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The Conscience of a Libertarian

September 30, 2010 3 comments

I’m back baby!  While I’ve been away the republicans released their “Pledge to America.”  So let’s talk about the republicans and politics and the transformation that needs to occur if we are going to avert the coming catastrophe (insurrection…?). 

Begin by thinking back to last year’s special election in New York’s 23rd congressional district.  If you don’t remember, here is what happened.  The leaders of the local Republican party got together in a private meeting and nominated a progressive (Scozzafava).  The actual Republican voters didn’t want a progressive and lined up behind a conservative candidate (Hoffman).  When it became clear that Scozzafava had no chance of winning, she dropped out and threw her support behind the Democrat (Owens) who eventually won in a close election. 

At the time I had a take on this election that I never heard anyone else articulate.  The outcome was generally considered a victory for Democrats and the Obama administration but I actually consider it a minor defeat (although not as bad as it almost was).  You see, recently I have come to look at politics through a different lens.  Rather than seeing Republicans and Democrats as sincere enemies I see them as a sort of modern-day Condottiere who, having noticed that they possess a monopoly on combat, have no need to actually engage in the act but merely to present the appearance thereof.  This avoids unnecessary bloodshed as well as giving the monopolist the ability to predetermine the outcome of all the battles.

With this view in mind, look at the above mentioned election more carefully.  The reason there was a special election in New York’s 23rd district is that Obama had appointed the previous senator John Hugh, a Republican, as Secretary of the Army.  The narrative coming out of the media was that he did this because it was a seat he thought the Democrats could pick up.  But what would have been an even better present for Obama to find under his tree in 2009 than one more democrat in congress?  A Republican who would actually vote for Healthcare.  As we have seen, the support of one Republican is Obama’s idea of “bipartisan support” which he would have loved to attach to that bill but was unable to. 

This is what I think the administration had in mind for New York’s 23rd district.  The reason that district was perfect was that it was a traditionally Republican district that had become fairly “moderate” in recent years and more importantly where the republican party candidate would be chosen by a handful of party insiders in a smoke-filled room.  I think Obama actually wanted Scazzafava and assumed the Republican voters in New York wouldn’t look at her carefully enough to realize that she was a typical progressive and would just rubber stamp her because she had an R by her name.  To their credit, the voters figured it out and stood up to it.  They ended up with a progressive anyway but at least it’s a wolf in wolf’s clothing.

Now look at what is happening in Republican primaries all over the country (for instance Florida and Alaska).  The pattern is becoming pretty pronounced I’d say.  Plus we have the case of Delaware where not only is Mike Castle considering doing the same thing but for a moment after he lost in the primary, the GOP threatened to withhold funding from his victor Christine O’Donnell. 

All of this begs the question: what does the Republican establishment fear more than losing ground to Democrats?  Republicans and Democrats trade power back and forth all the time but the people at the top never go anywhere and the special interests that they pander to always seem to do alright.  The thing that could really overturn their proverbial apple cart is an influx of outsiders who don’t have ambitions of careers in politics but instead have a set of values that they think should be reflected in government, people who aren’t beholden to party leadership for their positions and their future, in short, people who aren’t easily manipulated in the name of political compromise and self-preservation. 

So in the end I’ll take pretty much any outsider over any establishment candidate.  Sadly in my state I don’t really have this option, but I would encourage those who do to hang in there and not cave to the Carl Roves of the world who insist that it is all about beating the Democrats and that every principal may be sacrificed to this end.  But that being said, in the long run you can’t beat something with nothing.  We cannot sustain a political movement based purely on “outsideness” we must find a platform we can unite over.

Here is what the Republicans have proposed in an attempt to bring the right back together under their banner.  Most of this is stuff I am in favor of (they support the most damaging part of the healthcare bill….) but none of it will save the republic.  They are the same kind of promises that Republicans have been making for generations.  Most of them will never happen even if the Republicans take control of the legislature, though they may blame it on “Democrat obstructionism” just like the Dems. do now.  But even if they actually did get this stuff done, the political state of the country would continue to decay, it would just not do so quite as quickly as it does when Democrats are in power.

