1700년대에 유럽의 서민들은 그들의 왕이 지상의 모든 지혜를 갖춘 사람이라는 말을 들어야 했다. 현대의 시민들은 대통령과 그의 참모들이 모든 것을 알고 있는 천재들이므로, 국민의 안전을 지키려면 그들에게 전권을 주어야 한다고 세뇌받는다.
민주제는 단지 하나의 정부 형태일 뿐이다. 그것은 구원의 양식이 아니다. 그것은 복지낙원으로 우리를 직행하게 해주는 신비의 제도가 아니다. 자신의 권력의 한계를 모르는 민주 정부는 재깍이는 시한폭탄이다.
The Great Democracy Scam of 2016
09/29/2016•James Bovard
The Mythology of Democracy
Modern democracy is based on faith that the people can control what they do not understand. Election results are often only a one-day snapshot of transient mass delusions. Most voters make little or no effort to understand the policies that increasingly dominate their lives. Even policies which decimate the savings of scores of millions of Americans, such as the Federal Reserve’s zero interest policy, rarely if ever show up on the radar screen. When candidates do discuss federal policies, they are confident most listeners do not know enough to recognize malarkey when they hear it.
After election day, pundits and politicians will remind us that the winning candidate will boss us around because he or she has “the consent of the governed.” But, rather than magic wands to direct government, voting levers are now unreliable Kevlar jackets against political and bureaucratic attacks. Regardless of how people vote, the National Security Agency will still read their emails, the Internal Revenue Service will still have power to hammer who it pleases, and federal agents will continue to have a de facto license to kill.
Voting is now a way of conferring power and honors on politicians, rather than a method of reining in rulers. In the early American Republic, candidates would stress their fidelity to the Constitution. But the Constitution has long since vanished from the campaign trail, replaced by competing promises of new handouts and fiercer attacks on imagined perils.
The mythology of American democracy is being beaten like a rented mule this year. It is time to recognize how the government and much of the media have sought to make people submit via the same type of delusions that long propped up monarchs. In the 1500s, peasants were encouraged to believe that the king was chosen by God to serve His purposes on Earth. Today, Americans are encouraged to believe that a presidential candidate’s election is a sign of divine approval of his victory. In the 1600s, English yeomen were told that any limit on the king’s power was an affront to God. Today, Americans are told that any restraint on the president’s power thwarts the Will of the People. In the 1700s, the downtrodden of Europe were told that their king possessed the sum of all Earthly wisdom. Today, people are encouraged to believe that the president and his top cadre practically know all and see all and need boundless power to keep people safe. In the early 1800s, people were encouraged to believe that kings automatically cared about their subjects, simply because that was the nature of kings. Now, people are taught that the government automatically serves the people, simply because a plurality of voters assented to one of the politicians the major parties offered them.
A Ticking Time Bomb
Almost 200 years ago, Sen. John Taylor of Virginia warned: “Self-government is flattered to destroy self-government.” The same Republican and Democrat politicians who are heaping praise on voters pre-election will do little or nothing to stop the next onslaughts from federal agencies issuing dubious or inane rules to bring citizens to their knees. And, when government victims complain, a servile media chorus will remind them that “government is just the people acting together,” as President Bill Clinton declared in 1996.
Democracy is merely a form of government. It is not a mode of salvation. It is not a catapult to the Promised Land. But a democratic government that respects no limits on its own power is a ticking time bomb, waiting to destroy the rights it was created to protect.
Are Americans free simply because they are permitted a perfunctory choice on who will molest their rights and liberties? In the coming years, the most important battles for freedom will take place in the minds and lives of Americans far from the Beltway. But in the meantime, let’s hope that whoever wins in November does not destroy the nation with pointless wars or wreck the economy beyond repair.
James Bovard is the author of ten books, including 2012’s Public Policy Hooligan, and 2006’s Attention Deficit Democracy. He has written for the New York Times, Wall Street Journal, Playboy, Washington Post, and many other publications.
