Tag Archive for: free market

Gays Need the Freedom to Discriminate by Jeffrey A. Tucker

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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

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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

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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 Genome, The 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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The Case Against Rent Control: Bad housing policy harms lower-income people most by Robert P. Murphy

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To someone ignorant of economic reasoning, rent control seems like a great policy. It appears instantly to provide “affordable housing” to poor tenants, while the only apparent downside is a reduction in the income flowing to the fat-cat landlords, people who literally own buildings in major cities and who thus aren’t going to miss that money much. Who could object to such a policy?

First, we should define our terms. When a city government imposes rent control, it means the city makes it illegal for landlords to charge tenants rent above a ceiling price. Sometimes that price can vary, but only on specified factors. For the law to have any teeth — and for the politicians who passed it to curry favor with the public — the maximum rent-controlled price will be significantly lower than the free-market price.

The most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. At a lower rental price, more tenants will try to rent apartment units, and at a higher rental price, landlords will try to rent out more apartment units. These two claims are specific instances of the law of demand and law of supply, respectively.

In an unhampered market, the equilibrium rental price occurs where supply equals demand, and the market rate for an apartment perfectly matches tenants with available units. If the government disrupts this equilibrium by setting a ceiling far below the market-clearing price, then it creates a shortage; that is, more people want to rent apartment units than landlords want to provide. If you’ve lived in a big city, you may have experienced firsthand how difficult it is to move into a new apartment; guides advise people to pay the high fee to a broker or even join a church because you have to “know somebody” to get a good deal. Rent control is why this pattern occurs. The difficulty isn’t due to apartments being a “big-ticket” item; new cars are expensive, too, but finding one doesn’t carry the stress of finding an apartment in Brooklyn. The difference is rent control.

Rent control reduces the supply of rental units through two different mechanisms. In the short run, where the physical number of apartment units is fixed, the imposition of rent control will reduce the quantity of units offered on the market. The owners will hold back some of the potential units, using them for storage or keeping them available for (say) out of town guests or kids returning from college for the summer. (If this sounds implausible, consider just how many people in a major city consider renting out spare bedrooms in their homes, as long as the price is right.)

In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped. Building a movie theater or shopping center is more attractive on the margin.

There are further, more insidious problems with rent control. With a long line of potential tenants eager to move in at the official ceiling price, landlords do not have much incentive to maintain the building. They don’t need to put on new coats of paint, change the light bulbs in the hallways, keep the elevator in working order, or get out of bed at 5:00 a.m. when a tenant complains that the water heater is busted. If there is a rash of robberies in and around the building, the owner won’t feel a financial motivation to install lights, cameras, buzz-in gates, a guard, or other (costly) measures to protect his customers. Furthermore, if a tenant falls behind on the rent, there is less incentive for the landlord to cut her some slack, because he knows he can replace her right away after eviction. In other words, all of the behavior we associate with the term “slumlord” is due to the government’s policy of rent control; it is not the “free market in action.”

In summary, if the goal is to provide affordable housing to lower-income tenants, rent control is a horrible policy. Rent control makes apartments cheaper for some tenants while making them infinitely expensive for others, because some people can no longer find a unit, period, even though they would have been able to at the higher, free-market rate. Furthermore, the people who remain in apartments — enjoying the lower rent —receive a much lower-quality product. Especially when left in place for decades, rent control leads to abusive landlords and can quite literally destroy large portions of a city’s housing.

20141014_RobertMurphyABOUT ROBERT P. MURPHY

Robert P. Murphy has a PhD in economics from NYU. He is the author of The Politically Incorrect Guide to Capitalism and The Politically Incorrect Guide to The Great Depression and the New Deal. He is also the Senior Economist with the Institute for Energy Research and a Research Fellow at the Independent Institute. You can find him at http://consultingbyrpm.com/

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

How Far Can the P2P Revolution Go? Will the sharing economy replace the State? by Jeffrey A. Tucker

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How far can the peer-to-peer revolution be pushed? It’s time we start to speculate, because history is moving fast. We need to dislodge from our minds our embedded sense of what’s possible.

Right now, we can experience a form of commercial relationship that was unknown just a decade ago. If you need a ride in a major city, you can pull up the smartphone app for Uber or Lyft and have a car arrive in minutes. It’s amazing to users because they get their first taste of what consumer service in taxis really feels like. It’s luxury at a reasonable price.

