Sneakerheads: Some teens are trading shoes and learning something in the process by Jason Kelly

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When you think about the ways most teenagers spend their free time, you probably think playing video games, going to the mall, and using Facebook. But if you look more closely, you will discover a lot of kids defying those stereotypes.

These kids are innovators. They take risks. And they aren’t just learning economics from a textbook.

The most recent manifestation of this comes from “sneakerheads”: Teenagers who trade basketball shoes. A recent New York Times article profiles the exploits of these hucksters who buy, sell, and trade limited, collectible sneakers at weekend conventions and over social media:

The teenage traders attending these conventions know the market, reciting resale values, the buzz of a hot trade and the debut dates for new pairs as easily as others can spit out baseball stats.

Some commentators disparage these kids’ activity as crass materialism and faddish speculation. And they’re not alone; their criticisms are not even new. Basketball sneakers have even been blamed for crime waves. But all of this critique misses the point of what sneakerheads are up to. Instead of depreciating the value of the shoes they receive by wearing them around or tucking them away in their closet, they’ve discovered an arbitrage opportunity that allows them to turn a profit. While the less observant scoff, these teenagers pick up market signals and act rationally to their own benefit. Smells like entrepreneurial spirit.

Indeed, they’ve created a marketplace independent from meddling adults and bureaucrats. In their own world, they experiment with different forms of trade and learn valuable lessons throughout the process. They hone their negotiating skills and practice bargaining techniques—because if they don’t, they lose profits.

They’re also learning the mutual benefits of trade. For example, if my favorite player is Lebron, but I received a pair of Michael Jordan shoes for Christmas, I’ll trade my pair to someone who prefers Michael Jordan. Because value is subjective, we’re both better off and, therefore, we are wealthier.

Even more fascinating is that in this world, money is not everything. When offered a staggering $98,000 for his autographed Kanye West sneakers, 18-year-old Jonathan Rodriguez turned it down, saying, “I know I could buy a house with this kind of money. But I’m a huge Kanye West fan. I can just work to get the money.”

Foolish? Maybe. But who are we to say? If Rodriguez values his one-of-a-kind sneaker more than the purchasing power of $98,000, more power to him. The choice is his alone. And who knows if that $98,000 represents the top of the market?

With each transaction, these teens are demonstrating that it doesn’t take a Harvard MBA or an insane programming ability to be entrepreneurial. They’re showing us that economics isn’t limited to the classroom or the boardroom. They’re showing us that looking out the window, as Peter Boettke reminds us, and viewing the world in motion are how we really start to understand the economic way of thinking.

ABOUT JASON KELLY

Jason Kelly is a graduate of Hillsdale College and the Web and Social Media Associate at FEE.

Beyond Nationalism and Territorialism (1851) by Pierre-Joseph Proudhon

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Editor’s Note: Pierre-Joseph Proudhon, considered the father of anarchism, might also fairly be considered a founder of the libertarian left. Readers of this publication will find much to disagree with in Proudhon’s work, especially when it comes to his famous line: “Property is theft.”

The institution of private property, far from being a source of subjugation, has undoubtedly been a liberating force for humanity. Indeed, that private property is a precondition of trade also makes it a source of global prosperity. On the whole, private property is indispensable.

But, dear reader, what if we were to read Proudhon’s short piece not with his anti-propertarian lens, but with our own understanding of private property as a force for decentralization and growth? How then might we interpret this work?

By applying the economic way of thinking, we might come to agree with Proudhon that an economic revolution is possible, perhaps even inevitable. Indeed, Proudon seems to forecast globalization. But will globalization—accelerated by more cosmopolitan relationships online—start to erase national boundaries? We’ll have to wait and see. But Proudon’s thesis is provocative, even if it’s over 160 years old.

Nationality, aroused by the state, opposes an invincible resistance to economic unity: this explains why monarchy was never able to become universal. Universal monarchy is, in politics, what squaring the circle or perpetual motion are in mathematics, a contradiction. A nation can put up with a government as long as its economic forces are unorganized, and as long as the government is its own, the nationalism of the power causing an illusion as to the validity of the principle; the government maintains itself through an interminable succession of monarchies, aristocracies and democracies. But if the power is external, the nation feels it as an insult: revolt is in every heart, it cannot last.

What no monarchy, not even that of the Roman emperors has been able to accomplish; what Christianity, that epitome of the ancient faiths has been unable to produce, the universal Republic, the economic Revolution will accomplish, cannot fail to accomplish.

It is indeed with political economy as with other sciences: it is inevitably the same throughout the world: it does not depend upon the fancies of men or nations; it yields to the caprice of none. There is not a Russian, English, Austrian, Tartar, or Hindu political economy, any more than there is a Hungarian, German or American physics or geometry. Truth alone is equal everywhere: science is the unity of mankind.

If then science, and no longer religion or authority, is taken in every land as the rule of society, the sovereign arbiter of interests, government being void, all the legislation of the universe will be in harmony. There will no longer be nationality, no longer fatherland, in the political sense of the words: they will mean only places of birth. Man, of whatever race or colour he may be, is an inhabitant of the universe; citizenship is everywhere an acquired right. As in a limited territory the municipality represents the Republic, and wields the authority, each nation in the globe represents humanity, and acts for it within the boundaries assigned by Nature. Harmony reigns, without diplomacy and without council, among the nations: nothing henceforward can disturb it.

What purpose could there be for entering into diplomatic relations among nations who had adopted the revolutionary programme?

No more governments,

No more conquests,

No more custom houses,

No more international police,

No more commercial privileges,

No more colonial exclusions

No more control of one people by another, one state by another

No more strategic lines,

No more fortresses.

Russia wants to establish herself at Constantinople, as she is established at Warsaw: that is to say, she wants to include the Bosporus and the Caucasus in her sphere. In the first place, the Revolution will not permit it; and to make sure, it will begin by revolutionising Poland, Turkey, and all it can of Russian provinces, until it reaches St. Petersburg. That done, what becomes of the Russian relations at Constantinople and Warsaw? They will be the same as at Berlin and Paris, relations of free and equal exchange. What becomes of Russia itself? It becomes an agglomeration of free and independent nationalities, united only by identity of language, resemblance of occupations, and territorial setting. Under such conditions conquest is meaningless. If Constantinople belonged to Russia, once Russia was revolutionized Constantinople would belong to it neither more nor less than if it had never lost its sovereignty. The Eastern question from the North ceases to exist.

England wants to hold Egypt as she holds Malta, Corfu, Gibraltar, etc. The same answer from the Revolution. It notifies England to refrain from any attempt upon Egypt, to place a limit upon her encroachment and monopoly, and to make sure, it invites her to evacuate the islands and fortresses whence she threatens the liberty of nations and of the seas. It would be truly a strange misconception of the nature and scope of the Revolution to imagine that it would leave Australia and India as the exclusive property of England, as well as bastions with which she hems in the commerce of the continent. The mere presence of the English in Jersey and Guernsey is an insult to France; as their exploitation of Ireland and Portugal is an insult to Europe; as their possession of India and their commerce with China is an outrage upon humanity. Albion, like the rest of the world, must be revolutionized. If necessary to force her, there are people here who would not find it so hard a task. The Revolution completed in London, British privilege extirpated, burnt, thrown to the winds, what would the possession of Egypt mean to England? No more than that of Algiers is to us. All the world could enter, depart, trade at will, arrange for the working of the agricultural, mineral, and industrial resources, the advantages would be the same for all nations. The local power would extend only to the cost of its politics, which the colonists and natives would defray.

There are still among us chauvinists who maintain absolutely that France must recapture her natural frontiers. They ask too much or too little. France is everywhere that her language is spoken, her revolution followed, her manners, her arts, her literature adopted, as well as her measures and her money. Counting thus, almost the whole of Belgium, and the cantons of Neuchâtel, Vaud, Geneva, Savoy, and a part of Piedmont belong to her; but she must lose Alsace, perhaps even a part of Provence, Gascony and Britanny whose inhabitants do not speak French, and some of them have always been of the kings’ and priests’ party against the revolution. But of what are these repetitions? It was the mania for annexation which, under the Convention and the Directory, aroused the distrust of other nations against the Republic, and which, giving us a taste for Bonaparte, brought us to our finish at Waterloo. Revolutionize, I tell you. Your frontiers will always be long enough and French enough if they are revolutionary.

