Sunday, November 28, 2010

You Can Keep Your "Apology", Ms. Vanden Heuvel!

After an asinine, innuendo-laden smear job accusing TSA protester, John Tyner (better known as the "Don't touch my junk!" guy), of basically being a billionaire Kochtopus-funded, evil, "libertarian" shill for corporate interests by Mark Ames & Yasha Levine at The Nation... AND after a second attempt at suggesting that anyone who doesn't believe the TSA should be in the business of touching people's genitals, written as a "reply" to Glenn Greenwald after he called their first article "a shoddy, fact-free, and reckless hit piece"...

...The Nation editor, Katrina vanden Heuvel, has finally published an "apology".

And what an apology it was! She admitted that maybe Ames & Levine were wrong to give the "impression" that John Tyner was a Koch-funded, astroturfing plant; "by placing Tyner in the article's lead and by using a generally disparaging tone to refer to him."

Quite generous of her... But then, I didn't get the impression she actually really understands where they've all gone wrong. Here's the thing... Her apology also included the following little blurb, demonstrating without a doubt that The Nation is very, very confused about libertarian ideas and history:
"Citizens from across the political spectrum are right to call out the TSA's invasive procedures and the threat to civil liberties they represent.  We have long opposed, and exposed, the continuing encroachments of the national security state, though we also think that those who applauded each sacrifice of liberty for security under the Bush administration should expect to be regarded with skepticism  if the presence of a Democrat in the White House suddenly prompts libertarian concerns."
I have one thing to say to the folks at The Nation: "Do you guys not even bother to use Google or open your eyes & ears when your guy isn't in power?!???"

Aside from the fact that is primarily a libertarian outfit (and is pretty much the only group still actively working against wars in Iraq & Afghanistan since the "liberals" don't really care any more)... Libertarians across the board have been railing against the TSA and the Department of Homeland Security since before they were even created.

Libertarians are NOT Neo-Cons! It's time to get that straight right now.

Libertarians oppose, on principle, all expansions of state power that violate individual liberties. We don't generally care which party is in office... In fact, most of us see little to no distinction between Team Red and Team Blue.

We opposed Bush-era policies for many of the same reasons we oppose Obama today when he engages in the SAME actions. It's very simple. We're actually paying attention to what politicians do, not just what flag they're flying. So please - everyone - stop insinuating that we didn't care about this stuff when Bush was president and stop conflating libertarians with neo-cons.

Don't believe me? Well here's some proof.

Here's Reason Magazine from February, 2004 in an article titled, "Dominate, Intimidate, Control: The sorry record of the Transportation Security Administration" "
"When 9/11 exposed the holes in American airport and airline security, the Bush administration and Congress responded with the usual Washington panacea: a new federal agency. Congress quickly deluged the new Transportation Security Administration (TSA) with billions of dollars to hire an army of over 50,000 federal agents to screen airport passengers and baggage.

But before the agency was even a year old, it was clear that it had "become a monster," to quote the chairman of the House Aviation Subcommittee, John Mica (R-Fla.). Arrogant, abusive, incompetent, and expensive..."
Not enough?

Here's The Cato Institute's policy paper to the 108th Congress, wayyyyyy back in 2002, arguing that adding the new Federal Department of Homeland Security would reduce, not enhance Security:
"Congress needs to make sure the new department avoids such fiascos. In short, Congress needs to make sure that any new security measures are needed and effective and do not unduly restrict civil liberties."
Still need more?

Here is economist Robert Higgs of the Independent Institute, arguing (as he always has) against the Warfare State in January of 2007:
"As Ludwig von Mises observed, "The root of the evil is not the construction of new, more dreadful weapons. It is the spirit of conquest…. The main thing is to discard the ideology that generates war" (1966, 832; see also Higgs and Close 2007). Until the scope of the US government's geopolitical ambitions and hence the scale of its military activities are drastically reduced, not much opportunity will exist for making its system of military-economic fascism less rapacious and corrupt." case you don't bother to read the whole article, he's specifically talking about the DHS as well.

It's really time to drop the strawmen, and wake up to the fact that maybe... JUST MAYBE... This ridiculously binary view of political viewpoints is incorrect. It is not just a world populated by Republicans & Democrats, or "planted" operatives working secretly for the two-party system's corporate puppet-masters who spend a few billion a year on lobbying and elections.

There are many other options and it's incredibly dishonest to perpetuate the notion that there aren't.

Libertarians are pretty much the only group who have been consistently taking a stand against violations in liberty in this country regardless of which team's leader is in power at the moment. And contrary to all the confusion about free markets - which actually encourage decentralization and competition, and provide little incentive for corporate lobbying to even exist - we aren't big fans of giant corporations either. They tend only to exist thanks to government subsidies, artificially limited liabilities & competition-crushing protections, afterall... As Reason's banner says, we're for "Free Minds & Free Markets".

...And we've been warning about government abuses of both for decades.

When Bush used the September 11th attacks to usurp all sorts of new powers for the executive branch, we were there standing against it. When Bush went to war without even bothering to declare it, we were there arguing against that - even the libertarians who agreed that we should go to war were arguing that it needed to be declared by an act of Congress! We were there in opposition to illegal and immoral wire-tapping and "enhanced interrogation techniques"... And when the Bush administration was busy coming up with stimulus schemes, bailouts, expansionist monetary plans and adding tens of thousands of pages of economically significant regulations to the Federal Register, we were standing up against that too.

And unlike most of the liberals and "progressives" who stood with us against the abuses of the Bush years, now that Obama is doing most of the same things - we're still right here!

Know why? Cause for us, it's about principle.

It's about doing the right thing, no matter how much we like or dislike the guy telling us we should do the wrong thing.

Where are all those principled liberals that are supposed to be writing for magazines like The Nation? Aren't they supposed to support civil liberties from abuses of government? I thought they were... Yet here they are instead shilling for the TSA, an organization which should never have existed in the first place, and which is now regularly engaging in grotesque violations of the 4th and 5th Amendments, treating travelers like criminals in their own country.

And if that's not enough, now those folks who should be standing up against these police-state tactics are going one step further and actively insulting, smearing and villainizing those few of us who have been consistently opposed to expanding government power and violations of individual liberty.

They conflate libertarianism with whatever the enemy-du-jour happens to be... Libertarians are apparently indistinguishable from neo-cons, Tea Party supporters, Reaganites, GOP belt-way Republicans, corporatist military-industrial tycoons and Wall Street Bankers in the eyes of so many in the mainstream liberal community. Pick an enemy... then call them a libertarian, and apparently you've got a slam dunk ad hominem.

Apparently, according to Mark Ames at least, we're so bad that the next time you encounter one of "us" in real life - you should go right ahead and spit in our faces.

How do they benefit from this? Are they so blinded by partisan allegiance that they don't even care about reality any more? It sure seems like it to me.

To be "fair", one point that Huevel raised that could give some explanation to why the folks at The Nation think the TSA is ok, is that they honestly believe that the only other alternative to airport security is "privatization". Also buried in Karina's "apology" comes this gem:
"It is also simply a fact that the backlash against TSA procedures has led to calls for racial profiling and for the privatization of the agency."
Her definition of "privatization" in this case doesn't mean free markets, but rather government-granted monopolies given out in the form of contracts to private "security" companies. She's thinking about Blackwater or Haliburton, not about freedom.

But that kind of solution isn't the "libertarian position" on airport security at all! Again... We're not "corporate shills", and we oppose on principle coercion - including, and perhaps especially, coercive monopolies attained through government force interfering in the market. So libertarians aren't generally in favor of "private companies getting government contracts" that allow them to do engage in the same abusive, illiberal screening practices.

The libertarian position is to de-monopolize the whole thing and leave security up to the airlines themselves.

Economist Steve Horwitz wrote about exactly this the other day, in his article titled; "The False Dichotomy of the Status Quo and “Privatizing” the TSA":
"The new procedures, whether done by the TSA or a private firm, are ineffective, privacy violating, and will cause American deaths.

