Are Unfunded Liabilities Part of the Public Debt?

April 26, 2010 · Posted in General Economics · 2 Comments

Mish recently wrote this:

The Chicago Tribune had an excellent set of charts this weekend in A Tsunami of Red Ink regarding US government debt and who owns it, and also a comparison of US debt to the national debt of other countries.

Debt as a Percentage of GDP

Comparison of US Debt to Other Countries

Click on the link at the top to see foreign holders of US debt country by country. The top three US debt holders are China, Japan, and the UK.

Some will not believe those figures on debt to GDP comparisons. I don’t either. For starters the numbers are from 2009.

The footnote also says, if intragovernmental debt is included the figure is 83%. That number is approximately correct in my opinion (as of 2009).

Some will want to count unfunded Social Security and Medicare liabilities out to 2050 or whatever. This is simply wrong. That would be like counting a car you intend to buy 3 years from now as part of your debt now.

Many things can happen between now and then.

You may buy a smaller car.

You may not buy the car at all, opting for public transportation.

When the time arrives, you may postpone buying a car for a couple more years.

You may save enough to pay for the car in cash so that you incur no debt.

Likewise, the plans for Social Security and Medicare might change. Costs may go up, or down. The plans may be scaled back by the next generation of US citizens who think our generation was the most greedy in history.

The first part of the article is informing and interesting, the second part is rather questionable. In particular this statement makes very little sense:

Some will want to count unfunded Social Security and Medicare liabilities out to 2050 or whatever. This is simply wrong. That would be like counting a car you intend to buy 3 years from now as part of your debt now.

Not so much! A car I intend to buy 3 years from now is not a commitment made by anybody towards me or from me towards anybody. It does not have any contractual character. It contains no financial obligations whatsoever.

As I explained before:

Then there are unfunded social security and medicare obligations of about $43 trillion according to the Treasury’s own Financial Report for 2008:

The SOSI provides additional perspective on the Government’s long term estimated exposures and costs. However, it should be noted that the Government’s financial statements do not reflect future costs implied by any current policy, such as national defense, the global war on terrorism, and disaster relief and recovery. Table 3 shows the Government’s estimated present value of future social insurance expenditures, net of dedicated future revenues for the programs reported in the Statement of Social Insurance (SOSI), projected to be $43 trillion as of January 1, 2008 for the ‘Open Group’6. While these expenditures are currently not considered Government liabilities, they do have the potential to become liabilities in the future, based on the continuation of the social insurance programs’ provisions contained in current law.

A liability, or debt, is simply “the obligation of one person or group to provide future goods to another person or group.” Thus, for the discerning economist, it is rather irrelevant if the government “considers” or “officially calls” them liabilities. As far as their impact on human action is concerned, and thus all that economics cares about, they are debts. This brings the total US debt up to around $93 trillion (with total public debt at around $54 trillion).

All the arguments Mish advanced against including unfunded liabilities could just as well be advanced against including any public debt outstanding. The government doesn’t have to honor the public debt. It could also decide to “take public transportation” in that sense and “not buy a car” by not paying off its creditors.

It may be accurate to say that a partial default on unfunded Medicare and Social Security liabilities will be a lot less eye catching and PR laden than one on the official public debt floating around. But that doesn’t mean that it won’t have major effects on people’s behavior in society. It also doesn’t change its fundamental praxeological character. One need only look at the current madness unraveling in the field of public sector unions and public pensions to appreciate this fact. (This is one more reason why I am surprised that someone like Mish brushes over the phenomenon of unfunded federal government obligations so cavalierly and suggest that they not be considered public debt.)

In fact, I believe that the first wave of public debt defaults will occur silently in the realm of those unfunded, off-balance-sheet liabilities, just as it has recently been happening in Greece.

A public debt is any monetary commitment that future taxpayers have been put on the hook for, thus there is absolutely no difference in kind between commitments to pay money to a Treasury Bond investor over 30 years, and commitments to pay money to Social Security or Medicare Recipients over the years to come.

Tags: public debt, unfunded liabilities

What’s the Problem With Government Budget Deficits?

April 26, 2010 · Posted in Government · Comment

Government Spending & Taxation

A government is that group of people which periodically obtains goods owned by other people within a certain territory by means of theft, also called taxation.

Since theft is an act of aggression it violates the victim’s value preference. After the goods have been obtained the people in the government will put them to one or the other use. They will hire people, purchase arms, establish offices, give some money to people so long as they prove that they are not working, hire tax collectors, throw people in jail who sell or carry a certain vegetation, maintain those jails, send people in green costumes to countries overseas to aggress against and shoot people, etc. All these activities will ultimately serve those people in whose pockets the stolen money ends up, some more, some less, some sooner, some later. In general these will always be external businesses who bribed government officials, bureaucrats, and to a lesser degree welfare recipients.

