Posts

Why the Holocaust Should Matter to You by Jeffrey Tucker

People tour the nation’s capital to be delighted by symbols of America’s greatness and history. They seek out monuments and museums that pay tribute to the nation state and its works. They want to think about the epic struggles of the past, and how mighty leaders confronted and vanquished enemies at home and abroad.

But what if there was a monument that took a different tack? Instead of celebrating power, it counseled against its abuses. Instead of celebrating the state and its works, it showed how these can become ruses to deceive and destroy. Instead of celebrating nationalist songs, symbols, and stories, it warned that these can be used as tools of division and oppression.

What if this museum was dedicated to memorializing one of history’s most ghastly experiments in imperial conquest, demographic expulsion, and eventual extermination, to help us understand it and never repeat it?

Such a museum does exist. It is the US Holocaust Museum. It is the Beltway’s most libertarian institution, a living rebuke to the worship of power as an end in itself.

I lived in Washington, DC, when the Holocaust Museum was being built, and I vaguely recall when it opened. I never went, though I had the opportunity; I remember having a feeling of dread about the prospect of visiting it. Many people must feel the same way. Surely we already know that mass murder by the state is evil and wrong. Do we really need to visit a museum on such a ghastly subject?

The answer is yes. This institution is a mighty tribute to human rights and human dignity. It provides an intellectual experience more moving and profound than any I can recall having. It takes politics and ideas out of the realm of theory and firmly plants them in real life, in our own history. It shows the consequences of bad ideas in the hands of evil men, and invites you to experience the step-by-step descent into hell in chronological stages.

The transformation the visitor feels is intellectual but also even physical: as you approach the halfway point you notice an increase in your heart rate and even a pit in your stomach.

Misconceptions

Let’s dispel a few myths that people who haven’t visited might have about the place.

  • The museum is not maudlin or manipulative. The narrative it takes you through is fact-based, focused on documentation (film and images), with a text that provides a careful chronology. One might even say it is a bit too dry, too merely factual. But the drama emerges from the contrast between the events and the calm narration.
  • It is not solely focused on the Jewish victims; indeed, all victims of the National Socialism are discussed, such as the Catholics in Poland. But the history of Jewish persecution is also given great depth and perspective. It is mind boggling to consider how a regime that used antisemitism to manipulate the public and gain power ended up dominating most of Europe and conducting an extermination campaign designed to wipe out an entire people.
  • The theme of the museum is not that the Holocaust was an inexplicable curse that mysteriously descended on one people at one time; rather the museum attempts to articulate and explain the actual reasons — the motives and ideology — behind the events, beginning with bad ideas that were only later realized in action when conditions made them possible.
  • The narrative does not attempt to convince the visitor that the Holocaust was plotted from the beginning of Nazi rule; in fact, you discover a very different story. The visitor sees how bad ideas (demographic central planning; scapegoating of minorities; the demonization of others) festered, leading to ever worsening results: boycotts of Jewish-owned business, racial pogroms, legal restrictions on property and religion, internments, ghettoization, concentration camps, killings, and finally a carefully constructed and industrialized machinery of mass death.
  • The museum does not isolate Germans as solely or uniformly guilty. Tribute is given to the German people, dissenters, and others who also fell victim to Hitler’s regime. As for moral culpability, it unequivocally belongs to the Nazis and their compliant supporters in Germany and throughout Europe. But the free world also bears responsibility for shutting its borders to refugees, trapping Jews in a prison state and, eventually, execution chamber.
  • The presentation is not rooted in sadness and despair; indeed, the museum tells of heroic efforts to save people from disaster and the resilience of the Jewish people in the face of annihilation. Even the existence of the museum is a tribute to hope because it conveys the conviction that we can learn from history and act in a way that never repeats this terrible past.

The Deeper Roots of the Holocaust

For the last six months, I’ve been steeped in studying and writing about the American experience with eugenics, the “policy science” of creating a master race. The more I’ve read, the more alarmed I’ve become that it was ever a thing, but it was all the rage in the Progressive Era. Eugenics was not a fringe movement; it was at the core of ruling-class politics, education, and culture. It was responsible for many of the early experiments in labor regulation. It was the driving force behind marriage licenses, minimum wages, restrictions on opportunities for women, and immigration quotas and controls.

The more I’ve looked into the subject, the more I’m convinced that it is not possible fully to understand the birth of the 20th century Leviathan without an awareness of eugenics. Eugenics was the original sin of the modern state that knows no limits to its power.

Once a regime decides that it must control human reproduction — to mold the population according to a central plan and divide human beings into those fit to thrive and those deserving extinction — you have the beginning of the end of freedom and civilization. The prophets of eugenics loathed the Jews, but also any peoples that they deemed dangerous to those they considered worthy of propagation. And the means they chose to realize their plans was top-down force.

So far in my reading on the subject, I’ve studied the origin of eugenics until the late 1920s, mostly in the US and the UK. And so, touring the Holocaust Museum was a revelation. It finally dawned on me: what happened in Germany was the extension and intensification of the same core ideas that were preached in the classrooms at Yale, Harvard, and Princeton decades earlier.

Eugenics didn’t go away. It just took on a more violent and vicious form in different political hands. Without meaningful checks on state power, people with eugenic ambitions can find themselves lording over a terror state. It was never realized in the United States, but it happened elsewhere. The stuffy academic conferences of the 1910s, the mutton-chopped faces of the respected professorial class, mutated in one generation to become the camps and commandants of the Nazi killing machine. The distance between eugenics and genocide, from Boston to Buchenwald, is not so great.

There are moments in the tour when this connection is made explicit, as when it is explained how, prior to the Nazis, the United States had set the record for forced sterilizations; how Hitler cited the US case for state planning of human reproduction; how the Nazis were obsessed with racial classification and used American texts on genetics and race as a starting point.

And think of this: when Progressive Era elites began to speak this way, to segment the population according to quality, and to urge policies to prevent “mongrelization,” there was no “slippery slope” to which opponents could point. This whole approach to managing the social order was unprecedented, and so a historical trajectory was pure conjecture. They could not say “Remember! Remember where this leads!”

Now we have exactly that history, and a moral obligation to point to it and learn from it.

What Can We Learn?

My primary takeaway from knitting this history together and observing its horrifying outcome is this: that any ideology, movement, or demagogue that dismisses universal human rights, that disparages the dignity of any person based on group characteristics, that attempts to segment the population into the fit and unfit, or in any way seeks to use the power of the state to put down some in order to uplift others, is courting outcomes that are dangerous to the whole of humanity. It might not happen immediately, but, over time, such rhetoric can lay the foundations for the machinery of death.

And there is also another, perhaps more important lesson: bad ideas have a social and political momentum all their own, regardless of anyone’s initial intentions. If you are not aware of that, you can be led down, step by step, to a very earthly hell.

At the same time, the reverse is also true: good ideas have a momentum that can lead to the flourishing of peace, prosperity, and universal human dignity. It is up to all of us. We must choose wisely, and never forget.

Jeffrey A. TuckerJeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE and CLO of the startup Liberty.me. Author of five books, and many thousands of articles, 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. Email.

