With all the news lately about the Large Hadron Collider and new NASA programs, I think it’s important to ask a fundamental question: Why should the state be involved in funding and conducting science? That is, why should one group of people take up arms and expropriate vast sums of money from other people in order to do science? From a moral standpoint, the answer seems obvious to me: they shouldn’t. Like all endeavors of the state, it’s an exploitative relationship and has no place in civilized society.

But, some will say, what about the Apollo Program? What about all the discoveries that happen at places like the LHC? What about the achievements of the U.S. federal labs? What about all the university science funded by the government? Aren’t these worthwhile advances? Wouldn’t many of these things be impossible without violent exploitation? Well, to these people I would simply ask: What might have been?

What might have been the course of scientific progress in the U.S. if the state had not spent the past century confiscating untold billions of dollars from private individuals and directing it in the way that it did? Well, we know that all that money (all things being equal) would have been directed toward market-demanded production. Some would have gone toward privately-conducted science. In fact, without government crowding, there would have been quite a bit more private science, and private science is responsive to what consumers actually want. State science has only a rough approximation of this in the form of the pressure of public opinion.

For all we know, market-driven scientific progress could well have far exceeded what we’ve ended up with. Maybe some scientific knowledge and technologies we have now wouldn’t exist. But other discoveries–again, more closely-aligned with consumer demand–may have been made that would have resulted in an overall higher standard of living than we currently enjoy. In fact, that’s likely. With only a pale imitation of the cost-control pressures of the market, government science will tend to be far less efficient, solving problems and developing new technologies in much more round-about and resource-intensive ways than market-driven science. So, no, we probably wouldn’t have had an Apollo Program, that expensive and embarrassing instance of international “sword fighting” (if you know what I mean). Rather, the natural pressures of the market may have resulted in private, competing firms developing advanced, low-cost methods of reaching orbit and extracting commercially valuable resources from the moon, Mars, asteroids, etc. And we probably wouldn’t have the LHC. Instead, perhaps companies in fields as diverse as transportation, computing, communications, and medical technology would have developed a variety of cheaper and more effective ways of probing the fundamental particles and forces of reality in search of new technologies for the products demanded by their customers.

And it all would have been done through peaceful interaction among free people seeking to profit by providing one another with value rather than by violence of a parasitic political class exploiting a productive population in order to score political points.

The question is not, “How could we have X,Y, and Z without the state?” The question is, “In the absence of violent, inefficient, and politically driven state science, what might have been?”

If you enjoyed this post, make sure you subscribe to my RSS feed!

George Mason economist Don Boudreaux writes a brilliant letter (over at Cafe Hayek) to Obama regarding something truly bizarre the Mafioso-in-Chief said about rationing:

8 March 2010

Mr. Barack Obama
President, Executive Branch
United States Government
1600 Pennsylvania Ave., NW
Washington, DC  20500

Dear Mr. Obama:

CBS radio news this morning ran a clip of one of your recent speeches.  In it, you criticize insurance companies because they “ration coverage … according to who can pay and who can’t.”

My first thought was “not exactly; coverage is rationed according to who pays and who doesn’t.”  Ability to pay isn’t the same thing as actually paying, and what insurers care about is the latter.  Many folks – especially young adults – have the ability to pay but choose not to do so.  They get no coverage.

But further pondering of your point leads me to look beyond such nit-picking to see fascinating possibilities.  Not only insurers, but all producers who greedily refuse to supply persons who don’t pay should be set aright.  Now I’m sure that you don’t ration the supply of the books you write according to any criteria as sordid as requiring people actually to pay for them.  But our society is full of people less enlightened than you.

For example, the typical worker rations his labor services according to who pays and who doesn’t.  That must stop.  Oh, and supermarkets!  Every single one rations groceries according to who pays.  Likewise with restaurants, clothing stores, home-builders, furniture makers, even lawyers!  You name it, rationing is done according to who pays.  Indeed, my own county government has been corrupted by this greedy attitude: if I don’t pay my taxes, the sheriff takes my house – effectively booting me out of the county merely because I didn’t pay for its services.

Preposterous!