The structural changes which could actually make a difference and would be widely popular such as term limits or an audit of the Fed are conspicuously absent.  But what we really need to discover first, if we are going to turn this thing around is not these things, it is some kind of moral foundation.  When I say this I don’t mean a personal moral foundation, I mean a political moral foundation.  In other words, a set of principles that we can accept as the basis for a philosophy of government. 

What we have now is a situation where political battles take place over issues with no overarching moral frame of reference.  Interest groups fight with each other over whom the government should favor at the expense of others.  The right and left try to use it to impose their individual moralities on each other.  The poor try to use it to take from the rich and the rich try to use it to take from each other.  All of these battles take the form of right vs. left and we have learned to see all issues with only the right and left as reference points. 

Instead of evaluating a policy by asking who gains and who loses and which one do I like more, we need to start asking the question “Is this consistent with my moral view of government?”  For instance here are political statements which are not based on a moral foundation:

You should never raise taxes on anyone during a recession.

The rich in this country don’t pay their fair share.

Government employees shouldn’t have such lucrative pensions.

Teachers should make more money.

These are all statements about who the government should favor and by how much in a given situation.  They make no statement about the relationship between the government and the people.  On the other hand here is a political statement which is based on a moral foundation.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their creator with certain unalienable rights and that among these are life, liberty, and the pursuit of happiness.”

Now consider this quote (paraphrase) which I have heard in a tea party commercial: “It’s time for a smaller, more caring government.”  There are two reasons why this will not do as a moral foundation.  First, advocating a “small” government is not a moral position.  How do you measure the size of government?  How small is small enough?  If it is “small” enough can it do whatever it wants so long as it doesn’t get too “big?”  These questions do not have satisfactory answers and therefore, “small government,” although the general sentiment behind it is something I certainly support, it is not enough to organize a movement around.

More importantly, the idea that government should be more “caring” is precisely the kind of moral nonsense that has led us to the point we find ourselves at now.  How can a government be “caring?”  Who should it care for?  Statements like this can be twisted to mean whatever anyone with any particular agenda wants them to mean.  What we really need is to stop treating government as something that should be “caring.” 

The idea that government should be caring is the ultimate collectivization of the altruist ethic and this makes it the most absurd form of altruism.  The idea that an individual should be caring implies that the individual should sacrifice their “self interest” for the sake of others.  But what does this mean for a government?  Can a government have a self interest?  The only thing that government can sacrifice for the benefit of someone is the interest of someone else.  This is exactly the type of moral confusion which we must avoid.  So I am putting forth the following moral platform. 

1.  Everyone has a right to their own life, liberty, and property and to the produce thereof and should be allowed to use them in whatever way they wish so long as it does not directly infringe on the same rights of others.

2.  The purpose of the government is to protect these rights.

3. The purpose of the law is to protect the rights of citizens from other citizens.  It should not be used to protect people from themselves or from roundabout effects of decisions made by others.  It should be as simple as is possible while accomplishing this purpose. 

4.  The law should be uniform and uniformly applied to all citizens.  This does not guarantee uniformity of outcomes or “opportunity.”

5.  Since taking from someone for the benefit of someone else violates the first person’s right to their own property, the government should never under any circumstances engage in the redistribution of property.  Nor should it be necessary in any circumstance for the government to weigh benefits to any person against costs to any other person.

6. The purpose of the military is to protect citizens from outside forces.

7.  This should be accomplished by the smallest and cheapest military possible.

8.  The natural check on the government is the threat of armed revolution.  This is one reason that the military should be as small as is necessary to ensure security from foreign invaders and it also means that the government must make no attempt at diminishing the collective military power of the people.

9.  The government has no business monitoring the behavior of law-abiding citizens.

10.  The above principles must not be compromised in any way for any reason, including convenience, economic efficiency, or physical danger.  The potential cost of lost liberty will always be far greater than the imagined benefits. 

