CLICHES OF PROGRESSIVISM #19 – “Big Government Is a Check on Big Business”

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A myth runs through most of America today, and it goes like this: Big business hates government and yearns for an unregulated market. But the reality is the opposite: Big government can be highly profitable for big business.

Many regulations restrict competition that would otherwise challenge existing firms. At the same time, government institutions—many created during the New Deal—funnel money to the largest corporations.

When government regulates X industry, it imposes high costs that hurt smaller firms and reduce competition. Imagine that the Department of Energy imposes a new rule that dishwashers must be more energy efficient. Coming up with designs, retrofitting factories to produce these energy-efficient models, and navigating the forms and licenses around this rule might cost a dishwasher-producing firm thousands of dollars. An industry giant, with more revenue and sizeable profit margins, can absorb this cost. A small dishwasher factory that’s only a year or two old, with little revenue and less profit, cannot. The latter would have to shut down. That means less competition for the industry giant, enabling it to grow even bigger and seize even more market share.

Barriers to entry, such as expensive licenses, also cripple start-ups and reduce competition. The Progressive New Republic speaks favorably of how Dwolla, an Iowa-based start-up that processes payments and competes with credit card agencies, had to pay $200,000 for a license to operate. Rather than hire employees or build a better product to compete with its entrenched competition, Dwolla was forced to spend its first $200,000 on a permission slip. Dwolla could afford it; but how many less-well-funded competitors were forced from the market? How many were deterred from even starting a payment-processing business by this six-figure barrier to entry?

For big businesses, which often sacrifice agility for size, smaller competitors are a major threat. By limiting smaller competition, government helps the industry giants at the expense of everyone else. Barriers to entry can kill the next innovative firm before it can become a threat to its giant competition. When this happens, we don’t even know it: The killed-before-it-can-live company is a classic example of the “unseen” costs of regulation.

While regulations minimize competition, government entities subsidize big business. The Export-Import Bank, established in 1934 as part of the New Deal, exists to subsidize exports by U.S.-based firms. The primary beneficiaries? Large corporations. From 2009 to 2014, for instance, the Ex-Im Bank financed over one-quarter of Boeing’s planes. Farm bills, a key element of the New Deal that still exists today, subsidize huge farms at the expense of smaller ones. The program uses a variety of methods, from crop insurance to direct payments, to subsidize farmers. The program is ostensibly designed to protect small farmers. But 75 percent of total subsidies—$126 billion from 2004 to 2013—go to the biggest 10 percent of farming companies. The program taxes consumers to funnel money to large farms.

Nor are these programs unique. National Journalism Center graduate Tim Carney argues, “The history of big business is one of cooperation with big government.” In the time of Teddy Roosevelt, big meat packers lobbied for federal meat inspection, knowing that the costs around compliance would crush their smaller competitors. New Deal legislation was only passed with help from the national Chamber of Commerce and the American Bankers Association. The Marshall Plan, which subsidized the sale of billions of dollars of goods to Europe, was implemented by a committee of businessmen. President Johnson created the Transportation Department in 1966, overcoming resistance from shipping interests by agreeing to exempt them from the new rules. Costly regulations for thee, but not for me.

If Progressives want to see what free enterprise looks like, they need only look at the Internet. For the past 20 years, it’s been largely unregulated. The result? Start-ups erupt and die every year. New competitors like Facebook bring down existing giants like MySpace and are in turn challenged by a wealth of social media competitors. Yahoo was the Internet search king until two college kids founded Google. Google has been recently accused of monopoly status, but competitors like DuckDuckGo spring up every day.

Let’s imagine if the Internet—a playground of creative destruction—had been as subject to big government as brick and mortar businesses have been. Yahoo would have been subsidized. Facebook would have had to pay six figures to get a licensing fee, crushing college-kid Zuckerberg before he got started and preserving MySpace’s market dominance. Businesses that learned to play the lobbying game would have been allowed to write regulations to crush their competitors.

For those who doubt, the proof of business’s collusion with big government is in the pudding. In 2014, a surprising number of libertarian-leaning men and women are in Congress. How has big business responded? K Street has spent millions of dollars working to replace laissez-faire advocates with those who are establishment-friendly. Sadly, cronyist businesses are fighting to keep free market advocates out of power.

A final note: I have criticized Progressives here, but the institution of big government, which enables businesses to hire lobbyists to write regulations or give themselves a subsidy, is the primary problem. The bigger government grows, the more powerful a tool it becomes for businesses prone to use it for private advantage. That’s not capitalism; it’s what one economist properly labeled “crapitalism.”

Julian Adorney
Economic Historian, Entrepreneur, Fiction Writer

Summary

  • Big Government and Big Business often play well together, at the expense of start-ups, little guys, and consumers.
  • Artificial, politically instigated barriers to entry make markets less competitive and dynamic, and make established firms more monopolistic.
  • A free market (true capitalism, not its adulterated “crapitalism” version) maximizes competition and, therefore, service to the consumer.

For further information, see:

“Of Meat and Myth” by Lawrence W. Reed
“Atlas Shrugged and the Corporate State” by Sheldon Richman
“Ending Corporate Welfare As We Know It” by Lawrence W. Reed
“The Rise of Big Business and the Growth of Government” by Robert Higgs
“Theodore Roosevelt: Big Government Man” by Jim Powell

ABOUT JULIAN ADORNEY

Julian Adorney is an economic historian, entrepreneur, and fiction writer. He writes for the Ludwig von Mises Institute and other websites. You can find his collected work at adorney.liberty.me.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

The Best Debt in the World by Emma Elliot Freire

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Hard to believe, but Britain’s student loan problem is worse than the Yanks’.

In late 2010, tens of thousands of British students took to the streets of London. They protested government plans to cut direct funding of higher education and raise the cap on tuition from £3,290 ($5,500) to £9,000 ($15,000). Some of them occupied government buildings and clashed violently with police. Hundreds were arrested.

Maybe they shouldn’t have gotten so worked up. It’s now becoming clear that most of them won’t repay their loans in full. Some of them will even be getting their education for free.

The UK government’s student loan scheme is more generous than its American counterpart. Any British student who is accepted to a university is automatically entitled to a government loan for the entirety of their tuition. Most universities are charging £9,000 per year. British students can also get loans for their living costs, which range from £4,418 to £7,751 per year. The average student will graduate £44,000 ($74,000) in debt.

The core difference between the British and American systems lies in the terms of repayment. American students typically have to start repaying 6 months after they graduate. Opportunities for loan forgiveness are extremely limited, and loans cannot be discharged via bankruptcy. By contrast, British students don’t have to start repaying until they are earning £21,000 ($36,000) per year. They must then pay 9 percent of their gross income as long as they stay above the threshold. Their outstanding balance is automatically forgiven 30 years after it became eligible for repayment. Also, the loans do not appear on their credit report. 

“The thing people worry about with debt is that they won’t be able to pay it back. The way this is structured means that is not a worry ever, and it doesn’t follow you around until your old age,” says Sam Bowman, Research Director at the Adam Smith Institute, a free-market think tank. 

Bowman finds it helpful to understand loan repayment as a tax. “You can either think of it as a graduate tax or it’s the best debt in the world,” he says. “It makes sense to think of it as a graduate tax, a specific kind of tax on a specific action that is designed to offset the cost of that action.”

Uncharted waters for repayment

The first students to take on the new, larger type of loans have yet to graduate, so it is hard to estimate what repayment rates are likely to be. However, the Institute for Fiscal Studies (IFS), an independent research center, is already projecting that 73 percent of students will not repay their loans in full. They believe the average amount written off will be around £30,000 ($50,500).

A report released in July by a committee of the British parliament reached similar conclusions. “By providing favourable terms and conditions on student loans, the Government loses around 45p [cents] on every £1 it loans out.” When the new policies were first announced in 2010, the government projected it would only lose 28p per £1 loaned out. The report notes that government loans to students are expected to total £330 billion by 2044. “We are concerned that Government is rapidly approaching a tipping point for the financial viability of the student loans system,” says the report.

By and large, students still think of themselves as having “real debt” for their education. “One valid criticism of the loan system is that students don’t realize how generous it is,” says Nick Hillman, director of the Higher Education Policy Institute. “Students think they’re paying for the entirety of their education when actually they’re not. Taxpayers are covering quite a lot of the cost.”

The IFS report notes that the lowest-earning 10 percent of graduates will only repay £3,879 (in 2014 prices). A survey earlier this year showed that 40 percent of graduates are still looking for a job 6 months after leaving university. If this trend continues, some graduates may never start earning £21,000.

A few savvy individuals are learning to work the system. British financial advisors encourage parents who could contribute to their child’s education to have their kid take out government loans instead. Martin Lewis, who runs the popular website moneysavingexpert.com, writes, “If a parent pays the £27,000 tuition fees upfront, and their child becomes a poet and never earns above £21,000, the whole £27,000 would have been wasted.”

The only people who can expect to repay their loans plus interest in full are the small group who take high-paying jobs soon after graduating and get regular pay increases for the next 30 years. These individuals are thinking hard about whether they need a degree. “The only income group that has gone to university less are the richest. That might be surprising, but what the debt does is it imposes some cost on people for going to university,” says Bowman. “So if they have other options, they take them. Maybe they could skip college and join their parent’s business or their parents can find them jobs.”