I look forward to your changing this selfish and unfair system of rationing that for too long now has kept Americans impoverished.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

And I love the non-traditional way he addresses the letter, omitting the usual tone of deference.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Today is Blog Action Day, organized to try to use coordinated blogging on a single topic to try to affect change. It seems to be focused on statist (i.e. violent) solutions to problems such as poverty, human rights, deforestation, health care, education, etc. The topic this year was declared to be “Climate Change.” Naturally, I’ll be attacking this from a libertarian, voluntaryist, market anarchist angle.

Let’s assume for the sake of argument that the doomsayers are right about the warming of the planet and its degree of anthropogenicity.  My response is, “So what?” Does that give you the right to hold a gun to my head and prevent me from producing, selling, or buying certain types of vehicles, light bulbs, air conditioners, etc.? Does it give you the right to use violence to force me to spend money to modify my production facilities to meet special emissions caps you’ve set? Does it give you the right to forcibly stop me from raising cattle or the right to take money from me and give it to someone else with a spiffy electric car company? The answer to all these questions is NO. Nothing other than my invading someone’s person or property can provide moral justification for him to commit any of those acts of aggression against me. And of course the State therefore also lacks such justification.

Supporters of government action (violence) to stop or reverse global warming often talk about scenarios such as rising sea levels displacing coastal populations, melting polar ice killing off the polar bears, dramatically altered weather patterns turning productive land into desert, etc. What they never seem to consider is that all of this could happen completely independently of any human action whatsoever. If that was the case, surely they wouldn’t be calling for acts of violence against their neighbors. If it was clear that the planet’s temperature was suddenly rising due to natural causes (like volcanic eruptions, solar activity, or the spontaneous appearance of an army of Megan Fox clones), would these pro-government-action folks be clamoring for the use of force to tell their neighbors how to run their businesses or what kind of TV they can have? Of course not. They would recognize that you do not punish or control people as a reaction to natural phenomena over which they had no control.

But how much different is that than the current situation as they describe it? If they’re right about the anthropogenicity of the latest warming trend, all we can say is that billions of people have interacted in the market place in order to meet each others’ needs and earn a living, thus dramatically improving their standards of living while unintentionally altering the atmosphere to the point that temperatures start to rise. This, to me, seems to be a fairly natural process, and the warming was entirely accidental. Does this call for violent solutions, the likes of which you might employ against an evil supervillian who intentionally poured carbon dioxide into the atmosphere to cause destruction? I don’t see how it can.

And the situation becomes even more untenable for the pro-coercion camp when we look at the fact that the climate system is so complex that we really have no idea if their plans to reduce human economic activity (an inhuman “solution” if ever there was one) will do anything at all to stop or reverse the trend. It’s not pleasant to contemplate all the needless misery and death resulting from the foregone improvement in standards of living (especially for the world’s poorest) if temperature trends are not affected by the statist schemes. Layer on top of that the fact that it’s entirely possible that a slightly warmer Earth, though possibly including higher sea levels, could easily result in vast amounts of currently frozen, unproductive land to become arable or otherwise incredibly beneficial to human utility. And regardless of how things turn out, individuals (again, especially the poorest) will be best able to mitigate the downsides and take advantage of the positives if they remain as free as possible to innovate, produce, and exchange on a voluntary basis, free from government coercion.

One final note is that as societies develop economically, they become ever more able to think beyond their daily survival and consider the costs of their actions on the environment. There is widespread pressure from consumers in the developed world for the companies they patronize to use ever more eco-friendly materials and production processes (even Walmart has begun experimenting with green-topping some of its stores). There are even investment funds that put together portfolios of only companies that meet certain standards of ‘greeness’ and energy efficiency (because consumers are demanding it). Advanced market economies naturally produce participants who are attuned to ever more diffuse effects of their actions, and companies will be forced to compete on those bases. There seems less and less need, even by the standards of the pro-government faction, to use force (a necessarily inefficient and thus eco-UNfriendly mechanism) to force companies to ‘be good.’

