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It Wasn’t Broke, so they Shouldn’t Have Fixed It

The United States of America used to be a nation where things got done.  No matter what the challenge, everything from natural disasters to overcoming negative civic and political issues, the normal inclination was to start over and get it right.  If something was working just fine, usually common sense dictated it was to be left alone, at least until a superior method of operation was developed.

Take the United States of America for example.  She was founded upon superior values and principles.  Some of which included the supreme right of sovereign individuals to live according to their own God or self-directed path.  For the first time in human history, the United states was comprised of a set of economic principles and personal liberties that obliterated the worldwide concepts of government domination, or an equally abusive caste system.  Those dominated by cradle to grave government or a monarchy simply existed from day to day and were under the strain of not having enough to eat. That was only one of many problems people suffered with no way out.

Venezuela is a nation that at one time was fairly prosperous and the citizenry usually had more than enough to eat.  But in more recent years, cruel communist dictators with no respect toward individual rights have enacted brutal economic, property, religious, healthcare, agricultural, education and media controls brought that onetime prosperous to a screeching halt.  In fact, Venezuela has not only been halted, but in actuality, she is hurtling backwards.  People have been rioting in the streets, seeking the last vestiges of food supplies to raid do to abusive government induced starvation.

Venezuela is a perfect text book case of what the United States should not be doing.

America the beautiful has been generally blessed with a system of market based economic principles that favored equal opportunity for those willing to work for it.  Unfortunately, in more recent decades, the already difficult job of creating opportunities and benefiting for your labor has been hampered by brutal government intrusions via regulations. So now they make it impossible for America to win on the world economic stage.

Either purposely or through sheer ignorance, America’s course of direction has steadily drifted from a free market economy based upon reward for effort, into punishment for trying.  At every turn, small business owners are treated by government like they are criminals for simply attempting to be successful.  Many local and state governments throughout the union are horrendously hard on small business owners.  They often enact unfairly high taxes or fees on everything from waste baskets, to needed equipment.

Even the big boys are being choked out of the American economy.  Eaton Corporation of Cleveland recently announced a world headquarters more to Ireland.  Carrier, the giant air conditioning manufacturer will soon leave business friendly Indiana and move to Mexico.  The reason being, the highest corporate tax rate on earth and regulations that are much to oppressive.

The government goal of forcing equal results through redistribution of wealth and artificial increases in the minimum wage will continue to cause reductions in the number of entry level jobs.  Unfortunately, those are most needed by both teenagers just starting out and lower skilled older adults.  These efforts to fix what was not broken help drastically affected America.  She evolved from being the world’s manufacturing floor and most innovative economy into an increasingly undesirable place to conduct business activities.

As a result of fixing what was not broken, America is now broken financially, morally, economically, militarily, educationally and racially.  She can only be truly repaired now, by a concerted effort reestablish the enormously successful principles the Founding Fathers enacted long ago. They include a firm recognition of the unalienable God given rights of Life, Liberty, and the Pursuit of Happiness and or Property.  There also has to be an immediate working plan to reduce the enormous economic and Constitution violating federal government.

For the good of the future of our republic and to truly fix America, now that she has been broken, the importance of real education must not be overlooked.  What is taught to one generation dictates what direction the nation takes in the next.  Our current broken state can be fixed with a genuine return to high quality education, critical thinking, and true American history.

Last but not least, America’s first president George Washington along with the majority of the Founding Fathers had an unyielding faith in the God who shed his grace upon the United States.  They left warnings of the negative consequences we are witnessing today, if our republic turned away from the ways of God.  However, I firmly believe that if America (We the People) wisely seeks God’s forgiveness and repent of her wayward ways, she will once again be the glorious shining city on a hill nation under God, Indivisible with Liberty and Justice for all.

RELATED ARTICLE: How Washington Politicians Wasted Billions Trying to ‘Invest in Our Future’

The Myth of Scandinavian Socialism by Corey Iacono

Bernie Sanders has single-handedly brought the term “democratic socialism” into the contemporary American political lexicon and shaken millions of Millennials out of their apathy towards politics. Even if he does not win the Democratic nomination, his impact on American politics will be evident for years to come.

Sanders has convinced a great number of people that things have been going very badly for the great majority of people in the United States, for a very long time. His solution? America must embrace “democratic socialism,” a socioeconomic system that seemingly works very well in the Scandinavian countries, like Sweden, which are, by some measures, better off than the United States.

Democratic socialism purports to combine majority rule with state control of the means of production. However, the Scandinavian countries are not good examples of democratic socialism in action because they aren’t socialist.

In the Scandinavian countries, like all other developed nations, the means of production are primarily owned by private individuals, not the community or the government, and resources are allocated to their respective uses by the market, not government or community planning.

While it is true that the Scandinavian countries provide things like a generous social safety net and universal healthcare, an extensive welfare state is not the same thing as socialism. What Sanders and his supporters confuse as socialism is actually social democracy, a system in which the government aims to promote the public welfare through heavy taxation and spending, within the framework of a capitalist economy. This is what the Scandinavians practice.

In response to Americans frequently referring to his country as socialist, the prime minister of Denmark recently remarked in a lecture at Harvard’s Kennedy School of Government,

I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.

The Scandinavians embrace a brand of free-market capitalism that exists in conjunction with a large welfare state, known as the “Nordic Model,” which includes many policies that democratic socialists would likely abhor.

For example, democratic socialists are generally opponents of global capitalism and free trade, but the Scandinavian countries have fully embraced these things. The Economist magazine describes the Scandinavian countries as “stout free-traders who resist the temptation to intervene even to protect iconic companies.” Perhaps this is why Denmark, Norway, and Sweden rank among the most globalized countries in the entire world. These countries all also rank in the top 10 easiest countries to do business in.

How do supporters of Bernie Sanders feel about the minimum wage? You will find no such government-imposed floors on labor in Sweden, Norway, or Denmark. Instead, minimum wages are decided by collective-bargaining agreements between unions and employers; they typically vary on an occupational or industrial basis. Union-imposed wages lock out the least skilled and do their own damage to an economy, but such a decentralized system is still arguably a much better way of doing things than having the central government set a one-size fits all wage policy that covers every occupation nationwide.

In a move that would be considered radically pro-capitalist by young Americans who #FeelTheBern, Sweden adopted a universal school choice system in the 1990s that is nearly identical to the system proposed by libertarian economist Milton Friedman his 1955 essay, “The Role of Government in Education.”

In practice, the Swedish system involves local governments allowing families to use public funds, in the form of vouchers, to finance their child’s education at a private school, including schools run by the dreaded for-profit corporation.

Far from being a failure, as the socialists thought it would be, Sweden’s reforms were a considerable success. According to a study published by the Institute for the Study of Labor, the expansion of private schooling and competition brought about by the Swedish free-market educational reforms “improved average educational performance both at the end of compulsory school and in the long run in terms of high school grades, university attendance, and years of schooling.”

Overall, it is clear that the Scandinavian countries are not in fact archetypes of successful democratic socialism. Sanders has convinced a great deal of people that socialism is something it is not, and he has used the Scandinavian countries to prove its efficacy, while ignoring the many ways they deviate, sometimes dramatically, from what Sanders himself advocates.

Corey IaconoCorey Iacono

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

Regulators Are Not Heroes by Adam C. Smith & Stewart Dompe

Amazon is suing thousands of “fake” reviewers, who, for a fee, have posted positive reviews for various products. These pseudo reviews violate the spirit — and possibly the functionality — of Amazon’s largely self-governed rating system. Customers rely on reviews to guide their own choices, and a wave of sponsored reviews can mislead them into choosing inferior products.

A similar theme plays out in George Akerlof and Robert Shiller’s newest behavioral economics-cum-self-help book, Phishing for Phools. The authors, both Nobel laureates, claim that an unregulated market leads to massive amounts of manipulation and deception. Just how much remains unspecified, but the general thrust of the argument is that regulatory heroes are needed to rein in villainous dealers.

Heroic Regulators?

