Tuesday, September 30, 2003
Neoclassical economics is fundamentally flawed. Hulsmann writes: "In short, neoclassical value theory not only stresses that what we feel determines how we behave. It presupposes that there are constant relationships between our feelings on the one hand, and our behavior on the other hand that can be studied and described by the neoclassical consumer theory. Such are the problems that monopolize the attention of neoclassical economists. Their efforts and ingenuity have brought us a huge literature on game theory, on maximization problems in different market settings, on equilibrium paths, etc.
However, all of this literature is based on the wrong premise that there are constant relationships between the conditions of action and action itself. The truth is that there are no laws governing which things people choose and which ends they pursue."
Mises adds: "The econometrician is unable to disprove this fact, which cuts the ground from under his reasoning. He cannot help admitting that there are no 'behavior constants.' Nonetheless he wants to introduce some numbers, arbitrarily chosen on the basis of a historical fact, as 'unknown behavior constants.' The sole excuse he advances is that his hypotheses are 'saying only that these unknown numbers remain reasonably constant through a period of years.' Now whether such a period of supposed constancy of a definite number is still lasting or whether a change in the number has already occurred can only be established later on. In retrospect it may be possible, although in rare cases only, to declare that over a (probably rather short) period an approximately stable ratio--which the econometrician chooses to call a 'reasonably' constant ratio-prevailed between the numerical values of two factors. But this is something fundamentally different from the constants of physics. It is the assertion of a historical fact, not of a constant that can be resorted to in attempts to predict future events."
In short, there is also supposedly a constant relationship between utility and actions (or even prices and actions). Yet, there is no such thing as a "util" (sort of a common denominator of preferred actions, means and ends), thus interpersonal utility comparisons are impossible. This is the proverbial carpet yanked out from under the neoclassicists by Austrian economics. But, while these fundamental issues are rarely discussed, I contend they are being pursued as we speak through the field of neuroeconomics! If neuroeconomics can discover "constants" of human behavior, ie some biological process which produces a certain human action, will neoclassical economics reaffirm its foundations? In other words, will the neuroeconomists be able to explain observable behavior (actions) through observable phenomenon (brain waves)?
Monday, September 29, 2003
(And, yes, I think this guy is actually serious!)
"Early in his career, Friedman (the son of poor Hungarian Jewish immigrants) wanted very much to prove -- mathematically -- that luck isn't as important in human affairs as we instinctively presume. In a 1953 paper called "Chance, Choice, and the Distribution of Income," he argued that inequality of income results not merely from chance, but also from the choices, tastes, and preferences of individuals. People who have a taste for working less, for example, and for spending more time basking in the sun, earn less. It's their own choices -- not luck -- that helps shape the inequality of income."
But, after living 89 years, Friedman realizes that, "I think that luck plays an enormous role,' he went on. 'My wife and I entitled our memoirs, 'Two Lucky People.' Society may want to do something about luck. Indeed the whole argument for egalitarianism is to do something about luck. About saying, `Well, it's not people's fault that a person is born blind, it's pure chance. Why should he suffer?' That's a valid sentiment."
OK, so the great free market (HAHA) economist Milty admits there is such a thing as luck! I guess this explains Milty's concession that "inspired his call for the provision of a decent minimum to the disadvantaged, ideally via private charity, but if government was to be involved, via cash grants that in the 1950s he dubbed a 'negative income tax.'"
From here, Miller suggests forging a consensus of conservatives (those opposing the "living wage" but like Mitly conceding that public policy should correct "luck") and liberals (those promoting the "living wage") through Federal subsidies to workers! Hey, its not a living wage forced out of the pockets of private companies, its from the Federal government! "Society" will shoulder the burden and,
"Society as a whole benefits when workers make $10 per hour even when those workers' employers don't. It makes sense for taxpayers to make up the difference. The bottom line: If advocates on both the left and right took the wages of luck into consideration, our national conversation would become very different -- and before long, so would our public priorities." In other words, egalitarianism "makes sense" and "society benefits as a whole."
David Gordon in a Mises Review article of Justice, Luck, and Knowledge By S. L. Hurley, asks the question: "But why should we assume that attempting to counter luck has anything to do with promoting equality?"
Indeed, why would a Federal subsidy to workers that pushed their compensation to the equivalent of $9-10 per hour reduce income inequality or get rid of luck as a factor in human action? Gordon goes on:
At first sight, Hurley's challenge seems absurd. Let us return to the sad case of Michael Jordan and me. Suppose one grants that Jordan is not responsible for his superior athletic ability. If one's aim is to "correct for luck", is it not obvious that Jordan should have to give me a large part of his money, so long as no other people are taken into account?
Not at all, Hurley argues. We start with the premise that the existing distribution of wealth between Jordan and me arises from luck. This premise does not imply that some other distribution would manifest the influence of luck to a lesser extent. Suppose that someone divides between us the sum of Jordan's and my assets on an exactly equal basis. Why would this egalitarian distribution count as one that reduced the influence of luck?
Hurley states her point with characteristic precision: "Equalities can be just as much a matter of luck as inequalities. The fact that people are not responsible for a difference does not entail that they are responsible for nondifference. There is no more a priori reason to assume that equalities are not a matter of luck than there is to assume that differences are not a matter of luck; people may not be responsible for either."(pp.151-152)
But, one is inclined to object, is not Hurley ignoring an obvious fact about the way we speak of people as being lucky and unlucky? Surely it is Jordan, and not I , who is lucky, given the immense sums of money his talent enables him to command. Why does Hurley raise so much fuss about what is involved in correcting for luck? A redistribution from him to me takes from a lucky person and gives to an unlucky one; what is the problem?
