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Why Austrian Economics is Devastating to Libertarians

March 9, 2014 56 comments

Since it’s the weekend, I’m going to take a break from my attempts to reinvent (essentially) the existing macroeconomic paradigm from the ground up using debt (and collateral) as the backing for money and do something much easier–bash Austrians.  This is from a recent post on The Money Illusion.

I constantly hear conservatives complain that elderly savers can’t earn positive interest rates because of the Fed’s “easy money” policy.  Is there any time limit on how long you will make this argument, before throwing in the towel and admitting rates are low because of the slowest NGDP growth since Herbert Hoover was President?  Or is your model of the economy one where decades of excessively easy money leads to very low inflation and NGDP growth?

In other words, is there some sort of model of monetary policy and nominal interest rates that you have in your mind, or do you see easy money everywhere and tight money nowhere?  What would tight money look like?  What sort of nominal interest rates would it produce?

If you have spent any time at all reading econ blogs you should know exactly what answer you will get to this without bothering to check the comments section.  But in this case, you don’t have to wade too deep into the 266 (and counting) responses before you get it.  On the second comment Old Reliable, Major_Freedom, supplies it for us.  (I bet when people see “Free Radical” they expect me to be like that guy but it’s partly tongue-in-cheek!) Read more…

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A New Direction

January 9, 2014 6 comments

When I started this blog, it was basically just for me to practice writing down things I was thinking about.  I had a lot to say about liberty and property rights and stuff like that.  But lately, these things have been under such constant assault and it should be so obvious to anybody who thinks about them, that I have had little motivation to come on here and rant about the same things everyone else is ranting about.

Meanwhile, libertarian ideas have been on the rise.  This is good.  Unfortunately, this movement is mired in some serious economic confusion.  In short, the reliance on Austrian economics is leading to a sort of conservative/libertarian orthodoxy which is not only misguided but increasingly isolated and disconnected from all other academic thought on economics that has taken place over the last century.  We seem to think that everything worth knowing about economics Austrians have known for fifty years and all other schools are just attempting to obscure that reality to support some alternate ideology.  This attitude stands in the way of any intellectual progress as well as any hope of communicating with non-Austrians.

However, libertarians seem to be drawn to Austrian economics because there is essentially no other school of thought out there that embraces decentralized, free-market economic policies.  That is understandable.  But I find myself on an intellectual island.  Here are some of the things I believe.

1.  Free markets are good.

This is both a moral and practical belief.  Morally, I believe that a system where property rights are protected and people are otherwise free to do what they want with their lives and their property is the most just system and most harmonious with natural human rights.  In addition to this, I believe that free markets and property rights generate more prosperity than any other system.  This does not mean that they are perfect but once you start allowing the government to arbitrarily meddle with markets in the name of efficiency, or “equality” or whatever, you start down a road that always ends up doing more harm than good.

2.  Central banks are bad.

This is also both a moral and practical belief.  Morally, I don’t think you have a free economy (see belief #1) when there is a centralized authority manipulating the money supply and financial markets.  Most people, frankly, don’t care about this as long as the system works fairly well.  Practically, I don’t think this system will work well in the long run.   This is because I believe it requires the Federal Government and central bank to be constantly taking over more and more of the economy and this will eventually crush the free-market system which is the source of all of our prosperity.  But this is difficult to explain and can’t be shown by pointing to historical data because it is largely a prediction about things that haven’t happened yet.

3.  “Mainstream” economics is not that bad.

There are a lot of issues tied up in this one.  For one thing, many Austrian criticisms of mainstream economics derive from a misunderstanding of mainstream economics.  Utility is one glaring example.  When it comes to macro, mainstream economics does a much better job of describing how the economy actually behaves. (I particularly think Market Monetarism does the best job of this.)  Of course, macroeconomics is a really complicated thing and they are certainly not perfect.  The main shortcoming of “mainstream” economics is that it is nearly entirely focused on describing the current system and almost never deals with questions like “is this system a good idea?”  Austrian economics, on the other hand, is still using arguments that were used a hundred years ago to argue that the system we have now was not a good idea to argue, not that we should have a different system, but that we should have tighter monetary or fiscal policy within the current system.  That makes no sense and this causes Austrians to be mostly dismissed by people who understand mainstream economics.