It is no surprise then that the authors favor heroic efforts of an older progressive sort, such as the works of Alice Lakey or her modern-day counterpart Elizabeth Warren. Their work, respectively, led to the establishment of the Food and Drug Administration and the Consumer Financial Protection Bureau. These progressives are seen as heroic for taking “action not selfishly but for the public good.” The trouble with such heroes, however, is that they invariably focus not on educating consumers so that they may make better choices but on corralling the cat herd of bureaucrats and politicians into ever-expanding spheres of regulation.

While it is true that consumer regulation can provide focal points that help buyers and sellers interact — in fact, Amazon appealed to just that in its lawsuit — this truth nevertheless misses the pivotal point (and an awkward one for Akerlof and Shiller) that it is Amazon that is working to resolve the problem, not government regulators.

Make no mistake. Akerlof’s classic paper on the quality of goods in a world of imperfect information clearly outlines a problem that markets must address, but it is a problem for both consumers and the market platforms on which they participate. Those platforms have a natural incentive to promote the information consumers need in order to make more informed decisions. The incentives faced by regulators are less well aligned with consumers’ interests. (But advocates of regulation rarely ask what incentives drive government regulators.)

There is another aspect of Akerlof’s model that is telling in this regard: in equilibrium, the so-called “lemons market” should unravel as more and more consumers become frustrated with ever-decreasing levels of quality. Thus, the market platform should topple over. The trouble with this theoretical outcome is that it again fails to account for the empirical observation that it is markets that are solving market problems.

Akerlof’s co-recipient of the 2001 Nobel Prize, Michael Spence, would have no trouble with this observation. Spence noted that it is far more interesting to compare the outcomes in the market to what is possible in a world of incomplete information, not to what is found where no imperfection exists by assumption. Spence explained in his Nobel address that when facing a world of imperfect information, the asymmetry between buyer and seller “cannot be simply removed by a wave of the pen.”

Compared to What?

Even when we acknowledge that individuals may be limited in their analytical and decision-making capabilities, we must ask ourselves, “Compared to what?” As noted elsewhere in these pages, every flaw in consumers is worse in voters. Furthermore, the immediate call for greater government regulation ignores the ongoing knowledge problem: acquiring information is limited by the abilities of normal people (after all, we can’t all be heroes). Knowing which transactions to avoid is valuable information, but that knowledge must first be discovered to be shared. If this information is not readily attainable, then it is unclear how regulators will know what market processes to target, much less how to improve on them.

And if the information does exist, then there is an opportunity for entrepreneurial action to gather this information and sell it to consumers. Put another way, market failures that cause individuals to make poor decisions are themselves profit opportunities for entrepreneurs to help people make better decisions.

In a world of uncertainty, ensuring quality can be a powerful competitive advantage. Amazon wants you, the customer, to use its search and recommendation system to buy new products, products that you cannot physically touch and inspect. The review system is one method of overcoming this informational asymmetry. When the integrity of the review system is challenged, Amazon is faced with the prospect of a lower volume of transactions and therefore lower profits.

Private Heroes

This is why Amazon is acting to curtail its rogue members. Retailers can only justify high prices when they can guarantee quality. Amazon’s feedback system constitutes a significant informational subsidy to its users, and the company is willing to create this information (or have it created by users) because it leads to a higher volume of trade and the accompanying consumer benefits that Amazon brings to book readers worldwide.

What Akerlof and Shiller miss is that creating and maintaining a viable platform for trade opportunities is enormously expensive. Having customers exit the door to never return — or perhaps write negative Yelp reviews — causes instability to the market that can be fatal if left unattended.

Rather than focusing on the failure of consumers, the original sin of our humanity, we should instead notice how information entrepreneurs are enabling us to make better choices. The information revolution led by these innovators has changed the world with the costs of distribution lower than ever.These may not be the welfarist heroes of Akerlof and Shiller’s fantasy world but market troubleshooters of the one we actually occupy.

Public-spirited regulators may be the heroes we want, but they are not the heroes we need.

Adam C. Smith

Adam C. Smith

Adam C. Smith is an assistant professor of economics and director of the Center for Free Market Studies at Johnson & Wales University. He is also a visiting scholar with the Regulatory Studies Center at George Washington University and coauthor of the forthcoming Bootleggers and Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics.

Stewart Dompe

Stewart Dompe

Stewart Dompe is an instructor of economics at Johnson & Wales University. He has published articles in Econ Journal Watch and is a contributor to Homer Economicus: Using The Simpsons to Teach Economics.

‘Capitalism’ Is the Wrong Word by Steven Horwitz

We Shouldn’t Use a Term Coined by the System’s Enemies!

Wouldn’t it be nice if we could simply invent new terms to replace the words that seem to cause more heat than light? For example, I have written before of my qualms about using the word capitalism to describe the free-market economy. The word was coined by capitalism’s enemies to describe the system that they rejected.

Red Plenty, a marvelous book by Francis Spufford, offers an important perspective on our discussion of terms. The book is a must-read for fans of free markets. It combines elements from the actual history of the use of mathematics to try to plan the Soviet economy, fictional dialogue and some fictional characters, and Spufford’s excellent understanding of the economics of capitalism and socialism to create an incredibly readable account of the attempt to engineer a world of abundance in the former Soviet Union.

In the senior seminar I teach, we recently read a section of the book that deals with how the Soviet planning process actually worked. That section got me thinking about the terms capitalism and socialism again. The term capitalism suggests a system built around capital and its interests, while the word socialism suggests one built around society and its interests. Notice how these connotations beg some questions from the start.

Is it really true, for example, that capitalism is centered around capital and its interests? Is it really capitalists who benefit the most from capitalism? And on the other side: have existing socialist economies ever served the interests of society as a whole? Could socialism, in theory, do so? Do both of these names make assumptions about each of the two types of economies that reflect the biases of capitalism’s critics and socialism’s defenders?

Of course, capital does play a crucial role in capitalism. The private ownership of capital (the means of production) is a defining characteristic of a free-market economy, especially in comparison to socialism. And the ability to engage in economic calculation provided by the money prices of the market is crucial for the owners of capital to know how best to deploy it. So in those senses, capitalism is about capital.

But notice that nowhere in the previous paragraph is it claimed that the primary beneficiaries of capitalism are the capitalists! What is missing is an answer to the question of why the capitalists continually have to figure out how best to deploy their capital. The answer is because they are constantly trying to provide what consumers want using the least valuable resources possible.

Sure, the capitalists reap profits by doing so. But those profits result from the mutually beneficial exchanges capitalists have with consumers.

The main beneficiaries from capitalism are not the capitalists, but all of us in our role as consumers. Competition among the owners of private capital is all about responding to consumers’ wants. And consumers benefit from this arrangement through more, better, and cheaper goods. If we want a name for the free-market economy that indicates who its primary beneficiaries are, we should reappropriate the term consumerism.

But “consumerism” is only half of the story. It’s easy enough to show through the standard arguments that socialism doesn’t work for the benefit of society as a whole. We know from the socialist-calculation debate that eliminating the market altogether in favor of planning can’t work. But what about all of those countries, like the Soviet Union, that claimed to be planning their economies?

As we see in Red Plenty, the truth was that central planning served as a kind of myth around which economic activity could be oriented. Everyone acted as if there were a plan, but the actual way resources got allocated and shuffled around was much more complicated. In Red Plenty, we meet two characters who help us see this.

First is Cherkuskin, the middleman who trades on relationships and friendships to help producers get the goods they need to meet their centrally planned targets. Cherkuskin is the personification of what Ayn Rand called “the aristocracy of pull.” His power comes from whom he knows and what he can get them to do for you. When producers don’t have enough to fulfill their quotas because of the inability of the plan to allocate rationally or to respond to unexpected change, the Cherkuskins come into play and move resources around to help them — and to profit handsomely in the process. Underneath “the plan” was the black market that did a great deal to ensure that Soviet-style economies were minimally functional.

The other character is Maksim Maksimovich Mokhov, a high-ranking bureaucrat in the planning agency. Faced with the news of the destruction of a crucial machine, Mokhov has to figure out how to rebalance the plan given that one factory will either need a new machine or fail to produce the output that other factories need. Spufford gives us terrific imagery of Mokhov sliding around on his wheeled chair, abacus in hand, going from file to file using technology primitive by even the 1962 standard of that chapter of the book, attempting to reallocate resources with the flick of an eraser and the scratch of a pencil.

