme Court, many did so because there was “always in the background the possibility of being able to condemn… that obviously facilitates a lot of voluntary sales.”

Moreover, owners who were reluctant to sell were subjected to considerable harassment, such as late night phone calls, dumping of waste on their property, and locking out tenants during cold winter weather.

Seven individuals and families, who between them owned fifteen residential properties, refused to sell despite the pressure. One was Susette Kelo, who wanted to hold on to her “little pink house” near the waterfront.

Some of the other families involved had deep roots in the community and did not want to be forced out. Wilhelmina Dery, who was in her eighties, had lived in the same house her whole life, and wished to continue living there during the time left to her.

The Cristofaro family were also strongly attached to their property, which they had purchased in the 1970s after their previous home had been condemned as part of an urban renewal project.

Susette Kelo’s famous “little pink house” in 2004 (photo by Isaac Reese)The resisting property owners tried to use the political process to prevent the takings. They managed to attract the support of a wide range of people in the community, including many on the political left who believed that it was wrong to forcibly expel people from their homes in order to promote commercial development.

But the Coalition to Save Fort Trumbull organized by the resisters and their allies had little, if any, hope of prevailing against the vastly more powerful forces arrayed against them.

The owners also tried to hire lawyers to fight the taking in court. But the lawyers they approached told them that there was little chance of success, and that – in any event – they could not afford the necessary prolonged legal battle.

The owners would almost certainly have had to capitulate, if not for the intervention of the Institute for Justice, a libertarian public interest law firm. IJ had long been interested in promoting stronger judicial enforcement of “public use” limitations on takings, and one of the members of the Coalition reached out for help.

As IJ lawyer Scott Bullock put it, the Fort Trumbull situation was an “ideal public interest case” for the Institute. Legally, the case was a good one because the city did not claim that the property in question was “blighted” or otherwise causing harm, thereby making it harder to prove that condemnation would genuinely benefit the public.

The case also featured sympathetic plaintiffs who were determined to fight for their rights. That made it likely that it would play well in the court of public opinion, and that it would not be settled before it could lead to a precedent-setting decision.

IJ hoped to achieve a ruling holding that takings that transfer property from one private individual to another for “economic development” do not serve a genuine “public use” and are therefore unconstitutional.

Thanks to IJ’s pro bono legal representation, the case went to trial. In 2002, a Connecticut trial court invalidated the condemnation of 11 of the 15 properties because the city and the NLDC did not have a clear enough plan of what they intended to do with the land.

Both sides appealed to the Connecticut Supreme Court, which upheld all fifteen takings in a close 4-3 decision. The majority ruled that almost any public benefit counts as a “public use” under the state and federal constitutions, and that courts must generally defer to government planners.

In a dissenting opinion, Justice Peter Zarella argued that “the constitutionality of condemnations undertaken for the purpose of private economic development depends not only on the professed goals of the development plan, but also on the prospect of their achievement.”

Presciently, he warned, “The record contains scant evidence to suggest that the predicted public benefit will be realized with any reasonable certainty,” and that it was “impossible to determine whether future development of the area… will even benefit the public at all.”

At this point, most legal commentators (myself included) believed that the case was almost certainly over. Few thought that the federal Supreme Court was going to take a public use case.

Supreme Court precedent dating back to 1954 held that virtually any possible public benefit counts as a public use, and the Court had unanimously reaffirmed that view in 1984. Most experts thought that the debate over the meaning of “public use” had been definitively settled.

But Scott Bullock and Dana Berliner – the IJ lawyers who represented the property owners – thought the conventional wisdom was wrong. And they were vindicated when the Supreme Court unexpectedly agreed to take the case. At that point, much new national media attention was focused on the New London condemnations.

Property law experts were well aware that longstanding Supreme Court precedent permitted the government to take property for almost any reason. But very few members of the general public knew that. Many ordinary Americans were shocked to learn a city could condemn homes and small businesses in order to promote private development – a reality they were unaware of until the publicity surrounding Kelo drove it home to them.

The Supreme Court upheld the takings in a 5-4 ruling. But the resulting controversy created a major political backlash and shattered the seeming consensus in favor of a broad approach to public use.

As for the City of New London, Justice Zarella and other skeptics turned out to be right. The NLDC’s flawed development plan fell through, as did a number of later efforts. Richard Palmer, one of the state supreme court justices who voted with the majority, later apologized to Susette Kelo, telling her he “would have voted differently” had he known what would happen.

Today, the condemned land still lies empty, though city officials now plan to build a memorial park honoring the victims of eminent domain, on the former site of Susette Kelo’s house.

The former site of Susette Kelo’s house – May 2014 (photo by Ilya Somin)

In the meantime, feral cats have been using the property. So far, at least, they have been the main local beneficiaries of the takings.

Feral cat near the former site of the Kelo house – March 2011 (photo by Jackson Kuhl)

(I should point out that the events in New London leading up to the Supreme Court case are the subject of an excellent earlier book by journalist Jeff Benedict. My book primarily focuses on the broader legal and policy issues raised by the Kelo case, which Benedict touched on only briefly. But I also cover the origins of the case in Chapter 1, and post-decision developments in New London in the conclusion.)

This post first appeared on the Volokh Conspiracy, where Ilya Somin is a frequent blogger.

You can buy The Grasping Hand on Amazon here.


Ilya Somin

Ilya Somin is Professor of Law at George Mason University School of Law. He blogs at the Volokh Conspiracy.