This is one immediate impact of the new loan scheme. There will undoubtedly be unintended consequences that may only become evident years or decades from now. For example, Britain may see an increase in the number of stay-at-home parents. Loan repayment is tied to an individual’s income. Spouse’s earnings are irrelevant. Child care is already very expensive. For some families, the extra 9 percent they would lose in loan repayments will be enough to push one parent out of paid employment.

Loans without borders

Loan repayments are collected by Her Majesty’s Revenue and Customs, the British equivalent of the IRS, via withholding from a person’s paycheck. This makes it fairly simple to collect money from anyone working for a British employer. Things become harder when a graduate leaves the country. 

“There is no way that the government can collect money from people who go abroad,” says Bowman. “There is a big incentive for them to stay away. Say you’re an English graduate and you go to America for a couple of years to work. If you have this debt waiting for you when you get home, there’s a big reason for you to stay abroad for as long as possible.”

The number of students who would actually permanently leave is probably very small. “It would be a much bigger problem than the student loan book if we were seeing Irish levels of emigration,” says Bowman. However, a determined few will be able to dodge repayment.

And then there’s the question of students who come to Britain from other European Union countries. Since 2006, EU law has required Britain to offer these students the same loan deals for tuition, though not for living costs. It is a tradition in British politics to blame problems that are largely homegrown on the widely-hated EU. As the issues with loan repayment have come to light, stories about EU students borrowing money and then “going to ground” have also been hitting the headlines.

This problem is still fairly small, since EU students have only been receiving loans since 2006. Hillman says that about half of EU students who study in Britain choose not to borrow or repay their loan in full before they leave the country. Many EU students enroll at British universities because they want to work in Britain later. Thus, they have a strong incentive to repay. However, data is now emerging that shows unpaid loans in the low millions. “The issue is less about what has happened to date but what might happen in the future because there aren’t many people yet who are liable to repay, but it’s growing all the time,” says Hillman. 

“If a French or Dutch person studies at a British university then goes home and gets a job, we can certainly chase them through the French or Dutch courts because they’ve signed a legal contract and they should repay,” Hillman says. “But the trouble is that it’s an incredibly expensive business. The person may owe £27,000, which is a lot of money, but chasing someone through the courts can easily cost that much.”

One way to address this problem would be an EU-wide agreement. “But there’s no real incentive for other European countries to do this because other European countries don’t use loans in the same way we do,” says Hillman. 

Relative improvement

Despite the problems, both Hillman and Bowman say the new system is an improvement over the way British higher education used to be funded. Tony Blair’s government only introduced tuition in 2004. “Before loans and fees came in, British taxpayers paid 100 percent of the cost of going to university. Now they don’t. But they still fund part of the loan cost,” says Hillman.

Bowman says it is important to remember the overall British context. “The alternative is not a kind of free market where you have everybody paying their own way and banks privately making loans to people. The alternative is going back to a situation where the government pays for everything, and that’s a disaster,” he says. “The political climate in the UK is very hostile to any kind of marketization of anything. That’s not going to change for a couple of years, at least until we’re growing rapidly, and we all feel rich and safe again.” 

Potential Solution

One interesting idea put forward by David Willetts, a Member of Parliament and former Minister of State for Universities, is to sell government student loans to universities, making them responsible for collecting repayment. This approach would address a problem that afflicts both American and British higher education: Universities collect tuition upfront and then have little incentive to ensure loans are repaid. 

Bowman supports the proposal. “Making universities responsible for whether people repay might make them more willing to turn people away if they’re not a great bet in terms of their future earning, and that might counteract some of the qualification inflation. Right now, you need a university degree for any job that isn’t blue collar manual labor.”

He believes Willetts’ idea is politically viable. “Britain has lots of middle-class people who think of themselves as being working-class. They feel like they’re fighting against the man when in reality they are the man. You could say to them that we don’t want people who haven’t gone to university picking up the bill in any way for people who have gone to university.” 

The only question is whether universities would go along with it. Right now, they have a very beneficial arrangement. 

Much will depend on how loan repayment rates develop in the next few years. Graduates will probably soon grasp that they have the best debt in the world. Maybe taxpayers will start to realize this debt isn’t such a good deal for them. 

ABOUT EMMA ELLIOTT FREIRE

Emma Elliott Freire is a freelance writer living in England. She has previously worked at the Mercatus Center, a multinational bank, and the European Parliament.

RELATED ARTICLE: Can You Pay Student Loans With a Credit Card?

EDITORS NOTE: This column with images is republished with permission. The featured image is courtesy of FEE and Shutterstock.

New York Federal Reserve: Higher Health Costs, More Part-Time Workers from Obamacare

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Obamacare puts employers in a bind, two New York Federal Reserve surveys show. Employers’ health care costs continue to rise, and the health care law is driving them to hire more part-time labor, CNBC reports:

The median respondent to the N.Y. Fed surveys expects health coverage costs to jump by 10 percent next year, after seeing a similar percentage increase last year.

Not all firms surveyed said the Affordable Care Act (ACA) is to blame for those cost increases to date. But a majority did, and the percentage of businesses that predicted the ACA will hike such costs next year is even higher than those that said it did this year.

Obamacare’s higher costs will cascade down to consumers. The surveys found that “36 percent of manufacturers and 25 percent of service firms said they were hiking prices in response” to Obamacare’s effects.

The Empire State Manufacturing Survey polls New York State manufacturers, and the Business Leaders Survey polls service firms in the New York Federal Reserve District.

A June Gallup poll found that four in ten Americans are spending more on health care in 2014 than in 2013.

Let’s dig into the numbers.

When asked, “How would you say the ACA has affected the amount your firm is paying in health benefit costs per worker this year?” More than 73% of manufacturers and 58% of service firms said the health care law has increased costs this year.

Companies are also more pessimistic about Obamacare next year. Over 80% of manufacturers and 74% of service firms expect health plan costs to increase in 2015.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

Employers were also asked what effects Obamacare is having on their labor forces. Over 21% of manufacturers and nearly 17% of service firms say they reduced the number of employees because of the law, while only about 2% of each have hired more workers. What’s more, nearly 20% of both manufacturers and service firms say that Obamacare has pushed them to increase their proportion of part-time workers, but just under 5% of each type of firm said they have lowered them. Presumably this is due to the perverse incentives from Obamacare’s employer mandate.

This data fits with research from the Atlanta Federal Reserve that found that since the recession, 25% of firms have a greater share of part-time workers, while only 8% have a lower share. This data also fits with anecdotes from around the country of employers saying that they’re hiring more part-time workers because of Obamacare.

New York Federal Reserve Empire State Manufacturing and Business Leaders Surveys

Source: New York Federal Reserve. For a larger view click on the image.

The sad truth is the health care law is pushing higher health costs onto employers and incentivizing them to hire more part-time workers. Despite passing a law in 2010 loaded with rules, regulations, mandates, and taxes, health care reform is needed more than ever. For solutions that that will control health care costs, improve quality, and expand access, check out the U.S. Chamber’s Health Care Solutions Council report.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

Deputizing America: Sooner or later, we’ll all work for the State—unless we do something about it by Iain Murray

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It’s an old Western movie trope. The harassed sheriff needs help against Desperado D. Blackhat and his gang of gunslingers. He goes into the saloon, finds the gambler who was once the most feared crack shot this side of the Pecos, and makes him his deputy. Together, they run Blackhat and his gang out of town. If you thought that type of quick-and-dirty deputizing died with the Wild West, think again. Government is deputizing people all over the country to do its law-enforcement work. But unlike that gambler, they don’t get the chance to say no.

Take, for instance, FedEx. The delivery company has been indicted by federal prosecutors for not doing the Drug Enforcement Agency’s (DEA) job for it. The DEA alleges that FedEx knowingly shipped pharmaceuticals for online pharmacies that were based on invalid prescriptions, because it should have known “the principals, company names, shipping addresses and billing addresses that were initially connected to” a network of pharmacies closed down by the DEA in 2003. As a recent Wall Street Journal editorial summarized:

Translation: FedEx employees should have connected the dots. But if it’s so easy, why didn’t the DEA do it? The truth is that unmasking the bad guys would have required an extensive metadata analysis of customer data that is not FedEx’s job.

The DEA also alleges that FedEx should have known its orders were based on fraudulent prescriptions from visiting the pharmacies’ facilities for inspection. That’s not something a shipping company is set up to do. It is something a law enforcement agency is set up to do, but the DEA didn’t do it. So by its indictment of FedEx, the feds are telling all other delivery firms that they are now forcibly deputized to do the DEA’s job in the War on Drugs. If they don’t play along, they need to show up in court.

Banking regulators have been playing a similar game. Under a campaign known as Operation Choke Point, they have been telling banks that if they don’t investigate their customers for “high-risk” activity, they will be subject to subpoenas and everything that implies. As a result, banks have simply been cutting off links to potentially risky customers on the simple basis of what business they are in. As Department of Justice documents show (which I document extensively in my recent report on the operation), the motivation for Choke Point was the feds’ lack of manpower to investigate the risky businesses themselves. So they deputized the banks to do their job for them.