Our author readily acknowledges that this is a legitimate way to speak of luck. But on this conception, being lucky means having more, or much more, than others. It assumes that one starts from a position of equality and judges departures from that position to be due to luck. But then one does not have an argument that inequality results from luck: one has simply made this true by definition. Hurley concludes that the "aim to neutralize interpersonal bad luck begs the question of justification and just helps itself to the goal of equality."(p.157)
Hurley distinguishes another sense of responsibility, which she terms the counterfactual. "In the counterfactual reading, I compare my actual situation with other possible situations I might have been in. I have bad luck when what I have is a matter of luck and I am worse off than I might have been."(p.156) It is this sense that underlies Hurley's claim that correcting for luck leads by itself to no egalitarian outcome.
I can here give but a sample of her subtle discussion: "It is hard enough to say whether people are responsible for what they actually have. But to neutralize luck understood counterfactually, we need to know more than this. We would have to be able to say, when people are not responsible for what they actually have, what they would be responsible for instead, if factors for which they are not responsible were eliminated. . . it is highly doubtful that we have any general, nonarbitrary basis for answering this further question. In many cases the answer is simply indeterminate."(p.162)
But while "Hurley deserves great credit for her outstanding critical account of egalitarian theories that aim to counteract luck. Murray Rothbard grasped her key insight many years ago. In Power and Market, published in 1970, he writes: "[T]here is no justification for saying that the rich are luckier than the poor. It might very well be that many or most of the rich have been unlucky and are getting less than their true DMVP[ discounted marginal value product], while most of the poor have been lucky and are getting more. No one can say what the distribution of luck is; hence there is no justification here for a 'redistribution' policy."(pp.234-235)
Rothbard in Power and Market also noted that:
And, finally, he must recognize that the goals of equality of income and equality of opportunity are conceptually unrealizable and are therefore absurd. Any drive to achieve them is ipso facto absurd as well. Egalitarianism is, therefore, a literally senseless social philosophy. Its only meaningful formulation is the goal of “equality of liberty”—formulated by Herbert Spencer in his famous Law of Equal Freedom: “Every man has freedom to do all he wills, provided he infringes not the equal freedom of any other man.” This goal does not attempt to make every individual’s total condition equal—an absolutely impossible task; instead, it advocates liberty—a condition of absence of coercion over person and property for every man. (Rothbard, 5)
Error or failure is a permanent condition of human endeavor. It consists of choosing an alternative action that is less important (less preferred) than another one that could have been executed instead. Austrian business cycle theory does not have to assume that were it not for inflation market participants would not err at all. It can rely entirely on the idea that inflation causes additional errors; that is, more errors than otherwise would have occurred. . ."(Hulsmann, 2)
In other words, choices made by individuals in the face of the threat of deadly force represent less preferable choices. Dr. Murphy highlights the greatest example of a social institution (money) emerging without (and often in spite of) the actions of government:
One possible explanation is that a powerful ruler realized, either on his own or through wise counselors, that instituting money would benefit his people. So he then ordered everyone to accept some particular thing as money.
There are several problems with this theory. First, as Menger pointed out, we have no historical record of such an important event, even though money was used in all ancient civilizations. Second, there's the unlikelihood that someone could have invented the idea of money without ever experiencing it. And third, even if we did stipulate that a ruler could have discovered the idea of money while living in a state of barter, it would not be sufficient for him to simply designate the money good. He would also have to specify the precise exchange ratios between the newly defined money and all other goods. Otherwise, the people under his rule could evade his order to use the newfangled "money" by charging ridiculously high prices in terms of that good.
The origin of money provide an important example of "anything that's been done" in the absence of government. Not only is it a devastating example of social order emerging prior to the State, in terms of modern, advanced social organization (i.e. capitalism or industrialization), money is the ultimate foundation:
But the practical man, eager to improve human conditions by removing uneasiness as far as possible, must know whether, under given conditions, what he is planning is the best method, or even a method, to make people less uneasy. He must know whether what he wants to achieve will be an improvement when compared with the present state of affairs and with the advantages to be expected from the execution of other technically realizable projects which cannot be put into execution if the project he has in mind absorbs the available means. Such comparisons can only be made by the use of money prices.
Thus money becomes the vehicle of economic calculation. This is not a separate function of money. Money is the universally used medium of exchange, nothing else. Only because money is the common [p. 209] medium of exchange, because most goods and services can be sold and bought on the market against money, and only as far as this is the case, can men use money prices in reckoning. The exchange ratios between money and the various goods and services as established on the market of the past and as expected to be established on the market of the future are the mental tools of economic planning. Where there are no money prices, there are no such things as economic quantities. There are only various quantitative relations between various causes and effects in the external world. There is no means for man to find out what kind of action would best serve his endeavors to remove uneasiness as far as possible.
There is no need to dwell upon the primitive conditions of the household economy of self-sufficient farmers. These people performed only very simple processes of production. For them no calculation was needed, as they could directly compare input and output. If they wanted shirts, they grew hemp, they spun, wove, and sewed. They could, without any calculation, easily make up their minds whether or not the toil and trouble expended were compensated by the product. But for civilized mankind a return to such a life is out of the question.
Advance social organization depends on the absence of government (the origin and use of money). The existence of government produces and institutionalizes more human errors relative to what otherwise would exist.