The War on Cash Finds Its General
The Curse of Cash
David Gordon
Kenneth Rogoff would sharply disagree with Peale, a character in the 1915 novel It Pays to Advertise, who said that the most beautiful word in the English language is “cash.” For Rogoff, a distinguished monetary economist (and chess grandmaster) who teaches at Harvard, cash, especially in large denominations, ought to be eliminated.
Rogoff has two main arguments for his proposal; but, before examining them, let us look at exactly what he wishes to do. In his suggested plan, which “can be adapted and tweaked in many directions,” “All paper currency is gradually phased out, beginning with all notes of $50 and above (or foreign equivalent), then next the $20 bill, leaving only $1, $5, and (perhaps) $10 bills. ... The government provides all individuals the option of access to free basic-function debit card/smartphone accounts, either through banks or through a government option. ... Regulatory and legal framework aims to discourage other means of making large-scale payments that can be completely hidden from the government. ... Government helps facilitate ... real-time clearing for most transactions.”
One word reverberates throughout this proposal: “government.” For Rogoff, the government must combat nefarious characters in the “underground economy,” not to mention tax cheats, who transact business in paper money. Think of all the revenue the government has lost, owing to the selfishness of these miscreants!
The problems posed by the underground economy, Rogoff tells us, are far-reaching in scope: there is a great deal of “missing” cash, mostly in large denominations. “The bulk of US cash in circulation cannot be accounted for by consumer surveys. Obviously, if consumers are holding only a small fraction of all cash outstanding, they cannot possibly be holding more than a small fraction of the $100 bills in circulation, since $100 bills account for nearly 80 percent of the value of US currency.”
Where are the missing $100 bills? Much of it is used in illegal activities, like the drug trade. “The drug trade is a famously cash-intensive business at every level. ... The RAND Corporation has estimated the combined size of the market for four major illegal drugs in the United States to be more than $100 billion in 2010. ... Eliminating cash would hardly eliminate drug cartels. Nevertheless, it would be a significant blow to their business model at many levels.”
But could we not instead deal with this problem by ending the drug war? In a legal market, could the drug cartels survive? Rogoff has in part anticipated this response, but he rejects it summarily. “Obviously there are other ways of reducing drug-related crime. A simple one would be to legalize marijuana ... [but] hard drugs would remain problematic.” The thought that the drug war should be ended entirely has not entered his head.
He might reply in this way: “Even if you crazed libertarians would make all drugs legal, you still have to acknowledge that some activities that should be illegal, like human trafficking, depend on dealing in cash. This fact by itself suffices to justify my proposal.”
And this is not all that concerns Rogoff. Cash transactions enable people to avoid paying taxes. “The largest holdings and use of cash in the domestic underground economy likely derive from residents of all types ... who are broadly engaged in legal activities but who are avoiding taxes, regulations, or employment restrictions ... the tax gap is sufficiently huge that if eliminating cash can close it by as little as, say, 10 percent, the revenue gains would be quite substantial ... the gains would be on the order of $50 billion from federal taxes alone and perhaps another $20 billion for state and local taxes.” Rogoff recognizes that many people do not want tax regulations to be “rigidly enforced” but responds that tax evasion creates a “horizontal equity” problem: if you evade your taxes, others, who do not, will have to pay more. But once again, the libertarian response does not occur to him: taxes are unjust exactions that violate people’s rights.
Suppose, though, that one grants to Rogoff that taxes are legitimate and also that ready access to cash makes some crimes much easier to commit. Has he made his case for the abolition of cash? As he recognizes, the advantages of his proposal must be balanced against concerns about privacy: “It is important to separate out protection from government snooping and protection from relatives, friends, employers, or other private entities. Of course, people will always want to keep some expenditures or income secret from spouses, parents, and friends. The government can perfectly allow such transactions as long as they do not entail recurrent large expenditures and income to be completely hidden from the government.”