If New York’s Department of Financial Services (NYDFS) has its way, bitcoin businesses operating in the state will be deputized, too. The NYDFS, supposedly concerned about fraud risk, is demanding that businesses that use bitcoin keep a public record of every transaction. This would destroy the currency’s appeal by undermining one of its most potent selling points: users’ expectations of privacy. As Jim Harper, global policy counsel for the Bitcoin Foundation, told Coinbase,

Surveillance of transactions is at odds with both bitcoin users’ and consumers’ privacy demands, and the level of privacy they could expect is similar to that dictated by deals between corporations and governments in the fiat currency realm.

There are many more examples, from gambling regulators forcing credit processing companies to stopping unlawful online gambling transactions—without a clear definition of “unlawful” in this context—to immigration authorities deputizing employers to confirm potential employees’ immigration status.

In each of these cases, the executive is essentially requiring businesses to deploy employees to work for the government, rather than the company. The justification, supposedly to protect consumers from fraud or other abuse by a third party, traditionally has been reserved to the government as part of its law enforcement powers. That’s why the term “deputizing” is so appropriate—the government is making businesses into its policemen. The only difference is it will charge them with a crime if they don’t agree. No wonder the easy way out is just to stop doing business with the third party at all.

This is a disturbing and unprecedented tendency. It’s time that we put a stop to it, before we all end up working for the government whether we like it or not. Next time, it won’t just be dodgy online pharmacies or payday lenders that are in the crosshairs, but anyone or anything the government of the day doesn’t like or understand. In a world where you can’t do business because the government has its nose in everything, innovation will grind to a halt much like the Western movie genre.

ABOUT IAIN MURRAY

Iain Murray is vice president at the Competitive Enterprise Institute.

CLICHES OF PROGRESSIVISM #18 – “Humanity Can Be Best Understood in a Collective Context” by Lawrence W. Reed

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There are two basic prisms through which we can see, study, and prescribe for human society: individualism and collectivism. These worldviews are as different as night and day, and they create a great divide in the social sciences. That’s because the perspective from which you see the world will set your thinking down one intellectual path or another.

Advocates of personal and economic freedom are usually in the individualism camp, whereas those who think of themselves these days as “progressives” are firmly in the camp of collectivism.

I think of it as the difference between snowstorms and snowflakes. A collectivist sees humanity as a snowstorm, and that’s as up-close as he gets if he’s consistent. An individualist sees the storm, too, but is immediately drawn to the uniqueness of each snowflake that composes it. The distinction is fraught with profound implications.

No two snowstorms are alike, but a far more amazing fact is that no two snowflakes are identical either—at least as far as painstaking research has indicated. Wilson Alwyn Bentley of Jericho, Vermont, one of the first known snowflake photographers, developed a process in 1885 for capturing them on black velvet before they melted. He snapped pictures of about 5,000 of them and never found two that were the same—nor has anyone else ever since. Scientists believe that changes in humidity, temperature, and other conditions prevalent as flakes form and fall make it highly unlikely that any one flake has ever been precisely duplicated. (Ironically, Bentley died of pneumonia in 1931 after walking six miles in a blizzard. Lesson: One flake may be harmless, but a lot of them can be deadly).

Contemplate this long enough and you may never see a snowstorm (or humanity) the same way again.

Anne Bradley is vice president of economic initiatives at the Institute for Faith, Work and Economics. At a recent FEE seminar in Naples, Florida, she explained matters this way:

When we look at a snowstorm from a distance, it looks like indistinguishable white dots peppering the sky, one blending into the next. When we get an up-close glimpse, we see how intricate, beautiful, and dissimilar each and every snowflake is. This is helpful when thinking about humans. From a distance, a large crowd of people might look the same, and it’s true that we possess many similar characteristics. But we know that a more focused inspection brings us nearer to the true nature of what we’re looking at. It reveals that each of us bears a unique set of skills, talents, ambitions, traits, and propensities unmatched anywhere on the planet.

This uniqueness is critical when we make policy decisions and offer prescriptions for society as a whole; for even though we each look the same in certain respects, we are actually so different, one to the next, that our sameness can only be a secondary consideration.

The late Roger J. Williams, author of You Are Extra-Ordinary and Free and Unequal: The Biological Basis of Individual Liberty (as well as several articles in The Freeman), was a noted biochemistry professor at the University of Texas in Austin. He argued that fingerprints are but one of endless biological characteristics unique to each of us, including the contours and operation of our brains, nerve receptors, and circulatory systems.

These facts offer biological bases for the many other differences between one person and the next. Einstein, he noted, was an extremely precocious student of mathematics, but he learned language so slowly that his parents were concerned about his learning to talk. Williams summed it well more than 40 years ago when he observed, “Our individuality is as inescapable as our humanity. If we are to plan for people, we must plan for individuals, because that’s the only kind of people there are.”

Proceeding one step further, we must recognize that only individuals plan. When collectives are said to “plan” (e.g., “The nation plans to go to war”), it always reduces to certain, specific, identifiable individuals making plans for other individuals. The only good answer to the collectivist question, “What does America eat for breakfast?” is this: “Nothing. However, about 315 million individual Americans often eat breakfast. Many of them sometimes skip it, and on any given day, there are 315 million distinct answers to this question.”

Collectivist thinking is simply not very deep or thorough. Collectivists see the world the way Mr. Magoo did—as one big blur. But unlike Mr. Magoo, they’re not funny. They homogenize people in a communal blender, sacrificing the discrete features that make us who we are. The collectivist “it takes a village” mentality assigns thoughts and opinions to amorphous groups, when, in fact, only particular people hold thoughts and opinions.

Collectivists devise one-size-fits-all schemes and care little for how those schemes may affect the varied plans of real people. Any one flake means little or nothing to the collectivist because he rarely looks at them; and in any event, he implicitly dismisses the flakes because there are so many to play with. Collectivists are usually reluctant to celebrate the achievements of individuals per se because they really believe that, to quote President Obama, “you didn’t build that.”

Take individuals out of the equation and you take the humanity out of whatever you’re promoting. What you’d never personally inflict on your neighbor, one on one, you might happily sanction if you think it’ll be carried out by some faceless, collective entity to some amorphous blob on behalf of some nebulous “common good.” The inescapable fact is that we are not interchangeable. Cogs in a machine are, but people most emphatically are not.

If this point is lost on you, then watch the 1998 DreamWorks animated film Antz. The setting is an ant colony in which all ants are expected to behave as an obedient blob. This is very convenient for the tyrant ants in charge, each of which possesses a very unique personality indeed. The debilitating collectivist mindset is shaken by a single ant who marches to a different drummer—namely, his own self—and ultimately saves the colony through his individual initiative.

Karl Marx was a collectivist. Mother Theresa was an individualist. One dealt with people in lumps. The other one treated them as individuals. The lessons in that clear-cut dichotomy are legion. They are ignored only at great peril.

So what does humanity look like to you: a snowstorm or snowflakes?

If your answer is the latter, then you understand what the philosopher and historian Isaiah Berlin meant when he wrote in 1958, “But to manipulate men, to propel them toward goals which you—the social reformers—see, but they may not, is to deny their human essence, to treat them as objects without wills of their own, and therefore to degrade them.”

Lawrence W. Reed
President of FEE

Summary

  • If you see the world as a collective lump of humanity, you’ll likely come to very different conclusions about life and economics than if you see it as composed of billions of unique individuals.
  • A snowstorm is only as big as its individual snowflakes are numerous.
  • Abstractions are just that, while individuals are real.
  • Take individuals out of the equation and you remove humans from humanity.

For further information, see:

“Individualism, Collectivism and Other Murky Labels” by Sheldon Richman
“Maverick Mark Twain’s Exhilarating American Individualism” by Jim Powell
“Methodological Individualism” by Warren Gibson
“Hayek on Individualism” by Sheldon Richman

20130918_larryreedauthorLAWRENCE 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. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: The features image is courtesy of FEE and Shutterstock.

Unicorn Governance by MICHAEL MUNGER

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Ever argued public policy with people whose State is in fantasy land?

Our problem is that we have to fight unicorns.

Unicorns, of course, are fabulous horse-like creatures with a large spiraling horn on their forehead. They eat rainbows, but can go without eating for years if necessary. They can carry enormous amounts of cargo without tiring. And their flatulence smells like pure, fresh strawberries, which makes riding behind them in a wagon a pleasure.

For all these reasons, unicorns are essentially the ideal pack animal, the key to improving human society and sharing prosperity.

Now, you want to object that there is a flaw in the above argument, because unicorns do not actually exist. This would clearly be a fatal flaw for the claim that unicorns are useful, if it were true. Is it?

Of course not. The existence of unicorns is easily proven. Close your eyes. Now envision a unicorn. The one I see is white, with an orange-colored horn. The unicorn is surrounded by rainbows (perhaps it’s time for lunch). Your vision may look slightly different, but there is no question that when I say “unicorn,” the picture in your mind corresponds fairly closely to the picture in my mind. So, unicorns do exist and we have a shared conception of what they are.