Will Germany be an Empire, a unitary Republic, or a Confederation? This famous problem of Germanic unity which made so much noise some years ago, has no meaning in the face of the Revolution; which proves indeed that there has never been a Revolution. What are the states, in Germany as elsewhere? Tyrannies of different degrees of importance, based on the invariable pretexts, first, of protecting the nobility and upper classes against the lower classes; second, of maintaining the independence of local sovereignty. Against these states the German democracy has always been powerless, and why? Because it moved in the sphere of political rights. Organize the economic forces of Germany, and immediately political circles, electorates, principalities, kingdoms, empires, all are effaces, even the Tariff League: German unity springs out of the abolition of its states. What the ancient Germany needs is not a confederation but a liquidation.

Understand once for all: the most characteristic, the most decisive result of the Revolution is, after having organized labour and property, to do away with political centralization, in a word with the state, and as a consequence to put an end to diplomatic relations among nations, as soon as they subscribe to the revolutionary compact. Any return to the traditions of politics, any anxiety as to the balance of power in Europe, is based on the pretext of nationality and of the independence of states, any proposition to form alliances, to recognize sovereignties, to restore provinces, to change frontiers, would betray, in the organs of the movement, the most complete failure to understand the needs of the age, scorn of social reform, and a predilection for counter-revolution.

The kings may sharpen their swords for their last campaign. The Revolution in the nineteenth century has for its supreme task not so much the overthrow of their dynasties, as the destruction of the last root of their institution. Born as they are to war, educated to war, supported by war, domestic and foreign, of what use can they be in a society of labour and peace? Henceforth there can be no more purpose in war than in refusal to disarm. Universal brotherhood being established upon a sure foundation, there is nothing for the representatives of despotism to do but to take their leave. How is it that they do not see that this always increasing difficulty of existence, which they have experienced since Waterloo, arises, not as they have been made to think, from the Jacobin ideas, which since the fall of Napoleon have again begun to beset the middle classes, but from a subterranean working which has gone on throughout Europe, unknown to statesmen, and which, while developing beyond measure the latent forces of civilization, has made the organization of those forces a social necessity, an inevitable need of revolution?

As for those who, after the departure of kings, still dream of consulates, of presidencies, of dictatorships, of marshalships, of admiralties, and of ambassadorships, they also will do well to retire. The Revolution, having no need for their services, can dispense with their talents. The people no longer want this coin of monarchy: they understand that, whatever phraseology is used, feudal system, governmental system, military system, parliamentary system, system of police, laws and tribunals, and system of exploitation, corruption, lying and poverty, all are synonymous. Finally they know that in doing away with rent and interest, the last remnants of the old slavery, the Revolution, at one blow, does away with the sword of the executioner, the blade of justice, the club of the policeman, the gauge of the custom officer, the erasing knife of the bureaucrat, all those insignia of government which young Liberty grinds beneath her heel.

ABOUT PIERRE-JOSEPH PROUDHON

Voice & Exit 2014: Join us to celebrate “human flourishing”

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Are you done with rubber chickens, cold hotels, and boring panels? FEE is a proud sponsor Voice & Exit 2014.

The event, to be held on June 21, 2014, in Austin, Texas, allows guests to explore ideas of “human flourishing.” Themes include:

  • Radical innovation
  • Opt-out culture
  • Entrepreneurship
  • Disruptive technology
  • Biohacking and personal optimization
  • Communities of the future (seasteading and startup cities)

Get tickets and make plans now to attend Voice & Exit 2014. Join FEE in celebrating ideas that could take us to the next stage of freedom, life meaning, and human well-being.

Use promo code “freedom” for a 10 percent discount. Student tickets are just $50.

Happily Never After by Sarrah Skwire

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Francis Spufford. Red Plenty. Graywolf Press, 2012. 448 pages.

This column was originally part of a paper presented at the recent APEE meeting in Las Vegas.

Francis Spufford’s Red Plenty has been ably reviewed in these pages before. But it’s a book I can’t stop talking about and recommending. And when I do recommend Red Plenty to others, I’m never quite sure what to call it.

The back of the book describes it as “history . . . fiction . . . as different from what you were expecting as a glass of Soviet champagne.” The author, though, wants us to think of it as a fairy tale.

Best to call this a fairy-tale then—though it really happened, or something like it. It is storybook Russia, not real Russia; a place never quite in perfect overlap with the daylight country of the same name. It is as near to it as a wish is to reality, and as far away, too.

It occurred to me that by writing not a review of the book, but a bit of literary analysis that attends closely to Spufford’s insistence that Red Plenty is a fairy tale, I might be able to share some of the power of the book, as well as show off some of Spufford’s careful crafting of his narrative. Calling Red Plenty a fairy tale is not a way of dismissing its importance. It is a way of heightening it. And throughout the text, Spufford uses the presence and absence of fairy tales as a way of conveying the emotional and cultural toll of the Soviet dream.

Spufford has a few reasons, I suspect, for wanting readers to think of Red Plenty as a fairy tale. As he notes in his acknowledgements, “I wrote this book without being able to speak or read Russian. I have therefore been able to draw on only a fraction of the available material, and readers should be aware that what they find here reflects the limited universe of sources that happen to have been translated into English; often, translated into English during the Cold War, as part of the West’s anxious guesswork about Soviet developments.”

Soviet economic data are notoriously inaccurate, and I expect that another layer of fallibility is added when those data are translated by a nervous Cold War America. So, calling Red Plenty a fairy tale allows Spufford to explore his subject while remaining aware—and signaling to his readers—that he doesn’t have the language skills one would expect for a full academic treatment, and that the data and sources upon which he is relying are a little more like “data” and “sources.”

But throughout Spufford’s work, fairy tales appear as more than a mitigating explanation for the book’s creative amalgam of fact and fiction. Spufford’s introduction explains why they are such a preoccupation:

Tales supplied what the real country lacked, when villagers were telling them . . . the stories dreamed away reality’s defects. They made promises good enough to last for one evening of firelight; promises which the teller and the hearers knew could only be delivered in some Russian otherwhere.

And so when Spufford describes one Krushchev’s speeches, we are instantly alert to the language of fantasy and the promises of a real-life end of the scarcity.

“In our day,” Nikita Khrushchev told a crowd in the Lenin Stadium . . . “The dreams mankind cherished for ages, dreams expressed in fairytales which seemed sheer fantasy, are being translated into reality by man’s own hands.” . . . Humanity’s ancient condition of scarcity was going to end, imminently.

The Soviet fantasy is the fairy tale fantasy: the end of scarcity. And with the end of scarcity comes the end of the human need to imagine and tell stories about the end of scarcity. When the fairy tale is real, we don’t need the story anymore.

This is when Spufford’s use of fairy tales becomes most intriguing. Again and again, Spufford shows us characters looking for a fairy tale parallel in their lives, or trying to tell a story and failing. The promises of the State have replaced the fantasies of the fairy tales, and stories are dying.

Some comrades seemed to think that fine words and fine ideas were all the world would ever require, that pure enthusiasm would carry humanity forward to happiness; well excuse me, comrades, but aren’t we supposed to be materialists? Aren’t we supposed to be the ones who get along without fairy tales? . . . [People need] more money to spend, or else more of a world in which money was no longer necessary to ration out all the good things, because there were so many good things, all gushing out of the whatchamacallit, the thing like a cone spilling over with fruit. The horn of plenty.

The rapid transformation from stark realism to dreams of State-sponsored plenty to the inability to even remember the name of the magical item one wants to mock seems to me to be a perfect capsulization of the Soviet economic way of thinking. That failure of memory at the end of the passage tells us that as the State fantasy is offered, story is shoved out of the way. We see this failure again when Spufford takes us to the kind of small village gathering where folk and fairy tales would have ordinarily formed a large part of the evening’s entertainment.

“Go on, Grandad, give us a story,” someone said. “How’s your memory tonight? Got a whole one in there?”