Marcotte should take seriously the libertarian alternative, which is to turn security over to the airlines themselves. Aside from the very obvious fact that the airlines have the most to lose if a plane gets blown up, which provides them with strong incentives to get it right, the airlines would not want to create a security system that discourages people from purchasing their product. What profit-seeking entity would want to enrage its potential customers with intrusive methods such as nude scanners and intimate body searches? Only an institution that had no incentive to care what its “customers” think, nor any way of figuring out what trade-offs they would accept, would do so. And that institution is the government or any other monopoly provider."
I'm tired of seeing smears of libertarians made by people who don't have the slightest clue what libertarian ideas are even about and who are so inept at their jobs as journalists that even the laziest research methods like searching Google or Wikipedia aren't even attempted.

So... How about a real apology, now, Ms. Karina vanden Heuvel? The one you wrote was pretty damned weak.

Friday, November 26, 2010

Free Markets for the Gays


I really love when I get a real-world, concrete example of a principle free market economists point out all the time.

Today's lesson: The Free Market vs. Business Discrimination.

One thing I've stressed over the years is that contrary to what a lot of Hollywood and possibly your public education would have you believe, free markets actually discourage discrimination based on irrelevant criteria like race, gender or sexual orientation.

The reason for this is pretty straight-forward... By excluding customers of a different race than you, or hiring workers of your same gender instead of whoever does the best job, you actually get punished with lower profits, or even losses, in a free market. Either you're limiting your clientele to a smaller number of people than is necessary for no valid reason thus taking in lower revenues than you otherwise would, or you are accepting poorer workmanship at higher-than-necessary costs.

And of course, the second a competitor decides to make business decisions independent of extraneous factors like race or gender, they will find themselves in a position to hire cheaper, better employees and to accept money from a much larger population - and quite possibly put you right out of business as a result.

In fact... The threat of non-discriminating competition was so dangerous to many politically-connected racists in the American South that they actively sought to create legislation preventing minorities from owning property or starting businesses. And if that weren't enough, they passed more laws which made their brand of discrimination and segregation mandatory for all businesses in their community. That way, even if there were non-racists running local businesses, they were economically hampered by law in the same ways that the racists had hampered their own businesses by choice.

Pretty slick, right?

But just because the Jim Crow era is the case people usually think of when talking about discriminatory business practices, by no means is that the only type of discrimination that happens in reality... What's more interesting is the realization that not all discrimination is even necessarily "evil", and not all of it fits the stock narrative of the Anglo-Saxon oppressor keeping down minorities and other "undesirables".

One way or another though, free market pressures will erode away all types of discrimination - even some kinds that most of us probably think are alright.

For example, it was reported today that a popular lesbian-only resort in Florida is responding to the economic crisis by opening their doors to all genders & sexual orientations:
"...over this Thanksgiving weekend, Key West's only lesbian-exclusive resort is going "all welcome."

The decision was made public about the same time Pearl's Rainbow was honored in October by Curve, the best-selling lesbian magazine, as the guesthouse that had the greatest impact on lesbian culture over the past 20 years.

Pearl's Rainbow's lesbian owner, Heather Carruthers, said it was a business decision based on tough economic realities, the request of some lesbian guests who would like to bring male family members or friends -- and on some good news. Lesbians are being more accepted and feel more comfortable in the mainstream these days."
Honestly, a few things came to my mind when I read this. The first reaction for me is just about the economics of it all.

ALL types of discrimination - be it white against black, American against Mexican, Christian against atheist - are punished by free markets. It is much smarter for employers to hire whoever is best for the job and whoever among qualified candidates are willing to work at the lowest rate or they will be over-paying for labor. It's also much smarter for business owners to sell to as many people as possible as well, regardless of who they are, what color their skin is or what they believe.

And here, with the Pearl's Rainbow example, we have a crystal clear case showing that the market - on its own, without any government force required - encourages greater levels of inclusion, especially when money gets tight. I love examples like this, because they help illustrate sound economics in the real world.

But I had another thought as well! This second thought I had is a bit more subtle... a bit more complex.

The Pearl's Rainbow lesbian resort made a perfectly legitimate choice to exclude men and I strongly believe that they should always be free to do so.

One might also argue that the right of the Ms. Carruthers to select her clientele and exclude those she did not want her resort to cater to not only contributed to her business' success, but as a result provided a unique and popular getaway to people who have historically not been so welcome or free to be themselves at other establishments. There's no question that having a lesbian-only, or gay-only resort is a wonderful thing for homosexuals... It's easy to see why someone might want to open such a resort.

But that choice obviously comes at the cost of potential clients. I'm sure you'd agree though that Ms. Carruthers' trade-off seems like a choice well made for the Pearl's Rainbow. However, now that we're experiencing tough economic times, her desire to continue operating the resort instead of going out of business has resulted in less exclusion and broadening the people she allows into her hotel... And maybe that's good too!

But this should make most people take a step back and consider what they think about freedom of association and the rights of business owners (and everyone else) to make their own choices about who can or cannot benefit from the products & services they offer. In America, those rights aren't equal for everyone.

We allow certain demographic groups (such as lesbians) to discriminate while restricting that very same right for others. Not very principled, is it?

Consider that the arguments typically made in favor of anti-discrimination laws claim that restaurants & hotels are "public" services, regardless of whether or not they are privately owned or state-controlled. But by the arguments that many people who support the more proactive parts of the Civil Rights Act make, Ms. Carruthers should never have had the right to discriminate against men.

Just to be clear, by "proactive", I am referring only to those parts of the CRA which made racial discrimination illegal... I am not referring to the parts which repealed the legislated segregation through Jim Crow - which was, of course, a very very good thing. People have an unfortunate tendency to push for extremes, and too often in America, what isn't mandatory must be prohibited. I know it's complicated, but I'm saying that sometimes... just occasionally... it shouldn't be one or the other - but neither.

Discrimination should neither be required, nor prohibited.

That said... The Pearl's Rainbow is clearly a hotel and I'm quite sure it also sells food and refreshment to its guests. And until now, it clearly discriminated against a group of people based on gender & sexual orientation.

Under our current rules, the only organizations which can discriminate in their clientele legally are those which charge a membership fee - thus rendering them "private clubs" in the eyes of the law. Hotels & resorts don't charge membership fees of course, so they are (incorrectly) deemed "public" institutions. But because they are deemed public, they are limited in the forms of discrimination their owners can engage in. Were the Pearl's Rainbow a hotel catering only to straight men, or "worse" - only straight white men - I believe we can be quite sure such an establishment would have either been sued out of existence or forced to allow non-white gays & lesbians and women.

However... Most of the anti-discrimination legislation is designed to be egalitarian, so there's no surprise that it's not consistent. It's often "ok" to discriminate against the majority demographics if you're in the minority, but not the other way around. One person's discrimination is tolerated, while the other's is not.

But as far as I'm concerned it should all be ok!

Firstly, it's purely an issue of principle. If people are to be free to retain private ownership of anything (and that's kind of foundational for a healthy economy), that necessarily means that people are free to decide what to do with what they own. It doesn't matter if what you own is a house, a baseball card or a successful Key West resort & hotel, ownership means getting to choose what you do with the things you own - and part of that in business is being free to decide who to hire and to whom you will sell your services & products.

Thing is... Freedom is messy.

Sometimes people will make bad or mean-spirited choices. Sometimes people will decide to discriminate against people because of the color of their skin and sometimes those doing the discriminating will be people in the majority who hold historical positions of power. Sometimes, people will be bad guys... No one likes that and it should be vocally decried and boycotted wherever possible.

But it's also only one side of the coin...

Freedom for individuals to do what they want with their own property also means that people who have historically been without power like lesbians & gays can form their own communities and cater to their own niches when no one else will.

And that's remarkably empowering!

In the case of the Pearl's Rainbow, I think it's clear that Ms. Carruthers' empowerment became a model and an inspiration to other homosexuals who have historically had few places where they can feel at home. The freedom to own property & start businesses also greatly empowered many recently freed blacks in the Antibellum South - allowing many to become successful & relatively prosperous... at least, until the Jim Crow era came along and put a stop to all that.

In environments where certain groups are heavily discriminated against, it is ironically the very same power to own property and discriminate which provides minority groups the ability to discriminate in their own favor and thus provides way for the disenfranchised to become prosperous!

And all the while, market forces continue to put pressure on discrimination of all kinds and eventually freedom will wind up encouraging people to come together, trade with each other, become economically interdependent and eventually - with a bit of luck - even learn to like each other.

Oh by the way... This effects me pretty directly as well, though I am not gay or a member of an American racial minority.

I have elected to trade in a broad market for multimedia production services in favor of a specific niche. I don't discriminate based on gender, religion, sexual orientation or race... But I do discriminate - a lot - based on "creed".