Problem: “the State” is a unicorn

When I am discussing the state with my colleagues at Duke, it’s not long before I realize that, for them, almost without exception, the State is a unicorn. I come from the Public Choice tradition, which tends to emphasize consequentialist arguments more than natural rights, and so the distinction is particularly important for me. My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA.

But their solution is, without exception, to expand the power of “the State.” That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least three hundred years.

Some examples help illustrate the point.

Edmund Burke  highlights the unicorn fallacy neatly. The problem is not bad people, or systems that need reform. Come the next election, we’ll have a Messiah! The next reform will lead to Utopia! No. No, we won’t, and no, it won’t.

In vain you tell me that [government] is good, but that I fall out only with the Abuse. The Thing! The Thing itself is the abuse! Observe, my Lord, I pray you, that grand Error upon which all artificial legislative Power is founded. It was observed, that Men had ungovernable Passions, which made it necessary to guard against the Violence they might offer to each other. They appointed Governors over them for this Reason; but a worse and more perplexing Difficulty arises, how to be defended against the Governors?

Adam Smith put it this way in The Wealth of Nations:

It is the system of government, the situation in which [people] are placed, that I mean to censure, not the character of those who have acted in it. They acted as their situation naturally directed, and they who have clamoured the loudest against them would probably not have acted better themselves.

Smith was talking about the employees of the East India Company in this passage. But the insight is a general one: the failure of a system of organization often arises from the incentives, the logic of action, or the inconsistencies, inherent in that system. The people who work in that system probably act in much the same way that other people would act if they found themselves in that system. So, while it’s true that one can imagine a State that works differently, there are no actual human beings who can work in that system and deliver what statists can imagine.

More recently, Ludwig von Mises and F. A. Hayek recognized the problem of unicorns rather deftly. In Epistemological Problems of Economics, Mises said:

Scarcely anyone interests himself in social problems without being led to do so by the desire to see reforms enacted. In almost all cases, before anyone begins to study the science, he has already decided on definite reforms that he wants to put through. Only a few have the strength to accept the knowledge that these reforms are impracticable and to draw all the inferences from it. Most men endure the sacrifice of the intellect more easily than the sacrifice of their daydreams. They cannot bear that their utopias should run aground on the unalterable necessities of human existence. What they yearn for is another reality different from the one given in this world … They wish to be free of a universe of whose order they do not approve.

Perhaps the most famous, and devastating, version of “skewer the unicorn” is Hayek’s, when he said in The Fatal Conceit that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The Munger test

In debates, I have found that it is useful to describe this problem as the “unicorn problem,” precisely because it exposes a fatal weakness in the argument for statism. If you want to advocate the use of unicorns as motors for public transit, it is important that unicorns actually exist, rather than only existing in your imagination. People immediately understand why relying on imaginary creatures would be a problem in practical mass transit.
But they may not immediately see why “the State” that they can imagine is a unicorn. So, to help them, I propose what I (immodestly) call “the Munger test.”

  1. Go ahead, make your argument for what you want the State to do, and what you want the State to be in charge of.
  2. Then, go back and look at your statement. Everywhere you said “the State” delete that phrase and replace it with “politicians I actually know, running in electoral systems with voters and interest groups that actually exist.”
  3. If you still believe your statement, then we have something to talk about.

This leads to loads of fun, believe me. When someone says, “The State should be in charge of hundreds of thousands of heavily armed troops, with the authority to use that coercive power,” ask them to take out the unicorn (“The State”) and replace it with George W. Bush. How do you like it now?

If someone says, “The State should be able to choose subsidies and taxes to change the incentives people face in deciding what energy sources to use,” ask them to remove “The State” and replace it with “senators from states that rely on coal, oil, or corn ethanol for income.” Still sound like a good idea?

How about, “The State should make rules for regulating sales of high performance electric cars.” Now, the switch: “Representatives from Michigan and other states that produce parts for internal combustion engines should be in charge of regulating Tesla Motors.”  Gosh, maybe not … In my experience, we spend too much time fighting with our opponents about their unicorns. That is, we claim that the unicorn/State itself is evil, and cannot be tamed in a way that’s consistent with liberty. The very mental existence of the unicorn is the target of our arguments.

The problem, of course, is that the unicorn they imagine is wise, benevolent, and omnipotent. To tell them that their imaginations are wrong is useless. So long as we insist that our opponents are mistaken about the properties of “the State”— which doesn’t exist in the first place, at least not in the way that statists imagine—then we will lose the attention of many sympathetic people who are primarily interested in consequences.

To paraphrase Hayek, then, the curious task of the liberty movement is to persuade citizens that our opponents are the idealistic ones, because they believe in unicorns. They understand very little about the State that they imagine they can design.

ABOUT 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.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

INFOGRAPHIC: How Unions Are Chewing Through Taxpayer Dollars

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Nicole Rusenko and Kelsey Harris write and graphically display on The Daily Signal:

Did you know your tax dollars are financing unions?

Thanks to what the federal government calls “official time,” government workers spent 2.4 million hours on union work in 2010. In fact, the Internal Revenue Service alone has 286 full-time employees who work exclusively for the National Treasury Employees Union.

Check out the infographic below for more details on whose special interests (and pockets) your money is going.

WARNING: This infographic may upset your stomach and shrink your wallet.

OfficialTime_Infographic_Rusenko-011

COMMENTARY BY

Portrait of Nicole Rusenko Nicole Rusenko@ncrusen20

Nicole Rusenko is a senior designer at The Heritage Foundation.

 

Portrait of Kelsey Harris

Kelsey Harris
Kelsey Harris is the visual editor at The Daily Signal and digital media associate at The Heritage Foundation.

Why You Should Brush Off That New Keystone XL Study

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A new study claims that the State Department underestimated the amount of greenhouse emissions from the Keystone XL pipeline. The Los Angeles Times reports:

Building the Keystone XL pipeline could lead to as much as four times more greenhouse gas emissions than the State Department has estimated for the controversial project, according to a new study published in Nature Climate Change that relies on different calculations about oil consumption.

…

The study’s authors based their calculation on the premise that increased supplies of petroleum through the pipeline would push down global oil prices marginally, and that would lead to an increase in consumption and thus pollution.

But wait, the State Department concluded in its final environmental impact statement that Canada’s oil sands crude will be developed and affect global consumption no matter how it’s transported:

[A]pproval or denial of any one crude oil transport project, including the proposed Project, is unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the United States.

Based upon that analysis, the State Department determined that the pipeline would have minimal impact on the environment.

The oil is already coming to market by rail, and more pipelines are either in the planning stages or are working their way through the approval process. It will get to market, one way or another.

What’s more, the AP reports that some economists are skeptical of the study’s findings:

An increase of 121 million tons of carbon dioxide is dwarfed by the 36 billion tons of carbon dioxide the world pumped into the air in 2013. That’s why University of Sussex economist Richard Tol dismissed the calculated Keystone effect as merely a drop in the bucket. If somebody is concerned about climate change, he wrote in an email, the pipeline “should be the furthest from your mind.”

…

Independent energy economist Judith Dwarkin in Calgary, Alberta, Canada, dismissed the study, faulting the idea that added oil production will lower the price and boost demand. Usually, she said, it’s consumption that spurs price and then oil production.

Since we know this oil will be developed, the Keystone XL pipeline should be a part of the transport mix. It will create jobs, boost local economies, improve America’s energy security, and do it with minimal impact on the environment.

This study didn’t offer any reason to not approve it.

UPDATE: Oil Sands Fact Check points out that State Department considered and cited a draft of this study in its final environmental impact statement.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

EDITORS NOTE: In its August 18, 2014 edition Forbes reports, “Warren Buffett and Carl Ican, two of the nation’s richest investors have benefited from insufficient pipeline capacity. Millions of barrels of oil are being moved around America by train, and and Buffett’s Berkshire Hathaway owned railroad company Burlington/Northern and railcarmaker Union Tank Car. Ican owns railcar producers American Railcar Industries and ACF Industries, together with a huge fleet of oil-carrying railcars.

The featured image is a mining truck carrying oil sands in Fort McMurray, Alberta, Canada. Photographer: Jimmy Jeong/Bloomberg.

Crony Phony Drug War by Wendy McElroy

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The Feds attack FedEx on behalf of Big Pharma and expand the police state.

The Wall Street Journal recently reported that the FedEx Corp. pleaded not guilty in a San Francisco federal court “on 15 charges related to transporting painkillers and other prescription drugs that had been sold illegally.”

The “illegal drugs” do not refer to cocaine or meth but to generic medications people can buy from online pharmacies for far less than brand name ones produced by pharmaceutical corporations (Big Pharma). As part of a crackdown on prescription drug abuse, a number of companies—including competitor UPS—agreed to pay civil fines over claims that they sold or delivered medications they knew were not for legitimate medical use. FedEx refused and the Department of Justice (DOJ) is seeking a massive punitive settlement. Prosecutors claim FedEx earned “at least $820 million, and if the company is found guilty, it faces a potential maximum fine of twice that, or about $1.6 billion.”