“Well, I’ll try,” said the old man doubtfully. “In the thrice-ninth kingdom of the thrice-tenth land, there lives a poor man who had, uh, a miraculous horse. No, he bought the miraculous horse, he bought it with . . . Or was it a miraculous wife he had? Dammit, I used know all of ‘em. No, it’s gone.”

Even the epigraph to the final section of Spufford’s book—taken from the concluding lines of a Russian fairy tale—is an interrupted tale about an interrupted adventure. “The laborer awoke and saw that the princess, the flying carpet, and the magic tablecloth were gone. Only his walking boots remained.” The magical folk imagination has been almost entirely consumed by the dreams of the great Soviet state.

But the great plans fail, and the fairy tale of the Soviet state doesn’t have a happy ending. As this realization begins to dawn on the characters in Red Plenty, we see them return to more fully fleshed stories and to a better understanding of how they function. When the writer Sasha Galich—one of the first to realize the distances between the promises of the State and the lives of the citizens—comes to see his way through the fog of the propaganda he helps to create, he rediscovers the truth of fairy tales at the same moment he uncovers the lies of the State.

Drip by drip, these last years, he had understood more of what had been happening in his own time, just around the corner, just behind the scenes, just out of his sight, as if he had been a child in a fairy-tale wood who sees only green leaves and songbirds ahead, because all the monsters are standing behind him. Quiet conversations with a returned choreographer who’d survived his ten-year stretch on dancer’s strength. Confidences from . . . a secret policeman, blurred by the bottle . . . about the famous year of 1937 when the van loads came in so fast for the bullet that the drain in the floor of the basement corridor sometimes blocked, and some poor sod had to fish in it, and pull out mush and bone chips and hanks of human hair. . . . [Emphasis added.]

When reality starts to look like this, the need for fantasy comes rushing back.

It seems to me, then, particularly important that one of the last exchanges in Spufford’s book is between a young boy and his mother as they discuss a book that he is reading. The year is 1968, which means the boy will be in the prime of his adult life when the Berlin Wall comes down and the Soviet Union dissolves. He is, in other words, the future. He is, in other words, us. And he says to his mother:

I’m just getting to the end of this science-fiction book, and they’re at a kind of place that gives wishes, like a genie, only it’s alien technology, and it’s very dangerous? And there’s a silly man and a tough man, and the silly man rushes forward and he makes this kind of enormous wish for everybody in the whole world to be happy, but the alien thing squishes him instead. And I was wondering, if it’s supposed to be a kind of a—kind of a . . . sideways picture. You know. Of here.

20121127_sarahskwireABOUT SARAH SKWIRE

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

Ouch! Washington Post Calls Keystone XL Delays, “Embarrassing”

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The Washington Post editorial board excoriated the Obama administration for holding up the Keystone XL pipeline [emphasis mine]:

If foot-dragging were a competitive sport, President Obama and his administration would be world champions for their performance in delaying the approval of the Keystone XL pipeline.

Last Friday afternoon, the time when officials make announcements they hope no one will notice, the State Department declared that it is putting off a decision on Keystone XL indefinitely — or at least, it seems, well past November’s midterm elections. This time, the excuse is litigation in Nebraska over the proposed route, because that might lead to a change in the project that various federal agencies will want to consider. The State Department might even decide to substantially restart the environmental review process. This is yet another laughable reason to delay a project that the federal government has been scrutinizing for more than five years.

…

As for the pipeline’s routing, planners and regulators have already considered all sorts of options through Nebraska, and they already shifted the route once. Neither route posed environmental concerns of a sort that would justify concluding that Keystone XL is outside the national interest. It is bizarre to imagine that a new route from an even more careful process in Nebraska would significantly increase environmental concerns.

The administration’s latest decision is not responsible; it is embarrassing. The United States continues to insult its Canadian allies by holding up what should have been a routine permitting decision amid a funhouse-mirror environmental debate that got way out of hand. The president should end this national psychodrama now, bow to reason, approve the pipeline and go do something more productive for the climate.

That will leave a mark.

Along with that scathing editorial, the American Petroleum Institute released a poll of registered voters that shows 70% support building the Keystone XL pipeline. Here are some other findings:

  • 78% agree that the pipeline would improve America’s energy security by helping to create jobs.
  • 78% believe that the pipeline is in America’s national interest because it would increase North American oil supplies.
  • 67% say that if the United States has to import oil, they would like to see more of it come from Canada rather than other foreign countries.
  • 68% say they’re more likely to support a candidate who supports the pipeline.

UPDATE: This political cartoon illustrates how these delays have become a farce.

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[via memeorandum]

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

EDITORS NOTE: The features photo of sections of pipe for the southern leg of the Keystone XL pipeline in Oklahoma in 2013 was taken by photographer Daniel Acker/Bloomberg.

Another Four Falsehoods About the Free Market by SANDY IKEDA

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As a follow-up to my two earlier columns on falsehoods about the free market (here and here), I wanted to cover some more falsehoods that I’ve heard again recently. I’m sure I’ll have plenty of opportunities to add to the list sometime down the road.

1. The Free Market Must Be Regulated

This one never seems to get old. I wish it would just die. In truth, I agree with it, but in a different sense than it’s usually meant.

Many people say that if the government doesn’t regulate, say, the purity of bottled water, Poland Springs would be free to poison us if they could profit from it. While standards of safety or purity in some form would undoubtedly emerge on the market without government—something like Consumer Reports or Underwriters Laboratories—it’s the last part of the accusation that actually does the heavy lifting, even in our present unfree market. Profit-seeking regulates! Outside of markets that have been criminalized or heavily regulated by government, the gains from cheating and hurting others are risky and relatively rare. Legitimate business people are ready to scoop up the dissatisfied (or sick) customers of other legitimate business people by giving them better value for the dollar, burnishing their reputations in the process. When’s the last time you went to a restaurant that had a reputation for poor quality, much less for food poisoning?

Bottom line: In the absence of government regulation, there’s still regulation in the free market. It’s called competition. And if you want more safety and better quality, take away barriers to free competition.

2. Innovation in a Free Market Causes Chronic Unemployment

I’ve found that people who follow current events too often worry about “technological unemployment.” That’s because when a person innovates she replaces an old way of doing something with a new way, or she does something significantly different. In some cases the inputs she used to hire—land labor, capital, know-how—can adapt and continue to work with her. If they can’t, though, they have to find somewhere else to work. Some people can have a hard time doing this. But that doesn’t mean there aren’t other jobs in which they can be productive.

Consider this: The world population has grown in the past 200 years from about one billion people to just over seven billion. The number of jobs has also grown by billions, with most involving far less drudgery and danger than work 200 years ago. Ah, but what about living standards? Per capita real gross domestic product, in roughly that same period, skyrocketed from about $3 to about $100 per person per day.

How? With growing economic freedom, innovators created ever-more and better products, lengthening lives and making them more comfortable. It created not only more jobs but more valuable jobs in the process.

Anyway, the primary focus shouldn’t be on jobs themselves, because if you make things people value, the jobs will follow. Apple now employs 70,000 people worldwide. If you include all the other people whose labor is now more valuable because of Apple (app designers, for example), that number seems to range from a low of 350,000 people to a high of 500,000, some of whom probably worked for the companies Apple products out competed. But of course if Apple didn’t exist, those people would still be working—they’d just be making things that were less valuable and getting paid a lower wage. So while some argue for regulations to block innovation in order to protect certain (but not all) workers, to the extent they are successful the long-term result is lower standards of living for all—workers and everyone else.

What about the “unskilled”? Well, that’s a good topic for another column. Suffice to say that the Ricardian law of association demonstrates that even someone who is “worse” than everyone else at everything is still more efficient than anyone else at something.

