Without A Bottom Line, Government Is Not Only Blind – It Is Destructive

Without A Bottom Line, Government Is Not Only Blind – It Is Destructive

In the present pandemic panic, a great many are calling for bigger, stronger, and more brutal government to deal with the coronavirus. Thus, they cheer as the political decision-makers, never wanting to let a good crisis go to waste, scurry to get themselves ‘emergency powers’. 

A common assumption among both common people, the intelligentsia, and members of the political class appears to be that the market either has failed or that it simply cannot deal with problems like pandemics. While both are ignorant and false claims, what is much more disturbing is the fundamental lack of understanding for economic organization that they indicate. 

The business world 

In any rapid change, businesses struggle to the degree they are ill prepared or lack agility. If you were locked in to produce horse carriages when Henry Ford started mass production of the Model T, or flip phones when Apple launched the first iPhone, you were in trouble. There is, from a business perspective, no difference whatsoever between a sudden shift in what consumers want and a pandemic. Yes, that’s right: there is no difference.

The reason is simple: businesses make money from providing what there is demand for and having produced it at lower cost than the price they can charge. What we’re seeing during this coronavirus panic, with for example alcohol producers shifting to hand sanitizers, is not an unexpected altruistic turn by business that some make it out to be. Yes, many businesses are gifting the goods for now. But the greater point is that the firms exercise good entrepreneurship and business management by adapting to the new situation to produce what there is greater demand for.

What is important here is that they are able to do so by calculating the expected bottom line. Whether or not liquor sales plummet, there is value in shifting some of that production to hand sanitizers. But how much? That depends on what the business can afford (when gifting the products) and what the expected sales is (when not). The fact is that there is money to be made from goods that consumers more urgently demand—be it hand sanitizers or automobiles or smartphones. And businesses are ultimately assessed by their bottom line. If they do not earn profits, they will (eventually) die.

The government world 

While a CEO of a business is evaluated using a number of measures, the company’s bottom line—its profitability in the present and future—is first among them. But government is altogether different: there is no bottom line and no way of measuring actual performance. 

For political leaders, there is only reelection or not. Their chances of remaining in office depend on their perceived track record, which will partly be determined by what issues are raised by competitors’ election campaigns and what is given attention in the media. There is no objective measures of their entire legacy and there is also no one metric that summarizes it. Opponents will point to anything that didn’t (or can be made out to not) end up well as a failure of leadership. 

During a crisis situation, therefore, political leadership can be blamed for doing too little but not for doing too much. If they do too little, it is easily pointed out as a failure of leadership. If they do too much, then there is no way of knowing that it was indeed too much—because the only available ‘metric’ is the outcome.

Compare to a CEO of a business firm: doing too little is appropriately recognized as poor leadership and reflected in the bottom line as a lower return than other businesses—and perhaps a loss and perhaps falling market share. If they do too much, they’ve accepted too high cost. The bottom line reflects this fact too, with the firm earning a comparatively low ROI or suffering a loss. 

Not so for politics, in which there is no reasonable metric—and also no comparison. In this pandemic, for example, the real cost of adopting ‘emergency’ measures cannot be measured as it is passed on to society overall and borne by everyone in it. The real cost could not be known for many years, if at all, and there is nothing to compare to as government is a monopoly. What can be known is whether the outcome is good or not.

The bottom line

As a result, while business leaders are evaluated by how prudently and effectively they direct the firm, political leaders worry only about doing too little. There is no upper bound to what they might try during a crisis. What limits the scope of what policies might be tried is primarily their personal conviction—their ethics. But they also realize that being ‘too ethical’, meaning ‘not doing enough’, might make their reelection impossible. 

It does not matter how good-hearted or prudent political leaders might be, the incentive is always to do more—not to prudently respond to facts of the situation. In a situation of widespread fear, such as this pandemic, political leaders who do not meet people’s emotional demand will face an extremely difficult reelection campaign and they might even be forced to resign. 

Politicians are consequently better off to do much more than needed. And they are also better off focusing on such measures that people directly observe or feel, whether or not they are effective. We thus see politicians acting swiftly and forcefully, as is in their interest. It is also what people call for them to do. 

The prudent decision-making, a.k.a. good leadership, that we need in crises much more than under normal circumstances, is quickly dismissed. And we will never know exactly how much ends up being destroyed as a result.

Capitalism Makes No Sense

Capitalism Makes No Sense

Few things are so confusing as the term capitalism. The definition itself appears clear enough, with the Oxford Dictionaries saying it is “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” Both proponents and opponents of capitalism would likely agree that the core of capitalism is the private ownership of the means of production. But that’s the full extent of agreement.

The problem here is that the formal definition provides no guidance regarding the functioning of the system. This means proponents will see what they want to see, while opponents tend to see other things entirely. This explains Gary Chartier’s three senses of capitalism. From his chapter in Markets Not Capitalism (p. 108):

  1. an economic system that features personal property rights and voluntary exchanges of goods and services 
  2. an economic system that features a symbiotic relationship between big business and government 
  3. rule – of workplaces, society, and (if there is one) the state – by capitalists (that is, by a relatively small number of people who control investable wealth and the means of production)

All three are indeed possible outcomes of the same definition, even though they are not only different but may even seem contradictory. For example, it is difficult to reconcile the personal property and voluntary exchanges in the first ‘sense’ with the considerable presence of government and corporatism in the second ‘sense’. Similarly, the autonomy and freedom in the first ‘sense’ seems incompatible with the rule suggested by the third ‘sense’. 

In terms of advocacy, then, the term capitalism is, simply put, worthless. What is actually meant by someone invoking the term capitalism depends entirely on their other views—philosophical, political, and economic. Those views, in turn, affect how we see the world and what aspects of it we choose to focus on. 