This platform contains everything necessary for evaluating any political policy.  Notice that the moral foundation cannot be compromised.  If, for instance, we were to say “the government shouldn’t take from one citizen to give to another except in cases of extreme need,” this would be a worthless code because “extreme need” could mean anything. The original intent will eventually be eroded by continual and progressive compromise.  By building compromise into the foundation, you lay the groundwork for its eventual destruction.

However, there is another kind of compromise that is required here.  If we were ever to adopt a truly libertarian government it would require people on the left and right to both give up certain things that they would like the government to do.  People on the left would have to give up the redistribution of wealth, minimum wages, “safety nets,” gun bans, and government manipulation of markets.  The right would have to give up laws outlawing drugs and other personal behavior they consider immoral, government spying and other such “anti-terror” programs, subsidies to businesses (including farms), and other government manipulations of markets.

Personally I think we are coming to a point where most of the right, most of the center and much of the left can be brought around to this view.  There is certainly an element on the left which is fundamentally opposed to this moral platform.  They subscribe to a different platform, which holds that individuals are not responsible for anything, only collective outcomes matter and the government should have a right to do whatever is necessary to accomplish certain collective outcomes.  But these people make up a small minority in America (unfortunately they are largely in power right now). 

 The problem we have is that the majority have no moral political foundation whatsoever so they are constantly making what they consider compromises which lead to a system which confounds any attempt at moral comprehension.  As a nation we must realize that we cannot continue on without such a foundation and then we can have a debate about which one we want. 

The other side is doing everything possible to avoid this.  As an example of this notice that the Obama administration refuses to say whether the president actually is or is not a socialist/Marxist despite the constant stream of evidence dredged up by Glenn Beck to that effect.  This is because he has convinced the people on the left who subscribe to that moral foundation that he subscribes to it too but at the same time he has convinced the rest of us that there is no such thing as a moral political foundation.  This is why whenever he talks about it he just acts as though the very question is absurd and questions the intelligence of anyone who would consider it.  I suspect it is because they are aware of the fact on which our hope for salvation rests.  That if people actually realized that they need a moral foundation and began a national debate over what it should be, their side would not win.

Update: Right after I wrote this O’Reilly came on tv with these talking points.  By the way, the contrast between an unalienable right as I (and I believe the founders) conceive of it and the left’s idea of a right is illustrated nicely by the line “when workers were organizing for the right to organize…” (lol)

Upadate again: There’s nothing like a spelling error in the title, hope nobody noticed….(=

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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.

A Model of the State (What Would a Dictator Do?)

July 28, 2010 2 comments

Let us begin with a model of dictatorship.  This follows from the basic story layed out in The Role of the State.  We begin with a dictator who has established control over some group of subjects.  The dictator incurs some cost in order to protect the property of his subjects.  This is assumed to be an increasing function of the amount of wealth created and will be denoted G(Y) where Y is total output.  So if the population is fixed and equal to N, then each individual (they are assumed to be identical) produces y=Y/N.  Also, the dictator decides what percentage of output to seize (tax) from his subjects.  Let this percentage be denoted by t.  This means he will receive income equal to tY.  The problem faced by the dictator will be to choose t in order to maximize his profit given by tY-G(Y).

In order to do this, the dictator will have to consider the maximization problem faced by his subjects.  The issue, in a nut shell, is that the higher the tax rate t, the less incentive there is for people to produce because they get to keep a smaller percentage of their output.  This can be seen easily by imagining that each member of the economy produces output according to the production function y=l where l is the quantity of labor an individual devotes to production.  Also let us assume that each member faces a cost of labor c(l) which is increasing and convex (increasing at an increasing rate).  The amount of output that a worker gets to keep will be (1-t)l-c(l). (For simplicity I am measuring the cost as the value of foregone leisure in terms of output, so in other words I am counting that as lost goods which means the proper way to interpret this is as the amount by which the workers wealth increases from their initial state where they have all leisure and no production goods.  This is somewhat simpler, and in my opinion no less accurate, than dealing with a worker with a utility function over consumption and leisure)  So the worker’s first order condition for the maximization of this expression will be

c'(l)=1-t                           

From this we can easily see that when t increases the marginal cost of labor will have to decrease which means he will produce less (since c”(l)>0).  Going forward let us assume that c(l)=l^2.  This will make the above equation

2l=1-t

which means l and y will be given by

y=l=(1/2)(1-t).