Venezuela Hits 510% Inflation by Steve Hanke

/in , , , , , /by

Venezuela’s bolivar is collapsing. And as night follows day, Venezuela’s annual implied inflation rate is soaring. Last week, the annual inflation rate broke through the 500% level. It now stands at 510%.

With free market exchange-rate data (usually black-market data), the real inflation rate can be calculated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable inflation estimate.

Using black-market exchange rate data that The Johns Hopkins-Cato Institute Troubled Currencies Project has collected over the past year, I estimate Venezuela’s current annual implied inflation rate to be 510%. This is the highest rate in the world. It’s well above the second-highest rate: Syria’s, which stands at 84%.

Venezuela has not always experienced punishing inflation rates. From 1950 through 1979, Venezuela’s average annual inflation rate remained in the single digits.

It was not until the 1980s that Venezuela witnessed a double-digit average, and it was not until the 1990s that Venezuela’s average inflation rate exceeded that of the Latin American region.

Today, Venezuela’s inflation rate is over the top.

A version of this post first appeared at Cato.org.

More on the Venezuelan Collapse


Steve H. Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore.

Who Ignores the Principle of Scarcity? Progressives and Politicians by Sandy Ikeda

/in , , , , /by

Everyone has a theory of the way the world works, a way of connecting cause and effect. Without it, we wouldn’t know how to start the day: “If I wake up at 7:00 a.m. tomorrow, I should make it to work on time. And then…”

Our theories, the rules and principles by which we interpret the world, help us to think and plan, but they also constrain our thinking and planning to some degree. That can be a good thing, as long as our theories conform reasonably well to the real world. We understand, for example, that the best way to exit the 10th floor of a building is not necessarily to step out of the nearest window.

For economists who study human action in the real world, one of the principles we cannot ignore is that scarcity exists — to get more of one valuable thing, you will have to give up some of another valuable thing. In fact, you could say that not understanding the nature and significance of scarcity is the hallmark of someone who isn’t an economist, or is a very bad one.

In everyday life, it’s usually impossible to ignore the existence of scarcity. For most of us, it’s pretty obvious that time and money aren’t unlimited, and that if we want a bigger house we’ll probably need to earn more by giving up some leisure time and working more. In a free market, one without arbitrary political power and aggression, the economic reality of scarcity is a “hard constraint” that’s always good to keep firmly in mind when making plans.

Economics versus politics

But tracing out the more subtle and far-reaching implications of scarcity in a given set of circumstances is a skill that takes a lot of training and practice, which of course not everyone has done or, really, needs to do.

As Murray Rothbard puts it,

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in the state of ignorance.

Unfortunately, politics sorely tempts us to act irresponsibly. Politics is essentially about acquiring and using political power  — the initiation of physical violence. If the first principle of economics is that “scarcity exists,” then far too often the first principle of politics is, “ignore the first principle of economics!”

In the absence of legal privilege or persecution, people in a free market have to deal with scarcity’s hard budget constraint. But in the world of politics, people can try to immunize themselves against scarcity by making others pay for the things they want for themselves or for their cronies. Politics is the realm of the “soft budget constraint,” which may have prompted Margaret Thatcher to say, “The problem with socialism is that you eventually run out of other people’s money.”

Unfortunately, the same could easily be said for garden-variety politics almost everywhere today.

Principles versus consequences

This suggests perhaps another way of differentiating libertarians from the progressives of the left. For libertarians, economic principles constrain ourthinking. For progressives, economic reality constrains their outcomes.

What I mean is that when progressives, for instance, demand that people pay ever-higher minimum wages to those who work for them, they ignore the hard reality that someone, often unseen, must bear the cost of their “compassion,” and that those others are mostly young and unskilled workers that employers will now find too costly to employ. Or, an employer may cut back on nonwage payments they previously used to compensate their employees, making the employees worse off.

But because libertarians from the outset tend to be more mindful of economic principles, they are better able to shape their proposals, at a minimum, so as not to harm the very people that progressives aim to help. Libertarians are less likely to be disappointed when their policies confront economic reality. As someone once said, “Economics is the art of putting parameters on our utopias.” Scarcity is one of those parameters.

(Some may be reminded of Thomas Sowell’s distinction between “constrained vision” and “unconstrained vision,” which, however, I believe focuses more on one’s view of human nature: whether it is perfectible or not perfectible.)

Innovating within constraints

Faced with poverty, unhealthy working conditions, criminal violence, and a host of other persistent socioeconomic problems, we’re often admonished by the left to think beyond capitalism, to think creatively “outside the box.” Why not try to change those parameters or remove some of them altogether?

Well, even musical geniuses from traditions as different as classical, jazz, and rock must learn the rules of their genre before they can break through and go beyond them. Before he pioneered bebop, Charlie Parker had first to master the saxophone and the musical conventions of his day. Only then could he push outside mainstream jazz. To color outside the lines, you need to know where the lines are.

Moreover, scarcity is not a man-made thing that can be unmade purely by human willpower or by wishing it away. We have to account for it when we confront the real world. Otherwise, we risk personal failure or perhaps much worse. None of this means, though, that we can’t dramatically reduce scarcity and address those problems.

Sometimes there are free lunches. It’s possible to push that constraint outward and reduce scarcity through efficiency (getting more out of less) or, more importantly, through innovation (creating something of value that didn’t exist before). Henry Ford, Estee Lauder, and Norman Borlag significantly reduced the scarcity of cars, cosmetics, and food — to a world of ordinary people within the constraints of physics, chemistry, and economics.

We can get to where we want to go faster when we can see the road.


Sandy Ikeda

Sandy Ikeda is a professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism.