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!
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.
Bad news for the wailing libertarian, bad news for those whose belief in liberty makes them feel menaced and inundated everywhere by arbitrary power and injustice, decline and misery, evil and peril.
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."
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.
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.
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.
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.
Itself a great and wonderfully versatile source of reading, the Hit&Run blog has the below recommendation for your summer beach read:
English majors may fondly recall novelist Nathaniel Hawthorne for enthralling works like The Scarlet Letter and The House of the Seven Gables. But few seem to have read Hawthorne's brilliant 1852 satire The Blithedale Romance, which draws on his frustrating experiences with the short-lived utopian community called Brook Farm. [...]
The Blithedale Romance is by turns laugh-out-loud funny and darkly tragic, and its ending packs a wallop. In a world where so-called intentional businesses, foundations, and communities built around shared moral purposes are all the rage, the novel should be required reading. It reminds us that even the best intentions are rarely strong enough to overrule either the longings of the human heart or the basic laws of economics.
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.
Today marks the 100th anniversary of the outbreak of the "Great War" – World War I. This is how the catastrophe unfolded:
So then, we have the following remarkable sequence of events that led inexorably to the 'Great War' - a name that had been touted even before the coming of the conflict.
Austria-Hungary, unsatisfied with Serbia's response to her ultimatum (which in the event was almost entirely placatory: however her jibbing over a couple of minor clauses gave Austria-Hungary her sought-after cue) declared war on Serbia on 28 July 1914.
Russia, bound by treaty to Serbia, announced mobilisation of its vast army in her defence, a slow process that would take around six weeks to complete.
Germany, allied to Austria-Hungary by treaty, viewed the Russian mobilisation as an act of war against Austria-Hungary, and after scant warning declared war on Russia on 1 August.
France, bound by treaty to Russia, found itself at war against Germany and, by extension, on Austria-Hungary following a German declaration on 3 August. Germany was swift in invading neutral Belgium so as to reach Paris by the shortest possible route.
Britain, allied to France by a more loosely worded treaty which placed a "moral obligation" upon her to defend France, declared war against Germany on 4 August. Her reason for entering the conflict lay in another direction: she was obligated to defend neutral Belgium by the terms of a 75-year old treaty. With Germany's invasion of Belgium on 4 August, and the Belgian King's appeal to Britain for assistance, Britain committed herself to Belgium's defence later that day. Like France, she was by extension also at war with Austria-Hungary.
With Britain's entry into the war, her colonies and dominions abroad variously offered military and financial assistance, and included Australia, Canada, India, New Zealand and the Union of South Africa.
United States President Woodrow Wilson declared a U.S. policy of absolute neutrality, an official stance that would last until 1917 when Germany's policy of unrestricted submarine warfare - which seriously threatened America's commercial shipping (which was in any event almost entirely directed towards the Allies led by Britain and France) - forced the U.S. to finally enter the war on 6 April 1917.
Japan, honouring a military agreement with Britain, declared war on Germany on 23 August 1914. Two days later Austria-Hungary responded by declaring war on Japan.
Italy, although allied to both Germany and Austria-Hungary, was able to avoid entering the fray by citing a clause enabling it to evade its obligations to both. In short, Italy was committed to defend Germany and Austria-Hungary only in the event of a 'defensive' war; arguing that their actions were 'offensive' she declared instead a policy of neutrality. The following year, in May 1915, she finally joined the conflict by siding with the Allies against her two former allies.
Again, let me emphasise that participation in political competition, political engagement, and hence the work of politicians are of the essence in defending the system of liberty that underlies our civilization.
Just ponder these words of a politician:
…However, I leave the post with great misgivings about the power and irresponsibility of - to coin a phrase - the Green Blob. By this I mean the mutually supportive network of environmental pressure groups, renewable energy companies and some public officials who keep each other well supplied with lavish funds, scare stories and green tape. This tangled triangle of unelected busybodies claims to have the interests of the planet and the countryside at heart, but it is increasingly clear that it is focusing on the wrong issues and doing real harm while profiting handsomely. Local conservationists on the ground do wonderful work to protect and improve wild landscapes, as do farmers, rural businesses and ordinary people. They are a world away from the highly paid globe-trotters of the Green Blob who besieged me with their self-serving demands, many of which would have harmed the natural environment. I soon realised that the greens and their industrial and bureaucratic allies are used to getting things their own way. I received more death threats in a few months at Defra than I ever did as secretary of state for Northern Ireland…
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.