Taxes and Spending: Recent Episodes
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Taxes and Spending features article on how government extracts money from the productive economy and how the government spends money.
While many economists claim that high overall debt levels can lead to economic recessions, irresponsible government spending and money expansion are the real culprits.
Original Article: "Easy Money Is a Much Bigger Economic Problem than Debt"
The Trump administration doled out $700 million in CARES “loans” to trucking firm Yellow. Now Yellow has gone bankrupt, and the taxpayers may foot the bill.
Original Article: "The Taxpayers Bailed Out Yellow Trucking. It Went Bankrupt Anyway."
When it comes to the debt ceiling, political parties are irrelevant, and the recent debt ceiling drama, was little more than a sham.
Original Article: "The Debt Ceiling Debate Was Pure Theater"
The Biden Administration is attempting to do a victory lap for "Bidenomics", but the public isn't buying it. On this episode of Good Money, Dr. Jonathan Newman joins the show to talk about his doubts of a "soft landing" for the economy, and the lies being told to sell Central Bank Digital Currencies.
Jonathan Newman's article on CBDCs: Mises.org/GM18a Jonathan Newman's article on "Soft Landing" headlines from 2007: Mises.org/GM18b
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
The political passion for "social justice" is creating a larger free-rider problem and a problem of injustice.
Original Article: "Social Justice and the Free-Rider Problem"
On this week's episode, Mark summarizes the many problems with EVs, and focuses on two consequences funded by taxpayer subsidy. Large, overpriced, long range vehicles have been subsidized at the expense of more efficient technological applications. These EVs are significantly heavier compared to their fossil fuel counterparts (which have engines and gas tanks). These heavier vehicles create greater crash risks for passengers and pedestrians. Failure to disclose such issues reveals some uncomfortable truths about the political elites who drive this agenda onto the American people.
Be sure to follow Minor Issues at Mises.org/MinorIssues.
Socialists like Bernie Sanders and the editors of Jacobin have decried the possible US government debt default. Marx and Lenin would have vociferously disagreed.
Original Article: "Current Socialists Should Support Government Default: Their Forebears Certainly Did"
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
The financial press now knows enough economics to watch weekly money supply figures like hawks; but they inevitably interpret these figures in a chaotic fashion. If the money supply rises, this is interpreted as lowering interest rates and inflationary; it is also interpreted, often in the very same article, as raising interest rates. And vice versa. If the Fed tightens the growth of money, it is interpreted as both raising interest rates and lowering them. Sometimes it seems that all Fed actions, no matter how contradictory, must result in raising interest rates. Clearly something is very wrong here.
The problem here is that, as in the case of price levels, there are several causal factors operating on interest rates and in different directions. If the Fed expands the money supply, it does so by generating more bank reserves and thereby expanding the supply of bank credit and bank deposits. The expansion of credit necessarily means an increased supply in the credit market and hence a lowering of the price of credit, or the rate of interest. On the other hand, if the Fed restricts the supply of credit and the growth of the money supply, this means that the supply in the credit market declines, and this should mean a rise in interest rates.
And this is precisely what happens in the first decade or two of chronic inflation. Fed expansion lowers interest rates; Fed tightening raises them. But after this period, the public and the market begin to catch on to what is happening. They begin to realize that inflation is chronic because of the systemic expansion of the money supply. When they realize this fact of life, they will also realize that inflation wipes out the creditor for the benefit of the debtor. Thus, if someone grants a loan at 5% for one year, and there is 7% inflation for that year, the creditor loses, not gains. He loses 2%, since he gets paid back in dollars that are now worth 7% less in purchasing power. Correspondingly, the debtor gains by inflation. As creditors begin to catch on, they place an inflation premium on the interest rate, and debtors will be willing to pay. Hence, in the long-run anything which fuels the expectations of inflation will raise inflation premiums on interest rates; and anything which dampens those expectations will lower those premiums. Therefore, a Fed tightening will now tend to dampen inflationary expectations and lower interest rates; a Fed expansion will whip up those expectations again and raise them. There are two, opposite causal chains at work. And so Fed expansion or contraction can either raise or lower interest rates, depending on which causal chain is stronger.
Which will be stronger? There is no way to know for sure. In the early decades of inflation, there is no inflation premium; in the later decades, such as we are now in, there is. The relative strength and reaction times depend on the subjective expectations of the public, and these cannot be forecast with certainty. And this is one reason why economic forecasts can never be made with certainty.
For more episodes, visit Mises.org/MisesReport
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of "Ten Great Economic Myths". This material was prepared by Murray N. Rothbard.
Those people who are properly worried about the deficit unfortunately offer an unacceptable solution: increasing taxes. Curing deficits by raising taxes is equivalent to curing someone's bronchitis by shooting him. The "cure" is far worse than the disease.
For one reason, as many critics have pointed out, raising taxes simply gives the government more money, and so the politicians and bureaucrats are likely to react by raising expenditures still further. Parkinson said it all in his famous "Law": "Expenditures rise to meet income." If the government is willing to have, say, a 20 percent deficit, it will handle high revenues by raising spending still more to maintain the same proportion of deficit.
But even apart from this shrewd judgment in political psychology, why should anyone believe that a tax is better than a higher price? It is true that inflation is a form of taxation, in which the government and other early receivers of new money are able to expropriate the members of the public whose income rises later in the process of inflation. But, at least' with inflation, people are still reaping some of the benefits of exchange. If bread rises to $10 a loaf, this is unfortunate, but at least you can still eat the bread. But if taxes go up, your money is expropriated for the benefit of politicians and bureaucrats, and you are left with no service or benefit. The only result is that the producers' money is confiscated for the benefit of a bureaucracy that adds insult to injury by using part of that confiscated money to push the public around.
No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget. How and where? Anywhere and everywhere.
For more episodes, visit Mises.org/MisesReport
For more episodes, visit Mises.org/MisesReport.
Despite "concerns" about increasing federal debt, in the end Republican legislators have gone along with whatever the ruling elites want. The Limit, Save and Grow Act of 2023 is more of the same.
Original Article: "Republicans Fail on the Debt Ceiling in 2023"
Contrary to the still-enduring myth about Republican budget cutting, there is no correlation whatsoever between Republican control of DC and the trajectory of federal spending.
Original Article: "The Republican Debt-Ceiling "Deal" Is Exactly What We Expected"
The current regime wants to use taxation not simply as a means to collect revenue for the government, but as a weapon against economic prosperity itself.
Original Article: "Taxation as a Weapon against Prosperity"
Per Bylund joins Bob to discuss his new paper at the QJAE, which points out several flaws in the MMT claim that money is valued in order to pay taxes.
Per's QJAE article: Mises.org/HAP398a
In this episode of Good Money, Tho Bishop is joined by Dr. Jonathan Newman to discuss the real costs of government spending. The end of the debt ceiling battle has resulted in the predictable outcome of normalizing the fiscal insanity of covid-era spending. Tho and Jonathan discuss how this was predictable to those familiar with the work of Dr. Robert Higgs, how mainstream GDP measures miss the true costs of government, and alternative approaches Austrian economists use to provide a clearer understanding of what is really going on in the economy.
Good Money listeners can order a special $5 book bundle that includes How To Think About the Economy and What Has Government Done to Our Money? with free shipping using promo code "GoodMoney" at Mises.org/Good
Receive a free subscription to The Austrian magazine at Mises.org/Magazine
Economically speaking, the US government is bankrupt even if the government won’t admit what is obvious. But how would an actual bankruptcy proceeding go?
Original Article: "In the Event of an Official US Bankruptcy"
Heritage Fellow Peter St. Onge joins Bob to set the record straight on several popular talking points about the debt ceiling.
Bob on selling Gov't resources to reduce the National Debt: Mises.org/HAP397a
On this episode of Radio Rothbard, Ryan McMaken and Tho Bishop tackle the debt ceiling debate. As negotiations continue in Washington, the corporate financial press is hard at work warning about the potential for disaster. Ryan and Tho cut through the nonsense to look at the real state of America's finances, potential ramifications in the short term, and US defaults of the past and the inevitable future.
New Radio Rothbard mugs are now available at the Mises Store. Get yours at Mises.org/RothMug
PROMO CODE: RothPod for 20% off
Recommended Reading"Three Lies They're Telling You about the Debt Ceiling" by Ryan McMaken: Mises.org/RR_135_A
"Yes, the US Government Has Defaulted Before" by Ryan McMaken: Mises.org/RR_135_B
Be sure to follow Radio Rothbard at Mises.org/RadioRothbard.
Contrary to the worldview of progressives, taxation and the coercion it brings are not part of a "social contract." Instead, they are implemented by force.
Original Article: "You Don’t Like It? Leave! The Telling Sophistry of Tax Apologists"
While most free market advocates are fixated on the national debt, they also should be looking at municipal debt over which taxpayers have no say. Maybe default is the answer.
Original Article: "Should Local Municipalities Default on Their Debts? Seems Like a Good Idea"
A central tenet of Keynesian economics is that governments must run budget deficits to stimulate economic growth. But government spending actually shrinks the economy.
Original Article: "Government Budget Deficits Cannot Stimulate True Economic Growth"
The passage of an income tax in the early twentieth century was an enormous shift toward a far more centralized and powerful US state.
Original Article: "The Income Tax: Lessons from the Sixteenth Amendment"
President Biden pushes a wealth tax as a measure of "fairness." Not only is it unconstitutional, but it's also bad for the economy.
Original Article: "Biden's Wealth Tax Is a Trojan Horse Requiring Multiple Manipulations"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Advocates for more military spending tell us the taxpayer must pay to expand the US's nuclear arsenal. Because of China. In truth, the US's arsenal is in no danger of not "keeping up."
Original Article: "No, We Don't Need More Nuclear Weapons"
This Audio Mises Wire is generously sponsored by Christopher Condon.
If we have learned anything from hundreds of years of government oppression and atrocities, one thing is certain: government isn't our friend.
Original Article: "Government Is as Government Does"
This Audio Mises Wire is generously sponsored by Christopher Condon.
It's popular for politicians to claim they will never cut Social Security. But doing nothing now about the program means imposing an even larger hit on seniors in the future.
Original Article: "Why Biden's Spending Is Unsustainable"
This Audio Mises Wire is generously sponsored by Christopher Condon.
With Yale economics professor Yusuke Narita suggesting mass suicide—seppuku—as the answer to Japan's rapidly aging demographics, Jeff and Bob take a hard look at the economics and humanity of greying America.
Richard Hanania, "Gerontocracy Versus Western Civilization": Mises.org/HAP383a
Bob on opting out of Social Security: Mises.org/HAP383b
The recent case of retired megastar Usain Bolt losing millions of dollars to bad investments highlights the importance of sound money management.
Original Article: "Managing Money Is as Important as Making It: The Sad Case of Athletes Going Broke"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Taxes Have Consequences: An Income Tax History of the United StatesBy Arthur B. Laffer, Brian Domitrovic, and Jeanne Cairns SinquefieldPost Hill Press, 2022, xxv + 413 pp.
Taxes Have Consequences is a good book that could have been better. The authors are leading defenders of “supply side” economics, which attracted much attention during the 1980s, when the “Laffer curve” of the book’s senior author aroused great interest and to an extent guided policy under Ronald Reagan. Even if the movement’s time of greatest fame has passed, it contributed ideas of lasting value, though some of lesser merit as well, and its influence revived during the administration of Donald Trump, who contributes a foreword to the book.
The main idea of the supply-side movement is that high marginal income tax rates have a negative effect on economic productivity; when tax rates fall, the economy prospers, and when they rise, it sinks. The authors present a comprehensive history of income tax rates and their effects on the economy from World War I to the present, and they cover not only federal taxes but also taxation at the state and local levels. Along the way, we gain many valuable insights, and the authors merit praise for their assiduous research, but they go too far in their principal claim. For them, tax rates are the veritable key to the economic history of the twentieth century.
Their treatment of the Great Depression illustrates both the strengths and weaknesses of the book. In their view, the prosperity of the Roaring Twenties was the real thing and the temporary and hardly serious fall in the stock market in October 1929 could easily have been reversed by tax cuts. Instead, the Smoot-Hawley Tariff, which imposed the highest tariff rates in American history, and the increase in taxes foolishly supported by President Herbert Hoover, plunged the economy into a disaster that did not fully end until after World War II.
They say, “Economic growth in the 1920s—as the tax cuts at the top were prepared, implemented, and sustained from 1921–29—was among the strongest and most resplendent in American history. . . The American people in general enjoyed a prosperity on a mass level unlike anything seen before. Cars, suburbs, radios, airplanes, movies, home appliances—all these fruits of private investment surged in production and abundance as the nation experienced what is now recalled as the most legendary episode in the annals of mass affluence—the Roaring Twenties. . . In his 1978 book The Way the World Works, Jude Wanniski chronicled how the declines, and smaller advances, in stocks from late 1928 through the spring of 1930, inclusive of the October 1929 crash, closely followed the progress and hiccups of the [Smoot-Hawley] tariff bill in Congress. Indeed, despite the 1929 crash, stocks rebounded in early 1930 and approached their 1929 levels. [What happened to the close correlation here?] The market’s fate was not sealed—until, in June, the Senate narrowly passed the bill and President Hoover signed the tariff into law. Only following these developments did stocks tumble for good, as the economy spiraled into what became the inaugural ‘Great Contraction’ phase of the Great Depression.”
Readers of The Austrian will naturally wonder about the response of the authors to Murray Rothbard’s classic analysis in America’s Great Depression showing that the inflationary policy of the Federal Reserve System in the 1920s resulted in an artificial boom that led inevitably to economic collapse. Rothbard applies Austrian business cycle theory to reach his conclusion; have our supply-side authors found a flaw in this theory? Or do they object to the details of Rothbard’s application of the theory? They do neither. They do not mention the book, or Austrian business cycle theory, at all. When you are defending a view of the causes of the Great Depression, isn’t it a good idea to weigh your view against competing explanations? The authors evidently do not think so; of the competing theories, they discuss in detail only Keynesianism, about which they have some useful things to say. They dismiss the monetarism of Milton Friedman and Ben Bernanke, saying that Arthur Laffer and Brian Domitrovic have refuted it elsewhere, but the reference is not publically available. The gist of their response is given the importance of the tax data, there is no need to look elsewhere: “The problem with the monetary interpretation of the Great Depression is that the tax history is so pronounced. . . It is difficult to see how the huge, pangovernmental tax impositions on the conduct of economic activity cannot be the first candidates in any assessment of responsibility for the extended economic crisis of the decade after 1929.” But one needs an extended look at the arguments for other theories to determine the force of this claim, and we do not get it here. To say that “there are correlations between the debate on the Smoot-Hawley tariff and the state of the stock market” does not suffice to show that fear of the tariff caused the Depression.
In their view, a growing economy depends primarily on the investment decisions of wealthy entrepreneurs, especially the wealthiest of these investors. Faced with large increases in marginal tax rates, investors will devote resources to schemes of tax avoidance, of which the authors list a great many. Among the most important of these is the purchase of tax-free bonds. Without these tax increases, the entrepreneurs would invest in risky but potentially profitable enterprises that would lead to growth, but high marginal tax rates require them to give much of their gains to the government. Hence their reluctance to invest and their search for safe and secure outlets for their money. Another of the tax dodges is providing lavish offices and expense accounts to high corporate executives instead of raises in salary, which are subject to high marginal tax rates. The authors use this point against the contention of Thomas Piketty and Emmanuel Saez that inequality between the top earners and others diminished during the 1950s, a period of very high marginal tax rates. Piketty and Saez allege that the prosperity of the decade supports the imposition of high rates today. Our authors challenge both parts of this: if the value of nonmonetary compensation is taken into account, inequality diminished less than Piketty and Saez think, and the decade was one of sluggish economic growth.
You might object that because people are reluctant to pay even low taxes, the rich might still devote some time and effort to tax avoidance—after all, a small percentage of a large income is a substantial amount—and that maybe marginal tax increases aren’t as destructive as Laffer and his associates believe. But the authors don’t agree. In their view, the rich are content to pay a low level of taxes and because of this, a phenomenon highlighted by the Laffer curve arises. Low marginal tax rates may generate as much tax revenue as higher rates. “The strategy adopted by high earners and the rich, over the long era of the income tax, [was] to keep the tax portion of their total income level in any tax-rate environment, no matter if income tax rates were high or low. . . The lower the rates of the income tax, the more high earners said, ‘Forget about it,’ earned plenty however they wished, and paid taxes at the published rates.” The authors convincingly argue that the tax policy of Franklin Roosevelt exacerbated the severity of the Great Depression, and they show in great detail another impediment to recovery, the rise in state and local property and income taxes during the 1930s. But their account of the causes of the Depression is less satisfactory, and not only because the authors fail to address the Austrian theory of the business cycle. The way in which they set up their model of how wealthy people respond to tax increases is anecdotal and not rigorous. Further, they do not argue extensively for their view of the importance of the superrich in investments that lead to economic growth, and again rely largely on assertion and anecdote.
Another problem with the authors’ theory emerges, ironically, as they make a good point. Challenging the common opinion that World War II ended the Great Depression, they rightly note that civilians during the war weren’t well off. “World War II ended the Great Depression: this has been the standard view in economics and public policy commentary since the 1940s. This view is badly incorrect. The essence of the Great Depression was a massive decline in the average standard of living in the United States. In no way did World War II improve upon this situation. In important respects, the standard of living went down from late Great Depression levels during the World War II years.” The Keynesians argue that the massive government spending during the war increased aggregate demand, but what this ignores, the authors say, is that most of this spending was for defense, and this did not help the civilian standard of living. To the contrary, people on the home front had to pay high taxes, and consumer goods were scarce. The need to maintain, as much as possible, their standard of living made people work harder, and made the economy more productive.
This seems plausible, but at the same time, it presents a problem. If marginal rates rise, people may respond in two opposite ways, in what economists call the “income effect on labor” and the “substitution effect on labor.” If your tax rates go up, you might say, “I have to work harder so that I can still buy the consumer goods I want.” If you do this, you are responding to the income effect. You might, on the other hand, say, “I now have to give more of what I earn to the government. For that reason, I’m going to work less.” If you act in this way, you are responding to the substitution effect. The authors argue that civilians during the war responded to the income effect, while during the Great Depression, and at other times, business executives responded to the substitution effect. They have reasons for these claims, but there is a more general problem for their theory that they don’t solve. Because people can respond to tax increases in these two opposed ways, the theory allows one to claim that regardless of the response—more or less work—tax increases are responsible. This makes the theory vacuous, and to avoid this calamity, the authors need to set out clear criteria for when each effect arises. They fail to do so.
Despite the theoretical weaknesses of the book, the authors are right that lower marginal tax rates increase economic productivity. Sometimes arriving at the right conclusion matters more than how you got there.
Federal budget deficits are increasing, but the Biden administration shows no signs of restraining its spending. This is not going to end well.
Original Article: "Budget Deficit Hits Monthly Record Due to Biden’s Policies"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Progressives seem to believe that we improve healthcare outcomes by spending more. This is a recipe for failure.
Original Article: "Spending More Government Money on Healthcare Does Not Improve Health Outcomes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Following the attack on Paul Pelosi, the Capitol Police office has demanded a big budget increase. This is not to increase safety but rather to increase the agency's bureaucratic reach.
Original Article: "Paul Pelosi Is Attacked, So Naturally the Capitol Police Want More Money"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Massachusetts voters approved yet another tax hike for high-income residents, while California voters rejected a similar proposition. The current tax fever does not bode well for economic growth.
Original Article: "Taxing the Wealthy: A Tale of Two State Propositions"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Spain's government is attempting to levy a wealth tax ostensibly to be "in solidarity with the poor." Because wealth taxes ultimately help lower real wages, there will be more poor people to share in the "solidarity."
Original Article: "Who Pays Wealth Tax: The Rich or the Poor?"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Jeff and Bob record a special Thanksgiving episode for Money Talk 1010 AM on what it really takes to fix the US economy.
Mark Thornton on the coming economic crisis: Mises.org/HAP371A
Listen to Jeff on Money Talk 1010 every Thursday at 9:00am ET: Mises.org/MoneyTalk
More than forty years ago, California voters enthusiastically passed Proposition 13, which limited property tax hikes. Politicians have been lying about it ever since.
Original Article: "Why Proposition 13 and Attacking It Are Both Popular"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
President Biden's nonsolution of partial "debt forgiveness" is in limbo, but the slow financial destruction that massive student loan debt is unleashing continues.
Original Article: "Student Loan Debt: The Financial Time Bomb Politicians Want to Ignore"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
While President Biden claims that forgiving student loans helps reduce college costs, it is the loan program itself that is responsible for much of the explosive growth of higher education spending.
Original Article: "Higher Education Woes: Student Loans Help Fuel Higher College Costs"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
President Biden's recent student loan forgiveness initiative only exacerbates the real problem: the cost of a college education, thanks to government intervention, is outrageously high.
Original Article: "Student Loan Forgiveness Treats the Symptom, Not the Disease"
This Audio Mises Wire is generously sponsored by Christopher Condon. '
One doubts that the so-called Inflation Reduction Act will reduce inflation. However, it will wreak havoc on the US economy with its lethal mix of taxes, regulations, subsidies, and outright crony capitalism.
Original Article: "The Inflation Reduction Act: Another Unfair and Unjustified State Intervention"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Conservatives have missed the point that it is not students particularly that are at fault for the student loan crises, but the entire bureaucratic economic-political system.
Original Article: "Seeing the Student Loan Crisis as a Form of Boom and Bust"
This Audio Mises Wire is generously sponsored by Christopher Condon.
With a declaration of a fake crisis and twisting an obscure law, President Joe Biden has invoked a massive wealth transfer that benefits the most privileged people in our society.
Original Article: "Biden's Student Loan Scheme Benefits the Ruling Class (Again)"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Elites are attacking the government of Mauritius for having lower tax rates than other African countries. The real issue is the levels of taxation in other African countries.
Original Article: "If Mauritius Is a Tax H(e)aven, Other African Countries Must Be Tax Hells"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Paul Krugman denies that the Fed artificially suppressed interest rates. As usual, Krugman neither understands interest rates nor the effects of inflationary policies.
Original Article: "Krugman Is Wrong (Again): Artificially Low Interest Rates Created Bubbles"
This Audio Mises Wire is generously sponsored by Christopher Condon.
When it comes to energy and the environment, Americans not only get the wrong facts, arguments, and narratives–they get the wrong philosophy. Alex Epstein, who recently published perhaps the most important book of our time, joins Jeff and Bob to explain.
Get Alex's new book Fossil Future: Mises.org/Fossil
Unlike a private-sector service, police do not operate under any contractual obligations to provide services in any particular way. They can choose to do nothing at all, and face no real consequences.
Original Article: "Why Police Do Nothing While Kids Are Killed"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Inflation is raging and progressives want action. What kind of action? They want to return to the 1970s regime of price controls.
Original Article: "Back to the Future: Progressives Imagine the Good Old Days of Price Controls"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Peter Schiff once joked that Obama should have appointed Bernie Madoff secretary of the Treasury. The government's easy money policies ultimately lead to Ponzi schemes.
Original Article: "From the Eccles Building to Vegas: The Fed Enables the Worst Ponzi Schemes"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Conventional wisdom says a country should manage its debts, but what if debt has become uncontrollable?
Original Article: "In Defense of Defaulting on the National Debt"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Inflation in Argentina is far worse than neighboring countries. It has only one cause: an extractive and confiscatory monetary policy—printing pesos without control and without demand.
Original Article: "How Money Printing Destroyed Argentina and Can Destroy Others"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Americans are looking at a grim energy future, thanks to government.
Original Article: "The Biden Administration's Ignorant Energy Policies: Higher Gas Prices Are Only the Beginning"
This Audio Mises Wire is generously sponsored by Christopher Condon.
California's progressive political classes now have a scheme to impose a single-payer system for medical care. If imposed, it will be costly but also ineffective.
Original Article: "California Scheming: The Progressive Leadership's New Plan to Impose High-Cost, Low-Quality Medical Care"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Fair Tax is a supposed alternative to the income tax. But the name does not matter, since a tax is still a tax.
Original Article: "The Fair Tax Is the Tax That Will Not Die"
This Audio Mises Wire is generously sponsored by Christopher Condon.
The Davos crowd sold globalization as a way to bring nations together. Unfortunately, by insisting on political conformity, the globalists have set the world on fire.
Original Article: "Instead of Uniting the World, Globalization Has Set Nation against Nation"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Since the state is incorrigible and incapable of being reformed, perhaps the best way to deal with government predations is to boycott the elections.
Original Article: "Let's Boycott Them!"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While politicians claiming to be "fiscally responsible" call for balanced budgets, the real drag on the economy is government spending itself.
Original Article: "Government Spending Is the Real Tax; Deficits Are a Sideshow"
This Audio Mises Wire is generously sponsored by Christopher Condon.
American politicians claim that excessive military spending makes Americans "safe." The record shows otherwise.
Original Article: "Peace through Strength? Excessive US Military Spending Encourages More War"
This Audio Mises Wire is generously sponsored by Christopher Condon.
As the economy begins to slow, the results of the Fed's money pumping are showing up in mergers and acquisitions.
Original Article: "Mergers, Acquisitions, and Market Manias: The Fed Has Made Things Worse"
This Audio Mises Wire is generously sponsored by Christopher Condon.
While supporters of the Biden administration fault Putin for shortages, Austrian economists know the answer lies in Washington's monetary and economic mismanagement.
Original Article: "Austrian Economists Are Not Surprised by the Shortages"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Since the Obama administration nationalized the student loan program, we have seen student debt metastasize. Unfortunately, the Biden administration looks to make things even worse.
Original Article: "Student Loans and Government Subsidies: Another Government "Benefit" Creates Financial Chaos"
This Audio Mises Wire is generously sponsored by Christopher Condon.
Germany's government is pushing a new plan for massive spending on a "Climate Fund." This is justified with the usual Keynesian myths about the benefits of government spending.
Original Article: "Germany's New Green Stimulus Plan Won't Save Their Economy"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
So oppressive was the Inca regime that it's no wonder the Spaniards found many enemies willing to help topple the empire.
Original Article: "The Inca Empire: An Indigenous Leviathan State"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
An additional—and quick—$1 trillion spending boost in energy-intensive and material consuming industries is likely to create new problems in terms of inflation and supply shortages.
Original Article: "Biden's Infrastructure Plan Points to Even More Price Inflation"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
China's industrial policy has been marked by many failures and few successes. Rather, China's real growth has been fueled by the regime's limited turn to markets.
Original Article: "Industrial Policy—a.k.a. Central Planning—Won't Make America Great"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The new proposal is framed as a tax on the ultrarich. The same was true of the new income tax in 1913. If given the power to tax unrealized gains, expect the feds to expand the tax to ordinary people.
Original Article: "The Madness of Taxing Unrealized Capital Gains"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The appropriate question is not “Who will build the roads?” but rather “Who will pay for them without taxation?” History suggests the answer is "lots of people" and the "public goods" theory is wrong.
Original Article: "Who Will Build the Roads? Anyone Who Stands to Benefit from Them."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
As government seek ever larger amounts of debt to finance more spending, they're embracing huge debt levels in the way a broke consumer might embrace payday loans. In the end, we're left with nothing but a flimsy promise to pay.
Original Article: "Government Debt Is Starting to Look Almost as Sketchy as Payday Loans"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The SALT tax deduction allows state and local taxes—like property taxes—to be deducted from federal taxes. To cap it is to pave the way for the federal government to tax income twice.
Original Article: "Why Biden Wants a Cap on State and Local Tax Deductions"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS.
Original Article: "The Real Tax Scandal"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
A good definition of the tragedy of the commons is that "resources that are unowned and/or unownable will be plundered to extinction."
Original Article: "Government as the Ultimate Cause of the Tragedy of the Commons"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
ABSTRACT: This article wrestles with the issue of when is it justified to accept money from government. The case is made that it is indeed almost always justified to do so. But not for everyone.
Keywords: libertarianism, ethics, theft, taxation
Jonathan Gress (jonathan.gress@lpmaryland.org) is an independent scholar. Walter Block (wblock@loyno.edu) is the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at Loyola University and senior fellow at the Mises Institute. The authors are grateful to a referee of this journal whose comments on an earlier draft of this paper enabled them to greatly improve it. The usual caveats of course always apply.
THE ETHICS OF TAKING GOVERNMENT MONEY It has been argued by libertarians, who else, that it is ethical for libertarians to accept government money,For example, working for government organizations for a salary, availing oneself of social security, farm subsidies, etc. on the ground that it is better for libertarians to have the money than the state.Block (1972, 2002, 2004a, 2006, 2007, 2008, 2009, 2010, 2011a, 2011b, 2011c, 2011d, 2012, 2016c); Block and Arakaky (2008); and Block and Barnett (2008). Libertarians are likely to use the money specifically to undermine state power, such as by donating to libertarian organizations. Even if libertarians do not use the money specifically to attack the state, spending on personal consumption is presumably a better use of the funds than whatever crimes the government was in the process of committing with them.
Can we extend this approach to the question of nonlibertarians using government money? After all, if it is better for libertarians to spend stolen wealth on themselves than for the state to keep that wealth for other purposes, it is better for anyone to spend that wealth on themselves than for the state to keep it. On grounds like these, one can even argue against immigration control; for instance, even if public property belongs to the taxpayers, it is better if immigrants come in and take it than if the government is allowed to keep control of it.For the case in favor of open borders, see Block (1983, [1983] 2008, 1988, 1990, 1998, 2004b, 2011e, 2011f, 2013, 2016a, 2016b, 2017, 2018); Block and Brekus (2019); Block and Callahan (2003); Deist (2018); and Gregory and Block (2007).
Of course, this approach has its limits. Benefiting from stolen wealth is legitimate for the victims of the criminal state (the taxpayers), and it may also be legitimate for nonmembers of the state who are not themselves victims (e.g., immigrants who are not taxpayers), but it surely cannot be legitimate for the criminals themselves. It is not permissible for top members of the government to spend stolen wealth on personal consumption, as they are part of the criminal apparatus itself and such spending itself constitutes a crime.
But can we be certain of this assertion? Would it be a crime if Bill Clinton spent his pension on a yacht? Or is it simply that he owes restitution as a key member of the criminal enterprise, with his spending choices being relatively immaterial to the case against him? We answer as follows. Surely, there is nothing improper about yachts, per se. To the degree that he earned the money to pay for this good properly, there can be no objection. However, to the extent that the wealth emanates from improper sources, it would not matter one whit on what he spent it; he should be compelled to at least return the stolen money to its proper owners.
To resolve such issues, we rely on ruling class analysis to distinguish the criminals from the noncriminals. In the view of Rothbard (2004):
All States are governed by a ruling class that is a minority of the population, and which subsists as a parasitic and exploitative burden upon the rest of society. Since its rule is exploitative and parasitic, the State must purchase the alliance of a group of “Court Intellectuals,” whose task is to bamboozle the public into accepting and celebrating the rule of its particular State. The Court Intellectuals have their work cut out for them. In exchange for their continuing work of apologetics and bamboozlement, the Court Intellectuals win their place as junior partners in the power, prestige, and loot extracted by the State apparatus from the deluded public. The noble task of Revisionism is to de-bamboozle: to penetrate the fog of lies and deception of the State and its Court Intellectuals, and to present to the public the true history of the motivation, the nature, and the consequences of State activity. By working past the fog of State deception to penetrate to the truth, to the reality behind the false appearances, the Revisionist works to delegitimize, to de-sanctify, the State in the eyes of the previously deceived public.For more on this, see Block (2006); Burris (2012); Domhoff (1967, 1971, 1998); Donaldson and Poynting (2007); Hoppe (1990); Hughes (1977); Kolko (1963); Mises (1978); Oppenheimer ([1914] 1975); Raico (1977); Rockwell (2001); and Rothbard (2004).
For example, a janitor cleaning the bathroom in Congress is taking government money in wages and is even performing a service for the government, but it would be a stretch to consider him part of the ruling class. His power over the criminal organization that is the state is almost nonexistent, so his responsibility for their crimes is likewise almost nonexistent. The Congressmen passing the oppressive taxes and laws who use the bathroom, on the other hand, are clearly very much part of the ruling class. The janitor is justified in taking his salary but not the Congressmen in taking theirs, unless they are libertarian heroes like Ron Paul who used their office to speak out against the evils of government and vote against every unconstitutional law or spending proposal.Block (2012); Paul (1981, 1983a, 1983b, [1984] 2004, [1987] 2007, 1990, 1991, 2000, 2002a, 2002b, 2003, 2004a, 2007, 2008a, 2008b, 2009, 2011, 2013); Paul, Haddad, and Marsh (2008); Paul and Lehrman (1982); Rangel and Paul (2006); and Upton and Paul (2005). As the Ron Paul exception shows, our ruling class analysis treats every individual differently and evaluates their membership in the ruling class based on the work they do for or against the government and its crimes.
THE ETHICS OF SPENDING GOVERNMENT MONEY If it is a virtue to take government money, as we maintain, it seems to follow that it is ethical for the government to spend money, and if it is more virtuous to take more government money rather than less, it seems to follow that it is more virtuous for the government to increase government spending than to decrease it. Of course, this conclusion seems rather paradoxical for a libertarian; libertarians normally support only decreases in public spending.
We acknowledge that our call for taking government money as a virtue sounds counterintuitive to the libertarian ear.Our referee makes this point. This, of course, is distinct from merely being just or permissible. It is permissible for Jones to take the best available course of action while it is not necessarily a virtue to do so. But we stand by this claim. Given that government is evil,Rothbard (1977) calls “the existing American State or the State per se, … a predatory gang of robbers, enslavers, and murderers. See also Chodorov (1962). the less money it has, the better. Well, ceteris paribus, the more money people take from the state, the less it will have. Doing so, then, is not merely a good course of action to take, but over the call of duty; to wit: a virtue. QED.
However, if we return to our original argument, we see that the benefit of spending government money does not lie in the spending itself but rather in the fact that statist funds are thereby diverted from even worse uses. That is, we want to put the stolen funds to the best possible use, given their dire circumstances. So while the best use of all for government funds is to return them forthwith to the taxpayers (along with appropriate compensation for the crime of theft), if this isn’t possible, it is still betterBy “better” we mean preferable from a libertarian point of view, more compatible with libertarianism. for the government to spend its money on libertarians than on nonlibertarians, or on nonlibertarian, non–ruling class members than on ruling class members.
When it comes to evaluating government spending policies, then, we do not necessarily reject or endorse the spending plans out of hand, but instead consider the alternatives. Does the spending increase necessitate a rise in taxing or borrowing? If it does, we must reject it, regardless of how noble the cause. Thus, if the government suddenly decided to spend a million dollars a year on the Mises Institute, but would have to fund this subsidy out of a new bond issue, no libertarian in good conscience could support this. On the other hand, if this subsidy were to come out of the existing budget and necessitate a spending decrease in some other area that causes more economic harm, like corn subsidies, we would favor it as the best use of the stolen funds, given the alternatives.
Extending this analysis, we oppose an increase in corn subsidies if, say, it came out of the public budget for the Libertarian Party’s election campaign, but we would support it if it reduced the budget for the DEA, whose job almost entirely consists of physically assaulting and threatening people for nonviolent drug “crimes.” If the increased subsidies had to be funded by a tax hike, on the other hand, this would clearly be incompatible with libertarian theory.We acknowledge gray areas and continuums. On this see Block and Barnett (2008).
The proviso that spending increases in certain areas be compensated by decreases in other areas is highly important. In practice, it means that libertarians must oppose mostIbid. boosts in government expenditures, simply for the reason that they do not come with any guarantee that no new taxes will be imposed, or new borrowing carried out, to pay for them. Without such an assurance, libertarians are ill advised to endorse any spending increase, even on an ostensibly praiseworthy cause like a Rothbardian economics professorship at a public university. However, once the professorship is granted, a Rothbardian economist would not be doing anything wrong by taking the position and using it to teach sound libertarian ethics and economics, simply because the likely alternative is that the government would abolish the position and use the same funds to more nefarious ends (such as a chair in Keynesian or Marxist economics).
One of the three main heroes in Rand (1957) was Ragnar Danneskjold. This character was a “pirate” (scare quotes around this word since piracy typically applies to criminals who prey on innocent ship owners). Ragnar was entirely different. He, instead, stole, or, rather, liberated money and other possessions from government ships. True, he did so in order to return funds to Hank Reardon, perhaps the fourth most important character in this magnificent novel. This brings us to a new point. Suppose Danneskjold had not used the proceeds of his “piracy” to benefit victims of government as he did. Nor, we presume, that any of these monies had been forcibly taken from him or his parents. Would his actions have then been unjust? We claim not. Nor would any other bilked taxpayer have the right to demand from him part of these funds. His reply to them would be simple: Go and liberate your own money from the state apparatus. Why should I do that for you? There are no positive rights, such as your right to take money of which I justifiably deprived the government.See fn. 1, op. cit.
So far we have discussed the ethics of public spending as it relates to spending increases; now we must apply ourselves to decreases. We have previously seen that a libertarian can support a rise in public expenditure on some items provided that it comes out of the existing budget (i.e., does not necessitate upsurges in taxes, borrowing, or inflation) and provided that the boost serves to divert state funds from other areas that are more harmful. Thus, it is better for the government to spend on libertarians than on nonlibertarians, and on ordinary people than on members of the ruling class; it is also more libertarian for the government to direct its resources on providing goods and services that do not of themselves violate the nonaggression principle rather than on violations of that principle (welfare is better than warfare).
What, now, of proposed decreases in public spending? The same principles apply, but in reverse. Thus, libertarians welcome any proposed decrease in public spending if we know it will also lead to a decrease in taxes or borrowing. If we have no reason to think that taxation will be affected, however, we might want to consider what will be done with the money. If the state is proposing to end public funding of Libertarian political campaigns in order to shore up their budget for the statist indoctrination program known as public schools, we would have good reason to balk at this and to push for keeping the current budgetary allocation. Or if they are intending to ax food stamp benefits merely in order to expand their nuclear arsenal, we would also be wary.
Just as we have a built-in bias against any proposed increased in public spending, though, on the grounds that the state rarely keeps a promise to avoid jacking up taxes or borrowing more private money, libertarians likewise incline in the direction of any reduction in public spending. The less the government spends, the more public pressure it may feel to follow this by lowering taxes. Reduced outlays on benefits and welfare have an additional benefit of making the public less dependent on the state and more likely to support further decreases in its power. In order to oppose the cut, we would have to be reasonably sure that it would have no effect on the total budget and would only lead to spending increases in more harmful areas.
CONCLUSION The standard libertarian opposition to public spending can be reconciled with the position that taking government money is not itself a crime.We do not advocate breaking the law as did Ragnar Danneskjold. Rather, our focus here is on receiving state funds through programs such as Medicare and Social Security and on being employed by the public sector. As with everything else in human action, we are faced with a choice and must decide on the better course of action given the set of options. Taking government money is not a crime in the libertarian philosophy, because it does not violate the nonaggression principle. From a utilitarian point of view, this act will do more harm to the state than not doing so. Ditto, paradoxically, for the nonlibertarian welfare queens, but not for members of the ruling class who are most likely to directly benefit the state. For a ruling class member such as George W. Bush, it would probably have been better if he had not accepted his government salary; his ability to wage war and other evil deeds would have been reduced to the extent that he would not have been able to support himself during his presidency. What about the fact that many academics vote for the government to spend money and occupy college or university positions in which they receive some of that money? Is this justified in our view? Of course not. Such scholars are in effect part of the state apparatus, or at least in league with it. Ditto for leftish movie stars who brag about donating money to the government over and above what they owe in the form of taxation. Likewise, the choice to spend government money may or may not be a crime, depending on whether it leads to more theft from taxpayers or rather to less funds available for other, worse projects.
Biden’s tax increase plan does not make sense from a growth, revenue, or deficit perspective, and it does virtually nothing to address the real problem: ballooning spending on programs like Social Security.
Original Article: "Three Reasons Why the Biden Tax Increase Makes No Sense"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Profit-seeking entrepreneurs move factors of production to their highest and most economical uses. Amtrak, on the other hand, is diverting useful factors of production from higher use values to lower-valued uses. To put it another way, Amtrak is destroying wealth.
Original Article: "Biden's Amtrak Infrastructure Scam"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
It’s nice to know we all agree that taxes have nothing to do with civilization. They are for destroying with a side of discriminatory punishment.
Original Article: "The Left Understands Taxation Is Theft, That's Why They Support It"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Free market advocates long ago figured out that the monied classes of bankers and Wall Street operatives were exploiting the "little people" to prop up the fortunes of what is now the billionaire class. The scam is alive and well today.
Original Article: "The Plutocrats of Wall Street and Silicon Valley Are Scamming America"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Globalists know that so long as sovereign states have the ability to set their own tax rates, regimes are tempted to engage in “tax competition” in order to attract capital. The cure to this “problem” is a global minimum tax rate.
Original Article: "Biden and Janet Yellen Are Pushing a Global Minimum Tax Rate. The EU Is Very Pleased."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Not only could the state use the UBI as an instrument of social control; we have every reason to think those in charge of the state would exercise their power for bad motives.
Original Article: "UBI and the Road to Serfdom"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
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Many people think that a universal basic income (UBI) would be a good substitute for the welfare state. Under this proposal, each person resident in a country would receive a guaranteed income, sufficient to live at a modest level. People would get the money unconditionally. Unlike welfare payments, the UBI would not be lessened if people earned money in addition to the amount it provided, and, because it is not means tested—absolutely everyone gets it, even billionaires—it requires no complex bureaucracy to administer.
The UBI would cost a great deal of money, but its defenders claim that since it is a substitute for the welfare state, we would also save the vast amounts of money now required for financing welfare programs. Further, if our economy continues to grow, at some point the UBI will become affordable. Charles Murray, for example, in a short book published a number of years ago, says of his version of the UBI, “I began this thought experiment by asking you to ignore that the Plan was politically impossible today. I end proposing that something like the Plan is politically inevitable—not next year, but sometime…. Real per capita GNP has grown with remarkable fidelity to an exponential growth equation for more than a century" (In Our Hands, AEI Press, 2006, p. 125).
The critics of the UBI aren’t convinced and still claim the program would be too costly to implement. In a recent book, Universal Basic Income – For and Against (Rational Rise Press, 2019). Antony Sammeroff offers a very able account of this controversy and many other issues connected with the UBI. He gives an especially good analysis of the argument that automation is liable to make so many people unemployable that a UBI will be needed to provide for them. But what I’d like to discuss this week is another argument that Sammeroff deploys to great effect against the UBI.
The UBI, Sammeroff reminds us, is a government program, and we ought always to view the state as an enemy of liberty. It is precisely the feature of the UBI that its supporters emphasize, its universal coverage, which would enable to state to exercise tyrannical control. Sammeroff says,
Now a Basic Income Guarantee may begin universal, but as the years wear on and it proves expensive to grant, corners may be cut to ensure its continuance. Hardly anyone will object to the UBI being withdrawn from criminals, for example. And then perhaps for anti-social behavior. Petty crimes, like littering the street, might lead people to receive a penalty against their UBI. A few might moan that this is the beginning of a government social-engineering program, but to most people it will seem like quite a sensible and reasonable measure…. Clipping people’s Basic Income will soon seem the most sensible and appropriate response to many crimes and misdemeanors. (p.148–49)
Not only could the state use the UBI as an instrument of social control; we have every reason to think those in charge of the state would exercise their power for bad motives.
This is the same class of people [who] launched a permanent war in the Middle East wasting trillions of dollars and destroying millions of lives. They bailed out the banks from the public purse and gave themselves raises after telling the rest of the nation that we had to tighten our belts. They have robbed the young of the opportunity to own a home by sending house prices through the roof, and mean to leave them a nation in ruinous debt. (p.147)
Sammeroff’s argument here is consistent with the contention of Hayek’s Road to Serfdom, summarized in the title of chapter 10, “Why the Worst Get on Top,” but it is not quite the same. Hayek argues that rulers will very likely be bad, but Sammeroff’s point is not dependent on this thesis. His claim is rather that the evidence shows that our present rulers are bad and will remain so. Thus they can be expected to abuse the UBI program.
Sammeroff strengthens his case that the UBI poses a threat of tyranny by using an admission from Charles Murray, who, as mentioned above, is a pioneering advocate of the program. He acknowledges that the UBI would require people to have a “universal passport” and “known bank account.” Making the most of these admissions, Sameroff says,
I don’t think it’s unrealistic to imagine that people may soon be forced to accept a mandatory Government ID Card in order to claim their Basic Income. Before long they will be asked to show it in order to get into government buildings. Then at the airport to get on a plane. Then simply to board a train or a bus. Then to post a package. Then to get into a bar. Then a restaurant. Before long every public place will ask you to show your ID card…. you will be expected to produce it in order to vote, and before long not voting may result in a fine as well…. Just as states freeze the assets of suspected fraudsters, they will soon be freezing the “known bank account” of political dissenters. By the time they come for those with radical ideas about freedom from government tyranny there will be precious few left to speak out for us. (pp. 151–52)
One might object to this that the state is capable of demanding a government ID card and controlling people’s bank accounts without the UBI, but why give the government an excuse to perpetrate such horrors on us? Sammeroff notes that it is the poor, supposedly those who would gain the most from the UBI, who would be most vulnerable to its abuse:
Certainly, the poor, who depend solely on their handouts to survive, will quickly become very cautious of what they say and do. But even reasonably affluent people will think twice before risking the money. The UBI institutionalizes the state as patron, and citizen as ward. Before long we may arrive in a frightening era where payments and penalties are used to mould us into compliant little drones. The utopian dream will have descended into a tyrannical nightmare. (p. 152)
If deficits don't matter, why bother with taxes? The regime has the answer: taxes are important for punishing people we don't like, rewarding our friends, and for maintaining control over the public.
Original Article: "If Deficits Don't Matter, Why Bother with Taxes?"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The reliability and service life of the F-35 were greatly exaggerated in earlier reports. Now the aircraft is looking like an even bigger boondoggle than before.
Original Article: "Opposition Builds to the F-35 Program's Runaway Costs"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The economic analysis of repudiation applies to the debt of all levels of government and to all countries. The central question is not how big the government is or how much it owes, but rather whether the debt is funded by taxes.
Original Article: "The Economics and Ethics of Government Default, Part II"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
The assertion that “tax-financed public goods can make us all better off” is just that: an assertion. As Rothbard showed, there is no reason to just assume consumers would pay for these amenities were they not forced to through taxation.
Original Article: "Rothbard's Underappreciated Contributions to Public Goods Analysis"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
If we look beyond the mere tax revenue totals, we begin to understand that the cost of taxation to society is far higher than the tax revenue raised and that the costs to society of taxation grow faster than the size of government.
Original Article: "The True Cost of Taxation Is Much Higher Than Your Tax Bill"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Social activists now regard the minimum wage as another welfare program that can reduce the costs of programs like Medicaid and food stamps, and can reduce inequality. But the minimum wage is very poorly targeted for these purposes.
Original Article: "The High Cost of Using the Minimum Wage as a Form of Welfare"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
In order to prevent the economy sinking into a lasting state of stagnation, what is required is to reduce both government spending and government regulation, and to rein in the Fed.
Original Article: "What to Expect from Bidenomics"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Our guest today is Terence Kealey, Professor Emeritus of clinical biochemistry at the University of Buckingham in the United Kingdom, where he served as Vice Chancellor until 2014. He is also a Research Fellow at the Cato Institute. Professor Kealey trained in medicine at Bart’s Hospital in London and obtained his doctorate at Oxford University following which he pursued a career in clinical biochemistry research, before joining the faculty at Buckingham University.
He is the author of 3 books. The first, published in 1996 and titled The Economic Laws of Scientific Research is a sweeping exploration of the relationship between government and science and argues against public funding of scientific research. The second, Science, Sex, and Profits, published in 2008, continues the same theme and develops the notion that science is not a public good but is organized around what he terms “invisible colleges.” His third book, Breakfast is Your Most Dangerous Meal, was published in 2014 and links government intervention to very unhealthy nutritional advice.
SHOW NOTES Watch the episode on our YouTube channel
Will Biden/Harris be a transformative administration?
Original Article: "What Biden/Harris Will Do"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
In case you doubted that California's politicians are firmly committed to ever-higher levels of taxation, California is now trying to retroactively impose sales taxes on out-of-state retailers going as far back as 2012.
Original Article: "California Now Wants to Tax People Who Live in Other States, Too"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Deficits still matter, largely because they require monetary policies that lead to bubbles, inequality, and the slow Japanization of the US economy.
Original Article: "2021's Deficit Spending Is Already Out of Control. Here's Why That's a Problem."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
There are ominous signs on the horizon that governments want to move toward mandating "socially responsible investing" for pensions and fund managers. This is a terrible idea, to say the least.
Original Article: "The Problem with Mandatory 'Socially Responsible Investing'".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.
Jeff Deist calls in to A Neighbor's Choice to comment of the covid stimulus bill, the possibility of inflation, and the positive things we can look forward to during this Christmas season.
Find more from David Gornoski on A Neighbor's Choice.
Jeff Deist and David Gornoski comment on covid bailouts; Joe Biden’s sky-high promises; the World Economic Forum’s plan to eliminate private property; vaccine passports; and more.
Find more from David Gornoski on A Neighbor's Choice.
Not only is taxation theft, but by taking away part of the money you earn, the government is forcing you to work for it.
Original Article: "Taxation and Forced Labor".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Prop. 15’s attempt to undermine California Prop. 13’s property tax protections for businesses has apparently failed. Original Article: "California's Tax-Limiting Prop. 13 Survives Yet Another Attack".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
A trade deficit isn't actual evidence that anything is wrong. But if it were, one of the best things to do would be to reduce government spending. Unfortunately, politicians disagree.
Original Article: "Want to Reduce the Trade Deficit? Cut Government Spending".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
If the current thinking continues, the world’s central banks will buy whatever paper governments issue. The result by the end of the decade will be a Federal Reserve balance sheet totaling $40 to $50 trillion.
Original Article: "The Fed's Balance Sheet May Be Headed to $40–$50 Trillion".
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Governments that redistribute wealth and regulate our daily lives are inherently corrupt. We cheapen the word "corruption" when we reserve it for just a few politicians who break the arbitrary rules.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Most Everything Governments Do Should Be Regarded as 'Corrupt'".
It's increasingly clear two things are going on: leftists are very interested in taking their rioting and looting far beyond city limits, and government police are not interested in doing much about it.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Self-Defense and 'Taking the Law into Your Own Hands'".
The best social policy is one that supports job creation and rising wages. Entitlements do not make a society more prosperous, and ultimately drive it to stagnation.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "If the US Adopts Eurozone Policies, the Jobs Recovery Will Suffer".
When Vikings robbed their victims, they often called the booty gjald (debt) as if the stolen goods were repayment for a service provided by the robbers.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Taxation and Theft, Viking Style".
It may be emotionally satisfying for many to favor sticking it to billionaires, but reason informs us that in so doing it is the poor who would end up paying the steepest price.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Should Billionaires Exist?".
The commandment "Thou shalt not steal" was not to be abolished outright. That would offend too many. So the commandment was simply modified to "Thou shalt not steal—except by majority vote."
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Howard Buffett: Against Legal Plunder".
Savings are the foundation for a productive and advanced economy. Unfortunately, governments insist on policies that make it harder for ordinary people to save.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Saving Problem in America: Alternatives and Reforms".
As confidence in the dollar falls, Americans put more of their money in gold, silver, and cryptocurrencies. State governments can help this process along by deregulating sound money.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Why Americans Are Looking for a Safe Haven from the Dollar"
President López Obrador of Mexico has surprisingly been a voice of fiscal sanity, refusing to embrace the sorts of enormous stimulus packages that are now so popular worldwide.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Mexico’s Unexpected Fiscal Sanity"
The “cure” to the current crisis that is forced upon all Europeans now is not just worse than the disease; it is the disease.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Covid Crisis Has Helped Make the Blueprint for a European Superstate".
As 20 million Americans fall into unemployment, no crisis is so big that anyone in Washington would think of cutting military spending, including dollars spent on military gear for cops.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Who Profits from Militarizing the Police?".
Debt matters, even if interest rates are low. Increasing debt and spending means lower growth and weaker real wages in the future.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Trump's Spending Is Delaying a Recovery. Biden Would Be Even Worse."
If there is a new dawn, it is for the Sinicization of Europe—China-style stimulus administered alongside a severely ailing financial system kept whole by widespread financial and monetary repression.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Hopes for "China-ization" of Europe's Economy Fuels the Latest Investor Frenzy"
The economic nationalist faces a dilemma. Foreign aid handouts and economic protectionism are not only wholly compatible in theory, but the effects of foreign aid perfectly complement economic nationalists’ goals.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Foreign Aid Is Protectionism".
There are at least four good reasons for removing Wilson’s name from Princeton buildings—racial bigotry, his embroiling the US in World War I, his founding of the Fed, and his enactment of the US income tax.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "Other Reasons to Remove Wilson’s Name at Princeton".
The German "stimulus" package does nothing to actually stimulate true economic growth. If German policymakers were smart, they'd be cutting taxes and spending, while abolishing regulations.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "What Germany Must Do for a Speedy Recovery".
The government's plan for "contact tracing" to prevent the spread of COVID-19 relies on huge amounts of government spending, plus unproven science as to the nature of the disease.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Problem with Government 'Contact Tracing'".
Keith Knight walks Bob through a meticulous critique of Krugman’s new book on Arguing With Zombies. Topics include the babysitter co-op, the deregulation that allegedly caused the housing bubble, and the tax rates of the 1950s.
Mentioned in the Episode and Other Links of Interest: The YouTube version of this interview.Krugman’s latest book, Arguing With Zombies. #CommissionsEarned (As an Amazon Associate I earn from qualifying purchases.)Keith Knight’s YouTube channel.Help support the Bob Murphy Show. For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
The good news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever. The bad news is that Stephanie Kelton has written a book on MMT that is very readable and will strike many readers as persuasive and clever.
Narrated by the author.
Original Article: "A Review of Stephanie Kelton’s The Deficit Myth".
It's easy to dismiss MMT out of hand, but the impulse to create something from nothing resides deep in the human psyche.
Narrated by the author.
Original Article: "MMT: Not Modern, Not Monetary, Not a Theory".
[From The Life of Colonel David Crockett, compiled by Edward S. Ellis (Philadelphia: Porter & Coates, 1884). Included in Free Market Economics: A Basic Reader, compiled by Bettina B. Greaves (Irvington-on-Hudson, NY: Foundation for Economic Education, 1975).]
One day in the House of Representatives, a bill was taken up appropriating money for the benefit of a widow of a distinguished naval officer. Several beautiful speeches had been made in its support. The Speaker was just about to put the question when Davy Crockett arose:
"Mr. Speaker—I have as much respect for the memory of the deceased, and as much sympathy for the sufferings of the living, if suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money. Some eloquent appeals have been made to us upon the ground that it is a debt due the deceased. Mr. Speaker, the deceased lived long after the close of the war; he was in office to the day of his death, and I have never heard that the government was in arrears to him.
"Every man in this House knows it is not a debt. We cannot, without the grossest corruption, appropriate this money as the payment of a debt. We have not the semblance of authority to appropriate it as a charity. Mr. Speaker, I have said we have the right to give as much money of our own as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week’s pay to the object, and if every member of Congress will do the same, it will amount to more than the bill asks.”
He took his seat. Nobody replied. The bill was put upon its passage, and, instead of passing unanimously, as was generally supposed, and as, no doubt, it would, but for that speech, it received but few votes, and, of course, was lost.
Later, when asked by a friend why he had opposed the appropriation, Crockett gave this explanation:
"Several years ago I was one evening standing on the steps of the Capitol with some other members of Congress, when our attention was attracted by a great light over in Georgetown. It was evidently a large fire. We jumped into a hack and drove over as fast as we could. In spite of all that could be done, many houses were burned and many families made homeless, and, besides, some of them had lost all but the clothes they had on. The weather was very cold, and when I saw so many women and children suffering, I felt that something ought to be done for them. The next morning a bill was introduced appropriating $20,000 for their relief. We put aside all other business and rushed it through as soon as it could be done.
"The next summer, when it began to be time to think about the election, I concluded I would take a scout around among the boys of my district. I had no opposition there, but, as the election was some time off, I did not know what might turn up. When riding one day in a part of my district in which I was more of a stranger than any other, I saw a man in a field plowing and coming toward the road. I gauged my gait so that we should meet as he came to the fence. As he came up, I spoke to the man. He replied politely, but, as I thought, rather coldly.
"I began: 'Well, friend, I am one of those unfortunate beings called candidates, and—'
"'Yes, I know you; you are Colonel Crockett, I have seen you once before, and voted for you the last time you were elected. I suppose you are out electioneering now, but you had better not waste your time or mine. I shall not vote for you again.'
"This was a sockdolager…I begged him to tell me what was the matter.
"'Well, Colonel, it is hardly worth-while to waste time or words upon it. I do not see how it can be mended, but you gave a vote last winter which shows that either you have not capacity to understand the Constitution, or that you are wanting in the honesty and firmness to be guided by it. In either case you are not the man to represent me. But I beg your pardon for expressing it in that way. I did not intend to avail myself of the privilege of the constituent to speak plainly to a candidate for the purpose of insulting or wounding you. I intend by it only to say that your understanding of the Constitution is very different from mine; and I will say to you what, but for my rudeness, I should not have said, that I believe you to be honest….But an understanding of the Constitution different from mine I cannot overlook, because the Constitution, to be worth anything, must be held sacred, and rigidly observed in all its provisions. The man who wields power and misinterprets it is the more dangerous the more honest he is.'
"'I admit the truth of all you say, but there must be some mistake about it, for I do not remember that I gave any vote last winter upon any constitutional question.'
"'No, Colonel, there’s no mistake. Though I live here in the backwoods and seldom go from home, I take the papers from Washington and read very carefully all the proceedings of Congress. My papers say that last winter you voted for a bill to appropriate $20,000 to some sufferers by a fire in Georgetown. Is that true?'
"'Well, my friend; I may as well own up. You have got me there. But certainly nobody will complain that a great and rich country like ours should give the insignificant sum of $20,000 to relieve its suffering women and children, particularly with a full and overflowing Treasury, and I am sure, if you had been there, you would have done just as I did.'
"'It is not the amount, Colonel, that I complain of; it is the principle. In the first place, the government ought to have in the Treasury no more than enough for its legitimate purposes. But that has nothing to do with the question. The power of collecting and disbursing money at pleasure is the most dangerous power that can be intrusted to man, particularly under our system of collecting revenue by a tariff, which reaches every man in the country, no matter how poor he may be, and the poorer he is the more he pays in proportion to his means. What is worse, it presses upon him without his knowledge where the weight centers, for there is not a man in the United States who can ever guess how much he pays to the government. So you see, that while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he. If you had the right to give anything, the amount was simply a matter of discretion with you, and you had as much right to give $20,000,000 as $20,000. If you have the right to give to one, you have the right to give to all; and, as the Constitution neither defines charity nor stipulates the amount, you are at liberty to give to any and everything which you may believe, or profess to believe, is a charity, and to any amount you may think proper. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other. No, Colonel, Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose. If twice as many houses had been burned in this county as in Georgetown, neither you nor any other member of Congress would have thought of appropriating a dollar for our relief. There are about two hundred and forty members of Congress. If they had shown their sympathy for the sufferers by contributing each one week’s pay, it would have made over $13,000. There are plenty of wealthy men in and around Washington who could have given $20,000 without depriving themselves of even a luxury of life. The congressmen chose to keep their own money, which, if reports be true, some of them spend not very creditably; and the people about Washington, no doubt, applauded you for relieving them from the necessity of giving by giving what was not yours to give. The people have delegated to Congress, by the Constitution, the power to do certain things. To do these, it is authorized to collect and pay moneys, and for nothing else. Everything beyond this is usurpation, and a violation of the Constitution.
"'So you see, Colonel, you have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger to the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people. I have no doubt you acted honestly, but that does not make it any better, except as far as you are personally concerned, and you see that I cannot vote for you.'
"I tell you I felt streaked. I saw if I should have opposition, and this man should go to talking, he would set others to talking, and in that district I was a gone fawn-skin. I could not answer him, and the fact is, I was so fully convinced that he was right, I did not want to. But I must satisfy him, and I said to him:
"'Well, my friend, you hit the nail upon the head when you said I had not sense enough to understand the Constitution. I intended to be guided by it, and thought I had studied it fully. I have heard many speeches in Congress about the powers of Congress, but what you have said here at your plow has got more hard, sound sense in it than all the fine speeches I ever heard. If I had ever taken the view of it that you have, I would have put my head into the fire before I would have given that vote; and if you will forgive me and vote for me again, if I ever vote for another unconstitutional law I wish I may be shot.'
"He laughingly replied: 'Yes, Colonel, you have sworn to that once before, but I will trust you again upon one condition. You say that you are convinced that your vote was wrong. Your acknowledgment of it will do more good than beating you for it. If, as you go around the district, you will tell people about this vote, and that you are satisfied it was wrong, I will not only vote for you, but will do what I can to keep down opposition, and, perhaps, I may exert some little influence in that way.'
"'If I don't,' said I, 'I wish I may be shot; and to convince you that I am in earnest in what I say I will come back this way in a week or ten days, and if you will get up a gathering of the people, I will make a speech to them. Get up a barbecue, and I will pay for it.'
"'No, Colonel, we are not rich people in this section, but we have plenty of provisions to contribute for a barbecue, and some to spare for those who have none. The push of crops will be over in a few days, and we can then afford a day for a barbecue. This is Thursday; I will see to getting it up on Saturday week. Come to my house on Friday, and we will go together, and I promise you a very respectable crowd to see and hear you.'
"'Well, I will be here. But one thing more before I say good-by. I must know your name.'
"'My name is Bunce.'
"'Not Horatio Bunce?'
"'Yes.'
"'Well, Mr. Bunce, I never saw you before, though you say you have seen me, but I know you very well. I am glad I have met you, and very proud that I may hope to have you for my friend.'
"It was one of the luckiest hits of my life that I met him. He mingled but little with the public, but was widely known for his remarkable intelligence and incorruptible integrity, and for a heart brimful and running over with kindness and benevolence, which showed themselves not only in words but in acts. He was the oracle of the whole country around him, and his fame had extended far beyond the circle of his immediate acquaintance. Though I had never met him before, I had heard much of him, and but for this meeting it is very likely I should have had opposition, and had been beaten. One thing is very certain, no man could now stand up in that district under such a vote.
"At the appointed time I was at his house, having told our conversation to every crowd I had met, and to every man I stayed all night with, and I found that it gave the people an interest and a confidence in me stronger than I had every seen manifested before.
"Though I was considerably fatigued when I reached his house, and, under ordinary circumstances, should have gone early to bed, I kept him up until midnight, talking about the principles and affairs of government, and got more real, true knowledge of them than I had got all my life before.
"I have known and seen much of him since, for I respect him—no, that is not the word—I reverence and love him more than any living man, and I go to see him two or three times every year; and I will tell you, sir, if every one who professes to be a Christian lived and acted and enjoyed it as he does, the religion of Christ would take the world by storm.
"But to return to my story. The next morning we went to the barbecue, and, to my surprise, found about a thousand men there. I met a good many whom I had not known before, and they and my friend introduced me around until I had got pretty well acquainted—at least, they all knew me.
"In due time notice was given that I would speak to them. They gathered up around a stand that had been erected. I opened my speech by saying:
"'Fellow-citizens—I present myself before you today feeling like a new man. My eyes have lately been opened to truths which ignorance or prejudice, or both, had heretofore hidden from my view. I feel that I can today offer you the ability to render you more valuable service than I have ever been able to render before. I am here today more for the purpose of acknowledging my error than to seek your votes. That I should make this acknowledgment is due to myself as well as to you. Whether you will vote for me is a matter for your consideration only.'
"I went on to tell them about the fire and my vote for the appropriation and then told them why I was satisfied it was wrong. I closed by saying:
"'And now, fellow-citizens, it remains only for me to tell you that the most of the speech you have listened to with so much interest was simply a repetition of the arguments by which your neighbor, Mr. Bunce, convinced me of my error.
"'It is the best speech I ever made in my life, but he is entitled to the credit for it. And now I hope he is satisfied with his convert and that he will get up here and tell you so.'
"He came upon the stand and said:
"'Fellow-citizens—It affords me great pleasure to comply with the request of Colonel Crockett. I have always considered him a thoroughly honest man, and I am satisfied that he will faithfully perform all that he has promised you today.'
"He went down, and there went up from that crowd such a shout for Davy Crockett as his name never called forth before.
"I am not much given to tears, but I was taken with a choking then and felt some big drops rolling down my cheeks. And I tell you now that the remembrance of those few words spoken by such a man, and the honest, hearty shout they produced, is worth more to me than all the honors I have received and all the reputation I have ever made, or ever shall make, as a member of Congress.
"Now, sir," concluded Crockett, "you know why I made that speech yesterday.
"There is one thing now to which I will call your attention. You remember that I proposed to give a week’s pay. There are in that House many very wealthy men—men who think nothing of spending a week’s pay, or a dozen of them, for a dinner or a wine party when they have something to accomplish by it. Some of those same men made beautiful speeches upon the great debt of gratitude which the country owed the deceased—a debt which could not be paid by money—and the insignificance and worthlessness of money, particularly so insignificant a sum as $10,000, when weighted against the honor of the nation. Yet not one of them responded to my proposition. Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it."
Central banks are at the heart of government mega–bailout packages. Their ongoing expansion of the money supply won't end well.
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Millian Quinteros.
Original Article: "The Destructive Effects of the Coronavirus Relief Package"
Abstract: The purpose of the paper is to apply Fraser’s methodology from the Economic Freedom of North America report to Brazilian data. government size, tax and labor market indicators vary among subnational entities. Following Friedrich A. Hayek’s tribute on the occasion the 70th birthday of Ludwig von Mises, the importance of an index for Brazilian States is to bring principles of liberalism—based on clear evidence—to public figures (Hayek 2012), particularly in a country dominated by interventionist ideas since the 1930s. Besides the academic challenge of obtaining and processing data in the same manner as the Economic Freedom of North America, the current turning point in politics and economics in Brazil demands this kind of applied research. The results suggest that the Brazilian states’ freedom scores are getting worse in recent years (2012–16), following the same trend as that of the national index. We argue for the idea that the increasing government interventions at the federal level have spread out to states and municipalities and have had the effect of institutionalizing and justifying decreases in freedom and greater influence of public entities on citizens’ everyday life. The final remarks point out improvement in institutional measures for the index, as an ongoing project as Milton Friedman stated on his foreword to Economic Freedom of the World: 1975–1995: to “bring the indexes of economic freedom up to date and to incorporate the additional understanding that will be generated.”
government spending regulation taxes intervention economic freedom brazil JEL Classification: D78, H7, J45, J5, P47 Vladimir Fernandes Maciel (vladimir.maciel@mackenzie.br) is Head of the Mackenzie Center for Economic Freedom at Mackenzie Presbyterian University, Brazil.
Ulisses Monteiro Ruiz de Gamboa is a researcher and professor at Mackenzie Center for Economic Freedom.
Julian Alexienco Portillo is a M.A. student in Economics and Markets and Research Assistant at the Mackenzie Center for Economic Freedom.
Mariangela Ghizellini is a M.A. student in Economics and Markets and Research Assistant at the Mackenzie Center for Economic Freedom.
Authors are thankful to Robert Lawson, Dean Stansel, Ryan Murphy, Meg Tuszynski, Alex Padilla, Fred McMahon, Paulo Scarano and Randall Holcombe for their constructive suggestions and comments.
- INTRODUCTION Brazil is the largest economy in South America and the second largest economy in all the Americas (measured by GDP). However, its position on Fraser’s Economic Freedom Index is 137 (Gwartney, Lawson, and Hall 2017) with a 5.75 absolute score.
The purpose of this paper is to apply Fraser’s methodology from Economic Freedom of North America (Karabegovic, McMahon, and Samida 2002; hereafter EFNA) to Brazilian data. Government size, tax and labor market indicators vary among the subnational entities. Following Friedrich A. Hayek’s tribute to the 70th birthday of Ludwig von Mises, the importance of an index for Brazilian States is to bring principles of liberalism—based on clear evidence—to public men (Hayek 2012), particularly in a country dominated by interventionist ideas since the 1930s.
Although there are state level sustainability indexes, there has not been not any index or any objective information to discuss and compare the economic freedom level of Brazilian states, which are heterogeneous. Besides the academic challenge of obtaining and processing data in the same manner as the Economic Freedom of North America, the current turning point in politics and economics in Brazil demands this kind of applied research.
The so-called “Brazilian State Level Economic Freedom Index” (BSLEF) is a synthetic indicator that measures the extent to which the policies of the Brazilian states are able to support economic freedom, that is, the ability of individuals to act in the economic sphere without undue restraint.
In order to present BSLEF, we organized this paper in the following sections. Section 2 briefly discusses the literature on state level economic freedom. Section 3 describes the methodology applied to Brazilian data. Section 4 presents the results of BSLEF and its evolution over the period 2003–16. Section 5 contains the final comments, remarks and suggestions for future directions of research.
- LITERATURE REVIEW The calculation of an index for states and provinces is an attempt to explore institutional differences in countries which have some degree of independence among their jurisdictions. Capital accumulation, technology, labor productivity and even demographics can be affected by institutions, as pointed out by Acemoglu and Robinson (2013). Thus, local institutional frameworks can drive different social and economic outcomes inside the country.
The first work about state level economic freedom was the index developed in 2002 by the Fraser Institute for the states and the provinces of United States of America and Canada, respectively (Karabegović; McMahon, and Samida 2002). Since its original publication, several studies have been attempting to evaluate the index and “good outcomes,” such as economic growth. More precisely, there are evidences that the index is positively related to “good outcomes” and negatively related to “bad outcomes” (Hall, Stansel, and Tarabar 2015).
The subnational economic freedom index is calculated by adapting some components from the Economic Freedom of the World (Gwartney, Lawson, and Hall 2017; hereafter EFW) for state level/provincial data. The components have been extracted from “Size of Government” (Area 1) and “Regulation” (Area 5). Therefore, there are three areas in areas in the state/provincial index: “Government Spending” (Area 1), “Taxation” (Area 2) and “Freedom of Labor Market”—i.e. “Regulation”—(Area 3). (Stansel, Torra, and Mcmahon 2016)
Some evidences are particularly important for the work we are doing in Brazil. Compton et al. (2011) uses GMM methodology for a panel dataset, exploring both aggregated and disaggregated EFNA. They found that changes in economic freedom are positively associated to changes in growth—even considering differences in educational level and demographics.
Bennet (2016) explored 50 U.S. states and 10 Canadian provinces from 1980 to 2010. The results obtained show that subnational economic freedom is associated with higher levels of income per capita and lower rates of unemployment.
Also, Bennet (2016) found that subnational economic freedom is associated with higher income inequality across states and provinces of U.S and Canada. Nevertheless, the higher income inequality that arises due to economic freedom is associated with higher levels of economic growth fostered by a freer institutional environment—as shown by Bjørnskov (2016) and Wiseman (2016).
Income, employment and growth are consequences of human action, particularly entrepreneurship, as Mises (1966) explains. Empirical research shows there is a positive relationship between economic freedom and entrepreneurial activities. Sobel (2008) uses EFNA as a proxy for “institutional quality” for a cross-section of U.S. states. He found that a freer environment (e.g. ‘good institutional quality’) is strongly associated with net entrepreneurial activity, such as venture capital investments and patents.
These results are very important for Brazil, where the economy has been struggling since 2014 and has been engaged in debate concerning market oriented economic reforms towards growth, employment and development.