My services are not available to everyone - at least they're not available under the CitizenA banner to everyone. And while I know that I'm sacrificing a good deal of money I could have attained by accepting all clients, the intellectual discrimination I engage in is important to me for many reasons. For my business to be what it is and for me to maintain the respect of my clients and my own self-respect, I actually must discriminate, as odd as that seems, because my business is a reflection of ideas and principles that I actually believe and strongly support.

Everyone should be free to discriminate, even those we believe are doing it for the wrong reasons... Freedom is messy, and not everyone will use it wisely, but it's also worth the mess because it is such a powerful tool for positive change and empowerment.

Just check out the lesbian community in Key West... I'm suspect they'll agree.

Saturday, November 20, 2010

Fear the Bill... Not the Food

A lot of people have been freaking out lately about the FDA Food Safety Modernization Act (S510).

With an Orwellian title like that, you've got to know that the bill is going to be asinine... The general rule tends to be that the more innocuous or grandly important a bill sounds, the worse it is in practice. Consider as a concrete example of this that the de-acronymed title of the USA PATRIOT act was (and I'm not making this up!), the "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001", or that the health care bill last year was actually called the "Patient Protection and Affordable Care Act".
  • Strengthening America? - Clearly, we are so much stronger and more secure today than we were in 2001... Yep.
  • Patient Protection? - Because nothing screams "protection" like forcing people to buy a private industry's service and establishing massive controls over people's health care decisions!
  • Affordable Care? - How's that working out again?
  • Appropriate Tools??? - You know what's fun? Waterboarding!

Without any in-depth review on the S510 bill at all, I'm going to amble out on the incredibly sturdy "limb" known as "historical perspective", and predict that it will do exactly nothing to improve food safety in the United States. I will also predict that it will definitely give the FDA massive new powers over food production in the US and like all such overreaching nonsense, the bill will violate every American's basic right to decide for themselves what to put in their bodies.

You can read the summary and see for yourself the various ways in which this will be bad for consumers.

Not like that's anything new, of course... Considering that we still have full-on prohibition in the US and a government hell-bent on expanding in every possible way, this really isn't a shock. Nor is it a shock that it will pass.

Needless to say, I don't support the bill in any way. It's a very bad idea to give the FDA more expansive and monopolistic powers. Not only is it bad because it will inevitably result in the restriction of liberty for everyone - in the same way that bans on "unsafe" products like raw milk or unlicensed (oooooooooh!!) salumeries & charcuteries are bad for liberty... especially if you like a wide range of delicious foods... But it's also quite bad for the state of competition in the commercial world.

These laws have a funny way of benefiting the major producers - in this case agricultural giants like Archer Daniels Midlands or the dreaded Monsanto - at the expense of small farms and little food distributors. It's easy to understand why... New FDA rules mean increased regulatory compliance costs, and when your company nets $2 Billion a year like Monsanto, that isn't a big deal; but if your company only nets a few hundred thousand a year increases in regulatory costs can be devastating.

This is so devastating in a lot of cases that companies simply go broke and die off, leaving the market less competitive and all the market-share concentrated in a dwindling number of behemoth companies. It's a recurring theme of our corporatist/mercantilist economic system... and something that would be virtually impossible in a free-market.

So again. I am NOT a fan of this bill. It is unquestionably a bad idea.


The people I've mostly encountered who are railing against the bill are completely clueless in their own right and I've dragged myself into a few discussions with them over the past few days.

What about, you ask? Genetically Modified Organisms, more commonly known as "GMO"s.

Cue ominous music.

No seriously... Cue it up. Frankenfoods! Boo!!! Be scared!!

Listen... Here's the thing. Just because the Senate is about to (already has?) pass an incredibly destructive and stupid bill that limits your freedom and helps corporate agricultural giants like Monsanto or ADM doesn't mean that the products those corporate giants produce are actually a problem. Genetically engineered crops should not be feared, and the misinformation surrounding them - mostly promoted by hippies and other fundamentally ignorant people, lets be honest - is vast and mostly absurd. But my god does this make for compelling scare stories!

It's classic fear-mongering at it's "best", really... And the fallacies employed are varied and frequent. Mainstays include the Naturalistic Fallacy (assuming that anything "natural" is better than anything man-made) and Argument from Ignorance (we don't know what will happen to the ecology in 50 years with GM crops, therefore... ban them!!).

But facts are inconvenient.

There is absolutely nothing wrong with genetically modified foods. There have been dozens of studies on the issue, and again & again we find that there are no negative side effects - long term studies are even finding no negative environmental effects.

What's that? You want some proof?

How about the International Council for Science's review of 50 different studies which found that:
"Currently available genetically modified foods are safe to eat."

And that:
"there is no evidence of any deleterious environmental effects having occurred from the trait/species combinations currently available."
Additionally, the Society for Toxicology wrote a position paper way back in 2002 titled, "The Safety of Genetically Modified Foods Produced through Biotechnology" which concluded:
"The available scientific evidence indicates that the potential adverse health effects arising from biotechnology-derived foods are not different in nature from those created by conventional breeding practices for plant, animal, or microbial enhancement, and are already familiar to toxicologists. It is therefore important to recognize that it is the food product itself, rather than the process through which it is made, that should be the focus of attention in assessing safety."
They haven't changed their minds yet...

The SoT also wrote a really crucial point that unfortunately few raw foodists fundamentally grasp about biology:
"These products are commonly termed genetically-modified foods, but this is misleading since conventional methods of microbial, crop and animal improvement also produce genetic modifications and these are not addressed here."
We have been modifying foods for centuries, and there are few foods that exist today which humans haven't had a major impact on both phenotypically, and necessarily genotypically. Think "natural" carrots are orange? Wrong! Different varieties were white, red & yellow! We made them orange.

We've been tampering with our food as long as we have been cultivating plants and not just foraging. And since Gregor Mendel first started to put the pieces together on genetics, we've just gotten better at it. That's all there is to it.

I get that this issue has been charged with decades worth of fear-mongering and science-fiction "frankenfoods" nonsense, but the facts are what they are.

The green revolution sparked by Norman Borlaug and his contemporaries in agricultural science have saved literally billions of people from mass starvation as a result of technological advancements in food production through bioengineering. Borlaug won a nobel-prize for his noble (get it?) work which has allowed the poorest people on the planet a much better life than they have ever been able to have in the history of the world. And this is good!!

Don't fear the technology... and good lord, please don't buy into the idea that somehow bioengineering removes all the "nutrients" from food. It does no such thing.

That said, please don't misunderstand me.

I don't - under any circumstances - support the FDA in theory and especially not in practice, and I advocate anyone's right to choose for themselves what foods they put in their own bodies as a pretty fundamental aspect of liberty. You own yourself, so eat what you want, at your own risk of course...

But just because the government shouldn't be involved doesn't mean that GMO crops aren't a good thing anyway. It certainly doesn't mean that in the absence of subsidies and government patent protections, small farms wouldn't be using GMO seeds - and in fact, without patents limiting access to this technology, genetically modified crops would probably be a hell of a lot more prevalent in small farming operations.

When you get right down to it, I'd actually suggest that anyone arguing that GMO crops should be banned, or even - in general - that they should go unused, is ultimately advocating for widespread death by famine as we could not possibly feed even a tiny fraction of the population of the planet on ancient, antiquated agricultural techniques.

And that's just not cool.

Ayn Rand vs. Roy Childs

Way back in 1969, the libertarian essayist, Roy Childs (1949-1992) wrote an "Open Letter to Ayn Rand" in the Society for Individual Liberty's newsletter "The Individualist". Anyone who knows anything about Ms. Rand's personality and her aversion to criticism will understand why the letter is so awesome and ballsy. Here's how Roy Childs kicks it off:
"Dear Miss Rand:

     The purpose of this letter is to convert you to free market anarchism. As far as I can determine, no one has ever pointed out to you in detail the errors in your political philosophy. That is my intention here. I attempted this task once before, in my essay "The Contradiction in Objectivism," in the March 1968 issue of the Rampart Journal, but I now think that my argument was ineffective and weak, not emphasizing the essentials of the matter. I will remedy that here.