Plugging this into the dictator’s profit gives us

t(1/2)(1-t)N-G[(1/2)(1-t)N]

Now, to make is simpler, let’s let G(Y)=Y/5.  This means that the first order condition for the dictators maximization problem will be (notice that the Ns cancel out)

1/2-2t*+1/10=0

This will give us

t*=.3     y=.35   

The profit to workers will be .35(1-t)-.35^2=.1225.

The profit to the dictator will be .3(.35)N-.2(.35)N=.035N.

Now let’s imagine a government of some form which makes decisions in order to maximize the prosperity of its citizens rather than of the dictator.  In this case, the government will need to raise just enough money to pay the expense of protecting the economy’s output.  Mathematically, we can impose the constraint

tY=(1/5)Y              which implies t=1/5

In other words, we can just set the tax rate equal to the marginal cost of protection (if G( ) were not linear this would work out a little different).  In this case the problem for each individual worker will be to maximize

.8l-l^2

which gives the first order condition

.8-2l=0

so l* (and y*) will be .4 and the profit to workers will be .8(.4)-.4^2=.16.

There are two important things to notice here.  First is that this benevolent government makes citizens richer by transferring the profit formerly accrued by the dictator to them.  Second, this is more efficient.  This can be seen simply by noting that output increases when the dictator is removed (in this case from .3 to .4).  This also makes the citizens better off.  This happens because the dictator, in his attempt to capture as much wealth from the society as possible, damages the incentive to produce.  He will not destroy it entirely because this would also destroy his source of wealth, but he will do so to an extent which is inefficient.  It is in an attempt to acquire both of these benefits for the people, that men endeavor to establish free rule of law societies.  The rule of law allows men to get the benefits of secure property rights without surrendering to a dictator the ability to loot their property to whatever extent he desires.

Now with this in mind consider the Laffer curve.    This is a theoretical curve showing the total amount of tax collected as a function of the tax rate.  For low levels of the tax rate it is increasing and for high levels it is decreasing.  This was the argument used in the Reagan administration to justify lowering the tax rate.  The position of that paragon of small government conservatism was that the tax rate was so high that it was on the downward sloping section of the Laffer curve so we could actually get more revenue by lowering the tax rate.  And this is the same argument going on now.  In a brilliant sleight of hand, Democrats are now claiming that we need to raise taxes in order to reduce government deficits and Republicans are saying that we need to lower taxes to “stimulate the economy” in order to lower deficits.  The entire debate amounts to an argument of where the maximum point of the Laffer curve is.  In other words, what tax rate maximizes government revenue?  Or in still other words, what would be the appropriate tax rate for an absolute dictator to impose on the economy?

You see the argument made by the Reagan administration was not that the government had no right to confiscate your property to whatever extent it desires.  The argument was that the government could actually confiscate more of your property if it lowered the rate of confiscation.  This argument would have been no less compelling had it been made to Castro.  And this is the closest thing we’ve had to a small government republican administration in… I don’t know let’s say fifty years (Ike wasn’t that bad I guess…). 

So how did we get here?  We kept convincing ourselves that we could get more stuff from the government without paying for it.  Now we have such a massive government (and government debt) that the maximum amount they can possibly confiscate is barely enough to pay the expenses of that government (and actually it’s probably far short of that amount).  This lack of foresight on our part has not only allowed the argument to become “what would a dictator do?” but it has allowed them to have the argument in the name of “fiscal responsibility.”