Incredibly, he fails to realize that many of us do not want the government to monitor what we are doing. As long as our neighbors cannot snoop on us, everything is fine. Where liberty is concerned, Rogoff just does not “get it.” He points that a critic of his proposals quoted against him Dostoevsky’s remark, “Money is coined liberty,” but notes that the remark in The House of the Dead describes life in prison. “To draw an analogy between life in a Tsarist prison and life in the modern liberal state as a defense of large-denomination notes borders on the absurd.” The modern liberal state is your friend; why worry?
What we have discussed so far is only Rogoff ’s first argument for the abolition of cash: he has another as well. If the economy is in a recession, the monetary authorities may need to “turbocharge” the economy by pushing interest rates down. Doing so, they hope, will stimulate production and increase aggregate demand. But at present an obstacle blocks these plans. The money rate of interest has already fallen to zero. Further reductions require negative rates. But if these are imposed, depositors will withdraw their funds. Why keep money in the bank if part of your money will be confiscated?
Rogoff describes the problem of the “zero bound constraint” in this way: “paper currency can be thought of as a zero-interest-rate bond. ... As long as people have the choice of paper money, they are not going to be willing to accept an interest rate that is significantly lower on any kind of bond ... the zero bound has essentially crippled monetary policy across the advanced world for much of the past 8 years since the financial crash of 2008. If unconstrained negative rate policy was possible ... central banks would never ‘run out of bullets’ (i.e., room to keep cutting interest rates)” (p. 5).
If paper money is eliminated, depositors will no longer be able to withdraw their money. What could be simpler?
It is disappointing that Rogoff fails to mention Austrian arguments that stimulating aggregate demand through monetary expansion is not the appropriate response to recession. He has read Rothbard and cites him on paper money in the colonial period (p. 235, note 26). But the Austrian theory of the business cycle is not
within his range of vision.
He does, though, address an argument by Milton Friedman that is highly relevant to stabilization policy. “Friedman perfectly well understood that monetary policy could be a potent tool for economic stabilization, but he argued that central banks were so incompetent and so prone to inflationary finance that life would be simpler and better if the whole concept of Keynesian activist monetary policy was simply forgotten” (p. 188).
He replies that Friedman’s alternative of limited monetary expansion according to a fixed rule has not worked. Friedman thought that there was a fixed relationship between the quantity of money and prices, but this has not always proved to be the case. Rogoff may be right, but he has not responded to Freidman’s argument against central bank discretion. The fact, if it is one, that a particular alternative to discretionary policy fails is irrelevant. If someone argues that policy A will fail, claiming that alternative B is no better is hardly a response.
Regardless of whether Rogoff ’s way of dealing with the zero bound constraint is economically sound, though, is it not unfair on its face? If you deposit money in a bank, why should it be subject in part to confiscation? Rogoff answers that those who press this objection are victims of a “money illusion”: “Many people will likely regard negative interest rates as a violation of the trust citizens place in their government. ... To see negative nominal interest rates as unholy but moderate inflation as just bad is to suffer what economists call ‘money illusion’ ” (emphasis in original). But why not take this point to be an argument against government-mandated inflation rather than, as Rogoff wishes, a defense of negative interest rates? Rogoff complains of the “zero bound constraint,” but he is himself bound by statist assumptions.
많은 유권자들은 정부가 개입하지 않으면 사회가 구성되고 질서를 갖출 수 없을 거라고 우려한다. 하지만 정부가 없어도 통치는 이루어질 수 있다.
사적 통치Private governance는 사적인 기관들이 질서를 창조하고 규칙을 실행할 때 언제라도 탄생한다. 정부가 뒤에서 받쳐주지 않아도 시장은 작동한다는 것이 고래로부터의 경험이다.
여러 시장에 걸친 다양성은 좋은 현상이다. 시장에서 사람들은 생활의 여러 분야에서 그들이 선호하는 다양한 방식으로 다양한 규칙을 가진 클럽과 기관을 선택할 수 있다.
