“Occupy Wall Street” and its Futility

September 29, 2011 · Posted in Government, Politics · Comment 

Roubini, Marx, Capitalism, Socialism, and Interventionism

September 12, 2011 · Posted in Interventionism · Comment 

Very nice discussion:

Words and language can hold a lot of power. If your task is to destroy the people’s desire for peace and individual liberty, and if you can convince them that the US system over the past century is what free marketers mean when they say ‘capitalism‘, then your job is pretty much done.

But today’s shifts in public opinion seem very clear to me, just from comments I gather here and there: Fewer and fewer people are buying this story. More and more are beginning to try and think for themselves, simply out of plain necessity.

I have been harping on this for about 5 years now: The key concept that public discourse is still missing, the one word that explains all of today’s economic and political troubles is Interventionism.

Socialism for the Rich a.k.a. Neoliberalism

January 3, 2011 · Posted in Interventionism · Comment 

Here is an accurate analysis as to why libertarians shouldn’t count on most conservatives out there when it comes to defending what they view as free markets:

Because that’s what “privatization” means, to the typical “free market” wonk at Heritage or AEI: Instead of taxing the public to organize a public service through government bureaucrats who operate as a legal monopoly, you tax the public and hire a private company to perform the service. A private company which — thanks to no-bid contracts and all sorts of legal protections — usually operates as a monopoly and has the same outrageous cost-maximizing incentives as a “defense” contractor or public utility. And the tax burden may well actually be greater, because rather than just paying a bunch of white collar civil servants with GS classifications, you’ve got to pay white collar corporate drones — plus the cowboy CEO’s salary and the shareholder dividends. Taxpayer-funded either way, but with “free market reform” you get two layers of parasites instead of just the one. Woo-hoo!

See, it’s only “socialism” if you give the money to poor folks. If you give the money to corporations, that’s “pro-business.” And “pro-business,” of course, means “free market.”

I would be fully content with lefties using the term neoliberalism if they ever clarified that what they are talking about is a system with heavy government intervention, yet with the bulk of the money being distributed to businesses instead of bureaucrats.

This is really something that liberals and conservatives out there (who think they are oh so different from each other) need to grasp at some point if they care to make any sense:

Us voluntaryists and consistent libertarians are not proposing that extorted money be handed to the rich instead of the poor. We are proposing that aggression, and with that extortion, be universally proscribed; that there be no extorted money to play with in the first place!

You’re not a “free market guy” if you continue to tax people and, instead of paying government bureaucrats directly, you hire private businesses out of the voluntary market to do the job.

Just look at the unspeakable killing sprees, such as the murders of 1.4+ million Iraqis along with who knows how many injured for life or languishing in refugee camps, that had to occur in order to transfer wealth from US taxpayers to well-to-do war contractors.

I would argue that there seems to be a lot of evidence out there that hiring a private business for public money leads to far fewer checks and balances and less oversight and to far more chaos and wealth destruction, than if you use the money to pay government bureaucrats directly.

To be sure, the difference is one in degree not in kind. A shit sandwich is still a shit sandwich.

A Simple & Tangible Experiment in Socialism

November 6, 2010 · Posted in General Economics · 3 Comments 

Whether or not this actually occurred in real life is not so important, but I like the idea in general. A user on reddit recently posted this message:

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, “OK, we will have an experiment in this class on Obama’s plan”. All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A….

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little. The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise…..they all failed, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

I mean, it’s not “Obama’s plan” since Obama is just your average interventionist and since Congress writes the laws and not the president anyway, but even if he was, he’s not collectivizing all the means of production; that said, it IS a good experiment to convey one important aspect of the problems with socialism.

The root problem with socialism of course being the impossibility of economic calculation due to the absence of prices, as Mises has already explained 90 years ago.

The Next Failed Socialist Experiment – Cuba to Lay Off 1,000,000 Government Workers

September 13, 2010 · Posted in General Economics · Comment 

Historically, I would say this will certainly be remembered as a memorable event.

