Tag Archive for: free markets

John Mackey: ‘Capitalism Is the Greatest Thing Mankind Has Ever Done’

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The Whole Foods founder offered a clear message on capitalism at LibertyCON in Miami, where five hundred delegates from 50 countries recently gathered.

On October 14, LibertyCON kicked off with an interview between Students for Liberty CEO Wolf von Laer and John Mackey, founder of Whole Foods Market.

Mackey studied philosophy and religion for several semesters while working part-time at a vegetarian consumer cooperative. In 1978, he and his girlfriend founded a vegetarian supermarket, SaferWay, which evolved into Whole Foods Market two years later through a merger. He recounted how, after starting the company, he initially lived on $200 a month, and since he had no place to live, he and his girlfriend slept in the store. Since there was no shower, they had to wash in the sink. But he has fond memories of those days: He was in love, starting the business was a great adventure, and he didn’t actually need money privately. Later, he became very wealthy, taking the company public on the NASDAQ technology exchange and, in 2017, it was acquired by Amazon for $13.7 billion.

Today, Whole Foods operates more than 500 stores in the US, Canada, and the UK.

Whole Foods was the first grocery chain to commit to animal welfare. Mackey was influenced by animal rights activist Lauren Ornelas, who criticized Whole Foods’ animal welfare standards at a shareholder meeting in 2003. Mackey gave Ornelas his email address, and they corresponded on the issue of how the company treated ducks in particular. Mackey became concerned with the problems associated with factory farming and decided to switch to a mostly vegetarian diet that included only eggs from his own chickens. Since 2006, he has been living on an exclusively plant-based diet. He is an advocate of more humane animal treatment, a vegetarian, and an enthusiastic fan of capitalism—which I like, because I am all of those things myself.

To say Mackey is a proponent of free markets is an understatement.

“Capitalism is the greatest thing that mankind has ever done,” Mackey declared at the event.

The number of people living in extreme poverty, he reminds us, has dropped from about 90 percent to less than 10 percent since the capitalist era began 200 years ago.

Mackey’s support of capitalism inspired him to write a book on the subject titled Conscious Capitalism, but it has not been without consequences. He triggered a flurry of negative reaction when he wrote an article against Obamacare that was published by the Wall Street Journal in August 2009. He did not only offer criticism, he also made ten suggestions on how to reform America’s ailing healthcare system. But his solution was not more government – as with Obama – but more market, which prompted left-wing groups to organize boycotts of his businesses.

Wolf von Laer pays tribute to the modest, soft-spoken entrepreneur for his courage in taking political positions. But Mackey himself says he would no longer write such a political article after his experience in 2009, because the response to it was so damaging to his business. That’s how it is today, and not only in the United States: Political statements from business people are only tolerated if they are critical of capitalism or “woke.” Otherwise, there is the threat of negative reaction and boycotts, as was the case against Whole Foods.

“Cancel Culture” is the name given to this anti-culture, which is nothing less than an all-out attack on freedom of expression.

Libertarians are caught between two stools. By European standards, they combine both right-wing and left-wing policy positions. On the one hand, they are enthusiastic supporters of capitalism and stridently oppose socialism, the welfare state, and wealth redistribution. On the other hand, they passionately support LGBTQ rights and drug legalization. The drug issue marks a dividing line between conservatives and libertarians, according to a panel discussion on “It’s Time to End the Drug War.”

One participant used to oppose drug legalization and now supports it for all drugs, She said the turning point for her was realizing that what she personally liked or disliked had nothing to do with what should be legal and what should be illegal. The panelists taking part in this discussion at Students for Liberty agreed that the state has lost the war against drugs, and that legalizing drugs would lead to fewer drug deaths, less crime, and more freedom and personal responsibility.

The convention moved to another topic. Why are more and more countries in Latin America sliding into socialism? Daniel DiMartino is a Venezuelan who fled the socialist country – along with a quarter of the population. He has now lived in the United States for six years and speaks of an “epidemic of envy” in Latin America. But he also criticizes conservative governments who, when in power, have not seized the opportunity to introduce the kind of radical free-market reforms that truly change people’s lives. He cites Maurico Macri in Argentina as an example.

Martha Bueno, whose parents fled Cuba and who now lives in Miami, warns young American supporters of socialism not to be overconfident that what happened in Venezuela could not happen in their country. As she explains, Venezuela was a democracy and had one of the highest standards of living in the world. And, she reminds us, Venezuela has the largest oil reserves in the world. She is convinced that no one ever would have believed that the socialists could run the country into the abyss, robbing it of its freedom and prosperity, in such a short space of time. But that is exactly what happened. And, she warns, it can happen here too, in the United States.

It was worth coming to Miami, to this event with so many interesting discussions. Wolf von Laer, the CEO of Students for Liberty, has succeeded in building the organization into the world’s largest network for libertarian students. The annual convention, to which fewer students can come than one would wish, partly because of the costs involved, is not actually the most important thing Students for Liberty does: that would be the thousands of events the organization holds with students around the world every year.

AUTHOR

Dr Rainer Zitelmann

Dr. Rainer Zitelmann is a historian and sociologist. He is also a world-renowned author, successful businessman, and real estate investor. Zitelmann has written more than 20 books. His books are successful all around the world, especially in China, India, and South Korea. His most recent books are The Rich in Public Opinion which was published in May 2020, and The Power of Capitalism which was published in 2019.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

PODCAST: Why This East Coast State Is Becoming a Hub of Education Entrepreneurship

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New Jersey education entrepreneurs are embracing an ethos of permission less innovation, creating new learning solutions that work well for children and others in their communities rather than trying to change an entrenched traditional school system.

When Ben Ashfield and Tammy Tiranasar couldn’t find their preferred educational environment for their two younger children, they decided to build it. Ben works in advertising and Tammy is an artist, but first and foremost they are entrepreneurial parents who want the best for their children. Last fall, the couple took over a vacated classroom space in Mountainside, New Jersey, and created The Village Electric as a full-day, co-learning center for local children ages two to twelve, open five days a week. They launched with 45 kids and several teachers.

This year, their program continues to thrive, but Ben and Tammy aren’t content with creating just one alternative learning model that satisfies their family’s needs. They want their space to become an incubator for many other entrepreneurial parents and teachers who wish to build microschools and co-learning communities of their own.

“The benefit of The Village Electric is making it easier to get involved in education and to innovate in education,” said Ben, likening his vision to that of WeWork and related coworking spaces that help to foster collaboration and knowledge-sharing. I talked with Ben and Tammy on this week’s episode of the LiberatED podcast.

“We felt we could benefit from creating a community for kids where we are working together, but it’s also a place for entrepreneurial teachers to start their vision of what school can be,” Ben continued. “It’s a place for people to start co-ops if they’re homeschoolers. It’s a place where homeschoolers can find community on their schedule. It’s a place where people can do their online learning except do it in a community of people learning other things. I would love to see an explosion of innovation happening like what you saw in Silicon Valley 15 years ago where people are trying lots of different things.”

Over the past two years, the Garden State has emerged as an ideal spot to pursue education entrepreneurship and invent a variety of schooling alternatives. You may recall my conversation earlier this year with Jill Perez, a long-time teacher and supervisor of student-teachers at the university level, who created a “pandemic pod” in 2020 with other New Jersey families. She then shifted that into a full-fledged microschool last fall, opening with more than 40 students, along with teachers she recruited from the New York City public schools. She recently purchased a building for her microschool and her program continues to grow.

Similarly, last spring I spoke with Lorianne Bolotin, an immigrant physician and midwife who never thought she would be in the education business until school closures prompted her to homeschool her children. Like Jill, she created a pod with local families and turned that into an established microschool in leased commercial space in a New Jersey office park. Her program also continues to expand and evolve, including her efforts to support a network of similar microschools across the country.

What is it about New Jersey that is making it a developing hub of education entrepreneurship and creative learning options? Certainly prolonged school closures and related pandemic policies contributed to more families exiting district schools for private education options, including homeschooling. New Jersey public schools experienced lengthy closures and reopened with mask mandates and other policies that frustrated some parents. The New Jersey Department of Education reported that the state’s traditional public schools lost a record 18,000 students during the 2020/2021 and 2021/2022 school years, reflecting a larger trend in declining public school enrollment nationwide since 2020. Enrollment declines were steepest in school districts that remained closed longer and relied more on remote learning, as well as those that kept mask mandates, according to data from the American Enterprise Institute.

New Jersey is also one of the least restrictive states for homeschooling, with no notification requirement for parents who want to homeschool their children, and few regulations. This ease of homeschooling has contributed to the proliferation of microschools, learning centers, and similar schooling alternatives, and all of the New Jersey microschools I have spotlighted this year operate as full-time, drop-off programs for homeschoolers. Some also offer part-time options as well. This enables families to be integrally involved with their children’s education while providing the flexibility for parents to continue working full-time and allowing their children to have a consistent peer group and ongoing academic enrichment.