3. Capitalists Love Deregulation

No, they usually don’t. According to the rule of law, the law should treat everyone the same way regardless of status. Some regulations do a better job at this than others, such as speed limits on highways (unless you’re the police). But in practice, whether intended or not, all regulations benefit some at the expense of others. The Affordable Care Act (“Obamacare”) seems to have benefited the healthcare industry at the expense of ordinary people and businesses, which now have to pay higher premiums for more coverage than they want. Regulations that putatively protect consumers, such as government licensing of doctors, benefit those that practice conventional medicine and make it harder for others to enter the field. Regulations that are supposed to protect workers, such as the minimum wage, benefit skilled workers by driving up the price of hiring the unskilled. And when it’s intentional, trying to gain an advantage through legal privilege is called “rent-seeking.”  As the saying goes, business owners like competition for everyone except for themselves.

4. The Free Market Increases Inequality

This idea is as complicated as it is widespread. For instance, income inequality in the early part of the twentieth century (when, by the way, economic intervention was far less than it is today) fell sharply until World War II, but then accelerated after the mid-1970s. Inequality today has reached the level it was in 1920. It’s hard to disentangle how much of that inequality is due to intervention and how much we can attribute to the free market. Let me instead address a more fundamental issue.

Now, without giving too much personal information away, my own annual salary is over seven times the average poverty-level income in the United States this year.  To some that’s pretty unequal, and I can imagine that a person making only $11,490 a year with no other source of income probably feels pretty bad-off compared to me. But consider that the annual income Bill Gates, according to this website, is about $3.7 billion. That’s $3.7 billion dollars a year! So Gates’s annual income is more than 43,500 times my own. That’s monstrously unequal by almost anyone’s standard. But it’s funny—maybe it’s just me, but I don’t feel oppressed by that fact at all. What does that mean?

I think it means that what most of us object to is not income inequality per se (although I know some people do) but poverty. So the question becomes: What is the best way to fight poverty?

ABOUT SANDY IKEDA

Sandy Ikeda is an associate professor of economics at Purchase College, SUNY, and the author of The Dynamics of the Mixed Economy: Toward a Theory of Interventionism. He will be speaking at the FEE summer seminars “People Aren’t Pawns” and “Are Markets Just?“

Florida: Not one of America’s top Energy Leaders

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Free Enterprise reports:

Thanks to surging production in the country’s oil and gas shale regions, the U.S. is importing significantly less oil and bolstering its energy independence. The Energy Information Agency expects U.S. crude imports this year to average 6.7 million barrels a day, down by nearly a million barrels a day from 2013 averages. The decline comes amid a boom in oil and gas production in places such as North Dakota, where monthly output has nearly quadrupled over the past four years.

Renewables are also pulling more weight. Last year, wind generated more than 168,000 thousand megawatt hours of electricity, and solar power currently generates almost 9,000 thousand megawatt hours of electricity to power our economy annually. All of this new domestic generation is strengthening the country’s energy security, prompting the U.S. Chamber of Commerce’s Institute for 21st Century Energy to lower its Index of U.S. Energy Security Risk to 95.3 last year, down from 102 the year before.

From Texas — which takes top honors as the country’s top oil, natural gas, and wind producer — to hydro-power leader Washington state, our info-graphic showcases America’s resilient energy industry by highlighting the top energy-producing states for each energy source.

America

EDITORS NOTE: The featured image is courtesy of photographer Ron Antonelli/Bloomberg.

How “mortgage” became just another word for trouble

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Nearly 80 years ago Stewart McDonald, the Federal Housing Administration’s first administrator, observed: “To many people, ‘Mortgage’ became just another word for trouble—an epitaph on the tombstone of their aspirations for home ownership.” Over the last 7 years, the same epitaph has been written for many millions of aspiring homeowners.

When established in 1934 by Congress, FHA implemented strong, commonsense underwriting standards—increasing down payments to a minimum of 20%, establishing reliable and speedy loan pay downs with a 15-20 year loan term, using a residual income test to assure a borrower’s reasonable ability to pay, and requiring demonstration of a good credit history. From 1934 to 1960, these standards helped millions upon millions of Americans safely and confidently achieve the American dream of eventually owning their home free and clear of a mortgage and helped increase the homeownership rate to new heights. Over its first 20 years, the FHA paid only 5,712 claims out of 2.9 million insured mortgages for a cumulative claims rate of 0.2%.

Yet by 1962 Time Magazine would observe: “Homeowners of a new and unattractive breed are plaguing the Federal Housing Administration these days. Known as ‘the walkaways,’ they are people who find themselves unable to meet their mortgage payments—and to solve the problem simply move out their belongings at night, drop their house key in the mailbox and disappear.” What had caused an FHA mortgage to become just another word for trouble?

Powerful interest groups such as the National Association of Realtors convinced politicians to replace FHA’s sound underwriting practices with increasingly risky ones.  From 1957 to 1961 Congress raised FHA’s maximum loan to value ratio (LTV) four times so that by 1961 the maximum LTV was 97%.

In 1963 the FHA commissioner issued a report analyzing why is was suffering from mounting foreclosures:

The Congress expects, many home buyers require, and the housing industry needs the high volume of home construction and the active market for existing homes that can be soundly achieved and sustained through the liberality of the terms on which FHA is authorized to insure mortgages….The Federal Housing Administration is deeply committed to a program of accurate underwriting based on adequate analysis, accurate information, and sound judgment. This report will help us to keep our risk-rating processes in line with the changing times.

However, the very next year, FHA abandoned the very risk-rating process it had been relying on.

As a result the increasingly lax standards for FHA insurance once again made foreclosures commonplace. From 1975 to 2011, over 3 million FHA borrowers would lose their homes to foreclosure. Over time, powerful lobbies, politicians, and HUD pushed to replicate FHA’s abandonment of commonsense underwriting at Fannie Mae, Freddie Mac, and other parts of the mortgage market. For 8 million families experiencing foreclosure from 2007 to the present, “mortgage” once again became just another word for trouble.

The only way to bring stability to our housing market is to once again assure that the preponderance of mortgages are safe—ones that have a low risk of turning into trouble under economic stress. This requires a return to common sense underwriting. Today this safety standard is being  met with respect to 0% of FHA insured mortgages and only 38% of all new home purchase mortgages nationwide.

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

Time to abolish Florida Property Taxes

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The time has come to address the matter of abolishing property taxes in Florida and returning our homes, land and infrastructure back into the hands of its owners not the landlord in the Tax Collector and County Property Appraisers.

This will reduce your house payment, it will give you back the freedom of property ownership without fear of having your home confiscated. It frees you from the subservient position as renter to the tax collection office even if your home is paid for. It will empower you and put the government back in its place as your servant, not your master.

It does not matter if you own a $50,000 double wide trailer or a $50 million mansion. If you own it, you worked for it and the government has no claim on it. PERIOD. Ever.

Progressive politicians from both political parties embrace property taxes and the power it gives them and the government over your accumulated wealth. You work hard you raise your families and yet you are chained to the wall of City Hall and the County Administration building. Enough already. Its time to stop this redistribution of wealth.

What is a Budget?

You all have a family and or a household budget. In our local government an annual budget is a financial, operating, and capital plan for the coming fiscal year. It provides an outline of service levels provided to the citizen and public capital investments in the community, to be used by both you the citizen and the local government.

What is a Millage Rate?

The millage rate is the tax rate that is applied to property values to generate the revenue needed to pay for services proposed in the budget. A mill is a rate of tax equal to $1 for each $1,000 of assessed taxable property value. If a piece of property has a taxable value of $100,000 and the millage rate is 1, the property owner would pay $100 in taxes.

The time has come to zero out the millage rate and fire the landlord (County Tax Collector and Property Appraiser). All services being paid for in property taxes need to be funded from revenues that come from the sale of goods and services not your home or business structure and land. Each county must cut its waste and ensure good stewardship of tax dollars to help. From what  I can see (after reviewing the county budgets in all 67 counties) there is massive waste and abuse of taxpayer money including big salaries for executives, etc. Shall I can continue?

The County Tax Collector, with the assistance of the Property Appraiser, is nothing more than an over paid landlord sucking the citizenry dry and redistributing their wealth to local government agencies.

Proposal

Request that all Florida law makers that agree start drawing up plans for the FY 15 legislative session in March 2015 to abolish property taxes.