It is therefore not a contradiction that someone on the right can refer to the present ‘free enterprise’ system in the United States as ‘capitalism’ and mean the prevalence of business and competition while someone on the left instead sees corporations dictating politics and government. The former assumes, based on their philosophical, political, and economic views, that business does good and that government is a ‘necessary evil’. The latter assumes, in contrast, that government is a potential force for good that has been corrupted by the wealthy, who want to continue to profit at most people’s expense. Both would agree that the system is capitalism, but what they see as that system is very different.

This is of course enormously frustrating (for both sides) because it is impossible to communicate and even less agree on how to improve the system (not to mention how it actually works!). So what should be a constructive discussion about goals, means, and strategies typically ends up a shouting match and calling each other evil know-nothings. While this might give you pats on the back from your own choir, you’ve really only dug a deeper trench. 

The only party that gains from these shouting matches is the common enemy: the forces that feed off and cause the bads of the present system. 

Typically, radicals in favor of capitalism (in the first ‘sense’) take that position because they have a passion for justice and understand markets as both the means for and manifestation of a free society. Similarly, radicals opposed to capitalism (in the third ‘sense’) take that position because they oppose the rule and power that are anathema to a free society. The fact is that many should be able to take both positions were they to consider the substance first and the label second (or not at all). 

As libertarians, we certainly hate the state. But it is not a random position. We hate the state because it is institutionalized aggression. The state provides some with power and rule while subjugating the rest of us. There is nothing voluntary or free or good about the state, and it does not create anything of value. Its very existence flies in the face of the principle of every person’s equal right and freedom. 

Without the state, there would be no capitalism in the second and third senses. What is left is the freed market: society in the form of horizontal cooperation through production under the division of labor, trade and exchange, and solidarity and mutual aid. The goal, in the words of Pierre-Joseph Proudhon, is “the dissolution of government in the economic organism.” That is, capitalism in the first sense.

Reaching that goal is difficult as it is, we do not need to place additional obstacles in our path. One such is the hang-up on a word, the debating of which wastes precious time and effort on inconsequential matters. It also means we lose potential alliances with those who have compatible goals in substance, but have similar hang-ups on that word. The term capitalism is a barrier, not a bridge. 

When It Comes to Raw Power, Few Have More of It Than Central Bankers

When It Comes to Raw Power, Few Have More of It Than Central Bankers

A common retort to the claim that in voluntary exchange both parties expect to become better off (or they wouldn’t do it) is that exchanges are seldom, if ever, a matter of horizontal, equal exchange of values. Instead, any such interaction between people is ultimately a matter of their exercising power over one another. The implication, and often explicitly stated conclusion, is that there is no voluntariness, that exploitation is always present, that one party necessarily gains at the other’s expense.

This rather dismal view of man makes clear that people apparently are slaves to power, their own hunger for it as well as others’ wielding of it. We are forever at each other’s throats in some kind of hyper-Hobbesian fashion:

Although power is always involved, barter trade, in which goods are traded for other goods, sees significantly less of it. Here, the exchange of, for example, fish for bread reduces our ability to rely on power, and we are thus forced, as it were, to accept a somewhat equal trade. But the introduction of money exacerbates the problem by having a seemingly mysterious magnifying impact on the underlying power structures.

In a recent Twitter exchange, the tweeter summarized the issue with admirable (and rare) clarity: “a dollar is a unit of entitlement, an authorization to obtain resources, goods, and services.” In other words, the person with the dollar does not simply have something to use in exchange with others. Money is a means to command others to give up their goods, the ultimate expression of power. Money releases our savage lust for power and innate desire to cause harm to one another.

Consequently, markets unleash the barbarian within us and worse: they provide a framework that rewards greed by providing numerous goods and values, all expressed in money, to be used in our quest to subdue others. The only way to stop this destructive process from running amuck is to establish a social institution to keep these forces at bay, to leash the beast. In other words, it requires a state strong enough to counterbalance the detrimental impact of markets and also to suppress and control our basic destructive desires.

Or so the reasoning goes. But let’s unpack this all-too-common view, because it doesn’t make much sense even on its own terms.

What Is Money?

Those claiming the power of money hesitate to define this mysterious institution. The resulting lack of clarity explains some of the confusion. A money is simply a medium of exchange, something that is generally accepted—universally employed—in trade.

Money helps facilitate exchange throughout the economy by releasing actors of the necessity of finding exchange partners who want exactly what they are offering in trade and have exactly what they want to acquire. In other words, where there is money we can engage in indirect exchange: instead of being limited to situations of coincidence of wants for trade, person A can sell what they produce to person B for money and then use that money to pay person C for what they sell.

Simply put, money earned represents one’s value contribution to the economy and, since money is a generally accepted medium, it has purchasing power roughly representing that value. We produce in order to consume, and our production facilitates our consumption by earning us purchasing power—which is generally usable through the institution of money.

So where do power and command enter this picture? They do not, because there is no requirement that a potential seller accept money in exchange for what they are selling. And there certainly is no magic power in money to buy what is offered for sale regardless the amount of money offered.

The seller typically has a reservation price below which they will not sell. Unless the potential buyer offers a sufficiently high amount, the seller will not accept and there will be no trade. And the seller will accept money in exchange for the good simply because it is money, and so can be used in terms of its purchasing power. Similarly, the buyer would not part with his money unless he considered the good more valuable to him than the purchasing power of the money given up.

Consequently, the voluntariness of exchange remains a fact. Both parties can veto the exchange, meaning that it will take place only if both parties consider it worth it. Assuming no fraud and that what is offered in exchange is legitimately theirs, we have no reason to question the ethics of this situation.