Sunday, September 28, 2003
"No sooner than seeing the Efficient Market Hypothesis and other pseudo-intellectual business school mumbo-jumbo be totally discredited, here comes a new grand idea. 'Behavioral Finance.' We will hear much about it in time to come. Let us simply remember that man, since the beginning of time has sought to find a formula or method that divines order out of the chaotic conditions that spring out of the random choices of billions of people. There is no order and there is no substitute for thinking."
I can't help but laugh at all this when coming across the following Keynes gem:
"...most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits--of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities...if the animal spirits are dimmed and the spontaneous optimism falters... enterprise will fade and die," - J.M Keynes: The General Theory of Employment, Interest, and Money, 1936.
The voices in my head made me do it! (I feel a Nobel prize coming on here . . . )
Tuesday, September 23, 2003
No Connection Between Suicide Terrorism and Islamic fundamentalism; U.S. "War on Terrorism" Fuels More Terrorist Acts
From the New York Times:
September 22, 2003
Dying to Kill Us
By ROBERT A. PAPE
CHICAGO — Suicide terrorism has been on the rise around the world for two decades, but there is great confusion as to why. Since many such attacks — including, of course, those of Sept. 11, 2001 — have been perpetrated by Muslim terrorists professing religious motives, it might seem obvious that Islamic fundamentalism is the central cause. This presumption has fueled the belief that future 9/11's can be avoided only by a wholesale transformation of Muslim societies, which in turn was a core reason for broad public support of the invasion of Iraq.
However, this presumed connection between suicide terrorism and Islamic fundamentalism is wrongheaded, and it may be encouraging domestic and foreign policies that are likely to worsen America's situation.
I have spent a year compiling a database of every suicide bombing and attack around the globe from 1980 to 2001 — 188 in all. It includes any attack in which at least one terrorist killed himself or herself while attempting to kill others, although I excluded attacks authorized by a national government, such as those by North Korea against the South. The data show that there is little connection between suicide terrorism and Islamic fundamentalism, or any religion for that matter. In fact, the leading instigator of suicide attacks is the Tamil Tigers in Sri Lanka, a Marxist-Leninist group whose members are from Hindu families but who are adamantly opposed to religion (they have have committed 75 of the 188 incidents).
Rather, what nearly all suicide terrorist campaigns have in common is a specific secular and strategic goal: to compel liberal democracies to withdraw military forces from territory that the terrorists consider to be their homeland. Religion is rarely the root cause, although it is often used as a tool by terrorist organizations in recruiting and in other efforts in service of the broader strategic objective.
Three general patterns in the data support my conclusions. First, nearly all suicide terrorist attacks occur as part of organized campaigns, not as isolated or random incidents. Of the 188 separate attacks in the period I studied, 179 could have their roots traced to large, coherent political or military campaigns.
Second, liberal democracies are uniquely vulnerable to suicide terrorists. The United States, France, India, Israel, Russia, Sri Lanka and Turkey have been the targets of almost every suicide attack of the past two decades, and each country has been a democracy at the time of the incidents.
Third, suicide terrorist campaigns are directed toward a strategic objective. From Lebanon to Israel to Sri Lanka to Kashmir to Chechnya, the sponsors of every campaign have been terrorist groups trying to establish or maintain political self-determination by compelling a democratic power to withdraw from the territories they claim. Even Al Qaeda fits this pattern: although Saudi Arabia is not under American military occupation per se, the initial major objective of Osama bin Laden was the expulsion of American troops from the Persian Gulf.
Most worrisome, my research shows that the raw number of suicide attacks is climbing at an alarming rate, even while the rates of other types of terrorism actually declined. The worldwide annual total of terrorist incidents has fallen almost in half; there were 348 attacks in 2001 as opposed to 666 incidents in 1987. Yet the number of attacks in which the terrorists intend to kill themselves along with their victims has grown from an average of 3 per year in the 1980's, to 10 per year in the 1990's, to more than 25 in both 2000 and 2001.
And in terms of casualties, suicide attacks are far and way the most efficient form of terrorism. From 1980 to 2001, suicide attacks accounted for only 3 percent of terrorist incidents, but caused almost half of total deaths due to terrorism — even if one excludes as an aberration the unusually large number of fatalities on 9/11.
How should democracies respond? In the past, they have tended to react with heavy military offensives, only to find that this tends to incite more attacks and to stir public sympathy for the terrorists without hampering their networks (this has clearly been the case in the West Bank and Chechnya). In their frustration, some terrorized countries have then changed tacks, making concessions to political causes supported by terrorists.
Yet this doesn't work either: one likely reason suicide terrorism has been rising so rapidly in recent years is that terrorist groups have learned that the strategy pays off. Suicide terrorists were thought to compel American and French military forces to abandon Lebanon in 1983, Israeli forces to leave most of Lebanon in 1985, Israeli forces to quit the Gaza Strip and the West Bank in 1994 and 1995, and the Turkish government to grant measures of autonomy to the Kurds in the late 1990's. In all but the case of Turkey, the terrorists' political cause made far greater political gains after they resorted to suicide operations.
When one considers the strategic logic of suicide terrorism, it becomes clear that America's war on terrorism is heading in the wrong direction. The close association between foreign military occupations and the growth of suicide terrorist movements shows the folly of any strategy centering on conquering countries that sponsor terrorism or in trying to transform their political systems. At most, occupying countries will disrupt terrorist operations in the short term. But over time it will simply increase the number of terrorists coming at us.
Unfortunately, negotiating concessions with the terrorists is also not a solution. The current failure of that approach in Israel is an all-too-common pattern. Concessions are usually incremental and deliberately staggered — thus they fail to satisfy the nationalist aspirations of the suicide terrorists, yet encourage terrorist leaders to see their enemies as vulnerable to coercion.