Why We Need Less Politics and More Private Governance
Edward Stringham, 11/28/2016•
We’ve lived through another election season, and this year, as with every years, the candidates competed to tell us about all the ways they were going to use the power of government to make our lives better. Unfortunately, many voters appeared quite sympathetic to the idea that government action can improve living standards and generally make markets work better.
That’s the bad news. But, there are also trends at work right now that are bigger than any single election cycle, and while the candidates this year provided little reason for optimism, the voters themselves may be growing skeptical of just how much the government can solve all their problems.
Nevertheless, one of the most important things we can do is really explain and understand how markets, and not government intervention, are our best hope for an orderly and prosperous society.
To Change Politics: Public Opinion Must Change
As Ludwig von Mises and Frédéric Bastiat point out, economic policy, for good or bad, is ultimately determined by public opinion. That can give us cause for pessimism or optimism, because although a widespread misunderstanding of how markets work translates into bad policies, public opinion can, and often does, change. Until a half-century ago, arguments such as, “We need more housing, therefore government should provide housing,” or “We need more affordable housing. Therefore government should put price controls on housing,” were common. Today, few people seriously make such claims. When even the median voter in Massachusetts can understand the problems with and vote to eliminate rent control, there is hope about the spread of economic ideas.
Still, arguments such as “We need to reduce fraud. Therefore government needs more regulations” or “Risk is a problem. Therefore government should assume and manage risk” are much more accepted than they should be.
Although faith in government is still widely held, it may be passing its apex and declining. Surveys have found that in the late 1960s about 75 percent of Americans said they trusted “the government in Washington all or most of the time,” whereas today the number is only 20 percent. A 2013 survey by Gallup found that a “record high in the U.S. say big government is the greatest threat” to the country, and Pew in 2013 reported that a “majority views government as a threat to personal rights.” People are also abandoning faith in politicians, and today only 9 percent have a favorable view of Congress.
An Alternative to Politics?
But, these doubts about government intervention do not necessarily translate into support for voluntary markets.
Part of the reason that the public have skepticism toward markets is they have little understanding of how markets work. Nor do they understand how markets can work to provide order and governance in everyday life.
Among many voters, there is a fear that without governments to intervene, society cannot be structured and orderly.
This has never been the case, and in my book Private Governance: Creating Order in Economic and Social Life, I look at how governance can be achieved without what we normally call “government.”
Private governance is created wherever private institutions create order and enforce rules when governments are either unable or unwilling to do so. Time and time again, markets can be found to work even when government is not underpinning them. The standard belief that government is necessary to enforce contracts or allocate goods — to name two examples — is belied by numerous examples throughout history.
Private governance can be found, of course, in the rules imposed by any private club. But private governance is also employed to govern complex institutions, as it was first used by the founders of the London and New York stock exchanges. Similar institutions and rule-making are used today to govern electronic commerce.
In fact, once we begin to contrast the voluntary marketplace with government institutions, we find that the rules of the market are much more orderly, stable, and potentially enduring than rules from a monolithic bureaucracy.
Moreover, although progressives worry about corporate power, market-based rules and private governance allow for more choice and are markedly more liberal than government impositions and regulations.
Allowing people to voluntarily opt into, or out of, different systems, markets, and communities lets people find the rules that benefit them. In The Constitution of Liberty, Friedrich Hayek explains why this is so. “There is an advantage in obedience to such rules not being coerced,” Hayek begins, not only because coercion as such is bad, but because it is, in fact, often desirable that rules should be observed only in most instances. ... It is this flexibility of voluntary rules which in the field of morals makes gradual evolution and spontaneous growth possible, which allows further experience to lead to modifications and improvements.
Hayek goes on to note that non-coercive governance — such as that found in the marketplace — is more likely to allow for the sort of change that leads to economic progress:
Such an evolution is only possible with rules which are neither coercive nor deliberately imposed. ... Unlike any deliberately imposed coercive rules, which can be changed only discontinuously and for all at the same time, rules of this kind allow for gradual and experimental change. The existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of the more effective ones.