- METHODOLOGY Based on Stansel, Torra, and Mcmahon (2016), the overall summary index BSLEF is calculated by an equally weighted sum of three areas.
where A1 is “government spending,” A2 is “taxes” and A3 is “regulation” (freedom of the labor market). Each component in Area 1, Area 2 and Area 3 is normalized through the yearsFor A1 and A2 components Vmax is computed using the lower maximum value of the mean plus 1.5 standard deviations. For A3 components, Vmax and Vmin are the maximum and the minimum from the data for whole period (2003–16). according to:
Many components are calculated as a percentage of subnational income. For example, 1A is general consumption expenditure as percentage of income. The source for income data is National Survey from Home Sampling (e.g., PNAD), which is an annual household survey (except for census years, such as 2000 or 2010) that covers every state in Brazil. “Household income” is obtained similar to Canada and Mexico cases in EFNA.For 2010 we calculated income in the same fashion, but data are from the census.
3.1 Government Spending
In order to measure the degree of economic freedom of the Brazilian states (Area 1 of the BSLEF), based on the proportion of their expenditures in relation to annualized income, the data source was the Brazilian Treasury.
Following the methodology developed in Stansel, Torra, and McMahon (2016), we added public expenditures within the territory of each of the 26 Brazilian states (25 federal units plus the capital Brasília, considered the Federal District), which includes both those carried out by the governments such as those carried out by municipalities.
Thus, we will calculate three components, as detailed below: General Government Consumption Expenditure as a percentage of income (1A), Transfers and Subsidies as a percentage of income (1B), and Insurance and Retirement Payments as a percentage of Income (1C).
Since the objective of the present work is to make a comparison of the degree of economic freedom between the Brazilian states, the component Public Companies and Investment (1D), defined for all-government index only, was not calculated.
3.1.a. Component 1A: General Consumption Expenditures by Government as a Percentage of Income
In order to measure the proportion of the General Consumption Expenditures by Government as a percentage of annualized income, government subsidies and transfers were subtracted from total current public expenditures, in addition to the payment of interest on public debt. Table 1 presents the calculation of the government’s general consumption expenditure, according to the general methodology proposed in Stansel, Torra, and Mcmahon (2016):
Table 1. General Consumption Expenditures by Government
In the Brazilian case, however, since state governments spend a significant part of their budget on transfers and subsidies, not only for families, firms and other government entities, but also for multi-governmental institutions, public consortiums, foreign institutions and military service, the resulting expression is considerably more comprehensive. Thus, Table 2 presents this expression, which we applied to obtain the General Consumption Expenditures by Government, using fiscal data of each state (General Consumption Expenditures by Government I – GCEG I).
Table 2. General Consumption Expenditures by Government (States)
For municipalities located inside the geographical area of each Brazilian state, there is also a set of transfers and subsidies, almost as large as the previous case, which must be subtracted from current expenditure, together with interest payments, in order to reach their general consumption expenditure made in the corresponding state geographical area. Table 3 shows the methodology used to obtain this part of the component (General Consumption Expenditure II – GCEG II):
Table 3. General Consumption Expenditures by Government (Sum of Municipalities)
For each Brazilian State, component 1A value is obtained from the sum of GCE I with GCE II divided by the annualized income, as previously defined.
3.1.b. Component 1B: Transfers and Subsidies as a Percentage of Income
To calculate the component 1B value, all the previous transfers and subsidies for each of the states (Transfers and Subsidies I – TS I) and for the sum of the municipalities located in their respective geographical regions (Transfers and Subsidies II – TS II) have been added together. Tables 4 and 5 show the items included in this calculation.
Table 4. Transfers and Subsidies (States)
Table 5. Transfers and Subsidies (Sum of Municipalities)
In the same way, for each Brazilian state, the value of the component 1B will be calculated from the sum of TS I with TS II divided by the annualized income.
3.1.c. Component 1C: Insurance and Retirement Payments as a Percentage of Income
To obtain the component 1C value we added the public expenses related to employment insurance, pensions, other retirement payments and welfare payments for civilian and military servants. In Brazil, social security expenditures include both welfare and assistance payments. Tables 6 and 7 present the methodology used to determine the total expenses with employment insurance and pensions for the states (IRP I) and for the sum of the municipalities located in their respective geographical area (IRP II).
Table 6. Employment Insurance and Pensions (States)
Table 7. Employment Insurance and Pensions (Sum of Municipalities)
Source: own table. For each Brazilian state, component 1C value is obtained from the sum of IRP I with IRP II divided by the annualized income.
3.2 Taxation
Brazil has 25 states plus the Federal District—26 total—and 5571 municipalities in 2015. The Brazilian structure of fiscal federalism originates in the 1988 Federal Constitution. Only the federal government taxes income, and the top marginal income tax rate is the same for all citizens, e.g. 27.5 percent.
Despite being a federative republic, the aforementioned Constitution raised the degree of concentration of total tax receipts in the Federal Government, despite the massive transfers that it must carry out for states and municipalities. On the other hand, the same Constitution decentralized spending on health, safety and education, leaving states and municipalities with the responsibility to provide these services. This concentration of revenues at the federal level, together with the dispersion of expenses, generates the so-called flypaper effect.
In addition, the Brazilian tax system is very complex and bureaucratic, imposing high and varying tax burden on its citizens and enterprises. The Brazilian Federal Government collects an income tax, a manufactured good sale tax, a rural property tax, and social contributions; while states collect a value added tax, a vehicle property tax and an inheritance tax. Finally, the municipalities collect an urban property tax, a service sales tax and a real estate transaction tax.
Due to this tax structure, the following components will be calculated for Area 2 of the BSLEF: Income and payroll tax revenue as a percentage of income (2A), property tax and other taxes as a percentage of income (2C) and sales tax revenue as the percentage of income (2D), thus excluding the top marginal income tax rate and the income threshold (2Bi), defined at federal level. The data source was, once again, the Brazilian Secretary of Treasury.
Figure 1. Brazilian Tax Structure
3.2.a. Component 2A: Income and Payroll Tax Revenue as a Percentage of Income
Regarding component 2A, although the payroll tax is federal, there are retentions of its revenues at state and municipality levels, which need to be incorporated as taxation according to the geographical area of Brazilian states. The same is true for the capital tax and the tax on foreign remittances. Table 8 shows the taxes considered in the calculation of Income and Payroll Tax Revenue (IPTR), both for the Brazilian states and for the sum of municipalities:
Table 8. Income and Payroll Tax Revenue (States and Sum of Municipalities)
Source: own table. Thus, component 2A value is obtained, for each Brazilian state, dividing IPTR by annualized income.
3.2.b. Component 2C: Property Tax and Other Taxes as a Percentage of Income
With regard to component 2C, the taxes considered are vehicle property taxes and inheritance taxes, collected by the states, and, at the municipal level, the property transfer tax and the urban transfer tax. Table 9 shows the taxes considered in the calculation of Property Tax and Other Taxes (PTOT).
Table 9. Property Tax and Other Taxes (States and Sum of Municipalities)
For each Brazilian state, to determine 2C component value, we divided PTOT by the respective annualized income.
3.2.c. Component 2D: Sales Tax Revenue as a Percentage of Income
Finally, the sales tax revenue (STR) is determined, from the Brazilian states’ point of view, by the VAT on manufactured goods, electricity and telecommunications, and from the municipalities perspective, by VAT on services (See Table 10).
Table 10. Sales Tax Revenue (States and Sum of Municipalities)
To determine the 2D component value for each Brazilian State, we divided PTOT by the respective annualized income.
3.3 Labor Market Freedom
The data sources for “Labor Market Freedom” are obtained from the States’ Secretary of Labor, National Secretary of Labor and PNAD.
3.3.a. Component 3Ai: Minimum Wage Legislation
The institution of a minimum wage by the States is ensured by the complementary Law 103/2000. Thus, the States have the jurisdiction to legislate within their geographical limits, and the resident population must follow the regional minimum wage (exceptions are made to retirees and pensioners of the Federal Social Security System or those who follow federal law). The subnational minimum wage cannot be below the national minimum wage.
For each state, we compute the minimum wage multiplied by 12 as a percentage of per-capita annual income (from PNAD). States that have their own minimum wage are from the southern and southeastern regions (the richest regions in Brazil): Paraná, Rio de Janeiro, Rio Grande do Sul, Santa Catarina and São Paulo.
3.3.b. Component 3Aii: Government Employment as a Percentage of Total State Employment
Government employment includes public servants as well as those employed by government business enterprises. Military employment is excluded, following Stansel, Torra and Mcmahon (2016). Total State employment is obtained from PNAD, and it comprises formal and informal jobs.
3.3.c. Component 3Aiii: Union Density
The “Union Density” component measures the relationship between unionization and public policy, other than the level of government employment. We calculated the union score by regressing the unionization rate on government employment for each given year, following Stansel, Torra and Mcmahon (2016):
‘Unionization’ is the number of unionized workers as a percentage of total employment and ‘Government Employment’ is the component 3aii.
- RESULTS Figure 2 shows the summary index calculated for 2016 data—the latest available. The states with the highest level of economic freedom are located in the South, Southeast and Midwest regions of the country. With the exception of Minas Gerais, the states with the lowest level of economic freedom are located in the North and Middle West regions of Brazil (Figure 3).
Figure 2. Economic freedom scores for Brazilian States (2016)
Source: Appendix In terms of absolute value, the range of the overall scores for 2016 does not vary much—the lowest is 4.15 and the highest is 6.44. On the other hand, ranking positions have changed significantly over time. If one compares Figures 3 and 4, she sees the difference across the quintiles between 2003 and 2016.
Figure 3. Economic freedom for Brazilian States (2016)
Source: Appendix Figure 4. Economic freedom for Brazilian States (2003)
Source: Appendix Changes in ranking over time can be understood by Figure 5. In order to get easiness, we aggregated score data by the averages of geographic regions. Also, we plotted Brazil’s score in EFW. It can be noted that the scores followed relatively the same pattern from 2003 till 2009. As the score decreases for Brazil as a whole, the subnational’s scores strongly decrease. Moreover, the regions change their relative positions. It seems that there is a degree of covariation between national and regional scores. On average, subnational economic freedom got worse as national economic freedom decreases, as we might expect.
Figure 5. State Level Economic Freedom 2003-2016: Brazilian Region’s Average
Source: Appendix and EFW There are some hints about the sources of the decline in subnational economic freedom over the period 2003–16. The scores have fallen at different rates. Minimum wage legislation, property taxes (and other taxes) and union density are the three major sources of decreasing subnational economic freedom in Brazil.
Table 11. Scores variation in 2003-2016
Source: Appendix Another finding that is consistent with literature is the relationship between GDP per capita and economic freedom. Figure 6 shows that states with more economic freedom are more prosperous than states with less economic freedom. It can be noticed that we added an additional bar—named “without Federal District’ (e.g. ‘w/o FD’). The Federal District was artificially created and instituted in 1961 to be the headquarters of Federal Government. It comprises executive, legislative, and judiciary powers and their associated bureaucracies. Its economic freedom is usually low and therefore distorts the analysis.
Figure 6. State Level Economic Freedom 2016 and GDP per-capita (US$)
Source: Brazilian Institute of Geography and Statistics (‘IBGE’) There is also an important additional outcome for the labor market. Usually some critics of economic freedom are concerned with ‘vulnerability of employees’ and the ‘loss of rights’ related to the flexibility of labor laws. The outcome contradicts these statements. Figure 7 depicts informal employment as a percentage of total employment.
Figure 7. State Level Economic Freedom 2016 and the percentage of informal jobs
Source: Brazilian Institute of Geography and Statistics (‘IBGE’) As it can be seen, informal jobs are higher in less free states, especially if we exclude the Federal District among the group because of its distortion. Therefore, economic freedom is associated with more jobs that are formal.
- FINAL REMARKS The paper shows that it is feasible and possible to apply the methodology of EFNA to create a subnational economic freedom index for Brazil: BSLEF Additionally, BSLEF enlightens the discussion of economic freedom and market-oriented reforms in Brazil. The results indicate that the Brazilian states’ freedom scores are getting worse in recent years (2012–16), following the same trend as that of the national index. We argue for the idea that the increasing government interventions at the federal level have spread to states and municipalities and have been used to institutionalize and to justify decreases in freedom and greater influence of public entities on citizens’ everyday life.
Following the literature, BSLEF is consistent with evidence from North America. Brazilian states that have more economic freedom are more prosperous (e.g. enjoy higher GDP per capita). In addition, we found that the percentage of formal employment is higher in states with higher level of economic freedom.
Once we have a consistent measure of subnational economic freedom there are several new studies and researches that can be done in order to better explore outcomes and different institutional settlements for Brazil—similar to what EFNA has been inducing.
New improvements have now been planned. We would like to increase the information about the business environment for each state. This demands a qualitative research with businesspersons or trade associations among the different states—at least their capital cities. It would be an effort to calculate some other components for Area 3 (“Regulation”) other than “labor market freedom.” The improvement on institutional measures for the index as an ongoing project, follows Milton Friedman’s statement in his foreword to Economic Freedom of the World: 1975–1995—to “bring the indexes of economic freedom up to date and to incorporate the additional understanding that will be generated.”
APPENDIX
Bob Murphy tackles a common objection from atheist libertarians: Doesn’t Mises (in Human Action) refute the very notion of the Biblical God? Specifically, why wouldn’t an omnipotent, omniscient being remove all uneasiness with one action?
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Wojciech Kopczuk is a Columbia economics professor who co-authored (in 2004) one of the leading estimates of wealth concentration in the literature, along with current progressive darling Emmanuel Saez. But, ever since Thomas Piketty’s bestselling book on wealth inequality, Saez has published research with Gabriel Zucman showing dramatically different results. Kopczuk explains why economists can disagree on the basic facts of wealth concentration, and why there is controversy about Saez and Zucman’s latest claim that billionaires pay a lower income tax rate than the working class.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Presented during the "Comparative Economics" session at the Libertarian Scholars Conference on 28 September 2019, at The King's College in New York City.
Beyond the usual arguments about incentives and taxes, a Universal Basic Income is a dangerous policy that supercharges the state and threatens to heighten tensions between different groups in society.
Original Article: "4 Reasons to Oppose a Universal Basic Income"
Austerity: When It Works and When It Doesn’tby Alberto Alesina, Carlo Favero, and Francesco GiavazziPrinceton: Princeton University Press, 2019, xvi + 245 pp.
Mark Thornton (mthornton@mises.org) is Senior Fellow at the Mises Institute and Book Review Editor at the QJAE.
Quarterly Journal of Austrian Economics 22, no. 1 (Spring 2019), for full issue, click here.
Austerity is, plain and simple, living within one’s means for normal people. The policy of austerity is for governments who spend a relatively lavish budget beyond their means and then—periodically—have to retrench their spending in excess of tax revenues or face dire economic consequences. This usually entails either increasing taxes, cutting spending, or both.
Austerity policy is a political hot potato, or so some claim. Citizens do not want their taxes increased or their benefits reduced. Government employees do not want their budgets reduced and certainly do not want to see cuts in staffing or, God forbid, cuts in their own salary and benefits.
Not surprisingly there is an ongoing political debate over the effectiveness of austerity policy. Some people believe it is necessary and can be harmful? Government employee unions, government contractors, and progressive-socialist groups expend money and effort lobbying against austerity, while taxpayer-based groups spend money supporting austerity plans that reduce spending rather than increase taxes.
It is easy to muddy the political waters because it is difficult to properly measure the results of the various types of austerity plan. Does a plan consist mostly of tax increases or does it consist mostly of government spending reduction? Then there is additional confusion because the results of any plan will be affected by other factors such as monetary policy and regulatory policy which have simultaneous impacts on the economy and the government budget.
However, it is critical to get the right answers because there will be a need for corrective austerity plans to deal with current government budgetary extravagance in the near future. Government debt in many countries has already grown beyond sustainable levels. In the US, the federal government routinely runs trillion-dollar deficits and is headed towards a fiscal cliff of severe economic decline even before the banner of the Green New Deal was raised.
When the next recession does hit the US, it could result in a significant decline in GDP and this will result in lower revenue for the government and increased expenditures for things like welfare and unemployment benefits. Another related concern is a rise in interest rates which would significantly increase the amount of interest payments on the national debt. If both a recession and higher interest rates were to occur simultaneously, which seems likely, austerity policy could be a necessity.
A new book by Harvard economist Alberto Alesina, and Carlo Favero and Francesco Giavazzi, both of the University Bocconi, addresses these issues. In Austerity: When It Works and When It Doesn’t, they provide a comprehensive empirical examination of thousands of fiscal measures implemented by 16 advanced economies since the late 1970s. Central to their analysis is the distinction between austerity plans that rely mostly or wholly on tax increases and austerity plans that rely mostly or wholly on cuts in expenditures.
They find that tax increase-based plans, i.e., TB plans, are deeply recessionary in the short and medium terms and are ineffective at addressing the problems of debt. In contrast, they find plans that are expenditure reduction-based plans, i.e., EB plans, are not deeply recessionary in the short and medium terms and are effective at addressing the problems of debt and can even lead to an economic expansion.
This finding invalidates the Keynesian complaint that government spending cuts reduce aggregate demand and causes deeper recessions. The main reason the Keynesian view is invalid is that credible spending cuts give entrepreneurs and investors confidence that no tax increases will occur in the future. Immediate and planned spending reductions are a signal that taxes will be lower, or at least not higher, in the future and this is good for the economy. Furthermore, EB plans can even trigger economic expansions and are not necessarily a “political kiss of death,” as some have alleged.
Chapter 3 provides several case studies of countries that have employed TB or EB plans and what they experienced. Several countries adopted austerity measures in the early 1980s. For example, Belgium had a budget deficit of 16.4 percent of GDP in 1981. In response, authorities announced a multi-year austerity plan that cut spending the equivalent of 6.5 percent of GDP, while raising revenues only 1.8 percent. The economy contracted in 1981 and then turned positive, reaching 4.3 percent growth in 1988. In contrast, between 1982 and 1986 Ireland adopted an austerity plan based almost entirely on tax increases. Nearly every aspect of the Irish economy experienced higher taxes totaling almost 7 percent of GDP. As a result, the economy remained sluggish, the deficit was not reduced, and the debt to GDP ratio increased from 74 percent to 107 percent by 1986. In 1987, Ireland adopted a new austerity plan based entirely on spending cuts and the economy quickly recovered. This chapter is by itself worth more than the price of the book.
Comparing TB and EB plans in Chapter 7, the authors find EB plans are better than TB plans in terms of output, consumption, and much better, as we would expect, in terms of investment. Also, as we would expect, EB are superior to TB plans in terms of consumer and business confidence. In terms of EB plans, plans based mostly on cuts in transfer payments and those based mostly on general cuts in government spending are both superior to TB plans.
The authors try to weed out the impact of other policies and aspects of austerity plans. So, they examine the potential impacts of money policy, exchange rate movements, and structural reforms in labor and product markets, e.g. deregulation, and their results still hold. They also find that EB plans were far superior to TB plans in terms of reducing the debt-to-GDP ratio, a primary reason for austerity plans in the first place.
In chapter 8 the authors examine the impact of austerity in the post-2008 Financial Crisis. Their result that EB plans are superior to TB plans is sustained, but the authors caution:
One should keep in mind that fiscal policy was not the only player in the field: banking crisis, collapse of confidence, the credit crunches also played a role. It would be simplistic to attribute everything that happened in Europe between 2010 and 2014 only to fiscal policy. (p. 158)
Chapter 9 addresses the question of how the state of the business cycle, i.e., expansions or contractions, should impact the austerity plans (not much). Chapter 10 addresses the impact of austerity plans on reelection bids and whether they are necessarily a political kiss of death (normally they are not).
This is an important book with consistent results favoring EB austerity plans over TB austerity plans in terms of both current output and the national debt. Essentially, the evidence supports the Austrian approach to recovery after a boom-bust cycle, but is also generally applicable.
There are a couple of items that would have improved the book. The first is that the authors do not fully exploit the issue of EB plans that relied mostly or wholly on cuts to government employment, either the number of employees or cuts to salaries, benefits and pensions in order to balance the budget. The current discussion of austerity seems to concentrate on making taxpayers worse off with tax increases or citizens worse off because spending cuts often restrict access to government benefits and programs.
Another approach to austerity would be to reduce the number of government employees, their salaries, benefits and pensions which are typically excessive. One benefit of this approach is that if politicians and bureaucrats knew in advance that they would suffer from profligate deficit spending, there would probably be less wasteful spending in the first place. In other words, make politicians and bureaucrats suffer rather than taxpayers and citizens.
Another item that needs to be addressed is the value of government spending. Keynesians claim that austerity makes us worse off because GDP will fall more than otherwise due to decreased government spending. However, as Simon Kuznets, one of the founders of national income accounting, made clear, government output is not measured in the marketplace so its value is unknown. Most government spending is of either of strongly negative value or certainly worth less than $1 per $1 of government expenditure—and very little of it is worth more than a dollar. Even college freshmen are taught that GDP is an inaccurate measure of economic well-being, but apparently econometric analysis has yet to catch on to that fact. By the way, if this problem were addressed, it would only strengthen our authors’ findings.
Bob replays a recent Contra Krugman episode covering a Paul Krugman column on infrastructure spending. In addition to getting the economics wrong (as usual), Krugman also makes a shocking admission about his willingness to harm the country, as long as it denies Trump a political victory.
For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on iTunes, Stitcher, Spotify, and via RSS.
Compared to other types of universal healthcare systems, what we call "single-payer" healthcare is possibly the worst of all.
Original Article: "Single-Payer Healthcare Is the Worst Kind of Universal Healthcare".
French protests over a new climate-change-inspired fuel tax highlight high costs imposed on ordinary people by climate-change policies.
Original article: "French Protestors Fume over Climate Taxes and a Rising Cost of Living".
One would get the impression, reading most of the discussions in today's American newspapers and magazines, that no one had ever thought of doing anything for the poor until Franklin Roosevelt's New Deal in the 1930's, or even until President Johnson's "war on poverty" in the 1960's. Yet private charity is as old as mankind; and the history of governmental poor relief, even if we ignore the ancient world, can be traced back more than four centuries.
In England the first poor law was enacted in 1536. In 1547 the city of London levied compulsory taxes for the support of the poor. In 1572, under Elizabeth, a compulsory rate was imposed on a national scale. In 1576 the compulsion was imposed on local authorities to provide raw materials to give work to the unemployed. The Statute of 1601 compelled the Overseers of the Poor in every parish to buy "a convenient stock of flax, hemp, wool, thread, iron and other stuff to set the poor to work."
It was not compassion alone, or perhaps even mainly, that led to these enactments. During the reign of Henry VIII, bands of "sturdy beggars" were robbing and terrorizing the countryside, and it was hoped that the relief or the provision of work would mitigate this evil.
Poor relief, once started, kept growing. According to the early statistician, Gregory King (1648–1712), toward the end of the seventeenth century over one million persons, nearly a fifth of the whole English nation, were in occasional receipt of alms, mostly in the form of public relief paid by the parish. The poor rate was a charge of nearly £800,000 a year on the country and rose to a million in the reign of Anne.
There was seldom any shame felt in receiving outdoor relief, and it was said to be given with a mischievous profusion. Richard Dunning declared that in 1698 the parish dole was often three times as much as a common laborer, having to maintain a wife and three children, could afford to expend upon himself; and that persons once receiving outdoor relief refuse ever to work, and "seldom drink other than the strongest ale-house beer, or eat any bread save what is made of the finest wheat flour." The statement must be received with caution, but such was the nature of the complaint of some rate-payers and employers about the poor law.G. M. Trevelyan, English Social History (David McKay, 1942), p. 278.
Guaranteed Income In 1795 a momentous step was taken that enormously aggravated the whole relief problem. The justices of Berkshire, meeting at Speenhamland, decided that wages below what they considered an absolute minimum should be supplemented by the parish in accordance with the price of bread and the number of dependents a man had. Their decision received parliamentary confirmation the next year. In the succeeding 35 years this system (apparently the first "guaranteed minimum income") brought a train of evils.
The most obvious to the taxpayers was a geometric rise in the cost of relief. In 1785 the total cost of poor law administration was a little less than £2 million; by 1803 it had increased to a little more than £4 million; and by 1817 it had reached almost £8 million. This final figure was about one-sixth of total public expenditure. Some parishes were particularly hard hit. One Buckinghamshire village reported in 1832 that its expenditure on poor relief was eight times what it had been in 1795 and more than the rental of the whole parish had been in that year.Encyclopaedia Britannica, 1965. Article, "Poor Law." Vol. 18, p. 218. One village, Cholesbury, became bankrupt altogether, and others were within measurable distance of it.
But even the public expense was not the worst of the evil. Much greater was the increasing demoralization of labor, culminating in the riots and fires of 1830 and 1831.
It was in the face of this situation that the Whig government decided to intervene. In 1832 a royal commission was appointed to inquire into the whole system. It sat for two years. The report and recommendations it brought in became the basis of the reforms adopted in Parliament by a heavy majority (319 to 20 on the second reading) and embodied in the Poor Law Amendment Act of 1834.
The report was signed by the nine commissioners. The secretary was Edwin Chadwick; one of the commissioners was the eminent economist, Nassau W. Senior. The text of the report itself ran to 362 pages; together with its appendices it came to several bulky volumes. It was widely regarded as a "masterly example of a thorough, comprehensive, and unbiased inquiry." As late as 1906, one British writer, W. A. Bailward, described it as a "Blue-book which, as a study of social conditions, has become a classic."J. St. Loe Strachey (ed.), The Manufacture of Paupers (London: John Murray, 1907), p. 108.
Repeating Ancient Errors But today the report is just as if it had never existed. Schemes are being proposed on all sides, which their sponsors assume to be brilliantly original, but which would restore the very relief and income-guarantee systems that failed so miserably in the late eighteenth and early nineteenth centuries, and which the report of 1834 so devastatingly analyzed.
The Speenhamland plan, and schemes like it, endeavored to insure that people were paid, not in accordance with the going rate of wages, or the market value of their services, but in accordance with their "needs," based on the size of their families. A married man was paid more than a single man, and paid still more on a scale upward in accordance with the number of his children. The government — i.e., the taxpayers — paid the difference between his market rate of wages and this scale of minimums.
One effect, of course, was to depress the market rate of wages, because the employer found he could reduce the wages he offered and let the taxpayers make up the deficiency. It made no difference to the worker himself who paid him how much of the fixed total that he got. Another effect was to demoralize the efficiency of labor, because a man was paid in accordance with the size of his family and not in accordance with the worth of his efforts. The average unskilled laborer had nothing to gain by improving his efforts and efficiency, and nothing to lose by relaxing them.
Conditions in 1834 But let us turn to the text of the Commission's report, and let the following excerpts speak for themselves. They are taken almost at random:
The laborer under the existing system need not bestir himself to seek work; he need not study to please his master; he need not put any restraint upon his temper; he need not ask relief as a favor. He has all a slave's security for subsistence, without his liability to punishment. As a single man, indeed, his income does not exceed a bare subsistence; but he has only to marry, and it increases. Even then it is unequal to the support of a family; but it rises on the birth of each child. If his family is numerous, the parish becomes his principal paymaster; but small as the usual allowance of 2s. a head may be, yet when there are more than three children, it generally exceeds the average wages given in a pauperized district. A man with a wife and six children, entitled, according to the scale, to have his wages made up to 16s. a week, in a parish where the wages paid by individuals do not exceed 10s. or 12s., is almost an irresponsible being. All the other classes of society are exposed to the vicissitudes of hope and fear; he alone has nothing to lose or to gain. ...
The answer given by the magistrates, when a man's conduct is urged by the overseer against his relief, is: "We cannot help that; his wife and family are not to suffer because the man has done wrong." ...
Too frequently petty thieving, drunkenness, or impertinence to a master, throw able-bodied laborers, perhaps with large families, on the parish funds, when relief is demanded as a right, and if refused, enforced by a magistrate's order, without reference to the cause which produced his distress, viz., his own misconduct, which remains as a barrier to his obtaining any fresh situation, and leaves him a dead weight upon the honesty and industry of his parish. ...
It appears to the pauper that the government has undertaken to repeal, in his favor, the ordinary laws of nature; to enact that the children shall not suffer from the misconduct of their parents — the wife for that of the husband, or the husband for that of the wife: that no one shall lose the means of comfortable subsistence, whatever be his indolence, prodigality, or vice: in short, that the penalty which, after all, must be paid by some one for idleness and improvidence, is to fall, not on the guilty person or on his family, but on the proprietors of the lands and houses encumbered by his settlement. ...
"In the rape of Hastings," says Mr. Majendie, "the assistant overseers are reluctant to make complaints for neglect of work, lest they should become marked men and their lives rendered uncomfortable or even unsafe. Farmers permit their laborers to receive relief, founded on a calculation of a rate of wages lower than that actually paid: they are unwilling to put themselves in collision with the laborers, and will not give an account of earnings, or if they do, beg that their names not be mentioned. ... Farmers are afraid to express their opinions against a pauper who applies for relief, for fear their premises should be set fire to. ...
"In Brede, the rates continue at an enormous amount. The overseer says much of the relief is altogether unnecessary; but he is convinced that if an abatement was attempted, his life would not be safe." ... "I found in Cambridgeshire," says Mr. Power, "that the apprehension of this dreadful and easily perpetrated mischief [fire] has very generally affected the minds of the rural parish officers of this country, making the power of the paupers over the funds provided for their relief almost absolute, as regards any discretion on the part of the overseer." ...
"Mr. Thorn, assistant overseer of the parish of Saint Giles, Cripplegate, London, says —
"The outdoor relief [i.e., relief given outside of a poorhouse] in the city of London would require almost one man to look after every half dozen of able-bodied men, and then he would only succeed imperfectly in preventing fraud. They cheat us on all hands. ...
"By far the greater proportion of our new paupers are persons brought upon the parish by habits of intemperance. ... After relief has been received at our board, a great portion of them proceed with the money to the palaces of gin-shops, which abound in the neighborhood. However diligent an assistant overseer, or an officer for inquiry, may be, there are numerous cases which will baffle his utmost diligence and sagacity. ...
"It is the study of bad paupers to deceive you all they can, and as they study their own cases more than any inquirer can study each of the whole mass of different cases which he has to inquire into, they are sure to be successful in a great many instances. The only protection for the parish is to make the parish the hardest taskmaster and the worst paymaster than can be applied to.'"
To economize space, my remaining quotations from the Commissioners' criticisms of the conditions they found must be few and brief.
In many parishes, "the pressure of the poor-rate [i.e., taxes on property] has reduced the rent to half, or to less than half, of what it would have been if the land had been situated in an unpauperized district, and some in which it has been impossible for the owner to find a tenant. ..."
Says Mr. Cowell: "The acquaintance I had with the practical operation of the Poor Laws led me to suppose that the pressure of the sum annually raised upon the ratepayers, and its progressive increase, constituted the main inconvenience of the Poor Law system. The experience of a few weeks served to convince me that this evil, however great, sinks into insignificance when compared with the dreadful effects which the system produces on the morals and happiness of the lower orders." ...
The relief system was found to encourage "bastardy.'' "To the woman, a single illegitimate child is seldom any expense, and two or three are a source of positive profit. ... The money she receives is more than sufficient to repay her for the loss her misconduct has occasioned her, and it really becomes a source of emolument. ...
The sum allowed to the mother of a bastard is generally greater than that given to the mother of a legitimate child; indeed the whole treatment of the former is a direct encouragement to vice. ...
Witness mentioned a case within his own personal cognizance, of a young woman of four-and-twenty, with four bastard children; she is receiving 1s. 6d. weekly for each of them. She told him herself, that if she had one more she should be very comfortable. Witness added, "They don't in reality keep the children; they let them run wild, and enjoy themselves with the money."
Much Like Today Given a modernization of phraseology and an appropriate change in the monetary amounts mentioned, this description of relief conditions and consequences in the early years of the nineteenth century could easily pass as a description of such conditions in, say, New York City in 1971.
What, then, in the face of these results of the prior Poor Law, were the recommendations of the commission? It desired to assure "that no one need perish from want"; but at the same time it suggested imposing conditions to prevent the abuse of this assurance.
It may be assumed, that in the administration of relief, the public is warranted in imposing such conditions on the individual relieved as are conducive to the benefit either of the individual himself, or of the country at large, at whose expense he is to be relieved.
The first and most essential of all conditions ... is that his situation on the whole shall not be made really or apparently so eligible [i.e., attractive] as the situation of the independent laborer of the lowest class. Throughout the evidence it is shown, that in proportion as the condition of any pauper class is elevated above the condition of independent laborers, the condition of the independent class is depressed; their industry is impaired, their employment becomes unsteady, and its remuneration in wages is diminished. Such persons, therefore, are under the strongest inducements to quit the less eligible class of laborers and enter the more eligible class of paupers. ... Every penny bestowed, that tends to render the condition of the pauper more eligible than that of the independent laborer, is a bounty on indolence and vice. ...
We do not believe that a country in which ... every man, whatever his conduct or his character [is] ensured a comfortable subsistence, can retain its prosperity, or even its civilization.
The main principle of a good Poor-Law administration [is] the restoration of the pauper to a position below that of the independent laborer.
The report then followed with its detailed recommendations, which involve many administrative complexities.
The Workhouse System In 1841, seven years after the enactment of the new Poor Law, when a whole series of amendments were being proposed to it by various members of Parliament, Nassau Senior, in an anonymous pamphlet signed merely "A Guardian," came to the defense of the original act, and explained its rationale perhaps in some ways better than did the original report.
"In the first place," he wrote, "it was necessary to get rid of the allowance system — the system under which relief and wages were blended into one sum, the laborer was left without motive to industry, frugality, or good conduct, and the employer was forced, by the competition of those around him, to reduce the wages which came exclusively from his own pocket, and increase the allowance to which his neighbors contributed.
Supposing this deep and widely extended evil to be extirpated, and the poorer classes to be divided into two marked portions — independent laborers supported by wages and paupers supported by relief — there appeared to be only three modes by which the situation of the pauper could be rendered the less attractive.
First, by giving to the pauper an inferior supply of the necessaries of life, by giving him worse food, worse clothing, and worse lodging than he could have obtained from the average wages of his labor. ...
A second mode is to require from the applicant for relief, toil more severe or more irksome than that endured by the independent laborer. ...
The third mode is, to a certain degree, a combination of the two others, avoiding their defects. It is to require the man who demands to be supported by the industry and frugality of others to enter an abode provided for him by the public, where all the necessaries of life are amply provided, but excitement and mere amusement are excluded — an abode where he is better lodged, better clothed, and more healthily fed than he would be in his own cottage, but is deprived of beer, tobacco, and spirits — is forced to submit to habits of order and cleanliness — is separated from his usual associates and his usual pastimes, and is subject to labor, monotonous and uninteresting. This is the workhouse system."
The Royal Commission, in defending that system, had argued that even if "relief in a well-regulated workhouse" might be,
in some rare cases, a hardship, it appears from the evidence that it is a hardship to which the good of society requires the applicant to submit. The express or implied ground of his application is, that he is in danger of perishing from want. Requesting to be rescued from that danger out of the property of others, he must accept assistance on the terms, whatever they may be, which the common welfare requires. The bane of all pauper legislation has been the legislation for extreme cases. Every exception, every violation of the general rule to meet a real case of unusual hardship, lets in a whole class of fraudulent cases, by which that rule must in time be destroyed. Where cases of real hardship occur, the remedy must be applied by individual charity, a virtue for which no system of compulsory relief can be or ought to be a substitute.
Destroying the Beneficiary To later generations the reforms introduced by the Poor Law Amendments of 1834 came to seem needlessly harsh and even heartless. But the Poor Law Commissioners did courageously try to face up to a two-sided problem that the generation before them had ignored and many of the present generation seem once more to ignore — "the difficult problem'' as Nassau Senior put it, "how to afford to the poorer classes adequate relief without material injury to their diligence or their providence." In his 1841 pamphlet we find him rebuking
the persons who would legislate for extreme cases — who would rather encourage any amount of debauchery, idleness, improvidence, or imposture, than suffer a single applicant to be relieved in a manner which they think harsh. ... [They] would reward the laborer for throwing himself out of work, by giving him food better, and more abundant, than he obtained in independence. ... They are governed by what they call their feelings, and those feelings are all on one side. Their pity for the pauper excludes any for the laborer, or for the rate-payer. They sympathize with idleness and improvidence, not with industry, frugality, and independence. ... It is scarcely necessary to remind the reader of the well-known principle, that if relief be afforded on terms which do not render it less eligible than independent labor, the demand for it will increase, while there is a particle of property left to appease it.
However the Poor Law Reform of 1834 may be considered by many today, it proved sufficiently satisfactory to successive British governments to be retained with only minor changes until the end of the nineteenth century. But there was mounting sentiment against it as the years wore on. Much of this was stirred up by the novels of Charles Dickens and others, with their lurid pictures of conditions in the workhouses. Toward the end of the century the more stringent regulations were gradually relaxed. Ih 1891 supplies of toys and books were permitted in the workhouses. In 1892 tobacco and snuff could be provided. In 1900 a government circular recommended the grant of outdoor relief (i.e., relief outside of the workhouses) for the aged of good character.
A 1905 War on Poverty A new Royal Commission on the Poor Laws was set up in 1905. (One member was Beatrice Webb.) It brought in a report in 1909, but as the report was not unanimous, the Government took no action on it. However, new "social legislation" continued to be enacted. An Old Age Pensions Act was passed in 1908. And in 1909 David Lloyd George, the radical chancellor of the exchequer, anticipating President Lyndon Johnson's "war on poverty" by more than half a century, exclaimed in introducing his new budget: "This is a war budget for raising money to wage implacable warfare against poverty and squalidness."
Finally, the National Insurance Act of 1911, providing sickness and unemployment benefits on a contributory basis to a selected group of industrial workers, marked the birth of the modern Welfare State in England, which reached maturity with the enactment of the Beveridge reforms in 1944.
But the Poor Law Commissioners of 1834, and the Parliament that enacted their recommendations, had frankly recognized and faced a problem that their political successors seem, as I have said, almost systematically to ignore — "the difficult problem," to quote once more the words in which Nassau Senior stated it, "how to afford to the poorer classes adequate relief without material injury to their diligence or their providence."
How to Afford Relief Without Destroying Incentives Is this problem soluble? Or does it present an inescapable dilemma? Can the state undertake to provide adequate relief to everybody who really needs and deserves it without finding itself supporting the idle, the improvident, and the swindlers? And can it frame rigid rules that would adequately protect it against fraud and imposture without as a result denying help to some of those really in need? Can the state, again, provide really "adequate" relief for any extended period even to the originally "deserving" without determining or destroying their incentives to industry, frugality, and self-support? If people can get an adequate living without working, why work? Can the state, finally, provide "adequate" relief to all the unemployed, or, even more, guaranteed incomes for all, without undermining by excessive taxation the incentives of the working population that is forced to provide this support? Can the state, in sum, provide "adequate" relief to all without gravely discouraging and inhibiting the production out of which all relief must come? — without letting loose a runaway inflation? — without going bankrupt?
This apparent dilemma may be surmountable. But no relief system or welfare-state system so far embarked upon has satisfactorily surmounted it; and the problem certainly cannot be solved until the alternatives it presents are candidly recognized and examined.
[Originally appeared in The Freeman (March 1971).]
Private Graduate Seminar. Recorded at the Mises Institute in Auburn, Alabama, on July 17, 2018.
At last month's Austrian Economics Research Conference, we were honored to be joined by Kevin Dowd, an Emeritus Professor of Economics at Nottingham University. Dowd presented a blistering critique of modern central bankers and their mania for monetary stimulus. In this excerpt from his talk, he explains how policies like negative interest rates not only reflect bad economic thinking, but also pose a danger to the civil liberties. What will the Fed and European Central Bank do next, if ersatz economic growth cools in a period of rising interest rates? Don't miss this masterful explanation of how central banks destabilize and distort every aspect of the economy.
With welfare, the US outspends Canada and Australia, and is on a par with Switzerland. On government healthcare, the US outspends nearly everyone. Text version: The Myth of America's "Stingy" Welfare State.
Ryan McMaken discusses how government agents and agencies are often not held accountable for their actions. Text version: Lack of Police Accountability Shows the "Social Contract" Isn't Working
Ryan McMaken discusses issues surrounding public school security measures in response to school shootings — and addresses some arguments made against increasing security. Text version: "Security Works at Disney — But Can't Work at a Public School?"
As the Fed continues to increase the rate of interest it pays on excess reserves, the Fed's profits that are left over are slowly going to shrink in size. Since the Fed sends its profits to the US Treasury each year, the US Treasury will be receiving less. The Wall Street Journal reported on Friday:
The Federal Reserve sent $91.5 billion in profits to the Treasury Department last year, a $6 billion decline that officials have long expected as a result of rising interest rates.
The Fed’s total net income declined by $7.6 billion, to $92.4 billion, according to the Fed’s audited financial statements released Friday. The decline was primarily the result of higher interest payments it made to banks on the reserves they keep at the central bank.
David Howden has explained this process — and the implications for "Fed independence" — rather nicely:
Each year, the Fed remits to the US Treasury its net income, and thus provides the federal government with an important source of funding.
For the US Treasury, Fed remittances are something of a free lunch. When someone buys a Treasury bond, the government must pay them interest. This applies to the Fed as well, but then at year-end the Fed remits the interest back to the Treasury.
As much as economists talk about the independence that the Fed holds from Congress, these remittances represent a strong link. In fact, since they enable federal spending they create a form of quasi-fiscal policy for the Fed to use, in addition to its more common monetary policy options.
The slowly decreasing profits remitted to the Treasury each year is going to have implications for the increasing tension between the Trump administration and the Fed. If Trump wants to get his tax cuts through, he's going to need all the revenue help he can get. It may be even worse:
The payments are likely to shrink in the coming years as the Fed raises short-term interest rates—a process that involves paying banks higher interest on reserves they keep at the Fed—and when it eventually shrinks its balance sheet. Fed economists estimate the payments will fall to around $40 billion annually by 2020 but would likely rebound to about $65 billion a year by 2025.
A $40 billion payment in 2020 is less than half this year's $91.5 billion payment, which means that, assuming today's budget levels there's a massive $50 billion drop in revenue for the Federal Government, all things equal. Of course, spending goes up every year and so by 2020, who knows what may happen.
In the meantime, will the Fed eventually be "forced" to reverse course on interest rates to put a band-aid on the absurd Federal budget?
Interviewed by John Stossel, Jeff Deist says that politicians like Chuck Schumer are two-faced when it comes to taxing Wall Street. The full segment will run tonight on Fox Business.
And for more, see Stossel's latest column at Townhall:
Government programs almost never die.
Businesses in cozy relationships with government don't die either. Jeff Deist, president of the free-market Mises Institute, says when the housing bubble burst, banks should have been allowed to fail and put through "the bankruptcy and liquidation process."
Investors would have lost big, but that's OK, says Deist. "That's the difference between free-market capitalism and state capitalism. With state capitalism, there are upsides for the parties involved -- but no downsides."
Read the full column.
President Johnson’s withdrawal from the presidential race is the last of a series of withdrawals that caught the mass media totally and completely be surprise: Governor [George] Romney’s sudden pullout while campaigning in New Hampshire, and Governor [Nelson] Rockefeller’s decision to withdraw from the race after all his friends and associates were assured that he would enter. In every case, the withdrawer proclaimed the reason to be his desire to “unify” the party and/or the country.
All this gives me an idea. If these withdrawals are so beneficial for the party and for the country, why shouldn’t more politicians and potential candidates follow the noble example set by these idealistic men? Why shouldn’t everyone withdraw: Nixon, [Robert F.] Kennedy, McCarthy, Humphrey, or whoever? As each politico withdraws, we can all strew their paths with flowers and hail their nobility and self-sacrifice. It would then be a shame and a disgrace for anyone to run for the presidential office; and anyone who dared to do so would be a kind of moral leper in the community. Of course, the result of this onrush of morality in the land would be that there would be no one available to run for the presidency, and I’m afraid that the result would be that the august office of the presidency would be declared vacant.
With the presidency vacant for four years, there would be no one to make war, no one to submit a federal budget, no one to urge Congress to pass new legislation, no one to execute the laws, no one to push us all around. Perhaps after the initial shock, we would all find ourselves immeasurably freer and happier than we were before.
Then a clamor would well up to extend the benefits of this moratorium on public office even further, and all sorts of bureaucrats and politicians, high, low, and middling, would resign or refuse to run for office. Government offices would become vacant across the length and breadth of the land, and joy would reign unconfined. For anyone to run or to accept any public office would be considered a moral and an aesthetic disgrace, to be shunned by one and all.
One office I would like to see mass resignations from, pronto, is membership on one’s friendly local draft board. The draft board members perform their noble service unpaid; yet, just as charity is supposed to be silent, so these worthies get upset if their names become known to the public that suffers its sons torn away at their beck and call. Let us find out who our friendly local draft board members are, and let us not forget them when we cast our moral opprobrium at the politicians and bureaucrats.
When we hear about Newark — or Watts, or Buffalo, or the other Negro insurrections of the past few years — the first thing we need to do is to gain and keep some perspective on these shattering events. One important point to remember is that the overwhelming majority of the dead and wounded from these conflicts have been Negro — and most of them shot by the National Guardsmen who are so quick to move into the trouble areas. In short, the most important lesson to be learned from Newark or Watts is that we Americans fool ourselves when we think of ourselves as living under a “free government,” when we think of our government as operating by some sort of voluntary consent. Ordinarily, when things are going well and there is little to disrupt the permanent reign of the State, we don’t see the violence, coercion, and terror at the root of the very existence and operation of all of our governments, federal, state, and local. But let any trouble arise to mar the peaceful workings of this coercive rule, and the State reverts — ever so quickly — to its true role: that of naked, organized violence.
Notice how rapidly and how eagerly the State mobilizes its National Guard at the first sign of any danger to one of its violence-wielding units: the local police. Notice how rapidly the State turns its cities into an armed camp, rumbling through the streets in its Armored Personnel Carriers, shooting its machine guns and cannon at “anything that moves” — in the classical military terminology. Notice how quickly these minions of the State impose compulsory curfews on its peaceful citizens, how they block off — in violation of all human liberties — whole areas of a city and prevent anyone from going in or out, how they shut down all liquor stores and ban all sales of liquor. The philosophy of the State was never so well expressed as in an order that went over the Newark police radios when it was felt that violence by the State’s armed forces was insufficient: “Use your shotguns and revolvers. Use your shotguns and revolvers. That’s what you have them for.” And a voice answered back: “It’s about time.” There is the voice of the State.
A second point to realize is the background to the rebellion. Three things triggered the rioting: First, the ever-present evil of police brutality, a brutality which is endemic in the Negro ghetto areas, although those of us who are upper-middle-class whites feel it only tangentially and in passing (except if we happen to be radicals or “subversives”). Police brutality as a rampant, permanent fact should not surprise us, for any group given a legal monopoly on violence will proceed to use the violence and that monopoly as best and as often as it can. The other two issues that had angered the Negroes of Newark were both State aggressions against the Negro citizens who constitute a majority of the town, but have no power in its government. One was failure to appoint a Negro as secretary to the Board of Education of a town in which the school enrollment is over three-quarters Negro. Another, and far more important, was the plan of the Newark government to liquidate thousands of Negro homes in the center of the Negro district of the city to make way for a campus of the State’s College of Medicine and Dentistry.
It is no accident, finally, that the Negro insurrection began after a Negro cab driver was beaten up and arrested by the police; and began as a mob attack, escalating from tomatoes to Molotov cocktails, upon the offending police station.
The draft — and the military — are the most obvious and blatant examples of slavery in American life today. But there are others — and these areas suffer a great deal more neglect. One all-pervasive example of slavery in present-day America is the enslavement of our children, known as compulsory attendance laws. Compulsory attendance laws mean that up to a certain age — sometimes sixteen, sometimes eighteen — our entire population of children is forced into a penned enclosure, often more or less devoid of true education, known as a “school.” Most often, furthermore, this is a “public” (or governmental) school.
Now schooling may be a great thing but, like many other good things, it is not great for everyone. Many people have neither the inclination nor the ability for schooling, and many of them would be far better off spending these eager and formative years working in a job of their choice, than in spending them miserable, resigned, or embittered, in a supposedly benevolent house of detention known as a public school. Why is there so much juvenile delinquency these days? Well, at the risk of oversimplifying, wouldn’t you tend to become delinquent if you were penned up in a school by force of governmental bayonet, in a place for which you had neither the ability nor the inclination?
America grew great in a society where very few men went to high school, let alone college, and where many workers and businessmen developed and prospered on the job, and without wasting many years trying to become scholars, a task for which they were not suited. It is absurd to think that everyone needs or should get a college education, and it is unfortunate that many businessmen have been brainwashed by this generally held myth so that almost any job above the status of ditch digger these days requires a high school, or even a college, diploma. Worst of all, millions of youngsters have had their spirits broken, and their careers thwarted or shattered, by means of this coerced channeling into the world of schooling and scholarship.
It is often believed that, in this modern world of advancing technology, lengthy school attendance has become necessary. Actually, this is not true at all. Recent studies and experiments have shown that school drop-outs, after not learning anything in eight or ten years of compulsory schooling, have, in a few short weeks, been able to learn enough from private industrial training to take jobs successfully in industry.
There is one shrewd method to this madness: the more kids artificially kept out of the labor market, the more the government “deals with” the unemployment problem, and the more people are kept off the labor force who would otherwise compete with, and crack, the artificially high structure of minimum wage laws and union-imposed wage rates. Hence, the labor unions — who, for similar reasons, impose absurdly long periods of apprenticeship training, for low wages, upon their fledgling members — have been the most eager to keep the youngsters out of the labor force by use of the State bayonet. As the eminent Paul Goodman has written in his brilliant work, “Compulsory Mis-education,” “Twist it and turn it as you will, there is no logic to the proposal to extend compulsory schooling except as a device to keep the unemployed off the streets by putting them into concentration camps called school.”
Fortunately, in recent years, writers and sociologists like Goodman and Edgar Z. Friedenberg have turned a caustic light on our system of compulsory schooling; for the first time in many decades, this mischievous system is coming under careful and critical scrutiny.
Most economists have thought that “It Couldn’t Happen Here” — not, in mighty America, the home of high productivity and, therefore, the home of free international trade. But is has happened, and because of the chronic inflationary policies of the U.S. government, we are now boxed into a situation where the administration has adopted that despotic and tyrannical method of rule hitherto confined to despised backward countries: exchange control.
Exchange control means that the dollar is so weak compared to its official price that gold flows continually out of the country, and to stop that flow of gold, nations resort to arbitrary decrees rationing the short supply of gold and foreign exchange, and prohibiting nations from spending their money abroad.
President Lyndon Johnson, in a New Year’s gift to the American people, has instituted just such control, heralding an accelerating crackdown on American investments and travel abroad. This kind of direct interference with the way in which you or I wish to spend our money is not only patently unconstitutional, if the term has any meaning, it is also the final step toward a totalitarian economy. By what right does this man presume to dictate to supposedly free Americans where they can spend or invest their property?
Apart from being immoral, dictatorial, and unconstitutional, these exchange controls, though they will get ever tougher in coming months, will not and cannot work. In short, they will accomplish nothing in reducing the chronic deficit in the American balance of payments. For instance, suppose Americans reduce investment and spending abroad by $1 billion, as a result of the threats and outright coercion of the administration. Johnson and his Keynesian advisers automatically assume that our deficit will therefore be cut by that $1 billion. But it’s not so, because this simply means that Europeans will have $1 billion less to buy our products, so that the flow of money into the U.S. will decrease by about the same amount. None of these frantic and despotic decrees will work.
In fact, trying to end the deficit by preventing people from spending their own money is like busting a thermometer to lower a patient’s fever. It is an attack on the symptoms, rather than the causes. Our Brain Trusters in Washington never bother to ask: Why have we had this chronic deficit for the last two decades? Surely it is not from a sudden excess of greed or propensity to spend on the part of the American people. No, the reason is that the dollar, at the price we have pegged gold for over thirty years ($35 an ounce) is increasingly overvalued as more and more inflated dollars are poured into the economy by the government. At this arbitrary value, gold will flow out of the country, as people rush to dump dollars and buy gold and other foreign currency.
The solution in the short run is to devalue the dollar to a more realistic gold price (say, $70 an ounce). The solution in the long run is to stop the chronic American inflation. Eventually devaluation must come; it is inevitable. But, just as Mr. Wilson put the British people through three years of unnecessary sacrifice and torture to “save” an inflated pound, so Mr. Johnson is already beginning to call on all of us to “sacrifice” for the same futile and preposterous cause.
Hysteria is sweeping the land about the supposed honor of the American flag, and throughout the country, state, and federal legislators are competing with each other in proposing ever stiffer punishments for the high crime of desecration. Eager-eyed snoopers ferret out any use of flag cloth for covering or in the theater, and the long arm of the law quickly reaches out to apprehend and chastise these often unwitting criminals. We await some fervent patriot proposing death by torture for the high crime of mistreating a piece of cloth with red and white stripes.
For, if we sit back for a moment and reflect on the whole issue, the first thing that should be clear is that this is what the flag is: a simple piece of cloth with parallel stripes of certain colors. And the first thing we should ask ourselves is: What is there about a piece of cloth that suddenly makes it sacred, holy, and above defilement when red and white stripes are woven into it? Contrary to many hysterical politicians, the flag is not our country, and it is not the freedom of the individual. The flag is simply a piece of cloth. Period. Therefore, he who tampers with or desecrates that piece of cloth is not posing a grave threat to our freedoms or to our way of life.
Consider the implications of taking the opposite position: if the flag is not just a piece of cloth, this means that some form of mystical transubstantiation takes place, and that weaving a piece of cloth in a certain manner suddenly invests it with great sanctity. Most people who revere the flag in this way are religious; but to apply to a secular object this kind of adoration is nothing more nor less than idolatry. Religious people should be on their guard always against the worship of grave images, and their worship of State flags is just that kind of idolatry.
If, indeed, the flag is a symbol of anything throughout history, it has been the battle standard of the State, the banner it raises when it goes into battle to kill, burn, and maim innocent people of some other country. All flags are soaked in innocent blood, and to revere these particular kinds of cloth becomes not only idolatry, but grotesque idolatry at that, for anyone who loves individual liberty.
There is another crucial point in this whole controversy that nobody seems to have mentioned. When someone buys flag cloth, this cloth is his private property, to do with as he wishes ... to revere, to place in his closet ... or to desecrate. How can anyone believe otherwise who believes in the right of private property? Anti-desecration laws and ordinances are outrageous invasions of the right of private property, and on this ground alone they should be repealed forthwith.
abortion, 148
African-Americans, 37–38, 43–46, 102, 160
and conscription, 122
and conservatives, 159
and Rothbard, 151
as colonized people, 41–42, 46
Agnew, Spiro, 127–28
Algeria, 119
Americans for Democratic Action, 61, 62, 159
American Telephone and Telegraph, 50
Anarchism, 125–26, 160
An Austrian Perspective on the History of Economic Thought (Rothbard), 11
antiwar movement, 83–84, 100, 109–10, 129–30
and liberalism, 159
Arendt, Hannah, 159
Bay of Pigs, 86
Biafra, 48
Boulding, Kenneth, 137
Bozell, L. Brent, 156
Britain, 69–70
Brown, H. Rap, 13, 46, 57, 160
Brundage, Avery, 96
Brezhnev, Leonid, 116
Bright, John, 152
Buckley, William F., Jr., 12, 147–48, 158–59
as cold warrior, 154–55
Buffett, Howard, 152–53
Bukharin, Nicolai, 131
Bulloff, Jack, 144–45
Burke, Edmund, 156
Burnham, James, 149, 155, 160–61
Business Executives Move for a Vietnam Peace, 55–56
Carmichael, Stokely, 46
Chambers, Whittaker, 155
Chamberlain, John, 155
Chicago Tribune, 152
and Big Business, 158
and Korean war, 153
China, 119, 126, 131–35
and “Cultural Revolution,” 132–34
Chodorov, Frank, 25, 152
Christian Economics, 12
Civil War (US), 48
Cobden, Richard, 152
Coffin, William Sloane, 84
Cohn-Bendit, Daniel, 125
collective security, 27–28
Columbia University, 111, 113–15
Commercial and Financial Chronicle, 152
Committee to Aid the National Liberation Front, 84
Communist Party, 126
China, 131–35
East Germany, 116
ex-communists, 155
France, 120
US, 153
Congress of Racial Equality, 160
conscription, 21–26, 31–34, 73–74, 104, 109, 121–22
and emigration, 110
and jury duty, 39–40
and libertarians, 148, 161
and Old Right, 151–52
The Conservative Mind (Kirk), 155
Conservative Union, 111
conservatism, 62, 63, 147–49
and draft, 160–61
and fascism, 149
and Lyndon Johnson, 62
and McCarthyism, 153–54
and National Review, 154–57
and Nixon, 148
and Old Right, 151–53
and statism, 148, 159
Containment and Change (Oglesby), 1160
Council for a Volunteer Military, 26
crime, 107–08
Cuba, 119
Cyprus, 69–70
Daley, Richard, 107
de Gaulle, Charles, 47, 67–68, 80, 115
de Maistre, Joseph, 156
de Toledano, Ralph, 155
Delury, John, 89–90
Democratic party, 66, 99
Dewey, Thomas E., 128
Dodd, Thomas J., 62
Douglas MacArthur Club, 111
draft, see conscription
Duberman, Martin, 160
Dutschke, Rudi, 116–17, 125
Eccles, Marriner S., 56
education, 15–16, 33–34, 83
and statism, 115–16
Eisenhower, Dwight, 56, 66
environmentalism, 137–45
Evers, Medgar, 117
Fair Deal, 123, 147, 161
Farmer, James, 26
fascism, 76, 83–84, 149
Fifield, James, 12
Fleming, D. F., 157
Flynn, John T., 152
Ford, Henry II, 50
France, 119–20
see also: de Gaulle, Charles
Frankfurter, Felix, 159
Freedom Newspapers, 12
Freedom School, 12
Friedenburg, Edgard Z., 34
Friedman, Milton, 26
Fulbright, William J., 105
Galenson, Walter, 132
Gandhi, Mahatma, 102
Garrison, William Lloyd, 149
Gavin, James M., 66
Garrison, Jim, 75–76
Gaza, 27
General Dynamics, 50
General Electric, 50
General Motors, 50
Germany, 126
Gimbel, Mike, 84
gold, 68, 79–82
Goldwater, Barry, 159
Gomulka, Wadislaw, 116
Goodman, Paul, 34
Greece, 69–70
Griswold v. Connecticut, 138
Grivas, Giorgio, 70
Guevara, Ernesto “Che,” 116
Gulf of Tonkin, 86
Gullander, W. P., 50
gun control, 59–60
Halbrook, Stephen P., 131–35
Hamilton, Alexander, 156
Hamowy, Ronald, 159–60
Hatcher, Richard G., 66
Hatfield, Mark, 66
Herberg, Will, 155
Herbert, Auberon, 152
Hershey, Lewis B., 73, 84
Hess, Karl, 26
Hillenkoeter, Roscoe H., 153
Ho Chi Minh, 116
Hoiles, Raymond C., 12
homesteading, 148
Hook, Sidney, 159
Hoover, Herbert, 153, 160
Hoover, J. Edgar, 73, 125
Hughes, Richard J., 43, 65
Humphrey, Charles, 74
Humphrey, Hubert, 103, 112, 123, 128
and civil liberties, 154
Hungarian Revolution (1956), 119
Industrial Revolution, 140
Israel, 28, 35–36
Japan, 126
Jackson, Andrew, 149
Jackson, Henry M., 86
Jefferson, Thomas, 149, 152, 156
Johnson, Lyndon, 13, 45–46, 50, 61–62, 65–66, 71, 80, 81–82, 93–94
and Eugene McCarthy, 111–12
and peace talks, 105–06
withdraws, 99–100, 103
Jones, LeRoi, 84
Katanga, 48
Kempton, Murray, 86
Kendall, Willmoore, 156
Kennedy, John F., 101, 117
Kennedy, Joseph P., 153
Kennedy, Robert F., 103, 105, 117
Kerr, Clark, 13, 15
Keynes, John Maynard, 51, 52, 82, 152
Keynesianism, see Keynes, John Maynard
King, Martin Luther, 13, 99, 101–02, 107, 117
Kirk, Grayson, 113–14
Kirk, Russell, 155
Kolko, Gabriel, 49, 158
Korean war, 56, 106, 153, 154
Kristol, Irving, 159
Lamont, Corliss, 153
Lefevre, Robert, 12
Left and Right, 12, 159
Lerner, Max, 159
Liggio, Leonard, 12, 157–58
liberalism, 46, 50, 61–62
and Old Right, 147
corporate, 158
of Eugene McCarthy, 112
libertarian movement, 26, 49
and New Left, 135, 159–60
and Nixon, 123–24
“left”-libertarians, 13–14
split with conservatives, 147–49, 157–58
Lindsay, John, 89–90, 107
Liu Shao-chi, 132–33, 135
Lynd, Staughton, 160
Lyons, Eugene, 155
Madison, James, 156
Malthus, Thomas, 140
The Managerial Revolution (Burnham), 160
Mao Tse-tung, 116, 131–35
Malcolm X, 117
Man, Economy, and State (Rothbard), 11
Matthews, J. B., 155
McCarran Act, 154
McCarthy, Eugene, 66, 103, 105–06, 112, 123
McCarthy, Joseph, 153–54
McNamara, Robert S., 22
Mencken, Henry L., 147, 156
Metternich, Klemens von, 156
Meyer, Frank S., 155
Mill, John Stuart, 160
Morton, Thruston, 56, 66
Moynihan, Daniel Patrick, 159
The Nation, 152
and red-baiting, 153
National Association of Manufacturers, 50
National Liberation Front of Vietnam, 56, 71–72, 87–88, 91–94, 106, 112
program of, 97–98
National Review, 147–49, 154–57, 160
and liberalism, 158–59
and Rothbard, 12
nationalism, 48
NATO, 152
New Deal, 29, 49, 123, 161
and Old Right, 147
The New Leader, 159
New Left, 15–16, 50, 120, 122
and Rothbard, 13–14, 151, 158–60
The New Republic, 153
Niles, Henry E., 56
Nineteen Eighty-Four (Orwell), 76
Ninth Amendment, 138
Nixon, Richard, 13, 103, 123–24, 127–28
and conservatives, 148
Nock, Albert J., 147, 156, 158
Nunn, Louie B., 65
Oglesby, Carl, 160
O’Hara, Almerin, C., 43–44
Old Right, 12, 151–53
and Robert Taft, 130
Olympics, 95–96
Oswald in New Orleans (Weisberg), 76
pacifism, 107
Paine, Thomas, 149, 152, 156
Partisan Review, 160
Peace and Freedom Party, 151
Percy, Charles, 66
police brutality, 119–20
Power and Market (Rothbard), 11
Progressive movement, 49
Prohibition, 59–60
Quebec, 47–48
Rand, Ayn, 14, 49, 158
Ratliff, John Milton, 73–74
Reagan, Ronald, 13, 16
Republican party, 65–66, 127–30
and McCarthyism, 154
and Old Right, 152
Rockefeller, David, 50
Rockefeller, Nelson, 90, 103, 123
Romney, George W., 66, 103
Roosevelt, Franklin, 61, 62
and civil liberties, 154
Rostow, Walter, 112
Rothbard, Murray N., 11–14
and Old Right, 151–53
and National Review, 156–57
and New Left, 151, 158–60
Rueff, Jacques, 68, 80
Ruml, Beardsley, 54
Rusk, Dean, 77
Russia, 126, 134–35
Savio, Mario, 13, 15
Schlamm, William S., 155
Schlesinger, Arthur, Jr., 155
secession, 47–48
socialism
as centrism, 157–58
in Israel, 35–36
on war, 55
Socrates, 156
Spanish-American War, 94
Spencer, Herbert, 152
Spiritual Mobilization, 12
Spock, Benjamin, 84
Spooner, Lysander, 152
Stalin, Joseph, 61, 131
Stassen, Harold, 129
Stokes, Carl, 66
“Strategy for Libertarian Social Change” (Rothbard), 11
Student Nonviolent Coordinating Committee, 46, 57, 160
Students for a Democratic Society, 74, 160
Studies on the Left, 160
Sulzberger, C. L., 125
Taft, Robert A., 130, 147, 149, 152
taxes, 49–52, 148
withholding, 53–54
Taylor Law, 89
Teague, Walter, 84
Thomas, Norman, 26
Thoreau, Henry David, 152, 156
Thoughts of the Young Radicals (Kopind), 160
Thurmond, Strom, 86
Trotsky, Leon, 131
Trotskyists, 134, 160
True, Arnold, 56
Truman, David, 113–14
Truman, Harry, 61, 62
Truman Doctrine, 152–53
Tucker, Benjamin R., 152
Turkey, 69–70
U-2 incident, 86
United Nations, 28, 153
Vietcong, see National Liberation Front of Vietnam
Vietnam war, 13, 43, 44, 45, 55–56, 65, 66, 71–72, 77–78, 85–88, 91–92, 99–100, 109–10, 119
and Eugene McCarthy, 111–12
and liberals, 159
and National Liberation Front, 97–98
and peace talks, 105–06
and Rothbard, 159
The Vigil (Rothbard), 12
Village Voice, 109
Walter, Paul W., Jr., 129–30
Warren Commission, 76
Weisberg, Harold, 76
Westmoreland, William, 92
Wheelwright, E. L., 132
Williams, William Appleman, 158
Wilson, James Harold, 79, 82
Wirtz, Willard, 22
Wittfogel, Karl, 155
World War I, 94
World War II, 94
Wrong, Dennis H., 141
Young Americans for Freedom, 109–10
Zionism, 36
zoning laws, 17
Conscription is quite obviously the most blatant example of slavery in American life, and happily many voices from both Left and Right are now being raised to call for abolition of this unmitigated despoiler of liberty. But there are other critical and pervasive examples of slavery on the American scene that have, for some reason, gone unnoticed even among dedicated libertarians.
One vital example is the armed forces itself. For even a volunteer army practices slavery on a grand scale! It is true that a volunteer army draws its recruits by free choice of the men who enlist. But what happens after they enlist? Suppose that a man enlists in the army for five years. Suppose that after two years he becomes fed up with the regimentation of military life and decides to quit for a better job? Can he do so? Certainly not! In every other occupation in society, a man may quit his job whenever he wants to, and either take another job or quit working altogether. Surely this right is fundamental to a free society; without the right to quit, a man is a slave, even if he originally took the job purely voluntarily. But an enlistee in the armed forces is not allowed to quit before his term expires. If he tries to, he is court-martialed and jailed under harsh military law. This is forced labor and involuntary servitude, however one looks at it.
There are other occupations, too, where a man may sign a contract to work for a term of years; he may, for example, sign on for five years as a geologist to work in Arabia. But he is allowed to quit; he may be considered a moral leper if he thus breaks his contract, he may be blacklisted by other firms hiring geologists, but he is not incarcerated for doing so.
Contrast, then, the armed forces with a very similar kind of occupation: the local police force. A man is free to quit the police force any time he wishes; why then should he not be free to quit the army as well? The armed forces will be centers of slavery not only so long as the draft exists, but even further, so long as a man is forced to stay in the army for any length of time after he decides he would rather call it a day.
No man is free if he does not have the right to quit his job. No one denies this right in every occupation — but one: in the armed forces, where this quitting is called “desertion” and met with imprisonment or even the firing squad.
If we would call ourselves a free country, this system must be abolished.
General de Gaulle has been reviled, derided, and hooted at by the entire American press for getting up in Quebec and shouting, “Vive le Quebec Libre” (Long Live a Free Quebec!). For the American mind seems totally incapable of understanding the principle of secession or the desire of an oppressed ethnic minority to separate and liberate itself from the tyranny of the majority. In the United States everybody laughed and called de Gaulle a senile, doddering old fool; but in Canada, and above all in Quebec, nobody laughed. They were either angry and bitter, or they cheered; but they didn’t laugh. For they knew that Canada is two nations, and that the British have been dominating the French in Canada ever since Britain invaded and conquered New France (as Canada was called) in the mid-eighteenth century.
Why shouldn’t the French of Quebec have the right to secede from Canada and form their own nation, where their own language and culture prevails? None of the territorial boundaries of the current governments of the world are God-ordained; they are all products of historical forces, most of which were unjust and coercive, with many resulting in oppressed minorities and plundering majorities. There is every reason, then, why these boundaries and state areas should be changed to conform more with the principles of freedom and justice.
Many libertarians cannot understand why one should take any stand on such a matter as secession. Wouldn’t the French only be setting up a Quebec state, and why would this better than a Canadian state? One answer is that decentralization is itself a good, because the Canadian state will then be weakened and deprived of power over a territorial area; the more states the world is fragmented into, the less power any one state can build up, either over its own hapless subjects or over foreign peoples in making war.
But another answer is that as long as states exist it is a net gain to eliminate the tyranny of a state over a minority ethnic group, and the secession of that group into its own state is therefore an important net gain for freedom. And there is another important reason for hailing the principle of secession per se: for if one part of a country is allowed to secede, and this principle is established, then a sub-part of that must be allowed to secede, and a sub-part of that, breaking the government into ever smaller and less powerful fragments ... until at last the principle is established that the individual may secede — and then we will have true freedom at last.
And on so many grounds: principle, ethnic freedom, pragmatic destruction of State Leviathan power, ultimate principle of individual secession, it is incumbent upon every lover of liberty to hail secession movements wherever and however they may arise. Therefore, let us hail them all: the Quebec Liberation Movement, Scottish nationalism, Welsh nationalism, the secession of the Ibo people of Eastern Nigeria into the independent republic of Biafra, the “left-wing” secession of the Eastern Congo and the “right-wing” secession of Katanga and, last but not least, the prospect of a black republic seceding from the U.S. Hence the tragedy of the southern defeat in the Civil War, for that defeat has buried the very thought of secession in this country from that time forward. But might does not make right, and the cause of secession may rise again.
The big argument for an income tax increase now is one taken from Lord Keynes: during a boom the government should raise income taxes in order to “sop up excess purchasing power” and prevent inflation. There are many fallacies in this argument for a tax hike.
The first problem is in identifying the current economic scene as a boom. The point is, if we look at such key indicators as corporate profits and investments, we are still in a recession. Everybody expects an upturn soon, but the upturn hasn’t occurred yet. And even if it does, the boom will still be so weak that a ten percent income tax increase may well be just enough to break the boom and precipitate a really severe recession because tax increases lower the incentive to save, invest, and produce.
But apart from this problem of timing and forecasting, there are more serious errors in the Keynesian call for a tax increase in a boom. The main problem is that price rises are brought about by inflation of the supply of money — and in our virtually nationalized banking system totally under the federal government’s control, this means that the government has pumped more money into the economy. The effect is something like diluting a powerful chemical mixture: if you pump more dollars into the economy, then each dollar will be worth less in purchasing power. In short, prices will go up. The trick is this: first the government creates new money, spends it or has it loaned out to its favorite groups; then, when the new money inevitably results in higher prices, the government turns around and denounces all sorts of social groups for spending this new money. The blame for the “excess purchasing power” is thus cunningly taken from the shoulders of the real culprit — government — and placed onto the shoulders of various groups in the economy. In fact, different groups are encouraged to quarrel among themselves with, for example, labor unions blaming businessmen for the higher prices and businessmen attempting to blame the demands of trade unions. All this time the real culprit — government — takes on the mantle of the savior of society from all these greedy price-increasing groups. In its role of savior, government then comes up with the notion of a tax increase to “sop up” the purchasing power.
Look at what government is doing: first it burdens the citizens by inflating the money supply and thereby raising prices; then it imposes a double burden by turning around and taxing away much of the new money. The people are skewered twice.