It seems to me an inescapable conclusion that the only moral position is to oppose the use of the organized, legal violence of the State to combat climate change and just allow the creation of wealth and happiness that flows from the unimpeded interaction of billions of free individuals spontaneously working together to improve their standards of living.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Following some questions I’ve received regarding how law and justice could work in a non-coercive, stateless society, I’m posting one of the best descriptions I’ve read recently of how dispute resolution might take place in the absence of the State. This is from Stefan Molyneux’s Practical Anarchy:

Dispute Resolution Organizations

An essential aspect of economic life is the ability to enforce contracts and resolve intractable disputes. How can a stateless society provide these functions in the absence of a government?

The first thing to understand about contracts is that they are a form of insurance, insofar as they attempt to minimize the risks of noncompliance. If I enter into a five-year mortgage agreement with a bank, I will attempt to minimize my risks by requiring that the bank give me a fixed interest rate for the time period of the contract. My bank, on the other hand, will minimize its risk by retaining ownership of my house as collateral, in case I do not pay the mortgage.

In a world without risk, contracts would be unnecessary, and everyone would do business on a handshake. However, there are people who are dishonest, scatterbrained, manipulative and false, and so we need contracts which basically spell out the penalties for noncompliance to particular requirements.

In modern statist societies, contracts are generally enforced not through the court system, but rather through the threat of the court system. I was in business for many years, at an executive level, and I never once heard of a contract being successfully enforced through the state court system, although I did on occasion hear litigious threats – which is quite different. The threat was not so much, “I am going to use the court to enforce this contract,” but rather, “I am going to use the threat of taking you to court in order to enforce this contract.” The prospect of expensive and time-consuming legal action was always enough to force a resolution of some kind. No actual court compulsion was ever required.

It is quite easy to see that when a process that is designed to mediate disputes becomes itself a threat which causes disputes to be mediated privately, it has largely failed in its intent. State court systems have become like the quasi-private car insurance companies – the threats and inconvenience of using them has caused most people to settle their disputes privately, rather than involve themselves in something that they are forced to pay for, but can almost never use.

This bodes very well for anarchic solutions to contract disputes.

In a stateless society, entrepreneurs will be very willing and eager to provide creative solutions to the problems of contractual noncompliance. As a nonviolent solution, the profits will be maximized if noncompliance can be prevented, rather than merely addressed after the fact.

To take a simple example, let us pretend that you are a loans officer at a bank, and I come in requesting $10,000. Naturally, you will be very happy to lend me the money if I will pay back both the principal and interest on time, since that is how you make your profit. However, such a guarantee is completely impossible, since even if I have the money and the intent to pay you back, I could get hit by a bus while on my way to do so, leaving you perhaps $10,000 in the hole.

What questions will you need to answer in order to assess the risk? You will want to know two things in particular:

1. Have I consistently paid back loans in the past?
2. Do I have any collateral for the loan?

These two pieces of information are somewhat related. If I have consistently paid back loans in the past, then your need for collateral will be diminished. The more collateral that I am able to provide for the loan, the less it is necessary for me to have a good credit history.

The reason that a good credit history is so necessary is not just to establish my credit worthiness, but also to help the bank assess how much I have currently invested into my good reputation. If I have taken out loans for hundreds of thousands of dollars in the past, and repaid them on time, then it scarcely seems likely that I would have gone through all of that just to steal $10,000.

If we say that my good credit rating saves me two percentage points on my interest payments, and that I will need a further $500,000 of loans over the course of my life, then my good credit rating will be saving me at a bare minimum tens of thousands of dollars. Thus, I would end up losing money if I took out a $10,000 loan and did not pay it back, since the cash benefit would not cover the losses I would incur through the destruction of my credit rating. Physical “collateral” is thus less required, since I have the very real “collateral” of a good credit rating.

These kinds of economic calculations occur regularly in a statist society, and would not vanish like the morning mist in a stateless society.

However, there are certain kinds of loans that some financial institutions would be willing to make, despite the high level of risk involved. Young people just starting out – who have no family to provide collateral – would be in a higher risk category, as would those who had failed to make loan payments in the past. As we can see from late-night television commercials for cars, no credit history – or even a bad credit history – does not make one permanently ineligible for loans.

There are two main ways to manage risk in any complex situation – hedging, and insurance. The “hedging” approach is to bet both for and against a particular outcome. In the world of currency trading, this means betting a certain amount that the dollar will go up, and another amount that the dollar will go down. In the world of horse racing, it means betting on more than one horse. This is also why people diversify their stock portfolios.