Tax payer money spent to fund illegal immigrants, their education, their health care and the like must be cut off and this money used to fill part the void in the loss of property tax revenues. Annually Florida tax payers fork out $5 billion to educate, medicate and incarcerate illegal aliens. This would free up more than enough cash to help in the elimination of property taxes statewide in Florida. The 67 counties can divvy up this savings to pay their police and fire departments. The lottery offsets the cost for schools.

The median property tax in Florida is $1,773.00 per year for a home worth a median value of $182,400.00. Florida counties collect an average of 0.97% of a property’s estimated fair market value as property tax. This money belongs in the pocket of the homeowners not the government. The government did nothing to build this house other than regulate the builders to appease tree huggers and spotted owl lovers.

Section 200.065 of State Statutes outlines the rolled-back millage rate, known as the “no tax increase” rate

because it allows the entity to generate the same property tax revenue from year to year, adjusted only by any new properties that may have been placed on the property tax roll. I want his statute to read – zero state wide and the property taxes returned to the control of Florida citizens.

Let’s see who has the guts to tear down the statist tax and spend legislature and return the wealth accumulated from hard working Americans in property taxes and put it back in their wallets.

Mandated by the State: Smart Meters and Obamacare

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I a Florida homeowner and careful about my usage of electricity. My electric bill last month was $41.56. People buying health insurance choose their plans carefully as well to fulfill their health needs and economic situation. If I am forced to pay a fine of $13 for not doing anything it would result in a 31% monthly increase in my electric cost for no logical reason.

Florida Power & Light (FP&L) has spent hundreds of millions of dollars to install what they refer to as “smart meters” on the properties they service. They require all of their customers to allow installation or face a monthly fine for what they refer to as opting to a “non-standard” meter. The Federal Government put together Obamacare and now forces all who have their standard health insurance plans the government describes as non-standard to scrap them and comply with what the government wants or face a fine.

The meter on my home was here when I bought it ten years ago so did I buy a home with a non-standard meter? My meter is no more non-standard than millions of the people who are being forced off their insurance plans because the government says they know what is best for consumers. Where the Supreme Court says it is all right to tax people for not having government mandated insurance the PSC says it is fine for FPL to tax conscientious homeowners who choose to keep their standard meter.

Just as there are all kinds of bad things being unveiled about Obamacare and the havoc it has caused the new meters from FP&L are like what Pelosi said about Obamacare… you have to install it to find out what it is all about and I and many thousands of others are not interested.

See the similarity in how citizens are being mandated to do what the government or monopoly demands. Is that right?

If there are any sane people in the state government would you please intercede with the PSC and eliminate the mandatory sign up for the FP&L meter or face monthly fines?

The Progressive Income Tax: Backed by the envious, used by the greedy by DOUG BANDOW

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Most Americans dislike the income tax, now more than a century old. The rates are too high. The provisions are unfair. The recordkeeping is onerous. The revenues are wasted.

Other than that, Mrs. Lincoln, how was the play?

But there are fans. The politicians, certainly, of both parties. What good would it do to serve in Congress if you didn’t have any money to spend? There are other sources of public money, to be sure, but none so effective at plucking the geese while minimizing the hissing. Withholding means many Americans look forward to receiving a refund even though that means they have provided an interest-free loan to the very officials conscripting people’s money for dubious purposes.

The beneficiaries of the politicians’ largesse also share in the income-tax lovefest. Uncle Sam needs money to write checks. He can borrow, but there’s a limit to investors’ credulity. Borrow too much and they might doubt Washington’s ability to repay. Moreover, robust tax collections are necessary to repay debts. So creditors, too, benefit from the income tax, even if they don’t enjoy paying on the other end.

Don’t forget about the armies of tax preparers and IRS agents who, at the end of the day, end up with much of the deadweight loss.

Then there are the fans of expensive and expansive government. Jonathan Cohn of the New Republic argued that the money collected has gone for building infrastructure, cleaning the environment, and keeping us safe from foreign threats. Alas, a lot of federal building is politically driven, conservation measures spend huge amounts inefficiently to control minimal problems, and military outlays go to defend scores of foreign societies rather than our own. In all these cases, less would be more.

More dangerous may be the social engineers. For instance, Yale economics professor Robert J. Shiller suggested using the income tax to mitigate “some of the worst consequences of income inequality.” He proposed indexing taxes to income inequality.

It’s a genuinely nutty idea: Inequality measures are sensitive to data distortion based on dates chosen, units measured, and more. Moreover, they incorporate no judgments about how the inequality arose. Were opportunities obstructed, systems manipulated, wealth extracted, people defrauded? Or did a generally free society operate naturally and deliver ever-changing income and wealth patterns? If the latter, what is the government trying to “correct”? And if the former, is the government correcting the right things?

Worse, though, is the weird presumption that seizing private wealth from mostly productive taxpayers and giving it to political operators noted for their electoral skills rather than economic judgment would somehow remedy financial disparities. There is no evidence that increasing Washington’s resources would yield greater social or economic justice, improve economic efficiency or growth, or make people wealthier or freer.

To the contrary, experience demonstrates that the majority—most people outside of those who make their living from the federal trough—are likely to end up worse off. Extensive bureaucracies soak up a lot of money before it leaves government hands. Cash gets tossed at influential interest groups, such as businesses, non-profits, contractors, and unions. Benefits for the poor are dwarfed by middle class welfare, such as Social Security and Medicare. Federal largesse gets bestowed on foreigners through misnamed foreign aid, which long meant taking money from poor people in rich countries and giving it to rich people in poor countries. America’s defense budget is another form of foreign aid, subsidizing some of the wealthiest countries on the planet.

Providing more money to expand these and other programs is supposed to close the income and wealth gaps? The social engineers just assume that the benevolent dictator model, in which angels enact direct transfers that make people healthier and happier, can actually exist.

Unfortunately, the income tax creates additional harms. By taxing work, the levy discourages work. The higher the rate, the greater the incentive to choose leisure and invest in consumption and tax shelters. Moreover, credits and deductions give legislators the opportunity to play social engineers, providing subsidies and manipulating behavior sub rosa.

The greater the resulting complexity, the more wealth is wasted in compliance activities rather than invested in productive endeavors. Indeed, the system most benefits tax professionals who profit from the system’s failings. Today the tax code and IRS rules run nearly 75,000 pages. And there never is any certainty; my Cato Institute colleague Chris Edwards noted nearly 5,000 tax changes over the last decade. Ever-confused taxpayers are a captive audience for tax preparers and litigators.

Income taxes impose a number of other burdens. There is no financial privacy, since Uncle Sam is empowered to rummage through everyone’s personal affairs. And taxpayers are expected to maintain potentially extensive records for possible inspection for years. For instance, use a home office and you’d better keep your utility bills, home repair charges, and gasoline receipts!

Moreover, as Edwards pointed out, the entire enforcement process is built around a denial of due process. From start to finish the burden of proof falls on the taxpayer, not the government. The Fifth Amendment right against self-incrimination is out the window. Fourth Amendment protections against unreasonable searches and seizures don’t apply. Sixth and Seventh Amendment guarantees of a jury trial don’t cover the U.S. Tax Court.

Contrast this with the sales tax. You pay it when you purchase something and you are done with it. You don’t have to keep personal records. You don’t have to file a return. There is no government rummaging around through your bank records for enforcement.

Even social engineering usually is at a minimum. Consumption levies typically include little variations of rates among goods, with at most occasional exemptions of “necessities” and surcharges for “luxuries.” There seldom is much attempt to manipulate rates to achieve objectives other than raising revenue. Even politicians don’t claim that they can use the sales tax to solve the “problem” of income inequality.

The first income tax in U.S. history was proposed in 1814 to fund the ill-fated War of 1812. Happily, the conflict ended before Congress could demonstrate the dire consequences even of taxation with representation. In 1861, a desperate national government turned to the income tax to fund its war to conquer the Southern states seeking to separate. Americans sacrificed both independence and liberty in that conflict.

A search for revenue to replace declining tariff collections led to another income tax in 1894, but the Supreme Court declared the levy unconstitutional. Legislators probably could have met the jurists’ objections by scaling back the tax. Instead, 15 years later Congress proposed a constitutional amendment, which was approved on February 2, 1913, during the heyday of the Progressive Era. From modest beginnings it has grown into a monster.

