Posted by Georg Thomas on 08/31/2014 at 05:29 PM in American Culture, Barack Obama, Books & Media, Congress, Constitution, Economics, Electoral Prospects, Film, Georg Thomas, Health Care, History Lessons, Liberty Laid Bare, Media/Media Bias, Presidency, U.S., Pure Politics, Social Philosophy, Socialism Gone Wild, Supreme Court, Taxes and Spending | Permalink | Comments (0)
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1. The Libertarian Conundrum
How do I know which is the proper libertarian policy? Can there be something like THE proper libertarian policy? Or will a spontaneous order emerge from the competitive deliberations and disparate approaches that different parties take concerning the political and technical implementation of their preferred policies?
Will policies not be altered by the very process that makes them advance from the visionary stage to open-ended fruition?
I would tend to argue that if you do not factor into your policy proposal a realistic account of the intermediary conditions created by scientific and political competition - that is: how to register and analyse these intermediary conditions, how to instrumentalise them, how to deal with opponents and the need for compromise - what you offer is not really a policy proposal, but a mere expression of wishful thinking.
Attempts at overcoming hard and manifold theoretical and political resistance are just as important a source of realistically informed policy as is the ability to open up to competition and compromise, to try out, and alter the scheme in operative reality.
Successively, Friedrich Hayek supported at least three different, mutually exclusive policies to deal with the overall money system: the gold standard, a commodity-backed-currency, and freely competing private currencies.
Which one of these is more libertarian than the others?
What this puzzle confronts us with is the peculiar logic of scientific competition as well as political competition. These non-market arenas of competition form a vast delta of path-defining parameters, a system of intricately ramified intermediary conditions from which contingent results emerge that need to be acted upon as they appear. These intermediary conditions cannot be built into and dealt with appropriately in advance by a set of initial premises.
Intellectual competition requires and, indeed, forces admission of diverging views, by which dynamic the issues fit to be pursued are defined, i.e. accepted for handling by the political machinery and the public behind it. Political competition is inevitable, if only to organise scientific and economic competition and transform their results into concrete policies. Political competition requires and forces admission of widely diverging views and policy aims, opening up another vast area of contingent ramifications, i.e. intermediary conditions determining the path along which outcomes will be arrived at. This process and its results cannot be preempted by libertarian precepts. They are embodiments of the indeterminacy of freedom, which keeps advancing by bursting her banks.
2. The Hayekian Deficit
Although Friedrich Hayek is often credited with initiating the resurgence of research in alternative monetary systems, his own proposal received sharp criticism from Milton Friedman (1984), Stanley Fischer (1986), and others at the outset and never gained much support among academic economists or the wider population. According to Friedman, Hayek erred in believing that the mere admission of competing private currencies will spontaneously generate a more stable monetary system. In Friedman’s view, network effects and switching costs discourage an alternative system from emerging in general and prevent Hayek’s system from functioning as desired in particular.
Hayek simply assumes that a competitive environment "will spontaneously generate" the desired outcome. But he disregards important "intermediary conditions" on which the set of realistically attainable outcomes depends.
According to the above paper opponents of Hayek's proposal argue that economic actors are not likely to desert an established money in favour of newly created competing private monies owing to inordinate switching costs, negative network effects, and rational expectations - for more see here. Milton Friedman supports this contention by pointing to a lack of empirical evidence that economic actors would react to the offer of competing monies in the way Hayek predicts (e.g. in the face of a weak and volatile Dollar, Americans did not typically switch to German or Swiss money). Hayek replies that people tend to be discouraged to switch currencies owing to legal restrictions; if the latter were lifted, his predictions would prove correct. Regardless of Hayek's objection being pertinent or not, characteristically, he does not address the essentially political condition on which he expressly claims his policy proposal hinges.
3. The Libertarian Non-Policy Bias
The entire spectrum of libertarian thought espoused from anarcho-capitalists to crypto-anarchists to Hayek-type of classical liberals are united in systematically avoiding analysis of politics as a means both representing and structuring intermediary conditions that ultimately link up or decouple initial premises (e.g. competition is good, so currency competition must be good) and final outcome (the operative monetary system).
When it comes to policy proposals,
What is not clear is how it is possible to fruitfully enlist and control government for the one purpose, but not for the other. Why should government not abuse its powers to expand far beyond a minimalist welfare state, when it cannot be trusted with the monetary system?
My message in a nutshell: you cannot have an effective policy that is supposed to organise the monetary order of society unless you have the intellectual and practical means to understand and participate in the processes of civic competition through which the monetary order is implemented and enforced.