The “insurance” approach tends to be used where hedging is impossible. When I was an executive in the software world, my employees would often take out insurance in case I got sick or died. It was relatively impossible to “hedge” this risk, because keeping “backup employees” in a basement is not particularly cost-efficient, let alone moral. Life insurance is another example of this.

These strategies are already well-established in the current quasi-free market. However, in one-to-one contracts, state courts retain their monopoly. If I am an employee, I have a one-to-one contract with my employer; I cannot “hedge” the risks involved in this contract, and currently neither can I buy insurance to mitigate the risk that my employer will go out of business, while still owing me pay and expenses.

In the absence of a government, the need for the rational mitigation of risk in contracts would still be there, and entrepreneurs will inevitably provide creative and intelligent solutions to address this.

Breaking Contract

Let us take a relatively small example of how contract disputes can be resolved in a stateless society.

Let us say that I pay you $15,000 to landscape my garden, but you never show up to do the work. Ideally, I would like my $15,000 back, as well as another few thousand dollars for my inconvenience. In a stateless society, when we first put pen to paper on a contract, we can choose an impartial third party to mediate any dispute. If a conflict should arise that we cannot solve ourselves, we contractually agree in advance to abide by the decision of this Dispute Resolution Organization (DRO).

Since I am not an expert in pursuing people and getting money from them, if I had any doubts about your motives, capacity and honesty, I would simply pay this DRO a fee to recompense me if the deal goes awry. If you run off without doing the work, I simply submit my claim to the DRO, who then pays me $20,000.

When I first apply for this insurance, the DRO will charge me a certain amount of money, based on their evaluation of the risk I am taking by doing business with you. If you have cheated your last ten customers, the DRO will simply not insure the contract, thus implicitly informing me of the risk that I am taking. If you have a spotty record, then the DRO may charge me a few thousand dollars to insure your work – again, giving me a pretty good sense of how reliable you are.

On the other hand, if you have been in business for 30 years, and have never once cheated a customer, or received a complaint, then the DRO is simply insuring against delays caused by sudden madness or unexpected death. It may only charge me $50 for this eventuality.

This form of contract insurance is a very powerful positive incentive for honest dealings in business. The cost of insuring a contract is directly added to the cost of doing business, and so if it can be kept as low as humanly possible, the financial benefits to both parties are clear.

The cost of insuring a contract can be kept even lower if you are willing to provide collateral upfront. What this means is that if you cheat me out of the $15,000, and the DRO has to pay me $20,000, you promise to pay the DRO $25,000. If you cheat me, the DRO can then take this money directly out of your bank account.

In this way, contracts can be enforced without resorting to violence, or lengthy and incredibly expensive court battles. The risks of entering into contracts are clearly communicated up front, and honest people will be directly rewarded through lower enforcement costs, just as non-smokers are directly rewarded through lower life insurance costs.

Non-Payment

Suppose I have contracted with a DRO to pay restitution if I cannot fulfill my business obligations in some way, and end up owing them $100,000. What happens if I cannot pay, or simply refuse to pay?

Currently, the State will use violence against me if I do not pay. While this may be a satisfying form of medieval vengeance gratification, it scarcely helps me cough up $100,000 that the DRO actually wants from me. In a stateless society, what options are available for the DRO to get its money?

In any modern economy, individuals are bound by dozens of obligations and contracts, from apartment leases to gym memberships to credit cards contracts to insurance agreements. The costs of doing business with people who are known to honor their contracts is far lower, which is why it seems highly likely that a stateless society produce both DROs, and Contract Rating Agencies (CRAs).

CRAs would be independent entities that would objectively evaluate an individual’s contract compliance. If I become known as a man who regularly breaks his contracts, it will become more and more difficult for me to efficiently operate in a complex economy. This form of economic ostracism is an immensely powerful – and nonviolent – tool for promoting compliance to social norms and moral rules.

If an individual egregiously violates social norms – and we shall get to the issue of violent crime below – then one incredibly effective option that society has is to simply cease doing any form of business with such an individual.

If I cheat my DRO – or another individual – out of an enormous sum of money, the CRA could simply revoke my contract rating completely.

