The social safety net

Several times each year, John Allison President and CEO of the Cato Institute circulates a memorandum to the Directors, Sponsors, and Friends of the Institute.  In his July/August 2013 Report John makes the following statements:

A trend that disturbs me is the effort by some of those who want to change political results to try to appeal to egalitarianism for the purpose of electing "compassionate" conservatives to Congress. On several occasions, I have heard the leaders of conservative policy organizations lead with the comment "We all agree about the need for a social safety net" (of course, government financed and controlled). Well, not me. In fact, once we agree the government has the right to use force to redistribute wealth (which is mandatory to create a government-based safety net) the fight is over. The only logical stopping point for this argument is equal outcomes. Equal, that is, except for the elitists in the government and power positions who control the redistribution of wealth.

As libertarians, we believe the sole role of government is to protect individual rights. Our position is logically defendable across all political activities and demands a limited government.

In addition, we are the true advocates of human flourishing. In fact, as libertarians we are the defenders of the pursuit of happiness in the Aristotelian concept of happiness. Happiness earned by a life well lived. Hard work, blood, sweat, and tears happiness. The type of happiness we advocate is only possible in a free society where each individual has the personal responsibility for his life and has the right to live that life consistent with his beliefs and values as a free and independent person.

I believe the welfare state creates very destructive incentives in multiple ways. Mike Tanner's recent study, The Work versus Welfare Tradeoff: 2013, outlines the significant economic incentives that the welfare state provides.

On the noneconomic front, many (most) long-term welfare recipients are not happy as evidenced by high rates of alcohol consumption, drug use, domestic violence, etc. They are numbed into a destructive state of dependency that destroys personal responsibility, undermines a sense of purpose, and makes the true pursuit of happiness impossible.

What if the welfare state had not been created? Would markets have solved the welfare problem better than governments, based on private contributions? I believe the answer is unequivocally yes. In fact, there were many private mutual-support societies that provided voluntary assistance to the poor before the government welfare state was created.

A current example is Goodwill Industries, which relies primarily on donations of used goods (clothing, etc.). Their philosophy is to teach people how to be personally responsible, to teach them work skills, and to help them understand the healing power of work. Goodwill has many inspiring success stories. Compare this outcome to the results of government-based welfare. Unfortunately, organizations like Goodwill have a difficult challenge competing against a free lunch from the government.

If the welfare state had not been created, I am confident the pre-welfare private charitable organizations would have experimented and learned radically different solutions to many social issues. The market-discipline process would have supported innovation that would have led to significantly better outcomes for many beneficiaries (victims) of the current welfare system.

So, I do not agree that a government-financed and controlled safety net is a morally defendable idea. When government expands beyond its important but very limited role, it crowds out private institutions that are far more effective. History teaches us that when force is used to achieve so-called "positive" goals, instead of in the proper role of defending individual rights, the "good intentions" practically always produce bad results.

On Spending: No Sacred Cows

The following is an advertisement currently being circulated by the Cato Institute.

We face another budget crisis and possible government shutdown as early as January, unless Congress can come together on a bipartisan basis to cut spending.

The Affordable Care Act is far from the only program that should be repealed. Both Democrats and Republicans must be willing to cut programs that are championed by special interests in their parties. There can be no more “sacred cows.”

Policy experts at the Cato Institute have put together a plan that balances the budget and reduces our dangerously high debt burden by cutting more than $3 trillion over 10 years. It builds on good ideas from both liberals and conservatives to expand individual freedom and reduce the burden of government.

You can read more about needed reforms at DownsizingGovernment.org, a project of the Cato Institute.

CORPORATE WELFARE | Farm aid distorts agriculture, harms the environment, and nearly all goes to well-off businesses. Energy subsidies have been disastrous—from a $500 million loss on Solyndra to $700 million wasted on a clean coal project in Mississippi. Phasing out farm and energy subsidies would save $160 billion.

SUBSIDIES FOR THE STATES | Washington runs more than 1,100 aid-to-state programs. They are hugely bureaucratic and stifle state and local innovation. Phasing out federal subsidies for K-12 schools would save $180 billion and free states to improve the quality of their own education systems.

PRIVATIZATION | President Obama has suggested privatizing the Tennessee Valley Authority. TVA and other businesses may “no longer require federal participation,” his budget noted, which would “help put the nation on a sustainable fiscal path.” Other candidates for privatization include Amtrak, the Corps of Engineers, federal dams, airport screening, and air traffic control—which would save at least $110 billion.

SUBSIDIES FOR INDIVIDUALS | The government’s vast array of individual aid programs would be better handled by state and local governments and private charities. Programs such as food stamps should be turned over to the states. Phasing out federal food stamp subsidies over 10 years would save $400 billion.

INTELLIGENCE BUDGET | The budgets of the CIA, NSA, and other intelligence agencies have become bloated with spending on vast and often invasive data collection efforts and armadas of drone aircraft. Cutting intelligence spending by one quarter would save $110 billion.

MILITARY OVERREACH | The Constitution envisioned a military to “provide for the common defense” of the United States, not one that serves as the world’s policeman. Congress should reduce overseas military commitments, avoid foreign wars, and create a leaner force structure. Making reforms to meet the budget caps for 2014 and beyond could save at least $200 billion.

DRUG WAR | The war on drugs wastes a huge amount of resources in our police and justice systems. It also harms civil liberties, foments violence, and does little to curb drug use. Ending the federal drug war and returning drug policy to the states where it belongs would save $110 billion.

MEDICARE | Medicare spending is the largest factor pushing the budget into crisis. Raising premiums and increasing cost-sharing would save $330 billion. Policymakers should also restructure the program by directing payments to enrollees, not insurers or providers. That would generate greater choice, spur innovation, and improve access to care.

SOCIAL SECURITY | Social Security has huge unfunded obligations, and it causes ongoing damage by reducing personal savings and harming labor markets. Meanwhile, spending on federal disability programs has soared as the number of recipients has multiplied. America should move to a system of personal accounts for retirement and disability, but meanwhile we would save $640 billion by indexing initial benefits to prices, modestly raising the retirement age, and trimming the disability rolls by one quarter.

MEDICAID | Medicaid’s open-ended matching grants to the states have led to huge cost growth, but not better health care. Congress should give each state a fixed amount of funding and free them to experiment with better ways of providing care for the needy. Limiting annual growth in the block grant to five percent would save $760 billion.

Dollar amounts are savings over 10 years. Cuts are assumed to be phased in over 10 years. Total cuts include estimated interest savings.

Civilian Labor Participation Rate

The following article was published on 11/15/13 by Mark Thornton of the Ludwig von Mises Institute:

They say that a picture is worth a thousand words. This is a picture of the government statistic on the Civilian Labor Participation rate. That rate is now at a 35 year low. The steep decline in the rate is indicative of people giving up hope of ever finding a job, so they stop looking for a job and therefore are no longer considered part of the labor force = (employed and unemployed). In October 2013 the number of people no longer in the labor force decline by over 700,000. As the labor participation rate falls, it puts downward pressure on the calculated unemployment rate (U3). To put it another way, if all these “discouraged workers” were still included in the labor force the unemployment rate would be much higher and rising.

Click here to view the original article

A differentiation fed them by the administration

John F. Kerry's testimony before the Senate Committee on Foreign Relations on April 22, 1971:

"We veterans can only look with amazement on the fact that this country has been unable to see there is absolutely no difference between ground troops and a helicopter crew, and yet people have accepted a differentiation fed them by the administration."