Every time someone is hired and every time resources are purchased by government officials they will not be available to people who would have obtained them on a voluntary basis for other uses. It is at the very moment that the stolen money first exchanges hands after being stolen that it begins to exert the harmful effects that result from bureaucracy.

These are all just examples which are well known and nothing surprising or new. The fundamental fact about government activities is that they by necessity and by definition go against the value preferences of those who are not in the government, viz. the majority of the people. This is how they ultimately reduce the welfare of society, and thus ultimately the happiness of the majority.

Budget Deficits

When that same group intends to employ more resources than it is able to fund from the money obtained in its regular annual extortion runs, it borrows additional money from certain people in a credit transaction, resulting in public debt. This additionally borrowed money is what is commonly referred to as a budget deficit.

When projects are funded via a budget deficit, the additional money is actually obtained in a voluntary transaction at first. An investor who is offered a better deal by the government than he might have found elsewhere, hands over money with no aggression involved. But he is promised repayment of his money plus interest through future theft from taxpayers. Instead of purchasing and putting to use factors of production in the service of consumers, as some other entrepreneur would have had the incentive to do with that same money, the government will fund the same kinds of consumptive or even destructive activities as described above with the borrowed money.

The fundamental difference in the case of the budget deficit is that at the moment of putting the funds to use, the money has, for now, been obtained from someone who voluntarily entered into this transaction, with the intention of sharing the future loot from the theft promised.

Thus taxpayers won’t immediately be forced to restrict their consumption because somebody else is doing it for them at the beginning. However, as the public debt interest has to be paid in the future, and the principal sum needs to be repaid, taxes will inevitably rise. Taxpayers will be more and more forced to restrict their future consumption in order for the government to pay off the investors who restricted their consumption in the present.

The burden of restricted consumption is thus shifted over time from the investor over to the taxpayer. However, the investor made the choice voluntarily, along with all the risk of default which comes with the contract. (In fact, a complete debt default is precisely what the investor would suffer for funding a comparable project on the market, ensuring corresponding and healthy incentives moving forward.) The investor’s time preference and value preference is at no point being acted against. Nothing is violently taken away from him or anybody else. He willingly participates in the transaction.

The taxpayer, however, never had any choice. He doesn’t necessarily realize that what the government consumes now will be funded by his restricted consumption in the future. Money that would usually have been used to fund the purchases and thus spur production of capital goods (whose employment would increase the production of consumer goods in the future), is now employed in fundamentally consumptive government activities which necessitates that the debts be paid off through the restriction of future consumption lest a default occur.

But the crucial point with the budget deficit is that, from the consumers’ (= the majority’s) point of view, the effects of deficit financing don’t show up until a later point in time. In the meantime it all appears to be taking its normal course as things would on the market. But when the debts need to be paid off, the expectation that the borrowed funds were used to obtain capital goods which would enable repayment through the production of more consumer goods with less labor input than before, turns out to be a completely false one. No new capital was generated from the projects in question and upkeep of existing capital was, as a tendency, being neglected. Capital consumption inevitably ensues.

Thus, with a budget deficit, and more broadly with the public debt, the fundamental damage occurs at the point where money is taken away from the taxpayer to pay off the investors who voluntarily funded unproductive and ultimately coerced projects in the past.

From the point of view of the majority of the people, the real problem in the phenomenon of the budget deficit lies in the fact that it adds to the public debt and that they or their progeny will at some point have to foot the bill for past expenditures and thus resource employments, again undertaken against their choosing, time preference, or value preference.

It is also important to consider that at any given point in time the current generation is already paying off debts for unproductive undertakings pursued by governments in the past, making the damage caused by deficits and public debt a lot more tangible and immediate, and conveniently ruling out significant tax cuts by the government.

This is very important: When people say something like “the deficit is damaging/bad/a problem/etc.” what it ultimately means is that the money used for more spending and favors and owed by the government to investors will be taken from you or your children in the future via the threat of kidnapping and imprisonment if you don’t comply. This is really at the root of all the problems around public debt owed, and the deficit that we hear about every year is just piled on top of that existing debt.

Due to the fact that the effects of deficits are not immediately noticeable to the general public they are an incredibly convenient way of funding government programs and shifting involuntary burdens on to future disenfranchised generations. Thus public debts will always continue to grow along with rising taxes, until a level is reached where the required tax burden becomes untenable, where creditors can no longer be paid off, the government can no longer fund itself, where social tensions rise between recipients and payers, and where the whole superstructure that is the government collapses in its entirety.