Does Democracy Lead to Socialism? by B.K. Marcus

Presidential candidate Bernie Sanders has brought “democratic socialism” out of the shadows of fringe ideologies and into the spotlight of mainstream American politics. Nevertheless, many find Sanders’s self-description perplexing. Is socialism seriously still in play? Didn’t the horrors of the 20th century finally bury that ideological monstrosity?

No, that’s communism you’re thinking of. To quote the Democratic Socialists of America (DSA),

Socialists have been among the harshest critics of authoritarian Communist states. Just because their bureaucratic elites called them “socialist” did not make it so; they also called their regimes “democratic.”

If the communists weren’t really socialists, then what the heck does socialism mean?

The basic definition of socialism, democratic or otherwise, is collective ownership of the means of production. The DSA website says, “We believe that the workers and consumers who are affected by economic institutions should own and control them.”

But the DSA keeps the emphasis on democracy:

Democratic socialists believe that both the economy and society should be run democratically — to meet public needs, not to make profits for a few. To achieve a more just society, many structures of our government and economy must be radically transformed through greater economic and social democracy so that ordinary Americans can participate in the many decisions that affect our lives.

Socialism, then, as the democratic socialists understand the term, is just the logical consequence of the democratic ideal:

Democracy and socialism go hand in hand. All over the world, wherever the idea of democracy has taken root, the vision ofsocialism has taken root as well.

On this point, at least, many in America’s free-market tradition would agree.

Anti-democratic Anti-socialists

Ludwig von Mises may have been the most radical classical liberal in 20th-century Europe, but when he came to the United States, Mises found himself at odds with American libertarians who felt that his liberalism didn’t go far enough.

Some of these disagreements would strike most of us as highly abstract, such as the question of whether or not the philosophy of freedom is based in natural law or utilitarianism. But at least one practical point of contention was the issue of majoritarian democracy. Mises had defended both capitalism and democracy in his book Liberalism. American libertarians such as R.C. Hoiles and Frank Chodorov shared Mises’s appreciation of the free market but were far less sanguine about majority rule. The harshest language came from Discovery of Freedom author Rose Wilder Lane:

As an American I am of course fundamentally opposed to democracy and to anyone advocating or defending democracy, which in theory and practice is the basis of socialism.

It is precisely democracy which is destroying the American political structure, American law, and the American economy, as Madison said it would, and as Macauley prophesied that it would do in fact in the 20th century. (Letter from Lane to Mises, July 5, 1947; quoted in Mises: The Last Knight of Liberalism)

Why would Lane argue that democracy is “the basis of socialism”?

Majority Fools

Voting turns out to be a particularly bad way to make economic decisions. Mancur Olson’s book The Logic of Collective Action wouldn’t appear for another 18 years, but some version of his thesis was probably already familiar to Lane and her radical allies. Olson argues that majority rule separates the benefits and the costs of decision-making.

Elections aren’t just a poll of everyone’s opinion; they are organized campaigns by different groups fighting for their interests. A voter doesn’t go into the booth having studied the controversy in question. He or she brings to the polls an impression of an issue based on how different organized groups have presented their cause during massive advocacy campaigns prior to Election Day. Every such campaign is a case of a special-interest minority trying to persuade a voting majority.

And it’s not a level playing field, to borrow one of the political left’s favorite metaphors. Olson explains how the incentive for group action decreases as the size of a group increases, meaning that bigger groups are less able to act in their common interest than smaller ones. Small groups can gain concentrated benefitswhile the rest of us face diffuse costs.

The textbook example is sugar tariffs (“or what amounts to the same thing in the form of quota restrictions against imports of sugar,” as former Freeman editor Paul Poirot put it). Why is Coke sweetened with corn syrup in the United States and with sugar everywhere else in the world? Because sugar is cheaper everywhere else, while the US government keeps sugar artificially expensive for Americans. The protections responsible are a huge benefit to a small group of domestic sugar producers (and, as it turns out, also to corn growers) and a burden on the rest of us.

Ignore the corn-syrup issue for a moment and pretend that Coke is still made with sugar. Let’s imagine that government price supports make each can of Coke, say, 5¢ more than it otherwise would be. That difference adds up, but at the moment you’re buying the can of soda, it’s an irritation, not a hardship. Even if you bother to figure out how much extra money you have to spend on sweet drinks each year, the figure probably won’t be enough to stir you to petition the legislature to repeal the sugar lobby’s protections. In fact, the loss isn’t even enough to prompt you to learn the cause of the higher price.

That’s what economists mean when they talk about diffuse costs. (And the Coke drinker’s very reasonable cluelessness about the cause of his lost nickel is what economists call “rational ignorance.” See “Too Dumb for Democracy?” Freeman, Spring 2015.)

On the other hand, the sugar producers will make billions from lobbying and campaigning to explain why their favorite barriers are good for the economy.

Take this example and multiply it by all the special interests seeking government favors. Even if you do understand what’s going on, even if you know how this hurts the economy and consumers and yourself, it’s not like there’s ever one plebiscite, a big thumbs-up or thumbs-down for free trade in sugar. Every issue is addressed separately, and every issue faces the same logic of collective action we see in the case of the sugar. (And as with the case of sugar, where the corn industry has its own interests in promoting higher sugar prices, many issues have multiple special-interest groups with their own reasons for supporting socially harmful policies.)

Now replace agribusiness in this example with teachers unions or the AARP or anyone else who benefits from a government program, even if that program hurts the rest of us.

The democratic system is rigged from the outset to favor ever more interference from ever-bigger government. From this perspective, Rose Wilder Lane doesn’t seem quite so polemical for equating democracy and socialism.

Democratic Socialists for Crony Capitalism

But is big government the same thing as socialism? The DSA denies it. They insist that they prefer local and decentralized socialism wherever possible. How long an elected socialist would keep his hands off the bludgeon of central power is a reasonable question, and a chilling one, as is the question of how long asocialist democracy would honor the civil liberties that the DSA claims to support.

But even if we reject the DSA’s claims as either naive or fraudulent, there is still a compelling reason to reject the equation of big government and socialism.

Government doesn’t grow to serve the poor or the proletariat. Democracy spawns special interests, and special-interest campaigns require deep pockets. None come deeper than the pockets of established business interests.

Real-world capitalists, despite the rhetoric of the socialists, rarely support capitalism — at least not in the sense of free trade and free markets. What they too often support is government protection and largess for themselves and their cronies, and if that means having to share some of the spoils with organized labor, or green energy, or the welfare industry, that’s not a problem. Corporate welfare flows left and right with equal ease.

“Democratic socialists,” according to the DSA, “do not want to create an all-powerful government bureaucracy. But we do not want big corporate bureaucracies to control our society either.”

If that’s true, then democratic socialists should aim to reduce both the size of government and the scope of democratic decisions. Unfortunately, they’re headed in the opposite direction — and trying to drag the rest of us with them.

B.K. MarcusB.K. Marcus

B.K. Marcus is editor of the Freeman.

The Myth of Scandinavian Socialism by Corey Iacono

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corey IaconoCorey Iacono

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

Will a ‘Socialist’ Government Make Us Freer? by Jason Kuznicki

“Socialism” is a weasel word.

Consider that the adjective “socialist” applies commonly — even plausibly — to countries with vastly different ex ante institutions and with vastly different social and economic outcomes. Yet Canada, Norway, Venezuela, and Cuba can’t all be one thing. Does socialism mean substantial freedom of the press, as in Norway? Or does it mean the vicious suppression of dissent, as in Venezuela?