The Temptation of the State

July 26, 2010 1 comment

The primary role of the state is to define and protect property rights.  This role requires it to wield coercive power against individuals.  Historically, the most common manifestation of the state is one where an individual or a small group of individuals has control over the state and therefore near complete control over the other members of society.  The emergence of what can be loosely called “democracy” or government by the people, is an attempt by free people to get the benefits of governance without subjecting themselves to serfdom.  This is done by entrusting control of the government to the people it is charged with governing.  But this creates some problems.

If “the people” was a single unified body that made decisions in its own interest then this would work out fine.  Unfortunately “the people” is really just a collection of individual people with different interests.  Each of these individual people will see the state, which is partly under their control, as a potentially very useful tool for achieving their goals.  And this is true, because the state has a special power that individuals lack, namely the power to coerce others with the threat of force. 

To understand the temptation that necessarily comes with this type of power, consider a man who has devoted his life to feeding the poor.  This, of course, is a noble pursuit which would no doubt be commended by almost any free man.  But any free man would not be willing to devote his life to it.  It may, in fact, be the case that most free men wouldn’t devote much energy at all to it.  To the man who does care, this will seem barbarous and mean.  He will see others enjoying plenty and not showing what he considers to be the proper concern for those with less.  He would like to get some of what they have and give it to the poor.  This would make him happy. 

In a free society, this man has a clear path to achieving his goal of getting some food from a rich man and giving it to a poor man.  He can work to produce something of vale and trade it to the rich man for the food that he wants to give to the poor.  On the other hand, if he has access to a coercive enforcer, he may be able to just use that power to make the rich man give it to him.  This process is attractive to him for two reasons.  First, it cuts out the nuisance of having to produce something valuable to trade.  Second, he is able to accomplish far more this way.  Instead of being able to donate the produce of only one man (himself) he is able to donate the produce of many of his fellow men to his cause. 

What is more, he will likely feel no moral reservation about pursuing such a strategy.  On the contrary he will probably feel the exact opposite and he may even develop a sense of righteous indignation toward those who would be so selfish as to resist his attempts to confiscate their property and direct it to what he considers a very worthy cause.  And this moral reproach will be used as a weapon to accomplish his goal.  He will brand those who don’t support using the government to direct peoples’ private property toward ends which they do not condone as enemies of the poor when in fact they are simply indifferent to the poor.  The public at large (who controls the state) will see the issue as one of who should get this wealth, the rich or the poor?  And that is what the issue is.  But this view betrays the fact that the public considers the wealth of every member to be public property which can be disposed of as “the public” sees fit. 

Likely “the public” will prefer the poor to the rich on some sort of moral grounds.  This will especially be the case when the burden of a policy falls on a minority of them.  This might not be very troubling except for the fact that everyone has a cause that they care more about than others.  They will all want to use the state to coerce others to support their cause.  The direction of resources will become a public political decision rather than a decision made individually by the owners of the resources.  Indeed, in this case the public is in fact the owner of all resources because they have the ability to seize any of them at any time and direct them to any cause they see fit.  This fact is illustrated by the current debate in this country over whether we should increase or decrease tax rates in order to increase government revenue.  Notice that this is exactly how a tyrant decides on the tax rate.  The thief-turned-governor in our initial example allows the foragers and hunters to keep some of their produce because it provides an incentive for them to produce more for him to steal.  In a free society the question shouldn’t be what will maximize tax revenues, it should be what is the minimum tax possible to achieve the necessary functions of government? 

The big problem with this situation is not that the poor get fed.  It is that when the objects of wealth become disassociated with the creation of wealth, wealth will not be created.  This can be illustrated with another parable.

Imagine a society made up of three individuals.  The first wants to feed the poor and provide universal healthcare.  The second wants to feed the poor and build roads.  The third wants to provide healthcare and build roads.  They each have $150 and spend $75 on each of their causes.  If they are left alone they end up spending $150 on feeding the poor, $150 on providing healthcare, and $150 on building roads. 