“Solutions” to Deficits

As I explained, the ultimate damage caused by public budget deficits occurs at that point in time when taxpayers are forced to restrict their consumption and unjustly bear the cost of malinvestments from the past.

Ironically, when you look at the political stage, all you will hear in regards to “solutions” to deficits in the end, will for the most part be tax hikes. These are not solutions. They are the ultimate manifestation of the very problem at hand. They are, in fact, the precise opposite of a solution. Keep this in mind whenever you hear politicians talk about deficit solutions. Raising taxes to reduce deficits is absolutely and 100% an admission that one has completely failed to solve this deficit problem, and in fact laid the final brick that was missing in the very process of the public’s depredation via deficit spending.

A real solution would of course be to make investors suffer the consequences of their unproductive investments, default on the public debt, stop stealing money from people, and allow for voluntaryism to take the place of interventionism.

Tags: budget deficits, deficits

Somalia – Better off Stateless

April 23, 2010 · Posted in Foreign Policy, Government · Comment

This is from a very interesting paper on Somalia:

Indicators of Somali welfare remain low in absolute terms, but compared to their status under government show a marked advance. Under statelessness life expectancy in Somalia has grown, access to health facilities has increased, infant mortality has dropped, civil liberties have expanded, and extreme poverty (less than $1 PPP/day) has plummeted. In many parts of the country even security has improved. In these areas citizens are safer than they’ve been in three decades (UNDP 2001). Somalia is far from prosperous, but it has made considerable strides since its government collapsed 15 years ago.

The entire paper is well worth a read.

Tags: anarchism, anarchy, somalia, stateless society, voluntaryism

Unions Across the Nation – I Applaud You

April 22, 2010 · Posted in Government · Comment

It is high rabble season in the union camp. All over the nation, public sector union workers are putting on fashionable and loose fitting shirts of the bluish-pinkish hue, grabbing signs with some words on them, and taking to the public squares in order to blow us away with interesting philosophical arguments that are so rational and convincing that they need to be shouted out and repeated in unison.

The enlightening and convincing philosophy of a public sector union worker goes a little something this:

“I need to have armed agents threaten other people with kidnapping and prison, extort money from them that way, and then hand it over to me. And this year, I want more money to be extorted that way. Because I deserve it. And I want it. But mostly I really deserve it. And it’s always been that way anyway. Oh, and and of course you don’t want the XYZ to be left behind, now do you? Do you?? Ah, to hell with that, I want my money! Now cough it up already!!”

- replace XYZ with whichever government union one belongs to. The elderly, the children, the sick … whatever works.

There is something for everyone these days.

There is of course the lady with the wildly imaginative and inspiring line “Where’s the money? Where’s the Money? Give up the bucks!” :

… you can tell how much she wants to “save the children” as the rubs her fingers for that sweet cash.

Then there is of course this gripping speech which will forever resound in people’s ears as a heroic wakeup call:
“What do we want?
More money.
What do we want?
We want more money.
When do we want it?
Now!
When do we want it?
Now!
When do we want it?
Now!
When do we want it?
…”

For those who prefer courtroom type dramas, there’s the lady with the gripping and surprising argument that if lawmakers don’t back the union program, the union workers will vote against them:

In Illinois thousands of union workers took to the streets demanding “Raise My Taxes! Raise My Taxes!“:

An estimated 15,000 people rallied outside the Capitol today demanding a tax increase.(Tribune photo/Abel Uribe)

Posted by Michelle Manchir and Ray Long at 11:50 a.m.; last updated at 3:12 p.m.

SPRINGFIELD — Thousands of protesters bused down by labor unions and social service advocates rallied at the Capitol today in an attempt to pressure state lawmakers into raising the income tax to avoid more budget cuts.

A spokesman for Illinois Secretary of State Jesse White estimated the rally crowd at 15,000, with more than 12,000 marching around the building. That would appear to make it the largest Capitol protest since the Equal Rights Amendment crowds a quarter-century ago.

Bus after bus pulled up on streets surrounding the Capitol complex and dumped sign-waving protesters clad in purple, green, red and blue shirts that represented a show of strength from a variety of public employee unions and dozens of groups that formed what they named the “Responsible Budget Coalition.” (You can see a photo gallery by clicking here.)

“Raise my taxes! Raise my taxes! Raise my taxes!” they chanted, lined up shoulder to shoulder for a few hundred yards stretching a street in front of the Capitol.

I say: This is of course great. I can absolutely and 100% get behind this chant. I’m all for raising the taxes exclusively on Illinois public sector union workers so that Illinois public sector union workers can be paid more! Hooray … we have a solution!!