This holds true virtually regardless of the nature of money, since it is traded (and traded for) given its estimated purchasing power. It doesn’t matter if the money exchanged is a gold coin, a fully backed bill of exchange, or a fiat currency like the dollar. However, those believing money is power should recognize the fact that an economy that relies on a commodity money is practically still a barter economy, but with the difference that actors released from the burden of coincidence of wants. They should thus be comparatively in favor of an economy with, say, a gold standard, since it leaves less room for the exercise of power than one with a fiat money regime.

When and How Power Enters

Where money is a commodity, regardless of which particular commodity, it is simply a good like any other except that it is also used in indirect exchange. This does not in itself imply that this money provides the holder with power. Nobody, or at least very few, would claim that bread in a bread commodity-money economy is a source of power over people that other types of food (or any other types of goods) are not. It is still just bread, the difference being only that people would accept bread as payment even if they do not actually want bread—because they expect that they can use the b

read as payment when trading with others.

The bread itself is still useful. Even if we do not particularly care for it, whether temporarily or at all, we can see that it is a good with specific uses. The same is true with any commodity money, even though precious metals likely have fewer specific uses to us personally than bread does.

Fiat money changes the situation somewhat, but not regarding the actual use and nature of money in exchanges. Money is still used and accepted for its (expected) purchasing power. However, it is not a good that we can use for anything other than as money. So, in a sense, we’re stuck with it as money only, whereas bread can be eaten, gold can be used in jewelry, and bills of exchange are direct claims on such goods.

For this reason, the bearer of noncommodity money is more vulnerable: if the money loses its purchasing power, partially or completely, there is no alternate course of action. A $20 bill is a $20 bill whether or not the purchasing power of the dollar plummets (or surges), whereas it might make sense to eat one’s bread money if its purchasing power falls.

The holder of cash in a fiat money regime is thus subject to the monetary policymakers. Should the latter choose to double the money supply, which would severely undermine the currency unit’s purchasing power, it would affect the money in your pocket, mattress, or bank account. You are made the victim of another’s decision, which is certainly a form of power. But this is the very opposite of what is claimed by those insisting that money is power. To them, to hold money is to have power. Yet in this example whoever holds money is powerless against any changes in monetary policy.

What about money as the power to command? As we saw above, there is no such thing in a barter economy. But fiat money may be different, and in our day and age typically is. This is due to legal tender laws. As is printed on every federal reserve note, “This note is legal tender for all debts, public and private.” In other words, if someone is indebted to you, you are legally required to accept payment in dollars. So whoever has borrowed can, due to the powers of the state, require that the lender accept dollars in repayment.

Although this does not mean that you can, as a holder of dollar bills, command anyone to sell to you, other laws introduce such power. For instance, Michigan’s Scanner Law requires stores not only to display prices for all goods offered for sale, but to accept the displayed price in dollars. This means the customer has the (legally granted) power to command the store to sell an item for the price displayed even if it was a mistaken one.

Consequently, we cannot fully dismiss the view that “money is power.” However, this power is not due to money being money, as is often and widely believed. Money is not mysteriously powerful. But there are situations in which money constitutes power. This is the case under fiat money regimes and legal tender laws, and other laws that may be in force to change the power dynamics. Whereas money is involved in all of these examples, the common source of such powers is not the money itself. The source is the state.

Reprinted from the Mises Institute.

The Immigration Issue in Libertarianism

The Immigration Issue in Libertarianism

Over a decade ago, I wrote an article published at Mises.org on the libertarian immigration conundrum. The “conundrum” was the seemingly unbridgeable differences between, if not contradictory views of, the two libertarian answers to the immigration question. The point of the article was to show that these answers are more compatible than most libertarians tend to think; both, in fact, espouse the non-aggression principle, but they emphasize different aspects of it.

Since then, however, the debate has become more polarized and it has more or less caused a rift within the libertarian movement.

The two libertarian positions on immigration, put simply, are the classical libertarian position of “open borders” (“no borders” might be more accurate) and the more recent “cost-principle” or “property-rights” view, primarily seen in the works of Hans-Hermann Hoppe. The latter has over the past few years, at least partially as a reaction to the “mass immigration” crisis in Europe, gained a rather large following and, as a result, the debate has intensified. (Hoppe’s argument has also, in a twisted turn, legitimized the highly statist so-called “alt-right” movement, which strangely appears to have attracted many libertarians.)

Utopia versus realpolitik

The differences between the two positions is not about what a libertarian world would be like. Such a beautiful world would have no governments, so the issue of migration would purely be a matter of how owners of property, whether private or joint/collective, choose to use it. Migration is then a matter of buying property or getting permission by current owners to enter and reside on their land; movement would not be restricted, but use of another’s property would be. Such a world actually has none of the problems these two views try to solve. The conflict is instead one about how the libertarian non-aggression principle applies pragmatically in the world as-is. That is, in a world of States.

Simply put, the open borders argument states that governments have no right to restrict or in any other sense meddle with people’s choices to migrate. Thus, enforcement of borders, which are the territorial limits to a State’s power, is illegitimate. Hoppeans, on the other hand, argue that the government has no right to invite (or even subsidize) immigrants to a country, as this will always be at the expense of resident taxpayers – and thus a violation of their property rights.

Both are plausible arguments in line with the non-aggression principle. This is the reason there is a debate at all, and why libertarians can disagree on what is the “proper” position on immigration in a world of States.

The debate is lacking, however. While the Hoppean argument was and still is used (rightly) as a challenge and critique of the “open borders” argument, there is surprisingly little serious analysis of the reasoning behind the cost principle.