                If they can vote to make the government do things, the first person may propose that the government take $50 from each person and spend it on feeding the poor.  This will pass because two out of three people value feeding the poor.  And in this way those two get the same amount of benefit at a lower cost to themselves ($50) because they make the third person subsidize their efforts.  If only this happened, the society would end up with more feeding of the poor and less healthcare and roads.  However, the second person will probably notice that they could propose a measure to have the government take $50 from everyone and use it to build roads.  This will also pass because two out of three favor it.  And the third person may propose that the government take $50 from everyone and use it to provide healthcare.  After all of this they end up with the same amount spent on each project as they had to begin with ($150).  It is worth mentioning that this is not necessarily always the case.  The example is constructed this way to illustrate that it is not the reallocation of resources that is the main problem here.  The main problem is that now, if any one of these people earns another dollar, only 2/3 of that dollar will go to causes they care about.  This means they will have less of an incentive to produce.  If all three produce less, then every cause receives fewer resources.  The more people and causes you add, the more an individual’s wealth will be diverted away from projects that they care about and the less will be their incentive to create wealth. 

                In addition to this, it is likely that a lot of otherwise productive resources will be used up simply trying to manipulate the actions of government.  Every politician, lobbyist, campaign manager or volunteer, pundit, blogger, and bureaucrat could be employed in the production of some other good.  The cost of all of this together with the waste and corruption which is well known to be common in any government is most likely small however in comparison with the negative effect on incentives described above. 

                There is an important distinction to make here regarding liberty.  It is between the conception of a “free people” in which people is thought of as a single organism and that in which people is considered a collection of individual free people.  The idea that a people is free if its collective actions are chosen by the majority is fundamentally different from the idea that a people is free if they are individually allowed to live and act in a way of their own choosing so long as it does not infringe on the liberties of some other individual.  The fact that a man has some say in the actions of the state which wields complete control over his life does not make him a free man.  The difference between this and a dictatorship is not the degree of freedom, it is only the way in which the oppressing body makes decisions.  People are only free when there is no oppressive body making these decisions at all.

Aside: On the Morality of Government

 One man sees that there are poor people in his community and thinks to himself “I should do something to help.”  So he goes out and gets a part-time job to earn money to buy food for the poor.  Another man sees that there are poor people in his community and thinks to himself “somebody should do something to help.”  So he goes to the government and demands that it use its coercive power to force other people to give food to the poor.  Which man deserves more admiration?

The Nature of the State

July 25, 2010 2 comments

                If the state is going to be of any use, it must have the ability to protect property rights and enforce contracts.  This means that it must be powerful enough to impose penalties on individuals or small groups of individuals.  If an individual doesn’t fear the state, his actions will not be restrained by the law.  The role of the state therefore requires that it wield significant physical power.  As Mao put it “all political power comes from the barrel of a gun.”  To put it another way, the whole purpose of the state is to make people do things that they would otherwise not do.  No enforcer is required to make someone do what they believe is in their individual self-interest.  The state is only necessary to make them do something that is not in their own interest. 

In many cases this is not a bad thing.  It may be in my interest to go to my neighbor’s house and take his things but I am willing to give up that right in exchange for all my neighbors giving up the right to do the same to me.  This right can only be effectively taken away by the threat of physical force in retaliation if I (or my neighbors) commit such an act.  This means that in order to have an effective government, each citizen must be individually put in a position of such inferiority that the state is physically capable of disposing of their very life against their will if it deems this necessary.  It is because of this fact that liberty is so precarious and must be guarded so carefully. 

Most governments in the history of the world (with some notable exceptions) have been essentially totalitarian.  That is, they have been characterized by a ruler or ruling class that has more or less absolute power over the governed.  It is worth noting that this is the situation in which we left our primitive society of hunters and foragers.  The ruler allows the subjects only as much freedom as he wishes.  This may be the amount which is most profitable for him or he may be a “benevolent dictator” who genuinely cares about his people and allows them much more than that.  Either way, though, they are subjects, willing or not, of some higher power.  We may consider this a sort of natural state of society in the sense that there are many forces pulling society toward this state. 