Libertarians do not seem to be able to pursue effective policies in this area because they adhere to a truncated view of spontaneous order, which reflects only the self-organising features of market processes, ignoring an even broader dimension of spontaneous order that does not grow as analogous to market interactions, but follows its very own logic.
The cow on the old wall: Since there was lots of excellent grass on the old wall, some of the citizens of Schilda proposed to let a cow graze on it. A rope was put around the cow's neck and a group of strong men hauled her up. In the process, the cow got strangulated. When the citizens of Schilda saw that the cow was sticking her tongue out, they would jubilate: "Look she's grazing!
Following up on Australia Repeals Carbon Tax, let me share with you some words of wisdom concerning investment:
The federal government is moving towards abolishing the Renewable Energy Target rather than scaling it back in a move that will cost almost $11 billion in proposed investment and which is at odds with the views of its own Environment Minister.
Let’s parse this sentence bit by bit.
Scaling back the RET is described as “a move that will cost almost $11 billion in proposed investment”. “Investment” is one of those hurrah words so that anything that can be described as investment is automatically given a warm reception. What cutting the RET will actually do is cut almost $11 billion dollars of waste. Eleven bil on more windmills and solar panels would not get you back ten cents in the dollar. Stopping such expenditure dead in its tracks will only promote future economic growth, or at least it will if the government doesn’t decide to spend the money itself in some other totally useless way.
Here is the message: DO NOT SPEND MONEY ON ANY SINGLE INVESTMENT THAT WILL NOT OF ITSELF AND ON ITS OWN PROVIDE A POSITIVE RETURN ON FUNDS EMPLOYED IN A REASONABLE PERIOD OF TIME (LET US SAY THE NEXT THREE YEARS). If you can’t see a return, and prove it in a published cost-benefit study, don’t do it.
I don’t say you shouldn’t provide welfare. By all means provide welfare. Let us look after the sick, the aged and the disabled. But here, since the demands are near infinite, judicious allocations of funds will be required. But while welfare expenditures may be important for those who are unable to work or are too old to work, none of these expenditures will promote economic growth and future prosperity.
We do not have an infinite pool of productive resources. We must prioritise. Removing renewable energy targets is pure profit for the economy, a 100% benefit. So would getting rid of paid parental leave. Get rid of them both at once. I wish the NBN was also up for grabs since getting rid of it would also be a net positive.
And I should finally mention since I am throwing it all into the pot, do not raise taxes on anything in any part of the economy. If the kinds of revenues you are in receipt of are insufficient to pay for everything in the basket, then take some things out of the basket.
Depending on how you look at her, freedom is either a concept, or an aspect of reality, a vast and pervasive one, if we are lucky. As a concept it demands perfection and completeness, as part of reality it must accept a position, however prominent, next to other phenomena many of which may not square with the demands of liberty.
The best that we can hope to achieve for freedom is an open society which gives her plenty of space to unfold. However, an open society will never be congruent with freedom. An open society will always be a mixed society in terms of liberal and illiberal elements. With their countless different views of freedom, liberals are among the first to feed the blend of contrasting components that make up an open society.
"The truly great social catastrophes do not arise from a misapplication of the basic principles of a market economy. They arise from a wholesale disrespect for individual liberty, which is manifested in tolerated lynchings and arbitrary arrest, and from a total contempt for private property, through its outright seizure by government forces intent on stifling its opposition or lining its own pockets. The reason why Great Britain and the USA did not go the way of Germany and the Soviet Union in the turmoil of the 1930s was that the political institutions in both our countries were able to hold firm against these palpable excesses even as they went astray on a host of smaller economic issues."
From page 22 of the source.
If there are good things happening in this world, we cannot ascribe them to freedom alone, as if all the hindrances in her way no longer matter. If there are good things happening in this world, then this is because of a tolerable, perhaps even felicitous mix of freedom and unfreedom. Thus, a more complete view of freedom ought to accommodate the manner and means by which freedom and unfreedom coexist to bring about a world that gives us Reasons to Be Cheerful.
It is easy to pick up a newspaper, watch television or look on a blog and assume the end is nigh. Between foreign affairs crises, demographic time bombs, debt icebergs and having only hours left to save the NHS (more on that another time…), it would not be unreasonable for us all to assume the world has got a lot worse – that capitalism has failed, inequality has sky-rocketed, and we are living shorter, sadder and more violent lives.
Happily, this is not so. Thanks to capitalism, free trade and globalisation we live in the most prosperous, healthy, safe, equal and free period in human existence. Across the globe, as liberal economic policy and capitalism have left communism and command economies in the dustbin of history, we are seeing remarkable falls in worldwide poverty, hunger, disease, inequality and (despite current humanitarian disasters) deaths from war and natural disaster.