If your sink is leaking, you can click TaskRabbit. If you need a place to stay, you can count on Airbnb. In Manhattan, you can depend on WunWun to deliver just about anything to your door, from toothpaste to a new desktop computer. If you have a skill and need a job, or need to hire someone, you can go to oDesk or eLance and post a job you can do or a job you need done. If you grow food or make great local dishes, you can post at a place like credibles.co and find a prepaid customer base.

These are the technologies of the peer-to-peer or sharing economy. You can be a producer, a consumer, or both. It’s a different model — one characterized by the word “equipotency,” meaning that the power to buy and sell is widely distributed throughout the population. It’s made possible through technology.

The emergence of the app economy — an emergent order not created by government or legislation — has enabled these developments, and they are changing the world.

These technologies are not temporary. They cannot and will not be uninvented. On the contrary, they will continue to develop and expand in both sophistication and in geographic relevance. This is what happens when technology is especially useful. Whether it is the horseshoe of the Middle Ages or the distributed networks of our time, when an innovation so dramatically improves our lives, it changes the course of history. This is what is happening in our time.

The applications of these P2P networks are enormously surprising. The biggest surprise in my own lifetime is how they have been employed to make payment systems P2P — no longer based on third-party trust — through what’s called the blockchain. The blockchain can commodify and title any bundle of information and make it transferable, with timestamps, in a way that cannot be forged, all at nearly zero cost.

An offshoot of blockchain-distributed technology has been the invention of a private currency. For half a century, it has been a dream of theorists who saw that taking money out of government hands would do more for prosperity and peace than any single other step.

The theorists dreamed, but they didn’t have the tools. They hadn’t been invented yet. Now that the tools exist, the result is bitcoin, which gives rise to the hope that we have the makings of a new international currency managed entirely by the private sector and the global market system.

These new P2P systems have connected the world like never before. They hold out the prospect of unleashing unprecedented human energy and the creativity that comes with it. They give billions of people a chance to integrate themselves into the worldwide division of labor from which they have thus far been excluded.

With 3-D printing and computer-aided design files distributed on digital networks, more people have access to become their own manufacturers. These same people can be designers and distribute the results to the world. Such a system cuts out every barrier that stands between people and their material aspirations — barriers such as product regulation, patents, and excise taxes.

It’s time that we begin to expect the unexpected. What else is possible?

Entrepreneurs are already experimenting with an Uber model of delivering some form of health care online. In some areas, they will bring a nurse to you to give you a flu shot. Other health services are on the way, causing some to speculate on the return to at-home medical visits paid out of pocket (rather than via insurance).

What does this innovation do for centralist solutions like Obamacare? It changes the entire dynamic of service provision. The medical establishment is already protesting that this consumer-based, one-off service approach runs contrary to primary and preventive care — a critique that fails to consider that there is no reason why P2P technology can’t provide such care.

How much can things change? To what extent will they affect the structure of our political lives? This is where matters get really interesting. A feature of P2P is the gradual elimination of third parties as agents who stand between individuals and their desire to cooperate one to one. We use such third parties because we believe we need them. Credit card companies serve a need. Banks serve a need. Large-scale corporations serve a need.

One theory holds that the State exists to do for us what we can’t do for ourselves. It’s the ultimate third-party provider. We elect people to serve as our representatives, and they bring our voices to the business of government so that we can get the services we want. That’s the idea, anyway.

But once government gets the power to do things, it expands its power in the interest of the ruling elite. The taxicab monopoly was no more necessary than the government postal service, but the growth of P2P technology has increasingly exposed the reality of how unnecessary the State as a third-party mediator really is. The post office is being pushed into obsolescence. It’s hard to see how the municipal taxi monopoly can survive a competitive contest with P2P technology systems.

Policing is an example of a service that people think is absolutely necessary. The old perception is that government needs to provide this service because most people cannot do it for themselves. But what if policing, too, could employ P2P technology?

What if, when there is a threat, whether to you or to others, you could open an app on your phone and call the private police immediately? You can imagine how such a technology could learn to filter out static and discern threat level based on algorithms and immediately supplied video evidence. We already see the first attempts in this direction with the Peacekeeper app.

