Monthly Archives: August 2011

Birds of a Feather

What kind of bird is the libertarian? Left-wing? Right-wing? The common misconception is that Libertarians are on the “far-right” of the political spectrum. Nothing could be further from the truth. The confusion stems from the total misuse and lack of understanding in the media of the terms “left” and “right”.

First we need to define our terms. What are we measuring? Let’s think of it like a ruler. What units would we have if the small numbers are “left” and large numbers are “right”? Units of State Control. To the left on our “control” ruler we have a value of zero, that is, a complete absence of State Control, or stated positively, it is complete liberty (from the Latin liberalis = free) for the individual arising from the condition of no outside force. So it then follows that as one moves to the right on this scale the degree of State Control increases. Thus, “extreme right” would be those societal structures employing totalitarian regimes in order to “keep the people in line” such as fascism and communism. It then follows that “extreme left” would be total anarchy. Libertarians thus naturally fall on the far (not extreme) left end of the spectrum because we respect the natural rights (life, liberty, pursuit of happiness) of the individual and reject the notion that the State can ever have a compelling interest to use force against the individual other than in preventing violations of natural rights. There are libertarians that use the term “anarchist” in various forms (min-archist, anarcho-capitalist, etc.) when describing themselves and so there are shades of respectful disagreement of opinion among libertarians (as with any human group) to the degree of which government should be permitted to exercise force; but make no mistake, there are no libertarians that would advocate complete anarchy, as that would by definition imply a lawless, consequence free society in which natural rights were ignored.

Where do Democrats and Republicans fall? Well, I have oversimplified things a bit. There is not a single scale by which to measure a society. Rather, there is a single scale (ruler) that you apply to multiple societal issues: work, welfare, abortion, marriage, drugs, schools, etc. A society’s degree of freedom can then be measured roughly by taking the value of all sliders in aggregate. On some issues Democrats are to the left (marriage) and on some to the right (welfare), whereas Republicans are on the left (welfare) and on some to the right (marriage). But both are to the right when it comes to Big Government, because Big Government allows “…the majority to embody their opinions in law.” * But, whenever their goals are in conflict they feign revulsion over “big government” and talk of limiting it. Of course this is only a tactic to limit their opponent’s ability to implement something they don’t agree with.

Since Libertarians never advocate state control (except when protecting natural rights), you will always find them on the left side of the slide rule for any given issue.

* Oliver Wendell Holmes Jr., Lochner v New York, 1905.

Economic Slavery

I have a proposal. Since we as a society permit children to inherit the accumulated wealth of their parents (unless you are “too” wealthy, then we take half of it!) then isn’t it reasonable that children should also inherit the liabilities as well as the assets of their parents? Currently if assets exceed liabilities then there is a positive inheritance. If liabilities exceed assets then there is nothing to inherit and the creditors and thus society end up paying (by passing those losses onto everyone else). Surely the children should be the ones to carry the burden of those liabilities since they must have benefited to some degree while under their parents’ guardianship. After all the parents made a life long investment in their children, so it’s only fair that that investment pay off. It would not have to be overly burdensome; it could be paid back over decades. And if those children happen to pass on then they would simply pass those debts onto their children, and so on until eventually all debts are repaid.

Anybody think this is a reasonable and sound idea? I’m hoping not. I’m hoping everyone views it as completely unreasonable, unfair and immoral. For a child to be born into this world saddled with the obligation of repaying debt that they had no part in incurring is the a most insidious kind of indentured servitude.

So if we all (I hope) agree this is unreasonable, then why is it considered reasonable when a group of individuals (society) through their proxy (government) borrows and thus incurs liabilities that are then simply passed on to their collective progeny in perpetuity? We frequently hear about how terrible it is that we are passing onto our children our debts of today. Well, we’ve been doing this for a long time, and as one of those children from 40 years ago, I have to say I really don’t appreciate being asked to pay higher taxes now to pay off the debts incurred by our government during the Nixon – Reagan administrations. As a child I had no vote, I could not give consent either legally or mentally, and yet I and everyone else my age are now asked to pony up a whole lot more in taxes. The left pontificates that that is the “responsible” thing to do. Hogwash. I have no moral obligation in repaying debts that I did not even have a voice in. The “responsible” thing to do is to simply cut spending in non-critical areas. Surely EVERYTHING government does can’t be critical.