DROs would very likely have provisions which would simply state that they would not enforce any contract with anyone whose contract rating was revoked. In other words, if I run a hotel, and an “outcast” wants to rent a room, I will be immediately aware of this, since I will enter his credit card, and be promptly informed that no contract will be honored with this individual. In other words, if he sets fire to my hotel, steals or destroys property, or harasses another guest, then my DRO will not help me at all. Will I be likely to want to rent a room to this fellow, or will I tell him that, sadly, the hotel is full?

In the same way, grocery stores, taxicabs, bus companies, electricity providers, banks, restaurants and other such organizations will be very unlikely to want to do business with such an outcast, since they will have no protection if he misbehaves.

Economic interactions, of course, are purely voluntary, and no man can be morally forced to do business with another man. People who cheat and steal and lie will be highly visible in a stateless society, and will find that other people will turn away from them more often than not, unless they change their ways, and provide restitution for their prior wrongs.

An outcast can get his contract rating restored if he is willing to repay those he has wronged. If he gets a job and allows his wages to be garnished until his debts are paid off, his contract rating can be restored, at least to the minimum level required for him to hold a job and rent an apartment. A DRO, which is always interested in preventing recurrence, rather than dealing with consequences, may also reduce his burden if he is willing to attend psychological and credit counseling education.

In this way, contracts can be enforced without resorting to violence – the tool of economic and social ostracism is the most powerful method for dealing with those who repeatedly violate moral and social rules. We do not need to throw people into economically unproductive “debtor’s prisons” or send men with guns to kidnap and incarcerate them – all we need to do is publish their crimes for all to see, and let the natural justice of society take care of the rest.

Ah, but what if an “outcast” has been treated unjustly, and is being blackmailed by a DRO or CRA?

Well, remember that anarchism is always a two-sided negotiation. In order to get people to sign up to your DRO or CRA, what checks and balances would you put in your contracts to calm their fears in this regard?

If you enjoyed this post, make sure you subscribe to my RSS feed!

A friend of mine recently commented on one of my libertarian-themed facebook posts, saying that he believed purely free markets only help “businessmen” and harm “labor or the middle and working class.” He wanted to know what examples existed of free market success stories. While there are several issues that could be addressed here, I was a little short on time and limited myself to this response:

As for successes of the free market, pretty much every good or service you make use of in your life is a success story of the free market. The things that make our lives easier, healthier, more enjoyable–these things are the results of a multitude of individuals interacting voluntarily to produce things that people want. These accomplishments are DESPITE government control and regulations, not BECAUSE of them. Think about it on a micro scale. You want to have a yard sale to get rid of a bunch of things you no longer want. You’ll sell them for dirt cheap to people who do want them who would otherwise have to pay a lot more or go without. But imagine if, in order to “protect the consumer,” the government required you to get a state license (costing several hundred dollars and many months of licensing school) before you could hold your yard sale. This would likely prevent you from ever holding your yard sale. Those people who are really hurting for money would have far fewer options for obtaining the things they want, and there would emerge a small group of state-licensed yard sale specialists who would be able to charge much higher prices, thus making use of state violence to obtain a higher-than-market profit at the expense of the financially strapped yard sale customers. This is how government regulation works in EVERY area of the economy. Wealth creation between two parties is maximized when interference with their transaction is minimized. The amount of wealth that government violently destroys or prevents from ever even being created is truly staggering.

Of course, there’s also the fundamental point (made implicitly above) that every transaction, by definition, benefits both parties—otherwise, the transaction simply would not occur. Wealth is created on both sides, because both sides are made better off by the exchange. What every form of government action (taxes, regulations, subsidies, prohibitions, licensing, etc.) does is either outright prevent transactions or distort the decision-making process, resulting either in transactions that would not have occurred in the absence of force (and are thus unproductive) or in the prevention of productive transactions that would have taken place. Either way, there is a destruction of wealth, and society is worse off. Usually, this is compounded by the fact that most government policies actually serve to transfer any wealth that is produced (again, a smaller amount than would be created in the absence of government) to politically favored constituencies, which is both massively unjust and serves to motivate those groups to continue and expand those government policies while everyone from whom that wealth is being transferred fail to launch an effective opposition since each individual policy only transfers a small amount from them.