The theory of the tax increase implies, furthermore, that taxes are no burden at all, certainly no burden in comparison with a higher price. If the price of a good or service goes up, however, while this may be unfortunate, at least we’re still getting the useful good or service for our money. But if a tax goes up, to save us from the bad old price increase, what have we gotten in return for this burden? Nothing, since no one can pretend that the “benefit” we get from government increases proportionately to the tax. In fact we get a negative return from government, since the government will only use the new income to regulate, harass, and otherwise push us around.
Finally, not only is a higher tax worse than a higher price, but a government deficit, contrary to the Keynesians, is not necessarily inflationary. It is only inflationary if the deficit is financed by the banking system; if it is financed by selling bonds to the public, it will have other unfortunate effects, but it won’t increase the money supply or raise prices. So don’t let Keynesian sophists fool you. Higher taxes means higher robbery, and that benefits neither the public nor the state of the economy.
Every time someone is conspicuously shot in America, every time some maniac starts splattering people with a rifle or machine gun, various propagandists move in to whip up hysteria and call for severe government restrictions on the purchase or possession of guns. Never mind that such laws and ordinances are clearly unconstitutional, for the Constitution clearly and flatly guarantees the right of the people to bear arms. This right has always been considered crucial to the liberties of the people from government oppression; for if all the guns are surrendered to one organized group — the government — the freedoms of all are in jeopardy from those who have acquired a monopoly of the weapons of violence. For, as in the classical query, “Who is to guard our guardians?” The Sullivan and other laws were the first chink in the dike; the excuse for these patently unconstitutional and despotic laws was that there was something uniquely sinister about “concealed” weapons that deserves restriction. Now this is to be extended to unconcealed weaponry.
The theory is that if private guns are restricted or outlawed, crimes of violence using guns would be eliminated. What a silly doctrine! One would think that we had learned the lesson of Prohibition: outlawry of liquor did not end the use of liquor, nor has outlawry of narcotics ended their widespread use. The upshot of these restrictions and prohibitions is that the honest person, the innocent citizen, the non-alcoholic or non-addict, is prevented from buying or using guns or alcohol. The addict, the alcoholic, or the criminal are not deterred by the law. They have their sources, and they are always able to get their supply. No criminal, no Mafia member, has been stopped from getting revolvers because of the Sullivan or other such laws. The result is that while criminals continue to be plentifully supplied with guns, the non-criminal, the man who wants to buy a gun to defend himself from crime, is prevented from doing so: so the law renders him helpless in the face of crime.
Such is typically the result of “do-gooding” legislation, where actions or purchases are outlawed for somebody’s “own good.” The result is that, for his “own good,” he’s left at the criminal’s mercy.
The revolver used to be called “the equalizer,” and so it is. Without such a weapon the weak, the frail, the elderly, and women, can not compete with the muscles and clubs of strong-arm criminals, even if the latter do not have guns. But women and the frail and the aged can shoot straight, and this gives them much more of a chance in the jungles that many of our cities have become. If he knows that his victim may be armed, the mugger or the rapist will think twice before attacking; now it is open season.
There is, finally, no sense in outlawing a particular weapon such as a gun. There are lots of things which can be used and have been used as weapons. Where are we to stop? Shall we outlaw knives, sticks, bricks, or what? When will we realize that crime lies, not in the object, but in the way in which that or any object may be used?
Why the wave of adulation and admiration that greeted the blitzkrieg war of conquest by Israel against the Arab countries? That greeted the conquest, that is, in the United States; most of the rest of the world was stunned and appalled. Has a sickness eaten its way deep into the American soul? Do we all simply love a winner — even if he wins by means of fire-power, surprise attack, and mobile blitzkrieg tactics? Even if he wins, as Israel did, by napalming innocent women and children in Arab villages? Have we lost all sense of moral principle, all sense of justice?
Two major reasons have been advanced for the acclaim heaped by American public opinion on the state of Israel. One is that it is a “bastion of anti-Communism in the Middle East.” This is an odd argument, since, in the first place, none of the Arab countries is Communist or anything like it; all are governed by deeply religious Moslems. Sure, the Arabs accepted military aid from Soviet Russia, but only after they found that they could not get such aid from the U.S., which was arming Israel instead. And, furthermore, the Arab countries are certainly no more socialist than Israel: Israel has been governed, since its inception, by an avowedly socialist party (the Mapai); it has a very large proportion of its economy in government hands; and it has a fantastically strong labor union movement (the Histadrut) which, as a virtual State within a State, controls and owns a large chunk of the economy of Israel in its own right. And, what is more, there exist in Israel the famous kibbutzim, which are communes, in which communism (in its true sense of virtual absence of private property) is practiced on a scale far more intense than in any Communist country in the world (with the exception of China). And while membership in the kibbutzim is generally voluntary, there are also many Israeli refugees literally enslaved to the kibbutzim, and who cannot leave them until they “pay back” the Israel government the passage money from Europe to Israel. Furthermore, since their pay in the kibbutzim is very low, it is almost impossible for them to work out their term, and so they remain, often with great reluctance, in forced labor on the Israel communes.
The other common argument is that Israel is “little,” compared to its Arab neighbors, and therefore deserves admiration as an underdog surrounded by giants, as Davids surrounded by Goliaths. The “littleness” here is a complete misreading of world affairs; it would be just as absurd to hail Britain when she conquered India quite easily. Are we to consider the British Empire as the “underdog,” since India’s population outnumbered England by a huge multiple? Certainly not: clearly the technological level and relative standards of living were so disparate, that the “smaller” nation could easily conquer and dominate the larger. The same is true for “little” Israel. The rulers of Israel are not Middle Eastern, like their Arab neighbors; they are largely European, and furthermore, they are financed very heavily by wealthy European and American Zionists. These, then, were Europeans who came, on the backs of and in collusion with, the British Empire (from the end of World War I to the end of World War II), with European technology, wealth and know-how, to seize the lands and homes of Arabs, and themselves to colonize Palestine. To think of these Zionists and Israelis as “underdogs,” in the light of the true situation, is nothing less than grotesque — as can be seen by the swift wars of conquest fought by Israel in 1948, 1956, and now today.
The 1967 elections present many heartening features. The main trend shining through is the confirmation of all recent public opinion polls: the disastrous plummeting of support for the Johnson administration. Never in recent history has a president been so mistrusted, deplored, and reviled by all segments of the population; his popularity has reached an all-time low in the polls.
Confirmation of this trend by the elections is clear: In New Jersey, for example, where Governor Richard Hughes has been closely identified with the Johnson Administration, a 2-1 Democratic majority in the legislature has been turned around to a phenomenal 3-1 Republican margin. In Kentucky, Louie Nunn has become the first Republic governor in decades, giving the Republican party a majority of the nation’s governors. Nunn’s main campaign thrust was opposition to the administration’s war in Vietnam, and it is clear that the Vietnam war has played a large, if not dominant, role in the growing repudiation of the President. Contrary to most of the interpretation in the press, the 33 percent vote in the San Francisco referendum for immediate withdrawal from Vietnam is a victory for the anti-war forces: for this is a position too advanced for a large part of the Vietnam critics, much less the general population.
On the other great issue of our epoch — the race question — the elections, again contrary to the press, were a repudiation of the administration. For while it is true that the Negroes Carl Stokes and Richard Hatcher won the mayoralty races in Cleveland and in Gary, Indiana, with the blessings of the administration, the important point is that they squeaked through in overwhelmingly Democratic cities. All this points up the Democratic collapse and the continuing Republican resurgence.
And in New York the voters of the state delivered a smashing 3 to 1 repudiation of the proposed state Constitution. The vote was an unofficial alliance of left and right against the center, headed by the Democratic Party of New York State; the Constitution would have prevented voters from passing on state bond issues, and would have given state aid to private and parochial schools.
Finally, to complete the picture of Democratic disarray and disintegration, the conscientious Senator Eugene McCarthy (D., Minn.) is reportedly getting ready to challenge President Johnson in the 1968 primaries — a remarkable step, growing out of the increasing despair of thoughtful Democrats at the escalating road to ruin in Vietnam.
In the midst of this picture, all the Republicans need do is to present a reasonable choice in 1968 to gain victory. But the curious situation is that there is no leading Republican candidate for the presidency who reflects in any way the growing public disgust with the war in Vietnam, or even the growing peace sentiment (led by the powerful Senator Thruston Morton, R., Ky.) within the party itself.
Clearly the Republican way to victory next year is the same as Eisenhower’s “I Will Go to Korea” pledge in 1952; with that pledge, Ike established himself as the peace candidate, a peace that he indeed brought about as soon as he took office.
But every leading candidate for 1968 either endorses the Johnson war or wants to escalate it still further — all except Governor [George W.] Romney, who seems invincibly confused on the whole question. The only peaceish candidates are Senators [Mark] Hatfield (R., Ore.) and [Charles] Percy (R., Ill.) and General [James M.] Gavin, all the darkest of dark horses.
And so the Republican Party might well continue to nourish its almost uninterrupted genius for self-destruction.
The Johnson administration is sinking every deeper into its quagmire of lies about the war in Vietnam. Now, as these lies come into ever greater confrontation with reality, they are becoming more openly ludicrous. Is there anyone left who really believes that the latest phase of remarkable Viet Cong victories represents the “last convulsive gasp” of the virtually defeated enemy? If it has done nothing else, the administration has added a great new law to military strategy: the more you’re being defeated, the more this simply means that the enemy is becoming “desperate.” The more you lose, the closer you come to “winning.” How many more such “victories” can we stand?
Recently I wrote that the crucial new fact about the war in Vietnam is that the VC has permanently seized the strategic and tactical initiative in the war, an initiative which we had had during the previous dry seasons (approximately November to May), and which the Viet Cong had now obtained. But even I underestimated the swiftness and the force with which the VC would seize and push that initiative; even I underestimated the extent to which the VC is now winning the war.
The last stronghold of the U.S. and Saigon puppet forces had been the cities, and now they are strongholds no longer. For the VC launched a phenomenal simultaneous attack against seventy South Vietnamese cities — including thirty-five of the forty provincial capitals in the country. The VC still holds part of many of these cities, including Saigon and Hue, the largest. This means that they will remain there permanently, and that now we are permanently faced — short of wiping out the entire urban Vietnamese population, people we are supposedly fighting to “defend” — with guerrilla warfare in the urban as well as the rural areas.
The success of the VC in storming the cities reflects their overwhelming support among even the Saigonese and urban population, and the overwhelming public defection from the Saigon puppet regime. For how did the VC suddenly manage to pop up in the cities? By sneaking arms and equipment in among the civilian population in advance, and then walking into the cities in civilian guise. This can only be done with the overwhelming support of the population that aids you and secretes your arms in advance.
The VC also succeeded in capturing and raiding all the major South Vietnamese arsenals, and has won mass desertions from the Saigon army. Whole battalions of Saigonese troops have either returned to their home villages or have gone over in a body to the VC. How else can one explain the fact that U.S. infantry was needed to hold onto Saigon itself?
There are no safe areas whatever for American troops in Vietnam; there is no safe military rear area; the front is everywhere, and we are losing rapidly. We had best get out, and get out fast. If General [William] Westmoreland leaves the 6,000 American troops isolated and surrounded — by about 30,000 men — at the northwest outpost of Khe Sanh, we will probably get another Dien Bien Phu, and such a massacre will accelerate the getting-out process.
How is it that the overwhelming majority of the people of South Vietnam support the National Liberation Front, the “Viet Cong”? A look into this question will help Americans who are bewildered at seeing so much of the world’s population supporting what we simply regard as “Communist totalitarianism.” If it were as simple as that, the Communists would find precious little support, and precious few members.
It is no coincidence that the mighty drive of 1967–68, which has established the Viet Cong in the position of winning the protracted war, was preceded by the adoption of an extremely important new political program; a statement of policy for the present and future NLF regime in South Vietnam. The policy statement was adopted last September 1, and was reprinted in full in the New York Times of December 15.
First, we should realize that the NLF are not simply communists, but a broad national coalition of numerous groups, including Buddhists, Catholic abbés, and middle-class parties; and in this coalition the communists play a leading role. Secondly, as a witness to this broad coalition, there is not a word in this lengthy political program about the establishment of a socialist society. On the contrary, the NLF platform is no more socialistic than those of the Democratic or Republican parties in the United States — and maybe a good deal less. Not only that: the major thrust of the program is the guarantee of the private property of business and especially of the peasantry, who are the vast bulk of the Vietnamese population. In addition, the program proclaims and guarantees the freedom of religion, of national minorities to have their own language and autonomy, and of speech, press, assembly, association, demonstrations, and forming of political parties, as well as “inviolability of the human person,” freedom of residence and movement, and the secrecy of the mails.
On property rights, the NLF program promises “to protect the right to ownership of the means of production and other property of the citizens.” It adds that “the state will encourage the capitalists in industry and trade to help develop industry, small industries and handicrafts,” and will “give due consideration to the interests of small traders and small manufacturers.” Above all, the program repeatedly guarantees the right of peasants to their land, and promises to turn over any lands confiscated by the state (e.g., the “lands of the U.S. imperialists”) to the peasantry.
There are other important aspects of the NLF program which have won due attention from the press, such as guarantees of equal treatment to defecting troops and a pledge of a foreign policy of peace and neutrality. But in the long run, the guarantees to private capitalist and especially to peasant property are the most important, for these guarantees, set against the anti-peasant policies of the Saigon puppet regime, go a long way to account for the puzzling fact that the undeveloped countries of the world tend to support communists rather than the United States. It is because the communists proclaim their support for national independence and for the private property of the peasantry, while the U.S. invariably backs colonial and feudal landlord regimes that are hated throughout these countries.
A remarkable thing has happened: Let the Pueblo be seized by North Korea, and every man-on-the-street becomes an international law “expert.” “An outrage!” “An act of piracy!” “Nothing like this has happened since 1815!” The air is filled with declamations on the law of the sea; I expect at any time to hark back to the eighteenth century and find the press teeming with discussions of the law of capture, contraband theory, and how many puffs at the hornpipe are required for a party to board ship.
The first point one finds striking is the sudden devotion of American politicians to rules of international law, after America has violated it time and again, and consistently in Vietnam for several years, and after releasing pictures showing American soldiers aiding and supervising torture of prisoners in Vietnam. The stench of hypocrisy in this affair is overwhelming.
Even on the narrow point of the capture of the Pueblo, there are enough fuzzy areas and ambiguities to give pause to even the most hopped-up patriot. North Korea, like many nations of the “free world,” claims twelve miles offshore as its territorial waters. The U.S. claims that the Pueblo was accosted sixteen miles out; the North Koreans said that the ship — which all sides acknowledge to have been a spy ship, pure and simple — was eight miles offshore. Four miles at sea seem to be pretty flimsy grounds for launching World War III.
And for those four flimsy miles, we are forced to rely on the word of a government which, as the astute and witty columnist Murray Kempton has reminded us, has consistently lied, and lied mightily, to the American people: during the U-2 incident, the Bay of Pigs, and now, it seems, at the Gulf of Tonkin, that mysterious incident in October, 1964 which served as the groundwork for all the escalation of the Vietnam war that the Johnson Administration has waged ever since. The American story about Tonkin has been changing steadily for years: At first a massive attack by North Vietnam’s PT boats hurling numerous torpedoes at innocent American ships, the story has now been whittled down to one lone torpedo — maybe — against ships which admittedly had zig-zagged inside North Vietnamese territorial waters. But of course truth never really does catch up, in the public mind, with the Big Lie. Kempton concludes that, in this dispute, he is at this point forced to believe the North Koreans since they have not been lying to him lately.
With the advent of the Pueblo crisis, the air of Congress was filled with the predictable cries of the addled war hawks. Several joined Governor Reagan in calling, in the best John Wayne fashion, for an American fleet to go steaming up Wonsan Harbor to rescue ship and crew; one of the many difficulties, of course, is that the crew has long since been removed inland. Other statesmen want to bomb the ship to smithereens; apparently it makes no difference whether we rescue the ship or blow it up — so long as there is some mighty act of American violence. Meanwhile, we face the fact that, apart from one airborne division at Fort Bragg, N.C., there are no troops left with which to launch another war in Korea. As a result, some politicians are calling for the ultimate atrocity: atomic weapons. For this suggestion we can thank Senators [Henry M. “Scoop”] Jackson (D., Wash.) and [Strom] Thurmond (R., S.C.). Are we to blow up the Korean people, the ship and crew, and maybe the whole U.S. as well, over four disputed miles in the waters off Wonsan?
Whether it fizzles, as it seems finally to be doing, or triumphs, there are many lessons to be learned from the phenomenal month-long French Revolution of 1968. First, it gives the lie, once and for all, to the widespread myth that revolutions, whether or not desirable, are simply impossible in the modern, complex, highly technological world. When the mythologists were confronted with the Chinese, Vietnamese, Algerian, and Cuban revolutions, all clearly triumphant, they said: Oh, well, perhaps there can still be revolution in the underdeveloped countries, but not in the Western world. Then came the successful Hungarian Revolution of 1956 — successful until the Soviet re-invasion. The excuse then was that Oh, well, Hungary was still a largely rural and undeveloped country.
But now France, mighty France — cradle of the Western world, and birthplace of revolutions. France, a possessor of the H-bomb, stopped in its tracks and almost toppled by that famous revolutionary weapon never until now successfully used: the general strike. Modern, complex technology requires skilled people to work it, and if these people refuse to work, bingo, you have a revolutionary situation. So now we know and we will know forevermore, that revolution is possible in the developed Western world.
A second interesting item is what sparked the massive general strike — it was the same spark that ignited each and every ghetto rebellion in the U.S. cities last summer: massive police brutality. As in Columbia University, the police brutality was directed against students, who were beaten, clubbed, gassed, and grenaded by the French police. The question: Why is it that in the U.S. most people were angry at the students and supported the police, while the reverse happened in France?
One answer to this puzzle is the very different attitude toward the cops in France. Every Frenchman, regardless of income and social class, has a deep, abiding hatred in his bosom of the police. For one reason, Frenchmen tend to be devoted to freedom of speech and demonstration, and they understand that it is always the police who invade that freedom; secondly, every Frenchman has had his teenage bust-up with the cops.
For it is a French tradition that when a Frenchman receives his coveted high-school diploma, he engages in a traditional cut-up called the “monomial”; and it is also traditional that the monomial is always busted up with great brutality by the police. So every Frenchman has a keen hatred of the police force nourished within him; hence the common French nickname for the police: not so much the well-known flics, or “cops,” but les cognes (those who-hit-people). Cops, to the French, are those who go about hitting people, and when they did so in violation of a century-old tradition of no cops on the university campus, all of France exploded. Another important lesson is the counter-revolutionary role, probably the main reason for the revolution’s ultimate defeat, played by the French Communist Party. The student rebels, who tend to be anarchists, correctly regard the Communist Party as a pillar of the existing Establishment. The Communists opposed the students from the beginning, then finally joining the bandwagon, then induced the workers to surrender their demands. All of France now knows what the New Left has been saying for years: that the Communist Party is a pillar of the “conservative” Establishment. If Americans began to absorb that fact, their view of the world would be far different from what it is today.
For several years some of us have been proclaiming, unheeded, that the New Left was very different from the Old; that this was not just another embodiment of the old Liberal-Socialist-Communist attitudes and coalition. Now the press is beginning to catch on; everyone knows that the fiery leader of the French student revolution, Daniel (Danny the Red) Cohn-Bendit, is an anarchist and not a socialist, that Red Rudi Dutschke, the German student leader, has at least anarchist tendencies, and that anarchist views permeate the New Left in the United States. C.L. Sulzberger, of the New York Times, writes that “the new generation seems nostalgically to be groping toward old-fashioned anarchism.” And now even J. Edgar Hoover concedes that the New Left is anarchist rather than communist.
Curiously enough, the attitude of Hoover and other observers seems to hold that anarchists are at least as evil as communists. After a quarter-century of being bombarded with propaganda about the menace of Communism, which we were taught to hate because it was tyrannical statism, we are now supposed to turn around and regard anarchism as perhaps an even greater danger because it is totally against the state! There is surely something very peculiar going on here. How are we expected to shift our hatreds from arch-statism to ultra-anti-statism so rapidly? And yet, presumably, the public is prepared to do this, so ready are they to shift their hatreds on cue (e.g., from Germany to Russia, from Japan to China) from their rulers.
The answer to this inconsistency is quite evidently that the U.S. government and its Establishment propaganda machine are not in the least bit anti-statist. Their gripe against Communism is not that it is statist, but that the Communist Party takes over exclusive control of the state, without making any provisions for cutting in our ruling classes for a piece of the loot. It is this exclusion of the American imperial rulers from shares in the plunder of Communist countries that has set them implacably against Communism. American imperial foreign policy has always been the “Open Door” — an open share in the looting of undeveloped countries. Anti-Communism is a function of the firm Communist closing of that imperial door.
And so, while there are still very few anarchists in the world, the ideological enmity of the American ruling classes toward anarchism is far greater than toward Communism. For anarchism would get rid of the state — all states — completely. It is instructive, by the way, that American imperialism gets along well with those Communist countries which have more or less abandoned the revolutionary, anti-statist side of Communism: Soviet Russia being the outstanding example.
Okay. I deplore and condemn the murder of the Rev. Martin Luther King, Jr. But no more and no less than I deplore and condemn any murder of any man. The attention and the brouhaha being paid to the King murder is more than a little ridiculous and more than a little revolting.
Every day tens of thousands of people are murdered, and nobody gives a hoot; no flags at half mast, no stores and banks and ball games close down for close to a week. When the great black leader, Malcolm X was assassinated no banks and no schools shut down, and no vice president appeared at his funeral. It appears to me that there is more fuss and feathers about the assassination of the Rev. King than there was about the assassination of President Kennedy — or at least as much.
Why? Why should this one murder and this one funeral command the continuing and uninterrupted attention of the entire nation? The civil rights movement is opposed to discrimination, and yet to single our Dr. King’s funeral for sole and unremitting attention appears to me an insult and discrimination against all other victims of murder and foul play, here and throughout the world.
I have a goodly hunch about the answer to this mystery, and the answer makes the whole spectacle repellent and shameful and hypocritical, and not simply ridiculous. I have a hunch about why department store after department store took out black-bordered ads with Dr. King’s portrait, proclaiming that they would shut down in honor of his funeral. The hunch: that these worthies acted not out of grief and respect, but out of pure fear. Fear that unless continual low obeisance is made in the direction of the Rev. King, the Negroes of this nation would rise up and level them to the ground. In a sense, these stores and schools were paying a kind of anticipatory blackmail. It’s a truly degrading spectacle. So intensely did this fear grip midtown Manhattan on the Friday after the murder that firm after firm released its employees early, in response to wild rumors that permeated New York that the whole of midtown Manhattan was in flames and ruins. Invariably, these employees rushed home and barricaded their doors, waiting for the holocaust that never came.
Rev. King, far and away the Number One leader of the Negro people, was also its leading apostle of absolute non-violence; hence he was the major restraining force on the developing Negro revolution. All the more was this true because, in moments of crisis, he relaxed his absolute non-violence to come out in favor of the use of violence by federal troops to put down Negro rioting — as he did in Watts three years ago, and as he did in last summer’s urban rebellions. Now that influence is gone; like Gandhi, his mentor in non-violence mass movements, he was cut down by an assassin’s bullet.
Perhaps the most important sign of radicalizing of the Negro mood in the wake of Dr. King’s death was the extensive rioting in Washington, D.C. For the Negroes of Washington had always been very quiet and docile, most of them being low-grade civil servants with a genteel status in the Negro community. But now Washington, for the first time, has erupted, and we were treated to the highly revealing picture of soldiers with machine guns on the White House steps. The veil, the mask, the illusion that the government rules by voluntary “consent” of the public was, in those photographs and in that reality, stripped away, and we saw clearly, some for the first time, that the government rules, in the last analysis, by the gun and the bayonet — and by these alone.
Recently I wrote in these columns of the accelerating revolutionary mood on the nation’s campuses. It is now clear that I underestimated the scope and depth of the looming student rebellion: for that rebellion is not only occurring now on American campuses, but throughout the world. In the U.S., there have been countless student sit-ins, with the mightiest, of course, being the Columbia crisis, which succeeded in closing Columbia College for the rest of the semester: but even more important, student rebellions are coming close to toppling governments in Europe, especially in Poland, West Germany, and France.
The amazing events in France highlight the revolutionary process at work. Here has been France, chafing for over a decade of near-dictatorship by De Gaulle. Add to this the archaic, bureaucratic, state-ridden and state-owned educational system, and the ingredients were brewed for student rebellion. Just as in the smaller model at Columbia, the student rebellion began as a sit-in and demonstration by a relatively small group of militant student rebels. Just as at Columbia, the police, called in to force the demonstrators into line, clubbed and beat their way through the student protestors. The savage brutality inflicted on the students swung the French working class behind the students, just as at Columbia the brutality swung the host of moderate students behind the strike. Throughout France, the cry arose: “De Gaulle! Assasin!,” the analog of Columbia’s “Kirk Must Go!”
What do the students want? Obviously their aims are vague and ill-defined. But that is the way it always is in revolution; nobody sits down and draws up a blueprint of how the revolution should or will turn out. On the contrary, once launched the revolution proceeds on its own inner dynamic, and the revolutionaries become educated in the course of the struggle itself. But the students do know, and clearly, what it is they are against; they are against the present system, and specifically against the state-ridden educational bureaucracy endemic in the world today. They are, as it were, instinctive libertarians, lashing out in fury at institutions which they perceive are oppressing and manipulating them. One thing is certain: These kids are not “Communists.” Take, for example, the case of “Red Rudi” Dutschke, the famous young leader of the West Berlin student rebels. Despite his nickname, Rudi found that he had to leave East Germany, where he was born, because he couldn’t take the oppressive Communist system of his homeland. Also, as a Christian youth leader, Dutschke found that he was particularly disliked by the East German regime. The Communist Party invariably was very late in endorsing the current student rebellions — the French Party first subjected them to bitter attack — and only swung behind the demonstrations when it was all too clear that if the Communists did not back the students they would lose all hope of support in the coming generation.
It’s true that the idols of the West German and the French youth, and the American rebels too, are such Communist leaders as Mao, Che Guevara, and Ho Chi Minh. But they are not revered as Communists; no one, after all, likes very much, let alone worships, such current Communist leaders at Brezhnev, Gomulka, or Gus Hall; the reason is that the above leaders are admired not as Communists, but as successful revolutionaries. In this modern, complex, and militarized world, Ho, Che, and Mao were able to make revolution; it is this achievement, not Communism, that leads the young to idolize them.
At any rate, I, for one, shall not weep for whatever might be swept away of the old, state-dominated, bureaucratic university structures. But, whether we like it or not, whether we cheer or deplore, hold on to your hats: The international student revolution has begun.
Murray Rothbard was a true polymath. He wasn’t just the number one theoretician of the modern libertarian movement — author of the monumental Man, Economy, and State; Conceived in Liberty, a four-volume history of the American Revolution; the two-volume An Austrian Perspective on the History of Economic Thought, and essays too numerous to list — he was also its most tireless publicist, at least in its early days.
He didn’t live in an ivory tower: far from it. As he wrote in a 178-page memo entitled “Strategy For Libertarian Social Change”:
If the advancement of liberty requires a movement as well as a body of ideas, it is our contention that the overriding goal of a libertarian movement must be the victory of liberty in the real world, the bringing of the ideal into actuality. [Emphasis in original]“Strategy for Libertarian Social Change,” unpublished manuscript, 1978.
For Rothbard, libertarianism wasn’t an intellectual parlor game, nor was it a personal affectation: for him, it was a banner that was meant to be carried into battle. Ever the happy warrior, he sought to bring the radical libertarian perspective to bear on the events of the day, and it was a task he delighted in. While he tended to write his more serious books and articles in the dead of night, staying up at all hours pounding away on his old-fashioned (even for the time) typewriter, his “mornings” (noonish) were devoted to relatively lighter fare — the polemical journalism which, over the years, found various outlets. In the 1940s he wrote a personal newsletter, The Vigil, which was typewritten and mailed to his closest friends and associates. Later on, he was appointed “Washington Correspondent” for Christian Economics magazine, a publication put out by a group known as Spiritual Mobilization, headed up by the Rev. James Fifield, and devoted to economic laissez-faire.
This lasted a few years but eventually he was let go: the right-wing Protestant pastors who were the main audience of Christian Economics were appalled by his anti-interventionist polemics when it came to the foreign policy issue. As the cold war got colder there was less tolerance for the “isolationism” of the Old Right, which by that time was largely forgotten by the conservative rank-and-file. Those rightist ministers thought he was a Communist! So there was a parting of the ways.
His sojourn as an occasional writer for William F. Buckley, Jr.’s National Review was even briefer, as Rothbard’s patience with the warmongering that emanated like a radioactive cloud from that publication soon wore thin. The Buckleyites’ crazed desire for a nuclear showdown with Moscow was a bit too much for the old “isolationist” to take, and his refusal to show enthusiasm for World War III soon led to his excommunication from a church to which he had never properly belonged.
But no matter: the hegemony of cold war ideology was about to receive a serious challenge, as the 1960s dawned. An independent libertarian movement — organizationally separate as well as ideologically differentiated from National Review-style conservatism — was about to make its debut, in large part due to Rothbard’s efforts. He and Leonard Liggio had started Left & Right, a magazine directed at the burgeoning New Left movement, which was beginning to make waves, starting on the campus of the University of California at Berkeley. However, the magazine was a quarterly, not a good format for someone who wanted to comment on current events, and so when Robert Lefevre of the Freedom School contacted him to write a syndicated newspaper column for the School’s Pine Tree Features, Rothbard eagerly took up the task.
These short columns — usually no more than two typewritten pages each — appeared in the Freedom Newspapers, a chain owned by R.C. Hoiles, who was a devotee of Lefevre’s and a committed libertarian. Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968, addressing the campus revolt; the massive antiwar demonstrations; the Six-Day War between Israel and the Arab powers; the Newark riots; the Vietnam war; the persecution of H. Rap Brown, the assassination of Martin Luther King, the abdication of Lyndon Baines Johnson, the rise of Richard Nixon — in those two crucial years there was, as they say, never a dull moment.
We might call this Rothbard’s “left” period: he sided with the student protestors, the African-Americans fighting cops who had invaded their neighborhoods; he stood with the Vietnamese people against the American soldiers who had invaded their neighborhood; he stood with the Palestinians against their Israeli conquerors, he valorized the “heroic” Malcolm X and denounced Martin Luther King for calling for federal troops to put down black “rioters” — but he never pandered to his intended audience. Unlike some of the “left-libertarians” of today, who have adopted the politically correct check-your-privilege jargon of white liberalism, he always addressed the issues in straightforward libertarian terms.
This bluntness is apparent in the very first column, written sometime in January of 1967, cheering the firing of University of California chancellor Clark Kerr, and praising Mario Savio — who had the honesty to say “Good riddance to bad rubbish” — while some New Leftists rushed to defend him. He wondered why conservatives, who had formerly been critics of the educational bureaucracy, didn’t side with the student rebels who were rising up against “this educational Moloch” instead of attacking them for “their tastes in clothes and hair styling.” Yet the students weren’t let off easy, either: instead of protesting Governor Ronald Reagan’s threatened cuts to the state university system’s budgets, he wrote, they should be cheering and demanding yet more cuts because this “acted to reduce the very gigantic university system that the students have properly denounced.” So, the New Leftists wanted “self-determination” — or, to put it in the New Age-y terminology of the time, “self-actualization” — as opposed to subservience to a soul-less pedagogical Leviathan? Well, then, “shifting the burden of payment to the student himself will give the student-consumer far more power over their own education” than under the wrong-headed “free tuition” regime.
Rothbard didn’t pander: he didn’t try to imitate the rhetoric of the students, he didn’t insult them by trying to make them think he was “cool”: Rothbard was strictly Old School, and never pretended otherwise. What he did was apply libertarian principles to the concrete day-to-day issues that rose up in those two tumultuous years, revealing the radical evil of the State and the unadorned radicalism of the libertarian stance in every case.
He didn’t pretend to be a leftist: the idea was to win over the left-leaning students, and the revolutionary blacks, to libertarianism, not to masquerade in the fashionable rhetoric of the moment. He never disguised or watered down his libertarianism to suit his audience: unlike the self-styled “left-libertarians” of today, he rejected any modification or “addition” to the central axiom of libertarian political theory, which is the nonaggression principle plain and simple. In answer to the “check your privilege” sloganeering of the cultural left, Rothbard would have said “Check your cultural prejudices at the door.”
Although himself a traditionalist, Rothbard always maintained that there could be no such thing as a “libertarian” culture: those who wanted to “live liberty” were living under a delusion, namely the entirely false idea that some particular “lifestyle” could be derived from the central axioms of what is only a political philosophy and not a “way of life.” He had, after all, been badly burned by the cultural totalitarianism of the “Objectivist” cult around novelist Ayn Rand, which had a “party line” on every subject under the sun, including music (Rachmaninoff good, Mozart bad) and even physics. The libertarian movement, or at least a substantial portion of it, had been down that road before, and found it to be a dead end.
To the younger readers of this volume, Rothbard’s writings from the 1960s may seem like a recounting of ancient history, and only tangentially relevant to the world we live in today. That this is not so is underscored by one of his more prescient pieces: in “The Coming American Fascism” Rothbard comments on various acts of retaliation against critics of the Vietnam war and writes: “At home we have the fascist corporate state economy: an economy of monopolies, subsidies, privileges runs by a tripartite coalition of Big Business, Big Unions, and Big Government.” While “[i]n foreign affairs we have expanded all over the globe, grabbing bases and running governments everywhere, all in the name of a global crusade against the ‘international Communist conspiracy’.”
Substitute “international terrorist conspiracy” for that last phrase and we have a snapshot of the future — the one we are living in today.
The material herein is presented in chronological order and is published exactly as written: my insertions are in brackets. The two final essays provide the vital context for the preceding material, explaining Rothbard’s break with the conservatives and prefiguring the rise of libertarianism as an independent movement — a development for which he was largely responsible.
Twenty years ago I was an extreme right-wing Republican, a young and lone “Neanderthal” (as the liberals used to call us) who believed, as one friend pungently put it, that “Senator Taft had sold out to the socialists.” Today, I am most likely to be called an extreme leftist, since I favor immediate withdrawal from Vietnam, denounce US imperialism, advocate Black Power and have just joined the new Peace and Freedom Party. And yet my basic political views have not changed by a single iota in these two decades!
It is obvious that something is very wrong with the old labels, with the categories of “left” and “right,” and with the ways in which we customarily apply these categories to American political life. My personal odyssey is unimportant; the important point is that if I can move from “extreme right” to “extreme left” merely by standing in one place, drastic though unrecognized changes must have taken place throughout the American political spectrum over the last generation.
I joined the right-wing movement — to give a formal name to a very loose and informal set of associations — as a young graduate student shortly after the end of World War II. There was no question as to where the intellectual right of that day stood on militarism and conscription: it opposed them as instruments of mass slavery and mass murder. Conscription, indeed, was thought far worse than other forms of statist controls and incursions, for while these only appropriated part of the individual’s property, the draft, like slavery, took his most precious possession: his own person. Day after day the veteran publicist John T. Flynn — once praised as a liberal and then condemned as a reactionary, with little or no change in his views — inveighed implacably in print and over the radio against militarism and the draft. Even the Wall Street newspaper, the Commercial and Financial Chronicle, published a lengthy attack on the idea of conscription.
All of our political positions, from the free market in economics to opposing war and militarism, stemmed from our root belief in individual liberty and our opposition to the state. Simplistically, we adopted the standard view of the political spectrum: “left” meant socialism, or total power of the state; the further “right” one went the less government one favored. Hence, we called ourselves “extreme rightists.”
Originally, our historical heroes were such men as Jefferson, Paine, [Richard] Cobden, [John] Bright and [Herbert] Spencer; but as our views became purer and more consistent, we eagerly embraced such near-anarchists as the voluntarist, Auberon Herbert, and the American individualist-anarchists, Lysander Spooner and Benjamin R. Tucker. One of our great intellectual heroes was Henry David Thoreau, and his essay, “Civil Disobedience,” was one of our guiding stars. Right-wing theorist Frank Chodorov devoted an entire issue of his monthly, Analysis, to an appreciation of Thoreau.
In our relation to the remainder of the American political scene, we of course recognized that the extreme right of the Republican Party was not made up of individualist anti-statists, but they were close enough to our position to make us feel part of a quasi-libertarian united front. Enough of our views were present among the extreme members of the Taft wing of the Republican Party (much more so than in Taft himself, who was among the most liberal of that wing), and in such organs as the Chicago Tribune, to make us feel quite comfortable with this kind of alliance.
What is more, the right-wing Republicans were major opponents of the Cold War. Valiantly, the extreme rightist Republicans, who were particularly strong in the House, battled conscription, NATO and the Truman Doctrine. Consider, for example, Omaha’s Representative Howard Buffett, Senator Taft’s midwestern campaign manager in 1952. He was one of the most extreme of the extremists, once described by The Nation as “an able young man whose ideas have tragically fossilized.”
I came to know Buffett as a genuine and thoughtful libertarian. Attacking the Truman Doctrine on the floor of Congress, he declared: “Even if it were desirable, America is not strong enough to police the world by military force. If that attempt is made, the blessings of liberty will be replaced by coercion and tyranny at home. Our Christian ideals cannot be exported to other lands by dollars and guns.”
When the Korean War came, almost the entire old left, with the exception of the Communist Party, surrendered to the global mystique of the United Nations and “collective security against aggression,” and backed Truman’s imperialist aggression in that war. Even Corliss Lamont backed the American stand in Korea. Only the extreme rightist Republicans continued to battle U.S. imperialism. It was the last great political outburst of the Old Right of my youth.
Howard Buffett was convinced that the United States was largely responsible for the eruption of conflict in Korea; for the rest of his life he tried unsuccessfully to get the Senate Armed Services Committee to declassify the testimony of CIA head Admiral [Roscoe H.] Hillenkoeter, which Buffett told me established American responsibility for the Korean outbreak. The last famous isolationist move came late in December 1950, after the Chinese forces had beaten the Americans out of North Korea. Joseph P. Kennedy and Herbert Hoover delivered two ringing speeches back-to-back calling for American evacuation of Korea. As Hoover put it, “To commit the sparse ground forces of the non-communist nations into a land war against this communist land mass [in Asia] would be a war without victory, a war without a successful political terminal ... that would be the graveyard of millions of American boys” and the exhaustion of the United States. Joe Kennedy declared that “if portions of Europe or Asia wish to go communistic or even have communism thrust upon them, we cannot stop it.”
To this The Nation replied with typical liberal Red-baiting: “The line they are laying down for their country should set the bells ringing in the Kremlin as nothing has since the triumph of Stalingrad”; and the New Republic actually saw Stalin sweeping onwards “until the Stalinist caucus in the Tribune Tower would bring out in triumph the first communist edition of the Chicago Tribune.”
The main catalyst for transforming the mass base of the right wing from an isolationist and quasi-libertarian movement to an anti-communist one was probably “McCarthyism.” Before Senator Joe McCarthy launched his anti-communist crusade in February 1950, he had not been particularly associated with the right wing of the Republican Party; on the contrary, his record was liberal and centrist, statist rather than libertarian.
Furthermore, Red-baiting and anti-communist witch hunting were originally launched by liberals, and even after McCarthy the liberals were the most effective at this game. It was, after all, the liberal Roosevelt Administration which passed the Smith Act, first used against Trotskyites and isolationists during World War II and then against communists after the war; it was the liberal Truman Administration that instituted loyalty checks; it was the eminently liberal Hubert Humphrey who was a sponsor of the clause in the McCarran Act of 1950 threatening concentration camps for “subversives.”
McCarthy not only shifted the focus of the right to communist hunting, however. His crusade also brought into the right wing a new mass base. Before McCarthy, the rank-and-file of the right wing was the small-town, isolationist middle west. McCarthyism brought into the movement a mass of urban Catholics from the eastern seaboard, people whose outlook on individual liberty was, if anything, negative.
If McCarthy was the main catalyst for mobilizing the mass base of the new right, the major ideological instrument of the transformation was the blight of anti-communism, and the major carriers were Bill Buckley and National Review.
In the early days, young Bill Buckley often liked to refer to himself as an “individualist,” sometimes even as an “anarchist.” But all these libertarian ideals, he maintained, had to remain in total abeyance, fit only for parlor discussion, until the great crusade against the “international communist conspiracy” had been driven to a successful conclusion. Thus, as early as January 1952, I noted with disquiet an article that Buckley wrote for Commonweal, “A Young Republican’s View.”
He began the article in a splendid libertarian manner: our enemy, he affirmed, was the state, which, he quoted Spencer, was “begotten of aggression and by aggression.” But then came the worm in the apple: the anti-communist crusade had to be waged. Buckley went on to endorse “the extensive and productive tax laws that are needed to support a vigorous anti-communist foreign policy”; he declared that the “thus far invincible aggressiveness of the Soviet Union” imminently threatened American security, and that therefore “we have to accept Big Government for the duration — for neither an offensive nor a defensive war can be waged ... except through the instrument of a totalitarian bureaucracy within our shores.” Therefore, he concluded — in the midst of the Korean War — we must all support “large armies and air forces, atomic energy, central intelligence, war production boards and the attendant centralization of power in Washington.”
The right wing, never articulate, has not had many organs of opinion. Therefore, when Buckley founded National Review in late 1955, its erudite, witty and glib editorials and articles swiftly made it the only politically relevant journal for the American right. Immediately, the ideological line of the right began to change sharply.
One element that gave special fervor and expertise to the Red-baiting crusade was the prevalence of ex-communists, ex-fellow travelers and ex-Trotskyites among the writers whom National Review brought into prominence on the right-wing scene. These ex-leftists were consumed with an undying hatred for their former love, along with a passion for bestowing enormous importance upon their apparently wasted years. Almost the entire older generation of writers and editors for National Review had been prominent in the old left. Some names that come to mind are: Jim Burnham, John Chamberlain, Whittaker Chambers, Ralph de Toledano, Will Herberg, Eugene Lyons, J.B. Matthews, Frank S. Meyer, William S. Schlamm and Karl Wittfogel.
An insight into the state of mind of many of these people came in a recent letter to me from one of the most libertarian of this group; he admitted that my stand in opposition to the draft was the only one consistent with libertarian principles, but, he said, he can’t forget how nasty the communist cell in Time magazine was in the 1930s. The world is falling apart and yet these people are still mired in the petty grievances of faction fights of long ago!
Anti-communism was the central root of the decay of the old libertarian right, but it was not the only one. In 1953, a big splash was made by the publication of Russell Kirk’s The Conservative Mind. Before that, no one on the right regarded himself as a “conservative”; “conservative” was considered a left smear word. Now, suddenly, the right began to glory in the term “conservative,” and Kirk began to make speaking appearances, often in a kind of friendly “vital center” tandem with Arthur Schlesinger, Jr.
This was to be the beginning of the burgeoning phenomenon of the friendly-though-critical dialogue between the liberal and conservative wings of the Great Patriotic American Consensus. A new, younger generation of rightists, of “conservatives,” began to emerge, who thought that the real problem of the modern world was nothing so ideological as the state vs. individual liberty or government intervention vs. the free market; the real problem, they declared, was the preservation of tradition, order, Christianity and good manners against the modern sins of reason, license, atheism and boorishness.
One of the first dominant thinkers of this new right was Buckley’s brother-in-law, L. Brent Bozell, who wrote fiery articles in National Review attacking liberty even as an abstract principle (and not just as something to be temporarily sacrificed for the benefit of the anti-communist emergency). The function of the state was to impose and enforce moral and religious principles.
Another repellent political theorist who made his mark in National Review was the late Willmoore Kendall, NR editor for many years. His great thrust was the right and the duty of the majority of the community — as embodied, say, in Congress — to suppress any individual who disturbs that community with radical doctrines. Socrates, opined Kendall, not only should have been killed by the Greek community, whom he offended by his subversive criticisms, but it was their moral duty to kill him.
The historical heroes of the new right were changing rapidly. Mencken, Nock, Thoreau, Jefferson, Paine — all these either dropped from sight or were soundly condemned as rationalists, atheists or anarchists. From Europe, the “in” people were now such despotic reactionaries as Burke, Metternich, de Maistre; in the United States, Hamilton and Madison were “in,” with their stress on the imposition of order and a strong, elitist central government — which included the southern “slavocracy.”
For the first few years of its existence, I moved in National Review circles, attended its editorial luncheons, wrote articles and book reviews for the magazine; indeed, there was talk at one time of my joining the staff as an economics columnist.
I became increasingly alarmed, however, as NR and its friends grew in strength because I knew, from innumerable conversations with rightist intellectuals, what their foreign policy goal was. They never quite dared to state it publicly, although they would slyly imply it and would try to whip the public up to the fever pitch of demanding it. What they wanted — and still want — was nuclear annihilation of the Soviet Union. They want to drop that Bomb on Moscow. (Of course, on Peking and Hanoi too, but for your veteran anti-communist — especially back then — it is Russia which supplies the main focus of his venom.) A prominent editor of National Review once told me: “I have a vision, a great vision of the future: a totally devastated Soviet Union.” I knew that it was this vision that really animated the new conservatism.
In response to all this, and seeing peace as the crucial political issue, a few friends and I became Stevensonian Democrats in 1960. I watched with increasing horror as the right wing, led by National Review, continually grew in strength and moved ever closer to real political power.
Having broken emotionally with the right wing, our tiny group of libertarians began to rethink many of our old, unexamined premises. First, we restudied the origins of the Cold War, we read our D.F. Fleming and we concluded, to our considerable surprise, that the United States was solely at fault in the Cold War, and that Russia was the aggrieved party. And this meant that the great danger to the peace and freedom of the world came not from Moscow or “international communism,” but from the U.S. and its Empire stretching across and dominating the world.
And then we studied the foul European conservatism that had taken over the right wing; here we had statism in a virulent form, and yet no one could possibly think these conservatives to be “leftist.” But this meant that our simple “left/total government — right/no government” continuum was altogether wrong and that our whole identification of ourselves as “extreme rightists” must contain a basic flaw. Plunging back into history, we again concentrated on the reality that in the nineteenth century, laissez-faire liberals and radicals were on the extreme left and our ancient foes, the conservatives, on the right. My old friend and libertarian colleague Leonard Liggio then came up with the following analysis of the historical process.
First there was the old order, the ancien régime, the regime of caste and frozen status, of exploitation by a despotic ruling class, using the church to dupe the masses into accepting its rule. This was pure statism; this was the right wing. Then, in seventeenth and eighteenth century western Europe, a liberal and radical opposition movement arose, our heroes, who championed a popular revolutionary movement on behalf of rationalism, individual liberty, minimal government, free markets, international peace and separation of church and state, in opposition to throne and altar, to monarchy, the ruling class, theocracy and war. These — “our people” — were the left, and the purer their vision the more “extreme” they were.
So far so good; but what of socialism, which we had always considered the extreme left? Where did that fit in? Liggio analyzed socialism as a confused middle-of-the-road movement, influenced historically by both the libertarian left and the conservative right. From the individualist left the socialists took the goals of freedom: the withering away of the state, the replacement of the governing of men by the administration of things, opposition to the ruling class and a search for its overthrow, the desire to establish international peace, an advanced industrial economy and a high standard of living for the mass of the people. From the right the socialists adopted the means to achieve these goals — collectivism, state planning, community control of the individual. This put socialism in the middle of the ideological spectrum. It also meant that socialism was an unstable, self-contradictory doctrine bound to fly apart in the inner contradiction between its means and ends.
Our analysis was greatly bolstered by our becoming familiar with the new and exciting group of historians who studied under University of Wisconsin historian William Appleman Williams. From them we discovered that all of us free marketeers had erred in believing that somehow, down deep, Big Businessmen were really in favor of laissez-faire, and that their deviations from it, obviously clear and notorious in recent years, were either “sellouts” of principle to expediency or the result of astute maneuverings by liberal intellectuals.
This is the general view on the right; in the remarkable phrase of Ayn Rand, Big Business is “America’s most persecuted minority.” Persecuted minority, indeed! Sure, there were thrusts against Big Business in the old McCormick Chicago Tribune and in the writings of Albert Jay Nock; but it took the Williams-[Gabriel] Kolko analysis to portray the true anatomy and physiology of the American scene.
As Kolko pointed out, all the various measures of federal regulation and welfare statism that left and right alike have always believed to be mass movements against Big Business are not only now backed to the hilt by Big Business, but were originated by it for the very purpose of shifting from a free market to a cartelized economy that would benefit it. Imperialistic foreign policy and the permanent garrison state originated in the Big Business drive for foreign investments and for war contracts at home.
The role of the liberal intellectuals is to serve as “corporate liberals,” weavers of sophisticated apologias to inform the masses that the heads of the American corporate state are ruling on behalf of the “common good” and the “general welfare” — like the priest in the Oriental despotism who convinced the masses that their emperor was all-wise and divine.
Since the early 1960s, as the National Review right has moved nearer to political power, it has jettisoned its old libertarian remnants and has drawn ever closer to the liberals of the Great American Consensus. Evidence of this abounds. There is Bill Buckley’s ever-widening popularity in the mass media and among liberal intellectuals, as well as widespread admiration on the intellectual right for people and groups it once despised: for The New Leader, for Irving Kristol, for the late Felix Frankfurter (who always opposed judicial restraint on government invasions of individual liberty), for Hannah Arendt and Sidney Hook. Despite occasional bows to the free market, conservatives have come to agree that economic issues are unimportant; they therefore accept — or at least do not worry about — the major outlines of the Keynesian welfare-warfare state of liberal corporatism.
On the domestic front, virtually the only conservative interests are to suppress Negroes (“shoot looters,” “crush those riots”), to call for more power for the police so as not to “shield the criminal” (i.e., not to protect his libertarian rights), to enforce prayer in the public schools, to put Reds and other subversives and “seditionists” in jail and to carry on the crusade for war abroad. There is little in the thrust of this program with which liberals can now disagree; any disagreements are tactical or matters of degree only. Even the Cold War — including the war in Vietnam — was begun and maintained and escalated by the liberals themselves.
No wonder that liberal Daniel Moynihan — a national board member of Americans for Democratic Action incensed at the radicalism of the current anti-war and Black Power movements — should recently call for a formal alliance between liberals and conservatives, since after all they basically agree on these, the two crucial issues of our time! Even Barry Goldwater has gotten the message; in January 1968 in National Review, Goldwater concluded an article by affirming that he is not against liberals, that liberals are needed as a counterweight to conservatism, and that he had in mind a fine liberal like Max Lerner — Max Lerner, the epitome of the old left, the hated symbol of my youth!
In response to our isolation from the right, and noting the promising signs of libertarian attitudes in the emerging new left, a tiny band of us ex-rightist libertarians founded the “little journal,” Left and Right, in the spring of 1965. We had two major purposes: to make contact with libertarians already on the new left and to persuade the bulk of libertarians or quasi-libertarians who remained on the right to follow our example. We have been gratified in both directions: by the remarkable shift toward libertarian and anti-statist positions of the new left, and by the significant number of young people who have left the right-wing movement.
This left/right tendency has begun to be noticeable on the new left, praised and damned by those aware of the situation. (Our old colleague Ronald Hamowy, an historian at Stanford, set forth the left/right position in the New Republic collection, Thoughts of the Young Radicals [1966].) We have received gratifying encouragement from Carl Oglesby who, in his Containment and Change (1967), advocated a coalition of new left and old right, and from the young scholars grouped around the unfortunately now defunct Studies on the Left. We’ve also been criticized, if indirectly, by Staughton Lynd, who worries because our ultimate goals — free market as against socialism — differ.
Finally, liberal historian Martin Duberman, in a recent issue of Partisan Review, sharply criticizes SNCC and CORE for being “anarchists,” for rejecting the authority of the state, for insisting that community be voluntary, and for stressing, along with SDS, participatory instead of representative democracy. Perceptively, if on the wrong side of the fence, Duberman then links SNCC and the new left with us old rightists: “SNCC and CORE, like the Anarchists, talk increasingly of the supreme importance of the individual. They do so, paradoxically, in a rhetoric strongly reminiscent of that long associated with the right. It could be Herbert Hoover ... but it is in fact Rap Brown who now reiterates the Negro’s need to stand on his own two feet, to make his own decisions, to develop self-reliance and a sense of self-worth. SNCC may be scornful of present-day liberals and ‘statism,’ but it seems hardly to realize that the laissez-faire rhetoric it prefers derives almost verbatim from the classic liberalism of John Stuart Mill.” Tough. It could, I submit, do a lot worse.
I hope to have demonstrated why a few compatriots and I have shifted, or rather been shifted, from “extreme right” to “extreme left” in the past twenty years merely by staying in the same basic ideological place. The right wing, once in determined opposition to Big Government, has now become the conservative wing of the American corporate state and its foreign policy of expansionist imperialism. If we would salvage liberty from this deadening left/right fusion in the center, this needs be done through a counter-fusion of old right and new left.
James Burnham, an editor of National Review and its main strategic thinker in waging the “Third World War” (as he entitles his column), the prophet of the managerial state (in The Managerial Revolution), whose only hint of positive interest in liberty in a lifetime of political writing was a call for legalized firecrackers, recently attacked the dangerous trend among some young conservatives to make common cause with the left in opposing the draft. Burnham warned that he learned in his Trotskyite days that this would be an “unprincipled” coalition, and he warned that if one begins by being anti-draft one might wind up opposed to the war in Vietnam:
And I rather think that some of them are at heart, or are getting to be, against the war. Murray Rothbard has shown how right-wing libertarianism can lead to almost as anti-US a position as left-wing libertarianism does. And a strain of isolationism has always been endemic in the American right.
This passage symbolizes how deeply the whole thrust of the right wing has changed in the last two decades. Vestigial interest in liberty or in opposition to war and imperialism are now considered deviations to be stamped out without delay. There are millions of Americans, I am convinced, who are still devoted to individual liberty and opposition to the Leviathan state at home and abroad, Americans who call themselves “conservatives” but feel that something has gone very wrong with the old anti-New Deal and anti-Fair Deal cause.
Something has gone wrong: the right wing has been captured and transformed by elitists and devotees of the European conservative ideals of order and militarism, by witch hunters and global crusaders, by statists who wish to coerce “morality” and suppress “sedition.”
America was born in a revolution against Western imperialism, born as a haven of freedom against the tyrannies and despotism, the wars and intrigues of the old world. Yet we have allowed ourselves to sacrifice the American ideals of peace and freedom and anti-colonialism on the altar of a crusade to kill communists throughout the world; we have surrendered our libertarian birthright into the hands of those who yearn to restore the Golden Age of the Holy Inquisition. It is about time that we wake up and rise up to restore our heritage.
[Reprinted from Ramparts, June 15, 1968.]
Recently a great deal of publicity has been given to a burgeoning split in the right wing, a split between the dominant Buckley-National Review conservatives and the new libertarians.
In their breakaway, the libertarians, who are strong on college campuses and generally among the youth, hark back to an older, almost forgotten tradition of individualism that characterized the right wing in the 1930s and 40s. Led by such notable intellectuals as Albert Jay Nock and H.L. Mencken, and by the Taft wing of the Republican party among the politicians, the older right wing was devoted to the liberty of the individual.
It therefore led the opposition to the growth of Big Government in America, a growth presided over by New Deal–Fair Deal liberalism. This older right wing upheld civil liberty and the economic freedom of the market economy while opposing government intervention, conscription, militarism and American intervention and imperialism overseas.
Since the mid-1950s, however, the National Review has led the right into its present conservative stance. In rhetoric, the National Review upholds a “fusion” of liberty and order: in which the liberty of the individual is judiciously contained within a matrix of order supplied by the state. In his early days, William Buckley proclaimed himself a libertarian, with the single exception of the need to wage an all-out struggle against the “Communist conspiracy,” at home and abroad. This concession was bad enough, as the entire thrust of conservative foreign policy was redirected toward militarism and empire.
But since the mid-50s, as the conservative movement has moved ever closer to the seats of power, whatever libertarian elements had been in the “fusion” have one by one disappeared. And so the National Review now supports, with scarcely a qualm, the gigantic misinvestment of the SST [supersonic transport] and space programs, the nationalization of passenger rail service, restrictions on imports, and virtually the entire Nixon program. It warmly supports laws enforcing moral codes, and opposes civil liberties, as well as the American tradition of separation of church and state. It was in response to this systematic shedding of their libertarian strands that so many right-wing youth have rebelled and have taken out on their own. The tensions of the attempt to fuse liberty and order have finally split the conservative coalition apart.
The libertarian doctrine begins, not with the conservative community or state but with the individual. Every individual as an independent acting entity possesses the absolute right of “self-ownership”; that is, to own his or her person without molestation by others. From this axiom we derive total opposition to conscription and abortion laws. Secondly, each individual then has the right to own any previously unowned resources (such as virgin land) that he finds and brings into use by exerting his personal energy upon the resource. From this is derived the right of “homesteading” landed property, and, as a consequence, all the other rights of private property. For if a man owns himself and his homesteaded land, he also has the right to own unmolested the land that he has transformed into capital, as well as the right to give his property to anyone he wishes (hence the right of inheritance) and to exchange his titles to property for anyone else’s titles (hence the right of free contract and the laissez-faire free-market economy).
The conservative holds as one of his highest goals the preservation of “law and order,” but his “order” and his “law” is the coercive dictation of the state. Throughout the ages, and in the present day as well, the state has lived through the profound disorder of continuing aggression against the person and property of countless individuals. It robs through taxation, enslaves through conscription and murders by way of club, bayonet, napalm and H-bombs. The libertarian holds that the state is permanent aggression and disorder, and that the National Review conservatives constitute some of the state’s most articulate champions and apologists.
The young libertarians are not simply returning to Taft-era individualism. In asserting themselves as libertarians they are returning as well to the tradition which once established America as the proud beacon-light of freedom, the tradition of Jefferson, Paine, Jackson and Garrison. And in doing so, they are repudiating such conservative theorists as James Burnham, editor of the National Review, who has conceded that there is no rational foundation for government, and has asserted, in a reversion to the ancient despotic theories of divine right, that “in ancient times, before the illusions of science had corrupted traditional wisdom, the founders of cities (states) were known to be gods or demigods.”
Burnham’s recent call in National Review for a new Bismarck for America and for a re-evaluation of fascism is the logical culmination of conservative statism and obscurantism. The libertarians, in contrast, are raising the standards of freedom and reason on which this country was founded.
[Reprinted from the New York Times, February 9, 1971.]
Mr. [Stephen P.] Halbrook’s article in the May Outlook is a veritable curiosity, akin to the talking dog or the two-headed man. If nothing else, Mr. Halbrook’s portrait of Mao Tse-tung as libertarian and free enterpriser is certainly original. The tone of his thesis, however, has an all-too-familiar quality; one is reminded of nothing so much as the most starry-eyed of the Stalinist tracts of the 1930s: when we were treated to a picture of the happy and productive Soviet society. Under the watchful and benign eye of Comrade Stalin, the happy peasants and the industrious workers busily went about their tasks of Building Socialism and Creating the New Socialist Man, as balalaikas strummed in the background. Comrade Stalin is of course now decidedly unfashionable, and even Mr. Halbrook joins in his denunciation; oddly enough, one of the very few people who still quote Stalin with reverence is none other than Comrade Mao, whom Halbrook would offer to us as the great anti-Stalinist of our epoch. But the same leitmotif is there; note, for example, how the defects and evils which Mr. Halbrook sometimes concedes to exist in Communist China are always and unfailingly attributed to bad guys who worked against or betrayed the great Chairman, in the same way, in the 1930s, whatever flaws were conceded to be in Soviet society were invariably due to bad guys (Trotsky, Bukharin, et al.) who had betrayed the Stalinist vision. Eventually, one begins to wonder how a Leader of such greatness and infallibility could always surround himself with hand-picked comrades who invariably betray him and his policies.
As for Halbrook’s curious portrayal of Mao and the Cultural Revolution as free-marketeers it is enough to point to Professor Walter Galenson’s recent review of the Maoist tract by Wheelwright and McFarlane,Walter Galenson, “Review of E.L. Wheelwright and Bruce McFarlane, The Chinese Road to Socialism,” Journal of Economic Literature (March, 1972), p. 80. on which Halbrook relies for much of his thesis. Galenson points out what every student of China knows: that these Maoist authors portray the goals of Maoism as: universal dedication by every individual to “serve the people”; the abolition of material incentives “and their replacement by moral and ideological drives”; “the rejection of profit as a criterion of efficiency”; and, last, but not least, “the rejection of mass consumption as a social goal.” Wheelwright and McFarlane join Mao in condemning Liu Shao-chi for the crime of “raising output and productivity by the non-Maoist expedients of ‘putting profits in command,’ of emphasizing expertness rather than ‘redness’ as qualification for managerial jobs, of differentiating pay, and of using the market to distribute goods.”
But enough: there is no need for a libertarian to engage in a sober and quiet refutation of the thesis that the creator of the most totalitarian nation in the history of mankind has really been leading his people into a libertarian and even — ye gods! — a “free-market” Utopia. I am reminded of an instructive incident of a few years ago, when a young Maoist of my acquaintance took a flight out of Hanoi on a Communist Chinese airline. It was a flight in which “bourgeois individualism” was sweetly but firmly transcended. As the loudspeaker played incessantly the Red Chinese anthem, “East is Red,” the stewardess went up to the young American, pressed a song book into his hand, and quietly but firmly insisted that he sing along; refusal to sing would, of course, be taken as an indication of hostility to the “mass line” and to the Chinese people. It was a short flight; but when he emerged, shaken and sweating a bit, the bloom of the Maoist Utopia had faded for good. One begins to think that it is far, far easier to idolize Chairman Mao amidst the comfort of a Florida campus than it would be in Peking or, worse yet, in some agricultural commune in Sinkiang.
It is far more interesting to ponder the question: how did Stephen Halbrook get this way? How in the world could he begin as a full-fledged and ardent libertarian, and then rapidly proceed to the point of being a worshipful and adoring Maoist overlaid with a patina of libertarian rhetoric?
Halbrook is correct in the point that Liu Shao-chi was a bureaucrat and centralist, and that Mao’s “Cultural Revolution” was indeed a prodding of the masses to destroy the Communist Party and the (then existing) State apparatus. Even here, however, his implication that the State per se has been smashed in China is grotesque: what happened was that the Army took over the state functions. Furthermore, Halbrook fails to mention the fact that his heroes on the “left wing” of the Cultural Revolution, notably Lin Piao, have now been repudiated and purged by Mao, and that a functioning State apparatus has been reconstituted under Chou En-lai. But let us omit this and concentrate on the aims of the “left” Cultural Revolutionaries. Yes, they were against central planning; yes, they were opposed to bureaucracy; but does this make them libertarians and free-marketeers?
The problem is that Halbrook has been misled by the anti-centralizing and anti-bureaucratic rhetoric and policies. He could indeed have strengthened his case for the moment by pointing out that Mao, in his early days, was an avowed Anarchist before he became a Marxist. But the nub of the problem is that the “anarchism,” the anti-centralism toward which the Cultural Revolutionaries were pointing, was not individualist anarchism, or free-market capitalism. It was, rather, left-wing anarchism, or “anarcho-communism.” The drive to establish decentralized communes, the push toward self-sufficiency of these communes, all of these were attempts to arrive at the anarcho-communist goal by coercive, statist means. The lesson that this should drive home to every libertarian is that we have nothing in common with communist anarchists; that their goals would mean death for the individual, death for his happiness and productivity, and death, too, for the human race, as a result of the stamping out of the division of labor which is the goal of every true communist, be he anarchist or not.
At the heart of the matter is Halbrook’s adulation of the Great Leap Forward of the late 1950s. For the Great Leap was a desperate attempt by Mao — one of the last of the “fundamentalist” communists on the world scene — to leap into communism at one blow. The Soviets, for all their bureaucracy and statism, did have the great good sense to abandon long ago the communist dream, and to push it off to a remote future, after productivity shall have been enormously increased. But the Maoists, heedless of economics, heedless of the terribly destructive effects on production of abolishing the division of labor — the essence of the “communist stage” — tried to hurl themselves into Utopia. Halbrook is surely one of the few people in the world who think of the Great Leap Forward as a success; even the Chinese Communists themselves were reluctantly forced to abandon that Leap, because of the economic collapse that came about through the attempts, for example, to build steel plants in every backyard. Just as Lenin prudently retreated from “War Communism” when he saw the economic disaster it had brought, so did Mao retreat from the Great Leap Forward when its disaster became starkly evident to everyone but Steve Halbrook. The Cultural Revolution was another attempt to accomplish a similar goal; and it too has been abandoned.
But the costs of these attempts — in human and in economic terms — were enormous. In each try the key was the attempt to abolish the division of labor; to eliminate what the Marxists idiotically call the “contradiction between intellectual and physical labor” and the “contradiction between industry and countryside.” (For “contradiction,” read specialization and the division of labor.) That is why every rural commune had to have its own steel plant; and that is why, during the Cultural Revolution, all the schools were closed for several years, and millions of students shipped permanently to rural frontiers such as Sinkiang so as to “eliminate their contradiction between intellectual and physical labor.” And this is what all types of communism, whether “anarchist” or Maoist, mean in the end: an evil, ant heap society of faceless automatons, with all individuality, and all individual development, stamped out by the fanatical ideologues of egalitarianism.
To say that the herding of millions of students, for example, into frontier communes was “voluntary” is surely a grotesque perversion of the term. But there is something more at stake here, for the centralizing State is not the only enemy of individual liberty; for the communist ideal (anarchist or Maoist) involves a total tyranny over each person by his own beloved decentralized commune. And that is why it is China, not Russia, which has mobilized every block, every acre of earth, into local committees in which the soul of every individual member is laid bare and tyrannized over by his neighbors. Every member is forced or induced to confess his sins in public “self-criticism” sessions: the sins, of course, being any deviation from the opinion of his “decentralized” neighbors. And the “material” incentives to production are to be stamped out in favor of an egalitarian “moral” incentive in which the “good of the mass” is supposedly the individual’s only incentive for work and action.
No sir; if I were forced to choose between the Russian and the Chinese societies, I would take the Russian every time. For all its bureaucracy and statism, Russia does have a developed division of labor and at least the rudiments of a market, and hence a fairly productive economy; and, in abandoning its absurd goal of communism, the Russian society provides at least a portion of room for individuality and for personal freedom. For the libertarian, the triumph of Mao over Liu was something to deplore and not to cheer about; the main hope for the future of China, indeed, is that Mao and his fanatical comrades are all aging rapidly; that the younger generation cannot, after all, be imbued with the same revolutionary fervor; and that therefore the adoption of the Russian — and perhaps eventually the infinitely freer Yugoslavian — modes is the most likely prognosis for the Chinese future.
But again: how did Steve Halbrook get that way? The devolution of Mr. Halbrook is an object lesson for all libertarians, a lesson in the destructive pursuit of a one-sided logic. A few years ago, several militant libertarians began the instructive process of needling the right wing, of correcting the errors of a simplistic anti-Communism that had diverted the Right from opposition to the State itself. Pursuing this corrective beyond sensible bounds, Mr. Halbrook has lamentably wound up as an apologist for rampant totalitarianism.
[Reprinted from Outlook, July 8, 1972.]
One of the longer lasting aspects of the Great Ecology Scare of the 1969–70 intellectual season (a craze which seems to have faded away since the orgiastic exercises of “Earth Day”), is the Population Hysteria. The Left has clasped to its collective bosom the idea that population growth is the root cause of our Environmental Crisis, and Zero Population Growth clubs have sprouted over the nation’s colleges. Young men and women solemnly take the pledge never to have more than two children and thereby cause population growth. What is far worse, the same people are just as convinced that no one be allowed to have more than her two-child quota. Hardly have we begun to be freed from the tyranny of the outlawry of birth control, when, lo and behold!, birth control is now to be made compulsory.Particularly grotesque is the “free-market” variant of this slave measure proposed by the distinguished economist Kenneth Boulding. Boulding would maximize individual freedom within the Zero Population Growth framework by granting every woman (or is it wife?) two baby-rights, and then permit women to sell these baby-rights to one another. So that if one woman wished to have four kids she could do so, but only if two other women limited their number to one apiece, or one decided to go without. Which makes about as much “free market” sense as allowing a market in slaves.
There is no need to detail here the monstrous tyranny entailed by this fascistic proposal. We need only remark that it is curious that the same leftists who properly assert every woman’s absolute right over her own body in denouncing abortion laws, are grossly inconsistent in not applying this very right to every woman’s right to bear children. Hopefully, Justice [Arthur] Goldberg’s remarkable landmark decision in the Connecticut birth-control case, striking down that law for invasion of the Ninth Amendment natural right of privacy, will suffice to block any compulsory birth control law.Griswold v. Connecticut (1965). Before this case, the Supreme Court, recognizing the enormous libertarian implications of the Ninth Amendment, had never dared to apply it. The Ninth Amendment reads: “The enumeration in the Constitution of certain rights, shall not be construed to deny or disparage others retained by the people.” Thus, the Amendment flatly states that the people do retain other rights, and what are they? Anyone understanding the terminology of the time knows that this means natural rights, and among such is the now-proclaimed right to privacy. On the Ninth Amendment and its significance see Bennett B. Patterson, The Forgotten Ninth Amendment (Indianapolis: Bobbs-Merrill, 1955); “Discovering the Ninth Amendment,” Left and Right (Autumn, 1965), pp. 8–12. Even at that time, the anti-populationists, while hailing the decision, grumbled that the bringing in of the Ninth Amendment might destroy their cherished goal of compulsory birth control.See James D. Carroll, “The Forgotten Amendment,” The Nation (September 6, 1965), pp. 8–12.
Apart from the question of compulsion, what of the Population Problem? Are we suffering from “too much” population? The first question to ask is simply: how much is “too much?” Why has it suddenly become imperative to freeze the U.S. population at its present level of approximately 200 million? Also, why stop at 200 million? Is this a divinely imposed figure? Why not press on to allowing only one kid per family, thereby soon cutting the population in half? Or allow only one kid per ten families? Or, indeed, go the whole way by arbitrarily killing every tenth, or every fifth, or whatever person?
In short, how much is too much? Before the European colonization, the North American continent supported less than one million Indians, and these at near-starvation levels. That continent now supports almost three hundred million people, at enormously greater and, what is more, growing affluence. It should be clear, then, that the “proper” population level must be relative to the capital equipment and the industrial development of the area. A land area that barely supported one million people five hundred years ago now very readily supports three hundred times that number.
The question: how much is too much, then, can only be answered in the context of the capital and the extent of the market enjoyed by the economic system. The only cogent criterion, which has been worked out by economists, and which is never mentioned by the Population Hysterics, is the concept of the “optimum population” point. Setting aside the unfortunate moralistic connotation of the term, that this is the morally proper or best population level, the optimum population concept focuses on the point that, given any particular level of capital and technology, as we increase the population hypothetically from zero, the economy’s total production per head will increase, will eventually level off, and finally decline. That population level which, for any given capital and technology, yields the maximum production per person — the highest standard of living per person — is the “optimum” level.
Take, for example, the present United States economy. Suppose that a natural disaster suddenly wipes out three-fourths of the U.S. population. It is obvious that total production per head will fall drastically, simply because an enormous amount of equipment and jobs will lie idle for lack of workers. On the other hand, if the population of the U.S. should magically triple tonight, obviously the total production per head would also fall, since the given equipment would hardly absorb, or suffice, for the additional labor force. Somewhere in between lies the optimum population point.
Empirically, it is impossible to say for certain where this population point lies, whether we are at present below or above it. But one thing is certain: the production per person has continued to increase steadily in the United States, despite all the shackling of the market economy and despite (or helped by?) the continuing population growth. As long as the standard of living continues to rise, we surely cannot be very much beyond the optimum population level, if at all, and we surely have little or nothing to worry about on the score of population. Furthermore, while the economy grows, while capital increases and technology improves, as they have continued to do, the optimum population level continues to increase, just as it has already increased from far below a million to about two hundred million. The Population Scare is just that: still another bogey designed to scare the American public into more statist dictation.