[Note: There are, no doubt, some Austrian economists out there who would consider my characterization of them inaccurate, and maybe it is.  However, it is an accurate description of the popular arguments which I encounter frequently on the internet/TV/etc. and are often associated with that school.  For what it’s worth, I do think Austrian economics has made some meaningful contributions, I just don’t think it is nearly as perfect as many other libertarians seem to.]

These are essentially the three pillars of my macroeconomic beliefs though there are a lot of more specific details related to them.  So what school do I belong to?  Seemingly, the only school that believes in the second one is the Austrians but they are completely turned around on number three.  In short, there seems to me to be an intellectual hole in the blogosphere.  There has to be room for people to question the efficacy of central banking without throwing out all of mainstream economics.

It is my intention to refocus this blog to meet that need.  I have been deriving a macroeconomic model which I think can ultimately explain, in “mainstream” terms, the threat that central banking poses.  It is not quite complete and I certainly don’t claim to have everything figured out but I think we have to start making intellectual progress on these issues which means we have to start discussing them in an open-minded way.

This puts me in a strange position where I will be arguing mainly with the people who agree the most with my values (conservatives and libertarians).  In some ways I would rather be arguing with progressives.  However, right now, I think we need to get our own house in order before we will be able to make further progress so I see no way around it.  To this end, I intend to basically dive in and spend the next couple weeks identifying the biggest economic misconceptions conservatives have.  I hope this will be taken in the spirit intended.

[First misconception: hyperinflation/money isn’t backed by anything]

Penn Jillette on Government

August 15, 2012 Leave a comment

Trying to help this go viral.  If you had to say everything we need to know about government in 250 words, I don’t think you could do much better than this.

It’s amazing to me how many people think that voting to have the government give poor people money is compassion. Helping poor and suffering people is compassion. Voting for our government to use guns to give money to help poor and suffering people is immoral self-righteous bullying laziness.

People need to be fed, medicated, educated, clothed, and sheltered, and if we’re compassionate we’ll help them, but you get no moral credit for forcing other people to do what you think is right. There is great joy in helping people, but no joy in doing it at gunpoint.

People try to argue that government isn’t really force. You believe that? Try not paying your taxes. (This is only a thought experiment — suggesting on CNN.com that someone not pay his or her taxes is probably a federal offense, and I’m a nut, but I’m not crazy.). When they come to get you for not paying your taxes, try not going to court. Guns will be drawn. Government is force — literally, not figuratively.

I don’t believe the majority always knows what’s best for everyone. The fact that the majority thinks they have a way to get something good does not give them the right to use force on the minority that don’t want to pay for it. If you have to use a gun, I don’t believe you really know jack. Democracy without respect for individual rights sucks. It’s just ganging up against the weird kid, and I’m always the weird kid.

-Penn Jillette

From an August 2011 editorial on cnn.com.

Morality and Government Part II

January 23, 2012 4 comments

There are two ways to think about government.  By far the most common is to think of government as a force over and above the citizens which has always just been there, which provides for them, which they are inherently bound and subject to, and which can be petitioned as one petitions God or a child petitions its parents for whatever they want by appealing to its morality.  This is a bad way to treat government and I’m sure my libertarian friends will agree.  The correct way of thinking about government, at least government among free people, is as a contracting problem.  Most people have trouble thinking of it this way because when they hear the word “contracting” they think of contracting in a legal sense.  This type of contracting requires a third-party enforcer (a government) to enforce the contract.  In the absence of a third-party enforcer, there is still the possibility for contracts but those contracts must be self-enforcing.  Consider some examples.