There is a necessary role for government, but it is far more limited than today’s Leviathan in Washington. Government must be funded, but it should be by something other than today’s income tax, which has made it far too easy for politicians to mulct the public. There are many reasons for Americans’ steady and serious loss of liberty, but the income tax ranks high among them.

doug bandowABOUT DOUG BANDOW

Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.

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

CLICHES OF PROGRESSIVISM #2 — Because We’re Running Out of Resources, Government Must Manage Them

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The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government.

Our society is inundated with half-truths and misconceptions about the economy in general and free enterprise in particular. The “Clichés of Progressivism” series is meant to equip students with the arguments necessary to inform debate and correct the record where bias and errors abound.

Leaders and experts who support free enterprise and who understand the importance of fiscal responsibility and entrepreneurship will author the pieces. A book will be released in 2015 featuring the best editorials in the series. The opinion editorials and columns will be published weekly on the websites of both YAF and FEE: www.yaf.org and www.FEE.org.

See the index of the published chapters here.

#2 — Because We’re Running Out of Resources, Government Must Manage Them

Milton Friedman once said “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.” The great economist wasn’t just being cute. He’s pointing to a very serious problem with government management of resources. And in this chapter, we’ll talk about why it’s a problem. But first we should ask: Why are people so concerned that we will run out of resources? And how can we find a reasonable balance between using resources and conserving them?

When most people think about resources, they think about the possibility they might be used up. And running out of resources means there will be nothing left for future generations. This scares people. So the notion goes something like: If parents let kids get into the groceries on the first night of the camping trip, there won’t be any sandwiches left for the picnic. The parents wisely ration the resources and restrict the kids’ access so that there is something to left for later. People who think government should manage resources are thinking that government will behave like wise parents. But does it?

What you may not have realized is that people in the market—under certain conditions—find a balance between consumption and conservation, which one might call “sustainable.” But first there has to be a complete market mechanism. This may be hard for some people to get their heads around, because most people think markets cause over consumption. And certain kinds of markets can.

Healthy markets only exist under certain rules. The main rules are what we might call the Three Ps: Private property, price signals and profit. These are the basic conditions of exchange. Without them there can be no healthy market.

Private property means that an individual has full ownership of a resource. We know who the owner is, how much they own and that right cannot be taken away arbitrarily. The owner may also have the authority to divest himself of the resource. That means we know the difference between mine and thine and in so knowing, we have the one of the conditions under which to conserve, trade, or consume.

Prices are what economist Steven Horwitz calls “information wrapped in an incentive.” When the price of some resource goes high enough, owners have the incentive to do any number of things. They might use less of the resource (i.e. conserve it), they might find new creative ways to increase the supply of the resource, or they might find a substitute, which ends up conserving the resource. Of course, we make any such choice because we expect of future returns, otherwise known as profit. And in this equilibrium created by prices, property and profit markets balance use with conservation.

Consider a resource that was once highly sought after: whale blubber. Whale blubber was used as an energy resource in the 19th century. But in the case of whales, there were only two of the three Ps. Whalers had prices and profit, but no private property. The whales belonged to what is known as the Commons—which meant anyone could hunt them. Unsurprisingly they were nearly hunted to extinction. Because no one owned them, whalers had a perverse incentive to hunt them quickly. The whales rapidly became scarce. Indeed, as the number of whales went down, the price of each individual whale went up and the incentives to hunt increased. But this can’t happen if there is a robust private property regime in place. If people could own whales, their incentive is not destroy them unsustainably, but to raise them. (Ironically, fossil fuels saved the whales thanks to substitution.)

In the 19th Century American West, wild bison (buffalo) roamed the unfenced, commonly-held Plains by the millions. They were hunted nearly to extinction. By contrast, people could own and raise cattle and the use of barbed wire on private property made it feasible to do so. Today, there are far more cattle in the Plains than bison and even where bison are privately-owned, their long-term survival is now better assured than it ever was on “public” property.

Consider trees. In North America, there are more trees than there have been in over a hundred years. Not only do foresters have incentives to regrow trees they harvest, they have incentives to cut them at a sustainable rate. Of course, in certain parts of the world—like Amazonia and Africa—concerns about forest clearing are justified. The big difference between forests in North America and South America? In one case, forests are largely government managed and in the other they largely privately managed.

Since 1900, U.S. forestland acreage has remained stable for more than a century. Unlike some regions in the world where deforestation is happening at a rapid pace, the US has actually maintained its forestland for the past 100 years. When one includes the heavily forested Northern Forests of Canada, forestland in North America since 1900 has grown—by a lot, according to the UN State of the World’s Forests reports.

By contrast, forests in many parts of the world are losing ground, even losses in these areas are slowing. Still, that leaves the question: why are North America’s forests growing while forests in other areas being lost? Certainly the biggest factor is whether the country has the Three Ps. The absence of property rights is known as the Tragedy of the Commons. If we look at the facts around the world, places that have stable private property rights have stable forestland. Places that don’t have tragedies of the commons—with its attendant rush to exploit.

Political leaders in areas without private property rights have tried to solve the problem of over-exploitation of forestland through the application of government management—that is: simply forbid people from using the resource or have the government allocate it “sustainably.” Contrary to Progressive conservation clichés, neither policy works particularly well.

In the case of bans, black markets form and there is a race to exploit the resource. Poachers and illegal exploiters emerge as the problems persist. For example, black rhinos are under threat in Africa despite bans. Because the profit motive is even stronger under bans, risk takers come out of the woodwork. In the case of government allocation of resources, the process can easily be corrupted. In other words, anyone who is able to capture the regulators will be able to manipulate the process in his favor. What follows is not only corruption, but in most cases considerations of “sustainability” go by the wayside, along with all the market mechanisms that constitute the true tests of sustainability.

 

Max Borders
Editor & Director of Content
The Freeman

Summary

  • It is simplistic to assume that people will blindly use up what sustains them without regard to the incentive structures they face; if they have incentives to conserve, they will do so.
  • Private property is a powerful incentive to conserve resources. You lose if you squander what’s yours.
  • When property is held “in common,” you have a license to use and abuse resources with little incentive to nurture and improve them.
  • For more information, see http://tinyurl.com/pn3qlfb, http://tinyurl.com/ot533p3 and http://tinyurl.com/ngchvyo. 
Max Borders

Max Borders

ABOUT MAX BORDERS

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

RELATED STORY: CLICHES OF PROGRESSIVISM #1: Income Inequality Arises From Market Forces and Requires Government Intervention

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

In Us We Trust? by GARY CHARTIER

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David Rose argues that trust is a prerequisite of economic growth. David C. Rose. The Moral Foundation of Economic Behavior. Oxford University Press. 2011. 269 pages. $40.16.

Economists find it easy to model human actors as rational utility maximizers, evaluating possible decisions in light of their likely outcomes and choosing those options with the most utility-maximizing consequences.

But in The Moral Foundations of Economic Behavior, David Rose argues that economic development depends on trust, and that trust can only be expected to feature prominently in a particular society when those who live in it understand key moral requirements—in particular, duties that preclude negative conduct.

As Rose notes, people who reason this way may not be particularly good trading partners. If someone assesses her options in each situation and alters her plans as her judgments about the best way to maximize her utility change, she’s unlikely to prove very reliable; she may steal from others or defraud them. And this kind of behavior will tend to dispose others not to want to trade with her. The more widespread a tendency to maximize individual utility is in a given society, the more wary people will be about trading with each other, and the more resources they will likely spend detecting and preventing opportunistic behavior.

In such a society, the benefits of widespread trade won’t be available. The society will be poor.

Those who are, in the economists’ sense, “rational” won’t be likely to behave as case-by-case maximizers. They may not be concerned about the societal consequences of fostering distrust, but they almost certainly want others to deal with them. And anyone with the reputation of being willing to cheat others is someone with whom others won’t want to trade. The discipline imposed by continuous dealing will thus dispose rational actors, even ones who might be inclined to cheat, to behave reliably.