It is worthwhile (as Free Enterprise Award winner Matt Ridley does) looking at the reasons to be happy with our world today and to be optimistic for the future.
I find David Glasner's blog post at Uneasy Money interesting for his discussion of (1) the role of axiomatic reasoning - much hailed by libertarians especially in the praxeological tradition (von Mises, Rothbard), (2) the aberrations of neoclassical economics, and (3) the concept of precision which is not infrequently used to rule out by denigration methods more appropriate to the social sciences, especially economics, than methods preferred because they yield the spurious appearance of supporting an "exact science".
The way I read Glasner, he is saying that axiomatization in economics has become a fetish, a misguided promise of more profound and more certain knowledge, and that modern economics in its immature ambition to be considered "an exact science" and by overemphasising mathematical formalization has lost the subject-matter of economics out of sight.
[...] that it is important to understand that there is simply no scientific justification for the highly formalistic manner in which much modern economics is now carried out. Of course, other far more authoritative critics than I, like Mark Blaug and Richard Lipsey (also here) have complained about the insistence of modern macroeconomics on microfounded, axiomatized models regardless of whether those models generate better predictions than competing models. Their complaints have regrettably been ignored for the most part.
I like the way in which Glasner looks beyond the foreground and middleground, probing into the remoter roots of fetishistic illusions about precision and exactness in science.
Thus, the author argues
[...] the concept of precision is itself hopelessly imprecise, and to set precision up as an independent goal makes no sense.
He backs up his view with quotes from Karl Popper's
enlightening discussion of the historical development of calculus despite its lack of solid logical axiomatic foundation.
[...] However, the absence of a rigorous and precise definition of the derivative did not prevent mathematicians from solving some enormously important practical problems, thereby helping to change the world and our understanding of it.
Writes Popper, the terms "exact" or "precise"
[...] strongly suggest that there exists what does not exist – absolute exactness or precision – but also because they are emotionally highly charged: under the guise of scientific character and of scientific objectivity, they suggest that precision or exactness is something superior, a kind of ultimate value, and that it is wrong, or unscientific, or muddle-headed, to use inexact terms [...]
[...] the demand for precision is empty, unless it is raised relative to some requirements that arise from our attempts to solve a definite problem. [...]
[...] the attribute of exactness is not absolute, and that it is inexact and highly misleading to use the terms “exact” and “precise” as if they had any exact or precise meaning [...]
[...] a lesson taught by the whole history of science: that absolute exactness does not exist, not even in logic and mathematics (as illustrated by the example of the still unfinished history of the calculus); that we should never try to be more exact than is necessary for the solution of the problem in hand [...]
Edward Elgar publishers, in association with the Institute of Economic Affairs, are about to launch a revised Second Edition of the must-read-book by my favourite economist Steven Kates: Free Market Economics. An Introduction to the General Reader.
Find my review of the first edition here.
The author gives us a little personal background information on the book's cover:
That is very likely the mill from which the plaque has been modelled. I wished to have a cover that showed a water mill made of clay because the two most important influences on me have been John Stuart Mill and the English economist, Henry Clay. My wife, bless her, found just such a combination on the net as the plaque was being sold just then. I therefore bought it, photographed it and now the clay representation of a mill is on the cover. I also like it because it is both nineteenth century and part of the productive apparatus of an economy. And it fits in with my understanding of Jean-Baptiste Say whose factory producing textiles was driven by a water mill. Finally, I just think it’s beautiful. I could not think of a better cover. My profound thanks to Ant for conjuring the origins up.
Make sure to read the article to which the image credit links.
Economic reinvention is at the heart of business cycle recovery and economic dynamism. In the depths of an economic downturn, entrepreneurs take advantage of cheap, used capital facilities and idle workers to launch them in new uses. The productive supply-side reinvention leaves behind the broken economic model and unveils a creative venture of greater social value.
The failure to appreciate this core economic dynamic lies behind the failures of big-government attempts to micromanage the economy. Discretionary Keynesian stimulus is built on the notion of propping up the existing firms, labor market relationships, and purchase patterns. In the aftermath of the Great Recession and Obama Administration stimulus efforts, new-firm creation dropped dramatically in the U.S. and the recovery proved modest at best. This is not a coincidence. Interfering with the core mechanisms for reinvention harms the capacity of the economy to transform itself for the future. [...]