We need more clarity here before we decide whether socialism is a worthwhile social system, and whether, as Will Wilkinson recommends, we ought to support a socialist candidate for president.

An approach that clearly will not do is to apply the term “socialism” to virtually all foreign countries. Shabby as that definition may be, some do seem to use it, both favorably and not. The result is that “socialism” has grown popular largely because a lot of people have concluded that the American status quo stinks. Maybe it does stink, but that doesn’t endow “socialism” with a proper definition.

Let’s see what happens when we drill down to the level of institutions.

Now, we might personally wish that the word “socialism” meant “the social system in which the state owns the means of production and runs the major industries of the nation.”

This is a workable definition: It has a clear genus and differentia; it includes some systems, while excluding others; and it’s not obviously self-referential. It’s also the definition preferred by many important political actors in the twentieth century, including Vladimir Lenin.

Lenin’s definition was not a bad one. But it’s far from the only current, taxonomically proper definition of socialism. As Will Wilkinson rightly notes, socialism also commonly means “the social system in which the state uses taxation to provide an extensive social safety net.”

And yet, as Will also notes, “ownership of the means of production” and “provision of a social safety net” are logically independent policies. A state can do one, the other, both, or neither. Of these four possibilities, there’s only one that can’t plausibly be called a socialism — and not a single state on earth behaves this way!

Better terms are in order, but I know that whatever I propose here isn’t going to stick, so I’m not going to try. Instead I want to look at some of the consequences that may arise from our fuzzy terminology.

One danger is that we may believe and support one conception of “socialism” —only to find that the agents we’ve tasked with supplying it have had other ideas all along: We may want Norway but get Venezuela. Wittingly or unwittingly.

Before we say “oh please, of course we’ll end up in Norway,” let’s recall how eager our leftist intelligentsia has been to praise Chavez’s Venezuela — and even declare it an “economic miracle” — until the truth became unavoidable: The “miracle” of socialism in Venezuela turned out to be nothing more than a transient oil boom. Yet leftist intellectuals are the very sorts of people who will be drawn, by self-selection, to an administration that is proud to call itself socialist.

There’s some resemblance to a “motte-and-bailey” process here: they cultivate the rich, desirable fields of the bailey, until they are attacked, at which point they retreat to the well-fortified motte. The easily defensible motte is the comfortable social democracy of northern Europe, which we all agree is pretty nice and happens to have quite a few free-market features. The bailey is the Cuban revolution.

This motte-and-bailey process does not need to be deliberate; it may be the result of a genuinely patchwork socialist coalition. No one in the coalition needs to have bad faith. An equivocal word is all that’s needed, and one is already on hand.

Even when we look only at one country, the problem remains: We may only want some institutional parts of Denmark — and we may want them for good reasons, such as Denmark’s relatively loose regulatory environment. But what we get may only be the other institutional parts of Denmark — such as its high personal income taxes. (Worth noting: Bernie Sanders has explicitly promised the higher personal income taxes, while his views on regulation are anything but Danish.)

Will thinks that electing someone on the far left of the American political spectrum could be somewhat good for liberty, but I’m far from convinced. Remember what happened the last time we put just a center-leftist in the White House: By the very same measures of economic freedom that Will uses to tout Denmark’s success, America’s economic freedom ranking sharply declined. And that decline was the direct result of Barack Obama’s left-wing economic policies. We got a larger welfare state and higher taxes, but we also got much more command-and-control regulation.

Faced with similar objections from others, Will has already performed a nice sidestep: He has replied that voting for Sanders is — obviously — just a strategic move: “Obviously,” he writes, “President Bernie Sanders wouldn’t get to implement his economic policy.” Emphasis his.

To which I’d ask: Do you really mean that Sanders would achieve none of his economic agenda? At all? Because I can name at least two items that seem like safe bets: more protectionism and stricter controls on immigration. A lot of Sanders’s ideas will indeed be dead on arrival, but these two won’t, and he would be delighted to make a bipartisan deal that cuts against most everything that Will, the Niskanen Center, and libertarians generally claim to stand for. Cheering for a guy who would happily bury your legislative agenda, and who stands a good chance of actually doing it seems… well, odd.

There is also a frank inconsistency to Will’s argument: The claim that Sanders will make us more like Denmark can’t be squared with the claim that Sanders will be totally ineffective. Arguing both is just throwing spaghetti on the wall — and hoping the result looks like libertarianism.

Would Sanders decriminalize marijuana? Or reform the criminal justice system? Or start fewer wars? Or spend less on defense? Or give us all puppies? I don’t know. Obama promised to close Guantanamo. He promised to be much better on civil liberties. He promised not to start “dumb wars” or bomb new and exotic countries. He even promised accountability for torture.

In 2008, I made the terrible mistake of counting those promises in his favor. We’ve seen how well that worked out.

It’s completely beyond me why I should trust similarly tangential promises this time around — particularly from a candidate like Sanders, whose record on foreign policy is already disturbingly clear. None of the rest of these desiderata have anything to do with state control over our economic life, which would appear to be the one thing the left wants most of all. (Marijuana: illegal in Cuba. Legal in North Korea. Yay freedom?)

Ultimately, I think that electing someone significantly further left than Obama will not help matters in any sense at all, except maybe that it will show how little trust we should put in anyone who willingly wears the socialist label. The only good outcome of a Sanders administration may be that we’ll all say to ourselves afterward: “Well, we won’t be trying that again!”

Now, I am prepared to believe, exactly as Will writes, that “‘social democracy,’ as it actually exists, is sometimes more ‘libertarian’ than the good old U.S. of A.” That’s true, at least in a few senses. Consider, for instance, that Denmark isn’t drone bombing unknown persons in Pakistan using a type of algorithm that can’t seem to deliver interesting Facebook ads. (One could say that, as usual, Denmark is letting us do their dirty work for them, with their full approval, but I won’t press the point.)

Either way, that’s still a pretty low bar, no? Meanwhile, there remains plenty of room for us to imitate some other bad things — things that we aren’t doing now, but that Denmark is doing, like taxing its citizens way, way too much. The fact that these things are a part of the complex conglomerate known as northern European social democracy doesn’t necessarily make them good, exactly as remote control assassination doesn’t become good merely by virtue of being American.

In short: Point taken about social democracy. At times, some of it isn’t completely terrible. But that only gets us so far, and not quite to the Sanders slot in the ballot box.

Jason KuznickiJason Kuznicki

Jason Kuznicki is the editor of Cato Unbound.

What Marx Got Right about Redistribution – That John Stuart Mill Got Wrong by Alan Reynolds

The idea that government could redistribute income willy-nilly with impunity did not originate with Senator Bernie Sanders. On the contrary, it may have begun with two of the most famous 19th century economists, David Ricardo and John Stuart Mill. Karl Marx, on the other side, found the idea preposterous, calling it “vulgar socialism.”

Mill wrote,

The laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary about them. … It is not so with the Distribution of Wealth. That is a matter of human institution only. The things once there, mankind, individually, can do with them as they like.