Furthermore, the rate of population growth is not simply an arbitrary given; it has always been highly responsive to social and economic conditions. Before the advent of capitalism and the Industrial Revolution, population was indeed an enormous problem; for population in the famous words of Malthus, kept “pressing on the means of subsistence.” Population growth is the spectre that haunts all frozen, caste, pre-industrial societies; for a caste system can assign the son of a carpenter to be a carpenter as well, but what is to be done with the second son? It was the specter of population growth, and not some sort of unusually barbaric streak in their character, that caused the Spartans to put their newborn babies out into the woods overnight; it was their form of “population control.”
But all this was changed with modern capitalism and the Industrial Revolution. For now a rapidly growing and developing economy at last replaced the frozen systems of status. The enormous growth of capital and production enabled a great growth of population, largely by slashing the death rate. But, as in every subsequent case of a growing standard of living, this cut in the death rate was soon followed by a cut in the birth rate by people who wanted to preserve their new-found improvement in living conditions. It is precisely the undeveloped nations of Asia, for example, who have not enjoyed the benefits of capitalist development, whose birth rate remains high, and who may be said to suffer from “overpopulation.” But, the United States and Europe, who have enjoyed rising living standards, have far lower birth rates; in short, people attune themselves to higher living standards, and then make sure they are preserved by voluntarily lowering their birth rates.
Again, then “over-population” is not an absolute, but strictly relative to the capital and technology of the land areas concerned. India is now “overpopulated” for much the same reason that the United States would also be overpopulated if we only had the capital equipment and the market development of a century ago to service our two hundred million population. All this is well illustrated by the case of Japan. Eager to develop and industrialize rapidly after World War II, Japan encouraged birth control among its public to cut down on its seeming “over-population.” Now, however, with the same meager land area and virtual absence of natural resources but with a flourishing industrial economy and a very rapid growth rate, Japan finds, on the contrary, that it is beginning to suffer from a labor shortage — that it cannot fill the jobs available. As a result, it is wisely beginning to drop its artificial encouragements to birth control.
That “over” or “under” population are strictly relative to time and place is also seen by the fact that by no means all underdeveloped areas are in any sense densely populated. Just as the Indians of North America were only “overpopulated” in relation to their capital and technology, so are most areas of Africa and South America — in contrast to Asia — quite sparsely populated, especially in relation to their natural resources. What they lack is capital — and capitalism; given that, they would require a far greater population than they have today.
As for the United States, its birth rate has, over the long run and in recent years, tended downward. In fact, during the 1930s the birth rate was so low in the United States and particularly in France, that cries arose of imminent “racial suicide.” What happened was that after World War II, the desire for roots among returning Gl’s, along with a sudden upsurge (now gone) in pro-baby values in our culture, led to the famous “baby boom,” and to a consequent acceleration of population growth. But that baby boom is now over, and the U.S. birth rate began tending downwards in 1957. The rate of U.S. population growth in the decade of the sixties was only 14%, the second lowest decennial increase on record. By 1969, in fact, the average increase of the U.S. population was only 1 percent per year, less than half the world rate, and the American birth rate was the lowest ever recorded in this country.See Dennis H. Wrong, “Portrait of a Decade,” New York Sunday Times Magazine (August 2, 1970), pp. 22ff. The United States, furthermore, remains lower in population density (average number of persons per square mile), than such relatively uncrowded countries as Britain, Mexico, or Switzerland.
Not only that, but within the United States, far from population growth filling all the open spaces, there is actually, as Professor Wrong points out, “more open space in the United States today then there was a generation ago, and ... much of it is actual or potential farmland in the middle of the country.”Ibid., p. 27. In the decade of the sixties fully one-third of all the counties in the U.S. actually lost population (Zero Population Growth fulfilled with a vengeance!), most of them in the South and Middle West. In fact, since 1966, the central cities of the United States have been steadily losing population as well.
Under steadily growing capitalism, then, the Population Scare is a bogey from two directions: the optimum population point tends to increase continually; and the birth rate tends to level off naturally to preserve the higher living standards.
We have seen that the population problem is strictly relative to the economic conditions of a time and place; one country’s or one era’s “overpopulation” can easily become the opposite, and vice versa if economic growth is shackled or reversed. In fact, the Population Hysterics are, presumably unwittingly, trying desperately to create the very problem they are bellyaching about. For we have seen that population growth is no problem under growing and developing capitalism. But it does become a real problem when the economy is prevented from growing, when the progress under capitalism is replaced by frozen status. And since the anti-populationists are also opposed to economic growth in order to “save” scarce natural resources, this means that the Environmentalists, if they are allowed their way, will create the over-population menace which so far has been only a phantasm of their own making. Allow these opponents of progress their head, and we too can become another Sparta.
If the population question is relative to capital and technology, it is also relative to something else that is very important but that “nice” people don’t like to talk about: the quality of the population. In short, it we deal only with quantities, with the numbers of people in different age groups, etc., we are in danger of forgetting that one person is not equivalent to another. A country or a region can be “over-populated” if the citizenry are lacking the qualities of hard work, thrift, and entrepreneurial foresight; let people enter the country with these very qualities, and both they and the original citizens will benefit. Even given existing capital, then, the country would not be “over-populated” with respect to these more productive and more entrepreneurial groups. In fact, few countries at few times are anything but short of such highly productive citizens.
To illustrate the importance of population quality, consider the Chinese — in general a highly productive and entrepreneurial group. They have migrated to other “over-populated” parts of Asia, coming, it should be noted, with little or no capital, and just as poor — if not more so — than the indigenous population. And yet, within a few years, these Chinese will have risen, become wealthy, created jobs and prosperity for themselves and much of the native population. The same is true of Lebanese who migrated to the “overpopulated” West Indies.Thus, the leading economist of “underdeveloped” countries writes:“The Chinese in Malaya, the Indians in East Africa, and Lebanese in West Africa — usually migrants without capital and without much formal education — have quite soon greatly surpassed the economic performance of the indigenous population. ... These differences in economic quality and performance are also relevant to overpopulation and population pressure. There is heavy emigration from the West Indies, which are said to be severely overpopulated. Yet the Lebanese are anxious to migrate to the West Indies, and those few who are admitted generally prosper and accumulate capital. Thus even at current levels of technique the West Indies are not overpopulated in terms of Lebanese although they are in terms of West Indians.” Peter T. Bauer, Economic Analysis and Policy in Underdeveloped Countries (Durham, N.C.: Duke University Press, 1957), pp. 74–76. On the crippling effects of immigration restrictions on Lebanese in West Africa, see P.T. Bauer and B.S. Yamey, “Economic Aspects of Immigration Policy in Nigeria and the Gold Coast,” South African Journal of Economics (1954), 223–232.
While we have used the concept of optimum population to explode the Population Bomb, we must recognize that even this concept makes too many concessions to the anti-populationists. First, because of its neglect of the differences in population quality; and second, because of the implicit assumption that the “optimum” is the morally correct. But people obviously have children because they want to and enjoy having them, and therefore people may well decide to accept a lower than optimum production per man in order to benefit from the enjoyment of having more children. A family might have four children instead of two, even though it knows that it will have a lower standard of living per member of the family. And surely that decision, that choice between the competing benefits of having more or less children, at lower or higher standards of living, is strictly up to each person, to each family to make. Their own free choice is the moral “optimum,” and not the imposed ethical standard of some outside observer.
There is something else of importance that we may say about the anti-populationists. It may seem extreme to say this, but they are not simply anti-population, they are also anti-people. Libertarians and opponents of the welfare state are accustomed to being denounced as “inhumane”; but it is the Environmentalists who are profoundly and deeply anti-human. Consider their basic social philosophy. Before the advent of man, they assert, everything was marvelous. Nature was in perfect harmony with itself, and each species of life lived in harmonious ecological balance with each other. They had to, since each species was passively determined by its given environment, by the “nature” in which it found himself. Then, in the midst of this perfect harmonious idyll, there came the great disturber, the great pain-in-the-neck: man. Man, by his nature, is not passively determined by his environment; and so man began to survive and flourish by transforming his environment, by changing things, by “conquering nature” instead of being determined by its “rhythms.” While the rest of nature is determined and “circular,” man persists in being purposeful and “linear,” endlessly changing his environment to improve his lot. The basic aim of the Environmentalists is to eradicate this purposefulness of man, to shackle his linearity and purpose, to reduce him to the primitive, animal status of a species “in harmony with nature” instead of its master. But this means, in essence, that the Environmentalists are bent upon eradicating man’s humanity, and therefore on destroying the human race itself. Jack Bulloff, professor of the history of science at SUNY, Albany, does not exaggerate when he writes:
The first idea [of the Environmentalists] holds that the natural environment is benign. To leave it alone, or restore it, would solve all environmental problems. But the record of two billion years is directly contrary to this. Paleontology is a record of the dead. ... Nature is inevitably lethal. ...
Certainly man pollutes. But he cannot survive otherwise. Man saved himself and advanced from animal to civilized being only by overcoming the lethal natural environment. By imposing social evolution on biological evolution man created an environment far more suited to human life than the mythical bliss of pre-social man. ...
It is strange that [the Environmentalists] ... should hunger for the unsafe, unenlightened, unaesthetic life of the savage. The idea that a world safe for rhinoceroses — or cobras or doddoes — is best for man appeals only in its innocences. Its proponents are really advocating genocide.Jack Bulloff, “A World Safe for Rhinos Is Not Best for Men,” University Review (State University of New York), Summer 1970.
Is there nothing we can do, then, about the Population Problem? Are there no measures that we can advocate? On the contrary, there are several things we can do, none of which, oddly enough, I have ever seen propounded by our Population Hysterics. We can return to (or rather, advance toward) laissez-faire by removing the host of government subsidies to population growth. We can remove the myriad governmental incentives for having more children. For example, we can stop levying higher income taxes on bachelors or on childless couples than on couples with children. The income tax system now subsidizes large families by levying taxes in inverse proportion to the number of children. We can also end the policy of the welfare system in paying welfare mothers per child, once again subsidizing larger and larger families, this time among mothers who can least afford to raise them. And finally, we can end the free public school system, which taxes bachelors and childless couples for the benefit of families with children and the more numerous the children the greater the subsidy. When families will have to pay for their own education, then this artificial and coerced subsidy to large families will be removed. Let us think in terms of achieving freedom by removing subsidies to larger families, rather than agitate to impose a coercive despotism on us all in behalf of a Population Myth that reflects a deep-seated hostility to the human race itself.
[Reprinted from The Individualist, January 1971.]
[From the Introduction by Justin Raimondo.]
Murray Rothbard was a true polymath. He wasn’t just the number one theoretician of the modern libertarian movement — author of the monumental Man, Economy, and State; Conceived in Liberty, a four-volume history of the American Revolution; the two-volume An Austrian Perspective on the History of Economic Thought; and essays too numerous to list — he was also its most tireless publicist, at least in its early days.
He didn’t live in an ivory tower: far from it. As he wrote in a 178-page memo entitled “Strategy For Libertarian Social Change”:
If the advancement of liberty requires a movement as well as a body of ideas, it is our contention that the overriding goal of a libertarian movement must be the victory of liberty in the real world, the bringing of the ideal into actuality. [Emphasis in original]“Strategy for Libertarian Social Change,” unpublished manuscript, 1978.
For Rothbard, libertarianism wasn’t an intellectual parlor game, nor was it a personal affectation: for him, it was a banner that was meant to be carried into battle. Ever the happy warrior, he sought to bring the radical libertarian perspective to bear on the events of the day, and it was a task he delighted in. While he tended to write his more serious books and articles in the dead of night, staying up at all hours pounding away on his old-fashioned (even for the time) typewriter, his “mornings” (noonish) were devoted to relatively lighter fare — the polemical journalism which, over the years, found various outlets. In the 1940s he wrote a personal newsletter, The Vigil, which was typewritten and mailed to his closest friends and associates. Later on, he was appointed “Washington Correspondent” for Christian Economics magazine, a publication put out by a group known as Spiritual Mobilization, headed up by the Rev. James Fifield, and devoted to economic laissez-faire.
This lasted a few years but eventually he was let go: the right-wing Protestant pastors who were the main audience of Christian Economics were appalled by his anti-interventionist polemics when it came to the foreign policy issue. As the cold war got colder there was less tolerance for the “isolationism” of the Old Right, which by that time was largely forgotten by the conservative rank-and-file. Those rightist ministers thought he was a Communist! So there was a parting of the ways.
His sojourn as an occasional writer for William F. Buckley, Jr.’s National Review was even briefer, as Rothbard’s patience with the warmongering that emanated like a radioactive cloud from that publication soon wore thin. The Buckleyites’ crazed desire for a nuclear showdown with Moscow was a bit too much for the old “isolationist” to take, and his refusal to show enthusiasm for World War III soon led to his excommunication from a church to which he had never properly belonged.
But no matter: the hegemony of cold war ideology was about to receive a serious challenge, as the 1960s dawned. An independent libertarian movement — organizationally separate as well as ideologically differentiated from National Review-style conservatism — was about to make its debut, in large part due to Rothbard’s efforts. He and Leonard Liggio had started Left & Right, a magazine directed at the burgeoning New Left movement, which was beginning to make waves, starting on the campus of the University of California at Berkeley. However, the magazine was a quarterly, not a good format for someone who wanted to comment on current events, and so when Robert Lefevre of the Freedom School contacted him to write a syndicated newspaper column for the School’s Pine Tree Features, Rothbard eagerly took up the task.
These short columns — usually no more than two typewritten pages each — appeared in the Freedom Newspapers, a chain owned by R.C. Hoiles, who was a devotee of Lefevre’s and a committed libertarian. Starting in January of 1967, Rothbard churned out fifty-eight columns, the last one written in the summer of 1968, addressing the campus revolt; the massive antiwar demonstrations; the Six-Day War between Israel and the Arab powers; the Newark riots; the Vietnam war; the persecution of H. Rap Brown, the assassination of Martin Luther King, the abdication of Lyndon Baines Johnson, the rise of Richard Nixon — in those two crucial years there was, as they say, never a dull moment.
We might call this Rothbard’s “left” period: he sided with the student protestors, the African-Americans fighting cops who had invaded their neighborhoods; he stood with the Vietnamese people against the American soldiers who had invaded their neighborhood; he stood with the Palestinians against their Israeli conquerors, he valorized the “heroic” Malcolm X and denounced Martin Luther King for calling for federal troops to put down black “rioters” — but he never pandered to his intended audience. Unlike some of the “left-libertarians” of today, who have adopted the politically correct check-your-privilege jargon of white liberalism, he always addressed the issues in straightforward libertarian terms.
This bluntness is apparent in the very first column, written sometime in January of 1967, cheering the firing of University of California chancellor Clark Kerr, and praising Mario Savio — who had the honesty to say “Good riddance to bad rubbish” — while some New Leftists rushed to defend him. He wondered why conservatives, who had formerly been critics of the educational bureaucracy, didn’t side with the student rebels who were rising up against “this educational Moloch” instead of attacking them for “their tastes in clothes and hair styling.” Yet the students weren’t let off easy, either: instead of protesting Governor Ronald Reagan’s threatened cuts to the state university system’s budgets, he wrote, they should be cheering and demanding yet more cuts because this “acted to reduce the very gigantic university system that the students have properly denounced.” So, the New Leftists wanted “self-determination” — or, to put it in the New Age-y terminology of the time, “self-actualization” — as opposed to subservience to a soul-less pedagogical Leviathan? Well, then, “shifting the burden of payment to the student himself will give the student-consumer far more power over their own education” than under the wrong-headed “free tuition” regime.
Rothbard didn’t pander: he didn’t try to imitate the rhetoric of the students, he didn’t insult them by trying to make them think he was “cool”: Rothbard was strictly Old School, and never pretended otherwise. What he did was apply libertarian principles to the concrete day-to-day issues that rose up in those two tumultuous years, revealing the radical evil of the State and the unadorned radicalism of the libertarian stance in every case.
He didn’t pretend to be a leftist: the idea was to win over the left-leaning students, and the revolutionary blacks, to libertarianism, not to masquerade in the fashionable rhetoric of the moment. He never disguised or watered down his libertarianism to suit his audience: unlike the self-styled “left-libertarians” of today, he rejected any modification or “addition” to the central axiom of libertarian political theory, which is the nonaggression principle plain and simple. In answer to the “check your privilege” sloganeering of the cultural left, Rothbard would have said “Check your cultural prejudices at the door.”
Although himself a traditionalist, Rothbard always maintained that there could be no such thing as a “libertarian” culture: those who wanted to “live liberty” were living under a delusion, namely the entirely false idea that some particular “lifestyle” could be derived from the central axioms of what is only a political philosophy and not a “way of life.” He had, after all, been badly burned by the cultural totalitarianism of the “Objectivist” cult around novelist Ayn Rand, which had a “party line” on every subject under the sun, including music (Rachmaninoff good, Mozart bad) and even physics. The libertarian movement, or at least a substantial portion of it, had been down that road before, and found it to be a dead end.
To the younger readers of this volume, Rothbard’s writings from the 1960s may seem like a recounting of ancient history, and only tangentially relevant to the world we live in today. That this is not so is underscored by one of his more prescient pieces: in “The Coming American Fascism” Rothbard comments on various acts of retaliation against critics of the Vietnam war and writes: “At home we have the fascist corporate state economy: an economy of monopolies, subsidies, privileges runs by a tripartite coalition of Big Business, Big Unions, and Big Government.” While “[i]n foreign affairs we have expanded all over the globe, grabbing bases and running governments everywhere, all in the name of a global crusade against the ‘international Communist conspiracy’.”
Substitute “international terrorist conspiracy” for that last phrase and we have a snapshot of the future — the one we are living in today.
After three years of putting the English people unmercifully through the wringer of “austerity,” of ever-more crippling taxes and governmental wage controls; after three years of protesting to everyone up and down the country that the pound sterling would never, never be devalued, and that austerity was necessary to “protect the pound,” Prime Minister [James Harold] Wilson finally threw in the sponge. One Saturday morning the stunned British public awoke to find that their sacrifices had been in vain and that the pound was now devalued. The latest chapter in government’s eternal “credibility gap” with a long-suffering public has been written.
Devaluation comes about when government arbitrarily overvalues the worth of the its currency in terms of other currencies or in terms of the one world money, gold. For decades, Great Britain has been inflating its currency; i.e., pumping more pounds and bank claims to pounds into circulation, all done by the British government which, like all other governments in the modern world, has absolute control over the nation’s monetary and banking system. And when more pounds are pumped into the economy, the true value of each pound — whether in terms of goods, other currencies, or gold — goes down. But the British government stubbornly clung to the increasingly overvalued price which it had set on the pound; hence claims to pounds in other countries piled up, and gold kept flowing out. Finally, after much travail for the British public, the government was forced to recognize the hard facts of reality: that the pound wasn’t really worth $2.80 any longer. Hence, devaluation — the grudging acceptance of reality.
But, typically, the devaluation was puny: only 14 percent, and it looks as if the pound is still overvalued; so the austerity measure continue, as the British public is again told that it must buckle under to protect the new artificial value of the pound. Chances are good for another forced devaluation soon.
The lesson for the American public is all too clear. For the dollar, too, has been overvalued for years. The dollar has been continually inflated by the U.S. government until it is absurd to believe that it is still worth the 1933 price of $35 an ounce of gold. America, then, has also been losing gold steadily in the last decade, and its foreign economic policy has been devoted largely to persuading or intimidating foreign countries into not cashing in their huge dollar claims for gold, even though we have pledged to redeem them. All sorts of gimmicks, international pools and drawing rights, etc., have been concocted by the U.S. money managers in a desperate attempt to stave off the inevitable.
That inevitable is for us to accept reality, and that acceptance, which will surely come, and soon, is devaluation of the dollar — perhaps to $70 an ounce. That is the solution advocated by de Gaulle’s brilliant monetary adviser, libertarian economic Jacques Rueff, and that is the solution which, after great fuss and feathers, will have to be employed.
But, once again, it is a solution that will come in the middle of some weekend night, and Americans will wake up to find that their government managers have lied to them time and time again. The “never, never” for devaluation of the dollar will go the way of all other such promises in the past. You can bet, however, that there will be no devaluation until the 1968 elections; for that is all Johnson would need to reduce his voting strength to virtually zero.
In the welter of discussion (mainly abuse) on Jim Garrison’s conspiracy case in the Kennedy assassination, an important story has been overlooked: the inspiring and knowledgeable devotion to individual liberty that has shone through Garrison’s statements.
Thus, in the famous and impressive Playboy interview of October, 1967, Garrison said this about the role of District Attorney: “You know, I always received much more satisfaction as a defense attorney in obtaining an acquittal for a client than I ever have as a D.A. in obtaining a conviction. All my interests and sympathies tend to be on the side of the individual as opposed to the state.”
On the political trends in contemporary America:
What worries me deeply, and I have seen it exemplified in this case, is that we in America are in great danger of slowly evolving into a proto-fascist state. It will be a different kind of fascist state from the one the Germans evolved. ... But in the final analysis, it’s based on power and on the inability to put human goals and human conscience above the dictates of the state. Its origins can be traced in the tremendous war machine we’ve built since 1945, the “military-industrial complex” that Eisenhower vainly warned us about, which now dominates every aspect of our life. The power of the states and Congress has gradually been abandoned to the executive department, because of war conditions, and we’ve seen the creation of an arrogant, swollen bureaucratic complex totally unfettered by the checks and balances of the Constitution. In a very real and terrifying sense, our Government is the CIA and the Pentagon, with Congress reduced to a debating society. Of course ... we won’t build Dachaus and Auschwitzes; the clever manipulation of the mass media is creating a concentration camp of the mind that promises to be far more effective in keeping the populace in line. ... The ... awesome power of the CIA and the defense establishment seem destined to seal the fate of the America I knew as a child and bring us into a new Orwellian world where the citizen exists for the state and where raw power justifies any and every immoral act. ... I’m afraid, based on my own experience, that fascism will come to America in the name of national security.
In his foreword to the latest important book on the Kennedy case, Harold Weisberg’s Oswald in New Orleans (New York: Canyon Books, [1967]), Garrison adds that national security “usually refers to the security of the men who allowed” such a disaster to occur. “The greater threat to national security is the cynical concealment of such facts from the people. Behind the facade of earnest inquiry into the assassination is a thought control project in the best tradition of (Orwell’s) 1984.”
Jim Garrison’s political beliefs are explicitly and superbly libertarian; in answer to the Playboy interviewer, Garrison said:
over the years, I guess I’ve developed a somewhat conservative attitude — in the traditional libertarian sense of conservatism, as opposed to the thumb-screw-and-rack conservatism of the paramilitary right — particularly in regard to the importance of the individual as opposed to the state and the individual’s own responsibilities to humanity.
It has been clear for some time that Jim Garrison is a man of enormous courage, courage to stand up against the entire Establishment, officialdom and news media, in a field where well over twenty witnesses who could help shatter the official Warren Commission case have met mysterious deaths. But it turns out that he is a man of keen insight and high principle as well.
As I write, the news comes that the Viet Cong (the Army of National Liberation of South Vietnam) has won its mightiest victory of the war. After suddenly, simultaneously, and successfully invading seven of the leading cities of South Vietnam (and the cities are the last strongholds of pro-U.S. forces), the V.C. have invaded Saigon itself, even unto the heart of the American embassy.
This crucial incident highlights an important fact of the war which until now has been carefully kept from the American people by their rulers in Washington. The U.S. has been in the Vietnam war in force since the spring of 1965. In Vietnam there is a wet season, stretching from about May to November, and a dry season, from November to May. Typically, all the great U.S. offensives have taken place upon the beginning of each dry season, as the U.S. forces have launched Operation This, That, and the Other, with various plans to establish interior forts, coastal enclaves, to “hold and clear,” or to “search and destroy.” At the beginning of every dry season, the U.S. has launched these offensives with a great deal of fanfare, claiming that now indeed the war is almost won, that now the tide has turned, etc.
There has been good reason for the Americans to exult as each dry season was reached, for the dry season alone permits the U.S. to use its spheres of advantage to the uttermost. In the wet season the U.S. planes cannot fly, and the U.S. tanks and heavy armored equipment sink into the mud.
Such was the pattern at the start of the dry seasons of 1965–66 and 1966–67, followed eventually by a petering out of the offensive, and the renewal of hope and promise the following year. But now, in this dry season, the pattern is very, very different. For with the coming of the dry season of 1967–68, the Viet Cong, for the first time, totally and irreversibly has the strategic and the tactical initiative. Now it is the V.C. that does the attacking, and the American forces that supply the heroic defense. The dramatic raids and invasions of the major cities by the V.C. are only the climactic demonstration of the vital fact that the war has indeed turned and turned completely.
For what this means is that the Viet Cong have the permanent initiative in the war. It means that the United States, despite its almost 600,000 troops in Vietnam (the vast bulk of its army) and despite the 700,000 and more Saigon puppet troops, has inevitably and ineluctably, lost the war. Short of destroying the country altogether, we cannot win. And now we are steadily losing, and losing with little more than 50,000 North Vietnamese troops in the country to aid their brethren of the South. If we commit the supreme folly of a land invasion of North Vietnam, we will have on our hands not only the current forces that are whipping us, but also 400,000 more men of the crack North Korean army, plus North Korean guerrillas, to say nothing of the Chinese.
Perhaps those who are not convinced of the immorality of the war in Vietnam will now be convinced of its total folly.
On April 29, 1968, in the dead of a night that will live in infamy in the annals of education in this country, Columbia University President Grayson Kirk and Vice President David Truman ordered onto the campus 1,000 cops, who proceeded to club, pummel, and drag into paddy wagons 720 students and faculty, as well as to brutalize thousands of innocent onlookers. The students had occupied and sat-in at several buildings at Columbia for a week, an act of non-violent disobedience to dramatize their demands for Columbia to end its connection with the Vietnam War through the governmental Institute of Defense Analysis, to stop construction on a gymnasium in a public park against the protests of the local community, and to institute more power by students and faculty in the decisions of the university which is, after all, an academic community of teachers and students. The faculty members were lined up in front of the struck buildings to protect the students from any intrusion of police violence, so they were clubbed by the police to get to the demonstrators. Despite the frenzied brutality of the police, the demonstrators never actively resisted arrest; they were simply not very cooperative in the arresting process.
Whether one favors or opposes the sit-in tactics of the demonstrators, there is no excuse, no justification whatsoever, for the Columbia administration to call in a thousand cops to use violence against un-armed students. It is the height of irony that, shortly before their monstrous deed, Kirk and Truman, at a press conference, sharply criticized the striking students for “resorting to force”; in contrast, Kirk and Truman called upon the ancient academic verities of reason, peace, and the free search for truth. Then, boom! came the polizei, ordered in by those same men, who seemed to see no inconsistency with their previous pronouncements.
The student and faculty body at Columbia, and indeed elsewhere, learned many hard-won lessons that night. They learned that underneath the high-flown sentiments about reason and free inquiry in the academic community there lies the mailed fist. They learned that these same high-flown academic leaders refuse to negotiate one iota when a supposedly crucial “principle” (not giving amnesty to transgressors) is in danger. And so, while less eminent but far more sensible universities like Boston University and Long Island University quickly granted complete amnesty to their sit-in students the previous week, and had the whole episode under control and forgotten inside of twenty-four hours, the rulers of mighty Columbia refused to do the same and called out their police-hooligans instead. The students and the faculty learned that an institution that is happy to cooperate in research for napalming innocent peasants is hardly going to stop short at clubbing a thousand or so students.
This learning process will cost Columbia very dear. The martyred demonstrators, emerging bloody but unbowed from the buildings under police charge, held up the V-for-victory signal. For they knew that by losing this engagement they had won the war; throughout the campus, the majority of students and many of the faculty, previously apathetic or opposed to the strike, are now so deeply angered at the police (most of them learned about “police brutality” for the first time) and at the administration, that they’re determined to throw the administration out and to strike until their demand is met. This is the way revolutions proceed: A small but determined group embarks on a dramatic deed to publicize its demands; they are met with brute violence by the power structure; this brings the rest of the subject population over to the revolutionary side. At Columbia, the revolution has begun.
The fantastic, incredible, shattering events of April Fool Week came with such bewildering speed that it’s almost impossible to sort them out and analyze them at this early date. We pundits and columnists were taken by surprise almost every day, and many of us formed brilliant theories one day, only to see them shattered by the onrushing and changing facts of the day following. The three mighty events that week were, of course, the unbelievable withdrawal of President Johnson on April Fool Eve, the agreement of Hanoi to begin preliminary peace talks, and the assassination of Martin Luther King. Let us set aside the King murder and its implications for later analysis, and concentrate now on Johnson and Vietnam.
The first point we must make is to protest vigorously at the mighty wave of adulation that swept over the man who, up to the end of March, was the most universally hated president in many generations. Let us hear no more of the sickening claptrap about Johnson’s noble and Christ-like act of self-sacrifice, his self-immolation for the unity of the nation, and all the rest of the hogwash. I half-expected some of the Democratic Party hacks who led in the hosannahs to proclaim that LBJ had “died for our sins.” Lyndon Johnson withdrew because, indeed, he had gravely “divided” the nation, but the division was all his doing, the doing of a man who had led this nation into an ever-escalating senseless and infamous war in Vietnam. He found himself, after three years of large-scale war, losing that war, amid a rising tide of dissent, opposition, and even hatred at home. Beset at every hand, losing at home and abroad, Johnson decided to get out while he had some shred of reputation left. It must be recognized that the main lesson of the Johnson withdrawal is not his unexpected nobility; and saintliness, but the fact that the rising and swelling tide of the anti-war movement, the growing mass sentiment of determined opposition to the war and the draft, has won a tremendous victory: the anti-war movement — along with the remarkable fighting spirit of the Vietnamese people — was able to bring down the mightiest and most powerful man in the world: the President of the United States. It was a fantastic victory for mass public pressure from below — a pressure both at home and in Vietnam — that unexpectedly bubbled through the hard crust of Establishment rule and orthodox political party structures, to make itself heard and felt on the American political scene.
It was a victory of concerned private persons against the most powerful ruling machine in the world today. It was a demonstration that individual persons who believe and feel deeply enough about the sins of the government, and act upon that belief, can have an impact, even unto the toppling of the mighty head of that governmental Leviathan. This great victory can never be taken away from the people of this country.
Even recognizing this victory, however, it behooves us to remain on our guard. We cannot trust Mr. Johnson, as has been shown an almost infinite number of times in the past, and we cannot believe that he was not trying, in his desperation, to “pull a Nasser”: to resign dramatically and then have the mass of the people, in a wave of frenzied sentimentality, bear him aloft and “force” him to continue in office. We cannot be sure that Johnson was not, and to this day is still not, hankering after a “draft.” Fortunately, the massive sympathy vote that many pundits expected in the Wisconsin primary did not materialize; and who knows what “draft” sentiment might have been whipped up if Johnson had won in Wisconsin? But Johnson lost handily, and that menace is over; but we must still be on our guard for another opportunity to whip up a sentimental massive turn to renominate President Johnson.
Liberty depends upon eternal vigilance.
One of the most powerful forces in the system of conscription slavery in this country is also one of the most secret and least known: your friendly local draft board. Until very recently, the membership of each local board was shrouded in total secrecy. Even now, when official policy is at last to make the names public, it is virtually impossible to rout out the names from the Selective Service bureaucracy, and to answer such vital questions as: How are the draft boards selected? Who selects them? And on what criteria? Millions of kids have been drafted over the years, without having the slightest idea of who these draft board members, with virtual power of life and death over them, really are.
All this goes starkly against the official theory that draft board members are chosen among the local communities, among people who will know the special circumstances of the kids being drafted, and who could therefore act in accordance with their unique knowledge. The Selective Service literature itself says:
The decentralized organization of the Selective Service System is ... designed as a convenience to all registrants, providing them with ready access to a personalized unit of the System. ... The unpaid board members are often the neighbors of the registrants. The decisions are based on a knowledge of local conditions and the circumstances surrounding each individual.
It all sounds very cozy; yet, in those cases that have been ferreted out by enterprising newsmen, it is the reverse of the truth. After a lengthy runaround, two “underground” New Left papers, the New York Free Press and the Mid-Peninsula Observer in California, have been able to get hold of and publicize the names of the draft board members in their areas. Almost uniformly, they found (1) that the draft board members did not live in the communities over which they rule; and (2) that low-income minority group youngsters were being drafted by high-income whites who lived far from their communities. Thus, in Manhattan over 88 percent of draft board members do not live in the communities they rule over; the chairman of the draft board for central Harlem, which drafts low-income Negro youths, lives in the wealthy white community of Great Neck, many miles away from Manhattan, on Long Island.
Little is known so far about these draft board members, although it is already clear that there is a high percentage of lawyers with political connections, and of local school district officials; in short, so-called grass roots people who are, in reality, tied in with the governmental apparatus. It also seems that vacancies in the boards are, in effect, filled by the remaining members themselves, thus making them a self-perpetuating little oligarchy.
One thing is strikingly clear: The draft board members are the willing mainstay of the entire Selective Service System; they not only lend their sanction to evil and to slavery, they are the chief operating arm of that enslavement. They have much blood to answer for. No wonder they want to operate in strict secrecy and anonymity! In its mendacious literature, the Selective Service System claims that “draft board members are frequently consulted (by potential draftees) at their homes or place of business.” Let us hope that this pious hope will soon be a reality, and that these members will indeed begin to be consulted by their “clientele.”
Some of those who argue for conscription-slavery concede that it would be wrong to draft someone so that he might defend himself against some remote Enemy. But, they add, conscription is needed so that Society might be defended against the foreign enemy. But first we must realize that, as the late great individualist Frank Chodorov once put it, “Society are people.” “Society” is, simply, every person except you. By what right, then, do A, B, C, and D, put their heads together to decide that E must be enslaved to fight for their defense? Surely this is a monstrous moral doctrine. If A, B, C, etc., really feel threatened by some outside invader, then let them take the steps to finance out of their own pockets the military defense supposedly needed to combat that threat; and let them either fight in their own defense or hire someone who is willing to do this for them.
There is ample precedent for this: companies and institutions hire guards and night watchmen, millionaires hire bodyguards, etc. So let our fearful patriots either join up themselves or hire people to defend them. Why must the rest of us who either think the Foreign Threat is a lot of nonsense or who consider the alleged defense as bad as the disease, be forced to pay for the protection of those who want it? You and I are not forced to pay for the guards and night watchmen of those who hire them; neither should we be forced to pay for the defense of others on a national scale. And all the more should we not be allowed to enslave unwilling young men and to pay them traditional slave wages for the privilege of defending us, or to wage a war in which they do not believe or to which they are opposed. Let those who feel threatened defend themselves or hire willing men for their defense. Any other set-up is enslavement and confiscation of private property for the benefit of others, i.e., is large-scale robbery.
Some libertarian inclined students at the University of Chicago have recently launched the Council for a Volunteer Military, dedicated to abolishing conscription, and they have managed to enlist supporters from all over the ideological spectrum, from Norman Thomas and James Farmer on the Left, to Karl Hess, Barry Goldwater’s speech writer, and Professor Milton Friedman. But, in an effort to achieve respectability, they have made their arguments almost purely technical and pragmatic: that the costs of a volunteer army would not be very great, that continual training of new recruits is costly and inefficient, etc. While the Council recognizes the injustice of enslaving a few men at low wages and thus “taxing” them more than the rest of the citizenry, their emphasis on technical and pragmatic economics misses the really crucial point. The problem is not the inefficiency of a conscript army; the problem is the gross immorality — indeed, the massive criminality — of drafting young men to be kicked around for years of their lives, and then to kill or be killed against their will. If this fundamental moral consideration is not “respectable” these days, then so much the worse for respectability. In true pragmatic fashion, moreover, the Council for a Volunteer Military concedes the wisdom of universal military training as an emergency reserve. With this kind of temporizing, draft-slavery will never be abolished. To achieve abolition the monstrousness of conscription must be sung out, loud and clear and unabashed.
Masterpiece of Unconscious Humor during the July Days: the unmitigated gall of President Johnson in his July 24 proclamation: “We will not endure violence. It matters not by whom it is done, or under what slogan or banner. It will not be tolerated.”
Let us savor that statement, surely a classic of its kind. It is a statement from a man in charge of the greatest violence-wielding machine, the mightiest collection of destructive power, in the history of the world. It comes from a man in charge of the day-by-day use of that power to bomb, burn, and napalm thousands of innocent women and children and old people in Vietnam. For such a statement to come, in all seriousness, from the greatest violence-wielder of our time, and to be taken with a straight face by the public, demonstrates how far our society has gone down the road to irrationality. So, “it matters not by whom it is done, or under what slogan or banner,” eh, Mr. President? Does that include the banner of “saving” the crushed and bleeding people of Vietnam from “International Communism”?
And so here we have our President making a totally absurd, irrational, and self-contradictory statement about violence, which no one seems to think is in the least out of order.
Let us contrast to this, the Masterpiece of Conscious Humor of the Month, and the clarity and sanity of this statement, by a supposedly irrational Negro extremist, H. Rap Brown, head of SNCC [Student Nonviolent Coordinating Committee]. Brown was asked at a press conference what it would take to satisfy black power militants. Brown replied: “I want Lyndon Johnson to resign and go to Vietnam and fight — he and his family.” The reporter adds that “Negro onlookers cheered as he brushed aside newsmen’s requests that he be ‘more specific.’” Surely Brown cannot be blamed for this brushing aside; how specific can one get?
The Negro movement has come a long way from the days when compulsory integration was the goal and the NAACP was the leader. The old civil rights movement was thoroughly statist and modern-liberal; its goal was to use the arm of the federal and other governments to coerce whites into hiring, eating, and living with Negroes. The new movement, headed by Rap Brown and Stokely Carmichael of SNCC, is totally and radically alienated from the government of the United States and the entire “power structure.” To contrast, once more, two statements of LBJ and H. Rap Brown, LBJ proclaimed: “From its earliest day, our nation has been dedicated to justice, to equality — and to order,” while Brown declared: “The white man makes all the laws, he drags us before his courts, he accuses us, and he sits in judgment over us.”
There speaks the voice of a true black nationalist; and the logic of black nationalism, finally explicitly stated in the National Black Power Conference at Newark this July, is a national black republic totally separated and seceded from the US government. As absurd as this goals seems when first stated, this is the inner logic of the continuing rebellions of the Negro ghettoes, and this is the direction in which these rebellions are, willy-nilly, moving. For the other traditional solutions are not going to work. The conservative solution of ever-greater force it not going to work, for during the rioting it was the entry of the National Guard that stimulated and accelerated the retaliatory sniping; the conservative solution cannot work, short of exterminating the entire Negro population.
And nothing is deader than the liberal solution of more federal funds, more playgrounds, and the rest of the liberal pap. Detroit was supposed to be the great model home of Liberal Race Relations, with plenty of playgrounds, inter-racial committees, and all the rest. And Detroit suffered a week-long civil war and property damage of $1 billion. Detroit murdered liberalism, and good riddance.
Conservatives and libertarians alike suffer from a failure to recognize who is responsible for the accelerating march of this country into statism. Ayn Rand once wrote that big business is “America’s most persecuted minority.” Nothing could be further from the truth.
From the turn of the twentieth century, through the New Deal period, and up to the present day, big business has been in the forefront of the shift from a free economy and a free society toward statism. For it saw in the state what the mercantilists — the big businessmen of their day — saw: a golden opportunity to confer upon themselves special privileges through subsidies, monopolies, cartels, contracts, etc. Two brilliant books of recent years — both by historian Gabriel Kolko, Triumph of Conservatism and Railroads and Regulation — have shown conclusively that the government regulations of the Progressive period around 1900, from which grew the Great Society of today, were not brought about to curb big business “monopoly.” Instead, various powerful big businessmen, disappointed in their attempts to gain monopoly on the free market, turned to the federal government to impose such monopolies and cartels in the guise of “progressive” reforms.
Out of these regulations and controls has emerged the veritable corporate state of today — a society and economy run by Big Government in partnership with Big Business and Big Unions — with the average citizen getting it in the neck. It is a corporate state with a “welfare” and “progressive” rhetoric, which some of the New Left historians have perceptively called a system of “corporate liberalism;” in short the reality of a corporate state cloaked in “liberal” and “welfare” ideology.
There is nothing that the American economy or the American people need less than another income tax hike. Yet now that President Johnson has suggested a ten percent tax increase, the legions of Big Business have come leaping to its defense.
The National Association of Manufacturers, once a sturdy opponent of statism and Big Government, has endorsed an income tax rise; perhaps it is not a coincidence that the president of the NAM, W.P. Gullander, who has been trumpeting the “positive” program of “partnership” between Big Business and Big Government, comes to the NAM from a term as head of General Dynamics, a corporation virtually built out of government funds and government contracts. A less free-market-oriented corporation would be difficult to imagine.
And now we find that 113 of the biggest big businessmen in the country — including David Rockefeller, Henry Ford II, and the heads of AT&T, General Electric, and General Motors — are organizing a group to press for full support of Johnson’s ten percent income tax increase.
They are certainly not acting like “America’s most persecuted minority.” On the contrary, we must give these men credit for knowing on which side their bread is buttered.
A lot of people throughout the country are beginning to realize that getting into the Vietnam war was a disastrous mistake. In fact, hardly anyone makes so bold as to justify America’s entrance into, and generation of, that perpetual war. And so the last line of defense for the war’s proponents is: Well, maybe it was a mistake to get into the war, but now that we’re there, we’re committed, so we have to carry on.
A curious argument. Usually, in life, if we find out that a course of action has been a mistake, we abandon that course and try something else. This is supposed to be the time-honored principle of “trial and error.” Or if a business project or investment turns out to be an unprofitable venture, we abandon it and try investing elsewhere. Only in the Vietnam war do we suddenly find that, having launched a disaster, we are stuck with it forevermore and must continue to pour in blood and treasure until eternity.
But just who are we committed to, anyway? Surely not the South Vietnamese government, for whatever puppet was induced to “invite” us in has gone long ago, deposed or assassinated. Surely not the people of South Vietnam, the overwhelming majority of whom either back the National Liberation Front or who, at the very least, give no support whatever to our favorite dictator, Marshall [Nguyen Cao] Ky. If we are out to liberate or defend these people, then we are doing it in a most curious way: namely, by a continuing and apparently permanent process of subjecting them to our methods of mass murder and destruction. “Liberation” — through mass killing and devastation!
We are left with the woeful tale of a few hundred thousand Vietnamese who are committed to the U.S. side; what will become of them when the NLF takes over? Well, there is a happy way out for these people: the U.S. can offer to transport them here, where they can enjoy the benefits of the American Way of Life first-hand. Of course, if this suggestion were ever made, then all of our war-hawks who bleed so profusely for the South Vietnamese at Communism’s door would suddenly find all sorts of reasons for not letting these same free-world citizens into the sacred portals of the U.S.A. It wasn’t long ago, of course, that Orientals were barred completely from immigrating to the United States, and this coercive, racist exclusion was upheld by many of the very same people who want all of us to die in defense of these same Orientals, against the “world conspiracy.”
But how can we get out of Vietnam? Johnson, too, claims to be for peace, but he complains that in all the morass of negotiations or would-be negotiations, he can’t find a way. Well, the way is mere child’s play: the way to get out of Vietnam is to get out. Period. Leave. Withdraw. Scram. And if the American people were to make this demand crystal clear, I’m sure that Johnson and the Pentagon would quickly find the knowledge of how to get our troops onto troopships and bring them home. The war crowd has been trumpeting the slogan, “Support Our Boys in Vietnam.” Well, it seems clear to me that if we are really concerned with the welfare of our boys in Vietnam, the best we can do for them — as well as for the Vietnamese — is to get them out of that death trap and ship them home, and into civilian life.
Then everyone would be happy: Americans and Vietnamese — all except the fanatics who’d be happy to destroy the world rather than allow some Communist, somewhere, to stay alive. And maybe then we’d get used to a world, which existed not so long ago, where America would not decide the fate of every people and territory on the face of the globe.
Turk and Greek are once again threatening war over Cyprus. No patchwork peace settlement will last. In the United States, both the left and the right are confused; since there is manifestly no Communist issue involved, and since Communism dominates everyone’s thinking, neither rightists nor leftists are able to come to grips with the complex of rights and wrongs involved.
The problem begins, as do so many other problems in the world, with British imperialism. Britain occupied and ruled Cyprus until 1960, and the ethnic problem on the island festered until that date. While the Greeks outnumber the Turks by four to one on the island as a whole, there is a clear and evident solution to the conflict in personalities, ethnic ties, language, and culture that sunders the two ethnic groups. That solution is partition, because Cyprus is dotted with a number of self-contained Greek and Turkish towns and communities, with virtually no integration within each town; in the capital city of Nicosia, the northern quarter is exclusively Turk and the rest of the town is Greek.
When Britain was preparing to grant the island independence, the Turks, instead of urging partition, alienated the Greek patriots by pressing Britain to maintain its rule rather than leave the Turkish minority to Greek mercies. But the independence agreement, while failing to grant partition, did have the merit of granting the Turkish communities autonomy in their areas, and giving Turks veto power over Cypriote legislation. But the Greek Cypriotes were not content with this fairly equitable arrangement. The Cypriote regime began to infringe on the agreed autonomy; worse, the government, in collaboration with mainland Greece, systematically and grievously violated the agreed limitation on the number of mainland troops on the island. While Britain, the Greeks, and the Turks had agreed to limit mainland armed forces on the island to 950 (with Turkey allowed a lower quota), the Greeks, under the command of the fervent and fascistic General [Giorgios] Grivas, infiltrated from six to twelve thousand troops onto the island. This infiltration raised for the Turks the dread spectre of enosis — of union of Cyprus with the Greek mainland, which would completely jeopardize Turkish autonomy.
Through a series of crises, this troop concentration has been built up. Further, since 1962 the Turkish communities, again in violation of their autonomy, have been blockaded by the Greek troops. In the guise of keeping the Turkish minority from acquiring “strategic materials,” the Greek soldiers have prevented them from possessing timber, spare auto parts, cement, telephones, jackets, shoes, and raincoats. Finally, as the last straw, General Grivas recently retaliated against some Turkish snipers by massacring whole Turkish villages. That massacre touched off the current Cypriote crisis.
It is clear from our history of the problem that the Turks have legitimate grievances of long standing, and that the problem won’t be set aright until partition insures the absolute protection of the rights of the Turkish people. In this crisis the United States, true to its long-standing policy of defending the status quo whatever it may be, has for years come down squarely on the side of the Greek rulers over the Turkish minorities. Hence, the burning of the American flag by angry students in the Turkish capital of Ankara. America, once again, almost unerringly, comes down on the wrong side — and again, unsurprisingly, its U.N. vote on behalf of freezing the status quo lined it up side by side with the Soviet Union.
There is nothing more important for those who think they believe in freedom, in free enterprise and in private property, than bringing these high-flown generalities to bear on the concrete problems of their daily lives. It is very easy to say, or believe, that one is devoted to freedom, so long as freedom remains a lofty and unanalyzed generality. There is nothing, of course, wrong with such generalities; on the contrary, they are indispensable for any thought or action on this vital subject. But, to be effective or meaningful, they must not remain on the level of generalities; they must brought down and applied, consistently and with determination, to our daily lives.
Take, for one among an infinite number of examples, our zoning laws. The vast majority of people who support and vote for zoning laws undoubtedly think themselves to be staunch adherents to the concepts of free enterprise and private property, while actually their support is one of the most important tools in undermining these very principles.
Here is a man, Mr. Smith, living on a certain lot in a $20,000 house. He then finds that Mr. Jones has purchased the vacant lot next door and intends to build a $10,000 house on the property — or, worse, yet, aims to move in a trailer (or “mobile home”) in which to live. Smith becomes highly agitated; he fears that a far cheaper house next door will lower the market value of his own property, or perhaps he is esthetically repelled at the sight of a mobile home. What, then, does he typically do in our gloriously free society? He goes to his local town council and has them pass an ordinance forbidding anyone to build a house worth less than $20,000 on the property — in short, he has turned to that club of tyranny known as the zoning law. He has ruthlessly trampled on the freedom of enterprise and on the property right of his neighbor.
What else could Smith do, one might ask, to maintain the value of his property or the esthetic qualities of the lot next door? The answer is really quite simple. In a truly free society, he would buy the lot next door himself, or, as an alternative, pay Jones, if the latter is willing, the costs of putting up a more expensive dwelling. In short, in a truly free society, each man must pay for what he wants to achieve; he must not load the burden of getting what he wants on to the next man by use of the club and bayonet of organized government.
H. Rap Brown, fiery young leader of SNCC, has been indicted in Cambridge, Maryland for the “crime” of “incitement to riot” There are few of us who have sat down to analyze what exactly this “crime” is supposed to be. Suppose that Mr. A tells Mr. B: “Go out and shoot the mayor.” Suppose, then, that Mr. B, pondering this suggestion, decides it’s a darn good idea and goes out and shoots the mayor. Now obviously B is responsible for the shooting. But in what sense can A be held responsible? A did not do the shooting, and didn’t take part, we will assume, in any of the planning or executing of the act itself. The very fact that he made that suggestion cannot really mean that A should be held responsible. For does not B have free will? Is he not a free agent? And if he is, then B and B alone is responsible for the shooting.
If we attribute any responsibility at all to A, we have fallen into the trap of determinism. We are then assuming that B has no will of his own, that he is then only a tool in some way manipulated by A. Now I dare say that most of the people who are anxious to prosecute Rap Brown for “incitement to riot” are religious people. But if they are religious, they must believe in the individual’s freedom of will, a fundamental concept of Jewish and Christian religions. But if the will is free, then no man is determined by another; then just because somebody shouts “burn, baby, burn,” no one hearing this advice is thereby compelled or determined to go and carry the suggestion out. Anybody who does carry out the advice is responsible for his own actions, and solely responsible. Therefore, the “inciter” cannot be held in any way responsible. In the nature of man and morality, there is no such crime as “incitement to riot,” and therefore the very concept of such a “crime” should be stricken from the statute books.
Cracking down on “incitement to riot,” then, is simply and purely cracking down on one’s natural and crucial right to freedom of speech. Speech is not a crime. And hence the injustice, not only of the crime of incitement, but also of such other “crimes” as “criminal sedition” (sharp criticism of the government), or “conspiracy to advocate overthrow of the government” — in other words, planning someday to exercise one’s basic and natural right to freedom of speech and advocacy.
Ever since I was a little tot, General Lewis B. Hershey has been in charge of that selective slavery system known as the draft. The man seems ageless and, as in the case of that other seemingly Indispensable Man, J. Edgar Hoover, General Hershey’s retirement rights were waived for the greater good of us all, and he rolls on, presumably immortal, ever calling out his creed of Draft ’Em All. The latest effusion of our Simon Legree was to urge the local draft boards to draft those youngsters who interfere with the workings of the Selective Service System. There is good ground to think that this edict is unconstitutional, since we are all supposed to be equal before the law, and the draft system is not supposed to be able to single out anyone it does not like for punishment.
But, in its wisdom, the Selective Service System has gone beyond the simple draft of those who illegally interfere with the draft process; it has now proceeded onward to drafting someone because, and only because, he is a member of an anti-war, anti-draft organization. If this act is allowed to stand, freedom of speech or of opposition to government policies in this country will be but a mockery.
Here is the story: On November 13, 1967, Local Board No. 76 of Tulsa, Oklahoma sent a letter to Mr. John Milton Ratliff of Norman, Oklahoma. It told Mr. Ratliff, a freshman at the University of Oklahoma, that it was rescinding his 2-S (student deferment) classification and classifying him 1-A, because the Selective Service regulations provide a 2-S for anyone whose “study is found to be necessary to the maintenance of the national health, safety or interest.” The local board then added that is “did not feel that your activity as a member of SDS (Students for a Democratic Society, an anti-war, anti-draft organization) is to the best interest of the U.S. government.”
So now it is not just illegal activity, but any determined opposition to U.S. policies that makes one subject to conscription. How can free speech be said to exist when this sort of oppression goes on?
Lt. Col. Charles Humphrey, manpower specialist at the Oklahoma Selective Service headquarters, conceded to reporters that Ratliff’s reclassification was due to his anti-war activities. “You’re aware of General Hershey’s statement,” he told a reporter. “He said because of their activities maybe they shouldn’t be deferred and maybe we should look at it. So that’s what the boards are doing.”
So maybe we should take a look at the conscription system!
The presidential campaign of Senator Eugene McCarthy has tapped a great deal of enthusiasm among considerable segments of American life. Particularly is this true of the nation’s campuses, for students and faculty alike. His lone courage in launching the race against overwhelming odds and against the displeasure of the President, combined with his opposition to the Vietnam war and his scholarly tone and style, have won the hearts of almost the entire American college community, as well as other middle-class Americans. Not only has he tapped rising opposition to the war, but his professorial and low-key qualities (he used to be a professor of political science) and his storybook victories have generated a personal commitment to McCarthy among surprising numbers of people.
Take a few portents: At Columbia University, members of the two highly conservative campus organizations, the Douglas MacArthur Club and the Conservative Union, have shifted to McCarthy. At the Polytechnic Institute of Brooklyn, with a student body so conservative that Goldwater won an overwhelming victory there in a straw poll in 1964, there is only one presidential campaign organization, and that is for Senator McCarthy. Innumerable conservative friends of mine have enlisted in the McCarthy movement, including some who until recently had been advocates of the war in Vietnam.
Yet, if we dig below the surface attractiveness of the McCarthy campaign, we find that there is precious little sound reason for all the enthusiasm. A critic of Johnson’s Vietnam policies Senator McCarthy may be, but his position on Vietnam is not really that different; what he wants is not immediate withdrawal, but a halt in the bombing of North Vietnam, and negotiations with all parties, including the National Liberation Front. Now that President Johnson seems to have virtually adopted this position, there is little of fundamental criticism of the war that McCarthy can still offer. Furthermore, McCarthy is in favor of continuing the slavery of the draft; the furthest he has gone on that issue is to offer alternative slave-service instead of jail to draft-refugees who might decide to return from Canada.
For, in the last analysis, Senator McCarthy is not a libertarian to any extent, but a liberal, albeit a member of that wing of liberalism which is far more intelligent and sophisticated than the brute wing headed by President Johnson. McCarthy saw that the Vietnam war was hopeless for American imperialism, and favored phasing out, not because he is opposed to imperialism, but because he realistically sees that its cause there is hopeless and not worth continued warfare. This is a more intelligent and reasoned view than that of Johnson-Humphrey-Rostow, and it may well be better to have McCarthy in the White House than Johnson, but it is hardly a view that should send libertarians into gales of enthusiasm. Let us reserve our enthusiasm for better causes.
Anyone who has anything to do with the nation’s campuses knows that the atmosphere has changed drastically over the last couple of years; even over the last few months. The signs are everywhere.
Take Harvard, for example. Until a few months ago, the mood of Harvard students was, and always had been, cautiously well-buttoned and moderate; Harvard students know that they make up the coming elite of the nation, and they comport themselves accordingly. Radical writings or ideas were entertained by only a small hippie minority on the campus. But now, the New York Village Voice reports from Harvard that, under the spur of the failing Vietnam War and the Federal government’s decision to draft graduate students, an amazing shift has taken place on campus. Everyone is now radical, everyone not only deeply opposes the war and the draft, but talk of “resist,” “defy,” even “bomb” and “assassinate,” fills the air. The point is not so much that Harvard students will be carrying out such deeds, but that general campus opinion has so radicalized that they can now openly support such previously “unthinkable” views. A phenomenal number of college students, at Harvard and elsewhere, are now seriously considering emigrating to Canada to avoid the draft.
At every campus, radicalizing is going on at great speed. Iona College at New Rochelle, New York, until now a highly conservative Catholic college whose only political club had been the right-wing Young Americans for Freedom, recently had a demonstration against napalm-making Dow Chemical Company which mobilized no less than two hundred students, and YAF could only collect five students for a counter-demonstration. An old friend of mine, a graduate student at the University of Chicago whose arguments against the draft have always been cautiously moderate, stressing the economic efficiency of a volunteer army, now talks only of emigrating to Canada, and he reports that throughout campuses in the Midwest, the same kind of change is going on.
Not only students but also faculty; it is almost impossible now to find any intellectual who either favors the war in Vietnam or who has anything but loathing for President Johnson. Everywhere, young faculty members who have previously cared nothing for politics, now passionately oppose the war.
But not only that: This opposition to the war and to the U.S. government has, in surprisingly many instances, deepened into opposition to all government whatsoever — into a truly libertarian insight into the nature of the state apparatus. What began as purely a revulsion against the war has now started to deepen into an all-out opposition to the state itself.
Consistency has long been one of the most glaring causalities of our political life; but the typical views on the mess in higher education have been hopelessly muddled even by contemporary standards. Thus, for years conservatives have been attacking the huge and swollen bureaucracies engaged in dispensing higher education, especially the gigantic and ever burgeoning state universities.
Then, two or three years ago, a profound and widespread rebellion against this educational Moloch emerged and accelerated among the students trapped in these universities. Yet, far from embracing these natural allies on the “New Left,” the conservatives reacted in horror, called for stamping out the upsurge of youth whom they found to violate their tastes in clothes and hair styling.
For their part, the New Left kids have proven to be almost as self-contradictory. For years they have instructed us all on the impersonal and subtly dictatorial factories these groves of academe have become: and for years Clark Kerr, president of one of the mightiest behemoths of them all, the University of California, has been held up as the most dangerous theoretician of this new and collectivistic “multiuniversity.”
But now that Kerr has been fired from his post, the New Left, with the honorable exception of Mario Savio, has leaped to his defense instead of breaking out with cheers of rejoicing.
Furthermore, the New Left has not realized that Governor Reagan, by moving to cut the university’s swollen budget has acted to reduce the very gigantic university system that the students have properly denounced. And the New Left, in protesting against Reagan’s proposal for charging tuition, has failed to understand that there is nothing progressive about forcing the taxpayers to pay for someone else’s education. On the contrary, shifting the burden of payment to the student himself will give the student-consumers far more power over their own education, and ultimately over their own fate.
One common argument in favor of conscription-slavery is that everyone has an “equal obligation to serve” the U.S. government. But apart from the dubious morality of forcing everyone to suffer as much as everyone else, this equality of obligation is impossible to achieve, because not everyone can have equal time in the front lines. Only a few can be in the front lines, to say nothing of cripples, the physically handicapped, etc.
Another common argument for the draft is that this degree of compulsion is necessary for “defense.” But then the question arises: defense of whom? Logically, this can be either the defense of the drafted person himself, or the defense of other people. In short, we can conscript A either to defend himself, or to defend B, C, D, etc.
The idea that A should be drafted because it is necessary for his own defense is a rather peculiar one. If Mr. Jones needs to be in the army in order to defend himself, then one would think that he should be permitted to decide this for himself voluntarily, and would leap at the glorious chance offered to him. If he really needs to be in the army in order to defend himself, then he will see this and make the choice on his own; there is no need for the State to employ coercion to make him do it. Besides, the idea that adults should be forced to do things “for their own good” is a completely totalitarian one. It is good, let us say, for Mr. Jones to have X number of vitamins per day. Does that mean that he should be forced by law to consume this amount, and that a vast Gestapo of law enforcers be hired to see to it that de does not flout the majesty of the law?
Furthermore, enslavement is a peculiar kind of “defense” against some foe’s hypothetical future aggression against Mr. Jones. We may well ask: what kind of aggression would this mistily far-off “enemy” commit against Jones that would be worse, or nearly as bad as, being enslaved into an army in which he might well kill and be killed?
Nothing that any future and dimly seen enemy will do to him is likely to be as vicious as the action committed against him by “his” government, here and now. A curious kind of defense indeed!
And who, we may ask, is around now to defend Jones against the people who are aggressing against him to the point of enslaving him into a military machine? Who is there to defend the draftee against his self-proclaimed “defenders”?
For centuries governments have been trumpeting far-off bogeys as an excuse for enslaving and sending to their deaths people who could be no worse off if the bogey ever really materialized. It is about time that we call a halt. It is about time that we stop our rulers from using this kind of con game to justify slavery and murder on a massive scale.
On any definition, “slavery” means forced labor.
One of the most pervasive cases of forced labor in America today is the withholding tax. Under the withholding tax, the employer is coerced by the government into recording and collecting his employees’ income tax, and turning that tax over to the authorities. Not only is this labor coerced by the government, but also that labor is totally unpaid. It is slave labor with no return. The withholding tax is a crucial element in that mass instrument of robbery known as the income tax. For before World War II, when the income tax was much lower and far fewer people were forced to pay it, there was no withholding tax at all. Every man counted up his tax at the end of the year and then was supposed to pay the government in a lump sum. As the income tax rose astronomically during the war, the federal government shrewdly imposed the withholding tax, forcing the employer to collect the tax as deductions from his workers’ salaries.
It is quite clear that if withholding-tax-slavery were abolished, the entire mammoth income tax robbery would fall to the ground. For the reason that the government can collect the tax smoothly is that each man does not have to get up the money in a lump sum; rather it is smoothly and seemingly painlessly extracted from him as he earns, so that he hardly realizes what is happening. If every man had to pay in a lump sum on April 15, mass evasion and non-payment would be so widespread that the entire system would break down.
It is instructive to remember a long-forgotten fact: that the withholding tax, suggested by Beardsley Ruml of R.H. Macy and Company, was supposed to be a wartime emergency measure only. It was accepted as a wartime emergency measure; and now, a generation later, it is not only still with us, but is a permanent and unchallenged part of our way of life.
The slavery of record-keeping and tax-paying holds also throughout the rest of the economy. Every businessman is forced to spend a great deal of time and money filling out endless forms and records for countless branches of government; federal, state, and local. He is forced to expend his labor without pay. These costs levied on everyone especially injure and hamper small business, which can far less afford the time and energy than can a large corporation.
Furthermore, every man, when he is forced to fill out his income tax return every year, must expend many hours of unpaid labor to figure out his own degree of victimization. And not only the income tax: the sales and other excise taxes are collected and paid by the retailers, and so they too must expend many hours of unpaid labor to collect taxes for the government.
Forced labor can never be expunged from our society until this compulsory tax-paying and collecting, this coerced record-keeping, is swept away.
Ever since the massive demonstration at the Pentagon on October 21, the growing anti-war movement in this country has escalated its confrontations with the police and, on occasion, with federal troops. The highly militant and turbulent demonstrations against Dean Rusk at the New York Hilton and at the Oakland Induction Center embody an important and dramatic shift in the strategy and tactics of the anti-war movement: in its phrase, it has shifted “From Protest to Resistance.”
Many Americans have deplored and denounced the “violence” engaged in by the demonstrators. This is a curious and misplaced emphasis on who is committing the violence that we see and read about. The troops and the police are armed to the hilt, and they face groups of totally unarmed demonstrators; it is invariably the police and the troops who do the clubbing, the kicking, and, of course, the arresting and incarcerating. How come nobody protests that massive violence, against which the “violence” committed by the demonstrators is virtually non-existent?
It is a curious world we live in. Here is the U.S. government, engaging daily in massive and brutal violence against the far less armed people of Vietnam, against virtually the entire civilian population, including the old, the women and children, North and South. Why does not the American populace rise up to denounce that violence?
For the first time in history, the American authorities release — deadpan — pictures of our prisoners being systemically tortured by our puppet troops with American troops looking on benignly. These pictures have been widely distributed through the news media. Who protests? Who cares? No, instead American indignation centers on some bearded youngsters who sit in at the entrances of induction centers.
To fully explain this reaction requires someone more expert than I in psychopathology. But one reason is fairly clear: the American public has been conditioned to believe that if the government commits violence, it is not really violence. Therefore, it is only when private persons or groups commit violence that indignation wells up.
When government officials — be they federal, state, or local — do anything, they are apparently clothed in such sanctity, such holiness and adoration, that their actions are transmuted automatically into the virtuous, the good, and the noble. All we need do to correct this confusion and to take a hard and accurate look at the government, is simply to apply the same moral standards to the minions of government that we would apply to anyone else.
That alone would be enough to make everyone a libertarian, and to expose the fact that the great source of crime and violence in the world today is the institution of government.
Lyndon Johnson’s April Fool peace offensive was, as Senator [William J.] Fulbright had the enormous courage to point out, a phony. Hanoi had repeatedly said that it would not negotiate until the United States unconditionally and permanently halted the bombing of North Vietnam. Johnson’s bombing announcement fooled many people into believing that this is what Johnson had decided to do; instead Johnson continued to bomb North Vietnam up to 200 miles north of the border and, in fact, he bombed this large zone much more intensely after the “bombing halt” than he had done before.
But Johnson had pulled an extraordinarily shrewd maneuver. In the wave of mass adulation and sentimentality over Johnson’s withdrawal, the massive hatred and distrust of Johnson at home and abroad evaporated and changed to sympathy and pity; and in the course of this shift, Johnson managed to accrue to himself the mantle of peace. As the American press proclaimed, Hanoi was now on the spot; without doing anything really constructive, Johnson had managed to acquire the aura of peace here and throughout the world. And Johnson confidently expected that Hanoi would maintain its long-held position, and then become, in the eyes of Americans and of world opinion, a stubborn war-making nation. Johnson could then resume and re-escalate the war with impunity.
Not only that: by his brilliant maneuver, Mr. Johnson was, at one blow, able to co-opt the entire “peace” position of Messrs. [Robert F.] Kennedy and [Eugene] McCarthy, his dangerous rivals. In all the justifiable excitement about the McCarthy and Kennedy campaigns, and in the general hope that they offer significant alternatives to the war, an important point has been lost sight of: For all their sharp criticisms of the war, neither Kennedy nor McCarthy go beyond a call for stopping the bombing and negotiating with all parties, including the National Liberation Front of South Vietnam. Neither call for immediate withdrawal from Vietnam. As a result, Johnson’s negotiation-and-bombing curtailment comes pretty close to the maximum demands of his rivals for the nomination. If Hanoi had refused to negotiate and Johnson had resumed full-scale war, Kennedy and McCarthy would have been hard put to resume their sharp attacks on the President’s policies. By agreeing to negotiate, Hanoi has, with equal shrewdness, tossed the ball back to President Johnson, or at least, has taken any onus off its own shoulders.
Aside from all this, will these negotiations bring peace? And when? For if Johnson is able to conclude a full peace settlement by the end of August, it is again possible that his lieutenants will be able to engineer a “draft” by acclamation of the new peace-hero.
I am reasonably sure that this will not happen; that, if peace is concluded, it is still a long way off. The Korean negotiations took two years to conclude peace, and the parties now are at least as far apart as they were then.
In all the stupefying tedium, hypocrisy, and flatulence of the Republican National Convention, there was only one refreshing moment of truth and candor: when the convention’s youngest delegate got up to speak. Paul W. Walter, Jr., twenty-one years old, had unexpectedly won his primary in Cleveland on an anti-Vietnam platform. Now he arose to second the clearly futile, sad, but somehow noble candidacy of Harold E. Stassen for president. To a bored and unheeding audience, Paul Walter addressed these words:
The 13th Amendment to the United State Constitution specifically prohibits involuntary servitude, and the government is supposed to be the servant of the people. And yet young men who cannot even vote are drafted to kill and to die in a war that is never explained.
We are taught, Thou shalt not kill, do unto others as you would have others do unto you, and love thy neighbor. And yet 10 percent of our Gross National Product is spent on war every year. ... And those few who do not put principle above personal ambition are threatened with prison, such as Dr. Spock, the 20th century Sir Thomas More. Or ridiculed as Governor Stassen, the modern Don Quixote. ...
These men have helped build the foundation for a lasting peace. The next time we deride them, we should ask if we have done as much . ....
Thank you for your inattention.
The reporter noted, as a supposedly classical symbol of the “generation gap,” that Paul Walter, Sr., had been a floor manager for Senator Robert Taft at the 1952 Republican convention. But the reporter was only following cliches and labels, and had forgotten even his recent history. For Senator Taft would have well understood and, I believe, warmly approved, as a veteran battler himself against war and militarism.
In one sense, though, the reporter was quite right. For few people over twenty-one today have been able to grasp what young Walter and the rest of his generation are talking about. For young Walter was, in a real sense, the spokesman for his generation at that convention, and we ignore him only at our peril.
We live in a land of euphemism, of changing labels so as to prettify or whitewash the harsh features of reality. And so, undertakers have become morticians, real estate agents have become realtors, press agents have turned into public relations counsel, and even rat catchers have been transformed into exterminating engineers. So has it been with the harsh features of our economic reality.
Down to the late 1930s, when the economy turned downward and economic activity slackened, all economists called such periods depressions — and the public knew that, whether the periods of contraction be mild or severe, they were depressions. Period. But then, when the patent medicine nostrums peddled by the New Deal to end the depression of the early 1930s led only to another severe crisis in 1937, the Brain Trusters of the New Deal decided that if they could not fix up reality, they could at least juggle its labels. And so depression miraculously became recession. Depressions were henceforth banished from the land, never to return — by definition. From now on, every economic contraction was to be called by the much milder name of recession.
The result was that while depressions were magically banished, we began to suffer a whole series of recessions, dips that seemed suspiciously like the obsolete depressions: in 1948, 1953, 1957, and 1960. After the lengthy boom from 1961 to 1966, one of the longest in American history, our economic managers began to trumpet the idea that recessions, as well as depressions, were a thing of the past, victims of the “fine tuning” management of the wizard regulators and controllers of the New Economics. What a shock, then, when the economy began inexorably to dip and contract again toward the end of 1966! Was reality again about to destroy the cherished vaunting of the nation’s Brain Trusters?
But no! Lo and behold! Euphemism and name-juggling came once again to the rescue. Recession, too, appears to have been banished by definition. Our economic pundits could not deny that their own statistics revealed a considerable downturn in the economy: in housing and construction, in corporate profits, in capital good investments and industrial production — in short, in all the accepted indicators of what is happening in the economy. But this contraction has not, heaven forbid, been called by the term “recession,” which is now too harsh for American consumption. We have suffered, since late 1966, from a “rolling readjustment,” a “sidewise movement,” or “a pause” — depending on which expert you read. But don’t let them kid you: we’re in a solid, old-fashioned recession — if not depression — though obviously not a particularly severe one. It is possible that when, as seems likely, we pull out of the recession toward the end of this year, the nation’s economists and managers will admit that we were in a recession — but that now things are fine and getting ever better. Or, it’s even more likely that the word recession will be quietly buried forevermore. So now we have to worry about “pauses” or “readjustments.”
The best way to beat this flim-flam is in the spirit of the angry boy in the old New Yorker cartoon: The mother pleads with the boy: “Eat your broccoli, dear.” To which the lad replies: “I say it’s spinach, and I say to hell with it!”
The most revealing fact of the July civil war in the American cities was the continuing parallel to the attitudes and actions of America’s imperial war in Vietnam. The American troops’ attitudes toward the Negroes in the urban ghettoes followed with uncanny similarity their attitudes toward that other oppressed colored people: the Vietnamese. This is apart from the fact that American Negroes are drafted to fight and die in disproportionate numbers in the Vietnam War.
Newsmen reported that, on New Jersey Governor [Richard J.] Hughes’s staff during the fighting, there were the “hawks” and the “doves.” Terms like “hold and clear,” “search and destroy,” began to be applied. Revealing also was the famous interview (New York Times, July 29) with Maj. Gen. Almerin C. O’Hara, commander of the New York State Army National Guard. General O’Hara called for a “greater commitment of force” to bring riots under control, and added the amazing statement that he would “not rule out the use of any weapon.”
Escalation once more raises its ugly head; will someone soon suggest the use of tactical nuclear weapons on American cities? “Clean” ones, of course, so that the fallout doesn’t filter down to white areas.