Widely desirable structures of private governance will become profitable and encourage others to mimic them without any need for coercive “harmonization.” In other cases, variety across different markets is a good thing. Just as it does not make sense for the corner store to comply with the listing requirements of the New York Stock Exchange or recreational sailors to comply with the rules of the America’s Cup, a market for private governance allows people to select from different structures that make sense for them. In contrast to government institutions that apply rigid rules universally, the market allows people to opt into different rule-enforcing clubs and institutions in different areas of their lives in various ways they like.
Politics, of course, represents very much the opposite of the flexibility and variety found in private governance. We just spent most of the year hearing from politicians about all the things they were going to do to force markets to behave themselves. But, in spite of what the politicians tell us, the fact remains that order in markets is as attributable to government as much as good literature is attributable to the Government Printing Office.
The Good News They're Not Telling You
11/28/2016• Thomas E. Woods, Jr.
As we look at things that impress us technologically we also have a certain trepidation, because we’re told that robots are going to take our jobs. “Yes, the internet is wonderful,” we may say, “but robots, I don’t want those.”
I don’t mean to make light of this because robots are going to take a lot of jobs. They’re going to take a lot of blue collar jobs, and they’re going to take a lot of white collar jobs you don’t think they can take. Already there are robots that can dispense pills at pharmacies. That’s being done in California. They have not made one mistake. You can’t say that about human pharmacists, who are now free to be up front talking to you while the robot fills the prescription.
Much of this is discussed by author Kevin Kelly in his new book The Inevitable, with the subtitle Understanding the 12 Technological Forces that Will Shape Our Future. It’s incredible what robots can do and what they will be able to do.
Automation Really Is Taking Our Jobs
To me, just the fact that one of Google’s newest computers can caption a photo perfectly — it can figure out what’s happening in the photo and give a perfect caption — is amazing. Just when you think “a machine can’t do my job,” maybe it can.
What kind of world is this we’re moving into? I understand the fear about that. But, at the same time, let’s think, first of all, about what happened in the past.
In the past, most people worked on farms, and automation took away 99 percent of those jobs. Literally 99 percent. They’re gone. People wound up with brand new jobs they could never have anticipated. And in pursuing those jobs we might even argue that we became more human. Because we diversified. Because we found a niche for ourselves that was unique to us. Automation is going to make it possible for human beings to do work that is more fulfilling.
How is that? Well, first let’s think about the kinds of jobs that automation and robots do that we couldn’t do even if we tried. Making computer chips, there’s no one in this room who could do that. We don’t have the precision and the control to do that. We can’t inspect every square millimeter of a CAT scan to look for cancer cells. These are all points Kevin Kelly is trying to make to us. We can’t inflate molten glass into the shape of a bottle.
So, there are many tasks that are done by robots, through automation that are tasks we physically could not do at all, and would not get done otherwise.
Automation Creates Luxuries We Didn’t Know Were Possible
But also automation creates jobs we didn’t even know we wanted done. Kelly gives this example:
Before we invented automobiles, air-conditioning, flat-screen video displays, and animated cartoons, no one living in ancient Rome wished they could watch pictures move while riding to Athens in climate-controlled comfort. ... When robots and automation do our most basic work, making it relatively easy for us to be fed, clothed, and sheltered, then we are free to ask, “What are humans for?”
Kelly continues:
Industrialization did more than just extend the average human lifespan. It led a greater percentage of the population to decide that humans were meant to be ballerinas, full-time musicians, mathematicians, athletes, fashion designers, yoga masters, fan-fiction authors, and folks with one-of-a kind titles on their business cards.
The same is true of automation today. We will look back and be ashamed that human beings ever had to do some of the jobs they do today.
Turning Instead to Art, Science, and More
Now here’s something controversial. Kelly observes that there’s a sense in which we want jobs in which productivity is not the most important thing. When we think about productivity and efficiency, robots have that all over us. When it comes to “who can do this thing faster,” they can do it faster. So let them do jobs like that. It’s just a matter of — so to speak — robotically doing the same thing over and over again as fast as possible. We can’t compete there. Why bother?