If something is morally wrong at the individual level then simple logic dictates that it is still wrong when a group of individuals does the same thing. Right now we have a nearly $15 trillion IOU that will have to be repaid at some point, but not by those that enjoyed the benefits of those debts, but rather by those that will have to greatly sacrifice their present benefits (lower standard of living) in order to repay that debt. That is simply another form of slavery: economic slavery. It must be abolished.

Stimulus: Bread and Circuses, Part II

Government bread (stimulus) attempts to misdirect the citizenry into believing “something” is being done. Tragically, the bread is hollow. Inherent self-interest problems with government spending ensure that such spending is less efficient in terms of goods received per unit of money. In other words if government spends $1 they get 10 apples. If I spend the dollar I’ll get 15 apples. But there is another inherent problem with government stimulus – sustainability.

Government projects are always short term in nature (e.g. roads, bridges, etc) and when the project is done, that’s it. Those workers are out of work again… until we need some more bridges. Are we supposed to build bridges forever to keep the economy moving? Government spending is akin to a circus coming to town. Money is drawn into a community temporarily, and for awhile everything is great for local merchants. But clearly the circus is a bubble, it can’t stay in town forever. So it is a foolish business that expands based on the sales receipts generated while the circus is in town. When the circus leaves such a business collapses. It pleads for support from the government – the only thing they can do is bring the circus back. As long as the circus is there all is good. But clearly the circus is an unsustainable event, it was never meant to sustain an economy forever.

When people ask for government stimulus they are asking for “circuses” to maintain the status quo. Stimulus is supposed to spark some new more permanent venture, but exactly how can it do that? It simply reinflates the old bubble industries at their unsustainable bubble levels. Those industries can only be sustainable at their new post-bubble levels. Stimulus prevents this equilibrium from being achieved. Sustainable economic growth comes from industries responding to the direct desires of CONSUMERS. If consumers want it then a market will grow and that’s where the jobs will be. Consumer demand will not disappear overnight as can government spending. Consumer desires can change over time but it takes years for these changes to occur which is sufficient time for an economy to absorb the slowly shifting moods of consumer demands.

So this begs the question of why we had such a rapid change in the economy recently. If you’re astute you will have a good idea why. That’s right, it was a government-stimulated bubble inflated by loose fiscal and monetary policy and then popped by a reversal of that policy. It is these policies combined with the moral hazard of “too big to fail” that encouraged the RISKY behavior that is blamed for the crash. We must look beyond the risky behavior itself and ask what encouraged that behavior if we’re serious about preventing such things in the future. The solution is not to add more 20-20 hindsight regulation that attempts to prevent risky behavior but rather to remove the root cause that encouraged said behavior, namely the “too big to fail” policies of our crony-capitalist-big-government state. These polices are the manifestation of what government busybodies thought was the “right” thing (“home ownership for all!”) but sadly unintended consequences always come home to roost in a tragic mess. Treat the disease, not the symptoms.

Stimulus: Bread and Circuses, Part I

The “cuts” in the recent budget deal have renewed mutterings of the “dangers” of decreasing government spending in a down economy. Somehow this “government spending as the path to prosperity” myth will just not die. The idea is that when government spends money it magically reaps greater economic benefits than when private parties spend money. Not only is this wrong, it is completely backwards! We’ve spent trillions in stimulus and it hasn’t “fixed” the down economy. No consideration is given as to why that might be, it is simply assumed that (a) we didn’t spend enough or that (b) it would have been worse absent stimulus. Argument A simply dumps us in an infinite loop from which there is no escape, akin to an old computer program like

10 RUN STIMULUS

20 IF STIMULUS FAILS, GOTO 10

Argument B is a sign of intellectual laziness as it relieves the arguer of a duty to supply any data to support their claim – just speculate on what might have been and call it a day.