The General, however, assures us that while he contemplates the use of hand grenades, bazookas, and recoilless rifles, the chances of using heavy artillery are “very remote.” Well, we must be grateful for small blessings.
General O’Hara insisted that National Guard actions must be under the authority and decisions of the military, including choice of tactics and weapons, since “civilians are not cognizant” of these delicate fine points. “These are military decisions which should be left to military men.” O’Hara also stressed that the National Guard must not be “unduly restrained by civilian authority,” because “if the military is brought in and they lose control, then what do you have left?”
The answer, it would appear, is no control at all, and in a supposedly “freedom-loving” country, is that so unthinkable?
General O’Hara conceded that the standard riot control techniques — stressing closed formations with bayonets at the ready — are “not really adequate for the kind of guerrilla warfare (these are American cities, remember, not Vietnam) and snipers we face these days.” Instead he said that “military methods used in flushing guerrillas out of a village in Vietnam could be adapted to guerrilla warfare in the ghettoes.”
“Of course,” he added wistfully, “we can’t do just what we would do in Vietnam. Out there if you had a sniper in a room you’d just crank up a tank and fire a shell through the window, destroying the whole room, and much of the building. I don’t think public opinion would accept the use of that kind of force here.”
Poor General O’Hara. To be hobbled like that! But cheer up, General. I’m afraid that public opinion might well support that kind of force — provided, of course, that it would not be used in white, middle-class areas. If that ever happened, you’d really have trouble on your hands.
When the Establishment Press really zeroes in on someone and smites him from pillar to post, day after day, then it is a safe bet that he can’t be all bad. It is also a wise move to dig further and find out the reason for all this uniform wrath. So in the case of Charles de Gaulle, whom the press, liberal and conservative, has been denouncing and vilifying for years.
Why? Well for one thing, conservatives feel that they have been betrayed. The right wing is perpetually on the hunt for a Strong Man, a Man on a White Horse, who will come and, by stern dictatorial measure, bring us forth to our true rightist mission of National Glory and World Crusade. The right was therefore delighted when a coup brought down the Fourth Republic in France and elevated General de Gaulle to a quasi-dictatorial post over the French nation. Here was a man with seemingly all the qualifications to be beloved of the right wing: a general; a grandiloquent national patriot filled with the rhetoric and the mystique of French national grandeur; a man who tied in his own personal sense of glory with France itself. Who better?
It was at that point when the right received its shock. For “le grand Charlie,” instead of instituting rightist measures, proceeded on a very intelligent and sensible course. De Gaulle had learned the lesson of the crippling defeat of the French empire in Indo-China. He had learned that, in spite of his own personal preference for Glory and Empire, France in this day and age could not afford the cost, financial and political, of trying to hold onto rule in places where the native population had risen up to win its independence. And so de Gaulle decided to adjust to the new world, to pull completely out of the French empire in Algeria, and to make genuine peace with the lands formerly in colonial subjection. The wrath of the right, both in France and the U.S., at de Gaulle has never abated since.
He dared to pull out where France was not wanted and to grant the natives their independence! And ever since, as at Quebec, de Gaulle has become a firm partisan of the struggles for independence by all of the Third World, including his courageous support of the Arab cause in the Middle East.
In Europe, too, de Gaulle decided that it was far better for all to abandon the American-induced posture of hostility and division between the East and West power blocs. Clearly, it would be better for all of Europe, East and West, to live in peace and harmony, and to opt out of the damaging and potentially catastrophic cold war struggle. Hence, de Gaulle’s persisting attempts to achieve friendship and peaceful co-existence with Soviet Russia and Eastern Europe.
In contrast, de Gaulle, angry at American imperialism’s attempts to push France and every other western nation around, declared for genuine political independence from the U.S. Hence the anger of the Liberal Establishment toward France.
And last but not least, de Gaulle’s admirable political independence has been matched by a healthy economic independence, best expressed by his firm refusal, in the face of maximum political pressure by the United State, to go along with Anglo-American policies of easy money and inflation. Guided by the libertarian economist and monetary expert Jacques Rueff, de Gaulle has fought the good fight, almost alone, for hard money and for a return to a genuine gold standard at a realistically valued rate (e.g., $70 or so per ounce instead of the current absurd rate of $35).
De Gaulle has, virtually single-handedly, stood between all of us and an eventually disastrous worldwide inflation propelled by Britain and the United States. These are some of the reasons by the Establishment, both right and left, hates de Gaulle, and why the rest of us should not.
For at least two decades we have been living in a society that has taken on all the characteristics of fascism. At home we have the fascist corporate state economy: an economy of monopolies, subsidies, and privileges run by a tripartite coalition of Big Business, Big Unions, and Big Government; and we have a military garrison state, with permanent conscription, tied to a permanent war economy fueled by armament contracts. We have an effectively state-owned or at best state-run educational system, from lower to higher, imbuing its charges with the glories of our government and our system, and training them to become cogs in the military-industrial-bureaucratic complex we have become.
In foreign affairs we have expanded all over the globe, grabbing bases and running governments everywhere, all in the name of a global crusade against the “international Communist conspiracy.”
So far, then, we have duplicated fascism right across the board — except in one vital detail: We have not yet cracked down, except marginally, on freedom of speech and freedom of dissent in this country. But now the signs are ominously piling up that this particular and crucial aspect of freedom might be going down the statist drain. For the government is beginning what appears to be a massive crackdown on the growing anti-war movement — probably because it could tolerate this form of dissent only as long as it remained confined to the fringes of society. But now that the anti-war movement has been growing by leaps and bounds in numbers and in militancy, in breadth and in depth; now the government seems to be getting ready to revive the repressions on dissent which were rampant in the early stages of the Cold War.
There are many indications of this crackdown, from General Hershey’s threat to use the draft to punish opposition by anti-war students, to the army’s conviction of two anti-war activists near Ft. Sill, Oklahoma, for “trespassing on government property.” But three leading instances will suffice here. First, Walter Teague and Mike Gimbel, two officers of the U.S. Committee to Aid the National Liberation Front of South Vietnam, after being beaten by police during the anti-draft demonstrations in New York last December, were indicted for outrageously severe charges; such that Teague, if convicted, faces up to fifteen years in jail, while Gimbel, against whom the charge is mere possession of a bottle of explosive powder, faces up to seven years in prison!
Secondly, the militant black nationalist writer LeRoi Jones, arrested and accused of possessing two revolvers, was convicted for this alleged crime and condemned to three years in prison without possibility of probation. Even if the charge is not a frameup, why should possession of a weapon make one a criminal? Is it not everyone’s property right, as well as his constitutional right, to bear arms? But neither liberty nor property are the concern of those out to savage LeRoi Jones, and their true motives are revealed in the judge’s bothering to read aloud, when making his decision, from Jones’ poems, which are hardly related to his possessing a weapon. So now judges are literary critics, too!
The third, and most noteworthy, crackdown is the Justice Department’s decision to indict, for possible long jail sentences, on the charge of exercising freedom of speech — counseling people to resist the draft — several leading figures in the anti-war movement, including Dr. Benjamin Spock and Yale Chaplain Rev. William Sloan Coffin. But good may emerge from this move toward fascism’s last stage. We might see the courts declare the draft unconstitutional, as it surely is under the 13th Amendment’s outlawry of involuntary servitude. At any rate, I predict we are going to see the anti-war movement do the reverse of the early Cold War movement’s folding up and quitting — this movement is much too principled and determined for that.
The always perceptive Wall Street Journal recently printed a chilling report on the mood of Lyndon Johnson and the White House staff. While the administration promises up and down — even including the Hitlerian tactic of getting written guarantees from his generals — that Khe Sanh will hold, privately they are beginning to concede that Khe Sanh might well fall to the Viet Cong. The parallels between the 6,000 Marines trapped and surrounded at Khe Sanh and the 15,000 French troops trapped and captured at Dien Bien Phu fourteen years ago, are too numerous and too close to overlook. The disastrous strong-point strategy; the surrounding by a vast majority of enemy troops; the bombardment by artillery; the reliance on airlifts to supply the beleaguered troops; the inability even to secure the airfields; even the famous enemy tunnels and trenches which bring enemy fire up to the perimeter of the fortress; all these suggest the same inevitable conclusion.
The chilling thing is that administration officials are beginning — privately — to concede that Khe Sanh might well fall to the VC. But, they are beginning to reason in the increasingly mad logic of this administration, this might not be such a bad thing in the long run. For a massacre at Khe Sanh would mobilize and unify the American people behind the Vietnam War, and would permit the president to escalate that war still further: to go to Congress for a declaration of war on North Vietnam, for greater mobilization of bombers and land troops, and, last but not least, for the imposition of censorship and the ruthless cracking down upon free expressions of dissent within the United States.
If, indeed, this is the calculation of this administration, then we are in for a rough time over the next several months. But Johnson may be miscalculating — not about the probable fall of Khe Sanh, but over the mood of the American people. Historically, the American people can be hysterically stampeded into war at the sudden beginning of a conflict; stampeded by their rulers, who are anxious to expand their power and might, at home and abroad. This is what happened in the Spanish-American War (“Remember the Maine!”), World War I (the Lusitania sinking), and World War II (Pearl Harbor). But let a war drag on for years and let the American public get adjusted to the continuing drain of a protracted conflict, and its increasing war-weariness and disgust cannot be overcome by rage at sudden disasters. It’s too late for that.
Meanwhile, in Vietnam, the VC continue their winning course. The permanent result of the VC offensive in the cities is as important as the drama and psychological gains of the offensive itself. For the Viet Cong are now firmly entrenched on the borders and outskirts of every city and every American military base in Vietnam, and they can shell and lob mortars into these areas at will; they can shift their attack and concentrate at will. In a deeper sense, every American enclave in Vietnam is now another Khe Sanh.
Any current drive for the abolition of slavery would only draw apathetic shrugs from the American public. Wasn’t slavery abolished in the United States over a century ago, and aren’t the only remaining signs of it confined to such backward countries as Yemen and Saudi Arabia? The answer is emphatically, No! and we shall be devoting a series of columns to pointing out the vast amount of slavery that still exists — unheeded and accepted — in the good old US of A. As in all cases of slavery, they cry out for abolition, but so far few if any voices have been raised to take up that noble cry.
The outstanding example of slavery still existing in the United States is, of course, the draft. A century ago Americans added the 13th Amendment to the Constitution, which abolished involuntary servitude. If the draft isn’t involuntary servitude, it is hard to know how that term can be defined, and yet no part of the American judicial system has bothered to bring the servitude of conscription under the rubric of the Thirteenth Amendment.
Almost everyone admits that the current operations of the draft system are absurd and inequitable, in which some young men are grabbed while other go permanently free. To correct this kind of inequity of oppression, there are two directions in which we can move: draft everyone, or abolish the draft altogether. This idea that if some are drafted then all should feel the yoke is tantamount to saying, in the days of Negro slavery, (a) that if one slave manages to run away, he should be dragged back to slavery in order to be “fair” to his fellow victims, and (b) that everyone in the society should be enslaved equally. The libertarian, in contrast, wants everyone to be free of either the draft or old-style slavery, but he cheers when anyone is able to escape the monstrous yoke. The “draft-everyone” school of egalitarians, furthermore, can never succeed in their aim of imposing compulsory uniformity on all. Because even if everyone is drafted for “national service,” a state that Secretaries [Robert S.] McNamara and [W. Willard] Wirtz may be aiming for, only a small number will be sent to the front lines of military service; others will have to grow food, produce equipment, man the supply lines, etc. So any attempt to impose equality of condition violates the nature of the world and must fail.
The rational course, therefore, is to cheer when anyone escapes the draft and to call for its abolition, not to try to make everyone suffer “equally.” The only equality that can be achieved in the world, hence the only rational concept of equality, is equality in liberty.
Some varieties of slavery permeate American life today and go completely unrecognized — even by the staunchest libertarians. Take, for example, one flagrant case which, as far as I know, has never been attacked by even the most consistent individualist: compulsory jury duty.
Jury work may or may not be a noble task, but the vitally important point about this work is that it is conducted under slave conditions; for, though the term of slavery may be short, compulsory jury duty is slavery, nonetheless. Men are routed off their jobs and herded, under pain of prison, to the courts, where they must sit or do actual jury service for several weeks, at pay approximating that of an Asian coolie. What is this if not slavery, if not involuntary servitude?
Defenders of the compulsory jury system claim that juries should constitute a cross-section of the community, and that this would not occur if jury service were voluntary. In the first place, juries are never cross-sections of the community; they are invariably hand-picked by “preferred” occupations and income levels. It is rare, for example, to see an unemployed laborer on a jury even though he is precisely the sort of person who might be willing to serve, even at today’s miniscule levels of pay.
But the important point is not that juries are invariably hand-picked and discriminatory; the important point is that jury service is involuntary servitude. Precisely because jury work is so important to the lives and properties of the people, it is vital to have people on juries who come there willingly and voluntarily. And it is vital, too, to pay them enough so that they would be willing to perform this service.
If its defenders are right, and the jury system cannot survive on a voluntary basis, then so much the worse for the jury system. Any institution that cannot survive based on freedom of labor is clearly not worth surviving.
If we are to draft juries for slave wages, why not draft our judges as well? Or draft lawyers in general? Lawyers, however, are exempt from compulsory jury slavery, and hence our law-makers, who are largely lawyers, tend to look benignly on this draft system.
Well, this month marks our fourth full year of the presidential rule of Lyndon Baines Johnson, and it is high time to sum up his reign. These four years have been years of enormous frustration and resentment on the part of America’s liberal intellectual community. Here was a man who looked and still looks upon FDR as his political mentor — a man who ran with the support of the ADA [Americans for Democratic Action], of old and new New Dealers, of all authentic liberals — and here is a man who is now universally reviled by those former supporters.
The whole saga is very reminiscent of the way Trotsky and his followers felt betrayed by Stalin. The horror and brutality of the Stalin era were felt to be some sort of monstrous perversion, some inexplicable intrusion into the original Lenin-Trotsky ideal. And now the horrors and warmongering of Johnson are felt to be another inexplicable betrayal of Roosevelt-Truman-Kennedy liberalism.
But the situation is not that simple, as uncomfortable as this truth will be for our liberal friends. Stalin was the logical outgrowth of the “ideals” of Lenin and Trotsky. In the same way, Lyndon Baines Johnson was and still is a liberal through and through. By launching imperial war against foreign countries, by expanding the power of the state over the economy and the society, by bringing ever greater military control of society, Lyndon Baines Johnson is only following in the footsteps of his — and the intellectuals’ — beloved mentors, Roosevelt and Truman. No wonder Lyndon feels puzzled and betrayed by the rancor of the liberal intellectuals! He is only doing what they and their mentors taught him: he is expanding unchecked presidential power in foreign and domestic affairs and launching imperial global crusades in the name of “world freedom” and “collective security.” So why the fuss and feathers?
The liberals have got to wake up to the great truth that Lyndon Baines Johnson is liberalism in action-liberalism personified. This instructive lesson will be lost upon them if they grow increasingly horrified at his despotic and dangerous rule; if they do not realize that what they are seeing is not a personal aberration of the Devil, but the ultimate triumph of their own liberal principles. If they don’t like what they see, they must abandon liberalism, and rapidly.
Meanwhile, the conservatives could use a lot of soul-searching, too. Whatever they had in anti-statist principles has long been swept away, sacrificed on the altar of the latter-day crusade against the Communist wing of statism. Conservative enthusiasm for Johnson and his cohorts can be gauged by the enormous conservative support for Senator Thomas Dodd (D., Conn.), a man with a virtually 100 percent ADA-liberal record. The old categories are dissolving fast.
This is an Olympic year and, like every Olympic year, it is a good time to contemplate the curious relic of “amateurism” that threatens to wreck every Olympics and many sporting events. At the Winter Olympics in Grenoble there was, and still remains, a recurring threat to disrupt and wreck the games on the altar of the amateur “ideal”; for a while the Olympic authorities almost ruined the ski events by insisting that the players wax over the names of the ski manufacturers, and now there is talk of robbing the great Jean-Claude Killy of his skiing medals because he might have accepted money for appearing in a photograph.
The phony amateurism ideal is based on the aristocratic, pre-capitalist theory that there is something wicked and evil, something tainted, about accepting money on the market for an expenditure of one’s efforts and one’s talents. And that there is something holy, pure, and noble about refusing to earn money for expending one’s talents. This is a hangover from the old sneering by the feudal nobility and the court at engaging in trade or in business; at earning money for one’s ability on the free market.
There is no question about the fact that the amateur principle is unrealistic; hence, all the evasions and short-circuiting of the amateur principle, and endless squabbles about how much non-athletic work an athlete must do for the corporation or organization that hires him before he can qualify as a simon-pure “amateur.”
It is possible that the quality of American tennis might be saved because, at long last, amateur and professional tennis players will be allowed to participate in some of the same tournaments, a battle that was won in golf long ago.
There is no question that scuttling the amateur concept is the wave of the future, and that someday the distinction between amateur and professional will be dead as the dodo. But the point is that we should cease to regard octogenarian Avery Brundage and his fellow last-ditch champions of amateurism as battlers for the noble ideal; amateurism is a feudal remnant, a moral slap-in-the-face at everyone who earns his living honestly, and to the best of his abilities, on the free market.
It should be repudiated not only as unrealistic, but as pernicious and the opposite of an “ideal.”
For nine days the garbagemen of New York City were out on strike, and the streets were piled high with putrefying mounds of garbage. The press and the public have been infuriated by the strike but, as in so many matters, the fury has been sadly misplaced. Government actions, backed by the public, have been the wrong war at the wrong place at the wrong time.
In the first place, Mayor John Lindsay stubbornly refused to accept the offer of the state mediation panel, and instead called on the governor to call out the National Guard to take on the duties of hauling and dumping the city’s garbage. There are several things very wrong about this procedure. First, the amount of money it takes to call up the National Guard would cost the New York City taxpayers twice as much per day ($500,000) as it would cost per year if the mayor accepted the ;mediation offer as compared to the amount for which the mayor is holding out. Second, the National Guard is not very competent in garbage disposal, especially in operating garbage scows and cranes and incinerators. In short, you can’t move garbage with bayonets.
He says it’s a matter of “principle.” First, the city should not give in to “blackmail,” and second, the sanitation union is violating the state’s Taylor Law, which outlaws strikes by public employee unions. Because of this law, Lindsay acted swiftly to put the head of the union, John Delury, in jail. But he soon found that jail doesn’t move garbage either. And so, the violence against Delury having failed abysmally, Lindsay proposed to escalate that violence by putting the National Guard into action — against which labor threatened a general strike throughout the city. The high “principle,” then, turns out to be a despotic law violating everyone’s inalienable right to strike; that is, to quit working — especially since there was no contract in force. Any law invading the right to strike comes close to being a slave-labor law.
So, within the context of the situation, Governor [Nelson]Rockefeller was perfectly sound in looking for mediation and in wanting to end the strike as quickly as possible and to get the garbage moving again. Lindsay’s actions turned out to be petulant, hysterical, and despotic; and yet, Lindsay’s position was backed fully by all the press of New York and by most of the public, which contented themselves with empty vituperation against the sanitation union.
In the broader sense, of course, the main problem is that the entire society has put itself at the mercy of labor unions, by passing laws privileging these unions and making them quasi-compulsory and, further, by accepting as some God-given rule the idea that no strike may be broken; in short, that it is unthinkable to simply fire strikers and hire replacements.
Thus, Mayor Lindsay would much rather jail union leaders than simply fire them and hire others in their place. For the corollary of the right to strike, which should be inviolable, is the right to fire strikers and to hire those who are willing to work at terms offered by the employers.
Campaign year 1968 is rapidly educating the American people to the futility and the undemocratic nature of the electoral process. For in the face of all the polls and other expressions of public opinion that reveal McCarthy and Rockefeller as by far the most popular of their respective parties, the party hacks who run the Democratic and Republican conventions are determined to nominate their choices: [Hubert H.] Humphrey and Nixon. This blatant flaunting of the will of the oligarchy in the face of popular choice shall not be forgotten this time; and many millions will become permanently disenchanted with the entire American political process.
It is also more evident than ever before that there is hardly a smidgin of difference between the two major party candidates. Both Humphrey and Nixon are pre-eminently the spokesmen of hawkishness and aggression abroad and of the welfare-warfare corporate state at home: Both want to continue the New Deal-Fair Deal and both want to combine the carrot of federal funds with the stick of armed suppression to deal with the urban ghettoes. The fact that Humphrey’s rhetoric is slightly more progressive-statist and Nixon’s more conservative-statist is purely a function of their respective constituencies within the broad Corporate State consensus. The difference is purely that: a matter of rhetoric only.
And yet the disquieting thing is that Nixon, over the years, has shown the ability to attract a number of people who even call themselves “libertarians.” I remember well the campaign of 1960, when a whole slew of my friends and acquaintances, many self-styled “libertarians,” began popping up in the Nixon camp, some high among his staff of advisers. Their story was always the same: “Privately, Dick really agrees with us; he told me this many times. ...” Etcetera. What malarkey! Why didn’t these fools realize that being all things to all men, that agreeing with whomever is last in your office, is the politician’s stock-in-trade? Put not your trust in princes: consider only their public performances, and not their private promises. One would think that libertarians, at least, would be sensitive to this truth.
And now the whole farce is being repeated once more; again, self-styled libertarians are high up in the Nixon campaign and again they proclaim his devotion to liberty, privately and down deep. Men who have loudly trumpeted their refusal to work with anyone who deviates one iota from the pure libertarian cause are now gleefully paid advisers to Nixon; the deadly smell of power is doing its work. It is almost a good enough reason to take sides in this repellent campaign: to thwart the corrupted ambitions of “libertarians” who have surrendered to the siren song of power.
We cannot fully understand the nature of the crisis in the Middle East by just following today’s and yesterday’s headlines. There are far deeper and longer lasting factors at work than merely who commands the Strait of Tiran or who is responsible for the latest border skirmish in the Gaza Strip. The first thing that we as Americans should be concerned about is the absurdity of the fundamental foreign policy position of the U.S. government. This is a doctrine that the United States first adopted, to its woe, in the late 1930s and has clung to ever since: the doctrine of “collective security.” The collective security thesis assumes that, at whatever moment of time one happens to be in, the territorial distribution of States on the world’s surface is just and proper. Any forcible disturbances of any governmental boundary anywhere, then, automatically becomes “aggression” which must be combated either by all other nations or by the United States itself, acting as “world policeman.”
In short, the whole thesis of collective security that has guided American policy for thirty years rests on a ridiculous analogy from private property and the function of police in defending that property. Mr. Jones owns the property; it is then certainly not absurd to say that he has an absolute moral right to that property and that, therefore, any invasion of that property by force is immoral and unjust. It is also not absurd, then, to say that it is just for Mr. Jones’s property to be defended by some form of police (whether public or private is not here at issue).
But surely it is worse than absurd to leap from this concept of just private property to say that a State’s territory is equally just, proper, and sacrosanct, and that therefore any invasion of that State’s self-acclaimed territory is just as wicked as invasion of private property and deserves to be defended by some form of “police.” All State territory, without exception in history or in any part of the world, was obtained, not by legitimate voluntary productive means such as used by Mr. Jones or his ancestors, but by coercion and violent conquest. Therefore no one allocation of territory — certainly no allocation of territory that happens to exist at any moment of time — is ipso facto proper and just and deserving of any form of defense. If, in Year 1, Ruritania grabs part of the territory of Waldonia by force, then surely it is nonsensical for the United Sates or some other group to step in with righteous indignation when, in Year 5, Waldonia tries to grab that territory back. Yet this is precisely what is implied in the whole theory on which the United Nations is grounded, and in the U.S. foreign policy to “guarantee the territorial integrity of all the nations in the Middle East.”
Basic to the current crisis in the Middle East is the fact that such Israeli territory as the port of Elath, and indeed the entire Negev desert area surrounding Elath, which is now a big bone of contention between Israel and the Arab powers, was grabbed by force from the Arabs by Israel in 1948. For the US, then, to go to war to “defend the territorial integrity” of Israel in the Negev would be, on this and on many other grounds, the height of folly.
When they finished nominating Dick Nixon at Miami Beach, the Republican delegates were far from happy at a job well done; instead, they were gloomy, glum, and dispirited. And why not? They had just nominated a two-time loser, a man who had not won any election for eighteen years, a man who inspires no enthusiasm anywhere in the country, a man consistently behind Nelson Rockefeller in the public opinion polls.
That was bad enough. But at least the delegates expected a fresh, appealing, popular face to pep up the ticket, to nail down victory in a very difficult campaign. What they got was a contempt-filled slap in the face. For they found in blank amazement that they were expected to nominate a man whom almost nobody, outside the state of Maryland, had ever heard of: Spiro T. Agnew. Aside from a few of the more honest delegations, the conventioneers swallowed their pride and expressed their loyalty to the ticket; but they left that convention in moods ranging from numb despair to bitter hatred. They had desperately wanted and expected to get a vote-getter to hype the ticket; what they got was one of the most catastrophic bombs in American political history: a man who could attract no votes, but lose many because of the very cynicism of the entire operation.
Why was Agnew picked? Three reasons: What was wanted was a man who was familiar with the cities. Agnew is, but he is not popular with those few who know him, since he takes a tough “shoot-the-looters” line, a line which instead makes him popular in the rural South. Second, he could not be vetoed by any section of the country, surely, since few had ever heard of him. Three, he agrees with Nixon’s conservative views on Vietnam and looters, while being so colorless that he couldn’t possibly outshine the not very colorful head of the ticket. Nixon, in short, wanted someone to run with him who was a safe, colorless cipher, to go along with a bland campaign which will rest on puerile obeisances to the flag, to motherhood, and to opposition to crime (as if anyone favors crime!). Nixon got that cipher in Spiro T. Agnew.
Nixon got his cipher, but in doing so Tricky Dick has outsmarted himself. He has offended not only the Republican Party, but the American people, in picking a choice so far removed from popular will or enthusiasm. Dick Nixon, like Tom Dewey twenty years ago, has managed to snatch defeat from the jaws of victory. Losing seemed a difficult thing for the Republicans this year, but the G.O.P. has once again managed this feat. Unless Hubert Humphrey manages to alienate the American public even more, Richard Nixon has had it; come November he will be a three-time loser, and it couldn’t happen to a more deserving fellow, or to a more deserving party.
Tanks rumbling through the streets, buildings sprayed wholesale with machine gun fire, the rubble pervading the cities looking like Germany in 1945, compulsory curfews and blockades imposed — who would have thought during the Age of Apathy in the 1950s that, a decade later, America would be reduced to this? And who can now deny that the Negroes in America are a colonized and occupied people? The tanks, the National Guardsmen and state police, the federal troops, are merely the outward manifestation of this ever-present fact.
p>Ask yourself: If a white neighborhood were rioting and looting, would buildings be pulverized en masse by state and federal troops, wounding and killing thousands of innocent people? Would curfews be imposed and streets blockaded? Would apartment-to-apartment searches be made, as at Plainfield, New Jersey, breaking down doors and destroying furniture without bothering about search warrants? Of the thousands wounded during this virtual civil war of July, 1967, almost all were Negroes, and the vast majority were shot by trigger-happy white troops, concerned only to “shoot everything that is black and that moves,” in the words of one officer. Since the greatest degree of devastation and shooting was performed by the state troops, we are justified in calling the July civil war an exercise in mass counter-revolutionary violence perpetrated by the government, in response to a far more limited Negro rebellion against a white state. For when the very basis of the state is challenged, or seems to be, the state’s violence is many times that of the rebels.And ask yourself also: By what right does the state move in and shoot looters? Surely looting cannot be condoned, but capital punishment for looting, which is what shooting amounts to, is just as criminal and unjustifiable. In my view, a criminal forfeits the rights which he takes away from another person; and therefore a murderer, who takes away from another person his right to life, deserves capital punishment. But surely, and by any known moral standards, capital punishment for mere robbery is so far excessive a punishment that it, in turn, amounts to criminal murder of the victim. We all revile the days of pre-Industrial Revolution Britain, when petty thieves were executed. Are we to return to that brutality now?
Perhaps the most incredible aspect of the July warfare was the decree of the mayor of Milwaukee — one that was universally applauded — forcing everyone off the streets! This, to be sure, ended the riot, but what did it do to the liberty of everyone in Milwaukee? Can we tolerate a country where no one is allowed on the streets because someone might commit a crime? The mayor only ended rioting in Milwaukee by turning that city into one vast jailhouse, and free men cannot tolerate this sort of action.
If the Negroes in America are, indeed, an occupied and colonized people, then we must give serious consideration to a solution which, baldly stated, seems absurd and ridiculous: the partitioning of the United States into white and Negro nations. This solution will be explored in future columns.
One of the most heartening developments on the current American scene is the new nation-wide organization, Business Executives Move for a Vietnam Peace. These dedicated businessmen came from all over the country to meet at the Statler-Hilton in Washington on September 27, to form their organization and expressed their determined and cogent opposition to the war in Vietnam. There were none of the very big businessmen represented here — none of the Rockefellers, Watsons, or Weinbergs — in short, none of the big businessmen tied in with the federal government and its machine for war spending and war contracts. These were the middle-rank executives throughout the country, presidents of their own firms, genuinely tied in with the free, private market economy.
It is one of the widespread socialist canards that wars are brought about by the capitalist economy; that wars are inherent in the private enterprise system. The truth is really the reverse: since the rise of business enterprise, this system has been one of the requisites and mainstays of free trade, free markets, and international peace. All of these go hand in hand. But, as one cynic once shrewdly said, “The only thing wrong with capitalism is the capitalists,” and particular capitalists have often turned to the state to promote wars for their own benefit. In doing so, they have given the capitalist system as a whole an undeservedly bad name. Now these businessmen have come forward to redeem that name.
The most publicized speech at this gathering was made by Senator Thruston Morton (R., Ky.), who has so far embraced the cause of peace, in contrast to his usual bland and mild position on public affairs, that he accused President Johnson of being “brainwashed” to extend the war, and he particularly pinpointed the sinister influence of that “military-industrial complex” that President Eisenhower warned us of in his clearest and most penetrating public address. Morton’s speech reflects a growing and pervasive shift toward peace by congressional Republicans, sparked by the much-abused Republication staff White Paper on Vietnam a few months ago. Doubtless these Republicans remember that Eisenhower was elected in 1952 largely on his “I will go to Korea” pledge, which led to the ending of the Korean holocaust.
Even harder-hitting was the address to the businessmen’s group by Marriner S. Eccles, San Francisco and Utah businessman and former head of the Federal Reserve Board. Eccles stressed that the Vietnam war was causing a huge federal deficit, an increase in income taxes, and higher costs of living. On the Vietcong, Eccles declared: “They are fighting for national liberation and unity of South Vietnam: the causes for which others, including Americans; have fought.” He added:
To withdraw is sanity. [Applause] The consequences of withdrawing cannot possibly be as disastrous for this nation as pursuing our present course. [Applause] The greatest service we could render the Vietnamese is to withdraw from their country, leaving them to negotiate a conclusion to the war, which is their right. [Applause]
And Admiral Arnold True (Ret.) warned the businessmen that unless American foreign policy was completely changed and stopped supporting dictatorships everywhere, we’d be faced with many “Vietnams” in Africa, Asia, and Latin America.
Business Executives Move for Vietnam Peace can be contacted through Harold Willens, President, Factory Equipment Supply Co., Los Angeles; or Henry E. Niles, Chairman, Baltimore Life Insurance Co.
In recent years the nation’s conservatives, bitter and angry at Supreme Court decisions preserving the rights of the individual against the police, have begun to demand a new Constitutional convention which could totally rewrite our present document. Rubbing their hands with glee, the conservatives have believed that the new convention would devote itself to such cherished conservative tasks as: (1) making sure that a rural voter gets several times the voting power of an urban or suburban voter, and (b) allowing the police to run roughshod over the rights of the citizen in the name of fighting crime. Why libertarians should devote themselves to either of these goals is, of course, a grim mystery.
The conservative view of the world is a curious one, and never has this fact been more glaring than in their drive for a new convention. Apparently, the conservatives either do not know or do not care that any new convention would obviously make our present charter much worse than it is — providing far more channels for state dictation over the individual. Or perhaps conservatives don’t care how statist we become, so long as the police share a good chunk of the new governmental power.
At any rate, a good test of what would happen in any new convention occurred recently in New York State, which just concluded a Constitutional Convention of its own. The major achievements of “ConCon” are twofold: (1) removal of the public referendum barrier to new state and local bond issues, and (2) removal of the old Constitutional barrier against state aid to parochial schools.
[The first change] means that no longer will the people have the right and power to vote down the endless stream of school bond and other bond proposals which the big spenders in government spend their lives concocting. In recent years the people’s power to vote on these boondoggles has proved a serious embarrassment to the Establishment, as bond after bond issue has been voted down — calling down the wrath of educationists, school boardsmen, intellectuals, and bankers who underwrite the bonds. Now the ConCon proposes to rid the State of New York of this annoying democratic encumbrance on its collective will.
The second major change proposes to put a serious breach in the important American principle of separation of church and state. This separation means that the state shall have no power to meddle in the religious life of the country — a perfectly exemplary principle that the libertarian would like to extend to other spheres of society as well. But the conservatives, of course, are in the forefront of wishing to bring the state and church together. In the process, the long-suffering taxpayer would be hit again, this time for subsidies to religious schools not of his choice.
It is instructive to see how left and right have divided in New York over this new Constitution. The civil-libertarian-left opposes it because of the parochial school plank; the budget-conscious-right opposes it because of the end of the referendum barrier to state spending. In the center are a mass of supporters — especially among Catholics — who approve heartily of both changes. The libertarian, of course, heartily opposes both, and therefore is more devoted than anyone to defeating the new Constitution. It will be interesting to see how this incipient left-right alliance against the statist Constitution fares in battle against the Establishmentarian center.
The tragic murder of Senator Robert Kennedy points up an interesting fact about all the recent assassinations and assassination attempts that has gone unnoticed: that every single murder or attempted murder was of a leader of what may broadly be called the “Left” — John Kennedy, Senator Kennedy, Malcolm X, “Red Rudi” Dutcshke, the West German student leader, Medgar Evers, and the Reverend Martin Luther King. How is it that among this spate of murders, no right-wing leader has been assassinated? None of the cliches, true though they may be, about America being a “violent society” resolves this peculiar problem.
In my view, the answer lies in a grave misunderstanding of the situation, Left and Right, each in its own camp. In short, what we have in the world is a State apparatus, run more or less “peacefully” and quietly, with more or less stability by a ruling elite or Establishment, with the exploited but torpid masses paying the bill. To overthrow this Old Order, or existing statist regime, which is broadly the task of the Left, requires charismatic and dynamic leaders to rouse the masses out of their torpor, to expose their exploitation by the ruling classes, and then to move to overthrow that rule.
Therefore, the Left, being in one or another sense revolutionary, requires dynamic individual leaders to promote that revolution. Hence, some intelligent members of the Right, those devoted to the status quo, realizing the great dependence of the Left on their leaders, particularly in the critical early stages of the revolution, move to assassinate those leaders and to nip the situation in the bud. The irony is that the Left doesn’t realize the importance to it of such dynamic leaders and, therefore, does not move, in one way or another, to protect them. For the Left, naively believing that all of history is determined by broad social forces and classes of people, gravely underestimates the importance of individual leadership — its own leadership — in such a struggle. While it is true that individual leaders cannot make a revolution if the fertile soil is not there, inspired leadership to cultivate that soil is just as important. The Left, a prisoner of its own naive view of history, does not realize this.
On the other hand, the Left doesn’t assassinate Right-wing leaders for the same reason: Since it is broad social forces rather than individual leaders that matter, what would be the point of killing Mr. X if Mr. Y, put in by the same existing system to replace him, is just as bad? Ironically, in this case, the Left is more nearly correct, for the job of running an existing Establishment — in contrast to the task of rousing the masses to overthrow it — is just about the same from one Establishment ruler to the next. Therefore, in the case of the Right wing, one leader is just about the same as the next.
Thus: Both sides, Left and Right, are far more correct in analyzing the role of leadership in the opposition than in their own camp.
The great debate that raged during the post-King-funeral riots, and will continue to rage in the wave of ghetto rioting this summer, is: Should looters be shot?
Many defenders of property rights are backing the position of Chicago’s Mayor Richard Daley that looters would be shot by the police, and are criticizing such officials as New York’s Mayor John Lindsay, who maintains that his police will not shoot children for looting stores. The issue is being posed: the lives of the looters vs. the property rights of the merchants.
Those libertarians who favor maximum force to stop looting had best reconsider their position. Would they, for example, favor executing a young lad who steals an apple from a fruit stand? If not, why not? Are not property rights sacred?
The confusion here comes not from a disagreement on the right of the merchant to his property, but from an absence, among libertarians, of a well-thought-out theory of punishing invasions of that property right. Among those who have thought about this problem, there is a division of opinion; some libertarians oppose any use of force, even in self-defense. While I deeply respect this position, I do not agree with it. I believe that everyone has the right to use violence in defense of his property against invasion, but only in some kind of proportion to the crime itself. Any punishment must be limited to being proportionate to the crime; in the old phrase, “let the punishment fit the crime.” Therefore, if a man is attacked by a criminal and his life is in danger, he has, in my view, a perfect right to defend himself by any means necessary, up to and including the killing of the attacker. But if a merchant sees a kid running off with his apple, he has no right whatever to shoot that kid, because that would be tantamount to capital punishment for a minor property offense; the punishment would be grossly disproportionate, to such an extent that the merchant himself would then be an invader of the right of the looting kid to his own person and his own life. The merchant would then be an unjustified murderer.
Hence, the use of lethal weapons in self-defense, or in defense of others, is only morally justifiable if the victim’s life is in danger. If it is not, then such excessive violence is in itself just as criminal and invasive of the looter’s right to life as is any other capital crime.
Every man, then, has a moral right to his own property, which includes, and includes above all else, his property in his own person and life. When a man invades the property right of another, he only loses his own rights to the extent that he has invaded the similar right of his fellow man.
Therefore, shooting looters, whether by the merchant himself or by the police, is absolutely impermissible. The right to life, after all, is more important than the right to own a camera or a color TV set, as important as the latter undoubtedly are.
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.
Quarterly Journal of Austrian Economics 19, no. 1 (Spring 2016): 85–100
This book tells its readers a great deal about the inner workings of mainstream economics, particularly behavioral economics. This review details just how far the profession has drifted from reality. My general impression is that the authors are simply putting forth their opinions or perceptions of how the world should be, and then constructing a theory to justify those opinions. The theory is then supported by a selective construction of events.
The authors are both Nobel laureates and in 2009 wrote Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Here they argued that because of emotions and psychology, the government’s response to the financial crisis must be decisive and overwhelming. The government’s response, particularly the Federal Reserve’s, gives the impression that the book was influential among policymakers.
The Henry Hazlitt Memorial Lecture sponsored by Hunter Lewis. Recorded at the 2016 Austrian Economics Research Conference. Includes an introduction by Joe Salerno.
Terrorism gripped the headlines again this week as terrorists struck the airport and metro station in Brussels, Belgium. Naturally, as Jeff Deist points out, this massive failure in government security will lead to calls for more government funding, and more control over the lives of citizens. Unfortunately, it’s the ordinary citizens who suffer the most from the West’s tone-deaf foreign policy that helps the terrorists recruit new followers while increasing the targeting of Europeans and Americans.
For most Western governments, though, it’s just business as usual with the usual efforts for more taxes, more controls on trade, and a disregard for the lessons of socialist regimes, both past and present.
The answer, as always, lies not in more government violence, but in voluntary exchange.
This week on Mises Weekends, Jeff Deist joins Jay Taylor on his radio show to discuss how both central banks and commercial banks are poised to change your life in some very unpleasant ways.
Central banks, and central bankers, are in uncharted waters. They don't know how to create economic growth, they don't know how to fight the great boogeyman of deflation, and they don't know how — or if — they'll ever be able to return to a time of "normal" monetary policy. Their pretense of knowledge, of being able to effectively control currencies used by billions of people, is coming to an end.
Here are this week’s new contributions to Mises Daily and the Mises Wire:
Job Growth Doesn’t Mean We’re Getting Richer by Ryan McMakenGive Us More Tax Revenue, Or Else by Matthew DoarnbergerMarkets Are Our Best Hope for Peaceful Cooperation by Andrew SyriosStalinism Through a Child’s Eyes by J. WiltzRubio’s Failure: How Our Broken Economy Fuels Voter Rage by Hunter LewisTibor Machan, RIP by David GordonPot Legalization: Obama, SCOTUS Defend Local Control Against GOP Attacks by Ryan McMakenThe Batman Movie They Should Have Made by Tho BishopRon Paul: Protectionism Won't Help by Ron PaulA Boom Town Recession That Could Save Us All by Mark ThorntonRadical Ideologies Are Only One Part of the Terrorism Equation by Ryan McMakenThe Inequality of Wealth and Income by Ludwig von MisesJanet Yellen: Armed, Dangerous, And Lost by David StockmanA Better Approach To Terrorism by Jeff DeistBrussels Bombings: More Blowback for Europe by Ryan McMakenFebruary Austrian Money Metric: Money Supply Growth Falls to Four-Month Low by Ryan McMakenSocialism Starves the People: Cuba Edition by Shawn RitenourMore Resources on Cuba by Shawn RitenourThe Myth of Tax "Reform" by Murray Rothbard
In response to recent claims by the Obama administration and others that “millions of jobs” have recently been created, I examined the data here at mises.org to see if the claims were true. It turns out that job growth since the 2008 recession has actually been quite weak, and hardly something to boast about.
Nevertheless, our conclusions from these analyses tend to rest on the idea that job growth is synonymous with gains in wealth and economic prosperity.
But is that a good assumption?
In an unhampered market, the answer would be no, for several reasons.
First of all, as worker productivity increases, workers would need to work fewer hours to maintain their standard of living.
Second, as goods become less expensive (as a result of rising productivity) it would also be necessary to work fewer hours to maintain the same standard of living.
This need for fewer man-hours could translate into shorter work weeks and shorter days, but it could also manifest itself at the household level in the form of changes from two-income households to one-income households. Or, people may retire earlier, thus leaving the work force.
In other words, in a well-functioning economy over time, less human labor will be necessary to maintain standards of living, all things being equal. (If consumers wish to constantly increase their standard of living of course, they will choose more labor over more leisure for the sake of more consumption.)
Historical Trends in Work HoursEven in our hampered and un-free economy, we can still see this basic trend at work. The number of work hours necessary to maintain the standard of living our grandparents enjoyed, for example, is less today than it was in 1950.
If middle-class consumers were satisfied with a two-bedroom residence in an unstylish neighborhood, one car, a single phone line, no air conditioning, and no internet access, many of them would require far fewer work hours than is necessary to maintain a common middle-class standard of living today.
In the 1950s for example, my mother shared a bedroom with three brothers in a two bedroom house in central Los Angeles. She went to a private Catholic school where there were 50 students to a classroom. For her family, there were certainly no European vacations or airline travel to seaside resorts.
And yet, no one would have described this lifestyle as “impoverished” or “lower class.” It was a middle-class lifestyle, but this lifestyle could only be maintained by far more than 40 hours of work at the family business each week, where both parents labored regularly.
This experience was not atypical.
In spite of increases in the standard of living since then, working hours have actually decreased. Indeed, according to Robert Fogel in The Fourth Great Awakening and the Future of Egalitarianism, from 1880 to 1995 the number of hours spent on work during an average day for a male head of household decreased from 8.5 hours to 4.7 hours. Meanwhile, leisure time increased from 1.8 hours to 5.8 hours.
In a separate study by Thomas Juster and Frank Stafford, it was found that from 1965 to 1981 in the United States, “market work” hours per week fell from 51.6 hours to 44 hours for men. For women, market work rose from 18.9 hours to 23.9 hours. We would expect an increase for women over this period as women began to take on “market work” at higher rates than before. This was for wage work only, though, and if we include “housework” we find that “total work” for women during this time period fell from 60.9 hours to 54.4 hours. Women exchanged some housework for market work over this period, but overall, the work hours decreased. Total work for men decreased also, from 63.1 hours to 57.8 hours. (Housework increased for men over this period.)
In yet another study by Mary Coleman and John Pencavel, average weekly hours worked fell for white men from 44.1 hours in 1940 to 42.9 hours in 1988. It fell for white women from 40.6 hours to 35.5 hours over the same period.
The typical standard of living increased over these periods, as the square footage of housing units increased, automobiles became more common, and amenities like telephones, washing machines, personal computers, and climate control became more common. The work itself also became less hazardous over this time period.
The Invention of “Retirement”Even as work hours were falling, productivity was rising enough to allow large numbers of workers to leave the work force early in the form of a new-fangled concept known as “retirement.” As explained by W. Andrew Achenbaum in The Wilson Quarterly, working well into one’s so-called golden years was common in the 19th century and before. Prosperous farmers who owned land could afford to significantly cut back hours as they aged, but common laborers generally needed to work as long as possible or face penury.
It was only during the late 19th century, as worker productivity rapidly accelerated, that workers could withdraw from the workforce at an increasing rate. Many became obsolete whether they liked it or not, however. Achenbaum writes:
The obsolescence of the older worker is one reason the period around 1890 marks the beginning of the long-term trend toward the withdrawal of the elderly from the work force. In that year, about two-thirds of men aged 65 and older were still in the labor force — roughly the same proportion found today in developing countries such as Brazil and Mexico. By 1920, that number had dropped to 56 percent, and by 1940 it was down to 42 percent. Today it is 27 percent.
In the bad old days of subsistence wages, workers could labor for decades without many opportunities to accumulate capital, and thus “retirement” was just another word for poverty. As worker productivity and capital accumulation rose, however, private firms could afford to create a new thing called “pension funds” which accelerated the retirement trend.
The advent of government pensions accelerated the trend as well, with large transfers of wealth from current workers to past workers. The fact that these wealth transfers did not reduce the current workers to subsistence levels themselves was also due to the productivity gains of the new industrialized and mechanized workplace. Essentially, workers were now supporting both themselves and current pensioners, while still experiencing perceptible increases in the standard of living. Such a situation would never have been politically feasible in an earlier age when workers would likely have revolted against a new tax that would have impoverished them for the sake of retired workers. This new world in which workers could support their families, plus some strangers they never met, was a triumph of markets that ironically allowed governments to get away with higher taxes.
So, Is Job Growth Progress?Once upon a time, we measured economic progress in terms of the ability of households to feed themselves and sleep in a warm bed. We still do this in the developing world where “extreme poverty” is a real problem.
In the industrialized world, however, “extreme poverty” does not exist, and 78 percent of “the poor” have air conditioning, and a majority have cell phones. The lifestyle enjoyed by my mother in the 1940s would today be deemed “overcrowded” and “substandard” by federal agencies. At the time, such conditions were considered to be quite middle class. But, as Ludwig von Mises once remarked, “the luxury of today is the necessity of tomorrow.”
Apparently, if we were to measure necessary work in terms of the need to fund basic food and shelter, the number of work hours needed today would hardly constitute a full-time work schedule.
This is why over decades, we find that the amount of labor done by human beings has declined over time. Machines now do the work that many people once did, and more economically.
This is why the US now has more industrial production today than in the past, even though fewer people are employed in manufacturing. This is why our grandparents worked more hours than our parents, even though standards of living are higher now than they were in the 1960s.
So, over the long term, we cannot say that more jobs equals more prosperity. In fact, one could just as easily argue that fewer jobs, fewer work hours, and fewer workers illustrates gains in prosperity. Child laborers, for example, are no longer essential to maintaining a family’s standard of living. All those jobs are long gone.
So, how should we respond when politicians claim to have “created millions of jobs”? Should we assume this is a measure of economic improvement?
Over the short term, this may yet be a useful metric. We must ask ourselves if the economy changed fundamentally over the past ten years that would lead far fewer people to need employment. More importantly, we must consider if the price of goods and services has decreased significantly. Are more people voluntarily electing to adopt a lower standard of living for the sake of more leisure or to pursue non-market work?
These are all questions that should be considered when we speak of jobs and economic improvements. Really, the only measure that matters is real household wages and wealth, and what can be acquired with it. Anything else is groping for answers with tangential data, and the whole endeavor illustrates the limits of aggregated economic data.
Nevertheless, there’s nothing wrong with skeptically picking apart government claims about economic successes, especially when it makes Washington look bad.
The budget crisis in Louisiana is so bad that it apparently threatens the upcoming college football season. This is according to the state’s new Democratic governor John Bel Edwards. The current yearly budget deficit has reached $940 million. The situation is so dire that higher education in the state faces the realistic possibility of running out of money and taking college sports with it.
Even though all Louisiana state funded colleges are faced with this harsh reality, the focal point of much of the public’s scorn is directed at the possibility of no LSU football this coming season. Much of the old south is Southeastern Conference (SEC) country and college football commands more attention there than even professional sports. Thus, the emotion that comes with the threat of not having LSU football looms much larger in the minds of many Louisianans than the threat of cancellation of other school’s athletics or even the possibility of academic shutdown on campuses. In the land of the SEC, college football will grab headlines over most other issues. This is especially true when its very existence is being threatened.
Upon closer inspection of Louisiana’s state budget, one can see that a major culprit for the deficit has been corporate giveaways. Under former governor Bobby Jindal’s predecessor, money given to the six largest recipients of government subsidies totaled $200 million. But under Jindal, that amount grew to $1 billion. Combine this with the state’s 400 other handouts, plus the raiding of rainy day funds to cover shortfalls and you have a recipe for a budget disaster.
So in order to put Louisiana’s fiscal house back in order, Governor Edwards has proposed one of the largest tax increases in state history. Taxes on cigarettes, alcohol, rental cars and other items are due to be increased as a part of the governor’s proposal. But given that Edwards is facing a legislature controlled by Republicans, many of these tax increases appear unlikely. A bipartisan compromise will probably be reached combining some tax hikes with some spending cuts.
But of all the things to threaten to shut down, why did Edwards target higher education and college sports? The answer lies in an old political trick called Washington Monument Syndrome (or sometimes Mount Rushmore Syndrome). This is a phenomenon where a government facing some sort of revenue shortfall or budget crisis will cut government funds which cause the most visible pain. Once the public witnesses this pain, opinion shifts in a direction that the government desires it to go. In this case, the state’s governor wants to pass certain tax increases. If he doesn’t get what he wants, college football could be cancelled statewide. In the state of Louisiana, few actions would cause more pain and public outcry than the cancellation of a college football season. Thus, a public official will use this to threaten the people he supposedly serves in order to pass his desired legislation.
The peculiar thing about LSU specifically is that they are one of only seven Division One programs which don’t accept state subsidies (the others being Texas, Ohio State, Oklahoma, Penn State, Nebraska, and Purdue). In fact, LSU’s athletic program generated so much revenue last year that it transferred over $10 million to the school’s academic program. Clearly LSU football can survive without taxpayer money, since they do so already. Again, cancelling of the state’s biggest college football program is simply a scare tactic used to further a political agenda. After the aforementioned compromise is most assuredly reached between Edwards and the legislature, politicians from both parties will probably point to LSU’s football team taking the field in the fall as some great political achievement even though the school’s athletic department didn’t need or spend their money in the first place.
As for the rest of the state of Louisiana’s higher education system, this sad state of affairs is an unfortunate lesson in what can happen when government assumes control of an institution. The competency of that institution will be subject to the whims of those who control that government. Any budgetary failings of public officials who dole out this money will inevitably affect those that are so reliant on it. If colleges were independent of government, then the influx of money would not be based on an appropriation from a government but the ability to provide a service (education in this case) to the public. After all, there is no imminent crisis in Louisiana regarding the sale and purchase of food, electronics, or automobiles. This is because people generally spend their own money on these things without intervention from the government. If education were treated like any of these things, then it would be independent of government failings and different educational institutions would be sinking or swimming based on their own merits. But sadly, these colleges and universities will likely not learn their lesson and continue to look for funding from the very organization that is causing their current laundry list of problems.
Rubio post-mortems miss the point. In the end, it is just more fall-out from crony capitalism.
None of the post-mortems of Rubio’s campaign I have seen mention the real reason why the young senator, so articulate, so successful, recently touted as the future of his party, never got launch speed in his campaign for the presidency. It is actually Senator Charles Schumer (D-NY)’s handiwork, aided and abetted by Rubio’s misjudgment.
Shortly after the 2012 election, the GOP was worrying about Romney’s poor showing among Hispanics. At the same time, Senator Schumer and other Democrats were thinking that Rubio, himself Hispanic, was by far the most electable Republican candidate in 2016. How to bring him down?
Schumer’s plan was simple: lure Rubio into the gang of eight immigration bill promising eventual citizenship to all illegal immigrants. Success in this would effectively kill Rubio’s chances in 2016 with GOP primary voters. Rubio would not only have gotten out of step with those primary voters; he would also have reversed the position he took in his Senate race and thus appear to be dishonest.
Would Rubio walk into this trap? That it was a carefully plotted trap was clear enough to me and others at the time. But he did. Once he did, the odds of his gaining the GOP nomination were always poor. They became even poorer as President Obama increasingly refused to enforce border protection laws, thereby stirring up GOP voters on the issue.
Immigration Reform was Rubio’s RomneyCareIt is possible that had Rubio run in 2012, before all this happened, he might be president today. The GOP primary voters in 2012 were clearly looking for some alternative to Romney and Rubio might have been that alternative. The only thing against him in 2012 was his youth and John Kennedy had overcome that handicap. If he had run and gotten Romney’s vote but done better with under 30 year olds and Hispanics, he would have had the votes to be elected.
Ironically, party donors begged Chris Christie, Rubio’s recent nemesis, to enter the race then too, and if he had, he might have won the nomination. His chances against President Obama, however, would not have been as good, if only because Rubio could run as the first Hispanic candidate for president, which would have helped when running against the first black president.
Was there any way Rubio could have recovered from his miscalculation? There was one possibly effective tack to take. When Rubio signed onto the gang of eight bill, he said that if legislation was not passed, President Obama was going to take dictatorial and unconstitutional action on the border. By 2015, Rubio could have cited his earlier comment, totally disavowed the gang of eight bill, claimed that it had been intended solely to stop President Obama, and that having failed to do so and in the wake of President Obama’s actions, it no longer deserved support. It is doubtful this would have worked, but it might have been more effective than what Rubio did, which was to temporize and obfuscate and even pretend that Senator Cruz had supported the bill, which was not true.
This is not unlike Mitt Romney’s tortured stance on RomneyCare in 2011 and 2012. Romney might have done better to disavow completely RomneyCare in Massachusetts as a failed experiment rather than temporizing and obfuscating about it. In the absence of a complete abandonment of RomneyCare, he could never really mount an effective attack on Obamacare, RomneyCare’s lookalike, and he needed such an effective attack in order to win election. Tactics aside, Romney may not have wanted to do this because he really believed in RomneyCare and the same may have been true of Rubio. He may not have been able to disavow the gang of eight bill because, deep down, he still believed in it, and his conscience would not let him lie.
The Politics of a Failing EconomyNone of this may seem to be connected to economics, but the connection is actually quite close. The economy has performed so poorly for so long that tens of millions of primary voters are very, very worried. The more they worry about getting or keeping jobs, the more they worry about job competition from immigrants, and the more easily they become inflamed about open borders. Voters also sense that the crony capitalists are getting richer while they are getting poorer, which is true, and they identify the crony capitalists with the unlimited immigration position. Big business in particular wants the cheapest labor possible, they reason, and this means big business wants open borders.
There is an irony here. Free and open markets, with free and open prices, not controlled by government, are the only way to create prosperity and jobs for the poor and middle class, not just those enriching themselves from government connections. Yet a declining economy often produces political waves that are inimical to free and open markets.
Meanwhile, the greatest harm done to the economy has been done by the world’s central bankers. Entrusted with protecting the value of global currencies, they have instead trashed them, in the process creating today’s cycles of bubble and bust. No economic logic, no valid theory, no empirical evidence supports what these self-appointed central economic planners have done, but the more their radical ideas fail, the more they double down on them. The only beneficiaries are the crony capitalist rich and is it any wonder that, under these circumstances, primary voters would be angry and look to unconventional candidates?
A Declining EmpireThe reasons for the decline and fall of the Roman Empire have been endlessly debated. In my own view, there were three, highly interrelated causes. The first was noted by Ludwig von Mises: the Emperors debased the currency and by doing so destroyed what had been a thriving economy, what might be called the world’s first “global” trading economy. So far, we are doing the same.
Second, the emperors increasingly opened the borders to immigrants. This might have turned out better if the economy had been thriving. But with the economy in sharp decline, it made a bad situation worse and eventually led to outright invasions.
Third, pandemics arrived, massive pandemics that wiped out large proportions of the population. We have not yet experienced anything like that, but medical authorities continually warn us that it could happen anytime, and could take the form of a viral pandemic, for which there would be no cure, or a bacterial pandemic such as TB, because we have allowed antibiotic resistant forms to flourish through antibiotic misuse.
It is a long way from Marco Rubio back to Marcus Aurelius, the “good” emperor who nevertheless persecuted the Christians, or the many incompetent or mad Caesars, but humanity does tend to make the same errors over and over again and rarely takes the time or trouble to learn from the past.
Supporting free trade is simply a matter of taking no action when another person exchanges in non-violent exchange with another person. That person may be right down the street, or that person may be in another country somewhere. No “free trade agreements” or other paperwork of any kind is required.
To oppose free trade, on the other hand, is to engage in the imposition of fines, prison terms, and other sanctions on people for engaging in non-violent exchange.
The Moral ArgumentThat latter part is usually ignored by average people who support restrictions on free trade for whatever reason. They frame their opposition to trade as if it were a mere academic question, and as if the reality of restricting free trade were simply a matter of saying “don’t do that” and then everyone will agree to stop doing it.
But, of course, anyone who favors restrictions on free trade needs to go the next step and outline exactly what fines and jail sentences should be imposed on merchants and others who have committed the “crime” of purchasing goods from non-government-approved sources, or who have sold goods to non-government-approved recipients.
Shall fines be $1,000 or $100,000? Shall perpetrators serve 90 days in jail or 5 years in prison? These are the questions that any opponent of free trade must answer. And if the answer is “yes” to any of these questions, let’s then outline which taxpayer-funded government agencies shall be in charge of hunting down the lawbreakers, prosecuting them, and jailing or fining them. The (presumably well-paid and well-pensioned) government agents won’t work for free. What spy apparatus shall be employed to keep an eye on all the potential violators?
And, of course, ignorance of the law will be no excuse, so everyone who wishes to import a trinket or widget from a foreign country will need to know all the laws, regulations, and sanctions that come with such a business venture. To not know this all could mean one’s life will be ruined by federal prosecutors.
For example, if you don’t know the details of the US law known as the Lacey Act, you could be serving harsh prison sentences for violating foreign laws, or for importing fish peacefully acquired, or for engaging in a seemingly endless list of activities that any normal person’s common sense would suggest are peaceful and legal.
Similarly, when Gibson Guitar Corporation was raided by a SWAT team for running afoul of some arcane law about the importation of wood, that was just the natural outcome to be expected from restricting free trade. Those laws were in place to protect domestic lumber industries from imports. But hey, the law’s just there to protect American, workers, right? So, apparently, it’s fine if those Gibson guitar people have their livelihoods and families ruined by legal fees, fines, and jail sentences.
Opponents of free trade, like supporters of the anti-Cuban embargo, for example, like to talk a good game about supporting freedom and liberty, but when all is said and done, their policies amount to nothing more than the sordid jailing and prosecution of non-violent merchants and consumers.
The anti-trade crowd likes to tell themselves that these laws only punish cigar-chomping villains in skyscrapers, but that’s not how laws work. Since laws aren’t written to apply to specific companies, they punish certain behaviors instead. Such laws may indeed restrict big, evil corporations, but they also end up applying to small entrepreneurs and small business owners, most of whom lack an army of attorneys, and usually end up in a far worse position than any big company might. Like the owners of the Gibson Guitar Corporation, many small- and medium-sized business owners simply seek out the lowest-cost goods so they can offer goods to their customers at a lower price. Those goods are often located in foreign countries. But, without an immense legal team, most ordinary people will be caught up in the net of trade restrictions.
The Economic ArgumentSo far, this all ignores the economic arguments against restricting free trade. Those of us not engaged in the direct importation of goods will also suffer when goods are restricted. Trade restrictions on pharmaceuticals, auto parts, food, and whatever else only makes those goods more expensive. And not all those goods are consumption goods, of course. Entrepreneurs use those goods to create new goods and then must charge higher prices to his customers also. A janitor who must pay higher prices for a truck or a shop vac due to trade restrictions must pass on a portion of that cost to the customer. And, with higher prices, the janitors will have fewer customers and fewer profits. Shopkeepers in turn must then have dirtier shops because they can afford fewer janitorial services.
Yes, a tiny portion of the population that’s engaged in the domestic manufacture of shop vacs and trucks will benefit. But, it’s the janitors and their customers (the hair salon and sandwich-shop owners) who are paying the price of subsidizing the factory workers.
These issues aren’t part of an intellectual exercise. The downside of restricted trade is very real for real people.
But, we don’t need me to explain the economic problem with restricting trade. Adam Smith, Ludwig von Mises, and the entire line of liberal, laissez faire economists agree on this point.
The Nationalist ArgumentThe nationalist program of using protectionism to shield American workers from competition is based on the idea that trade with outsiders hurts the local economy. But many who accept this idea in the international sphere then promptly forget the idea when applied domestically.
For example, we’re told by the nationalists that it hurts California workers if Californians buy goods from neighboring Mexico, but it’s apparently A-OK for Californians to buy goods from Illinois or New York, both of which are distant economies that likely contribute far less to the economic well-being of Californians than the economy of northern Mexico.
Murray Rothbard mocked this mindset in the context of immigration when he wondered why it’s not a problem when someone moves from Massachusetts to take a job in Michigan. In that case, the response is never to complain about how people from Massachusetts are stealing the jobs of people in Michigan. No, the argument is only applied if someone crosses an international boundary to do the same.
As with trade, then, it’s bizarre to argue that goods imported from Virginia to California are perfectly tolerable — and even beneficial — while imports from neighboring Tijuana are somehow damaging.
Rothbard noted the idea becomes more absurd the more local you get. The proposed economic justification for “Buy American” is no different from the demand to “Buy North Dakotan” or “Buy 55th Street.” While there certainly are groups that promote only buying goods from one’s home states (i.e., the “ABC — Always Buy Colorado” campaign), such efforts rarely rise above being a marketing gimmick and virtually no one supports trade restrictions between states.
Thus, by their actions, the demonstrated preference of Americans is to take advantage of the benefits of buying and using goods made thousands of miles away by people they’ll never meet. That is, they clearly accept the benefits of trade with a far-away economy (as is the case of trade between San Francisco and St. Louis), but they then turn around and reject the same reality when dealing with international trade.
At the heart of this mindset is pure mysticism, of course, since it requires one to believe that a person in Brownsville, Texas, has the same economic interests as a person in Portland, Maine, but entirely different interests from a person in nearby Monterrey, Mexico. It requires a belief in some sort of metaphysical or perhaps physically objective difference between humans in Monterrey and humans in Portland.
Even the most basic powers of observation should disabuse one of such a strange notion, and yet, American discussions of trade accept the idea as a given.
Left to their own peaceful trade, of course, such ideas would evaporate quickly as people pursued mutually beneficial economic relationships across borders and barriers of every kind.
Today however, we must continue to deal with people who accept an anti-trade ideology that prefers violence to peace, and coercion to freedom. Unfortunately, governments are perfectly happy to oblige them.
This weekend, Americans move forward their clocks for daylight saving time, one of the more absurd (outdated) examples of insane government control. Notes James Alexander Webb, the government mandated spring forward is simply another example of “disrespect for the principle of simply leaving people alone.” Unfortunately the principle of lassiez-faire is one too often ignored in today’s world. The consequences of our government’s rigged society are all around us, be it the increasing reliance on food stamps, a far reaching tax system, or the gratuitous examples of well-connected elites enriching themselves from state intervention.
This all begs the question of whether it is democracy itself that may be to blame? That’s the subject of the next episode of Mises Weekends. This week we feature a past talk given by Hans-Hermann Hoppe highlighting some of the key points he makes in his book Democracy: The God That Failed. Hoppe’s lecture not only shows how democratic elections often lead to bad results, but illustrates how political democracy is often incompatible with human liberty.
And in case you missed any of them, hereW are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Free Trade Is the Path to Prosperity by Georgi VuldzhevBernie vs. Ron Paul: There's No Comparison by Lew RockwellHumans Are Hard-Wired to Value Some People Over Others by Andrew SyriosFreedom vs. Justice: Are They in Conflict? by David GordonDaylight Saving Time: A Government Annoyance by James Alexander WebbAnatomy of a Bank Run by Murray N. RothbardMyth: Half of Americans Don't Pay Federal Taxes by Ryan McMakenNegative Rates May Be Ineffective and Dangerous by Joseph SalernoThanks, Bush and Obama: 1 in 7 Americans Were on Food Stamps in 2015 by Ryan McMakenFormer ECB Chief Economist Disses Negative Interest Rates and Praises Deflation by Joseph SalernoBernie, It’s Government That "Rigs" The Economy by Tho BishopMises: The Meaning of Lassiez Faire by Ludwig von MisesThe Undeserving Rich by Jeff DeistDowntrend in Money-Supply Growth Poses a Threat to Bubble Activities by Frank ShostakThe European Central Bank Finally Throws in the Kitchen Sink by Ryan McMakenThe Problem with "Expressive Voting" by Gary GallesInvesting Responsibly in an Irresponsible World by Doug FrenchWe Need to Talk about Frank (Fetter) by Matt McCaffreyA "Libertarian" Argument for the Welfare State by David GordonRothbard: The Genius and the Man, and How to Approach His Work by Joseph Salerno and Tom WoodsMoney, Bank Credit, and Economic Cycles Now Available in Japanese
Super Tuesday may have been the beginning of the end for the Bernie Sanders campaign, but the ideas that propelled it are likely to linger for quite some time. With some writers comparing Bernie to Ron Paul (not in terms of economics and philosophy, of course, but as insurgent candidates), now seemed like an opportune moment to examine the Sanders message and legacy, and compare it to Ron’s.
Like Ron, Bernie surprised all the pundits with his fundraising, polling, and electoral success. In fact, so successful has Sanders been that Hillary Clinton has been reduced to a pathetic and unconvincing “me, too” campaign — I can be just like Bernie, if that’s what you rubes want!
Bernie has gained a lot of traction from his complaints that Hillary is in the tank for Wall Street and the big banks. He’s likewise pointed to the six-figure honoraria Hillary has earned from speeches given to the big banks.
The best the now-hapless Bill Clinton could do in reply was to note that Bernie, too, had been paid to give speeches. Technically, Bill was right. Bernie had earned money from public speaking: a whopping $1,800 over the course of a year. The year before that, Bernie had earned $1,300 from public speaking. All of this money was donated to charity, as is the requirement for US senators.
It’s true that Bernie is better than Hillary on foreign policy, but in keeping with Rothbard’s Law — everyone concentrates in the area in which he is worst — Bernie speaks very little about issues of war and peace. And even there, consistency and principle are elusive: he supported Bill Clinton’s bombing of Serbia over Kosovo, an act of terror based on propaganda that rivaled anything George W. Bush ever peddled. Sanders favors the ongoing drone campaigns, too, and even supported the F-35, one of the biggest boondoggles in the Pentagon’s long and sorry history.
Bernie’s primary legacy will be to have resuscitated the idea of socialism in the minds of many Americans. It is a very confused socialism, to be sure. The young people who follow Bernie can’t even seem to define socialism, according to recent surveys. And in fact Bernie’s economics is really just a hyper-Keynesianism rather than out-and-out socialism. But by suggesting that the Scandinavian countries constitute a model that the United States should emulate, he has encouraged the idea that only large-scale, systemic change in the direction of vastly increased government power can produce the kind of society Americans want.
Capitalism ought to be our default position, since it conforms to the basic moral insights we acquired in our youth: keep your word, live up to your agreements, don’t take what doesn’t belong to you, and do not cause anyone physical harm.
But thanks to years of propaganda to the contrary, socialism has come to appear to many people as not simply a morally plausible position but clearly and obviously desirable and superior to the capitalist alternative. The free market, they are convinced from what they recall from their elementary school textbooks, leads to “monopoly” and oppression.
Bernie speaks as if the system is rigged against the people because of business influence in government — a fair enough point, as far as it goes — but it’s hard to take this criticism seriously when his proposed solution is to extend the influence of politics over more and more areas of life and increase the powers and scope of the very government he is supposed to be criticizing.
The Sanders narrative is rooted in two major historical claims, both of them dead wrong.
First, Sanders believes “capitalism” was to blame for the 2008 crash. But as mises.org readers know, that downturn, like the Great Depression before it, was preceded by years of Federal Reserve credit expansion. According to the Austrian theory of the business cycle, the artificial lowering of interest rates below free-market levels sets in motion an unsustainable economic boom. The economy is set on a path that could be sustained only if real resource availability were greater than it really is. Eventually, when real savings and resources turn out not to exist in the abundance that the Fed’s interventions misled people into expecting, projects have to be abandoned and the phony prosperity becomes real recession.
Sanders supporters will no doubt point to the great number of bad mortgages originated by private lenders. But would these mortgage loans have been extended in the first place if institutions like Countrywide couldn’t sell them to the government-privileged Fannie Mae and Freddie Mac? Fannie and Freddie enjoyed special tax and regulatory advantages and had a special line of credit from the US Treasury — a line of credit everyone knew would be essentially limitless if push ever came to shove.
It was the perfect storm: the Fed’s crazed monetary policy injected huge quantities of additional credit circulating throughout the economy, and the federal government’s various mandates and regulations made real estate an artificially attractive outlet for all that new money. When this ramshackle edifice came crashing down, capitalism — which, in the midst of all this money creation and regulatory lunacy, had never been tried — took the blame.
Indeed, what could be intellectually easier than blaming the “free market” for a phenomenon a critic doesn’t understand? Ron Paul, on the other hand, never tired in his own presidential campaigns of going beyond surface explanations to account for what really happened in the disaster of ’08, and identify who the real culprits were.
The other part of the Sanders story — Scandinavia — is shallow and misleading, too.
In fact, Denmark’s own prime minister, Lars Lokke Rasmussen, finally had to correct the Vermont senator’s references to his country as “socialist.” “I would like to make one thing clear,” Rasmussen said. “Denmark is far from a socialist planned economy. Denmark is a market economy.”
Still, there’s no question Denmark has a large public sector. And it’s starting to suck the life out of the place. Denmark’s various benefits subsidize idleness to an absurd and unmanageable degree. In the country’s 98 municipalities, guess how many have a majority of residents working. If you answered three, you know far more about Denmark than Bernie and his supporters do.
It’s a similar story in the rest of Scandinavia. For instance, Sweden’s welfare state was able to develop only because of the wealth created by decades and decades of a prosperous market economy. Private-sector job creation was anemic to nonexistent in the decades following the radical expansion of the Swedish welfare state. And as for Norway, there are lots of “free” things there, it’s true — if you’re prepared to pay a 75 percent effective tax rate.
The comparison of Bernie to Ron goes like this: both launched insurgent, anti-establishment presidential campaigns while in their 70s, shook up their respective party establishments, and attracted large youth followings. But Bernie is no Ron.
Just on the surface: Bernie is a grump and difficult to work with; Ron is a kindhearted gentleman who always showed his appreciation for the people in his office.
More importantly, Ron urged his followers to read and learn. Countless high school and college students began reading dense and difficult treatises in economics and political philosophy because Ron encouraged them to. Bernie’s followers receive no such encouragement. And why should they? Bernie’s platform merely regurgitates the fallacies and prejudices his young followers already imbibed in school. What more is there to read?