BBC reports Cuba to cut one million public sector jobs:

Cuba has announced radical plans to lay off huge numbers of state employees, to help revive the communist country’s struggling economy.

The Cuban labour federation said more than a million workers would lose their jobs – half of them by March next year.

Those laid off will be encouraged to become self-employed or join new private enterprises, on which some of the current restrictions will be eased.

Analysts say it is biggest private sector shift since the 1959 revolution.

Cuba’s communist government currently controls almost all aspects of the country’s economy and employs about 85% of the official workforce, which is put at 5.1 million people.

As many as one-in-five of all workers could lose their jobs.

Our state cannot and should not continue maintaining companies, productive entities, services and budgeted sectors with bloated payrolls and losses that hurt the economy,” the labour federation said in a statement.

“Job options will be increased and broadened with new forms of non-state employment, among them leasing land, co-operatives, and self-employment, absorbing hundreds of thousands of workers in the coming years,” the statement added.

Free enterprise?

To create jobs for the redundant workers, strict rules limiting private enterprise will be relaxed and many more licenses will be issued for people to become self-employed.

Private businesses will be allowed to employ staff for the first time.

The self-employed will have access to social security and will be able to open bank accounts and even borrow money to expand their businesses.

They will also have to pay tax on their profits and for each person they employ, something which could dramatically boost the government’s income.

And they will be able to negotiate contracts to provide services to government departments.

A minority of Cuban workers already work for themselves, for example as hairdressers and taxi-drivers, or running small family restaurants.

There is also a thriving black economy, with many people working independently without proper permission from the state.

The BBC’s Fernando Ravsberg in Havana says salaries in Cuba’s state sector are so low that many employees could be better off working for themselves.

But he says not everyone has the skills and initiative necessary to be self-employed.

He adds that the government plan does not foresee any kind of advice being offered to people seeking to set up their own businesses.

Economic crisis

President Raul Castro outlined some of the changes in a speech in August, saying the state’s role in the economy had to be reduced.

We have to end forever the notion that Cuba is the only country in the world where you can live without working,” he said.

Cuba’s state-run economy has been gripped by a severe crisis in the past two years that has forced it to cut imports.

It has suffered from a fall in the price for its main export, nickel, as well as a decline in tourism.

Growth has also been hampered by the 48-year US trade embargo.

Mr Castro became Cuba’s leader when his brother, Fidel Castro, stepped aside because of ill-health in 2006.

Almost 100 years ago, Ludwig von Mises already explained with precise and uncompromising rigor why Socialism is flawed and will never work. It is due to socialism’s inherent inability to allow for accurate prices to emerge in order to optimize the allocation of factors of production.

Is this a sudden enlightenment on the part of Cuban officials? An epiphany that government intervention is immoral, always and everywhere? Hardly so … But what is going on is that Cuban leaders are realizing that there will be a lot more to loot via taxation if you leave people a little bit more freedom.

History has shown always and everywhere that when the government shrinks, the economy thrives, more valuable goods are produced and services provided, people have more disposable income, and thus more money to get ripped off from them.

There is a reason why farmers prefer free range cattle farming to locking their animals up in a small box. There is a reason why slave masters made it a point to convince slaves that they are where they belong and should police themselves. The lower the cost of ownership, the easier it is to rule over people.

Cuba has a perfect example of such an interventionist experiment right next door in the US. And it has indeed bestowed upon its politically connected people enormous riches in a relatively shielded and domestically peaceful environment. That experiment is coming to an end and the country is headed for the inevitable and slowly creeping culmination of interventionism: A complete collectivization of the economy, viz. socialism … Ironically, the exact opposite of what’s now happening in Cuba.

To be sure, such a system of interventionism, too, will not last forever. It will fail. But for as long as it’s in place, it allows the ruling class a lot more riches, comfort, and pseudo moral justification than the overt all round management and controls of socialism.