Flexible markets, a ceaseless commitment to innovation, the capacity to organize and reorganize skills, risk capital, and technologies are the mechanisms of economic reinvention. Personal freedoms, religious freedoms, and small non-intrusive government are the mechanisms of social, cultural, and personal reinvention. Our policy future should be built on these principles, and not on top-down, one-size-fits-all regulatory and discretionary fiscal approaches.
The inequality scam
One of the most destructive popular myths is the idea that inequality is a severe problem and needs to be replaced by some state of enhanced equality - which always turns out to be inequality dysfunctionally rearranged according to the preferences of those with sufficient political clout. Why is the myth so popular? To like it you only need to regurgitate bromides that make you instantly likable and respected; to not like it you must think and look beyond appearances and face distrust and moral outrage.
Be that as it may, to some extent everyone reroutes the flow of information from a lecture like the below one by Richard Epstein through the filters of his personally preeminent themes. For me these were self ownership and first possession, which I happen to do some reading on at the moment.
A reflection on self-ownership
Let us concentrate on self-ownership, which is a concept I find awkward, maybe because one tends to associate ownership with inanimate objects or non-human creatures, and only odiously with humans (slavery). What self-ownership really means is a bundle of rights that legally entitle you to do certain things by applying your mind and body as you see fit. I have discussed the errors underlying the concept of absolute self-ownership in Elementary Errors of Anarchism (1/2) - explaining that self-ownership can have legal and moral meaning only as a relational concept, i.e. one reflecting and defining social relationships, for which reason it will always be constrained and conditional so as to allow for the necessary give and take between human beings. Absolute self-ownership (doing whatever one likes) and no self-ownership (being unable to ever apply ones mind and body as one sees fit) are two extremes that can never serve as modes of structuring social order. So self-ownership lies somewhere on a continuum between these extremes.
The attempt to qualify self-ownership by the so-called non-aggression principle fails. The principle posits never to violate a person's (bundle of rights called) self-ownership unless that person initiates aggression against you - which is why anarchists consider the state illegitimate, as it does initiate or threaten to initiate violence against people who have not initiated aggression against the state or anyone else. But this reasoning is remarkably naive, begging the all-important question: what is to count as illegitimate aggression? First, we have to settle what a person is allowed to do and what not; only then can we discern aggression from non-aggression.
The challenge then is to find a (more differentiated) system of command [a strong term admittedly, bear with me] generating rules that produce optimal outcomes from self-ownership.
It appears that now only three such systems of command remain to be considered:
The first two treat self-ownership as a residual outcome subject to communal or governmental approval, the second is based on a legal framework that seeks to leave as much discretion as possible to the individual regarding what she can or cannot do with the help of her mind and body.
(1) Communal determination of residual self-ownership - i.e. all human beings negotiating instantly and simultaneously with each other the content of self-ownership of each person, as in a Rawlsian world, where talents and other personal advantages that may be ascribed to luck are considered the property of all those not so advantaged, or the task is delegated to
(2) central determination of residual self-ownership - i.e. an authority endeavouring
(a) to approximate either the end specified under (1), or
(b) to impose a regime of rules that purport to serve an even better or morally more valid end, best known to and enforced by that authority.
Instead of self-ownership we could just as well use the term public ownership, as there will always be precepts within the bundle of rights that constitutes self-ownership which reflect public constraints on the individual - even anarchists admit this by conceding the non-aggression proviso. The term self-ownership, I surmise, is chosen to express strong support for a preponderance of decision making options delegated to the individual rather than to public discourse or public authorities.
The best system of command, the liberal would argue, occurs under a strong presumption in favour of
(3) determination of self-ownership under rules that represent a supra-jurisdiction, if you will, establishing in its turn a vast sub-jurisdiction for the individual to determine the content of self-ownership, i.e. the rule of law which enforces individually delegated decision making under common constraints, as opposed to the rule of man which is based on unconstrained decision-making by central authority.
This third approach to self-ownership amounts to an extensive privatisation of law. Rather than approval by the public or authorities, what is needed in order to act in a way covered and protected by the law is compliance with general rules that circumscribe broad areas of discretionary decision making by the individual. In fact, the modern state is the largest privatizer of law ever seen in history, enabling an unprecedented independence of decision making by individuals and organisations from the discretion of rulers - which is what we mean by civil society.
Under a law conceding extensive sub-jurisdiction to the individual, we can achieve more things and achieve them more readily and more peacefully.
Ultimately, the extent of (a) delegation empowering the individual and (b) its benign efficacy are a matter to be empirically established.
The whole belief in individual freedom is only as good as our ability to see where personal liberty ought to be fostered and where it must be enclosed.