     Why am I making such an attempt to convert you to a point of view which you have, repeatedly, publicly condemned as a floating abstraction? Because you are wrong. I suggest that your political philosophy cannot be maintained without contradiction, that, in fact, you are advocating the maintenance of an institution – the state – which is a moral evil. To a person of self-esteem, these are reasons enough."
It's a great letter, and worth reading in its entirety, but it's not directly the subject of my post today.

Because I enjoyed it, I posted the letter on Facebook and it's generated a number of great comments from a lot of people. Most of the comments come from my anarcho-capitalist friends who already agree with the ideas contained in the letter.

However, today, an Objectivist friend - Nathan - came to the defense of Ayn Rand. That's something I might have done about 10 years ago... Maybe even 6 or 7 years ago... But it is precisely because of the kinds of questions raised by Childs regarding Rand's philosophical inconsistencies that I turned away from Objectivism (and even the lower-case "o" kind) years ago, so I think it's worth addressing Nathan's points.

Truthfully, Nathan didn't go into all that much detail about his objections to Childs' points, but since I'm procrastinating on an article I've been trying to write for days... I'm going to address his arguments one by one.

The first objection Nathan raised was that Childs' conclusions were "nonsensical" - however, he left the point far too vague for me to comment on that issue specifically so I'm going to skip directly to his second objection... Nathan writes:
"Secondly, he [Childs] claims any form of government is a "moral evil," but never says why. Disqualified."
Actually, Childs letter does explain why. It's based first on defining the word "government". Childs writes:
"One of the major characteristics of your conception of government is that it holds a monopoly on the use of retaliatory force in a given geographical area. Now, there are only two possible kinds of monopolies: a coercive monopoly, which initiates force to keep its monopoly, or a non-coercive monopoly, which is always open to competition. In an Objectivist society, the government is not open to competition, and hence is a coercive monopoly."
If government is not a coercive monopoly - i.e., if there were alternatives for securing contracts and personal safety and if you are not forced to pay for the government's existence, then we're already dealing with market anarchism anyway.

In short - if a government does not have a monopoly on force, it isn't a government anymore.

Government's coercive monopoly on the use of force within a given geography results in all kinds of badness, such as border/territorial disputes & wars, forceful intervention into attempts at self-government (i.e. Waco) and rather importantly, the mandatory collection of taxes forcing the public to support the government rather than charging for services rendered as one would do in a market.

That way, unlike a competitive service provided in a market, even if you want additional protection from a private organization, it would be just that... "additional".

You are required to pay for government no matter what. Consequently, claiming that a government can exist purely "defensively" or purely to protect people against the initiation of force while itself initiating force against people in order to exist at all is entirely paradoxical. It's not a point Childs is confused about - but it is a severe problem with Rand's logic.

Now, real quick... Let's look at non-coercive monopolies for a moment to explain the contrast.

Imagine a small town with one grocery store (like the town I went to high school in, for instance). Technically that store does have a monopoly on all grocery business, however there is nothing except their own actions which prevents competitors from cropping up and instantly eliminating their "monopoly". They only maintain their monopoly by providing adequate services at prices their consumers found to be reasonable. Economists sometimes use the term "efficiency monopoly" to describe this situation.

If the store started jacking up prices beyond what consumers were willing to pay and beyond the actual market value of the goods, new competitors would be able to easily jump into the grocery market and offer a lower price and take away most (if not all) of the original store's customer base.

Can that happen with governments? No.

Why not? Again... Because governments initiate force against anyone who might offer a competing defense service, thereby destroying them. A parallel in the grocery world would be if a store maintained its monopoly in a region by burning down anyone else's shops. Fortunately, that does not happen, and on the off chance that some business did burn down their competitors' stores, we would correctly recognize that as a crime.

And this is the point where it all comes back together!

Government relies on the initiation of force to maintain its very existence. This breaks the non-aggression axiom Rand takes for granted as the basis for moral good & evil. Thus, government is itself - literally by definition - a moral evil. QED.

Nathan continues:
"Rand never advocates a 'middle ground.'"
By defending the existence of the state, Rand did - in fact - advocate a "middle ground". Though she would have been the first to insist otherwise (albeit purely by assertion, as Nathan has unfortunately also done).

Limited government is the middle ground between authoritarian statism and the absence of a state (i.e. anarchy). This much should pretty much be obvious... But we can also do it graphically! Take note:

Anarchy ------------- Limited Government ------------- Authoritarianism

There are many fine arguments to be made for the idea that limited government might possibly be preferable to either anarchy or authoritarianism... But while Rand advocated far less statism than most people of her time and certainly more than most people today, it must still be stated that Rand's advocacy of so-called limited government is clearly the "middle ground" between other alternatives. Again... QED.

More Nathan:
"Rand advocates an objectively definable set of laws, which require retaliatory force to enforce, otherwise no laws can exist, and without such laws, no values can exist in any real way, even your "right to life.""
Ayn Rand and her modern-day supporters use the word "objective" way too much.... but that's a side-issue.

The only reason rights to life, liberty & property are accepted as valid is as a result of accepting the premise that individuals are self-owners and thereby entitled to make their own decisions regarding mind & body... Rights are a consequent from deductive logic once you accept that particular premise and you are actually committed to being consistent about it. It is that understanding which laws should also be created in line with (not to say that they always are).

People have the right to life, therefore it is illegal to murder. People have the right to liberty, therefore it is illegal to enslave. Etcetera.

But Nathan's statement mistakenly presumes that the law is the basis for rights - rather than the other way around. In the "Rights of Man", Thomas Paine wrote one of my all-time favorite quotes on the topic:
"It is a perversion of terms to say that a charter gives rights. It operates by a contrary effect — that of taking rights away. Rights are inherently in all the inhabitants; but charters, by annulling those rights, in the majority, leave the right, by exclusion, in the hands of a few.... They...consequently are instruments of injustice."
Rights don't come from laws, but from individual sovereignty - as noted above. More on this in the short version of my video on the Bill of Rights:

(By the way... You can buy the full two-part Bill of Rights series for $4.00 at Just sayin... you should do it!)

Anyway... The law definitely does not create the natural rights of man, and as such - it is a massive logical error to assume that only a government is capable of adequately defining how best to defend those rights. Moreover, Roy Childs' objections to Ayn Rand's view on the matter - and to anyone who maintains the need for the state in these matters - are directed at Rand as follows [emphasis mine]:
"This contradicts your epistemological and ethical position. Man's mind – which means: the mind of the individual human being – is capable of knowing reality, and man is capable of coming to conclusions on the basis of his rational judgment and acting on the basis of his rational self-interest. You imply, without stating it, that if an individual decides to use retaliation, that that decision is somehow subjective and arbitrary. Rather, supposedly the individual should leave such a decision up to government which is – what? Collective and therefore objective? This is illogical. If man is not capable of making these decisions, then he isn't capable of making them, and no government made up of men is capable of making them, either. By what epistemological criterion is an individual's action classified as "arbitrary," while that of a group of individuals is somehow "objective"?"
That pretty well sums it up, doesn't it?

If people as individuals are not capable of defining which laws are necessary and which are not, then they are not capable of collectively coming to such an agreement either. Remember: Society is just a word we use to describe a large group of individuals who share some geography or culture. It isn't a thinking creature all its own!

It goes back to the fundamental flaw in reasoning underlying governments and democracy in general based on the idea that most, if not all people are evil. Jefferson put it quite well:
"Sometimes it is said that man cannot be trusted with the government of himself. Can he, then be trusted with the government of others? Or have we found angels in the form of kings to govern him? Let history answer this question."
Anyway... There's more from Nathan to deal with:
"It is his contention that "limited government is a floating abstraction which has never been concretized by anyone; that a limited government must either initiate force or cease being a government" is completely incorrect. I assume he's talking about tax collection.
To that I say... what is the point of defining air-tight, objectively definable values and a moral and ethical code, if you're just going to turn around and say it's immoral for anyone to enforce it, or ask anyone to live by it."
This is a multi-part issue.

First... Limited government is a floating abstraction, and America is the living embodiment of that idea. America set out to be the first nation on the planet with a carefully and strictly limited central authority. And that worked for what... a couple of years?

It was just 9 years into our nation's existence when the 1st Amendment was abandoned by John Adams' "Alien and Sedition Acts"... and year after year the government has grown steadily, regardless of our Bill of Rights or the other charters that were supposed to keep it in check. I tend to think that America's set-up was about as good as any country could ever hope to achieve on the limited government front and now we've arrived at a point where merely traveling around the nation by air requires individuals to completely give up their right to liberty as "guaranteed" by the 4th Amendment.