Ron’s followers, meanwhile, were curious enough to dig beneath the surface. Is the state really a benign institution that can costlessly provide us whatever we might demand? Or might there be moral, economic, and political factors standing in the way of these utopian dreams?
Bernie’s supporters demand material things for themselves, to be handed to them at the expense of strangers they have been taught to despise. But like Ron himself — who as an OB/GYN opposed restrictions on midwives even though doing so was not in his material interest — the young Paulians embraced the message of liberty without a thought for material advantage.
It’s not hard to cultivate a raving band of people demanding other people’s things. Such appeals arouse the basest aspects of our nature, and will always attract a crowd. It’s very hard, on the other hand, to build up an army of young people intellectually curious enough to read serious books and consider ideas that go beyond the conventional wisdom they learned in school about government and market. It’s hard to build up a movement of people whose moral sense is developed enough to recognize that barking demands and enforcing them with the state’s gun is the behavior of a thug, not a civilized person. And it’s hard to persuade people of the counter-intuitive idea that society runs better and individuals are more prosperous when no one is “in charge” at all.
Yet Ron accomplished all these things. And that is why, when we position the Vermont senator against the Texas congressman, Ron’s achievement is so much greater and more historic.
Although Phishing for Phools was published only a few months ago, it has already attracted much attention, owing to the eminence of its authors, both Nobel Laureates; but it has been misunderstood. Reviewers have taken it to be just another popularization of behavioral economics. The book does make use of behavioral economics, but its fundamental emphasis lies elsewhere. It is a radical attack both on the free market and a key part of standard economic theory.
The principal target of the book is a well-known and powerful argument in support of the free market. Akerlof and Shiller do not reject the argument entirely, but they drastically limit its scope. The argument in question is that the free market produces what consumers demand: “The central vision of economists is in terms of [Adam] Smith’s famous butchers, brewers, and bakers; they competitively respond to consumers’ demands, and decide how much to supply, based on what consumers are willing to pay. The system has an insistent equilibrium. If the economy is not in such an equilibrium, there is an opportunity for profit. If so, we would expect people to take advantage of it.”
The authors do not reject this argument altogether. “We do not argue with the economics textbooks about the merits of free markets: Our mind’s eye can take a journey across the boundary from China into North Korea, and then across the boundary into South Korea.”
We must not, though, “carry our praise of markets too far.” Conventional economics ignores a tendency to another equilibrium, one which is inimical to people’s welfare. This is the “phishing equilibrium.” Conventional economics “fails to see that competitive markets by their very nature spawn deception and trickery, as a result of the same profit motives that give us our prosperity. ... Just as much as the baker and the butcher and the brewer will be there if we have the resources to pay for what it takes them to supply the bread and the beer and the meat, so too the tricksters will be there to phish us for phools.” (By “phish,” the authors do not mean email schemes to get us to reveal our credit card information, the common meaning of the term. Rather, they have in mind efforts to trick consumers into buying what is not in their real interests. A “phool” is someone who, by their definition, is “successfully phished.”)
In brief, just as there is competition among sellers to satisfy consumers, so there is also competition to trick and shortchange them. Akerlof and Shiller say that their discovery of this “phishing equilibrium” is their main advance over standard behavioral economics. “The particularity of behavioral economics … have [sic] reinforced the notion that differences between what people really want and their monkey-on-the-shoulder tastes [tastes that aren’t really good for us] are not the norm. … But thinking about phishing generally … has cued us, on the contrary, to see that phishing for phools is not some occasional nuisance. It is all over the place.”
We shall soon examine the flimsy basis on which our authors question people’s choices. Even if they were right, though, that many people’s choices result from trickery, their claim to have proved a “phishing equilibrium” is a complete imposture.
Why is this so? In the standard competitive equilibrium, there is no counter tendency that threatens disruption. So long as you continue to produce what consumers demand, you will be successful. Not so if you trick or “phish” people. The claims you make for your product may at any time be exposed, and then you may face failure. If, e.g., you say that your new method of golf instruction will take twenty strokes off the average person’s game and it fails to do so, people may stop buying from you. Perhaps they won’t; but they may, and that is all I need for my argument. So long as a counter tendency exists, there is no proof of equilibrium.
Oddly enough, Akerlof and Shiller are aware that phishing schemes may be upended. They devote an entire chapter, “The Resistance and Its Heroes” to the topic. Agencies and magazines, like Consumer Reports, may rate products on how closely they meet standards. “As we see it, when we can measure the qualities of the goods, services, and assets we buy — then, for the most part, we get what we expect.” Further, even without such agencies, “businessmen of conscience with good products have both moral and economic reasons to sort out the phishermen. And they have developed some ways to do so. … The reliance of BBBs [Better Business Bureaus] on consumer complaints seems so obvious that it is taken for granted. But it provides a surprisingly subtle way for the members to take action against shoddy competitors. … Further protection against phishing comes from the norms of business communities.”
What then is the problem? Well, Akerlof and Shiller say, measures such as these are “much less effective against psychological phishing. If I have an urge to trash my budget or my diet, there are few protections against doing so.” But surely public spirited citizens can warn people against the dangers of bad diets, smoking, and the various other ills Akerlof and Shiller have in mind. The point, once more, is not how effective these measures prove to be. Even if Akerlof and Shiller were right that they do not work very well, so long as they are present no proof of a phishing equilibrium has been given.
But, you may object, are we not ignoring the crucial issue that Phishing for Phools raises? If Akerlof and Shiller have made exaggerated theoretical claims for their work, so what? Much more important, it may be contended, is their exposure of the businessmen who prey on our weaknesses by getting us to buy what we do not really want.
Of course, the question now arises, on what grounds do Akerlof and Shiller say that people buy what they do not really want? “We know because we see people making decisions that NO ONE COULD POSSIBLY WANT.” (Emphasis in original). How in turn, do we know this? Some of our supposed “choices” have bad consequences for us. Smoking leads to increased risks for lung cancer and other illnesses; surely smokers do not want this. People who eat large amounts of unhealthful food do not want to become obese. People who go into debt to purchase expensive luxury items do not want the worries that result from living beyond their means.
Akerlof and Shiller are very plausibly right that people do not welcome these bad consequences; but how does it follow from this that they do not really want what they choose? Our authors have adopted the implausible criterion that unless you like all the foreseeable consequences of what you choose, your choice does not reveal your true preferences. Yet on this flimsy basis, these distinguished economists are prepared to jettison a key part of standard economic theory. “A common precept of standard economics is that people only make the choices that maximize their welfare. This assumption even has a fancy name, ‘revealed preferences’: that people reveal what makes them better off by their choices. Such an assumption, of course, is exactly at odds with our concept of the difference between what people really want (what is good for them) and what they think they want (their monkey-on-the-shoulder tastes.)”
Once more, though, we must confront an objection. Even if they have arbitrarily defined matters so that if you choose something with bad consequences, your choice does not reflect your real preferences, could they not, with little damage to their case against the market, abandon this dubious view? They have only to say instead that, even if people follow their actual preferences when then choose, they often choose unwisely.
But to do this in fact would be fatal to their main argument. If people do not choose as their real preferences would dictate, then of course the issue of why they do so presents itself; and Akerlof and Shiller’s claim that businessmen phish people into doing so emerges as an explanation. If, though, we say instead that people are choosing according to their preferences but that, from an external standpoint, Akerlof and Shiller think their choices unwise, there is no problem of choice that requires an explanation. It may be that, in particular cases, businessmen trick their customers; but if people choose what they in fact prefer, we have no reason in the general case to think so.
When one looks at particular cases, it is surprising how little our authors require to charge that the phish is in. “But the most basic fact about tobacco and alcohol is that they are easily available with only moderate taxes. The easy availability of tobacco through the market, in and of itself, is the basic phish of the smokers; like-wise, the easy availability of alcohol is the basic phish of those who end up drinking too much.” You see how their “logic” goes; because people “really” do not prefer tobacco and alcohol, even though they purchase these items, sellers are tricking consumers by making these products available on the market. Phishing for Phools: an ugly title for a badly argued and pernicious book.
In the wake of numerous cases of lead poisoning through Flint, Michigan’s government-managed water supply, some commentators immediately began looking for ways to blame the private sector. Shortly thereafter, David Brodwin of U.S. News and World Report wrote “Flint: The Big Cost of Small Government.”
According to Brodwin, what caused lead-tainted water to gush forth from faucets in Flint were “attacks on investment in public infrastructure and on regulation of all kinds.” For these he blames “right-leaning libertarian interests,” although he does not name a single one.
America, writes Brodwin, has fallen under an “obsession with tax cuts [which] has reduced budgets to the point where they can no longer sustain basic infrastructure.” Attacks on regulation supposedly caused the failure of the Michigan Department of Environmental Quality to do its job. “Either its staff was buffaloed by those in power, or its professionals had been replaced by political hacks willing to ignore the mission of the agency.” Brodwin does not support these assertions with evidence.
But then comes a strange concession from Brodwin: “Local officials of the federal [Obama administration] Environmental Protection Agency failed as well.”
Brodwin’s conclusion is that “[i]f we don’t address the underlying ideologies that led to this problem, we’ll face it again and again, all over the United States.”
If you are wondering at what point in its history Flint, Michigan jumped onto the cutting edge of free-market thinking and practice, join the club.
Obviously Brodwin’s contradictory essay doesn’t begin to explain how small government caused lead-tainted water to pour out of Flint’s taps. From an economics perspective, what all the facts of the Flint case clearly point to is the all-too-typical failure of central planners to adequately think through the most important implications of a decision.
On 25 March 2013, Michigan state officials and the Flint city council (by a 7–1 vote) decided to switch the city’s water source from the Detroit Water and Sewerage Department (DWSD) to the new Karegnondi Water Authority (KWA), which would not begin operating until 2016.
In the meantime, an alternate source of water had to be found. The 26th of June 2013 was when the actual decision by the city (signed by the state-appointed emergency manager, Ed Kurtz) was made to hire an engineering firm to put Flint’s water plant into full-time operation, thus switching Flint’s water supply from Detroit to the Flint River. (The river was already Flint’s back-up water source.)
What city, county, and state officials all failed to do was take measures to ensure that the river’s corrosive water was sufficiently treated so that it did not absorb toxic lead from Flint’s water network.
Far from being unusually negligent for a government, this sad story is unfortunately understandable and predictable. Unlike the numerous suppliers of private bottled water, central planners have no competitive pressures to rigorously think through any and all of their decisions.
One civil servant in Spain, for example, just recently ended a stint of not showing up for work for six years. Successfully executing such a stunt in a private-sector job in a competitive industry is just about impossible.
Sebring, Ohio; Jackson, Mississippi; and the Trouble with Government WaterWhile most readers of this site will have undoubtedly heard a lot about the lead-tainted water in Flint, Michigan, the stories that comparatively few will have heard about are lead in the water in Sebring, Ohio and last Wednesday (February 24) in Jackson, Mississippi.
Again, what should come as no surprise is that the same type of government bungling that put lead in Flint’s waters is on full display in Sebring and Jackson as well.
On 17 February 2016, the Ohio Environmental Protection Agency fired two of its employees and demoted a third. The first employee who was terminated failed to verify that lab test results were received by a field office. In turn, this employee’s boss was terminated for not double checking the work of said subordinate who had a long record of incompetent job performance.
The third employee, the one demoted, was a manager who failed to notify his bosses that Sebring officials ignored warnings about their town’s lead-contaminated water.
None of the three individuals are being publicly identified. So much for state transparency.
In Jackson, Mississippi, of a hundred homes tested in January of 2016, almost a dozen had tap water with levels of lead that require correction. Fifty-eight of these homes had been tested in June of 2015 but the Mississippi State Department of Health did not (as required) notify Jackson officials that some homes had forbidden levels of lead in their tap water until January of 2016.
The Progressive Jihad Against Bottled WaterProgressives have placed a spotlight on Flint but not Sebring and Jackson because their ideology precludes them from acknowledging systemic problems with government and its central-planning process. Progressive economists such as Brodwin lay the blame at the feet of libertarian ideology. Worse than their delusions about the state, the ultimate dream of progressives is to outlaw just about all competition to government water.
They (including filmmaker Michael Moore) are apoplectic about Flint (and by extension Sebring and Jackson) residents consuming bottled water: it has to be transported in on “pollution-spewing” trucks and it creates waste and environmental damage in the form of empty plastic bottles.
When progressives succeeded at banning bottled water at the University of Vermont in 2013, the number of empty plastic bottles being discarded on campus actually increased as students, staff, and faculty members switched from consuming bottled water to less healthy bottled soft and other drinks. In other words, even in Bernie Sanders’s government-worshipping Vermont, consumers did everything they could to avoid government taps.
Before Lead, There Was Viagra and Anti-PsychoticsYears before the Flint, Sebring, and Jackson contaminations, an AP investigation in 2008 discovered everything from antibiotics, antidepressants, sex hormones, erectile-dysfunction drugs, to tranquilizers in the water supplies of twenty-four metropolitan areas with 41–46 million Americans exposed.
Consuming government water is a bad idea. At its very best, it has a repulsive over-chlorinated swimming-pool smell and even worse off-putting saturated chemical taste. At its worst it can be tainted with everything from trace or higher levels of Viagra or estrogen to dangerous levels of lead. Only a complete fool would regularly and solely consume it to the exclusion of its private alternatives.
Lately, I’ve wondered how my neighbor, Sam, affords to buy so much stuff. He appears to have an unlimited budget. When I asked him about this, Sam asked, “Do you think I’m spending too much?”
“That depends,” I said, “How much money do you make?”
“I take home $100,000 a year.”
That surprised me. I would guess that he’s spending more than that. But I tried to be encouraging, “That sounds like plenty of income. With a little planning, you should be able to budget your spending and be financially stable.”
“But my finances are a mess,” Sam replied. “I spend more than I take home. Last year I had to borrow $12,000 just to cover my spending.”
“Well maybe things will be better this year,” I said, hoping that Sam’s spending issues was a one year problem.
“No,” Sam replied. “Actually, in the first three months of this year, I’ve already spent $19,000 more than I’ve made. It looks like my budget deficit this year will be much worse than it was last year.”
Now I was starting to worry. “Have you been borrowing money to cover your spending for a long time?”
“Oh yes. I have a lot of debt. Part of the problem is that I owe myself $150,000.”
I wondered if Sam misspoke, “Wait, wait, wait, you owe yourself $150,000? Why do you think that you’re in debt to yourself?”
“Well you see, over the years I promised myself that I was going to use my paychecks to pay for a fund for my children’s education, but instead of spending $150,000 on colleges, I spent the money on other expenses. So I figure that I owe myself this money so that I can pay for my children’s college tuitions.”
Obviously Sam doesn’t understand the definition of the word “debt.”
I tried to be polite in my response: “That doesn’t make any sense. It’s true that you’ve made some horrible decisions regarding your spending, but it’s ridiculous to claim that you owe yourself money. A debt occurs when one person owes another person money. Just because you changed your mind about how to spend your paychecks doesn’t mean that you’ve borrowed money from yourself.
“So the first thing you need to do is to think clearly about the amount of debt you have. You don’t owe yourself any money. Now, forgetting about this ridiculous notion of self-debt, how much do you owe?”
“Alright, I think I see your point. Let’s just talk about the rest of my debt. I owe various banks about $420,000. This debt is more than four times my take-home income.”
Sam often lies about his income and spending issues, but he always understates his budget problem. If he’s lying now, then I can be sure that the problem is even greater than he says. I wanted more information.
“That a pretty high debt to income ratio. But that might be somewhat manageable, although unwise, if you’ve borrowed that money at low interest rates.”
“I have some good news and some bad news,” Sam said. “Interest rates are low. In fact, in the last fourteen years, my debt has more than quadrupled, but my interest payments have increased less than 50 percent. That’s because interest rates have collapsed during that time. Isn’t that good news?”
“I suppose, but do you know that interest rates are going to increase over the next several years?”
“Yes, that’s the bad news. In the past year, I only paid $7,000 of interest, but within ten years my debt will increase over 50 percent, and possibly much more, and with higher interest rates I expect to be paying at least four to five times that much in interest annually.”
“That’s a huge problem. So to be able to make your loan payments, I assume that you’ve taken out some long-term loans.”
“No, no, no. In order to take advantage of the low interest rates, most of my borrowing is short term. I rollover my loans quickly. In the past year my principal payments on these loans totaled $207,000.”
“Let me get this straight. Your loan payments, including principal and interest, are well over twice your take home pay?”
“Yes, I take home a little over $8,000 per month and my loan payments are over $17,000 per month. But it’s no problem. In the past year I borrowed $223,000 to cover everything.”
Shocked, I said “How can you say borrowing more than twice your income is not a problem?”
“I simply borrow all the money I need to make all of my loan payments. I never pay any of the loans down. I’ve been doing this for years, ever since I started spending more than I make.”
“Okay. Most of your borrowing goes to cover your increasingly large principal and interest payments. And as interest rates rise, interest payments will become a bigger percentage of your spending. When that happens, your total debt will increase faster than your income. What is your plan, say in the next ten years, to correct this situation?”
“Well I don’t have a plan for correcting anything, because I don’t see how I can cut my spending.”
“What if the banks stop loaning you money to make your payments on your loans? What happens then?”
“I guess I’m assuming that won’t happen.”
Sam’s Budget Situation in Real NumbersIf one of our neighbors budgeted in this manner, we would obviously conclude that the guy is crazy. No such plan could work. Eventually lenders would refuse to fund Sam’s spending.
However, Sam’s situation looks a lot like the federal government budget plan. Take a look at some recent federal budget information and some Congressional Budget Office projections:
In FY (fiscal year) 2015, the feds had a budget deficit, counting only debt held by the public, of $339 billion, which is about 10 percent of their tax revenues of $3,248 billion. The deficit has been declining the last few years, but that is now changing.In fact, in the first three months of FY 2016, according to the Treasury Department, federal debt held by the public increased $548 billion. Admittedly, some of this debt was due to the fact that the feds were cooking the books in FY 2015 when they hit the debt ceiling limit. Nonetheless, the first quarter 2016 deficit is already 60 percent larger than the overall 2015 deficit.The federal government claims to owe itself over $5 trillion (they call it intragovernmental debt here). This $5 trillion represents tax revenues that were earmarked for specific spending programs, such as Social Security, but were spent on other programs. Since the feds collected taxes to pay for Social Security, but spent the money on something else, they conclude that they owe it to themselves to collect those tax revenues again. That’s the essence of intragovernmental debt. We should not count this as debt. Give the Treasury Department credit for ignoring this type of “debt” in their Daily Treasury Statements and in their end of the year debt reports.As of September 30, 2015, the feds had $13.1 trillion of debt owed to the public. FY 2015 tax revenues totaled $3.248 trillion. So just like Sam the government has a 4 to 1 debt to tax revenue ratio.In the past fourteen years, from September 30, 2001 (the start of George Bush’s first budget) to September 30, 2015 (the end of Barack Obama’s sixth budget), debt owed to the public increased from $3,339.3 billion to $13,123.8 billion. That’s an increase of 293 percent.According to the Daily Treasury Statements, in the past fourteen years, interest on treasury securities increased from $162.5 billion in fiscal year 2001 to $233.1 billion in fiscal year 2015. That’s a 44 percent increase during the same period when federal debt owed to the public almost quadrupled.In FY 2015, again according to the Daily Treasury Statements, the feds borrowed $7,251.4 billion (see the Public Debt Cash Issues for September 30, 2015), an average of almost $20 billion per day. They spent $6,740.3 billion of this borrowing rolling over their debt. So, Federal principal and interest payments are more than double federal tax revenues.According to the Congressional Budget Office’s baseline projections, debt held by the public in 2025 should exceed $21 trillion and during that time interest rates are expected to increase. Interest rates have been kept artificially low for years. If interest rates return to a more normal level, say to the rates they were paying when George Bush took office fifteen years ago, then interest payments in 2025 will exceed $1.2 trillion. That’s over a 400 percent increase compared to the FY 2015 interest payments. I should note here that the baseline budget projections are optimistic. We should expect the debt situation in 2025 to be significantly worse than these projections.The federal government’s debt has exploded under the Bush and Obama administrations. Low interest payments due to the low interest rates have masked their budget problems. As interest rates and the spending gap on entitlement programs such as Social Security both increase, the budget problem will compound.
The government’s plan is to borrow all of the money they need to pay all of their principal and interest payments and to also pay for the budget deficits in their spending programs. The question we should ask is: what’s going to happen when the world’s lenders refuse to bankroll DC’s spending schemes?
Although the causes of economic crises recurring throughout US history and often spreading worldwide can’t be proven using empirical means, oppressive government regulations favoring special interests in relevant industries have preceded every crisis.
Typically, cronyism involves support of politicians in exchange for regulations denying others the freedom to compete with the moneyed interests (e.g., monopolies). Less competition leads to higher costs and lower quality. It reduces economic growth, jobs, wages, innovation, and productivity. Attempts to control economic growth through government spending and/or manipulating interest rates (e.g., stimulate growth with low rates) generally leads to more severe crises.
None of these things are recent phenomena, but can be found again and again throughout American history.
MercantilismAfter the Revolutionary War, when the agrarian economy was beginning to industrialize, politicians pursued British-style mercantilism, including colonialism, against natives and regulations blocking competition in banking and manufacturing. Financial panics and depressions resulted under a national bank in 1792 and from 1819–21 and state-regulated banks from 1837–43 and 1857–59.
The Civil War was a dispute between Republicans representing manufacturers in the North that blocked free trade with import tariffs against Europe, and Democrats representing agricultural plantations in the South that refused to replace slavery with mechanization using the North’s high-cost goods.
MonopolizationThe “Gilded Age of Capitalism” shifted the economy from agriculture to industry led by “robber barons” who lobbied mostly Republicans. The government helped create railroad monopolies with low-interest loans, land grants, and special frontier privileges. The railroads formed a conglomerate that monopolized much of the rest of the economy by favoring large over small customers (e.g., Rockefeller’s Standard Oil over farmers), large suppliers (e.g., Carnegie Steel), and big banks (e.g., J.P. Morgan).
Both railroads and banking (with both national and state banks) were implicated in the severe financial panics from 1873–78 and 1893–97, occurring during the Long Depression of 1873–96, and another panic in 1901. Banking regulation led to the panic in 1907.
During the Progressive Era, the US used regulation to form many of today’s monopolies. From 1906 to 1910, Republicans led efforts to create state-regulated electricity and natural gas utility monopolies, and the Seven Sisters oil and physician oligopolies. In 1913, Democrats sanctioned the telephone monopoly and founded the Federal Reserve banking monopoly (i.e., which regulates the banks). After World War I, the Fed raised interest rates which led to the depression of 1920–21, which bankrupted many companies and led to manufacturing oligopolies, including in the automotive industry.
Thanks to these new frontiers in a regulated economy, by the 1920s, only 200 corporations controlled over half of all US industry and the richest 1 percent of the population owned 40 percent of the nation's wealth. As in recent times, the Fed responded by providing easy credit at low interest rates, which led to increased consumer and business debt, uneconomic and risky investments, and inflated assets, including stock prices (further increasing wealth disparity). After the Fed tried to raise interest rates, the result was the Great Stock Market Crash of 1929.
NationalizationDuring the 1930s, the crash led to the Great Depression, the worst financial crisis in US history, and then spread from the world’s largest economy globally, albeit with less severity abroad. Democrats, led by President Roosevelt (FDR) and supported by bankers, agriculture, oil, and labor, tried to redistribute wealth by limiting competition through government takeovers, including trucking, airline, and housing industries, and restricting the supply of food and oil. This led to continued global depression and World War II, which was financed with debt.
Finally, the post-war boom or “Golden Age of Capitalism” saw a dismantling of wartime regulations and growing opportunities especially in manufacturing (like China today). During global rebuilding, the US became the world’s economic leader with about 4 percent annual growth, even with increasing interest rates, decreasing debt, and high taxes. Although wealth disparity was historically low, Democrats increased regulation of necessities, leading to today’s high costs.
FDR had taken money from taxpayers to subsidize home loans at low interest rates including guarantees from the Federal Housing Administration (FHA) since 1934, and securitization by the Fannie Mae secondary mortgage monopoly since 1938 (and Democrats added Freddie Mac to form a duopoly in 1970). After the war, the subsidies led to unsustainable demand for more expensive and larger homes, urban sprawl, and a shortage of affordable housing.
FDR had also taken money from taxpayers to subsidize favored farm crops, which discouraged alternative crops. After 1946, Democrats increased subsidies leading to inflated prices for farmland. Since 1973, the US has subsidized food overproduction leading to dumped exports that retard agricultural and economic development in the developing world and uneconomical bio-fuels protected by tariffs against Brazilian ethanol (until 2012). FDR had led support for the nationalization of oil industries (e.g., Mexico), and military spending to defend dictators in oil-rich countries (e.g., Saudi Arabia).
In 1965, Democrats led nationalization of about half of health care purchasing through Medicare and Medicaid. These programs, and later Obamacare, subsidized increased demand while the supply of doctors and hospitals has been restricted. The resulting health care crisis led to skyrocketing costs nearly triple those of other developed countries.
Psuedo-DeregulationThe dreaded stagflation of the 1970s is considered tied for the second worst financial crisis in US history. The Fed responded to inflation by raising interest rates, leading to the Great Recession of the early 1980s, which led to the Savings and Loan Crisis, and spread as the Latin American Debt Crisis. Since then, the Fed has been lowering rates overall.
Meanwhile, politicians claimed to be trying to increase cost efficiency through privatization of public industries, and foster competition through partial deregulation of private industries. Worldwide, politicians allowed the monopolists to write the rules, including preferential bargain sales to cronies, which led to even nastier deregulated monopolies.
Deregulation was limited mainly to common carrier industries, including airlines in 1978, trucking in 1980, telecommunications in 1996, and electricity and natural gas utilities during the 1990s, and also banking in 1999. For example, states allowed utilities to design rigged trading schemes, gain preferential access to transport lines, and sell assets to affiliates for pennies on the dollar. Deregulation declined after manipulations led to the California Energy Crisis of 2000.
CorporatismAfter the energy crises and bursting of the internet bubble in 2000, big business Republicans and big government Democrats practiced corporatism. The US House Budget Committee explains: “In too many areas of the economy — especially energy, housing, finance, and health care — free enterprise has given way to government control in partnership with a few large or politically well-connected companies.”
In 2003, regulations led to increased ethanol production from corn, but after that led to the 2007–08 Food Crisis, growth was stopped by mandates that the fuel be made from expensive-to-process cellulose.
Meanwhile, George W. Bush promoted home loans securitized through the Fannie and Freddie duopoly and the Fed’s big banks, while encouraging the Fed to lower interest rates, leading to a bubble in home ownership and prices. Soon after the Fed started raising rates, the bubble burst leading to the 2007–09 Subprime Mortgage Crisis, 2007–08 Financial Crisis (considered tied for the second worst financial crisis in US history), 2008–10 Automotive Crisis, and 2008–12 Global Recession.
In 2010, Dodd Frank gave politicians more oversight over the Fed’s big banks, increasing influence peddling, and risks of crises. The Fed has been loaning trillions of dollars at low interest rates to the big banks. Lower rates can encourage financial engineering, like mergers, which allow bankers and corporate executives to bleed profits from large corporations, who receive preferential tax treatment, especially abroad. Since 1998, the financial sector has spent over $6 billion lobbying Congress.
The Bank for International Settlements, or so-called “bank of central bankers,” warns another global debt crisis is coming, and the debt-trap is now even worse than before 2007. The US has led many nations to continue to lower interest rates and accumulating private and public debt. Now, a slowing economy could make the debt toxic and lead to a financial crisis that would be hastened as the Fed raises rates. The Bank warns: “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”
Obamacare could allow bureaucracies to control patient treatments and prices, while lobbied by the industry. Since 1998, medical interests have spent over $6 billion lobbying Congress.
The Free Market SolutionToday, there is no party that favors true privatization or free markets. Republicans favor monopolization, while claiming support for free markets and blaming the Democrat’s high taxes and regulations for crises. Democrats favor nationalization, while blaming non-existent free markets for crises. Meanwhile, many Americans appear to be embracing the regulatory nationalism of crony capitalist Donald Trump or the democratic socialism of Bernie Sanders.
The solution, however, is simply to take as much power as possible out of the control of corruptible politicians and their special interest supporters.
The perennial promises of free stuff from political candidates are front and center again now that we are ensnared in another US election cycle. The knee-jerk response from some economists and libertarians is “TANSTAAFL!” And of course it’s true that There Ain’t No Such Thing As A Free Lunch, because somebody must bear the costs of the supposedly “free” stuff. Nothing is free because every action has an opportunity cost.
Especially when the government is involved in doling out the gifts, all it means is that it was bought with money taken from others. Or, sometimes, the money is taken from the person receiving the gift, who thinks he’s gotten something for nothing. (This is a sleight-of-hand political trick that has fooled many for centuries.)
But what if we interpret “free” in a more colloquial sense? Is it still preferable for the government to give away free stuff? Do unhampered markets provide for free stuff?
Two Definitions of “Free”Today’s promises include free college, free healthcare, free paid time off of work, and all sorts of goodies. Although the above conclusion (no such thing as “free”) applies to all of these, I want to consider a different, more liberal definition of “free”: gifted.
For example, if Bernie gives Jonathan an apple that Bernie either grew in his orchard or bought at the store and Bernie expects nothing in return, the apple is a free gift from Bernie to Jonathan. The production, purchase, and loss of the apple is costly, but Jonathan bears none of these costs. Jonathan would technically have to expend some time and effort to hold and consume the apple, and he would lose an apple’s worth of carrying capacity on his person, but ignoring these and other technicalities, we can casually say that the apple is a free gift from Jonathan’s perspective.
So now consider this definition for the above examples: freely gifted college, freely gifted healthcare, freely gifted time off, etc. We realize that these already exist, and would exist absent government provision.
There are innumerable scholarships offered by individuals, organizations, and colleges who want certain students to attend college. Organizations like St. Jude’s, Doctors Without Borders, and Operation Smile offer freely given medical services to patients. And many businesses already allow their employees vacation days, medical leave, and family leave without them skipping paychecks, although there is an important caveat here that this would be priced into their regular salary or wage unless the employing entrepreneurs want to give from their own means.
This is all not to mention the freebies, BOGO coupons, “freemium” apps, and other marketing strategies retail stores employ.
Why Do People Give Gifts?First, we must have more than we want to keep for ourselves.
Widespread abundance like this is only possible with relatively unhampered markets and roundabout production in place, where entrepreneurs are correctly guessing consumer demands and a large capital structure made possible by saving yields plenty of consumer goods. We have to create wealth before we can exchange it, consume it, or give it away.
But once we have such an abundance of means, the reasons for giving are countless and outside the scope of economics. An altruist might give out of generosity, but even a greedy businessman could give because of increased storage costs for all of their inventory, or as a plan to attract customers.
It should be noted that self-interest motivates both the altruist and the greedy businessman. The altruist’s actions are self-interested because he is satisfying one of her own ends by relinquishing ownership of the donated means to somebody else.
Voluntary vs. Involuntary GivingWhen the giver gives voluntarily and the receiver accepts the gift, we can say it represents a mutually beneficial arrangement. The same cannot be said for forced redistribution.
When Bernie gives Jonathan the apple, Bernie is satisfying the highest ranked end he has for that apple. If, however, Bernie stole the apple from somebody else before giving it to Jonathan, then we can say with certainty that the exchange of the apple is not mutually beneficial.
The same goes for college scholarships and medical care. If the government takes the means to give somebody free college, then it does not represent a mutually beneficial arrangement, or else the individual would have voluntarily donated the money for the student to go to school.
Unlike private charities and scholarship funds, the government has no reason to dispense the gifts prudently or to minimize their own cut to maintain a donor base that is confident their donations are used efficiently and for the intended cause.
Forced redistribution also tends to spur bitterness and conflict, as opposed to gratitude and goodwill.
Proponents of Free Stuff Should Look to Capitalism, not RedistributionismThe conclusion we can draw here is that we get just the right amount of “free” stuff through the voluntary interactions of individuals in unhampered markets. And, not only that, but as capitalistic economies inevitably grow and the people become increasingly wealthy, charitable giving can increase as well. As the supply of goods that satisfy our ends gets larger, those marginal goods are more likely to be valued in terms of giving them away rather than keeping them ourselves.
Therefore, those that desire more free stuff should try to encourage more voluntary giving (maybe even leading by example), not forced redistribution. They should also be the loudest proponents of unhampered markets as any voluntary giving must come from wealth that has already been created and in such abundance as to allow for greater giving.
In the cramped carriages of trains on the London underground, the bumping of body parts periodically furnishes occasion for a few murmured words between strangers. Aside from these apologetic exchanges, the passengers usually avoid getting involved with one another. Last November, however, this culture of British indifference was contravened when a group called Overweight Haters Ltd., apparently rapt by a sense of public duty, began an on-train shame campaign against fat Londoners, which involved giving out cards: “We disapprove of your wasting NHS [National Health Service] money to treat your selfish greed. ... You are a fat, ugly human.”
This odious act was, in part, sociological fallout from Britain’s nationalized system of health care. Single-payer medicine makes intimate health issues fair game for crass debate in the public square.
The government-employed statisticians and health experts, however, is the subject for analysis today. Writers of reports on obesity policy options are obliged, it seems, to include a section on the social cost of obesity — and the higher the number generated, the better. Their entire program of interventions dearly depends on this section for its implementation. In the words of one government source: “If rational individuals pay the full costs of their decisions about food intake and exercise, economists, policymakers, and public health officials should treat the obesity epidemic as a matter of indifference.” Theoretically, if the social cost is found to be low or zero, the rest of the report (all 150 pages of it) should end up in policymakers’ recycling baskets. Given this incentive structure, it is perhaps unsurprising that the UK Government Office for Science reported a number so obviously flawed.
How the Report Exaggerates CostAs a Crown-stamped document, the report emanates authority. This makes its estimate suitable for uncritical regurgitation by journalists, politicians, and pundits. It is now etched into the British psyche: obese people are an ungodly drain on our NHS. To fully comprehend what it means to be cast as an enemy of the NHS in modern day Britain, note that, in protest of the Conservative Party’s quasi-reformist healthcare policies, in the county of East Sussex last Guy Fawkes Night a giant, naked effigy of Prime Minister David Cameron was paraded, jeered, and burnt.
The report in question, Foresight Tackling Obesities: Future Choices Project, claims the cost of obesity to the NHS was £3.9 billion in 2015 — this includes the direct cost of treating obesity, as well as a proportion of the cost incurred by treating obesity-related diseases, e.g., diabetes, coronary heart disease, stroke. However, and this is the point we want to stress, no effort is made in the report to account for the fact that obese people die earlier, and so often do not cash out their state pensions. That is, it gives the gross cost of obesity, when it is the net cost (which is much, much lower) that is the true indicator of obesity’s burden on the public purse.
Let’s estimate the net cost. The National Audit Office, an independent parliamentary body, estimates that obesity accounted for 30,000 excess deaths in 1998 in England alone (no data is available for the rest of Britain). On average, each individual died nine years earlier than they would have done had they not been obese. Assume that, in every year following 1998, the same was true: 30,000 people died nine years early. It follows that there were 270,000 fewer people alive in England to collect their pensions in 2015 due to obesity. (The formula is number of deaths multiplied by number of years lost per person due to premature death, and the logic underpinning that formula is captured in the diagram below.)
Figure 1: Number of people not collecting a state pension every year on account of their having died an early, obesity-caused death.
In the diagram: Each dot represents 30,000 people “missing” from society due to untimely death. The first wave of people died nine years prematurely in 1998, and so there were 30,000 fewer people alive to collect state retirement payments from 1999 to 2007 — represented by red dots. The second wave of 30,000, who died in 1999, are represented by pink dots. By 2007, the number of people absent from society levels out at 270,000 (= 9 x 30,000). There are six dots above 2004, seven above 2005, eight above 2006; but nine above 2007, nine above 2008, nine above 2009, etc. Given the assumed death rate and years of life lost, 270,000 is the “long-run” number of English people missing from society because of obesity.
The state pays up to £8,300 per year to over-65s, which includes pension, top ups, heating allowance, and a TV license. Because in 2015 there were 270,000 fewer over-65s alive on account of premature death, the state’s liabilities in England alone were reduced by over £2.2 billion. This puts the net cost of obesity at about £1.7 billion, which is less than 2 percent of the NHS’ 2015/16 budget, and 56 percent lower than the gross cost. If we’d had the necessary data to include the rest of Britain (Scotland, Northern Ireland, and Wales), we might well have found the net effect of obesity on the state’s coffers in 2015 to be nil, or close thereto.
Of course, some obese people do claim out-of-work sick payments from the government, which inflates the net burden of obesity — but the amount is paltry (approximately £50 million a year) and this does not upset the conclusion of our analysis.
Government as an Agent of Social ConflictIn short, by highballing their estimate of the social cost of obesity, the report’s interventionist authors have unnecessarily contributed to the stigmatization of obese people in British society. Remember, Overweight Haters Ltd. cited the burden of obesity on public finances as their primary grievance.
Multiple studies have shown that fat-shaming causes obese people to gain more weight. This should be obvious given that obsessive eating is rooted in negative emotional states, from which sweet and fatty foods — calming opioids — provide fleeting respite. In fact, 69 percent of adults undergoing gastric bypass surgery report having suffered abuse as children, which makes sense given that tormented youngsters are more prone to suffer mental health issues in later life, and to use food as a conciliatory mechanism.
This is an age-old story: interventionists are known in libertarian circles for compounding the very problems they seek to solve. For example, when the Federal Reserve lowered interest rates after the dot-com crash, it stoked a housing bubble; when Western forces swore to defeat terrorism, they created ISIS; when Chairman Mao ordered the killing of grain-stealing sparrows, he caused a famine. This time, the interventionists sought to solve the obesity problem — and again they made the problem worse.
In Iraq and Afghanistan, US military officers routinely handed bundles of cash to local residents to buy influence and undermine resistance to the American occupation. Such payments came in especially handy after US troops inadvertently killed innocent civilians or sheep. Billions of dollars were shoveled out with little or no oversight as part of the Pentagon’s “Money as a Weapon System” program.
In the same way, politicians have long relied on money as a weapon system to buy votes or to undermine resistance to Washington. Presidents and congressmen are not carrying out a formal counterinsurgency against the American people. But they realize that addicting citizens to government handouts is the easiest way to breed mass docility and stretch their power.
Politicians are dividing Americans into two classes — those who work for a living and those who vote for a living. Federal food programs are now feeding more than 100 million Americans. Since 1983, the number of people receiving aid from the federal government has more than doubled — rising from 66 million to 153 million people. The number of people tapping means-tested handout programs has soared from 42 million to 109 million. Dependency has skyrocketed during an era of relative prosperity.
In the same way that King Henry VIII cemented his power by distributing seized monasteries to his supporters in the early 1500s, contemporary politicians buttress their power by showering hundreds of billions of dollars on likely voters.
Like medieval kings who distributed land to any favored lackey, today’s politicians feel entitled to redistribute income to any group they please. Nowadays, there is no property title half as sacrosanct as a politician’s decree that some group deserves more handouts. But every new benefit program increases political control over recipients and over the people forced to finance the benefits.
Handouts provide cheap halos for politicians. Some people view government handouts as if they are nothing more than good intentions made manifest. But every government aid intervention shifts the incentives on how millions of people live. Federal student aid drove up college tuition which is helping spawn demands for federally-paid free tuition for all students. Medicaid and Medicare roiled the health care system and sparked perpetual inflation that spurs demands for nationalized health care. ObamaCare is spawning millions of new dependents who will view politicians as saviors in the coming years.
Politicians and bureaucrats strive to undermine traditional American virtues and maximize the number of people on the dole. The Agriculture Department is financing propaganda recruiting programs for food stamps. Recent reforms in most states allow people to snare food stamps merely by making a phone call or filling out an online application. That is far less bothersome than going to a job interview.
The Obama administration claims that the surge of food stamp dependency is making America prosperous because each dollar given in food stamps supposedly generates $1.84 in economic activity. If that was true, then government could make us all rich by giving food stamps to everyone. In reality, handouts are merely political multipliers.
Good faith government handouts are almost as rare as good faith wars. The welfare state buttresses itself with an array of statistical sleights intended to make citizens appear worse off than they are. USDA conducts an annual “food security” survey whose results are widely reported (including by Obama) as a proxy for the number of hungry Americans. If someone feared running out of food on a single day (but didn’t run out), that is an indicator of being “food insecure” for the entire year. If someone craved organic kale but could only afford conventional kale, that is another “food insecure” indicator. However, families receiving food stamps are over 50 percent more likely to be ”food insecure” than similar low-income households not on food stamps, according to a
During last Saturday’s GOP presidential debate, the candidates were asked if they would support mandatory registration for women with the Selective Service System now that women are allowed combat positions in the US military. The Selective Service, of course, is the federal agency that maintains a list of potential conscripts should the US government ever decide to reinstitute the draft.
Most of the candidates applauded the idea while Ted Cruz denounced the notion. But, as is often the case, Cruz was right for the wrong reasons. Cruz seemed to base his reaction on sentimentalism and gender politics. He should be opposing an expansion of the draft for the simple reason that it’s potentially a massive tax increase. Here’s why:
Make no mistake about it. Expanding Selective Service from 50 percent of young adults to 100 percent is not about equality, or progress, or patriotism. While these notions will no doubt be used to bully people into supporting such a move, the real-world effect will be a massive expansion in government power over the lives of the population. Conscription, after all, is simply a draconian tax on the conscripts who lose their freedom for the duration, but who may also be coerced into being killed in order to promote the state’s policy agendas:
“Conscription is slavery,” Murray Rothbard wrote in 1973, and while temporary conscription is obviously much less bad — assuming one outlives the term of conscription — than many other forms of slavery, conscription is nevertheless a nearly-100-percent tax on the production of one’s mind and body. If one attempts to escape his confinement in his open-air military jail, he faces imprisonment or even execution in many cases.
Conscription remains popular among states because it is an easy way to directly extract resources from the population. Just as regular taxes partially extract the savings, productivity, and labor of the general population, conscription extracts virtually all of the labor and effort of the conscripts. The burden falls disproportionately on the young males in most cases, and they are at risk of a much higher tax burden if killed or given a permanent disability in battle. If he’s lucky enough to survive the conflict, the conscript may find himself living out the rest of his life as disfigured or missing his eyesight and limbs. He may be rendered permanently undesirable to the opposite sex. Such costs imposed on the conscript are a form of lifelong taxation.
Fortunately for those who escape such a fate, the term of slavery ends at a specified time, but for the duration, the only freedom the conscript enjoys is that granted to him by his jailers.
If the debate over this issue continues, we’re likely to hear a lot about how “fairness” and egalitarianism requires an expansion of the Selective Service System. But those claims are all distractions from the central issue here, which is the state’s power over the citizen.
After all, if women want to go help out Al-Qaeda in Syria (which is what the US is doing there), they are free to volunteer. Whether or not women can be directly involved in blowing up revelers at Afghani weddings, however, is a completely separate issue from conscription and the Selective Service.
The two issues are already being conflated, as was made clear by Chris Christie’s comment at the debate when he pounced on the issue of female conscription and declared it’s important that "women in this country understand anything they can dream, anything that they want to aspire to, they can do."
After hearing this, one is left wondering if Christie is aware that there’s a difference between being a soldier and being forced to be a soldier by the state.
Besides, if fairness is a concern, there’s an easy way to achieve fairness on this issue: abolish the Selective Service for everybody. It’s as easy as that. It wouldn’t even cost a dime of taxpayer money. Simply shred the records, fire everyone who works for Selective Service, and lease out the office space to organizations that do something useful. Then, we won’t have to hear anything about “discrimination” or the alleged sexism implicit in a policy that outrageously neglects to force women to work for the government against their will.
But Isn’t This Just a Symbolic Gesture?Some who want to expand Selective Service for egalitarian reasons are claiming that it’s all just symbolic anyway, because the draft “will never happen.”
“The US hasn’t had the draft since the early 1970s,” one columnist loftily intoned as if that were evidence that the draft could never return. Wow, the 1970s? Did they even have electric lights back then?
Moreover, it’s a mistake to think that the draft could never return because people would overwhelmingly oppose people being forced into combat. Even if that is the case, there is no reason at all why conscription could not be used to draft people for non-combat positions. After all, only a very small portion of the military ever sees combat. The vast majority of soldiers are involved in logistics, transportation, and desk jobs such as computer programming.
Only a small portion of military deaths occur in combat. Most deaths in the military are due to accidents.
Additionally, there is no reason that Selective Service could not be modified to be used to draft people for so-called “national service” positions in which conscripts would perform non-combat bureaucratic and manual-labor jobs. Austria and Switzerland (which have conscription) allow this option for those morally opposed to combat. And historically — such as during World War II — “service” was imposed on conscientious objectors who were forced to work on farms or perform other types of manual labor in special camps.
So no, the draft is not “hypothetical,” “symbolic,” or something that “will never happen.”
Numerous countries in Latin America, Europe, and Asia still employ conscription, and it is hardly some kind of never-used relic from the distant past.
Alas, much of the opposition to the expansion of Selective Service has taken the form of National Review’s opposition which is based on the idea that conscripting women is some kind of special unique evil, quite unlike conscripting men. Military service is one thing, the editors write, but forcing women into it is “barbarism,” they admit. They’re half right. It is barbarism to force women to fight wars for the state. But the same is also true of conscription for men.
Last year was a tough one for investors. Gold was down 10 percent. The Dow Industrials fell 2.5 percent, and most bond indexes finished down by at least that much.
One institution that performed remarkably well in 2015 was the Federal Reserve. It just finished its most profitable year on record. The $100 billion in net income earned last year was a slight improvement over the previous year. That total was also roughly three times higher than the Fed’s income from 2007, the last year before it initiated its Quantitative Easing programs in the wake of the financial crisis.
Since the Fed does not exist to generate profits, some may be confused as to how it could have such a great year at doing so.
Here’s how it works. Every time the Fed expands the money supply it buys an asset. Typically the asset is a financial security, like a US Treasury bond, and the counterparties are typically large banks. Figure 1 gives a simplified look at the Fed’s balance sheet at the end of 2015 and how it evolved over the year:
Figure 1: Simplified Federal Reserve Balance Sheet (in millions of dollars)Compared to previous years, 2015 was relatively uneventful at the Fed. Having completed the tapering of its Quantitative Easing programs in October 2014, the Fed’s asset holdings held constant over the year. This was in stark contrast to the previous six years, during which the Fed purchased $3.5 trillion of assets. The Fed earns interest on its assets but most of its liabilities are non-interest bearing, like the $1.4 trillion worth of Federal Reserve notes crumpled in people’s pockets or buried under our mattresses. The Fed does pay interest on Reserve Bank balances, but at the current rate of 0.5 percent, this figure was a drop in the bucket relative to its total income. (Almost all of the Fed’s assets earn interest, while it incurs an interest expense on less than half of its liabilities.
What Does the Fed Do With All That Income?The question that arises is what the Fed does with its profits.
Each year, the Fed remits to the US Treasury its net income, and thus provides the federal government with an important source of funding. Figure 2 shows how this figure has evolved since 2001.
Figure 2: Treasury Interest and Fed Remittances (in billions of dollars)A decade ago, back when the Fed was a smaller size, Fed remittances were fairly steady, in the neighborhood of $20 billion a year. This all changed after 2008 as the Fed’s Quantitative Easing programs increased the amount of interest-earning assets that would generate funds to transfer back to the Treasury. This year’s figure of $97.7 billion is more than four times the amount transferred just ten years ago, an annual growth rate of more than 16 percent. (At least something is growing quickly in this economy.)
Big Bucks for the US TreasuryFor the US Treasury, Fed remittances are something of a free lunch. When someone buys a Treasury bond, the government must pay them interest. This applies to the Fed as well, but then at year-end the Fed remits the interest back to the Treasury.
The federal government paid out $223 billion in interest payments last year. The Fed remitted almost $100 billion back, leaving the net interest expense at around $125 billion. It’s not just historically low interest rates that are making it easier for the Treasury to borrow in a way that, if it were done by anyone else, would classify them as subprime. The Fed is also chipping in and helping out where it can.
Also shown in figure 2 is the percentage of the federal interest expense that is remitted back by the Fed. For 2015, this figure neared 45 percent. That figure is a good way to think about the free lunch that the Fed gives to the Treasury.
In more “normal” times (i.e., prior to 2008) around 10 to 15 percent of the Treasury’s interest payments were paid back to it by the Fed. This figure has grown to almost four times that amount over the past seven years and it doesn’t look like this trend will abate anytime soon.
Implications for Fed “Independence”As much as economists talk about the independence that the Fed holds from Congress, these remittances represent a strong link. In fact, since they enable federal spending they create a form of quasi-fiscal policy for the Fed to use, in addition to its more common monetary policy options.
Consider that since Treasury debt is almost never repaid in net terms (old issues are retired but replaced with new debt issuances), the true cost of financing the US government’s borrowing is not the gross amount of debt outstanding but the annual interest expense it faces. Viewed this way, nearly half of the Treasury’s borrowing was financed by the Fed last year. Absent these Fed remittances, Congress would need to look at either an alternative funding source (though I am not sure how many takers there are for the Fed’s $2.5 trillion Treasury holdings) or make some serious cuts.
How serious? NASA’s operating budget was roughly $18 billion last year, so a lack of Fed remittances would cause the Treasury to cut around five NASA-sized programs. Alternatively, the governments Supplemental Nutrition Assistance Program (previously known as “food stamps”) cost $70 billion in 2014. Without the Fed’s remittances, Congress would have to stop paying out all food stamp recipients plus it would be forced to defund almost two NASAs.
More important in many Americans’ hearts is their monthly social security check. In 2014, $830 billion of social security checks were mailed out. Without Fed remittances, retirees might see their monthly check cut by about 12 percent.
For those concerned with the burgeoning size of the federal government, putting a stop to Fed remittances would put a serious dent in public finances and force some serious thought as to what programs need to be cut.
Taking a close look at the dense fabric that our government weaves between war, state power, and economics, this collection of essays reveals the growing authority—and corruption—of the American state. Covering topics from the Lyndon Johnson presidency to the provocatively titled article “Military-Economic Fascism” on the military-industrial-congressional complex, it argues that the U.S. government consistently exploits national crises and then invents timely rhetoric that limits the rights and liberties of all citizens for the benefit of the few, be they political leaders or various industrialists in the areas of defense and security. As its title suggests, this book presents a clear narrative of trends and events—from the United States’ entry into World War II to the origins of income tax—causing individuals to question whether those in power are truly blind to the effects and causes of their policies.
Higgs tersely describes the state as 'the most destructive institution human beings have ever devised.' The charge is supported by a massive array of data and a narrative of the process by which the U.S. government has preempted an ever-increasing portion of its citizens' resources and rolled back their liberty.
With War, Empire, and the Military: Essays on the Follies of War and U.S. Foreign Police, Laurence Vance, a relentless critic of the state and its wars, has updated his already extensive writings on war and empire to include new material in this volume not included in earlier collections of essays.
These essays, although organized under seven headings, have one underlying theme: opposition to the warfare state that robs us of our liberty, our money, and in some cases our life. Conservatives who decry the welfare state while supporting the warfare state are terribly inconsistent. The two are inseparable. Libertarians who are opposed to war on principle, but support the state’s bogus “war on terrorism,” even as they remain silent about the U.S. global empire, are likewise contradictory.
Rollback takes on both liberal and conservative conventions and their habits of mind. The objective of the work is dramatically ambitious. Woods writes with relentless precision, like an intellectual surgeon, to convince the reader that the government is not what it says (the source of security, prosperity, peace, justice, health) it is but is rather the opposite and thereby we can and should do without it precisely in the name of promoting security, prosperity, peace justice, and health.
He strives to completely lift the veil that covers the state, and he does so not through rhetorical bombast or libertarian theorizing but through careful, fact-filled argumentation on the issues that most people think about.
In The Real Crash, New York Times bestselling author Peter D. Schiff argues that America is enjoying a government-inflated bubble, one that reality will explode . . . with disastrous consequences for the economy and for each of us. Schiff demonstrates how the infusion of billions of dollars of stimulus money has only dug a deeper hole: the United States government simply spends too much and does not collect enough money to pay its debts, and in the end, Americans from all walks of life will face a crushing consequence.
We’re in hock to China, we can’t afford the homes we own, and the entire premise of our currency---backed by the full faith and credit of the United States---is false. Our system is broken, Schiff says, and there are only two paths forward. The one we’re on now leads to a currency and sovereign debt crisis that will utterly destroy our economy and impoverish the vast majority of our citizens.
However, if we change course, the road ahead will be a bit rockier at first, but the final destination will be far more appealing. If we want to avoid complete collapse, we must drastically reduce government spending---eliminate entire agencies, end costly foreign military escapades and focus only on national defense---and stop student loan or mortgage interest deductions, as well as drug wars and bank-and-business bailouts. We must also do what no politician or pundit has proposed: America should declare bankruptcy, restructure its debts, and reform our system from the ground up.
Persuasively argued and provocative, The Real Crash explains how we got into this mess, how we might get out of it, and what happens if we don’t. And, with wisdom born from having predicted the Crash of 2008, Peter Schiff explains how to protect yourself, your family, your money, and your country against what he predicts.
The first full week of 2016 has been an eventful start to the year.
In Oregon, the Federal government’s control over most of the American west continues to cause issues with ranchers — even though they themselves enjoy benefits from the arrangement. On Tuesday, President Obama continued the bipartisan assault on gun rights with an argument reliant on inflated statistics. Meanwhile, Rand Paul finds Mises, Bernie Sanders still hasn’t learned that price controls are bad, and Americans are voting with their feet for lower taxes.
On the global stage, China’s unsustainable economy continues to show signs of weakness, while new data shows Krugman is still very wrong about Europe, and socialism has done funny things to Venezuelan exchange rates.
We also took a moment to consider the legacy of Murray Rothbard twenty-one years after his passing. Luckily the ideas of Rothbard, Mises, and the rest of the Austrian school have never been more widely spread, in large part due to the work of a new generation of scholars that have come through the Mises Fellowship program.
Our latest Mises Weekends focuses on the Switzerland referendum on 100 percent reserve banking. Our friend Claudio Grass, managing director of Global Gold in Switzerland, joins Jeff Deist to give his thoughts. Who’s behind the referendum? How have the Swiss public reacted? Does it have a chance?
Jeff and Claudio offer comprehensive analysis you won’t get anywhere else.
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Why Austrians Are Not Neoliberals by Philipp BagusAre We Headed for Another Bust? by Frank Shostak"Paradise for an Austrian Researcher" by David Sanz BasVenezuela's Bizarre System of Exchange Rates by Emiliana Disilvestro and David HowdenEnd Injustices Now, Not Later by Gary GallesOn Gun Control, Obama Looks like Reagan and Bush by Ryan McMakenRand Paul Echoes Mises on Money by Tho BishopOregon and the Problem of Federal Lands by Ryan McMakenRemembering the First World War: the Centennial of the 1916 Slaughters by T. Hunt TooleyGuns Don't Cause Suicide by Ryan McMakenThe Basic Lessons of Keynesian Economics by Joseph SalernoPolice Departments Overflowing with Extra Time, Money by Ryan McMakenWould President Sanders Repeal Dodd-Frank? by Tho BishopCensus Data Shows People Are Fleeing High-Tax States by Ryan McMakenMost Market Criticism is Simply Poor Science by Per BylundMurray Rothbard by David GordonA Call to Activism from the Late Margit von Mises by Jeff DeistRothbard's Legacy, 21 Years Later by Ryan McMakenCultural Marxism Explained in 7 Minutes by Joseph SalernoPaul Krugman is Still Wrong on Europe by Louis RouanetHow The Feds Got All That Western Land (and Why It's a Problem) by Ryan McMaken
Tim Carney recently highlighted how Iowa’s important early role in the Republican primaries has produced “a gravitational pull to pander” on the Renewable Fuel Standard. Its ethanol mandate is “an indefensible subsidy” to Iowans from others’ transportation and grocery budgets for, at best, highly questionable environmental benefits.
Carney cited examples of cognitive dissonance, such as between Chris Christie’s “I want the free enterprise system,” and “we should enforce the Renewable Fuel Standard,” and similarly between Carly Fiorina’s criticism that “government favors … the big, the powerful and the well connected,” and “I support the Renewable Fuel Standard as it currently stands.”
How do candidates try to square the circle on such contradictions? Fiorina would let RFS expire in 2022 when the current law sunsets. Jeb Bush’s “We need to phase that out over the long haul” echoes her position. Marco Rubio said he would not have voted for RFS, “but it is now existing law and I think it would be unfair to simply yank it away from people that have made investments based on its existence.” In each case, they claim principled opposition without requiring them to actually do anything about it, even if elected. The ethanol profiteers attacks on Ted Cruz, for promising to end RFS during his first term, and the warmth they felt for Donald Trump’s “I love it. I’m for it” reveals why.
Injustices Should be Removed Immediately, Not GraduallyBut how convincing is the “I’m not really pandering because it’s unfair to change RFS midstream” defense for candidates professing inert opposition? In “other things equal” circumstances, there is clearly an argument for following through on commitments. But other things are not equal with the ethanol mandate. It involves continuing to impose harm on those forced to pick up the tab, an ongoing assault that eliminating RFS would stop. Justifying continuing it on the basis of unfairness would require that maintaining the status quo was more important than stopping government from imposing harm on those its most basic duty is to protect. Carney characterized it as, “We’ve been robbing from Peter to pay Paul, and Paul’s taken out a mortgage based on income from the theft. You don’t want Paul to lose his house, do you?”
If an injustice has been done, should it be maintained or eliminated? The well-worn adage that “justice delayed is justice denied” would seem to make the answer clear. For politicians to endorse free markets, while the government they are part of abuses its own citizens to benefit buyers of political favoritism, then drag their feet forever against rectifying the abuse, fails the hypocrisy test.
Leonard Read, founder of the Foundation for Economic Education, long ago considered government’s eagerness to violate rather than enforce citizens’ property rights, but then treat the benefits it transferred to others as inviolable property rights. We could profit from his insights in “Causes of Authoritarianism,” from his 1958 Why Not Try Freedom? In it he addressed what he called the fallacy that “Authoritarianism Should Be Removed Gradually.”
If an act is morally wrong or economically unsound, the quicker it is abolished the better.
Many people seem to hold the view that the beneficiary of special privilege acquires a vested interest in his unique position and should not be deprived of it abruptly. They give little thought to the many persons from whom the plunder has been taken.
[One] privileged … [another] deprived of the fruits of his own labor. Yet, when it comes to the matter of restoring justice, most people will think of the disadvantages suddenly falling upon [the first] rather than the accrued damage done to [the second].
Imagine an habitual and successful thief. For years he has been robbing everybody in the community without their knowledge. … Upon discovering his fraud, should his robbery be diminished gradually or should justice be restored to the community at once? The answer appears too obvious to deserve further comment.
People, when contemplating the removal of authoritarianism, seem to fear that a sudden restoration of justice would too severely disrupt the economy. The fear is groundless.
The fallacy of the theory of gradualism can be illustrated thus: A big, burly ruffian has me on my back, holding me down. My friends, observing my sad plight, agree that the ruffian must be removed. But, believing in the theory of gradualism, they contend that the ruffian must be removed gradually. They fail to see that the only result of the ruffian’s removal would be my going to work suddenly!
There is nothing to fear by any nation of people in the removal of restrictions to creative and productive effort except the release of creative and productive effort. And why should they fear that which they so ardently desire?
Government frequently acts as an agent of theft through the policies it imposes, then treats the prospect of restoring justice as unjust. But this rhetorical inversion of justice as injustice only works if we similarly invert the meanings of logic and illogic. It cannot advance Americans’ shared interests. As Leonard Read argued, every policy reflecting that flawed approach, such as RFS, should be ended as soon as possible. And no one who ducks the issue, disguising their unwillingness to act by supporting phase-outs that are never going to happen, is worthy of Americans’ trust to represent them rather than special interests.
The world waits to see if next week is finally the week that the groundhogs at the Fed announce their long-anticipated interest rate hike. Can the economy survive whatever small bump the Fed deals out? Perhaps, but any temporary stability doesn’t change the inherent instability of our current monetary regime. Even with today’s technology, central planners can’t predict the future or know the “optimal quantity of money.” Only by returning to true sound money, and a proper appreciation for the market, will true, sustainable prosperity emerge.
In honor of the twenty-fourth anniversary of the collapse of the Soviet Union, we have a special guest on the latest episode of Mises Weekends, Dr. Yuri Maltsev. A Mises Senior Fellow and a Soviet economist during the Gorbachev era, Maltsev shares his thoughts on the West’s enduring love affair with socialism. He and Jeff also discuss its political consequences in regard to Obama, Trump, and the Bernie Sanders phenomenon. This is an interview you won’t want to miss.
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Piketty Is Wrong: Markets Don’t Concentrate Wealth by Louis RouanetWhy Gold-Backed Money Doesn’t Bring Booms and Busts by Frank ShostakEnd the Sugar Tax Now by Gary GallesGovernment Debt Is Not Like Private Debt by Simon WilsonNo, "Big Data" Can’t Predict the Future by Per Bylund"Capitalism" Destroyed Itself? by Matt McCaffreyBlowing Up the Death Star Didn’t Destroy Economy, Building It Did by Tho BishopMan, Economy, and Beer: Rothbard-Themed Gastropub Opens in ConnecticutArticle Submission Guidelines for Mises DailyIndia’s Failing Gold Monetization Scheme: Seizure Imminent? by Paul-Martin FossViva Venezuela ... But Not Yet by Carmen Elena DorobățGun Control Fails: What Happened in England, Ireland, and Canada by Ryan McMakenTranscript: Ask David Gordon AnythingTop Ten Most-Read mises.org Articles in NovemberGerman translation of "PC is Control, Not Etiquette"Thanks, Janet Yellen: Homeownership in US Falls to 25-Year Low by Ryan McMakenWhy the No-Fly-List Gun Ban Is a Terrible Idea by Tho BishopBubble Watch: No-Down-Payment Jumbo Mortgage Makes a Comeback by Paul-Martin Foss
As the Labour Party fights with Tories over the need to slightly rein in government spending in the UK, opponents of even the slightest bit of austerity have turned out to claim that there is no virtue in “living within your means.”
In a recent article in The Guardian, Ha-Joon Chang, attacked even the Tory government’s timid claim that it wasn’t a great idea to spend more than the government collects in tax revenues. But for the new radical left Labour Party on whose behalf Chang’s article was written, this notion is as quaint as it is “simply wrong.”
For Chang, whether it derives from political expedience or a deeper philosophical current, a claim that one should live “within your means” is wrong because it assumes that our means are and always will be a fixed quantity. In fact, we can determine what our future means will be with actions we take in the present. Chang writes,
If you borrow money to do a degree or get a technical qualification, you will be spending beyond your means today. But your new qualification will increase your future earning power. Your future means will be greater than they would have been if you hadn’t taken out the loan. In this case, living beyond your means is the right thing to do.
Well, that’s that then. In one fell swoop, Chang thinks he demolishes the “homespun philosophies” of fiscal conservatism and “austerity” politics. Of course borrowing is good, Chang tells us. What economic illiteracy it is to suggest otherwise!
The problem for Chang here, however, is that he is really attacking a straw man.
Borrowing Is Not Inherently Good or BadAll he has stated is the obvious truth that investing in the present is likely to yield greater returns in the future — and this is good.
However, the source of an investment could just as well come from saving as from borrowing. The student in Chang’s example could, instead of taking out a loan, restrict his consumption (undergoing his own “mini recession”) in the years prior to study and pay his college fees outright so he can enjoy increased future returns all without the burden of interest. Wouldn’t this prove the inherent virtue of saving over borrowing?
In reality, neither borrowing nor saving is inherently good or bad. At least in the private sector. Whether one chooses to save or borrow to finance a project depends upon a subjective assessment of the relative trade-offs.
Is It Voluntary?It’s another matter entirely, though, when we’re talking about the government sector. Chang attempts to dismiss arguments for living within one’s means by comparing private-sector borrowing to government borrowing. But, the two are not comparable.
For example, when Lenin requisitioned grain from the peasants in the Russian countryside to feed workers in the cities, he too was “living beyond his means” in the present to create an industrial base that would provide for greater means in the future. We could say that Lenin was borrowing or maybe “bailing in” the peasants or we could say that the requisitions were a tax forming the “savings” necessary to realize the future socialist paradise.
The problem here is not that wealth was transferred from farmers to city dwellers. Farmers could have, of course, voluntarily lent their wealth to city dwellers had they wanted to. The problem is that their wealth was transferred against their will and without their consent. Lenin was living beyond his means, and others paid the price.
It is unlikely that Chang sees himself as advocating violent transfers of property, however. When he encourages governments to live beyond their means, he may just think he means creating something from nothing, and “borrowing” from the central bank by creating money that will be spent into the economy. According to Chang, this is a recipe for success:
If enough businesses and consumers form positive expectations as a result, they will invest and spend more. Increased investment and consumption then generate higher incomes and higher tax revenues. If the tax take increases sufficiently, the government deficit may be eliminated, which means that the government had the money that it spent after all.
Sadly the difference between Leninist primitive accumulation and modern Keynesianism easy-money policies are only one of degree. Credit expansion deflates the value of the currency, imposing a hidden tax on all to who hold it. It also confers an unparalleled privilege upon all those nearest to where the credit enters the economy (the state, the banking system, and connected business elites). Of course one can always justify this, like Lenin, to the individuals affected by telling them they will be compensated in the form of a boost to economic growth resulting in improved standards of living in the future.
With Government, “Living Beyond Your Means” Is a Moral ProblemThe problem is when you throw out morality, you also throw out economy. When the Soviets abolished private property, they removed the ability of individuals to exchange property at a price of their choosing, measure profits, or make economic calculations as to where productive resources should be allocated. With price signals gone, the soviets had to rely on guess work leading to large vanity projects being built which didn’t serve anyone.
The same is true of Keynesian-style money printing and borrowing. Government spending takes resources serving individual’s ends and diverts them to government-chosen ends, thus creating an artificial demand in those sectors of the economy where the money is spent. Without a market in public goods to indicate which are most valuable to consumers, governments essentially are driving blind, trying to pick winners and hoping for the best. You might not get empty missile silos, but you will get chronic debt and a squandering of resources that could otherwise have been more efficiently used by individuals.
Contra Chang, to not “live beyond your means" where government is concerned, is no mere mantra. It is a moral injunction to refrain from violence.
From everyone at the Mises Institute, we’d like to wish you a Happy Thanksgiving weekend!
Even our readers outside of the US can agree, the Thanksgiving lessons of free enterprise and the beauty of abundance are of universal importance (as is knowing how to best communicate with family during the holidays!) This weekend is also a good time for us to reflect on all the many things we have to be thankful for: from the incredible supporters we’ve met during this year’s sold-out Mises Circles, to our phenomenal group of Mises Fellows, Rothbard Graduate Seminar attendants, and 2015 Mises University class, to the continued spread of Misesian ideas around the world — the Austrian school is thriving today and it is because of people like you.
Thank you for your time, your support, and your passion for the cause of Austrian economics, freedom, and peace.
Mises Weekends this week focuses on libertarian strategy and how we can continue to make gains in the name of liberty. During our Phoenix Mises Circle, Jeff Deist gave his thoughts on the question, “What Must Be Done?”
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Should People be Allowed to Work for $1 an Hour? by Jonathan Newman
The Good Ol' Days: When Tax Rates Were 90 Percent by Andrew Syrios
With Mass Shootings, the State Makes Us Less Safe by Justin Murray
Thanksgiving Is a Celebration of Free Enterprise by Judy Thommesen
Economics Is About Scarcity, Property, and Relationships by Michael J. McKay
Peronists Lose in Argentina after 12 Years of Populist Rule by Ryan McMaken
Swiss Banks Expand Use of Negative Interest Rates by Ryan McMaken
Letter to the Philadelphia Inquirer by Patrick Barron
OMG: Do a Million Americans Really Have no Toilet? by Ryan McMaken
Austrian Student Scholars Conference by Jeffrey Herbener
Rothbard on North by David Gordon
Eliminating Cash Makes it Easier to Silence Critics by Ryan McMaken
Ralph Nader Is Right: The Fed's Stimulus Hurts Ordinary People by Ryan McMaken
It’s quite interesting indeed when both progressives and conservatives seem to be nostalgic for those good ol’ days in the 1950s, for different reasons, of course. Conservatives want to go back to the nuclear Leave It to Beaver family and what not while liberals like to talk about those 90-percent tax rates that we owe our prosperity to. Or something like that. We’ll focus on the latter for the time being.
Bernie Sanders noted that “When radical, socialist Dwight D. Eisenhower was president, I think the highest marginal tax rate was something like 90 percent.” Paul Krugman said the same thing as did Michael Moore in his film Capitalism: A Love Story and you’ll see this factoid repeated on countless memes floating around the Internet.
However, what a tax rate is and what is actually paid are two very different things. Indeed, in 1955, the only people paying 90 percent (actually 91 percent) were those making over $3,425,766 when adjusted for inflation. And these are marginal rates, so they only paid that on any earnings above that threshold.
Tax law has changed a lot over the years. As you can see by looking at the top marginal rate versus the inflation-adjusted top income bracket for those filing jointly from 1950 until 2013:
Source: Tax Foundation.Today, there are seven tax brackets. In 1989, there were only two. In 1955, there were an utterly ridiculous twenty-four different tax brackets.
Regardless, one should ask how much the rich were actually paying. It should be noteworthy that back in the 1950s, the government wasn’t actually collecting any more in tax revenue as a percentage of GDP. There’s something called Hauser’s Law, which basically states there is a maximum threshold on how much the government can tax out of its population. I think this “law” is no such thing. If the government really wanted to expropriate more, it could do so. But Hauser’s Law based on the fact that in pretty much every year since 1950, the government has collected between 17 to 20 percent of GDP in taxes. Here are the government tax receipts compared to the top marginal tax rate:
Sources: Tax Foundation and Tax Policy Center.As you can see, no matter what the rate has been, the tax receipts have pretty much been the same. Whether or not you can raise the amount collected is really immaterial here, the only thing that matters is what has happened (particularly when tax rates were over 90 percent) and it’s pretty much always been the same.
Of course, there are a lot of other taxes than personal income taxes. Still, tax receipts from personal income taxes have consistently been between 7 and 9 percent. In 2014, they were 8.1 percent. Furthermore, as you can see, the chart looks pretty much the same when looking at personal income tax receipts and the top marginal tax rate.
Source: Tax Foundation.But who is paying these taxes a liberal might retort? Has the burden fallen more on the middle and lower classes? Well, no. In fact, the percentage of taxes paid by the highest quintile of income earners has steadily gone up since 1980. In 1980, the top 20 percent paid about 55 percent of all income taxes. Today, it’s just shy of 70 percent. The same goes for the top 1 percent, which went from about 15 percent in 1980 to just shy of 30 percent today.
The first of many reasons that this was the case is that we need to look at the effective tax rate, not the top marginal tax rate. So for example, if I make $20,000, I owe 10 percent under today’s tax code, but only on any income over $18,450 (filing jointly). So I only owe 10 percent of $1550, or $155. Yes, my marginal tax rate may be 10 percent, but my effective tax rate is 0.78 percent.
A study from the Congressional Research Service concludes that the effective tax rate for the top 0.01 percent of income earners during the period of 91-percent income taxes was actually 45 percent. Given that the top bracket is so much lower today ($3,425,766 in 1955 vs. $413,200 in 2015), the 39.6 percent top marginal rate probably yields something pretty close.
Some of this was because corporate rates have always been lower than 50 percent. And as Alan Reynolds noted, when the personal income tax rates were reduced, it “… induced thousands of businesses to switch from filing under the corporate tax system to filing under the individual tax system.” In other words, many rich people kept their money in corporate entities when personal tax rates were higher.