John F. Kerry's testimony before the Senate Foreign Relations Committee hearing on Syria, September 3, 2013:

"So let me be clear: President Obama is not asking America to go to war. And I say that sitting next to two men -- Secretary Hagel and Chairman Dempsey -- who know what war is. Senator McCain knows what war is. They know the difference between going to war and what President Obama is requesting now. We all agree, there will be no American boots on the ground."

John F. Kerry's testimony 4-22-71

John F. Kerry's testimony 9-3-13

On Appeasing Envy

The Ludwig von Mises Institute has re-published an article written by Henry Hazlitt in 1972.  The entire article is available at this link:

http://mises.org/daily/1952/On-Appeasing-Envy

In my opinion these are the highlights:

Any attempt to equalize wealth or income by forced redistribution must only tend to destroy wealth and income. Historically the best the would-be equalizers have ever succeeded in doing is to equalize downward. This has even been caustically described as their intention. “Your levelers,” said Samuel Johnson in the mid-eighteenth century, “wish to level down as far as themselves; but they cannot bear leveling up to themselves.”

And in our own day we find even an eminent liberal like the late Mr. Justice Holmes writing: “I have no respect for the passion for equality, which seems to me merely idealizing envy.”

In the envious the thirst for social advancement is insatiable. As soon as they have risen one rung in the social or economic ladder, their eyes are fixed upon the next. They envy those who are higher up, no matter by how little. In fact, they are more likely to envy their immediate friends or neighbors, who are just a little bit better off, than celebrities or millionaires who are incomparably better off. The position of the latter seems unattainable, but of the neighbor who has just a minimal advantage they are tempted to think: “I might almost be in his place.”

Moreover, the envious are more likely to be mollified by seeing others deprived of some advantage than by gaining it for themselves. It is not what they lack that chiefly troubles them, but what others have. The envious are not satisfied with equality; they secretly yearn for superiority and revenge. In the French Revolution of 1848, a woman coal-heaver is said to have remarked to a richly dressed lady: “Yes, madam, everything’s going to be equal now; I shall go in silks and you’ll carry coal.”

Envy is implacable. Concessions merely whet its appetite for more concessions. As Schoeck writes: “Man's envy is at its most intense where all are almost equal; his calls for redistribution are loudest when there is virtually nothing to redistribute.”

Sometimes the motive of appeasing other people's envy is openly avowed. Socialists will often talk as if some form of superbly equalized destitution were preferable to “maldistributed” plenty. A national income that is rapidly growing in absolute terms for practically everyone will be deplored because it is making the rich richer. An implied and sometimes avowed principle of the British Labour Party leaders after World War II was that “Nobody should have what everybody can't have.”

But the main objective test of a social proposal is not merely whether it emphasizes equality more than abundance, but whether it goes further and attempts to promote equality at the expense of abundance. Is the proposed measure intended primarily to help the poor, or to penalize the rich? And would it in fact punish the rich at the cost of also hurting everyone else?

This is the actual effect of steeply progressive income taxes and confiscatory inheritance taxes. These are not only counterproductive fiscally (bringing in less revenue from the higher brackets than lower rates would have brought), but they discourage or confiscate the capital accumulation and investment that would have increased national productivity and real wages. Most of the confiscated funds are then dissipated by the government in current consumption expenditures. The long-run effect of such tax rates, of course, is to leave the working poor worse off than they would otherwise have been.

There are economists who will admit all this, but will answer that it is nonetheless politically necessary to impose such near-confiscatory taxes, or to enact similar redistributive measures, in order to placate the dissatisfied and the envious — in order, in fact, to prevent actual revolution.

This argument is the reverse of the truth. The effect of trying to appease envy is to provoke more of it.

Individualism versus authoritarianism

Wednesday July 24, 2013 may have marked a turning point in US political history.  A vote in the House of Representatives has held on the National Security Administration’s (NSA) blanket collection of Americans’ telephone records.  This vote was on an amendment to a spending bill that was sponsored by Representative Justin Amash of Michigan’s 3rd congressional district and cosponsored by Representative John Conyers, Jr of Michigan’s 13th congressional district.  The Amash-Conyers amendment was proposed to end the indiscriminate collection of telephone records by the NSA.  You can read a description of the amendment at this link:

http://amash.house.gov/speech/amash-nsa-amendment-fact-sheet

This amendment was defeated by a vote of 205 Yes and 217 No.  Please note that 134 Republicans voted against this amendment.  To view the voting record please click on the following link:

http://clerk.house.gov/evs/2013/roll412.xml

An excellent news article about this vote was published today in The Guardian (a British news outlet).  The article is written by Glenn Greenwald and I highly recommend that you read it completely at this link:

http://m.guardiannews.com/commentisfree/2013/jul/25/democratic-establishment-nsa

I my opinion these are the highlights of this article:

One of the worst myths Democratic partisans love to tell themselves - and everyone else - is that the GOP refuses to support President Obama no matter what he does. Like its close cousin - the massively deceitful inside-DC grievance that the two parties refuse to cooperate on anything - it's hard to overstate how false this Democratic myth is. When it comes to foreign policy, war, assassinations, drones, surveillance, secrecy, and civil liberties, President Obama's most stalwart, enthusiastic defenders are often found among the most radical precincts of the Republican Party.
Given that the amendment sought to de-fund a major domestic surveillance program of the NSA, the very close vote was nothing short of shocking. In fact, in the post-9/11 world, amendments like this, which directly challenge the Surveillance and National Security States, almost never get votes at all. That the GOP House Leadership was forced to allow it to reach the floor was a sign of how much things have changed over the last seven weeks.
More significant than the closeness of the vote was its breakdown. A majority of House Democrats supported the Amash/Conyers amendment, while a majority of Republicans voted against it.
In reality, the fate of the amendment was sealed when the Obama White House on Monday night announced its vehement opposition to it, and then sent NSA officials to the House to scare members that barring the NSA from collecting all phone records of all Americans would Help The Terrorists. 

Using Orwellian language so extreme as to be darkly hilarious, this was the first line of the White House's statement opposing the amendment: "In light of the recent unauthorized disclosures, the President has said that he welcomes a debate about how best to simultaneously safeguard both our national security and the privacy of our citizens" (i.e.: we welcome the debate that has been exclusively enabled by that vile traitor, the same debate we've spent years trying to prevent with rampant abuse of our secrecy powers that has kept even the most basic facts about our spying activities concealed from the American people).
The White House then condemned Amash/Conyers this way: "This blunt approach is not the product of an informed, open, or deliberative process." What a multi-level masterpiece of Orwellian political deceit that sentence is. The highly surgical Amash/Conyers amendment - which would eliminate a single, specific NSA program of indiscriminate domestic spying - is a "blunt approach", but the Obama NSA's bulk, indiscriminate collection of all Americans' telephone records is not a "blunt approach". Even worse: Amash/Conyers - a House bill debated in public and then voted on in public - is not an "open or deliberative process", as opposed to the Obama administration's secret spying activities and the secret court that blesses its secret interpretations of law, which is "open and deliberative". That anyone can write a statement like the one that came from the Obama White House without dying of shame, or giggles, is impressive.