These New Jersey microschools also tend to be less costly than other private schools in the state. For example, The Village Electric’s annual tuition is $10,500 for a full-day, Monday through Friday program, while the average New Jersey private school tuition is 42 percent higher than that. If New Jersey adopted school choice policies like those in Arizona and West Virginia that enable education funding to follow students instead of going to school districts, then microschools and similar learning communities would be accessible to even more families.

Some New Jersey microschools, including The Village Electric, are recipients of microgrants from VELA Education Fund, a non-profit organization that provides funding to non-traditional education organizations and schooling alternatives. VELA grant recipients frequently use their funds to help provide scholarships and tuition assistance to families who need it.

New Jersey education entrepreneurs are embracing an ethos of permissionless innovation, creating new learning solutions that work well for their children and others in their communities rather than trying to change an entrenched traditional school system. “As parents, we need to exercise our right to educate our children in the way that we think they need to be educated, and not ask for permission for that,” said Ben. “If you’re going to your school board and fighting with your public school, while I so appreciate that and understand that, we also need to just exercise our right to educate our children. That’s what inspired Tammy and me. We asked: How can we do something productive where we don’t feel like we’re wasting our energy trying to change something that really has no interest in changing?”

More entrepreneurial parents and educators in New Jersey and beyond are asking, and answering, that question.

AUTHOR

Kerry McDonald

Kerry McDonald is a Senior Education Fellow at FEE and host of the weekly LiberatED podcast. She is also the author of Unschooled: Raising Curious, Well-Educated Children Outside the Conventional Classroom (Chicago Review Press, 2019), an adjunct scholar at the Cato Institute, education policy fellow at State Policy Network, and a regular Forbes contributor. Kerry has a B.A. in economics from Bowdoin College and an M.Ed. in education policy from Harvard University. She lives in Cambridge, Massachusetts with her husband and four children. You can sign up for her weekly email newsletter here.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

Arizona’s New School Choice Bill Moves Us Closer to Milton Friedman’s Vision

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“Our goal is to have a system in which every family in the U.S. will be able to choose for itself the school to which its children go,” the Nobel Prize-winning economist Milton Friedman stated in 2003. “We are far from that ultimate result. If we had that, a system of free choice, we would also have a system of competition, innovation, which would change the character of education.”

Last week, Arizona lawmakers moved us much closer to that ultimate result. Legislators in that state, which already had some of the most robust school choice policies in the US, passed the country’s first universal education savings account bill, extending education choice to all K-12 students.

The education savings accounts, or Empowerment Scholarship Accounts as they are known in Arizona, had previously been available to certain Arizona students who met specific criteria, including special needs students and children in active-duty military families. This new bill, which the Governor Doug Ducey is expected to sign, extends education choice to all school-age children throughout Arizona.

Every family will now have access to 90 percent of the state-allocated per pupil education dollars, or about $7,000 per student, to use toward approved education-related resources, including private school tuition, tutors, curriculum materials, online learning programs, and more.

“Arizona is now the gold standard for school choice,” Corey DeAngelis, senior fellow at the American Federation for Children, told me this week. “Every other state should follow Arizona’s lead and fund students instead of systems. Education funding is meant for educating children, not for protecting a particular institution. School choice is the only way to truly secure parental rights in education.”

Several states have introduced or expanded school choice policies over the past couple of years, enabling taxpayer funding of education to go directly to students rather than bureaucratic school systems. In this week’s LiberatED podcast episode, I spoke with one education entrepreneur, Michelle McCartney, whose homeschool resource center is an approved vendor for New Hampshire’s Education Freedom Accounts, an education savings account program for income-eligible students that was implemented last year.

While McCartney sees a fully private, free market in education as the ideal circumstance, she recognizes that education choice policies are an important first step toward expanding education options for more families, and reducing government involvement in the education sector.

“If it was up to me we wouldn’t pay any money to the government and school would be entirely privatized,” said McCartney. “That’s how I believe it should be, but it’s not. So I think we can all sit here and have discussions about what would be the ideal circumstance, but I think sometimes we’ve got to roll with what we have, and if we can get any of that money back to the families I think that’s an important first step.”

Indeed, Milton Friedman also saw school choice policies such as vouchers as a first step in education reform, not a final one. Friedman popularized the idea of school choice policies, specifically universal school vouchers, in his 1955 paper, “The Role of Government in Education,” and elaborated on his views over the following decades up until his death in 2006 at the age of 94.

Friedman and his economist wife Rose wrote in their influential book, Free To Choose: “We regard the voucher plan as a partial solution because it affects neither the financing of schooling nor the compulsory attendance laws. We favor going much farther.”

While Arizona’s new legislation now makes it the forerunner in education choice policies across the country, West Virginia is close behind and begins to address compulsory attendance. Lawmakers there recently passed legislation that loosens state compulsory school attendance laws for participants in learning pods and microschools, two emerging, decentralized K-12 learning models that are gaining popularity across the country. West Virginia also passed an education savings account program last year, known as the Hope Scholarship, that extends education choice to nearly all K-12 students.

The education disruption over the past two years has re-energized parents and taxpayers alike. They are demanding more options beyond an assigned district school, embracing innovative learning models, and loosening the government grip on education. As Friedman envisioned, a choice-based system of education weakens the government monopoly on schooling and sparks innovation and competition to ultimately “change the character of education.”

We are seeing that change occur right before our eyes.

Listen to the weekly LiberatED Podcast on Apple, Spotify, Google, and Stitcher, and sign up for Kerry’s weekly LiberatED email newsletter to stay up-to-date on educational news and trends from a free-market perspective.

AUTHOR

Kerry McDonald

Kerry McDonald is a Senior Education Fellow at FEE and host of the weekly LiberatED podcast. She is also the author of Unschooled: Raising Curious, Well-Educated Children Outside the Conventional Classroom (Chicago Review Press, 2019), an adjunct scholar at the Cato Institute, and a regular Forbes contributor. Kerry has a B.A. in economics from Bowdoin College and an M.Ed. in education policy from Harvard University. She lives in Cambridge, Massachusetts with her husband and four children. You can sign up for her weekly newsletter on parenting and education here.

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

19 Nuggets of Wisdom from the Best Economics Writer You’ve Never Heard Of

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Americans would do well to make up the deficit in their knowledge of the works of Arthur Seldon and his “life for liberty.”

May 29 marks the birth of Arthur Seldon. While too-little known to American readers, he was editorial director of the London-based Institute of Economic Affairs for more than thirty years, during which, The Economist wrote, it “brought to the lay reader the ideas of all the leading free-market economists and thinkers of the day.”

Seldon produced a seven-volume set of collected works, including books, monographs, essays and articles, as well as editing hundreds of papers, monographs, and pamphlets.

In such a vast body of work, one cannot easily winnow out the best of Arthur Seldon’s insights. Therefore, consider some of the wisdom in just one of his books—Capitalism—winner of the Fisher Arts Literary Prize and celebrating its 30th anniversary this year:

  1. “Capitalism…creating high and rising living standards for the masses without sacrificing personal liberty speaks for itself. Only the deaf will not hear and the blind will not see.”
  2. “Even bad men are led by the market process to do good, but good men are induced by the political process to do harm. [So] discipline the writ of politics to the bare minimum.”
  3. “Private property is a potent working institution. Public ownership is…political power cornered by handfuls of irresponsible non-ownerships.”
  4. “Capitalism…allows individuals to take the risks of living their lives as they see best.”
  5. “The capitalist market…puts power–effective purchasing power–directly into the hands of the common man and woman for them to use where they wish…That is why the market is more essentially democratic than government.”
  6. “Changing private identifiable property into public unidentifiable property is to destroy the incentives to protect, conserve, improve and render it productive by using it profitably in making goods and services for which consumers will pay.”
  7. “Pricing is the peaceful way of resolving argument and conflict.”
  8. “It was the development and refinement of the law of private property rights that explains… modern progress.”
  9. “That in practice markets are imperfect has obscured the more fundamental truth that they are the best-known way of enabling individuals to meet for mutual benefit . . . World practice and experience…show no better, less imperfect, mechanism.”
  10. “As government has been inflated…It has undermined the instrument that could have done more for the common man.”
  11. “Capitalism embraces the self-correcting mechanisms of open discussion in free society to identify error and open competition in free markets to apply the corrections.”
  12. “The market does not require people to be good: it takes people as they are and induces them to do good by using their capabilities to provide what others want.”
  13. “Wherever it is used, government is so disappointing or worse—inefficient, unaccountable and corrupt—that it is best not to use it at all except for functions where all its faults have to be tolerated to obtain the services required…In short, the price of government is so high that it should be avoided wherever possible.”
  14. “The state has shown itself the false god of all who have looked to it.”
  15. “Capitalism…requires the eventual withdrawal by government from most of its accumulated activities.”
  16. “The inducements of capitalism compel the money-makers to do good; the inducements of socialism enable the power-holders to do harm.”
  17. “The political process…has become the master rather than the servant of the people.”
  18. “Individuals are smothered by collective decisions in the political process.”
  19. “The market of capitalism treats people as individuals; the political process of socialism herds them into categories. Capitalism makes for harmony, socialism for friction.”