People arguably have the right to determine their own medical treatments, including what drugs they use. And one can argue about whether a parcel delivery company should be responsible for what gets delivered. But the criminal case against FedEx raises a separate issue: crony capitalism.

Beyond the legality of drugs

Crony capitalism refers to the political dynamic in which commercial success depends upon the relationship a business has with government. Businesses that support a political faction, perhaps through campaign donations, receive favors such as tax exemptions or laws restricting their competitors.

Pharma contributed nearly $10 million to various political campaigns during the 2011–2012 presidential elections. Hedging their bets, the major manufacturers funded both Democrat incumbent Barack Obama (just over $1 million) and Republican challenger Mitt Romney (approx. $699,000). So far, in 2014, the top two contributors in Big Pharma have made political donations of $1,242,991 and $1,031,695, respectively; there are at least 18 other contributors from the industry. The total expended in lobbying during 2014 is $8,870,000.

Politically speaking, the money is a good investment. On May 5, 2013, a Forbes headline announced, “Obamacare Will Bring Drug Industry $35 Billion In Profits.” The article explained that “the U.S. pharmaceutical industry’s market value will mushroom by 33 percent to $476 billion in 2020 from $359 billion last year.” The increase comes despite “expiring patents on blockbuster drugs” such as Lipitor.

Profits-on-paper (rents) can be secured and increased if Big Pharma drives its competitors out of business. This is particularly important as online and foreign competitors offer dramatically lower prices and the convenience of home delivery.

Crony capitalism on the sly

The federal government began pressuring FedEx in 2012. At about the same time, Big Pharma’s price inflation became public, causing a scandal. ABC News reported on an Arizona woman who received an anti-venom drug for a scorpion sting. “The bill that arrived … came out to $83,046, or $39,652” per vial, or “about 10 times what the hospital paid for each vial.” Even the $4,000 per vial charged to the hospital is outrageous. The article went on to note that the drug “costs about $100 per dose” in Mexico and the woman would have saved “$39,552 a dose if she had ordered the drug from a licensed Mexican pharmacy.” No wonder the federal government moved quickly to protect Big Pharma. Every time someone buys from an online source, they lose their monopoly rents.

The Obama administration excels at imposing agendas on the sly. For example, the DOJ initiative called Operation Choke Point pressures banks to refuse financial transactions from businesses that are allegedly a “high risk” for fraud. They are actually businesses of which the government disapproves. The list includes ammunition and firearms companies as well as online pharmaceutical retailers. Rather than take the controversial step of banning these legal businesses, the federal government makes it ever more difficult for them to function. The lawsuit against FedEx continues this federal strategy, as a bit of background illustrates.

A 2012 article in the Wall Street Journal reported, “The Drug Enforcement Administration has been probing whether the companies [FedEx and UPS] aided and abetted illegal drug sales from online pharmacies for several years, according to company filings, although the investigation has gone largely unnoticed. Both companies were served with subpoenas starting more than four years ago.”

The aiding and abetting consisted of delivering orders to customers; without access to the two giant shipping companies, it is not clear how many online pharmacies could remain in business.

UPS quickly entered into discussions with the DOJ about paying fines and cooperating. Ultimately, in March 2013, UPS paid a $40 million fine for the privilege of signing a non-prosecution agreement with the DOJ. FedEx balked. There were several points of contention:

1. FedEx repeatedly requested a list of online pharmacies that the Drug Enforcement Administration considered illegal. In a written statement, Patrick Fitzgerald, senior vice president for marketing and communications, explained, “Whenever DEA provides us a list … we will turn off shipping for those companies immediately. So far the government has declined to provide such a list.”

2. The DOJ wanted all packages from online pharmacies to be opened and the contents noted, whether or not there was reason to suspect a package contained illegal goods. Fitzgerald countered, “sealed packages … are being sent by, as far as we can tell, licensed pharmacies. These are medicines with legal prescriptions written by licensed physicians.” Moreover, FedEx is “a transportation company that picks up and delivers close to 10 million packages every day. They are sealed packages, so we have no way of knowing specifically what’s inside and we have no interest in violating the privacy rights of our customers.”

3. FedEx refused to be “deputized” as a law enforcement agency and preferred to remain a private business.

Further implications

Big Pharma obviously benefits if online competitors are choked out, but turning FedEx into an arm of law enforcement has advantages for the federal government as well. If federal agents searched private mail without warrants or probable cause, people would cry “Fourth Amendment!” This is the constitutional guarantee that people will be “secure in their persons, houses, papers, and effects, against unreasonable searches and seizures” by the federal government.

But private shippers are not bound by constitutional restraints. The “right” to check packages can be written into the business agreement that customers sign. If a customer objects, then he is free to go elsewhere. By controlling FedEx policy, the DOJ would be able to search packages in absentia and make targeted arrests if illegal contents are found.

FedEx is determined to fight the lawsuit. The criminal trial will test how much secondary responsibility shippers must legally assume for the contents of shipments. (You can read the full indictment here.)

In a recent interview with Bloomberg, Larry Cote, a former chief counsel at the DEA, referred to the trial as an “unprecedented escalation of a federal crackdown on organizations and individuals” in order “to combat prescription drug abuse.” Making messengers liable for the messages transmitted has dangerous implications for all communications, including personal ones. As TechDirt observed, “We often talk about secondary liability on the internet, but it’s the same basic principal [sic] here. The company that’s merely acting as the conduit shouldn’t be liable for what’s traversing over its system. The implications of changing that, and holding a company liable are very serious. It’s going to create massive incentives for shipping companies to not just open up and look at what’s in our packages, but to also make on-the-fly determinations of whether or not they think it’s legal.”

If the federal government can order private shippers to open all packages in order to fight “illegal drugs,” how long will it be before all financial mailings are opened in order to fight tax evasion or money laundering? Privacy of email and telephone calls is already nonexistent in America. The criminal case against FedEx is an important step toward destroying what remains of mail privacy and expanding the police powers of the State.

ABOUT WENDY MCELROY

Contributing editor Wendy McElroy is an author and the editor of ifeminists.com.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

Blacks Missing from U.S.-Africa Business Forum

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President Obama hosted the first ever U.S.-Africa Business forum last week here in Washington, DC. Leading up to the conference, the U.S. Commerce Department announced:

“On August 5, 2014, Bloomberg Philanthropies and the U.S. Department of Commerce will co-host the first-ever U.S.-Africa Business Forum, a day focused on trade and investment opportunities on the continent. The U.S.-Africa Business Forum will be part of President Obama’s U.S.-Africa Leaders Summit, the first summit of its kind, and the largest event that any U.S. president has ever convened with African heads of state or government.”

I must admit that the various panels consisted of executives who all had a track record of great achievement. Panelists included Americans, Indians, Africans, and women. But, I couldn’t help but notice that there was not one Black American on any of the panels.

Not only has the first Black president continued to ignore his most loyal voting block, the Black community, but by his actions he has made it perfectly clear to African leaders that Black business leaders are totally irrelevant within the U.S.

There was not shortage of Blacks who could have fit the bill: Ken Chenault, CEO of American Express; Dick Parson, former CEO of Time Warner; Dave Steward, CEO of World Wide Technology ($ 6 billion in annual revenue); Junior Bridgeman, owner of 195 Wendys (doing more than $ 500 million in annual revenue); Bob Johnson, CEO of RLJ Holdings, who has already invested money in hotels in Liberia.

There was one panel that had five African presidents: Macky Sall (Senegal), Paul Kagame (Rwanda), Jacob Zuma (South Africa), Jakaya Kikwete ( Tanzania), and Moncef Marzouki (Tunisia). The panel was moderated by Charlie Rose. I guess the White House has never heard of Black interviewers such as Charlayne Hunter-Gault, Michelle Norris, or Gwen Ifill.

The first question Rose asked was about the ebola virus. The presidents seemed to have been quite offended by the question and pushed back that America only views Africa in terms of the negative.

The blame is totally Africa’s fault for the negative portrayal they receive in U.S. media. African presidents come to the U.S. and rarely, if ever, engage with the American media and definitely not with the Black media.

Kagame admitted as much when he told Rose, “We [must be] able to own up to our weaknesses, our mistakes and own up to our solutions and contribute to our solutions. We can’t even tell our story. We even depend on others to tell our stories which leads to distortions.”

When the president of Cameroon landed in the U.S. on his presidential jet at Andrews Air Force Base (where Obama’s presidential jet is stored), there was a huge story written about his arrival in the Washington Post. No, no it was not on the front page. No, not in the business section, But on the gossip page. There was not one mention of the president’s name. The full page story was all about the president’s wife hair. Yes, you heard right, her hair; and the author of the story was a Black female.

This is how irrelevant Africa is viewed by the U.S. media. This is what happens when African presidents and their U.S. based ambassadors have no meaningful engagement with the media.

Africa can’t continue to demand to be a player on the world’s stage in the 21st century and yet govern and lead with a 20th century mentality. In many ways, having a media strategy is just as important as having a military strategy.