Remember when Democrats used to object so earnestly when Dick Cheney would scream "The Terrorists!" every time someone tried to rein in the National Security State just a bit and so modestly protect basic civil liberties? How well they have learned: now, a bill to ban the government from collecting the telephone records of all Americans, while expressly allowing it to collect the records of anyone for whom there is evidence of wrongdoing, is - in the language of the House Democratic Leadership - a bill to Protect The Terrorists.
None of this should be surprising. Remember: this is the same Nancy Pelosi who spent years during the Bush administration pretending to be a vehement opponent of the illegal Bush NSA warrantless eavesdropping program after it was revealed by the New York Times, even though (just as was true of the Bush torture program) she was secretly briefed on it many years earlier when it was first implemented.
So the history of Democratic leaders such as Nancy Pelosi isn't one of opposition to mass NSA spying when Bush was in office, only to change positions now that Obama is. The history is of pretend opposition - of deceiving their supporters by feigning opposition - while actually supporting it.
But the most notable aspect of yesterday's events was the debate on the House floor. The most vocal defenders of the Obama White House's position were Rep. Mike Rogers, the very hawkish GOP Chairman of the House Intelligence Committee, and GOP Congresswoman Michele Bachmann. Echoing the Democratic House leadership, Bachmann repeatedly warned that NSA bulk spying was necessary to stop "Islamic jihadists", and she attacked Republicans who supported de-funding for rendering the nation vulnerable to The Terrorists.

In between these denunciations of the Obama NSA from House liberals, some of the most conservative members of the House stood to read from the Fourth Amendment. Perhaps the most amazing moment came when GOP Rep. James Sensenbrenner - the prime author of the Patriot Act back in 2001 and a long-time defender of War on Terror policies under both Bush and Obama - stood up to say that the NSA's domestic bulk spying far exceeds the bounds of the law he wrote as well as his belief in the proper limits of domestic surveillance, and announced his support for Amash/Conyers.

To say that there is a major sea change underway - not just in terms of surveillance policy but broader issues of secrecy, trust in national security institutions, and civil liberties - is to state the obvious. But perhaps the most significant and enduring change will be the erosion of the trite, tired prism of partisan simplicity through which American politics has been understood over the last decade. What one sees in this debate is not Democrat v. Republican or left v. right. One sees authoritarianism v. individualism, fealty to The National Security State v. a belief in the need to constrain and check it, insider Washington loyalty v. outsider independence.

This last quotation from Glenn Greenwald’s article describes the essence of our struggle.  We have been focused for many generations on a struggle between Democrats and Republicans in the futile attempt to promote either liberal or conservative values.  The struggle that we must focus on today and every day going forward is the battle between individualism (liberty and personal freedom) versus authoritarianism (tyranny and totalitarianism). 

The Courage to be Utopian

In a recent post on their Facebook Page the Ludwig von Mises Institute (see also http://mises.org/) has expressed my political outlook in words more eloquent than I ever could envision.  Please read this article my friends and you may begin to understand why I take time out of my day to write blog articles and to post to Facebook and Twitter.

http://mises.org/daily/6469/The-Courage-to-be-Utopian

There are so many important issues discussed in this article that I am hesitant to list the highlights, but if you do not read the entire article please at least read the following:

In “The Intellectuals and Socialism,” (published in 1949) Nobel laureate F.A Hayek shows how ideas gain acceptance in modern society. More importantly, he shows how to win the battle of ideas against supporters of big government.

Over the long run, public intellectuals—Hayek called them “professional secondhand dealers in ideas”—wield an “all-pervasive” influence on public policy and politics by shaping public opinion.

 Such intellectuals include journalists, teachers, ministers, lecturers, publicists; radio, television, and online commentators; writers of fiction, cartoonists, artists, actors, and even scientists and doctors who speak outside their fields of expertise. “It is the intellectuals in this sense who decide what views and opinions are to reach us,” Hayek wrote, “which facts are important enough to be told to us, and in what form and from what angle they are to be presented. Whether we shall ever learn of the results of the work of the expert and the original thinker depends mainly on their decision.”

“It is no exaggeration to say that, once the more active part of the intellectuals has been converted to a set of beliefs, the process by which these become generally accepted is almost automatic and irresistible. . . . It is their convictions and opinions which operate as the sieve through which all new conceptions must pass before they can reach the masses.”

Since a public intellectual tends not to be an expert on a particular issue, they judge new ideas “by the readiness with which they fit into his general conceptions, into the picture of the world which he regards as modern or advanced.” In today’s politics and public policy, the preconception that guides intellectuals is that central planning and central control is always better than decentralized, individualized approaches. To the modern intellectual: “Deliberate control or conscious organization is in social affairs always superior to the results of spontaneous processes which are not directed by a human mind; or that any order based on a plan laid down beforehand must be better than one formed by the balancing of opposing forces.”

“The intellectual, by his whole disposition, is uninterested in technical details or practical difficulties. What appeals to him are the broad visions, the spacious comprehension of the social order as a whole which a planned system promises.” Thus liberty lovers must play into this visionary character and have the “courage to indulge in Utopian thought.”

Rather than focusing exclusively on piecemeal improvement of current legislation, liberty lovers must offer grand reconstructions and abstractions that will appeal to the imagination and ingenuity of intellectuals. They must provide a clear picture of future society at which they are aiming without overstatement or extravagance, but which inspires the imagination of intellectuals.

To change the views of intellectuals, one must demonstrate the limits of government planning and control and why it becomes positively harmful if extended beyond these limits, so harmful that it undermines the very ideals that intellectuals hold dear. The key is to focus on ideals because ideals arouse the imagination of intellectuals. For example, “freedom of opportunity” is an ideal. “Relaxation of controls on opportunity” is a political compromise and best left to politicians. “Equality under the law” is an ideal. “An important step toward equality” is a political compromise.

We can all become “dealers in ideas”.  I encourage you to speak up.  My greatest regret is that I have discouraged political discussion.  I have always been the first person to stop a political discussion at a social gathering by saying “please, no politics”.  I will remain silent no longer.  I will share my vision for a future of individual liberty, unfettered free markets, and peace.

Celebrate your independence today and everyday

Today we celebrate the rejection of tyranny and the establishment of a system of government unique in the history of mankind.  Set aside 5 minutes of your day to read the Declaration of Independence:

Declaration of Independence

I call your attention to the section of the Declaration that is most familiar to us:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to affect their Safety and Happiness.

This country is founded on these principles:

• Rights are naturally bestowed upon us at birth.  Rights are not gifts given by government.
• Government is created by the people to secure the rights that were naturally bestowed upon us at birth.
• Government derives its just powers from the consent of the governed.
• It is the right of the people to alter or abolish any form of government that no longer protects the rights that were naturally bestowed upon us at birth.

The declaration also describes the specific injustices perpetrated by the King of England:

But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security..--Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States.

In the list of abuses and usurpations please take note of the following:

He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people, and eat out their substance.

Today the Federal Government has grown far beyond its original function of simply securing our natural rights. The size and power of the Federal Bureaucracy reaches into every facet of everyday life. The multitude of New Offices and the swarms of Officers of today’s Federal Government is harassing our people and eating out our substance.

It is our right; it is our duty, to throw off such Government, and to provide new Guards for our future security.  I will not submit to these abuses and usurpations.  I will not remain silent.  I will unwaveringly work to reduce the size, scope, and power of the Federal Government. 