Both Cherkuskin and Mokhov are, functionally, substitutes for what the price system does under capitalism, and inferior substitutes at that.

But what’s most interesting is that neither of them cares one whit about the consumer. Cherkuskin is all about making sure that producers get what they need to fulfill the plan, never pausing to consider what the costs were for consumers. Mokhov describes consumers as a “shortage sink” because they are the end of the line, and if they don’t get what they want, no one else relies on them for further output. It was more important to balance out production than to worry if consumers got exactly what they needed.

What Spufford so nicely illustrates here is how real-world socialism, and not capitalism, put the needs of “capital” first and the wants of consumers last. In a world where producing more stuff, regardless of its value, was the path to plenty, ensuring that production continued according to the plan and that producers got what they needed were the central tasks. And the black market middlemen like Cherkuskin could make a real ruble or two doing so.

But unlike the profits of market capitalists, Cherkuskin’s rubles came at the expense of the consumer rather than reflecting mutual benefit. A system where consumers are just the folks who are expected to absorb the errors of the plan is hardly one geared to the interests of society as a whole. And a system where capital is ultimately the servant of consumers is misleadingly named if we call it capitalism.

It’s a difficult battle to get people to change the names they’ve long used for free markets and (supposedly) planned economies. Even if we don’t win that battle, it’s still important for us to point out how the terms capitalism and socialism really do give a false impression of how markets and planning work. If we want to know who really benefits from markets, a quick look around the abundance that is the typical American household will answer that question quite clearly.

Steven HorwitzSteven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions.

He is a member of the FEE Faculty Network.

Bernie Sanders and the Fixed Pie Fallacy by Chelsea German

“The rich are getting richer and the poor are getting poorer.” Senator Bernie Sanders first said those words in 1974 and has been repeating them ever since.

Senator Sanders is not alone in his belief. Three out of four Americans agree with the statement, “Today it’s really true that the rich just get richer while the poor get poorer.”

Senator Sanders is half right: the rich are getting richer. However, his assertion that the poor are becoming poorer is incorrect. The poor are becoming richer as well.

Economist Gary Burtless of the Brookings Institute showed that between 1979 and 2010, the real (inflation-adjusted) after-tax income of the top 1% of U.S. income-earners grew by an impressive 202%.

He also showed that the real after-tax income of the bottom fifth of income-earners grew by 49%. All groups made real income gains. While the rich are making gains at a faster pace, both the rich and the poor are in fact becoming richer.

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In addition to these measurable real income gains, decreases in prices have given the poor increased purchasing power, helping to raise living standards for the worst off in society. As a result of falling prices such as for groceries and material goods, along with gains in real income, Americans have more income left after basic expenses.

Technology has also become cheaper, improving our lives in unexpected ways. For example, consider the spread of cell phones. There was a time when only the wealthiest Americans could afford one. Today, over 98% of Americans have a cellular subscription, and the rise of smart phones has made these devices more useful than ever.

Unfortunately, progress has been uneven. In those areas of the economy where competition is hobbled, such as education, housing, and healthcare, prices continue to increase.

Still, the percentage of the population classified as living in relative poverty has decreased over time. Why then do three quarters of Americans, including Senator Sanders, believe that the poor are “getting poorer?”

A simple logical error underlies Sanders’ belief. If we assume that wealth is a fixed pie, then the more slices the rich get, the fewer are left over for the poor. In other words, people can only better themselves at the expense of others. In the world of the fixed pie, if we observe the rich becoming richer, then it must be because other people are becoming poorer.

Fortunately, in the real world, the pie is not fixed. US GDP is growing, and it’s growing faster than the population.

Poverty remains a pressing issue, but Senator Sanders is incorrect when he says that the poor are becoming poorer. In the words of HumanProgress.org advisory board member Professor Deirdre McCloskey,

The rich got richer, true. But millions more have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travelrights for womenlower child mortalityadequate nutrition, taller bodies, doubled life expectancyschooling for their kids, newspapers, a vote, a shot at university, and respect.

This post first appeared at HumanProgress.org.

Chelsea German

Chelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

Four Fallacies that Fracktivists Use to Scare You

To make intelligent decisions about the future of energy, we need to think big-picture—to look carefully at the benefits and costs to human life of every course of action. Unfortunately, in today’s energy debate we are taught, with politically incorrect forms of energy such as fossil fuels, to only look at the negative picture—often highly exaggerated or taken out of context.

How do we identify and counter this cultural bias against fossil fuels? That’s the topic of my latest Forbes column:

There are at least four common fallacies used to discourage big-picture thinking and breed opposition to fossil fuels. These are things to be on the lookout for when you follow the cultural debate; they are everywhere, and all four are used to attack what might be the most important technology of our generation: shale energy aka “fracking.”

The largest fossil fuel controversy today, besides the broader climate change issue, is fracking—shorthand for hydraulic fracturing—one of several key technologies for getting oil and gas out of dense shale rock, resources that exist in enormous quantities but had previously been inaccessible at low cost.

Fracking has gotten attention, not primarily because of the productivity revolution it has created, but because of concerns about groundwater contamination. The leading source of this view is celebrity filmmaker Josh Fox’s Gasland (so-called) documentaries on HBO. Looking at how these movies have affected public opinion is an instructive exercise.

Bernie Sanders Is Wrong: Trade Is Awesome for the Poor and for America by Corey Iacono

Sen. Bernie Sanders, the Democratic presidential hopeful, is no fan of free trade. In an interview with Vox, Sanders’ made his anti-trade position clear: “Unfettered free trade has been a disaster for the American people.”

He also noted that he voted against all the free trade agreements that were proposed during his time in Congress and that if elected President he would “radically transform trade policies” in favor of protectionism.

Sanders and his ilk accuse their intellectual opponents of promoting “trickle-down economics,” but that is precisely what he is advocating when it comes to trade. The argument for protectionism ultimately relies on the belief that protecting domestic corporations from foreign competition and keeping consumer prices high will somehow benefit society as whole.

However, the real effect of protectionism is to increase monopoly and consequently reduce overall economic welfare. In fact, according to a paper by economists at the Federal Reserve Bank of Minneapolis, “Government policies…such as tariffs and other forms of protection are an important source of monopoly” that lead to “significant welfare losses.”

In contrast to Sanders’ assertion that the expansion of free trade has been a disaster for the American people, there is a near unanimous consensus among economists that the opposite is true.

An IGM Poll of dozens of the most renowned academic economists found that, weighted for each respondent’s confidence in their answer, 96 percent of economists agreed, “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”

When the vast majority of economists of all sorts of ideological stripes agree that free trade is a good thing, maybe, just maybe, they’re onto something.

In fact, they surely are. Using four different methods, economists at the Petersen Institute for International Economics estimated the economic benefits from the expansion of technology that facilitates international trade (such as container ships), as well as the removal of government imposed barriers to international trade (such as tariffs). Since the end of World War II, they generated “an increase in US income of roughly $1 trillion a year,” which translates into an increase in “annual income of about $10,000 per household.”

This result is mostly driven by the fact that foreign businesses produce many goods which are used in the production process at a lower cost than their domestic competitors. Access to these low-cost foreign inputs allows American businesses to decrease their production costs and consequently increase their total output, making the nation as a whole much wealthier than it otherwise would have been.

Moreover, contrary to common conjecture, the benefits of international trade haven’t simply accrued to the wealthy alone. Low and middle income individuals tend to spend a greater share of their income on cheap imported consumer goods than those with higher incomes. As a result, international trade tends to benefit these income groups more so than the wealthy.

Indeed, according to the President’s Council of Economic Advisers, middle income consumers have about 29 percent greater purchasing power as a result of international trade.

In other words, middle income consumers can buy 29 percent more goods and services as a result of the access to low-cost imports from foreign countries.

Low income consumers see even greater gains with 62 percent higher purchasing power as a result of trade. In contrast, the top 10 percent of income earners only saw an increase in purchasing power of 3 percent as a result of trade.

On top of that, international trade has provided benefits by bringing new and innovative products to American consumers.