Public sector unions across the nation, I applaud you. I applaud you for being so honest about your cruelty, your mob culture, and your carelessness. I applaud you for turning the entire country against you and the government by extension. I applaud you for doing everything possible to bring about a more speedy collapse of today’s system. Your Greek brethren and comrades have already shown you how to bankrupt a nation, now it’s your turn to go full throttle. The union makes us strong!

I have no illusions over the public backlash against unions. So long as people reject voluntaryism and believe in the necessity of a government, they are knowingly or unknowingly, asking for this trouble and they need not be angry or surprised. The state governments will one way or another, sooner or later, publicly or privately bow down to these mobs. This is, in my opinion completely inevitable.

The sooner we can get this nonsense over with, the sooner we can turn things around. Out of the ruins of this world will arise a better, a freer, and a more voluntary system, but not until people wake up and reject the idea that governments will ever be any kind of solution.

Tags: public sector unions, unions

The EconomicsJunkies Community Relaunches!

April 22, 2010 · Posted in Philosophy · Comment

To all my dearly appreciated, curious, incredibly smart, and unique readers:

After playing around a bit with viable community solutions, we are finally ready to re-launch the EconomicsJunkies community :)

Note the “S” after Junkie. This means that I invite people to join so we can be multiple EconomicsJunkieS in a vibrant and growing community with interesting discussions and new exciting blogs which can share my existing and steadily growing traffic.

Blog by blog, comment by comment, discussion by discussion we are changing the world by rational means. Our ideas are powerful and our conviction is unshakable. We are the pioneers of a new world …

And in a group we can do so much more to get out the word about Freedom, Peace, Happiness, and Prosperity! :)

So hop on, Join the Junkies! :)

Best,
Nima

Tags: economics community, economicsjunkies.com

How Union Greed, Arrogance, and Viciousness are Breaking California’s Backbone

April 20, 2010 · Posted in Politics · Comment

Please consider this piece from city journal, The Beholden State:

The camera focuses on an official of the Service Employees International Union (SEIU), California’s largest public-employee union, sitting in a legislative chamber and speaking into a microphone. “We helped to get you into office, and we got a good memory,” she says matter-of-factly to the elected officials outside the shot. “Come November, if you don’t back our program, we’ll get you out of office.’

The video has become a sensation among California taxpayer groups for its vivid depiction of the audacious power that public-sector unions wield in their state. The unions’ political triumphs have molded a California in which government workers thrive at the expense of a struggling private sector. The state’s public school teachers are the highest-paid in the nation. Its prison guards can easily earn six-figure salaries. State workers routinely retire at 55 with pensions higher than their base pay for most of their working life. Meanwhile, what was once the most prosperous state now suffers from an unemployment rate far steeper than the nation’s and a flood of firms and jobs escaping high taxes and stifling regulations. This toxic combination—high public-sector employee costs and sagging economic fortunes—has produced recurring budget crises in Sacramento and in virtually every municipality in the state.

This is the clip mentioned above:

This video is actually a rather mild and open form of union threat I would say. If anybody seriously thinks the legislature is not going to bow down to this vicious mob, they should ask themselves what they would do when faced with this choice:

“Hmmm, should I take the hundreds of thousands or millions of dollars in campaign contributions, honorary chairmanships, and kickbacks in backroom deals, or would I prefer to get myself and my family blown up in a car? Such a tough choice …”

This is what you get when you believe that anything good can ever come out of the government, a.k.a organized aggression.

Tags: california, seiu, Service Employees International Union, unions

Money Supply – March 2010; Supplemetary Financing Revived

April 18, 2010 · Posted in General Economics, Monetary Economics · Comment

Money Supply

The true money supply in March has grown slightly to $2,202 billion in March:

The annual growth rate has, however, dropped to 3.85% now:

Fed & Treasury Revive Supplementary Financing

For a little while the Treasury has been winding down its mysterious supplementary financing program.

Now, after Congress has, as always, made way for more public debt by raising the ceiling, the program is being revived:

The Treasury Department announced Tuesday that it is expanding its Supplementary Financing Program to help the Federal Reserve manage its enormous balance sheet. In a statement, Treasury said it will boost the SFA to $200 billion from its current level of $5 billion. The fund had been up to $200 billion but was scaled back when Congress delayed passage of an increase in the debt limit. Now that an expansion of the debt limit has been signed into law, the department is able to resume the program. Starting on Wednesday, Treasury will conduct the first of eight weekly $25 billion 56-day SFP bills to restore the program. The department said it will then roll the bills over. “We are committed to work with the Fed to ensure they have the flexibility to manage their balance sheet,” a Treasury official said.