In the end, the best approach for the states under fire is probably to focus on their own domestic security while doing what they can to see that the least militant forces on the terrorists' side build a viable state on their own. Israel, for example, would be well advised to abandon the territory it holds on the West Bank but to go ahead with building the immense wall, 20 feet high and 20 feet wide, to physically separate it from the Palestinian population. This would create real security for Israel and leave the West Bank for a true Palestinian state.
For the United States, especially in light of its growing occupation of the Persian Gulf, it is crucial to immediately step up border and immigration controls. In the medium term, Washington should abandon its visions of empire and allow the United Nations to take over the political and economic institutions in Iraq. And in the long run, America must move toward energy independence, reducing the need for troops in the Persian Gulf. Even if our intentions in Iraq are good, our presence there will continue to help terrorist groups recruit more people willing to blow themselves up in the war against America.
Robert A. Pape teaches political science at the University of Chicago.
"Recently L.A. Police found Uranium in the port of Los Angeles. And you think we should send our cops to monitor lap dancers?" - Brittanny Andrews, stripper to Bill O'Reilly on banning lap dances in LA
Ms. Andrews stumbles across a key insight into the difference between the price mechanism of market resource allocation and the political mechanism of government resource allocation! Without prices to convey to producers where consumer demand for security resources is valued most, the government relies on the "political" process. That is, a certain group decides based on a certain value judgement to push for a ban on lap dances and thus increase the threat of force (government police) for enforcement of the edict. Meanwhile, the property owners which actually need more protection from the police (security providers) do not receive enough resources. Why? Without a free market, government planners are not able to use prices (which because of consumer demand would be MUCH higher in the crucial port of Los Angeles for expensive product transportation and NOT at strip clubs) to allocate the resources. Sending cops to the strip clubs is an ARBITRARY decision and a waste of security resources. Without a private property system which permits the price mechanism to allocate resources effectively, political allocation will ALWAYS be arbitrary and will ALWAYS fail. Now, if only we could elect a more sensible candidate for governor, these lap dances would be tax-deductible!
Monday, September 22, 2003
In an hourlong interview at the Élysée Palace, Mr. Chirac laid out for the first time a two-stage plan for Iraqi self-rule, the first stage being a symbolic transfer of sovereignty from American hands to the existing 25-member Iraqi Governing Council, with that followed by the gradual ceding of real power over the next six to nine months.
The French president added that if the Security Council, France included, could agree on empowering Iraqis at once, France would be ready to train Iraqi police and soldiers — either in or out of Iraq. Mr. Chirac also said that France has no intention of sending troops to take part in the American-led military occupation force, although he suggested that circumstances could change.
"There will be no concrete solution unless sovereignty is transferred to Iraq as quickly as possible," Mr. Chirac said in the interview, speaking just before he departed for New York where he will meet President Bush on Tuesday.
"Furthermore, evil leaders, like Hitler [or Saddam, as the neocons assert] often enjoy widespread support: not only do they sometimes represent the views of their body politic, but nationalism tends to foster close ties between the political leaders and their populations, especially in wartime, when all concerned face a powerful external threat." (Mearsheimer, 109)
The point, missed by those leading the U.S. assault on Iraq, is that the political regime does have support from key coalitions within Iraqi society, otherwise it would have been removed from power long ago. As such, targeting Saddam, his sons, or even the top 50 idiots, will not change the fundamental problems in annexing Iraq. All political power rests on some level of support from the public. This reminds us of the thoughts of Etienne de la Boetie in "The Politics of Obedience: The Discourse of Voluntary Servitude," where he says:
"FOR THE PRESENT I should like merely to understand how it happens that so many men, so many villages, so many cities, so many nations, sometimes suffer under a single tyrant who has no other power than the power they give him; who is able to harm them only to the extent to which they have the willingness to bear with him; who could do them absolutely no injury unless they preferred to put up with him rather than contradict him. Surely a striking situation! Yet it is so common that one must grieve the more and wonder the less at the spectacle of a million men serving in wretchedness, their necks under the yoke, not constrained by a greater multitude than they, but simply, it would seem, delighted and charmed by the name of one man alone whose power they need not fear, for he is evidently the one person whose qualities they cannot admire because of his inhumanity and brutality toward them. A weakness characteristic of human kind is that we often have to obey force; we have to make concessions; we ourselves cannot always be the stronger. Therefore, when a nation is constrained by the fortune of war to serve a single clique, as happened when the city of Athens served the thirty Tyrants one should not be amazed that the nation obeys, but simply be grieved by the situation; or rather, instead of being amazed or saddened, consider patiently the evil and look forward hopefully toward a happier future."
In fact, the analytic and forecasting brilliance of LJ provided this blog several weeks ago, "Wow some of you are just plain dumb," to show that the success of a U.S-controlled Iraq depends on maintenance of the coalitions that gave the Saddam regime power.
"The recovery is a fraud," we replied.
The second-quarter GDP numbers were largely mythical or
misinterpreted. Half of the increase came from military
spending, which makes people poorer, not richer. Another
$38.4 billion was listed as spending on computers.
Too bad it didn't exist: "The vast majority of computer
investment never occurred," explains U.S. News & World
Report article (thanks to Richard Russell for mentioning
it). "Given the bizarre way government statistics are
compiled, nobody actually paid anything and nobody received
anything. That's because Washington measures computer
investment by calculating how much it would have cost in
1996 to buy a computer of equivalent power to today's
machines. On the $38.4 billion in increased computer
investment, therefore only about $6 billion was real
spending. The other $32 billion was a statistical
construct, which is just a fancy way of saying that it
wasn't real. Without that false comfort, we would have been
looking at a second-quarter growth not of 3.1 percent, but
of roughly 1.7 percent - and most of that attributable to
defense spending. Profits tell the same story, down $31
billion from the first quarter."