Americans would do well to make up the deficit in their knowledge of the works of Arthur Seldon and his “life for liberty,” as his biographer, Colin Robinson, described it. As the IEA website put it, “Seldon highlights the improvements of mankind which came about not through some central plan or social organization but through individuals recognizing an opportunity to produce goods and services which met a need expressed by the demand in the market.”

In so doing, he advanced every individual’s potential, which is expanded by private property and voluntary market arrangements, but constricted when political power hinders the freedom and cooperation they engender.

AUTHOR

Gary M. Galles

Gary M. Galles is a Professor of Economics at Pepperdine University and a member of the Foundation for Economic Education faculty network. In addition to his new book, Pathways to Policy Failures (2020), his books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).

EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

The U.N. Has Absolutely No Idea How Economic Growth Works by Daniel J. Mitchell

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I’ve been at the United Nations this week for both the 14th Session of the Committee of Experts on International Cooperation in Tax Matters as well as the Special Meeting of ECOSOC on International Cooperation in Tax Matters.

As you might suspect, it would be an understatement to say this puts me in the belly of the beast (for the second time!). Sort of a modern-day version of Daniel in the Lion’s Den.

These meetings are comprised of tax collectors from various nations, along with U.N. officials who – like their tax-free counterparts at other international bureaucracies – don’t have to comply with the tax laws of those countries.

In other words, there’s nobody on the side of taxpayers and the private sector (I’m merely an observer representing “civil society”).

I could share with you the details of the discussion, but 99 percent of the discussion was boring and arcane. So instead I’ll touch on two big-picture observations.

What the United Nations gets wrong: The bureaucracy assumes that higher taxes are a recipe for economic growth and development.

I’m not joking. I wrote last year about how many of the international bureaucracies are blindly asserting that higher taxes are pro-growth because government supposedly will productively “invest” any additional revenue. And this reflexive agitation for higher fiscal burdens has been very prevalent this week in New York City. It’s unclear whether participants actually believe their own rhetoric. I’ve shared with some of the folks the empirical data showing the western world became rich in the 1800s when fiscal burdens were very modest. But I’m not expecting any miraculous breakthroughs in economic understanding.

What the United Nations fails to get right: The bureaucracy does not appreciate that low rates are the best way of boosting tax compliance.

Most of the discussions focused on how tax laws, tax treaties, and tax agreements can and should be altered to extract more money from the business community. Participants occasionally groused about tax evasion, but the real focus was on ways to curtail tax avoidance. This is noteworthy because it confirms my point that the anti-tax competition work of international bureaucracies is guided by a desire to collect more revenue rather than to improve enforcement of existing law. But I raise this issue because of a sin of omission. At no point did any of the participants acknowledge that there’s a wealth of empirical evidence showing that low tax rates are the most effective way of encouraging tax compliance.

I realize that these observations are probably not a big shock. So in hopes of saying something worthwhile, I’ll close with a few additional observations

  • I had no idea that people could spend so much time discussing the technicalities of taxes on international shipping. I resisted the temptation to puncture my eardrums with an ice pick.
  • From the moment it was announced, I warned that the OECD’s project on base erosion and profit shifting (BEPS) was designed to extract more money from the business community. The meeting convinced me that my original fears were – if possible – understated.
  • A not-so-subtle undercurrent in the meeting is that governments of rich nations, when there are squabbles over who gets to pillage taxpayers, are perfectly happy to stiff-arm governments from poor nations.
  • The representative from the U.S. government never expressed any pro-taxpayer or pro-growth sentiments, but he did express some opposition to the notion that profits of multinationals could be divvied up based on the level of GDP in various nations. I hope that meant opposition to “formula apportionment.”
  • Much of the discussion revolved around the taxation of multinational companies, but I was still nonetheless surprised that there was no discussion of the U.S. position as a very attractive tax haven.
  • The left’s goal (at least for statists from the developing world) is for the United Nations to have greater power over national tax policies, which does put the UN in conflict with the OECD, which wants to turn a multilateral convention into a pseudo-International Tax Organization.

P.S. The good news is that the folks at the United Nations have not threatened to toss me in jail. That means the bureaucrats in New York City are more tolerant of dissent than the folks at the OECD.

Republished from International Liberty.

Daniel J. Mitchell

Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

Why We Need to Make Mistakes: Innovation Is Better than Efficiency by Sandy Ikeda

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“I think it is only because capitalism has proved so enormously more efficient than alternative methods that is has survived at all,” Milton Friedman told economist Randall E. Parker for Parker’s 2002 book, Reflections on the Great Depression.

But I think innovation, not efficiency, is capitalism’s greatest strength. I’m not saying that the free market can’t be both efficient and innovative, but it does offer people a strong incentive to abandon the pursuit of efficiency in favor of innovation.

What Is Efficiency?

In its simplest form, economic efficiency is about given ends and given means. Economic efficiency requires that you know what end, among all possible ends, is the most worthwhile for you to pursue and what means to use, among all available means, to attain that end. You’re being efficient when you’re getting the highest possible benefit from an activity at the lowest possible cost. That’s a pretty heavy requirement.

Being inefficient, then, implies that for a given end, the benefit you get from that end is less than the cost of the means you use to achieve it. Or, as my great professor, Israel Kirzner, puts it, If you want to go uptown, don’t take the downtown train.

What Is Innovation?

Innovation means doing something significantly novel. It could be doing an existing process in a brand new way, such as being the first to use a GPS tracking system in your fleet of taxis. Or, innovation could mean doing something that no one has ever done before, such as using smartphone technology to match car owners with spare time to carless people who need to get somewhere in a hurry, à la Uber.

Innovation, unlike efficiency, entails discovering novel means to achieve a given end, or discovering an entirely new end. And unlike efficiency, in which you already know about all possible ends and means, innovation takes place onlywhen you lack knowledge of all means, all ends, or both.

Sometimes we mistakenly say someone is efficient when she discovers a new way to get from home to work. But that’s not efficiency; that’s innovation. And a person who copies her in order to reduce his commute time is not an innovator — but he is being efficient. The difference hinges on whether you’re creating new knowledge.

Where’s the Conflict?

Starting a business that hasn’t been tried before involves a lot of trial and error. Most of the time the trials, no matter how well thought out, turn out to contain errors. The errors may lie in the means you use or in the particular end you’re pursuing.

In most cases, it takes quite a few trials and many, many errors before you hit on an outcome that has a high enough value and low enough costs to make the enterprise profitable.) Is that process of trial and error, of experimentation, an example of economic efficiency? It is not.

If you begin with an accurate idea both of the value of an end and of all the possible ways of achieving that end, then you don’t need to experiment. Spending resources on trial and error would be wasteful. It’s then a matter of execution, which isn’t easy, but the real heavy lifting in the market process, both from the suppliers’ and the consumers’ sides, is done by trying out new things — and often failing.

Experimentation is messy and apparently wasteful, whether in science or in business. You do it precisely because you’re not sure how to answer a particular question, or because you’re not even sure what the right question is. There are so many failures. But in a world where our knowledge is imperfect, which is the world we actually live in, most of what we have to do in everyday life is to innovate — to discover things we didn’t know we didn’t know — rather than trying to be efficient. Being willing to suffer failure is the only way to make discoveries and to introduce innovations into the world.

Strictly speaking, then, if you want to innovate, being messy is unavoidable, and messiness is not efficient. Yet, if you want to increase efficiency, you can’t be messy. Innovation and efficiency usually trade off for each other because if you’re focused on doing the same thing better and better, you’re taking time and energy away from trying to do something new.

Dynamic Efficiency?

Some have tried to describe this process of innovation as “dynamic efficiency.” It may be quibbling over words, but I think trying to salvage the concept of efficiency in this way confuses more than it clarifies. To combine efficiency and innovation is to misunderstand the essential meanings of those words.

What would it mean to innovate efficiently? I suppose it would mean something like “innovating at least cost.” But how is it possible to know, before you’ve actually created a successful innovation, whether you’ve done it at least cost? You might look back and say, “Gee, I wouldn’t have run experiments A, B, and C if only I’d known that D would give me the answer!” But the only way to know that D is the right answer is to first discover, through experimentation and failure, that A, B, and C are the wrong answers.

Both efficiency and innovation best take place in a free market. But the greatest rewards to buyers and sellers come not from efficiency, but from innovation.