Where can we compete? Well, we can compete in all the areas that are gloriously inefficient. Science is gloriously inefficient because of all the failures that are involved along the way. The same is true with innovation. The same is true of any kind of art. It is grotesquely inefficient from the point of view of the running of a pin factory. Being creative is inefficient because you go down a lot of dead ends. Healthcare and nursing: these things revolve around relationships and human experiences. They are not about efficiency.
So, let efficiency go to the robots. We’ll take the things that aren’t so focused on efficiency and productivity, where we excel, and we’ll focus on relationships, creativity, human contact, things that make us human. We focus on those things.
Automation Really Does Make Us Richer
Now, with extraordinary efficiency comes fantastic abundance. And with fantastic abundance comes greater purchasing power, because of the pushing down of prices through competition. So even if we earn less in nominal terms, our paychecks will stretch much further. That’s how people became wealthy during and after the Industrial Revolution. It was that we could suddenly produce so many more goods that competitive pressures put downward pressure on prices. That will continue to be the case. So, even if I have a job that pays me relatively little — in terms of how many of the incredibly abundant goods I’ll be able to acquire — it will be a salary the likes of which I can hardly imagine.
Now, I can anticipate an objection. This is an objection I’ll hear from leftists and also from some traditionalist conservatives. They’ll sniff that consumption and greater material abundance don’t improve us spiritually; they are actually impoverishing for us.
Well, for one thing, there’s actually much more materialism under socialism. When you’re barely scraping enough together to survive, you are obsessed with material things. But, second, let’s consider what we have been allowed to do by these forces. First, by industrialization alone. I’ve shared this before, but on my show I had Deirdre McCloskey once and she pointed out that in Burgundy, as recently as the 1840s, the men who worked the vineyards — after the crop was in, in the fall — they would go to bed and they would sleep huddled together, and they basically hibernated like that for months because they couldn’t afford the heat otherwise, or the food they would need to eat if they were expending energy by walking around. Now that is unhuman. And they don’t have to live that way anymore because they have these “terrible material things that are impoverishing them spiritually.”
The world average in terms of daily income has gone from $3 a day a couple hundred years ago to $33 a day. And, in the advanced countries, to $100 a day.
Yes, true, people can fritter that away on frivolous things, but there will always be frivolous people.
Meanwhile, we have the leisure to do things like participate in an American Kennel Club show, or go to an antiques show, or a square-dancing convention, or be a bird watcher, or host a book club in your home. These are things that would have been unthinkable to anyone just a few hundred years ago.
The material liberation has liberated our spirits and has allowed us to live more fulfilling lives than before. So, I don’t want to hear the “money can’t give you happiness” thing. If this doesn’t make you happy — that people are free to do these things and pursue things they love — then there ain’t no satisfying you.
Mises Destroys Socialism, Again and Again
(발췌)
08/23/2016
Jonathan Newman
The Real Reason Why Socialism Doesn’t Work
Mises also made the strongest case against socialism. With private ownership of the means of production, entrepreneurs hire laborers and purchase capital and natural resources based on their contribution to the productive process as measured by consumers’ willingness to pay for the final output. Anticipated revenues from the sale of output guide production and investment decisions. Any deviation from the consumers’ wishes results in lower profits or even losses.
Under socialism, in which the private ownership of the means of production is abolished, there can be no meaningful prices of the inputs to production processes. Production decisions are merely “groping in the dark,” as Mises put it in Economic Calculation in the Socialist Commonwealth. Mises showed that there is no forward-looking way to compare anticipated revenues to the costs of production and there is no way to retrospectively measure the success of any production process. Economic calculation, essential to any growing and flourishing market economy, is impossible.
Socialism, then, must result in the participants’ wants and needs going unsatisfied. This is another rhetorically strong argument, and it is especially fortified by the observed tragic failure of every socialist “experiment” (if you can call the deaths of millions of people something so mundane).