Saturday, September 20, 2003
Europe preparing to launch a regime change and institute "democracy"?
Friday, September 19, 2003
"For those who know Bastiat's Broken Window Fallacy, made famous by Hazlitt's Economics in One Lesson, the following news item would be hilarious if it weren't so pathetic: The Bright Side of Hurricanes (MSNBC):
It’s time to look at the bright side of hurricanes. "YOU HAVE TO look at the silver lining," says Frank Marks, a research meteorologist for the hurricane research division of the National Oceanic and Atmospheric Administration...
Not only does Marks tout the ecological benefits of hurricanes, he also touts the economic benefit of hurricanes. He remembers the aftermath of Hurricane Andrew, which devastated South Florida in 1992. There was tremendous destruction. People whose homes were destroyed were living in tents. That was bad. But it was followed by a huge infusion of insurance money.
"A lotta money gets spent," he says, "and it flows through the community and reinvigorates the community for years.”
Carl Hiaasen remembers that hurricane, too. He covered it as a columnist for the Miami Herald, then wrote a comic novel about it called "Stormy Weather."
"It’s a boon to roofing contractors,” he says, “and to plywood, drywall and window manufacturers. It’s not good for insurance companies."
First, while early in the article it seems Goldberg might actually grasp the concept of Bastiat's Broken Window Fallacy, he then produces this gem: "Regardless, my intended point, which most people got, is a simple one: Wars aren't good for "absolutely nothing" as the song goes. They can bring with them benefits, in material terms (from expedited medical breakthroughs to space exploration) and in moral terms (the freeing of slaves, the end of the Holocaust, the liberating of Western Europe, etc)."
Expedited medical breakthroughs? Space exploration? Benefits? Without billions wasted on NASA we never would have discovered Velcro! Memo to Jonah: by definition the State diverts scare resources from more valued uses to less valued uses. If "expedited medical breakthroughs" and "space exploration" provided the benefits to consumers you claim, this would be done voluntarily by the market. Regardless of the products emerging from state production, economic growth (and thus innovation) will still be less than it otherwise would be without intervention. (For anyone interested in an indepth exploration of this, I suggest this.)
Then he says, "The market cannot function properly if everyone doesn't respect the rule of law, particularly property rights." Well of course water runs down hill but the question is a) do property rights exist PRIOR to the institution of government (the answer: yes) and b) which "form" of government bests protects property and thus the workings of the market (the answer: private property anarchy).
Nonetheless, Goldberg still thinks destroying Iraq is a great idea: "Fair enough, that's an intellectually defensible position [the broken window fallacy]. But when you consider the fact that virtually all of the broken windows will be on Iraqi soil, it's hard to see how they can say that destruction of property can't be economically beneficial for the Iraqis (never mind what a stabilized and rational oil market would do for us)." As blogged previously, I fail to understand how a massive, U.S.-created chaos will help the Iraqis or the world. It will, however, divert billions from valued uses to less valued uses as noted above. Since Goldberg seems to be fond of Hazlitt, maybe he should take a look at Will Dollars Save the World?
Which brings me nicely to the final point, Goldberg's ridiculous comment about "all but the most absurdly utopian laissez-faire societies . . ." The real utopian here is Goldberg himself--a person who believes that diverting resources through coercive measures to war around the world will possibly increase prosperity. I guess leaving Americans to pursue their own happiness with their own property absent State expropriation for adventures around the globe is too "utopian" for such a pragmatist.
Tuesday, September 16, 2003
In short, this position is backed by the economic case against monopoly, that is, that a single producer of a consumer good or service will tend to produce less quantity at a higher price than otherwise would exist under "free competition." Logically, if economic laws are a priori then they apply to all goods and services, in all sectors or industries at all times, regardless of empirical evidence. In fact, this simple logic led Gustav de Molinari to state that "either this is logical and true [monopoly is worse than the free market], or else the principles on which economic science is based are invalid."
In the case of the media rules, everyone seems to agree monopoy negatively affects the production of news and information. Those in favor of the new rules say it won't lead to monopoly; those opposed say it will. The economic law, however, is not challenged.
Gustav de Molinari takes this a step further and wonders: why is the production of security collectivized? In other words, why must the government maintain a monopoly on the production of security? In fact, he makes the argument simple by saying that either the production of goods and services is better under communism (the collectivization of production by a single producer, government) than on the free market, or it is not. "If not, progress requires that it be replaced by free production."
At a time when many worry about terrorism, progress in this world means "collective security production" must be replaced by private production of security.
Saturday, September 13, 2003
Friday, September 12, 2003
Foreigners May Not Have Liked the War, but They Financed It
he Bush administration is not very popular overseas, at least if you believe the opinion polls. But if money could talk, it would tell a different story.
For most of this year's second quarter, the United States was waging a war in Iraq, with help from the British and not very many others. There were demonstrations around the world against the war.
But guess who was financing it? The world was. Figures released this week showed that private foreign citizens bought an unprecedented $129 billion in United States government and agency securities. Official accounts, mostly central banks, added $43 billion more.
All told, foreigners bought almost 80 percent of the net increase in Treasury and agency debt during the quarter. They now own 38 percent of outstanding Treasuries, more than double the figure of a decade ago.