Sandy IkedaSandy Ikeda

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

Progress Will Hurt Blameless People by Aaron Ross Powell

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There’s an unfortunate tendency among some free market advocates to blame the victim: If you can’t find work, it’s because you’re lazy or you somehow screwed up. Hard work’s all that’s necessary to succeed. But of course that’s not true. It’s quite easy to think of counterexamples. We know creative destruction is a necessary part of a well-functioning economy. Market churn means people lose their jobs through no fault of their own, and shifts in technology and consumer preferences mean that skills once lucrative can suddenly become relatively worthless. Markets are overwhelmingly good, yes, and are responsible for the astonishing amelioration of poverty we’ve seen since the Industrial Revolution, but they have their victims.

A changing global economy has meant a changing American economy and a changing American economy has meant that some people who did well in the old pattern are having a harder time in the new. This harder time is felt by, among others, a segment of America’s lower-middle class who used to be able to find decent-paying jobs that demanded physical labor and the kinds of skills you don’t learn in school.

That segment increasingly faces a fact about the modern economy: Unless you’re a knowledge worker, it’s become a whole lot harder to find a well-paying, stable, long-term job because the skills you bring to an employer aren’t as in demand as they used to be.

And that’s awful for the people going through it. We can say that free markets change over time and that those changes lead to more prosperity in the long term, and that’s true. But it doesn’t make life better for the machinist or construction worker without a college degree and without much retirement savings. Empathy seems an appropriate response by those of us not facing such hardship.

That even well-functioning markets hurt some people some of the time makes selling market solutions to policy problems often a difficult task. We know that the solution to unemployment or underemployment is more economic freedom. Get rid of the barriers to entry and the protectionist policies keeping afloat what would otherwise be failing firms. Enable private schools to create a robust and successful educational system so more people have the skills needed to succeed in a modern economy. Open trade with the rest of the world, so we can grow our economy, buy goods at lower prices, and sell into more markets.

But here’s the thing. Every one of those solutions ends up sounding, to the person economically hurting now, like saying, “Leave it alone and things will work themselves out. Don’t know quite how or when, but they will.”

Market solutions are emergent solutions, and emergence takes time and can’t be planned or predicted. In fact, it’s the attempt to plan and predict that leads so many non-market-based policies to fail. Economists understand this and so largely trust markets. But most Americans aren’t economists.

I think this explains, in part, the appeal of people like Donald Trump or Bernie Sanders. We see them as misdiagnosing the problems and offering counter-productive, and sometimes abhorrent, “solutions.” Immigrants are taking your jobs. (They aren’t.) So let’s fix it right now by closing the borders. Trade with China is making us poor. (It isn’t.) So let’s fix it now by establishing quotas and tariffs.

But to people hurting right now, people like Trump or Sanders offer something free markets can’t: certainty, even if illusory. These people right here are the cause of your problems. Punish or stop them and your problems will go away. America will go back to being great, with “great” meaning the way it was when low-information, low-skill Americans could spend their lives comfortably in the middle class. In other words, before America’s economy became modern.

We don’t want that, of course. The economic visions of Trump and Sanders aren’t just backwards, but are dangerously retrograde policies that will hurt everyone without doing much to improve the lives of those who support such policies.

Liberty struggles when confronted with this combination of widespread economic ignorance and the political incentive for politicians to pander and promise solutions that are anything but. And I don’t know how to solve that. Nor do I believe there’s an easy solution. The incentives in politics run against us, and so we somehow need to get better at articulating the story of markets, of the voluntary and the emergent, and do it in a way that’s as compelling and hopeful in its rhetoric as the false hopes sold by those pitching meretricious intervention.

Part of that means consciously avoiding a panglossian picture of markets, and recognizing that sometimes people get hurt by them, and that often that hurt is blameless.

Cross-posted from Libertarianism.org.

Aaron Ross PowellAaron Ross Powell

Aaron Ross Powell is a research fellow and editor of Libertarianism.org.

No, the Rest of the World Doesn’t Use ‘Single Payer’ by Eli Lehrer

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There’s plenty of reason for free marketers to be skeptical of proposals, like the ones emanating from Democratic presidential candidate Bernie Sanders and hinted at by Republican Donald Trump, that would create a single-payer healthcare coverage system in the United States.

But, if only because these proposals have resonance with the public, they’re certainly worth debating. A rational debate depends on getting the facts straight and there’s one fact that both left and right often get wrong: “single payer” healthcare of the sort Bernie Sanders proposes isn’t universal in the developed world and the US system isn’t particularly free-market by the standards of peer nations.

Although definitions vary slightly, a single payer healthcare system is one where a single entity — a government-run insurance plan — pays all bills for a variety of medical care, and private payment for these same services is more-or-less banned.

Among the G-7 countries, only one nation, Canada, actually maintains such a system. One other, Italy, has a pretty similar system but allows much more private payment, and, because of the low standards of public hospitals, nearly everyone who can afford private insurance carries it.

Japan maintains a government-run healthcare plan, but it has so many gaps that most families find a need to carry private insurance to cover things like cancer-treatment related costs the public system excludes.

Germany, like the United States, has an employer-state hybrid system with heavy regulation of insurance companies.

France has a “dominant payer” system, where one quasi-governmental entity (CNAMTS) pays many bills, but about 90 percent of the population maintains private coverage as well, and most people pay something out of pocket each year.

The United Kingdom, finally, directly administers almost all medical personnel and facilities through a single governmental entity in each of the home countries. This is a “single provider” system.

Except in the United Kingdom, furthermore, there are significant numbers of people in all of these countries who report problems paying for needed medical care. This percentage is higher in the United States and Germany, intermediate in France, and lower in Canada. The UK only achieves its apparently enviable results because of long waiting lists for many procedures and health care rationing systems that are pretty close to the fictional “death panels” some conservatives claimed were part of Obamacare.

The American system as it exists isn’t unusually free market either. The German, French, and Japanese systems — where consumers much more frequently shop around for insurance plans they like rather than having the government or an employer chose — offer more consumer choices than most Americans enjoy. Even though taxpayers pick up a very large portion of the bills, the French practice of publically providing the prices of medical procedures makes that system feel a lot more like a free market than anything most Americans see day-to-day.

There are lots of valid criticisms of the United States’ healthcare system. The difficulty the poor or uninsured sometimes have in getting needed medical care is one of them. Some problems of the US health care system stem from lifestyle and cultural factors that organization and payment mechanisms can’t impact. But the lack of a single-payer system in the United States isn’t unusual in the slightest nor is the system we have particularly free-market.

Any debate should start by acknowledging both of those facts.

Eli LehrerEli Lehrer

Eli Lehrer is president and co-founder of the R Street Institute, a free-market think tank.

Pope Francis’s Graph of the Day by Ian Vásquez

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As the Argentine Pope, ever critical of capitalism, visits the United States, my colleagues at HumanProgress.org have posted this graph.

pope graph

It shows that in 1896, income per person in the United States and Argentina, two of the richest countries in the world, was about identical. Argentina subsequently eschewed the free market, replacing it with trade protectionism and other corporatist policies intended to help the poor by redistributing wealth. By 2010, Argentine income was a third of that of the United States.

Perhaps Pope Francis doesn’t endorse Argentine economic policies, but having just arrived from Cuba, he missed an opportunity to denounce the lack of freedoms that have kept that island and other Latin American countries poor and repressed. He met with none of the many admirable Cuban dissidents, in or out of prison, who have been peacefully advocating basic rights. Nor did he mention the plight of the Cuban people they represent, even as authorities arrested or detained 250 Cuban activists during his visit.

The Cuban Forum for Rights and Liberties (Foro por los Derechos y Libertades), an independent group of dissidents in Cuba, summed up how it felt about, and experienced, the Pope’s visit. It read, in part:

We human rights activists, regime opponents and independent journalists have experienced days full of threats, harassment, telephone connections being cut off, homes besieged by the authorities, and violent, arbitrary arrests.

The behavior of the regime was expected. However, the position of the church has been surprising.

The exaggerated and repeated shows of approval of the dictatorship, the silence toward its excesses, and the refusal to hear dissident voices have created broad discontent among Cuban believers and non-believers both within and outside of the island.

The group might have added that the disappointment has spread more widely in the Americas.

This post first appeared at Cato.org.

Ian Vásquez

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A Higher Minimum Wage Will Make Us Meaner by Scott Sumner

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In a recent post, I argued that government monopolies often offered worse service to customers than competitive private firms. In this post (which will have something to offend both progressives and conservatives), I’ll look at a different but related problem.

A few days ago there was a big debate about a New York Times expose on working conditions at Amazon.com. (By the way, it would have been useful for the NYT to compare labor practices at the Seattle company to working conditions at firms operating in the Amazon region of Brazil.)