Controlling how you are perceived in the global market place has a direct impact on the investment community throughout the world. One needs to look no further than Equatorial Guinea to prove my point. It is one of the most corrupt countries on the planet; and outside of the oil industry, it’s almost impossible for them to get investment in their country.

I didn’t see or hear one media interview with any of the presidents during their stay in the U.S. The daily media coverage was focused on all the traffic problems being created by the street closures because of the various presidential motorcades.

Obama spent more time discussing the unemployment rate in Africa than he has the unemployment rate within the Black community here in the U.S. He talked about targeted incentives for investment and job creation on the continent of Africa; but can’t find the time to create opportunities for Blacks here at home.

Obama even created the Washington Fellowship for Young African Leaders. According to the White House, “through this initiative, young African leaders are gaining the skills and connections they need to accelerate their own career trajectories and contribute more robustly to strengthening democratic institutions, spurring economic growth, and enhancing peace and security in Africa.”

How about a similar program for Blacks in the U.S.?

EDITORS NOTE: The featured photo is courtesy of Yahoo News.

Which Strategy Really Ended the Great Depression? by Burton Folsom

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“World War II got us out of the Great Depression.” Many people said that during the war, and some still do today. The quality of American life, however, was precarious during the war. Food was rationed, luxuries removed, taxes high, and work dangerous. A recovery that does not make—as Robert Higgs points out in Depression, War, and Cold War.

Franklin Roosevelt recognized that the war only provided a short-term fix for the economy—and a very costly one at that. What would happen after the war—when 12 million troops came home and the strong demand for guns, bullets, tanks, and ships ceased?

Roosevelt envisioned a New Deal revival. He had created the National Resources Planning Board (NRPB) in 1939 and urged it during the war to plan for peacetime. The NRPB leaders believed that government planning was necessary to promote economic development. They consciously (and sometimes unconsciously) followed ideas popularized in 1936 by John Maynard Keynes in his bestselling book, The General Theory of Employment, Interest and Money.

Capitalism was inherently unstable, Keynes argued, and would rarely provide full employment. Therefore government intervention was needed, especially in recessions, to spend massive amounts of money on public works, which would create new jobs, expand demand, and rebuild consumer confidence. Yes, government would need to run large deficits, but economic stability was society’s reward. If government planners could manage aggregate demand through public works, the boom-bust business cycle could be flattened and economic development could be managed in the national interest. No more Great Depressions. Man could indeed be master of his economic future.

Before and during the war Keynes’s ideas swept through the United States and first transformed the universities, then the political culture of the day. With statistics in hand and a near reverence for government, the Keynesians were the new generation of planners. They wanted to remake society. Not entrepreneurs, but economists were needed to gather data, plan government programs, and regulate economic development. Paul Samuelson, for example, a 21-year-old economics student, was cautious at first, but then euphoric after Keynes’s book was published. “Bliss was it in that dawn to be alive, but to be young was very heaven,” Samuelson wrote. Other economists soon accepted Keynes, and by the 1940s his ideas dominated the economics profession. In 1948, Samuelson would defend Keynes by writing the best-selling economics textbook of all time.

Planning for Peace

Those on the NRPB were among the excited disciples of Keynes and economic planning. The war itself seemed to be evidence that government jobs had pulled the U.S. economy out of the Depression. Now the economists and planners needed to take the nation’s helm to plan for peace.

According to Charles Merriam, vice president of the NRPB, “[I]t should be the declared policy of the United States government, supplementing the work of private agencies as a final guarantor if all else failed, to underwrite full employment for employables. . . .” That idea launched what Merriam and the NRPB dubbed “A New Bill of Rights.” FDR would call it his Economic Bill of Rights. Included was a right to a job “with fair pay and working conditions,” “equal access to education for all, equal access to health and nutrition for all, and wholesome housing conditions for all.”

New Bill of Rights

FDR viewed this Economic Bill of Rights as his tool for guaranteeing employment for veterans (and others) after World War II. But it was more than a mere jobs ploy; it had the potential to transform American society. The first Bill of Rights, which became part of the Constitution, emphasized free speech, freedom of the press, and freedom of religion and assembly. They were freedoms from government interference. The right to speak freely imposes no obligation on anyone else to provide the means of communication. Moreover, others can listen or leave as they see fit.

But a right to a job, a house, or medical care imposes an obligation on others to pay for those things. The NRPB implied that the taxpayers as a group had a duty to provide the revenue to pay for the medical care, the houses, the education, and the jobs that millions of Americans would be demanding if the new bill of rights became law. In practical terms this meant that, say, a polio victim’s right to a wheelchair properly diminished all taxpayers’ rights to keep the income they had earned. In other words, the rights announced in the Economic Bill of Rights contradicted the property rights promised to Americans in their Declaration of Independence and in the Constitution.

FDR promoted his Economic Bill of Rights in his State of the Union message in 1944, but he died before the war ended. Shortly before his death, Senator James Murray (D-Mont.) introduced a full-employment bill into the Senate for discussion. The bill committed the government in a general way to provide jobs if unemployment became too high. Many leading Democrats and economists supported Murray’s bill. “In this session of Congress,” The New Republic reported, “one of the first bills to be introduced will no doubt be the full employment bill of 1945, designed to carry out item number one in the Economic Bill of Rights.” The Nation joined The New Republic in endorsing the full-employment bill. “Mr. Roosevelt’s program,” it concluded, “is squarely based on the best economic authority available. It is entirely consistent with the economic doctrines of the distinguished British economist Lord Keynes.”

On September 6, 1945, President Harry Truman gave a major speech in which he supported the Economic Bill of Rights, especially a full-employment bill. Most congressmen, however, rejected both. Rep. Harold Knutson (R-Minn.) said, “Nobody knows what the President’s full employment bill will cost American taxpayers, but the aggregate will be enormous.”

Instead, Knutson and many other congressmen favored cutting tax rates and slashing the size of government as the best measure to restore economic growth. Senator Albert Hawkes (R-N.J.) even argued that “the repeal of the excess-profits tax, in my opinion, may raise more revenue for the United States than would be raised if it were retained.” Hawkes proved to be prophetic. After vigorous debate Congress scrapped the Economic Bill of Rights and cut tax rates instead. American business then expanded, revenues to the Treasury increased to balance the federal budget, and unemployment was only 3.9 percent in 1946 and 1947. The Great Depression was over.

20121124_Folsom20121ABOUT BURTON FOLSOM

Burton Folsom, Jr. is a professor of history at Hillsdale College and author (with his wife, Anita) of FDR Goes to War.

The Art of Economics by Schuyler Dugle

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Life Is Improv: How Art, Culture, and the Free Market Make the World Beautiful, held at Agnes Scott College in Decatur, Georgia, focused on the intersection of art and economics. Forty-five participants came together for three days of camaraderie, networking, and learning.

Loyola professor of economics Dan D’Amico began the seminar by showing that economics is everywhere, and the laws of human behavior can be found throughout popular culture, including in the television shows Jersey Shore and The Walking Dead. In the same way that economics provides a framework for understanding culture, it governs politics as well, and politicians are constrained by the system in which they work. D’Amico cited Nobel laureate James Buchanan’s sage advice to not hire foxes to protect a chicken coop since foxes eat chickens. In the same way, human nature does not change for politicians upon election.

D’Amico also debated Rachel Ciprotti, a board member of the Georgia Arts Network, on Who Should Pay for the Arts? Ciprotti held that people should be forced to pay for art they do not consume (public funding) while D’Amico argued for private funding of the arts.

Robert Anthony Peters, an actor and producer, spoke on the incentives of both artists and characters. He quoted actor Charlie Chaplin saying, “I went into the business for money, and the art grew out of it. If people are disillusioned by that remark, I can’t help it. It’s the truth.” While many people actively do things for money, it’s important to remember the products, paintings, and films that artists create bring joy and fulfillment to thousands of customers.

Peters further explained how the institutions surrounding art create incentives and rules that artists must follow. Grants comprise over half of a performing arts theater’s operating revenue, while tickets purchased by individuals cover less than half. A theater, like any other business, must always satisfy its customers, be they large donors or individual ticket holders.

James Padilioni, a PhD student at the College of William and Mary, spoke on spontaneous order, jazz, and regulation. He explored the African diaspora and whether the traditions coming from those communities were imported from Africa or created in North America.

Padilioni also noted how Harlem regulators attempted to shut down jazz clubs that catered to all jazz, swing, and hep lovers, regardless of their skin color. Other regulations required employees to possess their own liquor licenses just to work at an establishment that sold alcohol, meaning that some jazz singers like Billie Holiday could not play at local piano bars or gin joints.

Continuing the theme of regulation, Amy Sturgis, who teaches at Lenoir-Rhyne University and the Mythgard Institute, spoke on the recent uprising of young adult dystopian novels and culture. Many of these books explore the (not improbable) case of a government deciding that in addition to owning and regulating your property, it also owns you. Sturgis noted the use of architecture in The Hunger Games to enhance the importance of the state over the individual and concluded that these dystopian novels and films are an accessible method to communicate the ideas of freedom to people.

Students at Life Is Improv learned there is a great deal of overlap between art and economics and left understanding that economics is a loupe by which we may examine and understand art as well as that art can and should be an expression of freedom.