Frederic Bastiat and the Candlemakers’ Petition

June 30, 2013 marked the 212th anniversary of the birth of Frederic Bastiat (a French economist and politician).  Marginal Revolution University has produced a short video based on one of Bastiat's essays "The Candlemakers’ Petition":

The Candlemakers’ Petition

The entire essay, which was an open letter to the French Parliament, originally published in 1845, can be read at this link:

http://bastiat.org/en/petition.html

My favorite passages from this essay are the following:

Gentlemen:

You are on the right track. You reject abstract theories and have little regard for abundance and low prices. You concern yourselves mainly with the fate of the producer. You wish to free him from foreign competition, that is, to reserve the domestic market for domestic industry.

We come to offer you a wonderful opportunity for your — what shall we call it? Your theory? No, nothing is more deceptive than theory. Your doctrine? Your system? Your principle? But you dislike doctrines, you have a horror of systems, as for principles, you deny that there are any in political economy; therefore we shall call it your practice — your practice without theory and without principle.

We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun….. 

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds — in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

You no longer have the right to invoke the interests of the consumer. You have sacrificed him whenever you have found his interests opposed to those of the producer. You have done so in order to encourage industry and to increase employment. For the same reason you ought to do so this time too.

To take another example: When a product — coal, iron, wheat, or textiles — comes to us from abroad, and when we can acquire it for less labor than if we produced it ourselves, the difference is a gratuitous gift that is conferred up on us. The size of this gift is proportionate to the extent of this difference. It is a quarter, a half, or three-quarters of the value of the product if the foreigner asks of us only three-quarters, one-half, or one-quarter as high a price. It is as complete as it can be when the donor, like the sun in providing us with light, asks nothing from us. The question, and we pose it formally, is whether what you desire for France is the benefit of consumption free of charge or the alleged advantages of onerous production. Make your choice, but be logical; for as long as you ban, as you do, foreign coal, iron, wheat, and textiles, in proportion as their price approaches zero, how inconsistent it would be to admit the light of the sun, whose price is zero all day long!

Perhaps Bastiat's greatest work is “The Law”.  This essay can be viewed at the following link:

http://bastiat.org/en/the_law.html

Illinois Government Pensioners Hit The Jackpot

I love Illinois because it is a showcase of government mismanagement and corruption.  Very few places on earth are willing to so publicly display this level of greed and malfeasance.  Today Jim Tobin president of  Taxpayers United of America released the results of its annual study of the top government pensions in the State of Illinois.  The full report is at this link:

Illinois Pensions

You need to read the following excerpts and think carefully about the amount of money that is involved:

Illinois House Speaker, Michael Madigan (D), and Senate Majority Leader, John Cullerton (D), continue their political charade of pension reform while the number of six-figure pensioners grows 47% in one year to 9,900.

The purpose of our study is to put some perspective around individual pensions, to put them in terms to which the average taxpayer can relate. Illinois taxpayers, whose average household income is $53,234, and struggle with 9.3% unemployment need to know how much Illinois’ government retirees are being paid not to work and the astronomical accumulation of those payments over an average lifetime.

We actually expanded our list from the top 100 to the top 200 since there are so many six-figure pensioners now. The top 200 are all over $189,000a year.

Still topping our list of Illinois’s government elite in annual payouts is Tapas Das Gupta, retired from the University of Illinois at Chicago. He collected a cool $439,672 in his last annual pension payment and will accumulate a stunning $5.2 million in lifetime pension payments.

Beverly Lopatka  retired from DuPage Government HSD 88 at the ripe old age of 56 and has an annual pension of $399,652, with a staggering estimated lifetime payout of $11,524,643. Her contribution of the estimated lifetime payout would be only 0.8%.

The highest lifetime payout estimate goes to Larry K. Fleming, retired from government school district Lincolnshire-Prairie View 103. Having retired at the age of 55 with a cushy annual pension of $258,163, he will accumulate a breathtaking $11,868,155 in pension payments over a normal lifetime.

 Jim Tobin is not a person to just point out a crisis he also proposes solutions:

Without sweeping and immediate reform, Illinois’ government pension system will collapse by 2015. It’s mathematically impossible to tax your way out of this problem. Illinois has more than 9,900 retirees collecting more than $100,000; in 2020, that will be over 25,000 six-figure pensioners. Real pension reform must include raising the retirement age to 67, increasing employee contributions by 10%, increasing healthcare contributions to 50%, eliminating all COLA’s, and replacing the defined benefit system with a defined contribution system for all new hires.

This is the solution that can be used to solve the unfunded pension liability crisis all across America.

Obama’s tapped-out trust

A week of scandals has encouraged members of the press to wring their hands in disgust.  I find this rather amusing as most of the press corps is culpable in the current presidential administration’s crimes.  The following link is to a Washington Post opinion article published on 5/16/13.  The author is George F. Will:

http://tinyurl.com/bltvs43

Here are some highlights:

The scandals are interlocking and overlapping in ways that drain his authority. Everything he advocates requires Americans to lavish on government something that his administration, and big government generally, undermines: trust.

Liberalism’s agenda has been constant …..The agenda always is: Concentrate more power in Washington, more Washington power in the executive branch and more executive power in agencies run by experts. Then trust the experts to be disinterested and prudent with their myriad intrusions into, and minute regulations of, Americans’ lives. Obama’s presidency may yet be, on balance, a net plus for the public good if it shatters Americans’ trust in the regulatory state’s motives.

Because Obama’s entire agenda involves enlarging government’s role in allocating wealth and opportunity, the agenda now depends on persuading Americans to trust him, not their lying eyes. In the fourth month of his second term, it is already too late for that.

In an Ideal America

 

Every person should be free

• to pursue his ambition to the full extent of his abilities, regardless of race or creed or family background.


• to associate with whom he pleases for any reason he pleases, even if someone else thinks it's a stupid reason.


• to worship God in his own way, even if it isn't "orthodox."


• to choose his own trade and to apply for any job he wants — and to quit his job if he doesn't like it or if he gets a better offer.


• to go into business for himself, be his own boss, and set his own hours of work — even if it's only three hours a week.


• to use his honestly acquired property or savings in his own way — spend it foolishly, invest it wisely, or even give it away.


• to offer his services or products for sale on his own terms, even if he loses money on the deal.


• to buy or not to buy any service or product offered for sale, even if the refusal displeases the seller.


• to disagree with any other person, even when the majority is on the side of the other person.


• to study and learn whatever strikes his fancy, as long as it seems to him worth the cost and effort of studying and learning it.


• to do as he pleases in general, as long as he doesn't infringe the equal right and opportunity of every other person to do as he pleases.

The above, in a nutshell, is the way of life that the libertarian philosophy commends.

It is the way of individual liberty, of the free market, of private property, of government limited to securing these rights equally for all.

Leonard E. Read

Publisher

The Freeman

November 1954

Living Within Our Means

The following 30 minute video depicts Milton Friedman at his best.  This interview allows Milton to discuss several of his most important topics.  One of his famous quotations is near the beginning of this video “One of the great mistakes is to judge policies and programs by their intentions rather than their results”.  His ability to present uncomplicated answers to complex questions is superb.  This video is now listed in the permanent links on this blog to the right of this text under “View these videos”.

This video is from the PBS show "The Open Mind", Moderator/Host Richard D. Heffner, Guest: Milton Friedman, economist, Sunday, December 7, 1975:

PBS Open Minds

You should invest 30 minutes of your time to watch this video in its entirety, if for no other reason to see how fluidly Milton is able to think through these questions and give such easily understood answers.