Rather than a tax-funded system that has become a threat to the innocent as much as the guilty, we would have a system rooted in consumer service. It might be similar to the private security systems used by all businesses today, except it would apply to individuals. It would survive not through taxation but subscription — voluntary and noncoercive.

How much further can we take this? Can courts and laws themselves be ported to the online world, using the blockchain for verifying contracts, managing conflicts, and even issuing securities? The large retailerOverstock.com is experimenting with this idea — not for ideological reasons but simply because such systems work better.

And here we find the most compelling case for optimism for the cause of human liberty. These technologies are emerging from within the private sector, not from government. They work better to serve human needs than the public-sector alternative. Their use and their growth depend not on ideological conversion but on their capacity to serve universal human needs.

The ground really is shifting beneath our feet, despite all odds. It is still an age of leviathan. But based on technology and the incredible creativity of entrepreneurs, that leviathan no longer seems like a permanent feature of the world.

20121129_JeffreyTuckeravatarABOUT JEFFREY A. TUCKER

Jeffrey Tucker is a distinguished fellow 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.

The UAW Against the Volunteer State: Labor politics is desperate, thanks to capital mobility by Wendy McElroy

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The United Automobile Workers (UAW) recently failed to unionize the Volkswagen assembly plant in Chattanooga, Tennessee. The campaign—and failure—revealed the desperation and changing dynamics of modern labor unions.

The UAW is the richest union in North America, with assets of reportedly more than $1 billion at the end of 2012. It is arguably also the most politically influential, because it donates large amounts of money to Democrats. Like most unions, however, its membership and dues are in decline while its costs, such as pension benefits, are climbing. According to the Bureau of Labor Statistics’ Union Members Summary (Jan. 24, 2014), there were 14.5 million members in 2013, compared with 17.7 million in 1983, and 11.3 percent of workers belonged to a union in 2013, compared to 20.1 percent in 1983.

For the UAW and, perhaps, labor unions in general, the Chattanooga vote was a pivotal event: Foreign manufacturers employ a huge—and non unionized—workforce.

The stumbling block: Foreign auto manufacturers such as Nissan, Volkswagen, Toyota, and Mercedes-Benz have set up plants in
Southern “right-to-work” states. These states defend a worker’s right not to join a labor union; other states allow closed shops in specific industries, meaning that they exclude non-union workers. A February 15 Forbes article explained, “In more than 30 years, none of the free-standing assembly plants owned by foreign manufacturers in the United States have ever been organized. (This doesn’t include factories that originally began as joint ventures.)”

According to CBC News, the UAW isn’t alone in its concern: “Detroit’s three automakers—Ford, Chrysler and General Motors—are increasingly anxious about the 78-year old union’s future.”

Why would the UAW’s future worry Detroit’s big three? Unions and corporate executives, though they’re usually cast as enemies, share a vested interest in keeping the union strong.

“For them, it’s a ‘devil you know’ situation. They worry that the 382,000-member UAW could be absorbed by a more hostile union. Such a merger could disrupt a decade of labour-management peace that has helped America’s auto industry survive the financial crisis and emerge much stronger, according to a person with knowledge of executive discussions,” CBC News reported.

A standard method by which to unionize an American workplace is to have at least 30 percent of employees request a union, usually in the form of signing a card or a petition. After the National Labor Relations Board (NLRB) approves the request, a secret-ballot election is held. If more than 50 percent of the employees vote for unionization, then a union is usually formed unless there are circumstances such as an appeal. A second procedure called a “card check” offers a different route; that’s when over 50 percent of workers request unionization. National Review explained what happens next: “The employer can choose to recognize the union, and it’s formed without a secret ballot. If the employer declines . . . a secret ballot election is held that requires majority support.”

The secret ballot has become a flashpoint, with surprising advocates and opponents. In decades past, unions pushed for secret ballots because they perceived a need to protect pro-union workers from threats or retaliation by employers. In short, secret ballots were a consciously pro-union measure to ensure workers could vote freely. Now, depending upon the politics of particular states and industries, unions want to make obsolete the secret ballot, which can function as an anti-union measure. That is, employees who vote secretly do not experience peer pressure or blowback from coworkers and union organizers. In some situations, this makes employees less likely to vote for unionization.