Mill’s distinction between production and distribution appears to encourage the view that any sort of government intervention in distribution is utterly harmless — a free lunch. But redistribution aims to take money from people who earned it and give it to those who did not. And that, of course, has adverse effects on the incentives of those who receive the government’s benefits and on taxpayers who finance those benefits.

David Ricardo had earlier made the identical mistake. In his 1936 book The Good Society (p. 196), Walter Lippmann criticized Ricardo as being “not concerned with the increase of wealth, for wealth was increasing and the economists did not need to worry about that.”

But Ricardo saw income distribution as an interesting issue of political economy and “set out to ascertain ‘the laws which determine the division of the produce of industry among the classes who concur in its formation.’

Lippmann wisely argued that, “separating the production of wealth from the distribution of wealth” was “almost certainly an error. For the amount of wealth which is available for distribution cannot in fact be separated from the proportions in which it is distributed. … Moreover, the proportion in which wealth is distributed must have an effect on the amount produced.”

The third classical economist to address this issue was Karl Marx. There were many fatal flaws in Marxism, including the whole notion that a society is divided into two armies — workers and capitalists. Late in his career, however, Marx wrote a fascinating 1875 letter to his allies in the German Social Democratic movement criticizing a redistributionist scheme he found unworkable.

In this famous “Critique of the Gotha Program,” Marx was highly critical of “vulgar socialism” and considered the whole notion of “fair distribution” to be “obsolete verbal rubbish.” In response to the Gotha’s program claim that society’s production should be equally distributed to all, Marx asked,

To those who do not work as well? … But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time. … This equal right is an unequal right for unequal labor… It is, therefore, a right to inequality.

Yet Marx offered a glimmer of utopian hope about the future in which things would become so abundant that distribution would no longer be a matter of concern:

In a higher phase of communist society … after the productive forces have also increased with the all-around development of the individual, and all the springs of cooperative wealth flow more abundantly — only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banner: From each according to his ability, to each according to his needs!

That was not a prescription but a warning: For the foreseeable future Marx knew nothing would work without work incentives. If income were equally distributed to “those who do not work,” why would anyone work?

Contemporary public economics — “optimal tax theory” and the newest of the “new welfare economics” — also teaches that to tax a man “according to his abilities” would give able men a very strong incentive to use their skills to hide their earnings (and therefore their abilities) from tax collectors. This predictable response to tax penalties on high earnings is confirmed by economic research on the elasticity of taxable income.

Distributing government spending “to each according to his needs” must likewise give potential recipients a strong incentive to exaggerate their needs. People who got caught doing that used to be called “welfare cheats” and considerable cheating still goes on in food stamps, Medicaid, etc. The Earned Income Tax Credit, for example, gives low-income working people an extra incentive to not report cash income from tips, casual labor or illicit activities.

In The Undercover Economist, Tim Harford rightly notes that “when economists say the economy is inefficient, they mean there’s a way to make somebody better off without harming anybody else” (called “Pareto optimality”). But argues that Nobel Laureate Kenneth Arrow figured out a way to efficiently redistribute income with “appropriate lump-sum taxes and subsidies that puts everyone on equal footing.” As Harford says, “a lump-sum tax doesn’t affect anybody’s behavior because there’s nothing you can do to avoid it.”

Unfortunately, Harford says “an example of a lump-sum redistribution would be to give eight hundred dollars to everybody whose name starts with H.” That simply shows that if the subsidies were not ridiculously random then the subsidies will affect behavior and will not be lump-sum. The government could collect a lump-sum tax of $800 from every adult and then send a lump-sum subsidy of $800 to every adult with no net effect, for example, but why do that? If the government tried to tax people on the basis of abilities or to subsidize on the basis of needs, even Marx knew that would have a terrible effect on incentives.

The whole idea was curtly dismissed by another Nobel Laureate, Joseph Stiglitz, in his 1994 book Whither Socialism? (p. 46): “The ‘old new welfare economics’ assumed that lump-sum redistributions were possible,” wrote Stiglitz; “The ‘new new welfare economics’ recognizes the limitations on the government’s information.”

The reason governments cannot simply take money from some people according to how able they are, and give it to others according to how needy they are, is because people who were aware of that plan would not be foolish enough to accurately reveal their abilities and needs.

Actual taxes and transfer payment distort behavior in ways that undermine economic progress and commonly produce results (such as trapping people in poverty) that are the opposite of their stated intent.

This post first appeared at Cato.org.

Alan ReynoldsAlan Reynolds

Alan Reynolds is one of the original supply-side economists. He is Senior Fellow at the Cato Institute and was formerly Director of Economic Research at the Hudson Institute.

Why Bernie Sanders Has to Raise Taxes on the Middle Class by Daniel Bier

Willie Sutton was one of the most infamous bank robbers in American history. Over three decades, the dashing criminal robbed a hundred banks, escaped three prisons, and made off with millions. Today, he is best known for Sutton’s Law: Asked by a reporter why he robbed banks, Sutton allegedly quipped, “Because that’s where the money is.”

Sutton’s Law explains something unusual about Bernie Sander’s tax plan: it calls for massive tax hikes across the board. Why raise taxes on the middle class? Because that’s where the money is.

The problem all politicians face is that voters love to get stuff, but they hate to pay for it. The traditional solution that center-left politicians pitch is the idea that the poor and middle class will get the benefits, and the rich will pay for it.

This is approximately how things work in the United States. The top 1 percent of taxpayers earn 19 percent of total income and pay 38 percent of federal income taxes. The bottom 50 percent earn 12 percent and pay 3 percent. This chart from the Heritage Foundation shows net taxes paid and benefits received, per person, by household income group:

But Sanders’ proposals (free college, free health care, jobs programs, more Social Security, etc.) are way too heavy for the rich alone to carry, and he knows it. To his credit, his campaign has released a plan to pay for each of these myriad handouts. Vox’s Dylan Matthews has totaled up all the tax increases Sanders has proposed so far, and the picture is simply staggering.

Every household earning below $250,000 will face a tax hike of nearly 9 percent. Past that, rates explode, up to a top rate of 77 percent on incomes over $10 million.

Paying for Free

Sanders argues that most people’s average income tax rate won’t change, but this is only true if you exclude the two major taxes meant to pay for his health care program: a 2.2 percent “premium” tax and 6.2 percent payroll tax, imposed on incomes across the board. These taxes account for majority of the new revenue Sanders is counting on.

But it gets worse: his single-payer health care plan will cost 80 percent more than he claims. Analysis by the left-leaning scholar Kenneth Thorpe (who supports single payer) concludes that Sanders’ proposal will cost $1.1 trillion more each year than he claims. The trillion dollar discrepancy results from some questionable assumptions in Sanders’ numbers. For instance:

Sanders assumes $324 billion more per year in prescription drug savings than Thorpe does. Thorpe argues that this is wildly implausible.

“In 2014 private health plans paid a TOTAL of $132 billion on prescription drugs and nationally we spent $305 billion,” he writes in an email. “With their savings drug spending nationally would be negative.”

So unless pharmaceutical companies start paying you to take their drugs, the Sanders administration will need to increase taxes even more.

Analysis by the Tax Foundation finds that his proposed tax hikes already total $13.6 trillion over the next ten years. However, “the plan would [only] end up collecting $9.8 trillion over the next decade when accounting for decreased economic output.”