Contract 1: I come to you and ask for a loan.  You give me $100 today and I will give you $110 one year from today.  This contract is not self-enforcing because 1 year from now there is no incentive for me to pay you back.  I already got what I wanted out of it, why should I fulfill my end of the agreement?  If there is a third-party enforcer, it is in my interest to uphold the contract because if I don’t, then the enforcer will come and punish me.  But without a third-party enforcer, this contract will not be possible even if it would be mutually beneficial.

Contract 2: I am a farmer and you are a swineherd.  We agree that every autumn I will give you a portion of my crop and you will provide me with meat throughout the year.  This contract may be self-enforcing because the benefits to both parties are continuous.  This will be the case as long as the benefits to both of us from continuing the agreement are always greater than the benefits from breaking it.

The last post was intended to establish a framework for thinking about morality and ethics in the context of government.  The purpose of this post is to analyze the morality of a specific government action, namely taxation. [Editor: it actually goes a little beyond that…] In order to do this we must assume a few things.  Here’s the scenario we will consider: A group of people come together who want to form a libertarian government.  They believe it is immoral to initiate violence against another person.  So I aim to evaluate certain functions of government through this moral lens.  I’m not trying to argue that this morality is the one true correct morality but this post is intended for people who generally share my libertarian views. Read more…

Morality and Government

January 18, 2012 3 comments

This is a continuation of what I started in this post on morality and ethics.  The position I am disputing is that government shouldn’t tax because taxation is theft and theft is immoral.  Let me say up front, that a government which could accomplish its purpose without taxation would be ideal and I believe it’s possible that this could be achieved.  If we could start a government from scratch with people who all believed as Thomas and I do, we might be able to fund the government with only voluntary payments (to be fair this is exactly the scenario he was dealing with in his original post).  I won’t get into how that could be done but I’m not trying to prove that it’s impossible here. My issue is with the attitude that there is a universal morality which government must (or at least ought to) follow.  And if we have any interest in fixing this thing before it gets so bad that we have to rebuild a society out of the ashes, we can’t have that approach.  We are so far away from a national consensus that taxation is theft and should be outlawed altogether that if you adopt this position your only option is to wait for the collapse of society.   The real important thing is that the government be prevented from using taxation to redistribute wealth and manage its distribution.  This does not require a complete moratorium on taxation.

A government has no morals.  It has no morals because it is not a creature.  It is a tool created by people to perform some task.  Tools do not have morals.  A hammer can be used for building a house–a noble pursuit–or committing a murder–not so noble.  If I am making a hammer, I cannot imbue the hammer with a moral objection to murder.  There are however, some things I could do to make it more difficult to commit murder with my hammer.  I could remove the forks on the back or perhaps put a layer of foam rubber around the whole head except for the face.  If I really wanted to be sure, I could even cover most of the face leaving only a small hole in the foam rubber that would have to be lined up precisely with the nail on every strike in order to work.  These things, while making it more difficult for someone to use my hammer for murder would also make it less useful for building houses. Read more…

Privatize it: Schools

October 2, 2010 Leave a comment

Recently Tucker Carlson, who used to have a show on MSNBC before they purged their staff of non believers, did a documentary on public schools for Fox News.  (Here are some notes on that link: 1. The site it’s on has an interesting name, I don’t know anything about them, they were simply the first site to show up when I searched for the video.  2. The whole thing is worth watching but if you’re strapped for time watch from 15:00 to 21:00 to get the gist of what I’m about to discuss.  Also, there is a short blurb written by Tucker below the video that gives the general idea.  3.  The sound and video are a little off….oh well)

Let me say up front that I’m not trying to argue with the decision made by the school board here.  You see the libertarian ethic has nothing to do with whether or not children read books about gay penguins.  It has everything to do with who decides whether they read these books.  This is what the left means when they talk about “democracy.”  5 people on a board make a decision and impose it on the entire public.  If you have an opinion about what your children should learn in school the only thing you can do about it is go down to their meeting and try to convince three out of the five to agree with you and impose your view on everyone instead of someone else’s. 