I’m not sure if this really means anything to anybody. Maybe I am just not getting something here. But I would love for somebody from the Treasury or the Fed to explain to me what precisely they mean by working “with the Fed to ensure they have the flexibility to manage their balance sheet”.

Obviously something shady is going on here when they have to use such complicated constructs and fuzzy terminology.

Credit and Loans

What has been most noteworthy recently was the following development in the supply of credit and loans during the last week or March:

The last time such a severe spike occurred was in October of 2008, to no avail as credit relapsed afterwards along with a severe market crash … a pattern which is only too likely to repeat itself at this point.

Update: I just chatted with Mish about this and he told me that this recent spike is likely to be just a technicality that is due to some reclassification of some student loan.

Tags: money supply, total credit

Ron Paul Head to Head With Obama in New Poll; The Ideas Matter, The Politics Don’t

April 15, 2010 · Posted in Politics · 1 Comment

Rassmussen Poll: Obama 42% – Ron Paul 41%

Pit maverick Republican Congressman Ron Paul against President Obama in a hypothetical 2012 election match-up, and the race is – virtually dead even.

A new Rasmussen Reports national telephone survey of likely voters finds Obama with 42% support and Paul with 41% of the vote. Eleven percent (11%) prefer some other candidate, and six percent (6%) are undecided.

Ask the Political Class, though, and it’s a blowout. While 58% of Mainstream voters favor Paul, 95% of the Political Class vote for Obama.

But Republican voters also have decidedly mixed feelings about Paul, who has been an outspoken critic of the party establishment.

Obama earns 79% support from Democrats, but Paul gets just 66% of GOP votes. Voters not affiliated with either major party give Paul a 47% to 28% edge over the president.

Paul, an anti-big government libertarian who engenders unusually strong feelings among his supporters, was an unsuccessful candidate for the Republican presidential nomination in 2008. But he continues to have a solid following, especially in the growing Tea Party movement.

Twenty-four percent (24%) of voters now consider themselves a part of the Tea Party movement, an eight-point increase from a month ago. Another 10% say they are not a part of the movement but have close friends or family members who are.

(Want a free daily e-mail update? If it’s in the news, it’s in our polls). Rasmussen Reports updates are also available on Twitter or Facebook.

Thirty-nine percent (39%) of all voters have a favorable opinion of Paul, while 30% view him unfavorably. This includes 10% with a very favorable opinion and 12% with a very unfavorable one. But nearly one-out-of-three voters (32%) are not sure what they think of Paul.

Perhaps tellingly, just 42% of Republican voters have a favorable view of him, including eight percent (8%) with a very favorable opinion. By comparison, 42% of unaffiliated voters regard him favorably, with 15% very favorable toward him.

Twenty-six percent (26%) of GOP voters think Paul shares the values of most Republican voters throughout the nation, but 25% disagree. Forty-nine percent (49%) are not sure.

Similarly, 27% of Republicans see Paul as a divisive force in the party, while 30% view him as a new direction for the GOP. Forty-two percent (42%) aren’t sure.

Among all voters, 19% say Paul shares the values of most Republican voters, and 27% disagree. Fifty-four percent (54%) are undecided.

Twenty-one percent (21%) of voters nationwide regard Paul as a divisive force in the GOP. Thirty-four percent (34%) say he is representative of a new direction for the party. Forty-five percent (45%) are not sure.

But it’s important to note than 75% of Republicans voters believe Republicans in Congress have lost touch with GOP voters throughout the nation over the past several years.

Sarah Palin, the former governor of Alaska and the GOP’s vice presidential nominee in 2008, is another Republican who has been bucking the party’s traditional leadership and was the keynote speaker at the recent Tea Party convention in Nashville. Fifty-nine percent (59%) of Republican voters say Palin shares the values of most GOP voters throughout the nation. Just 18% of Republicans see Palin as a divisive force within the GOP.

Rasmussen Reports released survey findings yesterday that take a closer look at the political views of those who say they’re part of the Tea Party movement. Among other things, 96% of those in the movement think America is overtaxed, and 94% trust the judgment of the American people more than that of America’s political leaders.

When it comes to major issues confronting the nation, 48% of voters now say the average Tea Party member is closer to their views than Obama is. Forty-four percent (44%) hold the opposite view and believe the president’s views are closer to their own.