In this essay I attempt to address this gap, and what I consider to be a fundamental flaw in the Hoppean logic. While the argument is expressed in several of Hoppe’s (and others’) writings, which tend to emphasize different aspects, I will here focus on one specific essay: a recently published excerpt from a Hoppe speech, published at LewRockwell.com under the title Immigration and Libertarianism. (There will be reason to address other texts separately.)

The Hoppean argument

Hoppe rightly notes that in a libertarian world, immigration is a non-issue. Under global libertarianism, migration would be a matter of property rights. Or, as he puts it, “the immigration problem vanishes” as, with all land being privately (or collectively) owned, “There exists no right to immigration.”

While Hoppe uses this argument, which to my mind is true, as a way of raising doubts about the “open borders” position, I don’t see how any libertarian can argue against this. In a libertarian world, anyone who owns or contractually controls property has the right to invite and/or deny others to reside on that piece of property. It’s not a matter of nation-state borders. Hoppe is very clear on this, and notes that “A right to ‘free’ immigration exists only for virgin country, for the open frontier.” Indeed. Nobody has a right to somebody else’s just property.

Hoppe further points out that government property is illegitimate, which should also be something that all libertarians can agree on.

The problem arises as Hoppe claims the cost principle, that is that, at least logically, “government property is illegitimate because it is based on prior expropriations, [and so] it does not follow that it is un-owned and free-for-all. It has been funded through local, regional, national or federal tax payments, and it is the payers of these taxes, then, and no one else, who are the legitimate owners of all public property.”

His argument is that “open borders” libertarians disregard this fact: that residents have a just claim on so-called public property that foreigners/immigrants do not. Indeed, in Hoppe’s words, for immigration to be legit, “The cost of the community property funded by resident taxpayers should not rise or its quality fall on account of the presence of immigrants.” Anything else is to subsidize immigration by forcing the domestic population to pay the costs of non-invitee immigrants, who live at the expense of residents.

The problem I have with this argument, is the rather naïve (read: incorrect) view of the State’s aggression and the extent of its harm. Specifically, that a State’s power is limited to the people residing within its territorial boundaries. This is simply not true, and to see why we need to consider both the real cost of government (primarily in the form of taxation, as Hoppe mentions) and the indirect cost (in terms of lost opportunities) – neither of which are actually limited to only residents within the State-controlled territory.

Taxation and the State

In terms of income tax, there should be little argument that any State claims ownership over those people officially residing within the limits of its territorial boundaries. An American pays taxes on income to the US government(s), a Swede pays taxes on income to the Swedish government, and a German pays taxes on income to the German government. Where this is not the case, it is generally because a citizen of a country resides elsewhere, and thus it becomes an issue of specific tax treatises between States.

But income tax is not the only tax we pay. Plenty of taxes affect trade across borders, such as import and export taxes but also things like sales tax to the degree it applies to tourists or online trade. There are also tariffs, quotas, and other trade barriers specifically designed to harm “foreign” individuals and businesses over domestic. While these taxes are different for different countries and do not affect those who choose not to do business in that country or with domestic actors, this still raises serious questions to the “resident taxpayers” claim.

If “foreigners” (non-residents) choosing to trade with domestic actors are hit with specific punitive taxes, then it is simply not accurate to claim that those residing within a country have a unique claim to the State’s controlled “public property.” If we also add the implications of monetary policy, a favorite topic for Austro-libertarians, which causes inflation and affects investments and exchange rates, it should be clear that taxation, direct and indirect, certainly does not affect only those residing within a country (the US dollar should be a case in point).

In other words, any State does not only cause harm on its own residents, even though it can perhaps do so to a greater extent, and thus the “public property” in a country is not financed solely by those residing in that country.

Loss of opportunity and the State

A State’s power is not simply the outright theft that it engages in, however. The power can also be seen in the loss of opportunities due to State restrictions. For example, under the Prohibition there were a number of opportunities for value creation, specifically related to the production and sale of spirits, that were suppressed by the government. Those opportunities were lost.

While we tend to focus on the effect of regulations within a country, it is not true that the State only causes such harm on its “own” population. The very existence of borders, and their enforcement, suggests that non-residents are deprived of opportunities that would otherwise have been available.

For example, steel tariffs may mean greater profitability for domestic steel producers, but only at the expense of foreign producers who would otherwise have been able to benefit consumers in that country by offering steel at lower prices. A steel tariff, in other words, means restricted opportunities for both domestic consumers (or producers using steel as input) and foreign steel producers.

There are thus many opportunities that would otherwise have been available that simply remain unrealized, as I argue in my 2016 book The Seen, the Unseen, and the Unrealized, because the State imposes regulations. But such regulations are not limited to, and do not affect only actors within a State’s “protected” borders. They also affect non-residents – in fact, border “protection” is often used specifically with the intention to harm non-residents.

The extent of State power

If it is the case that any State does not only oppress residents within its territorial borders, but also steal from (tax) and limit the opportunities for non-residents, then the argument against immigration based on the cost of public property falls.

One can, of course, claim that it is a matter of degree, that those residing outside the territorial boundaries of any one State are less oppressed than those residing within the borders. That may be true, but then it no longer has to do with whether one is resident or not. As libertarians often note, the taxes paid and the extent to which opportunities are unrealized vary a lot among residents too. Surely one cannot say that a domestic tax consumer has a greater claim to public property in country than a foreign tax payer?

Libertarian collectivism

The problem with the Hoppean argument arises not because there is an error in seeing the State as a violator of (natural or traditional) property rights. On the contrary, the State by its very existence violates property rights, and that’s a reason libertarians must oppose the State. The problem is that the Hoppean analysis applies on the abstract, collective level of the nation-State – not the level of the individual.