So yeah... "Limited" government seems to be a temporary condition at best...

Secondly... I don't think Childs was talking about tax-collection. Tax collection is a given, and by itself would prove that limited governments initiate force against individuals in order to exist (see my point about the paradox above!), but there are other abuses as well. Continual warfare comes to mind.

Third... Nathan has engaged in a straw-man.

No one has claimed that it is immoral to "enforce" (by which I assume he means protect) individual rights. Quite the opposite, in fact. It's merely been claimed that it is immoral for only one organization to have a monopoly on the protection of those liberties... as to maintain such a monopoly requires the government to initiate force - thereby violating the very idea of liberty it is ostensibly designed to protect.

The essence of government is contradictory to the protection of liberty. This is a big damn problem... Especially for Ayn Rand's views.

As I said earlier, Childs' full letter is definitely worth reading... But, I came to the same conclusions on my own after spending some time seriously considering all that I had read from Ayn Rand. I think a lot of libertarians should eventually undergo this transition actually... The moral arguments against the state are a good starting block but if most goods & services - like food production or health care - can be better provided by market-competition, why not defense? Why must government have a monopoly on force?

The economic arguments like externality issues and free-rider problems just don't hold up in my mind anymore... And even if they did, it wouldn't make supporting government in principle logically consistent - which, as far as I know, was always Ayn Rand's goal. As much as she liked to claim she had a completely consistent philosophy, I think issues like this conclusively show that not to have been the case at all.

I would love to have been a fly on the wall when she first read Childs' letter though. I'm sure Ayn Rand's outrage would have been the stuff of legend.

Monday, November 8, 2010

Ok... Well, I DID Sit Here Typing All Night

Oh well...

I was trying to explain to a particular Facebook buddy that, contrary to his unwaivering belief in his government, TARP bailouts & the various "stimulus" packages have made our situation worse, not better. At the time, I followed this up with simply pointing out the different response the US Government had in the case of the 1920 stock market crash, vs. the response they had in 1929 or today.

Originally, I was happy to just leave him with the following video of Tom Woods' wonderful discussion of the subject:

Then something funny happened.

This guy, "Len", made the following comment:
Um, two things, Sean: (a) You neglect to support your own point that the bailouts were harmful to the economy. (b) The stock market crash took place in 1929, not 1920.


You evidently have no schooling in economics. Why not leave those discussions to those of us who know what we're talking about. There's a good lad. Now run along.
Man you gotta love the sweet, sweet irony!

I mocked him for being an idiot briefly, and suggested that he too watch the video I had linked above. But he responded by still demanding that I go back and support my point about the bailouts... But he also tried to make a few claims I'm getting perennially bored by - namely:
  1. That Bush deregulated everything, and that caused the crisis. (Ugh.)
  2. "The market crash that ran from the 3rd quarter of 1919 to the 2nd half of 1921 lost 55.72 points or 46.6% of the DJIA. By comparison, the initial crash in October 1929 lost 182.5 points or or 47.9% -- far more devastating than 1920"... (Uh... What?! A decline of 47.9% is "far more devastating" than 46.6%?)
  3. The Great Depression lasted so much longer than the depression in 1920! They're incomparable... (Uh... Duh.......)
Anyway... Not that I didn't really have anything better to do, but I often take these opportunities to respond in these situations... So what follows, after claiming that I didn't have time to sit here all night and answer in detail, is my slightly edited reply:

First off, what Len conveniently omitted in his little spiel above was that the government's response to the 1920 crash vs. their response to the 1929 crash were radically different. And the whole point I made, and which economic historian Tom Woods discussed at length in the lecture video I linked (the one above that Len clearly did not watch), is that it was the RESPONSE that created the long term harm...

The 3 years of "free fall", and the 14 years following, were filled with all kinds of market interventions that distorted the market and prevented recovery in literally hundreds of different ways.

Please review the Tom Woods piece if you haven't already.

And then... Perhaps read up on the history of the era a little more perhaps with:
At any rate... Since Len started his little narrative in the middle (with the crash) instead of at the beginning (the boom), let me explain what he was missing...

The question you haven't bothered to answer, or even ask for that matter, is "where did the credit come from in the first place?"

How did the bubble actually get created... now, or in the 20s?

For that, you actually have to have a more complete understanding of the business cycle and understand what effects a centrally planned money supply & interest rate has on the economy.

Further reading on the ABCT:
For instance... between 1917 and 1920, the money supply in the United States was increased (to pay for WWI) by about 75%, thennnnnn.... CRASH.

If you understand why a rapid expansion of the money supply of a nation causes misallocation of resources then it shouldn't come as a big surprise that when the government expanded the money supply further 30% from about $35 B to $45 B between about 1925-1929 we had yet another massive crash.

In a nutshell: Artificially increasing the supply of money leads to the creation of artificially cheap/available credit, which in turn gets consumed rapidly - low interest rates encourage consumption over savings, after all. However, because the glut of credit isn't "real", (i.e. not borne from actual capital savings and underconsumption) the real-world resources and production cannot keep up with the glut of demand for them and the whole thing eventually collapses.

I explained all this in more detail sustainable economic growth in my recent essay "Wealth Means Production" (to be fair, a hell of a lot of this post can be summed up by Say's Law).

I also wrote about popular myths and currently developing mythologies for the Mises Institute, in my article "Deliberately Misplaced Blame", and by the way - here's George Reisman (who literally wrote the book on "Capitalism") on the Boom & Bust Cycle.


Now, of course Len had to repeat the old stand by meme of "deregulation", which I have to say, is idiotic.

Bush was one of the biggest regulators in the history of government. The man presided over the addition of almost 15,000 pages of new "economically significant" regulation, and the financial industry is already easily the most regulated industry in the United States or really anywhere around the world.

Aside from the big stuff like Sarbanes-Oxley, you also have to contend with entirely new divisions in the executive branch like the TSA or Department of Homeland Security - both of which actually included immense new regulatory powers over the financial sector.

You might argue that the "wrong" regulations were in place, but this bullshit of "deregulation" really needs to be put to bed. It's pure nonsense.

Deregulation did not cause this problem.

Also see economist Veronique de Rugy on Bush era regulatory policy (her specific focus as a professional economist at GMU's Mercatus Center, incidentally enough).

Oh... and me... ages ago.... on this very blog, discussing the history of bailouts and economic interventions.


FINALLY... Now that I've gone back and covered how we got here, and maybe more importantly, what didn't get us here. I didn't actually answer Len's question yet. So.......... Bailouts.

Here's the problem.

In the short term, bailouts prevent the economy from recovering by propping up the businesses which ultimately need to die and who's assets need to be sold off to a more efficient, properly operating organization.

They create what we now call "Zombie" Businesses.

When there is a gigantic misallocation of resources as tends to happen in artificial credit-induced bubbles - a lot of businesses get built around producing products for which there is not actually substantial demand - or for which the demand that exists is only a by product of the government-created credit.

They are producing the WRONG things... and all the resources & labor they are currently employing to produce whatever it is (for example, housing), is going to need to *STOP* going towards those products if the economy is to get back on track.

The sooner we correct the mistake in allocation of our resources, the sooner those resources can be employed to create goods & services consumers actually need/want.

A further consequence is that the people who ran their businesses well - and should be rewarded by (for instance) buying off the assets of their failed competitors at a good price, are not only barred from the opportunity to grow (we're actively punishing the good guys!) but they are now actually competing in an environment where all the big players can basically never die off.

Take a guy like Andy Beal who's bank in Texas made really smart decisions in the run up to the collapse... He could have bought off the assets of local branches of bailed out banks in the area... But nope! The government didn't allow it.

In the LONG term, however... Bailouts are WAY worse! They typically reward the biggest, most well-connected firms for bad behavior.

In the financial sector, that's particularly damaging... Their profits are free & clear, but their losses are subsidized by the tax-payers - and this promise has been around and in play for decades in America! So what seems like "risky" behavior - all those wild (not) "deregulated" credit instruments - ISN'T RISKY AT ALL!!

Bankers know this... Major businesses know this.

The moral hazard in play is setting up future catastrophes, and no matter how many politicians promise that we'll not bail anyone out again, they have proven over many years that this is nonsense and not to be trusted... Ever.