Fifty-two percent (52%) believe the average member of the Tea Party movement has a better understanding of the issues facing America today than the average member of Congress. Thirty-five percent (35%) of voters now think Republicans and Democrats are so much alike that an entirely new political party is needed to represent the American people. Nearly half (47%) of voters disagree and say a new party is not needed

If the Tea Party was organized as a political party, 34% of voters would prefer a Democrat in a three-way congressional race. In that hypothetical match-up, the Republican gets 27% of the vote with the Tea Party hopeful in third at 21%. However, if only the Democrat or Republican had a real chance to win, most of the Tea Party supporters would vote for the Republican.

Ron Paul: We can do better with peace than with war!

This is Ron Paul at a recent Southern Republican Leadership Conference:

People one Step Closer to Waking Up

The reason why I am showing all this is not that I have any particular hopes in Ron Paul in his potential function as a president or anything like that. Anybody who wants to see how much of a chance a fiscal conservative who supports limited government has once elected, just look to California.

But it is undeniable that he has inspired millions of people through the ideas of freedom and peace. And these ideas are really all that matters in the long run.

We can’t expect people to understand right away that we need to eliminate the government at some point. Nor should we be so demanding. The process of economic and moral education and enlightenment is gradual, not abrupt.

Nor, on the other hand, should we be complacent. The coming Congressional elections will be a landslide victory for the Republicans, in that I stand by my prediction from over a year ago, simply for the reason that most people will think that they suck less than the Democrats.

This is of course all nonsense. But for a few true (but inconsequential) believers, such as Rand Paul (KY), Peter Schiff (CT), and John Dennis (San Francisco), most of what we’ll see is business as usual, even with a largely Republican Congress.

The political machinery is vicious. No matter how good your intentions, it will either swallow you up and corrupt you or spit you our right away. There is nothing good whatsoever that can come out of violence. This is at the root of all political problems and it will never go away until we abdicate from this mad fantasy that is the government.

Tags: Politics, president obama, ron paul

Happy Tax Day …

April 15, 2010 · Posted in Government · Comment

… to celebrate the occasion I will post nothing new, but simply repeat what can’t be repeated often enough :)

Nowhere has the essence of the State as a criminal organization been put as forcefully or as brilliantly as in this passage from Lysander Spooner’s No Treason where the actions of a robbing highwayman are compared to the government’s modus operandi:

It is true that the theory of our Constitution is, that all taxes are paid voluntarily; that our government is a mutual insurance company, voluntarily entered into by the people with each other. . . .

But this theory of our government is wholly different from the practical fact. The fact is that the government, like a highwayman, says to a man: “Your money, or your life.” And many, if not most, taxes are paid under the compulsion of that threat.

The government does not, indeed, waylay a man in a lonely place, spring upon him from the roadside, and, holding a pistol to his head, proceed to rifle his pockets. But the robbery is none the less a robbery on that account; and it is far more dastardly and shameful.

The highwayman takes solely upon himself the responsibility, danger, and crime of his own act. He does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit. He does not pretend to be anything but a robber. He has not acquired impudence enough to profess to be merely a “protector,” and that he takes men’s money against their will, merely to enable him to “protect” those infatuated travellers, who feel perfectly able to protect themselves, or do not appreciate his peculiar system of protection. He is too sensible a man to make such professions as these. Furthermore, having taken your money, he leaves you, as you wish him to do. He does not persist in following you on the road, against your will; assuming to be your rightful “sovereign,” on account of the “protection” he affords you. He does not keep “protecting” you, by commanding you to bow down and serve him; by requiring you to do this, and forbidding you to do that; by robbing you of more money as often as he finds it for his interest or pleasure to do so; and by branding you as a rebel, a traitor, and an enemy to your country, and shooting you down without mercy if you dispute his authority, or resist his demands. He is too much of a gentleman to be guilty of such impostures, and insults, and villainies as these. In short, he does not, in addition to robbing you, attempt to make you either his dupe or his slave.

Thus economic policy, if it wants to attain its objectives, can do nothing but limit the extent to which matters are organized by government and the scope of its intrusion into the lifes of individuals within the territory it oversees, or ideally completely abolish the institution of government itself. So long as the government confines its activity to the protection of individuals against aggression and theft only little harm can be inflicted. Every expansion of governmental powers, however, will inevitably expand the use of unethical and destructive action within society.

Tags: lysander spooner, tax day, taxes

Universally Preferable Behaviour – A Rational Proof of Secular Ethics

April 13, 2010 · Posted in Philosophy · 15 Comments

Universally Preferable Behaviour – A Rational Proof of Secular Ethics by Stefan Molyneux from Freedomain Radio is, next to Rothbard’s The Ethics of Liberty, probably the most remarkable book on morality that I have ever read.

Rothbard heavily relied on the conclusions of Natural Law philosophers as a basis to mount his framework upon and derives ethical rules, an “ought”, from man’s nature, an “is”.