If you do not have the time now here are some of the highlights:

One of the great mistakes is to judge policies and programs by their intentions rather than their results. We all know a famous road that is paved with good intentions. The people who go around talking about their soft heart, I admire them for the softness of their heart, but unfortunately, it very often extends to their head as well, because the fact is that the programs that are labeled as being for the poor, for the needy, almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have.

Let me give you a very simple example. Take the minimum wage law. Its well-meaning sponsors — there are always in these cases two groups of sponsors. There are the well-meaning sponsors and there are the special interests who are using the well-meaning sponsors as front men. You almost always when you have bad programs have an unholy coalition of the do-gooders on the one hand and the special interests on the other. The minimum wage law is as clear a case as you could want. The special interests are, of course, the trade unions, the monopolistic craft trade unions in particular.

You see, I think there’s been one underlying basic fallacy in this whole set of Social Security and Welfare measures. And that is the fallacy — this is at the bottom of it — the fallacy that it is feasible and possible to do good with other people’s money. Now, you see that fallacy — that view — has two flaws. If I want to do good with other people’s money I’d first have to take it away from them. That means that the welfare state philosophy of doing good with other people’s money, at its very bottom, is a philosophy of violence and coercion. It’s against freedom, because I have to use force to get the money. In the second place, very few people spend other people’s money as carefully as they spend their own.

But if you take the road that we have been on, we are heading towards a destruction of our free society and towards a totalitarian society.... we still have time to avoid it. But we will not avoid it unless the people of this country recognize the danger and take very difficult and important steps to set a limit on the extent to which they are going to permit government to interfere with their lives.

Well, I say thank God for government waste. If government is doing bad things, it’s only the waste that prevents the harm from being greater. And the waste of government has two very important elements. Number one, if government were now spending.…efficiently, we’d be slaves now. And in the second place, the waste is so obvious that it arouses a counter­movement on the population at large, people are disillusioned with government and it increases the chance that they will recognize where this road is taking them and get off that train before it goes all the way.

Other People's Money

These 2 short videos explain the fundamental inefficiency of government spending:

The first video is an excerpt from a TV interview on PBS "The Open Mind" (December 7, 1975).  In this interview Nobel Laureate economist Milton Friedman examines the dynamics of "doing good" with other people's money:

http://youtu.be/2IECY6LgqE0

The second video is from the organization ProLiberty:

http://youtu.be/leYMlFWWrmw

Top Three Common Myths of Capitalism

The following 3 minute and 38 second video from LearnLiberty.org debunks three myths about capitalism:

• Is being pro-business and pro-capitalism the same?
• Does capitalism generate an unfair distribution of income?
• Was capitalism responsible for the most recent financial crisis?

Dr. Jeffrey Miron at Harvard answers these questions by exposing three common myths of capitalism.

http://youtu.be/KGPa5Ob-5Ps

F. A. Hayek

May 8, 2013 marks the 114th anniversary of the birth of F. A. Hayek.  Please take some time today to study his life’s work and his message.  A good place to start is at Libertarianism.org and this link to F. A. Hayek’s biography:

http://www.libertarianism.org/people/f-a-hayek

These are some of the highlights:

F. A. Hayek, the 1974 Nobel Memorial Prize winner in Economic Sciences, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought.

Socialism appealed to the idealism of intellectuals, yet it brought the most hideous tyrannies. Just from the standpoint of human liberty, socialism was a catastrophe everywhere.

More than anyone else, Nobel Laureate Friedrich Hayek showed why socialism undermines human liberty and, if pursued far enough, must result in tyranny. He told why thugs dominate so many socialist regimes. He explained how institutions of a free society develop without central planning.

In 1936, Hayek gave a talk, “Economics and Knowledge,” at the London Economic Club, and Economica reprinted it. He explained that prosperity depends on tapping vast amounts of information about what people want and how best to supply it. The information is dispersed among millions of people and constantly changing, which dooms central planning to failure.

He noted there is general agreement about a few functions of government such as providing national defense and punishing violent criminals, but as government expands beyond the realm of general agreement, it must enforce conformity. Central economic planning, Hayek explained, means more and more coercion as officials gain power to decide what work people must do, which kinds of cars, pens, apples and everything else must be produced—and who should get them. He observed that power attracts those who don’t have scruples about imprisoning or even executing people. That’s why “the worst get on top.”

Hayek’s book titled The Road to Serfdom—after Alexis de Tocqueville’s phrase “the road to servitude”— was published in England on March 10, 1944.  The University of Chicago Law Review (Spring 1949) published Hayek’s essay “The Intellectuals and Socialism.” He wrote, “The main lesson which the true liberal must learn from the success of the socialists,” he wrote, “is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote.”

Hayek’s writings inspired Ronald Reagan in the United States and Margaret Thatcher in Great Britain. Hayek was revered by people who suffered from socialist tyranny in Eastern Europe, the Soviet Union and China. Hayek’s last work was The Fatal Conceit, the Errors of Socialism (1988).

Hayek had lived just long enough to see the Union of Soviet Socialist Republics disappear from the map. He had insisted, as Ludwig von Mises did before him, that socialism would impoverish multitudes—and he was vindicated. He correctly warned that socialism ultimately means oppression, slavery and mass murder. He did perhaps more than anyone else to show that free people, not government planners, are the key to a flourishing civilization.

As John Cassidy wrote in the February 7, 2000 New Yorker, “If there are two things most people can agree on these days, they are that free-market capitalism is the only practical way to organize a modern society and that the key to economic growth is ‘knowledge.’ So prevalent are these beliefs that their origins are rarely examined, which is somewhat surprising, since both statements can be traced back, in large part, to one man, Friedrich August von Hayek.” His moral courage and dazzling insights made clear that ideas shape our destiny.

The following article appears in the 4/19/13 edition of "The Freeman" a newsletter from the Foundation for Economic Education (FEE)

Special Laws for Special Friends

APRIL 29, 2013 by LAWRENCE W. REED

One of the pillars of the time-honored “fair field and no favor” view of government was equal treatment of all citizens. If a public legislative body passes a law, it shouldn't carve out exceptions without extraordinary, compelling reasons. Nor should it write a law intended, without saying so, to benefit one person or company at the expense of everyone else.

Sound reasonable? If so, you may have a problem with this paragraph from an Associated Press story printed in The Wall Street Journal on March 25:
“As reports circulated that ‘Late Night’ host Jimmy Fallon is poised to take over for Jay Leno, New York Governor Andrew Cuomo proposed a bill that would give a 30% [tax] credit to any ‘relocated television production’ that films before a large studio audience, has a $30 million budget and has been on the air for at least five seasons.”

Why doesn't Cuomo just spit it out? He had one and only one company in mind here—Comcast, which owns NBC. Cuomo wants Comcast to move Leno’s “Tonight” show from California to New York City.
Politicians pick winners and losers (mostly losers), carve out special breaks and privileges, and treat this group or that firm differently than they treat others with less clout and fewer connections. It happens all the time, and often in the name of “economic development.” (If this bothers you, then maybe, like me, you’re a Locofoco at heart).

In a country known for having forged the world’s highest living standard from what was wilderness scarcely 200 years ago, one would think that “economic development” is a well-understood concept. Unfortunately, it isn't.

In recent decades, economic development has come to mean something other than the spontaneous, entrepreneurial phenomenon that built America. It is often thought of as a kind of activist, public-policy responsibility of state and local governments. Giving a special tax break to one particular firm because somebody in government thinks it’s a “good idea” is bad enough; worse yet is the growing business of doling out taxpayer cash and other forms of subsidy to specific companies and groups.