According seminal research by Christian Broda of the University of Chicago and David E. Weinstein of Colombia University, the variety of imported goods increased three-fold from 1972 to 2001. The value to American consumers of this import induced expanded product variety is estimated to be equivalent to 2.6 percent of national income, about $450 billion as of 2014. That’s not exactly small change.

The spread of free trade has also made considerable contributions to environmental protection, gender equality, and global poverty reduction. As a result of the spread of clean technology facilitated by freer trade, “every 1 percent increase in income as a result of trade liberalization (the removal of government imposed barriers to trade), pollution concentrations fall by 1 percent,” according to the Council of Economic Advisers.

The CEA also has found that “industries with larger tariff declines saw greater reductions in the [gender] wage gap,” suggesting that facilitating foreign competition through trade liberalization reduces the ability of employers to discriminate against women.

In regards to global poverty reduction, research has shown that in response to US import tariff cuts, developing countries, such as Vietnam, export more to the US, leading to higher incomes and less poverty.

Despite the large gains from trade America has already reaped, there is still room for improvement (contrary to Sen. Sanders’ accusations of “unfettered” free trade). The PIIE economists estimate that further trade liberalization would increase “US household income between $4,000 and $5,300 annually,” leading the them to conclude that, “in the future as in the past, free trade can significantly raise income — and quality of life — in the United States.”

Ultimately, the conclusion that most economists seem to reach is that, from being a disaster, the expansion of free trade has been a tremendous success, and that further trade liberalization would most likely make Americans, and the rest of the world, considerably better off.

Don’t let fear-mongering about foreigners and China scare you: free trade benefits everyone, especially the poor, while protectionism benefits only the politically powerful.

Corey Iacono

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics.

VIDEO: Why Wouldn’t You Save a Drowning Child? by Matt Zwolinski

Would you lose $500 to save a drowning child? We explore a thought experiment that just may save someone’s life.

Imagine you’re walking to work in the morning down a quiet rural road to the side of the road there’s a pond and pass by every day. Only today, something is different. Today you see a small child in that pond.

He is alone, he’s flailing his arms, and if you don’t act quickly it looks like he is going to drown. Luckily, the pond is shallow. You can wade in, grab the child, and bring him to safety without putting yourself in any danger at all.

Unluckily, you’re wearing a very expensive set of clothes, and there just isn’t enough time to take them off. So even though saving the child is perfectly safe, it is going to cost you at least $500 to replace your suit and shoes. There’s no one else around, so the decision is yours alone to make.

Do you wade in, save the child, and ruin your expensive clothes? Or do you decide that $500 just too high a price to pay for the life of someone you don’t even know and walk on by.

If you’re like most people, the answer is obvious. Of course you save the child. Anyone that would would let us small child die just to keep their nice clothes from getting wet would be a moral monster. As peter singer, the philosopher who originated this drowning child thought experiment argued, if you had the power to prevent something really bad from happening to someone else just by suffering something merely slightly bad yourself, then “taking the hit” is the right thing to do.

Now of course most of us will never come across a drowning child on her way to work but all of us do find ourselves living in a world where over six million children die each year from preventable causes. And while none of us have the power to help all of those children, almost all of us have the power to help some of them. By donating a small amount of money much less than $500 to an effective charity through a site like GiveWell.org, you could literally save someone’s life. But that brings up another question.

How do we make sure aid efforts do the most good and the least harm?

Matt Zwolinski
Matt Zwolinski

Matt Zwolinski is an Associate Professor of Philosophy at the University of San Diego. He is also a co-director of USD’s Institute for Law and Philosophy, a member of the editorial board of Business Ethics Quarterly, and a blogger for Bleeding Heart Libertarians.

When Judges Quit Protecting Liberty by David S. D’Amato

How do we decide if a government action is legitimate?

When courts are asked to determine whether a government action has violated an individual’s rights, they apply one of several different “standards of review” or “levels of scrutiny,” ranging from “strict scrutiny” (reserved for a very narrow category of cases) to “rational basis scrutiny.”

Rational basis tests erect the lowest possible legal hurdles for the government, yet they are applied in cases that implicate some of our most important liberties, such as the right to earn a living, simply because they were not listed by name in the Bill of Rights.

For example, a law requiring an expensive permit to arrange flowers will only merit a rational basis review. And while rational basis review is a test for constitutionality, it doesn’t have anything to do with the Constitution or its history.

As Timothy Sandefur pointed out in the Cato Unbound issue on judicial activism, such rational basis tests have “no foundation whatsoever in the Constitution of the United States.” Rather, they were simply made up, fashioned by judges out of whole cloth during a period when courts were increasingly willing to defer to legislators and bureaucrats and their arbitrary and needless interference with private enterprise.

Rational basis review amounts to carte blanche for petty tyrants in legislatures, city councils, and regulatory agencies. Since the New Deal, courts have refused to give any real constitutional protection to the basic right to choose your profession and earn an honest living.

The 1934 Supreme Court decision in Nebbia v. New York is an important episode in the creeping evolution of rational basis. Leo Nebbia, a grocer, was convicted of the heinous crime of selling milk at a price that was too low, according to the bullies at New York’s “Milk Control Board.”

Writing for the Court, Justice Owen Roberts declared that as long as a law has “a reasonable relation to a proper legislative purpose,” the courts have no authority to strike it down.

Though he admitted that “the reasonableness of each regulation depends upon the relevant facts,” Roberts still maintained that, once a law is enacted, “every possible presumption is in favor of its validity.” If a “policy may reasonably be deemed to promote public welfare,” judicial review is basically over.

As a practical matter, this strange, circular reasoning means that a legislative body determines for itself whether its bills are constitutional. Merely by passing the law, the legislature settles the question and obliges the courts to accept any explanation offered for it. Such a theory eviscerates meaningful judicial review and leaves the individual defenseless, without any legal recourse against the nearly omnipotent modern state. And, since the Nebbia decision, the courts have only become more deferential.

Conservatives mistakenly associate judicial “activism” with the progressive left, but the New Deal-era progressive judges were actually the architects of the judicial “deference” that reigns today. Traditional common law protections were discarded in favor of expedience: the desire to get out of government’s way as it systematically planned, monitored, and regulated society as it saw fit.

The liberalism of the previous century was likewise treated with an arrogant and imperious contempt. Quaint notions of individual liberty and inviolable natural rights gave way to the irresistible march of modernity and “scientific” progress, shepherded by their natural steward, the state.

Rational basis tests invert legitimate due process. The burden of proof should be on the government to prove that a law or regulation serves the general welfare. The government should have to factually demonstrate the connection between the law and public health and safety, not merely assert that one mightexist.

But, instead, judges have decided that person challenging a law must confront and rebut every possible argument and hypothetical that the government (or judge) might conjure up in support of its law.

The rational basis test demands that a victim of government overreach prove the impossible, refuting an infinite universe of possible scenarios and rationales that could justify the law. Forget the actual empirical facts — rational basis has no time for such distractions.

On the contrary, the test requires judges to help the government by inventing counterfactual stories that could have justified the law. Even if the law has nothing to do with community health or safety, even if it is openly protectionist, it must be upheld if any flight of fancy could justify it.

Thus, the rational basis “test” is no test at all. It is a hollow, perfunctory gesture as the court abandons its duty of judicial review and leaves the hapless individual at the mercy of capricious government officials and special interests.

The right to choose your occupation is as fundamental a liberty as the right to speak, an indispensable aspect of self-ownership and self-determination. The freedom to make important, personal decisions about your career and your property is the bedrock of peaceful cooperation and civil society. In any society even moderately committed to freedom and legitimate due process, the rational basis test would be inconceivable. The presumption of liberty, like the presumption of innocence, would be the individual’s default position under the law.

Sadly, judges have abandoned their posts, doing the bidding of arbitrary governments and politically powerful economic interests who use the law to prevent competition. To fulfill the Constitution’s guarantee of due process, and to restore our lost liberties, we must scrap the rational basis excuse.

David S.  D'Amato

David S. D’Amato

David S. D’Amato is an attorney and independent scholar whose writing has appeared at the Institute of Economic Affairs, the Future of Freedom Foundation, the Centre for Policy Studies, and the Institute for Ethics and Emerging Technologies.