And just to head off the “OMG we’ll all die if the state doesn’t license doctors and plumbers” contingent out there: relax, we’ll be just fine. State licensing does not “protect” consumers as much as it prevents competition and raises the prices we have to pay for those licensed services. I don’t know about the rest of you, but I don’t hire a service provider of any sort without the knowledge that the quality of their work is sufficient for my liking. And I don’t get that information from the fact that these people have government licenses. I get it from places like Angie’s List, brand identification, references, and general reputation. Just imagine all the ways a truly free market would devise to help us pick out the good doctors and plumbers and home builders. And even if such information is not totally free, think how much more money we’d have without the stifling taxes and wealth destruction of the state.

If you enjoyed this post, make sure you subscribe to my RSS feed!

New Scientist has this article about how insurance could be used to at least partially mitigate the problems that poor people around the world might face as the result of some potential future climate change (warming? cooling? Krugmaning?).

As well as providing protection from the increasingly unpredictable weather, the premiums could also be a powerful way to get poor people to adapt to climate change by encouraging them to invest in measures like drought-resistant crops. Is this profit-driven endeavour too good to be true?

What’s so sadly amusing about this is that New Scientist describes it as if it’s some brilliant new discovery, but free market economists have been making that exact argument for decades. The magazine even tries to link it to tyrannical statists like former U.N. Secretary General Kofi Annan (saying he’s a supporter of it), with the implication I guess being that it’s not really a free market process (because as the government schools teach us, nothing about the free market can help poor people)!

Now a different type of insurance scheme is being rolled out in Adi Ha and many other places in Africa, Latin America and Asia, backed by corporate giants such as Swiss Re and Munich Re. Instead of insuring against lost crops, “index insurance” protects farmers against the vagaries of the weather. For example, if rain gauges at local weather stations drop below a certain level, insurance companies can automatically transfer a payout to farmers without having to visit them.

The fact is, it’s long been a profitable business to insure farmers against lost crops, and insurance companies have incentives to come up with ever more creative ways to help people manage risk (i.e. this new index insurance). It should be no surprise that they’re doing it again and helping (as free markets always do) the poorest of the poor, those who are preyed on by governments.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Covering the nomination of Judge Sotomayor to the U.S. Supreme Court, a CNN anchor today was attempting to enlighten her viewers regarding Sotomayor’s judicial decisions regarding business issues. The anchor said that we could determine if the judge is “pro-business” by looking at how often she’s ruled in favor of “huge corporations” (or something along those lines). Apparently, this anchor (and probably CNN in general) fails to grasp an extremely basic truth of reality: that government policies and rulings that favor large, powerful corporations are very often detrimental to business overall. The extensive taxation and regulatory powers of our government result in larger companies expending great resources to persuade politicians to write laws that favor established players (and sometimes even specific companies) and hinder smaller companies or newcomers to the market. That’s why so many “safety” and “quality” rules for consumer goods are pushed by the big players in a given industry–they want to use the government to crush their competitors. And, ironically, the ‘pro-consumer’ Ralph Nader’s of the world come out in force in support of these anti-competitive and anti-consumer regulations.

Since CNN seems to have trouble with such concepts, maybe they’d be less confused (and confusing) if they used more appropriate terminology. They should ask whether a judge’s rulings are pro-free-market or pro-government-control.

If you enjoyed this post, make sure you subscribe to my RSS feed!

I just watched an interview of a well-known political pundit who has just written a book about how great FDR was. He talked about how the Twenties were a time of rampant free market activity that led to the Depression and about how FDR saved the middle class and saved capitalism.

Huh?

Could this be an alternative history novel in which things play out differently in an alternate universe, Star Trek style? Oh, wait…no, it’s just another purportedly ‘non-fiction’ work in a long line of works that use straw man arguments to impugn free markets and glorify statism and oppression.

Did the Roaring Twenties really happen as a result of free market capitalism? Of course not. The closest thing our country ever had to a free market system was abolished years earlier. The boom of the Twenties was artificial and the direct result of expansion by the Federal Reserve of credit far beyond the amount in which market forces would have resulted. The excess credit led to stock market and real estate speculation and malinvestment (sound familiar?). Also, commodity prices were artificially high due to the demands of WWI. So the Roaring Twenties were the result not of free markets but of government intervention.