Aside: Yesterday, I was at the park smoking a cigar and some guy who had been sitting about fifty feet away (and up wind I might add) came over and told me to move because he could smell it and he didn’t like it and “he was there first.”  You see he goes there for the “fresh air” (we were about a hundred yards from a freeway).  But I go there because people like him made it illegal to smoke in a bar or a restaurant or anywhere outside on the campus where I work.  Anyway I digress.  I moved (which I now regret, I should have told him to screw off).  But later another guy went to where I was and started smoking a cigarette.  Not surprisingly most of the people you see in the park are smoking, progressives don’t get that this is a forseeable consequence of making it illegal everywhere else because they don’t understand economics.  Anyway, the same guy came and told that guy to go away so me and him got talking and it turned out he was from Poland and he said it was also illegal everywhere in Poland.  It actually seemed worse there than here.  And I said “that’s weird I thought everyone over there smoked.”  And he said “they do!”  So I said “so did they vote on that or what?” To which he replied “no, the city council did it.”……democracy.  By the way, remember this non-smoking campaign?  Oh they didn’t teach you that in school?  What a surprise….

OK, so back to schools.  I happen to think that progressives have been using the public schools to indoctrinate children for decades and I think that’s incredibly destructive to society.  Recently we’ve seen some pushback against this in Texas.  But if you’re to the left of me, you probably see things differently.  You probably think that the founders really were atheists, Christopher Columbus was a horrible person, believing in God is a ridiculous delusion, Woodrow Wilson and FDR were great presidents, etc. (I could go on for days but you get the point) and that crazy right-wing conservatives are taking over the school curriculum and corrupting your kids.

We can argue about this forever.  The thing we need to realize is that this is the natural result of collectivism.  Everyone is never going to agree about what children should learn in school.  When you make the school system public, you make this decision a collective one.  In other words, everyone gets the same thing.  This requires some system for making a collective decision when people don’t agree.  These systems are basically all called “democratic” by those on the left. 

The yardstick used by the left to evaluate a decision is the degree to which it conforms to the desires of the majority.  This is what they mean by “democratic.”  Imposing a system on someone is perfectly morally acceptable as long as it’s imposed by the majority.  Therefore, every moral debate is over what the majority wants.  In other words it is not about whether or not the government should have the ability to impose a given policy on anyone.

Public schools are the perfect example of this.  They have gotten us to accept the premise that the government has to run schools and this creates an environment where we have to argue about what they should teach.  But isn’t there another way? 

Obviously there is.  You could not have the government involved in schools at all.  If this were the case, everyone would be able to choose a school they were comfortable with.  Schools would have to compete with each other and this would mean the best schools would survive and the worst would not.  If you wanted a school that taught evolution and not creation you could choose one.  If you wanted creation and not evolution you could choose one.  If you wanted both to be presented in whatever you consider an “unbiased” way, you could choose one.  There would be no need for us to argue about it!  There would be no need for “democracy.”

The biggest problem people seem to have with this scenario is that people will make poor decisions about what their children should learn and we might all become “flat-Earthers.”  But which system is more likely to evolve in the direction of truth, one where a central authority makes decisions about curriculum based on some combination of majority sentiment and personal political motivation, or one where every individual chooses their own path?

In order to believe that the former is desirable, you have to believe two things which I think are highly doubtful.  First, you must believe that the politicians on some board who are motivated by politics will make better decisions than parents who are motivated by the interests of their own children.  Second you have to believe that people will continue making poor decisions even though they lead to bad outcomes.  It is precisely because they know that the opposite is true that they need a socialized education system (and healthcare system, etc.).

Imagine two salesmen come to town.  One is selling a blue pill that they claim will make you prosperous and happy your whole life and the other is selling a red pill that they claim will make you happy and prosperous your whole life.  They both claim that the other man’s pill will actually make you ignorant and unproductive and lead you into a life of slavery and depravity.  Now imagine that one of these men proposes that the whole town take a vote and decide which pill to take and then force every member to take that pill forever.   The other proposes that everyone be free to try whichever pill they want and switch whenever they please.  Which one is selling truth?