Environmental Doom-mongering and the Myth of Vanishing Resources by Chelsea German

Media outlets ranging from Newsweek and Time, to National Geographic and even the Weather Channel, all recently ran articles on the so-called “Overshoot Day,” which is defined by its official website as the day of the year

When humanity’s annual demand for the goods and services that our land and seas can provide — fruits and vegetables, meat, fish, wood, cotton for clothing, and carbon dioxide absorption — exceeds what Earth’s ecosystems can renew in a year.

This year, the world allegedly reached the Overshoot Day on August 13th. Overshoot Day’s proponents claim that, having used up our ecological “budget” for the year and entered into “deficit spending,” all consumption after August 13th is unsustainable.

Let’s look at the data concerning resources that, according to Overshoot Day’s definition, we are consuming unsustainably. (We’ll leave aside carbon dioxide absorption — as that issue is more complex — and focus on all the other resources).

Fruits and vegetables

Since millions of people rose from extreme poverty and starvation over the past few decades, the world is consuming more fruits and vegetables than before. We are also producing more fruits and vegetables per person than before. That is, partly, because of increasing yields, which allow us to extract more food from less land. Consider vegetable yields:

Meat and fish

As people in developing countries grow richer, they consume more protein (i.e., meat). The supply of meat and fish per person is rising to meet the increased demand, just as with fruits and vegetables. Overall dietary supply adequacy is, therefore, increasing.

Wood

It is true that the world is losing forest area, but there is cause for optimism. The United States has more forest area today than it did in 1990.

As Ronald Bailey says in his new book The End of Doom, “In fact, except in the cases of India and Brazil, globally the forests of the world have increased by about 2 percent since 1990.”

As the people of India and Brazil grow wealthier and as new forest-sparing technologies spread, those countries will likely follow suit. To quote Jesse H. Ausubel:

Fortunately, the twentieth century witnessed the start of a “Great Restoration” of the world’s forests. Efficient farmers and foresters are learning to spare forestland by growing more food and fiber in ever-smaller areas. Meanwhile, increased use of metals, plastics, and electricity has eased the need for timber. And recycling has cut the amount of virgin wood pulped into paper.

Although the size and wealth of the human population has shot up, the area of farm and forestland that must be dedicated to feed, heat, and house this population is shrinking. Slowly, trees can return to the liberated land.

Cotton

Cotton yields are also increasing — as is the case with so many other crops. Not only does this mean that we will not “run out” of cotton (as the Overshoot Day proponents might have you believe), but it also means consumers can buy cheaper clothing.

Please consider the graph below, showing U.S. cotton yields rising and cotton prices falling.

While it is true that humankind is consuming more, innovations such as GMOs and synthetic fertilizers are also allowing us to produce more. Predictions of natural resource depletion are not new.

Consider the famous bet between the environmentalist Paul Ehrlich and economist Julian Simon: Ehrlich bet that the prices of five essential metals would rise as the metals became scarcer, exhausted by the needs of a growing population. Simon bet that human ingenuity would rise to the challenge of growing demand, and that the metals would decrease in price over time. Simon and human ingenuity won in the end. (Later, the prices of many metals and minerals did increase, as rapidly developing countries drove up demand, but those prices are starting to come back down again).

To date, humankind has never exhausted a single natural resource. To learn more about why predictions of doom are often exaggerated, consider watching Cato’s recent book forum, The End of Doom.

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

Chelsea German

Chelsea German

Chelsea German works at the Cato Institute as a Researcher and Managing Editor of HumanProgress.org.

RELATED ARTICLE: EPA’s Hightest Paid Employee, “Climate Change Expert,” Sentenced to 32 Months for Fraud, Says Lying Was a ‘Rush’

Who Will Protect Us from Tainted Food Trucks? by B.K. Marcus

My Haitian babysitter told me to get into the car, an old sedan with peeling paint, driven by a stranger. She’d hailed it, like a cab, and it pulled over for us, like a cab, but it didn’t look like a cab.

“I thought you said we were taking a taxi,” I said.

“This is a taxi.” She pushed me into the back seat.

“It doesn’t look like a taxi,” I whispered.

“Real taxis don’t come into this neighborhood,” she said. “This is a gypsy.”

I thought she was describing the ethnicity of the driver. Only later, listening to radio news reports about city police campaigns against gypsy cab drivers did I understand that my babysitter had dragged me into a mobile version of the black market.

That brief ride through a 1970s New York City ghetto was my only time in a gypsy cab: a bewildered little boy forced into the car of a man I didn’t know. It felt dangerous in a way that even hitchhiking in the Middle East when I was a teenager did not.

So why do I use Uber and Lyft without hesitation? Why do I prefer gray-market ride sharing with unlicensed strangers to hailing a municipally sanctioned taxi?

At this point, my confidence is based on past experience: the dozens of Uber drivers I’ve had were far more pleasant than the hundreds of cab drivers I’ve ridden with. But even my very first time with Uber, I got in without hesitation.

Peer-to-peer apps have made reputation markets real and robust — at least in certain corners of the service economy. Uber drivers have far greater incentive to make me happy than any cab driver ever has. More than their tip depends on it: the rating I give them can affect their future earnings.

Cab companies could have adopted reputation apps years ago as a way to outdo their competitors. But they weren’t worried about competition. City licensing often creates a protective cartel for current cabbies. That’s why Uber and Lyft became so popular so fast: the market — meaning everyone looking for a ride — wanted what the cab industry felt no need to offer us.

Will food trucks be the next service to escape the archaic model of licensing and regulation?

“Illegal Food Trucks Worry Health Officials,” reports the Herald-Sun of Durham, North Carolina. “Unlicensed food trucks operating illegally in Durham have health officials concerned that customers could end up getting sick.”

One such official, Chris Salter, told the paper that people selling food from the back of SUVs have posed food-poisoning risks to the public for years: “Did they slaughter a chicken in their backyard and cut it up on a piece of plywood? You just don’t know.”

The solution Salter proposes, of course, is stricter policing and greater regulation. After all, if cops and bureaucrats don’t protect the public, who will?

To the generation that reads newspapers and waits in line for taxis, the argument makes sense: when you eat in a restaurant, you may not know for sure that the food is safe, but the restaurant isn’t going anywhere; even without a health inspector’s oversight, restaurant owners have an incentive to protect their reputations. It’s not hard to spread the word that you got sick eating at Big Joe’s on the corner of 1st and Main. It’s a lot less helpful to say you ate a bad fajita out of the back of a faded green RAV4 in the abandoned parking lot.

When I used to take city cabs, the seats were filthy, the driving was reckless, and the drivers ranged from sullen to rude. But I felt relatively safe. I knew I could always write down the cabby’s name and medallion number. In theory, at least, I could report him and maybe someone would wag a finger at him. That seemed better than nothing.

Licensed food trucks offer a similar assurance: “Salter’s advice to the public is to look for the health grade card at food trucks if they’re unsure whether it’s operating legally. Since 2012, food trucks have been required to display the same cards as restaurants.”

Again, even without the health inspection required to get a permit and a health grade card, food truck owners don’t want to risk customers’ health for fear of losing their permits or having to display a lackluster “health grade” on their cards.

Government licensing acts as a sort of hampered reputation market. The food SUVs have no such incentives.

As in the case of cabbies versus Uber drivers, the legitimate food truck owners are on the side of the government officials: “Many of those owners are upset because the illegal trucks skirt regulation fees and cut into their business.”

Food trucks in Durham may not yet operate as a cartel — the way they are beginning to do in New York City, for example, where the number of food-truck licenses has been frozen for years — but the complaint is typical of the established players in a protected industry: upstarts with lower costs are threatening our profit margin!

But suppose you’re a foodie with fear of salmonella. Would you rather rely on an 11-month-old government report card or just check your food-truck app to see what your fellow foodies have to say? What sort of insurance does the owner carry — what third-party assurance is available? How’s their guacamole?

Don’t like this truck’s rating? The app will guide you to the next nearest truck serving similar fare.

Salter told the Herald-Sun, “We’re not trying to keep anybody from making a living. We’re trying to be fair and to protect the public.” So why is he offering 20th-century advice to consumers in the 21st century? Might he have any interests at stake other than public safety?