Those numbers came from the Federal Reserve this week, in its quarterly flow of funds report. That report tends to be ignored because it is late, voluminous and complicated. But the foreign aspect of it is extraordinarily important these days because the United States must attract so much capital from the rest of the world.
We need that capital because of the huge current account deficit this country is running. That deficit — largely reflecting the trade deficit — went above 5 percent of gross domestic product in the first quarter for the first time in history. The second-quarter number, when it is released Monday, is likely to be about the same.
Such deficits can be financed only by investment flows. If they are not large enough, then currency values must adjust. A few years ago, it was fashionable in some circles to argue that the growing current account deficit was a sign of American strength because it reflected just how attractive American investments were to foreigners.
That argument does not work now. In the late 1990's, most of the foreign money was going into investments that were a bet on the vibrancy of the American economy: corporate stocks and direct investment, meaning foreigners were buying companies or building plants.
A lot of those investments went bad when the bubble burst, reflecting the fact that foreigners often tend to come a bit late to parties. Someone has to buy at the top.
The really big overseas accumulations of American stocks started in 1999 and continued into 2001. The overseas investors did not turn into net sellers until the first quarter of this year, after stocks hit bottom and started to recover. In the second quarter, they bought $21 billion worth of shares, a big gain but less than a third of the amount they bought in early 2000, when the market was peaking.
The second-quarter surge in private purchases of Treasuries may reflect a bit of bubble buying as well, as plunging bond yields and rising prices attracted speculators. John Vail, senior strategist of Mizuho Securities USA, notes that Japanese investors appear to have sold Treasuries in July, as rates were rising and prices were falling.
But speculators aside, much of the foreign investment reflects the need for a place to park the dollars foreigners receive when they sell all those toys, textiles and Toyotas.
It's a nice situation while it lasts. We get cheap imports, which hold down inflation and enable consumers to buy more. The flood of foreign money helps to keep interest rates low while supporting the dollar. The war can be financed relatively cheaply at those low rates.
But borrowers may eventually need to pay attention to the views of the lenders. It would not be fun if foreigners began to invest the way they talk.
Thursday, September 11, 2003
Second, the "Greatest Commentary Site in the History of the World" managed to type up some comments on LJ's comments on their original comments. As mentioned in a previous post, sometimes it's safer for the kiddies to remain at the kiddie table with their coloring books rather than join the adults in the intellectual discussion.
But, a few comments are worth noting for entertainment value. He claims that "We could debate for hours the merit of government but luckily for the people on my side of the aisle (probably about 99% of all Americans) we probably won't have to experience anarchy and abuse at the hands of feudal warlords and wild west style bought "justice" anytime soon." Actually, you probably couldn't debate the merit of government for hours (more like several minutes at most)--because their is no defense of government based on reason and logic. Statism is rather a religious faith, as previously noted here and here.
Further, saying that "luckily for the people on my side of the aisle (probably about 99% percent of all Americans)," amounts to argumentum ad populum, a logical fallacy, and one which will not suffice for a debate on this subject.
Robert Nozick asserts that the fundamental question of political philosophy is whether there should be ANY state at all. This intellectual question precedes any question of how the State should be organized. Obviously, the justification which backs up the state is fundamental in ANY discussion of what the state ought to do (public policy).
In short, I will quote Hayek on the purpose of political and economic intellectuals and commentators for society: "I strongly feel that the chief task of the economic theorist or political philosopher should be to operate on public opinion to make politically possible what today may be politically impossible, and that in consequence the objection that my proposals are at present impracticable does not in the least deter me from developing them."
The collapse of the state is, I think, inevitable. The only question is when. Meanwhile, we continue spreading discontent because the future of human civilization is at stake. Cheers!
P.S. Instead of relying on myths perpetuated by the public schools, try "An American Experiment in Anarcho-Capitalism: The Not So Wild West."
The Lesson of 9/11
Today is the second anniversary of the 9/11 attacks. What should that mean to us?
For me, the chief lesson of 9/11 is the simultaneous power and impotence of government.
9/11 vividly demonstrated how powerless government is to protect us and make us safe. The United States government is the most powerful organisation that has ever existed in human history. It possesses untold wealth, unmatched military might, and a globe-spanning spy network.
And in a few short hours, a handful of murderous fanatics armed with nothing more impressive than boxcutters were able to inflict a series of devastating attacks against which this almighty government was helpless.
Our rulers talk blithely about preventing future attacks, but the truth is they haven’t got a clue how to do it. If some nut wants to inflict a lot of damage and is willing to sacrifice his life to do it, there’s very little that the government can do about it. The 9/11 attacks exposed the protective nation-state as the fraud it is.
But if the government lacks much power to protect, 9/11 also showed how much power it does possess to do harm:
To pursue the arrogant foreign policy that invited the attacks in the first place.
To ensure that no one on board the hijacked planes was carrying weapons that could have been used against the hijackers.
To respond to the attacks by stepping up the assault on civil liberties at home.
To respond to the attacks by raining down death and destruction on innocent civilians in Afghanistan and Iraq, thus ensuring that even more American citizens will be targets for retaliation for the next fifty years.
A form of social organization whose power to do evil is enormous while its power to do good is minuscule is a form of social organization that needs to be mothballed.
Today is the second anniversary of the 9/11 attacks, but it is also the first anniversary of this blog, and of the Molinari Institute.
A year ago today, in my very first blog entry, I argued that the 9/11 attacks had made the task of abolishing the State increasingly urgent, and I announced the formation of a policy institute dedicated specifically to that goal. Named after Gustave de Molinari (the first market anarchist) and dedicated to his intellectual legacy, the Molinari Institute makes market anarchism (rather than libertarianism more broadly) its central focus.