Sp please don't be fooled by the garbage economics that goes into "supporting" bailouts and broken-window fallacy ridden stimulus packages. These things are give-aways to favored corporations at the expense of economic liberty and the taxpayer's wallets. Nothing more.

And by the way, at some point, everyone really needs to read Henry Hazlitt's "Economics in One Lesson", and of course, Ludwig von Mises' classic, "Human Action".

Educate yourself on these topics, and they will make sense... Continue regurgitating the childish versions of history & economics you were taught in school, or what the government would like for you to believe - and you will be forever perplexed by the results of policies you support. And honestly, if we don't change course pretty radically in the very near future... It really will be too late.

...At least I won't be surprised when the other shoe falls. As if that's a meaningful consolation...

Saturday, November 6, 2010

Wealth Means Production, Not Consumption!

Wayyyy back in July (when I actually began writing this post), Peter Suderman of Reason Magazine posted a short article called: Economic Model That Estimated That the Stimulus Would Create Jobs Now Says It Did on Hit & Run... While not one of the wildest comment threads I've ever seen over there, our old friend "Tony" was about and yet again became a (moderately) useful Socratic tool on to which I dropped some knowledge.

Of the many idiotic things he said, he did finally ask a direct question. He said:
"Sean humor me, how are wealth and prosperity created?"
Being the magnanimous chap I am, and in spite of the fact that I have already explained as much to Tony on several occasions, I responded.

Then I realized, I haven't written/posted anything here in quite some time (3 weeks?) purely because I have been so ridiculously busy with my impending transnational move back to the East Coast, and feverishly working on the second Bill of Rights video...

By the way - "The Bill of Rights - Part I: Philosophy & Hiistory" is now available for sale at for a paltry $2.00! Please go check that out and help support more media creation.

At any rate, I've written repeatedly on this blog about things that government can do to rapidly destroy wealth and impoverish people... Price & wage controls, high rates of taxation, massive government spending sprees, fiat currency/inflationary monetary policy, high national debts, "regime uncertainty", subsidies/picking winners & losers... and generally anything that makes investors & businesses want to go elsewhere with their money, factories & jobs.

But I haven't written much overtly positive on how this all works... So here goes:

Where does wealth come from?

Wealth & prosperity can only be created via PRODUCTION.

Contrary to what a lot of people in the government and unthinking media hacks would like you to believe, there is no real difference between how you get rich as an individual and how you get rich as a nation. No one, and no government, can simply "spend" their way to prosperity... So let's abandon that ridiculous notion right now.

We must each produce wealth if we wish to increase the wealth in the world...

Most all politicians and a disturbingly large number of bad economists incorrectly believe that spending is the key for a few reasons.... For one thing, they frequently conflate money with wealth.

That's a big mistake indeed, but it's unsurprising when you consider that most of these people spend their lives thinking about the economy in terms of "aggregates" and mediocre proxies like Gross Domestic Product, which measures spending (i.e. money!) and not actual production - though to be fair, measuring real production is virtually impossible, especially on a large scale. Problem is, eventually it seems that a lot of people spend so long looking at the various proxies for wealth like money that they forget they aren't the same thing at all.

But if it's not money, then what is wealth? Well, the dictionary defines it as:
a. all things that have a monetary or exchange value.
b. anything that has utility and is capable of being appropriated or exchanged.
If you note the above definition, wealth isn't defined as "money" at all, but rather as all of the things that can be exchanged for money - loosely including goods, services, labor... and even, as tricky as this gets, other money in the form of investments.

However, this definition is extremely broad and doesn't fully express that not all goods & services which can be "exchanged & appropriated" are the same. A somewhat better definition would be that wealth is all the stuff that you and I have and use on a daily basis that improves our lives. Stuff like housing, food, clothing, movies, computers, restaurants, etc...

This brings me back to GDP.

GDP has a lot of problems... Most notably, it includes government spending, while assuming that said spending is economically productive, rather than destructive - which is more often than not the case. GDP cannot make any kind of distinction between economic activity that increases wealth & improves people's day-to-day existence and activity which does the opposite.

For instance, every few hundred million the United States government spends on roads and other elements of the infrastructure that might facilitate both production & trade, they're spending billions on blowing stuff up! Since bombs & tanks and such actually destroy wealth, they force producers to replace, rather than add to the available supply of goods in the world.

Unfortunately, just looking at GDP wouldn't show you the difference.

That's also, by the way, why a lot of people falsely believe that the United States finally broke out of its Great Depression when we entered World War II. If you look at GDP, government spending skyrocketed and unemployment most certainly went down. Except... Instead of people employed producing housing, food, clothing, and all that stuff needed by ordinary folks to live and thrive, people were employed building things that explode in order to destroy other people's things.

So it's not that difficult to see that war, given it's destructive nature, doesn't add anything to the wealth of the world. In fact, quite the opposite. Typically, at the end of any war, both sides have fewer available goods & services than it did before, while also having redirected all the "means" of production into destructive activities.

That's one of the many, many reasons that war just isn't that great. Economically speaking, it's just one gigantic "Broken Window Fallacy".

How does production happen?

Now that we know that it's production, rather than spending or the printing of money that creates wealth as goes a lot of the mainstream idiocy, we need to understand how production actually does happen.

To do that, we need to first understand the importance of underconsumption, better known as "savings".

Building factories, starting new businesses, and generally setting up all the things that an entrepreneur must do if he wants to start making something that other people will trade their hard-earned money for usually takes a lot of forethought, planning, time & money.

While all the planning, time, research, and everything else Getting the money to start up a new factory or a new business - which will eventually increase the supply of goods & services in the world (thus increasing wealth available & growing the economic "pie" for everyone) - can come from two sources, but both rely on savings.

Either that savings has to come from the entrepreneur herself, or as is often the case, if she doesn't personally have the money needed, she can ask to borrow it from others... Thus, credit enters the picture!

However... So do interest rates.

Most people probably think interest rates are just a function of the credit rating of the borrower. People who have a good track record of turning a profit and paying their debts, as well as those who have some collateral to promise up front get lower interest rates than those who are less trustworthy in the eyes of lenders. While this is true, interest rates (in a free market) are also a function of available capital.

Interest rates coordinate money with time-preference. And that's really pretty important!

When a lot of people under-consume - by which I mean, when a lot of people save their money instead of spending it - what they are demonstrating is that they value the utility money more in the future than they do right now. And there are a lot of excellent and important consequences to a high savings rate! For instance:
  1. Credit standards drop - with lots of money available to lend, each investment is less risky so more people are granted access to other people's credit, which means...
  2. Entrepreneurs seeking capital have an easier time starting their businesses and existing companies have an easier time expanding, which means...
  3. There will be higher levels of production, and higher levels of employment. And if those newly employed folks save their money, then...
  4. Individuals are better protected in the event of natural disasters or personal problems, and as such are in a better position to weather any minor market corrections or periods of unemployment
But "what about demand??" you say?

The dirty little secret Keynesians don't want you to realize is that demand is - essentially - infinite. No one wakes up one day and decides that they no longer want a better house, a nicer car, better quality health care, another week of vacation in Hawaii or anything else. Looking at economic activity in terms of "aggregate demand" is ridiculous. Demand doesn't produce anything. Our unlimited wants don't make those wants materialize. And no matter how much we might desire, our desires will never manifest themselves into something tangible. 

Not to mention the fact that it's impossible to buy something that does not yet exist. Unfortunately, Keynesian theories of production are horrifically incomplete and they fail miserably when you actually quit looking at demand as a meaningless aggregated statistic and answer the question, "demand for what?"

If demand drove the economy, then the only products that would be produced are products that already exist and are well known by consumers. But that's obviously false... Plenty of things are produced that no one has ever even heard of.

As such, entrepreneurs are ultimately the key to to all this... Their function is to anticipate specific future demands by reading the present and making assumptions about people's wants and needs over time. For example, when Steve(s) Jobs & Wozniak were tinkering with their little computer company in the 1970's, no one even knew they existed - much less actively "demanding" iPhones. Yet over the years Apple has proved to be remarkably successful at anticipating the wants and needs of future consumers. 

They did that. And they were able to do that because a similarly forward-thinking guy named Mike Markkula who happened to have several million dollars in saved money decided to risk his own capital on their idea. It paid off big, but none of it would be possible without Markkula's prudence and under-consumption.