No doubt health officials would counter that the sharing economy is an option only for the privileged. It’s not like everyone has a smart phone, right? Right?

Many of the illegal vendors speak only Spanish, Salter told the Herald-Sun. And “many of them can’t read, so even if we pass out documents, they can’t read them.”

So who buys questionable chicken out of the back of an SUV operated by illiterate, Spanish-speaking strangers when Durham has so many government-approved food trucks with English-speaking staff?

Might those who choose to do so be similar to those who hailed gypsy cabs in the New York City of my youth?

“Real taxis don’t come into this neighborhood,” my babysitter had told me. I didn’t need to ask why. I didn’t want to be in that area either. But folks in the bad neighborhoods still needed rides, and they were willing to pay for them. There was extra risk involved for both parties, and the drivers couldn’t make the kind of money that licensed taxi drivers made, but driving a gypsy cab was better than their next-best option, so supply and demand met in illegal exchanges that benefitted both parties.

It’s safe to assume something similar is going on at the back of some of Durham’s SUVs.

These are most likely working people on the margins of the economy who don’t have the time or the money to seek a quick lunch elsewhere. If they’re buying their food from obviously unlicensed and uninspected vendors, that suggests that the higher-scale food trucks aren’t coming to their neighborhood — or that they charge considerably more than the illegal food.

The health officials aren’t protecting these people. At best, they are limiting their options. Worse, they could be driving economic exchanges further underground, where neither the government nor the market can effectively regulate safety.

Salter implies that vendor noncompliance is the result of ignorance, but it’s more likely buyers and sellers who don’t feel especially well protected by the legal system are taking measured risks to improve each other’s lives.

And I bet plenty of them do have smart phones. What they need now isn’t more ardent government oversight; it’s more reliable reputation markets. If there isn’t already an app for that, there soon will be.

B.K. Marcus

B.K. Marcus is managing editor of the Freeman.

Does “I, Pencil” Need a Pro-Government Update? by George C. Leef

In a book I recently read, Complexity and the Art of Public Policy by David Colander and Roland Kupers, I was surprised to find a chapter entitled “I Pencil Revisited.” Yes, they meant Leonard Read’s famous essay showing how market prices and competition work to coordinate production in a way that no single person, however powerful or intelligent, possibly could.

The authors aren’t exactly hostile to Read’s message but say that it leaves out something important — the role of government.

They write,

For me to be produced, someone had to protect the property rights upon which the market is based, someone had to guarantee that the contracts between individuals would be enforced, and someone had to be on the lookout for lead, for the safety of machines, and similar problems, which if not addressed might well lead to a society to undermine the institutional structure that produced me.

And, again writing through the voice of a pencil, Colander and Kupers say,

The reason I, Pencil downplayed government’s role is that he was afraid its inclusion would lead some people to expand the role of government to solve the inevitable problems that come about in coordinating production.

I believe that they are mistaken on that. The reason why Leonard Read focused exclusively on the remarkable story of voluntary market cooperation and did not expand the piece to discuss the proper role of government was that he figured most people already had some understanding of the need to protect property, enforce contracts, and settle disputes.

What very few people had any comprehension of was the way individuals all across the globe are brought into cooperation by the market for pencils.

Going into the role of government in the essay would have been like Mozart adding a few extra movements to his Jupiter Symphony.

Here is why the authors make this argument. They don’t like what they call the “market fundamentalism” of Leonard Read, former FEE president Don Boudreaux, and others (like me) who argue that the people of any society will be the most productive, happiest, and best able to deal with the problems they see if the government is kept only to the functions of protecting the rights of life, liberty, and property.

Instead of laissez-faire, Colander and Kupers favor what they call “laissez-faire activism.”

In short, they want us to believe that there is an ideal middle ground between unsophisticated “market fundamentalism” and top-down government planning and control of the economy. The latter, they understand, is bad because such authority will squelch innovation and competition, but the former supposedly doesn’t do enough to allow people to realize their “collective goals.” Here is a crucial passage:

What simplistic or fundamentalist free market advocates sometimes miss is that a complex system works only if individuals self-regulate, by which we mean that they do not push their freedom too far, and that they make reasonable compromises about benefiting themselves and benefiting society.

Of course, the common law framework that thinkers in the Adam Smith, Frederic Bastiat, Leonard Read line advocated does put limits on individual action. Rights and the sphere of legitimate action are clearly established, and to the extent that people have collective goals, they are free to pursue them voluntarily. But Colander and Kupers think government can and should do just a bit more.

One of their ideas is that government should adopt policies that will “nudge” people to do what they “really want to do,” but can’t sufficiently discipline themselves to do. They extol the book Nudge by Cass Sunstein and Richard Thaler, which purports to show how government can “encourage” people to act in preferable ways, without dictating behavior to them.

But why can’t we rely entirely on voluntary efforts by concerned individuals and organizations to do that encouraging? Churches, for example, have been encouraging people to behave better for millennia; Alcoholics Anonymous has been helping people recover from alcohol abuse since 1935; parents have been “nudging” children to make wiser decisions since time immemorial. Why look to government policy?

Sometimes, the reason why people seem to need “nudging” is that current government policy encourages undesirable behavior. Few Americans save much these days, for instance. But instead of trying to “nudge” them to save more, why not change the tax laws that discourage thrift? Going back towards “laissez-faire fundamentalism” would solve or ameliorate many of our problems.

Moreover, Colander and Kupers ignore the great and, I maintain, insuperable problem of keeping government interference within bounds. If the state has the authority to “nudge” people, what keeps politicians from ratcheting up the power if it doesn’t work? Nudging turns into pushing, then shoving. Interest groups will importune politicians with arguments for policies they favor, crafting them as merely helping “the people” to realize the social goals they “really” favor.

They way democratic politics tends to be captured by interest groups is the big message of Public Choice theory, but Colander and Kupers never think to explain how they’d prevent their “laissez-faire activism” from turning into plain old activism.

After reading Complexity and the Art of Public Policy, I fail to see how government can improve upon capitalism combined with the host of voluntary organizations that spring up in a free society. I, Pencil does not need to be revisited.

George C. Leef

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

Gays Need the Freedom to Discriminate by Jeffrey A. Tucker

Gaining the right to be married is a win for liberty because it removes a barrier to free association. But how easily a movement for more freedom turns to the cause of taking away other freedoms!

Following the Supreme Court decision mandating legal same-sex marriage nationwide, the New York Times tells us that, “gay rights leaders have turned their sights to what they see as the next big battle: obtaining federal, state and local legal protections in employment, housing, commerce and other arenas.”

In other words, the state will erect new barriers to freedom of choice in place of the old ones that just came down!

To make the case against such laws, it ought to be enough to refer to the freedom to associate and the freedom to use your property as you see fit. These are fundamental principles of liberalism. A free society permits anything peaceful, and that includes the right to disassociate. Alas, such arguments seem dead on arrival today.

So let us dig a bit deeper to understand why anti-discrimination laws are not in the best interests of gay men and women, or anyone else. Preserving the ability to discriminate permits the market system to provide crucial information feedback to a community seeking to use its buying power to reward its friends and noncoercively, nonviolently punish those who do not share its values.

Ever more, consumers are making choices based on core values. Does this institution protect the environment, treat its workers fairly, support the right political causes? In order to make those choices — which is to say, in order to discriminate — consumers need information.

In the case of gay rights, consumers need to know who supports inclusion and who supports exclusion. Shutting down that information flow through anti-discrimination law robs people of crucial data to make intelligent buying decisions. Moreover, such laws remove the competitive pressure of businesses to prove (and improve) their commitment to community values, because all businesses are ostensibly bound by them.

A market that permits discrimination, even of the invidious sort, allows money and therefore success and profits to be directed toward those who think broadly, while denying money and profitability to those who do not. In this way, a free market nudges society toward ever more tolerant and inclusive attitudes. Money speaks far more persuasively than laws.

Notice that these proposed laws only pertain to the producer and not the consumer. But discrimination is a two-edged sword. The right can be exercised by those who do not like some groups, and it can be exercised by those groups against those who do not like them.

Both are necessary and serve an important social function. They represent peaceful ways of providing social and economic rewards to those who put aside biases in favor of inclusive decision making.