Stefan Molyneux completely rejects this approach. Instead he points out that there is in the realm of human behavior really no such thing as absolute, unconditional and universal “oughts”. There is nothing in the pure nature of humans that requires that they be peaceful and good to each other, in the sense that there are indeed physical laws that require that, say, a rock fall down to earth.

One more important thing he points out is this: The main task we need to surmount in terms of establishing a scientific moral framework, is not to evaluate individual actions per se. What we need to evaluate is rather rules regarding actions. The problems of this world are not the petty burglar or killer. Virtually everyone understands the immorality in their acts intuitively. The most dangerous thing are rather ideas about behavioral rules held in people’s minds, general concepts that justify hugely immoral acts under the cloak of morality.

Thus, Universally Preferable Behavior (UPB) is not a framework for evaluating specific actions, but rather one for evaluating behavioral rules.

Understanding Universally Preferable Behavior

Here is how I understood the chain of reasoning. I am mostly taking this from the book, and injecting my own thoughts where I deem appropriate:

1. Reality is composed of objects in the universe, all of which have certain natures, meaning certain specific, and delimitable inputs on them and certain interactions between them yield certain specific, and delimitable outputs (events). These events are, all other things being equal, reproducible or consistent.

2. Logic is the set of objective and consistent rules derived from the consistency of reality:

- Identity: A = A – An object/event is that object/event and not another object/event. A rock on earth is that rock on earth, and not a tree at the same time.

- Non-Contradiction: A AND non-A is false – A proposition that states that something is a thing/event and not that thing/event at the same time is always false. A thing can’t be a tree and not a tree at the same time. An apple can’t fall downward and upward at the same time.

- Excluded middle: A OR non-A is true – A proposition about a thing/event is either true or false. A thing is either an apple or not an apple. An apple either falls down or doesn’t fall down. There is nothing in-between.

3. Validity: A human’s statement about objective reality is a theory. A theory that complies with the 3 laws of logic is valid.

4. Accuracy: A theory that is confirmed by observable evidence in reality is considered accurate.

5. Truth: A theory that is both valid and accurate is true.

6. Preference is the level at which a human being places the desire to perform an action in relation to the desire to perform other actions at any given moment in time. For example at nighttime one prefers sleeping over running. But on the next morning one may prefer running to sleeping. Preferences only exist in people’s minds, meaning they are subjective. Observable human actions, however, are the objective manifestations of subjective preferences. When someone can be observed running then he is showing by his very action that he set out to run because he preferred the act to that of sleeping.

7. Preferable Behavior: When somebody says that some other human being should do something he is making a statement about preferable behavior.

8. Universally Preferable Behavior: When somebody says that all people at all times and at all places should do something, then he is making a statement about universally preferable behavior (UPB), he is proposing a “universal rule”. In short: UPB is any behavior that all humans at all times and at all places should follow. Arguing against the conceptual existence of UPB requires engaging in a debate. But once someone engages in a debate to convince another person, he inevitably implies that all people at all times and at all places should rather prefer truth to falsehood. Once he starts advancing arguments and reasons as to why he is right, then on top of that he affirms that everyone should base his beliefs on universal standards of validity and accuracy. He also affirms that using the same language as your conversation partner is universally preferable. It is impossible to attempt to refute UPB without affirming it in the process. Thus the act of debating and arguing implicitly and inevitably affirms the conceptual existence of UPB.

(I would actually suggest that the commonly known term “Ethics” is a good substitute for the word “UPB”. Molyneux, meanwhile, equates “Ethics” to “Morality”. This is just about semantics, but it does seem to make sense to me and it helps put existing terminologies into context with this new approach.)

9. Morality is defined as the examination of all those universal rules where avoidance of the inflicted effects of the behavior in question would require the use of violence or considerable effort, for example “It is universally preferable to murder.”

10. Aesthetics is defined as the examination of all those universal rules where the inflicted effects of the behavior in question can be avoided without the use of violence and without considerable effort, for example “It is universally preferable to be on time.”

11. The UPB Framework is the process of examining the truth (validity+accuracy) of moral and aesthetic rules. This means that, just as physical or mathematical theories, any true ethical theory needs to be logically consistent (valid) and empirically verifiable (accurate).

Application of Universally Preferable Behavior

Thus there are in general 3 categories that statements about preferable behavior may fall into: morality, aesthetics, or other (all those statements that do not refer to universal, but rather personal preferences). We are here not concerned with those statements that fall in the category other, but mostly interested in morality and to a lesser degree aesthetics, where we have to keep in mind that the differences between the two may not always be black and white, but rather on a fading scale.