Many politicians find this approach attractive because it brings with it the pageantry of ribbon-cuttings and photo opportunities. They love to say, “Look at the jobs I created.”

But if politicians and the people they appoint claim to be good at picking winners and losers with other people’s money in the public sector, shouldn’t they have proven it first by earning trillions with their own money in the private sector? And even if they did, is there anything about the political environment that would give us reasonable hope they could duplicate that success when it’s not their own money they’re playing with?

Even when it doesn’t degenerate into a thinly disguised system of cronyism, government placing its judgment ahead of the verdicts of the marketplace is more than just a role of dubious value. It is, indeed, utterly preposterous. As Milton Friedman was fond of saying, “No one spends someone else’s money as carefully as he spends his own.” Political actors are the best and most reliable examples of this truism.
How about just getting a few basics right, like protecting the peace and punishing wrongdoers, and stopping this business of creating special privileges aimed at a select few? Is that too much to ask of government in a society that claims to be “free” and “democratic”?

At the very least, let’s stop referring to the toxic environment of special favors as “free enterprise.” It may be “enterprise,” but it isn’t “free” if it’s rigged.

The solution is to talk

The following 3 minute video is from a question and answer session with Milton Friedman at Cornell University in 1978:

Milton defines the problem as follows:

Everyone wants to cut down government provided that those things that he has in interest in are maintained.

His solution:

The solution is for people like you and me to talk, to ourselves and our fellows and to try to persuade our fellow men to be of like mind, to change the climate of opinion in these respects, to try to correct the political structure...

Just say no to a national internet sales tax

A national sales tax on internet transactions is a very destructive idea.  Act now to stop this legislation.  Click on the link below to send an email message expressing your opposition to your Congressional Representatives:

http://taxeswithoutborders.com/

Gone with the wind

The following article appears in the Spring 2013 issue of "Regulation", a quarterly publication from the Cato Institute.

The High Cost of Low-Value Wind Power

Subsidized wind generates the least amount of power when it is most needed.
By Jonathan A. Lesser

The entire article can be found here:

http://www.cato.org/sites/cato.org/files/serials/files/regulation/2013/3/v36n1-8.pdf

The conclusions are as follows:

Continued subsidies for wind generation, both in the form of tax credits and mandatory renewable portfolio standards (RPS), represent bad economics and bad energy policy, for at least three reasons.

First and foremost, wind generation’s production pattern is not only volatile and unpredictable, it also has low economic value. Rather than displacing high variable-cost fossil generating resources used to meet peak demand, wind generation’s availability peaks when electricity demand is lowest. As a result, wind generation tends to displace low variable cost generation or simply forces baseload generators to pay greater amounts to inject power onto the grid because the units cannot be turned off and on cost-effectively. Thus, consumers and taxpayers are forced to subsidize low-value electricity.

Second, subsidized wind generation, like all subsidies, distorts electricity markets by artificially lowering electricity prices in the short run, but leads to higher prices in the long run. This imposes economic harm on competitive generators and consumers. Subsidies drive out competitors and increase financial uncertainty, thus raising the cost of capital for new investment in generation. In the long run, the impact of subsidies is electricity prices that are higher than what would prevail in a fully competitive market.

Third, subsidized wind generation results in additional social costs that are borne by consumers. Those costs include billions of dollars that must be spend on additional high-voltage transmission lines, which have their own adverse societal impacts, as well as additional costs that are incurred to integrate variable and intermittent wind generation onto the grid. In other words, wind generation imposes external costs on other market participants.

After 35 years of direct and indirect subsidies, there is no economic rationale for continued subsidization of wind generation. At the federal level, direct subsidies such as the federal production tax credit (PTC) should be ended immediately. Similarly, state-level subsidies, whether feed-in tariffs established by state regulators or statutory renewable portfolio standards (RPS) mandates, exacerbate market distortions and raise electricity prices, again to the detriment of consumers. These state subsidies should also be eliminated. Ultimately, continued subsidization of wind generation simply rewards a few niche generation companies and their suppliers, at the expense of the many. Given the massive federal debt and anemic U.S. economic recovery, this type of pernicious wealth redistribution cannot be justified.

Funding Government by the Minute

Please take 4 minutes to watch this very well made video from LearnLiberty.org.  You have seen and heard other discussions of our current Federal budget crisis but this video is extremely compelling.

http://www.youtube.com/watch?v=p0RkWqyn1y4&feature=youtu.be

Your Money or Your Life

“Taxation is theft, purely and simply.”
Murray N. Rothbard
The Ethics of Liberty

“Some experts have declared that it is necessary to tax the people until it hurts. I disagree with these sadists.”
Ludwig von Mises
Defense, Controls, and Inflation

“One thing is clear: The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.”
Ron Paul

This article appears in Mises Daily: Monday, April 15, 2013 by Llewellyn H. Rockwell Jr.

April 15th is a horrible day, because it sums up all the wealth destruction called taxation that we are subjected to all year long.

As Murray Rothbard pointed out, taxation is the worst method of looting us. Inflation is destructive, of course, and it might make a loaf of bread cost $10. But at least you get a loaf of bread. With taxation, you get nothing—except theft and other violations of our civil liberties.

Society, as Mises noted, is divided into two competing classes by interventionist government: the taxpayers and the tax consumers. If you are a payer, you are automatically demonized as greedy. On the other hand, those who want the fruits of your labor involuntarily transferred to themselves and their favored pressure groups are the compassionate.

At the Mises Institute, we have a different view. You have a right to what you earn, and those who use the threat and reality of government violence to take it from you are muggers in expensive suits. As Murray said, the State is just a gang of thieves writ large.

The politicians blab about spending cuts, but it is all lying propaganda. They plan to increase spending, but use the specter of alleged spending cuts as another excuse to pick your pocket with more taxes. (Spending cuts? Please throw us in that briar patch, Br’er Government.)

Then there are the attacks on tax “loopholes,” when you are allowed to keep some of your own money. As Mises said, it is through these loopholes that capitalism breathes.

But centuries of pro-tax indoctrination has had its effect. Eighty percent of people, according to a Pew study, think it’s immoral to “underreport” one’s income. It’s as if the politicians own us, but generously let us keep some of our own earnings.

That Pew survey does provide one ray of hope: more and more young people dissent from the morality of coercive taxation. We saw the anti-tax passion of the Ron Paul movement, and we see it at the Mises Institute.

It’s true, more and more young people reject the notion of taxation. They want lower taxes. Most of all, they want no taxes. They think they should be able to keep their own earnings.

With our publications, classes, website, and conferences, we are reaching these young people about taxes and the rest of government.

The young don’t want to be sheared. And they are looking for the freedom answers, for example that private property should be inviolate, for moral and economic reasons. They understand, as did 16th-century economist Juan de Mariana, that the only free country is one where no one is afraid of the tax collector.

The Libertarian Plot

Why Austrian Economics Matters

The following essay is by Llewellyn H. Rockwell, Jr. the founder and president of the Ludwig von Mises Institute.  The entire essay can be read at this link:

http://mises.org/etexts/why_ae.pdf

Here are some of the highlights (emphasis added):

The Austrian School..... is not a field within economics, but an alternative way of looking at the entire science.  Whereas other schools rely primarily on idealized mathematical models of the economy, and suggest ways the government can make the world conform, Austrian theory is more realistic and thus more socially scientific.