And the consequences will be truly devastating. Because of the taxes on labor and capital, GDP will be reduced 9.5 percent. Six million jobs will be lost. On average, after-tax incomes will be reduced by more than 18 percent.

Incomes for the bottom 50 percent will be reduced by more than 14 percent, and incomes for the top 1 percent will be reduced nearly 25 percent. Inequality warriors might cheer, but if you want to actually raise revenue, crushing the incomes of the people who pay almost 40 percent of all taxes isn’t the way to go.

These are just the effects of the $1 trillion tax hike he has planned — and he probably needs to double that to pay for single payer. Where will he find it? He’ll go where European welfare states go.

Being Like Scandinavia

Sanders is a great admirer of Scandinavian countries, such as Denmark, Sweden, and Norway, and many of his proposals are modeled on their systems. But to pay for their generous welfare benefits, they tax, and tax, and tax.

Denmark, Norway, and Sweden all capture between 20-26 percent of GDP from income and payroll taxes. By contrast, the United States collects only 15 percent.

Scandinavia’s tax rates themselves are not that much higher than the United States’. Denmark’s top rate is 30 percent higher, Sweden’s is 18 percent higher, and Norway’s is actually 16 percent lower — and yet Norway’s income tax raises 30 percent more revenue than the United States.

The answer lies in how progressive the US tax system is, in the thresholds at which people are hit by the top tax rates. The Tax Foundation explains,

Scandinavian income taxes raise a lot of revenue because they are actually rather flat. In other words, they tax most people at these high rates, not just high-income taxpayers.

The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent. …

Compare this to the United States. The top marginal tax rate of 46.8 percent (state average and federal combined rates) kicks in at 8.5 times the average U.S. income (around $400,000). Comparatively, few taxpayers in the United States face the top marginal rate.

The reason European states can pay for giant welfare programs is not because they just tax the rich more — it’s because they also scoop up a ton of middle class income. The reason why the United States can’t right now is its long-standing political arrangement to keep taxes high on the rich so they can be low on the poor and middle.

Where the Money Is – And Isn’t

As shown by the Laffer Curve, there is a point at which increasing tax rates actually reduces tax revenue, by discouraging work, hurting the economy, and encouraging tax avoidance.

Bernie’s plan already hammers the rich: households earning over $250,000 (the top 3 percent) would face marginal rates of 62-77 percent — meaning the IRS would take two-thirds to three-quarters of each additional dollar earned. His proposed capital gains taxes are so high that they are likely well past the point of positive returns. The US corporate tax rate of 40 percent is already the highest in the world, and even Sanders hasn’t proposed increasing it.

The only way to solve his revenue problem is to raise rates on the middle and upper-middle classes, or flatten the structure to make the top rates start kicking in much lower. You can see why a “progressive” isn’t keen on making more regressive taxes part of his platform, but the money has to come from somewhere.

The bottom fifty percent don’t pay much income tax now (only $34 billion), but they also don’t earn enough to fill the gap. Making their taxes proportionate to income would only raise $107 billion, without even considering how the higher rates would reduce employment and income.

The top 5 percent are pretty well wrung dry by Sanders’ plan, and their incomes are going to be reduced by 20-25 percent anyway. It’s hard to imagine that there’s much more blood to be had from that stone.

But households between the 50th and the 95th percentile (incomes between $37,000 to $180,000 a year) earn about 54 percent of total income — a share would likely go up, given the larger income reductions expected for top earners. Currently, this group pays only 38 percent of total income taxes, and, despite the 9 percent tax hike, they’re comparatively spared by the original tax plan. Their incomes are now the lowest hanging fruit on the tax tree.

As they go to the polls this year, the middle class should remember Sutton’s Law.

Daniel Bier

Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Tech Sector Bears Brunt of Capital Taxes, Random Regulation by Dan Gelernter

According to our president’s final State of the Union, we’ve recovered from the economic crisis and now enjoy the strongest, most durable economy in the world. Obama does acknowledge that startups and small businesses may need some help, so he wants to reignite our “sprit of innovation” — which he plans to do by putting Vice President Biden in charge of curing cancer.

But the problem facing startups is not a lack of innovation. We are being killed by the economy, which, for those of us who have to live in it, is not good at all. Young entrepreneurs may have spent last year working hard, innovating and building, only to find their companies are worth less now than when they started.

The market is adjusting downwards. Valuations are sinking. The investors I’ve spoken to feel the Fed’s free-money policy has created a dangerous over-valuation of companies and stocks and, now that the rates are coming back up, the air is being let out. 2015, they say, was a tough year because we knew this was coming. 2016 is going to be even tougher.

There is something else weighing on the minds of entrepreneurs and investors alike — regulatory uncertainty. No startup can deal with compliance by itself — not even software companies with no physical products to sell. Startups have to hire lawyers and compliance experts to help them, and this is money we’re not spending on product development or marketing or making our prices more competitive.

The way Obamacare is being implemented, for example, makes our hair white. The rules seem to change with bureaucratic whim; various parts of the law are suspended by executive order. How will we comply next year, and what will it cost? Nobody knows.

In the meantime, the Democratic candidates for President are proposing large hikes to the capital gains tax, which increases effective risk for investors and depresses valuations. Will these hikes ever take place? We don’t know, and that uncertainty carries an additional price.

We’re already seeing more investors decide to weather the storm on the sidelines, keeping an eye on their current affairs and declining to invest in companies they would have snapped up a year ago. A tech startup with a working product will find it harder to raise money today than it would have two years before with nothing but a concept. Not only are we faced with a weak market now, the trend is even more disturbing.

The problem is easier to diagnose than to repair. As an entrepreneur, I’d like to see less regulation and lower taxes. And not just lower taxes on the companies themselves, but on the people who can afford to invest in them. This may come as a surprise, but it’s the hated “one percent” that invests in startups and helps entrepreneurs’ dreams come true. When taxes cut deeper into the pockets of the wealthy, it most negatively affects us — the entrepreneurs and the people we would have hired — not the wealthy.

Regulation remains erratic, and the policies of the next administration cannot be foreseen. 2016 is going to be a hard year for the startup. Investments will continue to decline until investors see a stable market. And they’re not looking at one right now. Companies will die as a result, and not for lack of innovative ideas.

Dan Gelernter

Dan Gelernter is CEO of the technology startup Dittach.

VIDEO: INFILTRATION — Thousands of young Communists have infiltrated Catholic seminaries

TRANSCRIPT:

During the early years of Communism in the 1920s and 30s, the evil was being spread worldwide as the Blessed Mother had predicted at Fatima in 1917. Communist parties were being formed in various European countries and in American cities as well. They were already attempting to upset the political and cultural order.

alice_von_hildebrand-255x362

Alice von Hildebrand

But what only a very small number of people knew was that the top dogs of Communism had already released the hounds on the Church. The carefully organized plan was to recruit young men who were loyal Communists and get them placed in seminaries. This was carried out by various agents during the 1920s and 30s.

Fast forward 30 years to the 1960s, and the fruits were beginning to be seen. Learned, dedicated, faithful men and women in the Church were looking around and fretting, not sure from what framework they should understand the demolition of the Faith they were witnessing. At one point, Pope Paul VI even said that it appeared the Church was in auto-demolition.