Two little references that I always like to remind people of:

Ayn Rand wrote in Atlas Shrugged in 1957:

“Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Ludwig von Mises wrote in his analysis Interventionism in 1940:

The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, dis­tress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short­comings of earlier interventions, they will find eventually that they have adopted socialism.

On a sidenote: Observe how many socialists will immediately tell you how Cuba was not a socialist experiment, and how they completely misinterpreted true communism/socialism/collectivism. And then ask to what extent they are, in their rigorous and relentless fight for logical consistency and evidence, giving the ideas of capitalism that same benefit of the “misinterpretation tale” :)

Healthcare Debate – Pseudo Solutions from Academia

July 25, 2009 · Posted in Government · Comment 

When people spend their entire lives writing papers, looking at numbers, pondering theories, all on behalf of government sponsored institutions, they will inevitably be out of touch with reality sooner or later. Such is the case with many people in academia. One perfect example is the author of a piece called A German Import That Could Help U.S. Health Reform. It shows with clarity, how blindly some people trust the government apparatus, attempt to engineer seemingly brilliant structures and organizations, and assume it will all work exactly the way they want it to work:

After a three-hour meeting at the White House on Tuesday, fiscally conservative Democrats in the House of Representatives — the so-called Blue Dog Democrats — got a tentative agreement on an addition to the health reform bill. The new provision would give an outside panel of health policy experts and stakeholders the power to make cuts to government-financed health care programs.

Although brushed off by some as a “pint-sized breakthrough in an ocean of concern,” Peter Orszag, the White House budget director, called it “probably the most important piece that can be added” to the health care bill in the House.

I could not agree more. Such a provision, if part of the final bill, would be the proverbial camel’s nose under the tent for a more rational approach to America’s health policy.

It would be a very big deal.

More often than not, Congress has been ineffective when it comes to health policy, paying far more attention to the income needs of the supply side than to the health of the American people. It can explain why for over two decades Congress has never shown any interest in the question of why Medicare spending per beneficiary in some parts of the country is more than twice the level in other parts, and why millions of low-income of Americans — children included — have been left without the benefit of health insurance for decades.

An outside body of health policy specialists and stakeholders would be able to inform America’s health policy. It could provide insights from detached research and a consensus among experts and stakeholders, in place of the campaign contributions of powerful interest groups that now drive policy.

The Medicare Payment Advisory Commission, for example, could serve as such a body.

To understand how such a body might function, Americans could learn from Germany’s experience with precisely such a body — Der Gemeinsame Bundesausschuss or, in English, the Joint Federal Committee.

Germany’s joint committee was established in 2004 and authorized to make binding regulations growing out of health reform bills passed by lawmakers, along with routine coverage decisions. The ministry of health reserves the right to review the regulations for final approval or modification. The joint committee has a permanent staff and an independent chairman.

Fees paid to providers in Germany are negotiated among regional associations of providers and corresponding associations of sickness funds (self-governing, non-profit insurance plans), so the joint committee does not have to set payment rates. Its main tasks include making evidence-based coverage decisions for ambulatory and inpatient services and medical products and furthering disease-management programs.

To arrive at its coverage decisions, the committee seeks scientific input from its nonprofit subsidiary, the Institute of Quality and Efficiency in Health Care. It conducts cost-effectiveness analyses for particular procedures or medical products, mainly on the basis of research done by academic or other outside research institutes.

In a lengthy interview on Germany’s health system, the country’s minister of health, Ulla Schmidt, explained the role of the committee:

This is the approach we prefer in Germany — consensus building under a form of self-regulation, but under general government oversight. The federal government provides a general legislative framework for our universal health insurance system. But precisely how to implement it is left to the experts and representatives of the various stakeholders in health care. No political committee can decide whether a new medical procedure should become part of universal coverage or not. We feel that this should be left to the experts who, in our case, are hospitals, physicians, dentists and sickness funds. The Joint Federal Committee also has patient representatives as well, so that patients can be heard, too. … It is our experience that the decisions rendered by the J.F.C. are widely accepted, including by patients. Generally, we then have no additional problems.”