Austrians view economics as a tool for understanding how people both cooperate and compete in the process of meeting needs, allocating resources, and discovering ways of building a prosperous social order. Austrians view entrepreneurship as a critical force in economic development, private property as essential to an efficient use of resources, and government intervention in the market process as always and everywhere destructive.

The proto-Austrian tradition dates from the 15th-century Spanish Scholastics, who first presented an individualist and subjectivist understanding of prices and wages. But the formal founding of the school dates from the 1871 publication of Carl Menger's "Principles of Economics", which changed economists' understanding of the valuing, economizing, and pricing of resources, overturning both the Classical and the Marxian view in the "marginal revolution."

Eugen von Böhm-Bawerk was the next important figure in the Austrian School. He showed that interest rates, when not manipulated by a central bank, are determined by the time horizons of the public, and that the rate of return on investment tends to equal the rate of time preference.


Böhm-Bawerk's greatest student was Ludwig von Mises, whose first major project was the development of a new theory of money. The Theory of Money and Credit, published in 1912, elaborated on Menger, showing not only that money had its origin in the market, but that there was no other way it could have come about. Mises also argued that money and banking ought to be left to the market, and that government intervention can only cause harm.

In that book, which remains a standard work today, Mises also sowed the seeds of his business-cycle theory. He argued that when the central bank artificially lowers interest rates, it causes distortions in the capital-goods sector of the structure of production. When malinvestments occur, an economic downturn is necessary to wash out bad investments.

At the time of the business-cycle debate, Mises and Hayek were also involved in a controversy over socialism. In 1920, Mises had written one of the most important articles of the century: "Economic Calculation in the Socialist Commonwealth," followed by his book, Socialism. Until then, there had been many critiques of socialism, but none had challenged socialists to explain how their economy would actually work absent free prices and private property.

Mises argued that rational economic calculation requires a profit-and-loss test. If a firm makes a profit, it is using resources efficiently; if it makes a loss, it is not. Without such signals, the economic actor has no way to test the appropriateness of his decisions. He cannot assess the opportunity costs of this or that production decision. Prices and the profit and- loss corollary are essential. Mises also showed that private property in the means of production is necessary for these prices to be generated.

Socialism holds that the means of production should be in collective hands. This means no buying or selling of capital goods and thus no prices for them. Without prices, there is no profit and loss test. Without accounting for profit and loss, there can be no real economy. Should a new factory be built? Under socialism, there is no way to tell. Everything becomes guesswork.

Hayek used the occasion of the calculation debate to elaborate upon and broaden the Misesian argument into his own theory of the uses of knowledge in society. He argued that the knowledge generated by the market process was inaccessible to any single human mind, especially that of the central planner. The millions of decisions required for a prosperous economy are too complex for any one person to comprehend. This theory became the basis of a fuller theory of the social order that occupied Hayek for the rest of his academic life.


The Core of Austrian Theory 

The concepts of scarcity and choice lie at the heart of Austrian economics. Man is constantly faced with a wide array of choices. Every action implies forgone alternatives or costs. And every action, by definition, is designed to improve the actor's lot from his point of view. Moreover, every actor in the economy has a different set of values and preferences, different needs and desires, and different time schedules for the goals he intends to reach. The needs, tastes, desires, and time schedules of different people cannot be added to or subtracted from other people's. It is not possible to collapse tastes or time schedules onto one curve and call it consumer preference. Why? Because economic value is subjective to the individual.

Similarly, it is not possible to collapse the complexity of market arrangements into enormous aggregates. We cannot, for example, say the economy's capital stock is one big blob summarized by the letter K and put that into an equation and expect it to yield useful information. The capital stock is heterogeneous. Some capital may be intended to create goods for sale tomorrow and others for sale in ten years. The time schedules for capital use are as varied as the capital stock itself. Austrian theory sees competition as a process of discovering new and better ways to organize resources, one that is fraught with errors but that is constantly being improved.

This way of looking at the market is markedly different from every other school of thought. Since Keynes, economists have developed the habit of constructing parallel universes having nothing to do with the real world. In these universes, capital is homogeneous and competition is a static end state. There are the right number of sellers, prices reflect the costs of production, and there are no excess profits. Economic welfare is determined by adding up the utilities of all individuals in society. The passing of time is rarely accounted for, except in changing from one static state to another. Varying time schedules of producers and consumers are simply nonexistent. Instead we have aggregates that give us precious little information at all.

A conventional economist is quick to agree that these models are unrealistic, ideal types to be used as mere tools of analysis. But this is disingenuous, since these same economists use these models for policy recommendations.

One obvious example of basing policy on contrived models of the economy takes place at the Justice Department's antitrust division. There the bureaucrats pretend to know the proper structure of industry, what kind of mergers and acquisitions harm the economy, who has too much market share or too little, and what the relevant market is. This represents what Hayek called the pretense of knowledge. The correct relationship between competitors can only be worked out through buying and selling, not bureaucratic fiat. Austrian economists, in particular Rothbard, argue that the only real monopolies are created by government. Markets are too competitive to allow any monopolies to be sustained.

If the hallmark of conventional economics is unrealistic models, the hallmark of Austrian economics is a profound appreciation of the price system. Prices provide economic actors with critical information about the relative scarcity of goods and services. It is not necessary for consumers to know, for example, that a disease has swept the chicken population to know that they should economize on eggs. The price system, by making eggs more expensive, informs the public of the appropriate behavior. The price system tells producers when to enter and leave markets by relaying information about consumer preferences. And it tells producers the most efficient that is, the least costly way to assemble other resources to create goods. Apart from the price system, there is no way to know these things.

But prices must be generated by the free market. They cannot be made up the way the Government Printing Office makes up the prices for its publications. They cannot be based on the costs of production in the manner of the Post Office. Those practices create distortions and inefficiencies. Rather, prices must grow out of the free actions of individuals in a juridical setting that respects private property. Free-floating prices simply cannot do their work apart from private property and concomitant freedom to contract. Austrian theory sees private property as the first principle of a sound economy. Economists in general neglect the subject, and when they mention it, it is to find a philosophical basis for its violation.

For Austrians, economic regulation is always destructive of prosperity because it misallocates resources and is extremely destructive of small business and entrepreneurship. Environmental regulation has been among the worst offenders in recent years. Nobody can calculate the extraordinary losses associated with the Clean Air Act or the absurdities associated with wetlands or endangered species policies. However, environmental policy can do what it is explicitly intended to do: lower standards of living. But antitrust policy, in contrast to its stated policy, does not generate competitiveness. Such bogeymen as predatory pricing still scare the bureaucrats at Justice, whereas simple economic analysis can refute the idea that a competitor can sell below his cost of production to take over the market and then sell at monopoly prices later. Any firm that attempts to sell below the costs of production will indefinitely suffer loses. The moment it attempts to raise prices, it invites competitors back into the market.

Redistributionism takes from property-owners and producers and gives, by definition, to non-owners and non-producers. This diminishes the value of the property that has been redistributed. Far from increasing total welfare, redistributionism diminishes it. By making property and its value less secure, income transfers lessen the benefits of ownership and production, and thus lower the incentives to both. Austrians reject the use of redistribution to stimulate the economy or otherwise manipulate the structure of economic activity. Increasing taxes, for example, can do nothing but harm. A shorthand for taxes is wealth destruction. They forcibly confiscate property that could otherwise be saved or invested, thus lowering the number of consumer options available. Moreover, there is no such thing as a strict consumer tax. All taxes decrease production.