However, the discipline of continuous dealing can’t make everyone reliable all the time. Frequently, people engaged in trading relationships are strangers, and it’s not always possible for either to be aware of the other’s reputation. And institutional mechanisms designed to require accountability from those who steal and defraud are anything but uniformly effective.

Rose focuses on a further, even more serious problem: Reputational and similar mechanisms for ensuring good behavior only work when theft and fraud can be effectively detected, but they frequently cannot. People often enjoy what Robert Frank has termed “golden opportunities”—opportunities to take advantage of others with essentially no possibility of detection. These opportunities are particularly likely to arise in connection with open-ended contracts that leave the parties with lots of discretion. One party to such a contract may be able to cheat the other with no realistic possibility of detection: While it may appear to an observer that she’s fulfilling her obligations, she may in fact be taking unfair advantage of her trading partner.

While no one may be able to detect this kind of cheating, the expectation that it might occur is enough to put a damper on people’s expectations. Trust will be inhibited, and thus so will trade—and therefore prosperity. A society can achieve the kind of wealth that widespread trust makes possible only if everyone is committed to being trustworthy even when no one’s watching and even when behaving in an untrustworthy manner won’t lead to perceptible harm to any individual.

To foster prosperity, people need to be moral, not in order to avoid bad consequences, or even in order to achieve good ones on a case-by-case basis. They need to have internalized preferences for trustworthiness—most effectively fostered by culture—that can’t be overridden by the desire to benefit themselves or others in particular situations. They need to think of the duty to be trustworthy as, effectively, absolute. A society in which people reason this way will be able to sustain widespread, persistent trust. Economic relationships among strangers will be possible, social cooperation will flourish, and prosperity will ensue.

Rose is clear that the economist qua economist can’t show that people ought to be moral, or what form moral principles ought to take. But he argues that economists can show that societies in which particular moral principles are widespread will prosper. And I’m inclined to agree: Cooperation among strangers is the foundation of prosperity, widespread trust makes cooperation possible, and a moral—and not merely instrumental—commitment to reliability is a foundation for widespread trust.

There are interesting questions to ask about Rose’s arguments: When does background injustice reduce the duty to be trustworthy? What determines when a putative moral requirement really is a moral requirement? How shall we determine just what open-ended, relational contracts actually require? But, however we resolve these questions, Rose has made a convincing case that a society full of trustworthy people will be effectively positioned to experience the miracle of economic growth.

ABOUT GARY CHARTIER

Gary Chartier is a professor of law and business ethics and associate dean of the Tom and Vi Zapara School of Business at La Sierra University in Riverside, California. He is the author of Anarchy and Legal Order: Law and Politics for a Stateless Society, published by Cambridge University Press.

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

Free the Poor: Does economic freedom alleviate poverty? by Julian Adorney

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2014 marks the 50th anniversary of the War on Poverty, and many claim that President Johnson’s program has lifted millions out of poverty.  But if we really want to help the poor, research suggests that economic freedom does more than government aid.

Economic Freedom Within the United States

In “A Dynamic Analysis of Economic Freedom and Income Inequality in the 50 States: Empirical Evidence of a Parabolic Relationship,” Daniel L. Bennett and Richard K. Vedder argue that, past a certain point, economic freedom decreases inequality. Increasing economic freedom benefits the poor and middle class more than it helps the wealthy.

Bennett and Vedder analyze the 50 states in terms of their economic freedom and their income inequality over 25 years (from 1979 to 2004). Bennett and Vedder define economic freedom as more or less the degree to which government is limited. They measured and ranked states according to the size of government, the level of taxation, and the level of labor market regulation. They define income inequality using the Gini coefficient. Because different states have radically different levels of economic freedom (compare New York and North Dakota, for instance), the authors were able to draw on a wealth of data about relative economic freedom in 50 distinct economies.

The authors find a parabolic relationship between a state’s economic freedom and its income inequality. As states initially become more economically free, most of the gains go to the wealthy. But at a certain inflection point X, which 21 states had already hit by 2004, the relationship shifts: past this point, as states become more free, income inequality declines.

But does income inequality decline because the rich lose wealth (perhaps through fewer opportunities for crony capitalism), or because the gains from increasing economic freedom go primarily to the poor?  In “Income Inequality and Economic Freedom in the U.S. States,” Nathan J. Ashby and Russell S. Sobel find that it’s the latter.

Ashby and Sobel analyze the 48 states of the continental United States in terms of their economic freedom and the incomes of their poor, middle-class, and wealthy residents over 20 years (from the early 1980s to the early 2000s). They use the same measure of economic freedom as Bennett and Vedder.

The authors find a strong positive correlation between a state’s economic freedom and the income level of the poorest 20 percent of residents. Freer states did better by their poor than less free ones. In particular, Ashby and Sobel found that increasing the economic freedom of a state by one unit (equivalent to moving from 40th-freest state to 7th freest-state) increased the incomes of its poorest residents by 11 percent. By contrast, the same change increased the incomes of the richest quintile by just over a third of that (4.3 percent). The middle class also saw increases, greater than the rich but less than the poor. Increasing a state’s economic freedom by reducing taxation and regulation creates broadly shared prosperity across all quintiles. Their research helps explain why, as states become more economically free, their income inequality declines: The poor and the middle class see more gains than the wealthy.

But couldn’t this be a case of mistaken causality? Maybe some states have less poverty because they have more natural resources. With less poverty, they need less government to help the poor, meaning they’re economically freer. But Ashby and Sobel anticipated this claim. They control for about a dozen variables, including education, geography, and median income. The last controlled variable is especially important; it places richer and poorer states on a level playing field, so to speak, for the study. It combats the idea that perhaps wealthier states need less government because they have less poverty, and firmly points the arrow of causality toward economic freedom reducing poverty.

Ashby and Sobel’s research is a compelling argument against government poverty programs. Other research, for instance the Mercatus Center’s Freedom in the 50 States annual report, notes the positive effects of economic freedom on aggregate economic growth. But because their data is left in the aggregate, it’s difficult to determine to whom exactly the economic gains go. But by breaking down their research by quintile, Ashby and Sobel make a case that economic growth especially helps the poor.

Economic Freedom Worldwide

Nor is the connection between economic freedom and bottom-rung prosperity unique to the United States. Recent research in the Economic Freedom of the World (EFW) 2013 Annual Report finds the same trend internationally.

The Economic Freedom of the World (EFW) Annual Report, published by the Fraser Institute, analyzes around 150 countries in terms of factors like their economic freedom, closeness to a laissez-faire state, poverty levels, and per capita income. The results are a striking indictment of the idea that more government intervention in the economy can help the poor.

As EFW points out, the shares of a country’s GDP going to the bottom 10 percent are pretty consistent regardless of how free the country is. From communist states to progressive countries to almost laissez-faire societies, the poorest 10 percent of citizens receive about 2.5 percent of the country’s wealth. No amount of progressive policies has changed that number. But for the poor, life is still much better in an economically free country than in one with more government. More economically free countries have more wealth than less free ones, meaning the poorest 10 percent can end up with thousands of dollars more per year. The poorest citizens of the 25 percent most-free countries earn an average of $10,556 per year. The poorest citizens in the middle 50 percent of countries earn less than a third of that.

So why does more economic freedom mean less poverty? The answers are well-known to libertarians, but worth reviewing. In societies with more economic freedom, decreased taxes and regulation make it easier to accumulate savings and to start or expand a business. Today in the United States, getting permits and navigating the legal maze to start a business can cost tens of thousands of dollars. Getting the permit for a food truck, and complying with the various laws, can cost $15,000 at the high end. Regulations in the United States overall cost about 1.5 percent of the country’s income per capita. But in other countries this cost is even higher; in Germany regulations sap 4.7 percent of the nation’s income per capita. In Italy it’s 14.2 percent.

Some of these regulations drain money from existing corporations, leaving them with fewer funds to expand; others impose hefty costs on anyone wishing to start a business. Both ultimately discourage wealth creation. Countries or states with more economic freedom therefore have more jobs, more innovation, and more goods and services—ultimately more wealth—than societies burdened by a heavy government.