Many liberals were appalled, while conservatives often wondered why, if working conditions were so bad at Amazon, people didn’t simply “get another job.” I have sympathy for both sides, but probably a bit more for the conservative side.

One liberal objection might be that it’s not easy to get another job. (And perhaps that’s because monetary policy since 2008 has been too contractionary. And perhaps that’s because conservatives have complained about the Fed’s QE/low interest rate policies, which has made the Fed reluctant to do more.)

Regardless of how you feel about monetary policy, it’s clear that if employers feel they have a “captive audience” of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

But progressives also have some major weaknesses in this area. They tend to favor policies such as New York City’s rent controls, and the new $15 minimum wage being gradually phased in in some western cities.

I like to think of these policies as engines of meanness. They are constructed in such a way that they almost guarantee that Americans will become less polite to each other.

In New York City, landlords with rent controlled units know that the rent is being artificially held far below market, and thus that they would have no trouble finding new tenants if the existing tenant is unhappy. So then have no incentive to upgrade the quality of the apartment, or to quickly fix problems. They do have an incentive to discriminate against minorities that, on average, are more likely to become unemployed, and hence unable to pay the rent. Or young people, who might damage the unit with wild parties.

Wage floors present the same sort of problem as rent ceilings, except that now it’s the demanders who become meaner, not the supplier. Firms that demand labor in Los Angeles in the year 2020 will be able to treat their employees very poorly, and still find lots of people willing to work for $15/hour.

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the “formal” sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You’ll have lots more angry, frustrated, young Mexican illegal immigrants with lots of time on their hands. What could go wrong?

One reason that I am what Miles Kimball calls a “supply-side liberal” is that I believe my preferred policy mix (NGDP targeting, plus free markets) is most likely to produce the sort of “nice” society I grew up with (in Madison, Wisconsin).

This post first appeared at Econlog. ©

Scott Sumner
Scott Sumner

Scott B. Sumner is the director of the Program on Monetary Policy at the Mercatus Center and a professor at Bentley University. He blogs at the Money Illusion and Econlog.

How Many People Can Planet Earth Sustain? by Robert P. Murphy

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Asked whether or not the growing world population will be a major problem, 59% of Americans agreed it will strain the planet’s natural resources, while 82% of U.S.-based members of the American Association for the Advancement of Science said the same. Just 17% of AAAS scientists and 38% of Americans said population growth won’t be a problem because we will find a way to stretch natural resources.
— Pew Research Center

“If humanity is to have a long-term future,” writes James Dyke at the Conversation, “we must address all these challenges [of population growth] at the same time as reducing our impacts on the planetary processes that ultimately provide not just the food we eat, but water we drink and air we breathe. This is a challenge far greater than those that so exercised Malthus 200 years ago.”

Thomas Malthus was a pioneer in political economy who wrote a famous 1798 essay on the dangers of population growth. Nowadays, environmentalists concerned with “sustainable growth” typically invoke Malthusian concerns as they recommend government interventions.

Free-market thinkers tend to reject such “solutions” as unnecessary, but beyond the technical policy debate, there is also a strand in the free-market community that embraces population growth with optimism.

The crux of Malthus’s original essay was that unchecked populations grow exponentially, whereas food production grows — at best — linearly. The following passage sums up the bleak Malthusian view of life:

The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race. The vices of mankind are active and able ministers of depopulation. They are the precursors in the great army of destruction, and often finish the dreadful work themselves. But should they fail in this war of extermination, sickly seasons, epidemics, pestilence, and plague advance in terrific array, and sweep off their thousands and tens of thousands. Should success be still incomplete, gigantic inevitable famine stalks in the rear, and with one mighty blow levels the population with the food of the world.

The Malthusian mindset explains Paul Ehrlich’s runaway bestseller The Population Bomb and the popularity of the “zero population growth” (ZPG) movement in the 1960s. Ehrlich said, “The mother of the year should be a sterilized woman with two adopted children.” (Advocates of ZPG over the years have differed on whether their goal could be achieved purely through voluntary sterilization and restraint versus government controls.)

How does a free-market economist respond to modern-day Malthusianism?

We should first make the obvious point that people in the private sector are just as capable of extrapolating population figures as government officials. Indeed, as I explained in “Are Markets Myopic?,” market prices — particularly in futures markets — give private owners the proper incentives to balance current consumption against future uses, even for nonrenewable resources. It is, in fact, democratically elected government officials who are myopic, since their control over such resources is fleeting.

To illustrate the shortcoming of a naïve natural scientific perspective on these issues, consider an anecdote from my high school years. I remember that my biology textbook asked us to consider a petri dish with a population of bacteria that would double every day. By stipulation, the bacteria would completely fill the dish — and thus hit the ceiling of its “carrying capacity” — on the 30th day. The textbook then delivered the stunning observation that on the day before this crisis, the dish would only be half full. The textbook’s point, of course, was to warn that trends in biology were not linear, and that crises could develop rapidly out of apparent tranquility and abundance.

If my classmates and I learned this principle in high school biology, then presumably at least some traders in the Chicago agricultural commodities markets have thought about it, too. If Earth’s population will grow more rapidly than food production over the next decade, then the spot prices of wheat, soybeans, and beef will eventually skyrocket as the crunch sets in. If the crisis of population growth is “obvious” to academics the world over, then this growth would be factored into market prices and food prices would already be high in anticipation of the future disaster.

Although there are sophisticated arguments involving the “negative externalities” of climate change, generally speaking, the possible dangers of excessive population growth would manifest themselves in the form of higher prices for raising children. Couples would voluntarily reduce their (biological) family size as real estate prices, tuition, health care, and food prices rose faster than wages to reflect the impending crunch. There is nothing for government officials to do in this area except to get out of the way and let market prices do their job, as opposed to subsidizing population growth through poorly designed welfare systems, “free” government schooling, and similar programs. People in the market make horrible forecasting decisions all the time, but government policies typically reinforce those flaws in human nature rather than counteract them.

As with any serious thinker, Malthus’s real work was imbued with nuance. Rather than making him a hero of progressive interventionists, one could hold up Malthus as a pioneer in understanding the importance of market institutions in encouraging responsible decision making when it comes to family size. However, if we focus on the narrow empirical prediction that exponential population growth must outstrip food production, then Malthus was simply wrong, or at least he has been so far. The “green revolution” is the shining example in the more general history of human ingenuity overcoming obstacles, especially in the context of relatively free markets. Julian Simon famously won a bet with Ehrlich predicting that the prices of key commodities — which he let Ehrlich and his colleagues choose — would fall during the 1980s.

In his own work, Simon stressed human creativity and adaptation as the “ultimate resource.” When typical Malthusians look at humanity, they see billions of bellies that must be filled. Instead, Simon saw billions of brains that could produce a new strain of crop, discover a cure for cancer, or develop a new technique for locating oil deposits.

One of Simon’s most compelling arguments is to point out that human labor is the one resource that has consistently become relatively more scarce over the centuries. Specifically, the amount of labor time that the typical worker needs to spend in order to earn the wages for buying other resources has dropped dramatically. (Robert Bradley provides some compelling graphics on the topic.) If the Malthusians had been right, then labor would have become relatively abundant and superfluous, with commodity and energy prices rising far more than wage rates.

As the population grows, two competing forces affect living standards. On the one hand, higher population allows for a greater division of labor, as well as more inventions that can be easily scaled. (The work of J.K. Rowling and Steve Jobs would not have been nearly as valuable on a tropical island with 100 people.) On the other hand, there are finite limits on certain resources — such as standing room on Earth, for the foreseeable future — and thus at some point further population growth drives down average wages.

Nonetheless, the market contains the proper incentives to allow individuals to make informed choices about procreation. Furthermore, experience to date has definitely come down on the side of the optimists. So far, free societies have proven “the more, the merrier” to be true. Wherever population growth appears to fall into a Malthusian trap, we find excessive statism, not free markets and private property rights.

Robert P. Murphy
Robert P. Murphy

Robert P. Murphy is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

Capitalists from Outer Space by B.K. Marcus

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When the aliens stop trifling with crop circles, bumpkin abduction, and indelicate probes and finally introduce themselves to the rest of humanity, will they turn out to be partisans of central planning, interventionism, or unhampered markets?

This is not the question asked by the Search for Extraterrestrial Intelligence (SETI) Institute, but whether or not the institute’s scientists realize it, the answer is crucial to their search.

Signs of Intelligent Life

The SETI Institute was founded by Frank Drake and the late Carl Sagan. Its scientists do not believe we have been visited yet. UFO sightings and abduction stories don’t stand up under scientific scrutiny, they say. Nor are they waiting for flying saucers. Because the aliens’ signals will likely reach Earth before their spaceships do, SETI monitors the skies for transmissions from advanced civilizations orbiting distant stars.