Real-World Human Action Is at the Core
Mises didn’t just haphazardly stumble upon these brilliant insights. They were the product of careful logical deduction and rigorous self-scrutiny along the lines of his own contributions in the epistemology of economic science.
The logic of human action starts with means and ends and proceeds through exchange, prices, production, money, credit, and the necessary consequences of interventions in these areas. Mises showed that economics does not produce generalities or vague guidelines that may be overcome if only governments are smart and powerful enough. The science of economics reveals laws that cannot be broken. Our persuasive efforts are dramatically improved if we can convey these arguments from Mises and build on his strong foundation.
The Fallacy of the 'Third Way'
08/14/2016 •David Gordon
The authors of American Amnesia, well-known political scientists from Yale and Berkeley, argue that supporters of the free market have forgotten a fundamental truth. Defenders of the market often point to the “Great Fact,” as the distinguished economic historian Deirdre McCloskey terms it, i.e., the amazing increase in human well-being and wealth that began about two hundred years ago, when trade and production in parts of Europe and America became freer than ever before. Does this not make manifest the virtues of the free market? Our authors do not think so. It is the “mixed economy” of government and business that has accomplished the real economic miracle.
They explain in this way what they have in mind: “The political economist Charles Lindblom once described markets as being like fingers: nimble and dexterous. Governments, with their capacity to exercise authority, are like thumbs: powerful but lacking subtlety and flexibility. … Of course one wouldn’t want to be all thumbs. But one wouldn’t want to be all fingers, either. Thumbs provide countervailing power, constraint, and adjustment to get the best out of those nimble fingers.” (Lindblom, by the way, was so long ago as 1951 a target of William Buckley’s God and Man at Yale: Lindblom used some of the same anti-market arguments that our authors deploy here.)
Such is their thesis: what is the evidence for it? “An American born in the late nineteenth century had an average life expectancy of around forty-five years, with a large share never making it past their first birthdays. Then something remarkable happened. In countries on the frontier of economic development, human health began to improve rapidly, education levels shot up, and standards of living began to grow and grow. … With the United States leading the way, the rich world crossed a Great Divide — a divide separating centuries of slow growth, poor health, and anemic technical progress from one of hitherto undreamed of material comfort and seemingly limitless economic potential. … Public health measures made cities engines of innovation rather than incubators of illness. … Investments in science, higher education, and defense spearheaded breakthroughs in medicine, transportation, infrastructure, and technology.”
The authors’ argument has moved rather too quickly. From the fact that government built something, it hardly follows that the unhindered market could not have achieved the same task, and perhaps better as well. A parallel “argument” will make clear the problem with the “mixed-economy” thesis. Much of the rise of America to industrial supremacy occurred during periods of high protective tariffs. Does this not show that the free market ought to be combined with protection for American industry?
Indeed some, such as Edward Luttwak in The Endangered American Dream and Martin Sieff in That Should Still Be Us, have argued in precisely this way; but the great majority of economists think otherwise. Economic theory shows the benefits of free trade. If America and other countries became prosperous under high tariffs, there is excellent reason to think that economic progress would have been even greater without them. What Sir Arthur Eddington said of physics applies to our case: “it is … a good rule not to put overmuch confidence in the observational results that are put forward until they have been confirmed by theory.”
And are there not excellent reasons from economic theory that show that the free market works better than the state? As Ludwig von Mises again and again pointed out, capitalism is a system of mass production for the masses. Businesses prosper to the extent that they meet the wishes of consumers; those that cannot do so cease to exist and their resources pass to the hands of others. By contrast, there is no mechanism to eliminate state-controlled enterprises that fail: the state can continually prop them up through taxes.
Hacker and Pierson might respond that I have ignored a main part of their case. They do have a theoretical argument in favor of government investment in public health, science, and education. The market cannot unaided deal adequately with externalities and public goods, and these occur in the types of government investment that they support. “Many important goods in a society are ‘public goods’: they must be provided to everyone or no one. … In the case of public goods, it is difficult to create an effective market.