By the way, if we didn’t have public schools we wouldn’t have all these problems with teacher’s pensions and tenure and so forth.

Update: Here’s an interesting quote from Rules for Radicals which should be kept in mind when listening to leftists speak of democracy. 

Lenin was a pragmatist; when he returned to what was then Petrograd from exile, he said that the Bolsheviks stood for getting power through the ballot but would reconsider after they got the guns!

A War on Two Fronts

August 13, 2010 Leave a comment

As I learn more and more about economics and things like monetary policy and politics, there is one very interesting conclusion I am coming to which is a little difficult for me to accept.  The left is right…. sort of.  Now let me point out that in the last post I admitted that mainstream Keynesian economists were right…. sort of.  What I mean by the left is not these people it is people who say things like this (notice the poster’s name).  They are right that society is controlled by a small number of elites who use the existing power structure to enslave the masses for their personal profit.  The problem is that they surround this basic truth with all sorts of profound logical and moral confusion. 

It’s actually staggering how naive these people can be.  They seemingly make no effort to understand the real constraints that exist in the world or the real moral distinctions regarding property rights and liberty.  Instead they just make up things that sound nice and they say them over and over again as if this made them true.  For instance, they say that collective liberty and individual liberty are the same thing because saying this allows them to avoid the inconvenient fact that if people are really free, the government can’t force them to do whatever it wants.  But the concept of a collective goal requires this ability.  Notice what they say about this.

For individuals, human liberty must be maximized.  People should be allowed to do whatever they please, moral or immoral, as long as they do not harm another person or another person’s possessions. 

Ok, that’s perfect.  Now stop talking!  But alas, they go on…

At the same time we need to recognize that people do come together to form collective groups, this may be at work, in the political realm, in associations, school or wherever. (!)  When people do congregate, there are new dynamics.  Whether people realize it or not, these groups are working collectively toward some end. 

You see what they’re doing here.  They say the right thing in simple terms that anyone can understand so you go “oh yeah that makes sense, it’s simple and everyone loves freedom and liberty, this sounds like a good idea.”  And then they go on to imply the exact opposite but they do it in vague terms that convey no real meaning.  Everything in this quote is correct (except for the existence of such a thing as a “collective end”).  People do come together to form groups, this does create new dynamics, we should recognize this.  The question is, what should be done about it.  The answer: blank out.  They pay lip service to individuality while simultaneously denying the existence of any individual achievement. (They even go out of their way to dismiss the founding fathers!)  They act like you can be free in your personal life but a slave in your social life and these are not contradictory.  But notice the areas of your life in which you are part of a collective group: work, school, politics, associations, wherever….  Is your house part of a neighborhood of some kind?  What part of your life is the private part that these people think you should have liberty over?  It’s not particularly clear is it?

Everything you do affects someone else in some way (or at least it can be imagined to).  When you stand in the supermarket trying to decide whether to buy an apple or a banana, that decision has ramifications for all sorts of people.  It affects the demand for apples and bananas.  It affects the profit of the supermarket.  It affects your health which affects your children and your employer and your coworkers and your doctor.  They are right to recognize that we are all part of a larger collective organism.  But this realization raises the fundamental question one faces when deciding how to organize a government.  Given that people’s actions affect other people, who should have the right to make decisions regarding those actions?  In other words, how are property rights defined?   And this is the question which they always avoid.  The correct answer is what they say first.  That people should have property rights over their own body, and mind and the produce of their own body and mind, and they should make decisions regarding these themselves so long as they do not directly harm another person’s property.  But they act like you can have this decision-making power and the collective can also have it at the same time.  This is both a logical fallacy and an attempt to avoid the entire issue at hand.

The second, even more childish thing that these people do is to imagine a fantasy world where there is no scarcity and everyone does whatever they want all the time and there are no constraints on our lives whatsoever and then assume that the only reason we don’t live in that world is because we are being oppressed by the elites.  This is complete nonsense.  Ok we are being oppressed by elites but if we weren’t being oppressed, it wouldn’t mean we would live in some sort of Garden of Eden society.  We would still have to work, (the same guy has a video called “Work Sucks“) we would still get sick and die, when you pricked us we would still bleed, life would still be hard sometimes and tragedy and injustice would still happen. 