Another major factor was the myriad of deductions and loop holes that used to be available. Many of these were eliminated by the Tax Reform Act of 1986, which by no coincidence coincided with the biggest rate deductions. For one, interest had previously been deductible on all loans. After the act, it has only been deductible on home mortgages.
But what was probably the biggest lost deduction for wealthy individuals was the elimination of deductions on passive investment losses on real estate. Before 1986, wealthy individuals would often buy real estate with no hopes at all of it cash flowing. That wasn’t the point. The point was that real estate is depreciated every year in the eyes of the IRS. Even though in the long run, properties usually go up in value, the IRS assumes that every twenty-seven-and-a-half years a property’s value will depreciate to zero.
This “loss” can be written off. So, for example, say a man earning $100,000 a year buys a property worth $275,000. He rents out the property and breaks even on it. The tax code allows that person to write off $10,000 as a loss which he can count against his income for that year. So now he only has to pay taxes on $90,000. If he owned ten such properties, his income would be zero, at least according to the IRS.
That deduction is now gone for everyone but “active” real estate investors, or those who invest in real estate as a career.
Indeed, one former tax accountant even made the case that there were so many deductions, loop holes and the like in the pre-1986 tax code that “… there was a massive amount of tax fraud at all income levels under the old code. It was so bad and so common that most people took pride in telling others how they cheated on their taxes.”
I’ll leave how true that statement is to the reader, but from what I’ve heard, it sounds about right.
Regardless, the simple fact is that the rich never paid 90 percent of their income in taxes or anything even remotely close to that. Unfortunately though, some memes die hard.
At our Dallas-Ft. Worth Mises Circle, we discussed the dangers of authoritarian PC culture and the infantilization of American universities. This past week, this issue was driven to the forefront of national conversation. Cheered on by their absurdly leftist professors, we have watched a movement sparked by claims of racial intolerance devolve into petulant demands for more free stuff and explicit attacks on free speech. If there is a silver lining, hopefully these campus demonstrations will awaken more people to the importance of eliminating the state from education altogether.
Dr. Thomas DiLorenzo joined Jeff Deist this week to discuss what is happening on American campuses today. DiLorenzo shares his experiences from behind enemy lines in leftist academia. Are Americans waking up to the decaying state of modern universities?
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
No, the Military Has Not Withered Away Under Obama by Ryan McMakenPope Francis Contradicts Himself on Religious Liberty and Capitalism by Roy CordatoSocial Security: The Long Slow Default by Kirby CundiffFour Ways to Build a Free Society by Jeff DeistWhen You're Popular, You Don't Need Freedom of Speech by Andrew Syrios"There, There, Work With Us, And We'll Cut You In" by Hunter LewisSummer Fellowships: Excellent Research Opportunity by Jonathan NewmanAcademic Welfare Queens by Tho BishopWorld War I as the Triumph of Progressive Intellectuals by Murray RothbardNew York State Bans Fantasy Football by Mark ThorntonThe War on Cash Grows More Painful by Joseph SalernoCalifornia and New York Are Poorer than You Think by Ryan McMakenCan You Find the Crisis? by Carmen Elena DorobățGovernment Shutdown Averted: Record-Breaking Spending to Continue by Ryan McMakenTry The New Mises Boot Camp!
It is common to see articles and columns in the Conservative media claiming that President Obama is engaging in “historic defense cuts.” There are claims that not in decades has the military ever endured such budget slashing. “Romney blasts Obama over military cutbacks” one headline blares.
Upon closer examination of these claims, one notes that the authors are careful to never mention actual dollar amounts in context, or any meaningful historical context beyond single recent year-over-year comparisons.
Most of these stories are careful to only mention military spending on certain projects, and never military spending as a whole. They look at troop numbers and other measures that don’t reflect total military spending.
And it’s not surprising that total military spending is never mentioned. Because, if it were, it would quickly become apparent that military spending is in fact near historic highs, and above the levels of spending that occurred under Ronald Reagan during his own Cold War buildup.
So, if you are worried about military spending, you can rest easy. Nor is there any cause for alarm in the wake of the most recent budget deal approved by Republican leaders and Obama. There will be nothing but budget increases over the next two years:
The plan will lift caps on the appropriated spending passed by Congress each year by $50 billion in 2016 and $30 billion in 2017, evenly divided between defense and domestic programs. Another approximately $16 billion would come each year in the form of inflated war spending, evenly split between the Defense and State departments.
So, not only will there be more base-level defense spending, but what is currently in the agreement can also be voided in favor of even more defense spending in case of new wars.
Even if there were “cuts” on the table, its unlikely military spending would be cut back to Cold War levels, let alone to Vietnam War-era levels. Here is military spending (excluding spending on veterans, diplomatic programs, and Homeland Security) in constant 2009 dollars:
Source: Office of Management and Budget, Table 8.2Current estimates of 2015 spending put the total at $578 billion, which is equal to 2014’s total. While it is true that this puts spending below the record-breaking post-1945 high of $686 billion that occurred in 2010 and 2011, current defense spending remains up 41 percent from 2001 levels (i.e., pre 9/11). The total also remains up 7 percent from the Cold War peak of $538 billion reached in 1989.
But this graph only tells part of the story. As I explained here in response to last year’s estimates, defense spending analysis must include veterans benefits, which are crucial in meeting recruitment goals in the military and are an integral part of active-duty personnel costs. Thus, current VA spending is just spending deferred from previous military operations. They are not in any meaningful way separate from defense spending.
Moreover, since 2002, the federal government has folded several programs under “Homeland Security” that are defense expenditures, but not part of the Department of Defense. If we include these other forms of defense spending, we find national defense spending has increased even more than initially thought:
Source: Office of Management and Budget, Table 4.1In both of these graphs, I have excluded “international affairs” spending such as dollars spent on foreign aid and embassies. So, I’m low-balling total spending here.
In the second graph, we see that total defense spending is estimated to be $711 billion in 2015, compared to $721 billion in 2014. That’s a decline of 1.2 percent, year-over-year. But total spending remains up 68 percent over 2001 levels, and up 22 percent over the Cold War peak year in 1986.
In spite of this, Conservative and Republican pundits have attempted to portray President Obama as some sort of peacenik. This has never been true, and it is reflected in the government spending initiatives he has approved.
For example, during the eight years of George W. Bush’s presidency (2001 through 2008), the federal government spent $4.7 trillion on defense. During the seven years of the Obama years, from 2009 through 2015, the federal government spent $5.3 trillion. Obama still has another year to go. (Ronald Reagan’s federal government spent $3.7 trillion on defense from 1981 to 1988).
In spite of all of this, we’re being told by advocates for more government spending that the military is withering away just as the world becomes more dangerous than ever before. We’re supposed to believe, for example, that things are more dangerous now than they were in, say, 1949, when the Soviet Union acquired its own atomic bomb and began to build a nuclear arsenal. At the time, US military spending was under $60 billion dollars (in 1982 dollars), or about one-quarter the size of the spending under Reagan.
What Would Eisenhower Do?In spite of claims that the US is currently engaging in “historic” cuts, today’s anemic military reductions have a long way to go to match the military reductions put in place by Dwight Eisenhower during his administration.
As David Stockman has noted, Eisenhower, perhaps because of his status as a revered military figure, was able to get away with large cuts to military spending:
Eisenhower ... did not hesitate to wield the budgetary knife. When he did so, the blade came down squarely on the Pentagon ...
With Eisenhower’s blessing, the budget request inherited from Truman was slashed by nearly 30 percent, with more cuts targeted for future years ...
Although defense spending never did shrink all the way to Ike’s target, the wind-down of Truman’s war budget was swift and drastic. When measured in constant 2005 dollars of purchasing power, the defense budget was reduced from a peak of $515 billion in fiscal 1953 to $370 billion by fiscal 1956. It remained at that level through the end of Eisenhower’s second term.
Robert Higgs, in his analysis of defense spending, has used different calculations, but here also we see a decline of 23 percent from 1953 to 1956:
Source: “US Military Spending in the Cold War Era” by Robert HiggsBy the way, in 1953, right before Eisenhower began to intensify military cuts, the Soviet Union publicly tested its first hydrogen bomb, a 400-kiloton device.
Stockman continues:
Even though Democrats charged that Eisenhower and Humphrey were “allowing their Neanderthal fiscal views to endanger the national security,” the actual record proves the administration’s drastic rollback of Pentagon spending was not based merely on penny-pinching. Instead, it flowed from a reasoned retrenchment of the nation’s national security strategy called the “New Look.”
The new policy doctrine of the Eisenhower administration called for a sharp reduction in land and naval forces. That move was coupled with a significantly increased reliance for nuclear deterrence on the air force bomber fleet and the rapid development of intercontinental ballistic missiles.
In other words, by cutting back on the standing army, Eisenhower abandoned the ability to invade and occupy foreign countries in favor of a less expensive military based more heavily on nuclear deterrence.
Not even Eisenhower was immune to charges of being a communist sympathizer, but we can be sure that if any president today attempted anything similar to what Eisenhower attempted, he would be immediately denounced as a terrorist and collaborator.
And, naturally, we have every reason to believe that, regardless of who the president is, military spending will spike again the next time a president mobilizes for a new war, whether it’s in Ukraine, Syria, or some other exotic location where we will be assured that the absolutely vital interests of the US are in grave danger.
When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system. When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) — also known as Social Security — the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.
Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”
The “Primary Insurance Amount”The way that Social Security benefits are calculated is complicated, and can, of course, be modified at any time.
The amount of monthly income a Social Security enrollee receives is called the Primary Insurance Amount. The current Primary Insurance Amount (PIA) benefit formula was created in 1979 and is based on two “bend points.”
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, his PIA will be the sum of:
(a) 90 percent of the first $826 of his average indexed monthly earnings (AIME), plus,(b) 32 percent of his average indexed monthly earnings (AIME) over $826 and through $4,980, plus,(c) 15 percent of his average indexed monthly earnings (AIME) over $4,980,
where the Average Indexed Monthly Earnings (AIME) is currently the average of the Social Security recipients top thirty-five years of income during his lifetime divided by 12.
Significantly, each year’s monthly income is expressed in 2015 dollars using the Consumer Price Index (CPI).
Benefit Cuts Since the 1970sBy the late 1970s, it became obvious that the Social Security system was going to have significant solvency problems since the ratio of workers to retirees decreased from around 40-to-1 in 1945 to around 3-to-1 in 1980, and most of the money paid into the system had been spent on other government programs.
Payroll taxes were therefore increased, and a series of changes were made to the Primary Insurance Amount (PIA) payment formula to cut the benefits that Social Security enrollees would receive.
The PIA formula before 1979 was even more complicated than the one used in 2015. It had ten bend points, but gave more credit to high income workers. According to Robert J. Myers in his book Social Security, the changes in the benefit formula in 1979 resulted in, on average, a 7 percent reduction in monthly Social Security payments for new retirees. Under that current benefit formula, if a Social Security enrollee has a life-time income over $2 million, he will very likely have a negative return on his investment. For lifetime incomes between $0.5 million and $2 million, the enrollee has a chance to break even. Enrollees with a lifetime income less than $0.5 million have a good chance of still benefiting from the Social Security system. The number of years included in the earnings base (the number of years of income averaged to determine the monthly benefit payment) was gradually increased from twenty-three years, for people born in 1917, to twenty-nine years for people born in 1923 to thirty-five years, for people retiring in 2015.
For mothers who took time off from their career, people who spent a long time in graduate school, and people whose income was much larger during later parts of their life, this resulted in a significant decrease in benefits. (See The Social Security Book by Jack and Erwin Gaumnitz.)
Using the CPI to Keep Payments Down Since the 1970s, the AIME used to determine the PIA has been indexed using the Consumer Price Index (CPI). So the higher the CPI, the larger a recipient’s monthly Social Security benefits will be. Social Security benefits for current retirees are also increased annually by the CPI. This means that one way the government can lower benefit payments is by under-estimating the inflation rate. The Bureau of Labor Statistics (BLS) has redefined how the CPI is calculated several times since the 1980s, lowering the CPI in each case. According to economists at Shadow Government Statistics, the CPI currently underestimates the inflation rate by at least 4 percent per year. If this is the case, Social Security recipients receive a 4 percent reduction in their buying power each year.
“Mini-Defaults” in the Social Security SystemThe US government knows it cannot keep up its end of the original Social Security bargain. So, to address its insolvency issue, the federal government simply responds by reducing benefits while increasing taxes. Increasing the retirement age, for example, is an easy way to reduce benefits.
The retirement age was increased from sixty-five for those born in 1937 or before to sixty-seven for those born in 1960 or after. Since enrollees do not get maximum benefits until age seventy, it could be argued that seventy is really the current full retirement age.
The taxable earnings base (the maximum income that is subject to Social Security taxes) and Social Security tax rates have increased drastically since the system was first created. The taxable earnings base was $3,000 in 1937, $25,900 in 1980, and $118,500 in 2015. The Old-Age and Survivors Insurance (OASI) tax was 2 percent in 1937, 9.04 percent in 1980, and 10.98 percent in 2015. This number includes both the employer and employee portion. When the 1.42 percent Disability Insurance tax and the 2.9 percent Medicare tax is added, the total payroll tax is currently 15.3 percent.
In 1983, legislation was passed to tax Social Security benefits for the first time. Currently, if a taxpayer’s provisional income is more than $25,000 on a single return or $32,000 on a joint return, their Social Security benefits will be taxed at between 50 percent and 85 percent of their normal tax rate.
Further Tax Increases and Benefits Cuts are Likely in the Near FutureAccording to the Social Security Administration, by 2033 future payroll taxes will only cover around 77 percent of estimated benefits. It is therefore likely that even further benefit cuts and tax increases will occur in the near future. Increasing Social Security tax rates from 12.4 percent to 15.5 percent and eliminating the taxable maximum (i.e., making all income subject to Social Security taxes) is currently being considered. Other tax increases being proposed include taxing contributions to flexible spending accounts and creating a national Value Added Tax (VAT).
Further cuts to Social Security benefits are also on the table. Proposals to cut benefits include increasing the retirement age from sixty-seven to seventy years, increasing the number of years included in the earnings base from thirty-give to thirty-eight or forty, and increasing the percentage of Social Security benefits that are subject to income taxes. Redefining the CPI index to further underestimate the inflation rate is also on the table.
Social Security has long been sold to the public on the notion that what a worker will receive back is what he or she pays into the system. For decades, however, the government has been changing the terms of this “agreement” as part of an effort to avoid outright default. This long, slow method of piecemeal default, however, is likely to continue.
On Friday, a desperate China announced another round of interest rate cuts — its sixth such announcement in the past year. Cheered on by Nobel Prize winning economists, and pundits who dream of socialists utopias, governments continue to cling to the follies of central planning, easy money and growing debt.
Of course, not even science fiction can change the hard realities of economics.
Luckily, the resulting chaos that inevitably leads from these disastrous policies creates opportunities for the truth to prevail. Examples can be seen when panicked regulators taking a second look at the benefits of 100 percent reserve banking or the emergence of healthcare providers have broken the shackles of the government-distorted insurance model.
One doctor that has taken that stand is Dr. Michel Accad. A frequent Mises Daily contributor, Dr. Accad joined Jeff Deist this week on Mises Weekends to discuss his experiences as a practicing cardiologist in the Age of Obamacare. If you feel like just a number at the doctor’s office, you’re right: the entire visit culminates in a particular code being entered into the insurer’s database. That code determines how much your doctor gets paid, and it’s all part of a system of bureaucratic overhead and perverse incentives.
If you’re interested in learning about the true state of medicine in a post-Obamacare world, this interview is a must listen.
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Reflections on Venezuela’s "Economic Miracle" by Andrew SyriosBeavis and Butt-Head Take Over Silicon Valley by Paul CantorStar Trek Is Wrong: There Will Always Be Scarcity by Jonathan NewmanRobert Shiller Is Shilling for Socialism by Peter St. OngeNew Berlin-Based Master's Degree Program in Austrian Economics by Ryan McMakenHappy Birthday, Ralph! by David GordonThe Fed Says No to Pot Money, Unless it's the Government's Pot Money by Jonathan NewmanHow Currency Exchange Rates Are Determined by Frank ShostakDesperate Financial Regulators Turn to ... 100% Reserves by Joseph SalernoThe Complexity of Violent Crime and the Role of State-Sanctioned Killing by Ryan McMakenCanadians (Sort of) Vote for Less Interventionism and More Freedom by Ryan McMakenA Tax I Can Support by Per BylundMy Day at the Fed by Mark ThorntonFantasy Sports and the State of Nevada Go Head-to-Head by Jonathan Newman
Back in 2013, Salon took a quick break from criticizing a caricature of libertarianism to let David Sirota write an embarrassing article praising socialism in what turns out to be a fantastic case study in both the dangers of socialist economics and of course, speaking too soon.
The article was titled “Hugo Chavez’s Economic Miracle” and it was certainly not the only one of its kind to come out at the time. It may seem like twenty-twenty hindsight to criticize such foolishness, but it might be instructive as well. However, looking at Venezuela now as compared to the country Sirota saw in 2013 and thought provided an economic alternative to American capitalism (a truly free market was never discussed) serves as a good example of what Nicolás Cachanosky calls “the bait-and-switch behind economic populism.” Or namely, that government policies focused highly on consumption and lowly on investment will show good economic signs at the beginning, only to be followed by an inevitable decline and likely disaster.
Sirota’s article at least begins by lamenting Chavez’s rather poor record on civil rights (like shutting down a TV station that was critical of him) and noting “a boom in violent crime.” This may somehow be an understatement as Venezuela ranks second in the world in murders per capita at a terrifying rate of 53.7 per 100,000 citizens annually! (So much for socialism alleviating crime.) He finally does arrive at his case for this “economic miracle” that Venezuela was experiencing under Chavez (which, I should note, makes up only one paragraph of his entire article),
…according to data compiled by the UK Guardian, Chavez’s first decade in office saw Venezuelan GDP more than double and both infant mortality and unemployment almost halved. Then there is a remarkable graph from the World Bank that shows that under Chavez’s brand of socialism, poverty in Venezuela plummeted (the same Guardian data reports that its “extreme poverty” rate fell from 23.4 percent in 1999 to 8.5 percent just a decade later). In all, that left the country with the third lowest poverty rate in Latin America.
How much of this was due to Venezuela being an oil-rich nation is debatable. But it’s also very much worth observing that these positive (and underreported) trends existed throughout Latin America, including in countries such as Colombia that have moved in the opposite direction economically. According to the World Bank, Between 2005 and 2013, Colombia’s poverty rate (as opposed to extreme poverty) fell from 45 percent to 30.6 percent, Peru’s fell from 55.6 percent to 23.9 percent, Uruguay’s from 32.5 percent to 11.5 percent, Paraguay’s from 38.6 percent to 23.9 percent, and Ecuador’s from 42.2 percent to 25.6 percent. Venezuela, for its part, fell 43.7 percent to 25.4 percent, which seems to be about average. The same could be said for GDP and Venezuela’s infant mortality rate also only ranks in the middle of the pack.
And of course, all of this was prior to Venezuela’s recent economic crisis.
The fall in the price of oil has certainly harmed Venezuela, but then again, the rise in oil prices during the last decade certainly contributed to its “economic miracle.” However, Venezuela’s problems were starting to become apparent before the drop in oil prices. Back in October of 2014, just before the price of oil sank, Venezuela ran a 17 percent budget deficit and was dealing with a variety of shortages. Furthermore, while every major oil exporter has been hurt by the low oil prices, they have all weathered the storm much better than Venezuela.
It appears that the drop in gas prices simply exacerbated, and more accurately, exposed the problems caused by Chavez’s (and his successor Nicolás Maduro’s) extreme populist policies. As Nicolás Cachanosky notes in his review of Rudiger Dornbusch and Sebastián Edwards work on Latin American populism, regimes that follow such policies go through four economic phases. In stage I,
The populist diagnosis of what is wrong with an economy is confirmed during the first years of the new government. Macroeconomic policy shows good results like growing GDP, a reduction in unemployment, increase in real wages, etc. Because of output gaps, imports paid with central bank reserves, and regulations (maximum prices coupled with subsidies to the firms), inflation is mostly under control.
This is the stage Venezuela was in when Salon saw fit to publish Sirota’s article in 2013.
But then comes Stage II when “bottleneck effects start to appear” and “the underground economy starts to increase as the fiscal deficit worsens …” In Stage III, “Shortage problems become significant, inflation accelerates, and because the nominal exchange rate did not keep pace with inflation, there is an outflow of capital (reserves).”
This is exactly what’s happening in Venezuela today. Venezuela’s projected inflation for 2015 is a whopping 64 percent! The country with the second highest rate in South America is Argentina at 10.9 percent. The CIA Factbook lists Venezuela’s budget deficit at 29.4 percent and Moody’s downgraded Venezuela’s credit rating to the lowest rating possible for a country not in default. And there is serious talk of that coming to pass as well.
The government has instituted price controls to fight inflation and predictably, massive shortages have forced Venezuelans to turn to the black market for ordinary daily goods such as milk and toilet paper.
Venezuela’s unemployment rate shot up from 5.5 to 7.9 percent in January of 2015 and is likely to rise further. Even as it stands now, it is the third highest rate on the South American continent (excluding Central America). And as one would expect, poverty has started to rise again as well.
After Stage III comes Stage IV, which Cachanosky describes as follows,
A new government is swept into office and is forced to engage in “orthodox” adjustments, possibly under the supervision of the IMF or an international organization that provides the funds required to go through policy reforms. Because capital has been consumed and destroyed, real wages fall to levels even lower than those that existed at the beginning of the populist government’s election. The “orthodox” government is then responsible for picking up the pieces and covering the costs of failed policies left from the previous populist regime.
Whether it comes to that is still yet to be seen. But what this economic crisis does highlight is that short-term success should never be taken as proof of a long-term solution. And this is particularly true when it comes to quasi-socialist and extreme populist governments. In the long-run, countries that follow these policies have a consistent track record, which is basically the same as what we’re witnessing now in Venezuela.
We’ll have to see if Salon writes a follow up.
On Tuesday, Vermont Senator Bernie Sanders stood up on the stage of a Democratic Party presidential debate and proudly proclaimed himself a “democratic socialist” to an adoring crowd. Spurred on by myths about the success of socialism in countries like Sweden and Norway, the horrors of a centrally planned economy have never been more popular in American politics. As Mises President Jeff Deist highlighted in Thursday’s Mises Daily:
These ideas, and the people who hold them, are not outliers in America. There are millions … who believe exactly as Bernie believes. They may prefer to vote for Hillary Clinton purely as a tactical matter because they are unsure the country is “ready” for full socialism … but average progressives and Democrats agree with Bernie Sanders across the board …
Ninety-five years after Ludwig von Mises published his indispensable essay Economic Calculation in the Socialist Commonwealth, it is as critical to stand up to the tyranny of statism — on any scale — now as ever before.
The devastating consequences of government intervention into healthcare markets is the topic of this week’s episode of Mises Weekends. Charles Hugh Smith joins Jeff to discuss how Washington’s desire to eliminate markets from medicine has led to the industry being captured both by incompetent government regulators and insurance lobbyists.
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
Charles Murray's Tepid Radicalism by David GordonWhat "Progressive" Corporate Welfare Looks Like by Andrew SyriosThe Dirty Business of Government Trash Collection by Allen MendenhallSanders and His Followers Are Not Outliers by Jeff DeistHow Modern Sweden Profits from the Success of Its Free-Market History by Yonathan AmselemGeorge Akerlof, Meet Oliver Williamson by Peter KleinAngus Deaton and Modern Economics by Peter KleinThe Mistake of Only Comparing US Murder Rates to "Developed" Countries by Ryan McMakenThe Fed’s Quadral Mandate and Impossible Balancing Act by Jonathan NewmanRothbard on Economic Ignorance by Matt McCaffreyTrue Money Supply: August Money Supply Growth Remains Way Down from 2012 Levels by Ryan McMakenDonald's Remarks on the Bubble and the Fed Are on the Money by Joseph SalernoNo way, Norway! by Carmen Elena Dorobăț
Depending on one’s point of view, Bernie Sanders either held his own or boosted his chances against perceived front-runner Hillary Clinton in Tuesday night’s Democratic presidential primary debate. His message clearly resonated with the live audience, particularly his statements about raising the minimum wage to $15 per hour, global warming, and government-mandated paid childcare leave.
Progressives are emboldened by Sanders, who reportedly draws upward of 20,000 people at events. He inspires them with his attacks on capitalism, happily calling himself a “Democratic Socialist.” And his economic plans, while a mess, appeal to their radical (and disastrous) notions of egalitarianism.
Happily, there are murmurs of discontent — progressives like to eat their own. His crowds skew overwhelmingly white and older, leading to allegations that Sanders suffers from a whiteness problem. His home state of Vermont is laughably un-diverse and prosperous, home to woodsy limousine liberals who like the idea of urban living more than the reality. But nobody ever lost a political race purely for hypocrisy — and while Bernie’s brand of socialism might fade with the Birkenstock Boomer crowd, Occupy Wall Street millennials stand waiting.
Regardless of whether Sanders ultimately secures the nomination, the size and energy of the Bernie phenomenon should not be underestimated. If anything, libertarians consistently misjudge the degree to which socialist thought is deeply rooted in the American psyche.
Like Sanders, millions of American progressives hold these deeply statist and authoritarian beliefs:
changes in climate threaten human extinction, and thus drastic laws must be passed to prevent a calamity;fossil fuels should be banned, and alternative fuels should be mandated;wealth and income should be forcibly redistributed;no individual should earn more than a set amount of money each year;welfare and entitlement programs should be vastly increased;whole industries (healthcare, education) should be nationalized, while others (energy, banking) should be regulated to the point of de facto nationalization;some form of global government should be installed;a global wealth tax should be implemented;private ownership of firearms should be banned;anti-discrimination legislation should be applied to private religious organizations;racial, gender, and sexual orientation quotas should be mandated on both public and private employers;certain types of speech should be criminalized;certain criminals should be subjected to greater penalties if motivated by “hate”;social justice should be pursued by any means necessary; andgovernment should attempt to engineer equality of outcomes. These ideas, and the people who hold them, are not outliers in America. There are millions of rank and file progressives, mostly registered Democrats, who believe exactly as Bernie believes. They may prefer to vote for Hillary Clinton purely as a tactical matter because they are unsure the country is “ready” for full socialism, or because they think Hillary has a better chance of beating the hated Republicans in the general election.
But average progressives and Democrats agree with Bernie Sanders across the board, whether they plan to vote for him or not.
Do average Republicans and conservatives agree with Ron Paul? Do most registered Republicans really advocate eliminating income taxes, abolishing entire federal agencies, repealing the Federal Reserve Act, ending all foreign interventions, and drastically downsizing the US military? Are most conservatives, in their hearts, radically anti-state? The answer is no. Most conservatives are only nominally less statist, often more corporatist, and almost invariably more militarist than progressives.
The reason is simple, though we tend to forget it: the twentieth century was a radically progressive century. Income taxes, central banking, social insurance schemes, demand-side Keynesian economics, and Wilsonian internationalism — all radical ideas — have become entrenched articles of faith over the past 100 years. When we talk about politics or economics today, we do so within a thoroughly progressive framework.
The entire progressive agenda of the last century, which would have sounded outrageous to the libertarian-tinged ear of the average American in 1900, is now merely the baseline from which all government action originates.
That’s why abolitionist libertarians are on the defensive in modern political discourse, while grandiose progressives are on the attack: the default position in American politics is for government to do something.
So we shouldn’t downplay or minimize the success of progressives in shifting the landscape dramatically in favor of the state over the past century. Progressives never went away, despite the rhetoric of Ronald Reagan or Milton Friedman or Bill Clinton. The era of big government is still here, and it always was.
So what should libertarians do, in an absurd progressive world obsessed with supposed global warming, inequality, racism, sexism, homophobia, transphobia, and privilege, ad nauseam?
The answer could fill a book, but let me suggest we start by freeing ourselves of the burdens of politics. Our battle is for hearts and minds, not votes. While Democrats and Republicans fixate on candidates and their supposed policies, libertarians are free to remain psychologically and emotionally detached from the whole sordid process.
And with that detachment comes freedom: the freedom to inspire, educate, and influence other people of good will without the divisive cloud of partisan politics creating suspicion and distrust. Once people know you’re not simply making arguments to support “your guy” — or any guy — they tend to view you more impartially and hence more favorably.
A new era of liberty, peace, and prosperity will not be won at the ballot box. It will be won at ground level, individual by individual, as progressive ideas crumble in the face of unsustainable government debts, unsustainable government wars, and unsustainable government entitlements.
International trade grabbed headlines this week with Monday’s announcement that twelve governments have reached agreement on the Trans-Pacific Partnership. While it should be of no surprise to see the news celebrated in the editorial pages of the Wall Street Journal or the Council of Foreign Relations blog, it is unfortunate even libertarian organizations are praising the agreement.
Of course, this is not the first time alleged defenders of lassiez-faire have endorsed intergovernmental agreements that enhance the power of the state. Ferghane Azihari and Louis Rouanet put TPP in historical context in Wednesday’s Mises Daily:
Murray Rothbard opposed NAFTA and showed that what the Orwellians were calling a “free trade” agreement was in reality a means to cartelize and increase government control over the economy. Several clues lead us to the conclusion that protectionist policies often hide behind free trade agreements, for as Rothbard said, “genuine free trade doesn’t require a treaty.”
Dr. Ed Stringham takes on the notion that government is necessary at all for markets and trade to thrive in his new book Private Governance. He joined Jeff Deist to discuss his work on the latest episode of Mises Weekends. Listen as Jeff and Ed destroy the argument that markets rely on government to protect property rights, mediate contracts, and numerous other excuses interventionists make in defense of the state.
In case you missed any of them, here are articles from this past week’s Mises Daily and Mises Wire:
The TPP and the Trade Rhetoric by Carmen Elena DorobățTPP: The Latest Assault on Free Trade by Ryan McMakenRothbard: Gun Regulation Explained by Murray RothbardIn Policy Debates, Can Economics Trump Ethics? by Matt McCaffreyThe Future Is Decentralized by Patrick ByrneNo More "Free Trade" Treaties: It's Time for Genuine Free Trade by Ferghane Azihari and Louis RouanetThe Menace of Egalitarianism by Lew RockwellFashionable Prohibition for Modern Lawmakers by Ryan McMakenIn Brazil, Free-Market Ideas Rise as the Economy Falls by Antony P. MuellerMissed last Saturday’s Mises Circle? Watch Jeff Deist, Tom DiLorenzo, Tom Woods and Lew Rockwell tackle the threat of political correctness.
[This review of Charles Murray's new book "By the People" appears in the September-October 2015 issue of The Austrian.]
Charles Murray thinks that government has become arbitrary and tyrannical. In doing so, it has betrayed the “Madisonian” heritage of America, which strictly limited the power of the government to interfere with individual liberty. “As I [Murray] got into the book, I discovered I had to find a label less cumbersome than ‘people devoted to limited government’ … my first impulse was to call us Jeffersonians, but Jefferson was well to the libertarian side of the spectrum, and I wanted to include advocates of limited government who think of themselves as conservatives. I settled on Madisonians instead.”
Murray says that “the Constitution that once sustained limited government is broken, and cannot be fixed by a Madisonian majority on the Supreme Court.” The problems are not confined to misinterpretations of the Constitution. “The American legal system increasingly functions in ways indistinguishable from lawlessness, for reasons that are authorized by judges and Congress.” Of most concern to Murray is the regulatory or administrative state, which operates “by rules that wouldn’t be permitted in civil and criminal courts, and [enforces] laws it has made upon its own.” The political system offers no relief from this “extralegal state within the state” because it is corrupt and dominated by institutions averse to change and under the control of special interest groups. “Combine the effects of institutional sclerosis with the effects of a growing percentage of Americans who depend on the benefits provided by the welfare state, and the political landscape for Madisonians is bleak and getting worse.”
In response, Murray proposes a bold strategy of civil disobedience. People should refuse to obey unjust government regulations. The government lacks the resources to enforce its mandates on a large number of violators; in addition, a defense fund would provide aid for those that the government sought to prosecute.
Murray has devoted much care to a description of our current legal woes; and, for the most part, he writes with a sure touch about legal issues. (Not always, though. It is not correct that the president must sign a constitutional amendment proposed by Congress, and it is doubtful that state laws that legalize marijuana violate the Supremacy Clause.) Further, he works out his conception of civil disobedience in a careful and imaginative way. Should we then welcome this book with enthusiasm?
I do not think that we should. Though Murray writes with insight about our present plight, he does not really want to do much about it. He opposes, for example, any disobedience to tax laws. “The tax code is exempt from systematic civil disobedience.”
Is this, though, a good reason to criticize Murray? The changes he suggests are ones he thinks will command widespread support. Much of the modern state, he suggests, cannot realistically be rolled back.
If this is Murray’s view, should we criticize him for holding it? He is a social scientist of great experience, famous for his studies of social policy. If he arrives at a pessimistic assessment of the prospects for liberty, should he be condemned for this?
But it is not for his pessimism, though I disagree with it, that I wish to challenge Murray. Rather, he is an “uncertain trumpet”; he is only in part an opponent of the Leviathan State. To be sure, he is, by his own lights, a “Madisonian,” but his commitment to limited government is not without its limits. For example, he opposes tax resistance not simply for reasons of prudence, but because taxation is “one of the legitimate functions of even a Madisonian state.”
It is not only taxation to support the night watchman state, furthermore, that our author defends. He also favors government funding of education, among other “public goods.” The latter, we learn, must not be defined strictly but include externalities as well.
Fostering public goods is also one of the legitimate functions of any government. ... Strictly defined public goods fall into two broad sets. One set consist of things that can be done only by government because of the nature of the task. … [These goods are nonexclusive and nonrivalrous.] Other public goods are those that may or may not be nonexclusive and nonrivalrous, but do entail serious externalities, meaning that a cost is borne by someone involuntarily or a benefit is provided to someone who cannot be charged for it. … It is appropriate that education be publicly funded, with people contributing to its cost whether or not they have children attending school.
It is well known that as economists define this term, practically all actions generate externalities. Murray’s statement, then, hardly fills us with confidence about his support for a genuine free market. Our unease about the extent of Murray’s support for liberty is not allayed by his remark:
The Constitution needed to change as the United States evolved from the agrarian society of the eighteenth century to the post-industrial society of today, and some of these changes would have permitted wholly new areas of government activity. … If in the 1960s, LBJ had mounted a campaign for passage of an amendment permitting the government to spend money on protecting the environment, he would have been seeking permission for the government to engage in an activity that meets all the classic tests of a public good.
One might imagine that a supporter of the free market would welcome every possible tax deduction. But Murray holds a different opinion. He says: “Consider the case of the tax deduction for mortgage interest. It is regressive. … People can argue from principle for progressive taxes or flat taxes, but no political philosophy tries to make a principled case for a regressive tax. And so it should be [politically] possible to get rid of the mortgage interest deduction. But it isn’t.” He fails to grasp that the problem with the mortgage exemption is not the deduction, but the taxation of others. His “free market” proposal is to extend taxation.
At times, he sounds like a standard welfare state liberal, albeit of a moderate sort. “Changes in the labor market have changed the moral arguments in favor of redistribution for the working population … the economic value of many blue-collar and midlevel white-collar jobs has stagnated or dropped, not because of policy or market failures but because so many jobs can be done as well, or cheaper, by machines. … It is time for conservatives to make some of their political friends mad at them and acknowledge that, in a country as rich as America, it is ridiculous that anyone lacks the means for a decent life.” “Technological unemployment” is a long-exploded fallacy, and this is not the place for an account of it. I mention it only to show, once more, how very limited indeed is our Madisonian’s commitment to the free market.
There is a glaring omission in his account of the rise of the powerful state. He says nothing about war as a means to aggrandize the state; for him, the works of John T. Flynn, Garet Garrett, Murray Rothbard, and Robert Higgs do not exist. The little he says about foreign policy suggests that here too Murray sides with statism. Asking why the Soviet Union ceased in 1991 to exist, he says that “it is already clear that Reagan poked a shaky Soviet system in some vulnerable places — by arming the mujahedeen in Afghanistan with Stinger missiles; starting a technological arms race that the Soviet leadership knew it could not match …” I would not have thought that starting an arms race is the best way to limit government.
Murray’s palliative measures, though all right in their place, respond inadequately to the realities of empire and tyranny. We need to do more than protect ourselves against overzealous factory inspectors.
It is erroneous to believe that free traders have been historically in favor of free trade agreements between governments. Paradoxically, the opposite is true. Curiously, many laissez-faire advocates fall into the government-made trap by supporting “free-trade” treaties. However, as Vilfredo Pareto stated in the article “Traités de commerce of the Nouveau Dictionnaire d’Economie Politique” (1901):
If we accept free trade, treaties of commerce have no reason to exist as a goal. There is no need to have them since what they are meant to fix does not exist anymore, each nation letting come and go freely any commodity at its borders. This was the doctrine of J.B. Say and of all the French economic school until Michel Chevalier. It is the exact model Léon Say recently adopted. It was also the doctrine of the English economic school until Cobden. Cobden, by taking the responsibility of the 1860 treaty between France and England, moved closer to the revival of the odious policy of the treaties of reciprocity, and came close to forgetting the doctrine of political economy for which he had been, in the first part of his life, the intransigent advocate.The original French version follows:Si l’on admet le libre-échange, les traités de commerce n’ont aucune raison d’exister comme but. Il n’y en a pas besoin, puisque la matière qu’ils devraient régler n’existe plus, chaque peuple laissant librement, à ses frontières, entrer et sortir toute marchandise. C’est la doctrine de J.B. Say et de toute l’école économique Française jusqu’à Michel Chevalier; c’est celle qu’a reprise récemment M. Léon Say. C’était également la doctrine de l’école économique anglaise jusqu’à Cobden. Cobden, en prenant la responsabilité du traité de 1860 entre la France et l’Angleterre, s’est rapproché de faire revivre la détestable politique des traités de réciprocité et d’oublier les doctrines de l’économie politiques dont il avait été dans la première partie de sa vie le défenseur intransigeant. In Léon Say, ed., “Nouveau Dictionnaire d’économie politique” (Guillaumin: Paris, 1900): 1047.
In 1859, the French liberal economist Michel Chevalier went to see Richard Cobden to propose a free trade treaty between France and England. For sure, this treaty, enacted in 1860, was a temporary success for free traders. What is less known however, is that at first, Cobden, in accordance with the free trade doctrine, refused to negotiate or sign any “free trade” treaty. His argument was that free trade should be unilateral, that it consists not in treaties but in complete freedom in international trade, regardless of where products come from.
Chevalier eventually succeeded in obtaining Cobden’s support. But Cobden was puzzled by the complete secrecy surrounding the negotiations and, in a letter to Lord Palmerston, he attributed this secrecy to the “lack of courage” of the French government.Gustave de Molinari, “Michel Chevalier, ‘Sa Vie et Ces Travaux,’” Journal des Economistes 4, no. 25 (1880): 30–39. Similarly, today, the lack of transparency concerning free-trade negotiations is problematic and it is often hard to know what the content of a treaty will be.
Today, while some of these treaties are currently being negotiated, there are already examples of similar agreements enforced. One could refer to the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) or more regional agreements like the North American Free Trade Agreement (NAFTA) or the European Economic Area (EEA).
But why would protectionist governments who spend their time hampering markets by giving monopolies and other kinds of privileges at national level, open markets at the international level? The very fact that governments are negotiating in the name of free trade should be suspicious for any libertarian or true advocate of free trade.
Intergovernmental Agreements Enhance Government PowerMurray Rothbard opposed NAFTA and showed that what the Orwellians were calling a “free trade” agreement was in reality a means to cartelize and increase government control over the economy. Several clues lead us to the conclusion that protectionist policies often hide behind free trade agreements, for as Rothbard said, “genuine free trade doesn’t require a treaty.”
The first clue is the intergovernmental and top down approach. Intergovernmentalism is nothing more than a process governments use to mutualize their respective sovereignties in order to complete tasks they are not able to accomplish alone. Nation-states are entities which rarely give up power. When they finalize agreements, it is to strengthen their power, not to weaken it. On the contrary, free trade requires a decline of governments’ regulatory power.
Also, free trade does not require interstate cooperation. On the contrary, free trade can be and has to be done unilaterally. As freedom of speech does not need international cooperation, freedom to trade with foreigners does not need governments and treaties. Similarly, our government should not rob their population with corporatist and protectionist policies just because others do. Anyone who believes in free trade does not fear unilateralism. The simple fact that bureaucrats and politicians do not conceive of the international economy outside of a legal frame settled by intergovernmental agreements is sufficient to show the mistrust they express toward individual freedom. This reinforces the conviction that these agreements are driven by mercantilist preoccupations rather than genuine free trade goals.
Extending Regulatory Control Beyond Your Own BordersThe second clue concerns the intense conflicts between governments on these agreements characterized by a high degree of technicality. History shows that multilateralism leads toward deadlock. The failure of the Doha Round is the cause of the proliferation of bilateral and regional initiatives. The contentious relations between governments come from the will of some states to dictate their norms to other countries’ producers through an international harmonization process. But this is the exact opposite of free trade. As economic theory shows us, exchange and the division of labor is not based on equality and harmonization but rather on differences and inequality. Furthermore, the technicality and secrecy surrounding free-trade agreements favor mercantilism and protectionism to the extent that technical regulations are used to favor producers who are politically well connected.
The Trans Pacific Partnership (TPP) is a good illustration of this balance of power. It was at first an agreement between four countries (Brunei, New-Zealand, Singapore, and Chile.) which tried to resist some neighbors’ commercial influence, especially China. Then the United States came and convinced more countries (Australia, Malaysia, Peru, Vietnam, Canada, Mexico, and Japan) to join the negotiations. Let’s also notice that most of the countries invited are already bound by regional or bilateral agreements with the United States. China remains excluded from the process. This governmental drive toward regulatory hegemony is obviously the complete opposite of free trade. Indeed, free trade supposes letting consumers peacefully choose what products they want to promote rather than determining what is available through bureaucratic coercion.
Consolidation of MonopoliesThe third clue concerns the vigor with which governments have tried over several decades to impose at the international level a more constraining legal framework for so-called “intellectual property.” The first initiatives appear in 1883 and 1886 with the Paris Convention for the Protection of Industrial Property and the Bern Convention for the Protection of Literary and Artistic Works. Amended several times during the twentieth century, the initiatives embrace, respectively, 176 and 168 states. These conventions are placed under the auspices of the World Intellectual Property Organization (WIPO), an international bureaucracy which joined the United Nations system in 1974. A turning point came in 1994 with the signature of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) administrated by the World Trade Organization (WTO). It is now incorporated as an essential part of the administration of international commerce and benefits from the WTO’s sanction mechanisms.
In 2012 we endured a fresh attempt by our governments to reduce our freedom to create and share intellectual works with the Anti-Counterfeiting Trade Agreement (ACTA). And, if we look at the negotiations mandates of these trade agreements, we can see they all include a chapter on the reinforcement of “intellectual property” rights. Intellectual property has become a key concept of the international economy. But this must not hide its illegitimacy.
As Vilfredo Pareto remarked, “From the point of view of the protectionist, treaties of commerce are … what is most important for a country’s economic future.” Each time a new “free trade” treaty is enacted, what is seen is the attenuation of tariff barriers, but what is not seen is the sneaky proliferation and harmonization of non-tariff barriers impeding free enterprise and creating monopolies at an international scale at the expense of the consumer. It’s time for genuine free trade.
Being a government means never having to say you’re sorry. And it also means you get to blame everyone else for all the problems you’ve caused.
This week at mises.org, we explored how deeply indebted governments blame the ones who lend them money, while government prosecutors blame entrepreneurs, businesses, and “white collar crime” for other problems in the economy. And surges in drug prices, we’re told, have nothing to do with government control of the drug market.
Lackluster new jobs data and continued surges in home price inflation confirm that the distortions of the Fed-induced boom continue to add up.
But even with all the bad news, the miracles of the market place point toward a brighter future. This week on Mises Weekends, Rod Martin, a co-founder of PayPal and world renown philosopher-capitalist, joins Jeff for a wide-ranging interview covering such topics as the refugee situation in Europe, unrest in the Middle East, and why some cultures are more prosperous than others. Martin contrasts the difficulties world governments have in confronting global macro-crises with the hope and resilience of technological innovation and entrepreneurship.
Indeed, Ludwig von Mises would have easily understood how market innovations outpace government innovations, since Mises, whose birthday we celebrated this week, pioneered our understanding of how government intervention cannot achieve the goals it tries to achieve. Be sure to see this never-before-published essay by Bettina Bien Greaves, and this newly-discovered recording of a Mises lecture from 1962.
In case you missed any of this week’s Mises Daily and Mises Wire articles, take a second look:
The Reality Behind the Numbers in China's Boom-Bust Economy by Yonathan AmselemDrug Shortages, Price Gouging, and Our Broken Health Care System by Michel AccadThe Coming Corporate "Crime Wave" by William L. AndersonLuwig von Mises, Genius? by Bettina Bien GreavesGovernments Turn to the UN to Avoid Paying Their Debts by Nicolás CachanoskyThe Military Gravy Train: Full Speed Ahead by Andrew SyriosThe Silent, Slow, Stubborn Revolution Carmen Elena DorobățCollege Athletics: Public Institutions Are the Real Sham By Jonathan NewmanThe Real Estate Crisis in North Dakota's Man Camps by Mark Thornton
Pope Francis made history this week when he became the first pontiff to speak before Congress. While his speech made headlines in calling for global action against the dubious problem of global warming, it became clear that Francis had not listened to the advice of Lew Rockwell or familiarized himself with the works of Tom Woods. In fact, Dr. Woods found himself attacked by Fortune magazine for his principled defense of free markets as a devout Catholic. The real question will be whether Tom’s arrival in Texas next weekend for the Dallas-Ft. Worth Mises Circle will cause fewer traffic problems than this week’s Papal visit.
Speaking of religious figures, the actions of Janet Yellen’s Federal Reserve were once again put under the microscope on a new episode of Mises Weekends. Bill Bonner of Agora Financial joined Jeff Deist to discuss what he previously called “the most anticipated move in central bank history.”
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
100 Years of Government's "Managed" Health Care by Dr. Michel AccadThe Economics of Hillary Clinton by William L. AndersonCollege Athletes Embrace the Division of Labor by Matthew DoarnbergerCentral Banks Don't Dictate Interest Rates by Frank ShostakYour Ideology Depends on if "Your Guy" Is in Power by Ryan McMakenDemocracy, De-Civilization, and Counterculture by Hans-Hermann HoppeVideo: Is Fed Credibility on the Line? by Ron Paul and Paul-Martin Foss
There’s something very odd about the United States military that makes many of the most budget-hawkish fiscal conservatives turn into starry-eyed, big government welfare pushers. The hypocrisy is breathtaking; at the same time as many conservatives are talking about “America’s descent into socialism” they are pushing their own brand of military socialism to ever more absurd lengths.
At a whopping $581 billion per year, the United States already spends more than the rest of the world combined on its military. However, even that number doesn’t represent the entire picture. As Robert Higgs has shown, when everything is included (from the Department of Veterans Affairs to the nuclear weapons expenditures in the State Department to the net interest on past debt-financed defense outlays, etc.) that sum is actually over one trillion dollars. Despite this, every Republican presidential candidate is pushing to increase the military budget. Even Rand Paul proposes adding $76.5 billion to the defense budget — which by itself is more than the military budgets of all but two other countries in the world (China and Saudi Arabia).
Fiscal conservatives love to pass around examples of government waste such as the $615,000 grant that was given the University of California at Santa Cruz to digitize photos, t-shirts, and concert tickets for The Grateful Dead or the $175,587 spent “to determine if cocaine makes Japanese quail engage in sexually risky behavior.” Yet, many of the best examples of such mind-numbingly insane expenditures come from the woefully bloated military of the United States.
For example, in 2007 the Pentagon spent $998,798 to ship two 19-cent washers and the Department of Defense spends over $10 million dollars each year to maintain hundreds of golf courses it owns, presumably an effort to keep America safe. But the worst boondoggles may be the F-22 fighter. Or perhaps it’s the F-35? It’s hard to decide.
According to The Washington Post, the F-22 “… has recently required more than 30 hours of maintenance for every hour in the skies, pushing its hourly cost of flying to more than $44,000 …” Oh, and it can’t fly in the rain either. On the other hand, the F-35 has brought with it a modest price tag of only $400 billion dollars, 70 percent over its initial cost estimate. And it can’t even defeat the fighter jet it is supposed to replace in a dogfight. These massive taxpayer rip-offs join many other projects costing hundreds of billions of dollars, for weapons the military often doesn’t even want.
Indeed, the “military-industrial complex” as Dwight Eisenhower called it, is one of the biggest, if not the biggest, examples of corporate welfare and corporate/government malfeasance around. Lockheed Martin and other military contractors use a variety of unsavory means to ensure ever bigger contracts for ever more unnecessary military contraptions to be paid for at the taxpayer’s expense.
One method is spreading the work around. Basically, these companies will contract and subcontract the work for any given project to as many congressional districts as possible to ensure wide support among congressmen who don’t want to see their district lose jobs. (It should be noted that Eisenhower originally wanted to call it the military-industrial-congressional complex.) For example, the F-35 mentioned above had 1,300 suppliers in forty-five states.
Another tactic is using the “cost plus” approach, which basically has the government pay the contractor’s cost, plus a certain agreed upon profit. Unfortunately, as is probably apparent, this provides the extremely perverse incentive for the company to let the project become as expensive as possible in order to make as big a profit as possible. And with examples such as the F-35, it’s hard to believe these companies haven’t taken advantage of this incentive.
Just as welfare degrades people’s work ethic and resourcefulness, when looking at the sheer waste of these military contracts, it appears corporate welfare degrades a company’s dynamism. As Tom Woods notes in his book Rollback, the amount the United States has spent on its military is absolutely staggering,
… during the period from 1947 through 1987 [the Pentagon] used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation’s plants, equipment, and infrastructure (capital stock), at just over $7.29 trillion. In other words, the amount spent over that period could have doubled the American capital stock or modernized and replaced the existing stock.
And what has all of this gotten us? Tom Woods again,
… after all this spending, the end result has actually been a smaller military with older equipment. Since the attacks of September 11, 2001, more than $2 trillion has been added to the 1999 baseline Pentagon budget. Roughly half went to the wars in Iraq and Afghanistan, while the other trillion went to non-war military spending. What did Americans get for that trillion bucks? A smaller Navy and Air Force, and a trivial increase in the size of the army.
Add to this that the Pentagon is the only federal department exempt from audit (well, aside from the Federal Reserve if you consider that a department). And this makes perfect sense as its books are in complete disarray. Back in 2001, Donald Rumsfeld admitted that “According to some estimates we cannot track $2.3 trillion in transactions.” And as Reuters reports, the Pentagon “doctored ledgers [to] conceal epic waste” such as when “the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units.”
Is this the kind of “small government” these fiscal conservatives are looking for?
Perhaps it is. As conservative Mark Steyn noted in his book After America, specifically with regard to the bloated welfare systems in Europe and the United States, as well as the demographic decline of the West,
Faced with a choice between unsustainable entitlements and maintaining armed forces of global reach, the United States, as Europe did, will abandon military capability and toss the savings into the great sucking maw of social spending. That, in turn, will make for not only a more dangerous world but a more vulnerable America that, to modify President Bush, will wind up having to fight them over here because we no longer have the capacity to fight them over there.
Perhaps Steyn should have rephrased it as the “great sucking maw of military spending would be transferred to the great sucking maw of social spending.” And what exactly the Iraq War, for example, did to make the world less dangerous or America less vulnerable is — for good reason — left unstated.
And of course the biggest question is left altogether undiscussed; why does the United States need either a bloated welfare state or a bloated warfare state?
And this boils down to the heart of it; the two parties have little more than two slightly different versions of big government they want to foist on the American people and use to line the pockets of their favored interests. Only slightly of course, because it’s not like the Republicans reduce welfare spending or the Democrats reduce military spending.
In the end, it’s not very complicated; a small government with a massive military is an oxymoron. It’s about time that fiscal conservatives figured this out.
The Mises Institute recently spoke with Nicolás Cachanosky, an Argentina-born economist, now at the Metropolitan State University of Denver, who is familiar with sovereign debt issues. We asked him about a recent UN resolution that seeks to make it easier for governments to default on their debts.
Mises Institute: Paying back government debt is not the simple matter it is often assumed to be, and repudiation of government debt has its benefits. Murray Rothbard, for example, in his article “Repudiating the National Debt,” outlined the case for why taxpayers should support the idea of the US government defaulting on its massive debt. And in a recent Mises Daily column, Simon Wilson further explained how government debt is not like private debt.
But Austrians aren’t under the impression that default has no downside, either. Naturally, the creditors — many of whom are ordinary middle-income people — who lent the money in the first place, stand to lose a lot in cases of default. Those individuals won’t be helped by the fact that, in the long run, this risk would be reflected in interest rates which would rise to compensate for the risk of default.
However, it seems that concern for creditors was hardly on the minds of many of the world’s governments earlier this month when the general assembly of the United Nations approved a new resolution that portrays debtor governments as victims of unscrupulous private-sector creditors.
Can you tell us more about what the UN is trying to do with this resolution?
Nicolás Cachanosky: The UN resolution it is not a binding or detailed document. It is, as it were, a recommendation about debt restructuring. But, there is no specification about what this restructuring should look like. The resolution sounds more political than technical. And by this I mean it is a political statement used by policymakers in their home countries for political ends.
The resolution ignores many fundamental economic and legal realities. In a well-ordered economy, when a debtor owes money, default triggers a required negotiation between the debtor and the creditors.
It is not up to just one party to decide what the outcome should be. A resolution requires an agreement between both debtors and creditors. If an agreement is not reached, then things must go to the courts. A judge or arbitrator then studies the debt contract and comes to a decision. In order for an economy to be predictable and functional, though, debt contracts should be binding and therefore creditors should not be forced to give up their rights to the initial terms of the agreement if they don’t want to.
Admittedly, in some cases, a complete payment might not be realistic, but that doesn’t mean it is up to the debtor to unilaterally decide what should the creditor give up. It is the debtor, not the creditor, who is at fault.
The debtor governments are not the victims, and some of the creditors are, for instance, retirees living on their pension funds. Why should they be expected to subsidize debtor governments via loan forgiveness? Why is it unjust for these retirees, for example, to expect repayment, as the UN document suggests?
Let’s look at it another way: a default is a transfer of wealth from the creditor to the debtor. If you default on what you owe me, your wealth goes up by the amount of the debt and my wealth goes down by that amount. The debt becomes worthless in the marketplace. Naturally, governments are easily tempted by this simple way of increasing their own wealth through default.
Moreover, if creditors cannot enforce the contract as it is written, then policymakers have fewer incentives to pay their foreign debts and remain fiscally sound. Were the UN resolution to become binding, though, lenders would demand higher interest rates for the increased risk of never being paid back. The cost of credit will rise to reflect the extra risk. But, of course, governments don’t want that either.
MI: What can you tell us about the UN vote? What countries supported the resolution most strongly?
NC: Thirty-one countries voted in favor of the resolution (66 percent), eleven voted against (23 percent), and five abstained (11 percent). But if one looks closer at the votes some interesting issues become apparent.
First, given that this is an economic topic, instead of applying equal weight to each vote, it would make more sense if votes were weighted by the GDP of each country. If each vote were weighted by the country’s contribution to world GDP, then 53 percent of the votes would have been against the resolution, and 41 percent in favor. In such a case, the vote would reflect the fact that the largest contributors to GDP were against the UN plan.
Also, if we look at the economic freedom of the voting nations as reported by Fraser’s Economic Freedom of the World (2015), then the GDP-weighted freedom score for the group voting in favor is lower than the group voting against the resolution. The more economically free countries opposed the effort to make default easier.
MI: Argentina has a special interest in this topic. Why is that?
NC: Argentina is still in conflict with a group of bondholders that refused to accept the debt swap it offered in 2005 and 2010 after it defaulted in 2001. This group of bondholders is called the “holdouts.” Argentina lost its bid to unilaterally change the terms of the debt agreement, and Argentina is now required to pay the outstanding debt and continue with the payments of the original bonds. Argentina refuses to observe the ruling and has still made no payment. In fact, Argentina has been declared in contempt of court.
(A more detailed discussion of the Argentine case can be found here and here.)
Argentina’s government put itself in this position, and the problem here is not the absence of an international regulatory body that can force creditors to accept debt restructuring. The problem lies with a government that spends freely and has no respect for its creditors. Furthermore, it does not help your case as a debtor government if, by law, you forbid any new negotiations with creditors, and you erase their debts from the official records, as Argentina has done.
MI: One UN spokesman recently referred to “vulture” creditors as a problem. Are creditors behaving like vultures?
NC: It is very unfortunate that a document like a UN resolution uses the word “vulture” not once, but twice. This is a word with a clear pejorative connotation that is not appropriate for a UN document. It seems that the UN officials had no interest in listening to what these so-called vulture funds have to say about their position.
What is usually referred to as a vulture fund is a fund that buys defaulted bonds and maintains that they can legally ensure the debt contract will be upheld, and that they will receive 100 percent of the bond payment.
If we think that respecting contracts is an important part of a developed and free society, then “vulture” funds are only asking the debtor governments to stick to the repayment plan they had already agreed to. Why are these investors then labeled as vultures while governments are portrayed only as victims? It would seem that the term “vulture” is quite applicable to governments themselves in these cases since, by refusing to pay their debts, governments are taking money out of the pockets of the creditors.
This type of investment can be expensive for the creditors beyond the cost of acquiring the bonds. To make money in this fashion requires years of costly litigation enforcing a contract that both creditor and debtor freely entered into. They’re not getting something for nothing. One is free to dislike these “vulture” funds, but that is not an argument for ignoring basic contracts and property rights.
After months of assuring the world that the Federal Reserve would soon be ending its zero rate interest policy, the FOMC blinked on Thursday. Citing “[r]ecent global economic and financial developments,” the Federal Reserve decided to further postpone the inevitable pain that will come from taking away the financial punch bowl.
While the decision may have shocked few Fed followers, Jeff Deist, President of the Mises Institute, reminds us to not lose perspective of what the Fed’s decision really means for the world’s economy:
After so many years of the “new normal,” we have to be reminded just how extraordinary — and unprecedented — the Fed’s actions since 2008 have been. But does it not occur to bankers, much less the media breathlessly covering stock and bond markets, that these actions have set America on a hopelessly dangerous and unsustainable path? Or that placing so much economic power in the hands of a select few might not end well?
Appearing on Bloomberg TV shortly after the Fed’s announcement, Ron Paul also skewered the very notion of a world so dependent upon a central bank:
The whole idea that one person or twelve people might know what the interest rate should be is preposterous. ... There is never going to be a “right thing” to do because it is absolutely impossible for individuals to calculate the right answer. You can’t plan an entire economy by manipulating interest rates.
Our guest this week on Mises Weekends is Patrick Barron, a professor of economics and a student of global currency markets. Patrick and I dissect the Fed’s big announcement this past week not to raise interest rates, and consider whether Janet Yellen and other central bankers really believe in what they’re doing. Is it all just to save themselves from the judgment of history, by kicking the can down the road? Have they read, or even considered, Austrian arguments on money and banking? Or are they simply so wedded to Keynesian orthodoxy that they literally don’t know what else to do? And what type of precipitating events might spell the end of US dollar imperialism?
And in case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:
In Thrall to the Federal Reserve by Jeff DeistGovernments Give Migrants a Disastrous Mix of Social Welfare and Bureaucracy by Justin MurrayProgressive-Era Economics and the Legacy of Jim Crow by William L. AndersonThe Fallacy of "Buy Land — They’re Not Making Any More" by Peter St. OngeVote with Your Feet: Free States Are Happier and Richer by Gabriel OpenshawTime to Raise Interest Rates by Randall G. HolcombeQuo Vadis, Federal Reserve? by Paul-Martin Foss
The term “managed care” entered the common lexicon in the 1990s, when contracted arrangements between physicians and hospitals on the one hand, and insurance entities on the other, became standard means to try to control healthcare expenditures. The origin of the concept is frequently credited to Dr. Paul Ellwood and his influential Jackson Hole Group, who introduced the idea in the early 1970s.
But in my 2-part series on the economic history of American medicine, I examined how healthcare has been “managed” from its inception in the late 1910s, when the Flexnerian reforms and the ensuing medical licensing laws began to influence (and limit) the type of medical care Americans could choose to receive.
Since that time, an ever-growing managerial class of academics, industry leaders, technocrats, and private foundation believers in “systems” and in a “scientific” approach to organizing society has been guiding the various government interventions which have shaped American healthcare as we know it today.
And if we take the Flexnerian reforms of the mid-1910s to be the very first set of interventions giving birth to the system, then the history of American healthcare as it subsequently unfolded is a stark illustration of what economist Ludwig von Mises described in his 1950 essay “Middle-of-the-Road Policy Leads to Socialism.”
In that essay, Mises argued that when the government hopes to avoid the extremes of pure capitalism and pure socialism, and chooses instead to selectively intervene in a sector of the economy to address a “market failure,” it will either fall short of its intended goal or generate new, unanticipated difficulties that are invariably greater than the ones initially confronted. The reason for the failure has to do with an intrinsic deficiency in knowledge, as proposed by Hayek and Mises, to the inability of government to assume entrepreneurial risk, and to other relevant factors as well (political incentives and bureaucratic inertia, for example).
By the time the failures and unintended consequences of the government intervention are recognized, many interests have become vested in keeping the status quo. As a result, the intervention is almost never reversed, but additional government measures are proposed instead. As these generate their own unexpected problems, repeated cycles of intervention in due time bring the sector more and more under the control of government.
That scenario seems to have played out in healthcare over the last 100 years, and the history of our medical system could reasonably be described as a “Misesian” tragedy in five acts as follows:
Act One was the institution of licensing laws favoring the AMA-led “scientific” care, ostensibly to improve the quality of medical education. Consequent to these laws were an acute shortage of physicians, an incentivization for more aggressive medical care, an unprecedented increase in medical prices, and a worsening of healthcare access inequalities.
Act Two took place after the Great Depression deflated that first healthcare bubble. A set of legal interventions was engineered to facilitate the establishment of health insurance and “rescue” the medical institutions which had invested in excess hospital capacity during the boom years. Consequent to these legal measures was a second wave of medical price inflation due principally to an underestimation of “moral hazard.” With this increase in prices, health access inequalities separating those holding health insurance from those without it increased.
Act Three was the establishment of government insurance programs to provide coverage for those most disenfranchised by the rapid expansion of employer-based health insurance, namely the elderly and the poor.
Consequent to the government provision of insurance was an astronomical rise in medical prices, again due to moral hazard among an elderly population naturally more prone to utilizing medical resources. This tremendous price inflation affected all aspects of the economy, but harmed the federal budget in particular and caused an ever increasing portion of GDP to be devoted to healthcare.
Act Four was the enactment of various legislations, from the Health Maintenance Organization Act signed under Nixon in 1973 to the HITECH Act of 2009, aimed at controlling costs by fixing prices and reducing utilization of healthcare by a variety of bureaucratic measures.
Consequent to that legislative spree, a consolidation of the healthcare industry occurred, with hospitals, private health insurers, and physician practices each merging into ever larger entities. As a result, the attempts at price controls were wholly ineffective, but the trend of consolidation also made the healthcare system much less responsive to the needs of patients. Patient discontent grew, and professional dissatisfaction among doctors and health professionals also emerged.
Act Five is being played out as we speak. To address the medical price inflation crisis, the Affordable Care Act of 2010 is forcibly extending health insurance to the entire population and introducing a number of provisions to try to control costs. To deal with a notable deterioration in healthcare quality (traced back, at least in part, to a variety of systemic disruptions in care), physicians are spurred into becoming employees of “accountable care organizations” or other large administrative entities that can mirror or adapt to the bureaucratic demands of the government.
Meanwhile, the private insurance industry is reduced to a small oligarchy which, given important new restrictions imposed on its business model, may not survive in the same capacity in the next few years.
Admittedly, the outcome that will follow the current stage of evolution remains to be seen. Will it really lead to total government control (Mises’s essay did not deem that to be inevitable), or will a private healthcare sector remain in operation? Will there be an unexpected good ending, or will the system collapse under the weight of its debt?
Only time will tell, but we may be reminded that according to historian Andrew Feffer, the notion that social and political affairs ought to be managed with “scientific” rigor and systemic planning is actually a hallmark of the American Progressive movement at the turn of the last century.
In that case, and to the extent that some of the country’s brightest managerial talent are to this day seduced into concocting for us policy “solutions” to the problems at hand, it may be appropriate to view the American healthcare system, at least as it stands today, not only as a tragedy, but as a real triumph of Progressivism.
The greater the economic freedom, the wealthier and happier the people.
From minimum-wage laws to higher progressive taxation to greater unionization to larger welfare programs to more regulation, left liberals demand a stronger and more economically active central government. Advocates of laissez-faire, on the other hand, favor smaller government, less regulation, lower taxes, and greater individual opportunity and property rights.
But which economic policy approach actually yields the best results?
We’ve already clearly demonstrated — via international and US state migration rates — that people the world over are naturally drawn toward greater economic freedom. Across countries, and even across states, millions of people every year migrate away from greater taxation and more regulation and toward lower taxation and less regulation. But are they better off?
Yes.
Let’s take a look at the fifty US states, ranked by their level of economic freedom. The most highly-ranked states have lower tax burdens, deference to property rights, less government spending, and labor market freedom:
Taking into account cost-of-living differences, the top ten most economically free states have an average $52,334 median household income, which is considerably higher than the $43,090 median income for the ten least free. That’s a 21 percent raise for workers by switching state government policies to a smaller government approach. How much more could it be increased if the same were done at the national level?
The observed results are not a question of race or country of origin: African-Americans, Hispanics, Asians, and immigrants also earn substantially more in the more economically free states. While left liberals should be lauded for their apparent concern for the welfare of minorities, the truth is that their policies yield the worst results for them, a standard of living pay cut just for living in a more regulated and heavily taxed state.
One may think that this could be driven by urban vs. rural states more than policies, but the top ten free states are 71 percent urban vs. 72 percent for the bottom ten — a negligible difference. Moreover, the states in between the two are even more urban, at 75 percent, which effectively rules out correlation.
Another objection may be that “the rich” or “the 1 percent” are skewing the numbers — that income inequality is running rampant with less government to level the playing field, as many persistently believe. The exact opposite is the case.
Using median incomes as the measure (instead of average incomes) effectively eliminates the impact of the very wealthy on the numbers. And the “Poverty Measure” is lower in the most free states (13.3 percent) than in the least free (15.1 percent).
But the real measure of income inequality is the Gini index, and we can put aside for now the fact that median incomes are a far better measure of overall economic well-being than inequality of incomes (i.e., 100 people making $1 a day are perfectly equal but not better off than ninety-nine people making $2 a day and 1 making $5 a day, despite the latter’s higher inequality).
If we assume inequality to be an important economic measure instead of a normal byproduct of economic growth, the most free states do better, with a .446 Gini index vs. a higher and less equal .462 Gini for the least free states. Not only that, but the rate of growth of inequality over the past forty years is lower in the most free states compared to the least free: 22 percent vs. 30 percent. In other words, heavier government involvement has led to more income inequality and faster growth of such, while less government has created a more equal growth in incomes.
A final argument might be that while there may be greater income in more free-market states, the increased government regulation and intervention provides greater care and increases the population’s happiness and well-being. But the opposite is the case.
Gallup publishes an annual Well Being Index, which measures and ranks each state’s population across five core measures of well-being:
Purpose (liking what you do each day and being motivated to achieve your goals) Social (having supportive relationships and love in your life) Financial (managing your economic life to reduce stress and increase security) Community (liking where you live, feeling safe, and having pride in your community) Physical (having good health and enough energy to get things done daily)Averaging each state’s Wellness rank for the past seven years we find that states with greater economic freedom also bring greater happiness and well-being.
So what happens when you create a more laissez-faire and libertarian environment where people make more money, have less poverty, and find greater happiness in their lives? People want to move there. And indeed, looking at state-to-state migration of Americans between 2006 and 2010, we see a net migration flow of 704,000 from the twenty-five least economically free states to the twenty-five most economically free. That’s hundreds of thousands of Americans choosing to relocate away from more interventionist government to more free market oriented government.
Political Party Just One FactorOn that latter point, it’s important to distinguish small-government ideology from Republican party control in a state. While it’s true that there’s a strong correlation between Republicans and economic freedom — the ten most free states had a Partisan Voter Index (PVI) average of R+10.3 vs. D-6.1 for the ten least free — it’s not a perfect correlation either. Two of the top ten states (Virginia and New Hampshire), for instance, are swing states, and two of the bottom ten economically free states (West Virginia and Mississippi) are solidly Republican.
It’s also worth noting what economic freedom is not: it is not corporatism or crony capitalism, where the government bails out banks and subsidizes politically connected businesses, which both major political parties are heavily guilty of. Rather, it’s smaller, less intrusive government.
The reality on the ground is that states with more libertarian free market policies enjoy better results: greater median incomes, a more equitable distribution, less poverty, greater success for minorities and immigrants, and higher overall levels of happiness and well-being. In the political rhetoric landscape the battle of ideology is fierce and filled with demagoguery; in the real world the difference in results between competing economic policies are strikingly clear.
In a recent Labor Day speech to union workers in Illinois, Hillary Clinton declared that if she is elected president of the United States, she would make sure that “some employers go to jail for wage theft and all the other abuses they engage in.” Her incendiary comments were obvious “red meat” for the audience, but it also helped to clarify her own economic views and how she would govern if elected.
Even though Clinton is somewhat mired down in a scandal involving her email servers used while she was at Foggy Bottoms, it seems that she will survive it — as she and her husband have survived every other scandal that has defined their political careers — and be the official Democratic Party nominee. Given the current state of US politics and given the fact that there doesn’t seem to be a Republican challenger who can stand up to her star power, at least from this current vantage point, it seems Clinton will slide into the office for where she has been “destined” since 1992.
Given that there is a very good chance Clinton will march into the White House in January 2017, we should scrutinize her economic beliefs and her proposed economic policies, as we may well have to be living them in less than two years. Not surprising for people interested in economics of liberty (or, better put, the economics of prosperity), Hillary’s policies will disappoint and disappoint greatly.
If one combines that Clinton line with other things she has said about economic policy, as well as what is written on her website about what she calls “the economy of tomorrow,” a picture emerges that does not bring confidence to anyone who understands the role freedom plays in a market economy. Like Bernie Sanders, whose policies and viewpoints I already have covered, Clinton takes a hardcore statist approach to economic policies.
When she was First Lady, Clinton spoke of “channeling Eleanor Roosevelt.” In the current campaign, at least what she declares on her website and in her stump speeches, she also channels Eleanor’s husband, Franklin. Although Clinton claims that her proposals are part of “the economy of tomorrow,” the hard reality is that they essentially are the economy of the New Deal, and the part of the New Deal that created so much damage that a Congress dominated by Roosevelt’s own party repealed much of it. Like her primary opponent Bernie Sanders, Clinton is trying to revive a second New Deal.
While Franklin Roosevelt placed his policies under the umbrella of the “Four Freedoms,” Clinton has characterized her proposals under the aegis of the “Four Fights” in which she promises to “fight” for this and “fight” for that. She especially claims to be fond of the American middle class, so we should see how her plans advance middle-class prospects.
Actions vs. RhetoricBefore examining Hillary Clinton’s economic proposals, however, I remind readers that this is not another screed to satisfy the Hillary-phobia Republicans and what they have expressed in the past two decades. This opinion piece does one thing: scrutinize her economic ideas, and allow readers to make their own decisions about her candidacy.