The scientific search for evidence of advanced alien societies began in 1960, when Drake aimed a 25-meter dish at two nearby stars. The previous year, the journal Nature had published an article called “Searching for Interstellar Communications,” which suggested that distant civilizations might transmit greetings at the same wavelength as the radio emission of hydrogen (the universe’s most common element). Drake found no such signals, nor has SETI found any evidence of interstellar salutations since. But it’s not giving up.

The Truth Is Out There

Before we can ask after advanced alien political economy, we must confront the more basic question: Is there anybody out there? SETI has been searching for over half a century. That may seem like a long time, but there are, as Sagan underscored, “billions and billions of stars.” How many of them should we expect to monitor before finding one that’s transmitting?

In an attempt to address, if not answer, the question, Drake proposed an equation in 1961 to summarize the concepts scientists think are relevant to any educated guess.

Here is how Sagan explains the Drake equation in the book Cosmos:

N*, the number of stars in the Milky Way Galaxy;
fp, the fraction of stars that have planetary systems;
ne, the number of planets in a given system that are ecologically suitable for life;
fl, the fraction of otherwise suitable planets on which life actually arises;
fi, the fraction of inhabited planets on which an intelligent form of life evolves;
fc, the fraction of planets inhabited by intelligent beings on which a communicative technical civilization develops;
and fL, the fraction of a planetary lifetime graced by a technical civilization.

The End of the World as We Know It

Sagan expounds on all the terms in the equation, but it’s that last one that absorbs him: How long can an advanced civilization last before it destroys itself?

Perhaps civilizations arise repeatedly, inexorably, on innumerable planets in the Milky Way, but are generally unstable; so all but a tiny fraction are unable to survive their technology and succumb to greed and ignorance, pollution and nuclear war.

Sagan wrote Cosmos toward the end of the Cold War. He mentioned other threats — greed, ignorance, pollution — but the specter of mutual annihilation haunted him. When he imagined the end of an advanced society, he pictured something permanent.

“It is hardly out of the question,” he wrote, “that we might destroy ourselves tomorrow.” Perhaps, Sagan feared, the general pattern is for civilizations to “take billions of years of tortuous evolution to arise, and then snuff themselves out in an instant of unforgivable neglect.”

The Rise and Fall of Civilization

We cannot know if the civilizational survival rate on other planets is high or low, and so the final term in the Drake equation is guesswork, but some guesses are better than others.

“One of the great virtues of [Drake’s] equation,” Sagan wrote, “is that it involves subjects ranging from stellar and planetary astronomy to organic chemistry, evolutionary biology, history, politics and abnormal psychology.”

That’s quite an array of topics to inform an educated guess, but notice that he doesn’t mention economics.

Perhaps he thought politics covered it, but Sagan’s political focus was more on questions of war and peace than poverty and wealth. In particular, he considered the end of civilization to be an event from which it would take a planet billions of years to recover.

The history of our own species suggests that this view is too narrow. Yes, a nuclear war could wipe out humanity, but civilizations do destroy themselves in less permanent ways.

There have been two dark ages in Western history: the Mycenaean-Greek and the post-Roman. Both were marked by retrogression in technology, art, and literacy. Both saw a drop in overall population and in population density, as survivors left towns and cities for a more autarkic existence in the countryside. And both underwent a radical decline in foreign trade and the division of labor. Market societies deteriorated into disparate cultures of subsistence farming.

The ultimate causes of the Greek Dark Age are a mystery. As with the later fall of the Roman Empire, the Mycenaean demise was marked by “barbarian” invasions, but the hungry hoards weren’t new: successful invasions depend on weakened defenses and deteriorating infrastructure. What we know is that worsening poverty marked the fall, whether as cause, effect, or both.

The reasons for the fall of the Roman West are more evident, if still debated. Despite claims of lead poisoning, poor sanitation, too much religion, too little religion, and even, believe it or not, inadequate central planning, the empire’s decline resulted from bad economic policy.

To help us see this more clearly,Freeman writer Nicholas Davidson suggests in his magnificent 1987 article “The Ancient Suicide of the West” that we look to the signs of cultural and economic decline rather than to the changes, however drastic, in political leadership. While the Western empire did not fall to the barbarians until the fifth century AD, “The Roman economy [had] reached its peak toward the middle of the first century AD and thereafter began to decline.” As with the Mycenaean Greeks, the decay was evident in art and literature, science and technology. Civilization cannot advance in poverty. Wealth and civilization progress together.

How to Kill Progress

“The stagnation in all aspects of society,” Davidson writes, “was associated with a continuous extension of governmental functions. Social engineering was tried on the grand scale. The state relentlessly expanded into commerce, industry, and private life.”

As we look to our own future — or anticipate the politics of our alien brethren — we can draw on the experience of humanity’s past to help us appreciate the economics of progress and decline. Over and over, we see the same pattern: some group gains a temporary benefit from a world in flux. When further social and economic changes check those advantages, the old guard turn to the state to protect them from the dynamism of a healthy society. Adaptation is stymied. Nothing is allowed to evolve. The politically privileged — military and civilian, rich and poor — sacrifice their civilization in an doomed attempt to ward off change.

The Sustainable Society

Evolutionary science, economic theory, and cybernetics yield the same lessons: stability requires flexibility; complexity flourishes under spontaneous order; centralization leads to stagnation.

To those general lessons, economics adds insights specific to the context of scarcity: private property and voluntary exchange produce greater general wealth, longer time horizons, and ever more investment in the “luxuries” of scientific investigation, technological innovation, and a more active stewardship of the environment. Trade promotes peace, and a global division of labor unites the world’s cultures in mutual self-interest.

If, as Sagan contends, an advanced civilization would require political stability and sizable long-term investment in science and technology to survive an interstellar spacefaring phase, then we should expect any such civilization to embrace a planetwide system of free trade and free markets grounded in private property. For the civilization to last the centuries and millennia necessary to explore and colonize the stars, its governing institutions will have to be minimal and decentralized.

The aliens will, in short, embrace what Adam Smith called “the system of natural liberty.” Behind their transmissions, SETI should expect to find the invisible hand.

Scientists versus Freedom

When we do make contact, “the consequences for our own civilization will be stunning,” Sagan wrote. Humanity will gain “insights on alien science and technology, art, music, politics, ethics, philosophy and religion…. We will know what else is possible.”

What did Sagan himself believe possible? Had he survived to witness first contact, would he be surprised to learn of the capitalist political economy at the foundation of an advanced extraterrestrial civilization?

Neil deGrasse Tyson, who remade the Cosmos television series for the 21st century, recommends reading Adam Smith’s Wealth of Nations but only “to learn that capitalism is an economy of greed, a force of nature unto itself.”

We shouldn’t assume that Tyson represents Sagan’s economic views, but when Sagan did address questions of policy, he advocated a larger welfare state and greater government spending. When he talked about “us” and “our” responsibilities, he invariably meant governments, not private individuals.

Sagan wrote, “It may be that civilizations can be divided into two great categories: one in which the scientists are unable to convince nonscientists to authorize a search for extraplanetary intelligence … and another category in which the grand vision of contact with other civilizations is shared widely.”

Why would scientists have to persuade anyone else to authorize anything? Sagan could only imagine science funded by government. It was apparently beyond credibility that less widely shared visions can secure sufficient funding.

It’s a safe guess, then, that when he talks of civilizations that are “unable to survive their technology and succumb to greed,” Sagan is talking about the profit motive.

And yet, it is the profit motive that drives innovation, and it is the great wealth generated by profit seekers that allows later generations of innovators to pursue their visions with fewer financial inducements. Whether directly or indirectly, profits pay for progress.

Self-Interested Enlightenment

Why does it matter if astronomers misunderstand the market? Does SETI really need to appreciate the virtues of individual liberty to monitor the heavens for signs of intelligent life?

Scientists can and do excel in their fields without understanding how society works. But that doesn’t mean their ignorance of economics is harmless. The more admired they are as scientists — especially as popularizers of science — the more damage they can do when they speak authoritatively outside their fields. Their brilliance in one discipline can make them overconfident about their grasp of others. And increasingly, the questions facing the scientific community cross multiple specialties. It was the cross-disciplinary nature of Drake’s equation that Sagan saw as its great virtue.

The predictions of the astronomer looking for extraterrestrial socialists will be different from those of someone who expects the first signals of alien origin to come from a radically decentralized civilization — a society of private individuals who have discovered the sustainable harmony of self-interest and the general welfare.

After that first contact, after we’ve gained “insights on alien science and technology” and we get around to learning alien history, will we discover that their species has witnessed civilizations rise and fall? What was it that finally allowed them to break the cycle? How did they avoid stagnation, decline, and self-destruction?

How did they, as a culture, come to accept the economic way of thinking, embrace the philosophy of freedom, and develop a sustainable civilization capable of reaching out to us, the denizens of a less developed world?