ABOUT SCHUYLER DUGLE

Schuyler Dugle is a member of the Summer Associate Program.

Of Battlefields and Boardrooms by Matthew McCaffrey

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Are the Art of War and the Art of Enterprise two edges of the same sword?

Sun Tzu’s The Art of War is justly known as one of the great works in strategic thinking. But although the text nominally concerns warfare, through the centuries it’s often been used as a business handbook more than as a military manual. Just like good economic writing, it brilliantly expresses complex ideas simply and concisely, and its dramatic prose makes for compelling lessons about conflict.

However, while analogies between the boardroom and the battlefield might seem appealing, they are erroneous. Economists like Mises have emphasized that market competition and military competition could not be less alike; one is productive and increases human welfare, while the other is destructive of human life and economy.

But The Art of War remains popular in business because it isn’t really about armed conflict. It’s about finding ways to advantageously avoid or resolve confrontation of any kind. It’s this sort of idea that opens the door to insights about enterprise.

One of Sun Tzu’s major attractions for the business world is his emphasis on entrepreneurial thinking. For him, strategic excellence is about creating opportunities and taking risks, the same abilities necessary for success in the market, where uncertainty constantly challenges the good judgment of would-be entrepreneurs.

Good decision-making also means one must be “formless,” so as to instantly take advantage of fleeting opportunities and adapt seamlessly to changing (market) conditions. The classical strategists realized that competitive success depends on one’s ability to control and manipulate the internal and external conditions of conflict. This means knowing one’s own abilities and weaknesses as well as those of the competition, as summed up in The Art of War’s most famous aphorism: “One who knows the enemy and knows himself will not be endangered in a hundred engagements.”

The qualities that these classical strategists recommend in great generals are actually the traits of successful market entrepreneurs. For example, entrepreneurs are decisive and willing to bear the uncertainty of the market—unafraid of committing resources to projects that might fail. And they must be willing to endure hardship on the road to success, while never taking it for granted by becoming complacent or arrogant—traits that consumers often punish severely.

Comparing strategic and economic ideas raises an important question, though: If the analogies to the business world are so obvious, and the ancient texts really do have something in common with economic thinking, why didn’t the classical strategists realize their ideas were applicable to peaceful exchange? A simple response is that the market economy as we know it didn’t exist in ancient China (specifically, during the Spring and Autumn and Warring States periods). A more complete answer is that it couldn’t have existed. That is, ancient China lacked much of the institutional framework necessary for entrepreneurship and commerce to flourish—strong property rights, individualism, and the social acknowledgment of the importance of profit.

As William Baumol argues, a society’s institutions influence the course its entrepreneurial energy takes. Many of the great minds of the Renaissance—for instance, the inventors and innovators perfectly suited to improving welfare through the market—were military entrepreneurs in service to competing city-states. Political institutions offered patronage and the possibility of advancement, while opportunities to commercialize ideas were scarce, if not actively frowned upon. That is to say, the ancient Chinese states, along with countless others throughout history, lacked the “bourgeois virtues” that Deirdre McClosky argues provided the foundation for the industrial revolution.

This then is one explanation for the military turn of The Art of War and the other Chinese strategic classics. Having little explicit acknowledgment of the virtues of commerce, analysis of market competition presumably offered slight appeal. Without the institutional and cultural basis for market entrepreneurship, classical thought turned to analyzing destructive forms of competition that offered better “profit” opportunities—specifically, the chance to wield influence within the State bureaucracy. Spreading ideas usually meant finding a place in court and becoming a trusted advisor to the powerful. This much the classical strategists had in common with Renaissance intellectuals like Machiavelli—who, perhaps not coincidentally, also wrote a book titled The Art of War.

The lesson is that all societies face the problem of developing and keeping the institutions that allow enterprise to thrive—those institutions that direct the best of human creative energy to improving the lives of others, not to the service of the military State. Ideology plays a vital role in this social process and paves the way for peace and commercial prosperity. Instead of a guide to violent competition then, texts like The Art of War can help us develop a strategy for the battle of ideas. Ideas ultimately shape both society and our roles in it, so it falls to us to embrace and spread those that lead us away from the destruction of war making and toward the “creative destruction” of enterprise.

ABOUT MATTHEW MCCAFFREY

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.

EDITORS NOTE: The featured image from FEE and Shutterstock

It’s about the Money, Not the Climate

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Oscar Wilde (1854-1900), the Irish poet and dramatist, wrote “Pray don’t talk to me about the weather. Whenever people talk to me about the weather, I always feel quite certain that they mean something else.”

These days, when some world leader or politician speaks of the climate—the weather is what is happening right now wherever you are—they are not talking about sunshine or rain. They are talking about a devilishly obscene way of raising money by claiming that it is humans that are threatening the climate with everything they do, from turning on the lights to driving anywhere.

That’s why “global warming” was invented in the late 1980s as an immense threat to the Earth and to mankind. Never mind that Earth has routinely passed through warmer and cooler cycles for billions of years; much of which occurred before mankind emerged. And never mind that the Earth has been a distinct cooling cycle for the past seventeen years and likely to stay in it for a while. If the history of ice ages is any guide, we could literally be on the cusp of a new one.

If, however, a government can tax the use of energy, it stands to make a lot of money. That is why carbon taxes have been introduced in some nations and why the nearly useless “clean energy” options of wind and solar have been introduced even though they both require the backup of traditional coal, natural gas and nuclear energy plants because they cannot produce electricity if the wind isn’t blowing and the sun is obscured by clouds.

Taxing energy use means taxing “greenhouse gas” emissions; primarily carbon dioxide (C02) so that every ton of it added to the atmosphere by a power plant and any other commercial activity becomes a source of income for the nation. The Australians went through this and rapidly discovered it drove up their cost of electricity and negatively affected their economy so much that they rid themselves of a prime minister and the tax within the past year.

Fortunately, every effort to introduce a carbon tax has been defeated by the U.S. Congress, but that it has shelled out billions for “climate research” over the years. That doesn’t mean, however, that 41 demented Democrats in the House of Representatives haven’t gotten together in a “Safe Climate Caucus” led by Rep. Henry A. Waxman. The Washington Post reported that when it was launched in February 2013, the members promised to talk every day on the House floor about “the urgent need to address climate change.”

Check out the caucus and, if your Representative is a member, vote to replace him or her with someone less idiotic.

When you hear the President or a member of Congress talk about the climate, they are really talking about the scheme to generate revenue from it through taxation or to raise money from those who will personally benefit from any scheme related to the climate such as “clean energy.”

The need of governments to frighten their citizens about the climate in order to raise money is international in scope. A United States that has a $17 trillion debt is a prime example, much of it due to a government grown so large it wastes taxpayer’s money in the millions with every passing day whether it is sunny or rainy, warm or cold.

In late July, Reuters reported that Christine Lagarde, the chair of the International Monetary Fund (IMF) opined in her new book that “energy taxes in much of the world are far below what they should be to reflect the harmful environmental and health impact of fossil fuels use.”

Please pay no attention to the billions of dollars that coal, oil and natural gas already generate for the nations in which they are found. Nations such as India and China are building coal-fired plants as fast as possible to provide the electricity every modern nation needs to expand its economy, provide more employment, and improve their citizen’s lives in every way imaginable.

IMF logo“For the first time,” Reuters reported, “the IMF laid out exactly what it views as appropriate taxes on coal, natural gas, gasoline, and diesel in 156 countries to factor in the fuel’s overall costs, which include carbon dioxide emissions, air pollution, congestion and traffic accidents.” The problem with this is that the costs cited are bogus.

“Nations,” said Lagarde, “are now working on a United Nations deal for late 2015 to rein in greenhouse gas emissions that have hit repeated highs this century, but progress has been slow as nations fret about the impact any measures may have on economic growth.” As in bad impacts!

Ignore the claims that carbon dioxide affects the climate. Its role is so small it can barely be measured because CO2 represents 380 parts per million. When our primate ancestors began to climb down out of the trees, CO2 levels were about 1,000 parts per million. More CO2 means more crops, healthy growing forests, and all the other benefits that every form of vegetation provides. The breath we humans exhale contains about 4% of CO2.

The fact is that the United States and other nations are being run by politicians who are incapable of reducing spending or borrowing more in order to spend more. Venezuela just defaulted again on the payment of bonds it issued to raise money. They did this in 2001 and one must wonder why any financial institution purchases them.

There are eleven other nations whose credit ratings are flirting with big trouble. They include Greece, Ukraine, Pakistan, Cypress, and in the Americas Argentina, Venezuela, Cuba, Ecuador and Belize. Borrowing by such nations is very expensive. A U.S. Treasury Note pays an annual coupon of just 2.5%, but the yields on 10-year bonds issue by Greece reached 29% in early 2012, just before it defaulted.

Adding to problems in the U.S. is the Obama agenda being acted upon by the Environmental Protection Agency whose “war on coal” has shuttered several hundred plants that produce the electricity needed to maintain the economy. In coal producing states this is playing havoc and it is driving up the cost of electricity in others.