As we approach the 50th anniversary of the War on Poverty, legislators would do well to bear these data in mind. The cure for poverty is not more well-meaning government programs to make the United States resemble Europe. The solution, as it has always been, is more economic freedom.

ABOUT JULIAN ADORNEY

Julian Adorney is an entrepreneur and fiction writer. He has written for the Ludwig von Mises Institute and runs a libertarian blog.

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

Was stopping Nevada’s fracking rush behind the Bundy Showdown? by Marita Noon

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The story of rancher Cliven Bundy has captured an abundance of media attention and attracted supporters from across the West, who relate to the struggle against the federal management of lands. Bundy’s sister, Susan, was asked: “Who’s behind the uproar?” She blamed the Sierra Club, then Senator Harry Reid (D-NV), and then President Obama. She concluded her comments with: “It’s all about control”—a sentiment that is frequently expressed regarding actions taken in response to some endangered-species claim.

An Associated Press report describes Bundy’s battle this way: “The current showdown pits rancher Cliven Bundy’s claims of ancestral rights to graze his cows on open range against federal claims that the cattle are trespassing on arid and fragile habitat of the endangered desert tortoise.”

Bundy’s story has been percolating for decades—leaving people to question why now. The pundits are, perhaps, missing the real motive. To discover it, you have to dig deep under the surface of the story, below the surface of the earth. I posit: it is all about oil and gas.

On April 10, the Natural News Network posted this: “BLM fracking racket exposed! Armed siege and cattle theft from Bundy ranch really about fracking leases.” It states: “a Natural News investigation has found that BLM is actually in the business of raking in millions of dollars by leasing Nevada lands to energy companies that engage in fracking operations.”

This set off alarms in my head; it didn’t add up. I know that oil-and-gas development and ranching can happily coexist. Caren Cowan, executive director of the New Mexico Cattle Growers Association, told me: “The ranching and oil-and-gas communities are the backbone of America. They are the folks who allow the rest of the nation to pursue their hearts’ desire secure in the knowledge that they will have food and energy available in abundant supply. These natural resource users have worked arm-in-arm for nearly a century on the same land. They are constantly developing and employing technologies for ever better outcomes.”

The Bureau of Land Management (BLM) wouldn’t be enduring the humiliating press it has received, as a result of kicking Bundy off of land his family has ranched for generations and taking away his prior usage rights, just to open up the land for oil-and-gas—the two can both be there.

The Natural News “investigation” includes a map from the Nevada Bureau of Mines and Geology that shows “significant exploratory drilling being conducted in precisely the same area where the Bundy family has been running cattle since the 1870s.” It continues: “What’s also clear is that oil has been found in nearby areas.”

Nevada is not a top-of-mind state when one thinks about oil and gas. Alan Coyner, administrator for the Nevada Division of Minerals, describes his state: “We are not a major oil-producing state. We’re not the Saudi Arabia of the U.S. like we are for gold and geothermal production.”

The Las Vegas Review Journal reports: “When it comes to oil, Nevada is largely undiscovered country…. fewer than 1,000 wells have been drilled in the state, and only about 70 are now in production, churning out modest amounts of low-grade petroleum generally used for tar or asphalt. Since an all-time high of 4 million barrels in 1990, oil production in Nevada has plummeted to fewer than 400,000 barrels a year. More oil is pumped from the ground in one day in North Dakota—where the fracking boom has added more than 2,000 new wells in recent years—than Nevada produced in 2012.”

But Nevada could soon join the ranks of the states that are experiencing an economic boom and job creation due to oil-and-gas development. And, that has got to have the environmental groups, which are hell-bent on stopping it, in panic mode. Until now, their efforts in Nevada have been focused on blocking big solar development.

A year ago, the BLM held an oil-and-gas lease sale in Reno. At the sale, 29 federal land leases, totaling about 56 square miles, were auctioned off, bringing in $1.27 million. One of the winning bidders is Houston-based Noble Energy, which plans to drill as many as 20 exploratory wells and could start drilling by the end of the year. Commenting on its acreage, Susan Cunningham, Noble senior vice president, said: “We’re thrilled with the possibilities of this under-explored petroleum system.”

The parcels made available in April 2013 will be developed using hydraulic fracturing, about which Coyner quipped: “If the Silver State’s first big shale play pays off, it could touch off a fracking rush in Nevada.” Despite the fact that fracking has been done safely and successfully for more than 65 years in America, the Center for Biological Diversity’s (CBD) Nevada-based senior scientist, Ron Mrowka, told the Las Vegas Review Journal: “Fracking is not a good thing. We don’t feel there is a safe way to do it.”

The BLM made the leases available after someone, or some company, nominated the parcels, and the process to get them ready for auction can easily take a year or longer. One year before the April 2013 sale, CBD filed a “60-day notice of intent to sue” the BLM for its failure to protect the desert tortoise in the Gold Butte area—where Bundy cattle have grazed for more than a century.

Because agencies like the BLM are often staffed by environmental sympathizers, it is possible that CBD was alerted to the pending potential oil-and-gas boom when the April 2013 parcels were nominated—triggering the notice of intent to sue in an attempt to lock up as much land as possible before the “fracking rush” could begin.

deserttortoiseA March 25, 2014, CBD press release—which reportedly served as the impetus for the current showdown—states: “Tortoises suffer while BLM allows trespass cattle to eat for free in Nevada desert.” It points out that the Clark County Multiple Species Habitat Conservation Plan purchased and then retired grazing leases to protect the endangered tortoise.

Once Bundy’s cattle are kicked off the land to protect the tortoise, the precedent will be set to use the tortoise to block any oil-and-gas development in the area—after all environmentalists hate cattle only slightly less than they hate oil and gas. Admittedly, the April 13 leases are not in the same area as Bundy’s cattle, however, Gold Butte does have some oil-and-gas exploration that CBD’s actions could nip in the bud.

Intellihub reports: “The BLM claims that they are seizing land to preserve it, for environmental protection. However, it is obvious that environmental protection is not their goal if they are selling large areas of land to fracking companies. Although the land that was sold last year is 300 and some miles away from the Bundy ranch, the aggressive tactics that have been used by federal agents in this situation are raising the suspicion that this is another BLM land grab that is destined for a private auction.”

The Natural News Network also sees that the tortoise is being used as a scapegoat: “Anyone who thinks this siege is about reptiles is kidding themselves.” It adds: “‘Endangered tortoises’ is merely the government cover story for confiscating land to turn it over to fracking companies for millions of dollars in energy leases.” The Network sees that it isn’t really about the critters; after all, hundreds of desert tortoises are being euthanized in Nevada.

Though the Intellihub and Natural News Network point to the “current showdown” as being about allowing oil-and-gas development, I believe that removing the cattle is really a Trojan horse. The tortoise protection will be used to block any more leasing.

On April 5, 2014, CBD sent out a triumphant press release announcing that the “long-awaited” roundup of cattle had begun.

What I am presenting is only a theory; I am just connecting some dots. But over-and-over, an endangered or threated species or habitat is used to block all kinds of economic development. A few weeks ago, I wrote about the lesser prairie chicken and the huge effort ($26 million) a variety of industries cooperatively engaged in to keep its habitat from being listed as threatened. The effort failed and the chicken’s habitat was listed. In my column on the topic, I predicted that these listings were likely to trigger another sage brush rebellion that will challenge federal land ownership. The Bundy showdown has brought the controversy front and center.

propertyrightsFor now, southern Nevada’s last rancher has won the week-long standoff that has been likened to Tienanmen Square. Reports state that “the BLM said it did so because it feared for the safety of employees and members of the public,” not because it has changed its position.

While this chapter may be closing, it may have opened the next chapter in the sagebrush rebellion. The Bundy standoff has pointed out the overreach of federal agencies and the use of threatened or endangered species to block economic activity.

About Marita Noon

Marita Noon

The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc. and the companion educational organization, the Citizens’ Alliance for Responsible Energy (CARE). Together they work to educate the public and influence policy makers regarding energy, its role in freedom, and the American way of life. Combining energy, news, politics, and, the environment through public events, speaking engagements, and media, the organizations’ combined efforts serve as America’s voice for energy.