Well, I’ll call that bluff. Using logic we can rationally discern a reasonable outcome of a lack of government spending.  Let’s address the “multiplier effect” part of this myth first. In short no such effect exists. This “effect” is simply the relabeling of a normal function in the economy and claiming it is an inherently unique attribute of government spending. It has a more common name – trade.  If I buy something then that enables the person I spent the money with to go buy something, and that person to do the same and so on. This happens everyday – if government rather than individuals spend the money it doesn’t magically transform the process into something else. When government stimulates by purchasing, the theoretically BEST possible outcome is no better than if the government did nothing.

All government spending by definition must come from the citizens. So in other words we are simply moving money from the left pocket to the right pocket of society. Citizen A had $1 and can spend it on X OR now government has taken the $1 of Citizen A and given it to Citizen B to spend it on Y. Citizen A does not have his $1 anymore so does nothing. Citizen B has the $1 and spends it. As Frédéric Bastiat explained, the “seen” benefit is what Citizen B bought; the “unseen” harm is what Citizen A did not buy. All we have done is shift the preference of goods that are being purchased in the economy. No net economic change has occurred.

But this assumes 100% efficient spending. Government has no inherent self-interest to efficiently spend money it distributes ($1000 hammer anyone?). Although the same AMOUNT of money is spent the goods and services received in return will always be fewer than had it been spent by someone with a vested interest in maximizing what they get for their money (i.e. the original owner). This net decrease in goods received per unit of “government” money spent lowers the overall standard of living and productivity of the economy over time.  This obfuscation of the citizenry by government “bread” (i.e. handing out things that appear to be beneficial and good to some) is a vain attempt to do “something”. Next week we’ll continue with the “Circus” part of the stimulus equation.

Sweden, Sweden, Sweden…

Recently my wife and I became embroiled in a “Facebook” debate with some of her liberal friends. I won’t bore you with the details as you can probably guess where they stood and where we stood! We were disappointed to learn, however, that when arguing with (some) liberals (many responded to the thread) if they can’t offer a counter argument they simply resort to (a) name calling or (b) answering questions with non-sequiturs or (c) invoking “Sweden”. Well, I probably can’t convince them to dispense with a & b, but at least I can poke some big holes in the Sweden myth.

The Swedish “social utopia” myth is basically a conflation of two independent phenomena (high growth and high taxes) and confusing that conflation as causation rather than correlation. High taxes (the cart) do not push the horse (high growth), rather the converse. In other words: a leaking boat takes time to sink, the length of time depends on the size of the boat and the leak, but eventually, if nothing is done, that boat will sink. Sweden did well in the beginning because it was a big boat with a small leak.

Sweden built up a strong capital base starting in the 1860s after several free-market reforms transformed it into an industrial powerhouse. It also has been aided by the fact that they stayed out of both World Wars and thus avoided the catastrophic destruction of their economy that the rest of Europe endured. In 1932 the “Social Democrats” came to power and began implementing new “social” programs. These programs did not kick in fully until about 1950 at which point they had one of the highest per-capita income growth rates in the world. From 1932 to 1976 government spending grew from 10% of GDP to over 50%. Then the economy began to strain under the enormous tax burden. For about the next 20 years the government thrashed around trying to figure how to solve the stagnating economy. Eventually lowered tax rates and a number of free market reforms were implemented which resulted in an economic rebound in the last 10 years. Another myth is the low unemployment figures, but as they say there are lies, damn lies and statistics. In this case Sweden’s unemployment figures are manipulated by classifying people as “employed” who are on long-term sick leave, paid not to work or people pushed into early retirement. The real rate is closer to 25% without all the statistical sleight of hand.

The Sweden myth is the classic Bastiat example of “the seen and unseen” effects of an economic policy. We “see” the wonderful utopia of universal “free” goodies for all, but we don’t see the “unseen”: the consumption and destruction of previously saved capital (1860-1950) not being replaced at an equal rate. This net consumption breeds a society of dependency. The Swedes are slowly squandering their inheritance, as are we (ours, not theirs!). But being human (“kick the can down the road”) we most likely won’t figure this out until we are at the brink of destruction. Hopefully it won’t come to that.