Austrians do not go along with the view that deficits don't matter. In fact, the requirement that deficits be financed by the public or foreign bond holders drives up interest rates and thus crowds out potential private investment. Deficits also create the danger that they will be financed through central-bank inflation. Yet the answer to deficits is not to increase taxation, which is more destructive than deficits, but rather to balance the budget through necessary spending cuts. Where to cut? Anywhere and everywhere.

The ideal situation is not simply a balanced budget. Government spending itself, regardless of deficit or surplus, should be as small as possible. Why? Because such spending diverts resources from better uses in private markets.

Much of the Austrian critique of central banking centers around the Mises-Hayek business cycle theory. Both argued that the central bank, and not the market itself, is responsible for the cyclical behavior of business activity. To demonstrate the theory, Austrians have undertaken extensive studies of many historical periods of recession and recovery to show that each was preceded by central-bank machinations.
The theory argues that central-bank efforts to lower interest rates below their natural level causes borrowers in the capital goods industry to overinvest in their projects. A lower interest rate is normally a signal that consumers' savings are available to back up new production. That is, if a producer borrows to build a new building, there is enough savings for consumers to buy the goods and services that will be made in the building. Projects undertaken can be sustained. But artificially lowered interest rates lead businesses into undertaking unnecessary projects. This creates an artificial boom followed by a bust once it is clear that savings weren't high enough to justify the degree of expansion.

Key Concepts of Libertarianism

The key concepts of libertarianism have developed over many centuries. The first inklings of them can be found in ancient China, Greece, and Israel; they began to be developed into something resembling modern libertarian philosophy in the work of such seventeenth- and eighteenth-century thinkers as John Locke, David Hume, Adam Smith, Thomas Jefferson, and Thomas Paine.

Individualism. Libertarians see the individual as the basic unit of social analysis. Only individuals make choices and are responsible for their actions. Libertarian thought emphasizes the dignity of each individual, which entails both rights and responsibility. The progressive extension of dignity to more people — to women, to people of different religions and different races — is one of the great libertarian triumphs of the Western world.

Individual Rights. Because individuals are moral agents, they have a right to be secure in their life, liberty, and property. These rights are not granted by government or by society; they are inherent in the nature of human beings. It is intuitively right that individuals enjoy the security of such rights; the burden of explanation should lie with those who would take rights away.

Spontaneous Order. A great degree of order in society is necessary for individuals to survive and flourish. It’s easy to assume that order must be imposed by a central authority, the way we impose order on a stamp collection or a football team. The great insight of libertarian social analysis is that order in society arises spontaneously, out of the actions of thousands or millions of individuals who coordinate their actions with those of others in order to achieve their purposes. Over human history, we have gradually opted for more freedom and yet managed to develop a complex society with intricate organization. The most important institutions in human society — language, law, money, and markets — all developed spontaneously, without central direction. Civil society — the complex network of associations and connections among people — is another example of spontaneous order; the associations within civil society are formed for a purpose, but civil society itself is not an organization and does not have a purpose of its own.

The Rule of Law. Libertarianism is not libertinism or hedonism. It is not a claim that “people can do anything they want to, and nobody else can say anything.” Rather, libertarianism proposes a society of liberty under law, in which individuals are free to pursue their own lives so long as they respect the equal rights of others. The rule of law means that individuals are governed by generally applicable and spontaneously developed legal rules, not by arbitrary commands; and that those rules should protect the freedom of individuals to pursue happiness in their own ways, not aim at any particular result or outcome.

Limited Government. To protect rights, individuals form governments. But government is a dangerous institution. Libertarians have a great antipathy to concentrated power, for as Lord Acton said, “Power tends to corrupt and absolute power corrupts absolutely.” Thus they want to divide and limit power, and that means especially to limit government, generally through a written constitution enumerating and limiting the powers that the people delegate to government. Limited government is the basic political implication of libertarianism, and libertarians point to the historical fact that it was the dispersion of power in Europe — more than other parts of the world — that led to individual liberty and sustained economic growth.

Free Markets. To survive and to flourish, individuals need to engage in economic activity. The right to property entails the right to exchange property by mutual agreement. Free markets are the economic system of free individuals, and they are necessary to create wealth. Libertarians believe that people will be both freer and more prosperous if government intervention in people’s economic choices is minimized.

The Virtue of Production. Much of the impetus for libertarianism in the seventeenth century was a reaction against monarchs and aristocrats who lived off the productive labor of other people. Libertarians defended the right of people to keep the fruits of their labor. This effort developed into a respect for the dignity of work and production and especially for the growing middle class, who were looked down upon by aristocrats. Libertarians developed a pre-Marxist class analysis that divided society into two basic classes: those who produced wealth and those who took it by force from others. Thomas Paine, for instance, wrote, “There are two distinct classes of men in the nation, those who pay taxes, and those who receive and live upon the taxes.” Similarly, Jefferson wrote in 1824, “We have more machinery of government than is necessary, too many parasites living on the labor of the industrious.” Modern libertarians defend the right of productive people to keep what they earn, against a new class of politicians and bureaucrats who would seize their earnings to transfer them to non-producers.

Natural Harmony of Interests. Libertarians believe that there is a natural harmony of interests among peaceful, productive people in a just society. One person’s individual plans — which may involve getting a job, starting a business, buying a house, and so on — may conflict with the plans of others, so the market makes many of us change our plans. But we all prosper from the operation of the free market, and there are no necessary conflicts between farmers and merchants, manufacturers and importers. Only when government begins to hand out rewards on the basis of political pressure do we find ourselves involved in group conflict, pushed to organize and contend with other groups for a piece of political power.
Peace. Libertarians have always battled the age-old scourge of war. They understood that war brought death and destruction on a grand scale, disrupted family and economic life, and put more power in the hands of the ruling class — which might explain why the rulers did not always share the popular sentiment for peace. Free men and women, of course, have often had to defend their own societies against foreign threats; but throughout history, war has usually been the common enemy of peaceful, productive people on all sides of the conflict.

… It may be appropriate to acknowledge at this point the reader’s likely suspicion that libertarianism seems to be just the standard framework of modern thought — individualism, private property, capitalism, equality under the law. Indeed, after centuries of intellectual, political, and sometimes violent struggle, these core libertarian principles have become the basic structure of modern political thought and of modern government, at least in the West and increasingly in other parts of the world.

However, three additional points need to be made: first, libertarianism is not just these broad liberal principles. Libertarianism applies these principles fully and consistently, far more so than most modern thinkers and certainly more so than any modern government. Second, while our society remains generally based on equal rights and capitalism, every day new exceptions to those principles are carved out in Washington and in Albany, Sacramento, and Austin (not to mention London, Bonn, Tokyo, and elsewhere). Each new government directive takes a little bit of our freedom, and we should think carefully before giving up any liberty. Third, liberal society is resilient; it can withstand many burdens and continue to flourish; but it is not infinitely resilient. Those who claim to believe in liberal principles but advocate more and more confiscation of the wealth created by productive people, more and more restrictions on voluntary interaction, more and more exceptions to property rights and the rule of law, more and more transfer of power from society to state, are unwittingly engaged in the ultimately deadly undermining of civilization.

From Chapter 1, “The Coming Libertarian Age,” Libertarianism: A Primer, by David Boaz (New York: The Free Press, 1998). See also www.libertarianism.org.