Now, this is where Richard Epstein's lecture comes in instructively. He gives an outline of the reasons and conditions that make a preponderance of individual decision making power desirable, and indicates how liberty is strengthened by the very limits we put on her. He also explains how forcing equality damages the common weal brought about by self-ownership.
All in all, the lesson that I take away from thiinking about Epstein's belowlecture is that the key concepts of liberty such as self-ownership or private property must not be treated as conclusive dogmatic tenets but as testable scientific propositions, that in certain circumstances may prove to be incomplete and in need of complementation or contexually dependent suspension.
No such thing as market failure
Incidentally, the term "market failure" [time mark 07:15] is infelicitous, from a liberal point of view: there are things markets are not equipped to deal with, like making your neighbour fall in love with you. It would be just as inappropriate to say Georg fails because he cannot make your neighbour fall in love with you. Of course, Richard Epstein does understand this. Sometimes, however, one yields to linguistic convention. Sadly, "market failure" talk is a conventional habit that reflects the dominance of uneconomic and anti-economic thinking in our societies, and not only among "ordinary people" but very much among economists, too, who make careers by exploiting the market failure myth - like Joe Stiglitz.
George Reisman discusses Piketty's misconceived notion of capital and expounds his own view of the matter. The article is long, difficult, but a must-read, I am afraid. I couldn't say, I'm yet in a position to extemporise an account of Reisman's full argument. However, I am sure, trying to come to grips with it is a worthwhile exercise.
Over the course of several generations, the US government has taxed away trillions upon trillions of dollars that otherwise would have been saved and invested and thereby added to the capital of the American economy. Capital is the wealth owned by business firms, which is used for the purpose of earning sales revenues and profits. It consists of farms, mines, factories, machines, tools, materials, components, semi-manufactures, means of transportation, warehouses, stores, merchandize of all kinds, and more. It includes the funds used to pay wages to the employees of business firms, and the funds used to finance the purchase of expensive consumers’ goods, such as houses, automobiles, and major appliances. The trillions have been taken away through the progressive personal income tax, the corporate income tax, the estate tax, the capital gains tax, and the social security system and its taxes. In addition, the US government has diverted trillions of dollars of savings away from investment, and into its coffers, in order to finance its chronic budget deficits. And its policies of chronic inflation and credit expansion have caused the waste of a substantial portion of the greatly reduced supply of capital that remains.
Make sure to read the rest at the source.
Anyone looking for immediate as well as long-term reward in reading a book on economics that helps you to understand both the big picture and its vital components, read Free Market Economics. An Introduction to the General Reader by Steven Kates, my favouritre economist.
Chris Berg of Australia's Institute of Public Affairs discusses "Too Big To Fail", and comes to a different conclusion than I do. He argues that the problem cannot be solved because it is an inherent concern of politicians to protect certain companies or institutions from terminal collapse.
I would argue, that only politics can change the present state of affairs. However, if libertarians are unwilling to participate in politics, eschewing the competition for political dominance of the state, matters are indeed bound to linger on in their unsatisfactory condition.
"Too big to fail" describes financial institutions, mostly banks, which have become so large and so deeply integrated into the financial system that if we let them collapse they would take everything else with them.
If a corporation is too big to fail, then, it follows, taxpayers have to bail them out.
It's quite a problem. A market economy is supposed to be dynamic, full of entries and exits. Firms that add economic value thrive. Those that do not go broke.
So bailing out failed companies makes the economy less efficient. More gallingly, it redistributes money from the poor to the rich. And it creates "moral hazard" - a belief by management that ultimately they won't have to pay for their mistakes.
Moral hazard is a particularly severe problem for banks. Banks trade on risk. A bank's basic job is to transform short-term highly liquid deposits into long-term extremely illiquid loans. Too much of the latter will prevent redemption of the former.
Too big to fail encourages banks to make riskier loans. Why wouldn't they? They're not the ones bearing the cost of failure. Taxpayers are.
So it would be great to get rid of too-big-to-fail. Or at least limit it somehow. The Murray Inquiry has a few ideas: higher capital requirements for bigger institutions, for instance, or new procedures for when banks do fail.
But the question isn't what should we do about too-big-to-fail but what can we do about it.
And the answer to that question is almost certainly nothing.
Make sure to read the entire article.
Hat tip to Sinclair Davidson.
Posted by Georg Thomas on 07/22/2014 at 03:29 PM in Barack Obama, Books & Media, Congress, Current Affairs, Economics, Electoral Prospects, Georg Thomas, Media/Media Bias, National/International Affairs, Presidency, U.S., Presidential Race--Then and Later, Pure Politics, Social Philosophy, Socialism Gone Wild, Taxes and Spending | Permalink | Comments (0)
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