One of those deeply distressed was a refugee from Hitler’s Germany, the brilliant theologian Dietrich von Hildebrand. He and his wife Alice were sitting down one day with a friend, a woman by the name of Bella Dodd. Bella Dodd had been received back into the Catholic Church by Abp. Fulton Sheen in April of 1952.

This particular day, von Hildebrand was lamenting the state of affairs in the Church and said “It seems like the Church has been infiltrated.” To the shock of both Dietrich and Alice, Bella Dodd, former Communist agent, confessed that it had been infiltrated — and she had been one of the Communists ordered to organize it.

Read more.

Please watch this excerpt of the interview with Dr. Alice von Hildebrand:

RELATED ARTICLE: Politics and Pope Francis: What is the role of the Catholic Church and the State?

EDITORS NOTE: The Vortex has more of their interview with Dr. von Hildebrand available for Premium viewers. They are offering a 15-day free trial. Please consider signing, up at no cost, and watch the whole von Hildebrand interview. You may also explore all the other programs — hundreds of hours.

Notorious Pro-Bernie Sanders PAC Strikes Back with Political Satire Comic Series

bernie sanders comic book coverWASHINGTON, D.C. /PRNewswire/ – Hands down Democratic Presidential Candidate Bernie Sanders is leading in the Iowa and New Hampshire polls, which may have Hillary Clinton’s team on the edge of their seat. Nonetheless, Sen. Bernie Sanders (I-VT) remains abundant with support from a political committee Americans Socially United that started this time a year ago before he announced his official candidacy for the presidential race.

Americans Socially United Director Cary Lee Peterson talks with PoliWatch about 2016 PAC activities leading to Primary Election.

The pro-Sanders PAC had scrutiny for its stance in September from a political journalist, which led to a convoluted state of opinion about the PAC and why it chose to support Bernie Sanders’ run for presidency. They’ve since restructured and are aiming back at the media with a political satire comic placed on a digital billboard in New York Times Square, a secondary jab since their first media billboard blitz in New York Times Square last April.

Americans Socially United chief director Cary Lee Peterson comments, “We were there this time a year ago. We’re still here now. You don’t like it, go start your own PAC or join a campaign committee of another candidate; we’re here and going nowhere.”

The billboard ad displays a character that portrays Bernie Sanders as a super hero flying into the scene amongst other 2016 presidential candidates with a caption that says ‘I see through you’. Ironically this billboard ad holds a handful of hidden messages that only the creators can describe.

PoliWatch spoke with pro-Bernie Sanders billboard comic artist Harrison Wood (41), currently a Las Vegas radio personality and freelancer of independent comic book series Thunder Frogs, who stated “I like what he [Bernie Sanders] stands for and I am happy to contribute to the 2016 presidential election campaigns. Every candidate out there deserves an opportunity to prove themselves and I’m glad I can use my talent to be involved in some way.”

ASU director Cary Peterson tells PoliWatch that the comic billboard ad is only the beginning of a series of political satire stokes at 2016 U.S. presidential candidates. At the end of the day the art of the pen is mightier than the sword.

3 Kinds of Economic Ignorance by Steven Horwitz

Nothing gets me going more than overt economic ignorance.

I know I’m not alone. Consider the justified roasting that Bernie Sanders got on social media for wondering why student loans come with interest rates of 6 or 8 or 10 percent while a mortgage can be taken out for only 3 percent. (The answer, of course, is that a mortgage has collateral in the form of a house, so it is a lower-risk loan to the lender than a student loan, which has no collateral and therefore requires a higher interest rate to cover the higher risk.)

When it comes to economic ignorance, libertarians are quick to repeat Murray Rothbard’s famous observation on the subject:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a “dismal science.” But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Economic ignorance comes in different forms, and some types of economic ignorance are less excusable than others. But the most important implication of Rothbard’s point is that the worst sort of economic ignorance is ignorance about your economic ignorance. There are varying degrees of blameworthiness for not knowing certain things about economics, but what is always unacceptable is not to recognize that you may not know enough to be speaking with authority, nor to understand the limits of economic knowledge.

Let’s explore three different types of economic ignorance before we return to the pervasive problem of not knowing what you don’t know.

1. What Isn’t Debated

Let’s start with the least excusable type of economic ignorance: not knowing agreed-upon theories or results in economics. There may not be a lot of these, but there are more than nonspecialists sometimes believe. Bernie Sanders’s inability to understand why uncollateralized loans have higher interest rates would fall into this category, as this is an agreed-upon claim in financial economics. Donald Trump’s bashing of free trade (and Sanders’s, too) would be another example, as the idea that free trade benefits the trading countries on the whole and over time is another strongly agreed-upon result in economics.

Trump and Sanders, and plenty of others, who make claims about economics, but who remain ignorant of basic teachings such as these, should be seen as highly blameworthy for that ignorance. But the deeper failing of many who make such errors is that they are ignorant of their ignorance. Often, they don’t even know that there are agreed-upon results in economics of which they are unaware.

2. Interpreting the Data

A second type of economic ignorance that is, in my view, less blameworthy is ignorance of economic data. As Rothbard observed, economics is a specialized discipline, and nonspecialists can’t be expected to know all the relevant theories and facts. There are a lot of economic data out there to be searched through, and often those data require careful statistical interpretation to be easily applied to questions of public policy. Economic data sources also requiretheoretical interpretation. Data do not speak for themselves — they must be integrated into a story of cause and effect through the framework of economic theory.

That said, in the world of the Internet, a lot of basic economic data are available and not that hard to find. The problem is that many people believe that certain empirical facts are true and don’t see the need to verify them by actually checking the data. For example, Bernie Sanders recently claimed that Americans are routinely working 50- and 60-hour workweeks. No doubt some Americans are, but the long-term direction of the average workweek is down, with the current average being about 34 hours per week. Longer lives and fewer working years between school and retirement have also meant a reduction in lifetime working hours and an increase in leisure time for the average American. These data are easily available at a variety of websites.

The problem of statistical interpretation can be seen with data on economic inequality, where people wrongly take static snapshots of the shares of national income held by the rich and poor to be evidence of the decline of the poor’s standard of living or their ability to move up and out of poverty.

People who wish to opine on such matters can, again, be forgiven for not knowing all the data in a specialized discipline, but if they choose to engage with the topic, they should be aware of their own limitations, including their ability to interpret the data they are discussing.

3. Different Schools of Thought

The third type of economic ignorance, and the least blameworthy, is ignorance of the multiple perspectives within the discipline of economics. There are multiple schools of thought in economics, and many empirical questions and historical facts have a variety of explanations. So a movie like The Big Short that clearly suggests that the financial crisis and Great Recession were caused by a lack of regulation might be persuasive to people who have never heard an alternative explanation that blames the combination of Federal Reserve policy and misguided government intervention in the housing market for the problems. One can make similar points about the Great Depression and the difference between Hayekian and Keynesian explanations of business cycles more generally.

These issues involving schools of thought are excellent examples of Rothbard’s point about the specialized nature of economics and what the nonspecialist can and cannot be expected to know. It is, in fact, unrealistic to expect nonexperts to know all of the arguments by the various schools of thought.