Americans have traditionally been too proud to learn anything from the health systems of other nations. All told, however, this country’s legislatures have not served Americans well in health care. They have permitted and actively facilitated the uncontrolled growth of an unwieldy system that costs far too much for what it delivers.

The genesis, modus operandi and practical experience of Germany’s committee could serve as a role model for the more rational approach to health policy sought by the Blue Dog Democrats.

This is a perfect example of how one attempts to solve all the inevitable problems that ensue from government bureaucracy with pseudo market solutions. In the end all that is being recommended to add yet another government office to the existing structure and make it appear independent. How do we appoint people to such a body? Who is to say that they themselves have no political agendas in mind? How are they motivated to perform without entrepreneurial profit incentives? There is only one true solution to the Trouble with Bureaucracy, all other suggestions are mere patchwork and solve nothing. In his book Socialism, Mises wrote in 1932:

Capitalism the Only Solution

But let us disregard the fact that up to now all socialist efforts have been baffled by these problems, and let us attempt to trace out the lines on which the solution ought to be sought. Only by making such an attempt can we throw any light on the question whether such a solution is possible in the framework of a socialist order of society.

The first step which would be necessary would be to form sections inside the socialist community to which the management of definite branches of business would be entrusted. As long as the industry of a socialist community is directed by one single authority which makes all arrangements and bears all the responsibility, a solution of the problems is inconceivable, because all the other workers are only acting instruments without independent delimited spheres of operation and consequently without any special responsibility. What we must aim at is precisely the possibility not only of supervising and controlling the whole process, but of considering and judging separately the subsidiary processes which take place within a narrower sphere.

In this respect at least, our procedure runs parallel to all past attempts to solve our problem. It is clear to everyone that the desired aim can be achieved only if responsibility is built up from below. We must therefore start from a single industry or from a single branch of industry. It makes no difference whether the unit with which we start is large or small since the same principle which we have once used for our division can be again used when it is necessary to divide too large a unit. Much more important than the question where and how often the division shall be made is the question how in spite of the division of industry into parts we can preserve that unity of cooperation without which a social economy is impossible.

We imagine then the economic order of the socialist community to be divided into any number of parts each of which is put in the charge of a particular manager. Every manager of a section is charged with the full responsibility for his operations. This means that the profit or a very considerable part of the profit accrues to him; on the other hand the burden of losses falls upon him, insomuch as the means of production which he squanders through bad measures will not be replaced by society. If he squanders all the means of production under his care he ceases to be manager of a section and is reduced to the ranks of the masses.

If this personal responsibility of the section manager is not to be a mere sham, then his operations must be clearly marked off from that of other managers. Everything he receives from other section managers in the form of raw materials or partly manufactured goods for further working or for use as instruments in his section and all the work which he gets performed in his section will be debited to him; everything he delivers to other sections or for consumption will be credited to him. It is necessary, however, that he should be left free choice to decide what machines, raw materials, partly manufactured goods, and labour forces he will employ in his section and what he will produce in it. If he is not given this freedom he cannot be burdened with any responsibility. For it would not be his fault if at the command of the supreme controlling authority he had produced something for which, under existing conditions, there was no corresponding demand, or if his section was handicapped because it received its material from other sections in an unsuitable condition, or, what comes to the same thing, at too high a charge. In the first event, the failure of his section would be attributable to the dispositions of the supreme control, in the latter to the failures of the sections which produced the material. But on the other hand the community must also be free to claim the same rights which it allows to the section manager. This means that it takes the products which he has produced only according to its requirements, and only if it can obtain them at the lowest rate of charge, and it charges him with the labour, which it supplies to him at the highest rate it is in a position to obtain: that is to say it supplies the labour to the highest bidder.