There is, in fact, very little in terms of the State’s violations of just property rights that can be claimed about all people within a State’s realm that cannot also, and in some respects to an even greater extent, be claimed for people residing elsewhere. The State does not oppress all equally, and its harmful effects are not limited to those residing within its controlled territory.

To assume, as Hoppeans appear to do, that a State oppresses one collective (such as the nation or people) more than other collectives, is not a solution to the problem – it introduces problems. And it directly contradicts the methodological individualism that libertarians traditionally rely on.

How Welfare States Make Us Less Civilized

How Welfare States Make Us Less Civilized

Throughout history, the state has justified itself on the grounds that it is necessary to protect us from others whose habits and beliefs — we are meant to believe — are dangerous. For millennia, this fiction was easy to maintain because most people interacted so little with people outside their nearly autarkic — and therefore impoverished — communities.

But, with the rise of industrialization and international trade in recent centuries, the state’s claim that it is necessary to keep us “safe” from outsiders has become increasingly undermined.

Much of this is thanks to the fact that in order to benefit from the market, one must engage in activities designed to serve others and anticipate their needs. As a result, trade increases our understanding for both members of our community and even the stranger; it also makes us realize that other people are much like us. Even if they speak strange languages or have odd customs and traditions.

The Market Order and Civilization

This is in essence Say’s Law, or the Law of Markets, which states that in the market we produce in order to trade with others so that we can thereby, indirectly, satisfy our own wants: our demand for goods in the market is constituted by our supply of goods to it. In order to effectively satisfy other people’s wants we need to not only communicate with them, but understand them. If we don’t, then we’re wasting our productive efforts for a random result. Obviously, we’d benefit personally from learning what other people want, both their present wants and anticipated future wants, and then produce it for them.

So far so good. Most people (except for Keynesians) grasp this very simple point about the market — and how it contributes to civilization and peaceful interaction. But all people aren’t saints, so good, hard-working people risk being taken advantage of as they have nothing to set against such actions. Without a central power such as the state, who will protect us from such people?

Answer: the web of voluntary transactions aligns people’s interests. In the market, “bad people” are not only defrauding, stealing from, or robbing a single person or family. They are, in effect, attacking the community of interdependent producers and network of traders.

Imagine a town with a baker who specializes in baking bread that people in the town like, but that he doesn’t necessarily fancy himself. Instead, he sells the bread in order to earn money that he uses to buy from others what he truly wants. Others similarly specialize their production to produce what others want, including the baker, so that they can use part of their income to buy bread. When a thief steals from this baker, he negatively affects the town’s bread supply — and thereby also makes the baker unable to effectively demand goods from others. This affects a lot of people, not only the baker: it affects all people who wanted to but now can’t buy bread and all those who expected to but no longer can sell their goods to the baker.

The network of exchanges and the specialized production for others thus creates a community of interdependent producers whose interests are generally aligned: they have all increased their productive effort by supplying a single good that is in high demand, and thereby made everybody better off. But it also means it is in their own interest that no one is unjustly treated and disadvantaged, whether the victim of a “bad person” is an existing or potential supplier of goods they desire or existing or potential customer of the goods they produce.

They all benefit from this order, since their productive efforts are used where they do most good. But they are also all in it together — they are all affected if things go wrong. It is not strange, then, to see how towns used to spontaneously organize to deal with crime. Robbing the baker involves not only a robber and his victim: an attack on one is an attack on the community. The robber has by his very actions chosen to not partake in community — to be an outcast.

Effect of the Welfare State

What’s happened over the course of the last century with the rise of the democratic welfare state is that these market-based bonds between people within a community have been severed. With the growing state, more and more people have found positions in the economy and society where they do not need to serve others. In other words, the state has made it possible to live off what other people produce rather than contribute to satisfying everybody’s wants.

As these bonds between people are severed, the threshold to engage in criminal behavior becomes lower. But more importantly, as people do not need to rely on their ability to satisfy the wants of others, they don’t understand other people: they have no incentive to learn about their needs and wants, and they have nothing to gain personally from satisfying them. In other words, there is no interdependence and therefore less of a reason to stay away from destructive behavior.

This is exactly what we’ve seen over the course of the past century when the very large state has replaced civil society with centralized systems and market with power. The problem is that when people stop learning about each other, it is easier to resort to conflict rather than cooperation — and it is much easier to see other people as obstructions to your own happiness. Getting rid of them thus increases your share of the (now diminishing) pie, and using and exploiting others for your own benefit appears a means toward satisfaction of one’s own wants.

We increasingly see examples of this type of thinking among entrepreneurs and those who want to be entrepreneurs. They start businesses not as a means to make a living — that is, to indirectly benefit themselves according to the Law of Markets — but in order to do “what they like.” It’s a lifestyle choice that many seem to think they have a “right” to make. Even worse, sometimes they even blame their entrepreneurial failure on “society” for not being supportive enough and not appreciating what they’re offering at the price they’re demanding.

This is exactly backward: to be able to do what you like for a living is a privilege that you can enjoy only if you, by doing so, satisfy others. If you create value for others, you gain value for yourself.

In this type of society where the bonds between people are weakening, it is not strange that people find the idea of a decentralized, spontaneous order outrageously naïve. Competition is here not the sound striving to better serve others by trying different and differentiated ways of satisfying wants, but rather a zero-sum game where there are winners and losers. In this situation, whoever is willing to cut corners, lie, and deceive is immediately better off. The incentives, in other words, are for destroying value and to prioritize short-term gains even if they come at high long-term costs — because those costs may be another’s burden. It’s the very opposite of civilization and an existence that will, if left unchecked and unchanged, eventually degenerate into a Lord of the Flies-type tribalism.