Rape: Rape clearly involves the use of violence. Thus any statement about universally preferable behavior involving rape falls into the category of morality. The statement “It is universally preferable to rape.” fails the test of logical consistency. If there are two persons in a room, the statement can’t apply to both people at the same time. One person needs to do the raping, the other needs to be raped. But then the person who is being raped can’t himself rape the other person. Thus the only valid moral statement regarding rape is “It is universally preferable NOT to rape.” or put differently “Rape is immoral.”

Murder: Murder clearly involves the use of violence. Thus any statement about universally preferable behavior involving murder falls into the category of morality. The statement “It is universally preferable to murder.” already fails the test of logical consistency. If there are two persons in a room, the statement can’t apply to both people at the same time. One person needs to do the murdering, the other needs to be murdered. But then the person who is being murdered can’t himself murder the other person. Thus the only valid moral statement regarding murder is “It is universally preferable NOT to murder.” or put differently “Murder is immoral.”

Theft: Theft involves the use of violence. Thus any statement about universally preferable behavior involving theft falls into the category of morality. The statement “It is universally preferable to steal.” again fails the test of logical consistency. If there are two persons in a room, the statement can’t apply to both people at the same time. One person needs to do the stealing, the other needs to be stolen from . But then the person who is being stolen from can’t himself steal from the other person. Theft also implies the theory that property rights are invalid. But if property ownership rights are invalid it is logically inconsistent to prefer to violently obtain ownership over property, since it is supposedly invalid. Thus the only valid moral statement regarding theft is “It is universally preferable NOT to steal.” or put differently “Theft is immoral.”

In the same manner, many other behavioral theories can be examined using the UPB framework.

Moral Conclusions Regarding Universally Preferable Behavior

The book concludes via this analysis that our political institutions are founded upon inherently and blatantly immoral premises. The idea that “A government is a moral or necessary institution.” by necessity implies that theft is a fundamentally moral action which, as we all know, simply cannot hold.

The military, a group of people sent to another country in green costumes to murder individuals who never attacked them, is of course also an institution founded upon blatantly immoral ideas that are riddled with logical inconsistencies.

The conclusion that I and many other people like Molyneux himself have thus come to is of course that the only moral system is that of voluntaryism.

Summary

I believe that that the genius in the UPB framework lies in that it fundamentally and flawlessly explains our natural appreciation for the inherently reciprocal nature of the relation between all elements in the universe, and humans in particular. Logical consistency demands the acknowledgment of this relation. We feel emotionally repulsed against theories about human behavior that fail to recognize this reciprocity, but have been struggling for millennia to explain precisely why that is so.

The UPB framework beautifully integrates the economic concept of value preference into ethics. As far as I know it was the Austrian school’s accomplishment to fully recognize and consistently integrate the notion that value is never an objective or absolute measure, but rather a subjective and ordinal scale where the differentiating operator is simply “better” or “worse”, but nothing like “good” or “bad” or “+/- 100 happiness points”, etc. In that same fashion Molyneux looks at human behavior as nothing but a choice of one action over multiple other actions, and establishes that moral rules are not behavioral absolutes, but rather optional statements about preferable choices, the validity of which, however, remains absolute subject to the laws of logic and proof.

It is my opinion that in this first version, formally and aesthetically Molyneux has unfortunately failed to make this book a pleasant read, in particular for newcomers. The amount of terminological confusions and inconsistencies (I pointed out some here), the abundance of repetitive metaphors, the unnecessary repetition of certain established proofs, and the seeming lack of a consistent and traceable thread at times, really made this relatively short book a tough read for me. To put things into context: This is coming from a guy (me) who enjoyed reading Mises’ Human Action, Socialism, and Theory of Money and Credit with great pleasure! I listened to the audio book twice and read the PDF again before I even remotely felt like I was able to ask qualified and helpful questions.

You will find a lot of criticisms of this book on the net that were written by people who clearly had no real interest in the subject and who deem it necessary to immediately jump on all the terminological weaknesses and inconsistencies that this book is riddled with, rather than being curious and looking beneath the surface. Then there are other criticisms by people who were absolutely and 100% dedicated to understanding the book, but who, in my humble opinion, missed the core aspect of UPB: That it is, just like the scientific method, a scientific framework to examine the validity and accuracy of theories, not of actions, for the simple reason that it is impossible to examine the validity of an individual action.

I think that the actual content, the idea, and the conclusions, when properly understood and connected, are revolutionary, groundbreaking, eye-opening and ingenious. Anybody who is interested in the field of ethics should read this book very carefully and not despair if it doesn’t all get to him as easily as baking pie right away.

Tags: ethics, morality, universally preferable behavior, universally preferable behaviour