If I’m Catholic and want to support pro-Catholic businesses, I also need to know what businesses don’t like Catholics. If I’m Muslim and only want my dollars supporting my faith, I need to know who won’t serve Muslims (or who will put my dollars to bad use). If a law that prohibits business from refusing to serve or hire people based on religion, how am I supposed to know which businesses deserve my support?

It’s the same with many gay people. They don’t want to trade with companies that discriminate. To act out those values requires some knowledge of business behavior and, in turn, the freedom to discriminate. There is no gain for anyone by passing a universal law mandating only one way of doing business. Mandates drain the virtue out of good behavior and permit bad motivations to hide under the cover of law.

Here is an example from a recent experience. I was using AirBnB to find a place to stay for a friend. He needed a place for a full week, so $1,000 was at stake. The first potential provider I contacted hesitated and began to ask a series of questions that revolved around my friend’s country of origin, ethnicity, and religion. The rental owner was perfectly in his rights to do this. It is his home, and he faces no obligation to open it to all comers.

On the other hand, I found the questions annoying, even offensive. I decided that I didn’t want to do business with this person. I made a few more clicks, cancelled that query, and found another place within a few minutes. The new renter was overjoyed to take in my friend.

I was delighted for two reasons. First, my friend was going to stay at a home that truly wanted him there, and that’s important. Force is never a good basis for commercial relationships. Second, I was able to deny $1K to a man who was, at best, a risk averse and narrow thinker or, at worst, an outright bigot.

Declining to do business with him was my little protest, and it felt good. I wouldn’t want my friend staying with someone who didn’t really want him there, and I was happy not to see resources going toward someone whose values I distrusted.

In this transaction, I was able to provide a reward to the inclusive and broad-minded home owner. It really worked out too: the winning rental property turned out to be perfect for my friend.

This was only possible because the right to discriminate is protected in such transactions (for now). I like to think that the man who asked too many questions felt a bit of remorse after the fact (he lost a lot of money), and even perhaps is right now undergoing a reconsideration of his exclusionary attitudes. Through my own buyer decisions I was actually able to make a contribution toward improving cultural values.

What if anti-discrimination laws had pertained? The man would not have been allowed to ask about national origin, religion, and ethnicity. Presuming he kept his room on the open market, he would have been required under law to accept my bid, regardless of his own values.

As a result, my money would have gone to someone who didn’t have a high regard for my friend, my friend would have been denied crucial information about what he was getting into, and I would not be able to reward people for values I hold dear.

This is precisely why gay rights leaders should be for, not against, the right to discriminate. If you are seeking to create a more tolerant society, you need information that only a free society can provide.

You need to know who is ready to serve and hire gay men and women, so they can be rewarded for their liberality. You also need to know who is unwilling to hire and serve so that the loss part of profit-and-loss can be directed against ill-liberality. Potential employees and customers need to know how they are likely to be treated by a business. Potential new producers need to know about business opportunities in under-served niche markets.

If everyone is forced to serve and hire gays, society is denied important knowledge about who does and does not support enlightened thinking on this topic.

Consider the prototypical case of the baker who doesn’t want to make a wedding cake for a same-sex couple. He is within his rights. His loss of a potential customer base is his own loss. It is also the right of the couple to refuse to give this baker business. The money he would have otherwise made can be redirected towards a baker who is willing to do this. It is equally true that some people would rather trade with a baker who is against gay marriage, and they are within their rights as well.

Every act of discrimination, provided it is open and legal, provides a business opportunity to someone else.

How does all this work itself out in the long run? Commerce tends toward rewarding inclusion, broadness, and liberality. Tribal loyalties, ethnic and religious bigotries, and irrational prejudices are bad for business. The merchant class has been conventionally distrusted by tribalist leaders — from the ancient to the modern world — precisely because merchantcraft tends to break down barriers between groups.

We can see this in American history following the end of slavery. Blacks and whites were ever more integrated through commercial exchange, especially with the advance of transportation technology and rising incomes. This is why the racists turned increasingly toward the state to forbid it. Zoning laws, minimum wage regulation, mandatory segregation, and occupational licensing were all strategies used to keep the races separate even as the market was working toward integration.

The overwhelming tendency of markets is to bring people together, break down prejudices, and persuade people of the benefits of cooperation regardless of class, race, religion, sex/gender, or other arbitrary distinctions. The same is obviously and especially true of sexual orientation. It is the market that rewards people who put aside their biases and seek gains through trade.

This is why states devoted to racialist and hateful policies always resort to violence in control of the marketplace. Ludwig von Mises, himself Jewish and very much the victim of discrimination his entire life, explained that this was the basis for Nazi economic policy. The market was the target of the Nazis because market forces know no race, religion, or nationality.

“Many decades of intensive anti-Semitic propaganda,” Mises  wrote in 1944, “did not succeed in preventing German ‘Aryans’ from buying in shops owned by Jews, from consulting Jewish doctors and lawyers, and from reading books by Jewish authors.” So the racists turned to the totalitarian state — closing and confiscating Jewish business, turning out Jewish academics, and burning Jewish books — in order to severe the social and economic ties between races in Germany.

The biggest enemy of marginal and discriminated-against populations is and has always been the state. The best hope for promoting universal rights and a culture of tolerance is the market economy. The market is the greatest weapon ever devised against bigotry — but, in order to work properly, the market needs to signaling systems rooted in individuals’ freedom of choice to act on their values.

And, to be sure, the market can also provide an outlet for people who desire to push back for a different set of values, perhaps rooted in traditional religious concerns. Hobby Lobby, Chick-Fil-A, In-and-Out Burger, among many others, openly push their religious mission alongside their business, and their customer base is drawn to them for this reason. This is also a good thing. It is far better for these struggles to take place in the market (where choice rules) rather than through politics (where force does).

Trying to game that market by taking away consumer and producer choice harms everyone. Anti-discrimination laws will provide more choices at the expense of more informed choices. Such laws force bigotry underground, shut down opportunities to provide special rewards for tolerance, and disable the social learning process that leads to an ever more inclusive society.

New laws do not fast-track fairness and justice; they take away opportunities to make the world a better place one step at a time.


Jeffrey A. Tucker

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

Driverless Money by George Selgin

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

George Selgin

Against Eco-pessimism: Half a Century of False Bad News by Matt Ridley

Pope Francis’s new encyclical on the environment (Laudato Sii) warns of the coming environmental catastrophe (“unprecedented destruction of ecosystems, with serious consequences for all of us”).  It’s the latest entry in a long literary tradition of environmental doomsday warnings.

In contrast, Matt Ridley, bestselling author of GenomeThe Agile Gene, and The Rational Optimist, who also received the 2012 Julian Simon Memorial Award from the Competitive Enterprise Institute, says this outlook has proven wrong time again. This is the full text of his acceptance speech. Video is embedded below.

It is now 32 years, nearly a third of a century, since Julian Simon nailed his theses to the door of the eco-pessimist church by publishing his famous article in Science magazine: “Resources, Population, Environment: An Oversupply of False Bad News.”

It is also 40 years since The Limits to Growth and 50 years since Silent Spring, plenty long enough to reflect on whether the world has conformed to Malthusian pessimism or Simonian optimism.

Before I go on, I want to remind you just how viciously Simon was attacked for saying that he thought the bad news was being exaggerated and the good news downplayed.

Verbally at least Simon’s treatment was every bit as rough as Martin Luther’s. Simon was called an imbecile, a moron, silly, ignorant, a flat-earther, a member of the far right, a Marxist.

“Could the editors have found someone to review Simon’s manuscript who had to take off his shoes to count to 20?” said Paul Ehrlich.

Erhlich together with John Holdren then launched a blistering critique, accusing Simon of lying about electricity prices having fallen. It turned out they were basing their criticism on a typo in a table, as Simon discovered by calling the table’s author. To which Ehrlich replied: “what scientist would phone the author of a standard source to make sure there were no typos in a series of numbers?”

Answer: one who likes to get his facts right.

Yet for all the invective, his critics have never laid a glove on Julian Simon then or later. I cannot think of a single significant fact, data point or even prediction where he was eventually proved badly wrong. There may be a few trivia that went wrong, but the big things are all right. Read that 1980 article again today and you will see what I mean.