The growth of oil and natural gas production in the U.S. is almost entirely on privately owned land as opposed to that controlled by the government. Supporting the attack on energy are the multi-million dollar environmental organizations like Friends of the Earth and the Sierra Club.

There is no “global warming” and the climate is determined by the Sun, the oceans, clouds, and volcanic activity. Nothing any government does, here and worldwide, has any impact on it, but if nations can demonize the use of energy and tax the CO2 it produces, they can generate more money to spend and waste.

The lies that governments, the United Nations, and the International Monetary Fund tell about the climate are about the money they can extract from citizens who must be kept frightened enough to pay taxes on their use of energy.

© Alan Caruba, 2014

EDITORS NOTE: The featured image is courtesy of Sonari.net.

The Case for Voluntary Private Cooperation by Michael Munger

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We don’t need nations, flags, and armies to make us prosperous!

When I tell Duke freshmen my version of the argument for liberty, they often scoff, “If this is right, how come I’ve never heard it before?” I try to be conciliatory. I offer the kids time to go text their parents. They need to sue those elite private high schools for failing to educate them in even the basics of how societies work, and why so many societies fail to work.

Okay, so that’s not all that conciliatory. And my answer plays to mixed reviews, at best.

But it’s the truth. How can it be that some of the world’s most educated young people have never heard the concise version of the argument for voluntary private cooperation? I want to present here the version I have found most useful. And by “useful” I mean profoundly unsettling to people who hear it for the first time.

“Markets” are not the point

To start with, the argument for liberty is not an argument for “markets.” The market vs. State dichotomy was dreamed up by German sociologists in the nineteenth century. Don’t buy into that dichotomy; it’s a rhetorical straitjacket, and in any case it’s not our best argument.

The question is how best to achieve the myriad benefits of voluntary private cooperation, or VPC. Markets are part of that, a useful way of achieving prosperity, but a variety of other emergent social arrangements—more properly viewed under the rubric “society”—are also crucial for prosperity.

The first argument I usually hear, especially from people hearing about VPC for the first time, is this: “If markets are so great, why is most of the world poor?” The problem is that poverty is not what needs to be explained. Poverty is what happens when groups of people fail to cooperate, or are prevented from finding ways to cooperate. Cooperation is in our genes; the ability to be social is a big part of what makes us human. It takes actions by powerful actors such as states, or cruel accidents such as deep historical or ethnic animosities, to prevent people from cooperating. Everywhere you look, if people are prosperous it’s because they are cooperating, working together. If people are desperately poor, it’s because they are denied some of the means of cooperating, the institutions for reducing the transaction costs of decentralized VPC.

So forget about explaining poverty. We need to work on understanding prosperity.

There are two reason that VPC is the core of human prosperity and flourishing.

1. Exchange and cooperation: If each of us has an apple and a banana, and I like apple pie and you like banana crème pie, each of us can improve our lot by cooperating. I give you a banana, you give me an apple, and the world is a better place. And the world is better even if there is no change in the total size of our pies. The total amount of apples and bananas is the same, but each of us is happier.

But there is no reason to fetishize exchange. (That’s the “markets vs. social/state” dichotomy; don’t give away the farm here.) Nobel Prize-winner James Buchanan’s central insight was that cooperative arrangements among groups of people are just “politics as exchange.” Nonmarket forms of exchange, in which we cooperate to achieve ends that we all agree are mutually beneficial, may be even more important than market exchanges. Banding together for collective protection and taking full advantage of emergent institutions such as a language, property rights, and a currency are all powerful tools of VPC.

If we cooperate, we can use existing resources much better by redirecting those resources toward uses people value more. So even if we are only thinking of cooperation in a static sense, with a fixed pie, we are all better off if we cooperate. Cooperation is just a kind of sharing, so long as every cooperative arrangement is voluntary. The only way you and I agree with a new arrangement is if each of us is better off.

2. Comparative advantage/division of labor: Still, we don’t need to be satisfied with making better use of a static pie. Working together and becoming more dependent on each other, we can also make the pie bigger. There is no reason to expect that each of us is well-suited to produce the things we happen to like. And even if we are, we can produce more of it by working together.

Remember, I like apples and you like bananas. But I live on tropical land in a warm climate that makes producing apples difficult. You live in a much cooler place, where growing your favored bananas would be prohibitively expensive. We can specialize in whatever we are relatively best at. I grow bananas, you grow apples, and we trade. Specialization allows us to increase the variety and complexity of mutually beneficial outcomes.

Interestingly, this would be true even one of the parties is actually better at producing both apples and bananas; David Ricardo’s “comparative advantage” concept shows that both parties are better off if they specialize, even if it appears that the less productive person can’t possibly compete. The reason is that the opportunity costs of action are different; that’s all that is necessary for there to be potential benefits from cooperation.

But there is no reason to fetishize comparative advantage. In fact, true instances of deterministic comparative advantage are rare. The real power from specialization comes from division of labor, or the enormous economies of scale that come from synergy. Synergy can result from improvements in dexterity, tool design, and capital investment in a production process composed of many small steps in a production line, or from innovations, using the entrepreneurial imagination to see around corners. Synergy is not created by the sort of deterministic accidents of weather, soil quality, or physical features of the earth that economists obsess about. Producing wool and port depend on location; human ingenuity can create synergy anywhere that division of labor can be promoted. All the important dynamic gains from exchange are created by human action, by VPC.

The street porter and the philosopher

Entrepreneurs are more likely to be visionaries than geographers or engineers. Argentina has a comparative advantage, probably an absolute advantage, in producing beef, because of its climate, soil conditions, and plentiful land in the pampas. But Argentina is poor. Singapore has next to nothing, and doesn’t produce much. But Singapore built both physical (port facilities, storage, housing) and economic (rule of law, property rights, a sophisticated financial system) institutions to promote cooperation. And Singapore is rich because those institutions help give rise to powerful synergies.

One could argue, of course, that Singapore has a comparative advantage in trade because of its location at the southern tip of the Malay Peninsula, connecting the Strait of Malacca with all of East Asia. But other nations not blessed with such location rents have used the same model. Portugal in the fifteenth century, Spain and Holland in the sixteenth, and England in the eighteenth century all built huge, prosperous societies by channeling the energies of citizens toward cooperation. None of these countries played well with others, perhaps, but internally they built synergies, so that for each their prosperity and importance in the world was multiplied far beyond what you would have expected just by looking at their populations, their climates, or their soil quality.

Humans build synergies by fostering VPC. Adam Smith’s example of the philosopher and the porter is sometimes quoted, but not well understood. The benefits to specialization need not be innate: The street porter might well have been a philosopher if he had had access to the tools that promote VPC. Education and social mobility mean that where one is born has little to do with where one ends up.

The plasticity of human abilities is at least matched by the malleability of social and economic institutions. Human societies need only be limited by what we can think of together. The development of specialization and the consequent increase in productive capacity is a socially constructed process, like Smith’s “philosopher”—the result of thousands of hours of study, practice, and learning. Smith’s porter didn’t fail to become a philosopher because of comparative advantage. The porter just failed (or was denied a chance, by social prejudice) to specialize.

To be useful, cooperation must be destructive

The flaw in division of labor is also its virtue. Division of labor and specialization create a setting where only a few people in society are remotely self-sufficient. Further, the size of the “market”—more accurately, the horizon of organized cooperative production—limits the gains from division of labor and specialization. If I hire dozens of people and automate my production of apple pie filling, I can produce more than you, your family, your village, or perhaps even your entire nation can consume. I have to look for new customers, expanding both the locus of dependency and the extent of improved welfare from increased opportunities to trade.

The same is true for the benefits of specialization. In a village of five people, the medical specialist might know first aid and have a kit composed of Band-Aids and compression bands for sprains. A city of five million will have surgeons who have invented new techniques for performing complex procedures on retinas, the brain, and exotic enhancements in appearance through plastic surgery. A village of 250 people may have a guy who can play the fiddle; a city of 250,000 has an orchestra. Division of labor, and specialization, is limited by the extent of the VPC.

The power of that statement, taken directly from Adam Smith, is the basis of the argument for VPC. People are assets, not liabilities. Larger populations, larger groups available to work together, and more extensive areas of peaceful cooperation allow greater specialization. Four people in a production line can make 10 times as much as two people; 10 people can make a thousand times more. Larger groups and increased cooperation create nearly limitless opportunities for specialization: not just making refrigerators, but making music, art, and other things that may be hard to define or predict.

VPC allows huge numbers of people who don’t know each other to begin to trust each other, to depend on each other. Emile Durkheim, the famed German social theorist, recognized this explicitly, and correctly noted that the market part of division of labor is the least important aspect of why we depend on it. He said, in his masterwork Division of Labour in Society, “the economic services that [division of labor] can render are insignificant compared with the moral effect that it produces, and its true function is to create between two or more people a feeling of solidarity.”

That “feeling of solidarity” is society—voluntary, uncoerced, natural human society. We don’t need nations, and we don’t need flags and armies to make us prosperous. All we need is voluntary private cooperation, and the feeling of solidarity and prosperous interdependence that comes from human creativity unleashed.

Find a Portuguese translation of this article here.

ABOUT 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.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

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