Society as a production community now falls into three groups. The supreme direction forms one. Its function is merely to supervise the orderly course of the process of production as a whole, the execution of which is completely detailed to the section managers. The third group is the citizens who are not in the service of the supreme administration and are not section managers. Between the two groups stand the section managers as a special group: they have received from the community once and for all at the beginning of the regime an allotment of the means of production for which they have had to pay nothing, and they continue to receive from it the labour force of the members of the third group, who are assigned to the highest bidders amongst them. The central administration which has to credit each member of the third group with everything it has received from the section managers for his labour power, or, in case it employs him directly in its own sphere of operation, with everything which it might have received from the section managers for his labour power, will then distribute the consumption goods to the highest bidders amongst the citizens of all three groups. The proceeds will be credited to the section managers who have delivered the products.

By such an arrangement of the community, the section manager can be made fully responsible for his doings. The sphere for which he bears responsibility is sharply delimited from that for which others bear the responsibility. Here we are no longer faced with the total result of the economic activity of the whole industrial community in which the contribution of one individual cannot be distinguished from that of another. The “productive contribution” of each individual section manager is open to separate judgment, as is also that of each individual citizen in the three groups.

It is clear that the section managers must be permitted to change, extend or contract their section according to the prevailing course of demand on the part of the citizens as indicated in the market for consumption goods. They must therefore be in a position to sell those means of production in their section which are more urgently required in other sections, to these other sections: and they ought to demand as much for them as they can obtain under the existing conditions….

But we need not carry the analysis further. For what are we confronted with but the capitalist order of society—the only form of economy in which strict application of the principle of the personal responsibility of every individual citizen is possible. Capitalism is that form of social economy in which all the deficiencies of the socialist system described above are made good. Capitalism is the only conceivable form of social economy which is appropriate to the fulfilment of the demands which society makes of any economic organization.

Government Constraints

November 14, 2008 · Posted in Government · Comment 

A government operates under constraints that are different from that of an entrepreneur.

The entrepreneur has no choice but to satisfy his consumers by withdrawing from the market factors of production whose output, directly or indirectly, currently satisfies fewer consumers than they are looking to satisfy or currently satisfies less urgent needs than they are looking to satisfy. The profit they reap is a result of the improved allocation of these factors of production.

A government obtains goods in a different fashion. It needs to obtain them via taxation, which is in last resort an act of theft against the individuals within its territory. But individuals in general resent acts of aggression. In the long run a government can’t just send its police to collect taxes under no pretense whatever. Violent upheavals by the governed and subversion would inevitably ensue after some time. This holds true for a dictatorship as it does for a democracy. In order to justify its acts of aggression a government needs the consent of the majority of the governed, it needs public opinion on its side.

Which means it employs in order to attain this objective cannot categorically be determined. Throughout history, governments have employed different justifications for its existence:

Throughout history governments across the globe have always appealed to fear of foreign enemies to justify its necessity. But in addition there have been subtleties in other areas: In ancient days government leaders would be anointed by the clerical class which had the greatest influence on public opinion. During the age of enlightenment, with the appearance of capitalism, the idea of using government to protect private property and individual liberties became popular. When in the 20th century the concepts of socialism conquered the hearts and minds of the broad majority, the idea of complete government control of the factors of production had become unstoppable and was swiftly put into practice virtually everywhere in the world. When the attempts of socialism had proven impracticable and lead to the collapse of the Soviet Union, the ideas of interventionism convinced the peoples of the world of the necessity of government bureaucracy. Minimum wage, centrally planned welfare programs, fiat money and subsidies for special industries became the norm.

Thus the main constraint for a government is the approval for its actions by the majority of the people. It will always do its best to mold public opinion to the extent possible. So long as it confines its activity to the protection of individuals against aggression and theft no major harm is caused. As soon as it begins to embark upon broader expansions of its bureaucracy, those who are governed by it need to be ever more vigilant and doubtful.