B.K. Marcus

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

Is Politics Obsolete? How People Outpace Politicians by Max Borders and Jeffrey A. Tucker

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Hillary Clinton talks of cracking down on the gig economy. Donald Trump speaks of telling American corporations where they can and can’t do business abroad. Bernie Sanders says we have too many deodorant choices. They all speak about immigrants as if it were 1863.

What the heck are these people talking about?

More and more, that’s the response many people have to the current-day political speeches and rhetoric. It’s a hotly contested election, somewhat like 2008, but this time around, public engagement is low, reports Pew.

That’s no surprise, really. Whether it’s the leftists, the rightists, or everyone in between, all of these politicians seem to be blathering about a world gone by — one that has little to do with the 21st century. If they’re not tapping into people’s baser instincts of fear and nativism, they’re dusting off 20th-century talking points about creating “good jobs.”

Maybe there was a time when the political culture seemed to keep up with the pace of innovation. If so, those times are long gone. The rhetoric of electoral politics is exposing the great rift in civic life.

The tools we use every day, the technologies we love, the way we engage each other, the means by which our lives are improving are a consequences of innovation, markets, community, and globalization — that is, by the interactions of free people. Not by politics. And not by the systems politics creates.

The political election is a tired old ritual in which we send our hopes and dreams away to distant capitals. Why do we outsource them to politicians, lobbyists, and bureaucrats: people who are trapped in a system that rewards the worst in people? What’s left of governance is logrolling, spectacle, and unwanted interference in the lives of everyone else.

Politicians seem more concerned with putting the genie of innovation and entrepreneurship back in the bottle than doing anything meaningful. After the election, we try our best to ignore them and get on with life.

Politicians seem more concerned with putting the genie of innovation and entrepreneurship back in the bottle than doing anything meaningful.

In 2012, US voters reelected Barack Obama, and now we’re gearing up to elect someone else. Candidates will talk about their visions and their wonderful plans for the country. But in the last three years, virtually none of the incredible, beautiful upheaval we’ve seen has had anything to do with the presidency or with anyone politician’s plans.

In fact, when you think about what government has done for us in recent years, only one new program comes to mind: Obamacare. Opinions vary on whether that program has been deeply disappointing or an unmitigated disaster.

Now, take a step back and observe the evolution of commercial society and how it is bringing us unprecedented bounty. The digital sector of emergent, market-generated, people-driven, technology-fueled innovation is fulfilling human aspirations and spreading useful services to people in all walks of life. National borders seem ever more arbitrary. Surprises await us around every corner. Our political systems can claim credit for none of it.

And yet, we are once again being asked to turn to politicians to drive progress.

Consider how much our lives and technologies have changed since the last presidential election. Smartphone ownership has gone from 300 million to 2 billion, meaning that most of the population of the developed world — and large parts of the rest — now have access to a wireless supercomputer in their pockets. As a result, we are more in touch than ever.

There are now dozens of ways for anyone to keep in contact with anyone else through text messaging and video, and most of the services are free. Transportation in cities has fundamentally changed due to ridesharing and app-based systems that are outcompeting municipal taxis. Traditional travel lodging has been disrupted through mobile applications that turn every empty room into a hotel, and finding permanent lodging is easier than ever. You can find the ratings for any service or establishment instantly with a click or a tap, long before you purchase. You can feasibly shop for and buy a house without ever having stepped inside of it.

Cryptocurrency is becoming a viable alternative to national monies, and payment systems on distributed networks are being customized for peer-to-peer exchanges of property titles.

The mass distribution and availability of mobile applications with maps means that you are never lost, and, moreover, that you can be intensely aware of everything around you, wherever you are or wherever you are planning to be. Extended families that are spread out over large geographic regions can stay constantly in touch, chatting and playing games.

The way we help our neighbors and communities is improving. We can contribute to charitable causes with just a click. We are closer to our neighbors and their needs — whether it’s a missing cat, a call for a handyman, or childcare for Saturday night. We can be on the lookout after a break-in and share video of the perpetrators instantly.

The way we consume music has fundamentally changed. We once bought CDs. Then we downloaded particular tracks and albums. With Internet everywhere, we now stream a seemingly endless variety of genres. The switch between classical and indie rock requires only a touch. And it’s not just new music we can access, but vast archives and recreations of music dating to antiquity. Instantly.

Software packages that once cost thousands are now low-cost downloadable apps. Many of us live in the cloud now, so that no one’s life is ruined by a computer crash. Lost hardware can be found with built-in tracers — even stealing computers is harder than ever.

Where we work no longer matters as much. 4G LTE means a powerful Internet connection wherever you are, and WiFi on airlines means staying in touch even while above the clouds. Online document signing means total portability and the end of the physical world for most business transactions. You can share almost anything — whether grocery lists or whole writing projects — with anyone and work in real time. More people than ever work from home because they can.

News is now crowdsourced through Twitter and Facebook — or through mostly silly sites like BuzzFeed. There are thousands of competitors, so that we can know what we want to know wherever we are. Once there was only “national news”; now a news event has to be pretty epic to qualify, and much of the news that we are interested in never even makes old-line newspapers.

Edward Snowden revealed ubiquitous surveillance, escaped prosecution, and now, thanks to technology, has been on a worldwide speaking tour, becoming the globe’s most famous public intellectual. This is despite his having been censored and effectively exiled by the world’s biggest and most powerful state. He has a great story to tell, and that story is more powerful than any of the big shots who want him to shut up.

Pot has been effectively legalized in many American cities, and the temperature on the war against it has dropped dramatically. When dispensaries are raided, the news flies all over the Internet within minutes, creating outrage and bringing the heat down on the one-time masters of the universe. There is now a political risk to participating in the war on pot — something unthinkable even 10 years ago. And as police continue to abuse their power, citizens are waiting with cameras.

Oil prices have collapsed, revealing the fallacy of peak oil. This happened despite pressure in the opposite direction from every special interest, from environmentalists to the oil industry itself. The reason was again technological. We discovered better and cheaper ways of drilling, and, in so doing, exposed vastly more resources than anyone thought accessible.

At the very time when oil and gas seemed untouchable, we suddenly saw electric cars becoming viable options. This was not due to government mandates — regulators tried those for years — but due to some serious innovation on the part of one remarkable company. It’s not even the subsidies, such as they are, that are making the difference; it’s the fine-tuning of the machine itself. Tesla even took it a step further and released its patents into the commons, allowing innovation to spread at a market-based pace.

We are now printing houses in one day, vaping instead of smoking, legally purchasing pharmaceuticals abroad, using drones to deliver consumer products, and enjoying one-day delivery of just about everything.

In the last four years, the ebook became a mass consumer item, outselling the physical book and readable on devices within the budget of just about everyone. And despite attempts to keep books offline, just about anything is now available for download, putting all the world’s great literature, in all major languages, at our fingertips.

Here we go again, playing “let’s pretend” and electing leaders under the old-fashioned presumption that it is politics that improves the world and drives history forward.

And speaking of languages, we now have instant access to translation programs that allow us to email and even text with anyone in a way he or she can understand regardless of language. It’s an awesome thing to consider that this final barrier to universal harmony, once seen as insuperable, is in the process of melting away.

These are all ways in which the world has been improved through markets, creativity, and free association. And yet, here we go again, playing “let’s pretend” and electing leaders under the old-fashioned presumption that it is politics that improves the world and drives history forward.

Look around: progress is everywhere. And it is not because we are electing the “right people.” Progress occurs despite politics and politicians, not because of them.

Max Borders

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

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. Follow on Twitter and Like on Facebook.

Who Is Building the Private, Peer-to-Peer Marketplace? An Interview with Sam Patterson

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Sam Patterson (sam@samuelrpatterson.com) is an author and technology enthusiast from Virginia. He has written about decentralized technologies such as bitcoin and OpenBazaar. Sam recently cofounded a company called OB1 to help build the decentralized marketplace OpenBazaar.

The Freeman: Your project, OpenBazaar, has been awarded $1 million in seed funding so far. Congratulations. What is it, and what does it do?

Patterson: OpenBazaar is an open source project to create a decentralized marketplace online where anyone in the world can buy or sell any goods or services with anyone else in the world, for free, using bitcoin. A few of the core project members (including myself) recently started a company called OB1, which received the funding in order to hire full-time developers and make OpenBazaar a reality.

Online commerce today is mostly centralized; companies own websites where users visit to buy and sell things. Those companies charge fees, monitor their users’ data, and censor their transactions based on their own rules and on behalf of the government.

OpenBazaar is different. Instead of relying on a centralized third party, trades occur directly between buyers and sellers. Users install peer-to-peer software on their computers, similar to bitcoin or BitTorrent, and this connects them to other users running the same software. They transact in bitcoin. Since there’s no middleman, there are no fees, no collection of data, and no censorship of trade.