Over a century and a half ago ago, Molinari wrote: “one day societies will be established to agitate for the freedom of government [his term for market anarchism], as they have already been established on behalf of the freedom of commerce.”
Wednesday, September 10, 2003
Found your blog today somehow. I’m all at once entertained, informed and more than just a little disturbed by the coincidence.
(I don’t own Magic cards, and my mom says I’m cool…)"
Tuesday, September 09, 2003
This is not a new concept. The U.S. sent millions to Europe after World War II, leading Henry Hazlitt to comment: “It is grimly ironic that many of the same people who now tell us that we must pour our money and goods into Europe because European revival is essential to our own, are the very people who have been the most insistent on the policies that make and keep Germany an economic vacuum.” (Will Dollars Save the World?, 10).
It seems that history repeats itself as supporters of 12 years of ruinous economic sanctions now demand that Iraq be "reconstructed" in order to protect U.S. "national interests."
Diverting resources (U.S. dollars) from more highly valued means to less valued means continues the impoverishment of the U.S. and the world. This aside, Hazlitt quickly disposes of the last remnants of the argument for foreign aid: “This principle is recognized quickly enough when dealing with individuals. If you make a loan to a family that keeps a car for pleasure, nothing is gained by the assurance that the particular dollars you have loaned have gone only to buy food, and that the automobile was bought and run with the family’s own earnings. Even if you could verify by the numbers on the bills that your particular dollars were spent only for food, you would know that your loan was being used in effect to keep the car—because the family would otherwise have to give up the car and use its own earnings for the food.” (Will Dollars Save the World?, 27-28)
The U.S. taxpayers continue to subsidize socialism worldwide.
Monday, September 08, 2003
"The combined effect of military, financial, and political circumstances produced the limited warfare which prevailed in Europe in the three hundred years preceding the French Revolution. Wars were fought by comparatively small armies of professional soldiers. War was not an affair of the peoples; it concerned the rulers only. The citizens detested war which brought mischief to them and burdened them with taxes and contributions. But they considered themselves victims of events in which they did not participate actively. Even the belligerent armies respected the "neutrality" of the civilians. As they saw it, they were fighting the supreme warlord of the hostile forces, but not the noncombatant subjects of the enemy. In the wars fought on the European continent the property of civilians was considered inviolable. In 1856 the Congress of Paris made an attempt to extend this principle to naval warfare. More and more, eminent minds began to discuss the possibility of abolishing war altogether." (Human Action, 823)
Indeed, despite modern technological innovations, we can easily argue that the world is more barbaric than ever:
"Men are killed or maimed, wealth is destroyed, countries are devastated for the sole benefit of kings and ruling oligarchies. The peoples themselves do not derive any gain from victory. The individual citizens are not enriched if their rulers expand the size of their realm by annexing a province. For the people wars do not pay. The only cause of armed conflict is the greed of autocrats." (Human Action, 823)
According to estimates, the attack on Iraq, thus far, resulted in the deaths of 37,137 innoncent civilians. Nonetheless, idiot Republicans have defended this atrocity in discussions with me by noting that "we saved 100,000 Americans." I have yet to see which Americans were "saved" by the same people that abhor violence against unborn victims.
"My own belief, based on elaborate inquiries and long meditation, is that the grant of the ballot to women sparks the concealed but none the less real beginning of an improvement in our politics, and, in the end, in our whole theory of government. As things stand, an intelligent grappling with some of the capital problems of the commonwealth is almost impossible."
Mencken bases this assertion on the fact that male voters are susceptible to the politician's continual invention of new "hobgoblins" and "phobias" to scare the public. Women, on the other had, being suspicious of everything (ever had a girlfriend question you after a night out with the boys?), will sniff out the lies.
However, it should be noted that because most women are more interested in gossiping, insulting and backstabbing other women, Hillary's candidacy will likely fail not based on her political positions but on the color of her nails and the content of her wardrobe.
Sunday, September 07, 2003
"I will soon submit to Congress a request for 87 billion dollars. The request will cover ongoing military and intelligence operations in Iraq, Afghanistan, and elsewhere, which we expect will cost 66 billion dollars over the next year. This budget request will support our commitment to helping the Iraqi and Afghan people rebuild their own nations, after decades of oppression and mismanagement. We will provide funds to help them improve security. And we will help them to restore basic services, such as electricity and water, and to build new schools, roads, and medical clinics."
by Peter Anderson
On February of 2003, British Foreign Secretary Jack Straw set out to sooth the fears of some prominent Christians – concerning the impending war with Iraq – by putting forth a moral justification for invasion. Moral arguments such Straw’s have become increasingly more important as the purported weapons of mass destruction have become increasingly harder to find. For Christians in particular, there is a larger question at stake.
In regards to politics, Christians of all ideological stripes have favored government coercion to enforce various moral causes. Such causes have ranged from ousting Saddam Hussein to bailing out banks that made poor loans or as it is more popularly called, Third World debt forgiveness. However, will Christians support taking the use of government to enforce morality to its logical conclusions?
As Christians we are called to do good in the world, which includes helping those in need and being instruments of justice. However, is not our ultimate goal bringing others to Christ? It is doubtful that many would disagree with this. Herein lies the problem of Christians using the government to impose morality.