In recent years, Democrats have repeatedly introduced legislation into Congress that would automatically create a union without the step of a secret ballot or the need for employer consent. The only requirement would be for 50 percent of workers to request unionization. The legislative attempts have been unsuccessful so far. If the unionization in Chattanooga had succeeded, however, it would have established precedent, bypassing legislation altogether. It would have also made a crack in the barrier that has prevented the unionization of foreign manufacturers in the South. Unfolding the Chattanooga event reveals modern labor-union strategy.

The Pivotal Event

In February, the UAW seemed poised for victory in Chattanooga. A month earlier, it had publicly declared a victory by claiming that card check had demonstrated that a majority of workers wanted the union. It asked Volkswagen’s management for official recognition. But eight workers complained to the NLRB, reporting that the UAW had used thug tactics and misrepresentation in the ballot-casting. They also accused the management in Germany of threatening to cut the flow of work to the Chattanooga plant unless unionization occurred.

That might be the most interesting aspect of the story. As the Washington Post asked, “The German company is campaigning for the UAW, not against it, in a kind of employer-union partnership America has seldom seen. What gives?” Most foreign manufacturers oppose unionization of their American plants because it would usher in expensive benefits packages and weaken their control of workplace practices, such as hiring and firing. But labor practices in Germany are union-friendly. Volkswagen was undoubtedly targeted because the company is open to establishing a German-style works council, which would have been the first of its kind in America. A works council consists of blue- and white-collar employees who are partners in management decisions on issues such as productivity and workplace conditions. American labor laws, though, make this arrangement illegal without unionization. Specifically, federal NLRA statute section 8(a)(2) prohibits so-called “company unions,” which the VW works council would be categorized as.

The most powerful pushback against the UAW came from state officials who believed unionization would harm Tennessee’s economy and make the state far less attractive to business. One of the obstacles officials erected was a 2011 state law on secret ballots and the “selection of exclusive bargaining representative(s).” The law states,

Should employees and employers seek to designate an exclusive bargaining representative through an election, they have the right to a secret ballot election; if a secret ballot election is chosen, no alternative means of designation shall be used.

The state law has been called unconstitutional because it may contradict federal rules on unionization. Nevertheless, the state law clearly indicates Tennessee’s opposition. State Sen. Mark Green, the vice chairman of the Senate Commerce Committee, also called for Volkswagen to facilitate a secret ballot to protect workers’ privacy and shield them from intimidation. The likelihood of intimidation increases because most petition signatures are generated employee to employee, face to face. Green argued, “You’ve got seven guys standing around you who work with you every day and they’re saying, ‘hey, sign this card.’” Green concluded, “We don’t elect the governor that way, we don’t elect our representatives that way, the ballot is secret. That’s democracy.” The senator also claimed to know of four large manufacturers that were monitoring the Chattanooga situation before committing to expansion within Tennessee.

Gary Casteel, the UAW’s regional director, denied the charges of union intimidation and threw the accusation back at the state government. A secret ballot, he argued, would give “outside interests” a 40-day window in which to take out ads and otherwise communicate anti-union messages to VW workers. By contrast, Casteel claimed the cards in the card check would carry a simple, self-explanatory message and not be confusing.

On February 14, the Chattanooga Volkswagen workers cast a secret ballot. They defeated unionization by a vote of 712 to 626. The defeat occurred even though Volkswagen had signed a neutrality agreement, pledging not to interfere with the UAW’s efforts; such agreements are considered to be endorsements of unionization. Volkswagen workers also defeated unionization despite a strong drive by the UAW that included public support voiced by President Obama. They defeated it even though the NLRB facilitated the election by fast-tracking it.  An anti-union campaign headed by Sen. Robert Corker, Jr., and Tennesseans’ concern about unemployment, prevailed.

Conclusion

Predictably, the UAW has appealed the February 14 results and seeks a revote. The union accuses state officials of “dirty politics.” For example, it argues that officials threatened to withdraw state-financed incentives if Volkswagen workers unionized. As of this writing (March 27), the NLRB has set a hearing for April 21, but delays are probable. Rejecting the vote would mean rejecting the solid precedent of siding with the voice of workers. Accepting the vote would mean undercutting labor unions on a matter that may be key to their future. Whatever the decision, union politics in America is changing.

ABOUT WENDY MCELROY

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

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