We also need to separate Clinton’s rhetoric from her own actions, and especially the economics of her current life, for there are no greater champions for what is derisively called “crony capitalism” than Clinton and her husband, and perhaps no two people in current public life have benefited from this economic hybrid more than the Clintons. Hillary Clinton will champion the middle class in her rhetoric, but the dynamics and the history of crony capitalism tell us that the middle class and the poor suffer the most from such an arrangement of political economy.
The Crony-Capitalist Clintons(To the credit of some on the Left, a couple of Progressive outlets have exposed Clinton’s close ties with the firms that dominate an industry that she denounces in her campaign rhetoric.)
When Bill Clinton left office, he and his wife essentially had a negative net worth, as their legal liabilities well outstripped their personal assets. Thanks to some outside help, they were able to find lodging in the tony Hamptons, which is not exactly a middle-class suburb, and soon afterward, money began to fill their bank accounts. Because Hillary was tied to her US Senate salary, having been elected to office by New York voters in 2000, the couple depended upon Bill making speech after speech and collecting huge fee after fee.
The focal point of the Clintons and crony capitalism is not the huge speaker fees that both Bill and Hillary received (after Hillary left the State Department), however, but the role that the Clinton Foundation has played in turning the Clintons into multi-millionaires. To be blunt, the Clintons essentially ran a protection racket through the foundation that would have made Don Corleone blush.
When she was at State, Hillary would grant a firm some legal or administrative favors, and then the firm would make large contributions to the Clinton Foundation or had Bill make a speech with an accompanying honorarium that could take care of numerous middle class families for a year. For example, there was the case of the Swiss Bank UBS, as noted in a recent posting by The Atlantic:
The Swiss bank UBS is one of the biggest, most powerful financial institutions in the world. As secretary of state, Hillary Clinton intervened to help it out with the IRS. And after that, the Swiss bank paid Bill Clinton $1.5 million for speaking gigs. The Wall Street Journal reported all that and more Thursday in an article that highlights huge conflicts of interest that the Clintons have created in the recent past.
Not only did UBS pay Bill directly, but it also contributed more than $600,000 to the Clinton Foundation, and this hardly was the only time something like this happened. There are no direct examples of the quid pro quo in which someone might have hard evidence that Hillary sold favors at State, but one cannot help but look suspicious.
The critics of Hillary’s actions correctly note that trading favors for large sums of money and running a populist campaign do not go together. Furthermore, as this article examines her “populist” economic platform, one suspects that competition from Bernie Sanders and the shadow of Elizabeth Warren in the background have had a lot to do with Clinton’s newfound “discovery” that Wall Street has some shady characters (including those who have donated to the Clinton Foundation or paid Bill and/or Hillary a tidy speaker’s fee).
There is no doubt that Clinton, like Sanders and Warren, has a “zero-sum” view of economic activity, and thus believes she is fully-justified in promoting her own versions of economic statism. Furthermore, she and her husband, along with about everyone else in her circle, has done well personally by pushing “protection racket economics,” and has come to see businesses and business owners as bottomless wells from which to draw funds both for herself and for her pet projects.
Clinton, Alinsky, and “New Era” PoliticsUnlike her husband, Hillary Clinton was a disciple of Saul Alinksy, the radical Marxist who employed social activism as a means of destroying both private and governmental institutions so that a “new era” could take its place. Like so many other radicals, Alinksy was a master of destruction and knew which buttons to push and how to organize people to demand favors for themselves, but he had absolutely no understanding of how economics works, and, he had no interest in finding out. The entrepreneur, in his view, was a bloodsucker, and eliminating that parasite was foundational to all of his activism.
While Hillary is not as ideological in her economic approaches as are Sanders and Warren (and even Barack Obama with his “you didn’t build that” mentality to entrepreneurship), she is just as destructive. An examination of her economic proposals in the campaign website demonstrates that hard fact. While she does not claim to be an outright socialist like Bernie Sanders (who apparently believes he can turn the entire country into Sweden, or at least Minnesota), nonetheless it is clear that Sanders — and Elizabeth Warren — have greatly influenced her campaign.
Campaigning for a New New DealLike Sanders, who wants our future to look a lot like the era of eighty years ago, Clinton’s “Economy of Tomorrow” looks a whole lot like FDR’s economy of 1937, as she channels Bernie Sanders (and maybe Eleanor Roosevelt again) for the newest edition of the New Deal:
Build “Infrastructure”: Once again, a Democrat trots out the “infrastructure” line complete with the promise of the massive public works programs that are reminiscent of the old Public Works Administration (PWA) and, of course, the Works Progress Administration (WPA);“Invest” in Research and Education: One is reminded of Bill Clinton’s old stump line, “We’re gonna invest in education and the environment.” That means Hillary looks to increase federal appropriation for government-directed research and federal education programs that are dominated by standardized testing;Raise the Minimum Wage: While not endorsing $15 an hour, Clinton still repeats the old saw that raising the minimum wage magically raises all worker’s pay, suddenly making everyone wealthier;Bring Back the Unions: No Democratic presidential campaign is complete without a call to return to the 1950s when a vast swath of the US economy was dominated by labor unions. It also was a time when massive strikes and deadly labor-oriented violence ruled the day. Clinton has vowed to do whatever is possible to shore up the generous-but-usually-underfunded union pensions;Further Subsidize Higher Education: A Hillary administration promised to vastly increase student subsidies for college and “forever make college affordable and available.” How she will pay for this vast new entitlement is not on the website;Expand Day Care: This has been standard Democratic presidential fare since Michael Dukakis based his 1988 campaign on day care for working mothers. Enough said;Promote Universal Healthcare: What people were calling HillaryCare in 1994 is now ObamaCare, and Clinton promises to protect and expand it, all while both trying to “slow the growth of overall health care costs and deliver better care to patients;”Expand Social Security Benefits: Increase Social Security payouts and bring more people under the SS umbrella. Again, Clinton does not state how her government will fund this huge new entitlement.So far, the proposals look to be something akin to New Deal Lite. However, unlike Sanders and former Maryland Governor Martin O’Malley, who has declared in no uncertain terms that regulations place no hardships whatsoever on small or even large businesses, Clinton at least gives lip service to some of the difficulties small businesses face. Unfortunately, she also continues her party’s attack language on businesses in general, especially larger corporations.
“Cut Red Tape for Small Business”: Clinton says she will offer regulatory relief for small business enterprises and entrepreneurs. However, this is puzzling, given her open disdain for private enterprise, including her infamous remarks given earlier this year at a rally in Massachusetts: “Don’t let anybody, don’t let anybody tell you that, ah, you know, it’s corporations and businesses that create jobs. You know that old theory, trickle-down economics. That has been tried, that has failed. It has failed rather spectacularly.”Provide Tax Relief for Small Businesses: She is not specific, but claims her administration will lessen tax burdens for small businesses, but not for “big corporations that can afford lawyers and lobbyists.”Tap New Markets: Clinton promises to aid businesses in expanding domestic and overseas markets. She claims to support innovation, yet has brutally attacked the “sharing economy,” which has been a large creator of new wealth;Improve Access to Capital: Clinton promises to bring together the “the best ideas from the private sector and government” to bring about more capital directed toward small business. The problem, of course, is not a lack of “ideas,” but rather the fact that so much capital has been misdirected, thanks to both Federal Reserve System policies and direct governmental interference;Force Investors to Hold onto Stocks and Bonds: Clinton has resurrected the bogus criticism from the 1980s that market participants are myopic and only short-term in investment outlook, while politicians and bureaucrats care more about the long-term future. Commentator George Will even called for a law requiring anyone who purchases stock to hold onto those shares for a minimum of two years. (Economist Robert Higgs has noted that when governments are overtly hostile to private enterprise, business owners become uncertain about the future and are forced into making short-term decisions in order to survive the ordeal.)Expand Employee Benefits and Force Up Minimum Wage: Clinton claims on her website, “When workers feel secure, they are more productive, efficient, and successful,” and proposes to require employers to add family leave and other benefits as well as increasing the minimum wage;Rein in Wall Street: There is rich irony here, as few people have benefited more from Wall Street largess than Clinton and her husband. She defends the Dodd-Frank Act and vows to defend all its particulars, despite the fact that Dodd-Frank actually has favored larger and more politically-connected banks over the smaller community banks that Hillary claims to favor. In other words, she supports the supposed intentions of regulatory measures but quietly favors the results which turn the intentions upside down, all the while feigning outrage at the inevitable outcomes;Promote “Green Energy” at the Expense of Conventional Energy Sources: This is standard fare for many in the political classes who claim that the “clean energy” sector is “creating jobs.” In reality, the new “green jobs” gobble up far more resources per unit of output than do conventional sources of energy and kill employment opportunities elsewhere.Despite Clinton’s newfound populist rhetoric, her economic agenda reflects her own lifestyle of practicing crony capitalism. Other than her promise to remove “red tape” for small business startups, Clinton’s economic propositions follow the same depressing line that we have seen from Bernie Sanders and Elizabeth Warren: private enterprise extracts wealth from the economy, while the expansion of government power builds wealth and employment opportunities.
If one briefly can summarize Clinton’s policy-making viewpoints, it is this: Hillary Clinton believes that an economy should be a tool of the state and reflect the political interests of Washington. Anything else is called “greed,” or “profits before people.” Private employers and business owners should not seek to be profitable, but rather to be virtuous, with the necessary virtue being decided by Clinton herself.
Hillary Clinton, a beneficiary of the very worst aspects of crony capitalism, has decided after all that she is an economic populist who wants to “share the wealth.” No one is mistaking her for Bernie Sanders or even Huey Long, but, nonetheless, she is a thoroughgoing statist telling voters that the way to improve the economy is to make it more difficult to produce things and force up business costs.
She clearly is not claiming to be a free-enterpriser and stands by her view that state control of economic exchanges will result in more exchanges and improved employment prospects and increased income. What she does not say is that the very economic burdens she promises to lay upon businesses will further erode the prospects of the American middle class she claims to support.
The economics of Hillary Clinton is first and foremost about expanding the power and scope of the US government, and as government gains more control, the more employers and business owners need to be in the good graces of American politicians. To be blunt, Clinton believes that people like herself can continually loot US businesses, with business owners paying their protection money without complaint. After all, Hillary knows best; just ask her.
[This article original ran on 9/22/2015.]
Bill Anderson is professor of economics at Frostburg State University in Frostburg, Maryland. Contact: email, facebook.
As the political campaign of Hillary Clinton continues to run aground, Democrats are flocking to the campaign of Bernie Sanders, the self-described “socialist” US senator from Vermont, who has been a fixture in that state for more than three decades. Not unlike the presidential campaign of Ron Paul, Sanders is drawing large, enthusiastic crowds who are very receptive to his message of increased state control of the US economy.
Obviously, when a person running a campaign based upon socialist principles is drawing attention and big crowds, we might ask just what does Sanders mean by “socialist,” and what would he do if he were elected president of the United States? To better answer that question, I am taking a closer look at what we would call the “economics” of Bernie Sanders.
What Do We Mean by “Socialism”? Before looking at Sanders’s platform, however, I believe it is important to note that when socialists speak of “victories” in the economy, they are not talking about actual results, but rather political achievements in the forms of laws being passed that mandate certain policies. Whether or not these policies actually achieve what socialists claim will be accomplished is another story altogether, but results are irrelevant to socialists.
This should surprise no one because, after all, socialism is based upon political control of the economy. True (or at least original) socialists believe that state agents via the “magic” of their authority should allocate all resources to where there is the greatest need for them. Political representatives, not surprisingly, determine what constitutes the greatest need. The state would take ownership of all factors of production and then wisely determine the needs and how production of goods would fulfill them.
Ludwig von Mises in 1920 in his short work, Socialism (three years later expanded into a book), exploded the socialist myth by pointing out that in a world of scarce resources, economies needed private ownership, prices, profits and losses to determine where resources should be directed. The early years of the “experiment” of the Soviet Union proved Mises correct, and socialists then sought to redefine what socialism actually meant.
In the USSR, and later in China and North Korea, the state took ownership of factors of production, but tried to create a parallel economy by using shadow prices and production functions via the mechanisms championed by Polish communist Oskar Lange, who admitted that Mises had pointed out serious flaws in the original plans of socialists. We also know how that “experiment” turned out, which is why there no longer is a USSR, China has abandoned much of the economics of Mao, and North Korea is a failed state where most people live in grinding poverty.
But people like Bernie Sanders, while maybe not rejecting the old socialism spiritually, nonetheless have embraced a “socialism” in which government takes ownership of large portions of what has been produced by private enterprise and transfers wealth from one group of people to another. A look at the Sanders website spells out his brand of “socialism” that he says is based upon what Nordic countries like Sweden, Denmark, and Norway have done, levying high taxes with governments using that funding for social programs like medical care and other public welfare initiatives.
Secondary Socialism A number of people have pointed out that the Sanders “program” is not socialism per se, but rather is something based upon socializing the results of private enterprise, or what one might call secondary socialism. The Bernie Sanders regime would take control of some of the produce of private enterprise, as opposed to taking outright control of factors of production, which would remain in private hands. If this reminds one of the fascism of the 1930s, that is because Sanders is promoting a version of the governing models of Germany under Adolph Hitler and Italy under Benito Mussolini.
Of the two, Sanders certainly is closer to Mussolini. Like Sanders, Mussolini called himself a socialist and was a leader in the Italian Socialist Party. Like Sanders, Mussolini decried “profiteers” and the wealthy, and spoke out against political corruption. Like Sanders, Mussolini spoke of a larger “national purpose” and sought to harness nationalism as a political force. Like Sanders, Mussolini sought to impose more and more controls on Italian businesses in order to direct production in a way to satisfy political purposes. Like Sanders, Mussolini built political power by appealing to Italian voters by saying that other Italians were well-off because they had gained their wealth on the backs of the poor.
Having similar economic proposals to Hitler and Mussolini does not make Sanders either of those two men and it is important to emphasize that while Sanders regularly employs the powerful political tool of appealing to voter resentment of others, he is not advocating the kind of genocide that ultimately helped to characterize the fascism of Central Europe in the 1930s and 40s. Bernie Sanders is an economic nationalist, and economic nationalism was at the heart of European fascism, but we do not want to make unwarranted accusations against Sanders, either.
At the same time, I do not want to let Sanders off the hook. He promotes economic nationalism and has built his campaign upon resentment, the kind of which Henry Hazlitt wrote in 1966 in his famous, “Marxism in One Minute.” Hazlitt wrote:
The whole gospel of Karl Marx can be summed up in a single sentence: Hate the man who is better off than you are. Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. (Emphasis mine)
As one moves through the website for the Sanders campaign, there is plenty of resentment for others. First, there is the ubiquitous “One-Percent” that is the main focus of the typical Sanders stump speech:
This campaign is sending a message to the billionaire class: “you can’t have it all.” You can’t get huge tax breaks while children in this country go hungry. You can’t continue sending our jobs to China while millions are looking for work. You can’t hide your profits in the Cayman Islands and other tax havens, while there are massive unmet needs on every corner of this nation. Your greed has got to end. You cannot take advantage of all the benefits of America, if you refuse to accept your responsibilities as Americans.
While I would agree wholeheartedly that the US economy is in serious trouble, it is not because of the “greed” of billionaires. It is because the US government, through the Federal Reserve System, has created what David Stockman has called the “casino economy” that has substituted trading of sovereign debt and monetary manipulation for a real economy with interest rates that reflect actual economic fundamentals. Like the Bush and Clinton administrations before it, the Obama administration has promoted political entrepreneurship and demonized market entrepreneurship.
Sanders’s List of Recycled Twentieth-Century “Solutions” Americans are not jobless because some people are not paying “their fair share” of taxes; they are jobless because the US government insists on directing resources from higher-valued uses to lower-valued uses, as determined by consumer choice. They are jobless because Washington insists on remaking the economy in its own image, and there is nothing in the entire Sanders campaign that would change any of the things that vex the US economy the most.
So, what does Sanders propose to “revitalize” the US economy? Here are some things listed on his website:
Raise taxes on US corporations (ironically, corporate tax rates in the Nordic countries are substantially lower than current corporate taxes in the USA, something that has escaped Sanders’s notice);Raise the minimum wage to $15 an hour;Expand the reach of labor unions and vastly expand their membership;Make it illegal for US corporations to manufacture goods abroad, and then sell those goods in the USA;Impose new taxes on financial transactions;Spend at least a trillion dollars on building and repairing roads, bridges, and utilities;Create a “youth jobs program” in which unemployed young people are given government-sponsored jobs (Sanders sees no connection between high minimum wages and youth unemployment);Enact “equity pay” that will “guarantee” that women are paid the same as men for comparable work;Break up banks and financial institutions;Enact a Canada-style single-payer healthcare system;Provide free tuition for all public colleges and universities;Expand Social Security benefits;Require businesses to provide 12 weeks of paid family and medical leave, at least 10 days of paid vacation a year, and seven days per year of paid guaranteed sick leave. Notice that there is nothing in the Sanders platform that calls for “nationalization” of the means of production, nor does he propose to do away with the price system. In other words, Sanders’s vision of socialism is not what Mao or Trotsky or Lenin proposed, yet there is not one thing in the entire platform that would reverse the dangerous economic trends of the past decade.
Instead, Sanders proposes to direct huge amounts of resources in the direction of constructing something akin to a European welfare state. To put it another way, Sanders wishes to “turn back the clock” to create or promote social and economic structures that already have been undermined by the modern “sharing” economy.
If one reads Sanders’s platform from another perspective, it would be the New Deal. Indeed, there is nothing Sanders has written or said from the stump that would not be reminiscent of a New Deal rally (with the possible exception in appealing to black Americans, which was not part of the Democratic Party agenda in the 1930s, as well as Sanders’s appeal to furthering the Sexual Revolution). Bernie Sanders pushes an economic agenda that is frozen in time.
The problem, economically speaking, is that Bernie Sanders proposes nothing that actually would enable entrepreneurs to help bring about a true economic recovery. In Sanders’s world, entrepreneurs are parasites and employers are oppressors who seek to harm their employees, and wealth is defined by how much governments have in their treasuries.
If I could put the economics of Bernie Sanders into a nutshell, it would be this: Burden private enterprise with one directive after another, and then demonize it when it ultimately falls down under the awful weight of taxes, higher costs, and mandates. While many people believe that instituting the Sanders economic agenda would help turn the USA into another Sweden or Denmark, the more likely outcome would be turning this country into another Venezuela.
The term “Sagebrush Rebellion” is again showing up in newspapers across the American west as states seek more control over federal lands within their own boundaries. As with the original Sagebrush Rebellion of the 1970s and 1980s, several western states, where the federal government owns well over one-third of land within the states, have begun to look to more local control of lands as an answer to federal indifference, mismanagement, and outright hostility. In at least one case — Utah — the state has initiated a lawsuit in an effort to wrest more control of lands out of federal hands.
The Los Angeles Times, in the socio-economic basket case known as California, dismissed the idea outright in an unsigned editorial, declaring the idea to be an affront against unfairly maligned federal supremacy. The Denver Post, meanwhile, offered last month a more evenhanded assessment, suggesting that the cost to the state of maintaining public lands — in the form of fire-fighting, forestry, and more — is too high to be worth it.
Why Now?Federal control of lands within states has long been a source of contention between states and the federal government.
Prior to the adoption of the 1787 Constitution, there were few provisions in law that allowed for direct federal control of lands within states. The new constitution, however, was a coup for centralizers who wished to assert more direct federal control over lands in the west. The Louisiana Purchase further strengthened control over western lands by placing huge swaths of land under federal control.
Throughout most of the nineteenth-century, though, it was accepted that virtually all of this land should eventually be handed over to states and to settlers. In the second half of the century, this was mostly done through various homestead acts and by large land grants to the railroads.
The far west and Rocky Mountain west offered new problems, however, because those lands did not lend themselves to homesteading in the way imagined by the Congress. Much of the west is too dry to allow for workable homesteads on the small plots allowed under federal law at the time. Thus, the only way such lands could be profitable was if much larger amounts of land were allowed to single owners.
Politically, however, this did not work either, since the Progressive movement opposed ownership of large plots by corporate mining operations, or by other owners who did not fit the romanticized image of the self-sufficient homesteader. Over time, the federal government took over these lands permanently, refusing ownership to states which were portrayed by Progressives as being in the pockets of corporate interests.
In more recent times, this has led to conflicts in which local economic interest conflicts with federal plans for lands, and in which federal control of lands has actively hurt local economies. For example, to please environmentalists, the federal government continues to close off roads in federal lands that have long been used by local residents for a variety of purposes. Moreover, the federal government collects taxes and fees on lands that state governments would rather tax themselves.
But the most memorable recent examples probably occurred in 2013 when the federal government shut down national parks and other federal lands frequented by tourists. The federal government dispatched federal agents armed with assault rifles who forcibly ejected visitors from the allegedly “public lands.” Meanwhile, nearby towns that rely on tourists for the local economy were powerless to open the parks themselves. State officials, who are far more sensitive to local economic needs than members of Congress or the White House, were also powerless to do anything.
Eventually, after much political pressure was applied, the federal government kindly allowed states to pay millions to the federal government to open the parks again.
But, at that point, the political damage had been done. Many states realized that if they were going to have to pay the federal government to access their own lands, there may be a problem with the arrangement.
And finally, when dealing with the federal government, it’s important to remember that only immense political and corporate interests generally have much chance of influencing federal policy. Because of the cost of doing business with the feds in Washington (it’d be much higher than the cost of influencing state or local governments), federal lands are primarily a battleground between large, well-funded environmental groups and huge corporate organizations. Small companies, landowners, or conservation groups have little-to-no hope of influencing how lands are controlled or owned.
Can States Afford to Take Over Federal Lands?Even those who are sympathetic to the decentralization of federal lands have long questioned whether or not states would want to assume the cost of managing them. Even if states took over federal lands, in most western states, there is little danger of those lands being privatized. Coloradans, for example, like their “public” forests just fine, and would be in no rush to hand them over to the Ted Turners of the world. This means that the states (i.e., the taxpayers) would have to pay for intervention in forest fires, road maintenance, erosion control, and other expenses associated with managing public lands.
Those who think the transfer would be too costly cite a study of Utah’s public lands which claims that a transfer of federal lands to the Utah government would cost the state’s economy $280 million annually, plus $150 million in federal salaries.
Now, it should be remembered that studies like these are pretty sketchy. They take all of the federal monies spent on jobs related to federal lands and then declare that all that money would disappear if the federal government were removed from the equation. They do not consider that, if states were allowed to control these lands, they might manage them better, increase fee income, allow greater levels of economic growth, and avoid local economic disasters like the federally-mandated closing of parks.
The Problem of Direct TaxationBut the biggest hole in this analysis is the fact that all of these states ignore the tax revenues that states like Utah and Colorado pay to the federal government. Federal taxes collected in Utah in fiscal year 2012, for example, totaled $15.6 billion. At the same time, according to several sources, Utah is a net taxpayer state, which means its citizens pay more in federal taxes than the state received back in federal spending. In Utah’s case, the federal government spends 66 cents for every dollar in federal taxes collected from the state. Thus, we could conclude that the IRS collects $5.6 billion more in taxes than the state receives back. And this happens year after year.
That allegedly “lost” $280 million doesn’t look quite so big compared to the $5.6 billion extracted from the state by the feds every year. Were that money allowed to remain in Utah, there is no question as to the ability of the state to manage public lands.
Similarly, in Colorado, which is also a net taxpayer state, the IRS collected $41.2 billion in tax revenues. But, the federal spending in the state totals only 64 cents for every federal tax dollar spent. This means that, every year, Coloradans pay about $15 billion more in taxes than is spent by the feds within Colorado.
One Colorado official has claimed that, without federal spending, one major forest fire would “obliterate” the state budget. That’s a pretty vague term, but given that Colorado only collects $12 billion in state taxes compared to the federal take of $41 billion, the biggest potential drain on Colorado productivity isn’t exactly wildfires.
From a legal perspective, of course, it’s useless to discuss any of this. Ever since the rejection of the Articles of Confederation, and the adoption of the new Constitution, it is quite clear in federal law that the federal government can directly tax citizens without any regard whatsoever for state and local governments, or apportionment among the states. Apportionment, which was a halfway measure that attempted to even out tax burdens among states, was essentially eviscerated shortly after the Constitution was adopted when early Supreme Court decisions declared that apportionment didn’t apply if it was an inconvenience to federal tax collectors. The Sixteenth Amendment, while not creating the phenomenon of direct taxation, merely strengthened the federal government’s hand considerably.
So, today, the states themselves are financial bystanders when it comes to federal spending and the ability of states to control taxes, spending, and resources within their own borders. The perpetual drain on state wealth in net taxpayer states is routinely ignored. The federal government can now extract $15 billion more — net — than it spends in a state, and then claim it is making a fabulously generous gift to the state when it does spend a fraction of what it has already taken. Utah and Colorado may get lucky and be able to somehow take control of federal lands. But, lessened federal spending in the state won’t translate into a lower tax bill for anyone.
[Rothbard wrote this in 1950.]
Whether the American war effort remains "partial" or eventually becomes "total," methods of mobilization are rapidly becoming our most pressing economic problem. Obviously, mobilization for war inevitably involves hardships for the populace, and lowered standards of living for the duration of the war effort. The public still has a responsibility, however, to choose critically among possible different methods of economic mobilization. Simply because a technique had been adopted in World War II, does not imply that the technique should be followed again. It may have hampered, not furthered, the war effort.
The criteria of choice are two-fold (1) does the proposed method promote the war effort with the maximum efficiency, and (2) does it preserve as much as possible of the liberty of American citizens? The former criterion must be the major one, but the latter should not be neglected in the decision.
The fundamental problem of economic mobilization is to produce sufficient quantities of military supplies for the armed forces, and the production of these supplies at the maximum possible efficiency and speed. Mobilization means that large quantities of resources must be shifted from the peace-time production of consumers' goods to the production of military goods. Factors of production, machine-tool factories, capital equipment, land, and labor force must be shifted from consumers' to war industries. The more quickly and the more efficiently this gigantic shift takes place, the better for the nations' war effort. How, then, to effect this rapid transfer of resources?
The most efficient way is to make the fullest possible use of the free market. If the profit-and-loss signposts of the free market direct businessmen in the shift of production, the process will be incomparably swift and more efficient than a shift clumsily imposed by direct government controls, decreed by a vast, unproductive army of bureaucrats.
Making use of the free market is not a difficult problem. Business production is guided by expected profits, and expected profits depend on the strength of expected demand for the product. Businessmen constantly strive to produce for their market at the lowest possible cost, i.e., the greatest efficiency. If purchasing power is shifted from the consuming public to the government, businessmen will perform the same notable service for the government in its purchases of military equipment. Thus, if the government takes funds from the public, and uses them to place orders for military supplies with businessmen, profits in these war industries increase. Businessmen hasten to abandon the dwindling consumer market and shift production to the war products. Their increased demand in the war industries, accompanied by the lowered demand for factors of production in the consumer goods industries, leads to a rapid shift of these factors — land, labor, and capital — to the war-industries. If the government wishes to step up military production, it takes more of the public funds, places more buying orders as compared to the civilians, and causes a further shift from civilian to military production.
Thus, the government can best promote the war effort — to say nothing of individual liberty — by leaving business and the market as free as possible. The clumsy apparatus of compulsory priorities, allocations, prohibitions, etc., are unnecessary.
The problem, then, is: how best to transfer the requisite purchasing power from the citizens to the government? Different methods of transferring purchasing power will have very different economic effects. The best method is one that restricts civilian spending on consumer goods proportionately with the government acquisition of funds. Thus, if the government obtains $20 billion worth of funds from the public, it is best for the war effort if all those $20 billion come from funds which would have been spent for consumption. Thus, contraction of resources of consumer goods proceeds as rapidly as needed to expand the production of war goods.
The economic effects are highly undesirable if these funds were those that would have been saved and invested in capital goods. Private savings do not conflict with military requirements, as do private expenditures on consumers' goods; furthermore private savings are highly necessary for production of war goods. As funds shift from consumers to government, private savings flow into the war goods industries. The greater the flow of private savings, the higher the productivity of the war-goods industries, as more and more capital goods are invested in war production. The more savings that flow into investment in the armament industries, the greater the benefit for the war effort. Thus, it is sheer folly for the government to acquire any of their funds from would-be savings that could otherwise flow into the production of military goods, and which in no way compete with government purchases in the market.
In the light of this criterion, what are the best means for the government to acquire funds:
(1) The best method is that of voluntary contributions by the patriotic public. There is no surer way of demonstrating home-front support of the war effort than by voluntary abstinence from consumption, and contributions to the government. This is not to be confused with the purchasing of savings — or other types of government bonds. There is nothing very patriotic about buying a bond, with the assurances that the principal will be returned, and that you will obtain a safe interest income out of the already burdened taxpayers. Moreover, these funds would mainly come out of savings, funds which others would have invested in industry. True patriotism implies contributions to the government without expectation of or desire for the return of interest or principal.
(2) If voluntary sources are not enough, the next best alternative is to reduce the present non-military expenditures of governments, and to use these released funds for war expenditures. Alleged "welfare" spending by government must be cut drastically. Certainly, thoroughgoing pruning could cut our present non-military expenditures by at least $10 billion.
(3) For a large-scale mobilization, it is unlikely that the above two sources will provide enough money for the government. Increased tax revenue must furnish the major source of funds. Here it is necessary to proceed with great care. Taxes are already very high, and great increases in certain types of taxes may have disastrous effects on the economy, and hence on the war effort. Furthermore, different types of taxes have very different effects on the economic system.
The best type of tax for this purpose is one (and about the only one) which the federal government completely neglected in the last war, and in the postwar period. It would provide a vast amount of funds swiftly and easily, and it would have the great advantage of tapping funds from private consumption expenditures. Such a tax is a general federal sales tax at retail on all products sold. It is a tax difficult to evade, and continually in process of collection; a tax that would be a flat percentage on value of sales, and set at whatever amount necessary. For a total war effort, for example, a 20 percent sales tax would be most effective in restricting civilian consumer spending and would probably furnish $30 billion in new taxes.
If further taxes are necessary, the government might effectively use specific excise taxes, to restrict consumer spending of particular commodities needed for war production. Thus, there might be special excise taxes on durable consumer goods, such as automobiles, radios, houses, etc., that use material particularly needed for war goods. Some such excises were imposed during the war, but only to a very limited extent. Moreover, the emphasis was misplaced. There were heavy taxes on luxuries, such as motion pictures, night clubs, jewelry, etc., and none on goods such as clothing, foods, etc. Yet the former luxury spending diverts almost no factors from war uses, whereas a good deal of food, clothing, etc., must be diverted from civilian use for the use of the troops. Therefore, excise taxes would be necessary on food and clothing, but not on night club prices.
These sources should be more than enough to finance any war effort. General sales taxes, in particular, are powerful and beneficial methods to obtain funds. In the last year, however, the government relied mainly on individual and corporate income taxes for increased revenue. Although these taxes are now close to their high wartime level, indications are that new tax revenues will be derived from even further increases in income taxes.
Individual income taxes have proved effective sources of funds, but they present many drawbacks. They can be easily evaded, particularly by self-employed professionals and small businessmen. And, they expropriate funds that would otherwise be saved, as well as those otherwise consumed. The "progressive" nature of our income tax system makes matters worse, by discriminating against the upper brackets who usually save more. Savings should be encouraged to promote the war effort, and, to this end, individual income taxes should be reduced, rather than increased, especially and drastically in the upper income brackets. The difference can easily be made up by taxing consumption, i.e., by sales and excise taxes.
Corporate income and excise taxes, favorite devices in political circles, are even more pernicious in their effects.
Since there is no such thing as a "corporation" which receives, and uses income, these taxes actually fall as discriminatory income taxes on the owners or corporations. This double taxation penalizes efficient corporations, in favor of incorporated firms. It is particularly important for the war effort, to make use of all the superior efficiency of our mighty "big business" corporations. To penalize efficient firms is economic absurdity in any time; in wartime it may be suicide. Corporation income taxes should be completely repealed.
The same argument applies, even more forcefully, against the baleful device of the excess-profits taxes. The profit-loss system is the guidepost that induces businesses to produce for the greatest demand at the lowest cost. An excess-profits tax destroys the profit incentive, and leads to staggering inefficiencies and waste, particularly among the most profitable firms — the very ones whose services are most needed for the war effort. Excess profit taxes lead to waste of resources, businesses no longer have the economic incentive to produce war goods at the lowest cost. During the war, there was much wasteful spending by business on customers (entertainment, etc.) due to the destruction of the profit incentive. In a future war, we are not likely to afford the harmful practices of the last one; we shall need all the productive power our system can furnish. There must be no such economic absurdity as an excess-profits tax.
The above is an outline for a rational, effective economic mobilization. Missing are some of the favorite sore points of the last war. Where is the problem of war-time inflation? Where are the spectacular devices of price-control and rationing, of black markets, and "easy money" that seemed to be inevitable corollaries of war? There is no necessity for any of these troublesome problems or devices.
The inflationary pressure in the last war grew out of the government's inflationary method of war finance. This involved the creation of new purchasing power through borrowing from the banks.
The government printed new bonds and exchanged them for bank deposits in the banking system, these bank deposits operating as newly created purchasing power. The government took these new funds and placed their orders for war supplies, in competition with the existing funds of consumers. As the new funds found their way into the economy, money incomes of consumers increased still further. Prices rose as money expenditures rose, competing for a scarcer supply of consumer goods. Thus, instead of consumer's spending being restricted, this inflationary method of finance increased consumer incomes and encouraged their spending. Hence the feeling of easy money, and the heavy pressure for spending.
Under the proposed system of meeting government needs from taxing of consumption, prices would not change to any great extent. The fall of consumer demand would tend to lower prices of consumer goods, but this fall would tend to be balanced by the reduced supply of consumer goods. On the other hand, prices of war goods would initially tend to rise in price under the spur of the increased demand. This price rise would tend to be checked as the war continued, by the increased supply of war goods. In general, prices would not change noticeably.
The inflationary method of finance adopted in the last war, on the other hand, tended continually to raise prices, of consumer goods as well as others, and also tended to raise consumer money incomes. Inflation, as a method of finance, creates many other evils. It discriminates against fixed income groups, against those living on income from savings, etc. This inflationary pressure led government to adopt the whole apparatus of price controls and rationing, that bedeviled the nation during and after the war. Price controls called into being a vast army of bureaucrats and snoopers who were taken away from productive employment. It hampered the effective allocation of resources, crippled the market mechanism, and still further intensified the consumers' demand by setting prices at an artificially low level. Black markets mushroomed, with their evil effects of deterioration of quality, disrespect for the law, and tax evasion. With prices deprived of their customary free market function of rationing available supply in accordance with consumer demand, the rationing function had to be replaced with the clumsy system of coupons, with the familiar and depressing spectacle of lining up in front of the stores, and with blatant favoritism. Moreover, the government's clumsy efforts to replace the free market were illustrated by sudden, unexpected shortages in commodity after commodity. Suddenly, cigarettes, nylons, etc., would disappear from the counters.
Not only would there be no inflation under the rational system of war finance, there would be no need for price controls or rationing, there would be no sudden shortages, no favoritism, no "queuing up" before the counter, no black markets, no over-spending of easy money.
Neither would there be any necessity for controls in the labor market. Wages and jobs available would increase in the war goods industries, and decline in the consumer goods industries, thus inducing labor to shift from the latter to the former. No labor draft would be necessary to compel the transfer. Of course, any union resistance to the wage declines in the civilian industries would hamper the needed shift of resources.
Such a rational war economy will not appeal to those who are chiefly concerned with pseudo-moral issues. Such ideas as "no one should profit out of war" or "all should suffer equally in war" are absurd. The object of a war economy is to win the war as rapidly as possible. War is, itself, the supreme immorality, and any regime which hampers its successful and swift conclusion is also immoral. Moreover, it is difficult to understand the moral grandeur of, e.g., the excess-profits tax, which expropriates the efficient tax to the benefit of the inefficient. And what could be more moral than preserving the maximum degree of economic freedom?
Greece is a hot topic at the moment, mostly with the continued negotiations over bailouts from the European Union and, through institutions like the IMF, the world at large. Much of the discussion paints the image that Greece is only a debt-restructuring away from a stable economic situation. However, without understanding how Greece got into this problem in the first place and identifying the root cause of an over-indebted society, any plan or solution has a high probability of failure. To crack into this root cause, I had to develop an entirely new metric called “implied public reliance.”
Employment Data Doesn’t Tell the Whole StoryThe main puzzle behind Greece is simple from a praxeological standpoint — you get more of what you subsidize and less of what you tax. Greece, being a nation with a high tax rate on production and a high subsidy rate on public assistance, will generate a population that finds greater preference toward public assistance and away from productive labor.
The problem with this is that the data doesn’t, on the surface, support the statement. Calculating the average annual hours worked, Greece actually ranks far ahead of nations with lower public sector subsidies and lower taxes:
If it were true that higher taxes dissuaded labor, then Greece shouldn’t report higher worker hours than much lower tax burden nations like the United States and Canada. This indicator would also identify Germany as the European Union’s economic basket case, not its economic powerhouse. Even nations like Spain and Portugal, which have a negative stereotype for sloth, both come ahead of Germany, but are suffering economically.
The problem is these numbers only applied to those who were actively employed and did not provide us a picture of the overall employment situation. Even other indicators, like workforce participation rates, don’t fully paint the picture. What is needed is a new metric that effectively identifies the core of a nation’s potential growth and prosperity.
Someone Has to Pay for All the “Free” StuffThis is where a look at “implied public reliance” comes in. Ultimately, in a modern nation, all citizenry is provided with the necessities of life in some form or another. Mass starvation, homelessness and sickness is not generally present in modern nations, so virtually every citizen receives food, medicine, and housing from somewhere.
So, we must look to find the source of those resources, and it is, by and large, the active employees of any given nation that are tapped to provide the resources for all other individuals not engaged in overt economically productive activities. In every modern country, these resources are primarily delivered through the public bureaucracy and funded with taxation on existing workers.
How to Find Who’s PayingFirst, we must identify a nation’s currently employed population. Next, all public sector employees are removed to obtain an adjusted productive workforce. It may be objectionable that certain professions, like teaching, nurses in single payer systems and fire fighters, are classified as an unproductive workforce, but as our system is currently designed, the salaries of these individuals are not covered by the immediate beneficiaries like any other business but are paid through dispersed taxation methods.
Finally, this productive population is divided into the nation’s total population to identify the total number of individuals a worker is expected to support in his country. To remove bias toward non-working spouses and children, the average household size is subtracted from this result to get the final number of individuals that an individual must support that are not part of their own voluntary household. In other words, how many total strangers is this individual providing for?
The Implied Public Reliance metric does a far better job of predicting economic performance:
Greece, the nation with the debt problem, is currently expecting each employed person to support 6.1 other people above and beyond their own families. This explains much of the pressure to work long hours and also explains the unstable debt loads. Since a single Greek worker can’t possibly hope to support what amounts to a complete baseball team on a single salary, the difference is covered by Greek public debt, debt that the underlying social system cannot hope to repay as the incentives are to maintain the current system of subsidies. To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population that is reliant on public subsidy.
The numbers imply that 67 percent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible as the 67 percent have strong incentives to continue to vote for the other 33 percent — and also foreign entities — to cover their living expenses.
How does this equate to GDP growth? While GDP is not a perfect metric, it is still the best available to identify economic health. Each nation that has breached the 50 percent barrier in public reliance is also showing poor growth with numerous nations coming dangerously close to the majority in some form of reliance on redistribution for earnings.
What does this tell us? A nation that allows its citizenry to remain idle and expect the support of a productive worker will eventually undermine its ability to maintain the economy that those recipients of public funds rely on. Nations that do not have a structure to dissuade usage of public assistance or hire too many public sector workers will find their economic growth impeded and, if it becomes too large, recessive.
However, public institutions are not capable of creating these safeguards to ensure as few people as possible engage in safety net programs. Government institutions are, in fact, designed to grow public sector employment rolls. So as long as this social structure is in place, the odds that a Greek default and restructuring will lead to a sustained Greek recovery are very low.
Those possessing the anti-capitalist mentality — so ascendant in our culture today — often critique market actors as being solely motivated by “greed.” Surely economic systems based on nobler motivations, they say, would better promote the long-run interests of the planet.
The Voluntary Marketplace Uses Greed as Motivation to Serve OthersThis is an issue I deal with in detail in my Principles of Economics classes. The fascinating point about the market system isn’t that it is based on greed, but rather that it forces those motivated by greed to act in ways that promote the social interest. If you want to get rich, say by x amount, then you better improve the lives of consumers, through voluntary transactions, by some amount greater than x.
Such are the economic means of acquiring wealth, explained in more detail in 1922 by the German sociologist Franz Oppenheimer, writing at a time before his discipline transmogrified into an enterprise predicated on supporting greater state intervention.
However, problems arise when those motivated by greed find ways to acquire wealth through coercion. Oppenheimer called these the political means (as opposed to the voluntary means of the marketplace), and we witness them today when (1) firms benefit from their relationships to the state as opposed to the consumer, and (2) the state itself uses its legal monopoly on violence to acquire wealth.
A New Death Tax in ConnecticutThese ideas ran through my head when I read about the new probate court “fees” approved by the Connecticut legislature this month, reinforcing its status as being among the worst states in which to die. Whereas the maximum fee for settling estates there was $12,500, it can now go as high as $100,000, and in some cases, well over $1 million. These “fees” are in addition to estate taxes that range between 7.2 to 12 percent on estates greater than $2 million.
The “fees” were justified on an expected budget shortfall of $32 million that the legislature wanted to fill, but I wondered: Where was the outcry from the greed-police? One can imagine the reaction if, due to poor fiscal management, Costco or Best Buy announced they were going to double or triple prices on their popular items to account for losses. Yet, governments do this all the time, and somehow, it is never considered greed when political means are used to acquire wealth.
Adding to the irony is the fact that resources are more likely to be squandered when forced out of private hands and into the public sector, where incentives to waste today promote bigger budgets tomorrow, and where crony capitalism is fed. Resources that might have been saved and directed to productive uses are instead directed to various interest groups and well-connected firms.
Capital Arises from Thriftiness, Not GreedThose who would encourage greater transfers of wealth to the public sector forget that
[c]apital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving. Neither have capital or capital goods in themselves the power to raise the productivity of natural resources and of human labor. Only if the fruits of saving are wisely employed or invested, do they increase the output per unit of the input of natural resources and of labor. If this is not the case, they are dissipated or wasted.
The accumulation of new capital, the maintenance of previously accumulated capital and the utilization of capital for raising the productivity of human effort are the fruits of purposive human action. They are the outcome of the conduct of thrifty people who save and abstain from dissaving, viz., the capitalists who earn interest; and of people who succeed in utilizing the capital available for the best possible satisfaction of the needs of the consumers, viz., the entrepreneurs who earn profit. [Mises, The Anti-Capitalist Mentality, pp. 84–85]
Capital is actually a gift of the thrifty, and it is not free. There’s no surprise that states with no death taxes whatsoever attract capital from places like Connecticut. Its pols are between a rock and a hard place, with the rock being the need to finance the current level of redistribution (and to never, ever reduce it), and the hard place being the increasing willingness of the pilfered to engage in tax avoidance. Its legislature must be the trust attorney’s best friend.
Sick minds deemed the supply of death perfectly inelastic and therefore worthy of tax. But it’s not just people who die in Connecticut. Wealth does too, illustrating what happens when greed is unconstrained by market forces. Some writers might consider Connecticut’s economy something of a model worth emulating, but the fact is that Connecticut — like every other tax jurisdiction — grows its public sector at the expense of its private, and that when capital predictably flows elsewhere, economic opportunity diminishes.
Hosting the Olympic Games isn’t as popular as it used to be. This week, Boston cancelled its bid to host the 2024 summer Olympics. The city was forced to cancel the effort in response to opposition to what The Nation called the “debt, displacement, and militarization of public space” that the Olympics brings to every host city. Basically, the taxpayers and citizens of Boston weren’t in the mood to foot the bill for an enormous party for the richest and most powerful special interests of Boston.
While the Olympic Games may have once been about sport and international camaraderie, they were soon transformed into monuments to crony capitalism. Peter Hitchens traces this transformation back to Hitler and Goebbels who made the Olympics “into a torch-lit and grandiose spectacle,” and the international Olympics committee has been fine with that ever since.
Today, the Olympics has become a way to score diplomatic points and showcase the wealth and influence of national governments. Indeed, it’s no wonder at all that the host cities of the Olympics have taken on a decidedly authoritarian flair with China and Russia rushing to make various bids. The International Olympic Committee (IOC) will soon get to choose between Kazakhstan and China for hosts of 2022’s winter games. (Oslo, Norway pulled out of the 2022 bidding process after the taxpayers resisted the IOC’s diva-like demands for tax-funded perks.)
And it makes sense that more authoritarian and nationalistic regimes would make more successful bids for the Olympics. The less a regime has to listen to the people who pay the bills, the more likely they are to make those precious taxpayer-funded “guarantees” that the IOC demands from every host city.
The Ruins of Past Olympic GamesMeanwhile, the taxpayers in much of the developed world have gotten wise to the high costs and few benefits of hosting the Olympics. Many have seen these photos from the UK’s Guardian which show the state of the Athens 2004 Olympic venues in 2014. The billions of taxpayer dollars spent on facilities have all evaporated, and all that’s left is rusting stadiums and mud-filled Olympic-sized swimming pools.
The Greeks were told back then that hosting the Olympics would be their ticket to a new era of first-world prestige and economic success. Needless to say, such a rosy future failed to materialize. Even less time has passed since the 2008 Olympics in Beijing, but as these photos show, Beijing’s abandoned venues will have plenty in common with those of Athens in a few years.
And while Brazil looks forward to its own 2016 bid, the Brazilians already are getting a preview of what will become of all those Olympic venues. The World Cup stadiums, built just last year, are already massive white elephants, as Business Insider recently showed. One massive stadium functions as a parking lot for buses. Several more simply decay in the humid Brazilian air.
The High Cost of Sports EventsMeanwhile, serious researchers (i.e, not people who produce “impact statements” for the local chamber of commerce) have known for years that sporting events do not produce wealth for local economies:
“If you ever had a consensus in economics, this would be it," said Michael Leeds, a sports economist at Temple University. “There is no impact.”
“If every sports team in Chicago were to suddenly disappear, the impact on the Chicago economy would be a fraction of 1 percent,” said Leeds.
But huge sports events like the Olympics are far worse because they can shut down local businesses and require the militarization of local law enforcement for “security” purposes. Those who have had the misfortune of being near events such as these know that traffic can be shut down for days and businesses inside the security perimeter see customers disappear. Once the event packs up and leaves, local businesses see no benefits to compensate for the massive tax burden and debt that comes in the event’s wake.
Moreover, Journalist’s Resource has compiled a helpful list of serious studies on the impacts of mega-events like the Olympic games. Taken together, the studies reveal a distinct lack of economic benefit form hosting the Olympics and similar events. There is an enormous gulf between the grandiose promises of government officials ex ante, and the actual benefits that can be observed ex post. In these studies, we repeatedly see phrases like these:
“The long-term economic legacy effects appear to be quite modest.” “The impact of national athletic success on happiness ... is statistically insignificant” “The Beijing Olympics could only have limited impacts on the city’s brand.” “The results indicate it had no long term impact on trade or total employment.”The Politics Behind the Events: Who Really BenefitsIt should be no wonder that Brazilians — many of whom live without working urban infrastructure like reliable sewage lines — protested in 2014 to the use of billions of tax-funded reais on stadiums that would benefit a tiny number of wealthy Brazilians. Like the Norwegians, and now the Bostonians, the protestors know what these huge international sports events — the Olympics, especially — are really about. They’re about fun and prestige for the political class. They’re a playground for politicians and major business interests who will get the lucrative contracts to build stadiums, swimming pools, and posh buildings in which to party with the rich and famous.
For all their faults, the politicians of Norway answered to the Norwegian taxpayers and nixed their 2022 bid. Boston politicians were forced to do the same, although not before mocking the opposition as “ten people on twitter” and uttering the usual bromides about the supposed benefits of forcing the taxpayers to pay for yet another political vanity project.
After Boston was forced to finally pull out, The Nation correctly diagnosed the nixed bid as a “victory for activists and a loss for the city’s most entrenched business interests.”
Cronyist deals like the Olympics help remind us that there’s a big difference between support for free enterprise, and support for “big business.” Economic development corporations and business associations such as chambers of commerce are usually more than happy to squeeze a few more bucks out of the taxpayers if the money will go toward whatever the “business community” thinks should be subsidized at any given time. But, the entrepreneurs, employers, and taxpayers who lack lobbyists and pocketed politicians mean little to the business “leaders” who set policy.
Unfortunately for them, many educated people have begun to see through the scam. Glitzy shopping centers, stadiums, and global mega-events no doubt do wonders for the resumes of the rich and powerful. But those who pay for such things do less well.
Japanese Prime Minister Shinzo Abe has been pressing for more military spending in Japan, in what critics claim is a violation of Japan’s so-called pacifist constitution. Foreign Policy reports:
In January, the government of conservative Japanese Prime Minister Shinzo Abe endorsed a defense budget of nearly 5 trillion yen, or $42 billion, continuing a three-year growth trend after nearly a decade of decline. The sum still represents a small portion of Japan’s GDP — it accounts for just one percent of it, according to the World Bank — but because offensive military action is prohibited by Japan’s constitution, even a modest increase is controversial.
Japan Has a Big Military AlreadyWe often speak of the Japanese military as if it were some sort of skeleton crew of caretakers. This is not the case at all. Japan spends more on its military than India, for instance, which is in an arms race with Pakistan and has many border issues with which to deal. Indeed, according to the International Institute for Strategic Studies, Japan is the number-seven country in terms of military spending, placing it ahead of hot-spot countries like Israel and South Korea. The IISS estimates that Japan’s military spending is $47 billion, compared to Russia’s $70 billion and China's $129 billion. (The US, of course, spends far more than everyone else with $581 billion.)
So, we find that Japan’s military is hardly insignificant. Yes, Russia has a larger military, but Russian military might is primarily directed toward Eastern Europe, thousands of miles away, and China has many neighbors other than Japan to deal with, and it has a much larger territory that does not enjoy the natural defensive advantage of being an island nation. Moreover, everyone knows that Japan could build deliverable nuclear weapons very quickly if necessary, and it has access to some of the best military technology in the world.
The US Needs More Spending from JapanWriting back in the year 2000, military historian and international affairs scholar Chalmers Johnson had already predicted that Japanese military spending would increase over the next decade. And now, fifteen years later, he has been proven right.
The reason for the increase in Japanese spending is not due to any Japanese attempts to assert independence from Washington, or a reborn nationalism. Washington still has Tokyo well under its thumb, and there is little danger of the US being thrown out of its multiple and massive military installations in Okinawa.
No, Johnson, wrote, the reason the US wants more military spending from Japan is that the US empire is overextended and running out of money. This was obvious even back in 2000, but the long inexorable march toward slow bankruptcy for the US continues. Among the American satellite states gained after WWII (i.e., Germany, South Korea, Japan) Japan has subsidized the American military the most. That is, Japan is expected to “contribute” more to the American presence in East Asia (in terms of land and spending) than either Germany or South Korea. As the US economy has become less robust, the US has demanded more money from the Japanese. (See Mark Mateski’s Mises Daily article on the “strategy” behind US military spending.)
Johnson writes in his 2000 book Blowback:
Already, the United States cannot afford its various and ongoing global military deployments and interventions and has begun extracting ever growing amounts of “host-nation support” from its clients, or even direct subsidies from its “allies.” ... Japan also pays more generously than any other nation for the American troops on its soil.
Johnson remembers how Japan, even though it avoided military involvement in the 1991 Gulf War, paid $13 billion to the US to finance the war. (Back then, that was a lot of money.)
The current drive to get more military spending out of Japan is part of this continued trend. The biggest departure from history in the new agreement is not the increase in spending, but new provisions that allow the Japanese military to engage in “non-defensive” military operations to assist the United States government. For example, Japan could be in the position of shooting down missiles headed for the United States, and also assisting with military operations geared toward opposing Chinese military expansion off the coast of China, such as Chinese efforts to better control the Spratley Islands. One Japanese lawmaker nearly said as much:
“The bills [expanding the military] are needed because the security situation around our country is changing dramatically,” he said, listing China’s opaque military expansion and tensions over disputed islands among the problems Japan faces.
And that new military spending won’t just stay in Japan, of course. And this makes more Japanese spending an even better deal for American military special interests. Foreign Policy notes that the spending increases will be good for Americans weapons contractors:
But $240 billion can buy Tokyo a lot of new equipment, which could be good for American defense contractors. F-35s are made by Lockheed Martin, based in Texas, and the Marine vehicles are manufactured by BAE Systems, based in Northern Virginia.
Tokyo also plans to buy U.S.-based Northrop Grumman’s Global Hawk drones. It’s also developing two Aegis radar-equipped destroyers and missile defense system with Washington. Those are made by Lockheed.
Thus, it’s likely Japanese opposition to the military expansion goes beyond mere ideological commitment to “pacifism.” Many Japanese also know that it’s just the latest spending plan to help out the Americans who have certainly already taken their pound of flesh or two over the past seventy years.
It would be one thing if the US were actually disengaging from Asia and seeking to diminish its military engagements in Asia. But that’s not happening, and the US is seeking to ramp up its military involvement in East Asia. But to pull it off, the US must get Japan to pay for more of it. If an actual crisis occurs, however, — which is made more likely by an expanded American military presence — all bets will be off and “emergency” military spending will go through the roof, with the deficit-spending spigots (i.e., money supply growth) turned to full-blast.
[This unsigned editorial, written by Murray N. Rothbard, appeared in the April 15, 1969, issue of The Libertarian (soon to become The Libertarian Forum).]
April 15, that dread Income Tax day, is around again, and gives us a chance to ruminate on the nature of taxes and of the government itself.
The first great lesson to learn about taxation is that taxation is simply robbery. No more and no less. For what is "robbery"? Robbery is the taking of a man's property by the use of violence or the threat thereof, and therefore without the victim's consent. And yet what else is taxation?
Those who claim that taxation is, in some mystical sense, really "voluntary" should then have no qualms about getting rid of that vital feature of the law which says that failure to pay one's taxes is criminal and subject to appropriate penalty. But does anyone seriously believe that if the payment of taxation were really made voluntary, say in the sense of contributing to the American Cancer Society, that any appreciable revenue would find itself into the coffers of government? Then why don't we try it as an experiment for a few years, or a few decades, and find out?
But if taxation is robbery, then it follows as the night the day that those people who engage in, and live off, robbery are a gang of thieves. Hence the government is a group of thieves, and deserves, morally, aesthetically, and philosophically, to be treated exactly as a group of less socially respectable ruffians would be treated.
This issue of The Libertarian is dedicated to that growing legion of Americans who are engaging in various forms of that one weapon, that one act of the public which our rulers fear the most: tax rebellion, the cutting off the funds by which the host public is sapped to maintain the parasitic ruling classes. Here is a burning issue which could appeal to everyone, young and old, poor and wealthy, "working class" and middle class, regardless of race, color, or creed. Here is an issue which everyone understands, only too well. Taxation.
Even today, few deny the long arm of US military might. After all, the US military exhausted the Soviet Union, crushed Saddam Hussein, and drove Osama bin Laden’s al Qaeda into hiding.
To what should we attribute these triumphs? Some would say US planning and foresight. Others would mention the hard work and dedication of US soldiers, sailors, and airmen. Still others would point to the application of superior technology. All would be correct to some degree, but each of these explanations disregards the fact that for more than a lifetime, the United States has wildly outspent its military competitors.
For many years, the United States spent more on defense than the next ten big spenders combined. It turns out that’s no longer true, according to Jane’s and PPGF. But whether the current count is seven or nine, we must acknowledge that US dominance was purchased at a high cost.
The High Cost of Big DebtsThe first cost is the accumulation of debt. While many will admit to the numbers, few will publicly concede the long-term threat they pose to national and international security. Among the few, Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, has for several years consistently declared that “The single biggest threat to national security is the national debt.” While US defense spending is currently declining, these charts illustrate that the US share of global defense spending has remained strong (1) regardless of the irregular ups and downs of external events and (2) largely independent of the debt burden.
The second cost is the accumulation of commitments and expectations. Despite the drawdown of troops from Iraq and Afghanistan, senior US policy makers remain staunchly determined to maintain a high level of global engagement. If you doubt it, read the recently published 2015 U.S. National Military Strategy. Among other things, it underscores the US commitment to countering agents of instability, whether “violent extremist organizations (VEOs)” or nation states, the standout examples being Russia and China. Not surprisingly, the strategy has prompted headlines such as “China Angered by New U.S. Military Strategy Report,” “Pentagon Concludes America Not Safe Unless It Conquers the World,” and “Pentagon’s New Military Strategy Calls for Preserving US Dominion of the World.”
Yes, these criticisms arrive from predictable quarters, but in this case the perception is reality, and the reality is that US policy makers continue to pursue a strategy laden with unavoidably expensive commitments — commitments guaranteed to antagonize Russia and China. (All of which stimulates a risky reinforcing feedback loop.) As Patrick Tucker at Defense One quipped, “The United States is preparing for never-ending war abroad.” Despite this, don’t expect to find any references in the published strategy to “debt,” an oversight that ignores Mullen’s warning and validates David Stockman’s statement that “We’re blind to the debt bubble.”
Our Military “Strategy” Amounts to Little More than Big Spending PlansThe third cost — one we rarely discuss — is the dangerous yet unspoken conceit held by a generation of senior US officers and policy makers: the belief that they are innately superior strategists. Just ask the Soviet Union, Saddam Hussein, and Osama bin Laden! But what if in reality spending was the primary driver and arbiter of these outcomes?
It is suggestive that in cases where the sheer weight of US firepower proved unable to secure a decisive victory (Korea and Vietnam are canonical examples), the United States’s cash-poor but tactically savvy opponents still managed to frustrate and confound front-line US forces. As H. John Poole, a retired Marine colonel, combat veteran, and prolific author, has remarked:
For America’s wartime units, firepower has been and still is the name of the game. This game has some less-than-ideal ramifications. Since WWI, far too many units have not matched up well — tactically — with their Eastern counterparts. As unlikely as this may seem to today’s active-duty community, it is nevertheless well documented. (Global Warrior, 2011, p. xxii)
On this count, “cyberwar” is a prime illustration of another domain in which spending doesn’t guarantee proportional dominance. The recent OPM hack is a painful example, and if practitioners like Richard Stiennon (There Will Be Cyberwar) are correct, more is coming.
As a rule, US policy makers minimize these counterexamples. Commentators like John Poole who point out weaknesses and alternatives tend to be written off by Washington apparatchiks as well-meaning but misguided zealots. And to be fair, from the mainstream perspective Washington’s argument in support of the status quo is actually quite strong — as long as the money continues to flow. For those who discern the uncomfortable truth that the US debt addiction is unsustainable, the picture looks very different. Alternatives to spending-as-strategy exist, but they require policy makers and strategists to rethink their dearly held assumptions of economic and strategic superiority. It requires a unique mind and stout internal mettle to do this, and so far this decade, we have seen little evidence in Washington of this type of insight and character. Let’s hope that the anticipation of crises yet-to-be pushes hitherto overlooked reformers to the front of the national security debate.
I’ll close by restating the problem via analogy: US global superiority in military affairs is actually the superiority of a rich kid who thinks he’s really smart but in reality is merely just rich. When the seemingly endless flow of money slows (as it inevitably will), the mask of cleverness will fall. Everyone who resented the kid will be waiting at the edge of the playground for this day of reckoning, and because no one else will have been so dependent on spending-as-strategy, the erstwhile rich kid will find it tough going.
Much of the current immigration debate in the United States centers around the issue of “amnesty,” which is a vague term that may mean anything from “we won’t deport you” to “let’s fast-track you to citizenship and voting rights.”
From a laissez-faire perspective, the deportation aspect of amnesty — an increase in federal inaction — is one thing. The extension of voting privileges, though, is something else entirely.
Indeed, the amnesty debate has helped to illustrate the difference between real, concrete property rights, and the much different political “rights” such as voting. Limiting property rights is always illegitimate. Limiting political rights, on the other hand, may sometimes be essential.
Property Rights vs. Political “Rights”For example, everyone everywhere has property rights regardless of the type of regime they live under and whether or not the government recognizes the existence of those rights. These rights include the right to own one’s own body, to own property peacefully acquired, and to enter into peaceful contracts with other people, including contracts involving employment and housing. The foreign nationals known as “illegal immigrants” also have these rights.
But property rights such as these should not be confused with political “rights” that are quite distinct from the right to self-ownership. In fact, in practice, political rights such as voting are often used to justify coercion against others in the form of expanding government spending, and government control over every aspect of daily life.
Critics of amnesty who wish to further restrict the free use of property by employers, landlords, and laborers make a mistake when they try to limit immigration by restricting property rights. On the other hand, they are on more solid ground when they attempt to restrict the further expansion of government power by restricting the franchise and the number of people eligible (via citizenship) for government checks.
The assumption behind this position on immigrants is that new arrivals tend to seek an expansion of government benefits, and that they are net tax receivers who get more in tax benefits than they pay in. This is an empirical claim that may or may not be true. But, it is no doubt true that some immigrants are in fact net tax receivers, and it is in that direction that we should direct our attention.
Limiting Government Size by Limiting the VoteIn making their arguments against expanding the vote to immigrants, the activists who hold this position place themselves among the few who are actually confronting the problem of widespread voting rights in a society where large numbers of net tax receivers also have the ability to vote further benefits for themselves.
However, when we really start to examine the sheer number of voters who benefit from expansions in government spending, immigrants begin to look insignificant by comparison. The legions of government employees, government contractors, and Social Security recipients all know that any significant cuts in government spending would hurt them personally. And they vote.
So, if we’re going to take the position that those who benefit from tax funds should not vote, why limit ourselves to looking at immigrants?
The Net Taxpayers vs. the Net Tax ReceiversIn his short book Bureaucracy, Ludwig von Mises examined this problem in the context of government employees. In a section titled “The Bureaucrat as a Voter” Mises explains:
The bureaucrat is not only a government employee. He is, under a democratic constitution, at the same time a voter and as such a part of the sovereign, his employer. He is in a peculiar position: he is both employer and employee. And his pecuniary interest as employee towers above his interest as employer, as he gets much more from the public funds than he contributes to them.
This double relationship becomes more important as the people on the government's pay roll increase. The bureaucrat as voter is more eager to get a raise than to keep the budget balanced. His main concern is to swell the pay roll.
Mises went on to examine the rise of powerful interest groups in France and Germany in the years before “the fall of their democratic constitutions.” He explained:
There were not only the hosts of public employees, and those employed in the nationalized branches of business (e.g., railroad, post, telegraph, and telephone), there were the receivers of the unemployment dole and of social security benefits, as well as the farmers and some other groups which the government directly or indirectly subsidized. Their main concern was to get more out of the public funds. They did not care for “ideal” issues like liberty, justice, the supremacy of the law, and good government. They asked for more money, that was all. No candidate for parliament, provincial diets, or town councils could risk opposing the appetite of the public employees for a raise. The various political parties were eager to outdo one another in munificence.
Mises concluded:
Representative democracy cannot subsist if a great part of the voters are on the government pay roll. If the members of parliament no longer consider themselves mandatories of the taxpayers but deputies of those receiving salaries, wages, subsidies, doles, and other benefits from the treasury, democracy is done for.
The logic of this position is simple. If the voting taxpayers (specifically, the net tax contributors) are outnumbered or outcompeted by the net tax receivers, then, inevitably, the economic system will tend more and more toward economic profligacy, leading eventually to bankruptcy.
Not surprisingly, many commentators who rightly point out the problem of government largesse and voting rights for immigrants also fail to mention all those more politically powerful and popular groups (i.e., builders of roads and weapons, and pensioners) whose incomes also depend on government spending. And of course, the “official” government employees all depend directly on a government check for their incomes, and in much larger numbers than any group of immigrants.
Although federal law and the decisions of the federal courts mandate that all citizens be given a one-man, one-vote status, it remains abundantly clear that it is imprudent in the extreme to allow a person who depends primarily on government funds for his or her income to exercise a vote in any election that may have an impact on his or her paycheck.
In any other context, this would be considered an enormous conflict of interest. Naturally, we would not approve of a city council member who votes on whether or not the city should hire his own firm to pave the city’s streets (although this surely happens anyway). And yet, we blithely accept that voters should be allowed to do something extremely similar.
And while it may be correct, it is nevertheless politically easy to oppose voting rights and welfare checks for immigrants, because they vote in relatively small numbers. But such action will amount to little in the long run unless the net taxpayers begin to confront the reality that the voters who vote to keep the government money flowing will be well represented among those longtime citizens cheering the loudest at next year’s suburban Fourth of July fireworks show.
But can the debate really be as one-sided as I portray it? Well, look at the results: again and again, people on the opposite side prove to have used bad logic, bad data, the wrong historical analogies, or all of the above. I’m Krugtron the Invincible!
Thus wrote the great Paul Krugman. A man so modest as to proclaim that “I think I can say without false modesty, a huge win; I (and those of like mind) have been right about everything.”
Quite a claim. Indeed, predictions are extraordinarily difficult. Even to an expert in a subject who has dedicated his life to a field of study, predicting the future proves elusive. Daniel Kahneman referenced a study of 284 political and economic “experts” and their predictions and found that “The results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of three potential outcomes.”
A whole book of such wildly inaccurate predictions by experts was compiled into the very humorous The Experts Speak with such prescient predictions as Dr. Alfred Velpeau’s “The abolishment of pain in surgery is a chimera. It is absurd to go on seeking it” and Arthur Reynolds belief that “This crash [of 1929] is not going to have much effect on business.” Indeed, a foundational block of Austrian economics (that some Austrians unfortunately forgot regarding premature predictions of hyperinflation) is that the sheer number of variables in the world at large makes accurate forecasting extraordinarily difficult.
So it must be a rare man indeed that can be right about everything. And this man, Paul Krugman is not.
Predicting a Bubble He RecommendedPaul Krugman likes to reference the fact that he predicted the housing bubble. Of course, he also sort of recommended it. From a 2002 column of his,
To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
In 2009, when this came out, he denied its obvious implication and wrote, “It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.” So that doesn’t count as a recommendation? It certainly sounded like he was agreeing with Paul McCulley on inflating a housing bubble. And he verified that that’s exactly what he meant in a 2006 interview where he said,
As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing. But by late 2004 he should have seen the danger signs and warned against what was happening; such a warning could have taken the place of rising interest rates. He didn’t, and he left a terrible mess for Ben Bernanke.
The best Krugman can possibly say is that he thought Greenspan went too far with the housing bubble he recommended.
Deflation is Around the CornerWhile running victory laps because the United States hasn’t seen massive price inflation, Krugman seems to have forgotten what his prediction actually was. In 2010 he wrote, “And what these measures show is an ongoing process of disinflation that could, in not too long, turn into outright deflation ... Japan, here we come.”
Robert Murphy called him on this and noted Krugman’s response,
... Krugman himself ... said of his 2010 analysis: “(In that post, I worried about deflation, which hasn’t happened; I’ve written a lot since about why).”
Note the parenthetical aside, and the timing: Krugman in April 2013 is mentioning in parentheses to his reader that oh yes, as of February 2010 he was “worried about deflation, which hasn’t happened.” In other words, Krugman entered this crisis with a model that predicted how prices would move in response to the economic situation, and chose his policies of government stimulus accordingly. He was wrong, and yet maintains the same policy recommendations.
But of course to Krugman, anyone who predicted price inflation can’t explain why that hasn’t happened. Such people are just those “... who take a position and refuse to alter that position no matter how strongly the evidence refutes it.” Krugman is different.
Europe Will Do Better Than the United StatesIn 2008, Krugman wrote:
... tales of a moribund Europe are greatly exaggerated. ... The fact is that Europe’s economy looks a lot better now — both in absolute terms and compared with our economy.”
Later he noted that “Americans will face increasingly strong incentives to start living like Europeans” and that “he has seen the future and it works.” (I should probably note that that is a quote he borrowed from Lincoln Steffens about the Soviet Union.)
Then Greece went bankrupt and the international consensus is unquestionably that the crisis hit Europe harder.
The Euro Will CollapseNiall Ferguson counted eleven different times between April of 2010 and July 2012 that Krugman wrote about the imminent breakup of the euro. For example, on May 17th, 2012, Krugman wrote,
Apocalypse Fairly Soon. ... Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.
Most of these predictions are laced with weasel words such as “might,” “probably,” and “could” (more on that shortly). Still, while I’m no fan of the euro, and it might still collapse, as of today, three years later, it has not. If the word “imminent” means anything at all, Krugman was wrong.
The Sequester Will Doom Us AllPaul Krugman at least admitted the sequester was “relatively small potatoes.” But for “relatively small potatoes” he makes a big deal about it, referring to it as “one of the worst policy ideas in our nation’s history.” And it “will probably cost ‘only’ around 700,000 jobs.” (Note the word “probably” again.)
Then later, he decided that these were actually quite large potatoes, stating,
And, somehow, both sides decided that the way to buy time was to create a fiscal doomsday machine that would inflict gratuitous damage on the nation through spending cuts unless a grand bargain was reached. Sure enough, there is no bargain, and the doomsday machine will go off at the end of next week.
The economy has done quite well since then actually. Indeed, how $85.4 billion dollars in “cuts” (from the next year’s budget not the previous year’s spending) could affect anything in a $17 trillion dollar economy is simply beyond me. And of course, it didn’t.
Interest Rates Can’t Go Below ZeroIn March of this year, Krugman wrote in regard to some European bonds with negative nominal yields,
We now know that interest rates can, in fact, go negative; those of us who dismissed the possibility by saying that people could simply hold currency were clearly too casual about it.”
But as Robert Murphy points out, “The foundation for the Keynesian case for fiscal stimulus rests on an assumption that interest rates can’t go negative.” Murphy also points out that Krugman should admit he was wrong again because back in 2009, Krugman wrote,
And the reason we’re all turning to fiscal policy is that the standard rule, which is that monetary policy plus automatic stabilizers should do the work of smoothing the business cycle, can’t be applied when we’re hard up against the zero lower bound. [i.e. zero percent interest]
“Inflation Will be Back”In 1998, Paul Krugman predicted “Inflation will be back.”
Nope.
“The Rate of Technological Change in Computing Slows”Same article as the last one, “... the number of jobs for IT specialists will decelerate, then actually turn down.”
Aside from a short dip after the 2001 recession, the answer would be nope again.
Weasel Words and “Accurate Predictions”Let’s take a look at Paul Krugman’s “accurate prediction” of the financial crisis. On March 2nd, 2007, he predicted the following explanation would be given a year from then for the financial crisis he was sort of predicting,
The great market meltdown of 2007 began exactly a year ago, with a 9 percent fall in the Shanghai market, followed by a 416-point slide in the Dow. But as in the previous global financial crisis, which began with the devaluation of Thailand’s currency in the summer of 1997, it took many months before people realized how far the damage would spread.
So the crisis would begin in China? Almost.
He concluded that column by saying, “I’m not saying that things will actually play out this way. But if we’re going to have a crisis, here’s how.”
That’s a good hedge, just like with the euro. He can say he got the financial crisis right (albeit happening in a different way than he expected), but then say he didn’t get the euro wrong because he added “probably” before any prediction about it.
Normally, there would be nothing wrong with these weasel words. Given the nature of predictions, any prediction that is made should have a qualifier in front of it. It’s simply an admission that you aren’t omniscient. But you can’t eat your cake and have it too. Either Krugman was right about the crisis (sort of) and wrong about the euro (and many other things) or neither should count at all.
Or course, this doesn’t refute Krugman’s theories. But then again, Krugman may want to slow down on his victory laps.