Did FDR save capitalism? Well, yes, if by “capitalism” you mean “an economy that was somewhat more free than many others in the world at that time,” and if by “save” you mean “abolish it and replace it with an oppressive, near-omnipotent, socialist state.”

FDR, upon getting himself dictatorial powers, began a series of government interventions that turned what should have been a brief but painful correction into a decade-long debacle by preventing individuals and businesses from taking the actions necessary to reallocate capital and adjust investment. And on top of that, we ended up with a country far closer to socialism/fascism than we ever would have previously imagined possible. The moral of the story seems to be that when Hitler and Mussolini create totalitarian states it’s wrong, but when Roosevelt does so it’s a great day in American history.

We’re now reliving the nightmare that inevitably must occur every so often when government has a monopoly on the monetary system, uses central banking to artificially expand and contract money and credit, and engages in a multitude of regulatory interventions and taxation.

The moral of my story is: Franklin D. Roosevelt is not someone that should ever—ever—be held up as a hero or a good president or someone who saved capitalism or ended the Depression. The man, by virtue of his freedom-ending and economy-destroying policies, was a monster. The history books must be rewritten to expose him and his New Deal for what they were. Just as the media and intellectuals of today rightly condemn Bush, so should they play fair and condemn FDR and demand that we cease and desist the resurgence of his statist, poverty-inducing policies.

Yeah, I’m not holding my breath.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Here is my contribution to the world wide Blog Action Day 2008. The topic this year is poverty, and the goal is to initiate global discussion about how to alleviate it (or something like that).

There are basically two kind of poverty in the world: natural and man-made.

The natural variety is the result of things like drought, disease, natural disasters, and just generally a natural lower degree of transformation of natural resources into beneficial goods. As civilizations’ technologies advance they have increasing ability to transform resources and thus improve their standards of living. A lot of this we have little control over (i.e. we can’t just protest in the street and suddenly have a futuristic civilization where everything is thousands of times cheaper and of better quality and sickness and disease are historic curiosities).

The man-made variety of poverty is much more interesting. This is what results when someone causes, through means that are not mutually voluntary, someone else to be poorer than they would have been otherwise.

So, if I go to Bill and say that he can’t operate a taxi service unless he takes some classes that I offer, passes my tests, and pays me a bunch of money for a taxi license (and that I get to take his money and lock him away somewhere if he operates the business without my approval), then I have just made Bill poorer than he otherwise would have been, either because of the time and money I force him to spend or because he opts not to go into business. In addition, I’ve made Bill’s potential customers poorer, as they now have to either spend more in the now less competitive taxi market or spend more by finding a more expensive way to get around. The same applies to anyone I want to prevent from doing business without my official license: real estate agents, doctors, nurses, lawyers, plumbers, electricians, hairdressers, or street performers.

Another form of man-made poverty is full-fledged prohibition of something. For instance, if Jack wants to start a business delivering letters and I tell him that I only want one organization to deliver letters and will forcibly lock him up if he tries it, I have just made him and his potential customers poorer than they would have been. The same forced poverty is involved if Jack wants to start his own passenger train service, crime prevention company, court system, etc.

More man-made poverty is created if I tell Mike that he can only offer insurance plans if they cover certain risks and are priced below a certain maximum level that I’ve set. The subset of Mike’s potential customers who would have bought the now illegal insurance policy but now are forced to go without insurance or pay more for a policy that is beyond what they need are now poorer, and of course Mike is poorer because he is forced to forgo a certain amount of business he would have earned absent the rule. Furthermore, with maximums on what Mike can charge, his customers as a whole are made poorer as he has to raise everyone’s rates to make up for the loss incurred on any policies whose natural market price is he not allowed to charge. Many of his customer end up paying more than what they would otherwise, and some are again forced to go without insurance because they can’t afford the new cheapest policy.