There was no "demand" for their services in 1977. Yet last year they did almost $43 Billion in sales... What they created, ultimately was good enough to warrant sparking increased demand, but the demand for their goods could not have occurred prior to Apple's existence... But in order to exist at all, the company required someone else's savings in the form of credit.

Sadly, that's not where a lot of credit comes from anymore...

The problem with modern "Credit"

Here's the thing... In modern America (and most of the world), the money supply and the general interest rates is controlled by fiat by the government & their sanctioned operators like the Federal Reserve.

The power to simply print new money is a dangerous weapon wielded against the unsuspecting American public. And it utterly distorts the availability of credit, and subsequently, what that credit is used for. When credit comes from savings and under-consumption, the credit available is set by the real habits of millions of people. If people aren't saving that much, for whatever reason, less credit is available - and as a result, interest rates would rise and encourage more people to save. If plenty of people had saved lots of money, interest rates would drop as credit became more available, and that would encourage people to spend & borrow.

It's a self-regulating system.

But when you toss the central banking system into the mix, all bets are off! If in reality, few people are saving money, but the Federal Reserve decides that interest rates should stay low anyway, more people will continue borrowing and spending in spite of the fact that the money isn't actually in anyone's bank accounts. Surely you can see the long-term problem here?

Look at what's happened in America over the last few years. The Fed has held rates down, and even worse, ballooned the supply of money. So instead of slowing down spending, and starting to under-consume again by saving & investing, people go on buying more than they can afford and all on borrowed money. This is, by it's very nature, entirely unsustainable.

We got to see this clearly just a couple years ago with the financial collapse - and we're going to see it again very soon unless things radically change.

Now... Here's the other thing... When interest rates are high, that encourages *only* those who are going to make significant returns on the money to borrow it. So instead of getting that new Sears card, you and I and most all of us save our pennies for the new washer & dryer set. Whereas, someone who either A. can afford to bear a higher level of risk, i.e. someone who's rich, or B. an entrepreneur starting a business with a good plan to make a fair bit of money by producing something people value, will be allowed to borrow in the service of creating more wealth in the long term.

Lenders, when not having their loans guaranteed by the government at least, are generally smart enough to realize that if they only have a limited amount of money to lend out - they'd better give it to someone really likely to bring back a return on their investment.

The ones who aren't that smart go out of business pretty quick.

So sometimes high interest rates and limited credit are "good things" when they reflect the real availability of saved capital. High interest rates are just as important a market signal as low rates. But when rates are artificially controlled by some central authority, they encourage all sorts of malinvestments. They encourage entrepreneurs and lenders to make mistakes and anticipate future demand incorrectly. This is an immense waste of resources, and causes disruptions in employment and production that ultimately will need to be rectified rather painfully...

When I say "painfully", I mean, like having 25% of an industry lose their jobs and have company assets sold off at massive losses. Painful.

This wouldn't happen, or at least, would never happen on the scale it's happened in America lately without the Federal Reserve controlling interest & money. And that brings me right back home to wealth:

Wealth & prosperity are created by people actually producing things that people value.

This can't happen - or at least, it's seriously inhibited - in a consumer/debt based economy... WHICH, perhaps I should note is precisely why the US has gone from the world's greatest and wealthiest producer & creditor, to it's largest debtor who imports more than we export.

Instead of having a system where credit is based on real savings, we have a central planning authority which dictates he supply of money & interest rates. As a result, they are politically inclined to push for high inflation and continually easy/cheap credit by running the printing presses because that's what the political class wants and it's what keeps the bankers pockets stuffed with cash.

Problem is, the wealth of the world (i.e. all the stuff people want & need to live) hasn't increased one damn bit! Instead, only the amount of money has. So prices go up and up and up, while production actually stalls. Eventually this comes to a head and tips over... It's a disaster.

When people don't save, they aren't investing in the future. When they don't invest in the future, entrepreneurs and their lenders can only focus on short-term gains (i.e. all that "cheap chinese crap" a particular troll I know is always whining about), rather than on long-term development. We get the worst of both worlds this way - no meaningful investments, only consumption with the widely available credit, and the reality that the credit is built on money that just appeared out of thin air.

So... Right now... If interest rates were significantly higher - dare I say - if they were at the real market rate, instead of whatever artificially depressed level Helicopter Ben has decided on today, you and I would probably have a harder time getting a Sears card, no doubt - at least I know I would - however, our savings would actually be rewarded, so getting back on track financially would be easier instead of harder. And of course, investment in new businesses and new factories, etc. would be rewarded as well.

Thus the cycle continues. Businesses & Factories pop up. Factories actually produce things...

When more "stuff" is produced, the world becomes wealthier as there are more goods and the same amount of dollars, rendering everyone's money more valuable and increasing everyone's ability to live at a higher level. More wealth and production means more jobs as businesses are actually being created.

Thus... The cycle... Continues.

But what we've done in the US is encourage overconsumption, waste, and job loss. And that, by the way, is also what Tony was idiotically arguing for. Although, I'm sure he didn't realize it.

So............. Let me simplify all this one last time.
Low interest rates = Spending/Consumption
High(er) interest rates = Saving/Investment
Absent massive intervention, these things play off each other fairly well... Interest rates go up, people start saving again, investing in the future, then when enough money has been saved up, rates start going back down and that money starts to get spent more freely... When rates are high, only people who have been (by various metrics) deemed to be sound investments are extended credit - this means investing in good new business plans, successful existing businesses and people with a long track record of high credit ratings.

This is great - cause those people go off and start their businesses, create new wealth and employ people... Who in turn, take their salaries and continue to save a good deal of their money what with the high interest rates on their savings accounts.

...All while their money is appreciating in value as no one is messing about with the currency constantly, and the same amount of money is now chasing after vastly more available goods.

All around WIN.

Now... reverse all of that, and it's what a lot of people (including our government) are currently arguing for. Everybody spend everything they have, don't invest in the future, don't worry about producing anything, and when you run out of money - print more and just pretend it doesn't matter that you can't eat paper.

Friday, November 5, 2010

Whine Some More, Guys!

After this Tuesday's election results, it should come as no surprise that there are a lot of partisan Democrats around the country struggling to find ways to blame their crushing losses on anyone - anything - but their own policies.

Obama went out of his way to make all kinds of claims leading up to the election about the need to avoid voting Republican "going back to the failed policies of the last decade". But anyone who's been legitimately paying attention shouldn't be misled by such a statement... It's impossible to "go back" to all of those failed policies because, well... We've never left them!

Ted Balaker & Reason TV already created a fine short video (and corresponding article) discussing a few basics of Obama's similarities to Bush on economic issues... Not that they're all that hard to point out.

  • Bush initiated bailouts with TARP - Obama continued & expanded them.
  • Bush supported a massive stimulus package - Obama's stimulus packages dwarfed Bush's.
  • Bush signed into law massively restrictive "reforms" to the financial system - Obama signed into law even more.
  • Bush signed a massive new health care entitlement - Obama rammed through an even bigger entitlement.
  • Bush added almost 15,000 pages of regulations to the Federal Register - Obama's tally is still rising.
  • Bush spent more and went into more debt than any president in 40 years - Obama has already outpaced him.
That list goes on and on and on... Bush was as Keynesian as you get. Or so I thought, until Obama was elected.

And yet the apologia from partisan Democrats so far is maddening...

On Facebook the other day, D.J. Grothe (President of the James Randi Educational Foundation) posted a San Francisco Chronicle article by Mark Morford entitled "Letter to a Whiny Young Democrat". Unfortunately, the whiny (probably not young) Democrat in question here is actually the author himself:

The article stupidly blames low voter turnout by Democrats for their losses:
"Oh, now you've done it.

See? You see what happens when you young liberal voters get so disgruntled and disillusioned that you drop all your party's newborn, hard-won ideas about Hope™ and Change™, without any patience, without really giving them sufficient time to mature, without understanding that hugely foreign, anti-American concept known as "the long view"
Of course, voter turn out was higher this year than in most all other mid-term elections, including 2006 when Republicans lost control of the congress last time. But really, who cares about facts?

I suppose it's also worth pointing out that it would seem to me that the "long view" would involve caring about the crushing deficits and debt, and the burden of our unfunded liabilities and looming economic catastrophes rather than ignoring them in favor of some misguided, misplaced and magical belief that somehow this time Keynesianism will work.