But these people do not want to deal with difficult questions so they avoid them.  By assuming that there would be no scarcity if we were all free, they avoid the question of how scarce resources would be allocated.  The answer is not complicated, it’s the same answer as above, but this would contradict their broad themes like “equality” and laziness which make their creed so attractive to college students, aging hippies and others with little desire or ability to actually think something through. 

Finally, they don’t fully realize who the elites are and they are not very careful about figuring out what people and institutions are really worthy of demonization.  For instance, they don’t like the Fed.  Neither do I.  But they go from that to hating bankers and banking institutions and money all together.  That’s stupid.  Banks are a legitimate business that serves a real purpose in a world of scarcity.  Of course, by assuming scarcity is just a construct of capitalism, they avoid dealing with any questions like “how will people store wealth and how would capital flow to its most useful purposes without banks?”  and “how would trade take place without money?

Even worse, they hate “capitalism.”  The reason they seem to do this is that they just call what we have capitalism and they don’t like what we have.  Alright, I don’t like what we have either, but it’s not capitalism.  Capitalism is the answer to our problems not the cause of them but they don’t see this because they don’t take the time to consider what capitalism really means.  But assuming that there is no real difference between individual rights and collective rights, they avoid questions like “If people own their own lives and property which implies that they can trade them however they want, how is that not capitalism?”  or alternatively “If the economy isn’t capitalist, how can it be true that people are really free?”

They turn “we are being oppressed by rich elites” into anyone who is rich is oppressing us and therefore they hate all rich people.  But all rich people aren’t bad.  Most of them are great people who create significant benefits for society.  And if you are a thinker you would consider questions like “if people are free and they own themselves and their property, then aren’t people free to become rich?”  The only way around this question is to assume that scarcity is a construct of “capitalism” and therefore wealth is a construct of capitalism so if we were free everyone would simultaneously be equal and have everything they wanted.  But this is a complete fantasy!

When I first started this blog, I said that I take freedom as a value in itself and that goal of the blog is to explore the cost of freedom.  They completely avoid this question by assuming that freedom has no cost.  In doing this, they eliminate the need to value it. 

Ok, so what do we do with these people?  I don’t know exactly… On one front we have elites who are screwing us over.  Their power is becoming weakened in some ways and that is encouraging.  But at the same time we have these people who have been trying to collapse this system for years and now they are smelling blood.  The problem is that if they got what they wanted, they would establish something even more crazy. 

I think many of them can be turned.  The reason I think this is that the only way they are able to believe these things is that they haven’t thought them through carefully.  Therefore those of us who have thought them through can politely help them understand.  If they understood the contradictions involved in this kind of thinking, many of them would probably come around.  But there can be no compromising with them.  Their weapon is that people want to believe what they are offereing them.  People want to believe that freedom is free and that scarcity isn’t real.  Our weapon is that we are right.  Their weapon requires people to not think too hard.  Ours requires the opposite.

In total, these people make up a small minority.  These are the people who believe something strongly without having thought carefully about it.  By contrast, most people haven’t thought carefully about it and therefore have no strong feelings.  These are the people we are now competing with the left over and we have a major advantage in the fact that what we believe  (by we I mean myself but to some extent I think also what I would call “real” libertarians)  is consistent and makes sense.  We can make an argument that a reasonable person who applies themselves to thinking things through, which people are beginning to do, can realize is correct.  But the key is to develop our principles.  Scarcity is real.  Individual rights and collective rights are different.  Work is not slavery.  Profit is not evil.  There can be no compromising of these principles.  Everybody loves freedom and individuality, that is why they have to pretend that they believe in these things.  But their beliefs are completely irrational.  You won’t convince anyone that you are sane by negotiating with a lunatic.