It is not strange that people have a hard time understanding the harmony argument for markets in a time when the state has alienated them from productive interdependence as explained by Say’s Law. The market’s informal, spontaneous cooperation for mutual benefit has been replaced by a statist mindset, which seeks guarantees — and finds it only in formal power.

But it should be obvious from the discussion above that this is not in any sense a guarantee — especially against bad behavior. It is the opposite. Yet it should be recognized that the market also offers no guarantee, strictly speaking. But do we need one when people’s interests are aligned? All we need to trust is that people do what is good for themselves. That’s hardly naïve.

Republished from the Mises Institute.

How Welfare States Make Us Less Civilized

Glorious Tax Season

Tax season is here. This is a time to celebrate. No, I mean it. Not because the State makes its claim on our hard-earned monies known, but because of what is on everybody’s mind and the type of activity we’re all involved with. Seldom is the State as present in our pockets (and pocket books) as in mid-April every year, when we either learn that we have inadvertently paid even more than the State thinks is its “fair share” of our earnings, or learn that even the outrageous amounts we have already paid weren’t enough. And to make matters worse, we waste a lot of productive time to fill out forms and collect receipts—- for the only purpose of proving to the State that we didn’t keep any income from them.

But if we think about it, what tax season really means is that taxation, or legal extortion by the State, is on everybody’s mind. Some of our confused peers get tax refunds and appear to consider this a “gift,” which may be upsetting for those considering where the money originally came from. On the other hand, it might just be the case that these “confused” individuals have the proper mindset: they consider anything taken or claimed by the State as forever lost – and from this perspective a “refund” is indeed a gift. After all, it seems a bit naive to put faith in having excess ransom paid returned. From this perspective, treating it as an unexpected gift may be the rational approach.

This is also the time of year when many of us for a comparatively small amount of our (remaining) money can hire the best and most experiences experts available to help us figure out how to keep as much as possible of the fruits of our labor. These services are offered ever more cheaply, and they are ever more effective, just as we have come to expect from market providers. Many of us use online services to calculate our taxes, fill out forms, and submit them to the authorities — free of charge or for very small fees.

The contrast to how a large part of our money is spent by the State, on our behalf but likely not with our consent or even to our benefit, couldn’t be clearer: the market gives us more and more for less and less, while the government claims more and more to do less and less.

It should be obvious even for the most ardent statist that profit is not — and simply cannot be — the result of exploitation. After all, the tax experts offering their services increase their income every year and provide better and more effective services — and offer their services at overall lower (if any) fees. And still those businesses earn profits. On the other hand, the State — “free” from the profit motive and expectations of returns on investment — charge more, provide less, yet at the same time end up with enormous deficits.

Tax season is simply an educational treasure that should be cherished. If only we could enjoy it without wasting productive resources on unproductive activities. And paying taxes.

Republished from the Mises Institute.

Statist’s Dilemma

Statist’s Dilemma

I tend to get drawn into debates with statists both in cyber and “meat” space, and the discussions always either start (and/) or end with arguments for/against the State. Strangely, the basic knowledge about the nature of the State is often shared or, at least, can easily be agreed on: the State is defined as an organization with the [legitimate] monopoly of violence. (Legitimate is within brackets for the reason that it can mean, as is the case in this definition, “generally accepted” whereas, from a rights perspective, legitimate means more than simply accepted.)

The problem for statists is that the very definition of the State effectively puts them in an unsustainable position trying to defend violence. They can choose one of two routes: either it is necessary or it is desirable. Sure, some might argue that it is both, but that argument is really one about the State’s necessity – the fact that it is desirable follows, where so is claimed to be the case, from the necessity.

The necessity argument will ultimately force the statist to argue from the Hobbesian view: that the State’s violence is necessary to squash other violence and thus everybody’s war against all. A higher power is necessary to force us to not give into our basic nature. In other words, the mightier the better since a more powerful State can rid us of more problems.

This immediately raises questions about the nature of the violent people who (seek to) control that power and, in democracies, those violent people voting to be oppressed. And, of course, how something can be our nature while we at the same time desire to be something very different. If this is actually the case, that we are something quite opposite of what we want to be, then we should be slaves what we are or we would be able to tame and control those instincts. And if we cannot, then how can we choose leaders to do this for us, who are equally subject to this our nature, and how can we trust them to do the desirable thing rather than what they’re programmed to do.

This is an unsustainable philosophical position because it is based on a fundamental contradiction.

What’s left is the argument about the State’s desirability: this is a consequentialist argument for the reason that the State “must” exist because the outcome is good. But if the State, which is only people (albeit with guns and quite a bit of mysticism), is able to do something that non-States are not, then the desirable end must follow from the State’s definition: in other words, it can only be brought about by the use of violence (and even better with a monopoly of violence).

If this were not the case, then voluntary organizations should be able to produce that same outcome, and isn’t voluntary better than violent? Most people would agree with voluntary being preferable, so they cannot at the same time say that violence is not preferable but is desirable (even a statist can tell that’s a blatant contradiction).

What, then, is desirable about violence? What it can do. When is violence necessary, in the sense that it can accomplish what non-violence cannot? When it is used to force people to do what they would not otherwise choose to do, and what they would probably refuse to do were it not for somebody pushing a gun in their rib cage and stating “or else…”.

This leaves very little to the imagination. We get immediately to public good issues (collective action “problems”) where something is deemed of value to “all”, whereas most individuals would choose something else yet could free-ride on that “value”, such as military defense, a road system, etc. Of course, there were both security and roads before there was anything like a national defense or a Federal Highway Administration. (That’s why libertarians tend to fall back to examples of such pretty much right away.)