Combining Ignorance and Arrogance

What is missing from all of these types of economic ignorance — and what is often missing from knowledgeable economists themselves — is what we might call “epistemic humility,” or a willingness to admit how little we know. Noneconomists are often unable to recognize how little they know about economics, and economists are often unable to admit how little they know about the economy.

Real economic “expertise” is not just mastery of theories and facts. It is a deeper understanding of the variety of interpretations of those theories and facts and humility in the face of our limits in applying that knowledge in attempting to manage an economy. The smartest economists are the ones who know the limits of economic expertise.

Commentators with opinions on economic matters, whether presidential candidates or Facebook friends, could, at the very least, indicate that they may have biases or blind spots that lead to uses of data or interpretive frameworks with which experts might disagree.

The worst type of economic ignorance is the type of ignorance that is the worst in all fields: being ignorant of your own ignorance.

Steven HorwitzSteven Horwitz

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

He is a member of the FEE Faculty Network.

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

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.

Why the Feds (Still) Own so Much of the Country by Steve H. Hanke

The recent “occupation” of government-owned lands in Eastern Oregon by disgruntled ranchers’ motivated Quoctrung Bui and Margot Sanger-Katz of the New York Times to produce an edifying essay on January 6th. It was aptly titled “Why the Government Owns So Much Land in the West.” Curiously, the NYT essay fails to mention one of the most significant, recent, and contentious attempts to “dispose” of federal public lands.

When Ronald Reagan was elected president for his first term in 1980, he received strong support from the so-called Sagebrush Rebels. The Rebels wanted lands owned by the federal government to be transferred to state governments. Their champion was James Watt, a self-proclaimed Sagebrush Rebel who became the Secretary of the Interior.

When I was operating as one of President Reagan’s economic advisers, an early assignment was to analyze the federal government’s landholdings and make recommendations about what to do with them. This was a big job. These lands are vast, covering an area six times that of France.

These public lands represent a huge socialist anomaly in America’s capitalist system. As is the case with all socialist enterprises, they are mismanaged by politicians and bureaucrats dancing to the tunes of narrow interest groups. Indeed, the U.S. nationalized lands represent assets that are worth trillions of dollars, yet they generate negative net cash flows for the government.

I first presented my findings and recommendations publically at the annual Public Lands Council meeting of September 1981 in Reno, Nevada. The title of my speech was “Privatize Those Lands” — privatize being a word Mrs. Hanke, a Parisian, had imported from France.

My Reno speech caused a stir. James Watt, the Secretary of the Interior, was furious because he wanted to hand over the lands to the state governments — exchanging one form of socialism for another. Needless to say, I thought I was in deep trouble. Hoping to avoid political immolation, I rapidly sent my analysis to the President.

Reagan instantly responded, taking my side. Better yet, he swiftly made my proposals the Administration’s policy. The president endorsed privatizing federal lands in his budget message for the 1983 fiscal year:

Some of this property is not in use and would be of greater value to society if transferred to the private sector. In the next three years we would save $9 billion by shedding these unnecessary properties while fully protecting and preserving our national parks, forests, wilderness and scenic areas.

reagan in his own hand book coverIt turned out that Reagan had already thought about this issue. The book Reagan, In His Own Hand (2001) makes that clear. This volume contains 259 essays Reagan wrote in his own hand, mainly scripts for his five minute, five-day-a-week syndicated radio broadcasts in the late 1970s. Reagan, In His Own Hand contains several essays on the subject that clearly foreshadowed his policy statement on privatizing public lands. His 1970s musings on public lands echo the writings of Adam Smith. While Reagan never cited Smith, he employed similar reasoning.

Indeed, Smith concluded in The Wealth of Nations (1776) that “no two characters seem more inconsistent than those of the trader and the sovereign,” as people are more prodigal with the wealth of others than with their own. In that vein, Smith estimated that lands owned by the state were only about 25% as productive as comparable private holdings. Smith believed Europe’s great tracts of crown lands to be “a mere waste and loss of country in respect both of produce and population.”

Unfortunately, political opposition — largely from ill-informed environmentalists and some Sagebrush Rebels, too — stopped Reagan from privatizing. U.S. nationalized lands remain ill-used and a constant source of dispute.

This post fist appeared at Cato.org.

Steve H. Hanke

‘Capitalism’ Is the Wrong Word by Steven Horwitz

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Steven HorwitzSteven Horwitz

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

He is a member of the FEE Faculty Network.

There’s No Escaping Competition by Steven Horwitz

People Need a Way to Decide Who Gets What. 

“The motives of fear and greed are what the market brings to prominence,” argues G.A. Cohen in Why Not Socialism? “One’s opposite-number marketeers are predominantly seen as possible sources of enrichment, and as threats to one’s success.”

Cohen further notes that these are “horrible ways of seeing other people” that are the “result of centuries of capitalist civilization.”

If only we had a different economic system where people viewed each other as brothers and sisters in a common effort rather than competitors trying to grab the largest share of the economic pie.

Implicitly drawing on Marx’s idea that the forces and relations of production determine the ideas people have and the way they behave, this criticism imagines that competition is a contingent feature of human interaction caused by capitalism.

But is it? Are we only competitive because capitalism makes us so?

By contrast, consider a line in my class notes for the day we start talking about competition in my Introduction to Economics course: “Competition is not a product of living in a capitalist society — it’s a product of not living in heaven.”

Despite the dreams of the socialists, competition is not going away any time soon. As long as resources are scarce and not all of our wants can be fulfilled, humans require some way of determining who will get which goods.

Competing Versions of Competition

Suppose for a moment that we want to figure out how best to allocate goods to consumers. In a market economy, we allow people to engage in competitive bidding to try to acquire the things they think are most valuable to them. But we can imagine other ways of allocating goods. Perhaps we ask people to line up. Or maybe we try to figure out who is more deserving. Perhaps we do it by the pure discretion of bureaucrats. Or we decide things Fight Club style. Would those end competition?

I don’t think so. All that those methods would accomplish is to divert competition into less productive forms. For example, if we distributed resources first come, first served, does anyone doubt that people would find new ways to compete for an early place in line? Or think of the people who camp out for sports or concert tickets and the opportunity cost of the time they spend waiting rather than doing other things.

Or if we did it by evaluating who is more deserving, wouldn’t people simply compete over what should count as the relevant moral criteria — and then compete to demonstrate that they deserve goods more than others do?

Imagine if a board of economic planners said they would distribute resources to the people who are most honest. It wouldn’t surprise us to see people then start to expend resources to convince the planners that productivity or intelligence were more important than honesty in distributing resources, nor would it surprise us for people to then compete to prove to the planners that they were the most honest, or productive, or intelligent. All of those forms of competition are wastes of resources compared to competing for consumers in the marketplace.

Or imagine goods distributed by government fiat. Wouldn’t people find new and creative ways to compete to persuade the relevant bureaucrats to favor them? In fact, isn’t this exactly what we see right now as lobbyists engage in competitive rent-seeking to persuade legislators and bureaucrats to allocate more government goodies in their direction? The rent-seeking that takes place in Washington and the state capitals is just another form of competition — appealing to politicians rather than customers.

Were resources distributed through might-makes-right, we can easily imagine the competition that would ensue for people to have the best weaponry or armor, or to hit the gym to get the strength and endurance they would need to survive the fighting. This, too, is competition, but of a very different sort.