Now we come to another way for me to create poverty. Jane wants to open a business providing some valuable good or service. She knows that teenagers and other unskilled workers would do really well in her business, and that’s perfect because she can only afford to open the business if she can find employees that will work for $4 per hour. She goes around and talks to some teenagers eager to start learning some job skills and homeless and poverty-stricken people that can’t find work anywhere else, and they’re excited to come work for her and start getting work experience or working their way out of poverty. But then along comes good ol’ me, with the threat of force to back me up, and I tell Jane that I’m really sorry but I can’t allow her to pay her employees anything less than a minimum wage of $8 per hour because it would just not be right. Not wanting to be imprisoned, Jane cancels her plans to open the business. The teenagers return to whatever they were doing before, now missing out on a great chance to start developing job skills that would put them on the road to success, and the homeless and poverty-stricken are prevented from having the opportunity to starting climbing the economic ladder.

Now we come to a really interesting point in our investigation. Man-made poverty is also created when I force Sally to turn over part of her income or wealth to me so that I can provide things for the ‘common good.’ If something is really for the common good, it shouldn’t require compulsion in order to fund it. On top of that, I need to spend a big chunk of the money I took from Sally to pay for my gang of heavily armed enforcers, my army of administrative and regulatory personnel, my court system that conveniently will decide any cases in which I might be accused of doing something wrong, etc. But the real kicker is that a lot of the money I’m taking from Sally I’m using to provide welfare checks and related benefits to those people whose poverty I’m responsible for. Most of the rest of it goes to pay for the poverty-creating policies mentioned above and many more that there’s no time to go into now (i.e. the FDA, NASA, public housing, banking regulation, public schools, drug prohibition, etc.). And not to worry, if I run out of tax money to spend on my programs, I’ll just print more money! Yes, it will devalue the currency and make everyone poorer, but hey–at least I can say I’m “doing something” and get enough of you people to fall for it that you’ll vote for me again in the next election.

If you enjoyed this post, make sure you subscribe to my RSS feed!

I ran across this New Scientist piece about how Al Gore’s group thinks a regime of forced greening of the U.S. economy could actually lift us out of our current financial turmoil. It’s the same thing Obama (and, to a lesser degree, McCain) has been blabbing about on the campaign trail. The idea is that having the government force us to use ‘green’ technologies will result in a new economic boom.

Well, let’s think about that for half a second.

Say I’m a business owner who makes widgets and employs a certain number of people at a certain wage, while earning a profit that keeps me coming to work every day. Now the government comes along and says that the fossil fuel plant in my area from which I get my electricity must shut down and be replaced by a “green” power plant of some kind. Now, we know this new green facility will be quite a bit more expensive to operate and will charge more for its output (because if it was cheaper, it would already be there due to market forces). So, I must now pay more for my power, which means I have to raise the prices of my widgets or find other places to cut back. If I raise the prices of my widgets, consumers now either pay more for them (meaning they have less money to spend on other things) or they opt not to buy them—either way, they’re made worse off. If I don’t raise my prices, I need to cut costs somewhere. If we assume for the moment that I’m already operating extremely efficiently due to market competition, my only options are to reduce wages or lay off one or more employees (either way, one or more employees are made worse off) or to reduce my profits (in which case, I’m made worse off). In fact, if my profits are forced down too much (maybe even just a tiny bit below what they currently are), I may find that I can make more money working for someone else. Then I lay off everyone, close the business, and the widget market is less competitive, making society worse off.

Of course, those involved in building and operating the government-mandated “green” power plant and delivery infrastructure are better off, but because their endeavor was not a market action resulting from myriad voluntary decisions using the price system to efficiently allocate resources, it necessarily costs society more than if it had not been done (otherwise, society would have already done it). In other words, this one government policy destroys a significant amount of society’s wealth.

In addition, the government, in order to fund the various bureaucracies that will implement this scheme, will be either directly taking more of my income in taxes or printing more money (which devalues my dollars). I then have even less money to spend on goods and services or with which to pay employees.

Now, apply this to each of Obama’s enviro-economic policy proposals, and you end up with severe and widespread destruction of wealth throughout society. Could it make our air cleaner? Sure, I suppose it’s a possibility. Will it reduce global warming? That’s entirely up for debate. But to suggest that these policies will somehow help the economy and create wealth is bizarre.

If you enjoyed this post, make sure you subscribe to my RSS feed!