The Freeman: Some people will object to OpenBazaar by saying it’s not transparent — that it will help criminals thrive. How do you answer such charges?

Patterson: Some have inaccurately labeled us as an evolved Silk Road — an underground drug marketplace. This is absolutely false, for many reasons. The Silk Road was centralized and run by a small group for profit. It catered to a specific group of people who traded in illicit goods.

In contrast, OpenBazaar is a decentralized marketplace, not run for profit. It doesn’t cater to any group, or any type of trade, but is open for all users to buy and sell anything they want with each other. It’s a much bigger vision than these narrow dark markets.

We expect that use of OpenBazaar will reflect markets in society. There will be some users who engage in activity that is morally or legally objectionable, but the vast majority of users will be engaging in positive and constructive trade. We don’t know exactly how people will use OpenBazaar to better their lives, but we believe that it will, and we can’t wait to see it happen.

The Freeman: What are the implications of this kind of technology for the world’s poorest people?

Patterson: Most of the existing centralized market platforms that I mentioned earlier don’t focus on the developing world, or even if they do, the payment methods used aren’t accessible for many of the world’s poor. Bitcoin requires no credit checks to use; an Internet connection and computer are all that’s needed. OpenBazaar is the same as bitcoin in this sense. It costs nothing to join and use, and the trade is direct between buyers and sellers; there are no middlemen to take a cut. We hope that by lowering the barriers to entry for online trade, OpenBazaar and bitcoin will bring millions of new users into the online economy.

The Freeman: What are the implications of this kind of technology for most of our readers — that is, wealthier Westerners?

Patterson: Establishing a protocol, client, and network for people to directly engage in trade with each other allows for more efficient transactions. Sellers on eBay who use PayPal regularly pay up to 10 percent fees on each sale. Those are 0 percent on OpenBazaar.

OpenBazaar is also more private. Instead of the centralized platforms getting all the information about your buying or selling habits, now that information is only available to the parties you directly engage with.

Also, if some of your readers are already bitcoin users, OpenBazaar is the first decentralized platform for them to spend their decentralized money. Many value decentralized technology simply because it takes power away from the gatekeepers in our world.

The Freeman: How do you market OpenBazaar? How do you build culture around it?

Patterson: We haven’t needed to market OpenBazaar so far. The bitcoin community is very excited to see it built. Once we look to go beyond bitcoin users and into the broader e-commerce space, then we’ll need to consider how to market ourselves. Likely, it will be around the lack of fees, which is compelling to retailers who have small margins.

Our culture is one that supports free trade and voluntary interactions in society. The ability to engage in trade directly with someone in person is a great thing, and it’s a shame that hasn’t been possible online — until now.

The Freeman: How flexible, robust, and “anti-fragile” is this system — especially with respect to predatory states who will likely try to foil its development?

Patterson: OpenBazaar is very robust, similar in design to bitcoin or BitTorrent. Because it’s run locally on users’ computers, there’s no central point of failure to attack. We don’t anticipate that OpenBazaar will face opposition from governments any more than other online platforms have; they have the same tools at their disposal to go after individual storeowners. But they cannot take down the whole system at once, unlike the existing platforms.

The Freeman: When will OpenBazaar be ready to use?

Patterson: We plan on publishing the first full release in November this year. The code is open source so developers can view it any time at our Github.

The Freeman: Thank you for speaking with us, Sam.


The Freeman

The Freeman is the flagship publication of the Foundation for Economic Education and one of the oldest and most respected journals of liberty in America. For more than 50 years it has uncompromisingly defended the ideals of the free society.

The Politics of Nostalgia: Why Does the Left Want to Take Us Backwards? by Steven Horwitz

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One of the more curious developments in the last couple of years has been left-wing nostalgia for the economy of the 1950s.

Don’t political progressives usually portray themselves as being on “the right side of history” — representing, as the term suggests, the march of “progress”?

Not when it comes to the economy.

Paul Krugman has written a number of columns over the last decade about how much better things were in the middle of the 20th century. More recently, we have presidential candidate Hillary Clinton making a major economic policy statement in which she longs for a time like the 1950s when workers had the structure of the corporate world and unions through which to lobby and negotiate for pay and benefits, rather than the so-called “gig” economy of so many modern freelance employees, such as Uber drivers. “This on-demand or so-called gig economy is creating exciting opportunities and unleashing innovation,” Clinton said, “but it’s also raising hard questions about workplace protection and what a good job will look like in the future.”

To protect Americans from the uncertain future, Clinton promised she would “crack down on bosses that exploit employees by misclassifying them as contractors or even steal their wages.”

In an economy where technology has enabled people to have a great deal more flexibility with their workdays and independence with their work choices, it’s now the “progressives” who are complaining about the economic organizations that have been agents of more efficient resource use, expanded choice for workers, and cheaper goods for consumers.

In short, the progressives are complaining about what would otherwise be called progress.

And let’s not let the conservatives off the hook here either, as they demonstrate their own nostalgia for an economy of the past, with cheers for Donald Trump’s anti-immigrant and anti-trade tirades and for his general love of dirigiste policies. Immigration and trade have also expanded the range of work available, lifted millions out of poverty through better-paying jobs in the United States, and enriched the rest of us through more affordable goods and services.

What’s particularly amusing about both sides, but especially the progressives, is how wrong they are about life for the average American being better back in the 1950s, including how much more secure they were. In a terrific paper for the Cato Institute, Brink Lindsey effectively demolished Krugman’s nostalgia with some actual data about the economy of the 1950s. He pointed out that the increase in income inequality since then noted by so many progressives is largely overstated, and that the economy they are nostalgic for is one that restricted competition in a variety of ways, mostly to the benefit of the politically influential. Limits on immigration and trade, in particular, prevented the 1950s economy from achieving the reductions in cost and increase in variety that we associate with our economy today.

Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

It is more than a little ironic that modern progressives are nostalgic for the very economy that GOP front-runner Donald Trump would appear to want to create.

As I argued in a recent paper, when we look at the cost of living in terms of the work hours required to purchase basic household items, most goods and services are far cheaper today than in the 1950s. The equivalents of those items today are also of higher quality: think about the typical household TV or refrigerator in 1955 versus 2015. These substantial decreases in cost have had another effect. They have made these goods increasingly accessible to the poorest of Americans. American households below the poverty line are far more likely to have a whole variety of items in their homes than did poor families in the 1950s. In fact, they are more likely to have those things in their houses than was a middle-class American family in the 1970s.

When you also consider the number of goods that weren’t even available in the 1970s or 1950s, from technology like computers and smartphones, to innovative medicines and medical procedures, to various forms of entertainment, to a whole number of inventions that have made us safer, healthier, and longer-lived, it’s difficult to argue that things were better “back then.”

The effect of all of this change driven by increased competition is that our world is one in which the middle class and poor are better off, and the gap between poor and rich as measured by what they consume has narrowed substantially. Does anyone really want to go back to the stagnant, conformist, more poverty-stricken world of the 1950s?

Politicians do. And here’s one reason why: back then, it was easier to influence and control people’s economic lives. Progressives with a desire to shape their ideal economy aren’t happy with the world of freelancers, Uber, and independent contractors.

The economy of the 1950s and 1970s had organizational focal points where politicians could exercise leverage and thereby influence the lives of large numbers of citizens.

I’m thinking here of the auto companies in the 1950s, the oil companies in the 1970s, and any number of industries where large firms were created by restrictions on domestic and foreign competition, which were easy points of contact for politicians with a desire to control, and which had corporate leaders who were happy to reap the benefits of corporatism.

In a world of Uber, Airbnb, and all the rest, there are no central points of leverage. Facebook produces no content, Uber owns no cars, Alibaba owns no inventory. More important: Uber has no employees, only contractors. If you are Clinton or Trump, or even Krugman, there’s nowhere to go to exercise your power or to drum up support from workers in one place. There’s nothing to grab hold of. There are just people trading peacefully with each other, enriching everyone in the process.

The real irony, once again, is that what this decentralized economy has produced is more freedom and more flexibility for more workers. The same progressives who railed against the conformism of the 1950s a decade later are now nostalgic for what their predecessors rejected and are rejecting exactly the “do your own thing” ethos their 1960s heroes fought for.

The “gig” economy works for people who want options and who want flexible hours so they can pursue a calling the rest of the day. Or perhaps they want to spend a few hours a week driving an Uber because Obamacare caused their employers to cut their hours at their other job.

Whatever the reason, this economy offers the freedom and flexibility for workers, and the benefits for consumers, that represent the progress progressives should love. That progressives (and conservatives) with power are fighting against it tells you that they are much more concerned with power than with progress.

Nostalgia is a dangerous basis for making policy, whether left or right.


Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.