The great contribution of the political philosophers of the enlightenment was to recognize the proper role for government, realize that it was necessary for any degree of prosperity and try to find a way to manifest this power in a form that could achieve its purpose and also be controlled collectively by the governed.  This is the key to maintaining a free society and it allows the prosperity which is enabled by well defined and protected property rights to be captured by the public rather than the ruler. 

Now, when we want food we go to the supermarket not the vine or the bush.  Nonetheless our food still comes from the vine and the bush.  We have just created a distribution system which allows us to acquire it more efficiently.  Without the vine, there is no food.  Likewise, in America (and most western countries), when we want to manipulate political power we go to the ballot box but we must not forget that this power still grows from the barrel of a gun.  If there were no men with guns willing to enforce the wishes expressed in the ballot box, our votes would be meaningless.  The mechanism that translates peaceful expression into political power is the object of political philosophy.

The American founders clearly recognized this as can be seen by examining the language of the second amendment to the constitution.

“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”

Notice that it doesn’t say “Hunting and sport shooting, being entertaining hobbies, the right of the people to bear Arms shall not be infringed.”  Bearing arms was not just a thing people wanted to be able to do, it was “necessary to the security of a free state.”  This is because once you have created an apparatus for wielding coercive power against individuals, there is a natural tendency for it to morph into a totalitarian government.  The protection against this is the threat that the people collectively will rise up against it and wield some physical power sufficient to prevent it.  A power that grows from the barrel of a gun can ultimately only be controlled by an even greater power of the same nature.  Knowing this, free people should be wary of any attempt by such an authority to reduce their collective military power.  This is the reason for the second amendment. 

                In fact every amendment in the bill of rights is designed to protect specific freedoms that are essential to the preservation of freedom.  The more trivial rights are all covered by the ninth and tenth amendments.  The first eight all deal with free speech, the right to bear arms, and protection from being disposed of or threatened by government troops or officials without just cause and due process.  All of these rights are especially important to liberty because without any one of them, the ability to protect all other rights is in jeopardy. 

                In this way a system was created in which every individual is subject to the power of the government but the government is subject to the power of the people collectively.  Unfortunately over time this system has suffered much abuse and neglect and it is now time to reexamine these issues.

The Role of the State

July 24, 2010 2 comments

A while ago (before this blog existed) I wrote down the basic outline of my theory of the state and then forgot about it.  I want to post a simple model explaining why we should be frightened by the Laffer curve but first I am dusting this off to build some context.  I will post it in several (I think three) installments followed by the model.

The Role of the State

                 Government serves an incredibly important purpose economically.  It is important to realize that government is a concept that has developed naturally out of a state of nature in which people stand to gain from its creation.  To see this, consider the fictional situation of some primitive men with no organized government.  One man is a very good hunter and another is a good forager.  Since both men would prefer to consume some meat and some vegetables, there are potential gains possible if the hunter does all the hunting and the forager does all the foraging and then they trade.

The problem is that the process of trading is likely to be very tricky.  Let us imagine that the hunter is also a better fighter than the forager.  If the forager approaches the hunter and offers a trade, it is not necessarily in the hunter’s interest to take the trade because he has a third option which is to simply take the produce of the forager and give him nothing.  There is nothing compelling the hunter to offer a mutually beneficial trade to the forager.  To take it a step farther, there is nothing preventing the hunter from going out of his way to track down the forager and take his stuff. 

This is likely to have several effects on the behavior of the forager.  First, the inability to trade will cause him to spend some time hunting, a task at which he is comparatively inefficient.  Second, he will refrain from saving a significant amount of assets because they will be at constant risk of theft.  Finally, he will probably invest some effort into defending whatever assets he does accumulate.  This may take the form of hiding them, or getting better at fighting, or living in a place which is easily defended but is inconvenient for other reasons. 