I want to draw a few lessons from Julian Simon’s battle with the Malthusian minotaur, and from my own foolhardy decision to follow in his footsteps – and those of Bjorn Lomborg, Ron Bailey, Indur Goklany, Ian Murray, Myron Ebell and others – into the labyrinth a couple of decades later.

Consider the words of the publisher’s summary of The Limits to Growth: “Will this be the world that your grandchildren will thank you for? A world where industrial production has sunk to zero. Where population has suffered a catastrophic decline. Where the air, sea, and land are polluted beyond redemption. Where civilization is a distant memory. This is the world that the computer forecasts.”

Again and again Simon was right and his critics were wrong.

Would it not be nice if just one of those people who called him names piped up and admitted it? We optimists have won every intellectual argument and yet we have made no difference at all. My daughter’s textbooks trot out the same old Malthusian dirge as mine did.

What makes it so hard to get the message across?

I think it boils down to five adjectives: ahistorical, finite, static, vested and complacent. The eco-pessimist view ignores history, misunderstands finiteness, thinks statically, has a vested interest in doom and is complacent about innovation.

People have very short memories. They are not just ignoring, but unaware of, the poor track record of eco-pessimists. For me, the fact that each of the scares I mentioned above was taken very seriously at the time, attracting the solemn endorsement of the great and the good, should prompt real skepticism about global warming claims today.

That’s what motivated me to start asking to see the actual evidence about climate change. When I did so I could not find one piece of data – as opposed to a model – that shows either unprecedented change or change is that is anywhere close to causing real harm.

Yet when I made this point to a climate scientist recently, he promptly and cheerily said that “the fact that people have been wrong before does not make them wrong this time,” as if this somehow settled the matter for good.

Second, it is enormously hard for people to grasp Simon’s argument that “Incredible as it may seem at first, the term ‘finite’ is not only inappropriate but downright misleading in the context of natural resources.”

He went on: “Because we find new lodes, invent better production methods and discover new substitutes, the ultimate constraint upon our capacity to enjoy unlimited raw materials at acceptable prices is knowledge.” This is a profoundly counterintuitive point.

Yet was there ever a better demonstration of this truth than the shale gas revolution? Shale gas was always there; but what made it a resource, as opposed to not a resource, was knowledge – the practical know-how developed by George Mitchell in Texas. This has transformed the energy picture of the world.

Besides, as I have noted elsewhere, it’s the renewable – infinite – resources that have a habit of running out: whales, white pine forests, buffalo. It’s a startling fact, but no non-renewable resource has yet come close to exhaustion, whereas lots of renewable ones have.

And by the way, have you noticed something about fossil fuels – we are the only creatures that use them. What this means is that when you use oil, coal or gas, you are not competing with other species. When you use timber, or crops or tide, or hydro or even wind, you are.

There is absolutely no doubt that the world’s policy of encouraging the use of bio-energy, whether in the form of timber or ethanol, is bad for wildlife – it competes with wildlife for land, or wood or food.

Imagine a world in which we relied on crops and wood for all our energy and then along comes somebody and says here’s this stuff underground that we can use instead, so we don’t have to steal the biosphere’s lunch.

Imagine no more. That’s precisely what did happen in the industrial revolution.

Third, the Malthusian view is fundamentally static. Julian Simon’s view is fundamentally dynamic. Again and again when I argue with greens I find that they simply do not grasp the reflexive nature of the world, the way in which prices cause the substitution of resources or the dynamic properties of ecosystems – the word equilibrium has no place in ecology.

Take malaria. The eco-pessimists insisted until recently that malaria must get worse in a warming 21st century world. But, as Paul Reiter kept telling them to no avail, this is nonsense. Malaria disappeared from North America, Russia and Europe and retreated dramatically in South America, Asia and Africa in the twentieth century even as the world warmed.

That’s not because the world got less congenial to mosquitoes. It’s because we moved indoors and drained the swamps and used DDT and malaria medications and so on. Human beings are a moving target. They adapt.

But, my fourth point, another reason Simon’s argument fell on stony ground is that so many people had and have a vested interest in doom. Though they hate to admit it, the environmental movement and the scientific community are vigorous, healthy, competitive, cut-throat, free markets in which corporate leviathans compete for donations, grants, subsidies and publicity. The best way of getting all three is to sound the alarm. If it bleeds it leads. Good news is no news.

Imagine how much money you would get if you put out an advert saying: “we now think climate change will be mild and slow, none the less please donate”. The sums concerned are truly staggering. Greenpeace and WWF, the General Motors and Exxon of the green movement, between them raise and spend a billion dollars a year globally. WWF spends $68m alone on educational propaganda. Frankly, Julian, Bjorn, Ron, Indur, Ian, Myron and I are spitting in the wind.

Yet, fifth, ironically, a further problem is complacency. The eco-pessimists are the Panglossians these days, for it is they who think the world will be fine without developing new technologies. Let’s not adopt GM food – let’s stick with pesticides.

Was there ever a more complacent doctrine than the precautionary principle: don’t try anything new until you are sure it is safe? As if the world were perfect. It is we eco-optimists, ironically, who are acutely aware of how miserable this world still is and how much better we could make it – indeed how precariously dependent we are on still inventing ever more new technologies.

I had a good example of this recently debating a climate alarmist. He insisted that the risk from increasing carbon dioxide was acute and that therefore we needed to drastically cut our emissions by 90 percent or so. In vain did I try to point out that drastically cutting emissions by 90% might do more harm to the poor and the rain forest than anything the emissions themselves might do. That we are taking chemotherapy for a cold, putting a tourniquet round our neck to stop a nosebleed.

My old employer, the Economist, is fond of a version of Pascal’s wager – namely that however small the risk of catastrophic climate change, the impact could be so huge that almost any cost is worth bearing to avert it. I have been trying to persuade them that the very same logic applies to emissions reduction.

However small is the risk that emissions reduction will lead to planetary devastation, almost any price is worth paying to prevent that, including the tiny risk that carbon emissions will destabilize the climate. Just look at Haiti to understand that getting rid of fossil fuels is a huge environmental risk.

That’s what I mean by complacency: complacently assuming that we can decarbonize the economy without severe ecological harm, complacently assuming that we can shut down world trade without starving the poor, that we can grow organic crops for seven billion people without destroying the rain forest.

Having paid homage to Julian Simon’s ideas, let me end by disagreeing with him on one thing. At least I think I am disagreeing with him, but I may be wrong.

He made the argument, which was extraordinary and repulsive to me when I first heard it as a young and orthodox eco-pessimist, that the more people in the world, the more invention. That people were brains as well as mouths, solutions as well as problems. Or as somebody once put it: why is the birth of a baby a cause for concern, while the birth of a calf is a cause for hope?

Now there is a version of this argument that – for some peculiar reason – is very popular among academics, namely that the more people there are, the greater the chance that one of them will be a genius, a scientific or technological Messiah.

Occasionally, Julian Simon sounds like he is in this camp. And if he were here today, — and by Zeus, I wish he were – I would try to persuade him that this is not the point, that what counts is not how many people there are but how well they are communicating. I would tell him about the new evidence from Paleolithic Tasmania, from Mesolithic Europe from the Neolithic Pacific, and from the internet today, that it’s trade and exchange that breeds innovation, through the meeting and mating of ideas.

That the lonely inspired genius is a myth, promulgated by Nobel prizes and the patent system. This means that stupid people are just as important as clever ones; that the collective intelligence that gives us incredible improvements in living standards depends on people’s ideas meeting and mating, more than on how many people there are. That’s why a little country like Athens or Genoa or Holland can suddenly lead the world. That’s why mobile telephony and the internet has no inventor, not even Al Gore.

Not surprisingly, academics don’t like this argument. They just can’t get their pointy heads around the idea that ordinary people drive innovation just by exchanging and specializing. I am sure Julian Simon got it, but I feel he was still flirting with the outlier theory instead.

The great human adventure has barely begun. The greenest thing we can do is innovate. The most sustainable thing we can do is change. The only limit is knowledge. Thank you Julian Simon for these insights.

2012 Julian L. Simon Memorial Award Dinner from CEI Video on Vimeo.

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