As long as goods and services are scarce compared to wants, decisions will have to be made that involve some number of people not getting access to those goods. The fact of scarcity is what makes competition ubiquitous. And if there is a heaven, one of its defining characteristics is surely the absence of scarcity. Humanity has long dreamed of a Land of Cockaigne where roast chickens fly into our mouths without effort and where the seas are made of lemonade. Until that heaven arrives on earth, competition of some sort will rule the roost.

How Is Market Competition Better?

If we are going to have competition, then why prefer one sort over any other?

The competition we see in the marketplace has the important advantage of creating benefits for the rest of society and not just the competitors.

Consider rent-seeking. It’s true that the exchange between a lobbyist and a politician is mutually beneficial. The rent-seeker, if successful, gets resources allocated in her direction, while the politician receives the free lunches and fawning attention from the rent-seeker — as well as some possible leverage over the rent-seeker down the road.

The competition associated with rent-seeking, however, does not benefit anyone else. In fact, the whole criticism of rent-seeking behavior is that expending resources to generate transfers of wealth — not to create new wealth — is socially wasteful. We would be better off if those resources were used to produce new and better products rather than to persuade others to transfer wealth to us, or to reduce the wealth of others.

Similar arguments can be made about all other forms of nonmarket competition. They all involve expending resources in ways that do not benefit society as a whole because they do not create wealth. They just divert resources from other uses to become part of the attempt to transfer existing wealth to another person or group.

Why Price Competition?

The other problem with all of those other forms of competition is that they ignore the question of where resources come from. There is no connection between the distribution of resources (and the form of competition that generates) and the supply of those resources.

Put differently, how do any of those other processes create the knowledge signals and incentives needed to know what to produce and how to produce it to ensure that there are future supplies of goods? Think about Fight Club-style distribution. If everyone is busy pummeling each other to death to get existing resources, what incentive does that create for anyone to produce anything if they will have to spend even more resources to defend any wealth they might create? How would anyone know what to produce in such a world, and why would anyone want to produce it in the first place?

In a system where competition takes place through offering money to acquire resources, we get the emergence of prices, which serve as both the incentive for ongoing production and the information about what to produce. When buyers compete with buyers to acquire a good and thereby bid up the price, it tells existing and prospective producers that this good is more valuable and that they should produce more of it. Similar competitive bidding for the inputs into a production process informs other producers about what should and should not be used to make various goods and services.

Competition through money prices connects the competition over the distribution of goods with the production of goods in a way that no other form of competition does. In this way, market competition benefits not just the direct parties to the competition but all of us by encouraging the ongoing production of goods in ways that economize on resources.

Scarcity is a defining characteristic of the human condition, and scarcity means there will be competition over who gets what. Market capitalism has the great advantage of channeling that competition through the price system, which not only ensures an ongoing supply of goods but also encourages their efficient production.

We may not be in heaven, but the peaceful and socially beneficial competition of the market is downright heavenly compared to the alternatives.

Steven Horwitz
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.

Bernie Sanders’s Plan to Fix College Is Worse than Nothing by Ariel Deschapell

Bernie Sanders has tapped into a frenzied millennial base by proposing “free” college tuition (that is, tuition paid for by the government). Bachelor degrees are pitched as the primary means by which individuals can gain skills and increase their incomes, so skyrocketing tuition is becoming a hot election topic. But are more subsidies to the university system a legitimate solution to the problem, or simply a stunt to capitalize on youthful outrage?

There’s no denying that the price of higher education is unrealistically high, and a fix is needed. But Sanders’ plan doesn’t even purport to be a solution. It does nothing to address the root problem of rising costs. It merely spreads those costs to society as a whole by socializing them.

Proponents of this idea don’t ever seem to explore the more fundamental question of why the cost of college continues to increase, let alone how socializing those costs stops the inflationary trend.

The assumption seems to be that rising costs are simply a law of nature that we have to deal with. Fortunately, this isn’t the case. If we look at the wider economy, the cost of higher education is clearly an anomaly. Products across the economic spectrum, from smartphones to automobiles, decrease in cost and increase in quality year after year, despite heavy demand. Indeed, consumer demand is what drives continuous innovation in these industries.

Could the problem be something as simple as decreased public funding? Even if that were true, it still wouldn’t explain why universities seem incapable of cutting costs and maximizing performance. Apple, Samsung, and most any other firms seem perfectly able to do so without any regular source of taxpayer funding.

Higher education possess no unique characteristic that prevents it from improving and adapting as every other industry regularly does. But incentives matter, and the market incentives that drive competitive innovation in other industries are heavily distorted in the college and university system.

For starters, under the Higher Education Act signed into law by Lyndon B. Johnson in 1965, universities and colleges gained a de facto monopoly on higher education.

As Senator Mike Lee explains,

Under the federal Higher Education Act, students are eligible for Title IV student loans and grants only if they attend formally accredited institutions. That makes some sense, for purposes of quality control.

Except that under the law, only degree-issuing academic institutions are allowed to be accredited. And only the U.S. Department of Education gets to say who can be an accreditor.

That is, the federal government today operates a kind of higher-education cartel, with federally approved accreditors using their gatekeeper power to keep out unwanted competition.

Can this explain why higher education seems perpetually stagnant and inefficient? Since 1965, computers have gone from being the size of a small building to vastly more powerful, more common, and more affordable pocket-sized devices. Whole other industries have been continuously disrupted again and again, giving way to newer and better models for doing business.

Yet despite a relentlessly increasing price tag, a college education is largely the same beast it was decades ago. In 21st century America, our higher education system is still governed by rules written in 1965.

Because of these rules (and a flood of taxpayer-backed loans), more students are funneled into accredited higher education every year, while the supply remains artificially restricted. Even the smallest regional colleges turn away more students than they could hope to take in.

Is it any surprise then that tuition continues to climb when there exists so little competitive pressure to keep it in check? Without the risk of losing potential students to superior alternatives, universities lack the basic incentives to maximize the value they provide while minimizing the cost.

With this in mind, what does Sanders’s proposal do to address the underlying structural problem in higher education? As it turns out, worse than nothing.

Instead of seeking to weaken the cartel and drive down prices by increasing competition, free tuition goes the exact opposite way. Like decades worth of failed higher education programs, Sanders seeks to continue stimulating demand while doing nothing to address the artificially limited supply and dearth of innovation. Unchecked by any last remnant of market forces college costs will continue to run away at an even faster rate than before.

Were it still 1965, the Senator might suggest we deal with the AT&T telephone monopoly by demanding free landlines for all Americans forever. Thankfully, this isn’t what happened, and instead of a sprawling federally subsidized landline monopoly, we have a cheap, competitive nationwide market for cellular and mobile internet providers.

But this is exactly what Sanders proposes for higher education: a stagnant, expensive, uncompetitive industry, stuck in the past and eating up billions in subsidies. In doing so, he threatens to deny us the creative destruction sorely needed to bring higher education into the 21st century.

Socialized college tuition may provide a popular and illusory respite for students, but only the competition present in free markets can actually reduce costs and spur sustainable innovation.

Ariel Deschapell
Ariel Deschapell

Ariel holds the Henry Hazlitt Fellowship for Digital Development at FEE. He is a student of Florida International University with a focus in finance and economics.