But the problem for the statist is that it is a slippery slope: what, exactly, is sufficiently a public good to warrant force – and on what level? The national defense question is an obvious case in point because it is always referred to as national defense. Is this because the statist realizes that if the defense is of anything but the nation-state’s controlled geographical area, the argument falls? Say the 50 states of the Union would have their own defense, then this would imply that counties and cities too could do this; it also implies that cooperation between 50 state-level defenses can substitute a national defense. So why not voluntary associations on a local level, which can then create voluntary alliances to whatever degree deemed necessary?

What exactly is desirable enough to be forced on people? Well, that really depends on your personal view of what is valuable. National defense is used as a go-to example because it is so common and nobody (almost) ever thought about how to be protected without it. But this doesn’t mean it is necessarily desirable to the degree that it should be produced using violence – this issue still requires an argument. How do you argue for what is valuable? You state your opinion and appeal to the opinion of “lots of people” (or, if you prefer, “the masses”). It is still only an opinion, however.

The desirability argument thus comes down to an argument about what the statist wants. And, apparently, what the statist doesn’t believe other people want enough to have it produced on the market. So: it must be forced on everyone.

This is hardly a good argument, but in fact the lack of one. And somewhere deep down most thoughtful statists realize this, even though getting to this insight may require prodding by someone disagreeing on the desired value (either not valuing it or claiming it can be produced in another way).

In other words, there is no good, philosophically valid argument for the State. The only available basis for statism is personal preference, that is, the never very persuasive “I want.” Or perhaps laziness of thought, and thus acceptance of the status quo.

How Welfare States Make Us Less Civilized

Left and Right and Collectivism

I made the mistake recently of tweeting on immigration, which made it all too clear that clear and stringent thinking is as lacking on the “right” as it is on the “left.” While we have perhaps gotten used to the postmodern anti-logic of progressives, who certainly don’t mind contradicting themselves several times in the same sentence (!) while proudly and loudly asserting their conviction is both better and of higher moral value, the right tends to (occasionally) get some things right. At least regarding economics. Certainly, the “right” wrestles with their own logical leaps of faith (and of Faith) as well as arbitrary values, but at least my experience is that the right tends to respect the logic of an argument. At least when compared to progressives.

But my tweet made it clear that I was deceived or perhaps biased by the unrepresentative sample of people from the statist left and statist right that have crossed my path. My tweet, included below, was ignored by the left while the right did their “best” (social media style) to rebut it:

The by far most common response, which was apparently considered devastating for my implied argument, was “I take it you don’t lock your doors at night.” I must admit I at first didn’t even see the relevance, but then I realized that these anti-immigrants hiding behind a veil of ignorance legality believe there is a perfect analogy between individual private property and “country.”

“Country,” it appears, is a mix of nation, (federal) government, and ethnicity, even though I find it difficult to understand what distinguishes an ethnic “American” (but I admit this may be due to my emigrating from a quite ethnically homogenous 1000-year kingdom at the outskirts of Europe). Interestingly, when pushed back these men (and women) of the statist right resort to the exact same tactic as progressives: the amoebic strategy of shifting the meaning of words and concepts to make it appear the critique (always) misses the point. Criticize their view of government, and they respond with the concept of nation; criticize their use of nation and they respond with a normative ideal of what it means to be American; pushing back on “Americanism” they provide some ethnic or historic narrative; and respond to this they invent another concept that the specific critique doesn’t necessarily apply to.

This is the same strategy as used by progressives when you try to figure out what they are actually saying about enforcing gender equality, fixing the wage gap or their strange view of freedom of expression/language as violence.

The only difference between the statist right and left, it appears, is how they prefer to slice society in order to discover conflicts that they can emphasize and get upset about. And demand a legal solution to. The difference lies in how they define their tribal traits and thus derive belonging and “justice.” Where the left identifies or creates underdogs in a class analysis that they apply on everything in the present, the right identifies or creates underdogs in a tribal analysis over time: the rights of their own tribe are violated because “it would have been better” otherwise. Both are equally intolerant and violent: the left doesn’t mind sacrificing everyone not in the right class to see the relative position of the underdogs improved, while the right gladly sacrifices “others” (as well as their own future!) in an effort to keep the tribal identity intact.

Both share the cowardice of demanding a certain structure for society, and not hesitating to support the violence necessary to make it happen – as long as it is done by “government.” No wonder they are both supportive of expanding if not unrestricted executive power. At least for as long as their own guy holds that office. When not, they realize the terror of being on the “other side,” of looking straight into the barrel of a gun about to end a beautiful thing called life.

How Welfare States Make Us Less Civilized

Fake News? The New York Times Reporting from Venezuela

The New York Times has published a series of articles by Nicholas Casey on the state of Venezuela, the very recently rich oil country that is today destitute and with a population suffering starvation, riots and kidnappings, and outright chaos. The articles include plenty of important observations from the everyday life in the post-Chávez nation and pictures documenting how the suffering population survive against the odds.

In a recent article, “No Food, No Medicine, No Respite: A Starving Boy’s Death in Venezuela” published on Christmas Day, Casey portrays the great suffering of a mother losing her second-born son scavenging for food and then not getting the health care needed. It is a heartbreaking report of sadness, hopelessness, and poverty. Undoubtedly, many readers will empathize strongly with the people portrayed in these articles.

Readers will wish to point fingers, put blame on someone or something for this situation. After all, Venezuela went from rich oil country with plenty of hope for the future to what the NYT refers to as “economic crisis” and inflation topping 700%. But we’re left without information on what went wrong or whom to blame. After all, Chávez’s egalitarian social policies were promising, modern and progressive, weren’t they?