And then we have Andrew Leonard's condescending piece from Salon entitled, "The Unbearable Stupidity of American Voters" - a sentiment echoed by many of my partisan Democrat acquaintances, by the way - which spouts a stream of economic nonsense, and blames voters for being duped by Republican control of "the message":
"2) Republicans have won the messaging game for the last two years.

It seems remarkable that a party that governed so badly while it was in power, preaching smaller government while engaging in total fiscal irresponsibility, would be trusted by anyone on anything. But GOP talking points, fueled by Tea Party mobilization, appear to have taken hold almost immediately after Obama's election."
Yep... The Republicans, without the bully pulpit, a majority in congress or really any friends in the media outside of Fox News, controlled the "message". Most newspapers, every TV network except Fox, and dozens of celebrities have come out again & again regurgitating the timeless statements issued by the White House.

  • "It's Bush's fault."
  • "The economy would be so much worse without the stimulus."
  • "We had to bail out those banks and give trillions of dollars to corporations, or the whole system would have collapsed."
  • "RepubliCorp!"
  • "Party of NO!"
  • "The problem is, people aren't spending enough."

...and when they weren't just repeating whatever Obama or Nancy Pelosi said verbatim, they were busy finding new and interesting ways to make Tea Party activists all look like crazed, racist lunatics.

And yet, after all that... Most of the American public just didn't buy it. I'm personally pretty happy they didn't, by the way... Not because I want to see Republicans in power, mind you, but because I'm tired of watching year after year of the general public in America avoiding a bunch of really serious and systemic problems with our government and finances.

But anyway... No one is confused on why Obama or his party have claimed to do the things they've done. Obama has been stumping for "the message" for the past two years and has appeared on TV more times and more frequently than any president in history. Hell, he's even made regular appearances on entertainment shows like Jay Leno, "The Daily Show" and The View.

The message got out loud and clear. The message sucked.

It still sucks, but I am betting that few hyperpartisan Dems are going to learn from their mistakes.

And why should they? According to writers like Andrew Leonard, the American public was just too stupid to understand that the man who has outspent 8 years of President Bush and who has placed even more restrictions on people's lives and businesses was actually doing them a big favor.

In part, Mr. Leonard bases his point around the assertion that the public mistakenly believes Obama has raised taxes when in fact, he has "lowered" them.

I'll leave the discussion of methodology and the validity of public-opinion survey data for another day, but the article seems to omit that those "lower" taxes aren't across the board tax-cuts, but rather one-time, temporary tax breaks built into the stimulus packages. Leonard gets to play up a technicality as a meaningful truth... But in reality, things aren't quite so simple.

Taxes have been increased on a slew of consumer goods like cigarettes, the Bush era tax cuts will be expiring soon, and the future increase in taxes to pay for things like the health care bill are going to kick in in a couple years and hit everyone pretty hard. And we all know that!  Plus, that's all without mentioning the new restrictions on banks & businesses, the regulatory and policy uncertainty and the dozens of tariffs and trade wars sparked in the past couple years dragging us all down, making entrepreneurs and existing businesses extremely cautious with their capital and causing our cost of living to shoot up while we're all suffering from a serious lack of employment...

It's not like the bulk of the American people are incapable of reading the writing on the wall and with Obama's unprecedented spending, I think most Americans are pretty clear that their taxes are going up one way or another... Few reporters seem to have been able to grasp that concept though. Not sure why...

But hey... If only there were SmartPeopletm like Andrew Leonard around to explain all this to them... Geesh. The fact is, most Americans are starting to feel serious pressure from the continuing high rates of unemployment, the pay cuts, cuts in hours & benefits and from years of economic malaise.

In an attempt to explain all that away, Leonard cites a modest increase in GDP as a measure of "growth" in order to prove that although people think the economy is still bad, really it's getting back on track. But since GDP includes government expenditures and refers only to the nominal monetary value of certain types of economic activity, it's hardly a useful measurement in the best of times, and it's nonsensical when the government has taken it upon themselves to burn through trillions of dollars in worthless Keynesian stimulus.

A better understanding of economics would serve a hell of a lot of people well right at this moment, and maybe if they did understand the subject better, people at Salon and the San Francisco Chronicle would be smart enough to realize that the policies pursued by the Obama administration have been identical to those favored by President Bush - and that the reason they're not working today is the same damn reason they didn't work 3 years ago or 8 years ago... Or during the Great Depression, or during the 70's in America, or during the 90's in Japan or anywhere else they've ever been tried!

The American public may not clearly understand that either... In fact, I'm positive that overwhelmingly, they don't, since the economic literacy rate in the US is abysmal. However, people do know when to trust their eyes on the economy, and that statistics like GDP should best be ignored when the reality that money & credit is tight and jobs are scarce is right in front of their faces.

However... That's just the economic side of things!

It's something I care a lot about and focus a lot of my own energies on, but it's hardly the end of Bush/Obama similarities on policy matters - and in a lot of ways, they aren't even the most damning.

The real problem for Team D this year wasn't that Obama and his staff are economically illiterate - sadly, most of their constituents and party-line voters are too. But a hell of a lot of them are also people who care about certain civil liberties violations and wars. Especially (and here's the important part) the independent, non-partisan ones.

Take for instance, my friend Nathan Goodman, an extremely principled and non-partisan guy who has been making the shift from leftist to libertarian for a while wrote a powerful response to D.J. Grothe's posted articles, entirely worth sharing on the subject of why the Democratic party has lost the support of left-leaning independents like him:
""What an arrogant and pompous columnist. I hate this center left assumption that we oppose Obama because he hasn't done good things quickly enough. Has it ever occurred to them that maybe we're pissed off at actual policies like the administration surging into Afghanistan, drone bombing countries with which we're not officially at war, ordering the assassination of American citizens, re-authorizing the Patriot Act, cluster bombing Yemen, harassing anti-war activists, arresting whistleblowers, fighting to prevent death row inmates from accessing DNA evidence which could exonerate them, appointing a former lobbying executive for Well Point to implement Obamacare (In blatant violation of the spirit of Obama's campaign), continuing use of far right death squads for drug war operations in Colombia, repeatedly abusing the state secrets privilege, continuing the use of rendition, denying habeas corpus at Bagram, and threatening the British government to prevent open discussion of torture?"
...and then, because the guy rocks so much, links provided to everything:
"Drone strikes:

Patriot Act:

Cluster bombing Yemen:

FBI Harassment of Anti-war Activists:

Arrests of Whistleblowers:

Fighting to prevent death row inmates from accessing DNA evidence:

WellPoint exec implementing health reform:

Expansion of military presence in Colombia:

Abuse of state secrets:

Continuing rendition:

Denying habeas rights at Bagram:

Threatening Britain to conceal torture evidence:"

And I think this really clinches it, don't you?

It's not just that Obama and his party's near super-majority of congress for the last two years has behaved identically to Bush on the economy and left us all in an ever-deepening hole with fewer and fewer opportunities - that damage just keeps on hammering ordinary Americans every day and is the big reason the Tea Party folks are upset... But those who voted for Democrats in the past few years expecting an end to Bush-era civil rights abuses and war mongering have been (or should be) equally disappointed!

And of course... Those of us who wanted both less war, less civil liberties abuses, a freer society and a freer economy who didn't vote for either major party candidates are perennially let down. And that's really the point... For all the partisan hacks out there still behind the 8-Ball on this one... It was YOUR OWN PARTY'S POLICIES that lost you the election!

It wasn't that any one really "trusts" the Republicans to do a better job, per se, though I know a lot of Tea Party people who want to believe they can hold their party accountable... It's not that people were duped by GOP sloganeering... It's not that the voter turn-out was low.

You hear that Team Blue? You lost because of what you did (or didn't do).

At some point, it would be cool to see Obama and his party own up to their own failings and to the absurdity of their economic reasoning - but unfortunately, their sycophants refuse to acknowledge that the people know exactly what they're selling and don't like it. Partisan hackery will do what it does though... And in a few years, once the Republicans go back to their big-spending, entitlement bribing ways, I'm sure I'll have to write this article again with a few labels reversed... But I think we can do better.

I think it's time for everyone to wake up. Shrink the size of government, shrink the warfare and welfare states, let our economy flourish by loosening the millions of restrictions on everyone, and unchain its potential.

Seriously... Now's really the time to do it.