The second big case of failure — and it is really big — involves markets that produce large effects on people who are neither buyers nor sellers. Economists call these … ‘externalities.’”
I do not propose here to discuss problems with standard public goods theory, on these, Murray Rothbard’s “Toward a Reconstruction of Utility and Welfare Economics” is an indispensable guide. Instead, let us, just for the sake of argument, for the moment accept the standard theory and see what happens. According to our authors, “The market won’t produce pure public goods at all. Most products yielding positive externalities can sustain private markets (for example, purely private education markets), but these markets will generally be much smaller than we should want them to be.”
This is a distorted account of the standard theory. It is true of this theory that, where positive externalities are present, the market fails to produce the “optimal” amount of the good or service. But it is not a consequence of the standard view that the market produces a “much smaller” amount than the optimum. To show that would require a detailed investigation of the extent of the externalities: it does not suffice merely to utter the word “externalities” to make the case for intervention. Further, why assume that the state would produce the “optimal” amount? What reason is there to think that the state could calculate the relevant externalities or that, even if it could, its activities would be bound by their limits?
When the authors tell us that a lighthouse is the “classic example” of a public good that the market cannot supply, readers familiar with the relevant literature will be unable to suppress a smile. More generally, it hasn’t been proved that any “pure public goods” exist. The authors also unaccountably think that the free market cannot respond adequately to negative externalities. “A hundred years ago, individuals and companies were free to dump raw sewage into municipal water supplies: it took government’s coercive powers to stop the lethal practice.” Surely the problems here stem from inadequate definition of property rights, not market “failure.”
Theory does not support the authors’ case for the mixed economy, and neither do the facts. According to Hacker and Pierson, scientific research and inventions require extensive government support; but they ignore evidence to the contrary. Murray Rothbard notes in Science, Technology, and Government, “The myth has arisen that government research is made necessary by our technological age, because only planned, directed, large-scale ‘team’ research can produce important inventions or develop them properly. The day of the individual or small-scale inventor is supposedly over and done with. And the strong inference is that government, as potentially the ‘largest-scale’ operator, must play a leading role in even non-military scientific research. This common myth has been completely exploded by the researches of John Jewkes, David Sawers, and Richard Stillerman in their highly important recent work. ”
The case is even worse for Hacker and Pierson as regards public education. They claim that there are positive externalities involved in education, but they do not mention the existence of negative externalities in this area. If, for example, you have an advanced degree, you may be harmed by the fact that many others have such degrees as well. This may make it much more difficult for you to obtain a job. Milton Friedman once thought that positive “neighborhood effects,” his term for externalities, justified a government subsidy for education; but thinking about negative externalities made him change his mind. Of all this our authors seem blissfully unaware.
Much of the book consists of an attack on those who venture to oppose government programs like the Affordable Care Act. These dreadful obstructionists are either hardcore or softcore Randians who dare to put their selfish wish for material gain above the common good. They and others are the amnesiacs who “have never been good at acknowledging government’s necessary role in supporting both freedom and prosperity.”
Unfortunately for our authors, these contentions about the obstructionists do not follow, even if one accepts the view that a mixed economy is necessary. From the “fact,” in my view the opposite of the truth, that government provision of certain services is necessary, it does not follow that one ought now to favor the extension of the government’s activities. How many of the Republicans whom our authors excoriate, one wonders, wish to do away altogether with the mixed economy? The fact that most of them vote for billions of dollars in government programs, albeit in lesser amounts than “progressives” would like, suggests that they too support a mixed economy. This to my mind is an unfortunate fact, but it is a fact nonetheless.
Thus, the authors have failed to make a case for the mixed economy and also failed to show that large numbers of people have forgotten this case. Despite the eminence of the authors, and their book’s fifty-nine pages of notes, American Amnesia is a work of propaganda, not of scholarly inquiry.
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