NYT’s reporting is limited to pointing out what’s wrong: poverty, crime, starvation, “scarcity.” Casey’s article is “the story of a boy with no food, who had gone searching for wild roots to eat but ended up poisoning himself instead” – and he couldn’t be saved because “the hospital had lacked the simplest supplies needed to save him.” Indeed, it had been a while since the hospital “ran out of basic supplies.”

In Venezuela, “Doctors have prepared to operate on bloody tables because they did not have enough water to clean them.” A sad if not horrific fact.

There’s also the couple that “survive on two salaries that have depreciated to the equivalent of $2.19 a day,” which is another statement that should sadden readers. But these facts actually provides no clue to the real problems faced by Venezuelans. The clues are to be found in (or rather, hidden by) other statements intended to make us feel bad.

For instance, as a Venezuelan is quoted saying, “There are no more shipments [of food] now.” Or the father about his son, stating that “We can barely find diapers or milk for José Antonio.” These are not statements of lacking purchasing power, but of non-existing supply. Why are there no supplies for hospitals, no food to buy in markets?

Well, we’re told that there are no black beans in the whole country, because “Few producers make them anymore for the fixed government price.”

The terrible situation is not due to “scarcity” or lack of resources. That is the symptom, not the cause. The source of the suffering, and consequently the responsibility for it, lies with government officials enacting and enforcing policies that contradict economic reality – that violate economic law. This is a part of the story that the NYT does not tell. It is not false news, because the facts are (probably) correct. But it is incomplete, if not severely lacking. Does that make it “fake”?

How Welfare States Make Us Less Civilized

Your Twitter Handle May Be a Weapon

Not exactly, but Politico reports that the form non-Americans must fill out to enter the country on the “visa waiver” program – the ESTA – now includes an “optional” question where travelers can enter their social media account information. Yes, account information. Apparently not passwords, but account names. Writes Politico:

“The prompt includes a drop-down menu that lists platforms including Facebook, Google+, Instagram, LinkedIn and YouTube, as well as a space for users to input their account names on those sites.”

Of course, the argument is, as The Verge notes, to “identify political threats.” Well, we wouldn’t have thought it would be anything else. Security can sell any moronic policy.

It is difficult to understand what the authorities could possibly expect to achieve by asking people for their Twitter handles when entering the country. But in the mind of a government bureaucrat or politician, this type of policy likely makes sense. After all, if there is a question asking about “internet presence,” surely a terrorist wouldn’t think of lying on the form. No, inconceivable.

Much more likely, to the bureaucrat/politician, terrorists will turn around before the border thinking “darn it, they got me” – or will simply refrain from terrorist activity altogether. After all, lying is immoral.

For those of us not thinking bureaucrats and politicians are actual morons and therefore understand a little bit about human behavior, this policy – optional now, but it will likely not be optional forever – is rather intended to gather information on whoever is not inclined to lie on a government form. That is, normal law-abiding people. In this case, those are the regular tourists and business people and those visiting friends and relatives. In other words, exactly the people the surveillance state is intended to control. Whether or not you are a citizen of the United States.

Welcome to America!

How Welfare States Make Us Less Civilized

Libertarianism as Extreme Middle-of-the-Roadism

While the Libertarian Party’s presidential candidate Gary Johnson unsuccessfully tried to sell voters a lukewarm version of libertarianism as the good policies from both Democrats and Republicans but none of the bad (“neither too hot nor too cold”), there’s an argument to be made for libertarianism as the “golden middle.” But it is not a middle position between those two evils, but between two destructive extremes in social cooperation: the power of one and the power of none.

The power of one refers to the highly hierarchical and vertically organized (read: coercively coordinated) society where the power to mold both society and the individuals within it. This is how dictatorship is commonly understood, which not seldom appears to be a highly oppressive society with a guy with a mustache at the helm.

The power of none refers to the other extreme, the unlimited and uncontrolled power of the masses. Or, to use Karl Marx’s well-known term, the dictatorship of the proletariat. But it is likely less of a dictatorship (as the power of one) than it is the emotionally panicked masses of Nietzschean monkeys clambering over each other.

To illustrate the difference using examples from the realm of culture, the power of one sees a small cultural elite that decides what goes: what fine art is, what texts are to be read, and what entertainment is offered to the blind and uncultivated masses. It’s the rule of the self-proclaimed elite, which despises the common man. The power of none would here be the degenerate consumption of simple expressions of culture and the simplistic entertainment on the boob-tube washing over people in their living rooms.

To instead illustrate using economics, the power of one would be a fascist or centrally planned economy. The power of none would be the relentless and blind hyper-consumption of the static, entrepreneur-less economy found in mainstream economic models.

From the point of view of these two extremes, libertarianism offers the golden middle: power to rule is neither granted to one nor none.

Libertarian culture would be neither the degenerate consumption of simple and ever simpler “stupid” (at least from the point of view of the self-proclaimed elite) entertainment nor the rule over cultural expressions by the “sophisticated” elite. Instead, it would be the constant discovery of finer, better, and more beneficial culture through the repeated attempts by innovative individuals to offer improved cultural expressions and formation of the cultural mind in those willing to try. Cultural leaders are as subjected to the popular will as the popular will is subjected to the innovative initiatives that shapes the cultural scene.

And similarly, the libertarian market process is neither central planning nor the rule of the masses, but a discovery process where innovative entrepreneurs offer novelty and potential value to unsuspecting consumers. These entrepreneurs are as subjected to the wants and valuations of consumers as consumers in their consumptive behavior are subjected to entrepreneurs providing the means to consume.

Rather than reducing the destructive extremes to offer a lukewarm yet poisonous soup of bits of each, libertarianism takes the middle position pitching them against each other. The driving forces of both are intact yet used to at the same time tame their respective destructive tendencies – by setting, destroying, and recreating boundaries – and plays off their productive strengths in search of the path to progress.

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