These costs may seem small by themselves, but consider that the economic development of society is dependent to a very great extent on specialization.  This situation allows for almost no specialization.  There is one type of specialization that is lucrative here though.  There is one skill that is capable of providing all manner of goods equally well.  That is the skill of combat and theft.  If the hunter decides to specialize in theft, he can steal from other hunters as well as foragers.  So in this state of anarchy, there is likely to be a very great deal of combat and theft and a very small amount of production (and almost no savings). 

Now at some point, a particularly sharp thief is likely to realize that there is a way to do his job which is easier and more lucrative.  Instead of beating up (or killing) the hunters and foragers and taking everything they have, which imposes some cost on the thief and ensures that they will never have much, the thief can just use the threat of beating them up and take only part of what they have.  The victim may be enticed to comply, since they are likely to lose a fight and come out even worse if they don’t.  This will save the thief the cost of the fight, and more importantly it will allow some incentive for the victim to accumulate wealth since he will be able to keep a portion of it rather than lose it all to the thief.  In this way, the thief may eventually be able to get half of 4 rather than all of 1.

In a sense, this behavior by a thief is similar to that of the first farmer who comes upon a wild plant, and instead of devouring the whole thing, realizes that he may devour some now and plant some in anticipation of its later produce.  Just as the farmer, following this revelation, will have to devote some energy tending to his crops, the thief will find it in his interest to protect his hunters and foragers from pests which may threaten his harvest.  After all, the desired incentive to produce would be ruined if, after the first thief takes only half, another one comes and takes the other half.  So some measure of protection will be required.  But this is exactly the field in which the thief is already specialized.  So his efforts will be diverted away from fighting with hunters and foragers and toward fighting with other thieves.  In return for this service, the hunters and foragers under his protection will willingly (that is, without a fight) surrender to him some portion of their produce.

At this point we have a government.  Of course the exact course of events that lead to this situation may vary, but this illustrates how people acting in their own interest may move from a situation of anarchy to one with governance.  And it is important to point out that both the governor (who started out as a thief) and the subjects (who started out as victims) end up better off under this arrangement than they were under anarchy.  More importantly though, is the fact that this situation now allows for economic progress.  That is because people now have an incentive to invest and produce more because they will get to keep some of the benefits.  Furthermore, they will be able to trade.  This is because the governor is in a position to enforce contracts.  So if a forager wants to trade with a hunter he needn’t fear the hunter seizing his goods because there is a third party enforcer who has an interest in preventing this.  This ability to trade allows for specialization which leads to innovation which means progress and greater wealth for all.

So now we can take a step back and ask what is the essential role of government that is necessary in order to have a stable and productive society?  The answer is the establishment and enforcement of property rights.  To analyze this we need to define the term property rights.  For this I turn to Barzel who distinguishes between two types of property rights.  The first, which he attributes to Alchian and Cheung, and refers to as “economic property rights” can be defined simply as the ability to enjoy a piece of property.  The second, he calls “legal property rights” which he describes as what the state assigns to a person. 

The distinction is important.  To see the difference, note that economic property rights exist even in the absence of the state.  The forager living in a situation of anarchy retains some ability to enjoy the produce of his labor.  This ability is limited however by his ability to defend that property from thieves.  The purpose of legal property rights is to extend economic property rights at a lower cost.  In other words, the state, once established, will delineate some legal property rights by declaring that the forager has a legal right to use the produce of his labor as he wishes and nobody else has the legal right to take it or otherwise interfere with his enjoyment of it.  The state then must enforce this legal right with a threat of punishment in order for it to have any effect on economic property rights.  If the state just said that, but did nothing to someone who ignored it, then it would not stop a thief from taking it anyway and the forager’s economic property rights, again, would exist only to the extent that he was able to defend his property himself.  If however, the state threatens to punish a thief, and because of this the thief is unwilling to steal from the forager even if the forager does nothing to defend his property, then his economic property rights are secured without any particular individual effort to secure them himself.  The effect of these legal property rights is that the forager’s economic property rights will be much more extensive and he will be able to devote the effort that would otherwise have been used in securing his property rights to more productive endeavors.