Obviously giving to the poor is a moral obligation. Consequently some have entreated the government to forcefully take from others and give to the poor. The use of harmful narcotics is an action that goes against Christian morals and hence many advocate the government’s use of force to violate property rights in an effort to end drug usage. Therefore, if the use of government force is justifiable to make others act morally in these situations it is no less justifiable to employ the state to force others to become Christians.
This may sound horrific or absurd but it is the logical conclusion of utilizing the state to enforce Christian morals. If the state is allowed to violate individual property in the case of these lesser matters there is no way to logically justify not using the state to begin another inquisition to compel individuals to become Christian. Are we as Christians ready to advocate such policy?
This line of reasoning does not support the claim that there can be any such thing as value-free (wert frei) governing by the state. However, it does call into question the suitability of using the state to make others act moral. Perhaps evangelizing is preferable to state action.
Friday, September 05, 2003
Wednesday, September 03, 2003
Tuesday, September 02, 2003
These were among the opening words of the second meeting of my Perspectives on Regulation class at George Mason University School of Law on Wednesday. For those liberty-oriented people reading, stop thinking that the Mason campus is running rampant with libertarians. I’ll write more about why later, but for now, stop it. You drive me, and many other liberty-oriented folks at the school, crazy! It’s better than most places, but outside of the economics department, the rest of main campus in Fairfax is pretty much like mainstream academia. Not to mention, the law school is actually in Arlington (not on main campus) and is fairly conservative. It’s libertarian in so far as the Chicago School is libertarian, which really means its quasi-libertarian. It’s almost libertarian. It’s the one-calorie of libertarianism.
Yet I digress. Back to regulation we go; hi ho, hi ho. I’m not a big Beatles fan or John Lennon fan for that matter, but I can’t help but think of the words, “Imagine there’s no heaven. It’s easy if you try.” Well, try this one on for size, “Imagine there’s no regulation. It’s easy if you try.”
I mean, how can you not imagine a world without regulation if you try? There have certainly been more outlandish ideas. It wasn’t like dreaming in the 1950s of putting a man on the moon was exactly a mainstream thought. But given that we were able to actually pull that one off, don’t you think we can eliminate all government regulation? And don’t people have enough of an imagination to dream of a world without government regulation regardless of how realistic it truly is? I mean, I know its law school, but God, it’s not that difficult.
But, what can we say about this issue of needing regulation? Simple. We need government regulation of the market like young boys need to be raped by Catholic priests—not at all.
There are generally five theories about why we need government regulation:
(1) The Public Interest Theory—We need government regulation to rectify market failures (including externalities, market power, natural monopolies, and asymmetric information),
(2) The Capture Theory—Producers actually have a demand for regulation in order to try to capture greater market shares themselves,
(3) The Stigler Model—The government has the power to coerce, and interest groups actually want to convince the government to exercise their coercive power in order to benefit the interest groups,
(4) The Pelzman Extension of the Stigler Model—Pelzman mainly extended Stigler’s theory by noting that legislators want to stay in office, and they are willing to offer favorable legislation to interest groups in return for political support, and
(5) The Becker Model—You might see greater regulation in areas where there are market failures because in instances of severe market failures, there may be more to gain by regulation.
Now, I don’t want to go through the normal critiques of these models found in mainstream texts and even in this class; you can do that later on your own time. Instead, I just want to note a few things. First, what the hell is a market failure? A market failure is nothing but a voluntary transaction that the government or some interest group just doesn’t like. There’s no such thing as a market failure.
If two parties engage in voluntary transaction, where’s the failure? If a person’s actions are harmful to another’s property rights, then the civil justice system should allow for the complete compensation of the victim by the tortfeasor, and this compensation resolves the market failure. Not to mention, certainty within the legal system that a property rights violation will result in compensation by the injurer to the victim will force most injurers to internalize the potential externalities and take adequate precautions.
Market power itself is a misnomer. Yes, producers have market power. But so do consumers. Prices don’t exist in a vacuum. This was a basic insight of the late Ludwig von Mises and was the basic reason communism did not last in the Soviet Union. Prices are set through the interactions of consumers and producers; there are no price takers and no price givers, only price bargainers.
Natural monopolies are irrelevant. There has never been a true natural monopoly, and there’s no reason why if we ever did see one that we should entrust its control to an even bigger monopoly—namely, the government.
Asymmetric information is irrelevant as well. Everyone assumes risks when they enter into voluntary transactions. Suck it up consumers! If you don’t want to deal with asymmetric information, invest more in research!
As for the rest of the theories, they are great, intuitive insights into why we have regulation, but they don’t tell us why we need regulation. And therein lies the problem. We are socialized all through our lives to believe that we need the benevolent government to show us the way, but we have no basis for believing this other than blind faith in government, which is nothing but a monopoly in and of itself. Free your minds. At least step back and make an honest effort to understand the alternatives.
Don’t get me wrong. I am a staunch believer in the need for regulation just like my counterparts at Mason Law. It’s just that my version of regulation is a bit different. But my version is simpler. We need to regulate the biggest of all monopolies, the United States government. We should regulate their revenues more closely—their taxes; regulate their expenditures more closely; and if possible, dispose of their monopoly power completely.
Why am I such a staunch opponent to regulation? Because I am such a staunch supporter of the consumer. Consumers are not stupid. They don’t need the government to pamper them and coddle them. Not to mention, most regulations usually just mess things up worse. Further, if consumers can’t act on their own without failing, why on earth would government officials do any better?
Imagine there’s no regulation. It’s easy if you try. Given my experiences, that would at least be a start in the right direction. Then, maybe we’ll actually be able to start thinking about regulation more sensibly and talk about the advantages of truly free markets.
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